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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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| (Mark One) |
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 26, 2004 or |
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
from to
Commission File Number 1-9329 |
PULITZER INC.
(Exact name of registrant as specified in its charter)
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Delaware
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43-1819711 |
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(State or other jurisdiction of |
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(I.R.S. Employer |
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incorporation or organization) |
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Identification Number) |
900 North Tucker Boulevard,
St. Louis, Missouri 63101
(Address of principal executive offices)
(314) 340-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock,
par value $.01 per share — New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 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.
Indicate by checkmark whether the
registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act).
Yes X No
The aggregate market value of the
voting stock held by non-affiliates of the registrant as of the
last business day of the registrant’s most recently
completed second fiscal quarter was approximately $646,039,233.
The number of shares of Common
Stock, $.01 par value, and Class B Common Stock,
$.01 par value, outstanding as of February 25, 2005,
was 10,382,844 and 11,469,398, respectively.
TABLE OF CONTENTS
The registrant’s fiscal year ends on the last Sunday of the
calendar year. For 2004, the Company’s fiscal year began on
December 29, 2003 and ended on December 26, 2004. For
2003, the Company’s fiscal year began on December 30,
2002 and ended on December 28, 2003. For 2002, the
Company’s fiscal year began on December 31, 2001 and
ended on December 29, 2002. In 2004, 2003 and 2002, the
fourth quarter was 13 weeks and the year was 52 weeks.
For ease of presentation, the Company has presented
December 31 as the year-end. Except as otherwise stated,
the information in this Report on Form 10-K is as of
December 26, 2004, December 28, 2003 and
December 29, 2002.
ITEM 1. BUSINESS.
Introduction
Pulitzer Inc. (together with its subsidiaries and affiliated
entities, the “Company”) is a newspaper publishing
company with integrated Internet operations in 14 United States
markets, the largest of which is St. Louis, Missouri. For
fiscal 2004, the Company’s St. Louis operations
contributed approximately 71 percent of reported revenue.
Pulitzer Inc. is the successor to the company founded by the
first Joseph Pulitzer in 1878 to publish the original
St. Louis Post-Dispatch (the
“Post-Dispatch”). The Company and its
predecessors have operated continuously since 1878 with the
involvement of the Pulitzer family. Michael E. Pulitzer, a
grandson of the founder, currently serves as Chairman of the
Board of the Company.
The Company’s newspaper holdings include operations in
St. Louis, Missouri, where its subsidiary, St. Louis
Post-Dispatch LLC (“PD LLC”), publishes the
Post-Dispatch, the only major daily newspaper serving the
greater St. Louis metropolitan area, and in Tucson,
Arizona, where its subsidiary, Star Publishing Company
(“Star Publishing”), publishes the Arizona Daily
Star (the “Star”). In Tucson, Star
Publishing shares, on an equal basis, the combined results of
the Star and the Tucson Citizen (the
“Citizen”), published by Gannett Co.,
Inc. (“Gannett”).
The St. Louis newspaper operations include the Suburban
Journals (the “Suburban Journals”), acquired by
Suburban Journals of Greater St. Louis LLC (“Suburban
Journals LLC”) in August 2000. The Suburban Journals are a
group of 36 weekly papers and various niche publications
that focus on providing local news and editorial content to the
communities that they serve and had during 2004 average
unduplicated circulation of approximately 0.7 million
resulting in the delivery of approximately 1.2 million
copies per week.
As a result of the May 1, 2000, transaction that created PD
LLC, PD LLC operates the Post-Dispatch. Pulitzer Inc. and
one of its subsidiaries hold a 95 percent interest in the
results of PD LLC operations. Prior to May 1, 2000,
Pulitzer Inc. shared the operating profits and losses of the
Post-Dispatch on a 50-50 basis with The Herald Company,
Inc. (“Herald”). See “Agency Agreements”.
Pulitzer Inc.’s wholly-owned subsidiary, Pulitzer
Newspapers, Inc. (“PNI”), and its subsidiaries
(collectively, the “PNI Group”) publish 12 dailies
that serve markets in the Midwest, Southwest and West, as well
as more than 75 weekly newspapers, shoppers and niche
publications. The PNI Group’s 12 daily newspapers had a
combined average daily circulation of approximately 188,000 at
the date of the most recent ABC published statements.
During 2004 the PNI Group acquired several weekly newspapers and
specialty publications (in separate transactions) that
complement its daily newspapers in several markets, principally
in Santa Barbara County, California; Bloomington, Illinois;
and Coos Bay, Oregon. The PNI Group also acquired several weekly
newspapers (in separate transactions) in 2003 and 2002. The
2004, 2003 and 2002 acquisitions are collectively referred to as
the “PNI Acquisitions.”
Lee Merger Agreement
On January 29, 2005, Pulitzer Inc. entered into an
Agreement and Plan of Merger (the “Lee Merger
Agreement”) with Lee Enterprises, Incorporated, a Delaware
corporation (“Lee”), and LP Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Lee (the
“Purchaser”). The Lee Merger Agreement provides for
the Purchaser to be merged with and into Pulitzer Inc. (the
“Lee Merger”), with Pulitzer Inc. as the surviving
corporation. Each share of Pulitzer Inc.’s common stock and
Class B common stock outstanding immediately prior to the
effective time of the Lee Merger will be converted into the
right to receive from the surviving corporation in cash, without
interest, an amount equal to $64.00 per share. The total
enterprise value of Pulitzer Inc. under the Lee Merger Agreement
is approximately $1.46 billion based upon a value of $64.00
per share.
The Lee Merger will effect a change of control of Pulitzer Inc.
At the effective time of the Lee Merger and as a result of the
Lee Merger, Pulitzer Inc. will become an indirect, wholly-owned
subsidiary of Lee, the
2
ITEM 1. BUSINESS — Continued
directors of the Purchaser will become the directors of the
surviving corporation, and the officers of the Purchaser will
become the officers of the surviving corporation.
Consummation of the Lee Merger is subject to customary
conditions, including the adoption of the Lee Merger Agreement
by the required vote of the Company’s stockholders and the
expiration or termination of any waiting period (and any
extension thereof) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
“HSR Act”). Lee and Pulitzer Inc. filed notification
and report forms under the HSR Act with the Federal Trade
Commission (“FTC”) and the United States Department of
Justice on February 11, 2005. On February 22, 2005,
Pulitzer Inc. and Lee received from the FTC notification of
early termination of the waiting period under the HSR Act.
The Lee Merger Agreement includes customary representations,
warranties and covenants by Pulitzer Inc., including covenants
(i) to cause a stockholders’ meeting to be called and
held as soon as reasonably practicable to vote on the adoption
of the Lee Merger Agreement, (ii) to cease immediately any
discussions and negotiations with respect to an alternate
acquisition proposal, (iii) not to solicit any alternate
acquisition proposal and, with certain exceptions, not to enter
into discussions concerning or furnish information in connection
with any alternate acquisition proposal, and (iv) subject
to certain exceptions, for Pulitzer Inc.’s board of
directors not to withdraw or modify its recommendation that the
stockholders vote to adopt the Lee Merger Agreement. The Lee
Merger Agreement contains certain termination rights for both
Pulitzer Inc. and Lee and further provides that, upon
termination of the Lee Merger Agreement under specified
circumstances, Pulitzer Inc. may be required to pay Lee a fee of
up to $55 million.
On January 31, 2005, Todd M. Veeck, an alleged owner of
common stock of Pulitzer Inc., filed a lawsuit in The Court of
Chancery of the State of Delaware in New Castle County against
Pulitzer Inc. and the members of its board of directors. The
Veeck complaint purports to be a class action brought on
behalf of all stockholders other than the defendants, and it
asserts that the announced sale of Pulitzer Inc. to Lee should
be preliminarily and permanently enjoined because the
agreed-upon consideration is unfair and does not maximize
stockholder value. The Veeck complaint also seeks
monetary damages. On February 2, 2005, James Fern, an
alleged owner of common stock of Pulitzer Inc., filed a lawsuit
in The Court of Chancery of the State of Delaware in New Castle
County against Pulitzer Inc. and members of its board of
directors making essentially the same allegations and seeking
essentially the same relief as the Veeck complaint.
Pulitzer Inc. believes that the allegations of the Veeck
and Fern complaints are without merit. On
February 25, 2005, the Court of Chancery entered an order
consolidating the Veeck and Fern actions under the
consolidated case caption In re Pulitzer Inc. Shareholders
Litigation, Civil Action No. 1063-N.
Pulitzer Inc. has determined to pay the attorneys’ fees and
expenses incurred in defending the members of its board of
directors in these or related legal actions, and each member of
the board of directors has undertaken and agreed to repay his or
her share of such fees and other expenses if it shall be
ultimately determined that he or she is not entitled to be
indemnified by Pulitzer Inc.
The boards of directors of Pulitzer Inc. and Lee have
unanimously approved the Lee Merger Agreement. The Lee Merger is
expected to close in the second quarter of calendar 2005. The
proposed transaction will be submitted to Pulitzer Inc.’s
stockholders for their consideration, and Pulitzer Inc. will
file with the Securities and Exchange Commission a proxy
statement to be used to solicit the stockholders’ approval
of the proposed transaction, as well as other relevant documents
concerning the proposed transaction.
Initial Capitalization
Pulitzer Inc. was capitalized on March 18, 1999, with
approximately $550 million in cash and all the other assets
(other than broadcast assets) of Pulitzer Publishing Company
(“Old Pulitzer”) as a result of the Spin-off (as
defined below) and, through its subsidiaries and affiliated
entities, is now operating the principal newspaper publishing
and related Internet businesses formerly operated by Old
Pulitzer (including subsidiaries) and certain other newspapers
acquired since the Broadcast Transaction (as defined below).
Pulitzer Inc. was organized as a corporation in 1998 and, prior
to the Spin-off, was a wholly-owned subsidiary of Old
3
ITEM 1. BUSINESS — Continued
Pulitzer. Prior to the Broadcast Transaction, Old Pulitzer was
engaged in newspaper publishing and television and radio
broadcasting.
Pursuant to an Amended and Restated Agreement and Plan of
Merger, dated as of May 25, 1998 (the “HTV Merger
Agreement”), by and among Old Pulitzer, Pulitzer Inc. and
Hearst-Argyle Television, Inc. (“Hearst-Argyle”), on
March 18, 1999, Hearst-Argyle acquired, through the
merger (the “HTV Merger”) of Old Pulitzer with and
into Hearst-Argyle, Old Pulitzer’s television and radio
broadcasting operations (collectively, the “Broadcasting
Business”) in exchange for the issuance to Old
Pulitzer’s stockholders of 37,096,774 shares of
Hearst-Argyle’s Series A common stock. Old
Pulitzer’s Broadcasting Business consisted of nine
network-affiliated television stations and five radio stations
owned and operated by Pulitzer Broadcasting Company and its
wholly-owned subsidiaries. Prior to the HTV Merger, Old
Pulitzer’s newspaper publishing and related Internet
businesses were contributed to the Company in a tax-free
“spin-off” to Old Pulitzer stockholders (the
“Spin-off”). The HTV Merger and Spin-off are
collectively referred to as the “Broadcast
Transaction.”
Old Pulitzer’s historical basis in its newspaper publishing
and related new-media assets and liabilities has been carried
over to the Company. The Broadcast Transaction represents a
reverse-spin transaction and, accordingly, the Company’s
results of operations for periods prior to the consummation of
the Broadcast Transaction are identical to the historical
results previously reported by Old Pulitzer.
The net liability balance of the Broadcasting Business as of
March 18, 1999, including $700.0 million of Broadcast
Debt, was contributed to “Additional Paid-in Capital”
of Pulitzer Inc. at the time of the HTV Merger.
Historical Financial Information
The Company’s revenues are derived primarily from
advertising and circulation, which have respectively averaged
approximately 78.9 percent and 19.3 percent of total
revenue over the last five years. Advertising rates and rate
structures and resulting revenues vary among publications based,
among other things, on circulation, type of advertising, local
market conditions and competition. The following table sets
forth certain historical financial information regarding the
Company’s operations for the periods and at the dates
indicated.
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Years Ended December 31, |
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2004 |
|
2003(1) |
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2002 |
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2001 |
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2000(2) |
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(In thousands) |
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Operating revenues:
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Advertising:
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Retail
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$ |
123,429 |
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$ |
120,284 |
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$ |
118,741 |
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$ |
118,738 |
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$ |
110,289 |
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National
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26,876 |
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|
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29,000 |
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|
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26,706 |
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26,049 |
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23,216 |
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Classified
|
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134,402 |
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122,559 |
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125,777 |
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132,134 |
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133,043 |
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Total
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284,707 |
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271,843 |
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271,224 |
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276,921 |
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|
266,548 |
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Preprints
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70,064 |
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63,249 |
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55,935 |
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47,679 |
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42,388 |
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Total advertising
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354,771 |
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335,092 |
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327,159 |
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324,600 |
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308,936 |
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Circulation
|
|
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81,288 |
|
|
|
80,639 |
|
|
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80,751 |
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81,200 |
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80,517 |
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Other
|
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7,596 |
|
|
|
6,933 |
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|
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8,050 |
|
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|
7,706 |
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7,706 |
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Total operating revenues
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$ |
443,655 |
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$ |
422,664 |
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$ |
415,960 |
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$ |
413,506 |
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$ |
397,159 |
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Operating income(3)
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$ |
85,084 |
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$ |
87,193 |
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$ |
82,885 |
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$ |
43,391 |
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$ |
60,390 |
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Depreciation and amortization
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$ |
20,198 |
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$ |
19,135 |
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$ |
18,719 |
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$ |
40,508 |
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$ |
31,985 |
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Assets
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$ |
1,386,662 |
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$ |
1,319,243 |
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$ |
1,287,246 |
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$ |
1,288,763 |
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$ |
1,282,873 |
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| (1) |
Certain reclassifications have been made to the prior
years’ consolidated financial statements to conform to the
2004 presentation. |
4
ITEM 1. BUSINESS — Continued
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| (2) |
The year ended December 31, 2000, includes an extra week of
operations resulting from a 53-week year. All other years
presented include 52 weeks of operations. |
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| (3) |
Includes St. Louis Agency adjustments of $9.4 million
in 2000. See “Agency Agreements” and See “PD LLC
Operating Agreement” in Item 7 for additional
information on the St. Louis Agency adjustment. |
Operating Strategy
The Company’s long-term operating strategy has been to
maximize revenue and operating income growth at each of its
operations through maintenance of editorial excellence,
leadership in local news, a focus on local advertisers, and
prudent control of costs. Management believes that editorial
excellence and leadership in local news will, over the long
term, allow the Company to maximize its share of audience and
advertising revenue in each of its respective markets. In
addition, providing a portfolio of products designed to serve
each market area through integrated print and online media is a
principal component of the Company’s goal to strengthen its
franchises. The responsibility for developing and implementing a
newspaper’s business strategy has rested with local
managers while corporate executives have provided guidance and
allocated resources.
The Company has developed Internet operations that have been
designed to enhance, complement and add value to its traditional
newspaper publishing businesses by providing consumer and
advertiser services through electronic dissemination of
information via the Internet. At the center of the
Company’s Internet strategy are the websites developed in
conjunction with the Company’s newspaper properties. Each
of the websites takes full advantage of the newspapers’
extensive knowledge about and news coverage of the communities
they serve, strong advertiser and newspaper reader relationships
and substantial marketing expertise to produce in-depth,
relevant, and locally focused online publications. The
Company’s objective in these operations has been to broaden
market reach by creating new and enhanced opportunities for
advertisers.
The Company has complemented its internal growth strategies with
a disciplined and opportunistic acquisition strategy that has
been focused on acquiring publishing properties that the Company
believes are a good fit with its operating strategy, possess
attractive growth potential, generate strong cash flows and will
offer an attractive return on investment. It has been
management’s belief generally that the Company’s
reputation, financial position, cash flow and capital structure,
among other factors, would assist the Company in pursuing
acquisitions. The Lee Merger Agreement restricts the Company
from, among other things, engaging in material acquisition
activity in advance of the Lee Merger without Lee’s consent.
It has been the Company’s belief that cost controls are an
important tool in the management of media properties that are
subject to significant fluctuations in advertising volume. The
Company believes that prudent control of costs has permitted it
to respond quickly when positive operating conditions offer
opportunities to expand market share and profitability and,
alternatively, when deteriorating operating conditions require
cost reductions to protect profitability. The Company’s
disciplined budgeting process has been one of the key elements
in controlling costs.
The Company operates in the Midwest, Southwest and Western
regions of the United States, although approximately
71 percent of 2004 total revenues were generated by the
St. Louis operations.
The Lee Merger Agreement obligates the Company to operate its
business in the ordinary course consistent with past practice,
but also provides that the Company may not take or agree to take
certain actions except with the consent of Lee. Accordingly,
there may be some revisions during 2005 to the manner in which
the Company executes its strategy.
St. Louis Operations
The Company’s subsidiaries serve the greater St. Louis
metropolitan area with the daily and Sunday Post-Dispatch,
the Suburban Journals weekly newspapers, STLtoday.com, a
local news and information web site, and STL Distribution
Services LLC (“DS LLC”), a local distribution company.
St. Louis is currently the 17th largest metropolitan
statistical area in the United States with a population of
approximately
5
ITEM 1. BUSINESS — Continued
2.7 million. The following table sets forth the combined
operating revenues from continuing operations of all the
Company’s St. Louis operations for the past five years.
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Years Ended December 31, |
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2004 |
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2003 |
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2002 |
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2001 |
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2000(1) |
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Operating revenues (in thousands):
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Advertising(2)
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$ |
250,684 |
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|
$ |
242,277 |
|
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$ |
236,551 |
|
|
$ |
237,465 |
|
|
$ |
225,137 |
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Circulation
|
|
|
60,676 |
|
|
|
59,890 |
|
|
|
59,808 |
|
|
|
60,225 |
|
|
|
60,555 |
|
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Other
|
|
|
2,575 |
|
|
|
1,751 |
|
|
|
2,184 |
|
|
|
2,086 |
|
|
|
3,761 |
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Total
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$ |
313,935 |
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$ |
303,918 |
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$ |
298,543 |
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$ |
299,776 |
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$ |
289,453 |
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| (1) |
Beginning in August 2000, the operating revenues include the
Suburban Journals. In addition, the year ended December 31,
2000, includes an extra week of operations resulting from a
53-week fiscal year. All other years presented include
52 weeks of operations. |
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| (2) |
Advertising includes revenues from preprinted inserts and online
advertising. |
St. Louis Post-Dispatch
Founded in 1878 by the first Joseph Pulitzer, the
Post-Dispatch has a long history of reporting and
editorial excellence and innovation in newspaper publishing
under the direction of the Pulitzer family. The Post-Dispatch
is a morning daily and Sunday newspaper primarily serving
the greater St. Louis metropolitan area. The
Post-Dispatch has won 17 Pulitzer prizes in its
126 years of continuous publication.
As a result of the May 1, 2000 transactions that created PD
LLC, Pulitzer Inc. and one of its subsidiaries hold a
95 percent interest in the results of operations of PD LLC
and Herald holds a 5 percent interest. Prior to May 1,
2000, under the terms of the St. Louis Agency Agreement,
which had governed the operations of the Post-Dispatch
since 1961, Pulitzer Inc. and Herald generally shared the
Post-Dispatch’s operating profits and losses, as
well as its capital expenditures, on a 50-50 basis. See
“Agency Agreements.”
The following table sets forth for the past five years certain
circulation and advertising information for the
Post-Dispatch.
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Years Ended December 31, |
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2004 |
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2003 |
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2002 |
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2001 |
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2000 |
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Post-Dispatch:
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Circulation(1):
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|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Daily
|
|
|
283,362 |
|
|
|
286,619 |
|
|
|
288,894 |
|
|
|
292,777 |
|
|
|
300,920 |
|
| |
|
Sunday
|
|
|
452,626 |
|
|
|
463,850 |
|
|
|
470,271 |
|
|
|
474,638 |
|
|
|
487,080 |
|
|
Advertising linage (in thousands of inches):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Retail
|
|
|
737 |
|
|
|
786 |
|
|
|
787 |
|
|
|
670 |
|
|
|
728 |
|
| |
General
|
|
|
177 |
|
|
|
199 |
|
|
|
203 |
|
|
|
210 |
|
|
|
204 |
|
| |
Classified
|
|
|
965 |
|
|
|
995 |
|
|
|
1,043 |
|
|
|
1,142 |
|
|
|
1,135 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total
|
|
|
1,879 |
|
|
|
1,980 |
|
|
|
2,033 |
|
|
|
2,022 |
|
|
|
2,067 |
|
| |
Part run(2)
|
|
|
480 |
|
|
|
484 |
|
|
|
546 |
|
|
|
719 |
|
|
|
834 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total inches
|
|
|
2,359 |
|
|
|
2,464 |
|
|
|
2,579 |
|
|
|
2,741 |
|
|
|
2,901 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Amounts for 2004 are based on internal records of PD LLC for the
twelve-month period ended September 30. Amounts for prior
years are based on ABC Audit Reports for the twelve-month
periods ended September 30. |
| |
| (2) |
Part run inches represent advertisements that are published in
selected copies (i.e., less than the full press run) of a daily
edition of the newspaper to specifically target certain
geographic locations. The advertisements typically appear in a
special news and advertising sections designed specifically for
the targeted geographic locations. |
6
ITEM 1. BUSINESS — Continued
The Post-Dispatch is printed at two computerized
facilities equipped with a total of six presses. The writing,
editing and composing functions have been computerized,
increasing efficiency and reducing workforce requirements. The
Post-Dispatch has sufficient press capacity to meet current and
projected circulation, advertising and editorial requirements.
The Post-Dispatch is distributed primarily through
independent home delivery carriers and single copy dealers
(contracted directly by the Post-Dispatch or through DS LLC).
Home delivery accounted for approximately 81 percent of
circulation for the daily Post-Dispatch and approximately
61 percent of circulation for the Sunday edition during
2004. In order to build a stronger, more direct relationship
with readers of the Post-Dispatch, PD LLC has purchased a
number of circulation routes from independent carriers and
dealers over the past five years, and it may continue to
purchase additional routes from time to time in the future,
subject to the provisions of the Lee Merger Agreement. As of
December 31, 2004, PD LLC owned circulation routes covering
approximately 72 percent of the Post-Dispatch’s
daily home delivery and approximately 78 percent of daily
single copy distribution. In 2002 PD LLC began direct billing of
the majority of its home delivery subscribers.
Suburban Journals of Greater St. Louis
With the addition of the Suburban Journals in August 2000, the
Company’s St. Louis newspaper operations now include a
group of 36 weekly papers and various niche publications
that provide comprehensive local news to the communities that
they serve. The publications primarily represent
controlled-distribution newspapers and, depending on the
community served, are published one to three times per week. In
December 2004 the Suburban Journals had an average unduplicated
circulation of approximately 0.7 million, resulting in the
delivery of approximately 1.2 million copies per week.
The Suburban Journals are organized by geographic area into nine
publication groups throughout the St. Louis metropolitan
area. Each group has a news and advertising staff based in its
local community and is managed by a local publisher. The groups
are supported by centralized production facilities, distribution
systems and administrative services. In addition, a centralized
advertising department provides sales support for classified,
national and major/regional advertisers that wish to target
readers across several publication groups.
The Suburban Journals are printed at two facilities equipped
with a total of three presses. The writing, editing and
composing functions have been computerized, increasing
efficiency and reducing workforce requirements.
The Suburban Journals and the Post-Dispatch and
STLtoday.com have contracted to permit the cross-sale of
advertising products into each print publication and
STLtoday.com, allowing for increased sales efforts and greater
operating efficiencies in the St. Louis marketplace.
St. Louis Internet Operations
STLtoday.com (www.STLtoday.com) and other affiliated
local Web sites provide the St. Louis metropolitan area
with comprehensive news, business, sports, entertainment and
neighborhood information. The sites also feature enhanced online
advertiser services in the three major classified advertising
categories — automotive, real estate and help wanted.
In addition, the Web sites offer St. Louis at
Work — a leading local employment online advertising
solution. As a part of the initiative, PD LLC created
stlouisatwork.com to become the online career destination
for regional employers and job candidates and conducted an
online auction supported by print advertising, both
demonstrating PD LLC’s plans for future integration of
print and online activities. The Company expects activities of
this nature to continue. The following table sets forth page
7
ITEM 1. BUSINESS — Continued
view statistics and the percentage change compared to comparable
periods in 2003 for the combined St. Louis Web sites.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
% Change |
|
|
|
% Change |
| |
|
2004 Full Year |
|
vs. 2003 |
|
2004 Qtr. 4 |
|
vs. Qtr. 4 |
| |
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
|
|
(In thousands) |
|
|
|
St. Louis Web sites:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Page views(1)
|
|
|
393,029 |
|
|
|
52.3 |
% |
|
|
108,065 |
|
|
|
40.2 |
% |
|
|
| (1) |
A “page view” occurs when a web server provides a Web
page to a Web site visitor. |
STL Distribution Services Operations
Pulitzer Inc. and one of its subsidiaries hold a 95 percent
interest in the results of operations of DS LLC, a distribution
company that delivers periodicals for the Post-Dispatch, The
Ladue News and product samples, telephone books and
periodicals for other distribution clients throughout the
St. Louis Metropolitan area. Herald holds the remaining
five percent interest.
Pulitzer Newspapers, Inc.
The PNI Group publishes 12 daily newspapers that serve markets
in the Midwest, Southwest and West, as well as more than
75 weekly newspapers, shoppers and niche publications
associated with its daily newspapers. The PNI Group’s daily
newspapers publish morning or afternoon editions during the week
and, generally, morning editions on the weekend. Home delivery
through independent contract carriers accounts for a significant
portion of each newspaper’s circulation. The 12 daily
newspapers in the PNI Group, ranked in order of daily
circulation based on ABC Publisher’s Statements for the
six-month period ended September 30, 2004 (except where
noted), are:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Circulation |
| |
|
|
|
|
| |
|
|
|
Daily |
|
Sunday |
| |
|
|
|
|
|
|
|
The Pantagraph
|
|
Bloomington, Illinois |
|
|
47,083 |
|
|
|
50,202 |
|
|
The Daily Herald
|
|
Provo, Utah |
|
|
30,872 |
|
|
|
34,324 |
|
|
Santa Maria Times
|
|
Santa Maria, California |
|
|
17,881 |
|
|
|
18,485 |
|
|
The Napa Valley Register
|
|
Napa, California |
|
|
17,851 |
|
|
|
18,665 |
|
|
The Sentinel
|
|
Hanford, California |
|
|
13,001 |
|
|
|
13,660 |
|
|
The World
|
|
Coos Bay, Oregon(1) |
|
|
13,010 |
|
|
|
14,418 |
|
|
Arizona Daily Sun
|
|
Flagstaff, Arizona |
|
|
11,462 |
|
|
|
12,488 |
|
|
Daily Chronicle
|
|
DeKalb, Illinois |
|
|
8,964 |
|
|
|
10,267 |
|
|
The Garden Island
|
|
Lihue, Hawaii |
|
|
8,677 |
|
|
|
9,130 |
|
|
Daily Journal
|
|
Park Hills, Missouri |
|
|
8,214 |
|
|
|
8,284 |
|
|
The Lompoc Record
|
|
Lompoc, California |
|
|
6,967 |
|
|
|
7,377 |
|
|
The Daily News
|
|
Rhinelander, Wisconsin(2) |
|
|
4,134 |
|
|
|
4,545 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
188,116 |
|
|
|
201,845 |
|
| |
|
|
|
|
|
|
|
|
|
|
| (1) |
Sunday circulation represents the weekend edition of The
(Coos Bay) World, which is published on Saturdays. |
| |
| (2) |
Amounts are based on the internal records of the Company. |
Collectively, the markets served by the PNI Group exceed
U.S. averages in such key measures as annual population and
household growth rates, and average retail spending per
household. PNI publishers work
8
ITEM 1. BUSINESS — Continued
within a decentralized environment and are given substantial
autonomy to operate their newspapers. Publishers do share a set
of broad strategic priorities which include advertising market
share growth, circulation copies growth, Internet audience and
revenue growth and growth in profits and margins, and are
encouraged to share best ideas with one another.
The following table sets forth the operating revenues from
continuing operations of the PNI Group for the past five years.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000(1) |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Advertising
|
|
$ |
104,087 |
|
|
$ |
92,815 |
|
|
$ |
90,608 |
|
|
$ |
87,135 |
|
|
$ |
83,799 |
|
| |
Circulation
|
|
|
20,612 |
|
|
|
20,749 |
|
|
|
20,943 |
|
|
|
20,975 |
|
|
|
19,962 |
|
| |
Other
|
|
|
5,021 |
|
|
|
5,182 |
|
|
|
5,866 |
|
|
|
5,620 |
|
|
|
3,945 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
$ |
129,720 |
|
|
$ |
118,746 |
|
|
$ |
117,417 |
|
|
$ |
113,730 |
|
|
$ |
107,706 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
In January 2000, the PNI Group acquired The Pantagraph,
which operates in Bloomington, Illinois. In addition,
the year ended December 31, 2000 includes an extra week of
operations resulting in a 53-week year. All other years
presented include 52 weeks of operations. |
PNI Internet Operations
The PNI Group operates Web sites in each of its markets
providing viewers with local news, sports and entertainment
content and enhanced online advertiser services featuring the
three major classified advertising categories — help
wanted, automotive, and real estate. The PNI Group generates
revenue from online advertising and from service and transaction
fees.
The following table sets forth the total page views for the
combined PNI Group Web sites in 2004 and the fourth quarter
thereof and the respective percentage changes in page views from
the comparable periods in 2003.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
% Change vs. |
|
|
|
% Change vs. |
| |
|
Full Year 2004 |
|
2003 |
|
2004 Qtr. 4 |
|
2003 Qtr. 4 |
| |
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
|
|
(In thousands) |
|
|
|
Combined PNI Web Sites:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Page views(1)
|
|
|
108,870 |
|
|
|
22.4 |
% |
|
|
28,000 |
|
|
|
25.2 |
% |
|
|
| (1) |
A “page view” occurs when a web server provides a Web
page to a Web site visitor. |
Tucson Operations
Founded in 1877, the Star is published in Tucson,
Arizona, by Pulitzer Inc.’s wholly-owned subsidiary, Star
Publishing Company. The Star, a morning and Sunday
newspaper, and the Citizen, an afternoon newspaper owned
by Gannett, are Tucson’s leading dailies. The Star
and the Citizen are published through an agency
operation (the “Tucson Agency”) pursuant to an Agency
Agreement, dated March 28, 1940, as amended and restated
(the “Tucson Agency Agreement”). In 2004 the Star
and the Citizen had a combined weekday circulation of
approximately 138,000 and a Sunday circulation of approximately
168,000 delivered by independent carriers to homes and
single-copy outlets. Tucson is currently the 68th largest
metropolitan statistical area in the United States with a
population of approximately 913,000.
The Tucson Agency operates through TNI Partners, an agency
partnership that is equally owned by Star Publishing and
Gannett. TNI Partners is responsible for all aspects of the
business of the two newspapers other than editorial opinion and
gathering and reporting news. The net income or net loss of TNI
Partners is
9
ITEM 1. BUSINESS — Continued
allocated equally to the Star and the Citizen. The
Company reports its 50 percent share of TNI Partners’
operating results as a single component of operating income in
its consolidated statement of income.
As a result of the Tucson Agency, the financial performance of
Star Publishing is directly affected by the operations and
performance of both the Star and the Citizen.
The following table sets forth certain information concerning
circulation and combined advertising linage of the Star
and the Citizen and operating revenues of TNI
Partners for the past five years.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
| |
|
|
|
|
|
|
|
|
|
|
|
Circulation(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Star daily
|
|
|
106,618 |
|
|
|
103,844 |
|
|
|
103,048 |
|
|
|
101,034 |
|
|
|
98,469 |
|
| |
Citizen daily
|
|
|
30,937 |
|
|
|
33,370 |
|
|
|
36,056 |
|
|
|
38,067 |
|
|
|
39,543 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Combined Daily
|
|
|
137,555 |
|
|
|
137,214 |
|
|
|
139,104 |
|
|
|
139,101 |
|
|
|
138,012 |
|
| |
Star Sunday
|
|
|
168,482 |
|
|
|
170,669 |
|
|
|
171,350 |
|
|
|
171,485 |
|
|
|
171,726 |
|
|
Combined advertising linage (in thousands of inches):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Full run (all zones) Retail
|
|
|
1,447 |
|
|
|
1,499 |
|
|
|
1,593 |
|
|
|
1,571 |
|
|
|
1,713 |
|
| |
|
General
|
|
|
72 |
|
|
|
89 |
|
|
|
99 |
|
|
|
89 |
|
|
|
97 |
|
| |
|
Classified
|
|
|
1,659 |
|
|
|
1,560 |
|
|
|
1,554 |
|
|
|
1,618 |
|
|
|
2,033 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total
|
|
|
3,178 |
|
|
|
3,148 |
|
|
|
3,246 |
|
|
|
3,278 |
|
|
|
3,843 |
|
| |
|
Part run(2)
|
|
|
22 |
|
|
|
29 |
|
|
|
92 |
|
|
|
207 |
|
|
|
256 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total inches
|
|
|
3,200 |
|
|
|
3,177 |
|
|
|
3,338 |
|
|
|
3,485 |
|
|
|
4,099 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100% of TNI Partners operating revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Advertising
|
|
$ |
87,958 |
|
|
$ |
82,992 |
|
|
$ |
82,876 |
|
|
$ |
82,732 |
|
|
$ |
93,560 |
|
| |
Circulation
|
|
|
22,678 |
|
|
|
22,935 |
|
|
|
21,358 |
|
|
|
21,350 |
|
|
|
22,786 |
|
| |
Other
|
|
|
1,082 |
|
|
|
880 |
|
|
|
344 |
|
|
|
2,286 |
|
|
|
4,804 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total
|
|
$ |
111,718 |
|
|
$ |
106,807 |
|
|
$ |
104,578 |
|
|
$ |
106,368 |
|
|
$ |
121,150 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Amounts for 2004 are based on the internal records of Star
Publishing. Amounts for prior years are based on ABC Audit
Reports for the 52-week period ended December 31. |
| |
| (2) |
Part run inches represent advertisements that are published in
selected copies (i.e., less than the full press run) of a daily
edition of the newspaper to specifically target certain
geographic locations. The advertisements typically appear in
special news and advertising sections designed specifically for
the targeted geographic locations. The methodology for
calculating part-run linage was changed in 2003. |
The Star and the Citizen are printed at TNI
Partners’ computerized facility equipped with two
eight-unit Metro offset presses. The writing, editing and
composing functions have been computerized, increasing
efficiency and reducing workforce requirements.
“Starnet,” Star Publishing’s Web site
(www.azstarnet.com), and Citizen’s Web site
(www.tucsoncitizen.com) serve the Tucson metropolitan
area with local news, sports and entertainment content and
enhanced online advertiser services featuring the three major
classified advertising categories — help wanted,
automotive, and real estate. In addition, the Web sites also
serve as a city portal, providing community information and
acting as a community center and marketplace, enabling
businesses and individuals to build relationships with each
other and the Star and Citizen. The Web sites
generate revenue from online advertising and from service and
transaction fees, which are included in TNI Partners’
advertising revenue.
10
ITEM 1. BUSINESS — Continued
The following table sets forth the total page views for the
Tucson Agency Web sites in 2004 and the fourth quarter thereof
and the percentage changes in page views from the comparable
periods in 2003.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
% Change vs. |
|
|
|
% Change vs. |
| |
|
Full Year 2004 |
|
2003 |
|
2004 Qtr. 4 |
|
2003 Qtr. 4 |
| |
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
|
|
(In thousands) |
|
|
|
Combined Tucson Web Sites:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Page views(1)
|
|
|
81,360 |
|
|
|
2.9% |
|
|
|
22,383 |
|
|
|
14.8% |
|
|
|
| (1) |
A “page view” occurs when a web server provides a Web
page to a Web site visitor. |
Acquisition Strategy
One of the Company’s growth strategies has been a
disciplined acquisition program. In evaluating acquisition
opportunities, the Company generally has required that
candidates: (i) be in businesses related to the
Company’s core competencies; (ii) have strong cash
flows; (iii) possess good growth or economic
characteristics, (iv) offer a clustering opportunity with
respect to present or future properties; (v) provide an
opportunity for its disciplined management approach to add
value; and (vi) offer a reasonable return on investment.
See “Operating Strategy.”
The Lee Merger Agreement restricts the Company from engaging in
material acquisition activity in advance of the Lee Merger.
Agency Agreements
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 revenues and expenses in order to decrease
aggregate expenses and thereby allow the continuing operation of
multiple newspapers in the same market. Newspapers in
12 cities operate under joint operating or agency
agreements.
St. Louis Agency. As a result of the May 1,
2000 transaction which created PD LLC, Pulitzer Inc. and one of
its subsidiaries hold a 95 percent interest in the results
of operations of PD LLC, and Herald holds a 5 percent
interest. Prior to May 1, 2000, under the terms of the
St. Louis Agency Agreement, which had governed the
operations of the Post-Dispatch since 1961, Pulitzer Inc.
and Herald generally shared the Post-Dispatch’s
operating profits and losses, as well as its capital
expenditures, on a 50-50 basis.
Tucson Agency. The Tucson Agency Agreement has, since
1940, governed the joint operations of the Star and
Citizen. TNI Partners, as agent for Star Publishing and
Gannett, is responsible for advertising and circulation,
printing and delivery and collection of all revenues of the
Star and the Citizen. The Board of Directors of
TNI Partners presently consists of three directors chosen by
Star Publishing and three chosen by Gannett. Budgetary,
personnel and other non-news and editorial policy matters, such
as advertising and circulation policies and rates or prices, are
determined by the Board of Directors of TNI Partners. Each
newspaper is responsible for its own news and editorial content.
Revenues and expenses are recorded by TNI Partners, and the
resulting profit is generally split 50-50 between Star
Publishing and Gannett. The Company reports its 50 percent
share of TNI Partners’ operating results as a single
component of operating income in its consolidated statements of
income under the equity method. Both partners have certain
administrative costs that are borne and reported separately. As
a result of the Tucson Agency, the Star and the
Citizen benefit from increases and can be adversely
affected by decreases in each other’s circulation.
The current term of the Tucson Agency Agreement expires on
June 1, 2015, but it contains an option, which may be
exercised by either party, to renew the agreement for successive
periods of 25 years each.
11
ITEM 1. BUSINESS — Continued
Competition
Company publications compete for readership and advertising
revenues in varying degrees with other metropolitan, suburban,
neighborhood and national newspapers and other publications as
well as with television, radio, cable, Internet, and other
new-media technologies, direct mail, yellow page directories,
billboards and other news and advertising media. Competition for
advertising is based on audience size and composition,
circulation levels, readership demographics, price and
advertiser results. Competition for circulation is generally
based on the content, journalistic quality and price of the
publication. Competition for circulation and advertising may
include some or all of the following: paid suburban daily
newspapers, independently owned community newspapers and
shoppers, yellow pages and direct mail advertisers. The
community newspapers and shoppers and direct mail companies
generally target selected geographic markets throughout their
respective distribution areas.
Due to the agency relationship existing in Tucson, the Star
and the Citizen cannot be viewed as competitors for
advertising or circulation revenues. The Star and the
Citizen compete primarily against other media and
suburban, neighborhood and national newspapers and other
publications.
Raw Materials
The primary raw material used in the Company’s operations
is newsprint, representing 12.0 percent to
15.7 percent of operating expenses over the last five
years. For 2004, the Company consumed approximately 102,000
metric tonnes of newsprint, including its 50 percent share
related to the operations of TNI Partners. Based on the
Company’s current level of newspaper operations, expected
annual newsprint consumption for 2005 is estimated to be in the
range of 102,000 metric tonnes. Historically, newsprint has been
subject to significant price fluctuations from year to year,
unrelated in some cases to general economic conditions. In the
last five years, the Company’s average annual cost per
metric tonne of newsprint has varied from its lowest price by
approximately 27.8 percent. For every one-dollar change in
the Company’s average annual cost per metric tonne of
newsprint, 2005 pre-tax income would change by approximately
$102,000, assuming annual newsprint consumption of 102,000
metric tonnes. The Company attempts to obtain the best price
available by combining newsprint purchases for its different
newspaper locations with those of other newspaper companies. The
Company considers its relationship with newsprint producers to
be good. The Company has not entered into derivative contracts
for newsprint.
Employees
At December 31, 2004, the Company had approximately
3,775 full-time equivalent employees working at its
operations, including TNI Partners. At the Post-Dispatch
in St. Louis, unions represent approximately
75 percent of employees. The Company considers its
relationship with its employees to be good.
The Post-Dispatch has contracts with substantially all
bargaining unit employees with expiration dates ranging from
November 2006 through January 2011. The Post-Dispatch is
currently in negotiations with two unions: the International
Union of Operating Engineers (“Engineers”) Local
No. 2, which represents approximately seven employees, and
the Graphic Communications International Union
(“GCIU”) Local No. 6-505M, which represents
approximately 35 employees. The Engineers contract expired in
August 2004, and the GCIU contract expired in September 2002.
All Post-Dispatch labor contracts contain no-strike
clauses.
TNI Partners’ contract with Tucson Graphic Communications
Union Local No. 212, covering certain pressroom employees,
expires on May 31, 2006.
12
ITEM 1. BUSINESS — Continued
INTERNET INFORMATION
Copies of the Company’s Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 are available free of charge
through the Company’s Web site (www.pulitzerinc.com)
as soon as reasonably practicable after the Company
electronically files the reports with, or furnishes them to, the
Securities and Exchange Commission.
###
GOVERNANCE
Effective January 29, 2004, the Board of Directors of
Pulitzer Inc., in accordance with the listing standards of the
New York Stock Exchange, elected to avail itself of the
exemption for a “controlled company” and determined
that it need not have a majority of independent directors on its
Board or have compensation, corporate governance, and nominating
committees composed entirely of independent directors.
The corporate headquarters of the Company are located at 900
North Tucker Boulevard, St. Louis, Missouri. The general
character, location and approximate size of the principal
physical properties used by the Company for its newspaper
publishing and related new-media businesses at December 31,
2004 are set forth below. Leases on the properties indicated as
leased by the Company expire at various dates through October
2013.
The Company believes that its owned and leased properties used
in connection with its operating activities generally are in
good condition, well maintained and adequate for its current and
immediately foreseeable operating needs.
| |
|
|
|
|
|
|
|
|
|
| |
|
Approximate Area in |
| |
|
Square Feet |
| |
|
|
| General Character of Property |
|
Owned |
|
Leased |
| |
|
|
|
|
|
Printing plants, business and editorial offices, and warehouse
space located in:
|
|
|
|
|
|
|
|
|
| |
St. Louis, Missouri(1)
|
|
|
657,459 |
|
|
|
18,707 |
|
| |
St. Louis, Missouri(2)
|
|
|
127,335 |
|
|
|
41,330 |
|
| |
St. Louis, Missouri(3)
|
|
|
96,360 |
|
|
|
37,400 |
|
| |
Tucson, Arizona(4)
|
|
|
272,182 |
|
|
|
60,905 |
|
| |
Washington, D.C.
|
|
|
|
|
|
|
2,420 |
|
| |
Bloomington, Illinois
|
|
|
84,326 |
|
|
|
13,396 |
|
| |
Provo, Utah
|
|
|
40,858 |
|
|
|
21,330 |
|
| |
Hanford, California
|
|
|
29,942 |
|
|
|
4,325 |
|
| |
Lihue, Hawaii
|
|
|
8,505 |
|
|
|
20,902 |
|
| |
Flagstaff, Arizona
|
|
|
23,170 |
|
|
|
2,600 |
|
| |
Santa Maria, California
|
|
|
20,815 |
|
|
|
5,356 |
|
| |
Napa, California
|
|
|
20,984 |
|
|
|
2,400 |
|
| |
DeKalb, Illinois
|
|
|
16,098 |
|
|
|
2,880 |
|
| |
Coos Bay, Oregon
|
|
|
16,500 |
|
|
|
5,000 |
|
| |
Park Hills, Missouri
|
|
|
22,706 |
|
|
|
|
|
| |
Lompoc, California
|
|
|
10,500 |
|
|
|
17,500 |
|
| |
Rhinelander, Wisconsin
|
|
|
9,611 |
|
|
|
|
|
13
|
|
| ITEM 2. |
PROPERTIES — Continued |
|
|
| (1) |
Property is owned by and used in the operations of PD LLC. |
| |
| (2) |
Property primarily includes locations operated by the Suburban
Journals in the greater St. Louis area. |
| |
| (3) |
Property is owned and used in the operations of DS LLC. |
| |
| (4) |
The 272,182 square foot facility in Tucson, Arizona is used
in the production of the Star and the Citizen and
is jointly owned with Gannett pursuant to the Tucson Agency. |
|
|
| ITEM 3. |
LEGAL AND REGULATORY PROCEEDINGS |
In October 2001 the Internal Revenue Service (“IRS”)
formally proposed that the taxable income of Old Pulitzer for
the tax year ended March 18, 1999 be increased by
approximately $80.4 million based on its assertion that Old
Pulitzer was required to recognize a taxable gain in that amount
as a result of the Spin-off. Under the HTV Merger Agreement, the
Company is obligated to indemnify Hearst-Argyle against any tax
liability attributable to the Spin-off and has the right to
control any proceedings relating to the determination of Old
Pulitzer’s tax liability for such tax period. In January
2002, the Company filed a formal written protest of the
IRS’ proposed adjustment with the IRS Appeals Office.
On August 30, 2002, the Company, on behalf of Old Pulitzer,
filed with the IRS amended federal corporate income tax returns
for the tax years ended December 1997 and 1998 and March 1999 in
which tax refunds in the aggregate amount of approximately
$8.1 million, plus interest, were claimed. These refund
claims were based on the contention that Old Pulitzer was
entitled to deduct certain fees and expenses which it had not
previously deducted and which Old Pulitzer had incurred in
connection with its investigation of several strategic
alternatives and potential transactions prior to its decision to
proceed with the Broadcast Transaction. Under the HTV Merger
Agreement, the Company is entitled to any refunds recovered from
the IRS as a result of these claims.
In late 2003 the IRS Appeals Officer initially indicated that he
would sustain substantially the entire amount of the IRS’
proposed adjustment of Old Pulitzer’s taxable gain as a
result of the Spin-off. He further indicated that the refund
claims filed by the Company on behalf of Old Pulitzer for the
December 1997 and 1998 and March 1999 tax years had been
referred to the IRS’ Examination Division for review.
Subsequently, the Company’s representatives furnished the
IRS Appeals Officer with additional information in support of
the Company’s position on the issue of Old Pulitzer’s
taxable gain as a result of the Spin-off and also requested, in
view of this additional information, that this issue be referred
back to the IRS’ Examination Division for consideration
concurrently with the refund claims filed by the Company on
behalf of Old Pulitzer for the December 1997 and 1998 and March
1999 tax years. In July 2004, the IRS Appeals Officer agreed to
release jurisdiction over all issues relating to Old
Pulitzer’s consolidated federal income tax liability for
the December 1997 and 1998 and March 1999 tax years back to the
IRS Examination Division.
After July 2004 the Company’s representatives engaged in a
number of substantive discussions with representatives of the
IRS Examination Division seeking to resolve the above-described
issues. In January 2005, these discussions culminated in an
agreement in principle under which the Company’s liability
for Old Pulitzer’s net consolidated federal income tax
deficiency (excluding applicable interest) for 1998 and the tax
year ended March 18, 1999, after taking into account the
effects of the refund claims, is not expected to exceed
$200,000. This agreement in principle is subject to the
completion of final settlement calculations, execution of a
definitive agreement with the IRS and review by the
U.S. Congressional Joint Committee on Taxation. As a result
of this agreement in principle, the Company has recorded an
adjustment of $375,000 (inclusive of related costs) to
additional paid-in capital in order to reflect its obligation to
indemnify Hearst-Argyle for Old Pulitzer’s liability for
tax and interest for 1998 and the tax year ended March 18,
1999.
In July 2004 PD LLC settled the lawsuit that was filed in the
Missouri Circuit Court, Twenty-Second Judicial Circuit (City of
St. Louis, Missouri; Case No. 012-10334), against
Pulitzer Inc., PD LLC, and Suburban Journals LLC. The lawsuit
was brought by 33 newspaper independent carriers (the
“Plaintiffs”) engaged in the business of delivering
the Post-Dispatch pursuant to home delivery contracts.
The lawsuit
14
ITEM 3. LEGAL AND REGULATORY
PROCEEDINGS — Continued
claimed that the Plaintiffs had the right to deliver the
Suburban Journals within each carrier’s alleged exclusive
delivery area by virtue of written delivery contracts with PD
LLC. The lawsuit was settled with clarification of contract
rights in PD LLC’s favor, by a payment from PD LLC of
approximately $1.5 million without admission of any
liability.
The Company has been involved, from time to time, in various
claims and lawsuits incidental to the ordinary course of its
business, including such matters as libel, slander and
defamation actions, complaints alleging discrimination, and
complaints related to product distribution practices. While the
ultimate outcome of litigation cannot be predicted with
certainty, management, based on its understanding of the facts,
does not believe the ultimate resolution of these matters will
have a materially adverse effect on the Company’s
consolidated financial position or annual results of operations.
However, depending upon the period of resolution, such effect
could be material to the consolidated financial results of an
individual period.
Lee Merger Agreement Litigation
See “Lee Merger Agreement” in Item 1.
|
|
| ITEM 4. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
Not applicable.
15
PART II
|
|
| ITEM 5. |
MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS |
The shares of Pulitzer Inc.’s common stock are listed on
The New York Stock Exchange, Inc. and trade under the symbol
“PTZ.” The shares of Pulitzer Inc.’s Class B
common stock do not trade in a public market.
At February 25, 2005, there were approximately 340 record
holders of Pulitzer Inc.’s common stock and 26 record
holders of its Class B common stock.
As of December 31, 2004, holders of outstanding shares of
Pulitzer Inc.’s Class B common stock represented
92.1 percent of the combined voting power of Pulitzer Inc.,
with holders of Pulitzer Inc.’s common stock representing
the balance of the voting power. As of December 31, 2004,
holders of approximately 95.5 percent of the outstanding
shares of Pulitzer Inc.’s Class B common stock
representing 87.9 percent of the combined voting power have
deposited their shares in a voting trust (the “Voting
Trust”). Each share of Pulitzer Inc.’s Class B
common stock is convertible into one share of Pulitzer
Inc.’s common stock at the holder’s option subject to
the limitations imposed by the Voting Trust on the shares of
Class B common stock deposited thereunder. The Voting Trust
permits the conversion of the Class B common stock
deposited in the Voting Trust into common stock in connection
with certain permitted transfers, including, without limitation,
sales which are exempt from the registration requirements of the
Securities Act of 1933, as amended, sales which meet the volume
and manner of sale requirements of Rule 144 promulgated
thereunder and sales which are made pursuant to registered
public offerings.
The following table sets forth the range of high and low sales
prices for Pulitzer Inc.’s common stock and dividends paid
for each quarterly period in the past two calendar years:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
High |
|
Low |
|
Dividend(1) |
| |
|
|
|
|
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
56.64 |
|
|
$ |
47.93 |
|
|
$ |
0.19 |
|
|
Second Quarter
|
|
|
52.42 |
|
|
|
44.94 |
|
|
|
0.19 |
|
|
Third Quarter
|
|
|
49.65 |
|
|
|
43.71 |
|
|
|
0.19 |
|
|
Fourth Quarter
|
|
|
64.90 |
|
|
|
49.10 |
|
|
|
0.19 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
High |
|
Low |
|
Dividend(2) |
| |
|
|
|
|
|
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
49.25 |
|
|
$ |
40.75 |
|
|
$ |
0.18 |
|
|
Second Quarter
|
|
|
52.00 |
|
|
|
42.30 |
|
|
|
0.18 |
|
|
Third Quarter
|
|
|
54.19 |
|
|
|
46.73 |
|
|
|
0.18 |
|
|
Fourth Quarter
|
|
|
54.65 |
|
|
|
48.90 |
|
|
|
0.18 |
|
|
|
| (1) |
In 2004 the Company declared and paid cash dividends of
$0.76 per share of common stock and Class B common
stock. |
| |
| (2) |
In 2003 the Company declared and paid cash dividends of
$0.72 per share of common stock and Class B common
stock. |
On January 10, 2005, the Board of Directors of the Company
announced for the first quarter of 2005 a 5.3 percent
increase in the quarterly dividend on Pulitzer Inc.’s
common stock and Class B common stock to $0.20 per
share from $0.19 per share. The cash dividend was paid on
February 1, 2005. Future dividends will depend upon, among
other things, the Company’s earnings, financial condition,
cash flows, capital requirements and other relevant
considerations, including the limitations under the
$306.0 million borrowing by PD LLC from a group of
investors led by Prudential Capital Group (the
“Loan”), any credit agreement or other agreement to
which the Company may become a party in the future, and the Lee
Merger Agreement. See “Liquidity and Capital
Resources” in Item 7. Regular quarterly cash dividends
consistent with past practice in an amount no greater than
$0.20 per share per quarter are permitted by the Lee Merger
Agreement.
16
|
|
| ITEM 6. |
SELECTED FINANCIAL DATA |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000(1) |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands, except per share amounts) |
|
OPERATING RESULTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues — net
|
|
$ |
443,655 |
|
|
$ |
422,664 |
|
|
$ |
415,960 |
|
|
$ |
413,506 |
|
|
$ |
397,159 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Payroll and other personnel expense
|
|
|
187,414 |
|
|
|
181,422 |
|
|
|
180,027 |
|
|
|
174,626 |
|
|
|
157,224 |
|
| |
Newsprint expense
|
|
|
47,245 |
|
|
|
43,368 |
|
|
|
41,055 |
|
|
|
56,372 |
|
|
|
55,539 |
|
| |
St. Louis Agency adjustment(2)
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
9,363 |
|
| |
Depreciation
|
|
|
15,348 |
|
|
|
14,613 |
|
|
|
14,286 |
|
|
|
14,330 |
|
|
|
12,916 |
|
| |
Amortization
|
|
|
4,850 |
|
|
|
4,522 |
|
|
|
4,433 |
|
|
|
26,178 |
|
|
|
19,069 |
|
| |
Other expenses
|
|
|
121,760 |
|
|
|
107,610 |
|
|
|
111,018 |
|
|
|
116,113 |
|
|
|
105,145 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
376,617 |
|
|
|
351,535 |
|
|
|
350,819 |
|
|
|
387,619 |
|
|
|
359,256 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of Tucson newspaper partnership
|
|
|
18,046 |
|
|
|
16,064 |
|
|
|
17,744 |
|
|
|
17,504 |
|
|
|
22,487 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
85,084 |
|
|
|
87,193 |
|
|
|
82,885 |
|
|
|
43,391 |
|
|
|
60,390 |
|
|
Interest income
|
|
|
5,054 |
|
|
|
3,687 |
|
|
|
4,235 |
|
|
|
7,573 |
|
|
|
19,017 |
|
|
Interest expense
|
|
|
(20,013 |
) |
|
|
(20,395 |
) |
|
|
(20,593 |
) |
|
|
(24,609 |
) |
|
|
(16,537 |
) |
|
Net gain (loss) on marketable securities
|
|
|
334 |
|
|
|
502 |
|
|
|
1,100 |
|
|
|
602 |
|
|
|
(3,918 |
) |
|
Net loss on investments
|
|
|
(104 |
) |
|
|
(1,790 |
) |
|
|
(9,091 |
) |
|
|
(5,607 |
) |
|
|
(7 |
) |
|
Net other income (expense)
|
|
|
32 |
|
|
|
74 |
|
|
|
132 |
|
|
|
(204 |
) |
|
|
(109 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income
taxes
|
|
|
70,387 |
|
|
|
69,271 |
|
|
|
58,668 |
|
|
|
21,146 |
|
|
|
58,836 |
|
|
Provision for income taxes
|
|
|
24,843 |
|
|
|
25,306 |
|
|
|
22,371 |
|
|
|
8,021 |
|
|
|
23,389 |
|
|
Minority interest in net earnings of subsidiaries
|
|
|
1,430 |
|
|
|
1,788 |
|
|
|
1,598 |
|
|
|
839 |
|
|
|
849 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
44,114 |
|
|
|
42,177 |
|
|
|
34,699 |
|
|
|
12,286 |
|
|
|
34,598 |
|
|
Discontinued operations, net of tax
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(1,624 |
) |
|
|
304 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$ |
44,114 |
|
|
$ |
42,177 |
|
|
$ |
34,699 |
|
|
$ |
10,662 |
|
|
$ |
34,902 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings/(Loss) Per Share of Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income from continuing operations
|
|
$ |
2.04 |
|
|
$ |
1.97 |
|
|
$ |
1.63 |
|
|
$ |
0.58 |
|
|
$ |
1.59 |
|
| |
Discontinued operations
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
(0.08 |
) |
|
|
0.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic earnings per share
|
|
$ |
2.04 |
|
|
$ |
1.97 |
|
|
$ |
1.63 |
|
|
$ |
0.50 |
|
|
$ |
1.60 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average number of shares outstanding
|
|
|
21,591 |
|
|
|
21,404 |
|
|
|
21,279 |
|
|
|
21,192 |
|
|
|
21,757 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings/(Loss) Per Share of Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Income from continuing operations
|
|
$ |
2.02 |
|
|
$ |
1.95 |
|
|
$ |
1.62 |
|
|
$ |
0.58 |
|
|
$ |
1.59 |
|
| |
Discontinued operations
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
(0.08 |
) |
|
|
0.01 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted earnings per share
|
|
$ |
2.02 |
|
|
$ |
1.95 |
|
|
$ |
1.62 |
|
|
$ |
0.50 |
|
|
$ |
1.60 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average number of shares outstanding
|
|
|
21,888 |
|
|
|
21,627 |
|
|
|
21,447 |
|
|
|
21,364 |
|
|
|
21,786 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share of common and Class B common stock
|
|
$ |
0.76 |
|
|
$ |
0.72 |
|
|
$ |
0.70 |
|
|
$ |
0.68 |
|
|
$ |
0.64 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
ITEM 6. SELECTED FINANCIAL DATA —
Continued
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
|
2001 |
|
2000 |
| |
|
|
|
|
|
|
|
|
|
|
|
OTHER DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and marketable securities
|
|
$ |
207,308 |
|
|
$ |
176,196 |
|
|
$ |
194,394 |
|
|
$ |
193,739 |
|
|
$ |
194,313 |
|
|
Working capital
|
|
|
242,378 |
|
|
|
214,436 |
|
|
|
225,548 |
|
|
|
221,002 |
|
|
|
218,619 |
|
|
Total assets
|
|
|
1,386,662 |
|
|
|
1,319,243 |
|
|
|
1,287,246 |
|
|
|
1,288,763 |
|
|
|
1,282,873 |
|
|
Long-term debt
|
|
|
306,000 |
|
|
|
306,000 |
|
|
|
306,000 |
|
|
|
306,000 |
|
|
|
306,000 |
|
|
Stockholders’ equity
|
|
|
898,149 |
|
|
|
851,444 |
|
|
|
815,218 |
|
|
|
797,217 |
|
|
|
799,701 |
|
|
|
| (1) |
The year ended December 31, 2000, includes an extra week of
operations resulting from a 53-week year. All other years
presented include 52 weeks of operations |
| |
| (2) |
See “Agency Agreements” in Item 1 and “PD
LLC Operating Agreement” in Item 7 for additional
information on the St. Louis Agency adjustment. |
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
Statements in this Annual Report on Form 10-K concerning
the Company’s business outlook or future economic
performance, anticipated profitability, revenues, expenses or
other financial items, together with other statements that are
not historical facts, are “forward-looking statements”
as that term is defined under the Federal Securities Laws.
Forward-looking statements are subject to risks, uncertainties
and other factors which could cause actual results to differ
materially from those stated in such statements. Such risks,
uncertainties and other factors include, but are not limited to,
industry cyclicality, the seasonal nature of the business,
changes in pricing or other actions by competitors or suppliers
(including newsprint suppliers), outcome of labor negotiations,
capital or similar requirements, and general economic
conditions, any of which may impact advertising and circulation
revenues and various types of expenses, as well as other risks
detailed in the Company’s filings with the Securities and
Exchange Commission including this Annual Report on
Form 10-K. Although the Company believes that the
expectations reflected in “forward-looking statements”
are reasonable, it cannot guarantee future results, levels of
activity, performance or achievements. Accordingly, investors
are cautioned not to place undue reliance on any such
“forward-looking statements,” and the Company
disclaims any obligation to update the information contained
herein or to publicly announce the result of any revisions to
such “forward-looking statements” to reflect future
events or developments.
General
Pulitzer Inc. (together with its subsidiaries and affiliated
entities, the “Company”) is engaged in newspaper
publishing and related new-media businesses, operating, through
its subsidiaries, the newspaper properties owned by Pulitzer
Publishing Company (“Old Pulitzer”) prior to the
Spin-off (as defined below). Prior to the Spin-off, Pulitzer
Inc. was a wholly-owned subsidiary of Old Pulitzer.
Pulitzer Inc. was capitalized on March 18, 1999, with
approximately $550 million in cash and all the other assets
(other than broadcast assets) of Old Pulitzer as a result of the
Spin-off (as defined below) and, through its subsidiaries, is
now operating the principal newspaper publishing and related
new-media businesses formerly operated by Old Pulitzer
(including subsidiaries) as well as certain other newspapers
acquired since the Broadcast Transaction (as defined below).
Pulitzer Inc. was organized as a corporation in 1998 and, prior
to the Spin-off, was a wholly-owned subsidiary of Old Pulitzer.
Prior to the Broadcast Transaction, Old Pulitzer was engaged in
newspaper publishing and television and radio broadcasting.
Pursuant to an Amended and Restated Agreement and Plan of
Merger, dated as of May 25, 1998 (the “HTV Merger
Agreement”), by and among Old Pulitzer, Pulitzer Inc. and
Hearst-Argyle Television, Inc. (“Hearst-Argyle”) on
March 18, 1999, Hearst-Argyle acquired, through the merger
of Old Pulitzer with and into Hearst-Argyle (the “HTV
Merger”), Old Pulitzer’s television and radio
broadcasting operations
18
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
(collectively, the “Broadcasting Business”) in
exchange for the issuance to Old Pulitzer’s stockholders of
37,096,774 shares of Hearst-Argyle’s Series A
common stock. Old Pulitzer’s Broadcasting Business
consisted of nine network-affiliated television stations and
five radio stations owned and operated by Pulitzer Broadcasting
Company and its wholly-owned subsidiaries. Prior to the HTV
Merger, Old Pulitzer’s newspaper publishing and related new
media businesses were contributed to the Company in a tax-free
“spin-off” to Old Pulitzer stockholders (the
“Spin-off”). The HTV Merger and Spin-off are
collectively referred to as the “Broadcast
Transaction.”
Old Pulitzer’s historical basis in its newspaper publishing
and related new-media assets and liabilities has been carried
over to the Company. The Broadcast Transaction represents a
reverse-spin transaction and, accordingly, the Company’s
results of operations for periods prior to the consummation of
the Broadcast Transaction are identical to the historical
results previously reported by Old Pulitzer.
The net liability balance of the Broadcasting Business as of
March 18, 1999, including $700.0 million of broadcast
debt, was contributed to “Additional Paid-in Capital”
of Pulitzer Inc. at the time of the HTV Merger.
The Company’s revenues are derived primarily from
advertising and circulation, which have respectively averaged
approximately 78.9 percent and 19.3 percent of total
revenue over the last five years. Advertising rates and rate
structures and resulting revenues vary among publications based,
among other things, on circulation, type of advertising, local
market conditions and competition.
The Company’s operating revenues are significantly
influenced by a number of factors, including overall advertising
expenditures, the appeal of newspapers in comparison to other
forms of advertising, the performance of the Company in
comparison to its competitors in specific markets, the strength
of the national economy, and general economic conditions and
population changes in the markets served by the Company.
The Company’s business tends to be seasonal, with peak
revenues and profits generally occurring in the fourth and, to a
lesser extent, second quarters of each year as a result of
increased advertising activity during the Christmas and spring
holiday periods. The first quarter is historically the weakest
quarter for revenues and profits.
Lee Merger Agreement
On January 29, 2005, Pulitzer Inc. entered into an
Agreement and Plan of Merger (the “Lee Merger
Agreement”) with Lee Enterprises, Incorporated, a Delaware
corporation (“Lee”), and LP Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Lee (the
“Purchaser”). The Lee Merger Agreement provides for
the Purchaser to be merged with and into Pulitzer Inc. (the
“Lee Merger”), with Pulitzer Inc. as the surviving
corporation. Each share of Pulitzer Inc.’s common stock and
Class B common stock outstanding immediately prior to the
effective time of the Lee Merger will be converted into the
right to receive from the surviving corporation in cash, without
interest, an amount equal to $64.00 per share. The total
enterprise value of Pulitzer Inc. under the Lee Merger Agreement
is approximately $1.46 billion based upon a value of $64.00
per share.
The Lee Merger will effect a change of control of Pulitzer Inc.
At the effective time of the Lee Merger and as a result of the
Lee Merger, Pulitzer Inc. will become an indirect wholly-owned
subsidiary of Lee, the directors of the Purchaser will become
the directors of the surviving corporation, and the officers of
the Purchaser will become the officers of the surviving
corporation.
Consummation of the Lee Merger is subject to customary
conditions, including the adoption of the Lee Merger Agreement
by the required vote of the Company’s stockholders and the
expiration or termination of any waiting period (and any
extension thereof) under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the “HSR Act”).
Lee and Pulitzer Inc. filed notification and report forms under
the HSR Act with the Federal Trade Commission (“FTC”)
and the United States Department of Justice on
19
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
February 11, 2005. On February 22, 2005, Pulitzer Inc.
and Lee received from the FTC notification of early termination
of the waiting period under the HSR Act.
The Lee Merger Agreement includes customary representations,
warranties and covenants by Pulitzer Inc., including covenants
(i) to cause a stockholders’ meeting to be called and
held as soon as reasonably practicable to vote on the adoption
of the Lee Merger Agreement, (ii) to cease immediately any
discussions and negotiations with respect to an alternate
acquisition proposal, (iii) not to solicit any alternate
acquisition proposal and, with certain exceptions, not to enter
into discussions concerning or furnish information in connection
with any alternate acquisition proposal, and (iv) subject
to certain exceptions, for Pulitzer Inc.’s board of
directors not to withdraw or modify its recommendation that the
stockholders vote to adopt the Lee Merger Agreement. The Lee
Merger Agreement contains certain termination rights for both
Pulitzer Inc. and Lee and further provides that, upon
termination of the Lee Merger Agreement under specified
circumstances, Pulitzer Inc. may be required to pay Lee a fee of
up to $55 million.
On January 31, 2005, Todd M. Veeck, an alleged owner of
common stock of Pulitzer Inc., filed a lawsuit in The Court of
Chancery of the State of Delaware in New Castle County against
Pulitzer Inc. and the members of its board of directors. The
Veeck complaint purports to be a class action brought on
behalf of all stockholders other than the defendants, and it
asserts that the announced sale of Pulitzer Inc. to Lee should
be preliminarily and permanently enjoined because the
agreed-upon consideration is unfair and does not maximize
stockholder value. The Veeck complaint also seeks
monetary damages. On February 2, 2005, James Fern, an
alleged owner of common stock of Pulitzer Inc., filed a lawsuit
in The Court of Chancery of the State of Delaware in New Castle
County against Pulitzer Inc. and members of its board of
directors making essentially the same allegations and seeking
essentially the same relief as the Veeck complaint.
Pulitzer Inc. believes that the allegations of the Veeck
and Fern complaints are without merit. On
February 25, 2005, the Court of Chancery entered an order
consolidating the Veeck and Fern actions under the
consolidated case caption In re Pulitzer Inc. Shareholders
Litigation, Civil Action No. 1063-N.
Pulitzer Inc. has determined to pay the attorneys’ fees and
expenses incurred in defending the members of its board of
directors in these or related legal actions, and each member of
the board of directors has undertaken and agreed to repay his or
her share of such fees and other expenses if it shall be
ultimately determined that he or she is not entitled to be
indemnified by Pulitzer Inc.
The boards of directors of Pulitzer Inc. and Lee have
unanimously approved the Lee Merger Agreement. The Lee Merger is
expected to close in the second quarter of calendar 2005. The
proposed transaction will be submitted to Pulitzer Inc.’s
stockholders for their consideration, and Pulitzer Inc. will
file with the Securities and Exchange Commission a proxy
statement to be used to solicit the stockholders’ approval
of the proposed transaction, as well as other relevant documents
concerning the proposed transaction.
Acquisition and Disposition of Properties
In 2004 Pulitzer Inc. subsidiaries acquired businesses,
principally weekly newspapers and niche publications that
complement the daily newspaper operations of Pulitzer
Newspapers, Inc. and its subsidiaries (collectively, the
“PNI Group”) in Coos Bay, Oregon; Bloomington,
Illinois; and Santa Barbara County, California, and
St. Louis newspaper distribution businesses, for an
aggregate purchase price of approximately $7.6 million.
In 2003 Pulitzer Inc. subsidiaries acquired businesses,
principally those focused on distribution operations in
St. Louis, and weekly newspapers and niche publications
that complement the PNI Group’s daily newspaper operations
in Provo, Utah; Napa, California; Coos Bay, Oregon; and
Rhinelander, Wisconsin, for an aggregate purchase price of
approximately $17.4 million.
In 2002 Pulitzer Inc. subsidiaries acquired businesses,
principally St. Louis newspaper distribution businesses,
for an aggregate purchase price of approximately
$9.1 million.
20
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
The pro forma results of the 2004, 2003 and 2002 acquisitions
were not material and, therefore, are not presented.
Critical Accounting Policies
The process of preparing financial statements requires
management to make estimates and judgments that affect the
carrying values of the Company’s consolidated assets and
liabilities as well as recognition of revenues and expenses.
These estimates and judgments are based on the Company’s
historical experience, actuarial assumptions and understanding
of current facts and circumstances. Certain of the
Company’s accounting policies are considered critical, as
these policies are important to the presentation of the
Company’s consolidated financial statements and require
significant or complex judgment by management.
Management has identified the practices used to determine the
allowance for doubtful accounts associated with trade accounts
receivable, the liability balance for both unpaid and unreported
dental, medical and workers’ compensation claims, the
liability balance for pension and postretirement and
postemployment benefit obligations, the accounting and liability
balance for income taxes, and the accounting and related
impairment testing of goodwill in accordance with Statement of
Financial Accounting Standards (“SFAS”)
No. 142, Goodwill and Other Intangible Assets
(“SFAS No. 142”), as critical accounting
policies involving the use of estimates and judgments.
The Company evaluates its allowance for doubtful trade accounts
receivable based on customers’ credit history, payment
trends, current aging analysis and other economic factors to the
extent available. It is possible that reported results could be
different based upon the customers’ ability and willingness
to pay amounts billed.
The Company evaluates its liability for unpaid and unreported
dental, medical and workers’ compensation claims based on
historical payment trends and administration costs present for
the Company and also generally present in the United States. The
Company uses computations made by independent consulting
actuaries as the basis for determining related liability
balances. Actual results could be different if actual costs to
settle claims differ from the factors incorporated by the
consulting actuaries in their determinations.
The Company evaluates its liability for pension and
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 management used different estimates and assumptions
regarding these plans, the funded status of the plans could vary
significantly and the Company could recognize different amounts
of expense from the amounts reported over future periods.
The Company has identified the accounting and related impairment
testing of SFAS No. 142 as a critical accounting
policy having a material impact on the Company’s financial
presentation. SFAS No. 142, among other things,
eliminates the amortization of goodwill and certain identified
intangible assets. The Company tests intangible assets,
including goodwill, that are not subject to amortization for
impairment annually, or more frequently if events or changes in
circumstances indicate that the assets might be impaired, using
a two step impairment assessment. The first step of the
impairment test identifies potential impairment and compares the
fair value of the reporting units with their carrying amount,
including goodwill. The Company evaluates impairment at each of
its St. Louis (consisting of PD LLC, Suburban Journals, and
DS LLC) and PNI Group reporting units. If the fair value exceeds
the carrying amount, goodwill is not considered impaired, and
the second step of the impairment test is not necessary. If the
carrying amount exceeds the fair value, the second step of the
impairment test shall be performed to measure the amount of
impairment loss, if any. In accordance with the provisions of
SFAS No. 142, the Company conducted the first step of
impairment tests as of the beginning of its 2002 fiscal year.
The Company assessed the fair value by considering each
reporting unit’s expected future cash flows; recent
purchase prices paid for entities within its industry, and the
21
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
Company’s market capitalization. The Company’s
discounted cash flow evaluation utilizes a discount rate that
corresponds to the Company’s weighted average cost of
capital. Given consideration of these factors, the Company
concluded that the fair value of each reporting unit exceeded
the carrying amounts of its net assets and, accordingly, no
impairment loss was recognized. Subsequent annual impairment
tests indicate that the fair value of the reporting units
continues to exceed their carrying amounts. Subsequent
impairments, if any, would be classified as operating expense.
If management used different estimates and assumptions for
future cash flows, weighted-average cost of capital, tax rates
and other estimates and assumptions used in determining the fair
value of each of the Company’s reporting units, the results
of the Company’s impairment testing could vary
significantly from the results reported above.
2004 Compared with 2003
Executive Overview
Net income for the Company increased by $1.9 million to
$44.1 million, or $2.02 per diluted share, in 2004,
compared to $42.2 million, or $1.95 per diluted share
in 2003. The increase in 2004 net income reflects:
(a) a $2.1 million decrease in operating profit;
(b) a $1.4 million increase in interest income
(attributable to greater levels of invested funds and increased
yields on invested funds); (c) a $0.4 million increase
in the benefit realized from the Company’s interest rate
swaps (principally as a result of having all swaps in place for
the full year of 2004); (d) a $1.5 million improvement
in gains and losses on marketable securities and investments;
(e) a $0.5 million decrease in the provision for
income taxes (reflecting the tax-free future benefit derived
from Medicare Part-D); and (f) a $0.4 million
reduction in the Minority Interest in Net Earnings of
Subsidiaries (reflecting reductions in the operating profits
generated by those subsidiaries).
The operating profit decrease of $2.1 million reflects:
(a) a revenue increase of $21.0 million (driven
principally by an advertising revenue increase of
$19.7 million); (b) an increase in operating expense
of $25.1 million; and (c) an increase in Equity in
earnings of TNI Partners, the Tucson newspaper partnership
(“TNI”), of $2.0 million. The operating expense
and equity earnings increases are discussed in the following
section entitled “Operating Results”.
Advertising revenue increased by $19.7 million, or
5.9 percent, to $354.8 million in 2004 from
$335.1 million in the prior year, due, principally, to:
(a) a 5.0 percent increase in retail advertising
revenue, including retail preprints, reflecting gains from
smaller local advertisers, an 8.0 percent increase at PNI,
and revenues from the Post-Dispatch’s direct mail
initiative in St. Louis (“Local Values”);
and (b) a 9.7 percent increase in classified
advertising, reflecting a 15.4 percent increase in help
wanted advertising, a 13.4 percent increase in real estate
advertising, and a 2.0 percent increase in automotive
advertising. The retail and classified advertising revenue
increases were partially offset by a 3.3 percent decrease
in national advertising, including national preprints,
principally due to weakness in the pharmaceutical, packaged
goods and travel categories in St. Louis.
Operating Results
Operating revenue for 2004 was $443.7 million, an increase
of 5.0 percent compared to $422.7 million in 2003.
Growth in the retail, classified and preprint advertising
categories was partially offset by decreased national
advertising revenue.
Retail Run-of-Press (“ROP”) advertising revenue
increased 2.6 percent to $123.4 million in 2004 from
$120.3 million in the prior year. The increase was driven
by a 10.0 percent rise in revenue from small to mid-size
advertisers in St. Louis, and an 8.8 percent retail
ROP advertising revenue increase at PNI. These increases were
partially offset by weakness in the department store, furniture
and home improvement categories in St. Louis. Total
preprint revenue increased 10.8 percent to
$70.1 million in 2004 from $63.2 million in 2003. The
increase in preprint revenue was due, in part, to increased
revenue from Local Values and a 6.1 percent increase
at PNI.
22
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
National ROP advertising revenue decreased 7.3 percent in
2004, to $26.9 million compared to $29.0 million in
2003. The decrease resulted, principally, from reduced revenue
in the pharmaceutical, telecommunication, and national
automotive categories.
Classified advertising revenue increased 9.7 percent to
$134.4 million in 2004 from $122.6 million in 2003.
The increase in classified revenue was principally driven by
strength in help wanted advertising, which grew by
15.4 percent for the year due, in part, to the improving
economy. Help wanted revenue increased by 9.5 percent at
the Company’s St. Louis operations and by
35.2 percent at PNI. Real estate revenue increased
13.4 percent in 2004 due, in part, to record demand for
housing. Automotive advertising increased by 2.0 percent in
2004. The lower rate for the 2004 classified automotive increase
was due, in part, to a reduction in automotive advertising
related to a two-month strike by St. Louis auto dealership
service workers and mechanics. The Company’s classified
advertising revenue percentage change, on an annual and
quarterly basis, for 2004 versus 2003 are summarized in the
table below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
4th |
|
3rd |
|
2nd |
|
1st |
| |
|
Full Year |
|
Qtr. |
|
Qtr. |
|
Qtr. |
|
Qtr. |
| |
|
2004 |
|
2004 |
|
2004 |
|
2004 |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Classified advertising revenue percentage |
| |
|
change from comparable prior year period |
|
Help Wanted
|
|
|
15.4 |
% |
|
|
14.9 |
% |
|
|
18.0 |
% |
|
|
17.0 |
% |
|
|
11.4 |
% |
|
Automotive
|
|
|
2.0 |
% |
|
|
(6.4 |
)% |
|
|
(2.2 |
)% |
|
|
9.4 |
% |
|
|
6.3 |
% |
|
Real Estate
|
|
|
13.4 |
% |
|
|
11.3 |
% |
|
|
12.4 |
% |
|
|
13.6 |
% |
|
|
16.6 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Classified
|
|
|
9.7 |
% |
|
|
6.1 |
% |
|
|
9.7 |
% |
|
|
11.8 |
% |
|
|
10.9 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the annual and quarterly percentage
fluctuations in total advertising revenue in 2004 versus 2003:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
4th |
|
3rd |
|
2nd |
|
1st |
| |
|
Full Year |
|
Qtr. |
|
Qtr. |
|
Qtr. |
|
Qtr. |
| |
|
2004 |
|
2004 |
|
2004 |
|
2004 |
|
2004 |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Reported advertising revenue percentage |
| |
|
change from comparable prior year period |
| |
|
prior year |
|
St. Louis
|
|
|
3.5 |
% |
|
|
1.7 |
% |
|
|
5.3 |
% |
|
|
3.6 |
% |
|
|
3.6 |
% |
|
PNI
|
|
|
12.1 |
% |
|
|
10.7 |
% |
|
|
12.7 |
% |
|
|
14.3 |
% |
|
|
10.9 |
% |
|
Pulitzer Inc.
|
|
|
5.9 |
% |
|
|
4.2 |
% |
|
|
7.4 |
% |
|
|
6.5 |
% |
|
|
5.6 |
% |
Circulation revenues increased $0.6 million, or
0.8 percent, in 2004. Other publishing revenues grew by
$0.7 million, or 9.6 percent, in 2004 due,
principally, to increased sales of promotion-related items in
St. Louis.
Operating expense increased 7.1 percent in 2004 to
$376.6 million compared to $351.5 million in 2003.
Labor and employee benefits costs increased 3.3 percent,
reflecting regular wage rate increases throughout the year and
payments related to the settlement of collective bargaining
agreements in St. Louis. These increases were partially
offset by a 2.3 percent reduction in full-time equivalent
employees (“FTEs”) related to improved operating
efficiencies in St. Louis distribution and online
operations, and FTE reductions at the PNI Group resulting from
the combination of certain weekly and daily newspaper operations.
Newsprint expense increased 8.9 percent in 2004 to
$47.2 million from $43.4 million in 2003, resulting,
principally, from an 8.7 percent increase in newsprint
prices.
Depreciation and amortization expense increased 5.6 percent
to $20.2 million in 2004 compared to $19.1 million in
2003. The increase is principally due to increased depreciation
expense associated with the Company’s 2003 and 2004 capital
expenditures and acquisitions.
23
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
Other operating expense increased by $14.2 million, or
13.1 percent, to $121.8 million from
$107.6 million in 2003. The increase in other expense
resulted primarily from: (i) postage, production, and
promotion expense related to Local Values;
(ii) expense of $2.7 million related to the
clarification of certain circulation distribution rights and the
settlement of home delivery carrier litigation in
St. Louis; and (iii) $2.6 million of legal,
professional and other expenses incurred in conjunction with the
exploration of a range of strategic alternatives which led to
the Company’s entry into the Lee Merger Agreement. These
expenses were partially offset by decreased bad debt expense
resulting from improved collections.
Equity in earnings of TNI increased 12.3 percent in 2004.
TNI operating revenue increased 4.6 percent for 2004.
Advertising revenue increased 6.0 percent due, principally,
to increased classified revenue, chiefly in the employment
category, and increased preprint revenue. These increases were
partially offset by weakness in retail ROP advertising revenue.
TNI operating expense increased 3.1 percent due, in part,
to price-related increases in newsprint expense and increased
news department expenses associated with product enhancements.
Non-Operating Items
Interest expense, net of interest income, decreased for
full-year 2004 to $15.0 million from $16.7 million in
2003, principally due to savings from the Company’s
interest rate swaps and higher levels of and yields from
invested funds.
The Company reported a gain on marketable securities of
$0.3 million in 2004 compared with a 2003 gain of
$0.5 million. 2004 and 2003 results included a net loss on
investments of $0.1 million and $1.8 million,
respectively, to adjust the carrying value of certain
investments.
The effective tax rates for full-year 2004 and 2003 were
35.3 percent and 36.5 percent, respectively,
reflecting the tax-preferred nature of expense reductions
associated with Medicare reform legislation that became
effective for the Company in 2004, and lower state income tax
rates.
Net Income
Net income for the Company increased by $1.9 million to
$44.1 million, or $2.02 per diluted share, in 2004,
compared to $42.2 million, or $1.95 per diluted share
in 2003. The increase in 2004 net income reflects:
(a) a $2.1 million decrease in operating profit;
(b) a $1.4 million increase in interest income
(attributable to greater levels of invested funds and higher
earnings rates); (c) a $0.4 million increase in the
benefit realized from the Company’s interest rate swaps
(principally as a result of having all swaps in place for the
full-year of 2004); (d) a $1.5 million improvement in
gains and losses on marketable securities and investments;
(e) a $0.5 million decrease in the provision for
income taxes (reflecting the tax-free future benefit derived
from Medicare Part-D); and (f) a $0.4 million
reduction in the Minority Interest in Net Earnings of
Subsidiaries (reflecting reductions in the operating profits
generated by those subsidiaries).
2003 Compared with 2002
Executive Overview
Net income for the Company increased to $42.2 million, or
$1.95 per diluted share, in 2003, compared to
$34.7 million, or $1.62 per diluted share in 2002. The
increase in 2003 net income principally resulted from
increased advertising revenue at the newspaper operations in
St. Louis and at the PNI Group, coupled with tight control
over operating expenses (mainly lower circulation distribution
expense, reduced spending on promotional activities, and lower
bad debt expense, resulting from better collection experience in
St. Louis), and lower write-downs in the carrying value of
the Company’s non-operating investments compared to 2002.
In 2003, net income also benefited from the Company’s
interest rate swap contracts as a result of declining interest
rates during the year, and lower effective state income tax
rates.
24
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
Advertising results were mixed during 2003. Advertising revenues
for the first three quarters of 2003 were negatively affected by
uncertainty over the economy and the war in Iraq. Third quarter
advertising results, compared to the comparable 2002 period,
were also affected by the presence in 2002 of more than
$1.2 million in incremental revenue related to casino and
shopping mall grand openings. 2003 advertising revenue rebounded
during the last quarter of 2003 due to increased spending by
local retailers, the introduction of several special sections
and new advertising products in St. Louis. For the year,
advertising revenue increased 2.4 percent compared to 2002.
As a result of the advertising revenue increase and tight
control over operating expense, operating income increased
5.2 percent to $87.2 million from $82.9 million
in 2002.
Operating Results
Operating revenue for 2003 was $422.7 million, an increase
of 1.6 percent compared to $416.0 million in 2002.
Significant revenue growth in the retail, national, classified
real estate and preprint advertising categories was partially
offset by decreased employment and automotive classified revenue.
Retail advertising revenue increased 1.2 percent to
$120.3 million in 2003 from $118.7 million in the
prior year. The increase was driven by a 13.7 percent rise
in revenue from small to mid-size advertisers in St. Louis
and PNI Group growth. These increases were partially offset by
weakness in the department store, furniture and home improvement
categories. Preprint revenue increased 13.1 percent to
$63.2 million in 2003 from $55.9 million in 2002. The
increase in preprint revenue was due primarily to a
restructuring of the total market coverage (“TMC”)
operations in St. Louis in May 2002 which resulted in
increased preprint volume, and to price increases implemented
during 2003.
National advertising revenue increased 8.6 percent in 2003,
to $29.0 million compared to $26.7 million in 2002.
The increase resulted, principally, from increased revenue gains
in the pharmaceutical, telecommunication, and automotive
categories.
Classified advertising revenue decreased 2.5 percent to
$122.6 million from $125.8 million in 2002. The
decrease in classified revenue was principally driven by
continued weakness in help wanted advertising, which decreased
by 8.9 percent for the year, and a sluggish automotive
category. Demand for employment advertising decreased due, in
part, to the slow economy and employer concerns over the Iraqi
war (the 2003 average U.S. unemployment rate increased to
6.0 percent compared to 5.8 percent in 2002 and
4.7 percent in 2001). Help wanted revenue declines were
more pronounced in St. Louis, where help wanted advertising
revenue decreased 10.9 percent in 2003 compared to a
decrease of 1.3 percent at PNI. Automotive advertising
decreased by 6.3 percent in 2003. The decreases in help
wanted and automotive advertising revenue were partially offset
by gains in real estate revenue.
Real estate revenue increased 9.3 percent in 2003, with
increases of 7.0 percent and 15.0 percent in
St. Louis and at the PNI Group, respectively. Real estate
gains resulted from record home sales caused, in part, by
historically low interest rates. The Company’s classified
advertising revenue percentage change, on an annual and
quarterly basis, for 2003 versus 2002 are summarized in the
table below:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
4th |
|
3rd |
|
2nd |
|
1st |
| |
|
Full Year |
|
Qtr. |
|
Qtr. |
|
Qtr. |
|
Qtr. |
| |
|
2003 |
|
2003 |
|
2003 |
|
2003 |
|
2003 |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Classified advertising revenue percentage |
| |
|
change from comparable prior year period |
|
Automotive
|
|
|
(6.3 |
)% |
|
|
(1.0 |
)% |
|
|
(5.8 |
)% |
|
|
(9.2 |
)% |
|
|
(9.2 |
)% |
|
Help Wanted
|
|
|
(8.9 |
)% |
|
|
1.6 |
% |
|
|
(8.7 |
)% |
|
|
(13.9 |
)% |
|
|
(11.8 |
)% |
|
Real Estate
|
|
|
9.3 |
% |
|
|
18.8 |
% |
|
|
8.6 |
% |
|
|
4.5 |
% |
|
|
6.5 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Classified
|
|
|
(2.5 |
)% |
|
|
5.6 |
% |
|
|
(1.8 |
)% |
|
|
(7.2 |
)% |
|
|
(6.7 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
The following table presents the annual and quarterly percentage
fluctuations in total advertising revenue in 2003 versus 2002:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
4th |
|
3rd |
|
2nd |
|
1st |
| |
|
Full Year |
|
Qtr. |
|
Qtr. |
|
Qtr. |
|
Qtr. |
| |
|
2003 |
|
2003 |
|
2003 |
|
2003 |
|
2003 |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Reported advertising revenue percentage |
| |
|
change from comparable prior year period |
|
St. Louis
|
|
|
2.4 |
% |
|
|
7.6 |
% |
|
|
(1.4 |
)% |
|
|
5.0 |
% |
|
|
(1.9 |
)% |
|
PNI
|
|
|
2.4 |
% |
|
|
6.1 |
% |
|
|
3.6 |
% |
|
|
1.0 |
% |
|
|
(1.6 |
)% |
|
Pulitzer Inc.
|
|
|
2.4 |
% |
|
|
7.2 |
% |
|
|
0.0 |
% |
|
|
3.9 |
% |
|
|
(1.8 |
)% |
Circulation revenues decreased $0.1 million, or
0.1 percent, in 2003. Other publishing revenues decreased
$1.1 million, or 13.9 percent, in 2003 due principally
to decreased commercial printing revenue.
Operating expense increased 0.2 percent in 2003 to
$351.5 million compared to $350.8 million in 2002.
Labor and employee benefits costs increased 0.8 percent,
reflecting higher pension expense, post-retirement healthcare
benefit expense, and higher employee healthcare costs. These
increases were partially offset by a 2.2 percent reduction
in FTEs related to improved distribution efficiencies in
St. Louis, the integration of STLtoday.com operations into
the Post-Dispatch during the second quarter of 2002, and
operating efficiencies at the PNI Group resulting from the
combination of certain weekly and daily newspaper operations.
Newsprint expense increased 5.6 percent in 2003 to
$43.4 million from $41.1 million in 2002, resulting,
principally, from a 3.5 percent increase in newsprint
prices and higher newsprint consumption associated with the PNI
Group’s 2003 acquisitions and the redesign and expansion of
the editorial content of the Suburban Journals in St. Louis.
Depreciation and amortization expense increased 2.2 percent
to $19.1 million in 2003 compared to $18.7 million in
2002. The increase is principally due to increased depreciation
expense associated with the Company’s new St. Louis
production facility, which was placed in service in late 2002.
Other operating expense decreased 3.1 percent to
$107.6 million from $111.0 million in 2002. The
decrease in other expense resulted from: (i) a
$1.8 million reduction in bad debt expense due,
principally, to improved collection efforts in St. Louis
and the absence, in 2003, of bad debt expense related to the
acquisition of St. Louis distribution businesses in 2002
and 2001; (ii) decreased circulation distribution expense
related to improved home delivery distribution efficiencies in
St. Louis and the elimination of the Post-Dispatch
TMC product in May 2002; and (iii) reduced promotion and
marketing expense. These expense savings were partially offset
by increased premiums for property and liability insurance and
higher legal and professional fees.
Equity in earnings of TNI decreased 9.5 percent due,
principally, to increased employee benefit costs, primarily
pension and long-term disability expense, increased relocation
costs, higher executive separation costs, and increased
newsprint prices.
Non-Operating Items
Interest income for 2003 decreased 12.9 percent to
$3.7 million from $4.2 million in 2002. The decrease
primarily reflected lower average interest rates on invested
funds during the year.
The Company reported interest expense of $20.4 million in
2003 compared to $20.6 million in 2002. The 2003 to 2002
decrease in interest expense reflects the benefit from the
Company’s fixed-to-variable interest rate swap contracts.
These interest expense savings were partially offset by the
absence in 2003 of capitalized interest costs, present in 2002,
associated with the new St. Louis production facility which
was placed in service in late 2002.
26
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
The Company reported a gain on marketable securities of
$0.5 million in 2003 compared with a 2002 gain of
$1.1 million. 2003 and 2002 results included a net loss on
investments of $1.8 million and $9.1 million,
respectively, to adjust the carrying value of certain
investments.
The effective income tax rate for 2003 declined to
36.5 percent from 38.1 percent for 2002 primarily
because of a lower provision for state income taxes reflecting
the benefits of the Company’s tax planning.
Net Income
For 2003 the Company reported net income of $42.2 million,
or $1.95 per diluted share, compared to $34.7 million,
or $1.62 per diluted share, in 2002. The increase in 2003
net income reflected higher operating revenues, primarily
reflecting increased preprint and national advertising, tight
cost control over operating expenses, and lower valuation
adjustments to the Company’s portfolio of non-operating
investments compared to the prior year.
Liquidity and Capital Resources
This section has been updated to give effect to the
restatement as discussed in Note 21 to the audited
consolidated financial statements included in Item 8 and
should be read in conjunction with the accompanying audited
consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America.
As of December 31, 2004, the Company had a balance of
unrestricted cash and marketable securities of
$207.3 million compared with $176.2 million as of
December 31, 2003.
At both December 31, 2004, and December 31, 2003, the
Company had $306.0 million of outstanding debt pursuant to
a loan agreement between St. Louis Post-Dispatch LLC
(“PD LLC”) and a group of institutional lenders led by
Prudential Capital Group (the “Loan”). The aggregate
principal amount of the Loan is payable on April 28, 2009,
and bears interest at an annual rate of 8.05 percent.
Interest rates remained at historically low levels during 2004.
It is anticipated that, as the U.S. economy improves,
interest rates will increase, reducing the benefits of the
Company’s fixed-to-variable interest rate swaps, and
resulting in higher interest expense.
The agreements with respect to the Loan (the “Loan
Agreements”) contain certain covenants and conditions
including the maintenance of operating cash flow and minimum net
worth requirements and limitations on the incurrence of other
debt. In addition, the Loan Agreements and the PD LLC Operating
Agreement (the “Operating Agreement”) require that PD
LLC maintain a minimum reserve balance consisting of cash and
investments in U.S. government securities, totaling
approximately $69.8 million as of December 31, 2004.
The Loan Agreements and the Operating Agreement provide for a
$3.75 million quarterly increase in the minimum reserve
balance through May 1, 2010, when the amount will total
$150.0 million. There is no requirement for the Company to
maintain the reserve balance subsequent to May 1, 2010.
The Company spent approximately $9.5 million on land,
buildings and equipment in 2004. As of December 31, 2004,
the Company had remaining capital commitments for buildings and
equipment replacements of approximately $1.0 million.
In addition, as of December 31, 2004, the Company had
aggregate capital contribution commitments of up to
$4.5 million related to investments in limited partnerships.
In order to build a stronger, more direct relationship with the
readers of the Post-Dispatch and increase circulation, PD
LLC has purchased a number of distribution businesses from
independent carriers and dealers over the past five years, and,
subject to the provisions of the Lee Merger Agreement, it may
continue to purchase additional distribution businesses from
time to time in the future.
27
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
The Company’s Board of Directors previously authorized the
repurchase of up to $100.0 million of Pulitzer Inc.’s
outstanding capital stock. The Company’s repurchase program
provides for the purchase of both common and Class B common
shares in either the open market or in privately negotiated
transactions. As of December 31, 2004, the Company had
repurchased under this authority 1,000,000 shares of
Class B common stock and 536,933 shares of common
stock for a combined purchase price of $62.4 million,
leaving $37.6 million in remaining share repurchase
authority. The Lee Merger Agreement restricts the acquisition by
the Company of shares of its capital stock except as otherwise
contemplated thereunder or as consented to by Lee.
The Company generally expects to generate sufficient cash from
operations to cover capital expenditures, working capital
requirements, stock repurchases, and dividend payments.
Operating cash flows are dependent upon, among other things, the
continued acceptance of newspaper advertising at current or
increased levels and the availability and pricing of raw
materials, principally newsprint.
Contractual Obligations
The Company’s significant contractual obligations are set
forth below.
Table of Contractual Obligations
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments due in |
| |
|
|
| |
|
|
|
2006 and |
|
2008 and |
|
Beyond |
| |
|
Total |
|
2005 |
|
2007 |
|
2009 |
|
2009 |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
(In millions) |
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations
|
|
$ |
306.0 |
|
|
$ |
0.0 |
|
|
$ |
0.0 |
|
|
$ |
306.0 |
(1) |
|
$ |
0.0 |
|
|
Interest payments(2)
|
|
|
104.6 |
|
|
|
24.6 |
|
|
|
49.3 |
|
|
|
30.7 |
|
|
|
0.0 |
(1) |
|
Consulting and other agreements
|
|
|
1.5 |
|
|
|
1.2 |
|
|
|
0.3 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
Lease obligations
|
|
|
11.2 |
|
|
|
2.4 |
|
|
|
3.7 |
|
|
|
2.5 |
|
|
|
2.6 |
|
|
Purchase obligations for capital goods
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations excluding Lee Merger Agreement obligations(3)
|
|
$ |
424.3 |
|
|
$ |
29.2 |
|
|
$ |
53.3 |
|
|
$ |
339.2 |
|
|
$ |
2.6 |
|
|
Obligations under Lee Merger Agreement(4)(5)
|
|
|
109.6 |
|
|
|
90.6 |
|
|
|
2.5 |
|
|
|
16.5 |
|
|
|
0.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Obligations (including Lee Merger Agreement obligations)
|
|
$ |
533.9 |
|
|
$ |
119.8 |
|
|
$ |
55.8 |
|
|
$ |
355.7 |
|
|
$ |
2.6 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
The operating agreement governing PD LLC mandates this be
replaced with “similar” debt. See “PD LLC
Operating Agreement.” |
| |
| (2) |
Represents interest payments on the Company’s long-term
debt obligation absent any impact of interest rate swaps. |
| |
| (3) |
Totals do not include: |
|
|
| |
(i) Future cash requirements for pension, post-retirement
and post-employment obligations. The period in which these
obligations will be settled in cash is not readily determinable
and is subject to numerous future events and assumptions. The
Company’s estimate of cash requirements for these
obligations in 2005 is approximately $7.1 million. |
| |
| |
(ii) At December 31, 2004, other long-term liabilities
consisted, principally, of deferred income taxes. The Company
does not expect deferred tax reversals to significantly impact
expected tax payments in 2005. At December 26, 2004, the
last day of the Company’s 2004 fiscal year, approximately
$5.6 million |
28
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
|
|
| |
in deferred compensation was included in current liabilities.
The deferred compensation liability was fully funded by an asset
presented as Prepaid and Other Assets — current in the
Company’s financial statements. On December 28, 2004,
the Company terminated its deferred compensation plan and
distributed the participants’ account balances aggregating
approximately $5.6 million. |
| |
| |
(iii) At December 31, 2004, the Company had unfunded
capital contribution commitments totaling up to
$4.5 million related to limited partnerships in which it is
an investor. The limited liability partnerships (the
“Partnerships”) control the timing of partner
contributions, which the partnerships use to make investments.
Accordingly, the Company does not know when capital
contributions, if any, will be required. The capital
contribution commitments expire on June 10, 2010. |
| |
| |
(iv) The Company’s obligations with respect to the PD
LLC Operating Agreement. See “PD LLC Operating
Agreement.” |
|
|
| (4) |
Includes: (i) contingent payments totaling an estimated
$16.2 million for financial advisory, legal, consulting and
other professional services provided in connection with the
Strategic Review Process and the Lee Merger (all of which are
contingent upon consummation of the Lee Merger);
(ii) estimated contingent payments totaling up to
$11.9 million for transaction-related and retention
incentives, (iii) estimated contingent payments totaling
$11.7 million for the cashout of non-vested stock options
and restricted stock units in connection with the Lee Merger;
(iv) estimated contingent payments totaling
$42.8 million for the cashout of vested stock options and
restricted stock units in connection with the Lee Merger;
(v) contingent payments relating to the potential
termination of split dollar life insurance arrangements
maintained with respect to five current and former executives
(with an estimated total cost of up to approximately
$6.4 million (approximately $4.5 million of which is
included in the policies’ cash values));
(vi) estimated payments of approximately $20.6 million
attributable to the payment of annual benefits under the
Pulitzer Inc. Supplemental Executive Benefit Pension Plan (the
“Supplemental Plan”) until May 2008, and the
contingent cost of cashing out the Supplemental Plan in May 2008
in connection with the Lee Merger ($15.7 million of which
is reflected as a net liability as of December 31, 2004);
and (vii) acceleration of a $0.3 million payment that,
absent consummation of the Lee Merger, would be payable for
services in 2006 under a consulting agreement. The total of
$109.6 million does not include severance and
severance-related obligations that may arise in conjunction with
the Lee Merger. See Part III, Item 11 for additional
information on executive compensation in connection with the Lee
Merger. |
| |
| (5) |
The Lee Merger Agreement provides that, upon termination of the
Lee Merger Agreement under specified circumstances, Pulitzer
Inc. may be required to pay Lee a fee of up to $55 million,
which is not included in this table. |
Cash Flows — 2004 Compared to 2003
Cash from operations is the Company’s primary source of
liquidity. Cash provided from operating activities for 2004 was
$75.7 million compared to $36.7 million in 2003. The
increase was due, principally, to a $34.0 million reduction
in cash used for discretionary funding of retirement obligations
in 2004 compared to 2003, the receipt of income tax refunds in
the first quarter of 2004 and increased net income for the year.
These sources of cash were partially offset by the reduction in
deferred income taxes resulting, principally, from lower pension
and post-retirement plan contributions and fewer circulation
route purchases in 2004 compared to 2003, all of which increased
taxable income and taxes payable, and by increased trade
receivables.
Cash required for investing activities during 2004 was
$37.0 million compared to $82.8 million in 2003. The
decreased use of cash was due to the Company’s expenditure
of $3.9 million, net, for the purchase of marketable
securities in 2004 compared to the net purchase of
$37.1 million of marketable securities in 2003. In
addition, cash used for acquisitions and capital expenditures
decreased in 2004 as compared to 2003.
29
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
Cash required for financing activities during 2004 was
$8.1 million compared to $7.9 million in 2003. The
increase was principally due to higher dividend payments,
partially offset by increased proceeds from the exercise of
employee stock options.
Cash Flows — 2003 Compared to 2002
Cash provided from operating activities for 2003 was
$36.7 million compared to $70.1 million in 2002. The
decrease was due, principally, to a $15.9 million increase
in discretionary contributions to the Company’s pension and
post-retirement plan obligations in 2003 compared to 2002, the
timing of income tax payments and the payment of a
$12.0 million security deposit related to an interest rate
swap contract entered into in 2003 (in contrast, in 2002 the
Company received the repayment of a swap-related security
deposit when it terminated prior swap contracts). These uses of
cash were partially offset by increased operating income in 2003
compared to 2002 and by increased trade accounts payable and
accrued expenses.
Cash required for investing activities during 2003 was
$82.8 million compared to $172.3 million in 2002. The
decreased use of cash was due to the Company’s expenditure
of $37.1 million, net, for the purchase of marketable
securities in 2003 compared to the net purchase of $111.9 of
marketable securities in 2002. In addition, cash used for
capital expenditures decreased by $12.6 million in 2003 to
$12.5 million due principally to the completion of the
Post-Dispatch’s new St. Louis production
facility in 2002. These reductions in cash flows from investing
activities were partially offset by an $8.3 million
increase in cash required for acquisitions.
Cash required for financing activities during 2003 was
$7.9 million compared to $10.0 million in 2002. The
reduction was principally due to increased proceeds from the
exercise of employee stock options.
HTV Merger Agreement Indemnification
Pursuant to the HTV Merger Agreement, Pulitzer Inc. is obligated
to indemnify Hearst-Argyle against losses related to:
(i) on an after tax basis, certain tax liabilities,
including (A) any transfer tax liability attributable to
the Spin-off, (B) with certain exceptions, any tax
liability of Old Pulitzer, or any subsidiary of Old Pulitzer
attributable to any tax period (or portion thereof) ending on or
before the closing date of the HTV Merger, including tax
liabilities resulting from the Spin-off, and (C) any tax
liability of Pulitzer Inc. or any subsidiary of Pulitzer Inc.;
(ii) liabilities and obligations under any employee benefit
plans not assumed by Hearst-Argyle; and (iii) certain other
matters as set forth in the HTV Merger Agreement.
Internal Revenue Service Matters
In October 2001 the IRS formally proposed that the taxable
income of Old Pulitzer for the tax year ended March 18,
1999 be increased by approximately $80.4 million based on
its assertion that Old Pulitzer was required to recognize a
taxable gain in that amount as a result of the Spin-off. Under
the HTV Merger Agreement, the Company is obligated to indemnify
Hearst-Argyle against any tax liability attributable to the
Spin-off and has the right to control any proceedings relating
to the determination of Old Pulitzer’s tax liability for
such tax period. In January 2002, the Company filed a formal
written protest of the IRS’ proposed adjustment with the
IRS Appeals Office.
On August 30, 2002, the Company, on behalf of Old Pulitzer,
filed with the IRS amended federal corporate income tax returns
for the tax years ended December 1997 and 1998 and March 1999 in
which tax refunds in the aggregate amount of approximately
$8.1 million, plus interest, were claimed. These refund
claims were based on the contention that Old Pulitzer was
entitled to deduct certain fees and expenses which it had not
previously deducted and which Old Pulitzer had incurred in
connection with its investigation of several strategic
alternatives and potential transactions prior to its decision to
proceed with the Broadcast Transaction. Under the HTV Merger
Agreement, the Company is entitled to any refunds recovered from
the IRS as a result of these claims.
30
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
In late 2003 the IRS Appeals Officer initially indicated that he
would sustain substantially the entire amount of the IRS’
proposed adjustment of Old Pulitzer’s taxable gain as a
result of the Spin-off. He further indicated that the refund
claims filed by the Company on behalf of Old Pulitzer for the
December 1997 and 1998 and March 1999 tax years had been
referred to the IRS’ Examination Division for review.
Subsequently, the Company’s representatives furnished the
IRS Appeals Officer with additional information in support of
the Company’s position on the issue of Old Pulitzer’s
taxable gain as a result of the Spin-off and also requested, in
view of this additional information, that this issue be referred
back to the IRS’ Examination Division for consideration
concurrently with the refund claims filed by the Company on
behalf of Old Pulitzer for the December 1997 and 1998 and March
1999 tax years. In July 2004, the IRS Appeals Officer agreed to
release jurisdiction over all issues relating to Old
Pulitzer’s consolidated federal income tax liability for
the December 1997 and 1998 and March 1999 tax years back to the
IRS Examination Division.
After July 2004 the Company’s representatives engaged in a
number of substantive discussions with representatives of the
IRS Examination Division seeking to resolve the above-described
issues. In January 2005, these discussions culminated in an
agreement in principle under which the Company’s liability
for Old Pulitzer’s net consolidated federal income tax
deficiency (excluding applicable interest) for the tax year
ended March 18, 1999, after taking into account the effects
of the refund claims, is not expected to exceed $200,000. This
agreement in principle is subject to the completion of final
settlement calculations, execution of a definitive agreement
with the IRS and review by the U.S. Congressional Joint
Committee on Taxation. As a result of this agreement in
principle, the Company has recorded an adjustment of $375,000
(inclusive of related costs) to additional paid-in capital in
order to reflect its obligation to indemnify Hearst-Argyle for
Old Pulitzer’s liability for tax and interest for 1998 and
the tax year ended March 18, 1999.
PD LLC Operating Agreement
On May 1, 2000, Pulitzer Inc. and The Herald Company, Inc.
(“Herald”) completed the transfer of their respective
interests in the assets and operations of the Post-Dispatch
and certain related businesses to a new joint venture (the
“Venture”), known as PD LLC. Pulitzer Inc. is the
managing member of PD LLC. Under the terms of the operating
agreement governing PD LLC (the “Operating
Agreement”), Pulitzer Inc. and another subsidiary hold a
95 percent interest in the results of operations of PD LLC
and Herald holds a 5 percent interest. Herald’s
5 percent interest is reported as “Minority Interest
in Net Earnings of Subsidiaries” in the consolidated
statements of income. Also, under the terms of the Operating
Agreement, Herald received on May 1, 2000 a cash
distribution of $306.0 million from PD LLC (the
“Initial Distribution”). This distribution was
financed by a $306.0 million borrowing by PD LLC (the
“Loan”). Pulitzer Inc.’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 $15.0 million and the number of years since
May 1, 2000, but not in excess of $150.0 million (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 another limited liability company in which Pulitzer
Inc. is the managing member and which is engaged in the business
of delivering publications and products in the greater
St. Louis metropolitan area (“DS LLC”). 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 $275.0 million.
In the event the transactions effectuated 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
31
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
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 Herald on
PD LLC (and thus 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. The Company
has been advised that the IRS, in the course of examining the
2000 consolidated federal income tax return in which Herald was
included, has requested certain information and documents
relating to the transactions effectuated in connection with the
formation of the Venture and the Initial Distribution.
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 liquidation
value of its interests in PD LLC and DS LLC, to be paid in cash
by Pulitzer Inc. That amount will 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 percent, but will be reduced (but not below
1 percent) 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
$325.0 million.
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 and DS LLC’s rate of growth and market valuations of
newspaper properties. While the amount of such payment cannot be
predicted with certainty, Pulitzer Inc. currently estimates
(assuming a 5 percent 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 million.
Pulitzer Inc. further believes that it will be able to finance
such payment either from available cash reserves or with the
proceeds of a debt issuance. The redemption of Herald’s
interest in PD LLC either on May 1, 2010 or upon
termination in 2015 is expected to generate significant deferred
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.
New Accounting Pronouncements
In January 2003 the Financial Accounting Standards Board
(“FASB”) issued FASB Interpretation Number
(“FIN”) 46, Consolidation of Variable Interest
Entities (“FIN 46”). FIN 46 provides
guidance surrounding consolidation based on controlling
financial interest and provides new quantitative guidelines to
various variable interest entities as defined in the statement.
This interpretation applied immediately to variable interest
entities created after January 31, 2003, and in the first
fiscal year or interim period beginning after June 15, 2003
to variable interest entities acquired before February 1,
2003. In December 2003 FASB issued FIN 46R to clarify
certain provisions of FIN 46. Application of FIN 46R
was required for public entities that have interests in
structures commonly referred to as special-purpose entities for
periods ending after December 15, 2003. Application by
public entities for all other types of variable interest
entities was required for periods ending after March 15,
2004. The Company’s adoption of FIN 46 and
FIN 46R did not have a material impact on the consolidated
financial statements.
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 that provide a
benefit that is at least actuarially equivalent (as that term is
defined in the Act) to Medicare Part D. FASB Staff Position
106-1, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of
2003 (“FSP 106-1”), which is effective for
interim or annual financial statements for
32
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
fiscal years which ended after December 7, 2003, permits a
sponsor of a postretirement health care plan that provides a
prescription drug benefit to make a one-time election to defer
accounting for the effects of the Act.
The Company recognized the effects of the Act on the
Company’s accumulated postretirement benefit obligation
(“APBO”) and postretirement benefit costs initially in
the first quarter of 2004. The Company concluded that it
qualifies for the subsidy under the Act since the prescription
drug benefits provided under the Company’s postretirement
healthcare plans generally require lower premiums from covered
retirees and have lower deductibles than the benefits provided
in Medicare Part D and, therefore, are “actuarially
equivalent” to or better than the benefits provided under
the Act. In addition, the Company does not anticipate any
material change in the participation rate or per capita claims
costs as a result of the Act.
The provisions of the Act lowered the APBO by approximately
$12 million, which is being treated as a negative prior
service cost that is being amortized beginning on March 8,
2004. This amortization resulted in a $1.2 million
reduction to the APBO and postretirement benefit costs in 2004,
against which no income tax provision was made in accordance
with the Act. Specific authoritative guidance on the accounting
for the federal subsidy is pending, and that guidance, when
issued, could require the Company to change previously reported
information. The consolidated statements of income incorporated
expense reductions of $1.2 million in 2004, against which
no income tax provision was made.
In May 2004 the FASB issued FSP 106-2, which superceded FSP
106-1. There was no material impact on the consolidated
financial statements upon adoption.
In November 2004 FASB issued SFAS No. 151,
Inventory Costs (“SFAS No. 151”).
This Statement amends Accounting Research Bulletin
(“ARB”) No. 43, Inventory Pricing
(“ARB No. 43”) to clarify the accounting for
abnormal amounts of idle facility capacity, freight, handling
costs, and wasted material (spoilage) to require that these
items be recognized as current-period charges instead of being
added to the cost of inventory and expensed when consumed.
SFAS No. 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The
Company does not believe that the adoption of
SFAS No. 151 will have a material impact on the
consolidated financial statements.
In November 2004 the FASB ratified the consensus reached by the
Emerging Issues Task Force (“EITF”) No. 03-1. The
measurement and recognition guidance in EITF No. 03-1 is
effective for annual financial statements for fiscal years
ending after June 15, 2004. EITF No. 03-1 requires
that certain equity and debt securities be periodically
evaluated to determine whether an other-than-temporary
impairment has occurred through a comparison of fair value to
the cost of the security. Factors used to determine
other-than-temporary impairment include the Company’s
ability and intent to hold securities for a reasonable recovery
period, the severity and duration of an impairment, and
judgments regarding the forecasted fair value of securities,
among other factors. The adoption of EITF No. 03-1 did not
have a material impact on the Company’s consolidated
financial statements.
In December 2004 FASB issued SFAS 123-Revised,
Accounting for Stock-Based Compensation
(“SFAS No. 123R”). This Statement
supersedes APB 25, Accounting for Stock Issued to
Employees, and its related implementation guidance. This
statement is effective as of the beginning of the first interim
or annual reporting period that begins after June 15, 2005.
In addition, SFAS No. 123R amends
SFAS No. 95, Statement of Cash Flows, to
require that excess tax benefits be reported as a financing cash
inflow rather than as a reduction of taxes paid.
SFAS No. 123R establishes standards for the 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).
SFAS No. 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, the
cost of which 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 SFAS No. 123R are similar to the fair-value-based
method in SFAS No. 123 in most
33
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS — Continued |
respects. However, there are several key differences, including
the following requirements: (a) liabilities incurred to
employees in share-based payment transactions are measured at
fair value; (b) entities are required to estimate the
number of instruments for which the requisite service is
expected to be rendered; and (c) the fair-value of awards
is remeasured at each reporting date through the settlement
date. Changes in fair-value during the requisite service period
are recognized as compensation cost over that period. The effect
on the Company’s consolidated financial condition or
results of operations upon adoption of SFAS No. 123R
is not known at this time.
In December 2004 FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets
(“SFAS No. 153”). This pronouncement amends
APB No. 29, Accounting for Nonmonetary Transactions
(“APB 29”). SFAS No. 153 is
effective for nonmonetary exchanges occurring in fiscal periods
beginning after June 15, 2005. SFAS No. 153
eliminates the exception for nonmonetary exchanges of similar
productive assets present in APB 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 reporting entity). The Company does not believe that the
adoption of SFAS No. 153 will have a material impact
on the consolidated financial statements.
|
|
| ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Newsprint
The primary raw material used in the Company’s operations
is newsprint, representing 12.0 percent to
15.7 percent of operating expenses over the last five
years. For 2004, the Company consumed approximately 102,000
metric tonnes of newsprint, including its 50 percent share
related to the operations of TNI Partners. Based on the
Company’s current level of newspaper operations, expected
annual newsprint consumption for 2005 is estimated to be in the
range of 102,000 metric tonnes. Historically, newsprint has been
subject to significant price fluctuations from year to year,
unrelated in many cases to general economic conditions. In the
last five years, the Company’s average annual cost per
metric tonne of newsprint has varied from its lowest price by
approximately 27.8 percent. For every one dollar change in
the Company’s average annual cost per metric tonne of
newsprint, 2005 pre-tax income would change by approximately
$102,000, assuming annual newsprint consumption of 102,000
metric tonnes. The Company attempts to obtain the best price
available by combining newsprint purchases for its different
newspaper locations with those of other newspaper companies. The
Company considers its relationship with newsprint producers to
be good. The Company has not entered into derivative contracts
for newsprint.
Loan/ Swaps
At December 31, 2004, the Company had $306.0 million
of outstanding debt pursuant to the Loan. The Loan bears
interest at a fixed annual rate of 8.05 percent.
Consequently, if held to maturity, the Loan will not expose the
Company to market risks associated with general fluctuations in
interest rates.
The Company is a party to two interest rate swap contracts that
convert a portion of the Company’s fixed rate debt to a
variable rate. The interest rate swaps have a combined
$150.0 million notional amount and mature on April 28,
2009. Under the terms of the agreements, the Company pays
interest at a variable rate based upon LIBOR plus a combined
adjustment average of 3.34275 percent and receives interest
at a fixed rate of 8.05 percent. The floating interest
rates re-price semiannually. The Company accounts for the swaps
as fair value hedges and employs the short cut method. These
transactions result in approximately 49 percent of the
Company’s long-term interest cost being subject to variable
interest rates.
As of December 31, 2004, the fair value of the interest
rate swaps represented an unrealized gain of $4.6 million,
which is offset by an unrealized loss of $4.6 million on
the related portion of the Company’s long-term debt.
34
|
|
| ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK — Continued |
Changes in market interest rates may cause the Company to incur
higher or lower net interest expense. For example, for every
1.0 percent change in the variable interest rates
associated with the Company’s interest swaps, the
Company’s interest expense would change by approximately
$1.5 million.
|
|
| ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The following consolidated financial statements of Pulitzer Inc.
and Subsidiaries are filed as part of this Annual Report on
Form 10-K. Supplementary unaudited data with respect to the
quarterly results of operations of the Company are set forth in
the Notes to Consolidated Financial Statements.
PULITZER INC. AND SUBSIDIARIES
|
|
| |
Report of Independent Registered Public Accounting Firm |
| |
| |
Consolidated Statements of Income for each of the Three Years in
the Period Ended December 31, 2004 |
| |
| |
Consolidated Statements of Financial Position at
December 31, 2004, and December 31, 2003 |
| |
| |
Consolidated Statements of Stockholders’ Equity and
Comprehensive Income for each of the Three Years in the Period
Ended December 31, 2004 |
| |
| |
Consolidated Statements of Cash Flows for each of the Three
Years in the Period Ended December 31, 2004 |
| |
| |
Notes to Consolidated Financial Statements for each of the Three
Years in the Period Ended December 31, 2004 |
The registrant’s fiscal year ends on the last Sunday of the
calendar year. For 2004, the Company’s fiscal year began on
December 29, 2003 and ended on December 26, 2004. For
2003, the Company’s fiscal year began on December 30,
2002 and ended on December 28, 2003. For 2002, the
Company’s fiscal year began on December 31, 2001 and
ended on December 29, 2002. In 2004, 2003 and 2002, the
fourth quarter was 13 weeks and the year was 52 weeks.
For ease of presentation, the Company has presented
December 31 as the year-end. Except as otherwise stated,
the information in this Report on Form 10-K is as of
December 26, 2004, December 28, 2003 and
December 29, 2002.
35
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Pulitzer Inc.
We have audited the accompanying consolidated statements of
financial position of Pulitzer Inc. and subsidiaries (the
“Company”) as of December 26, 2004 and
December 28, 2003, and the related consolidated statements
of income, stockholders’ equity and comprehensive income,
and cash flows for each of the three fiscal years in the period
ended December 26, 2004. 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
Pulitzer Inc. and subsidiaries as of December 26, 2004 and
December 28, 2003, and the results of their operations and
their cash flows for each of the three fiscal years in the
period ended December 26, 2004 in conformity with
accounting principles generally accepted in the United States of
America.
As discussed in Note 20 to the consolidated financial
statements, on January 29, 2005, Pulitzer Inc. entered into
an Agreement and Plan of Merger with Lee Enterprises,
Incorporated and its wholly-owned subsidiary, LP Acquisition
Corp.
As discussed in Note 21, the accompanying consolidated
statements of cash flows for the fiscal years ended
December 28, 2003 and December 29, 2002, have been
restated.
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 December 26, 2004, 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 March 14, 2005
expressed an unqualified opinion on management’s assessment
of the effectiveness of the Company’s internal control over
financial reporting and an adverse opinion on the effectiveness
of the Company’s internal control over financial reporting
because of a material weakness.
/s/ DELOITTE &
TOUCHE LLP
St. Louis, Missouri
March 14, 2005
36
PULITZER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
(In thousands, except earnings per share) |
|
OPERATING REVENUES — NET:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Advertising:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Retail
|
|
$ |
123,429 |
|
|
$ |
120,284 |
|
|
$ |
118,741 |
|
| |
|
National
|
|
|
26,876 |
|
|
|
29,000 |
|
|
|
26,706 |
|
| |
|
Classified
|
|
|
134,402 |
|
|
|
122,559 |
|
|
|
125,777 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total
|
|
|
284,707 |
|
|
|
271,843 |
|
|
|
271,224 |
|
| |
|
Preprints
|
|
|
70,064 |
|
|
|
63,249 |
|
|
|
55,935 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total advertising
|
|
|
354,771 |
|
|
|
335,092 |
|
|
|
327,159 |
|
| |
Circulation
|
|
|
81,288 |
|
|
|
80,639 |
|
|
|
80,751 |
|
| |
Other
|
|
|
7,596 |
|
|
|
6,933 |
|
|
|
8,050 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total operating revenues
|
|
|
443,655 |
|
|
|
422,664 |
|
|
|
415,960 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Payroll and other personnel expense
|
|
|
187,414 |
|
|
|
181,422 |
|
|
|
180,027 |
|
| |
Newsprint expense
|
|
|
47,245 |
|
|
|
43,368 |
|
|
|
41,055 |
|
| |
Depreciation
|
|
|
15,348 |
|
|
|
14,613 |
|
|
|
14,286 |
|
| |
Amortization
|
|
|
4,850 |
|
|
|
4,522 |
|
|
|
4,433 |
|
| |
Other expenses
|
|
|
121,760 |
|
|
|
107,610 |
|
|
|
111,018 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Total operating expenses
|
|
|
376,617 |
|
|
|
351,535 |
|
|
|
350,819 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Equity in earnings of Tucson newspaper partnership (Note 4)
|
|
|
18,046 |
|
|
|
16,064 |
|
|
|
17,744 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating income
|
|
|
85,084 |
|
|
|
87,193 |
|
|
|
82,885 |
|
| |
Interest income
|
|
|
5,054 |
|
|
|
3,687 |
|
|
|
4,235 |
|
| |
Interest expense
|
|
|
(20,013 |
) |
|
|
(20,395 |
) |
|
|
(20,593 |
) |
| |
Net gain on marketable securities
|
|
|
334 |
|
|
|
502 |
|
|
|
1,100 |
|
| |
Net loss on investments
|
|
|
(104 |
) |
|
|
(1,790 |
) |
|
|
(9,091 |
) |
| |
Net other income
|
|
|
32 |
|
|
|
74 |
|
|
|
132 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE PROVISION FOR INCOME TAXES
|
|
|
70,387 |
|
|
|
69,271 |
|
|
|
58,668 |
|
|
PROVISION FOR INCOME TAXES (Note 12)
|
|
|
24,843 |
|
|
|
25,306 |
|
|
|
22,371 |
|
|
MINORITY INTEREST IN NET EARNINGS OF SUBSIDIARIES (Note 4)
|
|
|
1,430 |
|
|
|
1,788 |
|
|
|
1,598 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
44,114 |
|
|
$ |
42,177 |
|
|
$ |
34,699 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER SHARE OF STOCK (Note 15):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings per share
|
|
$ |
2.04 |
|
|
$ |
1.97 |
|
|
$ |
1.63 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average number of shares outstanding
|
|
|
21,591 |
|
|
|
21,404 |
|
|
|
21,279 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE OF STOCK (Notes 14 and 15):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Earnings per share
|
|
$ |
2.02 |
|
|
$ |
1.95 |
|
|
$ |
1.62 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted average number of shares outstanding
|
|
|
21,888 |
|
|
|
21,627 |
|
|
|
21,447 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(Concluded)
See accompanying notes to consolidated financial statements.
37
PULITZER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
| |
|
(In thousands) |
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
58,152 |
|
|
$ |
27,552 |
|
| |
Marketable securities (Note 7)
|
|
|
149,156 |
|
|
|
148,644 |
|
| |
Trade accounts receivable (less allowance for doubtful accounts
of $3,710 and $3,843)
|
|
|
60,105 |
|
|
|
54,700 |
|
| |
Inventory
|
|
|
8,479 |
|
|
|
7,566 |
|
| |
Income taxes receivable
|
|
|
0 |
|
|
|
7,097 |
|
| |
Prepaid expenses and other
|
|
|
21,660 |
|
|
|
9,171 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
297,552 |
|
|
|
254,730 |
|
|
PROPERTIES:
|
|
|
|
|
|
|
|
|
| |
Land
|
|
|
9,982 |
|
|
|
9,758 |
|
| |
Buildings
|
|
|
74,450 |
|
|
|
73,192 |
|
| |
Machinery and equipment
|
|
|
147,566 |
|
|
|
156,425 |
|
| |
Construction in progress
|
|
|
877 |
|
|
|
1,256 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total
|
|
|
232,875 |
|
|
|
240,631 |
|
| |
Less accumulated depreciation
|
|
|
122,251 |
|
|
|
124,550 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Properties — net
|
|
|
110,624 |
|
|
|
116,081 |
|
|
INTANGIBLE AND OTHER ASSETS:
|
|
|
|
|
|
|
|
|
| |
Goodwill (Note 5)
|
|
|
817,362 |
|
|
|
811,409 |
|
| |
Intangible assets — net of amortization (Note 5)
|
|
|
34,279 |
|
|
|
37,217 |
|
| |
Restricted cash and investments (Notes 7 and 8)
|
|
|
69,810 |
|
|
|
54,810 |
|
| |
Other
|
|
|
57,035 |
|
|
|
44,996 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total intangible and other assets
|
|
|
978,486 |
|
|
|
948,432 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
TOTAL
|
|
$ |
1,386,662 |
|
|
$ |
1,319,243 |
|
| |
|
|
|
|
|
|
|
|
(Continued)
38
PULITZER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
| |
|
(In thousands) |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
| |
Trade accounts payable
|
|
$ |
12,499 |
|
|
$ |
9,995 |
|
| |
Salaries, wages and commissions
|
|
|
22,121 |
|
|
|
15,595 |
|
| |
Interest payable
|
|
|
3,944 |
|
|
|
3,582 |
|
| |
Pension obligations (Note 9)
|
|
|
1,365 |
|
|
|
1,356 |
|
| |
Income taxes payable
|
|
|
1,612 |
|
|
|
0 |
|
| |
Deferred revenue
|
|
|
9,883 |
|
|
|
8,882 |
|
| |
Other
|
|
|
3,750 |
|
|
|
884 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
55,174 |
|
|
|
40,294 |
|
|
LONG-TERM DEBT (Notes 4, 8 and 17)
|
|
|
306,000 |
|
|
|
306,000 |
|
|
PENSION OBLIGATIONS (Note 9)
|
|
|
15,795 |
|
|
|
14,809 |
|
|
POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT OBLIGATIONS
(Note 10)
|
|
|
54,129 |
|
|
|
61,265 |
|
|
OTHER LONG-TERM LIABILITIES
|
|
|
57,415 |
|
|
|
45,431 |
|
|
COMMITMENTS AND CONTINGENCIES (Note 16) STOCKHOLDERS’
EQUITY (Note 13):
|
|
|
|
|
|
|
|
|
| |
Preferred stock, $.01 par value; authorized —
100,000,000 shares in 2004 and 2003; issued and
outstanding — none
|
|
|
0 |
|
|
|
0 |
|
| |
Common stock, $.01 par value; authorized —
100,000,000 shares in 2004 and 2003; issued —
10,044,697 in 2004 and 9,682,134 in 2003
|
|
|
100 |
|
|
|
97 |
|
| |
Class B common stock, convertible, $.01 par value;
authorized — 100,000,000 shares in 2004 and 2003;
issued — 11,660,942 in 2004 and 11,834,592 in 2003
|
|
|
117 |
|
|
|
118 |
|
| |
Additional paid-in capital
|
|
|
394,528 |
|
|
|
384,291 |
|
| |
Retained earnings
|
|
|
505,153 |
|
|
|
477,437 |
|
| |
Accumulated other comprehensive loss
|
|
|
(1,424 |
) |
|
|
(10,151 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
Total
|
|
|
898,474 |
|
|
|
851,792 |
|
|
Unamortized restricted stock grant
|
|
|
(72 |
) |
|
|
(303 |
) |
|
Treasury stock — at cost; 5,137 and 1,061 shares
of common stock in 2004 and 2003, respectively, and
0 shares of Class B common stock in 2004 and 2003
|
|
|
(253 |
) |
|
|
(45 |
) |
| |
|
|
|
|
|
|
|
|
| |
|
Total stockholders’ equity
|
|
|
898,149 |
|
|
|
851,444 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
TOTAL
|
|
$ |
1,386,662 |
|
|
$ |
1,319,243 |
|
| |
|
|
|
|
|
|
|
|
(Concluded)
See accompanying notes to consolidated financial statements.
39
PULITZER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
Total |
| |
|
|
|
Class B |
|
Additional |
|
|
|
Comprehensive |
|
|
|
Unamortized |
|
Stock- |
| |
|
Common |
|
Common |
|
Paid-In |
|
Retained |
|
Income |
|
Treasury |
|
Restricted |
|
holders’ |
| |
|
Stock |
|
Stock |
|
Capital |
|
Earnings |
|
(Loss) |
|
Stock |
|
Stock Grant |
|
Equity |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
Balances at January 1, 2002
|
|
$ |
97 |
|
|
$ |
131 |
|
|
$ |
430,647 |
|
|
$ |
430,840 |
|
|
$ |
(2,482 |
) |
|
$ |
(61,996 |
) |
|
$ |
(20 |
) |
|
$ |
797,217 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,699 |
|
| |
Other comprehensive income(loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,206 |
) |
|
|
|
|
|
|
|
|
|
|
(8,206 |
) |
| |
|
Unrealized gain on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325 |
|
|
|
|
|
|
|
|
|
|
|
325 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,818 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Issuance of common stock grants
|
|
|
|
|
|
|
|
|
|
|
841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
841 |
|
| |
Common stock options exercised
|
|
|
1 |
|
|
|
|
|
|
|
4,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,091 |
|
| |
Conversion of Class B common stock To common stock
|
|
|
2 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common stock issued under Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
904 |
|
| |
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
328 |
|
| |
Cash dividends declared $0.70 per Share of common and
Class B common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,886 |
) |
| |
Restricted Stock Grant
|
|
|
|
|
|
|
|
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(250 |
) |
|
|
|
|
| |
Amortization of Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62 |
|
|
|
62 |
|
| |
Retirement of Treasury Stock
|
|
|
(5 |
) |
|
|
(11 |
) |
|
|
(62,123 |
) |
|
|
|
|
|
|
|
|
|
|
62,139 |
|
|
|
|
|
|
|
|
|
| |
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(157 |
) |
|
|
|
|
|
|
(157 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2002
|
|
|
95 |
|
|
|
118 |
|
|
|
374,937 |
|
|
|
450,653 |
|
|
|
(10,363 |
) |
|
|
(14 |
) |
|
|
(208 |
) |
|
|
815,218 |
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,177 |
|
| |
Other comprehensive income(loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311 |
|
|
|
|
|
|
|
|
|
|
|
311 |
|
| |
|
Unrealized (loss) on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99 |
) |
|
|
|
|
|
|
|
|
|
|
(99 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,389 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock grants
|
|
|
|
|
|
|
|
|
|
|
1,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,187 |
|
| |
Common stock options exercised
|
|
|
2 |
|
|
|
|
|
|
|
6,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,585 |
|
| |
Common stock issued under Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
922 |
|
| |
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
462 |
|
| |
Cash dividends declared $0.72 per Share of common and
Class B common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,393 |
) |
| |
Restricted Stock Grant
|
|
|
|
|
|
|
|
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200 |
) |
|
|
|
|
| |
Amortization of Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105 |
|
|
|
105 |
|
| |
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
(31 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
97 |
|
|
|
118 |
|
|
|
384,291 |
|
|
|
477,437 |
|
|
|
(10,151 |
) |
|
|
(45 |
) |
|
|
(303 |
) |
|
|
851,444 |
|
(Continued)
40
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,114 |
|
| |
Other comprehensive income(loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,933 |
|
|
|
|
|
|
|
|
|
|
|
9,933 |
|
| |
|
Unrealized (loss) on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,206 |
) |
|
|
|
|
|
|
|
|
|
|
(1,206 |
) -------- 52,841 |
| |
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
1,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,437 |
|
|
Issuance of common stock grants
|
|
|
2 |
|
|
|
|
|
|
|
7,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,301 |
|
| |
Common stock options exercised
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conversion of Class B common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
To common stock Common stock issued under Employee Stock
Purchase Plan
|
|
|
|
|
|
|
|
|
|
|
1,046 710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,046 710 |
|
| |
Tax benefit from stock options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash dividends declared $0.76 per Share of common and
Class B common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,398 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,398 |
) |
| |
Settlement of IRS Issues — Broadcast Transaction
|
|
|
|
|
|
|
|
|
|
|
(375 |
) 120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(120 |
) |
|
|
(375 |
) |
| |
Restricted Stock Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
151 |
|
|
|
151 |
|
| |
Amortization of Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(200 |
) |
|
|
200 |
|
|
|
|
|
| |
Cancellation of Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
(8 |
) |
| |
Purchase of treasury stock
|
|
$ |
100 |
|
|
$ |
117 |
|
|
$ |
394,528 |
|
|
$ |
505,153 |
|
|
$ |
(1,424 |
) |
|
$ |
(253 |
) |
|
$ |
(72 |
) |
|
-------- $ |
898,149 |
|
|
Balances at December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
41
PULITZER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Class B Common |
| |
|
Common Stock |
|
Stock |
| |
|
|
|
|
| |
|
|
|
Held in |
|
|
|
Held in |
| |
|
Issued |
|
Treasury |
|
Issued |
|
Treasury |
| |
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
Share Activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1, 2002
|
|
|
9,680 |
|
|
|
(529 |
) |
|
|
13,059 |
|
|
|
(1,000 |
) |
| |
Common stock options exercised
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conversion of Class B common stock to common stock
|
|
|
224 |
|
|
|
|
|
|
|
(224 |
) |
|
|
|
|
| |
Common stock issued under Employee Stock Purchase Plan
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Restricted Stock Grant
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Retirement of treasury stock
|
|
|
(532 |
) |
|
|
532 |
|
|
|
(1,000 |
) |
|
|
1,000 |
|
| |
Purchase of treasury stock
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2002
|
|
|
9,498 |
|
|
|
0 |
|
|
|
11,835 |
|
|
|
0 |
|
| |
Common stock options exercised
|
|
|
159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common stock issued under Employee Stock Purchase Plans
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Restricted Stock Grant
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchase of treasury stock
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2003
|
|
|
9,682 |
|
|
|
(1 |
) |
|
|
11,835 |
|
|
|
0 |
|
| |
Common stock options exercised
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conversion of Class B common stock to common stock
|
|
|
174 |
|
|
|
|
|
|
|
(174 |
) |
|
|
|
|
| |
Common stock issued under Employee Stock Purchase Plans
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Restricted Stock Grant
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Purchase of treasury stock
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2004
|
|
|
10,045 |
|
|
|
(5 |
) |
|
|
11,661 |
|
|
|
0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Concluded)
See accompanying notes to consolidated financial statements.
42
PULITZER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
|
|
As |
|
As |
| |
|
|
|
Restated, |
|
Restated, |
| |
|
|
|
See Note 21 |
|
See Note 21 |
| |
|
(In thousands) |
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Income
|
|
$ |
44,114 |
|
|
$ |
42,177 |
|
|
$ |
34,699 |
|
| |
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation
|
|
|
15,348 |
|
|
|
14,613 |
|
|
|
14,286 |
|
| |
|
Amortization
|
|
|
4,850 |
|
|
|
4,522 |
|
|
|
4,433 |
|
| |
|
Stock-based compensation
|
|
|
1,608 |
|
|
|
1,292 |
|
|
|
903 |
|
| |
|
Deferred income taxes
|
|
|
5,503 |
|
|
|
22,249 |
|
|
|
23,256 |
|
| |
|
Net gain on marketable securities
|
|
|
(334 |
) |
|
|
(502 |
) |
|
|
(1,100 |
) |
| |
|
Net loss on investments
|
|
|
104 |
|
|
|
1,790 |
|
|
|
9,091 |
|
| |
|
Changes in assets and liabilities (net of the effects of the
purchase of newspaper properties and routes) which provided
(used) cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Trade accounts receivable
|
|
|
(5,240 |
) |
|
|
(664 |
) |
|
|
(1,738 |
) |
| |
|
|
Inventory
|
|
|
(913 |
) |
|
|
(1,398 |
) |
|
|
(1,041 |
) |
| |
|
|
Other assets
|
|
|
(2,643 |
) |
|
|
(14,112 |
) |
|
|
3,162 |
|
| |
|
|
Trade accounts payable, other liabilities, and deferred revenue
|
|
|
2,896 |
|
|
|
(26,220 |
) |
|
|
(22,891 |
) |
| |
|
|
Income taxes (receivable)/payable
|
|
|
10,412 |
|
|
|
(7,033 |
) |
|
|
7,065 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FROM OPERATING ACTIVITIES
|
|
|
75,705 |
|
|
|
36,714 |
|
|
|
70,125 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Capital expenditures
|
|
|
(9,491 |
) |
|
|
(12,526 |
) |
|
|
(25,124 |
) |
| |
Purchases of newspaper properties and routes, net of cash
acquired
|
|
|
(7,522 |
) |
|
|
(17,424 |
) |
|
|
(9,117 |
) |
| |
Acquisition payable
|
|
|
0 |
|
|
|
0 |
|
|
|
(9,707 |
) |
| |
Purchases of marketable securities
|
|
|
(340,960 |
) |
|
|
(335,554 |
) |
|
|
(218,118 |
) |
| |
Sales of marketable securities
|
|
|
337,080 |
|
|
|
298,501 |
|
|
|
106,256 |
|
| |
Cash received from gain on investment
|
|
|
0 |
|
|
|
825 |
|
|
|
0 |
|
| |
Investment in joint ventures and limited partnerships
|
|
|
(1,153 |
) |
|
|
(1,584 |
) |
|
|
(1,689 |
) |
| |
Increase in restricted cash and investments
|
|
|
(15,000 |
) |
|
|
(15,000 |
) |
|
|
(15,000 |
) |
| |
Decrease in notes receivable
|
|
|
|
|
|
|
|
|
|
|
200 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FROM INVESTING ACTIVITIES
|
|
|
(37,046 |
) |
|
|
(82,762 |
) |
|
|
(172,299 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Dividends paid
|
|
|
(16,398 |
) |
|
|
(15,393 |
) |
|
|
(14,886 |
) |
| |
Proceeds from exercise of stock options
|
|
|
7,301 |
|
|
|
6,585 |
|
|
|
4,091 |
|
| |
Proceeds from employee stock purchase plan
|
|
|
1,046 |
|
|
|
922 |
|
|
|
904 |
|
| |
Purchase of treasury stock
|
|
|
(8 |
) |
|
|
(31 |
) |
|
|
(157 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH FROM FINANCING ACTIVITIES
|
|
|
(8,059 |
) |
|
|
(7,917 |
) |
|
|
(10,048 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
30,600 |
|
|
|
(53,965 |
) |
|
|
(112,222 |
) |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
|
|
27,552 |
|
|
|
81,517 |
|
|
|
193,739 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
|
$ |
58,152 |
|
|
$ |
27,552 |
|
|
$ |
81,517 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
43
PULITZER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Years Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
|
|
As |
|
As |
| |
|
|
|
Restated, |
|
Restated, |
| |
|
|
|
See Note 21 |
|
See Note 21 |
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid (received) during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Interest paid
|
|
$ |
20,262 |
|
|
$ |
20,706 |
|
|
$ |
21,586 |
|
| |
|
Interest received
|
|
|
(4,642 |
) |
|
|
(4,082 |
) |
|
|
(3,605 |
) |
| |
|
Income taxes
|
|
|
16,899 |
|
|
|
10,941 |
|
|
|
2,003 |
|
| |
|
Income tax refunds
|
|
|
(7,055 |
) |
|
|
(968 |
) |
|
|
(9,897 |
) |
|
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Issuance of restricted stock grants and restricted stock units
|
|
|
(120 |
) |
|
|
(2,271 |
) |
|
|
(1,130 |
) |
| |
Retirement of treasury stock
|
|
|
0 |
|
|
|
0 |
|
|
|
(62,139 |
) |
(Concluded)
See accompanying notes to consolidated financial statements.
44
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
The consolidated financial statements reflect the results of the
newspaper publishing and new-media operations located in
14 United States markets of Pulitzer Inc. and its
subsidiaries and affiliated entities (collectively, the
“Company”).
The Company’s newspaper holdings include operations in
St. Louis, Missouri, where the St. Louis Post-Dispatch
LLC (“PD LLC”) publishes the St. Louis
Post-Dispatch (the “Post-Dispatch”) and
Suburban Journals of Greater St. Louis LLC (“Suburban
Journals LLC”) publishes the Suburban Journals, and in
Tucson, Arizona, where Star Publishing Company (“Star
Publishing”) publishes the Arizona Daily Star (the
“Star”). In Tucson, Star Publishing shares, on
an equal basis, the combined results of the Star and the
Tucson Citizen (the “Citizen”),
published by Citizen Publishing Company, a subsidiary of
Gannett Co., Inc. (“Gannett”).
Pulitzer Newspapers, Inc. and its subsidiaries (the “PNI
Group”) publish 12 dailies that serve markets in the
Midwest, Southwest and West, and more than 75 weekly
newspapers, shoppers and niche publications.
Pulitzer Inc. was capitalized on March 18, 1999, with
approximately $550 million in cash and all the other assets
(other than broadcast assets) of Pulitzer Publishing Company
(“Old Pulitzer”) as a result of the Spin-off (as
defined below) and, through its subsidiaries and affiliated
entities, is now operating the principal newspaper publishing
and related Internet businesses formerly operated by Old
Pulitzer (including subsidiaries) and certain other newspapers
acquired since the Broadcast Transaction (as defined below).
Pulitzer Inc. was organized as a corporation in 1998 and, prior
to the Spin-off, was a wholly-owned subsidiary of Old Pulitzer.
Prior to the Broadcast Transaction, Old Pulitzer was engaged in
newspaper publishing and television and radio broadcasting.
Pursuant to an Amended and Restated Agreement and Plan of
Merger, dated as of May 25, 1998 (the “HTV Merger
Agreement”), by and among Old Pulitzer, Pulitzer Inc. and
Hearst-Argyle Television, Inc. (“Hearst-Argyle”), on
March 18, 1999, Hearst-Argyle acquired, through the merger
of Old Pulitzer with and into Hearst-Argyle (the “HTV
Merger”), Old Pulitzer’s television and radio
broadcasting operations (collectively, the “Broadcasting
Business”) in exchange for the issuance to Old
Pulitzer’s stockholders of 37,096,774 shares of
Hearst-Argyle’s Series A common stock. Old
Pulitzer’s Broadcasting Business consisted of nine
network-affiliated television stations and five radio stations
owned and operated by Pulitzer Broadcasting Company and its
wholly-owned subsidiaries. Prior to the HTV Merger, Old
Pulitzer’s newspaper publishing and related Internet
businesses were contributed to the Company in a tax-free
“spin-off” to Old Pulitzer stockholders (the
“Spin-off”). The HTV Merger and Spin-off are
collectively referred to as the “Broadcast
Transaction.”
On November 21, 2004, Pulitzer Inc. confirmed that it was
engaged in the process of exploring a range of strategic
alternatives to enhance shareholder value, including a possible
sale of the company (the “Strategic Review Process”).
On January 29, 2005, Pulitzer Inc. entered into an
Agreement and Plan of Merger (the “Lee Merger
Agreement”) with Lee Enterprises, Incorporated, a Delaware
corporation (“Lee”), and LP Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of Lee. See
Note 20 for a discussion of the Lee Merger Agreement.
|
|
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Consolidation — The consolidated financial
statements include the accounts of Pulitzer Inc. and its
subsidiary companies, all of which are wholly-owned except for
Pulitzer Inc.’s (together with another subsidiary)
95 percent interest in the results of operations of the PD
LLC and STL Distribution Services LLC (“DS LLC”), a
distribution company serving the St. Louis market, and
50 percent interest in the results of operations of Tucson
Partners, the Tucson newspaper partnership between Star
Publishing and Gannett
45
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES —
(Continued) |
(“TNI”). All significant intercompany transactions
have been eliminated from the consolidated financial statements.
Revenue Recognition — Advertising revenue is
recognized when ads are published. Circulation revenue is
recognized when the newspaper is delivered to the customer.
Other revenue is recognized when the product or service has been
delivered.
Fiscal Year — The Company’s fiscal year ends on
the last Sunday of the calendar year. For 2004, the
Company’s fiscal year began on December 29, 2003 and
ended on December 26, 2004. For 2003, the Company’s
fiscal year began on December 30, 2002 and ended on
December 28, 2003. For 2002, the Company’s fiscal year
began on December 31, 2001 and ended on December 29,
2002. In 2004, 2003 and 2002, the fourth quarter was
13 weeks and the year was 52 weeks. For ease of
presentation, the Company has presented December 31 as the
year-end for each of the last three fiscal years.
Cash Equivalents — For purposes of reporting cash
flows, the Company considers all highly liquid investments
purchased with an original maturity of three months or less to
be cash equivalents.
Marketable Securities — Marketable securities consist
of fixed income securities, including, but not limited to, debt
securities issued by the U.S. government and related
agencies, municipal securities, corporate securities and various
asset-backed securities. Marketable securities are recorded at
fair value with unrealized gains and losses reported, net of
tax, as a component of other comprehensive income. The basis of
cost used in determining realized gains and losses is specific
identification. The fair value of all securities is determined
by quoted market prices. All of the Company’s marketable
securities represent “available-for-sale” securities
as defined by the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 115
(“SFAS No. 115”). The Company periodically
evaluates its marketable security portfolio for
other-than-temporary impairment using the methodology prescribed
in the provisions of Emerging Issues Task Force
(“EITF”) Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments (“EITF No. 03-1”) (See
Note 7).
Accounts receivable — The Company evaluates its
allowances for uncollectible trade accounts receivable based on
customers’ credit history, payment trends, and other
economic factors.
Inventory Valuation — Inventory, which consists
primarily of newsprint, is stated at the lower of cost or
market. In the first quarter of fiscal 2002, the Company changed
its method of determining the cost of newsprint inventories from
the last-in, first-out (“LIFO”) method to the
first-in, first-out (“FIFO”) method. The Company
believes that the FIFO method better measures the current value
of such inventories and provides a more appropriate matching of
revenues and expenses. The effect of this change was immaterial
to the consolidated financial results of the Company. Ink and
other miscellaneous supplies are generally expensed as purchased.
Property and Depreciation — Property is recorded at
cost. Depreciation is computed using the straight-line method
over the estimated useful lives of the individual assets. The
Company depreciates buildings over 15 to 35 years and all
other property over lives ranging from 3 to 15 years.
Goodwill — The Company accounts for goodwill in
accordance with SFAS No. 142, Goodwill and Other
Intangible Assets (“SFAS No. 142”).
SFAS No. 142 requires that goodwill and other
indefinite-lived intangible assets should not be amortized, but
should be tested for impairment annually, or more frequently if
circumstances indicate potential impairment, through a
comparison of fair value to their carrying amount. The Company
tests intangible assets, including goodwill, that are not
subject to amortization for impairment annually, or more
frequently if events or changes in circumstances indicate that
the assets might be impaired, using a two step impairment
assessment. The first step of the impairment test identifies
potential impairment
46
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES —
(Continued) |
and compares the fair value of the reporting units with their
carrying amount, including goodwill. The Company evaluates
impairment at each of its St. Louis (consisting of PD LLC,
Suburban Journals LLC, and DS LLC) and PNI Group reporting
units. If the fair value exceeds the carrying amount, goodwill
is not considered impaired, and the second step of the
impairment test is not necessary. If the carrying amount exceeds
the fair value, the second step of the impairment test is
performed to measure the amount of impairment loss, if any. The
Company assessed the fair value by considering each reporting
unit’s expected future cash flows; recent purchase prices
paid for entities within its industry, and the Company’s
market capitalization. The Company’s discounted cash flow
evaluation utilizes a discount rate that corresponds to the
Company’s weighted average cost of capital. For the periods
presented, there has been no impairment. Subsequent impairments,
if any, would be classified as an operating expense.
Intangible Assets Other Than Goodwill — Intangible
assets other than goodwill with finite lives are amortized over
lives ranging from 4 to 23 years. In addition, the
intangible asset relating to the Company’s additional
minimum pension liability under SFAS No. 87 is
adjusted annually, as necessary, when a new determination of the
amount of the additional minimum pension liability is made.
Long-Lived Assets — The Company considers the possible
impairment of its properties and intangible assets whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Management
periodically evaluates the recoverability of long-lived assets
by reviewing the current and projected cash flows of each of its
properties. If a permanent impairment were deemed to exist, any
write-down would be charged to operations. For the periods
presented, there has been no impairment.
Employee Benefit Plans — The Company has several
noncontributory defined benefit pension plans covering a
significant portion of their employees. Benefits under the plans
are generally based on salary and years of service. The
Company’s liability and related expense for benefits under
the plans are recorded over the service period of active
employees based upon annual actuarial calculations. Plan funding
strategies are influenced by tax regulations. Plan assets
consist primarily of domestic and foreign corporate equity
securities, government and corporate bonds, and cash.
The Company provides retiree medical and life insurance benefits
under varying postretirement plans at several of its operating
locations. In addition, the Company provides postemployment
disability benefits to certain employee groups prior to
retirement at the 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.
Income Taxes — Deferred tax assets and liabilities are
recorded for the expected future tax consequences of events that
have been included in either the financial statements or tax
returns of the Company. Under this asset and liability approach,
deferred tax assets and liabilities are determined based on
temporary differences between the financial statement and tax
bases of assets and liabilities by applying expected tax rates
applicable to future years in which the differences are expected
to reverse. A valuation allowance is established to reduce
deferred income tax assets if it is more likely than not that a
deferred tax asset will not be realized.
Stock-Based Compensation Plans — The Company applies
the provisions of Accounting Principles Board Opinion
No. 25 (“APB 25”), Accounting for Stock
Issued to Employees, and related interpretations to account for
its employee stock option plans. As a consequence, compensation
expense is not recorded by the Company for the issuance of stock
options or for shares purchased under the employee stock
purchase plans.
Earnings Per Share of Stock — Basic earnings per share
of stock are computed using the weighted average number of
common and Class B common shares outstanding during the
applicable period. Diluted
47
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES —
(Continued) |
earnings per share of stock are computed using the weighted
average number of common and Class B common shares
outstanding and common stock equivalents (see Note 15).
Segment Information — The Company aggregates its
St. Louis operations and its PNI Group operations into one
reportable segment, publishing.
Derivative Instruments and Hedging Activities — The
Company applies the provisions of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
(“SFAS No. 133”) to account for its
derivative instruments (principally, fixed-to-floating rate
interest rate swap contracts). The Company accounts for all its
swap contracts as fair value hedges and employs the short cut
method. The Company records gains resulting from terminated swap
contracts as an increase in long-term liabilities with
subsequent, ratable amortization of those gains as a reduction
of interest expense over the remaining life of the original
interest rate swap contracts.
New Accounting Pronouncements — In January 2003 the
Financial Accounting Standards Board (“FASB”) issued
FASB Interpretation Number (“FIN”) 46,
Consolidation of Variable Interest Entities
(“FIN 46”). FIN 46 provides guidance
surrounding consolidation based on controlling financial
interest and provides new quantitative guidelines to various
variable interest entities as defined in the statement. This
interpretation applied immediately to variable interest entities
created after January 31, 2003, and in the first fiscal
year or interim period beginning after June 15, 2003 to
variable interest entities acquired before February 1,
2003. In December 2003 FASB issued FIN 46R to clarify
certain provisions of FIN 46. Application of FIN 46R
was required for public entities that have interests in
structures commonly referred to as special-purpose entities for
periods ending after December 15, 2003. Application by
public entities for all other types of variable interest
entities was required for periods ending after March 15,
2004. The Company’s adoption of FIN 46 and
FIN 46R did not have a material impact on the consolidated
financial statements.
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 that provide a
benefit that is at least actuarially equivalent (as that term is
defined in the Act) to Medicare Part D. FASB Staff Position
(“FSP”) 106-1, Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (“FSP
106-1”), which is effective for interim or annual financial
statements for fiscal years which ended after December 7,
2003, permits a sponsor of a postretirement health care plan
that provides a prescription drug benefit to make a one-time
election to defer accounting for the effects of the Act.
The Company recognized the effects of the Act on the
Company’s accumulated postretirement benefit obligation
(“APBO”) and postretirement benefit costs initially in
the first quarter of 2004. The Company concluded that it
qualifies for the subsidy under the Act since the prescription
drug benefits provided under the Company’s postretirement
healthcare plans generally require lower premiums from covered
retirees and have lower deductibles than the benefits provided
in Medicare Part D and, therefore, are “actuarially
equivalent” to or better than the benefits provided under
the Act. In addition, the Company does not anticipate any
material change in the participation rate or per capita claims
costs as a result of the Act.
The provisions of the Act lowered the APBO by approximately
$12 million, which is being treated as a negative prior
service cost that is being amortized beginning on March 8,
2004. This amortization resulted in a $1.2 million
reduction to the APBO and postretirement benefit costs in 2004,
against which no income tax provision was made in accordance
with the Act. Specific authoritative guidance on the accounting
for the federal subsidy is pending, and that guidance, when
issued, could require the Company to change previously
48
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES —
(Continued) |
reported information. The consolidated statements of income
incorporated expense reductions of $1.2 million in 2004,
against which no income tax provision was made.
In May 2004 the FASB issued FSP 106-2, which superceded FSP
106-1. There was no material impact on the consolidated
financial statements upon adoption.
In November 2004 FASB issued SFAS No. 151,
Inventory Costs (“SFAS No. 151”).
This Statement amends Accounting Research
Bulletin No. 43, Inventory Pricing (“ARB
No. 43”) to clarify the accounting for abnormal
amounts of idle facility capacity, freight, handling costs, and
wasted material (spoilage) to require that these items be
recognized as current-period charges instead of being added to
the cost of inventory and expensed when consumed.
SFAS No. 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005. The
Company does not believe that the adoption of
SFAS No. 151 will have a material impact on the
consolidated financial statements.
In November 2004 the FASB ratified the consensus reached by EITF
No. 03-1. The measurement and recognition guidance in EITF
No. 03-1 is effective for annual financial statements for
fiscal years ending after June 15, 2004. EITF No. 03-1
requires that certain equity and debt securities be periodically
evaluated to determine whether an other-than-temporary
impairment has occurred through a comparison of fair value to
the cost of the security. Factors used to determine
other-than-temporary impairment include the Company’s
ability and intent to hold securities for a reasonable recovery
period, the severity and duration of an impairment, and
judgments regarding the forecasted fair value of securities,
among other factors. The adoption of EITF No. 03-1 did not
have a material impact on the Company’s consolidated
financial statements.
In December 2004 FASB issued SFAS 123-Revised,
Accounting for Stock-Based Compensation
(“SFAS No. 123R”). This Statement
supersedes APB 25, and its related implementation guidance.
This statement is effective as of the beginning of the first
interim or annual reporting period that begins after
June 15, 2005. In addition, SFAS No. 123R amends
SFAS No. 95, Statement of Cash Flows, to
require that excess tax benefits be reported as a financing cash
inflow rather than as a reduction of taxes paid.
SFAS No. 123R establishes standards for the 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).
SFAS No. 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, the
cost of which 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 SFAS No. 123R are similar to the fair-value-based
method in SFAS No. 123 in most respects. However,
there are several key differences, including the following
requirements: (a) liabilities incurred to employees in
share-based payment transactions are measured at fair value;
(b) entities are required to estimate the number of
instruments for which the requisite service is expected to be
rendered; and (c) the fair-value of awards is remeasured at
each reporting date through the settlement date. Changes in
fair-value during the requisite service period are recognized as
compensation cost over that period. The effect on the
Company’s consolidated financial condition or results of
operations upon adoption of SFAS No. 123R is not known
at this time.
In December 2004 FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets
(“SFAS No. 153”). This pronouncement amends
APB No. 29, Accounting for Nonmonetary Transactions
(“APB 29”). SFAS No. 153 is effective
for nonmonetary exchanges occurring in fiscal periods beginning
after June 15, 2005. SFAS No. 153 eliminates the
exception for nonmonetary exchanges of similar productive assets
present in APB 29 and replaces it with a general exception for
exchanges of nonmonetary assets that do not have
49
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES —
(Continued) |
commercial substance (i.e., transactions that are not expected
to result in significant changes in the cash flows of the
reporting entity). The Company does not believe that the
adoption of SFAS No. 153 will have a material impact
on the consolidated financial statements.
Use of 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 amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting
period. Actual results may differ from those estimates.
Reclassifications — Certain reclassifications have
been made to the 2003 and 2002 consolidated financial statements
to conform to the 2004 presentation.
|
|
| 3. |
STOCK-BASED EMPLOYEE COMPENSATION PLAN |
At December 31, 2004, the Company had a stock-based
employee compensation plan, which is described more fully in
Note 14. The Company accounted for this plan under the
recognition and measurement principles of APB Opinion
No. 25, and related interpretations. No stock-based
employee compensation cost was reflected in net income for this
stock option plan as all options granted under this plan had an
exercise price equal to the market value of the underlying
common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-Based
Compensation (“SFAS No. 123”), to
stock-based employee compensation.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
(In thousands, except earnings per |
| |
|
share) |
|
Net income, as reported
|
|
$ |
44,114 |
|
|
$ |
42,177 |
|
|
$ |
34,699 |
|
|
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects
|
|
|
1,089 |
|
|
|
808 |
|
|
|
549 |
|
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effect
|
|
|
(5,264 |
) |
|
|
(4,949 |
) |
|
|
(5,136 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$ |
39,939 |
|
|
$ |
38,036 |
|
|
$ |
30,112 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic — as reported
|
|
$ |
2.04 |
|
|
$ |
1.97 |
|
|
$ |
1.63 |
|
| |
Basic — pro forma
|
|
$ |
1.85 |
|
|
$ |
1.78 |
|
|
$ |
1.42 |
|
|
Pro forma earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Diluted — as reported
|
|
$ |
2.02 |
|
|
$ |
1.95 |
|
|
$ |
1.62 |
|
| |
Diluted — pro forma
|
|
$ |
1.82 |
|
|
$ |
1.76 |
|
|
$ |
1.40 |
|
50
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 3. |
STOCK-BASED EMPLOYEE COMPENSATION
PLAN — Continued |
As required by SFAS No. 123, the Company estimated the
fair value of its option grants by using the binomial options
pricing model with the following weighted average assumptions:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended |
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Expected life (years)
|
|
|
7 |
|
|
|
7 |
|
|
|
7 |
|
|
Risk-free interest rate
|
|
|
3.8 |
% |
|
|
3.5 |
% |
|
|
4.5 |
% |
|
Volatility
|
|
|
22.0 |
% |
|
|
21.3 |
% |
|
|
27.0 |
% |
|
Dividend yield
|
|
|
1.5 |
% |
|
|
1.5 |
% |
|
|
1.5 |
% |
Stock-based compensation cost associated with restricted stock
grants, restricted stock unit awards, and stock options granted
to certain TNI employees, was reflected in net income for 2004,
2003 and 2002.
PD LLC Operating Agreement
On May 1, 2000, Pulitzer Inc. and The Herald Company, Inc.
(“Herald”) completed the transfer of their respective
interests in the assets and operations of the Post-Dispatch
and certain related businesses to a new joint venture (the
“Venture”), known as PD LLC. Pulitzer Inc. is the
managing member of PD LLC. Under the terms of the operating
agreement governing PD LLC (the “Operating
Agreement”), Pulitzer Inc. and another subsidiary hold a
95 percent interest in the results of operations of PD LLC
and Herald holds a 5 percent interest. Herald’s
5 percent interest is reported as “Minority Interest
in Net Earnings of Subsidiary” in the consolidated
statements of income. Also, under the terms of the Operating
Agreement, Herald received on May 1, 2000 a cash
distribution of $306.0 million from PD LLC (the
“Initial Distribution”). This distribution was
financed by a $306.0 million borrowing by PD LLC (the
“Loan”). Pulitzer Inc.’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 $15.0 million and the number of years since
May 1, 2000, but not in excess of $150.0 million (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 another limited liability company in which Pulitzer Inc.
is the managing member and which is engaged in the business of
delivering publications and products in the greater
St. Louis metropolitan area (“DS LLC”). 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 $275.0 million.
In the event the transactions effectuated 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 Herald on PD LLC (and thus the Company)
will be partially offset by the current and
51
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 4. |
AGENCY AGREEMENTS — Continued |
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. The Company has been
advised that the IRS, in the course of examining the 2000
consolidated federal income tax return in which Herald was
included, has requested certain information and documents
relating to the transactions effectuated in connection with the
formation of the Venture and the Initial Distribution.
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 liquidation
value of its interests in PD LLC and DS LLC, to be paid in cash
by Pulitzer Inc. That amount will 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 percent, but will be reduced (but not below
1 percent) 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
$325.0 million.
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 and
DS LLC’s rate of growth and market valuations of newspaper
properties. While the amount of such payment cannot be predicted
with certainty, Pulitzer Inc. currently estimates (assuming a
5 percent 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 million.
Pulitzer Inc. further believes that it will be able to finance
such payment either from available cash reserves or with the
proceeds of a debt issuance. The redemption of Herald’s
interest in PD LLC either on May 1, 2010 or upon
termination in 2015 is expected to generate significant deferred
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.
Prior to May 1, 2000, the operations of the
Post-Dispatch and certain related businesses, referred to
as the “St. Louis Agency”, were governed by the
St. Louis Agency Agreement dated March 1, 1961, as
amended, between Pulitzer Inc. and Herald. Under that agreement,
Pulitzer Inc. and Herald generally shared the operating profits
and losses, as well as capital expenditures of the
Post-Dispatch, on a 50-50 basis.
TNI Partners
In Tucson, Arizona, a separate partnership, TNI, acting as agent
for the Star Publishing and Gannett, is responsible for
printing, delivery, advertising, and circulation of the Star
and the Citizen. TNI collects all of the receipts and
income relating to the Star and the Citizen and
pays all operating expenses incident to the partnership’s
operations and publication of the newspapers. Each newspaper is
solely responsible for its own news and editorial content. Net
income or net loss of TNI is allocated equally to the Star
Publishing and Gannett. The Company’s 50 percent share
of TNI’s operating results is reported as “Equity in
earnings of Tucson newspaper partnership” in the
accompanying consolidated statements of income.
52
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 4. |
AGENCY AGREEMENTS — Continued |
Summarized financial information for TNI is as follows:
| |
|
|
|
|
|
|
|
|
| |
|
Dec. 31, |
|
Dec. 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
| |
|
(In thousands) |
|
Current assets
|
|
$ |
16,811 |
|
|
$ |
15,935 |
|
|
Current liabilities
|
|
$ |
9,031 |
|
|
$ |
9,315 |
|
|
Partners’ equity
|
|
$ |
7,780 |
|
|
$ |
6,620 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
(In thousands) |
|
Operating revenues
|
|
$ |
111,718 |
|
|
$ |
106,807 |
|
|
$ |
104,578 |
|
|
Operating income
|
|
$ |
36,092 |
|
|
$ |
32,128 |
|
|
$ |
35,488 |
|
|
Company’s share of operating income before depreciation,
amortization, and general and administrative expenses(1)
|
|
$ |
18,046 |
|
|
$ |
16,064 |
|
|
$ |
17,744 |
|
|
|
| (1) |
Star Publishing’s depreciation, amortization, and general
and administrative expenses associated with the operation and
administration of TNI are reported as operating expenses in the
Company’s consolidated statements of income. In aggregate,
these amounts totaled $3.1 million for 2004 and
$2.3 million per year for each of 2003 and 2002. |
|
|
| 5. |
GOODWILL AND OTHER INTANGIBLE ASSETS |
Changes in the carrying amounts of goodwill and intangible
assets for the Company for the years ended December 31,
2004 and 2003, were as follows:
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Intangible |
| |
|
Goodwill |
|
Assets |
| |
|
|
|
|
| |
|
(In thousands) |
|
Balance at December 31, 2003
|
|
$ |
811,409 |
|
|
$ |
37,217 |
|
|
Additions during the period
|
|
|
5,953 |
|
|
|
1,912 |
|
|
Amortization expense
|
|
|
|
|
|
|
(4,850 |
) |
| |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
$ |
817,362 |
|
|
$ |
34,279 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Goodwill |
|
Intangible Assets |
| |
|
|
|
|
| |
|
(In thousands) |
|
Balance at January 1, 2003
|
|
$ |
797,719 |
|
|
$ |
38,210 |
|
|
Additions during the period
|
|
|
13,690 |
|
|
|
3,529 |
|
|
Amortization expense
|
|
|
|
|
|
|
(4,522 |
) |
| |
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
$ |
811,409 |
|
|
$ |
37,217 |
|
| |
|
|
|
|
|
|
|
|
53
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 5. |
GOODWILL AND OTHER INTANGIBLE
ASSETS — Continued |
Other intangible assets at December 31, 2004 and
December 31, 2003 were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Accumulated |
|
Net |
| |
|
Cost |
|
Amortization |
|
Cost |
| |
|
|
|
|
|
|
| |
|
(In thousands) |
|
December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Advertising base
|
|
$ |
34,872 |
|
|
$ |
9,173 |
|
|
$ |
25,699 |
|
| |
Subscriber lists
|
|
|
24,002 |
|
|
|
16,836 |
|
|
|
7,166 |
|
| |
Long-term pension asset
|
|
|
1,063 |
|
|
|
0 |
|
|
|
1,063 |
|
| |
Non-compete agreements and other
|
|
|
5,428 |
|
|
|
5,077 |
|
|
|
351 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total other intangible assets
|
|
$ |
65,365 |
|
|
$ |
31,086 |
|
|
$ |
34,279 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Advertising base
|
|
$ |
33,552 |
|
|
$ |
7,487 |
|
|
$ |
26,065 |
|
| |
Subscriber lists
|
|
|
23,300 |
|
|
|
14,040 |
|
|
|
9,260 |
|
| |
Long-term pension asset
|
|
|
1,260 |
|
|
|
|
|
|
|
1,260 |
|
| |
Non-compete agreements and other
|
|
|
5,341 |
|
|
|
4,709 |
|
|
|
632 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total other intangible assets
|
|
$ |
63,453 |
|
|
$ |
26,236 |
|
|
$ |
37,217 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Pretax amortization expense of other intangible assets for the
years ended December 31, 2004 and 2003 was
$4.9 million and $4.5 million, respectively, and over
the next five years is estimated to be: $4.8 million for
2005, $4.6 million for 2006, $2.6 million for 2007,
and $2.1 million for 2008 and 2009.
|
|
| 6. |
ACQUISITION AND DISPOSITION OF PROPERTIES |
In 2004, Pulitzer Inc. subsidiaries acquired businesses,
principally weekly newspapers and niche publications that
complement the daily newspaper operations of the PNI Group in
Coos Bay, Oregon; Bloomington, Illinois; and Santa Barbara
County, California, and St. Louis newspaper distribution
businesses, for an aggregate purchase price of approximately
$7.6 million.
In 2003, Pulitzer Inc. subsidiaries acquired businesses,
principally those focused on distribution operations in
St. Louis, and weekly newspapers and niche publications
that complement the PNI Group’s daily newspaper operations
in Provo, Utah; Napa, California; Coos Bay, Oregon; and
Rhinelander, Wisconsin, for an aggregate purchase price of
approximately $17.4 million.
In 2002, Pulitzer Inc. subsidiaries acquired businesses,
principally St. Louis newspaper distribution businesses,
for an aggregate purchase price of approximately
$9.1 million.
The pro forma results of the 2004, 2003 and 2002 acquisitions
were not material and, therefore, are not presented.
54
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
Investments classified as available-for-sale securities at
December 31, 2004 and 2003 consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Gross |
|
Gross |
|
|
| |
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
| December 31, 2004: |
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
| |
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
Debt securities issued by the U.S. Government and agencies
|
|
$ |
157,496 |
|
|
$ |
11 |
|
|
$ |
(1,116 |
) |
|
$ |
156,391 |
|
|
Corporate securities
|
|
|
40,074 |
|
|
|
4 |
|
|
|
(389 |
) |
|
|
39,689 |
|
|
Asset-backed and mortgage-backed securities
|
|
|
22,965 |
|
|
|
32 |
|
|
|
(111 |
) |
|
|
22,886 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total investments(1)
|
|
$ |
220,535 |
|
|
$ |
47 |
|
|
$ |
(1,616 |
) |
|
$ |
218,966 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Gross |
|
Gross |
|
|
| |
|
Amortized |
|
Unrealized |
|
Unrealized |
|
|
| December 31, 2003: |
|
Cost |
|
Gains |
|
Losses |
|
Fair Value |
| |
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
Debt securities issued by the U.S. Government and agencies
|
|
$ |
153,697 |
|
|
$ |
257 |
|
|
$ |
(96 |
) |
|
$ |
153,858 |
|
|
Corporate securities
|
|
|
31,467 |
|
|
|
141 |
|
|
|
(95 |
) |
|
|
31,513 |
|
|
Asset-backed and mortgage-backed securities
|
|
|
15,371 |
|
|
|
162 |
|
|
|
(8 |
) |
|
|
15,525 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total investments(1)
|
|
$ |
200,535 |
|
|
$ |
560 |
|
|
$ |
(199 |
) |
|
$ |
200,896 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Fair value of investments included $149.2 million and
$69.8 million reported as marketable securities and
restricted cash and investments, respectively, on the
Company’s Consolidated Statements of Financial Position at
December 31, 2004, and $148.6 million and
$52.3 million, respectively, at December 31, 2003. |
For the year ended December 31, 2004, proceeds from the
sale of marketable securities were $337.1 million resulting
in gross realized gains and losses of $590,000 and $256,000,
respectively. In addition, net unrealized losses of
$1.0 million, after tax, were included in accumulated other
comprehensive income for the year ended December 31, 2004.
For the year ended December 31, 2003, proceeds from sales
of marketable securities were $298.5 million, resulting in
gross realized gains and losses of $550,000 and $48,000,
respectively. In addition, net unrealized gains of
$0.2 million, after tax, were included in accumulated other
comprehensive income for the year ended December 31, 2003.
55
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 7. |
MARKETABLE SECURITIES — Continued |
The amortized cost and fair value of available-for-sale
securities as of December 31, 2004, by contractual
maturity, are shown in the following table. 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. Asset-backed and mortgage-backed
securities are not included in the maturity categories in the
following maturity summary, as actual maturities may differ from
contractual maturities because the underlying mortgages may be
called or prepaid without any penalties.
| |
|
|
|
|
|
|
|
|
|
| |
|
Amortized |
|
|
| December 31, 2004: |
|
Cost |
|
Fair Value |
| |
|
|
|
|
| |
|
(In thousands) |
|
Due in one year or less
|
|
$ |
95,615 |
|
|
$ |
95,288 |
|
|
Due after one year through five years
|
|
|
101,955 |
|
|
|
100,792 |
|
|
Asset-backed and mortgage-backed securities
|
|
|
22,965 |
|
|
|
22,886 |
|
| |
|
|
|
|
|
|
|
|
| |
Total investments
|
|
$ |
220,535 |
|
|
$ |
218,966 |
|
| |
|
|
|
|
|
|
|
|
|
|
| 8. |
FINANCING ARRANGEMENTS |
In connection with the Venture (see Note 4), on May 1,
2000, PD LLC borrowed $306.0 million (the “Loan”)
from a group of institutional lenders (the “Lenders”)
led by Prudential Capital Group, a division of The Prudential
Insurance Company of America. The aggregate principal amount of
the Loan is payable on April 28, 2009 and bears interest at
an annual rate of 8.05 percent. The Loan is guaranteed by
the Company pursuant to a Guaranty Agreement dated May 1,
2000 (“Guaranty Agreement”) with the Lenders. In turn,
pursuant to an Indemnity Agreement dated May 1, 2000
(“Indemnity Agreement”) between Herald and Pulitzer
Inc., Herald agreed to indemnify Pulitzer Inc. for any payments
that Pulitzer Inc. may make under the Guaranty Agreement.
The terms of the Loan contain certain covenants and conditions
including the maintenance of operating cash flow and minimum net
worth requirements and limitations on the incurrence of other
debt. In addition, the Loan agreement and the Operating
Agreement require that PD LLC maintain a minimum reserve
balance, consisting of cash and investments in
U.S. government securities, totaling approximately
$69.8 million as of December 31, 2004. The Loan
agreement and the Operating Agreement provide for a
$3.75 million quarterly increase in the minimum reserve
balance through May 1, 2010, when the amount will total
$150.0 million.
In December 2001 and August 2003 the Company executed
fixed-to-floating interest rate swap contracts in the combined
amount of $150.0 million. The swap contracts mature with
the Company’s debt on April 28, 2009. The Company
accounts for all swaps as fair value hedges and employs the
short cut method. These interest rate swap contracts have the
effect of converting the interest cost for $150.0 million
of the Company’s debt from fixed rate to variable rate at
an average cost of LIBOR + 3.34275 percent. As of
December 31, 2004, approximately 49 percent of the
Company’s long-term interest cost was subject to variable
rates.
In October 2002 the Company terminated other swap contracts
totaling $75.0 million, resulting in a net gain of
$5.0 million. The Company initially recognized the
$5.0 million cash receipt, representing the increased fair
value of the long-term debt at the date of the swap
terminations, as an increase in long-term liabilities with
subsequent, ratable amortization as a reduction of interest
expense over the remaining life of the original interest rate
swap contracts which would have expired on April 28, 2009.
The unamortized balance of $3.3 million and
$4.1 million as of December 31, 2004 and 2003,
respectively, is presented as a component of other non-current
liabilities.
56
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 8. |
FINANCING ARRANGEMENTS — Continued |
As of December 31, 2004, the fair value of the interest
rate swaps represented an unrealized gain of $4.6 million,
which was offset by an unrealized loss of $4.6 million on
the related portion of the long-term debt. As of
December 31, 2003, the fair value of the interest rate
swaps represented an unrealized gain of $6.3 million, which
was offset by an unrealized loss of $6.3 million on the
related portion of the long-term debt.
The Company and its subsidiaries have several funded and
unfunded noncontributory defined benefit pension plans that
together cover a significant portion of their employees.
Benefits under the plans are generally based on salary and years
of service. The Company’s liability and related expense for
benefits under the plans are recorded over the service period of
active employees based upon annual actuarial calculations. Plan
funding strategies are influenced by tax regulations. Plan
assets consist primarily of domestic and foreign corporate
equity securities, government and corporate bonds, and cash.
The Company uses a September 30 measurement date for all of
its pension plan obligations.
The pension cost components for the Company’s pension plans
are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
(In thousands) |
|
Service cost for benefits earned during the year
|
|
$ |
4,900 |
|
|
$ |
4,366 |
|
|
$ |
4,228 |
|
|
Interest cost on projected benefit obligation
|
|
|
9,324 |
|
|
|
9,293 |
|
|
|
9,127 |
|
|
Expected return on plan assets
|
|
|
(11,103 |
) |
|
|
(9,862 |
) |
|
|
(10,379 |
) |
|
Amortization of prior service cost
|
|
|
313 |
|
|
|
313 |
|
|
|
284 |
|
|
Amortization of transition obligation
|
|
|
0 |
|
|
|
55 |
|
|
|
318 |
|
|
Amortization of unrecognized net actuarial loss
|
|
|
1,453 |
|
|
|
401 |
|
|
|
25 |
|
|
Cost for special termination benefits
|
|
|
188 |
|
|
|
128 |
|
|
|
127 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$ |
5,075 |
|
|
$ |
4,694 |
|
|
$ |
3,730 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
Dec. 31, |
|
Dec. 31, |
| |
|
2004 |
|
2003 |
| |
|
|
|
|
| |
|
(In thousands) |
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$ |
160,302 |
|
|
$ |
147,224 |
|
|
Service cost
|
|
|
4,900 |
|
|
|
4,366 |
|
|
Interest cost
|
|
|
9,324 |
|
|
|
9,293 |
|
|
Actuarial loss
|
|
|
5,345 |
|
|
|
7,499 |
|
|
Benefits paid
|
|
|
(10,026 |
) |
|
|
(8,767 |
) |
|
Plan amendments
|
|
|
15 |
|
|
|
559 |
|
|
Special termination benefits
|
|
|
188 |
|
|
|
128 |
|
| |
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
170,048 |
|
|
|
160,302 |
|
| |
|
|
|
|
|
|
|
|
57
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 9. |
PENSION PLANS — Continued |
| |
|
|
|
|
|
|
|
|
|
| |
|
Dec. 31, |
|
Dec. 31, |
| |
|
2004 |
|
2003 |
| |
|
|
|
|
| |
|
(In thousands) |
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
119,618 |
|
|
|
97,721 |
|
|
Actual gain on plan assets
|
|
|
15,803 |
|
|
|
18,067 |
|
|
Employer contributions
|
|
|
25,009 |
|
|
|
12,597 |
|
|
Benefits paid
|
|
|
(10,026 |
) |
|
|
(8,767 |
) |
| |
|
|
|
|
|
|
|
|
|
Fair value of plan assets at September 30
|
|
|
150,404 |
|
|
|
119,618 |
|
| |
|
|
|
|
|
|
|
|
|
Funded status — benefit obligation in excess of plan
assets
|
|
|
19,644 |
|
|
|
40,684 |
|
|
Unrecognized net actuarial loss
|
|
|
(25,940 |
) |
|
|
(26,733 |
) |
|
Unrecognized prior service cost
|
|
|
(1,050 |
) |
|
|
(1,362 |
) |
| |
|
|
|
|
|
|
|
|
|
Net amount recognized as of September 30 measurement date
|
|
|
(7,346 |
) |
|
|
12,589 |
|
|
Fourth quarter contribution
|
|
|
(996 |
) |
|
|
(23,988 |
) |
| |
|
|
|
|
|
|
|
|
|
Net amount recognized (asset)
|
|
$ |
(8,342 |
) |
|
$ |
(11,399 |
) |
| |
|
|
|
|
|
|
|
|
|
Amounts recognized in the Statement of Financial Position
consist of:
|
|
|
|
|
|
|
|
|
| |
Pension asset/other long-term assets
|
|
$ |
(23,731 |
) |
|
$ |
(9,570 |
) |
| |
Accrued benefit liability
|
|
|
17,160 |
|
|
|
16,165 |
|
| |
Intangible asset (Note 5)
|
|
|
(1,063 |
) |
|
|
(1,260 |
) |
| |
Accumulated other comprehensive income
|
|
|
(708 |
) |
|
|
(16,734 |
) |
| |
|
|
|
|
|
|
|
|
|
Net amount recognized (asset)
|
|
$ |
(8,342 |
) |
|
$ |
(11,399 |
) |
| |
|
|
|
|
|
|
|
|
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for the pension plans with
accumulated benefit obligations in excess of plan assets were
$41.5 million, $19.8 million and $1.7 million,
respectively, at September 30, 2004, and
$160.3 million, $149.9 million and
$119.6 million, respectively, at September 30, 2003.
Additional Information
| |
|
|
|
|
|
|
|
|
| |
|
Year Ended |
| |
|
December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Decrease in minimum liability included in other comprehensive
income, net of tax
|
|
$ |
(9,933 |
) |
|
$ |
(311 |
) |
Assumptions
Weighed-average assumptions used to determine benefit
obligations at December 31
| |
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Discount rate
|
|
|
5.75 |
% |
|
|
6.0 |
% |
|
Rate of compensation increase
|
|
|
3.5 |
% |
|
|
3.5 |
% |
58
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 9. |
PENSION PLANS — Continued |
Weighed-average assumptions used to determine net periodic
benefit cost for years ended December 31
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Discount rate
|
|
|
6.0 |
% |
|
|
6.5 |
% |
|
|
7.0 |
% |
|
Expected long-term return on plan assets
|
|
|
8.5 |
% |
|
|
8.5 |
% |
|
|
9.0 |
% |
|
Rate of compensation increase
|
|
|
3.5 |
% |
|
|
3.75 |
% |
|
|
4.0 |
% |
The assumptions related to the expected long-term return on plan
assets were developed through an analysis of historical market
returns, current market conditions, and the fund’s actual
past experience in allocating among asset classes. The Company
uses estimates for future market returns that are lower than
actual long-term historical returns in order to reflect recent
market activity and the potential that future returns may be
lower than long-term historical trends would indicate.
Plan Assets
The weighted-average asset allocation of the Company’s
pension fund at December 31, 2004 and 2003, was as follows:
Asset Allocation versus Policy Allocation
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Allocation of |
| |
|
|
|
Plan Assets |
| |
|
|
|
at |
| |
|
|
|
December 31 |
| |
|
|
|
|
| Asset Classes |
|
Policy Allocation |
|
2004 |
|
2003 |
| |
|
|
|
|
|
|
|
Equities
|
|
65% to 70% |
|
|
71 |
% |
|
|
68 |
% |
|
Bonds
|
|
35% to 30% |
|
|
29 |
% |
|
|
32 |
% |
|
Total
|
|
100% |
|
|
100 |
% |
|
|
100 |
% |
The Pulitzer Statement of 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 fund holds no Company securities (common stock or
other), directly or through separate accounts.
Cash Flows
Contributions
Based on the Company forecast at December 31, 2004, the
Company expects to contribute $1.4 million to the pension
plan in 2005.
59
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 9. |
PENSION PLANS — Continued |
Estimated Future Benefit Payments
The Company anticipates future benefit payments, which reflect
future service, to be paid from the pension trust as follows:
| |
|
|
|
|
| Year |
|
Pension Benefits |
| |
|
|
| |
|
(In millions) |
|
2005
|
|
$ |
9.7 |
|
|
2006
|
|
|
9.8 |
|
|
2007
|
|
|
10.0 |
|
|
2008
|
|
|
10.2 |
|
|
2009
|
|
|
10.4 |
|
|
Years 2010-2014
|
|
$ |
57.3 |
|
Certain of the Company’s employees participate in
multi-employer retirement plans sponsored by their respective
unions. Amounts charged to operations, representing the
Company’s required contributions to these plans, were
approximately $0.8 million in 2004, 2003 and 2002. These
amounts have been recognized as an operating expense.
The Company also sponsors an employee savings plan under
Section 401(k) of the Internal Revenue Code. This plan
covers substantially all employees. Contributions by the Company
amounted to approximately $2.2 million for 2004,
$1.8 million for 2003 and $2.1 million for 2002.
10. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides retiree medical and life insurance benefits
under varying postretirement plans at several of its operating
locations. The level and adjustment of participant contributions
vary depending on the specific postretirement plan. In addition,
the PD LLC provides postemployment disability benefits to
certain employee groups prior to retirement at the
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.
The Company uses a September 30 measurement date for all of
its postretirement plans.
The net periodic postretirement benefit cost components for the
Company’s postretirement plans are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
(In thousands) |
|
Service cost for benefits earned during the year
|
|
$ |
2,843 |
|
|
$ |
2,327 |
|
|
$ |
2,006 |
|
|
Interest cost on projected benefit obligation
|
|
|
6,620 |
|
|
|
6,680 |
|
|
|
6,292 |
|
|
Expected return on plan assets
|
|
|
(1,136 |
) |
|
|
(766 |
) |
|
|
0 |
|
|
Amortization of prior service cost
|
|
|
(1 |
) |
|
|
10 |
|
|
|
(1,143 |
) |
|
Amortization of net gain
|
|
|
688 |
|
|
|
360 |
|
|
|
360 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement benefit cost
|
|
$ |
9,014 |
|
|
$ |
8,611 |
|
|
$ |
7,515 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
60
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
10. POSTRETIREMENT AND POSTEMPLOYMENT
BENEFITS — Continued
The Company made postretirement benefit payments of
$5.4 million for 2004, $5.5 million for 2003, and
$5.9 million for 2002.
| |
|
|
|
|
|
|
|
|
| |
|
Dec. 31, |
|
Dec. 31, |
| |
|
2004 |
|
2003 |
| |
|
|
|
|
| |
|
(In thousands) |
|
Benefit obligation at beginning of year
|
|
$ |
123,092 |
|
|
$ |
106,378 |
|
|
Service cost
|
|
|
2,843 |
|
|
|
2,327 |
|
|
Interest cost
|
|
|
6,620 |
|
|
|
6,680 |
|
|
Actuarial (gain)/loss
|
|
|
(16,192 |
) |
|
|
13,225 |
|
|
Benefits paid
|
|
|
(5,407 |
) |
|
|
(5,518 |
) |
| |
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
110,956 |
|
|
|
123,092 |
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
23,090 |
|
|
|
14,472 |
|
|
Actual return on plan assets
|
|
|
464 |
|
|
|
651 |
|
|
Employer contributions
|
|
|
13,993 |
|
|
|
13,485 |
|
|
Benefits paid
|
|
|
(5,407 |
) |
|
|
(5,518 |
) |
| |
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
32,140 |
|
|
|
23,090 |
|
| |
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
78,816 |
|
|
|
100,002 |
|
|
Unrecognized net actuarial loss
|
|
|
(17,845 |
) |
|
|
(29,701 |
) |
|
Unrecognized prior service cost
|
|
|
4,367 |
|
|
|
15 |
|
| |
|
|
|
|
|
|
|
|
|
Net amount recognized as of September 30, measurement date
|
|
|
65,338 |
|
|
|
70,316 |
|
|
Fourth quarter contribution
|
|
|
(14,849 |
) |
|
|
(12,743 |
) |
| |
|
|
|
|
|
|
|
|
|
Net amount recognized — accrued benefit cost
|
|
$ |
50,489 |
|
|
$ |
57,573 |
|
| |
|
|
|
|
|
|
|
|
Assumptions
Weighed-average assumptions used to determine benefit
obligations at December 31
| |
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Discount rate
|
|
|
5.75 |
% |
|
|
6.0 |
% |
|
Expected long-term return on plan assets
|
|
|
5.0 |
% |
|
|
4.0 |
% |
Weighed-average assumptions used to determine net periodic
benefit cost for years ended December 31
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Discount rate
|
|
|
6.0 |
% |
|
|
6.5 |
% |
|
|
7.0 |
% |
|
Expected long-term return on plan assets
|
|
|
4.0 |
% |
|
|
4.0 |
% |
|
|
4.0 |
% |
The assumptions related to the expected long-term return on plan
assets were developed through an analysis of historical market
returns and current market conditions. The Company uses
estimates for future market returns that are lower than actual
long-term historical returns in order to reflect recent market
activity and the potential that future returns may be lower than
long-term historical trends would indicate.
61
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
10. POSTRETIREMENT AND POSTEMPLOYMENT
BENEFITS — Continued
Assumed health care cost trend rates at December 31
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Health care cost trend rate assumed for next year
|
|
|
|
|
|
|
|
|
| |
— Indemnity plans
|
|
|
12.5%-13.5% |
|
|
|
13.0 |
% |
| |
— PPO plans
|
|
|
11.5%-12.5% |
|
|
|
12.0 |
% |
| |
— HMO plans
|
|
|
9.5%-10.5% |
|
|
|
10.0 |
% |
|
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
|
|
|
5.25% |
|
|
|
5.5 |
% |
|
Year that the rate reaches the ultimate trend rate
|
|
|
2015 |
|
|
|
2014 |
|
Administrative costs related to indemnity plans were assumed to
increase at a constant annual rate of 6.0 percent for 2004,
2003 and 2002.
Assumed health care cost trend rates have a significant effect
on the amounts reported for the postretirement health care
plans. A one-percentage-point change in assumed health care cost
trend rates would have the following effects on reported amounts
for 2004:
| |
|
|
|
|
|
|
|
|
| |
|
Income from Operations |
| |
|
1-percentage-point |
| |
|
|
| |
|
Increase |
|
Decrease |
| |
|
|
|
|
| |
|
(In thousands) |
|
Effect on net periodic postretirement benefit cost
|
|
$ |
1,686 |
|
|
$ |
(1,302 |
) |
|
Effect on postretirement benefit obligation
|
|
$ |
16,177 |
|
|
$ |
(12,727 |
) |
Plan Assets
The weighted-average asset allocation of the Company’s
postretirement fund at December 31, 2004 and 2003, was as
follows:
Asset Allocation versus Policy Allocation
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Allocation of |
| |
|
|
|
Plan Assets at |
| |
|
|
|
December 31, |
| |
|
Policy |
|
|
| Asset Classes |
|
Allocation |
|
2004 |
|
2003 |
| |
|
|
|
|
|
|
|
Equities
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
Bonds
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
Total
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
The Pulitzer Statement of 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 (common
stock or other), directly or through separate accounts.
62
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
10. POSTRETIREMENT AND POSTEMPLOYMENT
BENEFITS — Continued
The Company’s postemployment benefit obligation,
representing certain disability benefits at the
Post-Dispatch, was $3.7 million at December 31,
2004 and 2003, respectively.
Cash Flows
Contributions
Based on its forecast at December 31, 2004, the Company
expects to contribute $5.7 million to its postretirement
plans in 2005.
Estimated Future Benefit Payments
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:
| |
|
|
|
|
| Year |
|
Benefit Plans |
| |
|
|
| |
|
(In millions) |
|
2005
|
|
$ |
5.7 |
|
|
2006
|
|
|
6.1 |
|
|
2007
|
|
|
6.4 |
|
|
2008
|
|
|
6.6 |
|
|
2009
|
|
|
6.9 |
|
|
Years 2010-2014
|
|
$ |
38.4 |
|
See Note 2 for a discussion of the effect which the 2003
Medicare Law had on the liabilities and annual expenses
associated with of the Company’s postemployment and
postretirement benefit plans.
|
|
| 11. |
RELATED PARTY TRANSACTIONS |
The Company retained, and incurred costs for legal services
provided by, a law firm, in which a director of the Company is a
partner in the approximate amounts of $2.1 million,
$1.6 million, and $1.1 million in 2004, 2003 and 2002,
respectively. With respect to Pulitzer Inc.’s retention of
the same law firm regarding the Strategic Review Process,
Pulitzer Inc. agreed, in the event of and upon the closing of
the transactions contemplated in connection with the Strategic
Review Process, to pay that firm a success bonus in an amount
equal to 25% of its aggregate regular fees for time spent by its
personnel who participated at any time through the closing in
the representation of Pulitzer Inc. relating to the Strategic
Review Process.
The Company retained and compensated a financial advisory
services firm, in which another director of the Company is an
executive officer, in the approximate amount of
$0.2 million per year in 2004, 2003 and 2002. In addition,
Pulitzer Inc. engaged that same financial advisory services firm
to render financial consulting services in connection with the
Strategic Review Process and agreed to pay that firm a fee of
$0.5 million in the event of and upon the closing of the
transactions contemplated in connection with the Strategic
Review Process.
As of December 31, 2004, no recognition has been given to
the contingent payments disclosed in this Note.
63
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
12. INCOME TAXES
Provisions for income taxes consisted of the following:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
(In thousands) |
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
$ |
18,805 |
|
|
$ |
2,931 |
|
|
$ |
(815 |
) |
| |
State and local
|
|
|
535 |
|
|
|
126 |
|
|
|
(70 |
) |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Federal
|
|
|
5,348 |
|
|
|
21,335 |
|
|
|
21,420 |
|
| |
State and local
|
|
|
155 |
|
|
|
914 |
|
|
|
1,836 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total
|
|
$ |
24,843 |
|
|
$ |
25,306 |
|
|
$ |
22,371 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Factors causing effective tax rates to differ from the statutory
Federal income tax rate were:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Federal statutory rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
State and local income taxes (net of Federal tax benefit)
|
|
|
2.1 |
% |
|
|
2.5 |
% |
|
|
2.0 |
% |
|
Other
|
|
|
(1.8 |
)% |
|
|
(1.0 |
)% |
|
|
1.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
|
35.3 |
% |
|
|
36.5 |
% |
|
|
38.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s deferred tax assets and liabilities, net,
which have been included in other assets or other liabilities in
the consolidated statements of financial position, consisted of
the following:
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Dec. 31, |
|
Dec. 31, |
| |
|
2004 |
|
2003 |
| |
|
|
|
|
| |
|
(In thousands) |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Pensions and employee benefits
|
|
$ |
5,836 |
|
|
$ |
8,363 |
|
| |
Postretirement benefit costs
|
|
|
19,806 |
|
|
|
22,187 |
|
| |
State operating loss carryforwards
|
|
|
7,872 |
|
|
|
7,749 |
|
| |
Valuation allowances on state operating loss carryforwards
|
|
|
(7,872 |
) |
|
|
(7,749 |
) |
|
Other
|
|
|
4,182 |
|
|
|
3,715 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total
|
|
|
29,824 |
|
|
|
34,265 |
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
| |
Depreciation
|
|
|
15,559 |
|
|
|
16,765 |
|
| |
Amortization
|
|
|
52,387 |
|
|
|
44,232 |
|
| |
|
|
|
|
|
|
|
|
| |
|
Total
|
|
|
67,946 |
|
|
|
60,997 |
|
| |
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$ |
38,122 |
|
|
$ |
26,732 |
|
| |
|
|
|
|
|
|
|
|
At December 31, 2004, the Company had approximately
$190.9 million of operating loss carryforwards for state
tax purposes that will expire between 2005 and 2024. The Company
has established valuation allowances on these carryforwards.
64
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
Each share of Pulitzer Inc.’s common stock is entitled to
one vote, and each share of Class B common stock is
entitled to ten votes on all matters. As of December 31,
2004, holders of outstanding shares of Class B common stock
represented 92.1 percent of the combined voting power of
Pulitzer Inc., with holders of common stock representing the
balance of the voting power. As of December 31, 2004,
holders of approximately 95.5 percent of the outstanding
shares of Class B common stock representing
87.9 percent of the combined voting power had deposited
their shares in a voting trust (the “Voting Trust”).
Each share of Class B common stock is convertible into one
share of common stock at the holder’s option subject to the
limitations imposed by the Voting Trust on the shares of
Class B common stock deposited thereunder. The Voting Trust
permits the conversion of the Class B common stock
deposited in the Voting Trust into common stock in connection
with certain permitted transfers, including, without limitation,
sales which are exempt from the registration requirements of the
Securities Act of 1933, as amended, sales which meet the volume
and manner of sale requirements of Rule 144 promulgated
thereunder and sales which are made pursuant to registered
public offerings.
The trustees generally hold all voting rights with respect to
the shares of Class B common stock subject to the Voting
Trust; however, in connection with certain matters, including
any proposal for a merger, consolidation, recapitalization or
dissolution of Pulitzer Inc. or disposition of all or
substantially all its assets, the calling of a special meeting
of stockholders and the removal of directors, the Trustees may
not vote the shares deposited in the Voting Trust except in
accordance with written instructions from the holders of the
Voting Trust Certificates. The Voting Trust may be
terminated with the written consent of holders of two-thirds in
interest of all outstanding Voting Trust Certificates.
Unless extended or terminated by the parties thereto, the Voting
Trust expires on March 18, 2009.
In 2004, 2003, and 2002, Pulitzer Inc. declared and paid cash
dividends of $0.76, $0.72 and $0.70, respectively, per share of
common stock and Class B common stock.
On July 16, 1999, the Pulitzer Inc. Board of Directors
approved the repurchase of up to $50.0 million of its
common stock in the open market. On May 1, 2000, the Board
of Directors authorized the repurchase of an additional
$50.0 million of the Company’s common stock. During
the third quarter of 2000, the Board of Directors amended the
repurchase program to provide for both the purchase of
Class B shares and the purchase of shares in privately
negotiated transactions. On August 16, 2000, Pulitzer Inc.
purchased 1,000,000 shares of Class B common stock
from Michael E. Pulitzer, the Company’s Chairman of the
Board, for approximately $40.1 million. As of
December 31, 2004, Pulitzer Inc. had repurchased
1,000,000 shares of Class B common stock and
536,933 shares of common stock for a combined purchase
price of approximately $62.4 million, leaving
$37.6 million in remaining stock repurchase authority. The
repurchased shares have been included in treasury stock of the
Company. In 2002, Pulitzer Inc. retired 531,796 shares of
common stock and 1,000,000 shares of Class B common
stock held in treasury stock. No shares were retired in 2003 or
2004. The Lee Merger Agreement restricts the Company’s
ability to repurchase shares of the Company’s common stock
or Class B common stock without Lee’s consent.
On March 18, 1999, the Company entered into an agreement
with Emily Rauh Pulitzer, Michael E. Pulitzer and David E. Moore
(each of whom was then, and is currently, a director of the
Company, except Mr. Moore, who is now a director emeritus
of the Company) granting each of them and their heirs, legal
representatives, successors and assigns, as well as certain
family members and certain related entities and trusts, certain
registration rights with respect to the shares of Pulitzer Inc.
common stock issuable upon exchange of their shares of Pulitzer
Inc. Class B common stock.
65
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
On May 22, 2003, Pulitzer Inc.’s stockholders approved
the adoption of the Pulitzer Inc. 2003 Incentive Plan (the
“2003 Incentive Plan”). The 2003 Incentive Plan
combined the Pulitzer Inc. 1999 Stock Option Plan (the
“Predecessor Option Plan”) and the Pulitzer Inc. 1999
Key Employees’ Restricted Stock Purchase Plan (the
“Predecessor Stock Plan”) into a single restated plan.
The 2003 Incentive Plan authorizes Pulitzer Inc. to make equity
and cash incentive awards to eligible employees and directors of
Pulitzer Inc. and its subsidiaries, including stock options,
stock appreciation rights, restricted stock and restricted stock
unit grants, performance shares, and performance-based cash
incentive awards. Pulitzer Inc. may issue up to 4.5 million
shares of common stock under the 2003 Incentive Plan, reduced by
the combined number of shares issued under the Predecessor
Option Plan and the Predecessor Stock Plan (together, the
“Predecessor Plans”). Other limitations apply to
annual awards that may be made to or earned by individual
participants. The Compensation Committee of the Board of
Directors administers the 2003 Incentive Plan.
As of December 31, 2004, of the 4.5 million shares
reserved for issuance under the 2003 Incentive Plan (including
the Predecessor Plans), 1,383,410 shares remained available
for future awards.
Non-employee directors (with certain exceptions) are eligible to
participate in the 2003 Incentive Plan. On the day following the
2004 annual meeting of Pulitzer Inc. stockholders, each
non-employee director other than Richard W. Moore received the
following awards under the 2003 Incentive Plan: (a) a stock
option for 3,000 shares with an exercise price per share of
$51.07, and (b) 391 shares of restricted stock with a
value per share of $51.07. Within limits, the Compensation
Committee (or the Board of Directors in the case of options
granted to non-employee directors), acting in its discretion,
determines the terms and conditions of options granted under the
2003 Incentive Plan. In general, the exercise price of an option
may not be less than the market value of the shares covered by
the option on the date it is granted, except that the minimum
exercise price is 85% of market value in the case of options
granted to employees that are not “incentive stock
options” under the Internal Revenue Code. Unless terminated
sooner, options granted under the 2003 Incentive Plan expire if
they are not exercised within ten years after they are granted.
In connection with the Lee Merger (as defined below), the
non-employee directors’ options will be converted into cash
(based upon a per share value equal to the difference between
$64.00 and the option exercise price per share) and their shares
of restricted stock will be exchanged for $64.00 per share
on the same basis as any other stockholder.
66
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 14. |
COMMON STOCK PLANS — Continued |
Stock Options
Stock option transactions under the 2003 Incentive Plan
(including the Predecessor Option Plan) are summarized as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
| |
|
|
|
|
|
Average |
| |
|
Shares |
|
Price Range |
|
Price |
| |
|
|
|
|
|
|
|
Common Stock Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2002
|
|
|
1,982,482 |
|
|
$ |
37.31–$54.20 |
|
|
$ |
41.31 |
|
| |
Granted (weighted average fair value at grant date of $13.43)
|
|
|
466,324 |
|
|
$ |
42.86–$54.70 |
|
|
$ |
43.41 |
|
| |
Canceled
|
|
|
(67,936 |
) |
|
$ |
39.69–$50.45 |
|
|
$ |
45.47 |
|
| |
Exercised
|
|
|
(100,607 |
) |
|
$ |
39.69–$50.45 |
|
|
$ |
40.66 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2002
|
|
|
2,280,263 |
|
|
$ |
37.31–$54.70 |
|
|
$ |
43.53 |
|
|
Exercisable, December 31, 2002
|
|
|
1,340,857 |
|
|
$ |
37.31–$54.20 |
|
|
$ |
42.20 |
|
| |
Granted (weighted average fair value at grant date of $13.32)
|
|
|
578,141 |
|
|
$ |
42.49–$52.92 |
|
|
$ |
51.58 |
|
| |
Canceled
|
|
|
(66,576 |
) |
|
$ |
42.86–$53.15 |
|
|
$ |
45.71 |
|
| |
Exercised
|
|
|
(158,758 |
) |
|
$ |
39.69–$50.45 |
|
|
$ |
41.88 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2003
|
|
|
2,633,070 |
|
|
$ |
37.31–$54.70 |
|
|
$ |
45.36 |
|
|
Exercisable, December 31, 2003
|
|
|
1,616,871 |
|
|
$ |
37.31–$54.70 |
|
|
$ |
43.19 |
|
| |
Granted (weighted average fair value at grant date of $13.23)
|
|
|
28,750 |
|
|
$ |
48.00–$55.13 |
|
|
$ |
51.90 |
|
| |
Canceled
|
|
|
(11,413 |
) |
|
$ |
42.86–$52.92 |
|
|
$ |
47.72 |
|
| |
Exercised
|
|
|
(164,275 |
) |
|
$ |
39.69–$53.40 |
|
|
$ |
44.28 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2004(1)
|
|
|
2,486,132 |
|
|
$ |
37.31–$55.13 |
|
|
$ |
45.50 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2004
|
|
|
1,924,705 |
|
|
$ |
37.31–$54.70 |
|
|
$ |
44.36 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
The remaining weighted average life of options outstanding at
December 31, 2004 is 7 years. |
Restricted Stock Awards
As indicated in the preceding section relating to stock options,
the 2003 Incentive Plan also restated and replaced the
Predecessor Stock Plan. Under the 2003 Incentive Plan, the
Company may issue shares of common stock or rights to acquire
shares of common stock to employees, directors and other
personnel on such terms and conditions and subject to such
restrictions as the Compensation Committee (or the Board of
Directors in the case of awards to non-employee directors), in
its discretion, determines. Ordinarily, restricted stock is
issued for nominal consideration and is subject to forfeiture
conditions and transfer restrictions during a specified period
of time contingent on continuing employment or service with the
Company and/or upon the attainment of performance goals. The
principal distinction between restricted stock awards and
restricted stock unit awards is that, in the case of a unit
award, no shares are issued to the participant unless and until
the vesting criteria are satisfied. Under current accounting
rules, compensation equal to the fair market value of the common
stock covered by a restricted stock or restricted stock unit
award is recognized over the forfeitability period or the
vesting period, as the case may be.
67
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 14. |
COMMON STOCK PLANS — Continued |
Restricted stock grant transactions under the 2003 Incentive
Plan (including the Predecessor Stock Plan) are summarized as
follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
| |
|
|
|
|
|
Average |
| |
|
Shares |
|
Price Range |
|
Price |
| |
|
|
|
|
|
|
|
Common Stock Grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2002
|
|
|
8,021 |
|
|
$ |
39.88–$42.88 |
|
|
$ |
40.51 |
|
| |
Granted
|
|
|
5,949 |
|
|
$ |
42.03–$42.03 |
|
|
$ |
42.03 |
|
| |
Canceled
|
|
|
(660 |
) |
|
$ |
41.88–$42.88 |
|
|
$ |
42.40 |
|
| |
Vested
|
|
|
(6,020 |
) |
|
$ |
39.88–$39.88 |
|
|
$ |
39.88 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2002
|
|
|
7,290 |
|
|
$ |
41.31–$42.88 |
|
|
$ |
42.10 |
|
| |
Granted
|
|
|
3,946 |
|
|
$ |
50.69–$50.69 |
|
|
$ |
50.69 |
|
| |
Canceled
|
|
|
(572 |
) |
|
$ |
41.31–$42.88 |
|
|
$ |
42.54 |
|
| |
Vested
|
|
|
(421 |
) |
|
$ |
41.88–$41.88 |
|
|
$ |
41.88 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2003
|
|
|
10,243 |
|
|
$ |
42.03–$50.69 |
|
|
$ |
45.39 |
|
| |
Granted
|
|
|
2,346 |
|
|
$ |
51.07–$51.07 |
|
|
$ |
51.07 |
|
| |
Canceled
|
|
|
(3,946 |
) |
|
$ |
50.69–$50.69 |
|
|
$ |
50.69 |
|
| |
Vested
|
|
|
(348 |
) |
|
$ |
42.88–$42.88 |
|
|
$ |
42.88 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Stock Grants, December 31, 2004
|
|
|
8,295 |
|
|
$ |
42.03–$51.07 |
|
|
$ |
44.58 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Under the 2003 Incentive Plan (including the Predecessor Stock
Plan), the Company did not grant any restricted stock unit
awards in 2004. In 2003, the Company granted restricted stock
unit awards for 41,067 shares of common stock at a weighted
average price of $50.44. In 2002, the Company granted restricted
stock unit awards for 20,533 shares of common stock at a
weighted average price of $42.86. As of December 31, 2004,
the Company had 139,680 outstanding stock units at a
weighted average price of $45.87. The price range for those
outstanding units was $39.88 to $53.06.
The Company maintains employee stock purchase plans (the
“Purchase Plans”) that allow eligible employees to
authorize payroll deductions for the periodic purchase of
Pulitzer Inc.’s common stock at a price generally equal to
85 percent of the common stock’s then fair market
value. In general, all employees of the Company are eligible to
participate in the Purchase Plans following their respective
hire dates. Subject to appropriate adjustment for stock splits
and other capital changes, Pulitzer Inc. may sell a total of
600,000 shares of its common stock under the Purchase
Plans. Shares sold under the Purchase Plans may be either
authorized and unissued or held by Pulitzer Inc. in its
treasury. Pulitzer Inc. sold and issued 22,292, 20,735, and
19,712 shares of common stock under the Purchase Plans for
2004, 2003 and 2002, respectively. As of December 31, 2004,
of the 600,000 shares reserved for issuance under the
Purchase Plans, 491,956 shares remained available for
future sale. In February 2005 the Compensation Committee of
Pulitzer Inc.’s Board of Directors suspended operations of
the Purchase Plans effective March 31, 2005.
68
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
Weighted average shares of common and Class B common stock
and common stock equivalents used in the calculation of basic
and diluted earnings per share are summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
(In thousands) |
|
Weighted average shares outstanding (Basic EPS)
|
|
|
21,591 |
|
|
|
21,404 |
|
|
|
21,279 |
|
|
Common stock equivalents
|
|
|
297 |
|
|
|
223 |
|
|
|
168 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and equivalents (Diluted EPS)
|
|
|
21,888 |
|
|
|
21,627 |
|
|
|
21,447 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock equivalents included in the Diluted EPS calculation
were determined using the treasury stock method for the
potential dilutive impact of stock options, restricted stock and
restricted stock units. Under the treasury stock method and
SFAS No. 128, Earnings per Share, outstanding
stock options are dilutive when the average market price of
Pulitzer Inc. common stock exceeds the option price during a
period. In addition, proceeds from the assumed exercise of
dilutive options along with the related tax benefit are assumed
to be used to repurchase common shares at the average market
price of such stock during the period. Options to
purchase 538,982, 200,976, and 319,591 shares for the
years ended 2004, 2003, and 2002, respectively, were not
included in the computation of diluted earnings per share
because the options’ respective exercise prices were
greater than the average market price of the common stock during
the respective periods.
|
|
| 16. |
COMMITMENTS AND CONTINGENCIES |
Capital Commitments
At December 31, 2004, the Company had construction and
equipment commitments of approximately $1.0 million.
Investment Commitments
At December 31, 2004, the Company had unfunded capital
contribution commitments of up to $4.5 million related to
limited partnerships in which it is an investor.
Rental Expense and Lease Commitments
Rental expense for 2004, 2003 and 2002 amounted to
$1.8 million, $2.0 million, and $2.6 million,
respectively. Approximate future minimum annual real estate
lease payments are as follows:
| |
|
|
|
|
|
| |
|
(In thousands) |
|
2005
|
|
$ |
2,418 |
|
|
2006
|
|
|
2,111 |
|
|
2007
|
|
|
1,635 |
|
|
2008
|
|
|
1,342 |
|
|
2009
|
|
|
1,201 |
|
|
Later years
|
|
|
2,524 |
|
| |
|
|
|
|
| |
Total
|
|
$ |
11,231 |
|
| |
|
|
|
|
69
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 16. |
COMMITMENTS AND CONTINGENCIES — Continued |
HTV Merger Agreement Indemnification
Pursuant to the HTV Merger Agreement, Pulitzer Inc. is obligated
to indemnify Hearst-Argyle against losses related to:
(i) on an after tax basis, certain tax liabilities,
including (A) any transfer tax liability attributable to
the Spin-off, (B) with certain exceptions, any tax
liability of Old Pulitzer, or any subsidiary of Old Pulitzer
attributable to any tax period (or portion thereof) ending on or
before the closing date of the HTV Merger, including tax
liabilities resulting from the Spin-off, and (C) any tax
liability of Pulitzer Inc. or any subsidiary of Pulitzer Inc.;
(ii) liabilities and obligations under any employee benefit
plans of Old Pulitzer not assumed by Hearst-Argyle, and
(iii) certain other matters as set forth in the HTV Merger
Agreement.
Internal Revenue Service Matters
In October 2001 the Internal Revenue Service (“IRS”)
formally proposed that the taxable income of Old Pulitzer for
the tax year ended March 18, 1999 be increased by
approximately $80.4 million based on its assertion that Old
Pulitzer was required to recognize a taxable gain in that amount
as a result of the Spin-off. Under the HTV Merger Agreement, the
Company is obligated to indemnify Hearst-Argyle against any tax
liability attributable to the Spin-off and has the right to
control any proceedings relating to the determination of Old
Pulitzer’s tax liability for such tax period. In January
2002, the Company filed a formal written protest of the
IRS’ proposed adjustment with the IRS Appeals Office.
On August 30, 2002, the Company, on behalf of Old Pulitzer,
filed with the IRS amended federal corporate income tax returns
for the tax years ended December 1997 and 1998 and March 1999 in
which tax refunds in the aggregate amount of approximately
$8.1 million, plus interest, were claimed. These refund
claims were based on the contention that Old Pulitzer was
entitled to deduct certain fees and expenses which it had not
previously deducted and which Old Pulitzer had incurred in
connection with its investigation of several strategic
alternatives and potential transactions prior to its decision to
proceed with the Broadcast Transaction. Under the HTV Merger
Agreement, the Company is entitled to any refunds recovered from
the IRS as a result of these claims.
In late 2003 the IRS Appeals Officer initially indicated that he
would sustain substantially the entire amount of the IRS’
proposed adjustment of Old Pulitzer’s taxable gain as a
result of the Spin-off. He further indicated that the refund
claims filed by the Company on behalf of Old Pulitzer for the
December 1997 and 1998 and March 1999 tax years had been
referred to the IRS’ Examination Division for review.
Subsequently, the Company’s representatives furnished the
IRS Appeals Officer with additional information in support of
the Company’s position on the issue of Old Pulitzer’s
taxable gain as a result of the Spin-off and also requested, in
view of this additional information, that this issue be referred
back to the IRS’ Examination Division for consideration
concurrently with the refund claims filed by the Company on
behalf of Old Pulitzer for the December 1997 and 1998 and March
1999 tax years. In July 2004, the IRS Appeals Officer agreed to
release jurisdiction over all issues relating to Old
Pulitzer’s consolidated federal income tax liability for
the December 1997 and 1998 and March 1999 tax years back to the
IRS Examination Division.
After July 2004 the Company’s representatives engaged in a
number of substantive discussions with representatives of the
IRS Examination Division seeking to resolve the above-described
issues. In January 2005, these discussions culminated in an
agreement in principle under which the Company’s liability
for Old Pulitzer’s net consolidated federal income tax
deficiency (excluding applicable interest) for 1998 and the tax
year ended March 18, 1999, after taking into account the
effects of the refund claims, is not expected to exceed
$200,000. This agreement in principle is subject to the
completion of final settlement calculations, execution of a
definitive agreement with the IRS and review by the
U.S. Congressional Joint Committee on Taxation. As a result
of this agreement in principle, the Company has recorded an
adjustment of $375,000
70
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
16. COMMITMENTS AND
CONTINGENCIES — Continued
(inclusive of related costs) to additional paid-in capital in
order to reflect its obligation to indemnify Hearst-Argyle for
Old Pulitzer’s liability for tax and interest for 1998 and
the tax year ended March 18, 1999.
PD LLC Operating Agreement Contingent Payments
See Note 4 regarding certain obligations of PD LLC and
Pulitzer Inc. in respect of the Venture.
Legal Contingencies
In July 2004 PD LLC settled the lawsuit that was filed in the
Missouri Circuit Court, Twenty-Second Judicial Circuit (City of
St. Louis, Missouri; Case No. 012-10334), against
Pulitzer Inc., PD LLC, and Suburban Journals LLC. The lawsuit
was brought by 33 newspaper independent carriers (the
“Plaintiffs”) engaged in the business of delivering
the Post-Dispatch pursuant to home delivery contracts.
The lawsuit claimed that the Plaintiffs had the right to deliver
the Suburban Journals within each carrier’s alleged
exclusive delivery area by virtue of written delivery contracts
with PD LLC. The lawsuit was settled with clarification of
contract rights in PD LLC’s favor, by a payment from PD LLC
of approximately $1.5 million without admission of any
liability.
The Company has been involved, from time to time, in various
claims and lawsuits incidental to the ordinary course of its
business, including such matters as libel, slander and
defamation actions, complaints alleging discrimination, and
product distribution practices. While the ultimate outcome of
litigation cannot be predicted with certainty, management, based
on its understanding of the facts, does not believe the ultimate
resolution of these matters will have a material adverse effect
on the Company’s consolidated financial position or results
of operations. However, depending upon the period of resolution,
such effects could be material to the consolidated financial
results of an individual period.
See Note 20.
|
|
| 17. |
FAIR VALUE OF FINANCIAL INSTRUMENTS |
The Company has estimated the following fair value amounts for
its financial instruments using available market information and
appropriate valuation methodologies. Considerable judgment is
required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Cash and Cash Equivalents, Marketable Securities, Accounts
Receivable and Accounts Payable — The carrying amounts
of these items are a reasonable estimate of their fair value.
Other Non-operating Investments — As of
December 31, 2004, the carrying amounts of these items is
approximately $3.6 million less than their estimated fair
value. As of December 31, 2003, the carrying amounts of
these items are a reasonable estimate of their fair value.
71
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 17. |
FAIR VALUE OF FINANCIAL
INSTRUMENTS — Continued |
Long-Term Debt and Interest Rate Swaps — Interest
rates that are currently available to the Company for issuance
of debt with similar terms and remaining maturities are used to
estimate fair value for the Company’s long-term debt. As of
December 31, 2004, the carrying value and fair-values were:
| |
|
|
|
|
|
|
|
|
|
| |
|
Carrying Value |
|
Fair Value |
| |
|
|
|
|
| |
|
(In thousands) |
|
2004
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
313,927 |
|
|
$ |
341,373 |
|
|
Deferred gain on interest rate swap terminations
|
|
|
(3,321 |
) |
|
|
|
|
|
Interest rate swaps (asset)
|
|
|
(4,606 |
) |
|
|
(4,606 |
) |
| |
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
306,000 |
|
|
$ |
336,767 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Carrying Value |
|
Fair Value |
| |
|
|
|
|
| |
|
(In thousands) |
|
2003
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$ |
316,389 |
|
|
$ |
338,359 |
|
|
Deferred gain on interest rate swap terminations
|
|
|
(4,088 |
) |
|
|
|
|
|
Interest rate swaps (asset)
|
|
|
(6,301 |
) |
|
|
(6,301 |
) |
| |
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
306,000 |
|
|
$ |
332,058 |
|
| |
|
|
|
|
|
|
|
|
The fair value estimates presented herein are based on pertinent
information available to management as of year-end 2004 and
year-end 2003, respectively. Although management is not aware of
any facts that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that
date, and current estimates of fair value may differ from the
amounts presented herein.
|
|
| 18. |
NEWSPAPER PUBLISHING REVENUES |
The Company’s consolidated newspaper publishing revenues
consist of the following for the years ended:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
| |
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
| |
|
(In thousands) |
|
St. Louis Operations
|
|
$ |
313,935 |
|
|
$ |
303,918 |
|
|
$ |
298,543 |
|
|
PNI Group
|
|
|
129,720 |
|
|
|
118,746 |
|
|
|
117,417 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
443,655 |
|
|
$ |
422,664 |
|
|
$ |
415,960 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
72
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 19. |
QUARTERLY FINANCIAL DATA (UNAUDITED) |
Operating results for the years ended December 31, 2004 and
2003 by quarter are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
| |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Total |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands, except earnings per share) |
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES — NET
|
|
$ |
102,735 |
|
|
$ |
113,053 |
|
|
$ |
109,730 |
|
|
$ |
118,137 |
|
|
$ |
443,655 |
|
|
NET INCOME
|
|
$ |
8,055 |
|
|
$ |
11,796 |
|
|
$ |
10,600 |
|
|
$ |
13,663 |
|
|
$ |
44,114 |
|
|
BASIC EARNINGS PER SHARE OF STOCK (Note 15):
|
|
$ |
0.37 |
|
|
$ |
0.55 |
|
|
$ |
0.49 |
|
|
$ |
0.63 |
|
|
$ |
2.04 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE OF STOCK (Note 15):
|
|
$ |
0.37 |
|
|
$ |
0.54 |
|
|
$ |
0.49 |
|
|
$ |
0.62 |
|
|
$ |
2.02 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
First |
|
Second |
|
Third |
|
Fourth |
|
|
| |
|
Quarter |
|
Quarter |
|
Quarter |
|
Quarter |
|
Total |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands, except earnings per share) |
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES — NET
|
|
$ |
98,232 |
|
|
$ |
107,112 |
|
|
$ |
103,252 |
|
|
$ |
114,068 |
|
|
$ |
422,664 |
|
|
NET INCOME
|
|
$ |
7,056 |
|
|
$ |
11,428 |
|
|
$ |
9,380 |
|
|
$ |
14,313 |
|
|
$ |
42,177 |
|
|
BASIC EARNINGS PER SHARE OF STOCK (Note 15):
|
|
$ |
0.33 |
|
|
$ |
0.53 |
|
|
$ |
0.44 |
|
|
$ |
0.67 |
|
|
$ |
1.97 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER SHARE OF STOCK (Note 15):
|
|
$ |
0.33 |
|
|
$ |
0.53 |
|
|
$ |
0.43 |
|
|
$ |
0.66 |
|
|
$ |
1.95 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income and earnings per share are computed independently for
each of the quarters presented. Therefore, the sum of the
quarterly net income and earnings per share may not equal the
total for the year.
Lee Merger Agreement
On January 29, 2005, Pulitzer Inc. entered into the Lee
Merger Agreement with Lee and LP Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Lee (the
“Purchaser”). The Lee Merger Agreement provides for
the Purchaser to be merged with and into Pulitzer Inc. (the
“Lee Merger”), with Pulitzer Inc. as the surviving
corporation. Each share of Pulitzer Inc.’s common stock and
Class B common stock outstanding immediately prior to the
effective time of the Lee Merger will be converted into the
right to receive from the surviving corporation in cash, without
interest, an amount equal to $64.00 per share. The total
enterprise value of Pulitzer Inc. under the Lee Merger Agreement
is approximately $1.46 billion based upon a value of
$64.00 per share.
The Lee Merger will effect a change of control of Pulitzer Inc.
At the effective time of the Lee Merger and as a result of the
Lee Merger, Pulitzer Inc. will become an indirect, wholly-owned
subsidiary of Lee, the directors of the Purchaser will become
the directors of the surviving corporation, and the officers of
the Purchaser will become the officers of the surviving
corporation.
Consummation of the Lee Merger is subject to customary
conditions, including the adoption of the Lee Merger Agreement
by the required vote of the Company’s stockholders and the
expiration or termination of any waiting period (and any
extension thereof) under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
“HSR Act”). Lee and Pulitzer Inc. filed notification
and report forms under the HSR Act with the Federal Trade
Commission (“FTC”) and the United States Department of
Justice on
73
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
|
|
| 20. |
SUBSEQUENT EVENTS — Continued |
February 11, 2005. On February 22, 2005, Pulitzer Inc.
and Lee received from the FTC notification of early termination
of the waiting period under the HSR Act.
The Lee Merger Agreement includes customary representations,
warranties and covenants by Pulitzer Inc., including covenants
(i) to cause a stockholders’ meeting to be called and
held as soon as reasonably practicable to vote on the adoption
of the Lee Merger Agreement, (ii) to cease immediately any
discussions and negotiations with respect to an alternate
acquisition proposal, (iii) not to solicit any alternate
acquisition proposal and, with certain exceptions, not to enter
into discussions concerning or furnish information in connection
with any alternate acquisition proposal, and (iv) subject
to certain exceptions, for Pulitzer Inc.’s board of
directors not to withdraw or modify its recommendation that the
stockholders vote to adopt the Lee Merger Agreement. The Lee
Merger Agreement contains certain termination rights for both
Pulitzer Inc. and Lee and further provides that, upon
termination of the Lee Merger Agreement under specified
circumstances, Pulitzer Inc. may be required to pay Lee a fee of
up to $55 million.
On January 31, 2005, Todd M. Veeck, an alleged owner of
common stock of Pulitzer Inc., filed a lawsuit in The Court of
Chancery of the State of Delaware in New Castle County against
Pulitzer Inc. and the members of its board of directors. The
Veeck complaint purports to be a class action brought on
behalf of all stockholders other than the defendants, and it
asserts that the announced sale of Pulitzer Inc. to Lee should
be preliminarily and permanently enjoined because the
agreed-upon consideration is unfair and does not maximize
stockholder value. The Veeck complaint also seeks
monetary damages. On February 2, 2005, James Fern, an
alleged owner of common stock of Pulitzer Inc., filed a lawsuit
in The Court of Chancery of the State of Delaware in New Castle
County against Pulitzer Inc. and members of its board of
directors making essentially the same allegations and seeking
essentially the same relief as the Veeck complaint.
Pulitzer Inc. believes that the allegations of the Veeck
and Fern complaints are without merit. On
February 25, 2005, the Court of Chancery entered an order
consolidating the Veeck and Fern actions under the
consolidated case caption In re Pulitzer Inc. Shareholders
Litigation, Civil Action No. 1063-N.
Pulitzer Inc. has determined to pay the attorneys’ fees and
expenses incurred in defending the members of its board of
directors in these or related legal actions, and each member of
the board of directors has undertaken and agreed to repay his or
her share of such fees and other expenses if it shall be
ultimately determined that he or she is not entitled to be
indemnified by Pulitzer Inc.
The boards of directors of Pulitzer Inc. and Lee have
unanimously approved the Lee Merger Agreement. The Lee Merger is
expected to close in the second quarter of calendar 2005.
In conjunction with the Strategic Review Process, the Company
entered into transaction-related and retention incentive
agreements with certain executive officers and other key
employees aggregating up to approximately $11.9 million.
Payment of these incentives is contingent upon consummation of a
transaction involving the sale or merger of the Company (which
for this purpose includes the Lee Merger).
On December 28, 2004, the Company terminated its
non-qualified deferred compensation plan and distributed the
participants’ account balances aggregating approximately
$5.6 million (all of which was fully funded by a current
asset presented as Prepaid and Other Assets-Current in the
Company’s financial statements).
The Lee Merger Agreement provides that the Company will
(i) convert outstanding vested options and restricted stock
units into cash (with an estimated total cost of approximately
$42.8 million); (ii) convert outstanding unvested
options and restricted stock units into cash (with an estimated
total cost of approximately $11.7 million); and
(iii) seek to terminate the split dollar life insurance
arrangements maintained with five current and former executives
(with an estimated total cost of up to approximately
$6.4 million
74
PULITZER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003 AND
2002 — (Continued)
20. SUBSEQUENT EVENTS — Continued
(approximately $4.5 million of which is included in the
policies’ cash values)). The Lee Merger Agreement also
provides for the conversion of the Pulitzer Inc. Supplemental
Executive Benefit Pension Plan (the “Supplemental
Plan”) into an individual account plan which would be
liquidated on May 1, 2008 or earlier under certain
circumstances. The aggregate amount of the initial individual
account balances will be approximately equal to the amount of
the Supplemental Plan liability reflected on the Company’s
financial statements (exclusive of potential severance-related
enhancements that may be triggered under the Executive
Transition Plan and related agreements). Under the Lee Merger
Agreement, certain consulting agreements will terminate upon the
consummation of the Lee Merger with a final terminating payment
of approximately $0.7 million.
The Company is contractually committed to make contingent
payments totaling an estimated $16.2 million for financial
advisory, legal, consulting and other professional services
provided in connection with the Strategic Review Process and the
Lee Merger, all of which are contingent upon consummation of the
Lee Merger.
Severance and severance-related obligations may arise in
conjunction with the Lee Merger, including, without limitation,
obligations under the Pulitzer Inc. Executive Transition Plan
adopted in September 2001 and related agreements, which provide
severance and other payments and benefits upon termination of a
participating executive’s employment with the Company in
conjunction with a change in control. The Lee Merger will
constitute a change in control for purposes of the Executive
Transition Plan and related agreements.
|
|
| 21. |
RESTATEMENT OF CONSOLIDATED STATEMENTS OF CASH FLOWS |
Subsequent to the issuance of the consolidated financial
statements for the fiscal years ended December 31, 2003 and
2002, the Company determined that the cash flows related to the
Company’s discretionary funding of retirement obligations
should have been classified as an operating activity rather than
as an investing activity. As a result, the consolidated
statements of cash flows for the years ended December 31,
2003 and 2002 have been restated to reflect the cash flows
related to the Company’s discretionary funding of
retirement obligations as an operating activity rather than an
investing activity. A summary of the effect of the restatement
on cash flows from operating and investing activities is as
follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
| |
|
As Previously |
|
|
| |
|
Reported |
|
As Restated |
| |
|
|
|
|
|
Year ended December 31, 2003
|
|
|
|
|
|
|
|
|
| |
Cash flows from operating activities
|
|
$ |
80,676 |
|
|
$ |
36,714 |
|
| |
Cash flows from investing activities
|
|
$ |
(126,724 |
) |
|
$ |
(82,762 |
) |
| |
|
Year ended December 31, 2002
|
|
|
|
|
|
|
|
|
| |
Cash flow from operating activities
|
|
$ |
98,222 |
|
|
$ |
70,125 |
|
| |
Cash flow from investing activities
|
|
$ |
(200,396 |
) |
|
$ |
(172,299 |
) |
* * * * * *
75
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Pulitzer Inc.
We have audited the consolidated financial statements of
Pulitzer Inc. and its subsidiaries (the “Company”) as
of December 26, 2004 and December 28, 2003, and for
each of the three fiscal years in the period ended
December 26, 2004, management’s assessment of the
effectiveness of the Company’s internal control over
financial reporting as of December 26, 2004, and the
effectiveness of the Company’s internal control over
financial reporting as of December 26, 2004, and have
issued our reports thereon dated March 14, 2005 (which
express unqualified opinions on the consolidated financial
statements and management’s assessment of the effectiveness
of the Company’s internal control over financial reporting
and an adverse opinion on the effectiveness of the
Company’s internal control over financial reporting because
of a material weakness; and which report on the consolidated
financial statements includes explanatory paragraphs regarding
the Company’s entering into an Agreement and Plan of Merger
between the Company, Lee Enterprises, Incorporated and LP
Acquisition Corp. on January 29, 2005 and relating to the
restatement of the consolidated statements of cash flows for the
years ended December 28, 2003 and December 29, 2002);
such consolidated financial statements and reports are included
elsewhere in this Form 10-K. Our audits also included the
consolidated financial statement schedule of the Company listed
in the accompanying index at Item 15(a)2.(iii). This
consolidated financial statement schedule is the responsibility
of the Company’s management. Our responsibility is to
express an opinion based on our audits. In our opinion, such
consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ Deloitte & Touche
LLP
St. Louis, Missouri
March 14, 2005
76
SCHEDULE II
PULITZER INC. AND SUBSIDIARIES
Schedule II — Valuation & Qualifying
Accounts & Reserves
For The Years Ended December 31, 2004, 2003 &
2002
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance At |
|
Charged to |
|
Charged to |
|
|
|
Balance |
| |
|
Beginning |
|
Costs & |
|
Other |
|
|
|
At End |
| Description |
|
Of Period |
|
Expenses |
|
Accounts |
|
Deductions |
|
Of Period |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
(In thousands) |
|
Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for Doubtful Accounts
|
|
$ |
3,843 |
|
|
$ |
2,130 |
|
|
$ |
493 |
(a) |
|
$ |
2,756 |
(b) |
|
$ |
3,710 |
|
|
Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accrued (Prepaid) Medical Plan
|
|
|
(545 |
) |
|
|
16,773 |
|
|
|
|
|
|
|
13,087 |
(c) |
|
|
3,141 |
|
| |
Workers Compensation
|
|
|
932 |
|
|
|
3,049 |
|
|
|
|
|
|
|
2,417 |
|
|
|
1,564 |
|
|
Year Ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for Doubtful Accounts
|
|
$ |
4,004 |
|
|
$ |
3,150 |
|
|
$ |
555 |
(a) |
|
$ |
3,866 |
(b) |
|
$ |
3,843 |
|
|
Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accrued (Prepaid) Medical Plan
|
|
|
(3,030 |
) |
|
|
16,015 |
|
|
|
|
|
|
|
13,530 |
(c) |
|
|
(545 |
) |
| |
Workers Compensation
|
|
|
2,254 |
|
|
|
1,736 |
|
|
|
|
|
|
|
3,058 |
|
|
|
932 |
|
|
Year Ended December 31, 2002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Allowance for Doubtful Accounts
|
|
$ |
6,024 |
|
|
$ |
5,206 |
|
|
$ |
506 |
(a) |
|
$ |
7,732 |
(b) |
|
$ |
4,004 |
|
|
Reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Accrued (Prepaid) Medical Plan
|
|
|
(207 |
) |
|
|
5,738 |
|
|
|
|
|
|
|
8,561 |
(c) |
|
|
(3,030 |
) |
| |
Workers Compensation
|
|
|
2,592 |
|
|
|
2,518 |
|
|
|
|
|
|
|
2,856 |
|
|
|
2,254 |
|
|
|
| (a) |
Accounts reinstated, cash recoveries. |
| |
| (b) |
Accounts written off |
| |
| (c) |
Amount represents: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
|
2002 |
| |
|
|
|
|
|
|
|
Claims paid
|
|
$ |
14,466 |
|
|
$ |
11,439 |
|
|
$ |
6,291 |
|
|
Prepaid contributions
|
|
|
(2,821 |
) |
|
|
789 |
|
|
|
1,460 |
|
|
Service fees
|
|
|
1,442 |
|
|
|
1,302 |
|
|
|
810 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
$ |
13,087 |
|
|
$ |
13,530 |
|
|
$ |
8,561 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE |
Not applicable.
|
|
| ITEM 9A. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
As of the end of the period covered by this report, the
Company’s management, including the President and Chief
Executive Officer and Senior Vice President-Finance and Chief
Financial Officer, carried out an evaluation of the
effectiveness of the design and operation of the Company’s
disclosure controls and procedures pursuant to Exchange Act
Rule 13a-15. Based upon that evaluation, the Company’s
President and Chief Executive Officer and Senior Vice
President-Finance and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures are not
effective in alerting them to material information, on a timely
basis, required to be included in the Company’s periodic
SEC filings.
Internal Control Reporting
a) Management’s Report on Internal Control
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting for the Company. The Company’s internal control
system was designed to provide reasonable assurance to the
Company’s management and board of directors regarding the
preparation and fair presentation of published financial
statements. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation.
Beginning in fiscal year 2002, the Company began making
discretionary contributions to its pension and post-retirement
medical benefits trusts. The discretionary contributions totaled
$28.1 million in fiscal year 2002, $44.0 million in
fiscal year 2003 and $10.0 million in fiscal year 2004. For
the fiscal years ended December 2003 and 2002, the Company
classified its discretionary contributions to those trusts as a
component of Cash Flows From Investing Activities. Management
and the audit committee of the board of directors of the Company
(the “Audit Committee”) gave consideration to and
concluded that this classification was appropriate.
On March 10, 2005, during the last phase of the close
process with respect to the Company’s 2004 financial
statements, management of the Company became aware of a possible
control issue with respect to the classification of its
discretionary contributions to its pension and post-retirement
medical benefits trusts as a component of Cash Flows From
Investing Activities rather than as a component of Cash Flows
From Operating Activities. On March 14, 2005, the Audit
Committee concurred with management’s assessment that the
Company’s discretionary contributions to its pension and
post-retirement medical benefit trusts should be classified as a
component of Cash Flows From Operating Activities and that the
Company’s Consolidated Statements of Cash Flows for the
fiscal years ended 2003 and 2002 should be restated. The
restatement did not have any effect on the determination of any
aspect of net income, financial position, or changes in
stockholders equity.
Restatement of previously issued financial statements to reflect
the correction of a misstatement is a strong indicator of the
existence of a material weakness in internal control over
financial reporting as defined in the Public Company Accounting
Oversight Board’s Auditing Standard No. 2, “An
Audit of Internal Control Over Financial Reporting Performed in
Conjunction With an Audit of Financial Statements.” In
light of the determination that previously issued Consolidated
Statements of Cash Flows for the fiscal years ended December
2003 and 2002 should be restated, management concluded that a
material weakness existed in the Company’s internal control
over financial reporting (as defined under standards established
by the Public Company Accounting Oversight Board). The material
weakness related to the internal review processes that led to
the classification of discretionary contributions to the
Company’s pension and post-retirement medical benefit
trusts in the Consolidated Statements of Cash Flows.
78
|
|
| ITEM 9A. |
CONTROLS AND PROCEDURES — Continued |
Company management assessed the effectiveness of the
Company’s internal control over financial reporting as of
December 26, 2004. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal
Control — Integrated Framework. Based on this
assessment, which included the matters discussed above,
management believes that, as of December 26, 2004, the
Company’s internal control over financial reporting was not
effective based on those criteria. The Company’s
independent registered public accounting firm has issued an
attestation report on management’s assessment of the
Company’s internal control over financial reporting. This
report appears in Item 9A (b) below.
b) Report of Independent Registered Public Accounting
Firm
To the Board of Directors and Stockholders of
Pulitzer Inc.
We have audited management’s assessment, included in the
accompanying Management’s Report on Internal Control, that
Pulitzer Inc. and subsidiaries (the “Company”) did not
maintain effective internal control over financial reporting as
of December 26, 2004, because of the effect of the material
weakness identified in management’s assessment based on
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 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.
79
|
|
| ITEM 9A. |
CONTROLS AND PROCEDURES — Continued |
A material weakness is a significant deficiency, or combination
of significant deficiencies, that results in a more than a
remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected.
The following material weakness has been identified and included
in management’s assessment. As of December 26, 2004,
the Company did not maintain effective internal control over the
application of accounting principles generally accepted in the
United States of America, which resulted in a restatement of the
Company’s Consolidated Statements of Cash Flows for the
years ended December 28, 2003 and December 29, 2002,
as described in Note 21 to the Company’s consolidated
financial statements. Discretionary contributions to fund
certain retirement obligations were classified as investing
activities rather than operating activities. For the years ended
December 28, 2003 and December 29, 2002, the
discretionary contributions to fund certain retirement
obligations were $44.0 million and $28.1 million,
respectively. This material weakness was considered in
determining the nature, timing, and extent of audit tests
applied in our audit of the consolidated financial statements of
the Company as of and for the year ended December 26, 2004,
and this report does not affect our report on such financial
statements.
In our opinion, management’s assessment that the Company
did not maintain effective internal control over financial
reporting as of December 26, 2004, 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, because of the effect of the material weakness
described above on the achievement of the objectives of the
control criteria, the Company has not maintained effective
internal control over financial reporting as of
December 26, 2004, 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
December 26, 2004, of the Company and our report dated
March 14, 2005 expressed an unqualified opinion on those
financial statements and included an explanatory paragraph
regarding the Company’s entering into an Agreement and Plan
of Merger with Lee Enterprises, Incorporated and LP Acquisition
Corp., on January 29, 2005.
/s/ Deloitte & Touche
llp
St. Louis, Missouri
March 14, 2005
c) Changes in Internal Control
Beginning in fiscal year 2002, the Company began making
discretionary contributions to its pension and post-retirement
medical benefits trusts. The discretionary contributions totaled
$28.1 million in fiscal year 2002, $44.0 million in
fiscal year 2003 and $10.0 million in fiscal year 2004. For
the fiscal years ended December 2003 and 2002, the Company
classified its discretionary contributions to those trusts as a
component of Cash Flows From Investing Activities. Management
and the audit committee of the board of directors of the Company
(the “Audit Committee”) gave consideration to and
concluded that this classification was appropriate. Management
and the Audit Committee then reviewed this classification with
the Company’s independent registered public accounting firm
which rendered unqualified opinions on the Company’s
financial statements for the fiscal years ended December 2003
and 2002.
On March 10, 2005, during the last phase of the close
process with respect to the Company’s 2004 financial
statements, management of the Company became aware of a possible
control issue with respect to the classification of its
discretionary contributions to its pension and post-retirement
medical benefits trusts as
80
ITEM 9A. CONTROLS AND
PROCEDURES — Continued
a component of Cash Flows From Investing Activities rather than
as a component of Cash Flows From Operating Activities, and on
March 11, 2005 so advised the Audit Committee.
Because the Company’s Annual Report on Form 10-K for
the fiscal year ended December 26, 2004 was due on
March 11, 2005, management recommended delaying the filing
of that report and filing a Form 12b-25 with the SEC for a
fifteen-day extension on the due date of that report in order to
give management time to address the classification of that one
item in the Company’s Consolidated Statements of Cash Flows
for the fiscal years ended December 2004, 2003 and 2002. The
Audit Committee concurred with this recommendation. On
March 14, 2005, the Company filed the Form 12b-25 and
a Current Report on Form 8-K to report the filing extension.
On March 12 and March 14, 2005, management and the Audit
Committee discussed the above-described classification issue
with the Company’s independent registered public accounting
firm. On March 14, 2005, the Audit Committee concurred with
management’s assessment that the Company’s
discretionary contributions to its pension and post-retirement
medical benefit trusts should be classified as a component of
Cash Flows From Operating Activities and that the Company’s
audited Consolidated Statements of Cash Flows for the fiscal
years ended 2003 and 2002 should be restated. The restatement
did not have any effect on the determination of any aspect of
net income, financial position, or changes in stockholders
equity.
In response to the material weakness described above in
“Management’s Report on Internal Control” and the
preceding four paragraphs, the Company’s management
reviewed its analysis of the Company’s internal control
policies and procedures with the Audit Committee and the
Company’s independent registered public accounting firm.
The Company then enhanced its internal control over financial
reporting by (i) restating its Consolidated Statements of
Cash Flows for the fiscal years ended December 28, 2003 and
December 29, 2002 in this Annual Report on Form 10-K
to classify discretionary contributions to its pension and
post-retirement medical benefit trusts in those years as a
component of Cash Flows From Operating Activities,
(ii) classifying its discretionary contributions to those
trusts in fiscal year 2004 as a component of Cash Flows From
Operating Activities in its Consolidated Statements of Cash
Flows for the fiscal year ended December 26, 2004 in this
Annual Report on Form 10-K and (iii) the Company has
begun the process of enhancing its internal controls over
financial reporting by requiring periodic review of a wider
variety of current technical accounting literature. Based on the
foregoing, the Company’s management has concluded that the
material weakness is being remediated and that, subject to
further testing, its disclosure controls and procedures are now
effective at the reasonable assurance level.
Other than as described above, there have been no significant
changes in the Company’s internal controls or in other
factors which could significantly affect internal controls
during the fiscal quarter ended December 26, 2004 and
subsequent to the date as of which the Company’s management
carried out its evaluation.
ITEM 9B. OTHER INFORMATION
Not applicable.
81
PART III
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| ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
MANAGEMENT
The following table sets forth certain information concerning
Pulitzer Inc.’s executive officers and directors.
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Date of |
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Term |
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Employment by |
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Director |
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Expires |
| Name, Age and Class |
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Positions with Pulitzer Inc. |
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Pulitzer Inc.(1) |
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Since(1) |
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In |
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Class A Directors
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Emily Rauh Pulitzer; 71(2)
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Director |
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— |
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1999 |
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2005 |
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James M. Snowden, Jr.; 61
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Director |
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— |
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1999 |
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2005 |
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Robert C. Woodworth; 57
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Director; President and Chief Executive Officer |
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1999 |
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1999 |
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2005 |
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Class B Directors
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William Bush; 58
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Director |
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— |
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1999 |
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2006 |
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Michael E. Pulitzer; 75(2)
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Director; Chairman of the Board |
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— |
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1998 |
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2006 |
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Ronald H. Ridgway; 66
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Director |
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— |
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1998 |
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2006 |
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Class C Directors
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Susan T. Congalton; 58
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Director |
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— |
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2001 |
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2007 |
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Ken J. Elkins; 67
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Director |
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— |
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1999 |
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2007 |
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Alice B. Hayes; 67
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Director |
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1999 |
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2007 |
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Richard W. Moore; 55(3)
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Director |
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— |
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2003 |
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2007 |
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Director Emeritus
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David E. Moore; 81(2)(3)(4)
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Director Emeritus |
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— |
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— |
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2004 |
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Other Executive Officers
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Terrance C.Z. Egger; 47
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Senior Vice President |
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1999 |
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— |
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Matthew G. Kraner; 41
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Vice President |
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1999 |
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James V. Maloney; 55
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Secretary |
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1999 |
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— |
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Alan G. Silverglat; 58
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Senior Vice President — Finance and Chief Financial
Officer |
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2001 |
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— |
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Jon H. Holt; 41
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Treasurer and Assistant Secretary |
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1999 |
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— |
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— |
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Jan Pallares; 42
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Corporate Controller |
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2002 |
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— |
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— |
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| (1) |
Any service as a director of or employment by Old Pulitzer is
discussed individually in the biographies that follow this table. |
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| (2) |
Michael E. Pulitzer and David E. Moore are cousins, and Michael
E. Pulitzer is the brother-in-law of Emily Rauh Pulitzer. |
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| (3) |
Richard W. Moore is the son of David E. Moore. |
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| (4) |
David E. Moore served as a director of Pulitzer Inc. between
1999 and the 2003 Annual Meeting of Stockholders, following
which he was appointed a director emeritus. |
SUSAN T. CONGALTON has served as Chairman of the Board and Chief
Executive Officer and a director of California Amforge
Corporation since October 2002, and has been Managing Director
of Lupine L.L.C. (formerly Lupine Partners) since 1989. She
served from 1987 until 1989 as Senior Vice President, Finance
and Law of Carson Pirie Scott & Company and as its Vice
President, General Counsel and Secretary from 1985 until 1987.
KEN J. ELKINS served as Old Pulitzer’s Senior Vice
President — Broadcasting Operations from April 1986
through mid-March 1999 and prior thereto, from April 1984
through March 1986, served as Old Pulitzer’s Vice
President — Broadcast Operations. Mr. Elkins is a
director of Hearst-Argyle and a member of its audit committee.
Mr. Elkins served as a director of Old Pulitzer from 1983
until 1999.
82
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| ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT — Continued |
ALICE B. HAYES served as President of the University of
San Diego from July 1995 until her retirement in June 2003,
and is now President Emerita. From July 1989 through May 1995,
Dr. Hayes was Executive Vice President and Provost of
St. Louis University, St. Louis, Missouri, and prior
to that held various academic positions at Loyola University of
Chicago. Dr. Hayes served as a director of Old Pulitzer
from 1993 until 1999. Dr. Hayes currently serves as a
director of Jack in the Box Inc. (and is a member of its
compensation committee) and ConAgra Foods, Inc. (and is a member
of its corporate affairs and corporate governance committees).
RICHARD W. MOORE has been a partner of the law firm of Meaders,
Duckworth & Moore in New York City since 1990. Prior to
that, Mr. Moore practiced law with several other New York
City law firms.
EMILY RAUH PULITZER is the widow of Joseph Pulitzer, Jr.
Mrs. Pulitzer was a curator of the St. Louis Art
Museum from 1964 through 1973. She currently serves as President
of the Pulitzer Foundation for the Arts and also serves on
boards and committees of certain other St. Louis and
national charitable, civic and arts organizations.
Mrs. Pulitzer has entered into a consulting agreement with
Pulitzer Inc. pursuant to which it has agreed to use its best
efforts to cause Mrs. Pulitzer to be elected a member of
its Board of Directors, which agreement will terminate upon the
closing under the Lee Merger Agreement. Mrs. Pulitzer
served as a director of Old Pulitzer from 1993 until 1999.
JAMES M. SNOWDEN, Jr. has been an Executive Vice President
of Huntleigh Securities Corporation (“Huntleigh”)
since November 6, 1995. Mr. Snowden was a Vice
President of A.G. Edwards & Sons, Inc. from June 1984
through November 3, 1995 and was a director of A.G.
Edwards & Sons, Inc. from March 1988 through February
1994. The Company has retained and compensated, and intends to
retain and compensate in the future, Huntleigh as a financial
advisor in connection with such financial matters as the Company
deems appropriate. In addition, the Company engaged Huntleigh to
render financial consulting services in connection with the
Company’s Strategic Review Process. Mr. Snowden served
as a director of Old Pulitzer from 1986 until 1999.
ROBERT C. WOODWORTH has served as the President and Chief
Executive Officer of Pulitzer Inc. since January 1999.
Mr. Woodworth was a Vice President — Newspapers
of Knight Ridder, Inc. from May 1997 until December 1998. Prior
to that, Mr. Woodworth worked for Capital Cities/ ABC,
Inc., most recently as Publisher of The Kansas City Star
and Senior Vice President — Metro Newspapers.
Mr. Woodworth, who joined Capital Cities in 1973,
previously served in various capacities at a number of Capital
Cities properties, including Executive Vice President and
General Manager of The Fort-Worth Star Telegram and Vice
President — Operations of The Belleville
News-Democrat.
WILLIAM BUSH has been a partner in the law firm of
Fulbright & Jaworski L.L.P. (and its predecessor firm,
Reavis & McGrath) since 1977. He is the partner in
charge of the New York office and a member of the Executive
Committee of the firm. The Company has retained and compensated,
and intends to retain and compensate in the future,
Fulbright & Jaworski L.L.P. as attorneys in connection
with such legal matters as the Company deems appropriate. In
addition, the Company engaged Fulbright & Jaworski
L.L.P. in connection with the Company’s Strategic Review
Process. Mr. Bush served as a director of Old Pulitzer from
1997 until 1999.
MICHAEL E. PULITZER has been Chairman of the Board of Pulitzer
Inc. since May 1998, serving as Executive Chairman of Pulitzer
Inc. from June 1, 1999 until May 31, 2001, and
thereafter as non-executive Chairman of Pulitzer Inc. He served
as the President and Chief Executive Officer of Pulitzer Inc.
from May 1998 through December 1998. Mr. Pulitzer was
elected Chairman of the Board of Old Pulitzer in June 1993 and
served as its President and Chief Executive Officer from April
1986 through mid March 1999. Mr. Pulitzer served as Vice
Chairman of the Board of Old Pulitzer from April 1984 through
March 1986 and as its President and Chief Operating Officer from
April 1979 through March 1984. Mr. Pulitzer has a
consulting agreement with Pulitzer Inc. pursuant to which it has
agreed to use its best efforts to cause Mr. Pulitzer to be
elected as a member of its Board of Directors, which agreement
will terminate upon the
83
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| ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT — Continued |
closing under the Lee Merger Agreement. Mr. Pulitzer served
as a director of Old Pulitzer from 1964 until 1999.
Mr. Pulitzer is a director of Hearst-Argyle and a member of
its compensation committee.
RONALD H. RIDGWAY served as the Senior Vice
President — Finance of Pulitzer Inc. from May 1998
through August 2001, retiring on October 1, 2001, and
served as Old Pulitzer’s Senior Vice President —
Finance from March 1986 through mid March 1999. Prior to that,
Mr. Ridgway served as Old Pulitzer’s Vice
President — Finance from April 1984 through March
1986, as Treasurer from April 1979 through March 1986 and as
Secretary and Assistant Treasurer from January 1978 through
March 1979. Mr. Ridgway served as a director of Old
Pulitzer from 1979 until 1999.
DAVID E. MOORE, lifelong journalist, founded Harrison
Independent (Westchester County, NY), Connecticut
Business Journal in association with Westchester Business
Journal, and International Business magazine.
Mr. Moore served as a director of Old Pulitzer from 1984
until 1999.
TERRANCE C.Z. EGGER has served as a Senior Vice President of
Pulitzer Inc. since July 2002. Mr. Egger served as a Vice
President of Pulitzer Inc. from February 1999 until July 2002,
and served as a Vice President of Old Pulitzer from March 1996
until March 1999. Mr. Egger has served as Publisher of the
St. Louis Post-Dispatch (the
“Post-Dispatch”) since July 1999, and served as
General Manager of the Post-Dispatch from March 1996
until November 1999. Prior to joining Old Pulitzer,
Mr. Egger served as Vice President and Advertising Director
for TNI Partners.
MATTHEW G. KRANER has served as a Vice President of Pulitzer
Inc. and as General Manager of the Post-Dispatch since
November 8, 1999. Prior to joining Pulitzer Inc.,
Mr. Kraner worked for Knight Ridder, Inc. as Vice President
of Advertising at The Kansas City Star.
JAMES V. MALONEY has served as Secretary of Pulitzer Inc. since
May 1998 and served as Old Pulitzer’s Secretary from
January 1984 through mid March 1999. Mr. Maloney was
appointed Director of Shareholder Relations for Pulitzer Inc. in
May 1999 and served as Director of Shareholder Relations for Old
Pulitzer from June 1987 through mid March 1999.
ALAN G. SILVERGLAT has served as Senior Vice President-Finance
and Chief Financial Officer of Pulitzer Inc. since September
2001. Mr. Silverglat was Corporate Vice President/
Treasurer at Knight Ridder, Inc. from June 1995 to August 2001.
From 1980 through 1995, he served as Senior Vice President/
Finance and Administration and Chief Financial Officer for
Knight Ridder’s Business Information Division, based in
Kansas City, Missouri. Prior to joining Knight Ridder,
Mr. Silverglat was with Ernst & Young.
Mr. Silverglat is a Certified Public Accountant.
JON H. HOLT has served as Treasurer of Pulitzer Inc. since March
1999 and served as Controller of Pulitzer Inc. from March 1999
until January 2002, and served as Assistant Treasurer and
Controller of Old Pulitzer from September 1993 until March 1999.
Prior to joining Old Pulitzer, Mr. Holt was with
Deloitte & Touche LLP, where he served as Audit Manager
from September 1991 until September 1993, Audit Senior from
September 1988 until September 1991 and Staff Accountant from
September 1986 until September 1988.
JAN PALLARES has served as Corporate Controller of Pulitzer Inc.
since January 2002. Prior to joining Pulitzer Inc.,
Mr. Pallares worked for Knight Ridder, Inc. from 1987 to
2002, where he held a number of financial management positions
at various newspapers, most recently as Vice President/ Finance
and New Business Development at the (Myrtle Beach, SC) Sun
News. Mr. Pallares is a Certified Public Accountant.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires Pulitzer Inc.’s directors and certain
officers, and persons who own more than ten percent (10%) of a
registered class of its equity securities, to file with the
Securities and Exchange Commission (“SEC”) initial
reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of Pulitzer Inc.
Pulitzer Inc. believes that during the 2004 fiscal year, the
officers, directors and holders of more than 10% of Pulitzer
Inc.’s Common Stock and Class B Common Stock complied
with all Section 16(a) filing requirements.
84
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| ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT — Continued |
Information Regarding the Board’s Audit Committee
The Board of Directors has determined that four of its ten
members (Susan T. Congalton, Ken J. Elkins, Alice B. Hayes and
Ronald H. Ridgway) are independent directors under the NYSE
listing standards.
The Pulitzer Inc. Audit Committee currently consists of
Alice B. Hayes, Susan T. Congalton and Ken J.
Elkins, each of whom, as determined by the Board in its business
judgment (i) qualifies as an “independent”
director under the regulations adopted by the SEC and the NYSE,
(ii) is financially literate, (iii) qualifies as an
“audit committee financial expert” under SEC
regulations and (iv) has accounting or related financial
management expertise.
Additional Information
Pulitzer Inc.’s Corporate Governance Guidelines provide
that the Board shall hold, as and when appropriate, regular
executive sessions where non-management directors meet without
management participation. The Board has selected Michael E.
Pulitzer to act as the presiding director at these executive
sessions and has met in executive session following each
regularly scheduled Board meeting, beginning in October 2003. If
a stockholder desires to communicate with Mr. Pulitzer, a
stockholder may do so by writing to him at Pulitzer Inc.,
c/o James V. Maloney, Secretary,
900 N. Tucker Blvd., St. Louis, MO
63101-1069.
The Company’s Code of Ethics for Senior Financial Officers,
Code of Business Conduct and Ethics, Corporate Governance
Guidelines, Audit Committee Charter, Compensation Committee
Charter, Corporate Governance Committee Charter and Nominating
Committee Charter are available on the Company’s website at
www.pulitzerinc.com. Copies of these documents are also
available in print to any stockholder who requests a copy. The
Company intends to disclose any amendments to, or waivers
granted with respect to, a provision of the Code of Ethics for
Senior Financial Officers on the Company’s website within
five business days following the date of the amendment or waiver.
|
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| ITEM 11. |
EXECUTIVE COMPENSATION |
Compensation of Directors
Each non-employee director of Pulitzer Inc. is entitled to
receive annual fixed compensation of $20,000 ($30,000 for
non-employee directors who serve on the Audit Committee) plus a
$1,500 attendance fee for each meeting of the Board of Directors
or any of its committees (whether attended in person or by
telephone). A $1,500 travel allowance and a per diem payment of
$300 is also provided to non-employee directors for travel away
from home and overnight stays in connection with their
attendance at any meeting of the Board of Directors or any of
its committees.
Effective as of the day following the 2004 Annual Meeting of
Stockholders, each non-employee director other than Richard W.
Moore received the following awards under the Pulitzer Inc. 2003
Incentive Plan: (a) an option to
purchase 3,000 shares of Common Stock at an exercise
price per share of $51.07 per share (the date-of-grant
value) and (b) 391 shares of restricted stock having a
date-of-grant value of $51.07 per share. In connection with
the Lee Merger, all of the directors’ options will be
converted into the right to receive cash, on the same basis as
all other then outstanding options, and the directors’
shares of restricted stock will be exchanged for cash as part of
the Lee Merger on the same basis as other outstanding shares of
Pulitzer Inc. stock. See “Compensation Committee Report on
Executive Compensation — Lee Merger-Related
Compensation Arrangements.”
Michael E. Pulitzer, Chairman of the Board of Directors, is
party to an employment and consulting agreement dated
June 1, 1999, pursuant to which Mr. Pulitzer served as
Executive Chairman of the Company until his retirement on
May 31, 2001, and under which Mr. Pulitzer now serves
as non-executive Chairman and senior advisor to the Company
through May 31, 2006. Mr. Pulitzer is entitled to an
annual consulting/advisory fee of $700,000 for his services as
senior advisor to the Company. If Mr. Pulitzer dies before
May 31, 2006, his surviving spouse, if any, will be
entitled to an annual payment, payable in equal monthly
85
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| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
installments, equal to 50% of the advisory fee Mr. Pulitzer
would have received if he had lived. Upon consummation of the
Lee Merger, Mr. Pulitzer’s employment and consulting
agreement will terminate and Mr. Pulitzer will receive a
single sum cash payment equal to the balance of the remaining
consulting/advisory fees. For example, if the Lee Merger is
consummated on May 31, 2005, Mr. Pulitzer would
receive a cash termination payment of $700,000 on that date. See
“Certain Relationships and Related Transactions” for
additional benefits that may be provided to or for the benefit
of Mr. Pulitzer, as well as Messrs. Ken J. Elkins
and Ronald H. Ridgway, in connection with the Lee Merger.
Emily Rauh Pulitzer, a director, is party to a consulting
agreement with the Company, dated March 18, 1999, pursuant
to which Mrs. Pulitzer provides, at the request of the
Chairman of the Board of Directors, advice regarding the
business operations of the Company and its subsidiaries, and
general advice regarding long-term strategic planning. For her
services under the agreement, Mrs. Pulitzer was paid at an
annual rate of $183,180 for 2004, and is being paid on a monthly
basis at the same annual rate in 2005. Mrs. Pulitzer’s
consulting agreement will terminate upon consummation of the Lee
Merger.
David E. Moore serves as a director emeritus of the
Company. Mr. Moore receives $1,500 for each meeting of the
Board and the Planning Committee that he attends (either in
person or by telephone) as well as a $1,500 travel allowance and
a $300 per diem allowance for all meetings away from home
which Mr. Moore attends in person. Mr. Moore is the
father of Richard W. Moore, a director of the Company.
Compensation Committee Report On Executive Compensation
In general, the objectives of the Company’s executive
compensation policy have been to attract and retain key
executives, promote improved corporate performance and enhance
stockholder value. The guidelines used in carrying out these
objectives have included:
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a) Base salaries should be maintained at competitive levels. |
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b) Executives should have a meaningful portion of their
annual compensation at risk, tied to the performance of the
Company. |
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c) Executives should have long-term incentives which align
their interests with those of the stockholders. |
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d) Executive compensation should be subject to periodic
review by the Compensation Committee. |
The Company’s Compensation Committee is comprised of five
directors. Robert C. Woodworth, the President and Chief
Executive Officer, is the only member who is an employee of the
Company. Mr. Woodworth does not participate in discussions
and decisions of the Compensation Committee relating to his
compensation. In the past, the Compensation Committee has
utilized the services of independent compensation consultants.
In the latter part of 2004 and early 2005, much of the
Compensation Committee’s efforts related to the
Company’s Strategic Review Process. The Compensation
Committee retained and utilized the services of Pearl
Meyer & Partners (“PM&P”), a nationally
recognized compensation consulting firm. PM&P reviewed and
analyzed existing compensatory arrangements and provided
recommendations, advice and assistance regarding the development
and implementation of strategies designed to properly compensate
and ensure the retention, continued focus and motivation of the
Company’s executive officers and other key personnel
through the conclusion of the Strategic Review Process and the
consummation of any resulting transaction. The principal
compensation arrangements adopted at the recommendation of
PM&P are described in this report under the heading
“Lee Merger-Related Compensation Arrangements.”
Executive Compensation Components
Executive compensation has been comprised of three key
components:
Base Salary — Base salaries for the executive
officers, including the executives named in the Summary
Compensation Table (the “Named Executives”), are
reviewed annually by the Compensation Committee. In
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| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
reviewing executive salaries (as well as other elements of
executive compensation), the Compensation Committee considers
information regarding other companies’ pay practices and
other factors, including (i) individual performance, level
of experience, ability and knowledge of the job,
(ii) overall performance of the Company and, as
appropriate, performance of business units and subsidiaries of
the Company and (iii) other relevant facts and
circumstances.
Annual Incentive Compensation — The
Compensation Committee believes that a significant portion of
the Named Executives’ annual cash compensation should be at
risk. Toward that end, the Company has an annual incentive plan
under which bonuses for a year may be earned if pre-established
performance goals are met. The performance goals for a year are
set at the beginning of the year using Company-wide and/or
business unit operating income as the principal measure. Each
Named Executive is assigned a target bonus opportunity expressed
as a percentage (ranging from 50% to 100%) of salary. If the
applicable performance goal(s) for a year is met, then the
individual’s bonus is 100% of the target. The Company uses
a grid pursuant to which a lower bonus is earned if actual
performance is between 65% and 100% of the goal(s), and a higher
bonus is earned if actual performance is between 100% and 120%
(or more) of the goal(s). No bonus is earned for a year if
actual performance is less than 65% of the goal(s) for the year.
Bonuses paid for 2004, measured as a percentage of the goal(s)
established for 2004, ranged from 98% to 114%. As a group, the
Named Executives earned incentive bonuses for 2004 equal to
approximately 71% of their combined base salaries. The Named
Executives’ incentive bonus awards earned for 2004 (with
the percentage of salary in parentheses) were: $185,815 for
Mr. Contreras (57.0%), $254,274 for Mr. Egger (58.8%),
$143,822 for Mr. Kraner (49.0%), $223,398 for
Mr. Silverglat (52.0%), and $780,297 for Mr. Woodworth
(104.0%). Each Named Executive received a portion of his 2004
bonus before the end of the Company’s 2004 fiscal year,
with the balance being paid in early fiscal year 2005.
Long-Term Incentive Compensation — Long-term
incentive compensation for the Company has traditionally taken
the form of equity-based compensation awards, including stock
options, restricted stock and restricted stock units. These
equity-based incentives provide participants an opportunity to
increase their ownership of Company stock, and thereby align
their interests more closely with those of the Company’s
stockholders. Ordinarily, the Compensation Committee makes
equity awards in December of each year. However, in light of the
November 2004 public disclosure of the Company’s Strategic
Review Process, the Compensation Committee decided against
making equity compensation awards in December 2004. Instead, the
Compensation Committee, with advice from PM&P and approval
of the Board of Directors, made cash bonus awards in lieu of
option grants to the Named Executives and other key employees
who would otherwise have received option grants. Payment of
these cash bonuses is contingent upon consummation of the Lee
Merger. The potential cash bonus payment in lieu of options for
each Named Executive is set forth in the first table under the
heading “Lee Merger — Related Compensation
Arrangements.”
Deduction of Compensation
Section 162(m) of the Internal Revenue Code of 1986, as
amended (the “Code”), limits the deductibility of
executive compensation paid by public companies. In general,
under the applicable limitations, the Company may not deduct
annual compensation paid to certain executive officers in excess
of $1,000,000. Non-deductibility would result in additional tax
cost to the Company. In making compensation decisions, the
Compensation Committee gives consideration to the net cost to
the Company (including, for this purpose, the potential
limitation on deductibility of executive compensation). Deferred
compensation is not taken into account in applying the deduction
limitations. Accordingly, to lessen the likelihood that a
portion of a senior executive’s compensation for any year
would not be deductible, the Compensation Committee has
previously imposed deferral requirements on certain compensation
that would not be currently deductible. It is anticipated that
Section 162(m) will not apply to any compensation that is
paid during the short fiscal year beginning December 27,
2004 and ending on the date of the Lee Merger, assuming the
consummation thereof.
87
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
Compensation of the Chief Executive Officer
On December 18, 1998, Pulitzer Inc. entered into an
employment agreement with Robert C. Woodworth pursuant to which
Mr. Woodworth serves as President and Chief Executive
Officer of Pulitzer Inc.. The initial term of
Mr. Woodworth’s agreement was three years, beginning
January 1, 1999. At the end of each year, the agreement
automatically renews for an additional year. For 2004,
Mr. Woodworth received base salary of $750,286 and earned
an incentive bonus of $780,297. If Mr. Woodworth terminates
his employment for “good reason” or Pulitzer Inc.
terminates his employment without “cause,” then
Mr. Woodworth will be entitled to severance of up to three
years’ salary plus accelerated vesting of certain stock
option and restricted stock unit awards. If the Lee Merger is
consummated, Mr. Woodworth may be entitled to severance
payments and other benefits under Pulitzer Inc.’s Executive
Transition Plan. See “Employment Contracts and Change in
Control Arrangements — Pulitzer Inc. Executive
Transition Plan.” In January 2002, Pulitzer Inc. entered
into a split dollar life insurance arrangement pursuant to which
Pulitzer Inc. agreed to make premium payments under a
$5 million life insurance policy on the joint lives of
Mr. Woodworth and his wife. Pulitzer Inc.’s interest
in the policy at any time is equal to the greater of the
premiums paid by Pulitzer Inc. or the cash surrender value of
the policy. Pulitzer Inc. has deferred payment of premiums
payable after July 30, 2002 pending clarification of
certain technical issues raised by the Sarbanes-Oxley Act of
2002. Pursuant to the Lee Merger Agreement, it is anticipated
that Pulitzer Inc. will seek to negotiate the termination of
Mr. Woodworth’s split dollar arrangement in exchange
for a release of its interest in the policy and additional
payments of up to approximately $222,500 (the aggregate deferred
premiums).
Lee Merger-Related Compensation Arrangements
The Compensation Committee, acting with the advice of PM&P
and with approval of the Board of Directors, implemented certain
transaction-related participation and retention incentive
arrangements for the Named Executives and other key employees.
These arrangements took the form of (a) transaction
participation bonuses and (b) retention bonuses. A
significant portion of the transaction participation bonuses
includes bonuses in lieu of 2004 stock option grants (see
“Executive Compensation Components — Long-Term
Incentive Compensation”). In general, the bonuses in
lieu of 2004 stock option grants and the other transaction
participation bonuses are payable (if at all) upon consummation
of the Lee Merger, and the retention bonuses are payable three
months after consummation of the Lee Merger, subject to
continuing employment until the date of the Lee Merger (for the
bonuses in lieu of option grants and the other transaction
participation bonuses) or the date three months after the Lee
Merger (in the case of the retention bonuses), or earlier if
employment is terminated by Lee without cause. A bonus will not
be payable to a participant who voluntarily terminates
employment or whose employment is terminated by Pulitzer Inc.
(or its successor) for “cause” before the date the
bonus is earned. The potential amounts of such
transaction-related and retention bonuses that may be earned by
each of the Named Executives and by all other eligible key
employees as a group are described in the table below. These
bonuses are in addition to any rights or entitlements under, and
subject to the limitations provided by, the Executive Transition
Plan and related agreements previously made with the Named
Executives and certain other key employees. See “Employment
Contracts and Change in Control Arrangements.”
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Transaction |
|
Bonus in Lieu of |
|
Retention |
| |
|
Incentive |
|
2004 Options |
|
Incentive |
| |
|
|
|
|
|
|
|
Named Executives:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Mark G. Contreras
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
| |
Terrance C.Z. Egger
|
|
|
75,000 |
|
|
|
195,000 |
|
|
|
675,000 |
|
| |
Matthew G. Kraner
|
|
|
75,000 |
|
|
|
138,000 |
|
|
|
456,750 |
|
| |
Alan G. Silverglat
|
|
|
75,000 |
|
|
|
192,000 |
|
|
|
666,972 |
|
| |
Robert C. Woodworth
|
|
|
0 |
|
|
|
420,450 |
|
|
|
388,273 |
|
|
All other employees as a group
|
|
|
2,100,693 |
* |
|
|
2,751,000 |
|
|
|
3,632,724 |
|
88
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
|
|
| * |
Up to approximately $1.6 million of this amount is
allocated to a bonus pool. The Compensation Committee, acting in
its discretion, is authorized to make bonus awards from this
pool. |
Immediately prior to the Lee Merger, each then outstanding
option to purchase common stock of the Company (whether or not
otherwise vested) will be converted into the right to receive
cash equal to its intrinsic value (i.e., the number of
shares covered by the option multiplied by the difference
between the per share Lee Merger Consideration over the option
exercise price per share). Similarly, each then outstanding
restricted stock unit (whether or not vested) will be converted
into the right to receive cash equal to the per share Lee Merger
Consideration. Each then outstanding share of restricted stock
will be exchanged for cash as part of the Lee Merger
transaction. The cashout values of the non-vested equity awards
held as of February 25, 2005 by the Named Executives and by
all other employees as a group are set forth in the table below.
| |
|
|
|
|
|
|
|
|
| |
|
Options Cashout |
|
Cashout Value of |
| |
|
Value of |
|
Non-Vested Restricted Stock |
| Named Executives: |
|
Non-Vested Options |
|
and Stock Units |
| |
|
|
|
|
|
Robert C. Woodworth
|
|
$ |
1,931,704 |
|
|
$ |
3,942,400 |
|
|
Alan G. Silverglat
|
|
|
614,570 |
|
|
|
0 |
|
|
Terrance C.Z. Egger
|
|
|
470,405 |
|
|
|
380,736 |
|
|
Mark G. Contreras
|
|
|
NA |
|
|
|
NA |
|
|
Matthew G. Kraner
|
|
|
318,423 |
|
|
|
0 |
|
|
All other employees and directors as a group
|
|
|
4,237,394 |
|
|
|
150,144 |
|
Other compensation-related actions taken or to be taken in
connection with the Lee Merger include: (a) provision of
severance protection (consisting of one year’s salary
and bonus and group health benefits) to certain key employees
who are not covered by the Pulitzer Inc. Executive Transition
Plan, (b) provision for the potential termination of split
dollar life insurance arrangements for certain current and
former executives and directors, (c) termination of the
Company’s non-qualified deferred compensation plan and
distribution of account balances to plan participants,
(d) conversion of the Company’s Supplemental Executive
Benefit Pension Plan into an individual account plan, with all
account balances to be distributed on May 1, 2008, or
earlier under certain conditions, and (e) provision of
outplacement services to a limited number of non-bargaining unit
employees of the Company in the event of the termination of
their employment in conjunction with the Lee Merger. See
“Certain Relationships and Related Transactions,”
“Executive Compensation,” “Defined Benefit
Plans” and “Employment Contracts and Change in Control
Arrangements” for more information regarding severance and
other benefits and payments relating to the Lee Merger.
|
|
| |
Compensation Committee |
| |
of the Board of Directors: |
| |
| |
WILLIAM BUSH, Chairman |
| |
MICHAEL E. PULITZER |
| |
KEN J. ELKINS |
| |
JAMES M. SNOWDEN, JR. |
| |
ROBERT C. WOODWORTH |
Compensation Committee Interlocks and Insider
Participation
Michael E. Pulitzer, a member of the Company’s Compensation
Committee, serves as a senior advisor to and Chairman of the
Board of Pulitzer Inc. He previously served as the
Company’s Executive Chairman and prior thereto as its
President and Chief Executive Officer. See “Compensation of
Directors.”
89
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
William Bush, Chairman of the Company’s Compensation
Committee, is a partner in Fulbright & Jaworski L.L.P.
In 2004, the Company retained, and incurred costs for legal
services provided by, Fulbright & Jaworski L.L.P. in
the approximate amount of $2.1 million. With respect to
Pulitzer Inc.’s retention of the same law firm regarding
its Strategic Review Process, Pulitzer Inc. agreed, in the event
of and upon the closing of the transactions contemplated in
connection with its Strategic Review Process, to pay that firm a
success bonus in an amount equal to 25% of its aggregate regular
fees for time spent by its personnel who participated at any
time through the closing in the representation of Pulitzer Inc.
relating to the Company’s Strategic Review Process. The
amount of the success bonus is expected to be approximately
$0.6 million. The Company may retain and compensate
Fulbright & Jaworski L.L.P. in the future as attorneys
in connection with such legal matters as the Company deems
appropriate.
James M. Snowden, Jr., a member of the Company’s
Compensation Committee, is an Executive Vice President of
Huntleigh. Huntleigh has a retainer relationship with the
Company with respect to general financial advisory services. In
2004, the Company incurred costs for financial advisory services
provided by Huntleigh in the approximate amount of
$0.2 million. In addition, Pulitzer Inc. engaged that same
financial advisory services firm to render financial consulting
services in connection with the Company’s Strategic Review
Process and agreed to pay that firm a fee of $0.5 million
in the event of and upon the closing of the transactions
contemplated in connection with the Company’s Strategic
Review Process. The Company may retain and compensate Huntleigh
in the future as a financial advisor in connection with such
financial matters as the Company deems appropriate.
Robert C. Woodworth, a member of Pulitzer Inc.’s
Compensation Committee, serves as the President and Chief
Executive Officer of Pulitzer Inc. See “Management” in
Item 10 and “Compensation Committee Report on
Executive Compensation.”
Certain Relationships and Related Transactions
Michael E. Pulitzer, Ken J. Elkins and Ronald H. Ridgway, each a
director of Pulitzer Inc., receive annual pension payments of
approximately $714,000, $210,000 and $181,000, respectively, as
well as retiree and other insurance benefits in connection with
their prior service as employees of Pulitzer Inc. or Old
Pulitzer. A significant portion of these pension payments is
provided under the Pulitzer Inc. Supplemental Executive Benefit
Pension Plan (the “Supplemental Plan”). Under the Lee
Merger Agreement, the Supplemental Plan will be converted into
an individual account plan and the account balances, including
those of Messrs. Pulitzer, Elkins and Ridgway, will be
cashed out on May 1, 2008, or earlier under certain
conditions. See “Defined Benefit Plans.”
Michael E. Pulitzer, Ken J. Elkins and Ronald H. Ridgway are
covered by cash value life insurance policies under which
Pulitzer Inc. is required to make a series of annual premium
payments pursuant to split dollar life insurance agreements made
in connection with their prior employment. The split dollar
agreements provide that, at any time, Pulitzer Inc.’s
interest in each policy is equal to the greater of the premiums
paid by Pulitzer Inc. or the cash surrender value of the policy.
Pulitzer Inc.’s interest in each policy is secured by a
collateral assignment of the policy. Pulitzer Inc. has deferred
payment of premiums payable after July 30, 2002 pending
clarification of certain technical issues raised by the
Sarbanes-Oxley Act of 2002. Pursuant to the Lee Merger
Agreement, Pulitzer Inc. will seek to negotiate the termination
of the split dollar arrangements for Messrs. Pulitzer,
Elkins and Ridgway in exchange for a release of its interest in
the policies and make additional payments of up to approximately
$1,125,000, $340,000 and $230,000, respectively (the aggregate
deferred premiums). Pulitzer Inc. will also seek to negotiate
the termination of a similar arrangement that is in force for
Mr. Woodworth. See “Compensation Committee Report on
Executive Compensation.” The surviving corporation in the
Lee Merger is required to continue to maintain and fund any of
the split dollar arrangements that is not so terminated.
90
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
Executive Compensation
The following Summary Compensation Table shows the compensation
earned (inclusive of deferred amounts) by the five most highly
compensated executive officers (the “Named
Executives”) of Pulitzer Inc. for fiscal years ended 2004,
2003 and 2002:
Summary Compensation Table
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Long-Term Compensation |
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Annual Compensation |
|
Awards |
|
Payouts |
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
Other Annual |
|
Restricted |
|
Options/ |
|
LTIP |
|
All Other |
| |
|
|
|
Compensation |
|
Stock Awards |
|
SARs |
|
Payouts |
|
Compensation |
| Name and Principal Position |
|
Year |
|
Salary($) |
|
Bonus($) |
|
($) |
|
($) |
|
(#)(5) |
|
($) |
|
($)(6) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert C. Woodworth
|
|
|
2004 |
|
|
|
750,286 |
|
|
|
781,125 |
|
|
|
106,157 |
(1) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,745 |
|
| |
President and Chief |
|
|
2003 |
|
|
|
738,288 |
|
|
|
653,181 |
|
|
|
76,546 |
(1) |
|
|
2,071,417 |
(2) |
|
|
125,667 |
|
|
|
0 |
|
|
|
4,730 |
|
| |
Executive Officer |
|
|
2002 |
|
|
|
699,930 |
|
|
|
774,873 |
|
|
|
54,656 |
(1) |
|
|
880,044 |
(2) |
|
|
62,330 |
|
|
|
0 |
|
|
|
5,401 |
|
|
Alan G. Silverglat
|
|
|
2004 |
|
|
|
429,612 |
|
|
|
224,396 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
6,599 |
|
| |
Senior Vice |
|
|
2003 |
|
|
|
420,923 |
|
|
|
186,894 |
|
|
|
0 |
|
|
|
0 |
|
|
|
40,000 |
|
|
|
0 |
|
|
|
6,680 |
|
| |
President — Finance |
|
|
2002 |
|
|
|
393,404 |
|
|
|
201,578 |
|
|
|
0 |
|
|
|
0 |
|
|
|
20,000 |
|
|
|
0 |
|
|
|
109,488 |
|
| |
and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terrance C. Z. Egger
|
|
|
2004 |
|
|
|
432,438 |
|
|
|
254,600 |
|
|
|
12,116 |
(1) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,700 |
|
| |
Senior Vice |
|
|
2003 |
|
|
|
411,923 |
|
|
|
194,174 |
|
|
|
11,442 |
(1) |
|
|
0 |
|
|
|
43,333 |
|
|
|
0 |
|
|
|
4,598 |
|
| |
President |
|
|
2002 |
|
|
|
371,760 |
|
|
|
256,337 |
|
|
|
8,435 |
(1) |
|
|
250,036 |
(3) |
|
|
21,667 |
|
|
|
0 |
|
|
|
4,600 |
|
|
Mark G. Contreras
|
|
|
2004 |
|
|
|
325,992 |
|
|
|
186,048 |
|
|
|
2,999 |
(1) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,993 |
|
| |
Senior Vice |
|
|
2003 |
|
|
|
294,079 |
|
|
|
141,391 |
|
|
|
0 |
|
|
|
200,062 |
(4) |
|
|
33,333 |
|
|
|
0 |
|
|
|
4,538 |
|
| |
President |
|
|
2002 |
|
|
|
259,901 |
|
|
|
141,065 |
|
|
|
0 |
|
|
|
0 |
|
|
|
16,667 |
|
|
|
0 |
|
|
|
4,599 |
|
|
Matthew G. Kraner
|
|
|
2004 |
|
|
|
293,513 |
|
|
|
144,160 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,700 |
|
| |
Vice President |
|
|
2003 |
|
|
|
276,462 |
|
|
|
130,884 |
|
|
|
0 |
|
|
|
0 |
|
|
|
29,333 |
|
|
|
0 |
|
|
|
4,650 |
|
| |
|
|
|
2002 |
|
|
|
254,519 |
|
|
|
170,746 |
|
|
|
0 |
|
|
|
0 |
|
|
|
14,667 |
|
|
|
0 |
|
|
|
4,650 |
|
|
|
| (1) |
Reflects (i) amounts paid to Mr. Woodworth as dividend
equivalents with respect to his restricted stock unit awards;
(ii) $7,595, $7,159 and $6,340 in benefits in 2004, 2003
and 2002, respectively, related to participation in the 1999
Pulitzer Inc. Employee Stock Purchase Plan by Mr. Egger,
(iii) $4,521, $4,283 and $2,095 paid to Mr. Egger in
2004, 2003 and 2002, respectively, as dividends with respect to
his restricted stock awards, and (iv) $2,999 paid to
Mr. Contreras in 2004 as dividend equivalents with respect
to his restricted stock award. |
| |
| (2) |
Reflects the grant of 10,267 restricted stock units valued at an
average market price of $42.58 per share on
February 21, 2003 and 30,800 restricted stock units valued
at an average market price of $53.06 per share on
December 10, 2003, 20,533 restricted stock units valued at
an average price of $42.86 per share on December 11,
2002, and 28,000 shares of restricted stock units valued at
the average market price of $48.22 per share on
December 6, 2001. Pulitzer Inc. will pay Mr. Woodworth
dividend equivalents related to his restricted stock units
according to the terms of Pulitzer Inc.’s normal dividend
declarations. As of December 26, 2004, Mr. Woodworth
held a total of 139,680 restricted stock units with an aggregate
market value of approximately $8,932,536 based on the closing
market price of Pulitzer Inc.’s Common Stock of
$63.95 per share on December 23, 2004. |
| |
| (3) |
Reflects the grant of 5,949 shares of restricted stock to
Mr. Egger valued at an average market price of
$42.03 per share on July 24, 2002, the date of the
award. Pulitzer Inc. will pay Mr. Egger dividends on his
restricted shares according to the terms of Pulitzer Inc.’s
normal dividend declarations. As of December 26, 2004,
Mr. Egger held a total of 5,949 shares of restricted
stock with an aggregate value of approximately $380,439 based on
the closing market price of Pulitzer Inc.’s Common Stock of
$63.95 per share on December 23, 2004. |
91
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
|
|
| (4) |
Reflects the grant of 3,946 shares of restricted stock to
Mr. Contreras valued at an average market price of
$50.69 per share on October 29, 2003, the date of the
award. Pulitzer Inc. paid Mr. Contreras dividends on his
restricted shares according to the terms of Pulitzer Inc.’s
normal dividend declarations. As of December 26, 2004,
Mr. Contreras held a total of 3,946 shares of
restricted stock with an aggregate value of approximately
$252,347 based on the closing market price of Pulitzer
Inc.’s Common Stock of $63.95 per share on
December 23, 2004. These shares were forfeited by
Mr. Contreras upon his resignation from the Company
effective January 3, 2005. See “Employment Contracts
and Change in Control Arrangements.” |
| |
| (5) |
No options were granted in 2004 to the Named Executive Officers. |
| |
| (6) |
Includes (i) imputed income related to life insurance and
pension benefits of $112, $88 and $810 in the case of
Mr. Woodworth for 2004, 2003 and 2002, respectively,
(ii) contributions to the Pulitzer Retirement Savings Plan,
in the amount of $4,633, $4,559, $4,700, $1,993, $4,700,
respectively, in the cases of Messrs. Woodworth,
Silverglat, Egger, Contreras, and Kraner, (iii) medical
opt-out payments of $2,040, $2,080 and $2,040 for
Mr. Silverglat, in 2004, 2003 and 2002, respectively, and
(iv) moving expenses of $102,979 in the case of
Mr. Silverglat in 2002. |
The following table provides information on option exercises in
fiscal 2004 by the Named Executives of Pulitzer Inc. and the
value of unexercised options of each such officer and all other
employees and directors of the Company as a group at
December 26, 2004:
Aggregate Option Exercises in Last Fiscal Year
and December 26, 2004 Option Values
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Value of Unexercised |
| |
|
|
|
|
|
Number of Unexercised |
|
In-the-Money |
| |
|
Shares |
|
|
|
Options/SARs (Shares) |
|
Options/SARs ($)(1) |
| |
|
Acquired |
|
Value |
|
|
|
|
| Name |
|
on Exercise |
|
Realized ($) |
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert C. Woodworth(2)
|
|
|
0 |
|
|
|
0 |
|
|
|
462,133 |
|
|
|
125,667 |
|
|
|
9,699,765 |
|
|
|
1,925,417 |
|
|
Alan G. Silverglat
|
|
|
0 |
|
|
|
0 |
|
|
|
72,500 |
|
|
|
40,000 |
|
|
|
1,199,108 |
|
|
|
612,567 |
|
|
Terrance C.Z. Egger(2)
|
|
|
0 |
|
|
|
0 |
|
|
|
159,190 |
|
|
|
36,110 |
|
|
|
3,075,682 |
|
|
|
546,286 |
|
|
Mark G. Contreras
|
|
|
0 |
|
|
|
0 |
|
|
|
111,723 |
|
|
|
27,777 |
|
|
|
2,265,871 |
|
|
|
420,212 |
|
|
Matthew G. Kraner
|
|
|
0 |
|
|
|
0 |
|
|
|
79,557 |
|
|
|
24,443 |
|
|
|
1,541,866 |
|
|
|
369,793 |
|
|
All other employees and directors as a group
|
|
|
— |
|
|
|
— |
|
|
|
1,039,602 |
|
|
|
307,430 |
|
|
|
19,920,460 |
|
|
|
4,292,829 |
|
|
|
| (1) |
Computed based upon the difference between the closing market
price of the Common Stock of $63.95 per share on
December 23, 2004, the last stock trading day of the
Company’s 2004 fiscal year, and the exercise price. |
| |
| (2) |
This table does not reflect restricted stock units held by
Mr. Woodworth and shares of restricted stock held by
Mr. Egger and non-employee directors. Mr. Woodworth
holds 139,680 restricted stock units (each being equivalent to
one share of common stock) of which 78,080 units (with a
Lee Merger transaction value of $4,997,120) are vested and
61,600 units (with a Lee Merger transaction value of
$3,942,400) are not vested. Mr. Egger holds
5,949 shares of restricted stock (with a Lee Merger
transaction value of $380,736), none of which are currently
vested. Non-employee directors hold 2,346 shares of
restricted stock (with a Lee Merger transaction value of
$150,144), none of which are currently vested. As in the case of
the Company’s stock options, all restricted stock units and
shares of vested and non-vested restricted stock will be cashed
out in connection with the Lee Merger transaction, with a per
share Lee Merger transaction value of $64.00. |
92
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
Defined Benefit Plans
Pulitzer Inc. Pension Plan. The Pulitzer Inc. Pension
Plan (the “Pension Plan”) is a qualified defined
benefit plan under Section 401(a) of the Code. In general,
the Pension Plan covers only non-union employees who are not
covered by the Pulitzer Inc. Cash Balance Plan, including the
Company’s executive officers. The Pension Plan provides for
payment of a monthly retirement income which, expressed as a
single life annuity beginning at normal retirement age (later of
age 65 or the completion of five years of participation),
is approximately equal to the sum of (i) 1.5% of monthly
earnings for each year of service up to 25 years,
(ii) 1% of monthly earnings for each year of service beyond
25 years, (iii) 0.5% of monthly earnings in excess of
“covered compensation” for each year of service up to
a total of 35 years (subject to certain limitations), and
(iv) the benefit, if any, earned under a predecessor plan
as of December 31, 1988. Generally, monthly earnings means
the monthly average of an employee’s base earnings in the
specified years, covered compensation means base compensation
with respect to which social security benefits are earned, and
service includes prior service with Old Pulitzer. Pension Plan
benefits become vested upon completion of five years of service.
A covered employee may retire with reduced benefits after
attaining age 55 and completing five years of service.
Total estimated annual retirement benefits for Robert C.
Woodworth, Alan G. Silverglat, Terrance C.Z. Egger, Mark G.
Contreras and Matthew G. Kraner under the Pension Plan, assuming
they all were to continue service with the Company at their most
recent levels of compensation and retire at age 65 are
$50,984, $37,184, $93,492, $99,147 and $102,720, respectively,
payable in the form of a single life annuity. The estimated
annual retirement benefits earned by those individuals under the
Pension Plan as of December 31, 2004, expressed as a single
life annuity beginning at age 65, are $20,264, $12,218,
$27,768, $19,273 and $17,346, respectively. The following table
shows the estimated annual pension payable under the Pension
Plan to persons retiring at age 65 and reflects the fact
that the benefits provided by the Pension Plan’s formula
are subject to certain constraints under the Code. For 2005, the
maximum annual benefit is $170,000 under Code Section 415.
Furthermore, under Code Section 401(a)(17), the maximum
annual compensation that may be reflected in 2005 is $210,000.
These dollar amounts are subject to cost of living increases in
the future.
Pension Plan Table
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Estimated Annual Pension Benefits |
| |
|
For Years of Services Indicated |
| Annual Compensation |
|
|
| At Retirement |
|
15 yrs. |
|
20 yrs. |
|
25 yrs. |
|
30 yrs. |
|
35 yrs. |
| |
|
|
|
|
|
|
|
|
|
|
|
$150,000
|
|
$ |
29,044 |
|
|
$ |
34,386 |
|
|
$ |
38,309 |
|
|
$ |
39,101 |
|
|
$ |
39,373 |
|
|
200,000
|
|
|
39,942 |
|
|
|
47,472 |
|
|
|
53,108 |
|
|
|
54,570 |
|
|
|
55,338 |
|
|
250,000
|
|
|
50,841 |
|
|
|
60,557 |
|
|
|
67,906 |
|
|
|
70,038 |
|
|
|
71,302 |
|
|
300,000
|
|
|
59,348 |
|
|
|
73,642 |
|
|
|
82,705 |
|
|
|
85,507 |
|
|
|
87,267 |
|
|
350,000
|
|
|
59,348 |
|
|
|
79,130 |
|
|
|
97,503 |
|
|
|
100,975 |
|
|
|
103,232 |
|
|
400,000
|
|
|
59,348 |
|
|
|
79,130 |
|
|
|
98,913 |
|
|
|
113,446 |
|
|
|
119,197 |
|
|
450,000
|
|
|
59,348 |
|
|
|
79,130 |
|
|
|
98,913 |
|
|
|
113,446 |
|
|
|
127,978 |
|
|
500,000
|
|
|
59,348 |
|
|
|
79,130 |
|
|
|
98,913 |
|
|
|
113,446 |
|
|
|
127,978 |
|
Supplemental Executive Benefit Pension Plan. The
Supplemental Plan is an unfunded defined benefit plan which
provides for the payment of a minimum annual retirement income
to executive officers and other designated highly compensated
employees, taking into account employer provided benefits earned
under the Pension Plan. In general, the retirement pension
earned by a Supplemental Plan participant, expressed as an
annual single life annuity beginning at the participant’s
normal retirement date (age 65 and 5 years of
service), is equal to 40% of the participant’s final
three-year average compensation multiplied by a fraction, the
numerator of which is the number of the participant’s years
of credited service (not to exceed 25), and the denominator of
which is 25. The amount of a participant’s benefit, as so
determined, is payable by the Company to the extent it is not
covered by the employer-provided benefit payable to the
participant under the
93
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
Pension Plan. Participants become vested in their Supplemental
Plan benefits after the completion of five years of service.
Vested participants who retire between age 55 and 65 may
elect to begin receiving reduced annual payments before
age 65. The early retirement reduction factor may be waived
in specific cases. Subject to certain conditions, the
Supplemental Plan also provides for the payment of a 50%
survivor annuity to the surviving spouse of a deceased
participant.
The following table shows the estimated annual pension benefits
that would be payable under the existing Supplemental Plan
formula, without regard to offsets for the employer-provided
benefit payable under the Pension Plan, to persons retiring at
age 65 in the specified compensation and years-of-service
classifications. The estimated annual Supplemental Plan benefits
for Robert C. Woodworth, Alan G. Silverglat, Terrance C.Z.
Egger, Mark G. Contreras and Matthew G. Kraner, assuming
continued service at their 2004 levels of compensation and
retirement at age 65, payable in the form of a 50% joint
and survivor annuity, are $255,098, $65,982, $180,856, $97,541
and $85,926, respectively.
Supplemental Plan Table
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Estimated Annual Pension Benefits |
| |
|
For Years of Service Indicated |
| Annual Compensation |
|
|
| At Retirement |
|
15 yrs. |
|
20 yrs. |
|
25 yrs. |
|
30 yrs. |
|
35 yrs. |
| |
|
|
|
|
|
|
|
|
|
|
|
$150,000
|
|
$ |
36,000 |
|
|
$ |
48,000 |
|
|
$ |
60,000 |
|
|
$ |
60,000 |
|
|
$ |
60,000 |
|
|
200,000
|
|
|
48,000 |
|
|
|
64,000 |
|
|
|
80,000 |
|
|
|
80,000 |
|
|
|
80,000 |
|
|
250,000
|
|
|
60,000 |
|
|
|
80,000 |
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
100,000 |
|
|
300,000
|
|
|
72,000 |
|
|
|
96,000 |
|
|
|
120,000 |
|
|
|
120,000 |
|
|
|
120,000 |
|
|
350,000
|
|
|
84,000 |
|
|
|
112,000 |
|
|
|
140,000 |
|
|
|
140,000 |
|
|
|
140,000 |
|
|
400,000
|
|
|
96,000 |
|
|
|
128,000 |
|
|
|
160,000 |
|
|
|
160,000 |
|
|
|
160,000 |
|
|
450,000
|
|
|
108,000 |
|
|
|
144,000 |
|
|
|
180,000 |
|
|
|
180,000 |
|
|
|
180,000 |
|
|
500,000
|
|
|
120,000 |
|
|
|
160,000 |
|
|
|
200,000 |
|
|
|
200,000 |
|
|
|
200,000 |
|
94
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
Pursuant to the Lee Merger Agreement, the Supplemental Plan will
be amended and converted into an individual account plan. A
bookkeeping account will be set up in the name of each
participant and will be credited with (1) an amount
representing the present value of the participant’s accrued
benefit under the Supplemental Plan, and (2) periodic
interest at a fixed annual rate of 5.75%. The Supplemental Plan,
as amended, will be liquidated on or about May 1, 2008 (or,
if earlier, upon another change in control transaction), at
which time each participant will be entitled to receive a lump
sum cash payment equal to the balance in his or her account.
Retired participants will continue to receive their Supplemental
Plan annuity payments (charged against their plan accounts)
until the liquidation of the Supplemental Plan. Under the
Executive Transition Plan, each Named Executive (other than
Mr. Contreras) may be entitled to additional Supplemental
Plan benefits based upon two additional years of service credit
and, in the case of Mr. Woodworth, waiver of early
retirement benefit reduction. See “Employment Contracts and
Change in Control Arrangements — Pulitzer Inc.
Executive Transition Plan.” The opening account balances
and the potential severance-related additional credits for each
Named Executive and for all other eligible employees and
retirees as a group, are set forth in the table below.
| |
|
|
|
|
|
|
|
|
|
| |
|
Opening |
|
|
| |
|
Balance as of |
|
Maximum Potential Severance- |
| |
|
May 1, 2005 |
|
Related Additional Credits(1) |
| |
|
|
|
|
|
Named Executives:
|
|
|
|
|
|
|
|
|
| |
Mark G. Contreras
|
|
$ |
68,531 |
|
|
$ |
0 |
|
| |
Terrance C.Z. Egger
|
|
|
268,612 |
|
|
|
83,380 |
|
| |
Matthew G. Kraner
|
|
|
54,609 |
|
|
|
39,449 |
|
| |
Alan G. Silverglat
|
|
|
163,620 |
|
|
|
147,551 |
|
| |
Robert C. Woodworth
|
|
|
822,227 |
|
|
|
1,233,236 |
|
|
Certain Directors:
|
|
|
|
|
|
|
|
|
| |
Ken J. Elkins
|
|
|
2,106,617 |
|
|
|
0 |
|
| |
Michael E. Pulitzer
|
|
|
6,755,885 |
|
|
|
0 |
|
| |
Ronald H. Ridgway
|
|
|
1,507,046 |
|
|
|
0 |
|
|
Other Eligible Employees and Retirees as a Group
|
|
$ |
6,016,691 |
|
|
$ |
418,350 |
|
|
|
| (1) |
Excludes interest credited from January 1, 2005 at an
annual rate of 5.75 percent until the termination date (if
applicable). |
Employment Contracts and Change in Control Arrangements
For a description of Mr. Woodworth’s employment
agreement, see “Compensation Committee Report on Executive
Compensation — Compensation of the Chief Executive
Officer.”
The Company is party to an employment agreement with Terrance
C.Z. Egger, which was entered into on August 26, 1998. The
initial term ended on March 18, 2001; however, unless
terminated, the agreement will continue for successive one-year
renewal terms. Under his employment agreement, Mr. Egger is
entitled to annual salary, annual incentive compensation and
participation in Company benefit plans. If Mr. Egger’s
employment is terminated by the Company without
“cause” or by him for “good reason,” he will
be entitled to severance of up to one year of salary and bonus,
continuing group health and life coverage for at least one year,
and accelerated vesting of outstanding stock options and
restricted stock awards. Mr. Egger may be entitled to
additional severance payments and benefits pursuant to the
Executive Transition Plan described below.
On December 10, 2004, Pulitzer Inc. entered into a letter
agreement with Mark G. Contreras, a then Senior Vice
President of the Company, relating to certain aspects of the
termination of his employment with the Company and its
affiliates (including their successors and assigns). The
agreement (i) recognized that Mr. Contreras’
employment and all officer and director positions with the
Company would terminate on
95
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
January 3, 2005, (ii) contains restrictions on
Mr. Contreras’ use or disclosure of confidential
information and on the hiring, prior to October 1, 2005, of
any employee of the Company, and (iii) provides for a cash
payment to Mr. Contreras of $300,000 payable in two
installments: one promptly after January 3, 2005, which
payment has been made, and one promptly after October 1,
2005.
The Lee Merger Agreement provides for outplacement services for
up to 10 non-bargaining unit employees of the Company whose
employment is terminated in conjunction with the Lee Merger. The
individuals, if any, who may receive these outplacement services
are to be determined by a person selected by a committee
consisting of three members of the board of directors of
Pulitzer Inc. (the “Designation Committee”). The board
of directors of Pulitzer Inc. has not yet appointed the members
of the Designation Committee. Accordingly, the criteria for
designating which non-bargaining unit employees, if any, may
receive these outplacement services, including whether any
executive officer of Pulitzer Inc. might qualify to receive
outplacement services, has not yet been determined.
Pulitzer Inc. Executive Transition Plan. The Pulitzer
Inc. Executive Transition Plan (“Executive Transition
Plan”), which was adopted in September 2001, provides
severance and other payments and benefits upon termination of a
participating executive’s employment with the Company and
its subsidiaries. The Executive Transition Plan is administered
by the Compensation Committee. The rights of each participating
executive are fixed by the Compensation Committee in accordance
with parameters set forth in the Executive Transition Plan.
These parameters include (a) severance of up to three
years’ pay, and continuing group insurance benefits for up
to three years following an involuntary termination of
employment (whether or not in conjunction with a change in
control), (b) accelerated vesting of stock options and
other equity-based compensation awards upon a change in control
of the Company (whether or not the executive’s employment
is terminated), and (c) enhanced supplemental pension
benefits for a participating executive whose employment
terminates in conjunction with a change in control. The Lee
Merger will constitute a change in control for purposes of the
Executive Transition Plan and related agreements.
All of the Named Executives have been awarded participation in
the Executive Transition Plan. Under the terms of their
participation, each of Messrs. Silverglat, Egger and Kraner
will be entitled to receive 1.5 times his annual salary plus
bonus, and continuing group health and life coverage for up to
1.5 years if his employment is terminated by the Company
without “cause,” other than in connection with a
change in control of the Company which, for this purpose, would
include the Lee Merger. As a result of the termination of his
employment with the Company, however, Mr. Contreras will
not be entitled to receive any payments or benefits under the
Executive Transition Plan. If, in contemplation of or within
2 years after the Lee Merger, any such executive’s
employment is terminated by the Company without
“cause” or by the executive for “good
reason,” then, subject to certain limitations, he will be
entitled to the following payments and benefits: severance equal
to two times salary plus bonus, continuing group health coverage
for two years, and two years of additional service credit under
the Company’s Supplemental Plan (the value of which would
be added to the executive’s account under the Supplemental
Plan, as amended — see “Defined Benefit
Plans — Supplemental Executive Benefit Pension
Plan”). In addition, each such executive’s stock
options and/or restricted stock or restricted stock units, as
applicable, will be fully vested upon the Lee Merger, whether or
not his employment is terminated.
Under the terms of his participation in the Executive Transition
Plan, Mr. Egger is eligible to receive the same benefits as
those described above with the following additional provisions:
(i) if Mr. Egger’s employment terminates in
contemplation of, or within two years after, the Lee Merger,
then Mr. Egger will be entitled to an additional cash
payment sufficient to make him whole if he is required to pay
excise tax under Section 4999 of the Code in connection
with payments and benefits deemed contingent upon consummation
of the Lee Merger and (ii) Mr. Egger may receive
reduced severance (including one times salary and bonus, plus
excise tax protection) if he voluntarily terminates his
employment during the thirteenth month following the Lee Merger.
The projected maximum amount of such additional cash payment is
approximately $0.9 million if Mr. Egger’s
employment is severed. In order to avoid duplication,
Mr. Egger’s entitlements under the Executive
Transition Plan will be offset by any corresponding entitlements
under his employment agreement.
96
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
Under the terms of his participation in the Executive Transition
Plan, if Mr. Woodworth’s employment is terminated by
the Company without “cause” or by him for “good
reason” (otherwise than in conjunction with a change in
control of the Company which, for this purpose, would include
the Lee Merger), then Mr. Woodworth will be entitled to
receive up to three times his annual salary plus two times his
average annual bonus, continuing group health and life insurance
coverage for up to three years and accelerated vesting of stock
options and restricted stock unit awards. If the termination of
Mr. Woodworth’s employment occurs in contemplation of,
or within two years after, the Lee Merger, then
Mr. Woodworth will be entitled to the following payments:
severance equal to three times salary plus bonus, continuing
group health coverage for three years, accelerated vesting and
enhanced benefits under the Supplemental Plan (including up to
two years of additional benefit accrual and a waiver of the
actuarial reduction for early payment, the value of which would
be credited to Mr. Woodworth’s account under the
amended Supplemental Plan). Mr. Woodworth may receive
reduced severance (including two times salary and bonus, plus
excise tax protection) if he voluntarily terminates his
employment during the thirteenth month following the Lee Merger.
Mr. Woodworth’s stock options and restricted stock
unit awards will be fully vested upon the Lee Merger, whether or
not his employment is terminated. In addition,
Mr. Woodworth would be entitled to receive a cash payment
sufficient to make him whole if he is required to pay excise tax
under Section 4999 of the Code in connection with payments
and benefits deemed contingent upon consummation of the Lee
Merger. The projected maximum amount of such additional cash
payment is approximately $3.8 million if
Mr. Woodworth’s employment is severed. In order to
avoid duplication, Mr. Woodworth’s entitlements under
the Executive Transition Plan will be offset by any
corresponding entitlements under his employment agreement.
STOCK PERFORMANCE GRAPH
The Stock Price Performance Graph below shall not be deemed
incorporated by reference by any general statement incorporating
by reference this proxy statement into any filing under the
Securities Act of 1933, as amended, or under the Securities
Exchange Act of 1934, as amended, except to the extent Pulitzer
Inc. specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
The total cumulative return on investment (change in the
year-end stock price plus reinvested dividends) for the past
five years for Pulitzer Inc., the S&P 500 Index and the
S&P 500 Publishing Index is based on the stock price or
composite index at December 31, 1999.
97
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION — Continued |
The above graph compares the performance of Pulitzer Inc. with
that of the S&P 500 Index and the S&P 500 Publishing
Index, with the investment weighted on market capitalization.
Companies included in the S&P 500 Publishing Index are:
(i) Dow Jones & Company, Inc., (ii) Gannett
Co., Inc., (iii) Knight Ridder, Inc., (iv) McGraw-Hill
Companies, (v) Meredith Corp., (vi) The New York Times
Company and (vii) Tribune Company.
|
|
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
EQUITY COMPENSATION PLANS
The following table provides information as of the last day of
the 2004 fiscal year regarding securities issued under Pulitzer
Inc.’s equity compensation plans that were in effect during
fiscal 2004:
Equity Compensation Plan Information
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Number of |
| |
|
|
|
|
|
securities |
| |
|
Number of |
|
|
|
remaining available |
| |
|
securities to be |
|
|
|
for future issuance |
| |
|
issued upon |
|
Weighted-average |
|
under equity |
| |
|
exercise of |
|
exercise price of |
|
compensation |
| |
|
outstanding |
|
outstanding |
|
plans (excluding |
| |
|
options, warrants |
|
options, warrants |
|
securities reflected |
| Plan category |
|
and rights(1) |
|
and rights(1) |
|
in column (a))(2) |
| |
|
|
|
|
|
|
| |
|
(a) |
|
(b) |
|
(c) |
|
Equity compensation plans approved by security holders
|
|
|
2,486,132 |
|
|
$ |
45.50 |
|
|
|
1,383,410 |
|
|
Equity compensation plans not approved by security holders
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
| |
Total
|
|
|
2,486,132 |
|
|
$ |
45.50 |
|
|
|
1,383,410 |
|
|
|
| (1) |
Excludes: (i) 139,680 restricted stock units with a
purchase price of $0.01 per share, and (ii) shares
issuable under the Company’s employee stock purchase plans. |
| |
| (2) |
Under the Lee Merger Agreement, Pulitzer Inc. may not issue any
new rights or options to acquire any shares of Common Stock
except with the consent of Lee. |
98
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Pulitzer Inc.’s Common Stock and
Class B Common Stock as of February 25, 2005,
(i) by each director of Pulitzer Inc., (ii) by each
person known by the Company to own beneficially 5% or more of
its Common Stock, (iii) by the executive officers named in
the Summary Compensation Table (see “Executive
Compensation” in Item 11) and (iv) by all
directors and officers of Pulitzer Inc. as a group.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Class B |
|
Percent of Aggregate |
| |
|
Common Stock |
|
Common Stock |
|
Voting Power of |
| |
|
|
|
|
|
Common Stock and |
| |
|
Number of |
|
|
|
Number of |
|
|
|
Class B |
| Directors, Officers and 5% Stockholders† |
|
Shares |
|
Percent |
|
Shares |
|
Percent |
|
Common Stock |
| |
|
|
|
|
|
|
|
|
|
|
|
Trustees of Pulitzer Inc. Voting Trust(1)
|
|
|
— |
|
|
|
— |
|
|
|
10,948,995 |
|
|
|
95.5 |
% |
|
|
87.5 |
% |
|
Emily Rauh Pulitzer(2)(3)
|
|
|
192,596 |
|
|
|
1.9 |
% |
|
|
6,284,843 |
|
|
|
54.8 |
% |
|
|
50.4 |
% |
|
Michael E. Pulitzer(2)(4)(5)
|
|
|
264,800 |
|
|
|
2.6 |
% |
|
|
1,462,496 |
|
|
|
12.8 |
% |
|
|
11.9 |
% |
|
David E. Moore(2)(6)
|
|
|
1,877 |
|
|
|
* |
|
|
|
2,851,073 |
|
|
|
24.9 |
% |
|
|
22.8 |
% |
|
Richard W. Moore(7)
|
|
|
— |
|
|
|
* |
|
|
|
217,003 |
|
|
|
1.9 |
% |
|
|
1.7 |
% |
|
Ken J. Elkins(8)
|
|
|
21,423 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
James M. Snowden, Jr.(8)
|
|
|
22,057 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
William Bush(8)
|
|
|
18,391 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
Susan T. Congalton(9)
|
|
|
13,391 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
Alice B. Hayes(8)
|
|
|
18,391 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
Robert C. Woodworth(2)(10)
|
|
|
462,133 |
|
|
|
4.5 |
% |
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
Ronald H. Ridgway(11)
|
|
|
28,802 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
Alan G. Silverglat(2)(12)
|
|
|
74,292 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
Mark G. Contreras(13)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Terrance C.Z. Egger(14)
|
|
|
178,544 |
|
|
|
1.7 |
% |
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
Matthew G. Kraner(15)
|
|
|
82,001 |
|
|
|
* |
|
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
Castlerigg Master Investments LTD (16)
|
|
|
589,400 |
|
|
|
5.7 |
% |
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
c/o Citco Fund Services (Curacao) N.V.
Kaya Flamboyan 9
P.O. Box 812
Curacao, Netherlands, Antilles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gabelli Asset Management, Inc.(17)
|
|
|
3,720,652 |
|
|
|
35.8 |
% |
|
|
— |
|
|
|
— |
|
|
|
3.0 |
% |
|
One Corporate Center
Rye, New York
10580-1434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wachovia Corporation(18)
|
|
|
569,449 |
|
|
|
5.5 |
% |
|
|
— |
|
|
|
— |
|
|
|
** |
|
|
One Wachovia Center
Charlotte, North Carolina 28288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and officers as a group (18 persons)(2)(19)
|
|
|
1,490,735 |
|
|
|
14.4 |
% |
|
|
10,815,415 |
|
|
|
94.3 |
% |
|
|
87.7 |
% |
|
|
| † |
Unless otherwise indicated, the address of each person or entity
named in the table is c/o Pulitzer Inc., 900 North Tucker
Boulevard, St. Louis, Missouri 63101. |
|
|
| * |
Represents less than 1% of the outstanding Common Stock. |
|
|
| ** |
Represents less than 1% of the aggregate voting power of Common
Stock and Class B Common Stock. |
|
|
|
| |
(1) |
The Trustees of the Pulitzer Inc. Voting Trust are David E.
Moore, Michael E. Pulitzer, Emily Rauh Pulitzer, Alan G.
Silverglat, Ellen Soeteber and Robert C. Woodworth. The Pulitzer
Inc. Voting Trust |
99
|
|
|
| |
|
and each of the individual Trustees may be reached at 900 North
Tucker Boulevard, St. Louis, Missouri 63101. |
| |
| |
(2) |
Excludes shares that would otherwise be deemed to be
beneficially owned solely because of service as a trustee of the
Pulitzer Inc. Voting Trust. |
| |
| |
(3) |
Represents 6,477,439 shares held in trusts. These shares
are beneficially owned by Mrs. Pulitzer. |
| |
| |
(4) |
Includes 1,438,716 shares held in trust and
22,780 shares held in a private foundation. These shares
are beneficially owned by Mr. Pulitzer. Also includes
1,000 shares held in trust for the benefit of the wife of
Michael E. Pulitzer. Mr. Pulitzer disclaims beneficial
ownership of these shares. |
| |
| |
(5) |
Includes 264,800 shares of Common Stock which may be
acquired upon the exercise of options under the Pulitzer Inc.
2003 Incentive Plan which are exercisable within 60 days of
the date hereof. |
| |
| |
(6) |
Includes 50,998 shares of Class B Common Stock and
182 shares of Common Stock beneficially owned by the wife
of David E. Moore. Mr. Moore disclaims beneficial ownership
of these shares. |
| |
| |
(7) |
Includes 37,003 shares beneficially owned by the wife and a
daughter of Richard W. Moore. Mr. Moore disclaims
beneficial ownership of these shares. |
| |
| |
(8) |
Includes 18,000 shares which may be acquired upon the
exercise of options under the 2003 Incentive Plan which are
exercisable within 60 days of the date hereof and
391 shares of restricted stock under the 2003 Incentive
Plan, subject to a one-year vesting condition. |
| |
| |
(9) |
Includes 12,000 shares which may be acquired upon the
exercise of options under the 2003 Incentive Plan which are
exercisable within 60 days of the date hereof and
391 shares of restricted stock under the 2003 Incentive
Plan, subject to a one-year vesting condition. |
|
|
| (10) |
Represents shares which may be acquired upon the exercise of
options under the 2003 Incentive Plan which are exercisable
within 60 days of the date hereof. Does not include
78,080 shares covered by vested restricted stock units
which are not distributable within 60 days of the date
hereof. |
| |
| (11) |
Includes 22,070 shares which may be acquired upon the
exercise of options under the 2003 Incentive Plan which are
exercisable within 60 days of the date hereof and
391 shares of restricted stock under the 2003 Incentive
Plan, subject to a one-year vesting condition. |
| |
| (12) |
Includes 72,500 shares which may be acquired upon the
exercise of options under the 2003 Incentive Plan which are
exercisable within 60 days of the date hereof. |
| |
| (13) |
Mr. Contreras resigned from the Company effective
January 3, 2005. |
| |
| (14) |
Includes 162,801 shares which may be acquired upon the
exercise of options under the 2003 Incentive Plan which are
exercisable within 60 days of the date hereof and
5,949 shares of restricted stock under the Pulitzer Inc.
2003 Incentive Plan, subject to a three-year vesting condition. |
| |
| (15) |
Represents shares which may be acquired upon the exercise of
options under the 2003 Incentive Plan which are exercisable
within 60 days of the date hereof. |
| |
| (16) |
This figure is based on information set forth in
Schedule 13G, dated March 9, 2005, filed by Castlerigg
Master Investments LTD and certain entities affiliated with
Castlerigg Master Investments LTD with the Securities and
Exchange Commission. The Schedule 13G states that each of
(i) Castlerigg Master Investments LTD, (ii) Sandell
Asset Management, (iii) Castlerigg International Limited,
(iv) Castlerigg International Holdings Limited, and
(v) Thomas E. Sandell has the shared power to vote, or
direct the vote of, and the shared power to dispose, or direct
the disposition of, 589,400 of such shares. |
| |
| (17) |
This figure is based on information set forth in Amendment
No. 31 to the Schedule 13D, dated January 27,
2005, filed by Gabelli Asset Management Inc. and certain
entities affiliated with Gabelli Asset Management Inc. with the
Securities and Exchange Commission. The Schedule 13D states
that (i) Gabelli Funds, LLC has the sole power to vote, or
direct the vote of, and the sole power to dispose or direct the
disposition of, 471,000 of such shares, (ii) GAMCO
Investors, Inc. has the sole power to vote, or direct the vote
of, 2,982,164 of such shares and the sole power to dispose, or
direct the disposition of, 3,246,652 of such shares, and
(iii) MJG Associates, Inc. has the sole power to vote, or
direct the vote of, 3,000 of such shares and the sole power to
dispose, or direct the disposition of, 3,000 of such shares. |
100
|
|
| (18) |
This figure is based on information set forth in Amendment
No. 1 to the Schedule 13G, dated January 26,
2005, filed by Wachovia Corporation with the Securities and
Exchange Commission. The Schedule 13G states that Wachovia
Corporation has the sole power to vote, or direct the vote of,
568,849 of such shares, has the shared power to vote, or direct
the vote of 600 of such shares and the sole power to dispose, or
direct the disposition of 557,349 of such shares. |
| |
| (19) |
Includes 1,259,356 shares which may be acquired upon the
exercise of options under the 2003 Incentive Plan which are
exercisable within 60 days of the date hereof. |
Voting Trust
See “Lee Merger Agreement” in Item 1 and see
Item 5.
|
|
| ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
See “Certain Relationships and Related Transactions”
in Item 11.
|
|
| ITEM 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES |
Independent Registered Public Accounting Firm’s Fees
The following table summarizes the aggregate fees billed to
Pulitzer Inc. by its independent registered public accounting
firm, Deloitte & Touche LLP:
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Audit Fees(a)
|
|
$ |
629,000 |
|
|
$ |
419,175 |
|
|
Audit-Related Fees(b)
|
|
|
27,980 |
|
|
|
224,750 |
|
|
Tax Fees(c)
|
|
|
102,570 |
|
|
|
46,715 |
|
|
All Other Fees
|
|
|
0 |
|
|
|
0 |
|
| |
|
|
|
|
|
|
|
|
| |
Total
|
|
$ |
759,550 |
|
|
$ |
690,640 |
|
| |
|
|
|
|
|
|
|
|
(a) Fees for audit services billed in 2004 and 2003
consisted of:
|
|
|
| |
• |
Audit of the Company’s annual financial statements |
| |
| |
• |
Sarbanes-Oxley Act, Section 404 attestation services |
| |
| |
• |
Reviews of the Company’s quarterly financial statements |
| |
| |
• |
Consents and other services related to SEC matters |
(b) Fees for audit-related services billed in 2004 and 2003
consisted of:
|
|
|
| |
• |
Sarbanes-Oxley Act, Section 404 advisory services |
| |
| |
• |
Financial accounting and reporting consultations |
(c) Fees for tax services billed in 2004 and 2003 consisted
of:
|
|
|
| |
• |
Tax compliance services (i.e. services rendered based upon facts
already in existence or transactions that have already occurred
to document, compute, and obtain government approval for amounts
to be included in tax filings) with respect to: |
i. Federal, state and local income tax return assistance
ii. Assistance with tax audits and appeals
101
|
|
| ITEM 14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES —
Continued |
|
|
|
| |
• |
There were no fees in 2004 or 2003 for tax planning and advice |
| |
|
|
|
|
|
|
|
|
| |
|
2004 |
|
2003 |
| |
|
|
|
|
|
Ratio of Tax Planning and Advice Fees and All Other Fees to
Audit Fees, Audit-Related Fees and Tax Compliance Fees
|
|
|
0:1.0 |
|
|
|
0:1.0 |
|
The Audit Committee of the Board of Directors has approved
100 percent of the above services, and has determined that
the performance of services related to “All Other
Fees” is compatible with maintaining the independence of
Deloitte & Touche LLP.
Pre-Approval Policy
Pursuant to the Sarbanes-Oxley Act of 2002, the Board of
Directors of Pulitzer Inc. has instructed the Audit Committee to
approve all audit and permissible non-audit services to be
performed by Pulitzer Inc.’s independent registered public
accounting firm in order to assure that the provision of such
services does not impair its independence. Accordingly, it is
the Audit Committee’s policy that it pre-approve all audit
and permissible non-audit services to be performed by Pulitzer
Inc.’s independent registered public accounting firm, the
fees to be paid for those services and the time period over
which those services are to be provided.
The independent registered public accounting firm or management
will advise the Audit Committee regarding each audit or
permissible non-audit service proposed to be pre-approved by it
and whether the service is consistent with the Sarbanes-Oxley
Act of 2002 and any other then-applicable laws, rules and
regulations.
PART IV
|
|
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) DOCUMENT LIST
1. Financial Statements
|
|
| |
The following financial statements are set forth in
Part II, Item 8 of this Annual Report. |
PULITZER INC. AND SUBSIDIARIES:
|
|
| |
(i) Report of Independent Registered Public Accounting Firm. |
| |
| |
(ii) Consolidated Statements of Income for each of the
Three Years in the Period Ended December 31, 2004. |
| |
| |
(iii) Consolidated Statements of Financial Position at
December 31, 2004, and December 31, 2003. |
| |
| |
(iv) Consolidated Statements of Stockholders’ Equity
and Comprehensive Income for each of the Three Years in the
Period Ended December 31, 2004. |
| |
| |
(v) Consolidated Statements of Cash Flows for each of the
Three Years in the Period Ended December 31, 2004. |
| |
| |
(vi) Notes to Consolidated Financial Statements for each of
the Three Years in the Period Ended December 31, 2004. |
2. Supplementary Data and Financial Statement Schedules
|
|
| |
(i) Supplementary unaudited data with respect to quarterly
results of operations is set forth in Part II, Item 8
of this Annual Report. |
| |
| |
(ii) Report of Independent Registered Public Accounting
Firm. |
102
|
|
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES — Continued |
|
|
| |
(iii) Financial Statement Schedule II —
Valuation & Qualifying Accounts & Reserves as
set forth in Part II, Item 8 of this Annual Report. |
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable and, therefore, have been omitted.
3. Exhibits Required by Securities and Exchange
Commission Regulation S-K
(a) The following exhibits are filed as part of this Annual
Report:
| |
|
|
|
|
| Exhibit |
|
|
| No. |
|
|
| |
|
|
| |
10 |
.51 |
|
Letter Agreement between the Company and Mark G. Contreras, a
then Senior Vice President of Pulitzer Inc., dated as of
December 10, 2004. |
| |
10 |
.53 |
|
Incentive Opportunities Term Sheet for Terrance C.Z. Egger. |
| |
10 |
.54 |
|
Incentive Opportunities Term Sheet for Jon H. Holt. |
| |
10 |
.55 |
|
Incentive Opportunities Term Sheet for Matthew G. Kraner. |
| |
10 |
.56 |
|
Incentive Opportunities Term Sheet for James V. Maloney. |
| |
10 |
.57 |
|
Incentive Opportunities Term Sheet for Jan P. Pallares. |
| |
10 |
.58 |
|
Incentive Opportunities Term Sheet for Alan G. Silverglat. |
| |
10 |
.59 |
|
Incentive Opportunities Term Sheet for Robert C. Woodworth. |
| |
10 |
.60 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Terrance C.Z. Egger, dated as of
January 1, 2002. |
| |
10 |
.61 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Jon H. Holt, dated as of January 1, 2002. |
| |
10 |
.62 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Matthew G. Kraner, dated as of January 1,
2002. |
| |
10 |
.63 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and James V. Maloney, dated as of January 1,
2002. |
| |
10 |
.64 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Jan P. Pallares, dated as of January 1,
2003. |
| |
10 |
.65 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Alan G. Silverglat, dated as of
January 1, 2002. |
| |
10 |
.66 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Robert C. Woodworth, dated as of
January 1, 2002. |
| |
21 |
|
|
Subsidiaries of the Registrant. |
| |
22 |
|
|
Consent of Independent Registered Public Accounting Firm. |
| |
23 |
|
|
Power of Attorney. |
| |
31 |
.1 |
|
Certification by Robert C. Woodworth, President and Chief
Executive Officer of Pulitzer Inc., pursuant to Exchange Act
Rule 13a-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, in connection with Pulitzer
Inc.’s Annual Report on Form 10-K for the year ended
December 26, 2004. |
| |
31 |
.2 |
|
Certification by Alan G. Silverglat, Senior Vice
President-Finance and Chief Financial Officer of Pulitzer Inc.,
pursuant to Exchange Act Rule 13a-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
in connection with Pulitzer Inc.’s Annual Report on
Form 10-K for the year ended December 26, 2004. |
103
|
|
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES — Continued |
| |
|
|
|
|
| Exhibit |
|
|
| No. |
|
|
| |
|
|
| |
32 |
.1 |
|
Certification by Robert C. Woodworth, President and Chief
Executive Officer of Pulitzer Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, in connection with Pulitzer
Inc.’s Annual Report on Form 10-K for the year ended
December 26, 2004. |
| |
32 |
.2 |
|
Certification by Alan G. Silverglat, Senior Vice
President-Finance and Chief Financial Officer of Pulitzer Inc.,
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
in connection with Pulitzer Inc.’s Annual Report on
Form 10-K for the year ended December 26, 2004. |
(b) The following exhibits are incorporated herein by
reference:
| |
|
|
|
|
|
|
| Exhibit No. |
|
|
|
|
| |
|
|
|
|
| |
3 |
.1 |
|
— |
|
Restated Certificate of Incorporation of Pulitzer Inc.(viii) |
| |
3 |
.2 |
|
— |
|
Amended and Restated By-laws of Pulitzer Inc.(xix) |
| |
4 |
.1 |
|
— |
|
Form of Pulitzer Inc. Common Stock Certificate.(viii) |
| |
9 |
.1 |
|
— |
|
Pulitzer Inc. Voting Trust Agreement, dated as of
March 18, 1999, between the holders of voting trust
certificates and Michael E. Pulitzer, Emily Rauh Pulitzer,
Ronald H. Ridgway, Cole C. Campbell, David E. Moore and Robert
C. Woodworth.(ix) |
| |
10 |
.1 |
|
— |
|
Agreement, dated March 1, 1961, effective January 1,
1961, between The Pulitzer Publishing Company, a Missouri
corporation, and the Globe-Democrat Publishing Company, as
amended on September 4, 1975, April 12, 1979 and
December 22, 1983.(viii) |
| |
10 |
.2.1 |
|
— |
|
Amended and Restated Joint Operating Agreement, dated
December 22, 1988, between Star Publishing Company and
Citizen Publishing Company.(viii) |
| |
10 |
.2.2 |
|
— |
|
Partnership Agreement, dated December 22, 1988, between
Star Publishing Company and Citizen Publishing Company.(viii) |
| |
10 |
.3.1 |
|
— |
|
Amendment, dated September 16, 1997, to Pulitzer Retirement
Savings Plan.(v) |
| |
10 |
.3.2 |
|
— |
|
Amendment, dated January 28, 1997, to Pulitzer Retirement
Savings Plan.(iv) |
| |
10 |
.3.3 |
|
— |
|
Amendment, dated October 30, 1996, to Pulitzer Retirement
Savings Plan.(iv) |
| |
10 |
.3.4 |
|
— |
|
Amendment, dated July 31, 1996, to Pulitzer Retirement
Savings Plan.(iv) |
| |
10 |
.3.5 |
|
— |
|
Amendment, dated October 25, 1995, to Pulitzer Retirement
Savings Plan.(iv) |
| |
10 |
.3.6 |
|
— |
|
Amendment, dated October 25, 1995, to Pulitzer Retirement
Savings Plan.(ii) |
| |
10 |
.3.7 |
|
— |
|
Amendment, dated January 24, 1995, to Pulitzer Retirement
Savings Plan.(i) |
| |
10 |
.3.8 |
|
— |
|
Amended and Restated Pulitzer Retirement Savings Plan.(i) |
| |
10 |
.4.1 |
|
— |
|
Amendment, dated October 25, 1995, to Pulitzer Publishing
Company Pension Plan.(iv) |
| |
10 |
.4.2 |
|
— |
|
Amended and Restated Pulitzer Publishing Company Pension Plan.(i) |
| |
10 |
.5.1 |
|
— |
|
Amendment, dated October 29, 1997, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan.(viii) |
| |
10 |
.5.2 |
|
— |
|
Amendment, dated June 23, 1992, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan.(viii) |
| |
10 |
.5.3 |
|
— |
|
Amendment, dated January 1, 1992, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan.(viii) |
| |
10 |
.5.4 |
|
— |
|
Amendment, dated January 18, 1990, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan.(viii) |
| |
10 |
.5.5 |
|
— |
|
Amendment, dated October 26, 1989, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan.(viii) |
| |
10 |
.5.6 |
|
— |
|
Amendment, dated November 6, 1987, to Pulitzer Publishing
Company Supplemental Executive Benefit Pension Plan.(viii) |
104
|
|
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES — Continued |
| |
|
|
|
|
|
|
| Exhibit No. |
|
|
|
|
| |
|
|
|
|
| |
10 |
.5.7 |
|
— |
|
Pulitzer Publishing Company Supplemental Executive Benefit
Pension Plan dated March 18, 1986.(viii) |
| |
10 |
.5.8 |
|
— |
|
Amendment, dated January 29, 2003, to the Pulitzer Inc.
Supplemental Executive Benefit Pension Plan.(xviii) |
| |
10 |
.6 |
|
— |
|
Employment Agreement, dated October 1, 1986, between the
Pulitzer Publishing Company and Joseph Pulitzer, Jr.(viii) |
| |
10 |
.7 |
|
— |
|
Stock Purchase Agreement by and among Pulitzer Publishing
Company and Mr. Edward W. Scripps, Mrs. Betty Knight
Scripps, and the Edward W. Scripps and Betty Knight Scripps
Charitable Remainder Unitrust dated as of May 4, 1996.(iii) |
| |
10 |
.8 |
|
— |
|
Split Dollar Life Insurance Agreement, dated December 27,
1996, between Pulitzer Publishing Company and Richard A. Palmer,
Trustee of the Michael E. Pulitzer 1996 Life Insurance Trust.(iv) |
| |
10 |
.9 |
|
— |
|
Split Dollar Life Insurance Agreement, dated December 31,
1996, between Pulitzer Publishing Company and Rebecca H.
Penniman and Nicholas G. Penniman V, Trustees of the
Nicholas G. Penniman IV Irrevocable 1996 Trust.(iv) |
| |
10 |
.10 |
|
— |
|
Amended and Restated Agreement and Plan of Merger by and among
Pulitzer Publishing Company, Pulitzer Inc. and Hearst-Argyle
Television, Inc., dated as of May 25, 1998.(vi) |
| |
10 |
.11 |
|
— |
|
Contribution and Assumption Agreements, dated as of
March 18, 1999 by and between Pulitzer Publishing Company
and Pulitzer Inc.(ix) |
| |
10 |
.12 |
|
— |
|
Letter Agreement, dated May 25, 1998, by and among Pulitzer
Publishing Company, Pulitzer Inc. and Hearst-Argyle Television,
Inc.(viii) |
| |
10 |
.13 |
|
— |
|
Letter Agreement, dated March 18, 1999, between Pulitzer
Inc. and Emily Rauh Pulitzer.(ix) |
| |
10 |
.14 |
|
— |
|
Letter Agreement, dated March 18, 1999, between Pulitzer
Inc. and David E. Moore.(ix) |
| |
10 |
.15 |
|
— |
|
Pulitzer Inc. Registration Rights Agreement.(ix) |
| |
10 |
.16 |
|
— |
|
Pulitzer Inc. 1999 Key Employees’ Restricted Stock Purchase
Plan.(viii) |
| |
10 |
.17 |
|
— |
|
Pulitzer Inc. 1999 Stock Option Plan.(viii) |
| |
10 |
.18 |
|
— |
|
Pulitzer Inc. 1999 Employee Stock Purchase Plan.(viii) |
| |
10 |
.19 |
|
— |
|
Employment Agreement, dated December 18, 1998, between
Pulitzer Inc. and Robert C. Woodworth.(vii) |
| |
10 |
.20 |
|
— |
|
Employment Agreement, dated August 26, 1998 between
Pulitzer Inc. and Terrance C.Z. Egger.(viii) |
| |
10 |
.21 |
|
— |
|
Employment and Consulting Agreement, dated as of June 1,
1999, between Pulitzer Inc. and Michael E. Pulitzer.(x) |
| |
10 |
.22 |
|
— |
|
Employment Agreement, dated as of June 1, 1999, between
Pulitzer Inc. and Ronald H. Ridgway(x) |
| |
10 |
.23 |
|
— |
|
Split Dollar Life Insurance Agreement, dated as of June 16,
1999, by and among Pulitzer Inc. and James E. Elkins and Diana
K. Walsh.(x) |
| |
10 |
.24 |
|
— |
|
Split Dollar Life Insurance Agreement, dated as of June 24,
1999, by and among Pulitzer Inc. and Tansy K. Ridgway and Brian
H. Ridgway.(x) |
| |
10 |
.25 |
|
— |
|
Asset Purchase Agreement, as of October 4, 1999, by and
between The Chronicle Publishing Company and Pulitzer Inc.(x) |
| |
10 |
.26 |
|
— |
|
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.(xi) |
| |
10 |
.27 |
|
— |
|
Operating Agreement of St. Louis Post-Dispatch LLC, dated
as of May 1, 2000.(xi) |
| |
10 |
.28 |
|
— |
|
Indemnity Agreement, dated as of May 1, 2000, between The
Herald Company, Inc. and Pulitzer Inc.(xi) |
| |
10 |
.29 |
|
— |
|
St. Louis Post-Dispatch LLC Note Agreement, dated as
of May 1, 2000.(xii) |
105
|
|
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES — Continued |
| |
|
|
|
|
|
|
| Exhibit No. |
|
|
|
|
| |
|
|
|
|
| |
10 |
.30 |
|
— |
|
Pulitzer Inc. Guaranty Agreement, dated as of May 1,
2000.(xii) |
| |
10 |
.31 |
|
— |
|
License Agreement, dated as of May 1, 2000, by and between
Pulitzer Inc. and St. Louis Post-Dispatch LLC.(xii) |
| |
10 |
.32 |
|
— |
|
Non-Confidentiality Agreement, dated as of May 1, 2000.(xii) |
| |
10 |
.33 |
|
— |
|
Asset Sale and Purchase Agreement among Journal Register
Company, Journal Register East, Inc., Suburban Newspapers of
Greater St. Louis, LLC, Journal Company, Inc. and Pulitzer
Inc. and SLSJ LLC dated as of June 24, 2000.(xiii) |
| |
10 |
.34 |
|
— |
|
Pulitzer Inc. Deferred Compensation Plan.(xiv) |
| |
10 |
.35 |
|
— |
|
Pulitzer Inc. 2000 Stock Purchase Plan, as Amended and
Restated.(xiv) |
| |
10 |
.36 |
|
— |
|
Robert C. Woodworth Restricted Stock Unit Award dated
December 11, 2000.(xiv) |
| |
10 |
.37 |
|
— |
|
Amendment No. 1 dated as of June 1, 2001, to Operating
Agreement of St. Louis Post-Dispatch LLC, dated May 1,
2000.(vx) |
| |
10 |
.38 |
|
— |
|
Pulitzer Inc. Executive Transition Plan.(xvi) |
| |
10 |
.39 |
|
— |
|
Pulitzer Inc. Annual Incentive Compensation Plan.(xvi) |
| |
10 |
.39.1 |
|
— |
|
Amendment 2002-1 of Pulitzer Inc. Annual Incentive Plan(xviii) |
| |
10 |
.40 |
|
— |
|
Robert C. Woodworth Restricted Stock Unit Award dated as of
December 6, 2001(xvii) |
| |
10 |
.41 |
|
— |
|
Split Dollar Life Insurance Agreement Dated as of
January 24, 2002, by and among Pulitzer, Inc. and Robert C
Woodworth (xvii) |
| |
10 |
.42 |
|
— |
|
Robert C. Woodworth Restricted Stock Unit Award dated as of
December 11, 2002.(xviii) |
| |
10 |
.43 |
|
— |
|
Robert C. Woodworth Restricted Stock Unit Award dated as of
February 21, 2003.(xviii) |
| |
10 |
.44 |
|
— |
|
Form of Stock Option Award for Robert C. Woodworth and Alan G.
Silverglat dated as of February 21, 2003.(xviii) |
| |
10 |
.45 |
|
— |
|
Robert C. Woodworth Restricted Stock Unit Award dated as of
December 10, 2003.(xix) |
| |
10 |
.46 |
|
— |
|
Form of Restricted Stock Unit Award for Robert C. Woodworth
dated as of December 10, 2003.(xix) |
| |
10 |
.47 |
|
— |
|
Robert C. Woodworth Stock Option Award dated as of
December 10, 2003.(xix) |
| |
10 |
.48 |
|
— |
|
Form of Stock Option Award for Robert C. Woodworth dated as of
December 10, 2003.(xix) |
| |
10 |
.49 |
|
— |
|
Stock Option Award for Alan G. Silverglat dated as of
December 10, 2003.(xix) |
| |
10 |
.50 |
|
— |
|
Form of Stock Option Award for Alan G. Silverglat dated as of
December 10, 2003.(xix) |
| |
10 |
.52 |
|
— |
|
Agreement and Plan of Merger, dated as of January 29, 2005,
among Pulitzer Inc., Lee Enterprises, Incorporated and LP
Acquisition Corp.(xx) |
|
|
|
|
(i) |
|
Incorporated by reference to Pulitzer Publishing Company’s
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994. |
| |
|
(ii) |
|
Incorporated by reference to Pulitzer Publishing Company’s
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995. |
| |
|
(iii) |
|
Incorporated by reference to Pulitzer Publishing Company’s
Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1996. |
| |
|
(iv) |
|
Incorporated by reference to Pulitzer Publishing Company’s
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996. |
| |
|
(v) |
|
Incorporated by reference to Pulitzer Publishing Company’s
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997. |
| |
|
(vi) |
|
Incorporated by reference to Pulitzer Publishing Company’s
Current Report on Form 8-K filed on January 22, 1999. |
| |
|
(vii) |
|
Incorporated by reference to Pulitzer Publishing Company’s
Registration Statement (File No. 333-69701) on
Form S-3. |
106
|
|
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES — Continued |
|
|
|
|
(viii) |
|
Incorporated by reference to Pulitzer Inc.’s Report on
Form 10 (File No. 1-14541), as amended. |
| |
|
(ix) |
|
Incorporated by reference to Pulitzer Publishing Company’s
Annual Report on Form 10-K for the fiscal year ended
December 31, 1998. |
| |
|
(x) |
|
Incorporated by reference to Pulitzer Inc.’s Annual Report
on Form 10-K for the fiscal year ended December 31,
1999. |
| |
|
(xi) |
|
Incorporated by reference to Pulitzer Inc.’s Current Report
on Form 8-K dated May 1, 2000 and filed on May 2,
2000. |
| |
|
(xii) |
|
Incorporated by reference to Pulitzer Inc.’s Quarterly
Report on Form 10-Q for the quarterly period ended
March 26, 2000. |
| |
|
(xiii) |
|
Incorporated by reference to Pulitzer Inc.’s Quarterly
Report on Form 10-Q for the quarterly period ended
June 25, 2000. |
| |
|
(xiv) |
|
Incorporated by reference to Pulitzer Inc.’s Annual Report
on Form 10-K for the fiscal year ended December 31,
2000. |
| |
|
(xv) |
|
Incorporated by reference to Pulitzer Inc.’s Quarterly
Report on Form 10-Q for the quarterly period ended
July 1, 2001. |
| |
|
(xvi) |
|
Incorporated by reference to Pulitzer Inc.’s Quarterly
Report on Form 10-Q for the quarterly period ended
September 30, 2001. |
| |
|
(xvii) |
|
Incorporated by reference to Pulitzer Inc.’s Annual Report
on Form 10-K for the fiscal year ended December 30,
2001. |
| |
|
(xviii) |
|
Incorporated by reference to Pulitzer Inc.’s Annual Report
on Form 10-K for the fiscal year ended December 29,
2002. |
| |
|
(xix) |
|
Incorporated by reference to Pulitzer Inc.’s Annual Report
on Form 10-K for the fiscal year ended December 28,
2003. |
| |
|
(xx) |
|
Incorporated by reference to Pulitzer Inc.’s Current Report
on Form 8-K dated January 29, 2005 and filed on
February 3, 2005. |
107
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 16th day of March, 2005.
|
|
|
| |
By: |
/s/ Robert C. Woodworth
|
|
|
| |
|
| |
Robert C. Woodworth, |
| |
President and Chief Executive 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 in the capacities indicated on the
dates indicated. |
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
/s/ Robert C. Woodworth
(Robert
C. Woodworth) |
|
Director; President and
Chief Executive Officer
(Principal Executive Officer)
|
|
March 16, 2005 |
/s/ Alan G. Silverglat
(Alan
G. Silverglat) |
|
Senior Vice President — Finance (Principal Financial
and Accounting Officer)
|
|
March 16, 2005 |
| |
/s/ William Bush*
(William
Bush) |
|
Director
|
|
March 16, 2005 |
| |
/s/ Susan T. Congalton*
(Susan
T. Congalton) |
|
Director
|
|
March 16, 2005 |
| |
/s/ Ken J. Elkins*
(Ken
J. Elkins) |
|
Director
|
|
March 16, 2005 |
| |
/s/ Alice B. Hayes*
(Alice
B. Hayes) |
|
Director
|
|
March 16, 2005 |
| |
/s/ Richard W. Moore*
(Richard
W. Moore) |
|
Director
|
|
March 16, 2005 |
| |
/s/ Emily Rauh
Pulitzer*
(Emily
Rauh Pulitzer) |
|
Director
|
|
March 16, 2005 |
| |
/s/ Michael E.
Pulitzer*
(Michael
E. Pulitzer) |
|
Director; Chairman
|
|
March 16, 2005 |
| |
/s/ Ronald H. Ridgway*
(Ronald
H. Ridgway) |
|
Director
|
|
March 16, 2005 |
| |
/s/ James M.
Snowden, Jr.*
(James
M. Snowden, Jr.) |
|
Director
|
|
March 16, 2005 |
|
|
|
| |
By: |
/s/ Alan G. Silverglat
|
|
|
| |
|
| |
Alan G. Silverglat* |
| |
attorney-in-fact |
108
PULITZER INC.
Report on Form 10-K for the Fiscal Year Ended
December 26, 2004
EXHIBIT INDEX
| |
|
|
|
|
| |
10 |
.51 |
|
Letter Agreement between Pulitzer Inc. and Mark G. Contreras, a
then Senior Vice President of Pulitzer Inc., dated as of
December 10, 2004 |
| |
10 |
.53 |
|
Incentive Opportunities Term Sheet for Terrance C.Z. Egger |
| |
10 |
.54 |
|
Incentive Opportunities Term Sheet for Jon H. Holt |
| |
10 |
.55 |
|
Incentive Opportunities Term Sheet for Matthew G. Kraner |
| |
10 |
.56 |
|
Incentive Opportunities Term Sheet for James V. Maloney |
| |
10 |
.57 |
|
Incentive Opportunities Term Sheet for Jan P. Pallares |
| |
10 |
.58 |
|
Incentive Opportunities Term Sheet for Alan G. Silverglat |
| |
10 |
.59 |
|
Incentive Opportunities Term Sheet for Robert C. Woodworth |
| |
10 |
.60 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Terrance C.Z. Egger, dated as of
January 1, 2002 |
| |
10 |
.61 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Jon H. Holt, dated as of January 1, 2002 |
| |
10 |
.62 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Matthew G. Kraner, dated as of January 1,
2002 |
| |
10 |
.63 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and James V. Maloney, dated as of January 1,
2002 |
| |
10 |
.64 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Jan P. Pallares, dated as of January 1,
2003 |
| |
10 |
.65 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Alan G. Silverglat, dated as of
January 1, 2002 |
| |
10 |
.66 |
|
Pulitzer Inc. Executive Transition Agreement, by and between
Pulitzer Inc. and Robert C. Woodworth, dated as of
January 1, 2002 |
| |
21 |
|
|
Subsidiaries of the Registrant |
| |
22 |
|
|
Consent of Independent Registered Public Accounting Firm |
| |
23 |
|
|
Power of Attorney |
| |
31 |
.1 |
|
Certification by Robert C. Woodworth, President and Chief
Executive Officer of Pulitzer Inc., pursuant to Exchange Act
Rule 13a-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, in connection with Pulitzer
Inc.’s Annual Report on Form 10-K for the year ended
December 26, 2004 |
| |
31 |
.2 |
|
Certification by Alan G. Silverglat, Senior Vice
President-Finance and Chief Financial Officer of Pulitzer Inc.,
pursuant to Exchange Act Rule 13a-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
in connection with Pulitzer Inc.’s Annual Report on
Form 10-K for the year ended December 26, 2004 |
| |
32 |
.1 |
|
Certification by Robert C. Woodworth, President and Chief
Executive Officer of Pulitzer Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, in connection with Pulitzer
Inc.’s Annual Report on Form 10-K for the year ended
December 26, 2004 |
| |
32 |
.2 |
|
Certification by Alan G. Silverglat, Senior Vice
President-Finance of Pulitzer Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, in connection with Pulitzer
Inc.’s Annual Report on Form 10-K for the year ended
December 26, 2004 |
