ITEM 1. BUSINESS
GENERAL
The Company is engaged in newspaper publishing and television and radio broadcasting. 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. In addition, the Company's Pulitzer Community Newspaper group includes 13 dailies which serve smaller markets, primarily in the West and Midwest. The Company's broadcasting operations consist of nine network-affiliated television stations located in Greenville, South Carolina; New Orleans, Louisiana; Lancaster, Pennsylvania; Winston-Salem, North Carolina; Albuquerque, New Mexico; Louisville, Kentucky; Omaha, Nebraska; Daytona Beach/Orlando, Florida and Des Moines, Iowa; and five radio stations located in Phoenix, Arizona; Eden, North Carolina; and Louisville, Kentucky.
The Pulitzer Publishing Company was founded by the first Joseph Pulitzer in 1878 to publish the original St. Louis Post-Dispatch and has operated continuously since that time under the direction of the Pulitzer family. Michael E. Pulitzer, a grandson of the founder, currently serves as Chairman of the Board, President and Chief Executive Officer of the Company.
ITEM 1. BUSINESS -- CONTINUED The following table sets forth certain historical financial information regarding the Company's two business segments, publishing and broadcasting, for the periods and at the dates indicated. Comparability of publishing segment amounts is affected by the acquisition of the Company's Pulitzer Community Newspaper group on July 1, 1996 (See "-- Publishing -- Pulitzer Community Newspapers, Inc.") and the sale of a Chicago publishing subsidiary on December 22, 1994. (See "-- Publishing -- Chicago Publications.") Comparability of broadcasting segment amounts is affected by the acquisitions of WESH-TV and KCCI-TV on June 30, 1993 and September 9, 1993, respectively.
- ------------------------- (1) Operating margins for publishing are stated with St. Louis Agency adjustment (which is recorded as an operating expense for financial reporting purposes) added back to publishing operating income. See "-- Publishing -- Agency Agreements."
OPERATING STRATEGY
Pulitzer's long-term operating strategy for its media assets 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 Pulitzer to maximize its revenue share in each of its respective markets. Experienced local managers implement the Company's strategy in each media market, with centralized Pulitzer management providing oversight and guidance in all areas of planning and operations.
In addition to internal growth, Pulitzer selectively acquires media properties which the Company believes are consistent with its operating strategy and present attractive investment opportunities. Although the Company has no agreements to acquire additional properties, management believes that the Company's strong cash flow and conservative capital structure, among other factors, will enable the Company to pursue additional acquisitions as opportunities arise. The Company is currently exploring potential strategic alternatives relating to its broadcasting division, including the potential sale of that division, among other possibilities. However, at this point the Company has not entered into any agreement, and there can be no
ITEM 1. BUSINESS -- CONTINUED assurance that any agreement will be reached. The Company decided to explore potential alternatives for the broadcasting business for various strategic and financial reasons, including the current strength of and consolidation in the radio and television market. The Company intends to continue to own and operate its newspaper properties.
Pulitzer believes that cost controls are an important tool in the management of media properties which are subject to significant fluctuations in advertising volume. The Company believes that prudent control of costs permits 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 aggressively employs production technology in all of its media operations in order to minimize production costs and produce the most attractive and timely news product for its readers, viewers and listeners.
Pulitzer's media operations are geographically diverse, placing the Company in the Midwest, Southwest, West, Southeast, and Northeast regions of the United States. Due to the close relationship between economic activity and advertising volume, the Company believes that geographic diversity provides 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 17 Pulitzer Prizes* over the years. In addition, management continues to seek ways to leverage its newspaper assets, such as electronic publishing, voice services delivered by phone, electronic dissemination of information via the world wide web/Internet and alternative newspaper delivery systems to provide advertisers with either targeted or total market coverage.
The Company publishes two major metropolitan daily newspapers, the St. Louis-Dispatch and The Arizona Daily Star. Both daily newspapers have weekly total market coverage sections to provide advertisers with market saturation. In addition, both newspapers also offer an electronic news, information and communication web site on the Internet. Full access to these "electronic publication" web sites, 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 10,300 subscribers at December 31, 1997. The service provided by the Post-Dispatch, POSTnet (www.stlnet.com), started in January 1996 and had approximately 10,500 subscribers as of December 31, 1997.
The Company also owns a group of 13 daily community newspapers (Pulitzer Community Newspapers, Inc.) that have a combined average daily circulation of approximately 165,000. 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. Although smaller in size than the Company's two metropolitan dailies, a strong focus on local reporting and editorial excellence is also considered the key to long-term success in these markets.
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* Pulitzer Prizes are awarded annually at Columbia University by the Pulitzer Prize Board, an independent entity affiliated with the Columbia University School of Journalism, founded by the first Joseph Pulitzer.
ITEM 1. BUSINESS -- CONTINUED The Company's publishing revenues are derived primarily from advertising and circulation, averaging approximately 87 percent of total publishing 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 publishing revenues for the past five years. Comparability is affected by the acquisition of the Company's Pulitzer Community Newspaper group on July 1, 1996 (See "-- Publishing -- Pulitzer Community Newspapers, Inc.") and the sale of a Chicago publishing subsidiary on December 22, 1994. (See "-- Publishing -- Chicago Publications.")
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 (Source: Claritas, Inc.).
Based on Audit Bureau of Circulations ("ABC") Publisher's Statement and reports for the six-month period ended September 30, 1997, the market penetration (i.e., percentage of households reached) of the Post-Dispatch's daily and Sunday editions is 8th and 3rd, respectively, in the United States among major metropolitan newspapers. The newsstand price is $0.50 for the daily paper and $1.25 for the Sunday edition.
ITEM 1. BUSINESS -- CONTINUED The Post-Dispatch operates under an 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 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 "-- Publishing -- Agency Agreements."
- ------------------------- (1) Amounts for 1997 based on Company records for the twelve-month period ended September 30, 1997. All other years based on ABC Publisher's Statement for the twelve-month period ended September 30.
(2) Primarily revenues from preprinted inserts.
The Post-Dispatch has consistently been a leader in technological innovation in the newspaper industry. It was the first major metropolitan newspaper in the United States to be printed by the offset process. Currently, sophisticated computer systems are used for writing, editing, composing and producing the printing plates used in each edition. In the preparation of news and color sections, the Post-Dispatch utilizes a Scitex graphics system which automates the processing of film and color separations. This system is part of an ongoing project intended to give the Post-Dispatch the capability of full-page pagination. At presstime, a fiber optic link allows the Post-Dispatch to send full-page images and then print newspapers simultaneously in its downtown and suburban plants, thereby allowing it to deliver newspapers to suburban readers earlier in the morning. In the distribution process, certain sections of the newspaper as well as advertising supplements are handled using a sophisticated palletized inserting operation. This allows the Post-Dispatch to efficiently distribute into selected geographic areas as necessary. 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 distributed primarily through independent home delivery carriers and single copy dealers. Home delivery accounted for approximately 76 percent of circulation for the daily Post-Dispatch and approximately 55 percent of circulation for the Sunday edition during 1997.
ITEM 1. BUSINESS -- CONTINUED 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") 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 781,000 (Source: Claritas, Inc.).
The Tucson Agency operates through 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 "-- Publishing -- Agency Agreements."
As a result of the Tucson Agency, the financial performance of the Company's Star Publishing Company subsidiary is directly affected by the operations and performance of both the Star and the Citizen. The following table sets forth certain information concerning circulation and combined advertising linage of the Star and the Citizen and the Company's share of the operating revenues of the Star and the Citizen for the past five years.
- ------------------------- (1) Amounts for 1997 based on Company records for the 52 week period ended December 31. Amounts for 1995 based on ABC Publisher's Statement for the 53 week period ended December 31. All other years based on ABC Publisher's Statement for the 52 week period ended December 31.
(2) Primarily revenues from preprinted inserts.
In 1997, 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 advertising linage.
ITEM 1. BUSINESS -- CONTINUED 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.
The newsstand prices of the daily editions of the Star and the Citizen are $0.50 and $0.35, respectively, and the newsstand price of the Sunday edition of the Star is $1.50. The Star and the Citizen are distributed by independent contractors.
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. ("PCN")), a privately owned publisher of community newspapers which serve smaller markets, primarily in the West and Midwest. The PCN group includes 13 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 8,000 to 33,000, the ten largest daily circulation newspapers in the PCN group are:
The Daily Herald...............................Provo, Utah The Arizona Daily Sun...................Flagstaff, Arizona The Napa Valley Register..................Napa, California Santa Maria Times..................Santa Maria, California The Daily Chronicle.......................DeKalb, Illinois The Garden Island............................Lihue, Hawaii The Hanford Sentinel...................Hanford, California The World.................................Coos Bay, Oregon The Daily Journal.....................Park Hills, Missouri The Haverhill Gazette.............Haverhill, Massachusetts
For the year ended December 31, 1997, PCN had consolidated operating revenues of approximately $69.7 million, of which advertising, preprints and circulation accounted for approximately 66 percent, 12 percent and 19 percent, respectively. For the six-month period ended December 31, 1996, PCN had consolidated operating revenues of approximately $34.9 million, of which advertising, preprints and circulation accounted for approximately 67 percent, 11 percent and 18 percent, respectively.
CHICAGO PUBLICATIONS
On December 22, 1994, the Company sold its wholly-owned publishing subsidiary located in the Chicago area. Since 1986, the subsidiary's primary operations consisted of the publication of a daily suburban newspaper, the Daily Southtown, and commercial printing services for several national and local newspapers. The sale completed the Company's exit from the Chicago area after having closed down and partially sold its weekly community newspaper business in October 1992.
The Company's 1994 consolidated and publishing segment operating results included substantially a full year of the subsidiary's operations. During 1994, advertising, preprints, circulation and contract printing accounted for approximately 55 percent, 4 percent, 11 percent and 28 percent, respectively, of the subsidiary's total operating revenues of $48.7 million. The sale did not have a significant impact on the Company's 1995 earnings results.
AGENCY AGREEMENTS
Newspapers in approximately 17 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
ITEM 1. BUSINESS -- CONTINUED 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 an Agency Agreement, dated March 1, 1961, as amended. 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.
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 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 1997, 1996, 1995, 1994, and 1993, the Company paid the Herald Company $19,450,000, $13,972,000, $12,502,000, $14,706,000, and $10,660,000, 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 split 50-50 between Pulitzer 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.
ITEM 1. BUSINESS -- CONTINUED 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, direct mail 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 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.
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 Company has contracts with substantially all of its production unions related to the Post-Dispatch, with expiration dates ranging from February 1999 through February 2010. In addition, the Company 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 has a one-year contract, expiring December 31, 1998, with Tucson Graphic Communications Union Local No. 212, covering certain pressroom employees.
RAW MATERIALS
The publishing segment's results are significantly impacted by the cost of newsprint which accounted for approximately 20 percent of the segment's total 1997 operating expenses. During 1997, the Company used approximately 100,900 metric tons of newsprint in its production process at a total cost of approximately $56.8 million. Consumption at the Post-Dispatch represented approximately 72,600 metric tons of the Company's total newsprint usage in 1997. 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 three quarters of 1997, the Company benefited from newsprint prices at levels below the prior year. However, current year price increases pushed the company's fourth quarter average cost per metric ton above the comparable prior year cost. During the first quarter of 1998, the Company's average cost per metric ton for newsprint has been in the range of $600. The Company has been informed by some of its suppliers of a plan to increase the price of newsprint by approximately $40 per metric ton during the second quarter of 1998.
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 Company's Pulitzer Community Newspaper 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 its new community newspaper group, and to assure adequate supplies for all locations.
ITEM 1. BUSINESS -- CONTINUED 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.
BROADCASTING
The Company's broadcasting operations currently consist of the ownership and operation of eight network-affiliated VHF television stations, one network-affiliated UHF television station, two satellite network television stations rebroadcasting KOAT, four AM radio stations and one FM radio station. The Company has diversified its revenues by purchasing properties in different geographic regions of the United States, thus insulating itself, somewhat, from regional economic downturns. The local management of each of the Company's broadcasting properties is partially compensated based on the cash flow performance of its respective station. Senior management believes that the success of a local television station is driven by strong local news programming, and that the Company has developed a particular strength in local news programming. As is the case with all Company operations, there is major emphasis on cost control in the broadcasting segment. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Events."
TELEVISION
The following table sets forth certain information concerning the television stations which the Company owns and the markets in which they operate.
- ------------------------- (1) Based upon the Designated Market Area ("DMA") for the station as reported in the November, 1997 Nielsen Station Index ("NSI"). DMA is a geographic area defined as all counties in which the local stations receive a preponderance of total viewing hours. DMA data is a primary factor in determining television advertising rates.
(2) National DMA rank for each market as reported in the November, 1997 NSI.
(3) Based on November, 1997 NSI audience estimates, 7:00 am-1:00 am, Sunday-Saturday. The number of commercial stations operating in market does not include public broadcasting stations, satellite stations or translators which rebroadcast signals from distant stations.
ITEM 1. BUSINESS -- CONTINUED (4) VHF (very high frequency) stations transmit on channels 2 through 13, and UHF (ultra high frequency) stations transmit on channels 14 through 69. Technical factors, such as station power, antenna location and height and topography of the area served, determine geographic market served by a television station. In general, a UHF station requires greater power or antenna height to cover the same area as a VHF station.
(5) The Company is also the licensee of KOVT, a satellite TV station licensed to Silver City, New Mexico and KOCT, a satellite TV station licensed to Carlsbad, New Mexico. The Company is the holder of a construction permit to build a satellite TV station, KOFT, in Gallup, New Mexico. On January 15, 1998, the FCC granted an application filed by Pulitzer requesting that the community of license of KOFT be changed from Gallup to Farmington, New Mexico. In February 1998, KOB-TV, L.L.C. filed a petition with the FCC requesting reconsideration of the grant of the Farmington application.
Average audience share, number of stations serving the market and market rank for each television station which the Company currently owns for the past five years are shown in the following table.
- ------------------------- (1) Represents the number of television households tuned to a specific station 9:00 am-Midnight, Sunday-Saturday, as a percentage of Station Total Households. Source: 1994-1997 data from February, May and November Nielsen Station Index ("NSI"). Schedules for 1993 include both NSI and Arbitron Ratings Audience Estimates information. NOTE: The Arbitron Company ceased to provide local television market reports in 1994.
(2) Stations serving market and local market rank data for 1994-1997 based on November NSI. Schedules for 1993 include both NSI and Arbitron Ratings Audience Estimates information.
(3) Acquired June 30, 1993.
(4) Acquired September 9, 1993.
(5) WLKY and WAVE (a competitor station) are tied for first place.
The Company's television stations are affiliated with national television networks under ten-year contracts which are automatically renewed for successive five-year terms unless the Company or network exercises its right to cancel. Prior to executing new contracts in early 1995, the stations' old network affiliation agreements were for two year periods with automatic renewal provisions.
The ratings of the Company's television stations are affected by fluctuations in the national ratings of its affiliated networks. The Company believes that such network rating fluctuations are normal for the
ITEM 1. BUSINESS -- CONTINUED broadcasting industry and in the past has not sought to change its network affiliations based on the decline of the national ratings of an affiliated network.
ADVERTISING REVENUES
The principal source of broadcasting revenues for the Company is the sale of time to advertisers. The Company derives television broadcasting revenues from local and national spot advertising and network compensation. Local advertising consists of short announcements and sponsored programs on behalf of advertisers in the immediate area served by the station. National spot advertising generally consists of short announcements and sponsored programs on behalf of national and regional advertisers. Network revenue is based upon a contractual agreement with a network and is dependent upon the network programs broadcast by the stations. The following table sets forth the television broadcasting revenues received by the Company from each of these types of advertising during the past five years.
- ------------------------ (1) The Company acquired television stations WESH and KCCI on June 30, 1993 and September 9, 1993, respectively.
(2) Automotive advertising is significant and historically has represented approximately 22 to 25 percent of total broadcast revenues.
The Company believes that its stations are particularly strong in local news programming, an important revenue source for network-affiliated stations. Advertising during local news programs accounted for approximately 35 to 50 percent of each station's total revenues in 1997.
Local time spots are sold by the Company's sales personnel at each broadcast station. Company sales departments make extensive use of computers to track and schedule all commercial spots sold, to maintain the broadcast station operating schedule, to determine time spot availability and to record accounts receivable. National spots are sold by the Company's three national sales representative firms.
Advertising rates are based primarily on audience size, audience share, demographics and time availability. The Company's ability to maximize advertising revenues is dependent upon, among other things, its management of the inventory of advertising time available for sale.
PROGRAMMING
The national television networks with which the Company's stations are affiliated offer a variety of sponsored and unsponsored programs to affiliated stations. The affiliated stations have the right of first refusal before the programs may be offered to any other television station in the same city.
When not broadcasting network programs, the Company's stations broadcast local news programs, movies, syndicated programs acquired from independent sources and public service programs. Movies and syndicated programs have frequently been shown previously on network or cable television. Syndicated programs are programs that are licensed to individual stations for one or more showings in a particular market as distinguished from programs licensed for national distribution through one of the major networks.
ITEM 1. BUSINESS -- CONTINUED The Company's stations make programming decisions on the basis of a number of factors, including program popularity and cost. On occasion, the Company has not renewed a popular program when syndication costs exceeded the level the Company believed appropriate compared to the potential advertising revenues to be derived from the program.
RADIO
The Company owns three radio stations serving the Phoenix, Arizona market: KTAR (AM), KMVP (AM) and KKLT (FM). KMVP was acquired in an asset purchase transaction for approximately $5 million in December 1996. Phoenix is the 17th largest Metro Market in the United States, and the Phoenix Radio Metro Area is served by eleven AM and twenty-one FM radio stations. KTAR (AM) ranks second in the Phoenix market, KKLT (FM) ranks twelfth and KMVP (AM) ranks twenty-sixth, with 6.4 percent, 3 percent, and 0.5 percent average quarter hour market shares, respectively (source: Arbitron Radio Ratings Summary-Fall 1997). KTAR (AM) operates as a news/talk/sports radio station while KKLT (FM) has an adult contemporary music format. KMVP (AM) began airing an "all sports" information format in February 1997. The FCC licenses for KTAR (AM), KMVP (AM) and KKLT (FM) expire on October 1, 2005.
On June 16, 1997, the Company acquired the assets of WAVG, Louisville, Kentucky. The station's call letters were subsequently changed to WLKY (AM) and it currently operates as an all-news station. On August 23, 1997, the Company acquired the assets of WETR (AM), Eden, North Carolina and changed the call letters of the station to WXII (AM). On May 18, 1997, the FCC granted an application to change the city of license of WXII (AM) from Eden to Kernersville, North Carolina, and to permit the station to operate with 50 kilowatts during the daytime hours and 10 kilowatts at night. It is expected that WXII (AM) will operate as a news/sports station beginning in mid-1998. The FCC licenses for WXII (AM) and WLKY (AM) expire on December 1, 2003, and August 1, 2004, respectively.
Advertising rates charged by a radio station are based primarily upon the number of homes in the station's primary market, the number of persons using radio in the area and the number of persons listening to the station. Advertising is sold by a national sales representative and by the stations' advertising sales personnel. The Company's radio stations manage their inventory of available advertising time in much the same manner as the television stations. Radio broadcasting net revenues during each of the past five years were as follows: 1997 -- $15,930,000; 1996 -- $15,653,000; 1995 -- $14,885,000; 1994 -- $13,023,000 and 1993 -- $12,900,000.
COMPETITION
Competition for television and radio audiences is based primarily on programming content. Programming content for the Company's television stations is significantly affected by network affiliation and by local programming activities. Competition for advertising is based on audience size, audience share, audience demographics, time availability and price. The Company's television stations compete for audience and advertising with other television stations and with radio stations, cable television and other news, advertising and entertainment media serving the same markets. In addition, the Company's television stations compete for audience and, to a lesser extent, advertising, with other forms of home entertainment such as home video recorders and direct broadcast satellite service. Cable systems, which operate generally on a subscriber payment basis, compete by carrying television signals from outside the broadcast market and by distributing signals from outside the broadcast market and by distributing programming that is originated exclusively for cable systems. The Company's television stations are also affected by local competitive conditions, including the number of stations serving a particular area and the programming content of those stations.
The Company believes that the competitive position of its radio and television properties is enhanced by the Company's policy of operating its broadcasting properties with a view to long-term growth. Strong local news programming is an important factor for the competitive position of the Company's television stations.
ITEM 1. BUSINESS -- CONTINUED The Company's system for managing advertising inventory of its television and radio stations is also an important factor in its ability to compete effectively for advertising revenues.
The Company's radio stations compete for audience and advertising with other radio and television stations serving the same market area and with other print, advertising and entertainment media. The Company's radio stations compete for audience primarily on the basis of their broadcasting format.
FEDERAL REGULATION OF BROADCASTING
Television and radio broadcasting are subject to the jurisdiction of the Federal Communications Commission ("FCC") pursuant to the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act prohibits the public dissemination of radio and television broadcasts except in accordance with a license issued by the FCC and empowers the FCC to issue, revoke, modify and renew broadcasting licenses and adopt such regulations as may be necessary to carry out the provisions of the Communication Act. The recently enacted Telecommunications Act of 1996 ("Telecommunications Act") effected sweeping changes in the Communications Act, many of which will influence the Company's broadcasting operations.
BROADCAST LICENSES
Under the amendments to the Communications Act provided for in the new legislation, broadcasting licenses for both radio and television stations will now be granted for a maximum period of eight years. Such licenses are renewable upon application, and the Telecommunications Act fundamentally changed the manner in which the FCC processes renewal applications. Petitions to deny license renewals may still be filed against licensees by interested parties, including members of the public. However, competing applicants no longer may file for the frequency being used by the renewal applicant during the period when a renewal application is pending. In addition, the new law provides that the FCC must grant renewal if it finds that the station has served the public interest during its previous license term and has not otherwise engaged in serious violations (or a pattern of lesser violations) of the Communications Act or the FCC's Rules.
These changes in renewal procedures apply to renewal applications filed after May 1, 1995. The Company will file applications to renew the licenses of stations KOAT, Albuquerque, New Mexico, KOCT, Carlsbad, New Mexico, and KOVT, Silver City, New Mexico on June 1, 1998. There is currently pending before the FCC an application to renew the license of KETV, Omaha, Nebraska.
MULTIPLE OWNERSHIP
While requiring FCC review every two years, the Telecommunications Act substantially liberalized the FCC's regulations governing the multiple, common and cross ownership of broadcast stations. The new law lifts the numerical restrictions on the number of radio stations a licensee may own nationwide; however, it restricts the number of stations a licensee may own in any individual market based upon the total number of stations in the market; the mix of stations in different services (e.g., AM or FM) that a licensee owns; and, in the smallest communities, a limitation that a licensee may not own more than 50 percent of all stations in the market.
The Telecommunications Act also eliminates the cap on the number of TV stations a party may own nationwide, provided that the total number of households reached by any individual owner's stations does not exceed 35 percent of the national household audience. For this purpose, only 50 percent of the television households in a market are counted toward the 35 percent national audience reach limitation if the owned station is a UHF station. With respect to the local market, the new law requires the FCC to conduct a proceeding to determine whether to preserve or eliminate its present rule forbidding the common ownership of two television stations in the same market. Moreover, the law permits the use of so-called Local Marketing Agreements (or "LMAs") between television stations in the same market to the extent they are allowed by the FCC's rules. The agreements permit one station in a market to lease and program the broadcast time and
ITEM 1. BUSINESS -- CONTINUED sell the advertising time of another station in the market. Proposals currently pending before the FCC could substantially alter these standards.
The AM-FM radio ownership rules prohibit granting a license to operate an AM or FM radio station or television station to an applicant who already owns, operates or controls or has an interest in a daily newspaper in the community in which the broadcast license is requested. In addition, they generally prohibit ownership of a VHF television station and either an AM or FM radio station in the same market. While the Telecommunications Act left the first restriction in place, it expanded considerably the FCC's authority to grant waivers of the television/radio cross-ownership rule in the top 50 markets. The FCC has instituted a rulemaking proceeding requesting comments on liberalizing its application of the newspaper/radio cross-ownership rule.
Further, the Telecommunications Act repeals the law which prohibited a cable television system from carrying the signal of a television broadcast station if such system owns, operates, controls or has an interest in a broadcast television station which serves substantially the same area that the cable television system is serving. Although the FCC rule prohibiting such cross-ownership remains in place, it is expected that the FCC will undertake a proceeding to eliminate the rule.
CABLE CARRIAGE
On March 11, 1993, the FCC adopted rules pursuant to the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") concerning the mandatory signal carriage ("must carry") rights of commercial and noncommercial television stations that are local to the area serviced by a cable system and the requirement prohibiting cable operators and other multichannel video programming providers from carrying television stations without obtaining their consent in some circumstances ("retransmission consent"). On March 31, 1997, the Supreme Count upheld the constitutionality of the must-carry provisions of the 1992 Cable Act. The Supreme Court decision did not expressly address the issue of must-carry of digital television ("DTV") signals. While the FCC has not decided whether to adopt must carry rules for DTV broadcasting, it has announced that this issue will be addressed in a future rulemaking proceeding. On June 13, 1997, Malrite Communications Group filed a petition with the FCC seeking to modify the "must carry" rules to require cable systems to adopt "appropriate" digital technologies, i.e., technologies compatible with broadcast DTV standards. On February 17, 1998, the FCC decided not to address the Malrite's request separate from a separate rulemaking proceeding on DTV must carry, and the FCC affirmed its intention to issue a Notice of Proposed Rulemaking on DTV must carry.
OTHER RECENTLY ADOPTED RULE CHANGES
It has been the policy of the FCC to rely increasingly upon the interplay of marketplace forces in lieu of direct government regulation and to encourage increasing competition among different electronic communication media. This policy was ratified by the Telecommunications Act which effected other changes that may affect the competitive environment in the local markets served by the Company's broadcast stations.
One such change authorizes local telephone companies to provide video programming to subscribers in their local telephone service areas either as cable operators or over their own networks known as "open video systems." The new law provides that a telephone company offering video programming will be regulated according to the method of delivering programming. However, under the law, whether the telephone company operates as a cable operator or an open video system operator, it will be subject to must carry and retransmission consent obligations and the Commission's rules on sports exclusivity, network nonduplication, and syndicated exclusivity. In addition, the Telecommunications Act requires the FCC to adopt certain additional safeguards for broadcasters which forbid a telephone company that provides video programming from discriminating against broadcasters in favor of an affiliated programmer in subscriber communications and placement on any on-screen program guide or menu. Furthermore, a telephone company video provider must ensure that broadcasters and other copyright holders are able to identify their programming, and if such
ITEM 1. BUSINESS -- CONTINUED identifying information is carried as part of the programming signal, the telephone company must transmit it without alteration.
The FCC has granted several applications to establish direct broadcast satellite systems ("DBS"). Several other new technologies are in their developmental stages, such as Digital Television capable of transmitting television pictures with higher resolution, truer color and wider aspect ratios, and Digital Audio Broadcasting capable of transmitting radio signals on a terrestrial basis and by space satellites. The potential impact of these technologies on the Company's business cannot be predicted.
The Telecommunications Act required that if the FCC issued licenses for Digital Television (DTV) services, only incumbent broadcast licensees and construction permit holders will be eligible initially for these licenses. Also, the Telecommunications Act authorized the Commission to adopt regulations that permit broadcasters to use such digital DTV spectrum for ancillary or supplementary services, provided that such secondary services may not impair the quality of the DTV signal and such services would be subject to a fee payable to the U.S. Treasury. The Balanced Budget Act of 1997 (the "1997 Budget Act") directed the FCC to reclaim the analog spectrum from existing television stations by December 31, 2006, subject to the grant of an extension of that date to a station under a number of specific circumstances set forth in the statute.
On April 21, 1997, the FCC issued initial DTV channel assignments and licenses simultaneously to all eligible full-power television licensees and issued related policies and rules. On February 17, 1998, the FCC declined to reconsider the decision to grant initial DTV channel assignments and licenses simultaneously to all eligible television licensees, but made adjustments in the DTV channel assignments and related rules to address various Petitions for Reconsideration and new test data on DTV interference characteristics. These adjustments include revisions to the plan for recovery of spectrum after the analog-to-digital transition is completed so that the spectrum available for DTV broadcasting after the transition will include channels 2-6; increases in authorized transmission power for UHF DTV stations; adoption of a de minimis interference standard; clarification of the rules and procedures for modifying initial DTV channel assignments and the DTV table of channel allotments; and adoption of additional guidelines and procedures regarding the displacement of low power television stations.
These FCC decisions are highly advantageous for incumbent television station owners such as the Company. It ensures that the Company will not face competing applications from the general public as it applies for its DTV licenses in the future. However, licenses for DTV services issued to incumbent broadcast licensees or permittees must be preconditioned with a requirement that either the new DTV channel or the original broadcast channel be surrendered to the FCC for reallocation or reassignment at the end of a transition period. Most incumbent television stations, including all of the Company's stations, will have the option of utilizing their current (NTSC) channels for DTV after the transition.
The new FCC rules require television stations affiliated with ABC, CBS, FOX and NBC to construct digital facilities in the ten largest television markets by May 1, 1999. Other stations affiliated with ABC, CBS, FOX and NBC in the top 30 television markets must construct DTV facilities by November 1, 1999. All other commercial stations must construct DTV facilities by May 1, 2002. Noncommercial stations must construct their DTV facilities by May 1, 2003. In June, 1997, the Company applied for DTV construction permits for stations WESH, Daytona Beach, Florida; KOAT, Albuquerque, New Mexico; KETV, Omaha, Nebraska; and KCCI, Des Moines, Iowa. These applications request slight modifications of the initial DTV channel assignments to provide added coverage permitted under the new rules. The FCC issued public notice of these applications on June 27, 1997, and they remain pending.
LIMITATIONS ON OWNERSHIP OF THE COMPANY'S STOCK
The Communications Act prohibits the assignment or transfer of broadcasting licenses, including the transfer of control of any corporation holding such licenses, without the prior approval of the FCC. The Communications Act would prohibit the Company from continuing to control broadcast licenses if, in the absence of FCC approval, more than one-fourth of the Company's capital stock were acquired or voted
ITEM 1. BUSINESS -- CONTINUED directly or indirectly by alien individuals, corporations, or governments, or if it otherwise fell under alien influence or control in a manner determined by the FCC to be contrary to the public interest.
Because of the multiple, common and cross ownership rules, if a holder of the Company's common stock or Class B common stock acquired an attributable interest in the Company and had an attributable interest in other broadcast stations, a cable television operation or a daily newspaper, there could be a violation of FCC regulations depending upon the number and location of the other broadcasting stations, cable television operations or daily newspapers attributable to such holder.
The information contained under this heading does not purport to be a complete summary of all the provisions of the Communications Act and the rules and regulations of the FCC thereunder or of pending proposals for the other regulation of broadcasting and related activities. For a complete statement of such provisions, reference is made to the Communications Act, to such rules and regulations and to such pending proposals.
EMPLOYEES
At December 31, 1997, the Company had approximately 3,500 full-time employees, of whom approximately 2,200 were engaged in publishing and 1,300 in broadcasting. In St. Louis, a majority of the approximately 1,200 full-time employees engaged in publishing are represented by unions. In addition, certain employees of the broadcasting segment, PCN and TNI Partners are represented by unions. The Company considers its relationship with its employees to be good.
ITEM 2.
ITEM 2. PROPERTIES
The corporate headquarters of the Company is located at 900 North Tucker Boulevard, Saint Louis, Missouri. The general character, location and approximate size of the principal physical properties used by the Company at December 31, 1997, are set forth below. Leases on the properties indicated as leased by the Company expire at various dates through July 2012.
The Company believes that all of its owned and leased properties are in good condition, well maintained and adequate for its current and immediately foreseeable operating needs. The Company, however, currently has a building project in process to address the long-term operating requirements of its Louisville broadcasting property.
- ------------------------- (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.
ITEM 3. LITIGATION
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 alleges that as a former minority shareholder and executive employee of Scripps League, 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 (1) 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; (2) engineering an unlawful freeze-out of Barry Scripps as a minority shareholder from Scripps League and its subsidiaries; and (3) 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 (1) money damages, together with interest and counsel fees in the amount to be proven at trial against Edward and Betty Scripps; (2) 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 (3) 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. The Sellers 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 January 8, 1997, the defendants filed their answers to the complaint in the Action. On January 11, 1997, the Court entered an order for entry of a Judgment Nisi dismissing the complaint for want of jurisdictional amount. The Court's judgment noted that the facts on which Barry Scripps relies to determine money damages present no reasonable likelihood that recovery will exceed $25,000.00, the Court's minimum jurisdictional amount, and that a final judgment of dismissal would be entered fourteen days from the entry of the Judgment Nisi, subject to the right of the parties to file written responses and request a further hearing. On January 29, 1997, Barry Scripps filed a written response opposing the Judgment Nisi and requested a hearing on the issues presented. On February 4, 1997, defendants filed their response in support of the entry of the Judgment Nisi. On March 26, 1997, the Court declined to enter an order granting the Judgment Nisi. On October 29, 1997, the defendants' motion for summary judgment was submitted to the Court. That motion is under consideration.
The Company becomes 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. In addition, the Company is involved from time to time in various governmental and administrative proceedings relating, among other things, to renewal of broadcast licenses.
While the results of litigation cannot be predicted, management believes the ultimate outcome of such litigation will not have a material adverse effect on the consolidated financial statements of the Company and its subsidiaries.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed and traded on the New York Stock Exchange under the symbol "PTZ."
At March 20, 1998, there were approximately 394 record holders of the Company's common stock and 2 record holders of its Class B common stock.
The following table sets forth the range of high and low sales prices and dividends paid for each quarterly period in the past two years:
- ------------------------- (1) In 1997 and 1996, the Company paid cash dividends of $0.5200 and $0.4575 respectively, per share of common stock and Class B common stock (see Note 5 of Notes to Consolidated Financial Statements for restrictions on dividends).
(2) The high and low sales prices and dividends per share have been restated for 1996 to reflect the impact of a four-for-three stock split, effected in the form of a 33 1/3 percent common and Class B common stock dividend, declared by the Company's Board of Directors on September 12, 1996.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA -- CONTINUED - ------------------------- (1) Shares outstanding, dividends per share and earnings per share have been adjusted for the Company's four-for-three stock split, on September 12, 1996, five-for-four stock split, on January 4, 1995 and 10 percent stock dividend on January 4, 1993.
(2) On July 1, 1996, the Company acquired Scripps League Newspapers, Inc. ("Scripps League") for approximately $216 million. During 1993 the Company acquired television stations WESH and KCCI for approximately $164.7 million.
(3) As of December 31, 1996, approximately $135 million of new long-term debt financing was outstanding related to the acquisition of Scripps League on July 1, 1996. As of December 31, 1993, approximately $118.6 million of new long-term debt financing was outstanding related to the acquisition of WESH and KCCI during 1993.
(4) On July 9, 1993, the Company sold 1.35 million shares of common stock in a public offering. The $37 million in net proceeds from the offering was used to partially finance the acquisition of WESH and KCCI in 1993.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements in this Annual Report on Form 10-K concerning the Company's business outlook or future economic performance; anticipated profitability, revenues, expenses or other financial items, together with other statements that are not historical facts, are "forward-looking statements" as that term is defined under the Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include, but are not limited to industry cyclicality, the seasonal nature of the business, changes in pricing or other actions by competitors or suppliers, and general economic conditions, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission including this Annual Report on Form 10-K.
GENERAL
The Company's operating revenues are significantly influenced by a number of factors, including overall advertising expenditures, the appeal of newspapers, television and radio in comparison to other forms of advertising, the performance of the Company in comparison to its competitors in specific markets, the strength of the national economy and general economic conditions and population growth in the markets served by the Company.
The Company's business tends to be seasonal, with peak revenues and profits generally occurring in the fourth and, to a lesser extent, second quarters of each year as a result of increased advertising activity during the Christmas and spring holiday periods. The first quarter is historically the weakest quarter for revenues and profits.
RECENT EVENTS
The Company is currently exploring potential strategic alternatives relating to its broadcasting division, including the potential sale of that division, among other possibilities. However, at this point the Company has not entered into any agreement, and there can be no assurance that any agreement will be reached. The Company decided to explore potential alternatives for the broadcasting business for various strategic and financial reasons, including the current strength of and consolidation in the radio and television market. The Company intends to continue to own and operate its newspaper properties.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED 1997 COMPARED WITH 1996
CONSOLIDATED
Operating revenues for the year ended December 31, 1997 increased 9.5 percent to $585 million from $534.1 million in 1996. The revenue comparison was affected by the acquisition of Scripps League Newspapers, Inc. ("Scripps League" which was subsequently renamed Pulitzer Community Newspapers, Inc. ("PCN")) on July 1, 1996. On a comparable basis, excluding PCN from the first six months of 1997, consolidated revenues increased 3.2 percent. The increase reflected gains in both publishing and broadcasting revenues.
Operating expenses, excluding the St. Louis Agency adjustment, were $441.8 million compared to $409.8 million in 1996, an increase of 7.8 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 PCN from the first six months of 1997 and the non-recurring costs from 1996, operating expenses increased 1.4 percent. Major increases in comparable expenses were overall personnel costs of $10.9 million, circulation distribution expenses of $1.5 million and promotion expenses of $1.3 million. Partially offsetting these increases were declines in newsprint expense of $6.0 million and purchased supplements of $3.1 million.
Operating income for fiscal 1997 increased 12.2 percent to $123.7 million from $110.3 million in 1996. On a comparable basis, excluding PCN from the first six months of 1997 and the non-recurring costs from 1996, operating income increased 5.6 percent. The 1997 increase reflected improvements in publishing segment profits.
Interest expense increased $2.5 million in 1997 compared to 1996 due to higher average debt levels in 1997. The Company's average debt level for 1997 increased to $220 million from $186.9 million in the prior year due to new long-term borrowings related to the July 1, 1996 acquisition of Scripps League. The Company's average interest rate for 1997 was unchanged from the prior year rate of 7.3 percent.
The effective income tax rate for 1997 increased to 40.6 percent from 40 percent in the prior year, due to an additional $2.1 million of nondeductible goodwill amortization related to the Scripps League acquisition. The Company expects its effective tax rate for 1998 to be similar to its 1997 rate.
Net other expense (non-operating) decreased $4.2 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.
For the year ended December 31, 1997, the Company reported net income of $66 million, or $2.99 per share, compared with net income of $57.5 million, or $2.62 per 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 from 1996, 1997 net income would have increased 9.5 percent to $66 million, or $2.99 per share, from $60.3 million, or $2.74 per share, for the prior year. The gain in net income reflected increased publishing profits, resulting primarily from higher advertising revenue and lower newsprint costs.
PUBLISHING
Operating revenues from the Company's publishing segment for 1997 increased 15.8 percent to $358 million from $309.1 million in 1996. On a comparable basis, excluding PCN 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 St. Louis Post-Dispatch ("Post-Dispatch") and The Arizona Daily Star ("Star"). Full run
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED advertising volume (linage in inches) increased 0.4 percent at the Post-Dispatch and 3.8 percent at Star for 1997. Varying rate increases were implemented at the Post-Dispatch and most of the Pulitzer Community Newspaper properties in the first quarter of 1997 while 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 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 and depreciation and amortization) for the publishing segment, excluding the St. Louis Agency adjustment, increased to $291 million in 1997 from $262.5 million in 1996, an increase of 10.8 percent. On a comparable basis, excluding PCN from the first six months of 1997 and the non-recurring costs from 1996, operating expenses increased 0.8 percent. Major increases in comparable expenses were overall personnel costs of $7.4 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 from the Company's publishing activities increased 45.9 percent to $47.5 million in 1997 from $32.6 million in 1996. On a comparable basis, excluding PCN from the first six months of 1997 and the non-recurring costs from 1996, operating income from the publishing segment increased 22.7 percent. The increase resulted primarily from higher advertising revenues and lower newsprint costs.
Fluctuations in the price of newsprint significantly impact the results of the Company's publishing segment, where newsprint expense accounts for approximately 20 percent of the segment's total operating costs. During the first three quarters of 1997, the publishing segment benefited from newsprint prices below prior year levels. However, as a result of 1997 price increases and declining prices in late 1996, the Company's 1997 fourth quarter newsprint expense increased over the comparable prior year period. For the full year of 1997, the Company's newsprint cost and metric tons consumed, after giving effect to the St. Louis Agency adjustment, were approximately $36.5 million and 64,600 tons respectively. During the first quarter of 1998, the Company's average cost per metric ton for newsprint has been in the range of $600, above prior year levels. In addition, the Company has been informed by some of its suppliers of a plan to increase the price of newsprint by approximately $40 per metric ton during the second quarter of 1998.
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 current year advertising revenues reflect the impact of decreased political advertising of approximately $12 million in 1997. In addition, the Company's five NBC affiliated television stations benefited from significant Olympic related advertising in the prior year third quarter.
Broadcasting operating expenses (including selling, general and administrative expenses and depreciation and amortization) 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED Operating income from the broadcasting segment 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.
1996 COMPARED WITH 1995
CONSOLIDATED
Operating revenues for the year ended December 31, 1996 increased 13.1 percent to $534.1 million from $472.3 million in 1995. The revenue comparison was affected by the acquisition of Scripps League Newspapers, Inc. ("Scripps League" which was subsequently renamed Pulitzer Community Newspapers, Inc. ("PCN")) on July 1, 1996. In addition, the revenue comparison was affected by an extra week of operations in 1995; fiscal 1995 contained 53 weeks, versus 52 weeks in fiscal 1996. On a comparable basis (i.e., excluding PCN from 1996 and the extra week from 1995), consolidated revenues increased 7.6 percent. The increase reflected gains in both broadcasting and publishing revenues.
Operating expenses, excluding the St. Louis Agency adjustment, were $409.8 million compared to $373.2 million in 1995, an increase of 9.8 percent. On a comparable basis, excluding PCN from 1996 and the extra week from 1995, operating expenses increased 3.2 percent. Major increases in comparable expenses were overall personnel costs of $5.2 million, promotion expenses of $1.2 million, national advertising commissions of $951,000 and circulation distribution expenses of $611,000. Partially offsetting these increases were declines in newsprint expense of $1.1 million and inducement costs of $798,000.
Operating income for fiscal 1996 increased 27.3 percent to $110.3 million from $86.7 million in 1995. On a comparable basis, excluding PCN from 1996 and the extra week from 1995, operating income increased 25.9 percent. The 1996 increase reflected improvements in both the broadcasting and publishing segments, resulting from increased revenues.
Interest expense increased $3.4 million in 1996 compared to 1995 due to higher debt levels in the second half of 1996. New long-term borrowings related to the acquisition of Scripps League added approximately $4.8 million to 1996 interest expense. The Company's average debt level for 1996 increased to $186.9 million from $133.2 million in the prior year. The Company's average interest rate for 1996 decreased slightly to 7.3 percent from 7.5 percent in the prior year. Interest income for the year decreased $681,000, due to both lower average balances of invested funds and lower interest rates in 1996.
The effective income tax rate for 1996 increased to 40 percent from 37.9 percent in the prior year, due to approximately $2.1 million of nondeductible goodwill amortization related to the Scripps League acquisition. The prior year rate was affected by the settlement of a state tax examination which reduced income tax expense by $911,000 in 1995. Excluding the non-recurring tax settlement from the prior year, the effective income tax rate for 1995 would have been 39 percent.
The Company's 1996 non-operating expenses included a non-recurring charge of approximately $2.7 million ($1.6 million after-tax) for the write-down in value of a joint venture investment.
For the year ended December 31, 1996, the Company reported net income of $57.5 million, or $2.62 per share, compared with net income of $49.3 million, or $2.26 per share, in the prior year. Comparability of the earnings results was affected by the joint venture write-off in 1996, non-recurring costs related to the Scripps League acquisition ($1.1 million after tax) in 1996, and the positive income tax adjustment in 1995. Excluding the non-recurring items from both years, 1996 net income would have increased to $60.3 million, or $2.74 per share, from $48.4 million, or $2.22 per share, for the prior year. The gain in net income reflected a significant increase in the broadcasting segment's operating profits.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED PUBLISHING
Operating revenues from the Company's publishing segment for 1996 increased 14.7 percent to $309.1 million from $269.4 million in 1995. On a comparable basis, excluding PCN from 1996 and the extra week from 1995, publishing revenues increased 3.5 percent. The comparable increase reflected higher advertising revenues in 1996.
Newspaper advertising revenues, on a comparable basis, excluding PCN from 1996 and the extra week from 1995, increased $9.5 million, or 6 percent, in 1996. The significant portion of the current year increase resulted from higher classified advertising revenue at the St. Louis Post-Dispatch ("Post-Dispatch"). Increases in advertising rates for most categories and higher volume for zoned advertising were the primary factors in the 1996 revenue increase. In the fourth quarter of 1996 and the first quarter of 1997, varying rate increases were implemented at the Post-Dispatch, The Arizona Daily Star ("Star") and most of the Company's new community newspaper properties.
Circulation revenues, on a comparable basis, excluding PCN from 1996 and the extra week from 1995, increased approximately $100,000, or 0.2 percent, in 1996. The Post-Dispatch and Star experienced only slight fluctuations in paid circulation and average rates in 1996 compared to the prior year.
Operating expenses (including selling, general and administrative expenses and depreciation and amortization) for the publishing segment, excluding the St. Louis Agency adjustment, increased to $262.5 million in 1996 from $231.5 million in 1995, an increase of 13.4 percent. On a comparable basis, excluding PCN from 1996 and the extra week from 1995, operating expenses increased 2.1 percent. Major increases in comparable expenses were promotion expense of $1.5 million, circulation distribution expenses of $611,000 and overall personnel costs of $574,000. Partially offsetting these increases were declines in newsprint expense of $1.1 million and inducement costs of $798,000.
Operating income from the Company's publishing activities increased 28.3 percent to $32.6 million in 1996 from $25.4 million in 1995. On a comparable basis, excluding PCN from 1996 and the extra week from 1995, operating income from the publishing segment increased 12 percent. The increase resulted from higher advertising revenues on a comparable basis.
BROADCASTING
Broadcasting operating revenues for 1996 increased 10.9 percent to $225 million from $202.9 million in 1995. On a comparable basis, excluding the extra week from 1995, operating revenues increased 12.9 percent. Local spot advertising increased 14.2 percent and national spot advertising increased 14.7 percent. The current year increases reflected strong Olympic-related advertising at the Company's five NBC affiliated stations and significant political advertising of $13.2 million, an increase of $10.3 million.
Broadcasting operating expenses (including selling, general and administrative expenses and depreciation and amortization) increased 3.5 percent to $141.7 million in 1996 from $137 million in 1995. On a comparable basis, excluding the extra week from 1995, operating expenses increased 4.5 percent. This increase was primarily attributable to higher overall personnel costs of $4.2 million and higher national advertising commissions of $951,000.
Operating income from the broadcasting segment in 1996 increased 26.2 percent to $83.2 million from $65.9 million in the prior year. On a comparable basis, excluding the extra week from 1995, operating income from the broadcasting segment increased 30.9 percent. The 1996 gain resulted from the significant increases in both local and national advertising revenues.
LIQUIDITY AND CAPITAL RESOURCES
Outstanding debt, inclusive of the short-term portion of long-term debt, as of December 31, 1997, was $185.4 million, compared with $250.1 million at December 31, 1996. The decrease in the outstanding debt
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- CONTINUED
balance reflects the final repayment of $14.5 million under the Company's 8.8 percent Senior Note Agreement which matured in 1997 and the repayment of $50 million of credit agreement borrowings with The First National Bank of Chicago, as Agent, for a group of lenders ("FNBC"). Although, the FNBC credit agreement borrowings were repaid during 1997, the $50 million line of credit remains available to the Company through June, 2001. As of December 31, 1997, the Company's outstanding debt balance consists primarily of fixed-rate senior notes with The Prudential Insurance Company of America ("Prudential").
The Company's Senior Note Agreements with Prudential and FNBC Credit Agreement require it to maintain certain financial ratios, place restrictions on the payment of dividends and prohibit new borrowings, except as permitted thereunder.
As of December 31, 1997, commitments for capital expenditures were approximately $13.8 million, relating to normal capital equipment replacements and the cost of a building project at the Louisville broadcasting property. Commitments for film contracts and license fees as of December 31, 1997 were approximately $30 million. In addition, as of December 31, 1997, the Company had unfunded capital contribution commitments of approximately $13.9 million related to investments in three limited partnerships.
At December 31, 1997, the Company had working capital of $99.3 million and a current ratio of 2.32 to 1. This compares to working capital of $95.3 million and a current ratio of 2.24 to 1 at December 31, 1996.
The Company from time to time considers acquisitions of properties when favorable investment opportunities are identified. Currently, the Company has no agreements to acquire additional properties. In the event an investment opportunity is identified, management expects that it would be able to arrange financing on terms and conditions satisfactory to the Company.
The Company generally expects to generate sufficient cash from operations to cover ordinary capital expenditures, film contract and license fees, working capital requirements, debt installments and dividend payments.
INFORMATION SYSTEMS AND THE YEAR 2000
The Year 2000 Issue is the result of information systems being designed using two digits rather than four 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, the Company initiated the process of preparing its information systems and applications for the Year 2000. For the Company, this process involves the replacement of aging hardware and software to address most of its Year 2000 issues. A significant portion of the Company's information systems were scheduled to be replaced during the next few years, regardless of the Year 2000 Issue. The Company plans to have substantially all of the system and application changes completed by March 31, 1999.
The Company expects to incur internal staff costs as well as consulting and other expenditures to install new information systems and modify existing systems during the next twelve to fifteen months. The remaining cost of the Company's Year 2000 project is estimated at approximately $16.1 million, of which approximately $15.8 million represents the cost of new hardware and software to be capitalized. These expenditures have been considered in the Company's normal capital budgeting process and will be funded through operating cash flows. The remaining maintenance & modification costs (approximately $300,000) will be expensed as incurred.
DIGITAL TELEVISION
The company is required to construct digital television facilities for its Orlando television station, WESH. The station must be broadcasting digitally by November 1, 1999 in order to comply with Federal Communications Commission ("FCC") rules. The deadline for constructing digital facilities at the remainder of the Company's television stations is May 1, 2002. The Company is currently considering available options to comply with the FCC's timetable and expects that capital expenditures required over the next several years to construct digital facilities will be funded through normal operating cash flows.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Pulitzer Publishing Company and 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 PUBLISHING COMPANY AND SUBSIDIARIES
Independent Auditors' Report
Statements of Consolidated Income for each of the Three Years in the Period Ended December 31, 1997
Statements of Consolidated Financial Position at December 31, 1997 and 1996
Statements of Consolidated Stockholders' Equity for each of the Three Years in the Period Ended December 31, 1997
Statements of Consolidated Cash Flows for each of the Three Years in the Period Ended December 31, 1997
Notes to Consolidated Financial Statements for the Three Years in the Period Ended December 31, 1997
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Pulitzer Publishing Company:
We have audited the accompanying statements of consolidated financial position of Pulitzer Publishing Company and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Saint Louis, Missouri February 6, 1998 (February 27, 1998 as to the last paragraph of Note 3)
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
See accompanying notes to consolidated financial statements.
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
See accompanying notes to consolidated financial statements.
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
See accompanying notes to consolidated financial statements.
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
See accompanying notes to consolidated financial statements.
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation -- The consolidated financial statements include the accounts of Pulitzer Publishing Company (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, which in 1995 resulted in a 14-week fourth quarter and a 53-week year. In 1997 and 1996, the fourth quarter was 13 weeks and the year was 52 weeks. 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 $805,000 and $874,000 higher than reported at December 31, 1997 and 1996, respectively. Ink and other miscellaneous supplies are expensed as purchased.
Program Rights -- Program rights represent license agreements for the right to broadcast programs over license periods which generally run from one to five years. The total cost of each agreement is recorded as an asset and liability when the license period begins and the program is available for broadcast. Program rights covering periods greater than one year are amortized over the license period using an accelerated method as the programs are broadcast. In the event that a determination is made that programs will not be used prior to the expiration of the license agreement, unamortized amounts are then charged to operations. 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.
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. Management periodically evaluates the recoverability of intangible assets by reviewing the current and projected cash flows of each of its properties. 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 annually.
Long-Lived Assets -- The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in March 1995. This statement became effective for the Company's 1996 fiscal year. The general requirements of this statement are applicable to the properties and intangible assets of the Company and require impairment to be considered whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Adoption of this standard on its effective date of January 1, 1996 had no impact on the Company's financial position or results of operations.
Employee Benefit Plans -- The Company and its subsidiaries have several noncontributory pension plans covering substantially all of their employees. Benefits under the plans are generally based on salary and years
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
of service. The Company's liability and related expense for benefits under the plans are recorded over the service period of active employees based upon annual actuarial calculations. Plan funding strategies are influenced by tax regulations. Plan assets consist primarily of government bonds and corporate equity securities.
The Company provides retiree medical and life insurance benefits under varying postretirement plans at several of its operating locations. In addition, the Company provides postemployment disability benefits to certain former employee groups prior to retirement. The significant portion of these benefits results from plans at the St. Louis Post-Dispatch. The Company's liability and related expense for benefits under the postretirement plans are recorded over the service period of active employees based upon annual actuarial calculations. The Company accrues postemployment disability benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid. All of the Company's postretirement and postemployment benefits are funded on a pay-as-you-go basis.
Income Taxes -- Deferred tax assets and liabilities are recorded for the expected future tax consequences of events that have been included in either the financial statements or tax returns of the Company. Under this asset and liability approach, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax bases of assets and liabilities by applying enacted statutory tax rates applicable to future years in which the differences are expected to reverse.
Stock-Based Compensation Plans -- 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 -- Effective December 15, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"). This statement simplifies the standards for computing earnings per share ("EPS"), making them comparable to international standards, and supersedes Accounting Principles Board Opinion No. 15, Earnings Per Share ("APB 15"). SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS. The statement also requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. As required by SFAS 128, diluted EPS has been computed for all prior periods presented to conform to the provisions of the new statement. Basic earnings per share under SFAS 128 for prior periods is the same as earnings per share previously reported by the Company under APB 15.
Basic earnings per share of stock is computed using the weighted average number of Common and Class B shares outstanding during the applicable period, adjusted for the stock splits described in Note 9. Diluted earnings per share of stock is computed using the weighted average number of Common and Class B shares outstanding and common stock equivalents. (see Note 11) PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
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 1996 and 1995 consolidated financial statements to conform with the 1997 presentation.
2. 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 Post-Dispatch (owned by the Company) was the afternoon and Sunday newspaper serving St. Louis, and the Globe-Democrat (formerly owned 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 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.
3. ACQUISITION AND DISPOSITION 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) includes all of the operating assets of the newspapers, working capital of approximately $6 million and intangibles. The acquisition was financed by long-term borrowings of $135 million (see Note 5)
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
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 years ended December 31, 1996 and 1995 adjusted for the acquisition of Scripps League, assuming such transaction and the related debt financing had been consummated at the beginning of each year presented. The unaudited pro forma financial information is not necessarily indicative either of results of operations that would have occurred had the transaction occurred at the beginning of each year presented or of future results of operations.
In December 1996, the Company acquired in a purchase transaction the assets of an AM radio station in Phoenix, Arizona for approximately $5,187,000.
On February 27, 1998, the Company announced that its Board of Directors decided to explore potential strategic alternatives relating to its broadcasting division, including the potential sale of that division, among other possibilities. However, the Company has not entered into any agreement, and there can be no assurance that any agreement will be reached.
4. INTANGIBLE ASSETS
Intangible assets consist of:
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
5. FINANCING ARRANGEMENTS
Long-term debt consists of:
On July 1, 1996, in connection with the acquisition of Scripps League (see Note 3), the Company issued to The Prudential Insurance Company of America $85,000,000 principal amount of 7.86 percent Senior Notes due 2008 ("Notes"). In addition, on July 1, 1996, the Company entered into a credit agreement with The First National Bank of Chicago, as Agent, for a group of lenders ("FNBC"), providing for a $50,000,000 five year variable rate revolving credit facility ("Credit Agreement"). The Company immediately borrowed the full amount under the Credit Agreement and used the proceeds, together with the proceeds from the Notes, to partially finance the Scripps League acquisition.
The Notes mature in equal annual installments beginning July 25, 2001 and ending July 25, 2008. All borrowings under the Credit Agreement are due on July 2, 2001, the termination date of the facility. Prior to the credit facility's termination, loans may be borrowed, repaid and reborrowed by the Company. In addition, the Company has the option to repay any borrowings and terminate the credit facility prior to its scheduled maturity. As of December 31, 1997, the Company had no borrowings under the Credit Agreement.
The Credit Agreement allows the Company to elect an interest rate with respect to each borrowing under the facility equal to a daily floating rate or the Eurodollar rate plus 0.225 percent. As of December 31, 1996, the interest rate on the Credit Agreement borrowings with FNBC was 5.875 percent.
The terms of the various senior note agreements contain certain covenants and conditions including the maintenance of cash flow and various other financial ratios, limitations on the incurrence of other debt and limitations on the amount of restricted payments (which generally includes dividends, stock purchases and redemptions).
Under the terms of the most restrictive borrowing covenants, in general, the Company may pay annual dividends not to exceed the sum of $10,000,000, plus 75% of consolidated net earnings commencing January 1, 1993, less the sum of all dividends paid or declared and redemptions in excess of sales of Company stock after December 31, 1992. Pursuant to this calculation, approximately $138,938,000 is available for distribution as dividends at December 31, 1997.
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
Approximate annual maturities of long-term debt for the five years subsequent to December 31, 1997 are as follows:
6. PENSION PLANS
The pension cost components were as follows:
The funded status of the Company's pension plans was as follows:
The projected benefit obligation was determined using assumed discount rates of 7% and 7.5% at December 31, 1997 and 1996, respectively. The expected long-term rate of return on plan assets was 8.5% for both 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 4.5% and 5% at December 31, 1997 and 1996, respectively.
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
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 1997, 1996 and 1995, were approximately $844,000, $781,000, and $731,000, respectively.
The Company also sponsors an employee savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all employees. Contributions by the Company amounted to approximately $1,899,000, $1,668,000 and $1,494,000 for 1997, 1996 and 1995, respectively.
7. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The net periodic postretirement benefit cost components were as follows:
The Company funds its postretirement benefit obligation on a pay-as-you-go basis, and, for 1997, 1996 and 1995 made payments of $4,118,000, $4,207,000 and $4,071,000, respectively.
The status of the Company's postretirement benefit plans was as follows:
The preceding amounts for the December 31, 1997 and 1996 accrued postretirement benefit cost and the 1997, 1996 and 1995 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 2), the Company has recorded a receivable for The Herald Company's share of the accrued postretirement benefit cost as of December 31, 1997 and 1996.
For 1997 and 1996 measurement purposes, health care cost trend rates of 9%, 7% and 5% were assumed for indemnity plans, PPO plans and HMO plans, respectively. For 1997, these rates were assumed to decrease gradually to 5% through the year 2010 and remain at that level thereafter. For 1996; the indemnity and PPO rates were assumed to decrease gradually to 5.5% through the year 2010 and remain at that level thereafter. The health care cost trend rate assumptions have a significant effect on the amount of obligation and expense reported. A 1% increase in these annual trend rates would have increased the accrued postretirement benefit
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
cost at December 31, 1997 by approximately $1,162,000 and the 1997 annual net periodic postretirement benefit cost by approximately $1,164,000.
Administrative costs related to indemnity plans were assumed to increase at a constant annual rate of 6% for both 1997 and 1996. The assumed discount rate used in estimating the accumulated postretirement benefit obligation was 7% and 7.5% for 1997 and 1996, respectively.
The Company's postemployment benefit obligation, representing certain disability benefits at the St. Louis Post-Dispatch, was $3,174,000 and $2,466,000 at December 31, 1997 and 1996, respectively.
8. INCOME TAXES
Provisions for income taxes (benefits) consist of the following:
Factors causing the effective tax rate to differ from the statutory Federal income tax rate were:
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
The Company's deferred tax assets and liabilities, net, which have been included in other assets in the statements of consolidated financial position consisted of the following:
The Company had no valuation allowance for deferred tax assets as of December 31, 1997, 1996 and 1995.
9. STOCKHOLDERS' EQUITY
Each share of the Company's common stock is entitled to one vote and each share of Class B common stock is entitled to ten votes on all matters. Holders of outstanding shares of Class B common stock representing 95.5% of the combined voting power of the Company have deposited their shares in a voting trust (the "Voting Trust").
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 January 16, 2001.
On September 12, 1996, the Board of Directors declared a four-for-three stock split of the Company's common and Class B common stock payable in the form of a 33.3% stock dividend. The dividend was distributed on November 1, 1996 to stockholders of record on October 10, 1996. The Company's capital balances and share amounts were adjusted in 1996 to reflect the split.
On January 4, 1995, the Board of Directors declared a five-for-four stock split of the Company's common and Class B common stock payable in the form of a 25% stock dividend. The dividend was distributed on January 24, 1995 to stockholders of record on January 13, 1995. Even though this stock split was declared subsequent to December 31, 1994, the Company's capital balances and share amounts were adjusted in 1994 to reflect the split.
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
10. COMMON STOCK PLANS
On May 11, 1994, the Company's stockholders adopted the Pulitzer Publishing Company 1994 Stock Option Plan (the "1994 Plan"), replacing the Pulitzer Publishing Company 1986 Employee Stock Option Plan (the "1986 Plan"). The 1994 Plan provides for the issuance to key employees and outside directors of incentive stock options to purchase up to a maximum of 2,500,000 shares of common stock. Under the 1994 Plan, options to purchase 1,667 shares of common stock will be automatically granted to outside directors on the date following each annual meeting of the Company's stockholders and will vest on the date of the next annual meeting of the Company's stockholders. Total shares available for issue to outside directors under this automatic grant feature are limited to a maximum of 166,667. The issuance of all other options will be administered by the Compensation Committee of the Board of Directors, subject to the 1994 Plan's terms and conditions. Specifically, the exercise price per share may not be less than the fair market value of a share of common stock at the date of grant. In addition, exercise periods may not exceed ten years and the minimum vesting period is established at six months from the date of grant. Option awards to an individual employee may not exceed 250,000 shares in a calendar year.
Prior to 1994, the Company issued incentive stock options to key employees under the 1986 Plan. As provided by the 1986 Plan, certain option awards were granted with tandem stock appreciation rights which allow the employee to elect an alternative payment equal to the appreciation of the stock value instead of exercising the option. Outstanding options issued under the 1986 Plan have an exercise term of ten years from the date of grant and vest in equal installments over a three-year period.
Stock option transactions are summarized as follows:
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
Stock appreciation right transactions are summarized as follows:
On May 11, 1994, the Company's stockholders also adopted the Pulitzer Publishing Company 1994 Key Employees' Restricted Stock Purchase Plan (the "1994 Stock Plan") which replaced the Pulitzer Publishing Company 1986 Key Employees' Restricted Stock Purchase Plan ("1986 Stock Plan"). The 1994 Stock Plan provides that an employee may receive, at the discretion of the Compensation Committee, a grant or right to purchase at a particular price, shares of common stock subject to restrictions on transferability. A maximum of 416,667 shares of common stock may be granted or purchased by employees. In addition, no more than 83,333 shares of common stock may be issued to an employee in any calendar year.
Prior to 1994, the Company granted stock awards under the 1986 Stock Plan. For grants awarded under both the 1994 and 1986 Stock Plans, compensation expense is recognized over the vesting period of the grants. Stock Purchase Plan transactions are summarized as follows:
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:
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
As discussed in Note 1, the Company accounts for its stock option grants in accordance with APB 25, resulting in the recognition of no compensation expense in the consolidated statements of 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 net income and earnings per share would have been reduced to the pro forma amounts below:
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 allows eligible employees to authorize payroll deductions for the quarterly purchase of the Company's Common Stock ("Common Stock") at a price generally equal to 85 percent of the Common Stock's fair market value at the end of each quarter. The Plan began operations as of July 1, 1997.
In general, other than Michael E. Pulitzer, all employees of the Company and its subsidiaries are eligible to participate in the Plan after completing at least one year of service. Subject to appropriate adjustment for stock splits and other capital changes, the Company may sell a total of 500,000 shares of its Common Stock under the Plan. Shares sold under the Plan may be authorized and unissued or held by the Company in its treasury. The Company may purchase shares for resale under the Plan.
11. 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:
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
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
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.
12. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company and its subsidiaries had construction and equipment commitments of approximately $13,779,000 and commitments for program contracts payable and license fees of approximately $30,025,000.
The Company is an investor in three limited partnerships requiring future capital contributions. As of December 31, 1997, the Company's unfunded capital contribution commitment related to these investments was approximately $13,863,000.
The Company and its subsidiaries are defendants in a number of lawsuits, some of which claim substantial amounts. While the results of litigation cannot be predicted, management believes the ultimate outcome of such litigation will not have a material adverse effect on the consolidated financial statements of the Company and its subsidiaries.
In connection with the September 1986 purchase of the Company's Class B common stock, the Company agreed to make an additional payment to the selling stockholders in the event that prior to May 13, 2001, the stockholders receive dividends or distributions in excess of specified amounts in connection with the sale of more than 85% of the voting securities or equity of the Company, a merger, or a complete or partial liquidation or similar corporate transaction. Any payment pursuant to this requirement would be based upon a percentage of the dividend or distribution per share in excess of $15.72 increased by 15% compounded annually beginning May 12, 1986.
13. 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, 1997 and 1996 were $195,969,000 and $259,958,000, respectively.
The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1997 and 1996. 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.
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
14. BUSINESS SEGMENTS
The Company's operations are divided into two business segments, publishing and broadcasting. The following is a summary of operations, assets and other data.
- ------------------------- (a) Publishing information for 1997 and 1996 includes Scripps League Newspapers, Inc. (subsequently renamed Pulitzer Community Newspapers, Inc.), which was acquired on July 1, 1996. (see Note 3)
(b) Operating margins for publishing are stated with St. Louis Agency adjustment (which is recorded as an operating expense in the accompanying consolidated financial statements) added back to publishing operating income.
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 -- CONTINUED
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Operating results for the years ended December 31, 1997 and 1996 by quarters are as follows:
In the fourth quarter of 1996, the Company determined that the carrying value of one of its joint venture investments had been impaired. Accordingly, the investment was reduced by a $2.7 million adjustment resulting in an after-tax charge of $1.6 million or $0.07 per share. In the fourth quarter of 1995, a state tax examination was settled favorably resulting in a reduction of income tax expense of approximately $900,000, or $0.04 per share for the quarter.
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.
* * * * * *
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.
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 1998 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 11.
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 1998 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12.
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 1998 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13.
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 1998 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENT LIST
1. Financial Statements
The following financial statements are set forth in Part II, Item 8 of this report.
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES:
(i) Independent Auditors' Report.
(ii) Statements of Consolidated Income for each of the Three Years in the Period Ended December 31, 1997.
(iii) Statements of Consolidated Financial Position at December 31, 1997 and 1996.
(iv) Statements of Consolidated Stockholders' Equity for each of the Three Years in the Period Ended December 31, 1997.
(v) Statements of Consolidated Cash Flows for each of the Three Years in the Period Ended December 31, 1997.
(vi) Notes to Consolidated Financial Statements for the Three Years in the Period Ended December 31, 1997.
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 Report.
(ii) The following financial statement schedule and opinion thereon are filed as a part of this 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 report:
- ------------------------- (i) Incorporated by reference to Registration Statement on Form S-1 (No. 33-9953) filed with the Securities and Exchange Commission on November 4, 1986.
(ii) Incorporated by reference to Amendment No. 1 to Registration Statement on Form S-1 (No. 33-9953) filed with the Securities and Exchange Commission on December 9, 1986.
(iii) Incorporated by reference to Amendment No. 2 to Registration Statement on Form S-1 (no. 33-9953) filed with the Securities and Exchange Commission on December 11, 1986.
(iv) Incorporated by reference to Current Report on Form 8-K dated May 4, 1987.
(v) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1988.
(vi) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1991.
(vii) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1992.
(viii) Incorporated by reference to Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1993.
(ix) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1993.
(x) Incorporated by reference to the Company's definitive Proxy Statement used in connection with the 1994 Annual Meeting of Stockholders.
(xi) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(xii) Incorporated by reference to the Company's definitive Proxy Statement used in connection with the 1995 Annual Meeting of Stockholders.
(xiii) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
(xiv) Incorporated by reference to the Company's definitive Proxy Statement used in connection with the 1996 Annual Meeting of Stockholders.
(xv) Incorporated by reference to Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1996.
(xvi) Incorporated by reference to Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1996.
(xvii) Incorporated by reference to Annual Report on Form 10-K for the fiscal year ended December 31, 1996
(xviii) Incorporated by reference to Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997.
(c) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the fourth quarter of fiscal year 1997.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Pulitzer Publishing Company:
We have audited the consolidated financial statements of Pulitzer Publishing Company and its subsidiaries as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, and have issued our report thereon dated February 6, 1998 (February 27, 1998 as to the last paragraph of Note 3); such report is included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of Pulitzer Publishing Company and its subsidiaries, listed in the accompanying index at Item 14(a)2.(ii). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Saint Louis, Missouri February 6, 1998
SCHEDULE II
PULITZER PUBLISHING COMPANY AND SUBSIDIARIES
SCHEDULE II VALUATION & QUALIFYING ACCOUNTS & RESERVES FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 & 1995
- ------------------------- (a) -- Accounts reinstated, cash recoveries, etc.
(b) -- Accounts written off
(c) -- Amount represents:
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 26th day of March, 1998.
PULITZER PUBLISHING COMPANY
By: /s/ Michael E. Pulitzer ------------------------------------ Michael E. Pulitzer, Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant in the capacities indicated on the dates indicated.
By: /s/ Ronald H. Ridgway ------------------------------------ Ronald H. Ridgway* attorney-in-fact
PULITZER PUBLISHING COMPANY
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1997
EXHIBIT INDEX
3.2 By-Laws of the Company restated as of October 29, 1997
10.8.1 Amendment, dated September 16, 1997, to Pulitzer Retirement Savings Plan
10.34 Letter Agreement, dated January, 26, 1998, between Pulitzer Publishing Company and Emily Rauh Pulitzer
21 Subsidiaries of Registrant
23 Independent Auditors' Consent
24 Power of Attorney
27.1 Financial Data Schedule for 1997
27.2 Restated Financial Data Schedules for 1995 and 1996 (including 1996 Quarterly Data)
27.3 Restated Financial Data Schedules for 1997 Quartley Data