LEE ENTERPRISES, INCORPORATED ●● 201 N. HARRISON ST. ●● DAVENPORT, IA 52801 ●● www.lee.net
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2006 ANNUAL REPORT
Premier provider
of local news,
information
and advertising
in 55 markets
Lee Enterprises is a premier provider of local news, information and
advertising in primarily midsize markets, with 51 daily newspapers
and a joint interest in five others, rapidly growing online sites and
more than 300 weekly newspapers and specialty publications in 23
states.
Lee’s newspapers have circulation of 1.6 million daily and 1.9 million
Sunday, reaching more than four million readers daily. Lee’s online
sites attract more than three million users, and Lee’s weekly
publications are distributed to more than 4.5 million households.
Lee’s 55 newspaper markets include St. Louis, Mo.; Lincoln, Neb.;
Madison, Wis.; Davenport, Iowa; Billings, Mont.; Bloomington, Ill.;
Tucson, Ariz.; and Napa, Calif. Lee is based in Davenport, Iowa,
and its stock is traded on the New York Stock Exchange under the
symbol LEE. For more information about Lee, please visit
www.lee.net.
Table of Contents
1 Financial Highlights
2-5 Letter to Stockholders
6-7 2006 President’s Awards
8 Directors and Officers
.
Form 10-K
Corporate Office
Lee Enterprises, Incorporated
201 N. Harrison St., Suite 600
Davenport, IA 52801
(563) 383-2100
Securities Market
New York Stock Exchange
Ticker Symbol: LEE
Shareowner Services
Concerning transfer of shares, lost certificates
or changes of address, please contact
the Transfer Agent and Registrar:
Shareowner Services
Wells Fargo Bank Minnesota, N.A.
161 N. Concord Exchange
South St. Paul, MN
55075-1139
(800) 468-9716
www.wellsfargo.com/shareownerservices
Annual Meeting
The annual meeting of stockholders will
take place Wednesday, February 21, 2007,
at 9:00 a.m. CST at the
Figge Art Museum
225 W. 2nd St., Davenport, IA 52801
Online Information
www.lee.net provides a wide variety of
information about Lee Enterprises, including news
releases, Securities and Exchange Commission
filings, performance measures, annual reports,
corporate governance documents and online links to
our daily newspapers. You also may sign up for e-
mail notification of SEC filings and news releases.
General Counsel
Lane & Waterman LLP
220 N. Main St., Suite 600
Davenport, IA 52801-1987
Independent Registered
Public Accounting Firm
Deloitte & Touche LLP
Northwest Bank Building
101 W. Second St.
Davenport, IA 52801-1813
Career Opportunities
Lee Enterprises offers outstanding career
opportunities in journalism, advertising, sales and
marketing, circulation, interactive media, information
systems, production, finance and human resources.
Lee is an equal opportunity employer. Current
openings are detailed at www.l ee.net/careers.
Financial Highlights
Continuing Operations
Lee Enterprises, Incorporated and Subsidiaries
Operating Revenue
Millions of Dollars
1,128.6
(Thousands, Except Per Common Share Data)
2006
2005
(1)
818.9
643.3
606.5
476.6
For the Year Ended September 30
Operating revenue . . . . . . . . . . . . . . . . . .
$1,128,648
$818,890
(2)
Operating cash flow . . . . . . . . . . . . . . . . .
279,360
204,779
Operating income . . . . . . . . . . . . . . . . . . .
204,029
158,314
Income from continuing operations . . . . .
71,136
Net income . . . . . . . . . . . . . . . . . . . . . . . .
70,832
70,862
76,878
2002
2003
2004
2005
2006
Per Common Share (Diluted)
Operating Income
Millions of Dollars
204.0
Income from continuing operations . . . . .
$1.56
$1.56
Net income . . . . . . . . . . . . . . . . . . . . . . . .
1.56
0.72
1.70
0.72
158.3
Dividends . . . . . . . . . . . . . . . . . . . . . . . . .
141.0
129.7
111.2
At Year End
2002
2003
2004
2005
2006
Earnings Per Share (Diluted)(4)
Dollars
1.67
REPORTED
1.44
1.44
ADJUSTED
ADJUSTED
1.64
1.84
1.96
ADJUSTED
1.84
ADJUSTED
1.56
1.56
REPORTED
REPORTED
1.56
1.56
REPORTED
REPORTED
2002
2003
2004
2005
2006
Total assets . . . . . . . . . . . . . . . . . . . . . . . .
$3,329,809
$ 3,445,200
Debt, including current maturities . . . . . . .
(3)
1,525,000
1,688,000
Stockholders’ equity . . . . . . . . . . . . . . . . .
990,625
936,410
(1) Includes four months of operations from the Pulitzer acquisition, which was consummated in June 2005.
(2) Operating cash flow is a non-GAAP financial measure under SEC rules. See Item 7 in Form 10-K.
(3) Principal amount, excluding fair value adjustments in 2006 and 2005.
(4) Adjusted EPS is a non-GAAP financial measure. See Item 7 in Form 10-K. Diluted earnings per common
share from continuing operations, as reported, include: In 2002, favorable resolution of income tax issues
of 23 cents; in 2005, 39 cents of Pulitzer early retirement, transition and debt extinguishment costs;
in 2006, 27 cents of Pulitzer early retirement, transition and reduction of value of identified intangible
assets. Amounts in table do not necessarily add because of rounding.
Earnings per common share, as adjusted
Adjustments
Earnings per common share, as reported
2002
$1.44
0.23
$1.67
2005
$1.96
(0.39)
$1.56
2006
$1.84
(0.27)
$1.56
Lee Enterprises 2006 Annual Report 1
Letter to Stockholders
Fiscal 2007 has begun on a much brighter note than
most of 2006.
As I write this letter in December, our publishers and
management teams have shaken off the dust of a tough year
and have notched two strong revenue months in a row.
While two months do not make a trend, and while it’s
difficult to predict the economic winds we face in the rest of
2007, we think we’ve set a good course for the new year.
Mary Junck
Chairman, President and
Chief Executive Officer
For both Lee and the industry, 2006 was a tough year.
Revenue growth sagged, especially in the Midwest, which
represents 60 percent of our revenue. Although we aggressively deployed the strong
Lee sales culture and launched numerous innovative sales initiatives, including nearly
300 sales blitzes, more intense competitive selling in our local territories, new
frequency programs and more creative ad shapes, we were not able to overcome the
downdraft in several key categories. Department stores, telecommunications, national
and automotive challenged us all year long, and both real estate and employment
began to cool later in the year.
Nonetheless, we think we managed well in a tough environment. We streamlined
our portfolio and reduced net debt by $179 million. We grew circulation in 38 of our
markets — including St. Louis, where the Post-Dispatch was one of only a few
metropolitan newspapers in the country to post gains. We outperformed our peers in
advertising revenue and circulation, and we continued to drive online growth at a
breathtaking pace.
Meanwhile, we and the rest of the industry endured a barrage of misguided
commentaries from pundits suggesting that both readers and advertisers were
stampeding to the Internet, turning the newspaper business into toast. We think that’s
just plain wrong.
Despite the advertising slowdown this past year in some key categories, our
business remains solid and vital. Nobody else can do what we do in our local markets,
where we’re by far the main source of local news, information and advertising. That’s
undisputably true both in print and online.
2 Lee Enterprises 2006 Annual Report
In fact, the Internet builds on our strengths. It enables us to reach new, diverse
and larger audiences. It enables us to deliver new value to advertisers and adds a
rapidly growing revenue stream.
This table, which uses October 2006 survey results in Lee’s top 10 markets,
illustrates how:
Use during past 7 days
Print only
Print plus online
Total print
Online only
Total reach
All Age
18-34
Adults
50%
11%
61%
6%
67%
37%
12%
49%
8%
57%
Over seven days, our printed newspapers reach 61 percent of all adults in our
markets. Fifty percent are newspaper readers who don’t go online to visit our websites.
Eleven percent read our newspapers and also visit our websites – for a total print
audience of 61 percent. Meanwhile, 6 percent of all adults use only our online sites.
Our print plus online reach totals an overwhelming 67 percent of all adults in our
markets.
Our newspapers and websites also deliver a massive audience of young adults. As
you can see in the Age 18-34 column of the chart, our newspapers attract 49 percent of
young adults, and 12 percent of those readers also visit our online sites. Another 8
percent of young adults use us online only. In total, we reach 57 percent of all young
adults in our markets.
While our newspaper circulation and readership remain strong and fairly steady,
our online audiences continue to expand very rapidly. In September, the final month
of 2006, online audience growth, as measured in page views, climbed 42.5 percent
over September 2005, and online same property revenue grew 44.5 percent.
We credit our newsrooms and our focus on strong local news with attracting much
of this growth. Already, our journalists provide breaking news throughout the day,
Lee Enterprises 2006 Annual Report 3
along with a continually updated array of stories, photos, videos and interactive
graphics, coupled with highly popular reader interaction and comments.
Beginning in January, to expand our capabilities further, we’re launching a
comprehensive training program called Lee Online University. Regional seminars and
online resources will provide news and sales staffs with advanced courses and new
tools as we continue to raise companywide standards and foster more innovation.
We’re also building troves of compelling online-only content, much of it created by
our expanding audiences. For example, at madison.com/post, you can see a blog-
driven online magazine with opinions and information on hundreds of local topics. At
lacrossetribune.com, outdoor enthusiasts can post photos of their catch of the day or
hunting trophy. We’re also providing information that was never possible in print: At
azstarnet.com, you can check local traffic on web cams, listen to police radio or
preview local bands. At cedarvalleypreps.com, you can go deep, deep, deep into local
high school sports. At qctimes.com, you can help update a dynamic community
calendar.
In November, we announced an industry-leading initiative that we believe will
help drive our online growth even faster. Lee and seven other major newspaper
companies have joined in a strategic alliance with Yahoo to create a national online
advertising network. Other members to date include Belo Newspaper Group, Cox
Newspapers Inc., Hearst Newspapers, Journal Register Company, Media General,
MediaNews Group and The E.W. Scripps Company. So far, the network spans 201
daily newspapers in 40 states. National markets include Atlanta, Dallas, Denver,
Houston, Minneapolis/St. Paul, San Francisco, St. Louis and Tampa.
Early in 2007, we will begin rolling our local employment listings into Yahoo’s
HotJobs platform. Our advertisers will gain state-of-the-art tools, including contextual
ads and interactive media, to engage and target candidates. Job seekers will be able to
use job-search agents, job-recommendation engines, newsletters and information
feeds to tap into the huge new network. Long term, our newspaper consortium and
Yahoo plan to collaborate on more initiatives to drive expanded audiences for local
content and advertising, including local search and new local content.
To be sure, the media environment is changing, and we’re changing along with it.
We’ve proven ourselves to be innovative, aggressive and fast moving – and we’re using
4 Lee Enterprises 2006 Annual Report
the Internet to expand on our position of strength in our local markets. We remain, by
far, the leading provider of local news, information and advertising in our markets,
and our audiences are larger than ever before.
We continue to rely on our intense sales culture and strong belief that local news is
at the heart of what we do. We continue to focus on these six top priorities:
n Grow revenue creatively and rapidly
n Emphasize strong local news
n Accelerate our online innovation
n Increase circulation, readership and online audiences
n Nurture employee development and achievement
n Exercise careful cost control
Those priorities have given us some of the best results in the industry. We believe
our intensity, creativity and special programs give us an advantage during slower
periods as well as during good ones.
We’re working hard to make 2007 a good one.
With best wishes to our stockholders and special thanks to our employees for
keeping Lee strong and growing,
Mary Junck
Chairman, President and Chief Executive Officer
December 2006
Lee Enterprises 2006 Annual Report 5
2006 President’s Awards
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Enterprise of the Year: Billings Gazette
Billings Gazette Communications in Billings, Mont., was honored at the
annual Lee President’s Awards ceremonies in November as the 2006
Enterprise of the Year. The citation began: “Year after year, the
publisher, Mike Gulledge, and the exceptionally strong management
team in Billings set a high standard for effective leadership, smart
management, team spirit, creativity and flawless implementation,
resulting in superior growth and tremendous successes across the
board.” Since 2001, the Billings Gazette has won three Lee President’s
Awards for Innovation and three for Excellence in News. Billings also
was among finalists for enterprise of the year in 2005. The Billings
Gazette is the largest newspaper in Montana with circulation of 46,000
daily and 53,000 Sunday. Its online site is billingsgazette.com.
Other finalists
nn Lee Agri-Media, a network of eight farm newspapers with online
sites serving 430,000 farm households in 11 states. It was a finalist
for the second year in a row. The top executive is Brian Kroshus,
who also is publisher of The Bismarck Tribune. Lee Agri-Media
includes Farm & Ranch Guide in North Dakota, Minnesota Farm
Guide, Ag Weekly in Idaho, Iowa Farmer Today, Midwest
Messenger in Nebraska, The Prairie Star in Montana, Tri-State
Neighbor in South Dakota, and an affiliate, Agri-View in Wisconsin.
nn The Daily News in Longview, Wash., led by Publisher Peter
York. The Daily News has daily and Sunday circulation of 21,500.
Its online site is www.tdn.com.
nn The Times and Democrat in Orangeburg, S.C., led by Publisher
Cathy Hughes. The Times and Democrat has daily and Sunday
circulation of 17,100. Its online site is www.thetandd.com. In
October the newspaper celebrated the 125th anniversary of its
founding.
6 Lee Enterprises 2006 Annual Report
Details and photos: www.lee.net/awards
Excellence in News
n David Sanders, Thomas Stauffer and Brady McCombs,
Arizona Daily Star, Tucson — For “Illegal Labor Fix Falls Short,”
an investigative series on the impact of illegal workers on the
homebuilding industry. Immigration reporter McCombs, economic
development reporter Stauffer and photojournalist Sanders were
the first journalists in the country to analyze proposed legislation
and explain why it wouldn’t work as written. The Daily Star has
become a national leader in reporting on immigration and border
issues.
n Larry Hendricks and the Arizona Daily Sun, Flagstaff — For
an enterprising series about hush-money payments and improper
influence by city officials over police operations in the city of
Williams. In the aftermath, two incumbent city council members
were defeated in the next election and all supervisory-level police
staff members were demoted.
n Staff of The Post-Star in Glens Falls, NY — For exceptional
print and online coverage of a tragedy that claimed 20 lives when a
tour boat carrying senior citizens overturned on Lake George. Post-
Star staffers arrived even before some emergency responders, and
they stayed in the forefront of the national story with detailed
information, photography, video, critical insight and human interest
storytelling.
n Staff of the Lincoln Journal Star, Lincoln, NE — For a
creative, informative and often fun examination of the historical,
cultural and economic differences between Nebraska’s two largest
cities — Omaha and Lincoln. The highly engaging eight-day series
offered readers plenty to talk about, the judges said, and more
importantly gave Lincoln a sense of its roots and the possibilities
for its future.
n Carolyn Tuft and Joe Mahr of the St. Louis Post-Dispatch —
For an investigative series called “Broken Promises, Broken Lives,”
exposing abuse of mental patients in state institutions, including 21
deaths and 323 injuries among more than 2,000 confirmed cases
over five years. The series prompted government action, including
a governor's task force. Others who contributed to the series
included project editor Jean Buchanan, design and graphics
director Wade Wilson, copy editor Ted Rodgers, graphic artist Cara
DeMichele, photographer Odell Mitchell, online news editor Dale
Singer and data analyst Jaimi Dowdell.
Innovation
n Mommy Talk team at The Courier, Waterloo/Cedar Falls, IA
— For creating an online, print and podcast forum for parents to
share the daily trials and triumphs of parenting. Mommy Talk is
available at attitudesforwomen.com, where the blog attracts 20,000
page views a month and where 2,500 visitors regularly download
the podcast. It is written and podcast by Leanne Klinkenberg,
mother of a toddler and an infant, and Meta Hemenway-Forbes,
mother of two teenagers. Others on the team are Christopher
Koop, webmaster, and Lance Jenkins, interactive media specialist.
n The Pantagraph, Bloomington, IL, and the Herald & Review,
Decatur, IL — For developing a popular online-to-print employment
advertising program. Their “Now Hiring” rack publications reverse
publish listings from their online sites and are sold in packages that
include core, niche and interactive products. Several other Lee
newspapers are planning to launch similar programs. Team leaders
were Sarah Ehrmantraut, inside classified sales manager of The
Pantagraph, and Todd Nelson, publisher of the Herald & Review.
n The advertising, production and news staffs of the St. Louis
Post-Dispatch — For developing a highly successful series of
creative ad shapes. The attention-getting ads command premium
rates and have received positive reviews from both advertisers and
readers. The Post-Dispatch shared the ideas with other Lee
newspapers. In St. Louis alone, these creative shapes are credited
with meaningfully increasing advertising sales.
n The North County Times, Oceanside/ Escondido, CA — For
driving an explosion of community discussion in the newspaper
and at www.nctimes.com. The staff posts hundreds of news stories
and reader opinions every day, then prints many of the comments
in the paper, creating an intense cycle of interest. The result:
Readership of the newspaper rose 15 percent in 18 months, online
page views climbed 90 percent, and online revenue more than
doubled. The project is headed by online editor Andrew Kleske.
n Billings Gazette Communications, Billings, MT — For
developing an online auction called “Hot Buys, Cool Cash.”
Readers used certificates in the newspaper to pay half of their bids,
and advertisers used merchandise or services to pay half of their
participation. The promotion is credited with increasing newspaper
circulation, driving online traffic and generating revenue. The
project was guided by Dave Worstell and Allyn Calton.
Spirit
n Gigi Contardo, The Times-News, Twin
Falls, ID — In his six years as building
manager, Gigi has been a multiple winner of
the newspaper’s employee of the year
award. He brightens everyone’s day with his
cheerful greetings, caring work and morale-
building spirit. This past year, among many
examples of his concern for others, he led
the newspaper's efforts in a community-wide
campaign to paint the homes of area residents who could not do
the work themselves. Gigi is an immigrant who once was a tailor
for a touring ballet company in his native country of Romania.
n Shirley Davis Homrighausen, Quad-City
Times, Davenport, IA — Shirley has been
an amazing dynamo at the newspaper for 50
years. She started there after applying for a
photographer opening at another newspaper
and being told that it didn’t hire women to
cover real news. In addition to becoming one
of the newspaper’s most prolific writers and
skilled editors, she has headed its Plus 60
Club for the last 21 years. Because of her passion, thousands of
senior citizens engage in a multitude of activities year round and
remain fiercely loyal to the newspaper.
Lee Enterprises 2006 Annual Report 7
Directors and Officers
Board of Directors
Mary E. Junck
Chairman, President and Chief Executive Officer; Director
since 1999; Chairman of Executive Committee
Richard R. Cole
Dean Emeritus and John Thomas Kerr Jr. Distinguished
Professor, School of Journalism and Mass Communication,
University of North Carolina at Chapel Hill; Director since
2006; member of the Nominating and Corporate
Governance Committee
Nancy S. Donovan
Founding Partner, Circle Financial Group, LLC; Founding
Partner, Oakmont Partners, LLC; Director since 2003;
member of Audit Committee
William E. Mayer
Founding Partner, Park Avenue Equity Partners, L.P.;
Director since 1998; Lead Director, Chairman of Executive
Compensation Committee and member of Executive and
Nominating and Corporate Governance committees
Herbert W. Moloney III
President and Chief Operating Officer, Western Colorprint,
Inc.; Director since 2001; member of Audit and Executive
Compensation committees
Andrew E. Newman
Private Investor; Director since 1991; Chairman of Audit
Committee and member of Executive Compensation
Committee
Gordon D. Prichett
Partner, Cairnwood Cooperative, and Professor of
Mathematics, Statistics and Information Systems, Babson
College; Director since 1998; member of Audit and
Executive committees
Gregory P. Schermer
Vice President – Interactive Media; Director since 1999
Mark B. Vittert
Private Investor; Director since 1986; Chairman of Nomi-
nating and Corporate Governance Committee and member
of Executive Compensation Committee
8 Lee Enterprises 2006 Annual Report
Executive Team
Mary E. Junck
Chairman, President and Chief Executive Officer
Joyce L. Dehli
Vice President – News
Nancy L. Green
Vice President – Circulation;
Publisher, The Courier, Waterloo/Cedar Falls, IA
Karen J. Guest
Vice President – Law and Chief Legal Officer
Michael R. Gulledge
Vice President – Publishing;
Publisher, Billings Gazette, Billings, MT
Daniel K. Hayes
Vice President – Corporate Communications
Brian E. Kardell
Vice President – Production and Chief Information Officer
Vytenis P. Kuraitis
Vice President – Human Resources
Linda Ritchie Lindus
Vice President – Publishing;
Publisher, The Pantagraph, Bloomington, IL
Kevin D. Mowbray
Vice President – Publishing;
Publisher, St. Louis Post-Dispatch
Carl G. Schmidt
Vice President, Chief Financial Officer and Treasurer
Gregory P. Schermer
Vice President – Interactive Media
John VanStrydonck
Vice President – Publishing;
Publisher, Missoulian, Missoula, MT
Greg R. Veon
Vice President – Publishing
As required by the
rules of the Securities
and Exchange
Commission (SEC)
and New York Stock
Exchange (NYSE), on
December 14, 2006,
the certifications of the
Chief Executive Officer
and Chief Financial
Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of
2002 were filed by the
Company with the
SEC (these certifica-
tions are exhibits to
the Company’s Annual
Report on Form 10-K),
and on March 16,
2006, the Annual CEO
Certification was filed
with the NYSE.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6227
LEE ENTERPRISES, INCORPORATED
(Exact name of Registrant as specified in its charter)
Delaware
(State of incorporation)
42-0823980
(I.R.S. Employer Identification No.)
201 N. Harrison Street, Suite 600, Davenport, Iowa 52801
(Address of principal executive offices)
(563) 383-2100
Registrant’s telephone number, including area code
Title of Each Class
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On Which Registered
Common Stock - $2.00 par value
Preferred Share Purchase Rights
New York Stock Exchange
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock - $2.00 par value
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes [X] No [ ]
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes [ ] No [X]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
Chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-
accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.:
1
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
[ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by
reference to the price at which the common equity was last sold, or the average bid and asked price of such
common equity, as of the last business day of the Registrant’s most recently completed second fiscal quarter.
Based on the closing price of the Registrant’s Common Stock on the New York Stock Exchange on March 31,
2006: approximately $1,450,973,000. For purposes of the foregoing calculation only, as required, the Registrant
has included in the shares owned by affiliates the beneficial ownership of Common Stock and Class B Common
Stock of officers and directors of the Registrant and members of their families, and such inclusion shall not be
construed as an admission that any such person is an affiliate for any purpose.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 30,
2006. Common Stock, $2.00 par value, 39,674,685 shares and Class B Common Stock, $2.00 par value,
6,372,440 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement to be filed in January 2007 are
incorporated by reference in Part III of this Form 10-K.
2
TABLE OF CONTENTS
Forward-Looking Statements
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for the Registrant’s Common Stock and Related Stockholder Matters
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
Exhibit Index
Consolidated Financial Statements
3
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FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This
report contains information that may be deemed forward-looking, that is based largely on the Company’s current
expectations, and is subject to certain risks, trends and uncertainties that could cause actual results to differ
materially from those anticipated. Among such risks, trends and other uncertainties are changes in advertising
demand, newsprint prices, energy costs, interest rates, labor costs, legislative and regulatory rulings and other
results of operations or financial conditions, difficulties in integration of acquired businesses or maintaining
employee and customer relationships and increased capital and other costs. The words “may,” “will,” “would,”
“could,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “projects,” “considers” and similar expressions
generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such
forward-looking statements, which are made as of the date of this report. The Company does not undertake to
publicly update or revise its forward-looking statements.
PART I
References to 2006, 2005, 2004 and the like mean the fiscal years ended September 30.
ITEM 1. BUSINESS
The Company directly, and through its ownership of associated companies, publishes 56 daily newspapers in 23
states and more than 300 weekly, classified and specialty publications, along with associated and integrated
online sites. The Company was founded in 1890, incorporated in 1950, and listed on the New York Stock
Exchange in 1978. Before 2001, the Company also operated a number of network-affiliated and satellite television
stations. In 2006, the Company sold the assets of its publishing and commercial printing operations in Seattle and
Spokane, Washington and Portland, Oregon.
The Company is consistently focused on six key strategic priorities. They are to:
• Grow revenue creatively and rapidly;
• Emphasize strong local news;
• Accelerate our online innovation;
Increase circulation, readership and online audiences;
•
• Nurture employee development and achievement; and
• Exercise careful cost control.
Certain aspects of these priorities are discussed below.
HOWARD AND SIOUX CITY ACQUISITIONS
In 2002, the Company acquired 15 daily newspapers and a 50% interest in the Sioux City, Iowa daily newspaper
(SCN) by purchasing Howard Publications, Inc. (Howard). This acquisition was consistent with the strategy the
Company announced in 2000 to buy daily newspapers with circulation of 30,000 or more. In 2002, the Company
also acquired the remaining 50% of SCN. These acquisitions increased the Company’s circulation by more than
75% and increased its revenue by nearly 50%. In February 2004, two daily newspapers acquired in the Howard
acquisition were exchanged for daily newspapers in Burley, Idaho and Elko, Nevada.
PULITZER ACQUISITION
In June 2005, the Company acquired Pulitzer Inc. (Pulitzer). Pulitzer published 14 daily newspapers and more
than 100 weekly newspapers and specialty publications. Pulitzer also owns a 50% interest in TNI Partners, as
described more fully below. The acquisition of Pulitzer increased the Company’s circulation by more than 50%, to
more than 1.6 million daily and more than 1.9 million Sunday, and revenue by more than 60%.
Pulitzer newspaper operations include St. Louis, Missouri, where its subsidiary, St. Louis Post-Dispatch LLC (PD
LLC), publishes the St. Louis Post-Dispatch, the only major daily newspaper serving the greater St. Louis
metropolitan area. St. Louis newspaper operations also include the Suburban Journals, a group of 35 weekly
papers and various niche publications that focus on providing local news and editorial content to the communities
they serve. In 2006, the Suburban Journals had average unduplicated circulation of approximately 0.7 million,
resulting in the delivery of approximately 1.1 million copies per week.
4
Pulitzer holds a 95% interest in the results of operations of PD LLC, and The Herald Company, Inc. (Herald) holds
a 5% interest.
Pulitzer’s wholly-owned subsidiary, Pulitzer Newspapers, Inc. (PNI), and its subsidiaries published 12 daily
newspapers, as well as more than 75 weekly newspapers, shoppers and niche publications, that serve markets in
the Midwest, Southwest and West. In 2006, the Company sold the assets of The Daily News in Rhinelander,
Wisconsin, the smallest of these newspapers.
In 2005 and 2006, the Company devoted substantial attention to the successful integration of Pulitzer into its
business. The Company made significant and immediate changes to systems and other areas of operations. The
Company also devoted resources and training to bring its successful selling strategies and tactics to Pulitzer. The
Company believes the integration was successful, with minimal disruption to the business.
TNI Partners
As a result of the acquisition of Pulitzer, the Company owns a 50% interest in TNI Partners (TNI), the Tucson,
Arizona newspaper partnership. TNI, acting as agent for the Company’s subsidiary, Star Publishing Company
(Star Publishing), and the owner of the remaining 50%, Citizen Publishing Company (Citizen), a subsidiary of
Gannett Co. Inc., is responsible for printing, delivery, advertising, and circulation of the Arizona Daily Star and the
Tucson Citizen and their related online operations. TNI collects all receipts and income 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. Under the amended and restated joint operating agreement
between Star Publishing and Citizen (the Agency Agreement), The Arizona Daily Star remains the separate
property of Star Publishing. Income or loss of TNI (before income taxes) is allocated equally to Star Publishing
and Citizen. Results of TNI are accounted for using the equity method.
The Newspaper Preservation Act of 1970 permits joint operating agreements between newspapers under certain
circumstances without violation of the Federal antitrust laws. Agency agreements generally allow newspapers
operating in the same market to share certain printing and other facilities and to pool certain revenue and
expenses in order to decrease aggregate expenses and thereby allow the continuing operation of multiple
newspapers in the same market. Newspapers in several cities operate under joint operating or agency
agreements.
An Agency Agreement has governed the joint operations of the Arizona Daily Star and Tucson Citizen since 1940.
The Board of Directors of TNI presently consists of three directors chosen by Star Publishing and three chosen by
Citizen. Budgetary, key 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. Both the Company and
Citizen incur certain administrative costs and capital expenditures that are reported by their individual companies.
The Arizona Daily Star and the Tucson Citizen benefit from increases, and can be adversely affected by
decreases, in each other’s circulation. The Agency Agreement expires in 2015, but contains an option, which may
be exercised by either party, to renew the agreement for successive periods of 25 years each.
Due to the agency relationship existing in Tucson, the Arizona Daily Star and Tucson Citizen cannot be viewed as
competitors for advertising or circulation revenue. The Arizona Daily Star and Tucson Citizen compete primarily
against other media, suburban, neighborhood and national newspapers, and other publications.
MADISON NEWSPAPERS
The Company owns 50% of the capital stock of Madison Newspapers, Inc. (MNI) and 17% of the nonvoting
common stock of The Capital Times Company (TCT). TCT owns the remaining 50% of the capital stock of MNI.
MNI publishes daily and Sunday newspapers, and other publications in Madison, Wisconsin, and other Wisconsin
locations, as well as the related online sites. MNI conducts business under the trade name Capital Newspapers.
The Company has a contract to furnish the editorial and news content for the Wisconsin State Journal, which is
published by MNI, and periodically provides other services to MNI. The Wisconsin State Journal is classified as
one of the Lee group of newspapers in the newspaper business and in the rating services. Results of MNI are
accounted for using the equity method. Net income or loss of MNI (after income taxes) is allocated equally to the
Company and TCT. In 2006, MNI sold the assets of its Shawano, Wisconsin daily newspaper.
5
ADVERTISING
More than 77% of the Company’s 2006 revenue was derived from advertising. The Company’s strategies are to
increase its share of local advertising through increased sales pressure in its existing markets and, over time, to
increase readership and circulation unit sales through internal expansion into existing and contiguous markets
and enhancement of online offerings, augmented by selective acquisitions. Acquisition efforts are focused on
newspapers with daily circulation of 30,000 or more, as noted above, and other publications and online
businesses that expand the Company’s operating revenue.
Many of the Company’s businesses operate in geographic groups of publications, or “clusters”, which provide
operational efficiencies and extend sales penetration. Operational efficiencies are obtained through consolidation
of sales forces, back office operations such as finance or human resources, management or production of the
publications. Sales penetration can improve if the sales effort is successful in cross-selling advertising into
multiple publications. A table under the caption “Daily Newspapers and Markets” in Item 1 identifies those groups
of newspapers operating in clusters.
The Company’s newspapers and classified and specialty publications compete with newspapers having national
or regional circulation, magazines, radio, network and cable television, other advertising media such as billboards,
other classified and specialty publications, direct mail, yellow pages directories, as well as other information
content providers such as online sites. Competition for advertising is based on audience size and composition,
circulation levels, readership demographics, price and advertiser results. In addition, several of the Company’s
daily and Sunday newspapers compete with other local daily or weekly newspapers. The Company estimates that
it captures more than 50% of the total advertising dollars spent on print, broadcast and online advertising in
substantially all of its markets, and approximately 30% in St. Louis.
The number of competitors in any given market varies, and cannot be estimated with any degree of certainty.
However, all of the forms of competition noted above exist to some degree in the Company’s markets, including
those listed in the table under the caption “Daily Newspapers and Markets” in Item 1.
The following broadly define major categories of advertising revenue:
Retail advertising is revenue earned from sales of display advertising space in the publication, or for
preprinted advertising inserted in the publication, to local accounts.
National advertising is revenue earned from display advertising space, or for preprinted advertising inserted
in the publication, to national accounts, if there is no local retailer representing the account in the market.
Classified advertising, which includes employment, automotive, real estate for sale or rent, and other
categories, is revenue earned from sales of advertising space in the classified section of the publication or
from publications consisting primarily of such advertising.
Online advertising consists of display, banner, classified or other advertising on websites associated and
integrated with the Company’s print publications.
Niche publications are specialty publications, such as lifestyle, business, health or home improvement
publications that contain significant amounts of advertising.
Classified publications are periodic advertising publications available in racks or delivered free, by carriers or
third-class mail, to all, or selected, households in a particular geographic area. Classified publications offer
advertisers a cost-effective local advertising system and are particularly effective in larger markets with high
media fragmentation.
The Company’s many geographic markets have differences in their advertising rate structures, some of which are
highly complex. A single operation often has scores of rate alternatives.
6
The chart above compares newspaper advertising spending, as measured by the Newspaper Association of
America (NAA), and the Company’s same property advertising revenue, for the last eleven fiscal quarters, the
period for which comparable information is available. See Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations for additional information on same property comparisons. The
advertising environment is influenced by the state of the overall economy, including unemployment rates, inflation,
energy prices and consumer interest rates. The Company’s enterprises are generally located in midsize and
smaller markets. These markets were more stable than major metropolitan markets during the most recent
downturn in advertising spending but may not experience increases in such spending as significant as those in
major metropolitan markets in periods of economic improvement.
ONLINE ADVERTISING AND SERVICES
The Company’s online activities include websites supporting each of its daily newspapers and certain of its other
publications. Internet activities of the newspapers, except for TNI and MNI, are reported and managed as a part of
the Company’s publishing operations.
In November 2006, the Company, in conjunction with seven other major publishing organizations, announced a
strategic alliance with Yahoo! Inc. (Yahoo), whereby the publishing consortium will offer its classified employment
advertising customer base the opportunity to also post job listings on Yahoo’s HotJobs national platform. In
addition, the consortium and Yahoo plan to work together to provide new search, content and local applications
across the newspapers’ online sites, further enhancing the value of these sites as a destination for online users.
The Company also owns 83% of an Internet service company, INN Partners, L.C. (doing business as
TownNews.com) that provides online infrastructure for more than 1,500 daily and weekly newspapers and
shoppers. In addition, the Company has minority investments in two online service companies, which provide
integrated online classified solutions for the newspaper industry, integrate online editorial content and provide
transactional and promotional opportunities.
Online businesses of the Company have experienced rapid growth over the last several years, which is expected
to continue. Online advertising represented 4.7% of total advertising revenue in September 2006, an increase
from 3.3% in September 2005. Page views increased 45.4% between September 2005 and September 2006.
READERSHIP AND CIRCULATION
Based on independent research, the Company estimates that, on an average Sunday, its newspapers are read by
up to 75% of adults in its markets. In the St. Louis market, Scarborough Research estimates the St. Louis Post
Dispatch and STLToday.com reach 63% of adults. The Company’s extensive array of suburban newspapers and
other publications further increases reach in St. Louis. Readership by young adults is also significant in the
Company’s markets as summarized in the table below. The Company is reaching an increasingly larger share of
the market through rapid online growth, as illustrated in the table below, as well as through additional specialty
and niche publications.
Print Plus Online Reach, Top 10 Lee Markets – Past Seven Days
7
All
Adults
Age
18-34
50%
11
61
6
67%
37%
12
49
8
57%
Print only
Print plus online
Online only
Total reach
Source:
Lee Enterprises Tracking Survey, October 2006.
Markets:
Davenport,
St. Louis, Madison, Oceanside/Escondido, Northwest Indiana, Lincoln,
Billings, Bloomington, Sioux City, Waterloo
After advertising, circulation is the Company’s largest source of revenue. According to national Editor & Publisher
data, daily newspaper circulation unit sales have decreased 15% cumulatively through 2005 since their peak in
1985 and Sunday circulation unit sales have decreased 12% since their peak in 1990. The number of daily
newspapers declined 13% from 1985 to 2005. For the six months ended September 2006, daily circulation, which
includes Pulitzer, TNI and MNI, as measured by the Audit Bureau of Circulations (ABC), declined 0.2%, and
Sunday circulation declined 0.5%, significantly outperforming the industry as a whole. The charts on page 6 depict
the percentage change in daily and Sunday circulation unit sales of the Company’s newspapers over the last five
years, compared to the corresponding six month period of the previous year. Such results are, in substantially all
reporting periods, better than industry averages.
Growth in readership and circulation, as well as growth in online visitors, can, over time, also positively impact
advertising revenue. The Company’s strategies to improve readership and circulation, as well as website visits,
include continuous improvement of content and promotional efforts. Content can include focus on local news,
features, scope of coverage, headline accuracy, presentation, writing style, tone, type style and reduction of
factual errors. Promotional efforts include advertising, contests and other initiatives to increase awareness of the
products. Customer service can also influence circulation. The Company’s enterprises are also focused on
increasing the number of subscribers who pay for their subscriptions via automated payment mechanisms, such
as credit cards or checking account withdrawals. Customers using these payment methods have historically
higher retention. Other initiatives vary from location to location and are determined principally by the publishers at
the local level in collaboration with senior management of the Company. Competition for circulation is generally
based on the content, journalistic quality and price of the publication.
Circulation competition exists in all markets, even from unpaid products, but is most significant in markets with
competing daily newspapers. These markets tend to be near major metropolitan areas, where the size of the
population is sufficient to support more than one daily newspaper.
8
Changes in telemarketing regulations first effective in 2004 reduced the Company’s ability to obtain new
subscribers using this channel. Other methods to attract and retain subscribers have been and remain in use.
However, telemarketing has historically been the largest single source of new subscribers. Same property
circulation starts obtained through the Company’s marketing efforts increased more than 10% in 2004, in spite of
new telemarketing restrictions, but declined 2% in 2006 and 2005.
In 2004, several major newspaper publishers (not including the Company) announced significant downward
adjustments to previously reported circulation totals. The Company did not experience any impact on its
relationships with advertisers from such announcements by other publishers. Approximately 75% of the
Company’s circulation is home delivery. Combined with small route sizes and the limited use of independent
distributors, monitoring and inspection of the Company’s circulation is not as difficult as in some major
metropolitan markets. Nonetheless, in 2004 the Company enhanced its existing procedures in several areas to
further ensure the integrity of its reported circulation.
9
DAILY NEWSPAPERS AND MARKETS
The Company, TNI and MNI publish the following daily newspapers and online sites:
Newspaper
Primary Website
Location
Paid Circulation (1)
Sunday
Daily
St. Louis Post-Dispatch (2)
Arizona Daily Star (2)(3)
Capital Newspapers (4)
Wisconsin State Journal
The Capital Times
Daily Citizen
Portage Daily Register
Baraboo News Republic
North County Times (6)
The Times (6)
Lincoln Group
Lincoln Journal Star
Columbus Telegram
Fremont Tribune
Beatrice Daily Sun
Quad-Cities Group
Quad-City Times
Muscatine Journal
The Pantagraph (2)
Billings Gazette
The Courier (6)
Sioux City Journal (6)
The Post-Star (6)
Central Illinois Newspaper Group
Herald & Review
Journal Gazette (6)
Times-Courier (6)
River Valley Newspaper Group
La Crosse Tribune
Winona Daily News
The Daily Herald (2)
Casper Star-Tribune (6)
Rapid City Journal
Missoula Group
Missoulian
Ravalli Republic
The Journal Times
The Bismarck Tribune
The Southern Illinoisan
The Daily News (6)
stltoday.com
azstarnet.com
St. Louis, MO
Tucson, AZ
276,588
104,731
418,262
156,694
madison.com
madison.com
wiscnews.com/bdc
wiscnews.com/pdr
wiscnews.com/bnr
nctimes.com
nwitimes.com
Madison, WI
Madison, WI
Beaver Dam, WI
Portage, WI
Baraboo, WI
Oceanside
and Escondido, CA
Munster,
Valparaiso, and
Crown Point, IN
87,547
17,581
9,917
4,927
4,234
87,010
(5 )
(5 )
144,679
-
-
-
-
90,425
81,206
90,025
journalstar.com
columbustelegram.com Columbus, NE
fremonttribune.com
beatricedailysun.com
Fremont, NE
Beatrice, NE
Lincoln, NE
Davenport, IA
qctimes.com
muscatinejournal.com Muscatine, IA
pantagraph.com
billingsgazette.com
wcfcourier.com
Bloomington, IL
Billings, MT
Waterloo and
Cedar Falls, IA
Sioux City, IA
Glens Falls, NY
siouxcityjournal.com
poststar.com
herald-review.com
jg-tc.com
jg-tc.com
Decatur, IL
Mattoon, IL
Charleston, IL
La Crosse, WI
lacrossetribune.com
winonadailynews.com Winona, MN
heraldextra.com
casperstartribune.com Casper, WY
rapidcityjournal.com
Provo, UT
Rapid City, SD
missoulian.com
ravallinews.com
journaltimes.com
bismarcktribune.com
thesouthern.com
tdn.com
Missoula, MT
Hamilton, MT
Racine, WI
Bismarck, ND
Carbondale, IL
Longview, WA
76,504
8,861
8,219
7,728
50,420
7,597
46,417
45,969
41,477
82,824
9,733
-
-
68,472
-
50,386
52,954
50,301
40,626
33,271
41,894
36,096
32,874
9,910
6,603
31,941
11,192
31,779
31,562
29,257
29,116
5,166
28,375
27,535
26,810
21,530
44,519
-
-
41,415
12,826
39,842
34,183
34,113
(7 )
33,584
-
30,612
31,191
36,592
21,481
Paid Circulation (1)
Newspaper
Primary Website
Location
Daily
Sunday
10
Magic Valley Group
The Times-News (6)
Elko Daily Free Press (8)
South Idaho Press (8)
Central Coast Newspapers
Santa Maria Times (2)
The Lompoc Record (2)
Globe Gazette
The Times and Democrat (6)
Mid-Valley News Group
Albany Democrat-Herald
Corvallis Gazette-Times
Napa Valley Register (2)
The Sentinel (6)
Independent Record
The Montana Standard
The Sentinel (2)
The World (2)
The Citizen (6)
Arizona Daily Sun (2)
Daily Chronicle (2)
The Garden Island (2)
The Ledger Independent (6)
Daily Journal (2)
The Chippewa Herald
Twin Falls, ID
magicvalley.com
elkodaily.com
Elko, NV
southidahopress.com Burley, ID
santamariatimes.com Santa Maria, CA
lompocrecord.com
globegazette.com
thetandd.com
Lompoc, CA
Mason City, IA
Orangeburg, SC
(7 )
(7 )
20,504
6,140
3,728
19,304
6,604
18,689
17,112
Albany, OR
Corvallis, OR
democratherald.com
gazettetimes.com
napavalleyregister.com Napa, CA
cumberlink.com
helenair.com
mtstandard.com
hanfordsentinel.com
theworldlink.com
auburnpub.com
azdailysun.com
daily-chronicle.com
kauaiworld.com
maysville-online.com Maysville, KY
dailyjournalonline.com Park Hills, MO
chippewa.com
Carlisle, PA
Helena, MT
Butte, MT
Hanford, CA
Coos Bay, OR
Auburn, NY
Flagstaff, AZ
DeKalb, IL
Lihue, HI
Chippewa Falls, WI
17,094
11,584
16,937
14,650
14,439
14,245
13,759
12,388
11,648
11,319
9,698
9,404
8,564
8,117
6,882
1,637,289
23,646
-
-
19,678
6,407
23,327
17,156
17,745
11,975
17,357
15,503
15,031
14,519
13,141
-
13,555
12,469
10,719
9,639
-
8,335
7,079
1,910,384
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Source: ABC: Six months ended September 2006, unless otherwise noted.
Acquired in 2005.
Owned by Star Publishing but published through TNI.
Owned by MNI, which is 50% owned by the Company.
Combined edition.
Acquired in 2002.
Source: Company statistics.
Acquired in 2004.
COMMERCIAL PRINTING
The Company offers commercial printing services through the following entities:
Selma Enterprises
William Street Press
Hawkeye Printing and Trico Communications
Platen Press
Farcountry Press
Journal Star Commercial Printing
Plaindealer Publishing
Triangle Press
Wingra Printing (1)
Location
Selma, California
Decatur, Illinois
Davenport, Iowa
Butte, Montana
Helena, Montana
Lincoln, Nebraska
Tekamah, Nebraska
Chippewa Falls, Wisconsin
Madison, Wisconsin
(1) Owned by MNI, which is 50% owned by the Company.
Certain of the Company’s newspapers also directly provide commercial printing services. Commercial printing
business is highly competitive and generally has lower operating margins than newspapers.
11
NEWSPRINT
The basic raw material of newspapers, and classified and specialty publications, is newsprint. The Company and
its subsidiaries purchase newsprint from U.S. and Canadian producers. The Company believes it will continue to
receive a supply of newsprint adequate for its needs and considers its relationships with newsprint producers to
be good. Newsprint prices are volatile and fluctuate based upon factors that include both foreign and domestic
production capacity and consumption. Between September 2005 and September 2006, the Resource Information
Systems, Inc. 30 pound newsprint price index rose 7.8%. Price fluctuations can have a significant effect on the
results of operations. The Company has not entered into derivative contracts for newsprint. For additional
information regarding supply of newsprint, see “Contractual Obligations” under Item 7, included herein. For the
quantitative impacts of these fluctuations, see “Quantitative And Qualitative Disclosures About Market Risk” under
Item 7A, included herein.
12
EXECUTIVE TEAM
The following table lists executive team members of the Company as of November 30, 2006:
Name
Age
Service
with the
Company
Named
to Current
Position
Mary E. Junck
59 June 1999
January 2002
Current Position
Chairman, President and Chief
Executive Officer
Joyce L. Dehli
Nancy L. Green
Karen J. Guest
48 August 1987
February 2006
Vice President – News
64 December 2000 September 2002 Vice President – Circulation
53 July 2006
July 2006
Vice President – Law and Chief
Legal Officer
Michael R. Gulledge
46 October 1982
May 2005
Vice President – Publishing
Daniel K. Hayes
61 September 1969 September 2005 Vice President – Corporate
Communications
Brian E. Kardell
43 January 1991
August 2003
Vytenis P. Kuraitis
58 August 1994
January 1997
Vice President – Production and
Chief Information Officer
Vice President – Human
Resources
Linda Ritchie Lindus
58 April 2000
October 2005
Vice President – Publishing
Kevin D. Mowbray
44 September 1986 November 2004 Vice President – Publishing
Gregory P. Schermer
52 February 1989
November 1997 Vice President – Interactive
Media
Carl G. Schmidt
50 May 2001
May 2001
Vice President, Chief Financial
Officer and Treasurer
John VanStrydonck
53 March 1981
June 2000
Vice President – Publishing
Greg R. Veon
54 April 1976
November 1999 Vice President – Publishing
Mary E. Junck was elected Chairman, President and Chief Executive Officer in January 2002. From January 2001
to January 2002 she served as President and Chief Executive Officer. From January 2000 to January 2001 she
served as President and Chief Operating Officer. From May 1999 to January 2000 she served as Executive Vice
President and Chief Operating Officer.
Joyce L. Dehli was appointed Vice President – News in February 2006. From April 2005 to February 2006, she
served as Director of Editorial Development. From October 2004 to April 2005 she served as Editorial Training
Manager. From August 2003 to October 2004 she served as Managing Editor of the Wisconsin State Journal.
From April 2001 to August 2003 she served as Assistant Managing Editor of the Wisconsin State Journal.
Nancy L. Green was appointed Vice President – Circulation in September 2002 and named Publisher of The
Courier in August 2004. From December 2000 to September 2002, she served as Director of Circulation Sales,
Distribution and Marketing.
13
Karen J. Guest was appointed Vice President – Law and Chief Legal Officer in July 2006. From April 2003 until
July 2006, she served as General Counsel to PAJ, Inc. Prior to April 2003, she served as Vice-President/General
Counsel for United Advertising Publications, Inc.
Michael R. Gulledge was elected a Vice President – Publishing in May 2005 and named Publisher of the Billings
Gazette in October 2000. From February 2002 to May 2005 he served as a Group Publisher.
Daniel K. Hayes was appointed Vice President – Corporate Communications in September 2005. From 1998 to
September 2005 he served as Director of Communications.
Brian E. Kardell was appointed Vice President – Production and Chief Information Officer in August 2003. From
2001 to August 2003, he served as Vice President – Information Systems and Chief Information Officer. From
1997 to 2001, he served as Director of Information Services and Chief Information Officer.
Vytenis P. Kuraitis was elected Vice President – Human Resources in 1997.
Linda Ritchie Lindus was elected a Vice President – Publishing in October 2005 and named Publisher of The
Pantagraph in June 2005. From February 2002 to October 2005 she served as a Group Publisher. From July
2002 to June 2005 she also served as Publisher of the Herald & Review. From April 2000 to February 2002, she
served as Publisher of The Southern Illinoisan.
Kevin D. Mowbray was elected a Vice President – Publishing in November 2004 and named Publisher of the St.
Louis Post-Dispatch in May 2006. From November 2004 to May 2006 he served Publisher of The Times. From
July 2002 to November 2004 he served as Vice President – Sales & Marketing. From 2000 to July 2002 he
served as Publisher of The Bismarck Tribune.
Gregory P. Schermer was elected Vice President – Interactive Media in November 1997. He also serves on the
Board of Directors of the Company. From 1989 to 2006, he served as Corporate Counsel of the Company.
Carl G. Schmidt was elected Vice President, Chief Financial Officer and Treasurer in May 2001.
John VanStrydonck was elected a Vice President – Publishing in June 2000 and named Publisher of the
Missoulian in October 2002.
Greg R. Veon was elected a Vice President – Publishing in November 1999.
EMPLOYEES
At September 30, 2006, the Company had approximately 9,400 employees, including approximately 2,400 part-
time employees, exclusive of MNI and TNI. Full-time equivalent employees at September 30, 2006 totaled
approximately 8,300. The Company considers its relationships with its employees to be good.
Bargaining unit employees represent approximately 900, or 72%, of the total employees of the St. Louis Post-
Dispatch. The St. Louis Post-Dispatch has contracts with substantially all bargaining unit employees with
expiration dates ranging from November 2006 through January 2011. In 2006, the Company executed a new
agreement, expiring in 2012, with the St. Louis Graphic Communications Local 38N, which represents
approximately 100 employees in St. Louis. The St. Louis Post-Dispatch is currently in negotiations with the
Graphic Communications International Union (GCIU) Local No. 6-505M, which represents approximately 13
employees and the Machinist District No. 9, which represents 12 employees. The GCIU contract expired in
September 2002. All St. Louis Post-Dispatch labor contracts contain no-strike clauses.
Approximately 160 employees in eight additional locations are represented by collective bargaining units.
Contracts at two of these locations are expired and negotiations are ongoing.
CORPORATE GOVERNANCE AND PUBLIC INFORMATION
The Company has a long, substantial history of progressive corporate governance practices. The Board of
Directors has a lead independent director, and has had one for many years. Currently, seven of nine members of
the Board of Directors are independent, as are all members of the Board’s Audit, Executive Compensation and
Nominating and Corporate Governance committees. The Audit Committee approves all services to be provided by
the Company’s independent registered public accounting firm and its affiliates.
14
In addition, the Company’s revenue, including same property results, is reported to the public on a monthly basis,
as is certain other statistical information, improving the timeliness of reporting of information to investors. The
Company was also among the first to voluntarily record expense related to employee stock options.
At www.lee.net, one may access a wide variety of information, including news releases, Securities and Exchange
Commission filings, financial statistics, annual reports, presentations, governance documents, newspaper profiles
and online links. The Company makes available via its website, all filings made by the Company under the
Securities Exchange Act of 1934, including Forms 10-K, 10-Q and 8-K, and related amendments, as soon as
reasonably practicable after they are filed with, or furnished to, the SEC. All such filings are available free of
charge. The content of any website referred to in this Form 10-K is not incorporated by reference into this Form
10-K unless expressly noted.
OTHER MATTERS
In the opinion of management, compliance with present statutory and regulatory requirements respecting
environmental quality will not necessitate significant capital outlays, materially affect the earning power of the
business of the Company, or cause material changes in the Company’s business, whether present or intended.
ITEM 1A. RISK FACTORS THAT COULD AFFECT OPERATING RESULTS
Risk exists that the Company’s past results may not be indicative of future results. A discussion of certain of the
more significant of these risks follows. See also, “Forward-Looking Statements” on page 1, included herein.
OPERATING REVENUE
Advertising revenue in certain categories, or all categories, may decrease in the future. For example, automotive
classified advertising revenue declined in 2006, primarily related to industry-wide issues affecting certain domestic
auto manufacturers. Such decreases may not be compensated for by growth in advertising in other categories. In
addition, major retail store chains have experienced significant merger and acquisition activity over the last
several years, effectively reducing the number of brand names under which the merged entities operate. Such
reductions may negatively impact future amounts of advertising revenue generated by the Company.
Circulation unit sales have been declining fractionally for several years. To date, declines in circulation unit sales
have not substantially mitigated the Company’s ability to implement price increases for its products. However, the
possibility exists that future price increases may be delayed or reduced as a result of future declines in circulation
unit sales. The Company is reaching an increasingly larger share of the market through rapid online growth, as
well as through additional specialty and niche publications.
See Item 1, “Advertising”, included herein, for additional information on the risks associated with advertising
revenue.
OPERATING EXPENSES
Newsprint comprises a significant amount of the Company’s operating costs. See Item 1, “Newsprint” and
Item 7A, “Commodities”, included herein, for additional information on the risks associated with newsprint costs.
INTEREST EXPENSE
The Company has substantial debt, the majority of which is subject to changes in market interest rates. See
Item 7A, “Interest Rates”, included herein, for additional information on the risks associated with floating rate debt.
None.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
The Company’s executive offices are located in leased facilities at 201 North Harrison Street, Suite 600,
Davenport, Iowa. The lease expires in 2019.
All of the Company’s principal printing facilities (except Madison, Wisconsin, which is owned by MNI, Tucson,
which is jointly owned by Star Publishing and Citizen, and leased land for the Helena, Montana and Lihue, Hawaii
15
plants) are owned. All facilities are well maintained, in good condition, suitable for existing office and publishing
operations and adequately equipped. With the exception of St. Louis, none of the Company’s facilities is
individually significant to its business.
Information related to St. Louis facilities at September 30, 2006 is as follows:
PD LLC
Suburban Journals
(Square Feet)
Owned
Leased
753,819
127,335
56,107
41,330
The Baraboo News Republic, Beatrice Daily Sun, Corvallis Gazette-Times, Daily Citizen, Journal Gazette, The
Lompoc Record, Muscatine Journal, Ravalli Republic, Times Courier and Winona Daily News, as well as many of
the Company’s and MNI’s more than 300 other publications, are printed at other Company facilities to enhance
operating efficiency. The Company’s newspapers and other publications have formal or informal backup
arrangements for printing in the event of a disruption in production capability.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a variety of legal actions that arise in the normal course of business. Insurance
coverage mitigates potential loss for certain of these matters. While the Company is unable to predict the ultimate
outcome of these legal actions, it is the opinion of management that the disposition of these matters will not have
a material adverse effect on the Company’s Consolidated Financial Statements, taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of 2006.
16
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
Common Stock of the Company is listed on the New York Stock Exchange. Class B Common Stock is not traded
on an exchange but is readily convertible to Common Stock. Class B Common Stock was issued to stockholders
of record of the Company in 1986 pursuant to a 100% stock dividend and is converted at sale, or at the option of
the holder, into Common Stock. The table below includes the high and low prices of Common Stock for each
quarter during the past three years, the closing price at the end of each quarter and dividends per common share.
1st
2nd
3rd
4th
Quarter
STOCK PRICES
2006
High
Low
Closing
2005
High
Low
Closing
2004
High
Low
Closing
DIVIDENDS
2006
2005
2004
$
$
$
$
43.05 $
36.36
36.91
48.85 $
44.87
46.08
44.15 $
38.67
43.65
0.18 $
0.18
0.18
37.43 $
32.26
33.29
46.06 $
42.70
43.40
46.94 $
43.35
45.18
0.18 $
0.18
0.18
33.74 $
26.95
26.95
43.68 $
39.82
40.09
49.83 $
45.05
48.01
0.18 $
0.18
0.18
27.61
22.98
25.24
44.32
39.90
42.48
48.78
44.65
46.34
0.18
0.18
0.18
Common Stock and Class B Common Stock have identical rights with respect to cash dividends and upon
liquidation. For a more complete description of the relative rights of Common Stock and Class B Common Stock,
see Note 12 of the Notes to Consolidated Financial Statements, included herein.
At September 30, 2006, the Company had 7,172 holders of Common Stock, including participants in the
Company’s employee stock purchase plans, and 1,485 holders of Class B Common Stock.
During the three months ended September 30, 2006, the Company purchased shares of Common Stock, as
noted in the table below, in transactions with participants in its 1990 Long-Term Incentive Plan. The transactions
resulted from the withholding of shares to fund the exercise price and/or taxes related to the exercise of stock
options. The Company is not currently engaged in share repurchases related to a publicly announced plan or
program.
Month
September
Total Number of Shares
Purchased
Average Price
Per Share
835 $
25.24
On November 15, 2006, the Board of Directors declared a dividend in the amount of $0.18 per share on the
issued and outstanding Common Stock and Class B Common Stock of the Company, to be paid on January 2,
2007, to stockholders of record on December 1, 2006.
17
18
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data is as follows:
(Thousands, Except Per Common Share
Data)
2006
OPERATING RESULTS
2005
(1)
2004
2003
2002
(2)
Operating revenue
Operating expenses, excluding
depreciation and amortization
Depreciation and amortization
Equity in earnings of associated
companies
Operating income
Financial income
Financial expense
Income from continuing
operations
Discontinued operations
Net income
$ 1,128,648 $
818,890 $
643,277 $
606,489 $
476,585
849,288
96,070
20,739
204,029
6,054
(95,939)
614,111
59,249
12,784
158,314
2,824
(38,038)
466,866
43,930
8,523
141,004
1,066
(12,665)
442,911
41,903
8,053
129,728
1,120
(16,535)
344,177
30,274
9,057
111,191
6,007
(15,777)
$
$
71,136 $
(304)
70,832 $
70,862 $
82,973 $
6,016
3,098
76,878 $
86,071 $
73,022 $
5,019
78,041 $
74,103
5,727
79,830
EARNINGS (LOSS) PER COMMON SHARE
Basic:
Continuing operations
Discontinued operations
Net income
Diluted:
Continuing operations
Discontinued operations
Net income
Weighted average common
shares:
Basic
Diluted
$
$
$
$
1.57 $
(0.01)
1.56 $
1.56 $
(0.01)
1.56 $
1.57 $
0.13
1.70 $
1.56 $
0.13
1.70 $
1.85 $
0.07
1.92 $
1.84 $
0.07
1.91 $
1.65 $
0.11
1.76 $
1.64 $
0.11
1.75 $
1.68
0.13
1.81
1.67
0.13
1.80
45,421
45,546
45,118
45,348
44,792
45,092
44,316
44,513
44,087
44,351
Dividends per common share
$
0.72 $
0.72 $
0.72 $
0.68 $
0.68
BALANCE SHEET INFORMATION (September 30)
Total assets
Debt, including current maturities
(3)
Stockholders’ equity
$ 3,329,809 $ 3,445,200 $ 1,403,844 $ 1,421,377 $ 1,463,830
1,525,000
990,625
1,688,000
936,410
213,600
876,843
305,200
802,156
409,300
742,774
(1) Includes four months of operations from the Pulitzer acquisition, which was consummated in June 2005.
(2) Includes six months of operations from the Howard acquisition, which was consummated in April 2002.
(3) Principal amount, excluding fair value adjustments in 2006 and 2005.
19
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes comments and analysis relating to the Company’s results of operations and
financial condition as of, and for the three years ended, September 2006. This discussion should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto, included herein.
NON-GAAP FINANCIAL MEASURES
Operating Cash Flow and Operating Cash Flow Margin
Operating cash flow, which is defined as operating income before depreciation, amortization, and equity in
earnings of associated companies, and operating cash flow margin (operating cash flow divided by operating
revenue) represent non-GAAP financial measures that are used in the analysis below. The Company believes
that operating cash flow and the related margin percentage are useful measures of evaluating its financial
performance because of their focus on the Company’s results from operations before depreciation and
amortization. The Company also believes that these measures are several of the alternative financial measures of
performance used by investors, lenders, rating agencies and financial analysts to estimate the value of a
company and evaluate its ability to meet debt service requirements.
A reconciliation of operating cash flow and operating cash flow margin to operating income, the most directly
comparable measure under accounting principles generally accepted in the United States of America (GAAP), is
included in the table below:
(Thousands)
Operating cash flow
Depreciation and
amortization
Equity in earnings of
associated
companies
Operating income
2006
Percent of
Revenue
2005
Percent of
Revenue
2004
Percent of
Revenue
$ 279,360
24.8% $ 204,779
25.0% $ 176,411
27.4%
96,070
8.5
59,249
7.2
43,930
6.8
20,739
$ 204,029
1.8
12,784
18.1% $ 158,314
1.6
8,523
19.3% $ 141,004
1.3
21.9%
Adjusted Income From Continuing Operations and Adjusted Earnings Per Common Share
The Company believes the use of the non-GAAP financial measures of adjusted income from continuing
operations and adjusted earnings per common share provide meaningful supplemental information to investors
and financial analysts with which to evaluate its financial performance by excluding expenses that may not be
indicative of its core business operating results and are of a substantially non-recurring nature. The Company also
believes that both management and investors benefit from referring to these non-GAAP financial measures in
assessing the Company’s performance and in forecasting and analyzing future periods that are not likely to
include the adjusted items. References to these non-GAAP measures should not, however, be considered a
substitute for net income and earnings per common share presented in accordance with GAAP.
SAME PROPERTY COMPARISONS
Certain information below, as noted, is presented on a same property basis, which is exclusive of acquisitions and
divestitures consummated in the current or prior year. The Company believes such comparisons provide
meaningful information for an understanding of changes in its revenue and operating expenses. Same property
comparisons exclude MNI. The Company owns 50% of the capital stock of MNI, which for financial reporting
purposes is reported using the equity method of accounting. Same property comparisons also exclude corporate
office costs.
CRITICAL ACCOUNTING POLICIES
The Company’s discussion and analysis of its financial condition and results of operations are based upon the
Company’s Consolidated Financial Statements, which have been prepared in accordance with GAAP. The
preparation of these financial statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, the Company evaluates its estimates. The Company bases its estimates on
20
historical experience and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions. Additional information follows with regard to certain of the most critical of the
Company’s accounting policies.
Goodwill and Other Intangible Assets
In assessing the recoverability of its goodwill and other nonamortized intangible assets, the Company makes
assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective
assets. The Company analyzes its goodwill and other nonamortized intangible assets for impairment on an
annual basis or more frequently if impairment indicators are present. See Note 6 of the Notes to Consolidated
Financial Statements, included herein, for a more detailed explanation of the Company’s intangible assets.
The Company also periodically evaluates its determination of the useful lives of amortizable intangible assets.
Any resulting changes in the useful lives of such intangible assets will not impact the cash flows of the Company.
However, a decrease in the useful lives of such intangible assets would increase future amortization expense and
decrease future reported operating results and earnings per common share.
Pension, Postretirement and Postemployment Benefit Plans
The Company evaluates its liability for pension, postretirement and postemployment benefit plans based upon
computations made by consulting actuaries, incorporating estimates and actuarial assumptions of future plan
service costs, future interest costs on projected benefit obligations, rates of compensation increases, employee
turnover rates, anticipated mortality rates, expected investment returns on plan assets, asset allocation
assumptions of plan assets, and other factors. If the Company used different estimates and assumptions
regarding these plans, the funded status of the plans could vary significantly, resulting in recognition of different
amounts of expense over future periods.
Income Taxes
Deferred income taxes are provided using the liability method, whereby deferred income tax assets are
recognized for deductible temporary differences and loss carryforwards and deferred income tax liabilities are
recognized for taxable temporary differences. Temporary differences are the difference between the reported
amounts of assets and liabilities and their tax basis. Deferred income tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
The Company files income tax returns with the Internal Revenue Service and various state tax jurisdictions. From
time to time, the Company is subject to routine audits by those agencies, and those audits may result in proposed
adjustments. The Company has considered the alternative interpretations that may be assumed by the various
taxing agencies, believes its positions taken regarding its filings are valid, and that adequate tax liabilities have
been recorded to resolve such matters.
Revenue Recognition
Advertising revenue is recorded when advertisements are placed in the publication or on the related online site.
Circulation revenue is recorded as newspapers are distributed over the subscription term. Other revenue is
recognized when the related product or service has been delivered. Unearned revenue arises in the ordinary
course of business from advance subscription payments for newspapers or advance payments for advertising.
Uninsured Risks
The Company is self-insured for health care, workers compensation and certain long-term disability costs of its
employees, subject to stop loss insurance, which limits exposure to large claims. The Company accrues its
estimated health care costs in the period in which such costs are incurred, including an estimate of incurred but
not reported claims. Other risks are insured and carry deductible losses of varying amounts.
The Company’s reserves for health care and workers compensation claims are based upon estimates of the
remaining liability for retained losses made by consulting actuaries. The amount of workers compensation reserve
21
has been determined based upon historical patterns of incurred and paid loss development factors from the
insurance industry.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2005 the Company adopted Financial Accounting Standards Board (FASB) Statement 123-Revised,
Accounting for Stock-Based Compensation (Statement 123R) and related FASB staff positions. Statement 123R
amends Statement 95, Statement of Cash Flows, to require that excess tax benefits be reported as a financing
cash inflow rather than a reduction of taxes paid.
Statement 123R also establishes standards for accounting for transactions in which an entity exchanges its equity
instruments for goods and services (primarily accounting transactions in which an entity obtains employee
services in share-based payment transactions, such as stock options). Statement 123R requires a public entity to
measure the cost of employee services received in exchange for an equity instrument based on the grant date fair
value of the award. In general, the cost will be recognized over the period during which an employee is required to
provide the service in exchange for the award (usually the vesting period). The fair value based methods in
Statement 123R are similar to the fair value based method in Statement 123 in most respects. The Company
adopted Statement 123 in 2003.
In October 2005 the Company adopted FASB Statement 153, Exchanges of Nonmonetary Assets. This
pronouncement amends APB Opinion 29, Accounting for Nonmonetary Transactions. Statement 153 eliminates
the exception for nonmonetary exchanges of similar productive assets present in APB Opinion 29 and replaces it
with a general exception for exchanges of nonmonetary assets that do not have commercial substance (i.e.
transactions that are not expected to result in significant changes in the cash flows of the reported entity).
In October 2005 the Company adopted FASB Interpretation 47, Accounting for Conditional Asset Retirement
Obligations. Interpretation 47 requires an entity to recognize a liability for a legal obligation to perform an asset
retirement activity in which the timing and/or method of the settlement are conditional on a future event. The
liability must be recognized if the fair value of the liability can be reasonably estimated.
The adoption of the statements and interpretation discussed above did not have a material impact on the
Company’s financial position, results of operations, or cash flows.
In May 2005 the FASB issued Statement 154, Accounting Changes and Error Corrections – a replacement of
APB Opinion No. 20 and FASB Statement No. 3, that changes the requirements for the accounting and reporting
of a change in accounting principle. Statement 154 eliminates the requirement to include the cumulative effect of
changes in accounting principles in the current period of change and instead, requires that changes in accounting
principle be retrospectively applied. Statement 154 is effective for accounting changes made in fiscal years
beginning after December 15, 2005. The Company does not anticipate that the implementation of Statement 154
will have a material impact on its financial position, results of operations, or cash flows.
In July 2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income Taxes, which is effective
for fiscal years beginning after December 15, 2006. Interpretation 48 clarifies the accounting for uncertainty in
income taxes recognized in the financial statements in accordance with FASB Statement 109. Interpretation 48
prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its
financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. The
Company has not completed its evaluation of the effects of Interpretation 48 on its Consolidated Financial
Statements.
In September 2006, the FASB issued Statement 157, Fair Value Measurements, which defines fair value,
provides guidelines for measuring fair value and expands disclosure requirements. Statement 157 does not
require any new fair value measurement but applies to the accounting pronouncements that require or permit fair
value measurement. Statement 157 is effective for fiscal years beginning after November 15, 2007. The Company
does not anticipate that the implementation of Statement 157 will have a material impact on its financial position,
results of operation, or cash flows.
In September 2006, the FASB issued Statement 158, Employer’s Accounting for Defined Benefit Pension and
Other Postretirement Plans, which amends statements 87, 88, 106 and 132(R). Statement 158 requires the
recognition of the over-funded or under-funded status of a defined benefit postretirement plans as an asset or
liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur
through comprehensive income. Statement 158 is effective at the end of 2007. Had Statement 158 been adopted
22
at September 30, 2006, the Company’s assets would have increased and liabilities would have decreased in the
aggregate amount of $44,191,000, less the related income tax effect, and stockholders’ equity would have
increased by $44,191,000, less the related income tax effect. Actual adjustments have not been determined as
the related actuarial computations have not been performed.
Statement 158 will also require the Company to change its measurement date from June 30 to September 30,
beginning in 2008. The change in measurement date will require a one-time adjustment to retained earnings, the
effect of which cannot be determined at this time. None of the changes required will impact the Company’s results
of operations or cash flows.
23
CONTINUING OPERATIONS
2006 vs. 2005
Operating results, as reported in the Consolidated Financial Statements, are summarized below:
(Thousands, Except Per Common Share Data)
2006
2005
Total
Same
Property
Percent Change
$
463,991 $
57,869
341,977
33,031
35.7%
75.2
0.5%
(7.2)
Advertising revenue:
Retail
National
Classified:
Daily newspapers:
Employment
Automotive
Real estate
All other
Other publications
Total classified
Online
Niche publications
Total advertising revenue
Circulation
Commercial printing
Online services and other
Total operating revenue
Compensation
Newsprint and ink
Other operating expenses
Early retirement program
Transition costs
Operating cash flow
Depreciation and amortization
Equity in earnings of associated companies
Operating income
Non-operating expense, net
Income from continuing operations before
income taxes
Income tax expense
Minority interest
Income from continuing operations
Earnings per common share from
continuing operations:
Basic
Diluted
$
$
7.1
(10.2)
1.3
1.8
6.7
1.1
43.1
8.2
1.7
(1.0)
0.3
(1.3)
1.1
1.8
8.7
5.5
NM
NM
3.9
(5.0)
(1.8)
90,472
60,953
63,802
39,253
45,868
300,348
35,769
16,591
874,568
205,718
17,265
31,097
1,128,648
435,836
120,191
280,018
8,654
4,589
849,288
279,360
96,070
20,739
204,029
(91,922)
112,107
39,740
1,231
71,136 $
63,923
49,320
47,171
29,200
28,411
218,025
17,983
13,093
624,109
153,571
14,766
26,444
818,890
325,959
79,331
190,768
9,124
8,929
614,111
204,779
59,249
12,784
158,314
(46,834)
111,480
40,458
160
70,862
41.5
23.6
35.3
34.4
61.4
37.8
98.9
26.7
40.1
34.0
16.9
17.6
37.8
33.7
51.5
46.8
NM
NM
38.3
36.4
62.1
62.2
28.9
96.3
0.6
(1.8)
NM
0.4%
1.57 $
1.56
1.57
1.56
- %
-
Sundays generate substantially more advertising and circulation revenue than any other day of the week. 2006
had the same number of Sundays as 2005.
In June 2005, the Company acquired Pulitzer. Pulitzer published fourteen daily newspapers (the smallest of which
was sold in 2006), including the St. Louis Post-Dispatch, and more than 100 weekly newspapers and specialty
publications. Pulitzer also owns a 50% interest in TNI. The acquisition of Pulitzer increased the Company’s
circulation by more than 50% and revenue by more than 60%.
24
In total, acquisitions and divestitures accounted for $450,341,000 of operating revenue in 2006 and $147,643,000
of operating revenue in 2005.
Advertising Revenue
In 2006, total advertising revenue increased $250,459,000, or 40.1%, and same property advertising revenue
increased $8,559,000, or 1.7%. Same property retail revenue increased $1,431,000, or 0.5%, in 2006. Continuing
emphasis on rate discipline offset by a 1.0% decrease in retail advertising lineage contributed to the increase.
Same property average retail rates, excluding preprint insertions, increased 1.2% in 2006. Rate discipline means
adhering to standard rates rather than negotiating specific rates for individual customer situations.
Same property classified advertising revenue increased $1,907,000, or 1.1%, in 2006. Higher rate employment
advertising at the daily newspapers increased 7.1% for the year on a same property basis. The Company’s
increases in employment classified advertising compare favorably to national survey amounts. The September
2006 Help Wanted Index, as calculated by the Conference Board, decreased 18.9% from the prior year level.
Same property average automotive advertising decreased 10.2%, due to a 3.6% decrease in average automotive
rates and a 6.8% decrease in lineage. Same property real estate advertising increased 1.3% due to an increase
in advertising of real estate for sale. Other daily newspaper classified advertising increased 1.8% on a same
property basis. Same property classified advertising rates increased 1.1%, primarily due to an increase in
employment rates offset by declines in automotive rates.
Advertising lineage, as reported on a same property basis for the Company’s daily newspapers only, consists of
the following:
(Thousands of Inches)
Retail
National
Classified
2006
2005
Percent Change
10,633
492
11,917
23,042
10,741
580
11,976
23,297
(1.0)%
(15.2)
(0.5)
(1.1)%
Online advertising revenue increased 43.1% on a same property basis, due to rate increases, expanded use of
the Company’s online business model and cross-selling with the Company’s print publications. Online classified
advertising registered particularly strong growth. Advertising in niche publications increased 8.2% on a same
property basis, due to new publications in existing markets and penetration of new and existing markets, offset by
the loss of one significant publication in a larger market.
Circulation and Other Revenue
Circulation revenue increased $52,147,000, or 34.0% in 2006, and same property circulation revenue decreased
$1,230,000, or 1.0%. The Company’s total average daily newspaper circulation units, including Pulitzer, TNI and
MNI, as measured by the ABC, declined 0.2% for the six months ended September 2006, compared to the same
period in the prior year, and Sunday circulation declined 0.5%, significantly outperforming the industry as a whole.
For the six months ended March 2006, total average daily circulation units, including Pulitzer, TNI and MNI,
declined 0.6% and Sunday circulation decreased 1.0%, again outperforming the industry. In spite of modest
declines in circulation, the Company is reaching an increasingly larger share of the market through rapid online
growth, as well as through additional specialty and niche publications.
Same property commercial printing revenue increased $45,000, or 0.3%, in 2006. Same property online services
and other revenue decreased $314,000, or 1.3%, in 2006.
Operating Expenses and Results of Operations
Costs other than depreciation and amortization increased $235,177,000, or 38.3%, in 2006, and increased
$17,728,000, or 3.9%, on a same property basis. In total, acquisitions and divestitures accounted for
$345,467,000 of operating expenses, excluding depreciation and amortization, in 2006 and $155,404,000 in
2005.
25
Compensation expense increased $109,877,000, or 33.7%, in 2006 due to costs of acquired businesses and a
1.8% increase in same property compensation expense. Normal salary adjustments and associated increases in
payroll taxes and benefits account for the increase in same property costs. Same property full time equivalent
employees declined 0.4% in 2006 from the prior year level.
Newsprint and ink costs increased $40,860,000, or 51.5%, in 2006 due to price increases and costs of acquired
businesses, and increased 8.7% on a same property basis. Volume decreased 2.0% on a same property basis,
due to migration to lighter weight paper and narrower page widths. Newsprint unit costs had been rising since late
2002 and, though prices now appear to be stabilizing, additional increases may negatively impact 2007 results.
Other operating costs, which are comprised of all operating expenses not considered to be compensation,
newsprint, depreciation and amortization, increased $89,250,000, or 46.8%, in 2006 and increased 5.5% on a
same property basis. Costs associated with new niche publications and expenses to increase circulation using
sources other than telemarketing also contributed to the growth in costs. Changes in telemarketing regulations
enacted in 2004 will continue to impact the Company’s ability to solicit new subscribers, and the cost of such
solicitation, in the future.
In 2006, the St. Louis Post-Dispatch concluded an offering of early retirement incentives that resulted in an
adjustment of staffing levels. 130 employees volunteered to take advantage of the offer, which included enhanced
pension and insurance benefits, and lump-sum cash payments based on continuous service. The annual pretax
savings from the program, net of positions filled, is estimated to be $6,600,000 to $7,000,000, with savings of
$6,575,000 in 2006. The cost totaled $17,778,000 before income tax benefit, with $8,654,000 recognized in 2006,
and $9,124,000 in 2005. Approximately $7,000,000 of the cost represents cash payments made, with the
remainder due primarily to enhancements of pension and other postretirement benefits.
Transition costs related to the acquisition of Pulitzer, which are not included in same property comparisons,
totaled $4,589,000 in 2006 and $8,929,000 in 2005. Transition costs are comprised of costs directly related to the
acquisition of Pulitzer that are separately identifiable and non-recurring, but not capitalizable under GAAP.
Operating cash flow increased 36.4% to $279,360,000 in 2006 from $204,779,000 in 2005, and decreased 5.0%
on a same property basis. Operating cash flow margin decreased to 24.8% from 25.0% in the prior year reflecting
the overall lower margin of the Pulitzer newspapers, transition costs related to the Pulitzer acquisition and the St.
Louis Post-Dispatch early retirement program.
Depreciation expense increased $10,149,000, or 42.7%, and amortization expense increased $26,672,000, or
75.1%, in 2006, due primarily to the acquisition of Pulitzer.
In 2006, the Company, based on its most recent analysis and in conjunction with its ongoing requirement to
assess the estimated useful lives of intangible assets, concluded that the period of economic benefit of certain
identified intangible assets related to the Pulitzer acquisition had decreased. As a result, the weighted-average
useful life of customer lists was decreased from approximately 21 years to 17 years.
The change in estimated useful life of such assets resulted in recognition of additional amortization expense of
$1,847,000 in the last four months of 2006, of which $469,000 is recorded in equity in earnings of TNI. The
Company expects amortization to increase by approximately $5,544,000 in 2007 solely as a result of the change
in useful life. $1,408,000 of this amount will reduce equity in earnings of TNI. This change in non-cash
amortization expense has no impact on the Company’s cash flows or debt covenants.
In 2006, the Company also recorded a separate non-cash charge of $5,526,000 to reduce the value of
nonamortized masthead intangible assets of Pulitzer, of which $4,939,000 is recorded in amortization expense
and $587,000 is recorded in equity in earnings of TNI.
Equity in earnings in associated companies increased 62.2% in 2006 due to the inclusion of TNI for the full year,
offset by a decrease in earnings of MNI. MNI results were reduced by the $1,002,000 loss on sale of its Shawano,
Wisconsin daily newspaper. Operating income increased $45,715,000, or 28.9%. Operating income margin
decreased to 18.1% in 2006 from 19.3% due to the inclusion of Pulitzer results, early retirement and transition
costs and the reduction in value of intangible assets noted above.
Non-Operating Income and Expense
Financial expense increased $57,901,000, or 152.2%, to $95,939,000 due to the full year effect of increased debt
and associated financing costs as a result of the Pulitzer acquisition and higher interest rates, partially offset by
26
substantial debt reduction of $163,000,000 funded by cash generated from operations and sales of assets. In
2006 the Company wrote off certain other investments which resulted in a loss before income taxes of
$2,037,000. In 2005, the Company refinanced its then existing debt as a result of the Pulitzer acquisition, which
resulted in a one-time pretax loss from early extinguishment of debt of $11,181,000.
Overall Results
Income taxes were 35.4% of income from continuing operations before income taxes in 2006 and 36.3% in 2005.
The Company believes, absent unusual tax settlements, that its effective income tax rate in 2007 will approximate
the rate in 2006.
As a result of all of the above, income from continuing operations totaled $71,136,000 in 2006, an increase of
0.4% compared to $70,862,000 in 2005. Earnings per diluted common share from continuing operations were
$1.56 in both 2006 and 2005. Excluding unusual costs, as detailed in the table below, diluted earnings per
common share, as adjusted, were $1.84 in 2006, compared to $1.96 in 2005.
(Thousands, Except Per Share Data)
Income from continuing operations, as reported
Adjustments to income from continuing operations:
Early retirement program
Reduction in value of identified intangible assets
Transition costs
Loss on extinguishment of debt
Income tax benefit of adjustments, net
Income from continuing operations, as adjusted
2006
2005
Amount
Per Share
Amount
Per Share
$ 71,136 $
1.56 $
70,862 $
1.56
8,654
5,526
4,589
-
18,769
(6,316)
12,453
$ 83,589 $
9,124
-
8,929
11,181
29,234
(11,401)
17,833
88,695 $
0.39
1.96
0.27
1.84 $
27
CONTINUING OPERATIONS
2005 vs. 2004
Operating results, as reported in the Consolidated Financial Statements, are summarized below:
(Thousands, Except Per Common Share Data)
2005
2004
Total
Same
Property
Percent Change
$
341,977 $
33,031
272,689
18,382
25.4%
79.7
3.4%
12.5
Advertising revenue:
Retail
National
Classified:
Daily newspapers:
Employment
Automotive
Real estate
All other
Other publications
Total classified
Online
Niche publications
Total advertising revenue
Circulation
Commercial printing
Online services and other
Total operating revenue
Compensation
Newsprint and ink
Other operating expenses
Early retirement program
Transition costs
Operating cash flow
Depreciation and amortization
Equity in earnings of associated companies
Operating income
Non-operating expense, net
Income from continuing operations before
income taxes
Income tax expense
Minority interest
Income from continuing operations
Earnings per common share from
continuing operations:
Basic
Diluted
$
$
16.0
(4.3)
8.1
(0.4)
4.0
5.5
33.4
1.1
5.0
(2.2)
(0.8)
9.8
3.6
2.3
8.0
1.2
NA
NA
2.7
5.6
(1.7)
63,923
49,320
47,171
29,200
28,411
218,025
17,983
13,093
624,109
153,571
14,766
26,444
818,890
325,959
79,331
190,768
9,124
8,929
614,111
204,779
59,249
12,784
158,314
(46,834)
111,480
40,458
160
70,862 $
44,478
40,852
35,468
24,290
17,443
162,531
10,178
11,093
474,873
130,023
13,739
24,642
643,277
260,827
58,153
147,886
-
-
466,866
176,411
43,930
8,523
141,004
(12,076)
128,928
45,955
-
82,973
43.7
20.7
33.0
20.2
62.9
34.1
76.7
18.0
31.4
18.1
7.5
7.3
27.3
25.0
36.4
29.0
NA
NA
31.5
16.1
34.9
50.0
12.3
287.8
(13.5)
(12.0)
NA
(14.6)%
1.57 $
1.56
1.85
1.84
(15.1)%
(15.2)
Sundays generate substantially more advertising and circulation revenue than any other day of the week. 2005
had the same number of Sundays as 2004.
In June 2005, the Company acquired Pulitzer. Pulitzer published fourteen daily newspapers (the smallest of which
is classified in discontinued operations due to its sale in 2006), including the St. Louis Post-Dispatch, and more
than 100 weekly newspapers and specialty publications. Pulitzer also owns a 50% interest in TNI. The acquisition
28
of Pulitzer increased the Company’s circulation by more than 50% and revenue, on an annualized basis, by more
than 60%.
In total, acquisitions and divestitures accounted for $160,606,000 of operating revenue in 2005 and $7,912,000 in
2004.
Advertising Revenue
In 2005, total advertising revenue increased $149,236,000, or 31.4%, and same property advertising revenue
increased $23,639,000, or 5.0%. Same property retail revenue increased $9,109,000, or 3.4%, in 2005.
Continuing emphasis on rate discipline and an increase in active accounts, offset by a 1.8% decrease in
advertising lineage, contributed to the increase. Same property average retail rates, excluding preprint insertions,
increased 4.1% in 2005.
Same property classified advertising revenue increased $8,791,000, or 5.5%, in 2005. Higher rate employment
advertising at the daily newspapers increased 16.0% for the year on a same property basis. The Company’s
increases in employment classified advertising compare favorably to national survey amounts. The September
2005 Help Wanted Index, as calculated by the Conference Board, increased 8.3% from the prior year level. Same
property average automotive advertising decreased 4.3%, due to a 5.1% decrease in average automotive rates,
offset by a 0.8% increase in lineage. Same property real estate advertising increased 8.1% due to an increase in
advertising of real estate for sale. Other daily newspaper classified advertising decreased 0.4% on a same
property basis. Same property classified advertising rates decreased 1.5%, primarily due to the decline in
automotive rates.
Advertising lineage, as reported on a same property basis for the Company’s daily newspapers only, consists of
the following:
(Thousands of Inches)
Retail
National
Classified
2005
2004
Percent Change
10,463
561
11,687
22,711
10,656
537
10,942
22,135
(1.8)%
4.5
6.8
2.6%
Online advertising revenue increased 33.4% on a same property basis, due to expanded use of the Company’s
online business model and cross-selling with the Company’s print publications. Online classified advertising
registered particularly strong growth. Advertising in niche publications increased 1.1% on a same property basis,
due to new publications in existing markets and penetration of new and existing markets, offset by the loss of one
significant publication in a larger market.
Circulation and Other Revenue
Circulation revenue increased $23,548,000, or 18.1% in 2005, and same property circulation revenue decreased
$2,819,000, or 2.2%. The Company’s total average daily newspaper circulation units, including Pulitzer, TNI and
MNI, as measured by the ABC, declined 2.2% for the six months ended September 2005, compared to the same
period in the prior year, and Sunday circulation declined 2.3%, significantly outperforming the industry as a whole.
For the six months ended March 2005, total average daily circulation units, including MNI, declined 1.7% and
Sunday circulation decreased 1.9%, again outperforming the industry.
Same property commercial printing revenue decreased $107,000, or 0.8%, in 2005. Same property online
services and other revenue increased $2,205,000, or 9.8%, in 2005.
Operating Expenses and Results of Operations
Costs other than depreciation and amortization increased $147,245,000, or 31.5%, in 2005, and increased
$11,645,000, or 2.7%, on a same property basis. In total, acquisitions and divestitures accounted for
$133,757,000 of operating expenses, excluding depreciation and amortization, in 2005 and $6,782,000 in 2004.
Compensation expense increased $65,132,000, or 25.0%, in 2005 due to costs of acquired businesses and a
2.3% increase in same property compensation expense. Normal salary adjustments and associated increases in
29
payroll taxes and benefits account for the increase in same property costs. Same property full time equivalent
employees declined 0.4% in 2005 from the prior year level.
Newsprint and ink costs increased $21,178,000, or 36.4%, in 2005 due to price increases and costs of acquired
businesses, and increased 8.0% on a same property basis. Volume decreased 0.1% on a same property basis.
Other operating costs, exclusive of depreciation and amortization, increased $42,882,000, or 29.0%, in 2005 and
increased 1.2% on a same property basis. Transition costs related to the acquisition of Pulitzer, which are not
included in same property comparisons, totaled $8,929,000 in 2005. Early retirement program costs totaled
$9,124,000 in 2005.
Operating cash flow increased 16.1% to $204,779,000 in 2005 from $176,411,000 in 2004, and increased 5.6%
on a same property basis. Operating cash flow margin decreased to 25.0% from 27.4% in the prior year reflecting
the overall lower margin of the Pulitzer newspapers, transition costs and the St. Louis Post-Dispatch early
retirement program.
Depreciation expense increased $4,613,000, or 24.1%, and amortization expense increased $10,706,000, or
43.2%, in 2005, due primarily to the acquisition of Pulitzer. Equity in earnings in associated companies increased
50.0% in 2005 due to increasing earnings of MNI and the inclusion of TNI. Operating income increased
$17,310,000, or 12.3%. Operating income margin decreased to 19.3% in 2005 from 21.9% due to the inclusion of
Pulitzer results and early retirement and transition costs noted above.
Non-Operating Income and Expense
Financial expense increased $25,373,000, or 200.3%, to $38,038,000 due to increased debt and associated
financing costs as a result of the Pulitzer acquisition and higher interest rates, partially offset by debt reduction
funded by cash generated from operations. In 2005, the Company refinanced its then existing debt as a result of
the Pulitzer acquisition, which resulted in a one-time pretax loss from early extinguishment of debt of
$11,181,000.
Overall Results
Income taxes were 36.3% of income from continuing operations before income taxes in 2005 and 35.6% in 2004.
The favorable resolution of tax issues reduced income tax expense by approximately $1,200,000 in 2004. The
effective rate would have been 36.6% in 2004 without this event.
As a result of all of the above, income from continuing operations totaled $70,862,000 in 2005, a decrease of
14.6% compared to $82,973,000 in 2004. Earnings per diluted common share decreased 15.2% to $1.56 in 2005
from $1.84 in 2004. Excluding unusual costs, as detailed in the table below, diluted earnings per common share,
as adjusted, were $1.96 in 2005, an increase of 6.5% from $1.84 in 2004.
(Thousands, Except Per Share Data)
Income from continuing operations, as reported
Adjustments to income from continuing operations:
Early retirement program
Transition costs
Loss on extinguishment of debt
Income tax benefit of adjustments, net
Income from continuing operations, as adjusted
DISCONTINUED OPERATIONS
2005
2004
Amount
Per Share
Amount
Per Share
$ 70,862 $
1.56 $
82,973 $
1.84
9,124
8,929
11,181
29,234
(11,401)
17,833
$ 88,695 $
-
-
-
-
-
-
82,973 $
-
1.84
0.39
1.96 $
Revenue from discontinued operations in 2006, 2005 and 2004 was $41,104,000 $42,297,000 and $43,477,000,
respectively. Income from discontinued operations before income taxes was $7,803,000 in 2006, $9,911,000 in
2005 and $5,454,000 in 2004.
30
In September 2006, the Company sold several stand-alone publishing and commercial printing operations in the
Pacific Northwest, a twice-weekly newspaper in Oregon, and a daily newspaper in Rhinelander, Wisconsin. The
transactions resulted in an after tax loss of $5,204,000, which is recorded in discontinued operations in 2006.
Proceeds from the sales totaled $54,148,000 of which $33,198,000 was received in 2006.
In February 2004, the Company exchanged its daily newspapers in Freeport, Illinois and Corning, New York for
two daily newspapers and eight weekly and specialty publications in Nevada and Idaho. The transaction resulted
in an after tax loss of $228,000, which is recorded in discontinued operations in 2004.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities of continuing operations was $197,161,000 in 2006, $151,686,000 in 2005
and $121,709,000 in 2004. Decreased income from continuing operations in 2006 and 2005 was more than offset
by an increase in depreciation and amortization. Losses related to financing activities influenced 2005 results and
changes in operating assets and liabilities accounted for the bulk of the remainder of the change in all years.
Cash required for investing activities totaled $42,683,000 in 2006, $1,272,309,000 in 2005, and $27,164,000 in
2004. Capital spending totaled $32,544,000 and accounted for substantially all of the usage of funds in 2006.
Pulitzer and other acquisitions accounted for substantially all of the usage of funds in 2005 offset by proceeds
from sales of securities. Capital spending and acquisitions accounted for substantially all of the usage of funds in
2004.
The Company anticipates that funds necessary for capital expenditures, which are expected to total
approximately $32,000,000 in 2007, and other requirements, will be available from internally generated funds,
availability under its existing Credit Agreement or, if necessary, by accessing the capital markets.
In 2006, the Company entered into an amended and restated credit agreement (Credit Agreement) with a
syndicate of financial institutions. The Credit Agreement provides for aggregate borrowing of up to
$1,435,000,000 and consists of a $950,000,000 A Term Loan, $35,000,000 B Term Loan and $450,000,000
revolving credit facility. The Credit Agreement also provides the Company with the right, with the consent of the
administrative agent, to request at certain times prior to June 2012 that one or more lenders provide incremental
term loan commitments of up to $500,000,000, subject to certain requirements being satisfied at the time of the
request. The Credit Agreement matures in June 2012 and amends and replaces a $1,550,000,000 credit
agreement (Old Credit Agreement) consummated in 2005. Interest rate margins under the Credit Agreement are
generally lower than under the Old Credit Agreement. Other conditions of the Credit Agreement are substantially
the same as the Old Credit Agreement.
The Credit Agreement contains customary affirmative and negative covenants for financing of its type. These
financial covenants include a maximum total leverage ratio (5.75:1 at September 30, 2006) and minimum interest
expense coverage ratio of 2.5:1. None of the covenants included in the Credit Agreement is considered by the
Company to be restrictive to normal operations or historical amounts of stockholder dividends. At September 30,
2006, the Company is in compliance with such covenants.
The Credit Agreement requires the Company to apply the net proceeds from asset sales to repayment of the A
Term Loan to the extent such proceeds exceed the amount used to purchase assets (other than inventory and
working capital) within one year of the asset sales. The Company expects repayments in 2007 to meet or exceed
required repayments related to its 2006 sales transactions.
In 2005, upon consummation of the Old Credit Agreement, the Company borrowed $1,462,000,000. The
proceeds were used to consummate the acquisition of Pulitzer, to repay existing indebtedness of the Company,
as discussed more fully below, and to pay related fees and expenses.
In connection with the execution of the Old Credit Agreement, the Company redeemed all of the $52,000,000
outstanding indebtedness under its then existing credit agreement and the existing senior notes of the Company
under the Note Purchase Agreement, dated as of March 18, 1998 totaling $102,000,000. Refinancing of existing
debt of the Company resulted in a pretax loss of $11,181,000.
In 2005, the Company executed interest rate swaps in the notional amount of $350,000,000 with a forward
starting date of November 30, 2005. The interest rate swaps have terms of 2 to 5 years, carry interest rates from
31
4.2% to 4.4% (plus the applicable LIBOR margin) and effectively fix the Company’s interest rate on debt in the
amount, and for the time periods, of such instruments.
In 2005, the Company filed a Form S-3 shelf registration statement (Shelf) with the SEC, which has been
declared effective. The Shelf gives the Company the flexibility to issue and publicly distribute various types of
securities, including preferred stock, common stock, secured or unsecured debt securities, purchase contracts
and units consisting of any combination of such securities, from time to time, in one or more offerings, up to an
aggregate amount of $500,000,000.
The Shelf enables the Company to sell securities quickly and efficiently when market conditions are favorable or
financing needs arise. Net proceeds from the sale of any securities may be used for general corporate purposes,
including repayment or refinancing of debt, working capital, capital expenditures, acquisitions or the repurchase of
common stock, subject to conditions of existing debt agreements.
Cash required by financing activities totaled $191,930,000 in 2006, provided $1,112,035,000 during 2005, and
required $105,854,000 in 2004. Debt reduction and dividends accounted for the majority of the usage of funds in
2006 and 2004. Cash dividend payments in 2004 were influenced primarily by timing. The annual dividend was
$0.72 per share in 2006, 2005 and 2004. Borrowing to fund the Pulitzer acquisition and refinance existing debt
accounted for substantially all of the funds provided in 2005.
Cash provided by discontinued operations totaled $38,547,000, $8,121,000 and $8,255,000 in 2006, 2005 and
2004, respectively. Cash proceeds from the sales of discontinued operations and cash generated from operations
were the primary sources of funds in 2006. Cash generated from operations was the primary source of funds in
2005. Cash generated from operations offset by tax payments related to nondeductible goodwill and basis
differences in identified intangible assets associated with the exchange of the Company’s daily newspapers in
Corning, New York and Freeport, Illinois in February 2004, offset by changes in working capital of sold properties
was the primary source of funds in 2004.
Cash and cash equivalents increased $1,095,000 in 2006, and decreased $467,000 in 2005 and $3,054,000 in
2004.
SEASONALITY
The Company’s largest source of publishing revenue, retail advertising, is seasonal and tends to fluctuate with
retail sales in markets served. Historically, retail advertising is higher in the first and third fiscal quarters.
Advertising revenue is lowest in the second fiscal quarter.
Quarterly results of operations are summarized in Note 21 to the Consolidated Financial Statements, included
herein.
INFLATION
The Company has not been significantly impacted by general inflationary pressures over the last several years.
The Company anticipates that changing costs of newsprint, its basic raw material, may impact future operating
costs. Price increases (or decreases) for the Company’s products are implemented when deemed appropriate by
management. The Company continuously evaluates price increases, productivity improvements, sourcing
efficiencies and other cost reductions to mitigate the impact of inflation.
CONTRACTUAL OBLIGATIONS
The following table summarizes the more significant of the Company’s contractual obligations.
(Thousands of Dollars)
Nature of Obligation
Long-term debt (principal amount)
Lease obligations
Financial expense (1)
Capital expenditure commitments
Payments (or Commitments) Due by Year
Total
Less
Than 1
1-3
3-5
More
Than 5
$ 1,525,000 $ 35,375 $ 519,750 $ 427,500 $ 542,375
7,741
-
-
3,668
24,633
10,812
19,968
67,740
10,812
5,323
43,107
-
3,236
-
-
32
$ 1,623,520 $ 74,488 $ 568,180 $ 430,736 $ 550,116
Newsprint (metric tons)
49,350
49,350
-
-
-
(1) Financial expense excludes interest on floating rate debt. Based on interest rates and floating rate debt at
September 30, 2006, including debt subject to interest rate swaps described below, annual interest on floating
rate debt is approximately $72,000,000.
The table above excludes future cash requirements for pension, postretirement and postemployment obligations.
The periods in which these obligations will be settled in cash are not readily determinable and are subject to
numerous future events and assumptions. The Company’s estimate of cash requirements for these obligations in
2007 is approximately $3,130,000.
A substantial amount of the Company’s deferred income tax liabilities is related to acquisitions and will not result
in future cash payments. See Note 14 of the Notes to Consolidated Financial Statements, included herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk stemming from changes in interest rates and commodity prices. Changes
in these factors could cause fluctuations in earnings and cash flows. In the normal course of business, exposure
to certain of these market risks is managed as described below.
INTEREST RATES
Restricted Cash and Investments
Interest rate risk in the Company’s restricted cash and investments is managed by investing only in securities with
maturities no later than May 2010, after which time all restrictions on such funds lapse. Only U.S. Government
and related securities are permitted.
Debt
The Company’s debt structure and interest rate risk are managed through the use of fixed and floating rate debt.
The Company’s primary exposure is to the London Interbank Offered Rate (LIBOR). A 100 basis point increase to
LIBOR would decrease income from continuing operations before income taxes on an annualized basis by
approximately $8,690,000, based on floating rate debt outstanding at September 30, 2006, after consideration of
the interest rate swaps described below, and excluding debt of MNI. Such interest rates may also decrease.
In 2005, the Company executed interest rate swaps in the notional amount of $350,000,000 with a forward
starting date of November 30, 2005. The interest rate swaps have terms of 2 to 5 years, carry interest rates from
4.2% to 4.4% (plus the applicable LIBOR margin) and effectively fix the Company’s interest rate on debt in the
amounts, and for the time periods, of such instruments. Interest-earning assets, including those in employee
benefit plans, also function as a natural hedge against fluctuations in interest rates on debt.
At September 30, 2006, after consideration of the interest rate swaps described above, approximately 57% of the
principal amount of the Company’s debt is subject to floating interest rates.
COMMODITIES
Certain materials used by the Company are exposed to commodity price changes. The Company manages this
risk through instruments such as purchase orders and non-cancelable supply contracts. The Company is also
involved in continuing programs to mitigate the impact of cost increases through identification of sourcing and
operating efficiencies. Primary commodity price exposures are newsprint and, to a lesser extent, ink and energy
costs.
A $10 per metric ton newsprint price increase would result in an annualized reduction in income from continuing
operations before income taxes of approximately $1,730,200 based on expected consumption in 2007, excluding
consumption of MNI and TNI. Such prices may also decrease.
33
SENSITIVITY TO CHANGES IN VALUE
The estimate that follows is intended to measure the maximum potential impact on fair value of fixed rate debt of
the Company in one year from adverse changes in market interest rates under normal market conditions. The
calculation is not intended to represent the actual loss in fair value that the Company expects to incur. The
estimate does not consider favorable changes in market rates. The position included in the calculation is fixed
rate debt, the principal amount of which totals $306,000,000 at September 30, 2006.
The estimated maximum potential one-year loss in fair value from a 100 basis point movement in interest rates on
market risk sensitive investment instruments outstanding at September 30, 2006, is approximately $7,368,000.
There is no impact on reported results from such changes in interest rates.
Changes in the value of interest rate swaps from movements in interest rates are not determinable, due to the
number of variables involved in the pricing of such instruments. However, increases in interest rates would
generally result in increases in the fair value of such instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this Item is included herein under the caption “Consolidated Financial Statements”.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
In order to ensure that the information that must be disclosed in filings with the Securities and Exchange
Commission is recorded, processed, summarized and reported in a timely manner, the Company has disclosure
controls and procedures in place. The Company’s chief executive officer, Mary E. Junck, and chief financial
officer, Carl G. Schmidt, have reviewed and evaluated disclosure controls and procedures as of September 30,
2006, and have concluded that such controls and procedures are effective.
There have been no changes in internal control over financial reporting that have materially affected or are
reasonably likely to materially affect such controls, during the year ended September 30, 2006.
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Lee Enterprises, Incorporated (the Company) is responsible for establishing and maintaining
adequate internal control over financial reporting. The Company’s internal control system is designed to provide
reasonable assurance regarding the preparation and fair presentation of the Company’s Consolidated Financial
Statements in accordance with generally accepted accounting principles in the United States of America.
Any internal control system, no matter how well designed, has inherent limitations and may not prevent or detect
misstatements. Accordingly, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation.
Management of the Company assessed the effectiveness of the Company’s internal control over financial
reporting as of September 30, 2006. In making this assessment, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework.
Based on the assessment and those criteria, we believe that the Company maintained effective internal control
over financial reporting as of September 30, 2006.
Deloitte & Touche LLP, the Company’s independent registered public accounting firm, issued an attestation report
on management’s assessment of the Company’s internal control over financial reporting. Their report appears on
the following page.
/s/ Mary E. Junck
Mary E. Junck
Chairman, President and Chief Executive Officer
/s/ Carl G. Schmidt
Carl G. Schmidt
Vice President, Chief Financial Officer
34
December 14, 2006
and Treasurer
December 14, 2006
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders
Lee Enterprises, Incorporated and subsidiaries
Davenport, Iowa
We have audited management’s assessment, included in the accompanying Management Report on Internal
Control Over Financial Reporting, that Lee Enterprises, Incorporated and subsidiaries (the Company) maintained
effective internal control over financial reporting as of September 30, 2006, based on the criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, evaluating management’s
assessment, testing and evaluating the design and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the
company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and board of directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented
or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management’s assessment that the Company maintained effective internal control over financial
reporting as of September 30, 2006, is fairly stated, in all material respects, based on the criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2006, based on the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Consolidated Financial Statements as of and for the year ended September 30, 2006 of the
Company and our report dated December 14, 2006 expressed an unqualified opinion on those financial
statements.
/s/ Deloitte & Touche LLP
Davenport, Iowa
December 14, 2006
36
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this Item, except for certain information included under the caption “Executive Team”
in Part I of this Form 10-K, is included in the Company’s Proxy Statement to be filed in January 2007, which is
incorporated herein by reference, under the captions “Proposal 1 – Election of Directors” and “Section 16(a)
Beneficial Ownership Reporting Compliance”.
The Company has a Code of Business Conduct and Ethics (Code) that applies to all of its employees, including
its principal executive officer, and principal financial and accounting officer. The Code is monitored by the Audit
Committee of the Company’s Board of Directors and is annually affirmed by its directors and executive officers.
The Company maintains a corporate governance page on its website which includes the Code. The corporate
governance page can be found at www.lee.net by clicking on “Governance.” A copy of the Code will also be
provided without charge to any stockholder who requests it. Any future amendment to, or waiver granted by the
Company from, a provision of the Code will be posted on the Company’s website.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in January 2007,
which is incorporated herein by reference, under the captions, “Compensation of Directors” and “Executive
Compensation”; provided, however, that the subsection entitled “Executive Compensation – Report of the
Executive Compensation Committee of the Board of Directors on Executive Compensation” shall not be deemed
to be incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in January 2007,
which is incorporated herein by reference, under the caption “Voting Securities and Principal Holders Thereof”
and “Equity Compensation Plan Information”.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
Further information with respect to this Item is included in the Company’s Proxy Statement to be filed in January
2007, which is incorporated herein by reference, under the caption “Directors’ Meetings and Committees of the
Board of Directors”.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in January 2007,
which is incorporated herein by reference, under the caption “Relationship with Independent Registered Public
Accounting Firm”.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report on Form 10-K:
FINANCIAL STATEMENTS
Consolidated Balance Sheets – September 30, 2006 and 2005
Consolidated Statements of Income and Comprehensive Income – Years ended September 30, 2006, 2005 and
2004
Consolidated Statements of Stockholders’ Equity – Years ended September 30, 2006, 2005 and 2004
Consolidated Statements of Cash Flows – Years ended September 30, 2006, 2005 and 2004
37
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as not required, not applicable, not deemed material or because the information
is included in the Notes to Consolidated Financial Statements.
EXHIBITS
See Exhibit Index.
REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the three months ended September 30, 2006:
Date of Report
Item
Disclosure(s)
July 20, 2006
2 Earnings for the three months and nine months ended June 30, 2006
September 8, 2006
1 Definitive agreements to sell selected publishing and commercial printing operations
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized on the 14th day of December 2006.
LEE ENTERPRISES, INCORPORATED
/s/ Mary E. Junck
Mary E. Junck
Chairman, President and Chief Executive Officer
/s/ Carl G. Schmidt
Carl G. Schmidt
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in their respective capacities on the 14th day of December 2006.
Signature
/s/ Richard R. Cole
Richard R. Cole
/s/ Nancy S. Donovan
Nancy S. Donovan
/s/ Mary E. Junck
Mary E. Junck
/s/ William E. Mayer
William E. Mayer
/s/ Herbert W. Moloney III
Herbert W. Moloney III
/s/ Andrew E. Newman
Andrew E. Newman
/s/ Gordon D. Prichett
Gordon D. Prichett
/s/ Gregory P. Schermer
Gregory P. Schermer
/s/ Mark B. Vittert
Mark B. Vittert
Director
Director
Chairman, President, and Chief
Executive Officer, and Director
Director
Director
Director
Director
Vice President - Interactive Media,
and Director
Director
39
EXHIBIT INDEX
Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by the Company
with the Securities and Exchange Commission, as indicated. Exhibits marked with a plus (+) are management
contracts or compensatory plan contracts or arrangements filed pursuant to Item 601(b)(10)(iii)(A) of Regulation
S-K. All other documents listed are filed with this Annual Report on Form 10-K.
Number
2.1 *
2.2 *
2.3
2.4
Description
Agreement and Plan of Merger dated as of January 29, 2005 among Lee Enterprises, Incorporated,
LP Acquisition Corp. and Pulitzer Inc. (Exhibit 2.1 to Form 8-K filed on February 3, 2005)
Acquisition Agreement by and among Lee Enterprises, Incorporated, Howard Publications, Inc.,
Howard Energy Co., Inc. and the stockholders of Howard Publications, Inc. named therein dated
February 11, 2002 and First Amendment thereto dated March 29, 2002 (Exhibit 2.1 to Form 8-K filed
on April 2, 2002)
Asset Purchase Agreement dated September 6, 2006 by and among Lee Enterprises, Incorporated,
Lee Procurement Solutions Co. and Sound Publishing, Inc.
Asset Purchase Agreement dated September 5, 2006 by and among Lee Enterprises, Incorporated,
Lee Procurement and Target Media Partners Operating Company, LLC
3.1.2a * Restated Certificate of Incorporation of Lee Enterprises, Incorporated, as amended, as of March 3,
2005 (Exhibit 3.1 to Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2005)
3.2 *
4 *
10.1 *
10.2 *
10.3 *
10.4 *
Number
Lee Enterprises, Incorporated Amended and Restated By-Laws as of January 23, 2002 (Exhibit 3 to
Form 10-Q for Fiscal Quarter Ended March 31, 2002)
Rights Agreement, dated as of May 7, 1998, between Lee Enterprises, Incorporated and The First
Chicago Trust Company of New York, which includes the form of Certificate of Designation of the
Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights
as Exhibit C (Exhibit 1.1 to Current Report on Form 8-A dated May 26, 1998, filed on May 26, 1998)
Amended and Restated Credit Agreement, dated as of December 21, 2005, by and among Lee
Enterprises, Incorporated, the lenders from time to time party thereto, Deutsche Bank Trust Company
Americas, as Administrative Agent, Deutsche Bank Securities Inc. and SunTrust Capital Markets,
Inc., as Joint Lead Arrangers, Deutsche Bank Securities Inc., as Book Running Manager, SunTrust
Bank, as Syndication Agent and Bank of America, N.A., The Bank of New York and The Bank of
Tokyo-Mitsubishi, Ltd., Chicago Branch, as Co-Documentation Agents (Exhibit 10 to Form 10-Q for
Fiscal Quarter Ended December 31, 2005)
Amended and Restated Agreement and Plan of Merger by and among Pulitzer Publishing Company,
Pulitzer Inc. and Hearst-Argyle Television, Inc. dated as of May 25, 1998 (Exhibit 10.1 to Form 10-Q
for the Fiscal Quarter Ended June 30, 2005)
Amended and Restated Joint Operating Agreement, dated December 22, 1988, between Star
Publishing Company and Citizen Publishing Company (Exhibit 10.2 to Form 10-Q for the Fiscal
Quarter Ended June 30, 2005)
Partnership Agreement, dated December 22, 1988, between Star Publishing Company and Citizen
Publishing Company (Exhibit 10.3 to Form 10-Q for the Fiscal Quarter Ended
June 30, 2005)
Description
40
10.5 *
10.6 *
10.7 *
10.8 *
10.9 *
10.10 +*
10.11.1a +*
10.11.2a +*
Lease Agreement between Ryan Companies US, Inc. and Lee Enterprises, Incorporated dated
May 2003 (Exhibit 10.7 to Form 10-K for the Fiscal Year Ended September 30, 2003)
Joint Venture Agreement, dated as of May 1, 2000, among Pulitzer Inc., Pulitzer Technologies,
Inc., The Herald Company, Inc. and St. Louis Post-Dispatch LLC (Exhibit 10.4 to Form 10-Q for
the Fiscal Quarter Ended June 30, 2005)
St. Louis Post-Dispatch LLC Note Agreement, dated as of May 1, 2000, as amended on
November 23, 2004 (Exhibit 10.8 to Form 10-Q for the Fiscal Quarter Ended June 30, 2005)
Pulitzer Inc. Guaranty Agreement, dated as of May 1, 2000 as amended on August 7, 2000,
November 23, 2004 and June 3, 2005 (Exhibit 10.9 to Form 10-Q for the Fiscal Quarter Ended
June 30, 2005)
Non-Confidentiality Agreement, dated as of May 1, 2000 (Exhibit 10.10 to Form 10-Q for the
Fiscal Quarter Ended June 30, 2005)
Form of Director Compensation Agreement of Lee Enterprises, Incorporated for non-employee
director deferred compensation (Exhibit 10.7 to Form 10-K for the Fiscal Year Ended September
30, 2004)
Lee Enterprises, Incorporated 1990 Long-Term Incentive Plan (effective as of October 1, 1999,
as amended November 16, 2006) (Appendix B to Schedule 14A Definitive Proxy Statement for
2006)
Forms of related Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement,
Accelerated Ownership Stock Option Agreement and Restricted Stock Agreement related to Lee
Enterprises, Incorporated 1990 Long-Term Incentive Plan (effective as of October 1, 1999, as
amended November 16, 2005). (Exhibit 10.15.1a to Form 10-K for the Fiscal Year Ended
September 30, 2005)
10.11.3a +*
Form of Key Executive Restricted Stock Agreement related to Lee Enterprises, Incorporated
1990 Long-Term Incentive Plan (Exhibit 10.2 to Form 8-K filed on
November 26, 2004)
10.12 +*
10.13 +*
10.14 +*
10.15 +*
10.16 +*
10.17 +*
Lee Enterprises, Incorporated 1996 Stock Plan for Non-Employee Directors, effective February
1, 1996 (Exhibit C to Schedule 14A Definitive Proxy Statement for 1996)
Lee Enterprises, Incorporated Supplementary Benefit Plan (Exhibit 10.4 to Form 10-K for the
Fiscal Year Ended September 30, 2002)
Amended and Restated Pulitzer Inc. Supplemental Executive Benefit Pension Plan (restated as
of June 3, 2005) (Exhibit 10.15 to Form 10-Q for the Fiscal Quarter Ended June 30, 2005)
Form of Employment Agreement for Lee Enterprises, Incorporated Executive Officers Group
(Exhibit 10 to Form 10-K for the Fiscal Year Ended September 30, 1998)
Form of Indemnification Agreement for Lee Enterprises, Incorporated Directors and Executive
Officers Group (Exhibit 10 to Form 10-K for the Fiscal Year Ended
September 30,1998)
Lee Enterprises, Incorporated 2005 Incentive Compensation Program (Appendix A to Schedule
14A Definitive Proxy Statement for 2005)
41
Number
Description
10.18 +* Cancellation Agreement dated November 19, 2004 between Lee Enterprises, Incorporated and
Mary E. Junck (Exhibit 10.1 to Form 8-K filed on November 26, 2004)
21
23
24
31.1
31.2
32
Subsidiaries and associated companies
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
Power of Attorney
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
42
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Income and Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
PAGE
40
42
43
44
45
74
43
CONSOLIDATED BALANCE SHEETS
(Thousands, Except Per Share Data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts:
2006 $11,313; 2005 $9,365
Income taxes receivable
Receivable from associated companies
Receivable from sales of discontinued operations
Inventories
Deferred income taxes
Assets of discontinued operations
Other
Total current assets
Investments:
Associated companies
Restricted cash and investments
Other
Total investments
Property and equipment:
Land and improvements
Buildings and improvements
Equipment
Construction in process
Less accumulated depreciation
Property and equipment, net
Goodwill
Other intangible assets
Other
Total assets
September 30
2006
2005
$
8,638 $
7,543
115,353
-
1,563
20,700
19,271
11,079
342
7,466
184,412
198,266
96,060
20,825
315,151
118,529
19,439
1,563
-
21,576
5,092
65,506
6,702
245,950
203,731
81,060
23,539
308,330
31,778
181,517
301,162
13,260
527,717
200,465
327,252
1,498,830
980,912
23,252
31,437
177,067
283,533
13,885
505,922
175,699
330,223
1,499,622
1,038,963
22,112
$
3,329,809 $ 3,445,200
The accompanying Notes are an integral part of the Consolidated Financial Statements.
44
September 30
2006
2005
35,375 $
38,129
58,457
22,634
6,581
38,624
523
200,323
1,510,459
38,420
100,231
27,364
454,315
6,274
1,798
2,339,184
10,000
31,261
71,052
-
6,407
37,767
4,451
160,938
1,706,024
33,236
95,237
26,836
480,609
5,109
801
2,508,790
-
-
78,974
76,818
12,788
14,168
-
123,738
115,464
(5,505)
733,961
1,504
936,410
3,329,809 $ 3,445,200
771,947
3,178
990,625
$
$
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt
Accounts payable
Compensation and other accrued liabilities
Income taxes payable
Dividends payable
Unearned revenue
Liabilities of discontinued operations
Total current liabilities
Long-term debt, net of current maturities
Pension obligations
Postretirement and postemployment benefit obligations
Other retirement and compensation
Deferred income taxes
Minority interest
Other
Total liabilities
Stockholders’ equity:
Serial convertible preferred stock, no par value;
authorized 500 shares; none issued
Common Stock, $2 par value; authorized
120,000 shares; issued and outstanding:
2006 39,487 shares;
2005 38,409 shares
Class B Common Stock, $2 par value; authorized
30,000 shares; issued and outstanding:
2006 6,394 shares;
2005 7,084 shares
Additional paid-in capital
Unearned compensation
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
45
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Thousands, Except Per Common Share Data)
2006
2005
2004
Operating revenue:
Advertising
Circulation
Other
Total operating revenue
Operating expenses:
Compensation
Newsprint and ink
Depreciation
Amortization of intangible assets
Other operating expenses
Early retirement program
Transition costs
Total operating expenses
Equity in earnings of associated companies
Operating income
Non-operating income (expense):
Financial income
Financial expense
Loss on early extinguishment of debt
Other, net
Total non-operating expense, net
Income from continuing operations before income taxes
Income tax expense
Minority interest
Income from continuing operations
Discontinued operations:
Income from discontinued operations, net of income tax effect
Loss on disposition, net of income tax effect
Net income
Other comprehensive income, net
Comprehensive income
Earnings (loss) per common share:
Basic:
Continuing operations
Discontinued operations
Net income
Diluted:
Continuing operations
Discontinued operations
Net income
Dividends per common share
$
874,568 $ 624,109 $ 474,873
205,718
130,023
153,571
48,362
38,381
41,210
1,128,648
643,277
818,890
435,836
120,191
33,903
62,167
280,018
8,654
4,589
945,358
20,739
204,029
6,054
(95,939)
-
(2,037)
(91,922)
112,107
39,740
1,231
71,136
4,900
(5,204)
70,832
1,674
72,506 $
325,959
79,331
23,754
35,495
190,768
9,124
8,929
673,360
12,784
158,314
2,824
(38,038)
(11,181)
(439)
(46,834)
111,480
40,458
160
70,862
6,016
-
76,878
1,504
78,382 $
1.57 $
(0.01)
1.56 $
1.57 $
0.13
1.70 $
260,827
58,153
19,141
24,789
147,886
-
-
510,796
8,523
141,004
1,066
(12,665)
-
(477)
(12,076)
128,928
45,955
-
82,973
3,347
(249)
86,071
-
86,071
1.85
0.07
1.92
1.84
0.07
1.91
1.56 $
(0.01)
1.56 $
0.72 $
1.56 $
0.13
1.70 $
0.72 $
0.72
$
$
$
$
$
$
The accompanying Notes are an integral part of the Consolidated Financial Statements.
46
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Thousands)
2006
Amount
2005
2004
2006
Shares
2005
2004
Common Stock:
$ 76,818 $
74,056 $
70,994
38,409 37,028
35,497
Balance, beginning of year
Conversion from Class B
Common Stock
Shares issued
Shares reacquired
Balance, end of year
Class B Common Stock:
Balance, beginning of year
Conversion to Common Stock
Balance, end of year
Additional paid-in capital:
Balance, beginning of year
Reclassification from unearned
compensation
Stock option expense
Amortization of restricted stock
Income tax benefit (expense) of
stock options exercised
Shares issued
Balance, end of year
Unearned compensation:
Balance, beginning of year
Reclassification to additional paid-
in-capital
Restricted stock issued
Restricted stock canceled
Amortization
Balance, end of year
Retained earnings:
Balance, beginning of year
Net income
Cash dividends
Shares reacquired
Balance, end of year
Accumulated other comprehensive
income:
Balance, beginning of year
Unrealized gain on interest rate
exchange agreements
Unrealized gain (loss) on
available-for-sale securities
Deferred income taxes, net
Balance, end of year
Total stockholders’ equity
1,380
884
(108)
78,974
14,168
(1,380)
12,788
2,210
580
(28)
76,818
16,378
(2,210)
14,168
1,870
1,228
(36)
74,056
18,248
(1,870)
16,378
690
442
(54)
1,105
290
(14)
39,487 38,409
935
614
(18)
37,028
7,084
(690)
6,394
8,189
(1,105)
7,084
9,124
(935)
8,189
115,464
100,537
78,697
(5,505)
2,678
5,425
-
2,807
-
-
3,285
-
(33)
5,709
123,738
749
11,371
115,464
2,509
16,046
100,537
(5,505)
(3,913)
(2,457)
5,505
-
-
-
-
733,961
70,832
(32,846)
-
771,947
-
(6,215)
45
4,578
(5,505)
689,785
76,878
(32,702)
-
733,961
-
(4,327)
164
2,707
(3,913)
636,674
86,071
(32,449)
(511)
689,785
1,504
-
-
2,527
2,707
-
121
(974)
3,178
-
-
-
$990,625 $ 936,410 $ 876,843
(230)
(973)
1,504
45,881 45,493
45,217
The accompanying Notes are an integral part of the Consolidated Financial Statements.
47
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
2006
2005
2004
Cash provided by operating activities:
Net income
Results of discontinued operations
Income from continuing operations
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities of continuing
operations:
Depreciation and amortization
Stock compensation expense
Amortization of debt fair value adjustment
Loss on early extinguishment of debt
Distributions less than earnings of associated companies
Change in operating assets and liabilities, net of
acquisitions:
Decrease (increase) in receivables
Decrease (increase) in inventories and other
Increase (decrease) in accounts payable, accrued
expenses and unearned revenue
Increase (decrease) in pension, postretirement and
post employment benefits
Change in income taxes receivable or payable
Increase (decrease) in deferred income taxes
Other
Net cash provided by operating activities of continuing operations
Cash required for investing activities of continuing operations:
Purchases of marketable securities
Sales of marketable securities
Purchases of property and equipment
Acquisitions, net
Increase in restricted cash
Other
Net cash required for investing activities of continuing operations
Cash provided by (required for) financing activities of continuing
operations:
Payments on long-term debt
Purchases of common stock
Proceeds from long-term debt
Financing costs
Cash dividends paid
Other, primarily issuance of common stock
$
70,832 $
(304)
71,136
76,878 $
6,016
70,862
86,071
3,098
82,973
96,070
7,693
(7,190)
-
(482)
5,547
2,859
(7,904)
10,178
42,060
(29,178)
6,372
197,161
(70,415)
68,043
(32,544)
(4,245)
(11,916)
8,394
(42,683)
(218,000)
(1,260)
55,000
(2,814)
(32,671)
7,815
59,249
7,879
(2,385)
11,181
(1,288)
43,930
5,874
-
-
(965)
(5,681)
(3,897)
(3,975)
(631)
5,519
2,633
6,939
(595)
165
3,738
151,686
(13,038)
67,199
(24,096)
(1,299,738)
(6,847)
4,211
(1,272,309)
(194)
(15,597)
8,390
(729)
121,709
-
-
(18,462)
(8,909)
-
207
(27,164)
(338,600)
(548)
1,507,000
(28,855)
(32,361)
5,399
(185,600)
(956)
94,000
-
(26,383)
13,085
Net cash provided by (required for) financing activities of
continuing operations
Net cash provided by (required for) discontinued operations:
Operating activities
Investing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents:
Beginning of year
End of year
(191,930)
1,112,035
(105,854)
5,517
33,030
1,095
8,808
(687)
(467)
8,179
76
(3,054)
7,543
8,638 $
$
8,010
7,543 $
11,064
8,010
The accompanying Notes are an integral part of the Consolidated Financial Statements.
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company directly, and through its ownership of associated companies, publishes 56 daily newspapers in 23
states and more than 300 weekly, classified and specialty publications, along with associated and integrated
online sites. The Company currently operates in a single reporting segment, as its enterprises have similar
economic characteristics, products, customers and distribution.
1
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In June 2005, the Company acquired Pulitzer Inc. (Pulitzer). The acquisition has a significant impact on the
Consolidated Financial Statements.
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, all of which are
wholly-owned, except for its 50% interest in Madison Newspapers, Inc., (MNI), 83% interest in INN Partners, L.C.,
(INN), and Pulitzer’s (together with another subsidiary) 95% interest in St. Louis Post-Dispatch LLC (PD LLC) and
STL Distribution Services LLC (DS LLC), a distribution company serving the St. Louis market, and 50% interest in
the results of operations of TNI Partners (TNI).
Certain amounts as previously reported have been reclassified to conform with the current year presentation.
References to 2006, 2005, 2004 and the like mean the fiscal year ended September 30.
Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions that affect the reported amount of
assets and liabilities, revenue and expenses during the reporting period. Actual results could differ from those
estimates.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned, or majority-
owned, subsidiaries. All significant intercompany transactions have been eliminated.
Investments in MNI and TNI are accounted for using the equity method and are reported at cost plus the
Company’s share of undistributed earnings since acquisition, less, for TNI, amortization of intangible assets.
Minority interest in earnings of PD LLC, DS LLC and INN is recognized in the Consolidated Financial Statements.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an original maturity of three months or
less at date of acquisition to be cash equivalents.
Accounts Receivable
The Company evaluates its allowance for doubtful accounts receivable based on historical credit experience,
payment trends and other economic factors. Delinquency is determined based on timing of payments in relation to
billing dates. Accounts considered to be uncollectible are written off.
Inventories
Newsprint inventories are priced at the lower of cost or market, with cost being determined by the first-in, first-out
or last-in, first-out methods. Newsprint inventories at September 30, 2006 and 2005 are less than replacement
cost by $4,556,000 and $3,731,000, respectively.
The components of newsprint inventory by cost method are as follows:
(Thousands)
September 30
2006
2005
49
First-in, first-out
Last-in, first-out
$ 10,099 $
5,193
$ 15,292 $
11,118
5,681
16,799
Other inventories consisting of ink, plates and film are priced at the lower of cost or market, with cost being
determined by the first-in, first-out method.
Restricted Cash and Investments
Until May 1, 2010, PD LLC is restricted from making distributions (except under specified circumstances), capital
expenditures and member loan repayments unless it has set aside out of its cash flow a reserve equal to the
product of $15,000,000 and the number of years since May 1, 2000, but not in excess of $150,000,000 (the
Reserve). PD LLC is not required to maintain the Reserve after May 1, 2010. Investments in the Reserve are
limited to U.S. government and related securities and are recorded at fair value, with unrealized gains and losses
reported, net of applicable income taxes, in accumulated other comprehensive income. The cost basis used to
determine realized gains and losses is specific identification. See Note 19.
Other Investments
Other investments primarily consist of marketable securities held in trust under a deferred compensation
arrangement and investments for which no established market exists. Marketable securities are classified as
trading securities and carried at fair value with gains and losses reported in earnings. Non-marketable securities
are carried at cost.
Property and Equipment
Property and equipment are carried at cost. Equipment, except for printing presses and mailroom equipment, is
depreciated primarily by declining-balance methods. The straight-line method is used for all other assets. The
estimated useful lives are as follows:
Buildings and improvements
Printing presses and mailroom equipment
Other
Years
5 – 54
2 – 28
1 – 14
The Company capitalizes interest as a component of the cost of constructing major facilities. At September 30,
2006, capitalized interest was not significant.
Beginning in 2006, the Company recognizes the fair value of a liability for a legal obligation to perform an asset
retirement activity, when such activity is a condition of a future event, and the fair value of the liability can be
estimated.
Goodwill and Other Intangible Assets
Intangible assets include covenants not to compete, consulting agreements, customer lists, newspaper subscriber
lists, mastheads and other. Intangible assets subject to amortization are being amortized as follows:
Noncompete and consulting agreements
Customer lists
Newspaper subscriber lists
Other
Years
2 – 15
3 – 23
7 – 33
10
In assessing the recoverability of its goodwill and other nonamortized intangible assets, the Company makes
assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective
assets. The Company analyzes its goodwill and other nonamortized intangible assets for impairment on an
annual basis, or more frequently if impairment indicators are present.
The Company also periodically evaluates its determination of the useful lives of amortizable intangible assets.
Any resulting changes in the useful lives of such intangible assets will not impact the cash flows of the Company.
50
However, a decrease in the useful lives of such intangible assets would increase future amortization expense and
decrease future reported operating results and earnings per common share.
Revenue Recognition
Advertising revenue is recorded when advertisements are placed in the publication or on the related online site.
Circulation revenue is recorded as newspapers are distributed over the subscription term. Other revenue is
recognized when the related product or service has been delivered. Unearned revenue arises in the ordinary
course of business from advance subscription payments for newspapers or advance payments for advertising.
Advertising Costs
Advertising costs are expensed as incurred.
Pension, Postretirement and Postemployment Benefit Plans
The Company evaluates its liability for pension, postretirement and postemployment benefit plans based upon
computations made by consulting actuaries, incorporating estimates and actuarial assumptions of future plan
service costs, future interest costs on projected benefit obligations, rates of compensation increases, employee
turnover rates, anticipated mortality rates, expected investment returns on plan assets, asset allocation
assumptions of plan assets, and other factors. If the Company used different estimates and assumptions
regarding these plans, the funded status of the plans could vary significantly, resulting in recognition of different
amounts of expense over future periods.
Income Taxes
Deferred income taxes are provided using the liability method, whereby deferred income tax assets are
recognized for deductible temporary differences and loss carryforwards and deferred income tax liabilities are
recognized for taxable temporary differences. Temporary differences are the difference between the reported
amounts of assets and liabilities and their tax basis. Deferred income tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Interest Rate Exchange Agreements
The Company accounts for interest rate exchange agreements, which are comprised of floating-to-fixed rate
interest rate swaps, as cash flow hedges. The Company expects that the fair value of these agreements will
significantly offset changes in the cash flows of the associated floating rate debt. The fair value of such
instruments is recorded in accumulated other comprehensive income, net of applicable income tax expense or
benefit.
Stock Compensation
The Company has four stock-based compensation plans. The Company accounts for grants under those plans
under the fair value expense recognition provisions of FASB Statement 123, Accounting for Stock-Based
Compensation, as amended by Statement 123–Revised. The adoption of Statement 123–Revised resulted in a
reclassification of unearned compensation to additional paid-in capital. The Company amortizes as compensation
expense the value of stock options and restricted Common Stock by the straight-line method over the vesting or
restriction period, which is generally one to three years.
Uninsured Risks
The Company is self-insured for health care, workers compensation and certain long-term disability costs of its
employees, subject to stop loss insurance, which limits exposure to large claims. The Company accrues its
estimated health care costs in the period in which such costs are incurred, including an estimate of incurred but
not reported claims. Other risks are insured and carry deductible losses of varying amounts. Letters of credit and
a self-insurer bond totaling $7,495,000 at September 30, 2006 are outstanding in support of the Company’s
insurance program.
The Company’s reserves for health care and workers compensation claims are based upon estimates of the
remaining liability for retained losses made by consulting actuaries. The amount of workers compensation reserve
51
has been determined based upon historical patterns of incurred and paid loss development factors from the
insurance industry.
Discontinued Operations
In accordance with the provisions of FASB Statement 144, Accounting for the Impairment or Disposal of Long-
Lived Assets, the operations and related losses on properties sold, or identified as held for sale, have been
presented as discontinued operations in the Consolidated Statements of Income and Comprehensive Income for
all years presented. Gains are recognized when realized.
2
ACQUISITIONS AND DIVESTITURES
All acquisitions are accounted for as a purchase and, accordingly, the results of operations since the respective
dates of acquisition are included in the Consolidated Financial Statements.
Acquisition of Pulitzer
On June 3, 2005, the Company and LP Acquisition Corp., an indirect, wholly-owned subsidiary of the Company
(the Purchaser), consummated an Agreement and Plan of Merger (the Merger Agreement) dated as of
January 29, 2005 with Pulitzer. The Merger Agreement provided for the Purchaser to be merged with and into
Pulitzer (the Merger), with Pulitzer as the surviving corporation. Each share of Pulitzer’s Common Stock and
Class B Common Stock outstanding immediately prior to the effective time of the Merger was converted into the
right to receive from the Company or the Purchaser in cash, without interest, an amount equal to $64 per share.
Pulitzer published fourteen daily newspapers, including the St. Louis Post-Dispatch, and more than 100 weekly
newspapers and specialty publications. Pulitzer also owns a 50% interest in TNI. See Note 4. The Merger was
consistent with the Company’s announced strategy to buy newspapers with circulation of 30,000 or more.
The Merger effected a change of control of Pulitzer. At the effective time of the Merger and as a result of the
Merger, Pulitzer became an indirect, wholly-owned subsidiary of the Company.
The unaudited pro forma condensed consolidated income statement information for 2005 and 2004, set forth
below, presents the results of operations as if the acquisition of Pulitzer had occurred at the beginning of each
year and is not necessarily indicative of future results or actual results that would have been achieved had the
acquisition occurred as of the beginning of such year. Pro forma results for 2005 include $29,544,000 of early
retirement, transition and debt extinguishment costs related to the acquisition. The amounts in the table below are
adjusted for the divestitures of the Pacific Northwest Properties and the daily newspaper in Rhinelander,
Wisconsin, described below. Other acquisitions described below are excluded as the amounts are not significant.
(Thousands, Except Per Common Share Data) (Unaudited)
2005
2004
Operating revenue
Income from continuing operations
Earnings per common share from continuing operations:
Basic
Diluted
$ 1,121,081 $
67,345
1,080,365
87,386
$
1.49 $
1.49
1.95
1.94
The $1,461,585,000 purchase price of Pulitzer, all of which was paid in cash, included approximately $11,200,000
of fees and expenses and is allocated as follows. The purchase price includes assets and liabilities of the
Rhinelander, Wisconsin daily newspaper, which was sold in 2006.
(Thousands)
Current assets
Restricted cash and investments
Property and equipment
Long-term investments
Goodwill
Intangible and other assets
Total assets acquired
52
$
305,432
73,560
140,532
207,937
922,396
623,827
2,273,684
Current liabilities
Long-term debt
Pension, postretirement and postemployment benefits
Deferred income taxes
Other long-term liabilities
55,125
337,512
118,480
274,394
26,588
$ 1,461,585
Incremental goodwill was recorded as a result of the Company’s acquisition of Pulitzer as the purchase price
exceeding the fair value of tangible and identified intangible assets acquired. Such goodwill is not deductible for
income tax purposes. Future tax deductible goodwill recorded by Pulitzer as a result of prior transactions is
approximately $585,500,000.
Acquired intangible assets consist of the following:
(Thousands)
Amortizable intangible assets:
Customer lists
Newspaper subscriber lists
Nonamortized intangible assets:
Mastheads
Weighted-Average
Amortization
Period (Years)
18
9
17
Amount
$ 516,730
49,902
566,632
53,118
$ 619,750
In 2006 and 2005, the Company incurred transition costs of $4,589,000 and $8,929,000, respectively, in
connection with the acquisition of Pulitzer.
Other Acquisitions
In 2004, the Company exchanged its daily newspapers in Freeport, Illinois and Corning, New York and cash
totaling $2,215,000 for daily newspapers in Burley, Idaho and Elko, Nevada and eight weekly and specialty
publications. In 2004 the Company also purchased five specialty publications at a cost of $6,694,000.
In 2005, the Company purchased two specialty publications at a cost of $309,000, made a final working capital
payment of $301,000 related to a specialty publication purchased in 2004 and exchanged an internet service
provider business for a weekly newspaper. In 2005, the Company also purchased eight specialty publications at a
cost of $3,908,000 and received final working capital payments of $78,000 from purchased specialty publications.
In 2005, INN purchased an Internet advertisement design business at a cost of $200,000.
In 2006, the Company purchased a web-hosting business and national advertising network at a cost of
$3,800,000 from PowerOne Media, LLC (PowerOne), in which the Company and MNI own minority interests and
purchased a minority interest in INN in exchange for the forgiveness of certain notes receivable with a carrying
value of $75,000. In 2006, the Company also purchased a weekly newspaper at a cost of $412,000. These other
acquisitions did not have a material effect on the Consolidated Financial Statements.
In November 2006, the Company purchased a minority interest in an online employment application from
PowerOne at a cost of $118,000.
3
DISCONTINUED OPERATIONS
In 2006, the Company sold several stand alone publishing and commercial printing operations in Seattle and
Spokane, Washington, and Portland, Oregon, a twice weekly newspaper in Oregon (the Pacific Northwest
Properties), and the daily newspaper in Rhinelander, Wisconsin. The Company received $33,198,000 in
September 2006 and recorded a receivable of $20,700,000, which was collected in October 2006. The
transactions resulted in an after tax loss of $5,204,000, which is recorded in discontinued operations.
The 2004 exchange transaction (see Note 2) resulted in an after tax loss of $228,000, which is recorded in
discontinued operations. Tax expense of $2,812,000 recorded in results of discontinued operations in 2004 is
53
related primarily to nondeductible goodwill and basis differences in identified intangible assets associated with
the 2004 exchange transaction. Results for the Pacific Northwest Properties, Rhinelander, Freeport and Corning
are recorded in discontinued operations for all years presented.
In October 2006, the Company sold a weekly newspaper in Oregon.
Results of discontinued operations consist of the following:
(Thousands)
Operating revenue
Income from discontinued operations
Gain (loss) on sale of discontinued operations
Income tax expense, net
Assets and liabilities of discontinued operations consist of the following:
(Thousands)
Current assets
Property and equipment, net
Goodwill
Intangible and other assets
Total assets
Current liabilities
Deferred income taxes
Total liabilities
2006
2005
2004
$
$
$
41,104 $
42,297 $
43,477
7,803 $
(7,854)
253
(304) $
9,911 $
-
3,895
6,016 $
5,454
2,584
4,940
3,098
September 30
2005
2006
$
88 $
4,438
10,269
47,420
3,379
$ 342 $ 65,506
113
-
141
523
-
$ 523 $
3,176
1,275
4,451
Income tax expense related to discontinued operations differs from the amounts computed by applying the U.S.
federal income tax rate as follows:
Computed “expected” income tax expense
State income taxes, net of federal tax benefit
Other, primarily goodwill basis differences
4
INVESTMENTS IN ASSOCIATED COMPANIES
TNI Partners
2006
2005
2004
(35.0)%
(3.9)
(457.2)
(496.1)%
35.0%
4.3
-
39.3%
35.0%
4.0
22.5
61.5%
In Tucson, Arizona, TNI, acting as agent for the Company’s subsidiary, Star Publishing Company (Star
Publishing), and Citizen Publishing Company (Citizen), a subsidiary of Gannett Co. Inc., is responsible for
printing, delivery, advertising, and circulation of the Arizona Daily Star and Tucson Citizen, as well as the related
online sites and specialty publications. TNI collects all receipts and income and pays substantially 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. Income or loss of TNI (before income taxes) is allocated
equally to Star Publishing and Citizen.
Summarized financial information of TNI is as follows:
(Thousands)
September 30
2006
2005
54
ASSETS
Current assets
Investments and other assets
Total assets
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities
Members’ equity
Total liabilities and members’ equity
$ 14,810 $
10
$ 14,820 $
13,782
20
13,802
$
7,211 $
7,609
$ 14,820 $
8,021
5,781
13,802
Summarized results of TNI (2005 from the June 3, 2005 date of acquisition) are as follows:
(Thousands)
Operating revenue
Operating expenses, excluding depreciation and amortization
Operating income
Company’s 50% share of operating income
Less amortization of intangible assets
Equity in earnings of TNI
2006
2005
$ 121,223 $
83,485
37,738 $
$
36,986
26,218
10,768
$
$
18,869 $
5,987
12,882 $
5,384
1,644
3,740
Star Publishing’s 50% share of TNI depreciation and certain general and administrative expenses associated with
its share of the operation and administration of TNI are reported as operating expenses in the Company’s
Consolidated Statements of Income and Comprehensive Income. These amounts totaled $2,049,000 and
$672,000 in 2006 and 2005, respectively.
At September 30, 2006, the carrying value of the Company’s 50% investment in TNI is $173,762,000. The
difference between the Company’s carrying value and its 50% share of the members’ equity of TNI relates
principally to goodwill of $85,240,000, and other identified intangible assets, some of which are being amortized
over their estimated useful lives through 2025, of $85,005,000. See Note 6.
In January 2007, defined pension benefits for certain TNI employees will be frozen at then current levels. As a
result, TNI will recognize a curtailment gain of approximately $2,000,000 in 2007.
Madison Newspapers, Inc.
The Company has a 50% ownership interest in MNI, a company that publishes daily and Sunday newspapers,
and other publications in Madison, Wisconsin, and other Wisconsin locations, as well as the related online sites.
Net income or loss of MNI (after income taxes) is allocated equally to the Company and The Capital Times
Company (TCT). MNI conducts its business under the trade name Capital Newspapers.
Summarized financial information of MNI is as follows:
(Thousands)
ASSETS
Current assets
Investments and other assets
Property and equipment, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities, excluding debt
Debt, including current maturities
55
September 30
2006
2005
$
$
$
24,238 $
36,506
12,126
72,870 $
19,888
43,514
14,652
78,054
13,184 $
8,014
13,773
13,273
Other liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Summarized results of MNI are as follows:
2,660
49,012
72,870 $
2,960
48,048
78,054
$
(Thousands)
2006
2005
2004
Operating revenue
Operating expenses, excluding depreciation and amortization
Operating income
Net income
$
121,541 $
91,572
25,129
15,714
122,021 $
87,429
29,504
18,088
118,287
85,084
28,101
17,046
Company’s 50% share of net income
$
7,857 $
9,044 $
8,523
Accounts receivable from associated companies consist of dividends due from MNI. Fees for editorial, marketing
and information technology services provided to MNI by the Company are included in other revenue and totaled
$10,425,000, $10,164,000, and $9,994,000 in 2006, 2005, and 2004, respectively.
In September 2006, MNI sold its Shawano, Wisconsin daily newspaper and commercial printing operation. MNI
recognized an after tax loss of $1,002,000 on the sale.
Certain other information relating to the Company’s investment in MNI is as follows:
(Thousands)
Company’s share of:
Stockholders’ equity
Undistributed earnings
September 30
2006
2005
$ 24,506 $
24,256
24,024
23,774
5
MARKETABLE SECURITIES AVAILABLE-FOR-SALE
Marketable securities, which are comprised of debt securities issued by the U.S. government and agencies, and
which include certain of the Company’s restricted cash and investments, are classified as available-for-sale
securities at September 30, 2006, and 2005, and consist of the following:
(Thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
September 30
2006
2005
$ 77,419 $
52
(161)
$ 77,310 $
74,443
-
(230)
74,213
Proceeds from the sale of such securities total $68,043,000 in 2006, resulting in no gross realized gains or losses,
and $67,199,000 in 2005, resulting in gross realized gains of $84,000 and gross realized losses of $10,000.
The amortized cost and fair value of marketable securities as of September 30, 2006, by contractual maturity, are
as follows. Contractual maturities may differ from actual maturities as borrowers may have the right to call or
repay obligations with or without call or prepayment penalties.
(Thousands)
Due in one year or less
Due after one year through five years
Amortized
Cost
Fair
Value
$
$
$
53,322 $
24,097
77,419 $
53,189
24,121
77,310
56
6
GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill related to continuing operations are as follows:
(Thousands)
Goodwill, beginning of year, as previously reported
Goodwill included in assets of discontinued operations
Goodwill, beginning of year, as reclassified
Goodwill related to acquisitions
Goodwill related to dispositions
Goodwill, end of year
2006
2005
$
$ 1,499,622
(792)
-
$ 1,498,830 $
622,396
(46,541)
575,855
925,626
(1,859)
1,499,622
Identified intangible assets related to continuing operations consist of the following:
(Thousands)
Nonamortized intangible assets:
Mastheads
Amortizable intangible assets:
Customer and newspaper subscriber lists
Less accumulated amortization
Noncompete and consulting agreements
Less accumulated amortization
September 30
2006
2005
$
73,746 $
78,670
1,073,125
166,240
906,885
28,678
28,397
281
980,912 $
1,069,018
109,253
959,765
28,664
28,136
528
1,038,963
$
In 2006, the Company, based on its most recent analysis and in conjunction with its ongoing requirement to
assess the estimated useful lives of intangible assets, concluded that the period of economic benefit of certain
identified intangible assets related to the Pulitzer acquisition had decreased. As a result, the weighted-average
useful life of customer lists was decreased from approximately 21 years to 18 years. The change in estimated
useful life of such assets resulted in recognition of additional amortization expense of $1,847,000 in 2006, of
which $469,000 is recorded in equity in earnings of TNI. This change in non-cash amortization expense has no
impact on the Company’s cash flows or debt covenants.
In 2006, the Company also recorded a separate non-cash charge of $5,526,000 to reduce the value of
nonamortized masthead intangible assets of Pulitzer, of which $4,939,000 is recorded in amortization expense
and $587,000 is recorded in equity in earnings of TNI. The Company uses a royalty approach to value such
assets. Lower than expected revenue growth resulted in the change in value.
Annual amortization of intangible assets related to continuing operations for the five years ending September
2011 is estimated to be $60,250,000, $59,705,000, $59,179,000, $59,098,000, and $58,074,000, respectively.
7
DEBT
Credit Agreement
In December 2005, the Company entered into an amended and restated credit agreement (Credit Agreement)
with a syndicate of financial institutions. The Credit Agreement provides for aggregate borrowing of up to
$1,435,000,000 and consists of a $950,000,000 A Term Loan, $35,000,000 B Term Loan and $450,000,000
revolving credit facility. The Credit Agreement also provides the Company with the right, with the consent of the
administrative agent, to request at certain times prior to June 2012 that one or more lenders provide incremental
term loan commitments of up to $500,000,000, subject to certain requirements being satisfied at the time of the
request. The Credit Agreement matures in June 2012 and amends and replaces a $1,550,000,000 credit
agreement (the Old Credit Agreement) consummated in June 2005. Interest rate margins under the Credit
Agreement are generally lower than under the Old Credit Agreement. Other conditions of the Credit Agreement
are substantially the same as the Old Credit Agreement.
57
The Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by substantially all of
the Company’s existing and future, direct and indirect subsidiaries in which the Company holds a direct or indirect
interest of more than 50%; provided however, that Pulitzer and its subsidiaries will not be required to enter into
such guaranty for so long as their doing so would violate the terms of the Pulitzer Notes described more fully
below. The Credit Agreement is secured by first priority security interests in the stock and other equity interests
owned by the Company and each guarantor in their respective subsidiaries. Both the guaranties and the collateral
that secures them will be released in their entirety at such time as the Company achieves a total leverage ratio of
less than 4:25:1 for two consecutive quarterly periods.
Debt under the A Term Loan and revolving credit facility bear interest, at the Company’s option, at either a base
rate or an adjusted Eurodollar rate (LIBOR), plus an applicable margin. The base rate for the facility is the greater
of the prime lending rate of Deutsche Bank Trust Company Americas at such time and 0.5% in excess of the
overnight federal funds rate at such time. The margin applicable is a percentage determined according to the
following: For revolving loans and A Term Loans, maintained as base rate loans: 0%, and maintained as
Eurodollar loans: 0.625% to 1% (0.875% at September 30, 2006) depending, in each instance, upon the
Company’s leverage ratio at such time. All loans at September 30, 2006 are Eurodollar-based.
The Company may voluntarily prepay principal amounts outstanding or reduce commitments under the Credit
Agreement at any time, in whole or in part, without premium or penalty, upon proper notice and subject to certain
limitations as to minimum amounts of prepayments. The Company is required to repay principal amounts, on a
quarterly basis until maturity, under the A Term Loan beginning in September 2006. In addition to the scheduled
payments noted above, the Company is required to make mandatory prepayments under the A Term Loan under
certain other conditions. Total A Term Loan payments in 2006 total $24,000,000. The Company repaid the B
Term Loan in full in 2006.
The Credit Agreement contains customary affirmative and negative covenants for financing of its type. These
financial covenants include a maximum total leverage ratio (5.75:1 at September 30, 2006) and minimum interest
expense coverage ratio of 2.5:1. None of the covenants included in the Credit Agreement is considered by the
Company to be restrictive to normal operations or historical amounts of stockholder dividends. At September 30,
2006, the Company is in compliance with such covenants.
The Credit Agreement requires the Company to apply the net proceeds from asset sales to repayment of the A
Term Loan to the extent such proceeds exceed the amount used to purchase assets (other than inventory and
working capital) within one year of the asset sales. The Company expects repayments in 2007 to meet or exceed
required repayments related to its 2006 sales transactions.
In 2005, upon consummation of the Old Credit Agreement, the Company borrowed $1,462,000,000. The
proceeds were used to consummate the acquisition of Pulitzer, to repay certain existing indebtedness of the
Company, as discussed more fully below, and to pay related fees and expenses.
In connection with the execution of the Old Credit Agreement, the Company redeemed, as of June 3, 2005, all of
the $52,000,000 outstanding indebtedness under its then existing credit agreement and, as of June 6, 2005, the
existing senior notes of the Company under the Note Purchase Agreement dated as of March 18, 1998 totaling
$102,000,000. Refinancing of existing debt of the Company resulted in a pretax loss of $11,181,000.
Pulitzer Notes
In conjunction with its formation, PD LLC borrowed $306,000,000 (Pulitzer Notes) from a group of institutional
lenders (the Lenders). The aggregate principal amount of the Pulitzer Notes is payable in April 2009 and bears
interest at an annual rate of 8.05%. The Pulitzer Notes are guaranteed by Pulitzer pursuant to a Guaranty
Agreement dated May 1, 2000 (Guaranty Agreement) with the Lenders. In turn, pursuant to an Indemnity
Agreement dated May 1, 2000 (Indemnity Agreement) between The Herald Company, Inc. (Herald) and Pulitzer,
Herald agreed to indemnify Pulitzer for any payments that Pulitzer may make under the Guaranty Agreement.
The terms of the Pulitzer Notes, as amended, contain certain covenants and conditions including the
maintenance, by Pulitzer, of EBITDA, as defined in the Guaranty Agreement, minimum net worth and limitations
on the incurrence of other debt. At September 30, 2006, the Company is in compliance with such covenants. In
addition, the Pulitzer Notes and the Operating Agreement with Herald (Operating Agreement) require that PD LLC
maintain a minimum reserve balance, consisting of cash and investments in U.S. government securities, totaling
approximately $96,060,000 at September 30, 2006. The Pulitzer Notes and the Operating Agreement provide for
58
a $3,750,000 quarterly increase in the minimum reserve balance through May 1, 2010, when the amount will total
$150,000,000. See Note 19.
The purchase price allocation of Pulitzer (see Note 2) resulted in an increase in the value of the Pulitzer Notes in
the amount of $31,512,000, which is recorded as debt in the Consolidated Balance Sheets. This amount will be
accreted over the remaining life of the Pulitzer Notes, until April 2009, as a reduction in interest expense using the
interest method. This accretion will not increase the principal amount due to, or reduce the amount of interest to
be paid to, the Lenders.
Debt consists of the following:
(Thousands)
Credit Agreement:
A Term Loan
Revolving credit facility
Old Credit Agreement
Pulitzer Notes:
Principal amount
Unaccreted fair value adjustment
Less current maturities
September 30
2006
2005
Interest Rate(s)
September 30, 2006
$
926,000 $
293,000
-
-
-
1,382,000
306,000
20,834
1,545,834
35,375
$ 1,510,459 $
306,000
28,024
1,716,024
10,000
1,706,024
6.24 – 6.28%
6.21 – 6.24
8.05
Aggregate maturities of debt during the five years ending September 30, 2011 are $35,375,000, $71,250,000,
$448,500,000, $166,250,000, and $261,250,000, respectively.
8
INTEREST RATE EXCHANGE AGREEMENTS
In 2005, the Company executed interest rate swaps in the notional amount of $350,000,000 with a forward
starting date of November 30, 2005. The interest rate swaps have terms of two to five years, carry interest rates
from 4.2% to 4.4% (plus the applicable LIBOR margin) and effectively fix the Company’s interest rate on debt in
the amounts, and for the time periods, of such instruments. At September 30, 2006, the Company recorded an
asset of $5,234,000 and $2,707,000 in 2006 and 2005, respectively, related to the fair value of such instruments.
The change in this fair value is recorded in other comprehensive income, net of income taxes.
At September 30, 2006, after consideration of the interest rate swaps described above, approximately 57% of the
principal amount of the Company’s debt is subject to floating interest rates.
In 2005, the Company terminated fixed-to-floating rate interest rate swaps with a notional amount of
$150,000,000 previously executed by Pulitzer. The swaps were accounted for as fair value hedges. The
Company received cash of $2,100,000 upon termination.
9
PENSION PLANS
The Company and its subsidiaries have several noncontributory defined benefit pension plans that together cover
a significant number of St. Louis Post-Dispatch and selected other employees. Benefits under the plans are
generally based on salary and years of service. The Company’s liability and related expense for benefits under
the plans are recorded over the service period of active employees based upon annual actuarial calculations.
Plan funding strategies are influenced by tax regulations. Plan assets consist primarily of domestic and foreign
corporate equity securities, government and corporate bonds, and cash.
The Company uses a June 30 measurement date for all of its pension obligations.
The cost components of the Company’s pension plans (2005 from the June 3, 2005 date of acquisition) are as
follows:
(Thousands)
2006
2005
59
Service cost for benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Curtailment
Cost for special termination benefits (see Note 19)
Net periodic pension cost
$
$
5,532 $
9,191
(12,637)
(102)
4,523
6,507 $
2,229
2,950
(4,212)
-
4,650
5,617
$605,000 and $202,000 of net periodic pension cost in 2006 and 2005, respectively, is allocated to TNI.
Changes in benefit obligations and plan assets (2005 from the June 3, 2005 date of acquisition) are as follows:
(Thousands)
Benefit obligation, beginning of year
Fair value of benefit obligation acquired
Service cost
Interest cost
Actuarial gain
Benefits paid
Curtailment
Special termination benefits
Benefit obligation, end of year
Fair value of plan assets, beginning of year:
Fair value of plan assets acquired
Actual gain on plan assets
Benefits paid
Fair value of plan assets, June 30 measurement date
Funded status – benefit obligation in excess of plan assets
Contributions made after measurement date
Unrecognized net actuarial gain
Net accrued benefit liability recognized
2006
2005
$ 186,480 $
-
5,532
9,191
(27,959)
(9,493)
(102)
4,523
168,172
157,285
-
13,972
(9,493)
161,764
6,408
(845)
30,526
36,089 $
$
-
181,259
2,229
2,950
(3,884)
(724)
-
4,650
186,480
-
156,448
1,561
(724)
157,285
29,195
-
1,233
30,428
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans
with accumulated benefit obligations in excess of plan assets are $70,811,000, $67,011,000 and $64,436,000,
respectively, at September 30, 2006.
Assumptions
Weighted-average assumptions used to determine benefit obligations are as follows:
Discount rate
Rate of compensation increase
Weighted-average assumptions used to determine net periodic benefit cost are as follows:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
September 30
2005
2006
5.75%
4.0
5.0%
4.0
2006
2005
5.0%
8.5
4.0
5.0%
8.5
4.0
The assumptions related to the expected long-term return on plan assets are developed through an analysis of
historical market returns and current market conditions.
60
Plan Assets
The weighted-average asset allocation of the Company’s pension assets is as follows:
Asset Class
Equity securities
Debt securities
Actual Allocation
September 30
Policy Allocation
2006
2005
65% to 70%
30% to 35
70%
30
71%
29
An investment policy outlines the governance structure for decision making, sets investment objectives and
restrictions, and establishes criteria for selecting and evaluating investment managers. The use of derivatives is
strictly prohibited, except on a case-by-case basis where the manager has a proven capability, and only to hedge
quantifiable risks such as exposure to foreign currencies. An investment committee, consisting of Company
executives and supported by independent consultants, is responsible for monitoring compliance with the
investment policy.
The pension trust holds no Company securities, directly or through separate accounts.
Cash Flows
Based on its forecast at September 30, 2006, the Company expects to make contributions of $130,000 to its
pension trust in 2007.
The Company anticipates future benefit payments, which reflect future service, to be paid from the pension trust
as follows:
(Thousands)
2007
2008
2009
2010
2011
2012-2016
2007 Curtailment
$ 10,661
10,578
10,733
10,877
11,079
62,284
In January 2007, defined pension benefits for certain of the Company’s employees will be frozen at then current
levels. As a result, the Company will recognize a curtailment gain of approximately $2,800,000 in 2007.
Other Plans
The Company is obligated under an unfunded plan to provide certain fixed retirement payments to certain former
employees. The plan is frozen and no additional benefits are being accrued. The accrued liability under the plan is
$2,853,000 and $3,006,000 at September 30, 2006 and 2005, respectively.
Certain of the Company’s employees participate in multi-employer retirement plans sponsored by their respective
bargaining units. The amount charged to operating expense, representing the Company’s required contributions
to these plans, is approximately $679,000 in 2006 and $228,000 in 2005.
10
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides retiree medical and life insurance benefits under postretirement plans at several of its
operating locations. The level and adjustment of participant contributions vary depending on the specific plan. In
addition, PD LLC provides postemployment disability benefits to certain employee groups prior to retirement 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.
61
The Company uses a June 30 measurement date for all of its postretirement obligations.
The net periodic postretirement benefit cost components for the Company’s postretirement plans (2005 from the
June 3, 2005 date of acquisition) are as follows:
(Thousands)
Service cost for benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Cost for special termination benefits
Net periodic postretirement benefit cost
2006
2005
$ 3,377 $
6,588
(2,071)
660
$ 8,554 $
1,107
2,196
(690)
450
3,063
Changes in benefit obligations and plan assets (2005 from the June 3, 2005 date of acquisition) are as follows:
(Thousands)
Benefit obligation, beginning of year
Fair value of benefit obligation acquired
Service cost
Interest cost
Actuarial gain
Benefits paid, net of premiums received
Cost for special termination benefits
Benefit obligation, end of year
Fair value of plan assets, beginning of year
Fair value of plan assets acquired
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets, June 30 measurement date
Funded status
Unrecognized net actuarial gain
Funding changes made after measurement date
Net accrued benefit cost recognized
Assumptions
Weighted-average assumptions used to determine benefit obligations are as follows:
Discount rate
Expected long-term return on plan assets
2006
2005
$ 134,977 $
-
3,377
6,588
(12,418)
(6,051)
660
127,133
44,187
-
1,602
6,051
(6,051)
45,789
81,344
13,665
1,123
96,132 $
$
-
133,687
1,107
2,196
(1,977)
(486)
450
134,977
-
43,757
430
486
(486)
44,187
90,790
1,717
(1,416)
91,091
September 30
2005
2006
5.75%
5.0
5.0%
5.0
The assumptions related to the expected long-term return on plan assets are developed through an analysis of
historical market returns and current market conditions.
Weighted-average assumptions used to determine net periodic benefit cost are as follows:
Discount rate
Expected long-term return on plan assets
Assumed health care cost trend rates are as follows:
62
2006
2005
5.0%
5.0
5.0%
5.0
Healthcare cost trend rates
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
September 30, 2006
9.0 – 9.5%
4.5 – 5.0%
2011
Administrative costs related to indemnity plans are assumed to increase at the healthcare cost trend rates noted
above.
Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement
health care plans. A one percentage point change in assumed health care cost trend rates would have the
following annualized effects on reported amounts for 2006:
(Thousands)
Effect on net periodic postretirement benefit cost
Effect on accumulated postretirement benefit obligation
Plan Assets
One Percentage
Point
Increase
Decrease
$
1,432 $
14,843
(1,063)
(10,127)
The weighted-average asset allocation of the Company’s postretirement fund at September 30, 2006 and 2005, is
as follows:
Asset Class
Debt securities
Policy Allocation
Actual Allocation
100%
100%
An investment policy outlines the governance structure for decision making, sets investment objectives and
restrictions, and establishes criteria for selecting and evaluating investment managers. The use of derivatives is
strictly prohibited, except on a case-by-case basis where the manager has a proven capability, and only to hedge
quantifiable risks such as exposure to foreign currencies. An investment committee, consisting of Company
executives and supported by independent consultants, is responsible for monitoring compliance with the
investment policy.
The postretirement fund holds no Company securities, directly or through separate accounts.
The Company’s postemployment benefit obligation, representing certain disability benefits at the St. Louis Post-
Dispatch, is $4,099,000 and $4,146,000 at September 30, 2006 and 2005, respectively.
Cash Flows
Based on its forecast at September 30, 2006, the Company expects to contribute $3,000,000 to its postretirement
plans in 2007.
In December 2003 the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was
signed into law. The Act introduced a prescription drug benefit under Medicare (Medicare Part D) and a federal
subsidy to sponsors of retiree health care benefit plans (Subsidy) that provide a benefit that is at least actuarially
equivalent (as that term is defined in the Act) to Medicare Part D. The Company concluded that it qualifies for the
Subsidy under the Act since the prescription drug benefits provided under the Company’s postretirement health
care plans generally require lower premiums from covered retirees and have lower deductibles than the benefits
provided in Medicare Part D and, accordingly, are actuarially equivalent to or better than, the benefits provided
under the Act.
The Company anticipates future benefit payments, which reflect future services, to be paid either with future
contributions to the plan or directly from plan assets, as follows:
63
(Thousands)
2007
2008
2009
2010
2011
2012-2016
2007 Curtailment
Less
Medicare
Part D
Subsidy
Gross
Payments
Net
Payments
$
7,863 $
8,072
8,340
8,544
8,608
45,750
(622) $
(648)
(679)
(704)
(718)
(3,955)
7,241
7,424
7,661
7,840
7,890
41,795
In January 2007, defined postretirement medical benefits for certain of the Company’s employees will be
modified. As a result, the Company will recognize a curtailment gain of approximately $1,200,000 in 2007.
11
OTHER RETIREMENT PLANS
Substantially all the Company’s employees are eligible to participate in a qualified defined contribution retirement
plan. The Company also has other retirement and compensation plans for executives and others. Retirement and
compensation plan costs, including interest on deferred compensation costs, charged to continuing operations are
$25,112,000 in 2006, $22,022,000 in 2005, and $18,044,000 in 2004.
In conjunction with the acquisition of Pulitzer, an existing supplemental executive benefit retirement plan (SERP)
was amended and converted into an individual account plan. An account was established for each participant and
was credited with an amount representing the present value of the participant’s accrued benefit under the SERP,
plus adjustments for certain individuals subject to existing transition agreements. Interest is credited to each
account at an annual rate of 5.75%. The SERP, as amended, will be liquidated on or about May 1, 2008, or earlier
upon a change of control of the Company, at which time each participant will receive a lump sum payment equal
to the balance in his account. Retired participants will continue to receive annuity payments until the liquidation of
the SERP. At September 30, 2006 and 2005, the Company’s liability under the SERP totals $18,527,000 and
$19,054,000, respectively.
12
COMMON STOCK, CLASS B COMMON STOCK, AND PREFERRED SHARE PURCHASE RIGHTS
Class B Common Stock has ten votes per share on all matters and generally votes as a class with Common
Stock (which has one vote per share). The transfer of Class B Common Stock is restricted. Class B Common
Stock is at all times convertible into shares of Common Stock on a share-for-share basis. Common Stock and
Class B Common Stock have identical rights with respect to cash dividends and upon liquidation. All outstanding
Class B Common Stock converts to Common Stock when the shares of Class B Common Stock outstanding total
less than 5,600,000 shares.
In 1998, the Board of Directors adopted a Shareholder Rights Plan (Plan). Under the Plan, the Board declared a
dividend of one Preferred Share Purchase Right (Right) for each outstanding share of Common Stock and Class
B Common Stock (collectively Common Shares) of the Company. Rights are attached to, and automatically trade
with, the Company’s Common Shares.
Rights become exercisable only in the event that any person or group of affiliated persons becomes a holder of
20% or more of the Company’s outstanding Common Shares, or commences a tender or exchange offer which, if
consummated, would result in that person or group of affiliated persons owning at least 20% of the Company’s
outstanding Common Shares. Once the Rights become exercisable, they entitle all other stockholders to
purchase, by payment of a $150 exercise price, one one-thousandth of a share of Series A Participating Preferred
Stock, subject to adjustment, with a value of twice the exercise price. In addition, at any time after a 20% position
is acquired and prior to the acquisition of a 50% position, the Board of Directors may require, in whole or in part,
each outstanding Right (other than Rights held by the acquiring person or group of affiliated persons) to be
exchanged for one share of Common Stock or one one-thousandth of a share of Series A Preferred Stock. The
Rights may be redeemed at a price of $0.001 per Right at any time prior to their expiration in May 2008.
64
13
STOCK OWNERSHIP PLANS
Total stock compensation expense is $7,693,000, $7,879,000, and $5,874,000, in 2006, 2005, and 2004,
respectively.
Stock Options
The Company has reserved 2,237,305 shares of Common Stock for issuance to employees under an incentive
and nonstatutory stock option and restricted stock plan approved by stockholders. Options are granted at a price
equal to the fair market value on the date of the grant and are exercisable, upon vesting, over a ten-year period.
A summary of stock option activity is as follows:
(Thousands of Shares)
Under option, beginning of year
Granted
Exercised
Canceled
Under option, end of year
Exercisable, end of year
Weighted average prices of stock options are as follows:
Granted
Exercised
Under option, end of year
2006
2005
2004
981
177
(113)
(106)
939
627
921
140
(76)
(4)
981
608
1,177
245
(481)
(20)
921
368
2006
2005
2004
$ 39.56 $
32.94
37.96
47.64 $
30.28
37.76
44.25
27.14
35.65
The fair value of each grant is estimated at the grant date using the Black-Scholes option-pricing model. The table
below outlines the weighted average assumptions for options granted.
Dividend yield
Volatility
Risk-free interest rate
Expected life (years)
Estimated fair value
2006
2005
2004
1.7%
21.7%
4.4%
4.7
$ 8.74 $
1.5%
24.3%
3.6%
4.7
11.00
$
1.7%
25.3%
3.0%
4.2
9.35
A summary of stock options outstanding at September 30, 2006 is as follows:
Options Outstanding
Options Exercisable
Range of
Exercise
Prices
$20 to 25
25 to 30
30 to 35
35 to 40
40 to 45
45 to 50
Number
Outstanding
1,300
74,825
221,891
337,920
166,610
136,472
Weighted
Average
Remaining
Contractual
Life
(Years)
0.1
3.3
6.1
7.0
6.9
8.0
65
Weighted
Average
Exercise
Price
$
21.50
27.73
32.51
37.36
43.22
47.63
Weighted
Average
Exercise
Price
$
21.50
27.73
32.51
35.50
43.21
47.61
Number
Exercisable
1,300
74,825
221,891
182,150
103,370
43,286
939,018
6.6
$
37.96
626,822
$
35.59
Total unrecognized compensation expense for unvested stock options at September 30, 2006 is $1,660,000,
which will be recognized over a weighted average period of 1.1 years.
The exercise of stock options in 2006, 2005 and 2004 resulted in cash proceeds of $3,711,000, $2,289,000 and
$10,419,000, respectively, and income tax benefits of $215,000, $427,000 and $3,092,000, respectively.
The intrinsic value of stock options exercised in 2006, 2005, and 2004 is $552,000, $1,094,000, and
$7,929,000, respectively. The aggregate intrinsic value of options outstanding and exercisable at September 30,
2006, is $4,900.
Restricted Common Stock
Restricted Common Stock is subject to an agreement requiring forfeiture by the employee in the event of
termination of employment, generally within three years of the grant date for reasons other than normal
retirement, death or disability.
A summary of restricted Common Stock activity follows:
(Thousands of Shares)
Outstanding, beginning of year
Granted
Vested
Forfeited
Outstanding, end of year
2006
2005
2004
279
165
(88)
(21)
335
219
116
(54)
(2)
279
164
100
(37)
(8)
219
Weighted average grant date fair values of restricted Common Stock are as follows:
Outstanding, beginning of year
Granted
Vested
Forfeited
Outstanding, end of year
2006
2005
2004
$ 44.98 $
40.73
41.79
42.03
43.91
38.00 $
47.59
35.53
39.90
44.98
32.13
43.29
26.37
37.60
38.00
The fair value of restricted Common Stock vested in 2006, 2005 and 2004 is $3,466,000, $2,565,000 and
$1,607,000, respectively.
Total unrecognized compensation expense for unvested restricted Common Stock as of September 30, 2006 is
$5,732,000, which will be recognized over a weighted average period of 1.4 years.
At September 30, 2006, 1,298,287 shares are available for granting of stock options or issuance of restricted
Common Stock.
In November 2006, 307,130 stock options were granted at an exercise price of $28.72 per share and 193,640
shares of restricted Common Stock were issued.
In November 2004, 40,000 shares of restricted Common Stock granted to an officer of the Company in November
2003 and 35,000 shares of restricted Common Stock granted in November 2002, were cancelled and reissued.
The reissued shares of restricted Common Stock are identical to the cancelled shares with respect to voting
rights, dividends, and timing of vesting. The value per share to the recipient upon vesting is unchanged. Vesting
of the cancelled shares was not dependent upon future performance of the Company. The reissued shares vest
only if specified performance criteria are met and additional shares may be issued if the performance criteria are
exceeded. As the specified performance was exceeded, 15,000 additional shares of restricted Common Stock
were issued in November 2005. The Company believes the reissued shares meet the criteria for performance-
based compensation under Section 162(m) of the Internal Revenue Code. Due to increases in the price of the
Company’s Common Stock from the original grant dates to November 2004, the reissued shares have a fair
66
market value in excess of the cancelled shares in the amount of $706,000, which is being amortized over the
remaining vesting period of the reissued shares as a modification of an award.
Stock Purchase Plans
The Company has 541,000 shares of Common Stock available for issuance pursuant to the Company’s
Employee Stock Purchase Plan (ESPP). April 28, 2007 is the exercise date for the current offering. The purchase
price is the lower of 85% of the fair market value at the date of grant or the exercise date, which is one year from
the date of grant. The Company also has 106,000 shares of Common Stock available for issuance under the
Company’s Supplemental Employee Stock Purchase Plan (SPP). Under the SPP, an offering period is each
three-month calendar quarter, unless changed, and the last business day of each calendar quarter is the exercise
date for such quarterly offering period. The purchase price is 85% of the market price on the last business day of
each calendar quarter during the offering period. The weighted-average fair values of purchase rights granted
under the ESPP in 2006, 2005, and 2004, computed using the Black-Scholes option-pricing model, are $6.53,
$8.43, and $9.28, respectively. The weighted-average fair values of purchase rights granted under the SPP in
2006 and 2005, also computed using the Black-Scholes option-pricing model, are $6.27 and $7.33, respectively.
In 2006, 2005, and 2004 employees purchased 131,000, 89,000 and 88,000 shares, respectively, under the
ESPP at a price of $26.11 in 2006, $35.11 in 2005, and $30.25 in 2004. The market value on the purchase date
was $30.80 in 2006, $41.51 in 2005, and $47.78 in 2004. Employees purchased 23,000 and 5,600 shares,
respectively, at a weighted average price of $25.67 in 2006 and $36.11 in 2005 under the SPP. The weighted
average market values on the purchase dates in 2006 and 2005 are $30.20 and $42.48, respectively.
14
INCOME TAXES
Income tax expense (benefit) consists of the following:
(Thousands)
Current:
Federal
State
Deferred
Continuing operations
Discontinued operations
2006
2005
2004
$ 61,270 $
9,175
(30,452)
$ 39,993 $
35,979 $
5,851
2,523
44,353 $
$ 39,740 $
253
$ 39,993 $
40,458 $
3,895
44,353 $
36,048
5,868
8,979
50,895
45,955
4,940
50,895
Income tax expense related to continuing operations differs from the amounts computed by applying the U.S.
federal income tax rate to income before income taxes. The reasons for these differences are as follows:
Computed “expected” income tax expense
State income taxes, net of federal tax benefit
Net income of associated companies taxed at dividend rates
Domestic production deduction
Resolution of tax issues
Other
2006
2005
2004
35.0%
3.0
(2.0)
(0.8)
(0.3)
0.5
35.4%
35.0%
3.3
(2.1)
-
-
0.3
36.5%
35.0%
3.1
(1.8)
-
(0.9)
0.4
35.8%
Substantial deferred income tax liabilities were recorded in 2005 as a result of acquisitions. Net deferred income
tax liabilities consist of the following components:
(Thousands)
September 30
2006
2005
67
Deferred income tax liabilities:
Property and equipment
Equity in undistributed earnings of affiliates
Investment in Tucson newspaper partnership
Identified intangible assets
Deferred income tax assets:
Accrued compensation
Allowance for doubtful accounts and losses on loans
Pension and postretirement benefits
Long-term debt and interest rate exchange agreements
State operating loss carryforwards
Other
Valuation allowance
Net deferred income tax liabilities
Net deferred income tax liabilities are classified as follows:
(Thousands)
Current assets
Non-current liabilities
Net deferred income tax liabilities
$
(55,504) $
(2,073)
(67,593)
(412,967)
(538,137)
(56,822)
(2,556)
(68,482)
(439,519)
(567,379)
15,719
5,334
65,265
2,707
12,291
5,876
107,192
(12,291)
(443,236) $
$
14,494
5,100
55,636
9,031
10,965
7,601
102,827
(10,965)
(475,517)
September 30
2006
2005
$
$
11,079 $
(454,315)
(443,236) $
5,092
(480,609)
(475,517)
At September 30, 2006, the Company has approximately $292,106,000 of operating loss carryforwards for state
tax purposes that expire between 2007 and 2026.
15
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions are used to estimate the fair value of each class of financial instruments
for which it is practicable to estimate value. The carrying amounts of cash and cash equivalents, accounts
receivable, and accounts payable approximate fair value because of the short maturity of those instruments. The
carrying value of other investments, consisting of debt and equity securities in a deferred compensation trust, is
carried at fair value based upon quoted market prices. Investments totaling $7,406,000, consisting primarily of the
Company’s 17% ownership of the nonvoting common stock of TCT and 4.9% interest in Cardinals Holdings LLC,
are carried at cost. The fair value of floating rate debt approximates the carrying amount. The fair value of the
Company’s fixed rate debt follows and is estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the same remaining maturities.
(Thousands)
Carrying amount
Fair value
September 30
2006
2005
$ 326,834 $
321,234
334,024
331,436
16
EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per common share:
(Thousands, Except Per Common Share Data)
Income (loss) applicable to common stock:
Continuing operations
Discontinued operations
Net income
2006
2005
2004
$
$
71,136 $ 70,862 $ 82,973
3,098
6,016
70,832 $ 76,878 $ 86,071
(304)
68
Weighted average Common Shares
Less non-vested restricted Common Stock
Basic average common shares
Dilutive stock options and restricted Common Stock
Diluted average common shares
Earnings (loss) per common share:
Basic:
Continuing operations
Discontinued operations
Net income
Diluted:
Continuing operations
Discontinued operations
Net income
45,763
342
45,421
125
45,546
45,394
276
45,118
230
45,348
45,010
218
44,792
300
45,092
$
$
$
$
1.57 $
(0.01)
1.56 $
1.57 $
0.13
1.70 $
1.56 $
(0.01)
1.56 $
1.56 $
0.13
1.70 $
1.85
0.07
1.92
1.84
0.07
1.91
For 2006, 2005 and 2004, the Company had 842,500, 177,500 and 23,400 weighted average shares,
respectively, subject to issuance under its stock option and employee stock purchase plans that have no
intrinsic value and are not considered in the computation of earnings per common share.
17
OTHER INFORMATION
Compensation and other accrued liabilities related to continuing operations consist of the following:
(Thousands)
Compensation
Retirement and stock purchase plans
Interest
Other
Cash payments are as follows:
(Thousands)
Interest
Income taxes, net of refunds
September 30
2006
2005
$ 23,670 $ 33,883
14,107
8,968
14,094
$ 58,457 $ 71,052
11,856
7,584
15,347
2006
2005
2004
$ 101,018 $ 28,879 $ 11,489
56,228
28,403
42,187
18
VALUATION AND QUALIFYING ACCOUNTS
Valuation and qualifying account information related to continuing operations is as follows:
(Thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance, beginning of year
Additions charged to expense
Reserves of businesses acquired or sold
Deductions from reserves
Balance, end of year
2006
2005
2004
$
$
9,365 $
7,260
-
(5,312)
11,313 $
6,153 $
2,470
5,008
(4,266)
9,365 $
5,138
3,597
31
(2,613)
6,153
69
19
COMMITMENTS AND CONTINGENT LIABILITIES
Newsprint
The Company has contracts for the annual purchase of 197,400 metric tons of newsprint, at market prices, from
six suppliers. The commitments represent substantially all of the Company’s annual volume, inclusive of MNI, and
expire at various dates through December 2006 and are in various stages of renewal. Contracts with a single
supplier represent approximately 59% of the total requirements.
Operating Leases
The Company has operating lease commitments for certain of its office, production, and distribution facilities.
Management expects that in the normal course of business, existing leases will be renewed or replaced by other
leases. Minimum lease payments during the five years ending September 2011 and thereafter are $3,668,000,
$2,876,000, $2,447,000, $1,907,000, $1,329,000 and $7,741,000, respectively. Total operating lease expense is
$5,380,000, $3,513,000, and $2,600,000, in 2006, 2005 and 2004, respectively.
Capital Commitments
At September 30, 2006, the Company had construction and equipment purchase commitments totaling
approximately $10,812,000.
St. Louis Post-Dispatch Early Retirement Program
In 2006, the St. Louis Post-Dispatch concluded an offering of early retirement incentives that resulted in an
adjustment of staffing levels. 130 employees volunteered to take advantage of the offer, which includes enhanced
pension and insurance benefits and lump-sum cash payments based on continuous service. The cost totaled
$17,778,000 before income tax benefit, with $9,124,000 recognized in 2005, and $8,654,000 recognized in 2006.
Approximately $7,000,000 of the cost represents cash payments made, with the remainder due primarily to
enhancements of pension and other post retirement benefits.
PD LLC Operating Agreement
On May 1, 2000, Pulitzer and Herald completed the transfer of their respective interests in the assets and
operations of the St. Louis Post-Dispatch and certain related businesses to a new joint venture (the Venture),
known as PD LLC. Pulitzer is the managing member of PD LLC. Under the terms of the operating agreement
governing PD LLC (the Operating Agreement), Pulitzer and another subsidiary hold a 95% interest in the results
of operations of PD LLC and Herald holds a 5% interest. Herald’s 5% interest is reported as minority interest in
the Consolidated Statements of Income and Comprehensive Income. Also, under the terms of the Operating
Agreement, Herald received on May 1, 2000 a cash distribution of $306,000,000 from PD LLC (the Initial
Distribution). This distribution was financed by the Pulitzer Notes. Pulitzer’s entry into the Venture was treated as
a purchase for accounting purposes.
During the first ten years of its term, PD LLC is restricted from making distributions (except under specified
circumstances), capital expenditures and member loan repayments unless it has set aside out of its cash flow a
reserve equal to the product of $15,000,000 and the number of years since May 1, 2000, but not in excess of
$150,000,000 (the Reserve). PD LLC is not required to maintain the Reserve after May 1, 2010. On May 1, 2010,
Herald will have a one-time right to require PD LLC to redeem Herald’s interest in PD LLC, together with Herald’s
interest, if any, in DS LLC, another limited liability company in which Pulitzer is the managing member and which
is engaged in the business of delivering publications and products in the greater St. Louis metropolitan area. The
May 1, 2010 redemption price for Herald’s interest will be determined pursuant to a formula yielding an amount
which will result in the present value to May 1, 2000 of the after tax cash flows to Herald (based on certain
assumptions) from PD LLC, including the Initial Distribution and the special distribution described below, if any,
and from DS LLC, being equal to $275,000,000.
In the event the transactions effected in connection with either the formation of the Venture and the Initial
Distribution or the organization of DS LLC are recharacterized by the IRS as a taxable sale by Herald, with the
result in either case that the tax basis of PD LLC’s assets increases and Herald is required to recognize taxable
income as a result of such recharacterization, Herald generally will be entitled to receive a special distribution
from PD LLC in an amount that corresponds, approximately, to the present value of the after tax benefit to the
members of PD LLC of the tax basis increase. The adverse financial effect of any such special distribution to
70
Herald on PD LLC (and thus Pulitzer and the Company) will be partially offset by the current and deferred tax
benefits arising as a consequence of the treatment of the transactions effectuated in connection with the
formation of the Venture and the Initial Distribution or the organization of DS LLC as a taxable sale by Herald. In
2005, the Company was advised that the IRS, in the course of examining the 2000 consolidated federal income
tax return in which Herald was included, requested certain information and documents relating to the transactions
effectuated in connection with the formation of the Venture and the Initial Distribution. The Company participated
in the formulation of Herald’s response to this IRS request for information and documents. In 2006, the IRS
concluded its examination without adjustment related to the Venture or the Initial Distribution and the Company
considers the matter closed. The related statute of limitations expires in December 2007.
Upon termination of PD LLC and DS LLC, which will be on May 1, 2015 (unless Herald exercises the redemption
right described above), Herald will be entitled to the liquidating value of its interests in PD LLC and DS LLC, to be
paid in cash by Pulitzer. That amount would be equal to the amount of Herald’s capital accounts, after allocating
the gain or loss that would result from a cash sale of PD LLC and DS LLC’s assets for their fair market value at
that time. Herald’s share of such gain or loss generally will be 5%, but will be reduced (but not below 1%) to the
extent that the present value to May 1, 2000 of the after tax cash flows to Herald from PD LLC and from DS LLC,
including the Initial Distribution, the special distribution described above, if any, and the liquidation amount (based
on certain assumptions), exceeds $325,000,000.
The actual amount payable to Herald either on May 1, 2010, or upon the termination of PD LLC and DS LLC on
May 1, 2015 will depend on such variables as future cash flows, the amounts of any distributions to Herald prior to
such payment, PD LLC’s and DS LLC’s rate of growth and market valuations of newspaper properties. While the
amount of such payment cannot be predicted with certainty, the Company currently estimates (assuming a 5%
annual growth rate in Herald’s capital accounts, no special distribution as described above and consistent
newspaper property valuation multiples) that the amount of such payment would not exceed $100,000,000. The
Company further believes that it will be able to finance such payment either from available cash reserves or by
accessing the capital markets. The redemption of Herald’s interest in PD LLC either on May 1, 2010 or upon
termination of PD LLC in 2015 is expected to generate significant tax benefits to the Company as a consequence
of the resulting increase in the tax basis of the assets owned by PD LLC and DS LLC and the related depreciation
and amortization deductions.
Income Taxes
The Company files income tax returns with the Internal Revenue Service (IRS) and various state tax jurisdictions.
From time to time, the Company is subject to routine audits by those agencies, and those audits may result in
proposed adjustments. The primary issues in audits currently in process or being contested relate to the
appropriate determination of gains, and allocation to the various taxing authorities thereof, on businesses sold in
2001. The Company may also be subject to claims for transferee income tax liability related to businesses
acquired in 2000. The Company has considered the alternative interpretations that may be assumed by the
various taxing agencies, believes its positions taken regarding its filings are valid, and that adequate tax liabilities
have been recorded to resolve such matters. However, the actual outcome cannot be determined with certainty
and the difference could be material, either positively or negatively, to the Consolidated Statements of Income
and Comprehensive Income in the periods in which such matters are ultimately determined. The Company does
not believe the final resolution of such matters will be material to its consolidated financial position.
In June 2006, the Company received a notice of deficiency asserting transferee liability for federal income taxes
and penalties, excluding interest, totaling $25,200,000 related to the acquisition of assets by the Company in
2000. In August 2006, the IRS rescinded the notice of deficiency and issued a letter, which allows the Company
to initially pursue this matter at the IRS Appeals level. The Company does not believe the IRS position on this
matter has merit and intends to vigorously contest the matter.
Litigation
The Company is involved in a variety of legal actions that arise in the normal course of business. Insurance
coverage mitigates potential loss for certain of these matters. While the Company is unable to predict the ultimate
outcome of these legal actions, it is the opinion of management that the disposition of these matters will not have
a material adverse effect on the Company’s Consolidated Financial Statements, taken as a whole.
71
20
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In October 2005 the Company adopted Financial Accounting Standards Board (FASB) Statement 123-Revised,
Accounting for Stock-Based Compensation (Statement 123R) and related FASB staff positions. Statement 123R
amends Statement 95, Statement of Cash Flows, to require that excess tax benefits be reported as a financing
cash inflow rather than a reduction of taxes paid.
Statement 123R also establishes standards for accounting for transactions in which an entity exchanges its equity
instruments for goods and services (primarily accounting transactions in which an entity obtains employee
services in share-based payment transactions, such as stock options). Statement 123R requires a public entity to
measure the cost of employee services received in exchange for an equity instrument based on the grant date fair
value of the award. In general, the cost will be recognized over the period during which an employee is required to
provide the service in exchange for the award (usually the vesting period). The fair value based methods in
Statement 123R are similar to the fair value based method in Statement 123 in most respects. The Company
adopted Statement 123 in 2003.
In October 2005 the Company adopted FASB Statement 153, Exchanges of Nonmonetary Assets. This
pronouncement amends APB Opinion 29, Accounting for Nonmonetary Transactions. Statement 153 eliminates
the exception for nonmonetary exchanges of similar productive assets present in APB Opinion 29 and replaces it
with a general exception for exchanges of nonmonetary assets that do not have commercial substance (i.e.
transactions that are not expected to result in significant changes in the cash flows of the reported entity).
In October 2005 the Company adopted FASB Interpretation 47, Accounting for Conditional Asset Retirement
Obligations. Interpretation 47 requires an entity to recognize a liability for a legal obligation to perform an asset
retirement activity in which the timing and/or method of the settlement are conditional on a future event. The
liability must be recognized if the fair value of the liability can be reasonably estimated.
The adoption of the statements and interpretation discussed above did not have a material impact on the
Company’s financial position, results of operations, or cash flows.
In May 2005 the FASB issued Statement 154, Accounting Changes and Error Corrections – a replacement of
APB Opinion No. 20 and FASB Statement No. 3, that changes the requirements for the accounting and reporting
of a change in accounting principle. Statement 154 eliminates the requirement to include the cumulative effect of
changes in accounting principles in the current period of change and instead, requires that changes in accounting
principle be retrospectively applied. Statement 154 is effective for accounting changes made in fiscal years
beginning after December 15, 2005. The Company does not anticipate that the implementation of Statement 154
will have a material impact on its financial position, results of operations, or cash flows.
In July 2006, the FASB issued Interpretation 48, Accounting for Uncertainty in Income Taxes, which is effective
for fiscal years beginning after December 15, 2006. Interpretation 48 clarifies the accounting for uncertainty in
income taxes recognized in the financial statements in accordance with FASB Statement 109. Interpretation 48
prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its
financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. The
Company has not completed its evaluation of the effects of Interpretation 48 on its Consolidated Financial
Statements.
In September 2006, the FASB issued Statement 157, Fair Value Measurements, which defines fair value,
provides guidelines for measuring fair value and expands disclosure requirements. Statement 157 does not
require any new fair value measurement but applies to the accounting pronouncements that require or permit fair
value measurement. Statement 157 is effective for fiscal years beginning after November 15, 2007. The Company
does not anticipate that the implementation of Statement 157 will have a material impact on its financial position,
results of operation, or cash flows.
In September 2006, the FASB issued Statement 158, Employer’s Accounting for Defined Benefit Pension and
Other Postretirement Plans, which amends statements 87, 88, 106 and 132(R). Statement 158 requires the
recognition of the over-funded or under-funded status of a defined benefit postretirement plans as an asset or
liability in its balance sheet and to recognize changes in that funded status in the year in which the changes occur
through comprehensive income. Statement 158 is effective at the end of 2007. Had Statement 158 been adopted
at September 30, 2006, the Company’s assets would have increased and liabilities would have decreased in the
aggregate amount of $44,191,000, less the related income tax effect, and stockholders’ equity would have
72
increased by $44,191,000, less the related income tax effect. Actual adjustments have not been determined as
the related actuarial computations have not been performed.
Statement 158 will also require the Company to change its measurement date from June 30 to September 30,
beginning in 2008. The change in measurement date will require a one-time adjustment to retained earnings, the
effect of which cannot be determined at this time. None of the changes required will impact the Company’s results
of operations or cash flows.
21
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Thousands, Except Per Common Share Data)
1st
2nd
3rd
4th
Quarter
2006
Operating revenue
Income from continuing operations
Discontinued operations
Net income
Earnings (loss) per common share:
Basic:
Income from continuing operations
Discontinued operations
Net income
Diluted:
Income from continuing operations
Discontinued operations
Net income
2005
Operating revenue
Income from continuing operations
Discontinued operations
Net income
Earnings per common share:
Basic:
Income from continuing operations
Discontinued operations
Net income
Diluted:
Income from continuing operations
Discontinued operations
Net income
$ 292,245 $ 266,190 $ 290,544 $ 279,669
$
$
$
$
$
$
21,394 $
1,370
22,764 $
13,438 $
997
14,435 $
21,319 $
1,398
22,717 $
14,985
(4,069)
10,916
0.47 $
0.03
0.50 $
0.30 $
0.02
0.32 $
0.47 $
0.03
0.50 $
0.33
(0.09)
0.24
0.47 $
0.03
0.50 $
0.30 $
0.02
0.32 $
0.47 $
0.03
0.50 $
0.33
(0.09)
0.24
$ 173,733 $ 159,066 $ 206,912 $ 279,180
25,782 $
1,229
27,011 $
16,845 $
1,219
18,064 $
16,825 $
1,872
18,697 $
11,410
1,696
13,106
0.57 $
0.03
0.60 $
0.37 $
0.03
0.40 $
0.37 $
0.04
0.41 $
0.57 $
0.03
0.60 $
0.37 $
0.03
0.40 $
0.37 $
0.04
0.41 $
0.25
0.04
0.29
0.25
0.04
0.29
$
$
$
$
$
$
73
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders
Lee Enterprises, Incorporated and subsidiaries
Davenport, Iowa
We have audited the accompanying Consolidated Balance Sheets of Lee Enterprises, Incorporated and
subsidiaries (the “Company”) as of September 30, 2006 and 2005, and the related Consolidated Statements of
Income and Comprehensive Income, Stockholders’ Equity, and Cash Flows for each of the three years in the
period ended September 30, 2006. 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 the standards of the Public Company Accounting Oversight Board
(United States). 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 Lee Enterprises, Incorporated and subsidiaries at September 30, 2006 and 2005, and the results of
their operations and their cash flows for each of the three years in the period ended September 30, 2006, in
conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of the Company’s internal control over financial reporting as of September 30,
2006, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated December 14, 2006 expressed an
unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over
financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Davenport, Iowa
December 14, 2006
74
Lee Enterprises is a premier provider of local news, information and
advertising in primarily midsize markets, with 51 daily newspapers
and a joint interest in five others, rapidly growing online sites and
more than 300 weekly newspapers and specialty publications in 23
states.
Lee’s newspapers have circulation of 1.6 million daily and 1.9 million
Sunday, reaching more than four million readers daily. Lee’s online
sites attract more than three million users, and Lee’s weekly
publications are distributed to more than 4.5 million households.
Lee’s 55 newspaper markets include St. Louis, Mo.; Lincoln, Neb.;
Madison, Wis.; Davenport, Iowa; Billings, Mont.; Bloomington, Ill.;
Tucson, Ariz.; and Napa, Calif. Lee is based in Davenport, Iowa,
and its stock is traded on the New York Stock Exchange under the
symbol LEE. For more information about Lee, please visit
www.lee.net.
Table of Contents
1 Financial Highlights
2-5 Letter to Stockholders
6-7 2006 President’s Awards
8 Directors and Officers
.
Form 10-K
Corporate Office
Lee Enterprises, Incorporated
201 N. Harrison St., Suite 600
Davenport, IA 52801
(563) 383-2100
Securities Market
New York Stock Exchange
Ticker Symbol: LEE
Shareowner Services
Concerning transfer of shares, lost certificates
or changes of address, please contact
the Transfer Agent and Registrar:
Shareowner Services
Wells Fargo Bank Minnesota, N.A.
161 N. Concord Exchange
South St. Paul, MN
55075-1139
(800) 468-9716
www.wellsfargo.com/shareownerservices
Annual Meeting
The annual meeting of stockholders will
take place Wednesday, February 21, 2007,
at 9:00 a.m. CST at the
Figge Art Museum
225 W. 2nd St., Davenport, IA 52801
Online Information
www.lee.net provides a wide variety of
information about Lee Enterprises, including news
releases, Securities and Exchange Commission
filings, performance measures, annual reports,
corporate governance documents and online links to
our daily newspapers. You also may sign up for e-
mail notification of SEC filings and news releases.
General Counsel
Lane & Waterman LLP
220 N. Main St., Suite 600
Davenport, IA 52801-1987
Independent Registered
Public Accounting Firm
Deloitte & Touche LLP
Northwest Bank Building
101 W. Second St.
Davenport, IA 52801-1813
Career Opportunities
Lee Enterprises offers outstanding career
opportunities in journalism, advertising, sales and
marketing, circulation, interactive media, information
systems, production, finance and human resources.
Lee is an equal opportunity employer. Current
openings are detailed at www.l ee.net/careers.
LEE ENTERPRISES, INCORPORATED ●● 201 N. HARRISON ST. ●● DAVENPORT, IA 52801 ●● www.lee.net
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2006 ANNUAL REPORT
Premier provider
of local news,
information
and advertising
in 55 markets