Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 63 349K
2: EX-9.1 Pulitzer Inc. Voting Trust Agreement 65 174K
3: EX-10.22 Contribution and Assumption Agreement 10 39K
4: EX-10.24 Letter Agreement B/W Pulitzer & Emily R. Pulitzer 3 15K
5: EX-10.25 Letter Agreement B/W Pulitzer & David E. Moore 3 15K
6: EX-10.26 Pulitzer Inc. Registration Rights Agreement 12 54K
7: EX-21 Subsidiaries of Registrant 1 7K
8: EX-24 Power of Attorney 2± 11K
9: EX-27 Financial Data Schedule 1 7K
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-14541
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PULITZER INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 43-1819711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
900 NORTH TUCKER BOULEVARD,
ST. LOUIS, MISSOURI 63101
(Address of principal executive offices)
(314) 340-8000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: Common Stock,
par value $.01 per share -- New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $349,129,521 as of the close of business on
March 22, 1999.
The number of shares of Common Stock, par value $.01 per share, outstanding
as of March 22, 1999 was 8,292,447.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Stockholders to be held on May 12, 1999
are incorporated by reference into Part III of this Annual Report.
The registrant's fiscal year ends on the last Sunday of December in each year.
For ease of presentation, the registrant has used December 31 as the fiscal
year-end in this Annual Report. Except as otherwise stated, the information in
this Annual Report on Form 10-K is as of December 31, 1998.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Pulitzer Inc. (the "Company") was capitalized on March 18, 1999 with
approximately $550 million in cash and all the other assets of Pulitzer
Publishing Company ("Pulitzer") (other than broadcasting assets) as a result of
the Spin-off (as defined below) and is operating the newspaper publishing and
related "new media" businesses formerly operated by Pulitzer. The Company was
organized as a corporation in 1998 and, prior to the Spin-off, was a
wholly-owned subsidiary of Pulitzer. Prior to the Transactions (as defined
below), Pulitzer was engaged in newspaper publishing and television and radio
broadcasting.
Pursuant to an Amended and Restated Agreement and Plan of Merger, dated as
of May 25, 1998 (the "Merger Agreement"), by and among Pulitzer, the Company and
Hearst-Argyle Television, Inc. ("Hearst-Argyle"), on March 18, 1999
Hearst-Argyle acquired, through the merger (the "Merger") of Pulitzer with and
into Hearst-Argyle, Pulitzer's television and radio broadcasting operations
(collectively, the "Broadcasting Business") in exchange for the issuance to
Pulitzer's stockholders of 37,096,774 shares of Hearst-Argyle's Series A common
stock. Pulitzer's Broadcasting Business consisted of nine network-affiliated
television stations and five radio stations owned and operated by Pulitzer
Broadcasting Company and its wholly-owned subsidiaries. Prior to the Merger,
Pulitzer's newspaper publishing and related new media businesses were
contributed to the Company in a tax-free "spin-off" to Pulitzer stockholders
(the "Spin-off"). The Merger and Spin-off are collectively referred to as the
"Transactions."
In connection with the Transactions, Pulitzer Inc. amended and restated its
Certificate of Incorporation to: (i) recapitalize its capital structure to
provide for common stock, par value $0.01 per share (the "Common Stock"), Class
B common stock, par value $0.01 per share (the "Class B Common Stock"), and
preferred stock, par value $0.01 per share (the "Preferred Stock" and together
with the Common Stock and Class B Common Stock, the "Pulitzer Inc. Stock"); and
(ii) provide for substantially the same stockholder voting rights and other
terms and provisions as formerly provided for in Pulitzer's Restated Certificate
of Incorporation, as amended. Prior to the Spin-off, the Company issued to
Pulitzer: (i) that number of shares of Common Stock equal to the number of
shares of Pulitzer common stock then outstanding; and (ii) that number of shares
of Class B Common Stock equal to the number of shares of Pulitzer Class B common
stock then outstanding. Pulitzer then distributed these shares of the Company's
Common Stock and Class B Common Stock to its stockholders in the Spin-off.
Pulitzer's historical basis in its newspaper publishing and related new
media assets and liabilities have been carried over to the Company. The
Transactions represent a reverse-spin transaction and, accordingly, the
Company's results of operations for periods prior to the consummation of the
Transactions will be identical to the historical results previously reported by
Pulitzer. The results of the Broadcasting Business owned by Pulitzer prior to
the Merger are reported as discontinued operations in the financial statements
included in Item 8 of this Annual Report on Form 10-K.
On March 18, 1999, the Board of Directors of the Company announced that it
had declared an initial quarterly dividend of $0.15 per share on the Common
Stock and the Class B Common Stock payable on May 3, 1999 to stockholders of
record on April 9, 1999. This initial quarterly dividend equals the most recent
quarterly dividend of Pulitzer. Future dividends will depend upon, among other
things, the Company's earnings, financial condition, cash flows, capital
requirements and other relevant considerations, including the limitations under
any credit agreement or other agreement to which the Company may become a party
in the future.
GENERAL
The Company is engaged in newspaper publishing and related "new media"
businesses. Its newspaper operations consist of two major metropolitan dailies:
the St. Louis Post-Dispatch (the "Post-Dispatch"), the only major daily
newspaper serving the St. Louis metropolitan area; and The Arizona Daily Star
(the "Star"), serving the Tucson metropolitan area. Each of these publications
also operates electronic news, information
2
ITEM 1. BUSINESS -- CONTINUED
and communication web sites on the Internet. In addition, the Company's Pulitzer
Community Newspaper group (the "PCN Group") includes 12 dailies which serve
smaller markets, primarily in the West and Midwest, as well as a number of
weekly and bi-weekly publications.
The Company is the successor to the company founded by the first Joseph
Pulitzer in 1878 to publish the original St. Louis Post-Dispatch. The Company
and its predecessor have operated continuously since 1878 under the direction of
the Pulitzer family. Michael E. Pulitzer, a grandson of the founder, currently
serves as Chairman of the Board of the Company.
The following table sets forth certain historical financial information
regarding the Company's operations for the periods and at the dates indicated.
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996(2) 1995 1994(3)
-------- -------- -------- -------- --------
(IN THOUSANDS)
Operating revenues -- net.............. $372,924 $357,969 $309,096 $269,388 $304,779
======== ======== ======== ======== ========
Operating income (loss):
Publishing operations................ $ 69,456 $ 66,994 $ 46,549 $ 37,895 $ 45,192
St. Louis Agency adjustment.......... (20,729) (19,450) (13,972) (12,502) (14,706)
General corporate expense............ (5,806) (6,007) (5,532) (4,666) (3,871)
-------- -------- -------- -------- --------
Total............................. $ 42,921 $ 41,537 $ 27,045 $ 20,727 $ 26,615
======== ======== ======== ======== ========
Depreciation and amortization.......... $ 14,054 $ 13,007 $ 8,660 $ 4,307 $ 6,128
======== ======== ======== ======== ========
Operating margins(1)................... 18.6% 18.7% 15.1% 14.1% 14.8%
Assets................................. $546,393 $464,311 $398,416 $333,641 $293,868
======== ======== ======== ======== ========
---------------
(1) Operating margins represent operating income compared to operating revenues.
Operating income used in margin calculations excludes the St. Louis Agency
adjustment (see "--Publishing--Agency Agreements.") and general corporate
expense (which are both recorded as operating expenses for financial
reporting purposes).
(2) In 1996, the amounts included a partial year of operations for Scripps
League Newspapers, Inc. (subsequently renamed Pulitzer Community Newspapers,
Inc.) following its acquisition on July 1, 1996.
(3) On December 22, 1994, the Company sold its Chicago publishing subsidiary;
the subsidiary's operating results are included in the amounts for 1994.
OPERATING STRATEGY
The Company's long-term operating strategy is to maximize each property's
growth and profitability through maintenance of editorial excellence, leadership
in locally-responsive news, and prudent control of costs. Management believes
that editorial excellence and leadership in locally-responsive news will, over
the long-term, allow the Company to maximize its market share in each of its
respective markets. Experienced local managers implement the Company's strategy
in each market, with centralized management providing oversight and guidance in
all areas of planning and operations.
The Company complements its internal growth strategies with a disciplined
and opportunistic acquisition strategy that is focused on acquiring publishing
properties that the Company believes are a good fit with its operating strategy,
possess attractive growth potential and meet the Company's objectives for
after-tax cash flow. Management believes that the Company's reputation,
financial position, cash flow and conservative capital structure, among other
factors, will assist the Company in pursuing acquisitions. The Company intends
to seek out acquisition opportunities, with particular emphasis on small-to
medium-sized markets.
3
ITEM 1. BUSINESS -- CONTINUED
The Company believes that cost controls are an important tool in the
management of media properties that are subject to significant fluctuations in
advertising volume. The Company believes that prudent control of costs will
permit it to respond quickly when positive operating conditions offer
opportunities to expand market share and profitability and, alternatively, when
deteriorating operating conditions require cost reductions to protect
profitability. The Company's disciplined budgeting process is one of the key
elements in controlling costs. The Company employs production technology in all
of its media operations in order to minimize production costs and produce an
attractive and timely news product for its readers.
The Company's operations are geographically diverse, placing the Company in
the Midwest, Southwest and Western regions of the United States. Due to the
close relationship between economic activity and advertising volume, the Company
believes that geographic diversity will provide the Company with valuable
protection from regional economic variances.
PUBLISHING
The Company intends to continue the tradition of reporting and editorial
excellence that has resulted in Pulitzer's receiving 17 Pulitzer Prizes* over
the years.
The Company publishes two major metropolitan daily newspapers, the
Post-Dispatch and the Star. Both daily newspapers have weekly total market
coverage sections that provide advertisers with market saturation, and both
offer alternative delivery systems that provide advertisers with either targeted
or total market coverage.
The PCN Group's 12 daily community newspapers have a combined average daily
circulation of approximately 159,000. The smaller markets served by these
newspapers and their locations provide the Company with further diversification
and participation in several higher growth areas of the western United States. A
strong focus on local reporting and editorial excellence is also considered the
key to long-term success in these markets.
The Company's revenues are derived primarily from advertising and
circulation, which averaged approximately 88 percent of total revenue over the
last five years. Advertising rates and rate structures and resulting revenues
vary among publications based, among other things, on circulation, type of
advertising, local market conditions and competition. The following table
provides a breakdown of the Company's revenues for the past five years.
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996(1) 1995 1994(2)
-------- -------- -------- -------- --------
(IN THOUSANDS)
Advertising:
Retail............................... $111,028 $107,916 $ 91,373 $ 78,362 $ 88,450
General.............................. 12,380 10,466 10,123 7,645 7,830
Classified........................... 117,313 109,435 90,443 75,925 84,738
-------- -------- -------- -------- --------
Total............................. 240,721 227,817 191,939 161,932 181,018
Circulation............................ 88,075 87,611 81,434 76,349 77,941
Other.................................. 44,128 42,541 35,723 31,107 45,820
-------- -------- -------- -------- --------
Total............................. $372,924 $357,969 $309,096 $269,388 $304,779
======== ======== ======== ======== ========
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(1) Revenue amounts for 1996 included a partial year of operations of Scripps
League Newspapers, Inc. (subsequently renamed Pulitzer Community Newspapers,
Inc.) following its acquisition on July 1, 1996.
---------------
* Pulitzer Prizes are awarded annually at Columbia University by the Pulitzer
Prize Board, an independent entity affiliated with the Columbia University
School of Journalism, founded by the first Joseph Pulitzer.
4
ITEM 1. BUSINESS -- CONTINUED
(2) On December 22, 1994, the Company sold its Chicago publishing subsidiary;
the subsidiary's operating revenues are included in the above amounts for
1994.
ST. LOUIS POST-DISPATCH
Founded in 1878 by the first Joseph Pulitzer, the Post-Dispatch has a long
history of reporting and editorial excellence and innovation in newspaper
publishing under the direction of the Pulitzer family. The Post-Dispatch is a
morning daily and Sunday newspaper serving primarily the greater St. Louis
metropolitan area. St. Louis is currently the 17th largest metropolitan
statistical area in the United States with a population of approximately 2.6
million.
Over the past several years, the Company has taken a number of steps
designed to strengthen the market position of the Post-Dispatch. In 1997, the
Post-Dispatch completed an extensive redesign intended to make the newspaper
more accessible and relevant to readers, and the Company is continuing to make
investments to enhance its news coverage capabilities and strengthen its
circulation and advertising operations.
The Post-Dispatch operates under an Agency Agreement, dated March 1, 1961,
as amended (the "St. Louis Agency Agreement"), between the Company and The
Herald Company, Inc. (the "Herald Company") pursuant to which the Company
performs all activities relating to the day-to-day operations of the newspaper,
but pursuant to which it must share one-half of the agency's operating income or
one-half of the agency's operating loss with the Herald Company (the "St. Louis
Agency"). The following table sets forth for the past five years certain
circulation and advertising information for the Post-Dispatch and operating
revenues for the St. Louis Agency, all of which are included in the Company's
consolidated financial statements. See "--Agency Agreements."
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Post-Dispatch:
Circulation(1):
Daily (including Saturday)........ 324,059 319,887 319,203 323,137 335,819
Sunday............................ 520,635 530,442 540,434 545,882 555,488
Advertising linage (in thousands of
inches):
Retail............................... 832 841 819 880 912
General.............................. 102 91 101 75 75
Classified........................... 1,004 1,003 1,007 1,057 1,039
-------- -------- -------- -------- --------
Total............................. 1,938 1,935 1,927 2,012 2,026
Part run(2).......................... 571 607 792 594 591
-------- -------- -------- -------- --------
Total inches...................... 2,509 2,542 2,719 2,606 2,617
======== ======== ======== ======== ========
Operating revenues (in thousands):
Advertising.......................... $156,309 $147,770 $137,054 $130,175 $125,304
Circulation.......................... 63,208 63,216 63,858 64,862 61,207
Other(3)............................. 23,423 23,269 21,530 22,871 22,110
-------- -------- -------- -------- --------
Total............................. $242,940 $234,255 $222,442 $217,908 $208,621
======== ======== ======== ======== ========
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(1) Amounts based on ABC Publisher's Statements for the twelve-month periods
ended September 30.
(2) Part run inches represent advertisements that are published in selected
copies (i.e., less than the full press run) of a daily edition of the
newspaper to specifically target certain geographic locations. The
advertisements typically appear in a special news and advertising section
designed specifically for the targeted geographic locations.
(3) Primarily revenues from preprinted inserts.
5
ITEM 1. BUSINESS -- CONTINUED
The Post-Dispatch has consistently been a leader in technological
innovation in the newspaper industry. The Company's commitment to the ongoing
enhancement of its operating systems has enabled the Post-Dispatch to offer a
continually improving product to both readers and advertisers while also
realizing substantial savings in labor cost. The Company believes the
Post-Dispatch has adequate facilities to sustain up to at least a 35 percent
increase in daily circulation without incurring significant capital
expenditures. The Post-Dispatch is in the process of upgrading and modifying its
systems to make them "Year-2000" compatible and expects to achieve full
compliance during 1999.
The Post-Dispatch is distributed primarily through independent home
delivery carriers and single copy dealers. Home delivery accounted for
approximately 75 percent of circulation for the daily Post-Dispatch and
approximately 55 percent of circulation for the Sunday edition as of December
31, 1998.
THE ARIZONA DAILY STAR
Founded in 1877, the Star is published in Tucson, Arizona, by the Company's
wholly-owned subsidiary, Star Publishing Company. The Star, a morning and Sunday
newspaper, and the Tucson Citizen (the "Citizen"), an afternoon newspaper owned
by Gannett Co., Inc. ("Gannett"), are southern Arizona's leading dailies. The
Star and the Citizen are published through an agency operation (the "Tucson
Agency") pursuant to an Agency Agreement, dated March 28, 1940, as amended and
restated (the "Tucson Agency Agreement"), and have a combined weekday
circulation of approximately 140,000. Tucson is currently the 69th largest
metropolitan statistical area in the United States with a population of
approximately 799,000.
The Tucson Agency operates through TNI Partners, Inc. ("TNI Partners") an
agency partnership which is owned half by the Company and half by Gannett. TNI
Partners is responsible for all aspects of the business of the two newspapers
other than editorial opinion and gathering and reporting news. Revenues and
expenses are generally shared equally by the Star and the Citizen. Unlike the
St. Louis Agency, the Company's consolidated financial statements include only
its share of the combined operating revenues and operating expenses of the two
newspapers. See "--Agency Agreements."
As a result of the Tucson Agency, the financial performance of the
Company's Star Publishing Company subsidiary is directly affected by the
operations and performance of both the Star and the Citizen.
6
ITEM 1. BUSINESS -- CONTINUED
The following table sets forth certain information concerning circulation
and combined advertising linage of the Star and the Citizen and the Company's
share of the operating revenues of the Star and the Citizen for the past five
years.
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Circulation(1):
Star daily........................... 96,142 96,101 96,198 97,134 98,050
Citizen daily........................ 42,444 44,009 46,062 47,240 48,272
Star Sunday.......................... 174,174 175,659 178,820 180,170 179,652
Combined advertising linage (in
thousands of inches):
Full run (all zones)
Retail............................ 1,581 1,587 1,499 1,565 1,565
General........................... 81 51 45 49 50
Classified........................ 1,852 1,713 1,684 1,682 1,608
-------- -------- -------- -------- --------
Total........................... 3,514 3,351 3,228 3,296 3,223
Part run(2)....................... 314 264 201 171 116
-------- -------- -------- -------- --------
Total inches.................... 3,828 3,615 3,429 3,467 3,339
======== ======== ======== ======== ========
Operating revenues (in thousands):
Advertising.......................... $ 36,344 $ 34,302 $ 31,765 $ 31,332 $ 28,459
Circulation.......................... 10,928 11,023 11,194 11,487 11,434
Other(3)............................. 7,909 7,712 7,139 6,703 5,833
-------- -------- -------- -------- --------
Total............................. $ 55,181 $ 53,037 $ 50,098 $ 49,522 $ 45,726
======== ======== ======== ======== ========
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(1) Amounts for 1998 are based on the internal records of the Company. Amounts
for 1995 based on ABC Publisher's Statement for the 53 week period ended
December 31. Amounts for 1997, 1996 and 1994 are based on ABC Publisher's
Statements for the 52 week periods ended December 31.
(2) Part run inches represent advertisements that are published in selected
copies (i.e., less than the full press run) of a daily edition of the
newspaper to specifically target certain geographic locations. The
advertisements typically appear in a special news and advertising section
designed specifically for the targeted geographic locations.
(3) Primarily revenues from preprinted inserts. Amounts also include revenues of
StarNet which began operations in 1995. See "--Related "New Media"
Operations."
In 1998, the Star's daily edition accounted for approximately 69 percent of
the combined daily circulation of the Tucson Agency publications. The Star's
daily and Sunday editions accounted for approximately 60 percent of the agency's
total full run advertising linage.
The Star and the Citizen are printed at TNI Partners' modern, computerized
facility equipped with two, eight-unit Metro offset presses. The writing,
editing and composing functions have been computerized, increasing efficiency
and reducing workforce requirements. TNI Partners has substantially completed
the process of upgrading and modifying its systems to make them "Year-2000"
compliant and expects to achieve full compliance during 1999.
PULITZER COMMUNITY NEWSPAPERS, INC.
On July 1, 1996, the Company acquired for approximately $216 million all
the stock of Scripps League Newspapers, Inc. (subsequently renamed Pulitzer
Community Newspapers, Inc.), a privately owned
7
ITEM 1. BUSINESS -- CONTINUED
publisher of community newspapers which served smaller markets, primarily in the
West and Midwest. The PCN Group now includes 12 daily newspapers which publish
morning or afternoon editions during the week and, generally, morning editions
on the weekend. Home delivery through independent contract carriers accounts for
the significant portion of each newspaper's circulation. With circulations
ranging from approximately 29,000 to 5,000, the 12 daily newspapers in the PCN
Group, ranked in order of daily circulation, are:
[Download Table]
The Daily Herald............................................ Provo, Utah
Santa Maria Times........................................... Santa Maria, California
The Napa Valley Register.................................... Napa, California
The World................................................... Coos Bay, Oregon
The Hanford Sentinel........................................ Hanford, California
The Arizona Daily Sun....................................... Flagstaff, Arizona
Troy Daily News............................................. Troy, Ohio
The Daily Chronicle......................................... DeKalb, Illinois
The Garden Island........................................... Lihue, Hawaii
The Daily Journal........................................... Park Hills, Missouri
The Daily News.............................................. Rhinelander, Wisconsin
The Ravalli Republic........................................ Hamilton, Montana
In addition, the PCN Group operates weekly newspapers in Petaluma,
California and Farmington and Fredericktown, Missouri and two weekly newspaper
groups in conjunction with its properties in Hanford and Santa Maria,
California.
The smaller markets served by the PCN Group are attractive because they
generally have desirable demographic characteristics and above-average growth
rates. Collectively, the PCN Group's markets exceed U.S. averages in such key
measures as annual household growth rate, average household income and average
household wealth. In addition, the average median home value in these markets is
nearly double the U.S. median average.
Further, these markets, which are often not served by major metropolitan
media, tend to be characterized by less media competition, which gives the
Company an opportunity to sustain and expand market shares. The following table
sets forth for the past three years the operating revenues for the PCN Group.
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996(1)
------- ------- -------
(IN THOUSANDS)
Operating revenues:
Advertising............................................... $48,068 $45,745 $23,120
Circulation............................................... 13,939 13,372 6,382
Other(2).................................................. 11,060 10,553 5,353
------- ------- -------
Total....................................................... $73,067 $69,670 $34,855
======= ======= =======
---------------
(1) Amounts include revenues for the six month period from July 1, 1996 to
December 31, 1996, subsequent to the Company's acquisition of the PCN Group
on July 1, 1996.
(2) Primarily revenues from preprinted inserts.
The Company has recently made a significant investment in new computer
systems which handle typesetting, editing and web publishing, as well as
financial and statistical reporting, for its PCN Group properties. The
standardized systems, which are "Year-2000" compatible, permit centralized
maintenance and support.
8
ITEM 1. BUSINESS -- CONTINUED
RELATED "NEW MEDIA" OPERATIONS
The Company has developed "new media" operations that are designed to
enhance, complement and add value to its traditional newspaper publishing
businesses by providing subscriber and advertiser services through various forms
of electronic distribution, including electronic publishing, voice services
delivered by phone, and electronic dissemination of information via the world
wide web/Internet. The Company's objective in these operations is to develop and
expand its ability to provide advertisers access to a large and attractive
online audience.
The Company is an Internet service provider as a central element of its
strategy in both St. Louis and Tucson. Full access to each newspaper's
"electronic publication" web site, as well as full Internet access, is provided
on a subscription basis. The Star's service, StarNet (www.azstarnet.com), began
operations in May, 1995 and had approximately 12,500 subscribers as of December
31, 1998. The service provided by the Post-Dispatch, POSTnet (www.postnet.com),
started in January 1996 and had approximately 16,400 subscribers as of December
31, 1998. The web sites provide access to current and archive material,
including news, editorials and classified advertising, from each newspaper, as
well as interactive Internet-specific enhancements such as message boards and
chat rooms. The Company is currently developing enhanced online services
featuring the three major classified advertising categories -- automotive, real
estate and help wanted.
In addition, the Company is a founding member of PAFET, a consortium of
four newspaper companies that is pursuing a program of research and investment
designed to help its members understand and participate in the opportunities and
challenges that the new media provide for newspaper properties.
ACQUISITION STRATEGY
One of the Company's primary growth strategies has been a disciplined and
opportunistic acquisition program. In evaluating acquisition opportunities, the
Company generally requires that candidates: (i) be in businesses related to the
Company's core publishing competencies; (ii) have strong cash flows; (iii)
reflect its preference for small- to medium-sized markets that possess good
growth or economic characteristics and, where possible, offer a clustering
opportunity with respect to present or future properties; (iv) provide an
opportunity for its disciplined management approach to add value; and (v) offer
an attractive return on investment.
AGENCY AGREEMENTS
Newspapers in approximately 14 cities operate under joint operating or
agency agreements. Agency agreements generally provide for newspapers servicing
the same market to share certain printing and other facilities and to pool
certain revenues and expenses in order to decrease aggregate expenses and
thereby allow the continuing operation of multiple newspapers serving the same
market. The Newspaper Preservation Act of 1970 permits joint operating
agreements between newspapers under certain circumstances without violation of
the Federal antitrust laws.
St. Louis Agency. An agency operation between the Company and the Herald
Company is conducted under the provisions of the St. Louis Agency Agreement. For
many years, the Post-Dispatch was the afternoon and Sunday newspaper serving St.
Louis, and the Globe-Democrat was the morning paper and also published a weekend
edition. Although separately owned, from 1961 through February 1984, the
publication of both the Post-Dispatch and the Globe-Democrat was governed by the
St. Louis Agency Agreement. From 1961 to 1979, the two newspapers controlled
their own news, editorial, advertising, circulation, accounting and promotion
departments and Pulitzer managed the production and printing of both newspapers.
In 1979, Pulitzer assumed full responsibility for advertising, circulation,
accounting and promotion for both newspapers. In February 1984, after a number
of years of unfavorable financial results at the St. Louis Agency, the
Globe-Democrat was sold by the Herald Company and the St. Louis Agency Agreement
was revised to eliminate any continuing relationship between the two newspapers
and to permit the repositioning of the daily Post-Dispatch as a morning
newspaper.
9
ITEM 1. BUSINESS -- CONTINUED
Following the renegotiation of the St. Louis Agency Agreement at the time
of the sale of the Globe-Democrat, the Herald Company retained the contractual
right to half the profits or losses (as defined) of the operations of the St.
Louis Agency, which from February 1984 forward consisted solely of the
publication of the Post-Dispatch. The St. Louis Agency Agreement generally
provides for the Herald Company to share half the cost of, and to share in a
portion of the proceeds from the sale of, capital assets used in the production
of the Post-Dispatch. Under the St. Louis Agency Agreement, Pulitzer supervises,
manages and performs all activities relating to the day-to-day publication of
the Post-Dispatch and is solely responsible for the news and editorial policies
of the newspaper.
The consolidated financial statements of the Company include all the
operating revenues and expenses of the St. Louis Agency. An agency adjustment is
provided as an operating expense which reflects that portion of the operating
income of the St. Louis Agency allocated to the Herald Company. Under the St.
Louis Agency Agreement, for fiscal 1998, 1997, 1996, 1995, and 1994, the Company
paid the Herald Company $20,729,000 $19,450,000, $13,972,000, $12,502,000, and
$14,706,000, respectively, for the Herald Company's share of the operating
income of the St. Louis Agency. As a result of such agency adjustment, the
Company is, and during the term of the St. Louis Agency will continue to be,
entitled to half the profits (as defined) from the operations of the St. Louis
Agency, the amount of which cannot be determined until the end of each fiscal
year.
The current term of the St. Louis Agency Agreement runs through December
31, 2034, following which either party may elect to renew the agreement for
successive periods of 30 years each.
Tucson Agency. The Tucson Agency Agreement has, since 1940, governed the
joint operations of the Star and Citizen. For financial reporting purposes, the
operations of the Tucson Agency are reflected in the Company's consolidated
financial statements differently from the operations of the St. Louis Agency.
The consolidated financial statements of the Company include only the Company's
share of the combined revenues, operating expenses and income of the Star and
Citizen. TNI Partners, as agent for the Company and Gannett, is responsible for
advertising and circulation, printing and delivery and collection of all
revenues of the Star and the Citizen. The Board of Directors of TNI Partners
presently consists of three directors chosen by the Company and three chosen by
Gannett. Budgetary, personnel and other non-news and editorial policy matters,
such as advertising and circulation policies and rates or prices, are determined
by the Board of Directors of TNI Partners. Each newspaper is responsible for its
own news and editorial content. Revenues and expenses are recorded by TNI
Partners, and the resulting profit is generally split 50-50 between the Company
and Gannett. Both partners have certain administrative costs which are borne
separately. As a result of the Tucson Agency, the Star and the Citizen benefit
from increases and can be adversely affected by decreases in each other's
circulation.
The Tucson Agency Agreement runs through June 1, 2015, and contains renewal
provisions for successive periods of 25 years each.
COMPETITION
The Company's publications compete for readership and advertising revenues
in varying degrees with other metropolitan, suburban, neighborhood and national
newspapers and other publications as well as with television, radio, cable,
Internet, online services and other new media technologies, direct mail, yellow
page directories, billboards and other news and advertising media. Competition
for advertising is based upon circulation levels, readership demographics, price
and advertiser results, while competition for circulation is generally based
upon the content, journalistic quality and price of the publication. In St.
Louis and its surrounding suburban communities, the Post-Dispatch's closest
print competition for circulation and advertising revenues includes paid
suburban daily newspapers as well as a chain of community newspapers and
shoppers. These community newspapers and shoppers target selected geographic
markets throughout the St. Louis metropolitan area.
10
ITEM 1. BUSINESS -- CONTINUED
Due to the agency relationship existing in Tucson, the Star and the Citizen
cannot be viewed as competitors for advertising or circulation revenues. The
Star and the Citizen compete primarily against other media and against
Phoenix-area and suburban, neighborhood and national newspapers and other
publications.
EMPLOYEE RELATIONS
The Post-Dispatch has contracts with substantially all of its production
unions, with expiration dates ranging from February 2002 through February 2010.
In addition, the Post-Dispatch has a multi-year contract with the St. Louis
Newspaper Guild which expires in January 2003. All of the Post-Dispatch labor
contracts contain no strike provisions.
TNI Partners' contract with Tucson Graphic Communications Union Local No.
212, covering certain pressroom employees, expired on December 31, 1998. While
negotiating a new contract, the union is operating under the provisions of the
old agreement. In each of the last several years, this contract has been
renegotiated for a one-year term.
RAW MATERIALS
The Company's newspaper operations are significantly impacted by the cost
of newsprint which accounts for approximately 20 percent of newspaper operating
expenses. During 1998, the Company used approximately 100,000 metric tons of
newsprint in its production process at a total cost of approximately $57.7
million. Consumption at the Post-Dispatch represented approximately 71,900
metric tons of the Company's total newsprint usage in 1998. In the last five
years, the Company's average cost per ton of newsprint has varied from a low of
$452 per metric ton in 1994 to a high of $675 per metric ton in 1995. During the
first quarter of 1999, the Company's average cost for newsprint has been in the
range of $550 to $575 per metric ton. A price decrease to approximately $530 per
metric ton was announced by some of the Company's newsprint suppliers on March
1, 1999 and is expected to benefit the Company in the second quarter of 1999.
The Post-Dispatch obtains the newsprint necessary for its operations from
five separate mills, three of which are located in Canada and two in the United
States. The Post-Dispatch has guaranteed the future supply of certain volume
levels through long-term agreements with two of its newsprint suppliers. The
Company believes that the absence of long-term agreements with the remaining
three newsprint suppliers will not affect the Company's ability to obtain
newsprint at competitive prices.
The Company acquired five newsprint contracts with the purchase of the PCN
Group in 1996. Combined with the tonnage purchased for the Post-Dispatch, the
Company has been able to leverage its pricing power to obtain the best price
available for the PCN Group, and to assure adequate supplies for all locations.
TNI Partners obtains the newsprint necessary for the Tucson Agency's
operations pursuant to an arrangement with Gannett, the owner of the Citizen.
Gannett purchases newsprint on behalf of TNI Partners under various contractual
arrangements and agreements. Newsprint is also purchased on the spot market.
EMPLOYEES
At March 22, 1999, the Company's publishing operations had approximately
2,300 full-time employees. In St. Louis, a majority of the approximately 1,200
full-time employees engaged in publishing are represented by unions. The Company
considers its relationship with its employees to be good.
ITEM 2. PROPERTIES
The corporate headquarters of the Company is located at 900 North Tucker
Boulevard, St. Louis, Missouri. The general character, location and approximate
size of the principal physical properties used by the Company for its newspaper
publishing and related new media businesses at March 22, 1999, are set forth
11
ITEM 2. PROPERTIES -- CONTINUED
below. Leases on the properties indicated as leased by the Company expire at
various dates through April 2007.
The Company believes that all of its owned and leased properties used in
connection with its publishing and new media operations are in good condition,
well maintained and adequate for its current and immediately foreseeable
operating needs.
[Download Table]
APPROXIMATE AREA IN
SQUARE FEET
--------------------
GENERAL CHARACTER OF PROPERTY OWNED LEASED
----------------------------- -------- --------
Printing plants, business and editorial offices, and
warehouse space located in:
St. Louis, Missouri(1).................................... 585,500 146,700
St. Louis, Missouri....................................... 5,600
Tucson, Arizona(2)........................................ 265,000 53,500
Washington, D.C........................................... 2,250
Provo, Utah............................................... 26,400 11,000
Santa Maria, California................................... 20,800 8,000
Napa, California.......................................... 21,000
Coos Bay, Oregon.......................................... 15,200
Hanford, California....................................... 16,500 3,500
Flagstaff, Arizona........................................ 23,200
Troy, Ohio................................................ 36,600 800
DeKalb, Illinois.......................................... 15,900
Park Hills, Missouri...................................... 9,100
Lihue, Hawaii............................................. 8,500 20,900
Hamilton, Montana......................................... 2,900 1,900
Rhinelander, Wisconsin.................................... 6,400
Petaluma, California...................................... 9,000
Farmington, Missouri...................................... 11,800
Fredericktown, Missouri................................... 1,800 1,200
---------------
(1) Property is subject to the provisions of the St. Louis Agency Agreement.
(2) The 265,000 square foot facility in Tucson, Arizona is used in the
production of the Star and the Citizen and is jointly owned with Gannett
pursuant to the Tucson Agency.
ITEM 3. LEGAL PROCEEDINGS
Subsequent to the Scripps League acquisition, Barry H. Scripps commenced an
action against Edward W. Scripps, Betty Knight Scripps and Pulitzer Community
Newspapers, Inc. Barry H. Scripps is the child of Edward W. Scripps and Betty
Knight Scripps. Barry Scripps, a former minority shareholder and executive
employee of Scripps League, alleges that the defendant Betty Knight Scripps
formed and implemented a wrongful scheme to transfer the ownership of Scripps
League outside the Scripps family in violation of the Scripps League corporate
mission by (i) inducing the defendant Edward W. Scripps to breach their
life-long promises to Barry Scripps to retain the ownership of Scripps League
Newspapers in the family and ultimately turn over its management and control to
Barry Scripps; (ii) engineering an unlawful freeze-out of Barry Scripps as a
minority shareholder from Scripps League and its subsidiaries; and (iii)
tortiously causing Scripps League to breach its promise to Barry Scripps of
permanent employment. The claims asserted are for breach of promise against
Edward W. Scripps and Betty Knight Scripps, breach of employment contract
against Pulitzer Community Newspapers, Inc. as successor to Scripps League,
interference with contract against Betty Knight Scripps, breach of fiduciary
duty against Betty Knight Scripps, and promissory estoppel against Edward W. and
Betty Knight Scripps. Barry Scripps seeks (i) money damages, together with
interest and
12
ITEM 3. LEGAL PROCEEDINGS -- CONTINUED
counsel fees in the amount to be proven at trial against Edward and Betty
Scripps; (ii) judgment rescinding each of the actions that Betty Knight Scripps
caused to be taken that allegedly froze out Barry Scripps as a stockholder in
Scripps League; and (iii) damages against Pulitzer Community Newspapers, Inc.
for loss of income plus interest and counsel fees in an amount to be proven at
trial for breach of the purported employment agreement. Edward W. Scripps and
Betty Knight Scripps, jointly and severally, agreed to indemnify the Company and
its affiliates, officers, directors, stockholders, employees, agents, successors
and assigns at all times after the closing for any and all losses arising from
Barry Scripps' claims. On March 26, 1998, the court issued an order granting
defendants' motion for summary judgment and dismissed all of Barry Scripps'
charges and claims against all defendants, and on April 29, 1998, a final
judgment was entered with respect to that order. Barry Scripps filed a notice of
appeal on May 21, 1998, and Barry Scripps' brief in connection with that appeal
was filed with the Appeals Court of the Commonwealth of Massachusetts on March
18, 1999.
The Company has been involved, from time to time, in various claims and
lawsuits incidental to the ordinary course of its business, including such
matters as libel, slander and defamation actions and complaints alleging
discrimination. While the results of litigation cannot be predicted, management
believes the ultimate outcome of such existing litigation will not have a
material adverse effect on the consolidated financial statements of the Company
and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
In May 1998, the Company issued 100 shares of Common Stock (the "Initial
Shares") to Pulitzer for $10,000. The Initial Shares were issued by the Company
without registration under the Securities Act of 1933, as amended, by reason of
the exemption from registration afforded by the provisions of Section 4(2)
thereof, as a transaction by the Company not involving a public offering. The
Initial Shares were cancelled by the Company at the time of the Spin-off.
Prior to the Spin-off, the Common Stock and Class B Common Stock did not
trade in a public market. Pulitzer's common stock was listed and traded on the
New York Stock Exchange, Inc. (the "NYSE") under the symbol "PTZ." The separate
existence of Pulitzer ceased on March 18, 1999 after the completion of the
Transactions. The shares of the Company's Common Stock are listed on the NYSE
and, as of March 19, 1999, trade under the symbol "PTZ". The shares of the
Company's Class B Common Stock do not trade in a public market.
At March 24, 1999, there were approximately 358 record holders of the
Common Stock and 30 record holders of the Class B Common Stock.
The following table sets forth the range of high and low sales prices for
Pulitzer common stock and dividends paid by Pulitzer for each quarterly period
in the past two years:
[Enlarge/Download Table]
HIGH LOW DIVIDEND(1)
------ ------ -----------
1998
First Quarter............................................... $87.44 $57.44 $0.15
Second Quarter.............................................. 92.13 77.75 0.15
Third Quarter............................................... 89.63 74.38 0.15
Fourth Quarter.............................................. 85.69 64.38 0.30
[Enlarge/Download Table]
HIGH LOW DIVIDEND(1)
------ ------ -----------
1997
First Quarter............................................... $50.63 $43.38 $0.13
Second Quarter.............................................. 54.25 40.88 0.13
Third Quarter............................................... 57.50 49.75 0.13
Fourth Quarter.............................................. 63.31 51.81 0.13
-------------------------
(1) In 1998, Pulitzer declared cash dividends of $0.75 per share of common stock
and Class B common stock including a cash dividend of $0.15 per share of
common stock and Class B common stock which was declared in December 1998
and paid to stockholders in January 1999. The dividend declared in December
1998 represented the acceleration of the Pulitzer dividend historically
declared in the first quarter of each fiscal year. As a result, Pulitzer did
not declare a quarterly dividend in the first quarter of 1999. In 1997,
Pulitzer declared and paid cash dividends of $0.52 per share of common stock
and Class B common stock.
On March 18, 1999, the Board of Directors of the Company announced that it
had declared an initial quarterly dividend of $0.15 per share on the Common
Stock and the Class B Common Stock payable on May 3, 1999 to stockholders of
record on April 9, 1999. This initial quarterly dividend equals the most recent
quarterly dividend of Pulitzer. Future dividends will depend upon, among other
things, the Company's earnings, financial condition, cash flows, capital
requirements and other relevant considerations, including the limitations under
any credit agreement or other agreement to which the Company may become a party
in the future.
14
ITEM 6. SELECTED FINANCIAL DATA
[Enlarge/Download Table]
FOR THE YEARS ENDED OR AS OF DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING RESULTS
Operating Revenues -- net.............. $372,924 $357,969 $309,096 $269,388 $304,779
-------- -------- -------- -------- --------
Operating Expenses:
Operations........................... 150,266 145,730 139,259 125,811 130,219
Selling, general and
administrative.................... 139,148 132,238 114,628 101,375 123,240
General corporate expense............ 5,806 6,007 5,532 4,666 3,871
St. Louis Agency adjustment.......... 20,729 19,450 13,972 12,502 14,706
Depreciation and amortization........ 14,054 13,007 8,660 4,307 6,128
-------- -------- -------- -------- --------
Total operating expenses.......... 330,003 316,432 282,051 248,661 278,164
-------- -------- -------- -------- --------
Operating income....................... 42,921 41,537 27,045 20,727 26,615
Interest income........................ 4,967 4,391 4,509 5,196 1,966
Gain on sale of publishing property.... 2,791
Net other expense...................... (817) (942) (5,870) (2,319) (1,461)
-------- -------- -------- -------- --------
Income from continuing operations
before provision for income taxes and
cumulative effect of change in
accounting principle................. 47,071 44,986 25,684 23,604 29,911
Provision for income taxes............. 20,055 19,227 10,892 9,149 11,204
-------- -------- -------- -------- --------
Income from continuing operations
before cumulative effect of change in
accounting principle................. 27,016 25,759 14,792 14,455 18,707
Discontinued operations, net of tax.... 49,268 40,269 42,708 34,867 21,203
Cumulative effect of change in
accounting principle, net of
applicable income taxes.............. (719)
-------- -------- -------- -------- --------
NET INCOME............................. $ 76,284 $ 66,028 $ 57,500 $ 49,322 $ 39,191
======== ======== ======== ======== ========
Basic Earnings Per Share of Stock:
Income from continuing operations
before cumulative effect of change
in accounting principle........... $ 1.21 $ 1.17 $ 0.67 $ 0.66 $ 0.86
Discontinued operations.............. 2.20 1.82 1.95 1.60 0.98
Cumulative effect of change in
accounting principle.............. (0.03)
-------- -------- -------- -------- --------
Basic earnings per share............. $ 3.41 $ 2.99 $ 2.62 $ 2.26 $ 1.81
======== ======== ======== ======== ========
Weighted average number of shares
outstanding....................... 22,381 22,110 21,926 21,800 21,655
======== ======== ======== ======== ========
15
ITEM 6. SELECTED FINANCIAL DATA -- CONTINUED
[Enlarge/Download Table]
FOR THE YEARS ENDED OR AS OF DECEMBER 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Diluted Earnings Per Share of Stock:
Income from continuing operations
before cumulative effect of change
in accounting principle........... $ 1.19 $ 1.15 $ 0.66 $ 0.65 $ 0.86
Discontinued operations.............. 2.16 1.79 1.92 1.58 0.97
Cumulative effect of change in
accounting principle.............. (0.03)
-------- -------- -------- -------- --------
Diluted earnings per share........... $ 3.35 $ 2.94 $ 2.58 $ 2.23 $ 1.80
======== ======== ======== ======== ========
Weighted average number of shares
outstanding....................... 22,753 22,452 22,273 22,097 21,822
======== ======== ======== ======== ========
Dividends per share of Common Stock and
Class B Common Stock................. $ 0.75 $ 0.52 $ 0.46 $ 0.41 $ 0.35
======== ======== ======== ======== ========
OTHER DATA
Cash and cash equivalents.............. $110,171 $ 62,749 $ 73,052 $100,380 $ 77,084
Working capital........................ 124,675 75,830 78,928 112,989 82,412
Total assets(1)........................ 546,393 464,311 398,416 333,641 293,868
Stockholders' equity................... 385,357 310,777 249,937 198,771 155,019
---------------
(1) On July 1, 1996, the Company acquired Scripps League Newspapers, Inc. for
approximately $216 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Statements in this Annual Report on Form 10-K concerning the Company's
business outlook or future economic performance, anticipated profitability,
revenues, expenses or other financial items, together with other statements that
are not historical facts, are "forward-looking statements" as that term is
defined under the Federal Securities Laws. Forward-looking statements are
subject to risks, uncertainties and other factors which could cause actual
results to differ materially from those stated in such statements. Such risks,
uncertainties and factors include, but are not limited to, industry cyclicality,
the seasonal nature of the business, changes in pricing or other actions by
competitors or suppliers, and general economic conditions, as well as other
risks detailed in the Company's filings with the Securities and Exchange
Commission including this Annual Report on Form 10-K.
GENERAL
The Company'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.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION -- CONTINUED
RECENT EVENTS
The Company was capitalized on March 18, 1999 with approximately $550
million in cash and all of the other assets of Pulitzer (other than broadcasting
assets) as a result of the Spin-off and is operating the newspaper publishing
and related "new media" businesses formerly operated by Pulitzer. The Company
was organized as a corporation in 1998 and, prior to the Spin-off, was a
wholly-owned subsidiary of Pulitzer. Prior to the Transactions, Pulitzer was
engaged in newspaper publishing and television and radio broadcasting.
Pursuant to the Merger Agreement, on March 18, 1999 Hearst-Argyle acquired
through the Merger Pulitzer's Broadcasting Business in exchange for the issuance
to Pulitzer's stockholders of 37,096,774 shares of Hearst-Argyle's Series A
common stock. Prior to the Merger, Pulitzer's newspaper publishing and related
new media businesses were contributed to the Company in the Spin-off.
Pulitzer's historical basis in its newspaper publishing and related new
media assets and liabilities have been carried over to the Company. The
Transactions represent a reverse-spin transaction and, accordingly, the
Company's results of operations for periods prior to the consummation of the
Transactions will be identical to the historical results previously reported by
Pulitzer. The results of the Broadcasting Business owned by Pulitzer prior to
the Merger are reported as discontinued operations in the financial statements
included in Item 8 of this Annual Report on Form 10-K.
1998 COMPARED WITH 1997
CONTINUING OPERATIONS -- PUBLISHING
Operating revenues for the year ended December 31, 1998 increased 4.2
percent to $372.9 million from $358 million in 1997. The increase primarily
reflected higher advertising revenues in 1998.
Newspaper advertising revenues increased $12.9 million, or 5.7 percent, in
1998. The current year increase resulted primarily from higher classified and
national advertising revenue at both the Post-Dispatch and the Star along with
higher retail advertising at the PCN Group. Full run advertising volume (linage
in inches) increased 0.1 percent at the Post-Dispatch and 4.9 percent at the
Star for 1998. In the fourth quarter of 1997 and first quarter of 1998, varying
rate increases were implemented at the Post-Dispatch, the Star and most of the
PCN Group properties.
Circulation revenues increased approximately $464,000, or 0.5 percent, in
1998. The increase reflected slight fluctuations in paid circulation and average
rates at the Post-Dispatch, Star and PCN Group in 1998 compared to the prior
year.
Other publishing revenues, increased $1.6 million, or 3.7 percent, in 1998,
resulting primarily from higher preprint revenue at the PCN Group and higher
revenues from Pulitzer's "new media" operations.
Operating expenses (including selling, general and administrative expenses,
general corporate expense and depreciation and amortization), excluding the St.
Louis Agency adjustment, increased to $309.3 million in 1998 from $297 million
in 1997, an increase of 4.1 percent. Major increases in comparable expenses were
overall personnel costs of $7.8 million, depreciation and amortization expense
of $1 million, and newsprint expenses of $960,000. Partially offsetting these
increases were declines in circulation distribution costs of $664,000 and
purchased supplement costs of $208,000.
Operating income for fiscal 1998 increased 3.3 percent to $42.9 million in
1998 from $41.5 million in 1997. The 1998 increase reflected the current year
revenue gains.
Net other expense (non-operating) decreased $125,000 in 1998 compared to
1997. The 1998 decrease reflected an increase in capital gains related to
limited partnership investments in 1998 as compared to the prior year. Partially
offsetting the increase in capital gains was a one-time charge of approximately
$900,000 related to the sale of the Haverhill Gazette on June 1, 1998.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION -- CONTINUED
The effective income tax rate for 1998 was 42.6 percent compared to 42.7%
in the prior year. The Company expects its effective tax rate related to
continuing operations for 1999 to be similar to Pulitzer's 1998 rate (exclusive
of any non-recurring items related to the Spin-off and Merger).
Income from continuing operations for the year ended December 31, 1998,
increased to $27 million, or $1.19 per diluted share, compared with $25.8
million, or $1.15 per diluted share, in the prior year. The 4.9 percent gain
reflected higher advertising revenues.
Fluctuations in the price of newsprint have significantly impacted the
results of Pulitzer's newspaper operations, where newsprint expense accounted
for approximately 20 percent of the publishing segment's total operating costs.
Pulitzer's average cost for newsprint was $582 per metric ton for the year ended
December 31, 1998, compared to $565 per metric ton in 1997. For the full year of
1998, Pulitzer's newsprint cost and metric tons consumed, after giving effect to
the St. Louis Agency adjustment, were approximately $37.3 million and 64,000
tons respectively. During the first quarter of 1999, Pulitzer and the Company's
average cost for newsprint has been in the range of $550 to $575 per metric ton.
A price decrease to approximately $530 per metric ton was announced by
Pulitzer's newsprint suppliers on March 1, 1999 and is expected to benefit the
Company in the second quarter of 1999.
DISCONTINUED OPERATIONS -- BROADCASTING
Broadcasting operating revenues for 1998 increased 5.6 percent to $239.7
million from $227 million in 1997. For the year, a 6.8 percent increase in local
spot advertising and a 5.7 percent increase in national spot advertising were
partially offset by a 1.5 percent decline in network compensation. The current
year comparisons reflect the impact of increased political advertising of $15.1
million.
Broadcasting operating expenses (including selling, general and
administrative expenses and depreciation and amortization) increased 0.4 percent
to $145.4 million in 1998 from $144.8 million in 1997. The slight increase was
attributable to higher overall personnel costs of $3.1 million and program
rights expense of $236,000 which were partially offset by decreases in
depreciation and amortization expense of $2.4 million and promotion expense of
$558,000.
Broadcasting operating income increased 14.8 percent to $94.4 million for
the year ended December 31, 1998 from $82.2 million in the prior year. The
increase in 1998 reflected the advertising revenue gains and a significant
decline in depreciation and amortization expense which partially offset other
expense increases.
Interest expense declined $2.6 million in 1998 compared to 1997 due to
lower average debt levels. Pulitzer's average debt level for 1998 decreased to
$180.1 million from $220 million in 1997 while Pulitzer's average interest rate
increased to 7.5 percent in 1998 from 7.3 percent in 1997. The lower average
debt levels and higher average interest rate in 1998 reflected the payment of
variable rate credit agreement borrowings during the last three quarters of 1997
and the scheduled repayment of $12.5 million of 6.76% fixed rate debt in the
third quarter of 1998.
The 1998 effective income tax rate related to discontinued operations was
39.1 percent, unchanged from the prior year.
Income from discontinued operations for the year ended December 31, 1998,
increased 22.3 percent to $49.3 million, or $2.16 per diluted share, compared
with $40.3 million, or $1.79 per diluted share, in 1997. The gain reflected a
combination of higher broadcasting operating income and a decline in interest
expense.
1997 COMPARED WITH 1996
CONTINUING OPERATIONS -- PUBLISHING
Operating revenues for the year ended December 31, 1997 increased 15.8
percent to $358 million from $309.1 million in 1996. The revenue comparison was
affected by the acquisition of Scripps League
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION -- CONTINUED
Newspapers, Inc. ("Scripps League" which was subsequently renamed Pulitzer
Community Newspapers, Inc.) on July 1, 1996. On a comparable basis, excluding
the PCN Group from the first six months of 1997, publishing revenues increased
4.9 percent. The comparable increase reflected higher advertising revenues in
1997.
Newspaper advertising revenues, on a comparable basis, increased $13.8
million, or 7.2 percent, in 1997. A significant portion of the current year
increase resulted from higher classified and retail advertising revenue at both
the Post-Dispatch and the Star. Full run advertising volume (linage in inches)
increased 0.4 percent at the Post-Dispatch and 3.8 percent at the Star for 1997.
Varying rate increases were implemented at the Post-Dispatch and most of the PCN
Group properties in the first quarter of 1997 while the Star increased
advertising rates in the fourth quarters of 1996 and 1997.
Circulation revenues, on a comparable basis, decreased approximately
$390,000, or 0.5 percent, in 1997. The decline reflected slight fluctuations in
paid circulation and average rates at the Post-Dispatch and the Star in 1997
compared to the prior year.
Other publishing revenues, on a comparable basis, increased $1.8 million,
or 5.1 percent, in 1997, resulting primarily from higher preprint revenue at the
Post-Dispatch.
Operating expenses (including selling, general and administrative expenses,
general corporate expense and depreciation and amortization), excluding the St.
Louis Agency adjustment, increased to $297 million in 1997 from $268.1 million
in 1996, an increase of 10.8 percent. Prior year operating expenses included
approximately $1.8 million of non-recurring costs related to the acquisition of
Scripps League. On a comparable basis, excluding the PCN Group from the first
six months of 1997 and the non-recurring costs from 1996, operating expenses
increased 0.9 percent. Major increases in comparable expenses were overall
personnel costs of $7.7 million, promotion expense of $1.6 million, and
circulation distribution expenses of $1.5 million. Partially offsetting these
increases were declines in newsprint expense of $6 million and purchased
supplement costs of $3.1 million.
Operating income for fiscal 1997 increased 53.6 percent to $41.5 million in
1997 from $27 million in 1996. On a comparable basis, excluding the PCN Group
from the first six months of 1997 and the non-recurring costs from 1996,
operating income increased 25.4 percent. The 1997 increase resulted primarily
from higher advertising revenues and lower newsprint costs.
Net other expense (non-operating) decreased $4.9 million in 1997 compared
to 1996. The decrease resulted from a 1996 non-recurring charge of approximately
$2.7 million for the write-down in value of a joint venture investment and lower
joint venture losses in 1997.
The effective income tax rate for 1997 increased to 42.7 percent, from 42.4
percent in the prior year, due to an additional $2.1 million of nondeductible
goodwill amortization related to the Scripps League acquisition.
For the year ended December 31, 1997, income from continuing operations was
$25.8 million, or $1.15 per diluted share, compared with $14.8 million, or $0.66
per diluted share, in the prior year. Comparability of the earnings results was
affected by the joint venture write-off in 1996 ($1.6 million after-tax) and
non-recurring costs related to the Scripps League acquisition ($1.1 million
after-tax) in 1996. Excluding the non-recurring items, 1996 income from
continuing operations would have been $17.6 million, or $0.78 per diluted share.
The 46.6 percent gain, on a comparable basis, reflected higher advertising
revenues and lower newsprint costs.
DISCONTINUED OPERATIONS -- BROADCASTING
Broadcasting operating revenues for 1997 increased 0.9 percent to $227
million from $225 million in 1996. For the year, a 1.6 percent increase in
national spot advertising and a 6.1 percent increase in network compensation
were partially offset by a 0.5 percent decline in local spot advertising. The
modest increases in 1997 advertising revenues reflected the impact of decreased
political advertising of approximately $12 million
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION -- CONTINUED
in 1997 compared to 1996. In addition, Pulitzer'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) increased 2.2 percent
to $144.8 million in 1997 from $141.7 million in 1996. The increase was
attributable to higher overall personnel costs of $3.2 million and higher
depreciation and amortization of $1 million. These increases were partially
offset by decreases in program rights costs of $493,000, promotion costs of
$333,000 and license fees of $246,000.
Broadcasting operating income in 1997 decreased 1.3 percent to $82.2
million from $83.2 million in the prior year. The 1997 decrease reflected the
modest overall revenue gain, resulting primarily from the effect of significant
political and Olympic related advertising revenue in the prior year.
Interest expense increased $2.5 million in 1997 compared to 1996 due to
higher average debt levels in 1997. Pulitzer's average debt level for 1997
increased to $220 million from $186.9 million in the prior year due to new
long-term borrowings. Pulitzer's average interest rate for 1997 was unchanged
from the prior year rate of 7.3 percent.
The 1997 effective income tax rate related to discontinued operations was
39.1 percent, unchanged from the prior year.
For the year ended December 31, 1997, income from discontinued operations
decreased 5.7 percent to $40.3 million, or $1.79 per diluted share, compared
with $42.7 million, or $1.92 per diluted share, in 1996. The decline reflected
the lower broadcasting advertising revenues and higher interest expense in 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, Pulitzer's outstanding debt, inclusive of the
short-term portion of long-term debt, declined to $172.7 million compared to
$185.4 million at December 31, 1997, reflecting a scheduled repayment of $12.5
million in the third quarter of 1998. As of both year-end dates, Pulitzer's
borrowings consisted primarily of fixed-rate senior notes with The Prudential
Insurance Company of America ("Prudential"). All of Pulitzer's long-term debt
balances were allocated to the Broadcasting Business and included in "Net Assets
of Broadcasting Business" in the statements of consolidated financial position
included in Item 8 of this Annual Report on Form 10-K.
On March 17, 1999, Pulitzer borrowed $700 million from Chase Manhattan Bank
pursuant to a short-term borrowing agreement (the "New Debt"). On March 18,
1999, Pulitzer used a portion of the proceeds from the New Debt to prepay its
existing long-term debt with Prudential, pay a related prepayment penalty of
approximately $17.2 million and pay other costs related to the Transactions. The
remaining cash proceeds of the New Debt were contributed to the Company in the
Spin-off and the New Debt was assumed by Hearst-Argyle at the time of the
Merger. As a result, the Company has no long-term debt outstanding as of March
18, 1999.
In January 1999, Pulitzer terminated its credit agreement with The First
National Bank of Chicago, as Agent, for a group of lenders, that provided for a
$50,000,000 variable rate revolving credit facility ("Credit Agreement"). The
Credit Agreement provided the option to repay any borrowings and terminate the
Credit Agreement, without penalty, prior to its scheduled maturity. Pulitzer had
no borrowings under the Credit Agreement subsequent to November 1997.
As of December 31, 1998, commitments for capital expenditures were
approximately $8.5 million, relating to normal capital equipment replacements at
publishing locations (including Year 2000 projects in-process). Capital
expenditures to be made by the Company in fiscal 1999 are estimated to be
approximately $11 million. In addition, as of December 31, 1998, Pulitzer had
capital contribution commitments of approximately $9 million related to a
limited partnership investment.
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION -- CONTINUED
At December 31, 1998, Pulitzer had working capital of $124.7 million and a
current ratio of 3.88 to 1. This compares to working capital of $75.8 million
and a current ratio of 2.96 to 1 at December 31, 1997.
As a result of the Transactions on March 18, 1999, the Company received
cash of approximately $550 million, a substantial portion of which was derived
from the net cash proceeds of the New Debt assumed by Hearst-Argyle. See --
"Spin-off and Merger". The Company anticipates funding future newspaper
acquisitions with a portion of the available cash as potential investment
opportunities are identified. In the interim, the Company expects to invest its
cash in a mixture of short to mid-term government and corporate debt
obligations.
The Company generally expects to generate sufficient cash from operations
to cover ordinary capital expenditures, working capital requirements and
dividend payments.
Spin-off and Merger
In connection with the Transactions, Pulitzer made several one-time
payments on March 18, 1999 which will be reflected in the Company's 1999 first
quarter financial statements. Pulitzer paid a prepayment penalty of $17.2
million related to the prepayment of the long-term borrowings with Prudential.
Pulitzer also paid the significant portion of approximately $35 million of
professional fees and expenses related to the Transactions. Pulitzer also
incurred expenses of approximately $48.5 million to satisfy management bonus
agreements and to cash-out all outstanding employee stock options at the date of
the Merger. As of March 18, 1999, approximately $4.8 million of the total $48.5
million of bonus and option expense was deferred and will be paid by the Company
at a future date. The Company expects to realize tax benefits related to the
long-term debt prepayment penalty, stock option cash-out payments and bonus
payments.
As a result of the Transactions, Pulitzer is required to recognize taxable
gain in an amount equal to the excess of the fair market value of the Pulitzer
Inc. Stock distributed to Pulitzer's stockholders in the Spin-off over
Pulitzer's adjusted tax basis in such Pulitzer Inc. Stock immediately prior to
the Spin-off (the "Spin-off Gain"). In the Merger Agreement, the Company agreed
to be liable and indemnify Hearst-Argyle and its subsidiaries, on an after-tax
basis, for any unpaid tax liabilities of Pulitzer attributable to tax periods
ending on or before the date of the Merger (other than any tax arising as a
result of the Merger not qualifying as a tax-free reorganization by reason of
any action or inaction on the part of Hearst-Argyle after the Merger), including
any tax liability of Pulitzer with respect to the realization of any Spin-off
Gain. Current preliminary estimates indicate that the Spin-off Gain realized by
Pulitzer would itself yield a tax liability not exceeding approximately $20
million (assuming the application of an effective 40% tax rate). Pulitzer's
actual tax liability with respect to the Spin-off Gain, however, will be
affected by several factors. These factors include the final determination for
tax purposes of the fair market value of the Pulitzer Inc. Stock distributed to
Pulitzer's stockholders in the Spin-off and Pulitzer's adjusted tax basis in
such Pulitzer Inc. Stock immediately prior to the Spin-off. In addition,
Pulitzer's actual tax liability with respect to the Spin-off Gain will be
impacted by Pulitzer's other items of taxable income or loss for the short tax
period ended March 18, 1999, including the one-time payments described in the
immediately preceding paragraph.
In connection with the September 1986 purchase of Pulitzer Class B common
stock from certain selling stockholders (the "1986 Selling Stockholders"),
Pulitzer agreed, under certain circumstances, to make an additional payment to
the 1986 Selling Stockholders in the event of a Gross-Up Transaction (as defined
herein). A "Gross-Up Transaction" was defined to mean, among other transactions,
(i) any merger, in any transaction or series of related transactions, of more
than 85 percent of the voting securities or equity of Pulitzer pursuant to which
holders of Pulitzer common stock receive securities other than Pulitzer common
stock and (ii) any recapitalization, dividend or distribution, or series of
related recapitalizations, dividends or distributions, in which holders of
Pulitzer common stock receive securities (other than Pulitzer common stock)
having a Fair Market Value (as defined herein) of not less than 33 1/3 percent
of the Fair Market Value of the shares of Pulitzer common stock immediately
prior to such transaction. The amount of the additional payment, if any, would
equal (x) the product of (i) the amount by which the Transaction Proceeds (as
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION -- CONTINUED
defined herein) exceeds the Imputed Value (as defined herein) multiplied by (ii)
the applicable percentage (i.e., 50 percent for the period from May 13, 1996
through May 12, 2001) multiplied by (iii) the number of shares of Pulitzer
common stock issuable upon conversion of the shares of Pulitzer Class B common
stock owned by the 1986 Selling Stockholders, adjusted for, among other things,
stock dividends and stock splits; less (y) the sum of any additional payments
previously received by the 1986 Selling Stockholders; provided, however, that in
the event of any recapitalization, dividend or distribution, the amount by which
the Transaction Proceeds exceeds the Imputed Value shall not exceed the amount
paid or distributed pursuant to such recapitalization, dividend or distribution
in respect of one share of Pulitzer common stock.
The term "Transaction Proceeds" was defined to mean, in the case of a
merger, the aggregate Fair Market Value (as defined herein) of the consideration
received pursuant thereto by the holder of one share of Pulitzer common stock,
and, in the case of a recapitalization, dividend or distribution, the aggregate
Fair Market Value of the amounts paid or distributed in respect of one share of
Pulitzer common stock plus the aggregate Fair Market Value of one share of
Pulitzer common stock following such transaction. The "Imputed Value" for one
share of Pulitzer common stock on a given date was defined to mean an amount
equal to $28.82 compounded annually from May 12, 1986 to such given date at the
rate of 15 percent per annum, the result of which is $154.19 at May 12, 1998.
There was no specific provision for adjustment of the $28.82 amount, but if it
were adjusted to reflect all stock dividends and stock splits of Pulitzer since
September 30, 1986, it would now equal $15.72, which if compounded annually from
May 12, 1986 at the rate of 15 percent per annum would now equal $84.11.
"Fair Market Value," in the case of any consideration other than cash
received in a Gross-Up Transaction, was defined to mean the fair market value
thereof as agreed to by a valuation firm selected by Pulitzer and a valuation
firm selected by the 1986 Selling Stockholders, or, if the two valuation firms
do not agree on the fair market value, the fair market value of such
consideration as determined by a third valuation firm chosen by the two
previously selected valuation firms. Any such agreement or determination shall
be final and binding on the parties.
As a result of the foregoing, the amount of additional payments, if any,
that may be payable by the Company with respect to the Merger and the
distribution of Pulitzer Inc. Stock in the Spin-off (the "Distribution") cannot
be determined at this time. However, if the Distribution were determined to be a
Gross-Up Transaction and if the Fair Market Value of the Transaction Proceeds
with respect to the Merger and the Distribution were determined to exceed the
Imputed Value, then any additional payments to the 1986 Selling Stockholders
would equal approximately $5.9 million for each $1.00 by which the Transaction
Proceeds exceed the Imputed Value. Accordingly, depending on the ultimate
resolution of the meaning and application of various provisions of the Gross-Up
Transaction agreements, including the determination of Imputed Value and Fair
Market Value of the Transaction Proceeds, in the opinion of the Company's
management, the amount of an additional payment, if any, could be material to
the consolidated financial statements of the Company. The additional payment, if
any, to the 1986 Selling Stockholders will be recorded directly to additional
paid-in capital as the payment of this contingent amount is a direct cost of the
disposal of Pulitzer's Broadcasting Business.
In the opinion of the Company's management, the amount of additional
payment, if any, is not likely to have a material adverse effect on the
Company's existing day-to-day newspaper publishing and related new media
properties. The amount of additional payment, if any, will reduce, however, the
amount of cash available to the Company to finance potential acquisition
opportunities in the future.
Pursuant to the Merger Agreement, the Company will indemnify Hearst-Argyle
against losses related to: (i) on an after tax basis, certain tax liabilities,
including (A) any transfer tax liability attributable to the Spin-off, (B) with
certain exceptions, any tax liability of Pulitzer or any subsidiary of Pulitzer
attributable to any tax period (or portion thereof) ending on or before the
closing date of the Merger, including tax liabilities resulting from the
Spin-off, and (C) any tax liability of the Company or any subsidiary of the
Company; (ii) liabilities and obligations under any employee benefit plans not
assumed by Hearst-Argyle; (iii) any
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION -- CONTINUED
liabilities for payments made pursuant to a Gross-Up Transaction; and (iv)
certain other matters as set forth in the Merger Agreement.
Information Systems and the Year 2000
The Year 2000 Issue is the result of information systems being designed
using two digits rather than four digits to define the applicable year. As the
Year 2000 approaches, such information systems may be unable to accurately
process certain date-based information.
In 1995, Pulitzer began reviewing and preparing its computer systems for
the Year 2000. Generally, at Pulitzer's newspaper publishing locations, the
following categories of computer systems were identified for assessment of Year
2000 compliance: pre-press systems, press systems, post-press systems, business
systems, network systems, desktop PC systems, telecommunication systems and
building systems. Significant sub-systems within these categories which were
identified as non-compliant during the assessment phase represented aging
hardware and software which would have required replacement in the near term
irrespective of the Year 2000 Issue. Consequently, Pulitzer and the Company
adopted a Year 2000 strategy which will replace the Company's significant
non-compliant systems with new compliant systems prior to December 31, 1999.
Pulitzer and the Company's strategy for achieving Year 2000 compliance was
developed using a five phase plan as follows: (1) educate and plan; (2) assess;
(3) replace and renovate; (4) validate/test; and (5) implement. The Company has
completed the planning and assessment phases and is in the process of replacing,
testing and implementing new compliant systems (with some systems already
implemented). The Company expects to have substantially all of the Year 2000
system changes implemented by March 31, 1999 at the Star, April 30, 1999 at the
Post-Dispatch and September 30, 1999 at the PCN Group properties.
The Company's current estimate of capital expenditures for new hardware and
software to address Year 2000 issues, as well as to replace aging systems, is
approximately $11.6 million. At December 31, 1998, approximately $2.4 million of
the total capital expenditure estimate remains to be spent through the projected
implementation dates. These amounts do not include either the internal staff
costs of the Company's information technology department or the cost of minor
Year 2000 system modifications, both of which are recorded as expense in the
period incurred. Year 2000 modification costs for minor system issues are not
expected to be significant. The Year 2000 related capital expenditures have been
considered in the Company's normal capital budgeting process and will be funded
through operating cash flows.
In addition to addressing internal system issues, the Company is
communicating with its major suppliers (including, but not limited, to
newsprint, ink, telecommunication services and utilities) and selected customers
to obtain assurance of their preparedness for the Year 2000. In general,
questionnaires are being used to identify potential Year 2000 issues at these
third parties which may impact the Company's business operations and require a
remedy. In a significant portion of the responses received to date, material
third parties have indicated that they are aware of the Year 2000 Issue and have
developed and are currently implementing their respective plans to address Year
2000 issues. Throughout 1999, the Company, where appropriate, will follow-up and
make more detailed inquiries of these material third parties as to the status of
their respective Year 2000 plans.
The Company believes that its plan for achieving Year 2000 compliance will
be fully implemented by September 30, 1999. However, as it is not possible to
anticipate all future outcomes, especially where third parties are involved, the
Company is in the process of developing Year 2000 contingency plans for mission
critical business and production systems.
In the event that either the Company or the Company's suppliers and
customers do not successfully implement their Year 2000 plans on a timely basis,
the Company could experience business losses. In the most extreme case,
publication of the Company's newspapers and on-line products, as well as the
sale of advertising,
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION -- CONTINUED
could be interrupted and/or delayed. The extent of losses under such a scenario
have not been estimated by the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary raw material used in the Company's newspaper publishing
operations is newsprint, representing approximately 20 percent of newspaper
operating expenses. Pulitzer consumed approximately 100,000 metric tons of
newsprint during 1998 at an average cost of approximately $582 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, Pulitzer's average cost per ton of newsprint has varied from a
low of $452 per metric ton in 1994 to a high of $675 per metric ton in 1995. The
Company attempts to obtain the best price available by combining newsprint
purchases for its different newspaper locations but does not enter into
derivative contracts in an attempt to reduce the impact of year to year price
fluctuations on its consolidated newsprint expense.
As a result of the Transactions on March 18, 1999, the Company had no
outstanding debt and cash from the Transactions of approximately $550 million.
Over time, the Company anticipates funding potential newspaper acquisitions with
a portion of the available cash. In the interim, the Company expects to invest
its cash in a mixture of short to mid-term government and corporate debt
obligations. These investments will expose the Company to market risks that may
cause the future value of such investments to be different than the original
cost of such investments at the time of purchase.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and its
subsidiaries are filed as part of this report. Supplementary unaudited data with
respect to the quarterly results of operations of the Company are set forth in
the Notes to Consolidated Financial Statements.
PULITZER INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS:
Independent Auditors' Report
Statements of Consolidated Income for each of the Three Years in the Period
Ended December 31, 1998
Statements of Consolidated Financial Position at December 31, 1998 and 1997
Statements of Consolidated Stockholders' Equity for each of the Three Years
in the Period Ended December 31, 1998
Statements of Consolidated Cash Flows for each of the Three Years in the
Period Ended December 31, 1998
Notes to Consolidated Financial Statements for the Three Years in the
Period Ended December 31, 1998
FINANCIAL STATEMENT SCHEDULE:
Independent Auditors' Report
Schedule II -- Valuation and Qualifying Accounts and Reserves
24
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
PULITZER INC.:
We have audited the accompanying statements of consolidated financial
position of Pulitzer Inc. and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Saint Louis, Missouri
March 18, 1999
25
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
OPERATING REVENUES -- NET:
Advertising............................................ $240,721 $227,817 $191,939
Circulation............................................ 88,075 87,611 81,434
Other.................................................. 44,128 42,541 35,723
-------- -------- --------
Total operating revenues............................ 372,924 357,969 309,096
-------- -------- --------
OPERATING EXPENSES OPERATIONS:
Operations............................................. 150,266 145,730 139,259
Selling, general and administrative.................... 139,148 132,238 114,628
General corporate expense.............................. 5,806 6,007 5,532
St. Louis Agency adjustment (Note 3)................... 20,729 19,450 13,972
Depreciation and amortization.......................... 14,054 13,007 8,660
-------- -------- --------
Total operating expenses............................ 330,003 316,432 282,051
-------- -------- --------
Operating income....................................... 42,921 41,537 27,045
Interest income........................................ 4,967 4,391 4,509
Net other expense...................................... (817) (942) (5,870)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE PROVISION FOR
INCOME TAXES........................................... 47,071 44,986 25,684
PROVISION FOR INCOME TAXES (Note 10)..................... 20,055 19,227 10,892
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS........................ 27,016 25,759 14,792
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX (Note
4)..................................................... 49,268 40,269 42,708
-------- -------- --------
NET INCOME............................................... $ 76,284 $ 66,028 $ 57,500
======== ======== ========
BASIC EARNINGS PER SHARE OF STOCK (Note 13):
Income from continuing operations...................... $ 1.21 $ 1.17 $ 0.67
Income from discontinued operations.................... 2.20 1.82 1.95
-------- -------- --------
Earnings per share..................................... $ 3.41 $ 2.99 $ 2.62
======== ======== ========
Weighted average number of shares outstanding.......... 22,381 22,110 21,926
======== ======== ========
DILUTED EARNINGS PER SHARE OF STOCK (Note 13):
Income from continuing operations...................... $ 1.19 $ 1.15 $ 0.66
Income from discontinued operations.................... 2.16 1.79 1.92
-------- -------- --------
Earnings per share..................................... $ 3.35 $ 2.94 $ 2.58
======== ======== ========
Weighted average number of shares outstanding.......... 22,753 22,452 22,273
======== ======== ========
See accompanying notes to consolidated financial statements.
26
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
[Download Table]
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $110,171 $ 62,749
Trade accounts receivable (less allowance for doubtful
accounts of $1,722 and $1,626)......................... 42,658 35,002
Inventory................................................. 2,587 5,265
Prepaid expenses and other................................ 12,564 11,587
-------- --------
Total current assets................................... 167,980 114,603
-------- --------
PROPERTIES:
Land...................................................... 5,536 5,991
Buildings................................................. 43,511 39,446
Machinery and equipment................................... 98,848 89,484
Construction in progress.................................. 8,442 4,042
-------- --------
Total.................................................. 156,337 138,963
Less accumulated depreciation............................... 72,186 64,166
-------- --------
Properties -- net...................................... 84,151 74,797
-------- --------
INTANGIBLE AND OTHER ASSETS:
Intangible assets -- net of amortization (Notes 5 and
6)..................................................... 197,154 185,124
Receivable from The Herald Company (Notes 3 and 9)........ 38,683 39,733
Net assets of Broadcasting Business (Note 4).............. 35,717 36,069
Other..................................................... 22,708 13,985
-------- --------
Total intangible and other assets...................... 294,262 274,911
-------- --------
TOTAL................................................ $546,393 $464,311
======== ========
(Continued)
27
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
[Download Table]
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable.................................... $ 12,253 $ 12,193
Salaries, wages and commissions........................... 10,911 10,523
Income taxes payable...................................... 2,832 3,070
Pension obligations (Note 8).............................. 184 348
Acquisition payable....................................... 9,707 9,804
Other..................................................... 7,418 2,835
-------- --------
Total current liabilities.............................. 43,305 38,773
-------- --------
PENSION OBLIGATIONS (Note 8)................................ 23,625 21,165
-------- --------
POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT OBLIGATIONS (Note
9)........................................................ 88,397 89,350
-------- --------
OTHER LONG-TERM LIABILITIES................................. 5,709 4,246
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 14)
STOCKHOLDERS' EQUITY (Note 11):
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 -- 7,242,974 in 1998 and 6,797,895
in 1997................................................ 72 68
Class B common stock, convertible, $.01 par value;
50,000,000 shares authorized; issued -- 27,019,880 in
1998 and 27,125,247 in 1997............................ 270 271
Additional paid-in capital................................ 151,574 135,542
Retained earnings......................................... 422,329 362,828
Accumulated other comprehensive income.................... (915)
-------- --------
Total.................................................. 573,330 498,709
Treasury stock -- at cost; 25,519 and 24,660 shares of
common stock in 1998 and 1997, respectively, and
11,700,850 shares of Class B common stock in 1998 and
1997...................................................... (187,973) (187,932)
-------- --------
Total stockholders' equity............................. 385,357 310,777
-------- --------
TOTAL................................................ $546,393 $464,311
======== ========
(Concluded)
See accompanying notes to consolidated financial statements.
28
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
[Enlarge/Download Table]
ACCUMULATED
CLASS B ADDITIONAL OTHER TOTAL
COMMON COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS INCOME STOCK EQUITY
------ ------- ---------- -------- ------------- --------- -------------
(IN THOUSANDS)
BALANCES AT JANUARY 1, 1996......... $47 $205 $125,539 $260,816 $ -- $(187,836) $198,771
Issuance of common stock grants... 76 76
Common stock options exercised.... 1 2,166 2,167
Conversion of Class B common stock
to common stock................. 1 (1)
Tax benefit from stock options
exercised....................... 1,476 1,476
Net income........................ 57,500 57,500
Cash dividends declared $0.46 per
share of common and Class B
common.......................... (10,033) (10,033)
Purchase of treasury stock........ (20) (20)
Four for three stock split in the
form of a 33.3 percent stock
dividend (Note 11).............. 16 68 (84)
--- ---- -------- -------- ----- --------- --------
BALANCES AT DECEMBER 31, 1996....... 65 272 129,173 308,283 (187,856) 249,937
Issuance of common stock grants... 70 70
Common stock options exercised.... 2 3,297 3,299
Conversion of Class B common stock
to common stock................. 1 (1)
Common stock issued under Employee
Stock Purchase Plan............. 322 322
Tax benefit from stock options
exercised....................... 2,680 2,680
Net income........................ 66,028 66,028
Cash dividends declared $0.52 per
share of common and Class B
common.......................... (11,483) (11,483)
Purchase of treasury stock........ (76) (76)
--- ---- -------- -------- ----- --------- --------
BALANCES AT DECEMBER 31, 1997....... 68 271 135,542 362,828 (187,932) 310,777
Issuance of common stock grants... 68 68
Common stock options exercised.... 3 7,182 7,185
Conversion of Class B common stock
to common stock................. 1 (1)
Common stock issued under Employee
Stock Purchase Plan............. 1,370 1,370
Tax benefit from stock options
exercised....................... 7,412 7,412
Comprehensive income:
Net income........................ 76,284 76,284
Other comprehensive income, net of
tax-minimum pension liability
adjustment...................... (915) (915)
--------
Comprehensive income.............. 75,369
--------
Cash dividends declared $0.75 per
share of common and Class B
common.......................... (16,783) (16,783)
Purchase of treasury stock........ (41) (41)
--- ---- -------- -------- ----- --------- --------
BALANCES AT DECEMBER 31, 1998....... $72 $270 $151,574 $422,329 $(915) $(187,973) $385,357
=== ==== ======== ======== ===== ========= ========
(Continued)
See accompanying notes to consolidated financial statements.
29
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
[Enlarge/Download Table]
CLASS B COMMON
COMMON STOCK STOCK
------------------ ------------------
HELD IN HELD IN
ISSUED TREASURY ISSUED TREASURY
------ -------- ------ --------
(IN THOUSANDS)
SHARE ACTIVITY:
BALANCES AT JANUARY 1, 1996.......................... 4,704 (17) 20,474 (8,776)
Issuance of common stock grants.................... 2
Common stock options exercised..................... 140
Conversion of Class B common stock to common
stock........................................... 84 (84)
Four for three split in the form of a 33.3 percent
stock dividend (Note 11)........................ 1,568 (6) 6,825 (2,925)
----- --- ------ -------
BALANCES AT DECEMBER 31, 1996........................ 6,498 (23) 27,215 (11,701)
Issuance of common stock grants.................... 1
Common stock options exercised..................... 202
Conversion of Class B common stock to common
stock........................................... 90 (90)
Common stock issued under Employee Stock Purchase
Plan............................................ 7
Purchase of treasury stock......................... (2)
----- --- ------ -------
BALANCES AT DECEMBER 31, 1997........................ 6,798 (25) 27,125 (11,701)
Issuance of common stock grants.................... 1
Common stock options exercised..................... 318
Conversion of Class B common stock to common
stock........................................... 105 (105)
Common stock issued under Employee Stock Purchase
Plan............................................ 21
Purchase of treasury stock......................... (1)
----- --- ------ -------
BALANCES AT DECEMBER 31, 1998........................ 7,243 (26) 27,020 (11,701)
===== === ====== =======
(Concluded)
See accompanying notes to consolidated financial statements.
30
PULITZER INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
CONTINUING OPERATIONS
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations......................... $ 27,016 $ 25,759 $ 14,792
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 7,959 7,175 5,623
Amortization........................................... 6,095 5,832 3,037
Deferred income taxes.................................. (1,400) (1,328) (1,100)
Changes in assets and liabilities (net of the effects
of the purchase and sale of properties) which
provided (used) cash:
Trade accounts receivable............................ (6,701) (2,692) (4,079)
Inventory............................................ 2,743 (289) 3,017
Other assets......................................... 4,642 (3,652) 9,839
Trade accounts payable and other liabilities......... 2,217 3,120 (2,490)
Income taxes payable................................. (238) 1,803 (239)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 42,333 35,728 28,400
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (15,269) (15,215) (6,433)
Purchase of publishing properties, net of cash acquired... (23,055) (203,306)
Investment in joint ventures and limited partnerships..... (3,900) (3,292) (1,233)
Sale of assets, net of cash sold.......................... 2,590 2,152
Decrease (increase) in notes receivable................... (1) 4,979 (4,904)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES....................... (39,635) (13,528) (213,724)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid............................................ (13,409) (11,483) (10,033)
Proceeds from exercise of stock options................... 7,185 3,299 2,167
Proceeds from employee stock purchase plan................ 1,370 322
Purchase of treasury stock................................ (41) (76) (20)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES....................... (4,895) (7,938) (7,886)
-------- -------- --------
CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS............ (2,197) 14,262 (193,210)
-------- -------- --------
31
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
DISCONTINUED OPERATIONS
Operating activities...................................... 73,254 57,757 62,379
Investing activities...................................... (10,930) (17,617) (16,292)
Financing activities...................................... (12,705) (64,705) 119,795
-------- -------- --------
CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS.......... 49,619 (24,565) 165,882
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 47,422 (10,303) (27,328)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 62,749 73,052 100,380
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $110,171 $ 62,749 $ 73,052
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest paid.......................................... $ 13,789 $ 17,469 $ 9,716
Interest received...................................... (4,898) (4,574) (4,872)
Income taxes........................................... 46,653 45,110 38,530
Income tax refunds..................................... (983) (1,108) (195)
See accompanying notes to consolidated financial statements.
32
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. BASIS OF PRESENTATION
Pulitzer Publishing Company ("Pulitzer"), Pulitzer Inc. and Hearst-Argyle
Television, Inc. ("Hearst-Argyle") entered into an Amended and Restated
Agreement and Plan of Merger, dated as of May 25, 1998 (the "Merger Agreement"),
pursuant to which Hearst-Argyle agreed to acquire Pulitzer's Broadcasting
Business (see Note 4) (the "Merger"). On March 17, 1999, the stockholders of
Pulitzer and Hearst-Argyle approved the Merger Agreement and related proposals
concerning the Spin-off (as defined below) and the Merger (the Spin-off and
Merger are collectively referred to as the "Transactions"). On March 18, 1999,
in connection with the Transactions, Pulitzer cancelled all shares of common and
Class B common stock held in treasury (see Note 11), prepaid its existing
long-term debt borrowings (see Note 7) and paid certain transaction costs using
a portion of the proceeds from $700 million of New Debt (as defined in Note 7).
Pulitzer then contributed the balance of the proceeds of the New Debt, together
with its newspaper publishing and related new media assets and liabilities, to
Pulitzer Inc. pursuant to a Contribution and Assumption Agreement (the
"Contribution").
Immediately following the Contribution, Pulitzer distributed to each holder
of Pulitzer common stock one fully-paid and nonassessable share of Pulitzer Inc.
common stock for each share of Pulitzer common stock held and to each holder of
Pulitzer Class B common stock one fully-paid and nonassessable share of Pulitzer
Inc. Class B common stock for each share of Pulitzer Class B common stock held
(the "Distribution"). As a result, the number of outstanding shares of each
class of stock of Pulitzer Inc. immediately after the Distribution was identical
to Pulitzer before the Distribution (see Note 11). The Contribution and
Distribution collectively constitute the "Spin-off."
Immediately following the Spin-off, Pulitzer, consisting of the
Broadcasting Business and the New Debt, was merged with and into Hearst-Argyle.
Pursuant to the Merger Agreement, Hearst-Argyle agreed to assume the New Debt in
connection with the Merger.
As a result of the Transactions, Pulitzer Inc. is the continuing
stockholder interest for financial reporting purposes. Results of Pulitzer
Inc.'s newspaper publishing and related new media businesses are reported as
continuing operations in the statements of consolidated income. The results of
the Broadcasting Business owned by Pulitzer prior to the Merger are reported as
discontinued operations (see Note 4). The defined term "Company" is used to
refer to Pulitzer Publishing Company prior to the Transactions and Pulitzer Inc.
subsequent to the Transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation -- The consolidated financial statements include the
accounts of the Company and its subsidiary companies, all of which are
wholly-owned. All significant intercompany transactions have been eliminated
from the consolidated financial statements.
Fiscal Year -- The Company's fiscal year ends on the last Sunday of the
calendar year. For ease of presentation, the Company has used December 31 as the
year-end.
Cash Equivalents -- For purposes of reporting cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Inventory Valuation -- Inventory, which consists primarily of newsprint, is
stated at the lower of cost (determined primarily using the last-in, first-out
method) or market. If the first-in, first-out cost method had been used,
inventory would have been $365,000 and $805,000 higher than reported at December
31, 1998 and 1997, respectively. Ink and other miscellaneous supplies are
expensed as purchased.
Program Rights -- Program rights represent license agreements for the right
to broadcast feature programs, program series and other syndicated programs over
limited license periods and are presented in the
33
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
consolidated balance sheet at the lower of unamortized cost or estimated net
realizable value. The total gross cost of each agreement is recorded as an asset
and liability when the license period begins and all of the following conditions
have been met: (a) the cost of the agreement is known or reasonably
determinable, (b) the program material has been accepted in accordance with the
conditions of the license agreement and (c) the program is available for
broadcast. Payments are made in installments as provided for in the license
agreements. Program rights expected to be amortized in the succeeding year and
payments due within one year are classified as current assets and current
liabilities, respectively.
Program rights covering periods of less than one year are amortized on a
straight-line basis as the programs are broadcast. Program rights covering
periods greater than one year are generally amortized as a package or series
over the license period using an accelerated method. When a determination is
made that either the unamortized cost of a program exceeds its estimated net
realizable value or a program will not be used prior to the expiration of the
license agreement, appropriate adjustments are made to charge unamortized
amounts to operations.
Property and Depreciation -- Property is recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful lives of the
individual assets. Buildings are depreciated over 20 to 50 years and all other
property over lives ranging from 3 to 15 years.
Intangible Assets -- Intangibles consisting of goodwill, FCC licenses and
network affiliations acquired subsequent to the effective date of Accounting
Principles Board Opinion No. 17 ("Opinion No. 17") are being amortized over
lives of either 15 or 40 years while all other intangible assets are being
amortized over lives ranging from 4 to 23 years. Intangibles in the amount of
$1,520,000, related to acquisitions prior to the effective date of Opinion No.
17, are not being amortized because, in the opinion of management, their value
is of undeterminable duration. In addition, the intangible asset relating to the
Company's additional minimum pension liability under Statement of Financial
Accounting Standards No. 87 is adjusted annually, as necessary, when a new
determination of the amount of the additional minimum pension liability is made.
Long-Lived Assets -- The Company considers the possible impairment of its
properties and intangible assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Management
periodically evaluates the recoverability of long-lived assets by reviewing the
current and projected undiscounted cash flows of each of its properties. If a
permanent impairment is deemed to exist, any write-down would be charged to
operations. For the periods presented, there has been no impairment.
Employee Benefit Plans -- The Company and its subsidiaries have several
noncontributory defined benefit pension plans covering a significant portion of
their employees. Benefits under the plans are generally based on salary and
years of service. The Company's liability and related expense for benefits under
the plans are recorded over the service period of active employees based upon
annual actuarial calculations. Plan funding strategies are influenced by tax
regulations. Plan assets consist primarily of government bonds and corporate
equity securities.
The Company provides retiree medical and life insurance benefits under
varying postretirement plans at several of its operating locations. In addition,
the Company provides postemployment disability benefits to certain former
employee groups prior to retirement. The significant portion of these benefits
results from plans at the St. Louis Post-Dispatch. The Company's liability and
related expense for benefits under the postretirement plans are recorded over
the service period of active employees based upon annual actuarial calculations.
The Company accrues postemployment disability benefits when it becomes probable
that such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid. All of the Company's
postretirement and postemployment benefits are funded on a pay-as-you-go basis.
34
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
Income Taxes -- Deferred tax assets and liabilities are recorded for the
expected future tax consequences of events that have been included in either the
financial statements or tax returns of the Company. Under this asset and
liability approach, deferred tax assets and liabilities are determined based on
temporary differences between the financial statement and tax bases of assets
and liabilities by applying enacted statutory tax rates applicable to future
years in which the differences are expected to reverse.
Stock-Based Compensation Plans -- Effective January 1, 1996, the Company
adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation. The new
standard defines a fair value method of accounting for stock options and similar
equity instruments. Under the fair value method, compensation cost is measured
at the grant date based on the fair value of the award and is recognized over
the service period, which is usually the vesting period. Pursuant to the new
standard, companies are encouraged, but not required, to adopt the fair value
method of accounting for employee stock-based transactions. Companies are also
permitted to continue to account for such transactions under Accounting
Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to
Employees, but are required to disclose pro forma net income and, if presented,
earnings per share as if the company had applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption, whereas the
disclosure requirements apply to all awards granted subsequent to December 31,
1994. The Company continues to recognize and measure compensation for its
restricted stock and stock option plans in accordance with the existing
provisions of APB 25.
Earnings Per Share of Stock -- Basic earnings per share of stock is
computed using the weighted average number of common and Class B common shares
outstanding during the applicable period. Diluted earnings per share of stock is
computed using the weighted average number of common and Class B common shares
outstanding and common stock equivalents. (see Note 13)
Recently Adopted Accounting Standards -- During 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income. This statement establishes standards for the reporting and display of
comprehensive income and its components. The consolidated financial statements
have been modified to include a calculation of comprehensive income in the
statement of stockholders' equity and to include an accumulated balance of other
comprehensive income in the equity section of the statement of consolidated
financial position. In 1998, an adjustment to the Company's minimum pension
liability reduced other comprehensive income by $915,000, net of a deferred tax
benefit of $588,000.
During 1998, the Company also adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information. This statement establishes standards for the way that public
businesses report information about operating segments and for related
disclosures about products, services, geographic areas and major customers.
Prior to the Transactions (see Note 1), the Company's operations included both a
publishing and broadcasting segment. As a result of the Transactions, the
broadcasting segment has been presented as a discontinued operation in the
consolidated financial statements with detail segment disclosures included in
Note 4. Segment disclosures for the Company's remaining operating segment,
publishing, are presented in the consolidated financial statements as continuing
operations. See additional publishing segment disclosures included in Note 16.
During 1998, the Company also adopted Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits. This statement revises employers' disclosures about
pensions and other postretirement benefit plans but does not change the
measurement or recognition of those plans. (see Notes 8 and 9)
Derivative Instruments and Hedging Activities -- In June 1998, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments
35
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
and Hedging Activities ("SFAS 133"). SFAS 133 provides comprehensive and
consistent standards for the recognition and measurement of derivative and
hedging activities. It requires that derivatives be recorded on the statement of
consolidated financial position at fair value and establishes criteria for
hedges of changes in the fair value of assets, liabilities or firm commitments,
hedges of variable cash flows of forecasted transactions, and hedges of foreign
currency exposures of net investments in foreign operations. Changes in the fair
value of derivatives that do not meet the criteria for hedges would be
recognized in the statement of consolidated income. This statement will be
effective for the Company beginning January 1, 2000. The Company is evaluating
SFAS No. 133 and has not determined its effect on the consolidated financial
statements.
Use of Management Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires that
management make certain estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. The reported amounts of
revenues and expenses during the reporting period may also be affected by the
estimates and assumptions management is required to make. Actual results may
differ from those estimates.
Reclassifications -- Certain reclassifications have been made to the 1997
and 1996 consolidated financial statements to conform with the 1998
presentation.
3. AGENCY AGREEMENTS
An agency operation between the Company and The Herald Company is conducted
under the provisions of an Agency Agreement, dated March 1, 1961, as amended.
For many years, the St. Louis Post-Dispatch (published by the Company) was the
afternoon and Sunday newspaper serving St. Louis, and the Globe-Democrat
(formerly published by The Herald Company) was the morning paper and also
published a weekend edition. Although separately owned, from 1961 through
February 1984, the publication of both the Post-Dispatch and the Globe-Democrat
was governed by the St. Louis Agency Agreement. From 1961 to 1979, the two
newspapers controlled their own news, editorial, advertising, circulation,
accounting and promotion departments and Pulitzer managed the production and
printing of both newspapers. In 1979, Pulitzer assumed full responsibility for
advertising, circulation, accounting and promotion for both newspapers. In
February 1984, after a number of years of unfavorable financial results at the
St. Louis Agency, the Globe-Democrat was sold by The Herald Company and the St.
Louis Agency Agreement was revised to eliminate any continuing relationship
between the two newspapers and to permit the repositioning of the daily Post-
Dispatch as a morning newspaper. Following the renegotiation of the St. Louis
Agency Agreement at the time of the sale of the Globe-Democrat, The Herald
Company retained the contractual right to receive one-half the profits (as
defined), and the obligation to share one-half the losses (as defined), of the
operations of the St. Louis Agency, which from February 1984 forward consisted
solely of the publication of the Post-Dispatch. The St. Louis Agency Agreement
also provides for The Herald Company to share one-half the cost of, and to share
in a portion of the proceeds from the sale of, capital assets used in the
production of the Post-Dispatch. Under the St. Louis Agency Agreement, Pulitzer
supervises, manages and performs all activities relating to the day-to-day
publication of the Post-Dispatch and is solely responsible for the news and
editorial policies of the newspaper. The consolidated financial statements of
the Company include all the operating revenues and expenses of the St. Louis
Agency relating to the Post-Dispatch.
In Tucson, Arizona, a separate partnership, TNI Partners, ("TNI"), acting
as agent for the Star (a newspaper owned by the Company) and the Citizen (a
newspaper owned by Gannett Co., Inc.), is responsible for printing, delivery,
advertising, and circulation of the Star and the Citizen. TNI collects all of
the receipts and income relating to the Star and the Citizen and pays all
operating expenses incident to the partnership's operations and publication of
the newspapers. Each newspaper is solely responsible for its own news and
36
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
editorial content. Net income or net loss of TNI is generally allocated equally
to the Star and the Citizen. The Company's consolidated financial statements
include its share of TNI's revenues and expenses.
4. DISCONTINUED OPERATIONS
Discontinued operations represent the Broadcasting Business of the Company
prior to the Merger, as follows: Pulitzer Broadcasting Company, a wholly-owned
subsidiary of the Company, and its wholly-owned subsidiaries, WESH Television,
Inc.; WDSU Television, Inc.; and KCCI Television, Inc. (collectively
"Broadcasting" or "Broadcasting Business"), that own and operate nine
network-affiliated television stations and five radio stations. Broadcasting's
television properties represent market sizes from Omaha, Nebraska to Orlando,
Florida and include operations in the northeast, southeast, midwest and
southwest. Three of Broadcasting's five radio stations, representing the
significant portion of its radio operations, are located in Phoenix, Arizona.
The assets and liabilities of the Broadcasting Business are classified in
the statements of consolidated financial position as "Net Assets of Broadcasting
Business" and consist of the following:
[Download Table]
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
ASSETS
Trade accounts receivable (less allowance for doubtful
accounts of $597
and $785)................................................. $47,244 $50,880
Program rights.............................................. 8,425 7,866
Other current assets........................................ 1,115 1,260
------- -------
Total current assets...................................... 56,784 60,006
------- -------
Properties:
Land...................................................... 10,254 10,163
Buildings................................................. 48,508 44,769
Machinery and equipment................................... 138,351 135,629
Construction in progress.................................. 2,177 3,282
------- -------
Total.................................................. 199,290 193,843
Less accumulated depreciation............................. 115,776 106,826
------- -------
Properties -- net...................................... 83,514 87,017
------- -------
Intangible assets:
FCC Licenses and network affiliations..................... 114,403 114,376
Goodwill.................................................. 6,960 6,960
Other intangibles......................................... 42,491 42,491
------- -------
Total.................................................. 163,854 163,827
Less accumulated amortization............................. 69,037 61,334
------- -------
Intangible assets -- net............................... 94,817 102,493
------- -------
Other assets................................................ 8,348 7,172
------- -------
Total assets of Broadcasting Business..................... 243,463 256,688
------- -------
37
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
[Download Table]
DECEMBER 31,
------------------
1998 1997
------- -------
(IN THOUSANDS)
LIABILITIES
Trade accounts payable and accrued expenses................. 9,255 10,226
Current portion of long-term debt (Note 7).................. 12,705 12,705
Interest payable............................................ 5,301 5,677
Program contracts payable................................... 7,955 7,907
------- -------
Total current liabilities................................. 35,216 36,515
Long-term debt (Note 7)..................................... 160,000 172,705
Pension obligations (Note 8)................................ 6,951 5,544
Postretirement benefit obligations (Note 9)................. 2,762 2,556
Other long term liabilities................................. 2,817 3,299
Commitments and contingencies (Note 14)
------- -------
Total liabilities of Broadcasting Business................ 207,746 220,619
------- -------
NET ASSETS OF BROADCASTING BUSINESS......................... $35,717 $36,069
======= =======
The net income from operations of the Broadcasting Business, without
allocation of any general corporate expense, is reflected in the statements of
consolidated income as "Income from Discontinued Operations" and is summarized
as follows:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
Operating revenues....................................... $239,746 $227,016 $224,992
Operating income......................................... 94,362 82,180 83,246
Interest expense......................................... 13,503 16,081 13,592
Income before provision for income taxes................. 80,859 66,109 70,088
Provision for income taxes (Note 10)..................... 31,591 25,830 27,380
Net income............................................... 49,268 40,269 42,708
Depreciation and amortization............................ 21,048 23,447 22,442
5. ACQUISITION OF PROPERTIES
During 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) included 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 (the balance of which has been
allocated to Broadcasting and is included in "Net Assets of Broadcasting
Business" in the statements of consolidated financial position (see Note 4)) and
cash of approximately $81 million (approximately $69 million net of cash
acquired). The results of the operations of Scripps League for the period
subsequent to June 30, 1996 are included in the Company's statements of
consolidated income.
The following supplemental unaudited pro forma information shows the
results of operations of the Company for the year ended December 31, 1996
adjusted for the acquisition of Scripps League, assuming such transaction and
the related debt financing had been consummated at the beginning of 1996. The
38
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
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 1996 or of future results of operations.
[Download Table]
YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
IN THOUSANDS, EXCEPT PER SHARE DATA: -----------
Operating revenues -- net................................... $341,923
Operating income............................................ 30,414
Income from continuing operations........................... 14,771
Income from discontinued operations......................... 39,748
Net income.................................................. 54,519
Basic earnings per share of stock:
Continuing operations..................................... $ 0.67
Discontinued operations................................... 1.82
--------
Basic earnings per share.................................. $ 2.49
========
Diluted earnings per share of stock:
Continuing operations..................................... $ 0.66
Discontinued operations................................... 1.79
--------
Diluted earnings per share................................ $ 2.45
========
In October 1998, the Company acquired, in a purchase transaction, the Troy
Daily News, Inc., the publisher of a daily afternoon and Sunday morning
newspaper located in Troy, Ohio, for approximately $20.7 million, including
approximately $700,000 of working capital. The pro forma impact of the
acquisition on the Company's results of operations was not material.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
[Download Table]
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
Goodwill.................................................... $186,051 $171,395
Intangible pension asset (Note 8)........................... 2,006 2,320
Other....................................................... 24,995 21,433
-------- --------
Total.................................................. 213,052 195,438
Less accumulated amortization............................... 15,898 10,024
-------- --------
Total intangible assets -- net.............................. $197,154 $185,124
======== ========
7. FINANCING ARRANGEMENTS
On March 17, 1999, Pulitzer borrowed $700,000,000 from Chase Manhattan Bank
pursuant to a short-term borrowing agreement (the "New Debt"). On March 18,
1999, Pulitzer used a portion of the proceeds from the New Debt to repay its
existing long-term debt with The Prudential Insurance Company of America and to
pay a related prepayment penalty of approximately $17,207,000. The New Debt was
subsequently assumed by Hearst-Argyle at the time of the Merger. Accordingly,
all long-term debt balances and related
39
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
interest expense of Pulitzer prior to the Transactions have been allocated to
the Broadcasting Business and reported as discontinued operations in the
consolidated financial statements (see Notes 1 and 4).
Long-term debt included in "Net Assets of Broadcasting Business" in the
statements of consolidated financial position consists of the following:
[Download Table]
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
Credit Agreement............................................ $ -- $ --
Senior notes maturing in substantially equal annual
installments:
6.76% due 1998-2001....................................... 37,500 50,000
7.22% due 2002-2005....................................... 50,000 50,000
7.86% due 2001-2008....................................... 85,000 85,000
Other....................................................... 205 410
-------- --------
Total.................................................. 172,705 185,410
Less current portion........................................ 12,705 12,705
-------- --------
Total long-term debt........................................ $160,000 $172,705
======== ========
At December 31, 1998 and 1997, the Company's fixed-rate senior note
borrowings were with The Prudential Insurance Company of America.
In January 1999, the Company terminated its credit agreement with The First
National Bank of Chicago, as Agent, for a group of lenders, that provided for a
$50,000,000 variable rate revolving credit facility ("Credit Agreement"). The
Credit Agreement provided the option to repay any borrowings and terminate the
Credit Agreement, without penalty, prior to its scheduled maturity. The Company
had no borrowings under the Credit Agreement subsequent to November 1997.
8. PENSION PLANS
The pension cost components for the Company's pension plans are as follows:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
Service cost for benefits earned during the year............ $ 4,439 $ 3,966 $ 4,154
Interest cost on projected benefit obligation............... 8,864 8,470 8,185
Expected return on plan assets.............................. (9,891) (8,670) (7,880)
Amortization of prior service credits....................... (23) (23) (23)
Amortization of transition obligation....................... 221 221 221
Amortization of (gain)/loss................................. (376) (312) 8
------- ------- -------
Net periodic pension cost................................... $ 3,234 $ 3,652 $ 4,665
======= ======= =======
The Company's net periodic pension cost components disclosed above include
amounts related to Broadcasting employees who participated in two of the
Company's defined benefit pension plans prior to the Merger. No detailed
information regarding the components of net periodic pension cost and funded
status of the plans, as it relates to Broadcasting, is available. However, a
portion of the Company's pension cost has been allocated to Broadcasting's
active employees and included in "Discontinued Operations" in the
40
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
statements of consolidated income. Pension cost allocated to Broadcasting, based
on payroll costs, amounted to approximately $1,408,000, $1,395,000 and
$1,474,000 for 1998, 1997 and 1996, respectively. Pursuant to the Merger
Agreement, Hearst-Argyle will assume the ongoing liabilities related to
Broadcasting active employees as of the date of the Merger. Future pension costs
for the Company and Broadcasting after the Spin-off are likely to be different
when compared to allocated historical amounts.
[Download Table]
DECEMBER 31,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
Change in benefit obligation:
Benefit obligation at beginning of year..................... $128,690 $118,414
Service cost................................................ 4,439 3,966
Interest cost............................................... 8,864 8,470
Actuarial loss.............................................. 8,638 3,900
Benefits paid............................................... (6,512) (6,060)
-------- --------
Benefit obligation at end of year........................... 144,119 128,690
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year.............. 119,354 104,046
Actual return on plan assets................................ 15,196 18,788
Employer contributions...................................... 768 2,580
Benefits paid............................................... (6,512) (6,060)
-------- --------
Fair value of plan assets at end of year.................... 128,806 119,354
-------- --------
Funded status -- benefit obligation in excess of plan
assets.................................................... 15,313 9,336
Unrecognized net actuarial gain............................. 12,847 16,507
Unrecognized prior service credits.......................... 209 211
Unrecognized transition obligation.......................... (1,118) (1,317)
-------- --------
Net amount recognized....................................... $ 27,251 $ 24,737
-------- --------
Amounts recognized in the statement of financial position
consist of:
Accrued benefit liability................................. $ 30,760 $ 27,057
Intangible asset.......................................... (2,006) (2,320)
Accumulated other comprehensive income.................... (1,503)
-------- --------
Net amount recognized....................................... $ 27,251 $ 24,737
======== ========
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $16,882,000, $15,409,000 and $0, respectively, at
December 31, 1998 and $14,391,000, $12,898,000 and $0, respectively, at December
31, 1997.
The portion of the Company's accrued benefit liability allocated to
Broadcasting employees and included in "Net Assets of Broadcasting Business" in
the statements of consolidated financial position amounted to $6,951,000 and
$5,544,000 as of December 31, 1998 and 1997, respectively. Pursuant to the
Merger Agreement, actuarial calculations will be performed to separate
Broadcasting active employees from the pension plans as of the date of the
Merger. The pension obligations computed for Broadcasting active employees and
pension plan assets attributable to those obligations will then be transferred
to a Hearst-Argyle
41
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
pension plan. Future pension obligations for Broadcasting, computed in separate
actuarial calculations, are likely to be different when compared to the
allocated historical amounts.
The projected benefit obligation was determined using assumed discount
rates of 6.5%, 7% and 7.5% at December 31, 1998, 1997 and 1996, respectively.
The expected long-term rate of return on plan assets was 8.5% for 1998, 1997 and
1996. For those plans that pay benefits based on final compensation levels, the
actuarial assumptions for overall annual rate of increase in future salary
levels was 4% for 1998, 4.5% for 1997, and 5% for 1996.
Certain of the Company's employees participate in multi-employer retirement
plans sponsored by their respective unions. Amounts charged to operations,
representing the Company's required contributions to these plans in 1998, 1997
and 1996, were approximately $920,000, $844,000, and $781,000, respectively.
The Company also sponsors an employee savings plan under Section 401(k) of
the Internal Revenue Code. This plan covers substantially all employees.
Contributions by the Company amounted to approximately $2,121,000, $1,899,000
and $1,668,000 for 1998, 1997 and 1996, respectively. Contributions related only
to Broadcasting employees amounted to approximately $704,000, $698,000 and
$626,000 for 1998, 1997 and 1996, respectively. Pursuant to the Merger
Agreement, Broadcasting employee savings plan balances as of the date of the
Merger will be transferred to an employee savings plan sponsored by
Hearst-Argyle.
9. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The net periodic postretirement benefit cost components related to
continuing operations are as follows:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
Service cost for benefits earned during the year............ $ 933 $ 839 $ 808
Interest cost on projected benefit obligation............... 4,384 4,493 4,532
Amortization of prior service credits....................... (1,293) (1,293) (1,290)
Amortization of net gain.................................... (1,008) (1,171) (946)
------- ------- -------
Net periodic postretirement benefit cost.................... $ 3,016 $ 2,868 $ 3,104
======= ======= =======
The postretirement benefit cost for broadcasting active employees is
included in "Discontinued Operations" in the statements of consolidated income.
The net periodic postretirement benefit cost components related to broadcasting
discontinued operations are as follows:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
Service cost for benefits earned during the year............ $141 $131 $118
Interest cost on projected benefit obligation............... 134 139 151
Amortization of prior service credits....................... (38) (39) (42)
Amortization of net gain.................................... (30) (35) (30)
---- ---- ----
Net periodic postretirement benefit cost.................... $207 $196 $197
==== ==== ====
42
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
The Company funds its postretirement benefit obligation on a pay-as-you-go
basis and, for 1998, 1997 and 1996, made payments of $3,958,000 $4,118,000 and
$4,207,000, respectively.
[Enlarge/Download Table]
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS
DECEMBER 31, DECEMBER 31,
---------------------- ----------------
1998 1997 1998 1997
--------- --------- ------ ------
(IN THOUSANDS) (IN THOUSANDS)
Benefit obligation at beginning of year............. $64,807 $60,535 $1,916 $1,858
Service cost........................................ 933 839 141 131
Interest cost....................................... 4,384 4,493 134 139
Actuarial (gain)/loss............................... 3,836 3,058 191 (212)
Benefits paid....................................... (3,958) (4,118)
------- ------- ------ ------
Benefit obligation at end of year................... 70,002 64,807 2,382 1,916
------- ------- ------ ------
Plan assets at beginning and end of year............ -- -- -- --
------- ------- ------ ------
Funded status....................................... 70,002 64,807 2,382 1,916
Unrecognized net actuarial gain..................... 10,132 15,159 154 192
Unrecognized prior service credits.................. 5,101 6,210 226 448
------- ------- ------ ------
Net amount recognized -- accrued benefit cost....... $85,235 $86,176 $2,762 $2,556
======= ======= ====== ======
The preceding amounts related to continuing operations for the December 31,
1998 and 1997 accrued postretirement benefit cost and the 1998, 1997 and 1996
net periodic postretirement benefit expense have not been reduced for The Herald
Company's share of the respective amounts. However, pursuant to the St. Louis
Agency Agreement (see Note 3), the Company has recorded a receivable for The
Herald Company's share of the accrued postretirement benefit cost as of December
31, 1998 and 1997.
The preceding accrued postretirement benefit cost related to Broadcasting
active employees is included in "Net Assets of Broadcasting Business" in the
statements of consolidated financial position. Pursuant to the Merger Agreement,
Hearst-Argyle will assume the postretirement obligation and costs related to
Broadcasting active employees as of the date of the Merger.
For 1998 measurement purposes, health care cost trend rates of 9%, 8% and
6% were assumed for indemnity plans, PPO plans and HMO plans, respectively. The
rates assumed for 1997 were 9%, 7% and 5%, respectively. For 1998, these rates
were assumed to decrease gradually to 4.5% through the year 2010 and remain at
that level thereafter. For 1997, the rates were assumed to decrease gradually to
5% through the year 2010 and remain at that level thereafter.
Administrative costs related to indemnity plans were assumed to increase at
a constant annual rate of 6% for 1998, 1997 and 1996. The assumed discount rate
used in estimating the accumulated postretirement benefit obligation was 6.5%,
7% and 7.5% for 1998, 1997 and 1996, respectively.
43
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the postretirement health care plans. A
one-percentage-point change in assumed health care cost trend rates would have
the following effects on reported amounts for 1998:
[Enlarge/Download Table]
DISCONTINUED
CONTINUING OPERATIONS OPERATIONS
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
---------------------- --------------------
INCREASE DECREASE INCREASE DECREASE
--------- --------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Effect on total of service and interest cost
components........................................ $ 699 $ (568) $ 36 $ (29)
Effect on postretirement benefit obligation......... 8,176 (6,790) 278 (231)
The Company's postemployment benefit obligation, representing certain
disability benefits at the St. Louis Post-Dispatch, was $3,162,000 and
$3,174,000 at December 31, 1998 and 1997, respectively.
10. INCOME TAXES
Provisions for income taxes (benefits) consist of the following:
[Enlarge/Download Table]
CONTINUING OPERATIONS DISCONTINUED OPERATIONS
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
--------------------------- ---------------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
(IN THOUSANDS) (IN THOUSANDS)
Current:
Federal.......................... $19,152 $17,841 $ 9,363 $26,736 $23,548 $24,102
State and local.................. 2,303 2,714 1,628 5,119 4,321 4,122
Deferred:
Federal.......................... (1,250) (1,155) (84) (222) (1,723) (721)
State and local.................. (150) (173) (15) (42) (316) (123)
------- ------- ------- ------- ------- -------
Total......................... $20,055 $19,227 $10,892 $31,591 $25,830 $27,380
======= ======= ======= ======= ======= =======
Factors causing effective tax rates to differ from the statutory Federal
income tax rate were:
[Enlarge/Download Table]
CONTINUING OPERATIONS DISCONTINUED OPERATIONS
YEARS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
----------------------- -----------------------
1998 1997 1996 1998 1997 1996
----- ----- ----- ----- ----- -----
Statutory rate.................................. 35% 35% 35% 35% 35% 35%
Amortization of intangibles..................... 3 3 3
State and local income taxes, net of U.S.
Federal income tax benefit.................... 3 4 4 4 4 4
Other-net....................................... 2 1
-- -- -- -- -- --
Total...................................... 43% 43% 42% 39% 39% 39%
== == == == == ==
44
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
In connection with the acquisition of Troy Daily News, Inc. in October
1998, the Company recorded a net deferred tax liability of approximately
$1,690,000. The Company's deferred tax assets and liabilities, net, which have
been included in other assets in the statements of consolidated financial
position, consisted of the following:
[Enlarge/Download Table]
CONTINUING OPERATIONS DISCONTINUED OPERATIONS
DECEMBER 31, DECEMBER 31,
---------------------- ------------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
Deferred tax assets:
Pensions and employee benefits.................. $ 9,364 $ 8,135 $ 3,650 $ 3,268
Postretirement benefit costs.................... 18,062 18,248 1,080 1,000
Other........................................... 1,087 1,007 554
------- ------- ------- -------
Total........................................ 28,513 27,390 $ 4,730 4,822
------- ------- ------- -------
Deferred tax liabilities:
Depreciation.................................... 14,007 13,265 5,760 6,318
Amortization.................................... 7,371 7,288 335 477
Other........................................... 344
------- ------- ------- -------
Total........................................ 21,378 20,553 6,439 6,795
------- ------- ------- -------
Net deferred tax asset (liability)................ $ 7,135 $ 6,837 $(1,709) $(1,973)
======= ======= ======= =======
The Company had no valuation allowance for deferred tax assets as of
December 31, 1998, 1997 and 1996.
11. STOCKHOLDERS' EQUITY
The statements of consolidated financial position and statements of
stockholders' equity present the capital structure, of Pulitzer Publishing
Company, which existed as of the dates of the financial statements presented
herein without modification for any changes resulting from the Transactions. On
March 18, 1999, prior to the Spin-off, all common and Class B common shares of
treasury stock held by the Company were canceled. The cancellation of the
treasury shares reduced the number of shares of common and Class B common stock
issued but did not change the number of shares of common and Class B common
stock outstanding. In addition, the cancellation did not change the total
balance of stockholders' equity. However, as a result of the Contribution (See
Note 1), the total balance of stockholders' equity increased to approximately
$800 million on March 18, 1999. Immediately following the Spin-off, on March 18,
1999, the number of shares of common and Class B common stock of Pulitzer Inc.
outstanding was identical to the number of shares of common and Class B common
stock of Pulitzer Publishing Company outstanding immediately prior to the
Spin-off. The authorized number of shares of Pulitzer Inc. preferred, common and
Class B common stock is 100,000,000, 100,000,000 and 100,000,000, respectively.
Each share of the Company's common stock is entitled to one vote and each
share of Class B common stock is entitled to ten votes on all matters.
Subsequent to the Spin-off, on March 18, 1999, holders of outstanding shares of
Pulitzer Inc. Class B common stock representing approximately 89.5% of the
combined voting power of the Company deposited their shares in a voting trust
(the "Voting Trust"). Each share of the Company's Class B common stock is
convertible into one share of the Company's common stock at the holder's option,
subject to the limitations imposed by the Voting Trust on the shares of Class B
common stock deposited thereunder. The Voting Trust permits the conversion of
the Class B common stock deposited in the
45
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
Voting Trust into common stock in connection with certain permitted events,
including, without limitation, sales which are exempt from the registration
requirements of the Securities Act of 1933, as amended, sales which meet the
volume and manner of sale requirements of Rule 144 promulgated thereunder and
sales which are made pursuant to registered public offerings.
The trustees generally hold all voting rights with respect to the shares of
Class B common stock subject to the Voting Trust; however, in connection with
certain matters, including any proposal for a merger, consolidation,
recapitalization or dissolution of the Company or disposition of all or
substantially all its assets, the calling of a special meeting of stockholders
and the removal of directors, the Trustees may not vote the shares deposited in
the Voting Trust except in accordance with written instructions from the holders
of the Voting Trust Certificates. The Voting Trust may be terminated with the
written consent of holders of two-thirds in interest of all outstanding Voting
Trust Certificates. Unless extended or terminated by the parties thereto, the
Voting Trust expires on March 18, 2009.
In 1998, Pulitzer declared cash dividends of $0.75 per share of common
stock and Class B common stock including a cash dividend of $0.15 per share of
common stock and Class B common stock which was declared in December 1998 and
paid to stockholders in January 1999. The dividend declared in December
represented the acceleration of Pulitzer's dividend historically declared in the
first quarter of each fiscal year. As a result, a quarterly dividend will not be
declared with respect to the first quarter of 1999.
12. COMMON STOCK PLANS
Since 1986, the Company maintained employee stock option plans ("Option
Plans") that provided for the issuance of incentive stock options to key
employees and outside directors. On March 18, 1999, immediately prior to the
Transactions and pursuant to the Merger Agreement, the Company redeemed all
outstanding stock options, whether or not vested, and terminated the Option
Plans. The Company redeemed the stock options at a cash-out value ("Cash-Out
Value") equal to the difference between the option exercise price and the
average daily closing price of Company common stock for the 10 trading days
ending on March 16, 1999. Cash payments made to employee option holders amounted
to approximately $34,010,000. In addition, payments amounting to approximately
$1,208,000, representing a portion of the Cash-Out Value of stock options held
by certain Company executives, were deferred and recorded as long-term
liabilities of the Company.
46
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
Transactions under the Option Plans are summarized as follows:
[Enlarge/Download Table]
WEIGHTED
AVERAGE
SHARES PRICE RANGE PRICE
--------- ------------- --------
Common Stock Options:
Outstanding, January 1, 1996......................... 1,193,288 $ 9.27-$34.41 $19.80
Granted (weighted average value at grant date of
$16.01)......................................... 179,809 $41.91-$46.25 $46.03
Canceled........................................... (2,146) $21.53-$34.41 $28.77
Exercised............................................ (140,096) $ 9.27-$21.98 $15.47
---------
Outstanding, December 31, 1996....................... 1,230,855 $ 9.27-$46.25 $24.11
Granted (weighted average value at grant date of
$20.23)......................................... 211,231 $45.63-$58.81 $58.41
Canceled........................................... (14,235) $21.53-$47.38 $38.91
Exercised.......................................... (201,920) $ 9.27-$46.25 $16.34
---------
Outstanding, December 31, 1997....................... 1,225,931 $ 9.27-$58.81 $31.13
Granted (weighted average value at grant date of
$38.78)......................................... 5,001 $88.28 $88.28
Canceled........................................... (3,813) $21.53-$58.81 $46.64
Exercised.......................................... (317,511) $ 9.27-$58.81 $22.63
---------
Outstanding, December 31, 1998....................... 909,608 $ 9.27-$88.28 $34.34
=========
Since 1986, the Company maintained restricted stock purchase plans ("Stock
Plans") that provided for the awarding of a grant or right to purchase at a
particular price shares of common stock to employees, subject to restrictions on
transferability. As of February 16, 1999, in anticipation of the Transactions,
the Compensation Committee of the Company's Board of Directors approved the
immediate vesting of all outstanding, unvested shares of restricted stock
previously awarded under the Stock Plans. On March 18, 1999, immediately prior
to the Transactions, the Stock Plans were terminated.
For grants awarded under the Stock Plans, compensation expense is
recognized over the vesting period of the grants. Transactions under the Stock
Plans are summarized as follows:
[Enlarge/Download Table]
WEIGHTED
AVERAGE
SHARES PRICE RANGE PRICE
--------- ------------- --------
Common Stock Grants:
Outstanding, January 1, 1996......................... 5,656 $20.25-$24.53 $22.60
Granted............................................ 2,093 $36.70 $36.70
Vested............................................. (1,864) $20.25-$24.53 $22.12
---------
Outstanding, December 31, 1996....................... 5,885 $20.25-$36.70 $27.78
Granted............................................ 1,468 $47.44 $47.44
Canceled........................................... (1,393) $20.25-$47.44 $33.13
Vested............................................. (2,272) $20.25-$36.70 $25.56
---------
Outstanding, December 31, 1997....................... 3,688 $21.38-$47.44 $34.95
Granted............................................ 1,184 $57.84 $57.84
Vested............................................. (1,594) $21.38-$47.44 $30.66
Outstanding, December 31, 1998..................... 3,278 $24.53-$57.84 $45.31
=========
47
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
The Company anticipates that a Pulitzer Inc. stock option plan and a
Pulitzer Inc. restricted stock purchase plan will be submitted for stockholder
approval at the Company's 1999 annual stockholders' meeting.
As required by SFAS 123, the Company has estimated the fair value of its
option grants since December 31, 1994 by using the binomial options pricing
model with the following assumptions:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
Expected Life (years)....................................... 7 7 7
Risk-free interest rate..................................... 5.7% 5.8% 6.4%
Volatility.................................................. 35.4% 23.6% 22.5%
Dividend yield.............................................. 1.0% 1.1% 1.2%
As discussed in Note 2, the Company accounts for its stock option grants in
accordance with APB 25, resulting in the recognition of no compensation expense
in the Statements of Consolidated Income. Had compensation expense been computed
on the fair value of the option awards at their grant date, consistent with the
provisions of SFAS 123, the Company's income from continuing operations and
earnings per share would have been reduced to the pro forma amounts below:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Income from continuing operations:
As reported............................................. $27,016 $25,759 $14,792
Pro forma............................................... 25,426 24,906 14,422
Income from discontinued operations:
As reported............................................. 49,268 40,269 42,708
Pro forma............................................... 48,015 39,581 42,398
Net Income:
As reported............................................. 76,284 66,028 57,500
Pro forma............................................... 73,441 64,487 56,820
Basic earnings per share from continuing operations:
As reported............................................. $ 1.21 $ 1.17 $ 0.67
Pro forma............................................... 1.14 1.13 0.66
Basic earnings per share from discontinued operations:
As reported............................................. 2.20 1.82 1.95
Pro forma............................................... 2.15 1.79 1.93
Basic earnings per share:
As reported............................................. 3.41 2.99 2.62
Pro forma............................................... 3.28 2.92 2.59
Diluted earnings per share from continuing operations:
As reported............................................. $ 1.19 $ 1.15 $ 0.66
Pro forma............................................... 1.12 1.11 0.65
Diluted earnings per share from discontinued operations:
As reported............................................. 2.16 1.79 1.92
Pro forma............................................... 2.11 1.76 1.90
48
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Diluted earnings per share:
As reported............................................. $ 3.35 $ 2.94 $ 2.58
Pro forma............................................... 3.23 2.87 2.55
Because the provisions of SFAS 123 have not been applied to options granted
prior to January 1, 1995, the pro forma compensation cost may not be
representative of compensation cost to be incurred on a pro forma basis in
future years.
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 provided for eligible employees to authorize payroll deductions for the
quarterly purchase of Company 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 were
eligible to participate in the Plan after completing at least one year of
service. In anticipation of the Transactions, purchases under the Plan were
suspended on September 30, 1998 and the Plan was terminated on March 18, 1999,
immediately prior to the Transactions. The Company anticipates that a Pulitzer
Inc. employee stock purchase plan will be submitted for stockholder approval at
the Company's 1999 annual stockholders' meeting.
13. EARNINGS PER SHARE
Weighted average shares of common and Class B common stock and common stock
equivalents used in the calculation of basic and diluted earnings per share are
summarized as follows:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
Weighted average shares outstanding (Basic EPS)............. 22,381 22,110 21,926
Stock option equivalents.................................... 372 342 347
------ ------ ------
Weighted average shares and equivalents (Diluted EPS)....... 22,753 22,452 22,273
====== ====== ======
Stock option equivalents included in the Diluted EPS calculation were
determined using the treasury stock method. Under the treasury stock method and
SFAS 128, outstanding stock options are dilutive when the average market price
of the Company's common stock exceeds the option price during a period. In
addition, proceeds from the assumed exercise of dilutive options along with the
related tax benefit are assumed to be used to repurchase common shares at the
average market price of such stock during the period.
14. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company and its subsidiaries had construction and
equipment commitments of approximately $8,521,000 related to continuing
operations and $1,497,000 related to discontinued operations. The Company's
commitment for broadcasting program contracts payable and license fees at
December 31, 1998 was approximately $20,737,000.
The Company is an investor in one limited partnership requiring future
capital contributions. As of December 31, 1998, the Company's unfunded capital
contribution commitment related to this investment was approximately $8,962,000.
49
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
The Company and its subsidiaries are involved, from time to time, in
various claims and lawsuits incidental to the ordinary course of its business,
including such maters as libel, slander and defamation actions and complaints
alleging discrimination. While the results of litigation cannot be predicted,
management believes the ultimate outcome of such existing litigation will not
have a material adverse effect on the consolidated financial statements of the
Company and its subsidiaries.
In connection with the September 1986 purchase of the Company's Class B
common stock from certain selling stockholders (the "1986 Selling
Stockholders"), the Company agreed, under certain circumstances, to make an
additional payment to the 1986 Selling Stockholders in the event of a Gross-Up
Transaction (as defined herein). A "Gross-Up Transaction" was defined to mean,
among other transactions, (i) any merger, in any transaction or series of
related transactions, of more than 85 percent of the voting securities or equity
of Pulitzer pursuant to which holders of Pulitzer common stock receive
securities other than Pulitzer common stock and (ii) any recapitalization,
dividend or distribution, or series of related recapitalizations, dividends or
distributions, in which holders of Pulitzer common stock receive securities
(other than Pulitzer common stock) having a Fair Market Value (as defined
herein) of not less than 33 1/3 percent of the Fair Market Value of the shares
of Pulitzer common stock immediately prior to such transaction. The amount of
the additional payment, if any, would equal (x) the product of (i) the amount by
which the Transaction Proceeds (as defined herein) exceeds the Imputed Value (as
defined herein) multiplied by (ii) the applicable percentage (i.e., 50 percent
for the period from May 13, 1996 through May 12, 2001) multiplied by (iii) the
number of shares of Pulitzer common stock issuable upon conversion of the shares
of Class B common stock owned by the 1986 Selling Stockholders, adjusted for,
among other things, stock dividends and stock splits; less (y) the sum of any
additional payments previously received by the 1986 Selling Stockholders;
provided, however, that in the event of any recapitalization, dividend or
distribution, the amount by which the Transaction Proceeds exceeds the Imputed
Value shall not exceed the amount paid or distributed pursuant to such
recapitalization, dividend or distribution in respect of one share of Pulitzer
common stock.
The term "Transaction Proceeds" was defined to mean, in the case of a
merger, the aggregate Fair Market Value (as defined herein) of the consideration
received pursuant thereto by the holder of one share of Pulitzer common stock,
and, in the case of a recapitalization, dividend or distribution, the aggregate
Fair Market Value of the amounts paid or distributed in respect of one share of
Pulitzer common stock plus the aggregate Fair Market Value of one share of
Pulitzer common stock following such transaction. The "Imputed Value" for one
share of Pulitzer common stock on a given date was defined to mean an amount
equal to $28.82 compounded annually from May 12, 1986 to such given date at the
rate of 15 percent per annum, the result of which is $154.19 at May 12, 1998.
There was no specific provision for adjustment of the $28.82 amount, but if it
were adjusted to reflect all stock dividends and stock splits of Pulitzer since
September 30, 1986, it would now equal $15.72, which if compounded annually from
May 12, 1986 at the rate of 15 percent per annum would now equal $84.11.
"Fair Market Value," in the case of any consideration other than cash
received in a Gross-Up Transaction, was defined to mean the fair market value
thereof as agreed to by a valuation firm selected by the Company and a valuation
firm selected by the 1986 Selling Stockholders, or, if the two valuation firms
do not agree on the fair market value, the fair market value of such
consideration as determined by a third valuation firm chosen by the two
previously selected valuation firms. Any such agreement or determination shall
be final and binding on the parties.
As a result of the foregoing, the amount of additional payments, if any,
which may be payable by the Company with respect to the Merger and the
Distribution cannot be determined at this time. However, if the Distribution
were determined to be a Gross-Up Transaction and if the Fair Market Value of the
Transaction Proceeds with respect to the Merger and the Distribution were
determined to exceed the Imputed Value, then the additional payments to the 1986
Selling Stockholders would equal approximately $5.9 million for each
50
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
$1.00 by which the Transaction Proceeds exceed the Imputed Value. Accordingly,
depending on the ultimate resolution of the meaning and application of various
provisions of the Gross-Up Transaction agreements, including the determination
of Imputed Value and Fair Market Value of the Transaction Proceeds, in the
opinion of the Company's management, the amount of an additional payment, if
any, could be material to the consolidated financial statements of the Company.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has estimated the following fair value amounts for its
financial instruments using available market information and appropriate
valuation methodologies. However, considerable judgment is required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Cash and Cash Equivalents, Accounts Receivable, Accounts Payable and
Program Contracts Payable -- The carrying amounts of these items are a
reasonable estimate of their fair value.
Long-Term Debt -- Interest rates that are currently available to the
Company for issuance of debt with similar terms and remaining maturities are
used to estimate fair value. The fair value estimates of the Company's long-term
debt as of December 31, 1998 and 1997 were $180,000,000 and $196,000,000,
respectively.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1998 and 1997. Although
management is not aware of any facts that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date, and current
estimates of fair value may differ from the amounts presented herein.
16. NEWSPAPER PUBLISHING SEGMENT REVENUES
The Company's newspaper publishing segment revenues consist of the
following:
[Enlarge/Download Table]
YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
St. Louis Post-Dispatch.................................. $242,940 $234,255 $222,442
Star Publishing Company.................................. 55,181 53,037 50,098
Pulitzer Community Newspaper Group....................... 73,067 69,670 34,855
Other publishing revenue................................. 1,736 1,007 1,701
-------- -------- --------
Total publishing revenue............................... $372,924 $357,969 $309,096
======== ======== ========
51
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Operating results for the years ended December 31, 1998 and 1997 by
quarters are as follows:
[Enlarge/Download Table]
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
1998
OPERATING REVENUES -- NET.................. $90,229 $94,215 $90,763 $97,717 $372,924
INCOME FROM CONTINUING OPERATIONS.......... 5,771 6,908 6,597 7,740 27,016
INCOME FROM DISCONTINUED OPERATIONS........ 8,194 15,793 8,810 16,471 49,268
NET INCOME................................. 13,965 22,701 15,407 24,211 76,284
BASIC EARNINGS PER SHARE OF STOCK (Note
13):
Continuing operations.................... $ 0.26 $ 0.31 $ 0.30 $ 0.35 $ 1.21
Discontinued operations.................. 0.37 0.71 0.39 0.73 2.20
------- ------- ------- ------- --------
Earnings per share....................... $ 0.63 $ 1.02 $ 0.69 $ 1.08 $ 3.41
======= ======= ======= ======= ========
Weighted average shares outstanding...... 22,223 22,344 22,449 22,499 22,381
======= ======= ======= ======= ========
DILUTED EARNINGS PER SHARE OF STOCK (Note
13):
Continuing operations.................... $ 0.26 $ 0.30 $ 0.29 $ 0.34 $ 1.19
Discontinued operations.................. 0.36 0.70 0.39 0.72 2.16
------- ------- ------- ------- --------
Earnings Per Share....................... $ 0.62 $ 1.00 $ 0.68 $ 1.06 $ 3.35
======= ======= ======= ======= ========
Weighted Average Shares Outstanding...... 22,615 22,756 22,806 22,823 22,753
======= ======= ======= ======= ========
52
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 -- (CONTINUED)
[Enlarge/Download Table]
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
1997
OPERATING REVENUES -- NET................... $85,835 $90,305 $87,506 $94,323 $357,969
INCOME FROM CONTINUING OPERATIONS........... 6,230 7,099 5,914 6,516 25,759
INCOME FROM DISCONTINUED OPERATIONS......... 6,265 12,582 8,309 13,113 40,269
NET INCOME.................................. 12,495 19,681 14,223 19,629 66,028
BASIC EARNINGS PER SHARE OF STOCK (Note 13):
Continuing operations..................... $ 0.28 $ 0.32 $ 0.27 $ 0.29 $ 1.17
Discontinued operations................... 0.29 0.57 0.37 0.59 1.82
------- ------- ------- ------- --------
Earnings Per Share........................ $ 0.57 $ 0.89 $ 0.64 $ 0.88 $ 2.99
======= ======= ======= ======= ========
Weighted Average Shares Outstanding....... 22,029 22,081 22,151 22,185 22,110
======= ======= ======= ======= ========
DILUTED EARNINGS PER SHARE OF STOCK (Note
13):
Continuing operations..................... $ 0.28 $ 0.32 $ 0.26 $ 0.29 $ 1.15
Discontinued operations................... 0.28 0.56 0.37 0.58 1.79
------- ------- ------- ------- --------
Earnings Per Share........................ $ 0.56 $ 0.88 $ 0.63 $ 0.87 $ 2.94
======= ======= ======= ======= ========
Weighted Average Shares Outstanding....... 22,378 22,413 22,489 22,526 22,452
======= ======= ======= ======= ========
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the total for the year.
53
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
PULITZER INC.:
We have audited the consolidated financial statements of Pulitzer Inc. and
its subsidiaries as of December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, and have issued our report thereon
dated March 18, 1999; such report is included elsewhere in this Form 10-K. Our
audits also included the consolidated financial statement schedule of Pulitzer
Inc. and its subsidiaries, listed in the accompanying index at Item 14(a)2.(ii).
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Saint Louis, Missouri
March 18, 1999
54
SCHEDULE II
PULITZER INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION & QUALIFYING ACCOUNTS & RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 & 1996
[Enlarge/Download Table]
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS & OTHER AT END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1998
Valuation Accounts:
Allowance for Doubtful Accounts
Continuing Operations................. $1,626 $2,181 $ 82(a) $2,166(b) $1,723
Discontinued Operations............... 785 211 187(a) 586(b) 597
Reserves:
Accrued Medical Plan --
Continuing Operations................. 1,043 4,719 0 4,685(c) 1,077
Workers Compensation
Continuing Operations................. 1,089 796 0 1,002 883
Discontinued Operations............... 868 314 0 865 317
YEAR ENDED DECEMBER 31, 1997
Valuation Accounts:
Allowance for Doubtful Accounts
Continuing Operations................. $1,585 $1,151 $ 0(a) $1,110(b) $1,626
Discontinued Operations............... 991 317 178(a) 701(b) 785
Reserves:
Accrued Medical Plan --
Continuing Operations................. 389 4,714 0 4,060(c) 1,043
Workers Compensation
Continuing Operations................. 1,085 887 0 883 1,089
Discontinued Operations............... 1,041 312 0 485 868
YEAR ENDED DECEMBER 31, 1996
Valuation Accounts:
Allowance for Doubtful Accounts
Continuing Operations................. $1,158 $1,691 $ 95(a) $ 1359(b) $1,585
Discontinued Operations............... 851 440 226(a) 526(b) 991
Reserves:
Accrued Medical Plan --
Continuing Operations................. 561 4,198 0 4,370(c) 389
Workers Compensation
Continuing Operations................. 1,055 1,049 0 1,019 1,085
Discontinued Operations............... 950 429 0 338 1,041
(a) Accounts reinstated, cash recoveries, etc.
(b) Accounts written off
55
(c) Amount represents:
[Download Table]
1998 1997 1996
------ ------ ------
Claims paid............................................... $4,118 $3,596 $3,830
Service fees.............................................. 575 473 579
Cash refunds.............................................. (8) (9) (39)
------ ------ ------
$4,685 $4,060 $4,370
====== ====== ======
56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Management" in the Company's
definitive Proxy Statement to be used in connection with the 1999 Annual Meeting
of Stockholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Company's definitive Proxy Statement to be used in connection with the 1999
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Principal Stockholders" in the
Company's definitive Proxy Statement to be used in connection with the 1999
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Compensation Committee
Interlocks and Insider Participation" in the Company's definitive Proxy
Statement to be used in connection with the 1999 Annual Meeting of Stockholders
is incorporated herein by reference.
57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENT LIST
1. Financial Statements
The following financial statements are set forth in Part II, Item 8 of
this Annual Report.
PULITZER INC. AND SUBSIDIARIES:
(i) Independent Auditors' Report.
(ii) Statements of Consolidated Income for each of the Three Years in
the Period Ended December 31, 1998.
(iii) Statements of Consolidated Financial Position at December 31, 1998
and 1997.
(iv) Statements of Consolidated Stockholders' Equity for each of the
Three Years in the Period Ended December 31, 1998.
(v) Statements of Consolidated Cash Flows for each of the Three Years in
the Period Ended December 31, 1998.
(vi) Notes to Consolidated Financial Statements for the Three Years in
the Period Ended December 31, 1998.
2. Supplementary Data and Financial Statement Schedules
(i) Supplementary unaudited data with respect to quarterly results of
operations is set forth in Part II, Item 8 of this Annual Report.
(ii) Financial Statement Schedule II -- Valuation and Qualifying
Accounts and Reserves and opinion thereon are set forth in Part
II, Item 8 of this Annual Report.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore have
been omitted.
3. Exhibits Required by Securities and Exchange Commission Regulation S-K
(a) The following exhibits are filed as part of this Annual Report:
[Download Table]
EXHIBIT NO.
-----------
9.1 -- Pulitzer Inc. Voting Trust Agreement, dated as of March 18,
1999, between the holders of voting trust certificates and
Michael E. Pulitzer, Emily Rauh Pulitzer, Ronald H. Ridgway,
Cole C. Campbell, David E. Moore and Robert C. Woodworth.
10.22 -- Contribution and Assumption Agreement, dated as of March 18,
1999, by and between Pulitzer Publishing Company and
Pulitzer Inc.
10.24 -- Letter Agreement, dated March 18, 1999, between Pulitzer
Inc. and Emily Rauh Pulitzer.
10.25 -- Letter Agreement, dated March 18, 1999, between Pulitzer
Inc. and David E. Moore.
10.26 -- Pulitzer Inc. Registration Rights Agreement.
21 -- Subsidiaries of Registrant
24 -- Power of Attorney
27 -- Financial Data Schedule
58
[Download Table]
EXHIBIT NO.
-----------
(b) The following exhibits are incorporated herein by reference:
3.1 -- Restated Certificate of Incorporation of Pulitzer Inc.
(viii)
3.2 -- Amended and Restated By-laws of Pulitzer Inc. (viii)
4.1 -- Form of Pulitzer Inc. Common Stock Certificate. (viii)
10.1 -- Agreement, dated March 1, 1961, effective January 1, 1961,
between The Pulitzer Publishing Company, a Missouri
corporation, and the Globe-Democrat Publishing Company, as
amended on September 4, 1975, April 12, 1979 and December
22, 1983. (viii)
10.2.1 -- Amended and Restated Joint Operating Agreement, dated
December 22, 1988, between Star Publishing Company and
Citizen Publishing Company. (viii)
10.2.2 -- Partnership Agreement, dated December 22, 1988, between Star
Publishing Company and Citizen Publishing Company. (viii)
10.3 -- Agreement, dated as of May 12, 1986, among The Pulitzer
Publishing Company, Clement C. Moore, II, Gordon C. Weir,
William E. Weir, James R. Weir, Kenward G. Elmslie, Stephen
E. Nash and Manufacturers Hanover Trust Company, as
Trustees,
10.4 -- Letter Agreement, dated September 29, 1986, among The
Pulitzer Publishing Company, Trust Under Agreement Made by
David E. Moore, Frederick D. Pulitzer, Michael E. Pulitzer,
Jr., Robert S. Pulitzer, Joseph Pulitzer, IV, Joseph
Pulitzer, Michael E. Pulitzer, Stephen E. Nash and
Manufacturers Hanover Trust Company, as Trustees, Kenward G.
Elmslie, Gordon C. Weir, William E. Weir, James R. Weir,
Peter W. Quesada, T. Ricardo Quesada, Elinor P. Hempelmann,
The Moore Foundation, Inc., Mariemont Corporation, Z Press
Inc. and Clement C. Moore, II. (viii)
10.5 -- Letter Agreement, dated May 12, 1986, among The Pulitzer
Publishing Company, Peter W. Quesada, T. Ricardo Quesada,
Kate Davis Pulitzer Quesada and Elinor P. Hempelmann. (viii)
10.6 -- Agreement, dated as of September 29, 1986, among The
Pulitzer Publishing Company, Peter W. Quesada, T. Ricardo
Quesada, Kate Davis Pulitzer Quesada and Elinor Hempelmann.
(viii)
10.7.1 -- Amendment, dated March 9, 1992, to the Pulitzer Publishing
Company Annual Incentive Compensation Plan. (viii)
10.7.2 -- The Pulitzer Publishing Company Annual Incentive
Compensation Plan. (viii)
10.7.3 -- Pulitzer Publishing Company Newspaper Operations Annual
Incentive Plan. (viii)
10.8.1 -- Amendment, dated September 16, 1997, to Pulitzer Retirement
Savings Plan.(v)
10.8.2 -- Amendment, dated January 28, 1997, to Pulitzer Retirement
Savings Plan.(iv)
10.8.3 -- Amendment, dated October 30, 1996, to Pulitzer Retirement
Savings Plan.(iv)
10.8.4 -- Amendment, dated July 31, 1996, to Pulitzer Retirement
Savings Plan.(iv)
10.8.5 -- Amendment, dated October 25, 1995, to Pulitzer Retirement
Savings Plan.(iv)
10.8.6 -- Amendment, dated October 25, 1995, to Pulitzer Retirement
Savings Plan.(ii)
10.8.7 -- Amendment, dated January 24, 1995, to Pulitzer Retirement
Savings Plan.(i)
10.8.8 -- Amended and Restated Pulitzer Retirement Savings Plan.(i)
10.9.1 -- Amendment, dated October 25, 1995, to Pulitzer Publishing
Company Pension Plan.(iv)
10.9.2 -- Amended and Restated Pulitzer Publishing Company Pension
Plan.(i)
10.10.1 -- Amendment, dated October 29, 1997, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan. (viii)
59
[Download Table]
EXHIBIT NO.
-----------
10.10.2 -- Amendment, dated June 23, 1992, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan. (viii)
10.10.3 -- Amendment, dated January 1, 1992, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan. (viii)
10.10.4 -- Amendment, dated January 18, 1990, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan. (viii)
10.10.5 -- Amendment, dated October 26, 1989, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan. (viii)
10.10.6 -- Amendment, dated November 6, 1987, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan. (viii)
10.10.7 -- Pulitzer Publishing Company Supplemental Executive Benefit
Pension Plan dated March 18, 1986. (viii)
10.11 -- Employment Agreement, dated October 1, 1986, between the
Pulitzer Publishing Company and Joseph Pulitzer, Jr. (viii)
10.13 -- Pulitzer Publishing Company Senior Executive Deferred
Compensation Plan.(ii)
10.15 -- Stock Purchase Agreement by and among Pulitzer Publishing
Company and Mr. Edward W. Scripps, Mrs. Betty Knight
Scripps, and the Edward W. Scripps and Betty Knight Scripps
Charitable Remainder Unitrust dated as of May 4, 1996.(iii)
10.16 -- Split Dollar Life Insurance Agreement, dated December 27,
1996, between Pulitzer Publishing Company and Richard A.
Palmer, Trustee of the Michael E. Pulitzer 1996 Life
Insurance Trust.(iv)
10.17 -- Split Dollar Life Insurance Agreement, dated December 31,
1996, between Pulitzer Publishing Company and Rose M.
Elkins, Trustee of the Kennie J. Elkins Insurance Trust.(iv)
10.18 -- Split Dollar Life Insurance Agreement, dated December 30,
1996, between Pulitzer Publishing Company and Rebecca H.
Penniman and Nicholas G. Penniman V, Trustees of the
Nicholas G. Penniman IV Irrevocable 1996 Trust.(iv)
10.19 -- Split Dollar Life Insurance Agreement, dated December 30,
1996, between Pulitzer Publishing Company and Doris D.
Ridgway and Boatmen's Trust Company, Trustees of The Ronald
H. Ridgway Insurance Trust.(iv)
10.21 -- Amended and Restated Agreement and Plan of Merger by and
among Pulitzer Publishing Company, Pulitzer Inc. and
Hearst-Argyle Television, Inc., dated as of May 25,
1998.(vi)
10.23 -- Letter Agreement, dated May 25, 1998, by and among Pulitzer
Publishing Company, Pulitzer Inc. and Hearst-Argyle
Television, Inc. (viii)
10.27 -- Pulitzer Inc. 1999 Key Employees' Restricted Stock Purchase
Plan. (viii)
10.28 -- Pulitzer Inc. 1999 Stock Option Plan. (viii)
10.29 -- Pulitzer Inc. 1999 Employee Stock Purchase Plan. (viii)
10.33 -- Employment Agreement, dated December 18, 1998, between
Pulitzer Inc. and Robert C. Woodworth (vii)
10.34 -- Employment Agreement, dated August 26, 1998 between Pulitzer
Inc. and Terrance C.Z. Egger. (viii)
10.35 -- Participation Agreement, dated May 25, 1998, by and between
Pulitzer Publishing Company and Michael E. Pulitzer. (viii)
10.36 -- Participation and Severance Agreement, dated May 25, 1998,
by and between Pulitzer Publishing Company and Ken J.
Elkins. (viii)
60
[Download Table]
EXHIBIT NO.
-----------
10.37 -- Participation Agreement, dated May 25, 1998, by and between
Pulitzer Publishing Company and Nicholas G. Penniman IV.
(viii)
10.38 -- Participation Agreement, dated May 25, 1998, by and between
Pulitzer Publishing Company and Ronald H. Ridgway. (viii)
10.39 -- Participation and Severance Agreement, dated May 25, 1998,
by and between Pulitzer Publishing Company and C. Wayne
Godsey. (viii)
10.40 -- Participation and Severance Agreement, dated May 25, 1998,
by and between Pulitzer Publishing Company and John Kueneke.
(viii)
---------------
(i) Incorporated by reference to Pulitzer Publishing Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
(ii) Incorporated by reference to Pulitzer Publishing Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
(iii) Incorporated by reference to Pulitzer Publishing Company's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1996.
(iv) Incorporated by reference to Pulitzer Publishing Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
(v) Incorporated by reference to Pulitzer Publishing Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
(vi) Incorporated by reference to Pulitzer Publishing Company's Current Report
on Form 8-K filed on January 22, 1999.
(vii) Incorporated by reference to Pulitzer Publishing Company's Registration
Statement (File No. 333-69701) on Form S-3.
(viii) Incorporated by reference to Pulitzer Inc.'s Registration Statement on
Form 10 (File No. 1-14541), as amended.
(c) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the fourth quarter
of fiscal year 1998.
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 26th
day of March, 1999.
PULITZER INC.
/s/ ROBERT C. WOODWORTH
By:
--------------------------------------
Robert C. Woodworth,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
[Enlarge/Download Table]
SIGNATURE TITLE DATE
--------- ----- ----
MICHAEL E. PULITZER* Director; Chairman March 26, 1999
---------------------------------------------
(Michael E. Pulitzer)
/s/ ROBERT C. WOODWORTH Director; President and Chief March 26, 1999
--------------------------------------------- Executive Officer (Principal
(Robert C. Woodworth) Executive Officer)
/s/ RONALD H. RIDGWAY Director; Senior Vice March 26, 1999
--------------------------------------------- President -- Finance (Principal
(Ronald H. Ridgway) Financial and Accounting Officer)
KEN J. ELKINS* Director March 26, 1999
---------------------------------------------
(Ken J. Elkins)
DAVID E. MOORE* Director March 26, 1999
---------------------------------------------
(David E. Moore)
WILLIAM BUSH* Director March 26, 1999
---------------------------------------------
(William Bush)
EMILY RAUH PULITZER* Director March 26, 1999
---------------------------------------------
(Emily Rauh Pulitzer)
ALICE B. HAYES* Director March 26, 1999
---------------------------------------------
(Alice B. Hayes)
JAMES M. SNOWDEN, JR.* Director March 26, 1999
---------------------------------------------
(James M. Snowden, Jr.)
By: /s/ RONALD H. RIDGWAY
--------------------------------------
Ronald H. Ridgway*
attorney-in-fact
62
PULITZER INC.
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
EXHIBIT INDEX
[Download Table]
9.1 Pulitzer Inc. Voting Trust Agreement, dated as of March 18,
1999, between the holders of voting trust certificates and
Michael E. Pulitzer, Emily Rauh Pulitzer, Ronald H.
Ridgway, Cole C. Campbell, David E. Moore and Robert C.
Woodworth
10.22 Contribution and Assumption Agreement, dated as of March
18, 1999, by and between Pulitzer Publishing Company and
Pulitzer Inc.
10.24 Letter Agreement, dated March 18, 1999, between Pulitzer
Inc. and Emily Rauh Pulitzer
10.25 Letter Agreement, dated March 18, 1999, between Pulitzer
Inc. and David E. Moore
10.26 Pulitzer Inc. Registration Rights Agreement
21 Subsidiaries of Registrant
24 Power of Attorney
27 Financial Data Schedule
Dates Referenced Herein and Documents Incorporated by Reference
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