FORM 10-K
LEE ENTERPRISES, INC - lee
Filed: December 11, 2009 (period: September 27, 2009)
Annual report which provides a comprehensive overview of the company for the past year
Table of Contents
10-K - FORM 10-K
Part I
Item 1
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
PART IV
1
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
MARKET FOR THE REGISTRANT S COMMON STOCK,
SELECTED FINANCIAL DATA
MANAGEMENT S DISCUSSION AND ANALYSIS OF
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
CONTROLS AND PROCEDURES
OTHER INFORMATION
DIRECTORS, EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 15.
SIGNATURES
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Signature
EXHIBIT INDEX
EX-21 (SUBSIDIARIES AND ASSOCIATED COMPANIES)
EX-23.1 (CONSENT OF KPMG LLP)
EX-23.2 (CONSENT OF DELOITTE TOUCHE LLP)
EX-23.3 (CONSENT OF MCGLADREY PULLEN LLP)
EX-23.4 (REPORT OF MCGLADREY PULLEN LLP)
EX-24 (POWER OF ATTORNEY)
EX-31.1 (SECTION 302 CERTIFICATION OF CEO)
EX-31.2 (SECTION 302 CERTIFICATION OF CFO)
EX-32 (SECTION 906 CERTIFICATION OF CEO CFO)
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 27, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6227
LEE ENTERPRISES, INCORPORATED
(Exact name of Registrant as specified in its charter)
Delaware
(State of incorporation)
42-0823980
(I.R.S. Employer Identification No.)
201 N. Harrison Street, Suite 600, Davenport, Iowa 52801
(Address of principal executive offices)
(563) 383-2100
Registrant’s telephone number, including area code
Title of Each Class
Securities registered pursuant to Section 12(b) of the Act:
Common Stock - $2 par value
Preferred Share Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock - $2 par value
Name of Each Exchange On Which Registered
New York Stock Exchange
New York Stock Exchange
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this Chapter) is not contained herein,
and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Smaller Reporting Company [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s most
recently completed second fiscal quarter. Based on the closing price of the Registrant’s Common Stock on the New York Stock Exchange on
March 27, 2009: approximately $12,576,000. For purposes of the foregoing calculation only, as required, the Registrant has included in the shares
owned by affiliates the beneficial ownership of Common Stock and Class B Common Stock of officers and directors of the Registrant and
members of their families, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 30, 2009. Common Stock, $2 par
value, 39,103,410 shares and Class B Common Stock, $2 par value, 5,766,805 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement to be filed in January 2010 are incorporated by reference in Part III of this
Form 10-K.
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
TABLE OF CONTENTS
Forward-Looking Statements
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments
Item 2
Properties
Item 3
Legal Proceedings
Item 4
Submission of Matters to a Vote of Security Holders
Part I
Part II
Item 5
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6
Selected Financial Data
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operation
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
Item 8
Financial Statements and Supplementary Data
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A
Controls and Procedures
Item 9B
Other Information
Item 10
Directors, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Part III
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13
Certain Relationships and Related Transactions, and Director Independence
Item 14
Principal Accountant Fees and Services
Part IV
Item 15
Exhibits and Financial Statement Schedules
Signatures
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
PAGE
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14
14
14
15
17
18
38
40
40
40
42
42
42
42
43
43
43
44
Exhibit Index
Consolidated Financial Statements
45
50
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This report contains information that
may be deemed forward-looking that is based largely on Lee Enterprises, Incorporated’s current expectations, and is subject to certain risks,
trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and other
uncertainties, which in some instances are beyond its control, are the Company’s ability to generate cash flows and maintain liquidity sufficient to
service its debt, and comply with or obtain amendments or waivers of the financial covenants contained in its credit facilities, if necessary.
Other risks and uncertainties include the impact and duration of continuing adverse economic conditions, changes in advertising demand, potential
changes in newsprint and other commodity prices, energy costs, interest rates and the availability of credit due to instability in the credit markets,
labor costs, legislative and regulatory rulings, difficulties in achieving planned expense reductions, maintaining employee and customer
relationships, increased capital costs, competition and other risks detailed from time to time in the Company’s publicly filed documents.
Any statements that are not statements of historical fact (including statements containing the words “may”, “will”, “would”, “could”, “believes”,
“expects”, “anticipates”, “intends”, “plans”, “projects”, “considers” and similar expressions) generally should be considered forward-looking
statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this report.
The Company does not undertake to publicly update or revise its forward-looking statements.
PART I
The Company experienced significant net losses in 2009 and 2008, due primarily to impairment of goodwill and other assets, and its financial
position and liquidity have deteriorated. The information included herein should be evaluated in that context. See Item 1A, “Risk Factors”, and
Notes 6 and 7 of the Notes to Consolidated Financial Statements, included herein, for additional information.
References to 2009, 2008, 2007 and the like mean the fiscal years ended the last Sunday in September.
ITEM 1. BUSINESS
Lee Enterprises, Incorporated (the “Company”), is a premier provider of local news, information and advertising in primarily midsize markets, with
49 daily newspapers and a joint interest in four others, rapidly growing online sites and nearly 300 weekly newspapers and specialty publications
in 23 states.
The Company is consistently focused on six key strategic priorities. They are to:
•
•
•
•
•
•
Grow revenue creatively and rapidly;
Deliver strong local news and information;
Maximize local online strength;
Continue expanding print and online audiences;
Nurture employee development and achievement; and
Exercise careful cost control.
Certain aspects of these priorities are discussed below.
The Company was founded in 1890, incorporated in 1950, and listed on the New York Stock Exchange (“NYSE”) in 1978. Until 2001, the
Company also operated a number of network-affiliated and satellite television stations. The Company has acquired and divested a number of
businesses since 2001. The most significant of these transactions is discussed below.
PULITZER ACQUISITION
In 2005, the Company acquired Pulitzer Inc. (“Pulitzer”). Pulitzer published 14 daily newspapers and more than 100 weekly newspapers and
specialty publications. Pulitzer also owned a 50% interest in TNI
1
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Partners (“TNI”), as described more fully below. The acquisition of Pulitzer increased the Company’s paid circulation by more than 50% and
revenue by more than 60% at that time.
Pulitzer newspaper operations include St. Louis, Missouri, where its subsidiary, St. Louis Post-Dispatch LLC (“PD LLC”), publishes the St. Louis
Post-Dispatch, the only major daily newspaper serving the greater St. Louis metropolitan area, and a variety of specialty publications, and
operates its related websites. St. Louis newspaper operations also include the Suburban Journals of Greater St. Louis, a group of weekly
newspapers and niche publications that focus on separate communities within the metropolitan area.
Pulitzer and its subsidiaries and affiliates currently publish 12 daily newspapers and operate the related websites, as well as publish approximately
75 weekly newspapers, shoppers and niche publications that serve markets in the Midwest, Southwest and West. In 2006, the Company sold the
assets of The Daily News in Rhinelander, Wisconsin, the smallest of these newspapers. In 2008, the Company sold the assets of The Daily
Chronicle in DeKalb, Illinois.
TNI Partners
As a result of the acquisition of Pulitzer, the Company owns a 50% interest in TNI, the Tucson, Arizona, newspaper partnership. TNI, acting as
agent for the Company’s subsidiary, Star Publishing Company (“Star Publishing”), and the owner of the remaining 50%, Citizen Publishing
Company (“Citizen”), a subsidiary of Gannett Co., Inc., (“Gannett”) is responsible for printing, delivery, advertising and circulation of the Arizona
Daily Star and, until May 2009, the Tucson Citizen, as well as their related online operations and specialty publications. In May 2009, Citizen
discontinued print publication of the Tucson Citizen.
TNI collects all receipts and income and pays substantially all operating expenses incident to the partnership’s operations and publication of the
newspapers and other media. Each newspaper was solely responsible for its own news and editorial content. Under the amended and restated
operating agreement between Star Publishing and Citizen (the “Agency Agreement”), the Arizona Daily Star remains the separate property of Star
Publishing. Results of TNI are accounted for using the equity method. Income or loss of TNI (before income taxes) is allocated equally to Star
Publishing and Citizen.
Until May 2009, upon discontinuation of print publication of the Tucson Citizen, TNI was subject to the provisions of the Newspaper Preservation
Act of 1970 which permits joint operating agreements between newspapers under certain circumstances without violation of the Federal antitrust
laws. Agency agreements generally allow newspapers operating in the same market to share certain printing and other facilities and to pool
certain revenue and expenses in order to decrease aggregate expenses and thereby allow the continuing operation of multiple newspapers in the
same market.
The TNI agency agreement (“Agreement”), which remains in effect, has governed the operation since 1940. Both the Company and Citizen incur
certain administrative costs and capital expenditures that are reported by their individual companies. The Agreement expires in 2015, but contains
an option, which may be exercised by either party, to renew the agreement for successive periods of 25 years each. Star and Citizen also have a
reciprocal right of first refusal to acquire the 50% interest in TNI owned by Citizen and Star, respectively, under certain circumstances.
MADISON NEWSPAPERS
The Company owns 50% of the capital stock of Madison Newspapers, Inc. (“MNI”) and 17% of the nonvoting common stock of The Capital Times
Company (“TCT”). TCT owns the remaining 50% of the capital stock of MNI. MNI publishes daily and Sunday newspapers, and other publications
in Madison, Wisconsin, and other Wisconsin locations, and operates their related online sites. MNI conducts business under the trade name
Capital Newspapers. The Company has a contract to furnish the editorial and news content for the Wisconsin State Journal, which is published by
MNI, and periodically provides other services to MNI. Results of MNI are accounted for using the equity method. Net income or loss of MNI (after
income taxes) is allocated equally to the Company and TCT. In 2006, MNI sold the assets of its Shawano, Wisconsin, daily newspaper. In 2008,
one of MNI’s daily newspapers in Madison, The Capital Times, decreased print publication from six days per week to one day.
2
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
ADVERTISING
Approximately 73% of the Company’s 2009 revenue was derived from advertising. The Company’s strategies are to increase its share of local
advertising through increased sales activities in its existing markets and, over time, to increase its print and online audiences through internal
expansion into existing and contiguous markets and enhancement of online offerings. The Company’s advertising results consistently outperform
national averages, as compiled by the Newspaper Association of America (“NAA”).
Several of the Company’s businesses operate in geographic groups of publications, or “clusters” which provide operational efficiencies and extend
sales penetration. Operational efficiencies are obtained through consolidation of sales forces, back office operations such as finance or human
resources, management or production of the publications. Sales penetration can improve if the sales effort is successful in cross-selling
advertising into multiple publications and online. A table under the caption “Daily Newspapers and Markets” in Item 1 identifies those groups of the
Company’s newspapers operating in clusters.
The Company’s newspapers and classified and specialty publications compete with newspapers having national or regional circulation,
magazines, radio, network, cable and satellite television, other advertising media such as outdoor, mobile, and movie theater promotions, other
classified and specialty publications, direct mail, yellow pages directories, as well as other information content providers such as online sites.
Competition for advertising is based on audience size and composition, circulation levels, readership demographics, distribution and display
mechanisms, price and advertiser results. In addition, several of the Company’s daily and Sunday newspapers compete with other local daily or
weekly newspapers. The Company estimates that it captures a substantial share of the total advertising dollars spent in each of its markets.
The number of competitors in any given market varies. However, all of the forms of competition noted above exist to some degree in the
Company’s markets, including those listed in the table under the caption “Daily Newspapers and Markets” in Item 1.
The following broadly define major categories of advertising revenue, in descending order of importance:
Retail advertising is revenue earned from sales of display advertising space in the publication, or for preprinted advertising inserted in the
publication, to local accounts or regional and national businesses with local retail operations.
Classified advertising, which includes employment, automotive, real estate for sale or rent, legal and other categories, is revenue earned
from sales of advertising space in the classified section of the publication or from publications consisting primarily of such advertising.
Classified publications are periodic advertising publications available in racks or delivered free, by carriers or third-class mail, to all, or
selected, households in a particular geographic area. Classified publications offer advertisers a cost-effective local advertising vehicle and
are particularly effective in larger markets with higher media fragmentation.
Online advertising consists of display, banner, behavioral targeting, search, rich media, directories, classified or other advertising on
websites associated and integrated with the Company’s print publications or on third party affiliated websites, such as Yahoo! Inc.
(“Yahoo!”).
National advertising is revenue earned from display advertising space, or for preprinted advertising inserted in the publication, to national
accounts, if there is no local retailer representing the account in the market.
Niche publications are specialty publications, such as lifestyle, business, health or home improvement publications that contain significant
amounts of advertising.
The Company’s many geographic markets have differences in their advertising rate structures, some of which are highly complex. A single
operation often has scores of rate alternatives.
3
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
The advertising environment is influenced by the state of the overall economy, including unemployment rates, inflation, energy prices and
consumer interest rates. The Company’s enterprises are primarily located in midsize and smaller markets. Historically these markets have been
more stable than major metropolitan markets during downturns in advertising spending but may not experience increases in such spending as
significant as those in major metropolitan markets in periods of economic improvement.
ONLINE ADVERTISING AND SERVICES
The Company’s online activities include websites supporting each of its daily newspapers and certain of its other publications. Internet activities of
the newspapers, except for TNI and MNI, are reported and managed as a part of the Company’s publishing operations.
In 2007, the Company, in conjunction with several other major publishing organizations (“Consortium”), entered into a strategic alliance with
Yahoo!, in which the Consortium offers its classified employment advertising customer base the opportunity to also post job listings and other
employment products on Yahoo!’s HotJobs national platform. In addition, the Consortium and Yahoo! have worked together to provide new
behavioral targeting, search, content and local applications across the newspapers’ online sites, further enhancing the value of these sites as a
destination for online users. The Consortium currently includes more than 30 companies and approximately 800 local newspapers across the
United States.
The Company also owns 82.5% of an Internet service company, INN Partners, L.C. (doing business as TownNews.com), which provides online
infrastructure and online publishing services for more than 1,500 daily and weekly newspapers and shoppers, including those of the Company.
Until 2008, online businesses of the Company experienced rapid growth. Online advertising represented 6.8% of total advertising revenue in 2009.
Online page views increased 7.9% between September 2008 and September 2009.
4
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
AUDIENCES
Based on independent research, the Company estimates that, in an average week, its newspapers and online sites reach approximately 68% of
adults in its larger markets. In the St. Louis market, Scarborough Research estimates the St. Louis Post Dispatch and STLToday.com reach
almost 65% of adults, ranking first for combined reach in the 30 most populated U.S. markets. The Company’s extensive array of suburban
newspapers and other publications further increases reach in St. Louis and other markets. Readership by young adults is significant in the
Company’s larger markets, and is also growing, as summarized in the table below. The Company is reaching an increasingly larger share of the
market through stable newspaper readership and rapid online audience growth, as illustrated in the table below, as well as through additional
specialty and niche publications.
Audience reach is summarized as follows:
(Past Seven Days)
2007
All Adults
2008
2009
2007
Age 18-29
2008
2009
Print only users
Print and online users
Online only users
Total reach
48%
13
5
66%
49%
16
6
71%
45%
16
7
68%
35%
14
6
55%
38%
18
9
65%
38%
15
8
61%
Source:
Lee Enterprises Audience Report, Thoroughbred Research. January – June 2007, 2008 and 2009.
Markets:
St. Louis, MO, Madison, WI, Escondido, CA, Northwest Indiana,
Lincoln, NE, Davenport, IA, Billings, MT, Bloomington, IL, Sioux City, IA, Waterloo, IA
Margin
of Error: Total sample +/- 1.1%, Total on-line sample +/- 1.3%
After advertising, print circulation is the Company’s largest source of revenue. The Company generally does not charge for online access to its
content. According to Editor and Publisher International Yearbook data as reported by the NAA, nationwide daily newspaper circulation unit sales
have decreased 23% cumulatively through 2008 since their peak in 1984 and Sunday circulation unit sales have decreased 23% since their peak
in 1990. The number of daily newspapers declined 17% from 1984 to 2008 and the number of Sunday newspapers increased 5% from 1990 to
2008. For the six months ended September 2009, the Company’s daily circulation, which includes TNI and MNI, as measured by the Audit Bureau
of Circulations (“ABC”) declined 6.4%, and Sunday circulation declined 5.8%, outperforming the industry as a whole, which experienced declines
of 10.6% daily and 7.4% Sunday. Since September 2001, the Company’s daily and Sunday circulation have declined cumulatively by 14.0% and
5.1%, respectively. These changes represent average annual declines of 1.8% and 0.6%, respectively. Such results are, in substantially all
reporting periods, better than industry averages.
Growth in print and online audiences can, over time, also positively impact advertising revenue. The Company’s strategies to improve audiences
include continuous improvement of content and promotional efforts. Content can include focus on local news, features, scope of coverage,
headline accuracy, presentation, writing style, tone, type style and reduction of factual errors. Promotional efforts include advertising, contests and
other initiatives to increase awareness of the products. Customer service can also influence print circulation.
The Company’s enterprises are also focused on increasing the number of subscribers who pay for their subscriptions via automated payment
mechanisms, such as credit cards or bank account withdrawals. Customers using these payment methods have historically higher retention. Other
initiatives vary from location to location and are determined principally by management at the local level in collaboration with senior management
of the Company. Competition for print circulation is generally based on the content, journalistic quality and price of the publication.
Audience competition exists in all markets, even from unpaid products, but is most significant in markets with competing local daily newspapers.
These markets tend to be near major metropolitan areas, where the size of the population may be sufficient to support more than one daily
newspaper.
The Company’s circulation sales channels continue to evolve through an emphasis on targeted direct mail and email to acquire new subscribers
and retain current subscribers.
5
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
DAILY NEWSPAPERS AND MARKETS
The Company, TNI and MNI publish the following daily newspapers and maintain the following primary online sites:
Newspaper
Primary Website
Location
Daily (2)
Sunday
Paid Circulation (1)
St. Louis Post-Dispatch
Arizona Daily Star
Capital Newspapers
(3)
(4)
Wisconsin State Journal
Daily Citizen
Portage Daily Register
Baraboo News Republic
The Times
Lincoln Group
Lincoln Journal Star
Columbus Telegram
Fremont Tribune
Beatrice Daily Sun
North County Times
and the Californian
Quad-Cities Group
Quad-City Times
Muscatine Journal
The Pantagraph
Billings Gazette
The Courier
Sioux City Journal
Central Illinois Newspaper Group
Herald & Review
Journal Gazette
Times-Courier
The Post-Star
River Valley Newspaper Group
La Crosse Tribune
Winona Daily News
The Chippewa Herald
The Daily Herald
Missoula Group
Missoulian
Ravalli Republic
The Southern Illinoisan
The Journal Times
The Bismarck Tribune
Rapid City Journal
Casper Star-Tribune
Magic Valley Group
The Times-News
Elko Daily Free Press
The Daily News
stltoday.com
azstarnet.com
madison.com
wiscnews.com/bdc
wiscnews.com/pdr
wiscnews.com/bnr
nwitimes.com
St. Louis, MO
Tucson, AZ
Madison, WI
Beaver Dam, WI
Portage, WI
Baraboo, WI
Munster,
Valparaiso, and
Crown Point, IN
journalstar.com
columbustelegram.com
fremonttribune.com
beatricedailysun.com
nctimes.com
Lincoln, NE
Columbus, NE
Fremont, NE
Beatrice, NE
Escondido and
qctimes.com
muscatinejournal.com
pantagraph.com
billingsgazette.com
wcfcourier.com
siouxcityjournal.com
herald-review.com
jg-tc.com
jg-tc.com
poststar.com
Temecula, CA
Davenport, IA
Muscatine, IA
Bloomington, IL
Billings, MT
Waterloo and
Cedar Falls, IA
Sioux City, IA
Decatur, IL
Mattoon, IL
Charleston, IL
Glens Falls, NY
lacrossetribune.com
winonadailynews.com
chippewa.com
heraldextra.com
La Crosse, WI
Winona, MN
Chippewa Falls, WI
Provo, UT
missoulian.com
ravallinews.com
thesouthern.com
journaltimes.com
bismarcktribune.com
rapidcityjournal.com
trib.com
magicvalley.com
elkodaily.com
tdn.com
6
Missoula, MT
Hamilton, MT
Carbondale, IL
Racine, WI
Bismarck, ND
Rapid City, SD
Casper, WY
Twin Falls, ID
Elko, NV
Longview, WA
213,472
93,770
92,213
9,439
4,679
4,074
83,680
401,427
135,432
130,179
-
-
-
91,971
72,132
8,270
7,463
6,624
69,559
50,373
6,349
41,957
40,989
39,229
36,164
30,263
8,846
5,495
29,968
27,890
9,801
5,936
27,780
27,584
4,820
27,241
27,134
26,157
26,156
25,490
20,029
5,613
19,709
(5)
(6)
(6)
76,778
9,222
-
-
71,092
65,415
-
44,690
48,814
48,008
37,835
45,866
-
-
32,545
36,254
10,520
6,132
40,876
30,992
-
35,268
29,424
29,861
31,004
28,455
20,875
-
19,754
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Newspaper
Primary Website
Location
Paid Circulation (1)
Daily (2)
Sunday
Central Coast Newspapers
Santa Maria Times
The Lompoc Record
Mid-Valley News Group
Albany Democrat-Herald
Corvallis Gazette-Times
Globe Gazette
The Times and Democrat
Napa Valley Register
Independent Record
The Montana Standard
The Sentinel
The World
Arizona Daily Sun
The Sentinel
The Citizen
The Garden Island
The Ledger Independent
Daily Journal
santamariatimes.com
lompocrecord.com
Santa Maria, CA
Lompoc, CA
16,451
4,793
(7)
15,465
4,672
democratherald.com
gazettetimes.com
globegazette.com
thetandd.com
napavalleyregister.com
helenair.com
mtstandard.com
cumberlink.com
theworldlink.com
azdailysun.com
hanfordsentinel.com
auburnpub.com
kauaiworld.com
maysville-online.com
dailyjournalonline.com
Albany, OR
Corvallis, OR
Mason City, IA
Orangeburg, SC
Napa, CA
Helena, MT
Butte, MT
Carlisle, PA
Coos Bay, OR
Flagstaff, AZ
Hanford, CA
Auburn, NY
Lihue, HI
Maysville, KY
Park Hills, MO
16,068
12,081
15,973
14,899
14,130
13,616
13,178
12,939
10,948
10,720
10,434
9,821
9,494
7,675
6,915
1,436,483
16,942
11,973
20,702
14,474
13,914
14,454
13,360
14,621
-
11,323
9,680
11,929
8,566
-
7,279
1,748,043
(1)
Source: ABC: Six months ended September 2009, unless otherwise noted.
(2)
Daily amounts are Monday – Saturday, unless otherwise noted
(3)
Owned by Star Publishing but published through TNI.
(4)
Owned by MNI.
(5)
Daily amounts are Monday – Thursday.
(6)
Source: Company statistics.
(7)
Daily amounts are Tuesday – Friday.
7
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
COMMERCIAL PRINTING
The Company offers commercial printing services through the following entities:
Selma Enterprises
William Street Press
Hawkeye Printing and Trico Communications
Platen Press
Farcountry Press
Journal Star Commercial Printing
Plaindealer Publishing
Wingra Printing
(1)
(1)
Owned by MNI.
Location
Selma, CA
Decatur, IL
Davenport, IA
Butte, MT
Helena, MT
Lincoln, NE
Tekamah, NE
Madison, WI
Certain of the Company’s newspapers also directly provide commercial printing services. Commercial printing business is highly competitive and
generally has lower operating margins than newspapers.
NEWSPRINT
The basic raw material of newspapers, and classified and specialty publications, is newsprint. The Company and its subsidiaries purchase
newsprint from U.S. and Canadian producers. The Company believes it will continue to receive a supply of newsprint adequate for its needs and
considers its relationships with newsprint producers to be good. Newsprint prices are volatile and fluctuate based upon factors that include foreign
currency exchange rates and both foreign and domestic production capacity and consumption. Between September 2008 and September 2009,
the FOEX 30-pound newsprint price index declined 37.7% overall, but rose early in 2009. Price fluctuations can have a significant effect on the
results of operations. The Company has not entered into derivative contracts for newsprint. For the quantitative impacts of these fluctuations, see
Item 7A, “Quantitative and Qualitative Disclosures about Market Risk”, included herein.
8
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
EXECUTIVE TEAM
The following table lists executive team members of the Company as of November 30, 2009:
Name
Age
Service
with the
Company
Named
to Current
Position
Current Position
Mary E. Junck
62
June 1999
January 2002
Chairman, President and Chief
Executive Officer
Joyce L. Dehli
Paul M. Farrell
51 August 1987
February 2006
Vice President – News
53
May 2007
May 2007
Vice President – Sales &
Marketing
Suzanna M. Frank
39 December 2003
March 2008
Vice President – Audience
Karen J. Guest
56
July 2006
July 2006
Vice President – Law and Chief
Legal Officer
Michael R. Gulledge
49 October 1982
May 2005
Vice President – Publishing
Daniel K. Hayes
64
September 1969
September 2005
Brian E. Kardell
46
January 1991
August 2003
Vytenis P. Kuraitis
61
August 1994
January 1997
Vice President – Corporate
Communications
Vice President – Production and
Chief Information Officer
Vice President – Human
Resources
Kevin D. Mowbray
47 September 1986
November 2004
Vice President – Publishing
Gregory P. Schermer
55
February 1989
November 1997
Carl G. Schmidt
53
May 2001
May 2001
Vice President – Interactive
Media
Vice President, Chief Financial
Officer and Treasurer
Greg R. Veon
57 April 1976
November 1999
Vice President – Publishing
Mary E. Junck was elected Chairman, President and Chief Executive Officer in 2002. From 2001 to 2002 she served as President and Chief
Executive Officer. From 2000 to 2001 she served as President and Chief Operating Officer. From 1999 to 2000 she served as Executive Vice
President and Chief Operating Officer.
Joyce L. Dehli was appointed Vice President – News in February 2006. From April 2005 to February 2006, she served as Director of Editorial
Development. From October 2004 to April 2005 she served as Editorial Training Manager. From 2003 to October 2004 she served as Managing
Editor of the Wisconsin State Journal.
Paul M. Farrell was appointed Vice President – Sales & Marketing in May 2007. From 2004 to May 2007 he served as Senior Vice President of
The Providence Journal Co., a subsidiary of A.H. Belo Corp. From 1999 to 2004 he served as Advertising Director of The Boston Globe, a division
of the New York Times Company.
Suzanna M. Frank was appointed Vice President – Audience in March 2008. From 2003 to March 2008 she served as Director of Research and
Marketing. From 2001 to 2003 she served as Market Research Manager for the San Diego Union-Tribune.
9
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Karen J. Guest was appointed Vice President – Law and Chief Legal Officer in July 2006. From 2003 until July 2006, she served as General
Counsel to PAJ, Inc.
Michael R. Gulledge was elected a Vice President – Publishing in May 2005 and named Publisher of the Billings Gazette in 2000. From 2002 to
May 2005 he served as a Group Publisher.
Daniel K. Hayes was appointed Vice President – Corporate Communications in September 2005. From 1998 to September 2005 he served as
Director of Communications.
Brian E. Kardell was appointed Vice President – Production and Chief Information Officer in 2003.
Vytenis P. Kuraitis was elected Vice President – Human Resources in 1997.
Kevin D. Mowbray was elected a Vice President – Publishing in November 2004 and named Publisher of the St. Louis Post-Dispatch in May 2006.
From November 2004 to May 2006 he served as Publisher of The Times. From 2002 to November 2004 he served as Vice President – Sales &
Marketing.
Gregory P. Schermer was elected Vice President – Interactive Media in 1997. He was elected to the Board of Directors of the Company in 1999.
From 1989 to July 2006, he also served as Corporate Counsel of the Company.
Carl G. Schmidt was elected Vice President, Chief Financial Officer and Treasurer in 2001.
Greg R. Veon was elected a Vice President – Publishing in 1999.
EMPLOYEES
At September 27, 2009, the Company had approximately 7,200 employees, including approximately 1,800 part-time employees, exclusive of MNI
and TNI. Full-time equivalent employees at September 27, 2009, totaled approximately 6,400. The Company considers its relationships with its
employees to be good.
Bargaining unit employees represent 574, or 67%, of the total employees of the St. Louis Post-Dispatch. The St. Louis Post-Dispatch has
contracts with bargaining unit employees with expiration dates through 2012. New contracts were reached with various units in the last several
years: the Graphic Communications Conference/IBT Local 38N (81 press operators) was signed in 2006 and expires in 2012; the International
Association of Machinists and Aerospace Workers, District No. 9 (9 machinists), was signed in 2008 and expires in 2011; the International
Association of Machinists and Aerospace Workers, District No. 9 (6 electricians), was signed in 2008 and expires in 2011; the Communication
Workers of America AFL-CIO Local 14620 (206 mailers), was signed in 2004 and expires in 2011; Miscellaneous Drivers, Helpers, and Healthcare
and Public Employee Union 610 (11 dock employees), was signed in 1997 and expires in 2010, and the St. Louis Typographical Union No. 8/CWA
14616, (7 employees) was signed in 2009 and expires in 2012. Additionally, the union representing the paperhandlers, Graphic Communications
International Union Local 16H, disclaimed interest in the unit (30 part time employees) in 2008. All St. Louis Post-Dispatch labor contracts contain
no-strike clauses.
The contract for the St. Louis Newspaper Guild, Local 36047 (“Guild”), representing 254 employees expired in June 2009 and is currently in
negotiations. Terms of the expired Guild contract remain in effect until the negotiations are completed or declared to be at an impasse. If an
impasse is declared, certain changes to terms of the expired contract requested by management in the negotiations can be implemented by the
Company and, at that time, the no-strike condition of the expired contract would no longer be applicable.
Approximately 87 employees in six additional locations are represented by collective bargaining units. Contracts at two of these locations have
expired and negotiations are ongoing.
In December 2008, employees of selected departments of The Pantagraph, in an election conducted by the National Labor Relations Board,
overwhelmingly rejected an organization attempt by the Guild.
10
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
CORPORATE GOVERNANCE AND PUBLIC INFORMATION
The Company has a long, substantial history of progressive corporate governance practices. The Board of Directors has a lead independent
director, and has had one for many years. Currently, eight of ten members of the Board of Directors are independent, as are all members of the
Board’s Audit, Executive Compensation and Nominating and Corporate Governance committees. The Audit Committee approves all services to be
provided by the Company’s independent registered public accounting firm and its affiliates.
At www.lee.net, one may access a wide variety of information, including news releases, Securities and Exchange Commission filings, financial
statistics, annual reports, investor presentations, governance documents, newspaper profiles and online links. The Company makes available via
its website all filings made by the Company under the Securities Exchange Act of 1934, including Forms 10-K, 10-Q and 8-K, and related
amendments, as soon as reasonably practicable after they are filed with, or furnished to, the SEC. All such filings are available free of charge. The
content of any website referred to in this Form 10-K is not incorporated by reference into this Form 10-K unless expressly noted.
OTHER MATTERS
In the opinion of management, compliance with present statutory and regulatory requirements respecting environmental quality will not necessitate
significant capital outlays, materially affect the earnings of the Company, or cause material changes in the Company’s business, whether present
or intended. The United States Congress is currently considering significant, additional environmental legislation related to carbon emissions. The
impact of such legislation, if and when enacted into law, cannot be determined at this time.
Risk exists that the Company’s past results may not be indicative of future results. A discussion of certain of the most significant of these risks
follows. See also, “Forward-Looking Statements”, included herein. In addition, a number of other factors (those identified elsewhere in this
document and others, both known and unknown) may cause actual results to differ materially from expectations.
ITEM 1A. RISK FACTORS
DEBT AND LIQUIDITY
The Company has a substantial amount of debt, as more fully discussed (and certain capitalized terms used below defined) in Item 7, “Liquidity
and Capital Resources” and Note 7 of the Notes to Consolidated Financial Statements, included herein. In February 2009, the Company
completed a comprehensive restructuring of its Credit Agreement and a refinancing of its Pulitzer Notes debt, substantially enhancing its liquidity
and operating flexibility until April 2012. The Company disclosed in its 2008 Annual Report on Form 10-K, in part, that the ability to extend or
refinance the Pulitzer Notes as they become due and to delay the acceleration of debt maturities upon the expiration of existing waivers of default
under both the Credit Agreement and the Pulitzer Notes, were factors that raised significant uncertainty about the Company’s ability to continue as
a going concern. The restructuring of the Credit Agreement and refinancing of the Pulitzer Notes resolved these issues.
The Company expects to utilize a portion of its capacity under its revolving credit facility to fund part of 2010 principal payments required under the
Credit Agreement. At September 27, 2009, the Company had $275,450,000 outstanding under the revolving credit facility, and after consideration
of the 2009 Amendments and letters of credit, has approximately $83,000,000 available for future use. Including cash and restricted cash, the
Company’s liquidity at September 27, 2009 totals $99,900,000. This liquidity amount excludes any future cash flows. Mandatory principal
payments on debt in 2010 total $89,800,000. The Company expects all 2010 interest payments and a substantial amount of principal payments
due in 2010 will be satisfied by the Company’s continuing cash flows.
The Company’s ability to operate as a going concern is dependent on its ability to remain in compliance with debt covenants and to refinance or
amend its debt agreements as they become due, or earlier if available liquidity is consumed. The Company is in compliance with its debt
covenants at September 27, 2009.
11
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
There are numerous potential consequences under the Credit Agreement, and Guaranty Agreement and Note Agreement related to the Pulitzer
Notes, if an Event of Default occurs and is not remedied. Many of those consequences are beyond the control of the Company, Pulitzer, and PD
LLC, respectively. The occurrence of one or more Events of Default would give rise to the right of the Lenders or the Noteholders, or both of them,
to exercise their remedies under the Credit Agreement and the Note and Guaranty Agreements, respectively, including, without limitation, the right
to accelerate all outstanding debt and take actions authorized in such circumstances under applicable collateral security documents.
The 2010 Redemption, as more fully discussed in Note 19 of the Notes to Consolidated Financial Statements, included herein, eliminated the
potential requirement for a substantial cash outflow in April 2010. This event also substantially enhanced the Company’s liquidity.
As of November 30, 2009, the full amount of the outstanding balance under the Credit Agreement is subject to floating interest rates as all interest
rate swaps and collars expired or were terminated. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operation”, and Item 7A, “Interest Rates”, included herein, for additional information on the risks associated with the Company’s financing
arrangements.
ECONOMIC CONDITIONS
According to the National Bureau of Economic Research, the United States economy entered a recession in the three months ended December
2007 and it is widely believed that certain elements of the economy, such as housing, were in decline before that time. 2009 and 2008 revenue,
operating results and cash flows were significantly impacted by the recession. United States gross domestic product increased in the three months
ended September 2009, potentially signaling the end of the current recession. The duration and depth of an economic recession in markets in
which the Company operates may further reduce its future advertising and circulation revenue, operating results and cash flows.
OPERATING REVENUE
A significant portion of the Company’s revenue is derived from advertising. The demand for advertising is sensitive to the overall level of economic
activity, both nationally and locally.
Operating revenue in most categories decreased in 2009 and 2008 and may decrease in the future. Such decreases may not be offset by growth
in advertising in other categories, such as online revenue which, until 2008, had been rising significantly. There can also be no assurance such
online growth will resume. Historically, newspaper publishing has been viewed as a cost-effective method of delivering various forms of
advertising. There can be no guarantee that this historical perception will guide future decisions on the part of advertisers. To the extent that
advertisers shift advertising expenditures to other media outlets, including those on the Internet, the profitability of the Company’s business may
continue to be impacted.
The rates the Company charges for advertising are, in part, related to the size of the audience of its publications and websites. There is significant
competition for readers and viewers from other media. The Company’s business may be adversely affected to the extent individuals decide to
obtain news, entertainment, classified listings and local shopping information from Internet-based or other media, to the exclusion of the
Company’s outlets for such information.
Retail Advertising
Many advertisers, including major retail store chains, automobile manufacturers and dealers, banks and telecommunications companies, have
experienced significant merger and acquisition activity over the last several years, and some have gone out of business, effectively reducing the
number of brand names under which the merged entities operate. The Company’s retail revenue is also being impacted by the current economic
environment. For example, a decline in the housing market negatively impacts retail advertising related to home improvement, furniture and home
electronics.
Classified advertising is the category that has been most significantly impacted by the current economic environment. In 2008, as the recession
accelerated, employment classified advertising, including both print and online, declined as unemployment increased. This trend continued in
2009.
Classified Advertising
12
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
In 2009, 2008 and 2007, real estate classified advertising also suffered declines due primarily to cyclical issues, such as declining sale prices and
an increase in unsold homes, affecting the residential real estate market nationally. In 2009 this decline accelerated due to the access to, and
limitations on, residential mortgage funding.
Automotive classified advertising revenue declined in 2009, 2008 and 2007, due to industry-wide issues affecting certain domestic auto
manufacturers and the overall decline in economic conditions leading to the current recession.
See Item 1, “Advertising”, included herein, for additional information on the risks associated with advertising revenue.
Circulation
Though the Company’s overall audience is growing, and its circulation unit results have outperformed the industry, circulation unit sales have
nonetheless been declining fractionally for several years. The possibility exists that future circulation price increases may be delayed or reduced
as a result of future declines in circulation unit sales, and that price decreases may be necessary to retain or grow circulation unit volume. The
Company is reaching increasingly larger audiences through stable newspaper readership and rapid online audience growth. Nonetheless, declines
in circulation unit sales could also adversely impact advertising revenue.
See Item 1, “Audiences”, included herein, for additional information on the risks associated with circulation revenue.
OPERATING EXPENSES
The Company reduced operating expenses, excluding depreciation, amortization, impairment charges and other unusual costs, by $150,033,000,
or 18.3%, in 2009, by $26,995,000, or 3.2% in 2008 and expects to reduce such operating expenses by an additional 6-7% in 2010. Such expense
reductions are not expected to significantly impact the Company’s ability to deliver advertising and content to its customers.
The results of future labor negotiations could affect the Company’s operating results. For additional information concerning the Company’s labor
relations, see Item 1, “Employees”, included herein.
Newsprint comprises a significant amount of the Company’s operating costs. See Item 1, “Newsprint” and Item 7A, “Commodities” included herein,
for additional information on the risks associated with changes in newsprint costs.
GOODWILL AND OTHER INTANGIBLE ASSETS
The Company has significant amounts of goodwill and identified intangible assets. In 2009 and 2008, the Company recorded substantial
impairment charges to reduce the value of certain of these assets. Should general economic, market or business conditions continue to decline,
and have a negative impact on the Company’s stock price or cash flows, the Company may be required to record additional impairment charges in
the future. See Item 7, “Critical Accounting Policies”, included herein, for additional information on the risks associated with such assets.
EQUITY CAPITAL
As of December 24, 2008, the Company’s Common Stock traded at an average 30-day closing market price of less than $1 per share. Under the
NYSE listing standards, if the Company’s Common Stock fails to maintain an adequate per share price and total market capitalization, the
Company’s Common Stock could be removed from the NYSE and traded in the over the counter market. In December 2008, the NYSE notified
the Company that it did not meet the NYSE continued listing standard due to its failure to maintain an adequate share price. Subsequent to that
date, the NYSE temporarily suspended the standard through July 2009, and extended Lee’s six-month cure period until December 2009. In
13
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
September 2009, the NYSE notified Lee that its average share price had risen sufficiently to cure the share price deficiency. As of November 30,
2009, the Company’s Common Stock traded at an average 30-day closing market price of $3.64 per share and its equity market capitalization
totaled approximately $162,000,000. All of these factors, along with volatile equity market conditions, could limit the Company’s ability to raise new
equity capital in the future.
None.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
The Company’s executive offices are located in leased facilities at 201 North Harrison Street, Suite 600, Davenport, Iowa. The lease expires in
2019.
All of the Company’s principal printing facilities except Madison, Wisconsin (which is owned by MNI), Tucson (which is jointly owned by Star
Publishing and Citizen), St. Louis (as described below) and leased land for the Helena, Montana and Lihue, Hawaii plants, are owned. All facilities
are well maintained, in good condition, suitable for existing office and publishing operations, as applicable, and adequately equipped. With the
exception of St. Louis, none of the Company’s facilities is individually significant to its business.
Information related to St. Louis facilities at September 27, 2009 is as follows:
(Square Feet)
PD LLC
Suburban Journals
Owned
Leased
755,000
89,000
23,000
39,000
Several of the Company’s daily newspapers, as well as many of the Company’s and MNI’s nearly 300 other publications, are printed at other
Company facilities, or such printing is outsourced, to enhance operating efficiency. The Company is continuing to evaluate additional insourcing
and outsourcing opportunities in order to more effectively manage its operating and capital costs.
The Company’s newspapers and other publications have formal or informal backup arrangements for printing in the event of a disruption in
production capability.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a variety of legal actions that arise in the normal course of business. Insurance coverage mitigates potential loss for
certain of these matters. While the Company is unable to predict the ultimate outcome of these legal actions, it is the opinion of management that
the disposition of these matters will not have a material adverse effect on the Company’s Consolidated Financial Statements, taken as a whole.
In 2008, a group of newspaper carriers filed suit against the Company in the United States District Court for the Southern District of California,
claiming to be employees and not independent contractors of the Company. The plaintiffs seek relief related to violation of various
employment-based statutes, and request punitive damages and attorneys’ fees. The suit is in the discovery stage and an initial decision by the
judge regarding class certification is expected in 2010. At this time the Company is unable to predict whether the ultimate economic outcome, if
any, could have a material effect on the Company’s Consolidated Financial Statements, taken as a whole. The Company denies the allegations of
employee status, consistent with past practices of the Company and the industry, and intends to vigorously contest the action, which is not
covered by insurance.
No matters were submitted to a vote of security holders during the 13 weeks ended September 27, 2009.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
14
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock of the Company is listed on the NYSE. Class B Common Stock is not traded on an exchange but is readily convertible to Common
Stock. Class B Common Stock was issued to stockholders of record of the Company in 1986 pursuant to a 100% stock dividend and is converted
at sale, or at the option of the holder, into Common Stock. The table below includes the high and low prices of Common Stock for each calendar
quarter during the past three years, the closing price at the end of each quarter and dividends per common share.
December
March
June
September
Quarter Ended
STOCK PRICES
2009
High
Low
Closing
2008
High
Low
Closing
2007
High
Low
Closing
DIVIDENDS
2008
2007
$
$
$
$
3.97
0.30
0.41
17.96
13.61
14.53
32.13
24.55
31.06
$
0.65
0.24
0.28
$ 14.91
9.26
10.76
$ 35.65
29.48
30.05
$ 1.89
0.29
0.53
$ 11.32
4.21
4.40
$ 30.92
20.50
20.86
0.19
0.18
$
0.19
0.18
$ 0.19
0.18
$
$
$
$
3.43
0.50
2.75
5.00
2.22
3.35
21.48
14.58
15.57
0.19
0.18
Common Stock and Class B Common Stock have identical rights with respect to cash dividends and upon liquidation. For a more complete
description of the relative rights of Common Stock and Class B Common Stock, including conversion provisions of Class B Common Stock, see
Note 12 of the Notes to Consolidated Financial Statements, included herein.
At September 27, 2009, the Company had 6,999 holders of Common Stock and 1,226 holders of Class B Common Stock.
In 2008, 1,722,280 shares were acquired and returned to authorized shares at an average price of $10.98.
The 2009 Amendments to the Company’s Credit Agreement require the Company to suspend stockholder dividends and share repurchases
through April 2012. See Note 7 of the Notes to Consolidated Financial Statements, included herein.
15
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Performance Presentation
The following graph compares the quarterly percentage change in the cumulative total return of the Company, the Standard & Poor’s (S&P) 500
Stock Index, and a Peer Group Index, in each case for the five years ended September 30, 2009 (with September 30, 2004 as the measurement
point). Total return is measured by dividing (a) the sum of (i) the cumulative amount of dividends declared for the measurement period, assuming
dividend reinvestment and (ii) the difference between the issuer’s share price at the end and the beginning of the measurement period, by (b) the
share price at the beginning of the measurement period.
Copyright
©
:2009 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
The value of $100 invested on September 30, 2004 in stock of the Company, the Peer Group and in the S&P 500 Stock Index, including
reinvestment of dividends, is summarized in the table below.
2004
2005
2006
2007
2008
2009
September 30
Lee Enterprises, Incorporated
Peer Group Index
S&P 500 Stock Index
$ 100.00
100.00
100.00
$
93.16
87.32
112.25
$
56.66
74.83
124.37
$
35.98
63.20
144.81
$
9.02
41.14
112.99
$
7.09
32.06
105.18
The S&P 500 Stock Index includes 500 U.S. companies in the industrial, transportation, utilities and financial sectors and is weighted by market
capitalization. The Peer Group Index is comprised of nine U.S. publicly traded companies with significant newspaper publishing operations
(excluding the Company) and is weighted by market capitalization. The Peer Group Index includes A.H. Belo Corp., Gannett, Journal
Communications, Inc., The McClatchy Company, Media General, Inc., The New York Times Company, The E.W. Scripps Company, Sun-Times
Media Group, Inc., and The Washington Post Company. Journal Register Company, which was previously included in the Peer Group Index, is no
longer publicly traded.
16
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Selected financial data is as follows:
ITEM 6. SELECTED FINANCIAL DATA
(Thousands, Except Per Common Share Data)
2009
2008
2007
2006
2005
(1)
$
842,030
$ 1,028,868
$ 1,120,194
$ 1,121,390
$
816,614
OPERATING RESULTS
(2)
Operating revenue
Operating expenses, excluding depreciation,
amortization, and impairment of goodwill and
other assets
Depreciation and amortization
Impairment of goodwill and other assets
Equity in earnings of associated companies
Reduction in investment in TNI (3)
Operating income (loss)
Financial income
Financial expense
(3)
675,035
79,599
245,953
5,120
19,951
(173,388)
1,886
(92,892)
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Income (loss) available to common stockholders
$ (180,241)
(5)
$ (180,246)
$ (123,191)
EARNINGS (LOSS) PER COMMON SHARE
Basic:
Continuing operations
Discontinued operations
Diluted:
Continuing operations
Discontinued operations
$
$
$
$
(2.77)
-
(2.77)
(2.77)
-
(2.77)
821,846
91,078
1,070,808
10,211
104,478
(1,049,131)
5,857
(71,472)
(871,763)
285
(871,478)
(880,316)
(19.65)
0.01
(19.64)
(19.65)
0.01
(19.64)
$
$
$
$
$
$
$
849,644
92,700
-
20,124
-
197,974
7,613
(90,341)
80,328
671
80,999
80,999
1.76
0.01
1.77
1.75
0.01
1.77
$
$
$
$
$
$
$
843,577
90,276
4,837
20,739
-
203,439
6,054
(95,939)
70,778
54
70,832
70,832
1.56
-
1.56
1.55
-
1.56
$
$
$
$
$
$
$
612,425
58,958
-
12,784
-
158,015
2,824
(38,038)
70,681
6,197
76,878
76,878
1.57
0.14
1.70
1.56
0.14
1.70
$
$
$
$
$
$
$
Weighted average common shares:
Basic
Diluted
44,442
44,442
44,813
44,813
45,671
45,804
45,421
45,546
45,118
45,348
Dividends per common share
$
-
$
0.76
$
0.72
$
0.72
$
0.72
BALANCE SHEET INFORMATION (End of Year)
Total assets
Debt, including current maturities
Debt, net of cash, restricted cash and investments
Stockholders’ equity
(4)
(4)
$ 1,515,612
1,168,335
1,151,106
23,598
$ 2,016,367
1,332,375
1,182,856
155,518
$ 3,260,963
1,395,625
1,284,565
1,086,442
$ 3,329,809
1,525,000
1,420,302
990,625
$ 3,445,200
1,688,000
1,599,397
936,410
(1)
Includes four months of operations of Pulitzer, which was acquired in June 2005.
17
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
(2) Results of discontinued operations have been restated for all periods presented.
(3) The Company recorded pretax, non-cash impairment charges to reduce the carrying value of assets as follows:
(Thousands)
2009
2008
2006
Goodwill
Nonamortized intangible assets
Amortizable intangible assets
Property and equipment
Reduction in investment in TNI
$ 193,471
14,055
33,848
4,579
245,953
19,951
$ 265,904
$
908,977
13,027
143,785
5,019
1,070,808
104,478
$ 1,175,286
$
-
4,837
-
-
4,837
-
$ 4,837
(4) Principal amount, excluding fair value adjustments. See Note 7 of the Notes to Consolidated Financial Statements, included herein.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion includes comments and analysis relating to the Company’s results of operations and financial condition as of, and for
each of the three years ended, September 2009. This discussion should be read in conjunction with the Consolidated Financial Statements and
related Notes thereto, included herein.
NON-GAAP FINANCIAL MEASURES
No non-GAAP financial measure should be considered as a substitute for any related financial measure under accounting principles generally
accepted in the United States of America (“GAAP”). However, the Company believes the use of non-GAAP financial measures provides
meaningful supplemental information with which to evaluate its financial performance, or assist in forecasting and analyzing future periods. The
Company also believes such non-GAAP financial measures are alternative indicators of performance used by investors, lenders, rating agencies
and financial analysts to estimate the value of a publishing business or its ability to meet debt service requirements.
Operating Cash Flow and Operating Cash Flow Margin
Operating cash flow, which is defined as operating income before depreciation, amortization, impairment of goodwill and other assets and equity in
earnings of associated companies, and operating cash flow margin (operating cash flow divided by operating revenue) represent non-GAAP
financial measures that are used in the analysis below. The Company believes these measures provide meaningful supplemental information
because of their focus on results from operations excluding such non-cash factors.
Reconciliations of operating cash flow and operating cash flow margin to operating income (loss) and operating income (loss) margin, the most
directly comparable measures under GAAP, are included in the table below:
(Thousands)
2009
Percent of
Revenue
2008
Percent of
Revenue
2007
Percent of
Revenue
Operating cash flow
Less depreciation and amortization
Less impairment of goodwill and
other assets
Plus equity in earnings of associated
companies
Less reduction in investment in TNI
Operating income (loss)
$ 166,995
(79,599)
(245,953)
5,120
(19,951)
$ (173,388)
19.8%
9.5
$
207,022
(91,078)
20.1%
8.9
$ 270,550
(92,700)
(1,070,808)
10,211
(104,478)
$ (1,049,131)
NM
1.0
NM
NM
-
20,124
-
$ 197,974
NM
0.6
NM
NM
18
24.2%
8.3
-
1.8
-
17.7%
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Adjusted Net Income and Adjusted Earnings Per Common Share
Adjusted net income and adjusted earnings per common share, which are defined as income (loss) available to common stockholders and
earnings (loss) per common share adjusted to exclude unusual matters and those of a substantially non-recurring nature, are non-GAAP financial
measures that are used in the analysis below. The Company believes these measures provide meaningful supplemental information by identifying
matters that are not indicative of core business operating results or are of a substantially non-recurring nature.
Reconciliations of adjusted net income and adjusted earnings (loss) per common share to income (loss) available to common stockholders and
earnings (loss) per common share, respectively, the most directly comparable measures under GAAP, are set forth below under the caption
“Overall Results”.
SAME PROPERTY COMPARISONS
Certain information below, as noted, is presented on a same property basis, which is exclusive of acquisitions and divestitures consummated in
the current or prior year. The Company believes such comparisons provide meaningful supplemental information for an understanding of changes
in its revenue and operating expenses. Same property comparisons exclude TNI and MNI. The Company owns 50% of TNI and also owns 50% of
the capital stock of MNI, both of which are reported using the equity method of accounting. Same property comparisons also exclude corporate
office costs.
CRITICAL ACCOUNTING POLICIES
The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s Consolidated Financial
Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, the Company evaluates its estimates. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. Additional information follows with regard to certain of the most critical of the Company’s accounting
policies.
Goodwill and Other Intangible Assets
In assessing the recoverability of its goodwill and other nonamortized intangible assets, the Company makes a determination of the fair value of its
business. Fair value is determined using a combination of an income approach, which estimates fair value based upon future revenue, expenses
and cash flows discounted to their present value, and a market approach, which estimates fair value using market multiples of various financial
measures compared to a set of comparable public companies in the publishing industry. An impairment charge will generally be recognized when
the carrying amount of the net assets of the business exceeds its estimated fair value.
The required valuation methodology and underlying financial information that are used to determine fair value require significant judgments to be
made by management. These judgments include, but are not limited to, long term projections of future financial performance and the selection of
appropriate discount rates used to determine the present value of future cash flows. Changes in such estimates or the application of alternative
assumptions could produce significantly different results.
The Company analyzes its goodwill and other nonamortized intangible assets for impairment on an annual basis, or more frequently if impairment
indicators are present. See Note 6 of the Notes to Consolidated Financial Statements, included herein, for a more detailed explanation of the
Company’s intangible assets. Such indicators of impairment include, but are not limited to, changes in business climate and operating or cash flow
losses related to such assets.
Due primarily to the continuing, and (at the time) increasing difference between its stock price and the per share carrying value of its net assets,
the Company analyzed the carrying value of its net assets as of
19
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
December 28, 2008 and again as of March 29, 2009. Deterioration in the Company’s revenue and the overall recessionary operating environment
for the Company and other publishing companies were also factors in the timing of the analyses.
As a result, in 2009 the Company recorded pretax, non-cash charges to reduce the carrying value of goodwill by $193,471,000. The Company
also recorded pretax, non-cash charges of $14,055,000 and $33,848,000 to reduce the carrying value of nonamortized and amortizable intangible
assets, respectively. $19,951,000 of additional pretax charges were recorded as a reduction in the carrying value of the Company’s investment in
TNI. The Company also recorded additional, pretax non-cash charges of $4,579,000 to reduce the carrying value of property and equipment. The
Company recorded $64,319,000 of income tax benefit related to these charges.
For similar reasons, in 2008 the Company recorded pretax, non-cash charges to reduce the carrying value of goodwill by $908,977,000. The
Company also recorded pretax, non-cash charges of $13,027,000 and $143,785,000 to reduce the carrying value of nonamortized and
amortizable intangible assets, respectively. $104,478,000 of additional pretax charges were recorded as a reduction in the carrying value of the
Company’s investment in TNI. The Company also recorded additional, pretax non-cash charges of $5,019,000 to reduce the carrying value of
property and equipment. The Company recorded $281,564,000 of income tax benefit related to these charges.
The Company reviews its amortizable intangible assets for impairment when indicators of impairment are present. The Company assesses
recoverability of these assets by comparing the estimated undiscounted cash flows associated with the asset or asset group with their carrying
amount. The impairment amount, if any, is calculated based on the excess of the carrying amount over the fair value of those assets.
The Company also periodically evaluates its determination of the useful lives of amortizable intangible assets. Any resulting changes in the useful
lives of such intangible assets will not impact the cash flows of the Company. However, a decrease in the useful lives of such intangible assets
would increase future amortization expense and decrease future reported operating results and earnings per common share.
Based on substantial impairment charges recorded in both 2009 and 2008, and the most recent testing performed, at September 27, 2009, the
Company does not believe its reporting unit is at risk of failing future goodwill impairment testing. However, future decreases in the Company’s
market value, or significant differences in revenue, expenses or cash flows from estimates used to determine market value, could affect this
determination.
Pension, Postretirement and Postemployment Benefit Plans
The Company evaluates its liability for pension, postretirement and postemployment benefit plans based upon computations made by consulting
actuaries, incorporating estimates and actuarial assumptions of future plan service costs, future interest costs on projected benefit obligations,
rates of compensation increases, employee turnover rates, anticipated mortality rates, expected investment returns on plan assets, asset
allocation assumptions of plan assets, and other factors. If the Company used different estimates and assumptions regarding these plans, the
funded status of the plans could vary significantly, resulting in recognition of different amounts of expense over future periods.
Increases in market interest rates, which may impact plan assumptions, generally result in lower service costs for current employees, higher
interest expense and lower liabilities. Actual returns on plan assets that are lower than the plan assumptions will generally result in decreases in a
plan’s funded status and may necessitate additional contributions.
Deferred income taxes are provided using the liability method, whereby deferred income tax assets are recognized for deductible temporary
differences and loss carryforwards and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are
the difference between the reported amounts of assets and liabilities and their tax basis. Deferred income tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be
realized. Deferred income tax assets and liabilities are
Income Taxes
20
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
adjusted for the effects of changes in tax laws and rates on the date of enactment. Recent changes in accounting for uncertain tax positions can
result in additional variability in the Company’s effective income tax rate.
The Company files income tax returns with the Internal Revenue Service (“IRS”) and various state tax jurisdictions. From time to time, the
Company is subject to routine audits by those agencies, and those audits may result in proposed adjustments. The Company has considered the
alternative interpretations that may be assumed by the various taxing agencies, believes its positions taken regarding its filings are valid, and that
adequate tax liabilities have been recorded to resolve such matters. However, the actual outcome cannot be determined with certainty and the
difference could be material, either positively or negatively, to the Consolidated Statements of Operations and Comprehensive Income (Loss) in
the periods in which such matters are ultimately determined. The Company does not believe the final resolution of such matters will be material to
its consolidated financial position or cash flows.
Revenue Recognition
Advertising revenue is recorded when advertisements are placed in the publication or on the related online site. Circulation revenue is recorded as
newspapers are distributed over the subscription term. Other revenue is recognized when the related product or service has been delivered.
Unearned revenue arises in the ordinary course of business from advance subscription payments for publications or advance payments for
advertising.
Uninsured Risks
The Company is self-insured for health care, workers compensation and certain long-term disability costs of its employees, subject to stop loss
insurance, which limits exposure to large claims. The Company accrues its estimated health care costs in the period in which such costs are
incurred, including an estimate of incurred but not reported claims. Other risks are insured and carry deductible losses of varying amounts.
The Company’s accrued reserves for health care and workers compensation claims are based upon estimates of the remaining liability for
retained losses made by consulting actuaries. The amount of workers compensation reserve has been determined based upon historical patterns
of incurred and paid loss development factors from the insurance industry.
An increasing frequency of large claims, deterioration in overall claim experience or changes in federal or state laws affecting the Company’s
liability for such claims could increase the volatility of expenses for such self-insured risks.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 2009, the Financial Accounting Standards Board (“FASB”) issued Statement 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles (“ASC”), which became the source of accounting principles to be applied in the preparation
of financial statements for nongovernmental agencies. ASC is effective for the Company as of September 27, 2009. ASC did not have any impact
on the Company’s Consolidated Financial Statements since it was not intended to change existing GAAP, except as related to references for
authoritative literature.
In 2008, the FASB issued ASC Topic 805, Business Combinations, and ASC Topic 810, Consolidations. FASB ASC Topic 805 establishes
requirements for how an acquirer in a business combination recognizes and measures the assets acquired, liabilities assumed, and any
noncontrolling interests. For the Company, the provisions of FASB ASC Topic 805 are effective for business combinations occurring in 2010.
FASB ASC Topic 810 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and
classified as a component of stockholders’ equity. FASB ASC Topic 810 is effective for the Company in 2010. The effect of FASB ASC Topic 805
is dependent on future transactions. The effect of FASB ASC Topic 810 will not materially affect the Company’s Consolidated Financial
Statements.
In 2008, the FASB issued ASC Topic 815, Derivatives and Hedging. FASB ASC Topic 815 requires disclosure regarding the objectives and
strategies for using derivative instruments and the credit-risk-related features. ASC Topic 815 also requires disclosure of the fair value amounts
and the gains and losses on derivative instruments in tabular form. ASC Topic 815 is effective for the Company in 2010.
21
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
CONTINUING OPERATIONS
Operating results, as reported in the Consolidated Financial Statements, are summarized below:
2009 vs. 2008
(Thousands, Except Per Common Share Data)
2009
2008
Total
Same
Property
Percent Change
Advertising revenue:
Retail
National
Classified:
Daily newspapers:
Employment
Automotive
Real estate
All other
Other publications
Total classified
Online
Niche publications
Total advertising revenue
Circulation
Commercial printing
Online services and other
Total operating revenue
Compensation
Newsprint and ink
Other operating expenses
Workforce adjustments and transition costs
Operating cash flow
Depreciation and amortization
Impairment of goodwill and other assets
Equity in earnings of associated companies
Reduction in investment in TNI
Operating loss
Non-operating expense, net
Loss from continuing operations before income taxes
Income tax benefit
Minority interest
Loss from continuing operations
Discontinued operations, net
Net loss
Decrease (increase) in redeemable minority interest
Loss available to common stockholders
Loss per common share:
Basic
Diluted
$ 358,104
39,047
$
434,069
44,143
(17.5)%
(11.5)
(17.4)%
(11.5)
(55.4)
(32.9)
(30.5)
3.8
(30.4)
(31.0)
(23.7)
(17.3)
(21.6)
(5.3)
(19.4)
(13.1)
(18.2)
(20.2)
(25.0)
(12.1)
NM
(17.5)
(20.3)
26,489
30,465
30,066
44,635
30,660
162,315
42,073
13,135
614,674
185,154
12,895
29,307
842,030
339,014
72,311
257,060
6,650
675,035
166,995
79,599
245,953
5,120
19,951
(173,388)
89,183
(262,571)
(82,509)
179
(180,241)
(5)
(180,246)
57,055
$ (123,191)
$
(2.77)
(2.77)
59,457
45,388
43,282
43,006
43,361
234,494
55,119
15,874
783,699
195,457
15,993
33,719
1,028,868
421,652
103,926
292,840
3,428
821,846
207,022
91,078
1,070,808
10,211
104,478
(1,049,131)
64,730
(1,113,861)
(242,633)
535
(871,763)
285
(871,478)
(8,838)
(880,316)
(55.4)
(32.9)
(30.5)
3.8
(29.3)
(30.8)
(23.7)
(17.3)
(21.6)
(5.3)
(19.4)
(13.1)
(18.2)
(19.6)
(30.4)
(12.2)
NM
(17.9)
(19.3)
(12.6)
NM
(49.9)
NM
NM
37.8
NM
NM
(66.5)
NM
NM
NM
NM
NM
(19.65)
(19.65)
NM
NM
$
$
In total, acquisitions and divestitures accounted for $691,000 of operating revenue in 2009 and $664,000 of operating revenue in 2008.
22
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Economic Conditions
According to the National Bureau of Economic Research, the United States economy entered a recession in the three months ended December
2007, and it is widely believed that certain elements of the economy, such as housing, were in decline before that time. 2009 and 2008 revenue,
operating results and cash flows were significantly impacted by the recession. United States gross domestic product increased in the three months
ended September 2009, potentially signaling the end of the current recession. The duration and depth of an economic recession in markets in
which the Company operates may further reduce its future advertising and circulation revenue, operating results and cash flows.
Advertising Revenue
In 2009, advertising revenue decreased $169,025,000, or 21.6%, and same property advertising revenue decreased $169,062,000, or 21.6%. On
a combined basis, same property print and online retail advertising decreased 15.9%. Same property print retail revenue decreased $75,637,000,
or 17.4%, in 2009. A 13.0% decrease in daily newspaper retail advertising lineage also contributed to the overall decrease. Same property
average retail rates, excluding preprint insertions, decreased 10.9% in 2009. Retail preprint insertion revenue decreased 11.4%. Online retail
advertising increased 6.1%, partially offsetting print declines.
The table below combines print and online advertising revenue and reclassifies certain print retail revenue to classified based on the primary
business of the advertiser:
(Thousands, Same Property)
Retail
Classified:
Employment
Automotive
Real estate
Other
Total classified revenue
2009
2008
Percent Change
$ 369,302
$ 439,354
(15.9)%
$
41,627
44,885
39,331
65,715
$ 191,558
$
90,830
62,938
57,389
72,177
$ 283,334
(54.2)%
(28.7)
(31.5)
(9.0)
(32.4)%
On a combined basis, print and online classified revenue decreased 32.4%. Same property print classified advertising revenue decreased
$72,550,000, or 31.0%, in 2009. Higher rate print employment advertising at the daily newspapers decreased 55.4% for the year on a same
property basis, reflecting rising unemployment nationally. Same property print automotive advertising decreased 32.9% amid an industry-wide
decline. Same property print real estate advertising decreased 30.5% in a weak housing market nationally, which also negatively impacted the
home improvement, furniture and home electronics categories of retail revenue. Other daily newspaper print classified advertising increased 3.8%
on a same property basis. Same property classified advertising rates decreased 16.9%.
Advertising lineage, as reported on a same property basis for the Company’s daily newspapers only, consists of the following:
(Thousands of Inches)
Retail
National
Classified
2009
2008
Percent Change
10,993
488
11,607
23,088
12,639
612
14,317
27,568
(13.0)%
(20.2)
(18.9)
(16.3)%
Online advertising revenue decreased 23.7% on a same property basis, due to decreases in online classified sales, partially offset by a 6.1%
increase in online retail revenue.
National advertising decreased $5,096,000, or 11.5%, on a same property basis due to a 20.2% decline in lineage offset by a 9.8% increase in
average national rate. Advertising in niche publications decreased 17.3% on a same property basis.
23
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Despite declines in advertising revenue, the Company’s total advertising results have historically benchmarked favorably to industry averages
reported by the NAA.
While still negative year over year, revenue results in the month of September 2009 improved. This trend continued in the first two months of
2010. The Company expects revenue to decrease 14-15% in the 13 weeks ending December 27, 2009.
Circulation and Other Revenue
Circulation revenue decreased $10,303,000, or 5.3% in 2009, and same property circulation revenue decreased $10,294,000, or 5.3%. The
Company’s total average daily newspaper circulation units, including TNI and MNI, as measured by the ABC, declined 6.4% for the six months
ended September 2009, compared to the same period in the prior year, and Sunday circulation declined 5.8%, significantly outperforming the
industry as a whole, which experienced declines of 10.6% daily and 7.4% Sunday. The Company estimates that more than 60% of its unit decline
was anticipated, and was due to pricing, distribution reduction and other actions undertaken. For the six months ended March 2009, total average
daily circulation units including TNI and MNI, declined 4.6% and Sunday circulation decreased 3.5%, again outperforming the industry. In spite of
declines in circulation, Company research in its larger markets indicates it is reaching an increasingly larger audience in these markets through the
combination of stable newspaper readership and rapid online growth.
Same property commercial printing revenue decreased $3,098,000, or 19.4%, in 2009. Same property online services and other revenue
decreased $4,410,000, or 13.1%, in 2009.
Operating Expenses
Costs other than depreciation, amortization, impairment charges and other unusual costs decreased $150,033,000, or 18.3%, in 2009, and
decreased $142,044,000, or 17.9%, on a same property basis. In total, acquisitions and divestitures accounted for $642,000 of operating
expenses, excluding depreciation and amortization, in 2009 and $814,000 in 2008.
Compensation expense decreased $82,638,000, or 19.6%, in 2009 and same property compensation expense decreased 20.2% driven by a
decline in same property average full time equivalent employees of 14.8%. Bonus programs and certain other employee benefits were also
substantially reduced in 2009.
In October and December 2008, the Company notified certain participants in its postretirement medical plans of administrative changes to be
made to the plans, effective in January 2009, including increases in employee premiums, changes in the plans’ reimbursement of medical
expenses covered by Medicare, elimination of certain coverage options and the establishment of an account based structure. The changes
reduced the benefit obligation by approximately $23,047,000, effective in January 2009.
Newsprint and ink costs decreased $31,615,000, or 30.4%, in 2009 due to decreased usage from lower advertising, reduced page sizes and some
reduction of content, partially offset by higher average unit prices. Costs decreased 25.0% on a same property basis and volume decreased
31.1% on a same property basis. See Item 7A, “Commodities”, included herein, for further discussion and analysis of the impact of commodities
on the Company’s business.
Other operating costs, which are comprised of all operating expenses not considered to be compensation, newsprint, depreciation, amortization,
or unusual costs, decreased $35,780,000, or 12.2%, in 2009 and decreased 12.1% on a same property basis.
Reductions in staffing resulted in workforce adjustment costs totaling $5,813,000 and $3,418,000 in 2009 and 2008, respectively.
The Company is engaged in various efforts to continue to reduce its operating expenses in 2010 and beyond. The Company expects its operating
expenses, excluding depreciation, amortization and unusual costs (and cost reductions), to decline approximately 17-18% in the 13 weeks ending
December 27, 2009 and 6-7% in 2010.
24
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
In December 2009, the Company notified certain participants in its postretirement medical plans of changes to be made to the plans, including
increases in premium cost sharing and elimination of coverage for certain participants. The changes are expected to reduce annual net periodic
postretirement medical cost beginning in 2010, and will reduce the benefit obligation by up to $30,000,000. The Company may also recognize
non-cash gains related to certain of the changes in 2010.
Results of Operations
As a result of the factors noted above, operating cash flow decreased 19.3% to $166,995,000 in 2009 from $207,022,000 in 2008, and decreased
20.3% on a same property basis. Operating cash flow margin decreased to 19.8% from 20.1% in the prior year reflecting a larger decrease in
operating revenue than the decrease in operating expenses, as well as higher workforce adjustment and transition costs in 2009.
Depreciation expense decreased $1,863,000, or 5.4% due to lower levels of capital spending in 2009 and 2008. Amortization expense decreased
$9,616,000, or 17.0%, in 2009 due to impairment charges in 2009 and 2008.
Due primarily to the continuing, and (at the time) increasing difference between its stock price and the per share carrying value of its net assets,
the Company analyzed the carrying value of its net assets as of December 28, 2008 and again as of March 29, 2009. Deterioration in the
Company’s revenue and the overall recessionary operating environment for the Company and other publishing companies were also factors in the
timing of the analyses.
As a result, in 2009 the Company recorded pretax, non-cash charges to reduce the carrying value of goodwill by $193,471,000. The Company
also recorded pretax, non-cash charges of $14,055,000 and $33,848,000 to reduce the carrying value of nonamortized and amortizable intangible
assets, respectively. $19,951,000 of additional pretax charges were recorded as a reduction in the carrying value of the Company’s investment in
TNI. The Company also recorded additional, pretax non-cash charges of $4,579,000 to reduce the carrying value of property and equipment. The
Company recorded $64,319,000 of income tax benefit related to these charges.
For similar reasons, in 2008 the Company recorded pretax, non-cash charges to reduce the carrying value of goodwill by $908,977,000. The
Company also recorded pretax, non-cash charges of $13,027,000 and $143,785,000 to reduce the carrying value of nonamortized and
amortizable intangible assets, respectively. $104,478,000 of additional pretax charges were recorded as a reduction in the carrying value of the
Company’s investment in TNI. The Company also recorded additional, pretax non-cash charges of $5,019,000 to reduce the carrying value of
property and equipment. The Company recorded $281,564,000 of income tax benefit related to these charges.
Equity in earnings in associated companies decreased $5,091,000, or 49.9% in 2009. Operations of these businesses were similarly impacted by
economic conditions. In May 2009, Citizen discontinued print publication of the Tucson Citizen. The change resulted in workforce adjustment and
transition costs of approximately $1,925,000 of which $1,093,000 was incurred directly by TNI. In 2008, one of MNI’s daily newspapers, The
Capital Times, decreased print publication from six days per week to one day. The change resulted in workforce adjustment and transition costs of
$2,578,000.
The factors noted above resulted in an operating loss of $173,388,000 and $1,049,131,000 in 2009 and 2008, respectively.
Non-Operating Income and Expense
Financial expense increased $24,453,000, or 37.8%, to $89,183,000 due to an increase in debt financing costs of $13,962,000 and higher interest
rate spreads, which were partially offset by debt reduction of $164,040,000 funded, in part, by a $120,000,000 reduction in restricted cash, and the
effect of lower interest rates. Interest rates in 2009 decreased substantially from 2008 levels.
As more fully discussed (and certain capitalized terms used below defined) under Item 7, “Liquidity and Capital Resources”, amendments to the
Company’s Credit Agreement consummated in 2009 increased
25
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
financial expense in 2009 in relation to LIBOR. The Company is now subject to minimum LIBOR levels, which are currently in excess of actual
LIBOR. The maximum rate has been increased to LIBOR plus 450 basis points, and the Company could also be subject to additional non-cash
payment-in-kind interest if leverage increases above specified levels. At the September 2009 leverage level, the Company’s debt under the Credit
Agreement will be priced at the applicable LIBOR minimum plus 400 basis points. The interest rate on the Pulitzer Notes increased 1% to 9.05% in
February 2009, until April 2010. The interest rate will increase by 0.5% per year thereafter.
Overall Results
The Company recognized an income tax benefit of 31.4% of loss from continuing operations before income taxes in 2009 and 21.8% of loss from
continuing operations before income taxes in 2008. The favorable resolution of federal and state tax audits and other matters increased income
tax benefit by $455,000 in 2009 and $2,811,000 in 2008. In 2009, the Company reduced the valuation allowance by $12,557,000. The valuation
allowance was increased $21,588,000 in 2008.
The Company recorded a $30,019,000 increase in the valuation allowance for deferred tax assets in the 13 weeks ended September 28, 2008. In
the 13 weeks ended December 28, 2008, the Company determined that it had not considered the benefit of net operating loss carrybacks in its
determination of the 2008 valuation allowance for deferred tax assets. The correction of this error resulted in a decrease of $8,431,000 in the
valuation allowance included in net deferred income tax liabilities recorded as of September 28, 2008, a corresponding increase in income tax
benefit in the 13 weeks ended September 28, 2008, and a decrease in diluted loss per common share of $0.19. The Company determined that the
impact of this error on previously issued Consolidated Financial Statements is not material. The September 28, 2008 Consolidated Balance Sheet,
and the related Consolidated Statements of Operations and Comprehensive Income (Loss), Stockholders’ Equity and Cash Flows for 2008,
included herein, have been revised to reflect the corrected amounts.
As more fully discussed (and certain capitalized terms used below defined) in Note 19 to the Notes to Consolidated Financial Statements, included
herein, the Operating Agreement provided Herald a one-time right to require PD LLC to redeem its interest in PD LLC, together with its interest, if
any, in DS LLC (the 2010 Redemption). The 2010 Redemption price for Herald’s interest was to be determined pursuant to a formula. The
Company recorded the present value of the remaining amount of this potential liability in its Consolidated Balance Sheet in 2008, with the offset
primarily to goodwill in the amount of $55,594,000, and the remainder recorded as a reduction of retained earnings. In 2009 and 2008, the
Company accrued increases in the liability totaling $1,466,000 and $8,838,000, respectively, which increased net loss available to common
stockholders. The present value of the 2010 Redemption in February 2009, was approximately $73,602,000.
In February 2009, in conjunction with the Notes Amendment, PD LLC redeemed the 5% interest in PD LLC and DS LLC owned by Herald
pursuant to a Redemption Agreement and adopted conforming amendments to the Operating Agreement. As a result, the value of Herald’s former
interest (the Herald Value) will be settled, at a date determined by Herald between April 2013 and April 2015, based on a calculation of 10% of the
fair market value of PD LLC and DS LLC at the time of settlement, less the balance, as adjusted, of the Pulitzer Notes or the equivalent successor
debt, if any. The Company has recorded a liability of $2,300,000 at September 27, 2009 as an estimate of the amount of the Herald Value to be
disbursed. The actual amount of the Herald Value will depend on such variables as future cash flows and indebtedness of PD LLC and DS LLC,
market valuations of newspaper properties and the timing of the request for redemption.
The Redemption Agreement also terminated Herald’s right to exercise its rights under the 2010 Redemption. As a result, in 2009 the Company
reversed substantially all of its liability related to the 2010 Redemption. The reversal reduced liabilities by $71,302,000 and increased
comprehensive income by $58,521,000 and stockholders’ equity by $68,824,000.
As a result of the factors noted above, loss available to common stockholders totaled $123,191,000 in 2009 compared to a loss available to
common stockholders of $880,316,000 in 2008. The Company recorded a loss per diluted common share of $2.77 in 2009 and $19.64 in 2008.
Excluding unusual costs
26
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
(and cost reductions), as detailed in the table below, diluted earnings per common share, as adjusted, were $0.35 in 2009, compared to $1.02 in
2008. Per share amounts may not add due to rounding.
(Thousands, Except Per Share Data)
2009
2008
Amount
Per Share
Amount
Per Share
Loss available to common stockholders, as reported
Adjustments:
Impairment of goodwill and other assets, including TNI
Debt financing costs
Other, net
Income tax effect of adjustments, net, other unusual tax items, and
impact on minority interest
Net income available to common stockholders, as adjusted
Change in redeemable minority interest liability
Net income, as adjusted
$
(123,191)
$
(2.77)
$
(880,316)
$
(19.64)
265,904
17,467
6,848
290,219
(94,518)
195,701
72,510
(57,055)
15,455
$
27
1,175,286
3,505
4,463
1,183,254
(265,979)
917,275
36,959
8,838
45,797
20.47
0.82
0.20
1.02
$
4.40
1.63
(1.28)
0.35
$
$
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Operating results, as reported in the Consolidated Financial Statements, are summarized below:
2008 vs. 2007
(Thousands, Except Per Common Share Data)
2008
2007
Total
Same
Property
Percent Change
Advertising revenue:
Retail
National
Classified:
Daily newspapers:
Employment
Automotive
Real estate
All other
Other publications
Total classified
Online
Niche publications
Total advertising revenue
Circulation
Commercial printing
Online services and other
Total operating revenue
Compensation
Newsprint and ink
Other operating expenses
Curtailment gains
Workforce adjustments and early retirement programs
Operating cash flow
Depreciation and amortization
Impairment of goodwill and other assets
Equity in earnings of associated companies
Reduction in investment in TNI
Operating income (loss)
Non-operating expense, net
Income (loss) from continuing operations before
income taxes
Income tax expense (benefit)
Minority interest
Income (loss) from continuing operations
Discontinued operations, net
Net income (loss)
Increase in redeemable minority interest
Income (loss) available to common stockholders
Earnings (loss) per common share:
Basic
Diluted
$
434,069
44,143
$
455,802
54,901
(4.8)%
(19.6)
(4.7)%
(19.6)
59,457
45,388
43,282
43,006
43,361
234,494
55,119
15,874
783,699
195,457
15,993
33,719
1,028,868
421,652
103,926
292,840
-
3,428
821,846
207,022
91,078
1,070,808
10,211
104,478
(1,049,131)
64,730
(1,113,861)
(242,633)
535
(871,763)
285
(871,478)
(8,838)
(880,316)
(19.65)
(19.65)
$
$
81,683
55,308
58,529
39,284
47,737
282,541
56,074
16,094
865,412
203,481
16,541
34,760
1,120,194
439,426
111,842
294,145
(3,731)
7,962
849,644
270,550
92,700
-
20,124
-
197,974
82,749
115,225
33,828
1,069
80,328
671
80,999
-
80,999
$
$
(27.2)
(17.9)
(26.1)
9.5
(9.6)
(17.1)
(1.7)
(1.4)
(9.4)
(3.9)
(3.3)
(3.0)
(8.1)
(3.8)
(10.0)
(0.7)
NM
NM
(3.8)
(20.3)
(27.2)
(17.9)
(26.1)
9.5
(9.2)
(17.0)
(1.7)
(1.4)
(9.4)
(3.9)
(3.3)
(3.0)
(8.2)
(4.0)
(7.1)
(0.4)
NM
NM
(3.3)
(23.5)
(1.7)
NM
(49.3)
NM
NM
(21.8)
NM
NM
(50.0)
NM
NM
NM
NM
NM
1.76
1.75
NM
NM
The Company’s 2008 fiscal year ended on the last Sunday in September. Beginning in 2008, all of the Company’s enterprises use period
accounting. The Company and its enterprises owned before the Pulitzer acquisition, which accounted for approximately 63% of revenue in 2008,
used calendar
28
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
accounting prior to 2008, with a September 30 fiscal year end. Pulitzer used period accounting for 2007. The table below summarizes days of
business activity in years presented:
(Business Days)
Period Ended:
December
March
June
September
Enterprises Owned Prior
to Pulitzer Acquisition
2008
2007
Pulitzer Enterprises
2007
2008
TNI
2008
2007
91
91
91
91
364
92
90
91
92
365
91
91
91
91
364
91
91
91
98
371
91
91
91
91
364
98
91
91
91
371
In total, acquisitions and divestitures accounted for $664,000 of operating revenue in 2008 and $817,000 of operating revenue in 2007.
Economic Conditions
According to the National Bureau of Economic Research, the United States economy entered a recession in the three months ended December
2007, and it is widely believed that certain elements of the economy, such as housing, were in decline before that time. 2008 revenue, operating
results and cash flows were significantly impacted by the recession.
Advertising Revenue
In 2008, advertising revenue decreased $81,713,000, or 9.4%, and same property advertising revenue decreased $81,566,000, or 9.4%. On a
combined basis, same property print and online retail advertising decreased 3.5%. Same property print retail revenue decreased $21,381,000, or
4.7%, in 2008. A 5.0% decrease in daily newspaper retail advertising lineage also contributed to the overall decrease. Same property average
retail rates, excluding preprint insertions, decreased 0.8% in 2008. Retail preprint insertion revenue decreased 2.6%. Online retail advertising
increased 18.4% partially offsetting print declines.
The table below combines print and online advertising revenue and reclassifies certain print retail revenue to classified based on the primary
business of the advertiser:
(Thousands, Same Property)
2008
2007
Percent Change
Retail
Classified:
Employment
Automotive
Real estate
Other
Total classified revenue
$ 439,354
$ 455,275
(3.5)%
$
90,830
62,938
57,389
72,177
$ 283,334
$ 116,848
72,913
76,148
72,435
$ 338,344
(22.3)%
(13.7)
(24.6)
(0.4)
(16.3)%
On a combined basis, print and online classified revenue decreased 16.3%. Same property print classified advertising revenue decreased
$48,254,000, or 17.1%, in 2008. Higher rate print employment advertising at the daily newspapers decreased 27.2% for the year on a same
property basis, reflecting rising unemployment nationally. Same property print automotive advertising decreased 17.9% amid an industry-wide
decline. Same property print real estate advertising decreased 26.1% in a weak housing market nationally, which also negatively impacted the
home improvement, furniture and home electronics categories of retail revenue. Other daily newspaper print classified advertising increased 9.5%
on a same property basis. Same property classified advertising rates decreased 9.4%.
29
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Advertising lineage, as reported on a same property basis for the Company’s daily newspapers only, consists of the following:
(Thousands of Inches)
2008
2007
Percent Change
Retail
National
Classified
12,639
612
14,317
27,568
13,305
677
15,833
29,815
(5.0)%
(9.6)
(9.6)
(7.5)%
Online advertising revenue decreased 1.7% on a same property basis, due to decreases in online classified sales, partially offset by a 18.4%
increase in retail revenue. In addition, the Company began offering online employment advertising in Yahoo! Hot Jobs in 2007.
National advertising decreased $10,757,000, or 19.6%, on a same property basis due to a 9.6% decline in lineage and a 19.5% decrease in
average national rate. Advertising in niche publications decreased 1.4% on a same property basis.
Despite declines in advertising revenue, the Company’s total advertising results have historically benchmarked favorably to industry averages
reported by the NAA.
Circulation and Other Revenue
Circulation revenue decreased $8,024,000, or 3.9% in 2008, and same property circulation revenue decreased $8,018,000, or 3.9%. The
Company’s total average daily newspaper circulation units, including TNI and MNI, as measured by the ABC, declined 3.8% for the six months
ended September 2008, compared to the same period in the prior year, and Sunday circulation declined 1.5%, significantly outperforming the
industry as a whole, which experienced 4.5% declines both daily and Sunday. For the six months ended March 2008, total average daily
circulation units including TNI and MNI, declined 2.9% and Sunday circulation decreased 0.8%, again outperforming the industry.
Same property commercial printing revenue decreased $548,000, or 3.3%, in 2008. Same property online services and other revenue decreased
$1,043,000, or 3.0%, in 2008.
Operating Expenses
Costs other than depreciation, amortization, impairment charges and other unusual costs (and cost reductions) decreased $26,995,000, or 3.2%,
in 2008, and decreased $29,699,000, or 3.6%, on a same property basis. In total, acquisitions and divestitures accounted for $814,000 of
operating expenses, excluding depreciation and amortization, in 2008 and $1,123,000 in 2007.
Compensation expense decreased $17,774,000, or 4.0%, in 2008 and same property compensation expense decreased 3.8% driven by a decline
in same property average full time equivalent employees of 4.3%.
Newsprint and ink costs decreased $7,916,000, or 7.1%, in 2008 due to decreased usage from lower advertising, reduced page sizes and some
reduction of content, partially offset by higher unit prices. Costs decreased 10.0% on a same property basis and volume decreased 11.2% on a
same property basis.
Other operating costs, which are comprised of all operating expenses not considered to be compensation, newsprint, depreciation, amortization,
or unusual costs (or cost reductions), decreased $1,305,000, or 0.4%, in 2008 and decreased 0.7% on a same property basis.
In 2007, defined pension benefits for certain of the Company’s employees were frozen at then current levels. As a result, the Company recognized
a non-cash curtailment gain of $1,791,000 in 2007, and also recognized the Company’s 50% share of the $2,074,000 non-cash curtailment gain
recognized by TNI.
30
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
In 2007, defined postretirement medical benefits for certain of the Company’s employees were modified. As a result, the Company recognized a
non-cash curtailment gain of $1,940,000.
In 2008, reductions in staffing resulted in workforce adjustment costs totaling $3,418,000. In 2007, the St. Louis Post-Dispatch concluded an
offering of early retirement incentives that resulted in an adjustment of staffing levels. 60 employees volunteered to take advantage of the offer,
which included enhanced pension and insurance benefits, and lump-sum cash payments based on continuous service. The initial cost totaled
$10,704,000 before income tax benefit of which $7,962,000 was recorded as expense. The $2,742,000 remaining cost was offset against
previously existing unrecognized gains in certain of the Company’s defined benefit plans. Approximately $3,700,000 of the cost represents cash
payments, with the remainder due primarily to enhancements of pension and other postretirement benefits.
Results of Operations
As a result of the factors noted above, operating cash flow decreased 23.5% to $207,022,000 in 2008 from $270,550,000 in 2007, and decreased
20.3% on a same property basis. Operating cash flow margin decreased to 20.1% from 24.2% in the prior year reflecting a larger decrease in
operating revenue than the decrease in operating expenses, as well as comparable unusual costs (net of cost reductions) in both years.
Depreciation expense increased $1,715,000, or 5.2%. Amortization expense decreased $3,337,000, or 5.6%, in 2008 due to impairment charges.
Due primarily to the continuing, and increasing difference between its stock price and the per share carrying value of its net assets, the Company
analyzed the carrying value of its net assets as of March 30, 2008 and again as of September 28, 2008. Deterioration in the Company’s revenue
and the overall recessionary operating environment for the Company and other publishing companies were also factors in the timing of the
analyses.
As a result, in 2008 the Company recorded pretax, non-cash charges to reduce the carrying value of goodwill by $908,977,000. The Company
also recorded pretax, non-cash charges of $13,027,000 and $143,785,000 to reduce the carrying value of nonamortized and amortizable
intangible assets, respectively. $104,478,000 of additional pretax charges were recorded as a reduction in the carrying value of the Company’s
investment in TNI. The Company also recorded additional, pretax non-cash charges of $5,019,000 to reduce the carrying value of property and
equipment. The Company recorded $281,564,000 of income tax benefit related to these charges.
Equity in earnings in associated companies decreased $9,913,000, or 49.3% in 2008. Operations of these businesses were similarly impacted by
the recession. In 2008, one of MNI’s daily newspapers, The Capital Times, decreased print publication from six days per week to one day. The
change resulted in workforce adjustment and transition costs of $2,578,000. The Company’s 50% share of TNI’s curtailment gain increased 2007
results by $1,037,000.
The factors noted above resulted in an operating loss of $1,049,131,000 in 2008, compared to operating income of $197,974,000 in 2007.
Non-Operating Income and Expense
Financial expense decreased $18,869,000, or 20.9%, to $71,472,000 due to debt reduction of $63,250,000 funded primarily by cash generated
from operations, as well as lower interest rates. Interest rates in 2008 decreased substantially from 2007 levels.
Overall Results
Income tax benefit was 21.8% of loss from continuing operations before income taxes in 2008 and expense of 29.4% of income from continuing
operations before income taxes in 2007. The favorable resolution of federal and state tax audits and other matters increased income tax benefit by
$2,811,000 in 2008 and reduced income tax expense by $6,880,000 in 2007. In 2008, the Company reduced certain deferred income tax assets
by an increase in the valuation allowance of $21,071,000 due to the uncertainty that such assets will be realized.
31
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
The Company recorded a $30,019,000 increase in the valuation allowance for deferred tax assets in the 13 weeks ended September 28, 2008. In
the 13 weeks ended December 28, 2008, the Company determined that it had not considered the benefit of net operating loss carrybacks in its
determination of the 2008 valuation allowance for deferred tax assets. The correction of this error resulted in a decrease of $8,431,000 in the
valuation allowance included in net deferred income tax liabilities recorded as of September 28, 2008, a corresponding increase in income tax
benefit in the 13 weeks ended September 28, 2008, and a decrease in diluted loss per common share of $0.19. The Company determined that the
impact of this error on previously issued Consolidated Financial Statements is not material. The September 28, 2008 Consolidated Balance Sheet,
and the related Consolidated Statements of Operations and Comprehensive Income (Loss), Stockholders’ Equity and Cash Flows for 2008,
included herein, have been revised to reflect the corrected amounts.
As more fully discussed (and certain capitalized terms used below defined) in Note 19 to the Notes to Consolidated Financial Statements, included
herein, the Operating Agreement provided Herald a one-time right to require PD LLC to redeem its interest in PD LLC, together with its interest, if
any, in DS LLC (the 2010 Redemption). The 2010 Redemption price for Herald’s interest was to be determined pursuant to a formula. The
Company recorded the present value of the remaining amount of this potential liability in its Consolidated Balance Sheet in 2008, with the offset
primarily to goodwill in the amount of $55,594,000, and the remainder recorded as a reduction of retained earnings. Recording of the liability for
the 2010 Redemption resulted in an increase of loss available to common stockholders in 2008 of $8,838,000, which increased net loss available
to common stockholders.
As a result of the factors noted above, loss available to common stockholders totaled $880,316,000 in 2008 compared to income available to
common stockholders of $80,999,000 in 2007. The Company recorded a loss per diluted common share of $19.64 in 2008 compared to earnings
of $1.77 in 2007. Excluding unusual costs (and cost reductions), as detailed in the table below, diluted earnings per common share, as adjusted,
were $1.02 in 2008, compared to $1.71 in 2007. Per share amounts may not add due to rounding.
(Thousands, Except Per Share Data)
Income (loss) available to common stockholders, as reported
Adjustments:
Impairment of goodwill and other assets, including TNI
Debt financing costs
Other, net
Income tax effect of adjustments, net, other unusual tax items, and impact on
minority interest
Net income available to common stockholders, as adjusted
Change in redeemable minority interest liability
Net income, as adjusted
DISCONTINUED OPERATIONS
2008
2007
Amount
Per Share
Amount
Per Share
$ (880,316)
$
(19.64)
$ 80,999
$1.77
1,175,286
3,505
4,463
1,183,254
(265,979)
917,275
36,959
8,838
45,797
$
-
3,489
3,194
6,683
(9,507)
(2,824)
78,175
-
$ 78,175
(0.06)
1.71
-
$1.71
20.47
0.82
0.20
1.02
$
Revenue from discontinued operations in 2008 and 2007 was $1,376,000 and $7,581,000, respectively. Income (loss) from discontinued
operations before income taxes was $128,000 in 2008 and $882,000 in 2007.
In 2008, the Company sold its daily newspaper in DeKalb, Illinois for $24,000,000, before income taxes. The transaction resulted in an after tax
gain of $219,000 which was recorded in discontinued operations in 2008.
In 2007, the Company sold a weekly newspaper in Oregon for $250,000.
32
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Cash provided by operating activities of continuing operations was $74,057,000 in 2009, $136,612,000 in 2008 and $167,630,000 in 2007.
Operating losses in 2009 and 2008 were caused primarily by non-cash charges for impairment of goodwill and other assets and reduction of the
Company’s investment in TNI, net of the related change in deferred income taxes. The net change in all of the aforementioned factors accounted
for the majority of the decrease in all years. Income from continuing operations in 2007 was accompanied by an increase in depreciation and
amortization. An existing, unfunded, supplemental benefit retirement plan was liquidated, as planned, in 2008, reducing cash provided by
operating activities by $17,926,000. Changes in operating assets and liabilities and the timing of income tax payments accounted for the bulk of
the remainder of the change in all years.
Investing Activities
Cash provided by investing activities totaled $108,985,000 in 2009, and required $14,963,000 in 2008 and $38,523,000 in 2007. The Company
liquidated $120,000,000 of its restricted cash and investments in 2009 in order to fund a $120,000,000 reduction in the balance of the Pulitzer
Notes. Capital spending totaled $11,555,000 in 2009, $20,606,000 in 2008 and $34,381,000 in 2007 and accounted for substantially all of the
usage of funds in 2008 and 2007.
The Company anticipates that funds necessary for capital expenditures, which are expected to total between $11,000,000 and $13,000,000 in
2010, and other requirements, will be available from internally generated funds, or availability under its existing Credit Agreement. The 2009
Amendments, as discussed more fully below, limit capital expenditures to $29,300,000 in 2010.
Financing Activities
Cash required by financing activities totaled $198,591,000 in 2009, $113,360,000 in 2008, and $160,934,000 in 2007. Debt reduction and
dividends accounted for the majority of the usage of funds in all years. Financing costs related to the 2009 Amendments also increased cash
required in 2009. The annual dividend declared was $0.76 per share in 2008 and $0.72 per share in 2007. The final dividend declared in 2008 was
paid in 2009.
In 2008, 1,722,280 shares of Common stock were acquired and returned to authorized shares at an average price of $10.98. The 2009
Amendments, as defined below, require the Company to suspend stockholder dividends and share repurchases through April 2012.
Credit Agreement
In 2006, the Company entered into an amended and restated credit agreement (“Credit Agreement”) with a syndicate of financial institutions (the
“Lenders”). The Credit Agreement provided for aggregate borrowing of up to $1,435,000,000 and replaced a $1,550,000,000 credit agreement
consummated in 2005. In February 2009, the Company completed a comprehensive restructuring of the Credit Agreement, which supplemented
amendments consummated earlier in 2009 (together, the “2009 Amendments”).
The Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by substantially all of the Company’s existing and future,
direct and indirect subsidiaries in which the Company holds a direct or indirect interest of more than 50% (the “Credit Parties”); provided however,
that Pulitzer and its subsidiaries will not become Credit Parties for so long as their doing so would violate the terms of the Pulitzer Notes discussed
more fully below. The Credit Agreement is secured by first priority security interests in the stock and other equity interests owned by the Credit
Parties in their respective subsidiaries.
Security
33
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
As a result of the 2009 Amendments, the Credit Parties pledged substantially all of their tangible and intangible assets, and granted mortgages
covering certain real estate, as collateral for the payment and performance of their obligations under the Credit Agreement. Assets of Pulitzer and
its subsidiaries, TNI, the Company’s ownership interest in, and assets of, MNI and certain employee benefit plan assets are excluded.
Interest Payments
Debt under the A Term Loan, which has a balance of $714,885,000 at September 27, 2009, and the $375,000,000 revolving credit facility, which
has a balance of $275,450,000 at September 27, 2009, bear interest, at the Company’s option, at either a base rate or an adjusted Eurodollar rate
(“LIBOR”), plus an applicable margin. The base rate for the facility is the greater of (i) the prime lending rate of Deutsche Bank Trust Company
Americas at such time; (ii) 0.5% in excess of the overnight federal funds rate at such time; or (iii) 30 day LIBOR plus 1.0%. The applicable margin
is a percentage determined according to the following: For revolving loans and A Term Loans maintained as base rate loans: 1.625% to 3.5%, and
maintained as Eurodollar loans: 2.625% to 4.5% depending, in each instance, upon the Company’s leverage ratio at such time.
Minimum LIBOR levels of 1.25%, 2.0% and 2.5% for borrowings for one month, three month and six month periods, respectively, are also in effect.
At September 27, 2009, all of the Company’s outstanding debt under the Credit Agreement is based on one month borrowing. At the
September 27, 2009 leverage level, the Company’s debt under the Credit Agreement will be priced at a LIBOR margin of 400 basis points.
Under the 2009 Amendments, contingent, non-cash payment-in-kind interest expense of 1.0% to 2.0% will be accrued in a quarterly period only in
the event the Company’s leverage level exceeds 7.5:1 at the end of the previous quarter. At September 27, 2009, this provision is not applicable.
Such non-cash charges, if any, will be added to the principal amount of debt and will be reversed, in whole or in part, in the event the Company’s
total leverage ratio is below 6.0:1 in September 2011 or the Company refinances the Credit Agreement in advance of its April 2012 maturity.
Principal Payments
The Company may voluntarily prepay principal amounts outstanding or reduce commitments under the Credit Agreement at any time, in whole or
in part, without premium or penalty, upon proper notice and subject to certain limitations as to minimum amounts of prepayments. The Company is
required to repay principal amounts, on a quarterly basis until maturity, under the A Term Loan. Total A Term Loan payments in 2009 and 2008
were $104,490,000 and $62,250,000, respectively. The 2009 Amendments reduce the amount and delay the timing of mandatory principal
payments under the A Term Loan. Payments in 2010 and 2011 total $77,800,000 and $65,000,000, respectively. Payments in 2012 prior to the
April 2012 maturity total $70,000,000. The scheduled payment at maturity is $502,085,000, plus the balance of the revolving credit facility
outstanding at that time.
In addition to the scheduled payments, the Company is required to make mandatory prepayments under the A Term Loan under certain other
conditions. The Credit Agreement requires the Company to apply the net proceeds from asset sales to repayment of the A Term Loan.
Repayments in 2008 met required repayments related to its sales transactions. In 2009, the Company made a $440,000 payment related to this
provision.
The Credit Agreement also requires the Company to accelerate future payments under the A Term Loan in the amount of 75% of its excess cash
flow, as defined, beginning in 2008. The Company had no excess cash flow in 2009. The Company had excess cash flow of approximately
$62,000,000 in 2008 and, as a result, paid $46,325,000 originally due under the A Term Loan in March and June 2009. The acceleration of such
payments due to asset sales or excess cash flow does not change the due dates of other A Term Loan payments.
The Credit Agreement contains customary affirmative and negative covenants for financing of its type. At September 27, 2009, the Company was
in compliance with such covenants. These financial covenants
Covenants and Other Matters
34
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
include a maximum total leverage ratio, as defined. The total leverage ratio is based primarily on the sum of the principal amount of debt, which
equals $1,168,335,000 at September 27, 2009, plus letters of credit and certain other factors, divided by a measure of trailing 12 month operating
results, which includes several elements, including distributions from TNI and MNI.
The 2009 Amendments amended the Company’s covenants to take into account economic conditions and the changes to amortization of debt
noted above. The Company’s total leverage ratio at September 27, 2009 was 6.49:1. Under the 2009 Amendments, the Company’s maximum total
leverage ratio limit will increase from 8.25:1 in September 2009 to 8.75:1 in December 2009, decrease to 8.5:1 in June 2010, decrease to 7.75:1 in
September 2010, decrease to 7.5:1 in December 2010, decrease to 7.25:1 in March 2011 and decrease to 7.0:1 in June 2011. Each change in the
leverage ratio limit noted above is effective on the last day of the quarter.
The Credit Agreement also includes a minimum interest expense coverage ratio, as defined. The Company’s interest expense coverage ratio at
September 27, 2009 was 2.22:1. The minimum interest expense coverage ratio is 1.6:1 in September 2009, will decrease thereafter to 1.4:1
through March 2010 and increase periodically thereafter until it reaches 2.25:1 in March 2012.
The 2009 Amendments require the Company to suspend stockholder dividends and share repurchases through April 2012. The 2009
Amendments also limit capital expenditures to $20,000,000 per year, with a provision for carryover of unused amounts from the prior year. Further,
the 2009 Amendments modify other covenants, including restricting the Company’s ability to make additional investments and acquisitions without
the consent of the Lenders, limiting additional debt beyond that permitted under the Credit Agreement, and limiting the amount of unrestricted cash
and cash equivalents the Credit Parties may hold to a maximum of $10,000,000 for a five day period. Such covenants require that substantially all
future cash flows of the Company be directed toward debt reduction. Finally, the 2009 Amendments eliminated an unused incremental term loan
facility.
Pulitzer Notes
In conjunction with its formation in 2000, PD LLC borrowed $306,000,000 (the “Pulitzer Notes”) from a group of institutional lenders (the
“Noteholders”). The aggregate principal amount of the Pulitzer Notes was payable in April 2009.
In February 2009, the Pulitzer Notes and the Guaranty Agreement described below were amended (the “Notes Amendment”). Under the Notes
Amendment, PD LLC repaid $120,000,000 of the principal amount of the debt obligation using substantially all of its previously restricted cash,
which totaled $129,810,000 at December 28, 2008. The remaining debt balance of $186,000,000 was refinanced by the Noteholders until April
2012.
The Pulitzer Notes are guaranteed by Pulitzer pursuant to a Guaranty Agreement dated May 1, 2000 (the “Guaranty Agreement”) with the
Noteholders. The Notes Amendment provides that the obligations under the Pulitzer Notes are fully and unconditionally guaranteed on a joint and
several basis by Pulitzer’s existing and future subsidiaries (excluding Star Publishing and TNI). Also, as a result of the Notes Amendment, Pulitzer
and each of its subsidiaries pledged substantially all of its tangible and intangible assets, and granted mortgages covering certain real estate, as
collateral for the payment and performance of their obligations under the Pulitzer Notes. Assets and stock of Star Publishing, the Company’s
ownership interest in TNI and certain employee benefit plan assets are excluded.
The Notes Amendment increased the rate paid on the outstanding principal balance to 9.05% until April 28, 2010. The interest rate will increase by
0.5% per year thereafter.
Pulitzer may voluntarily prepay principal amounts outstanding or reduce commitments under the Pulitzer Notes at any time, in whole or in part,
without premium or penalty, upon proper notice and subject to certain limitations as to minimum amounts of prepayments. The Notes Amendment
provides for mandatory scheduled prepayments, including quarterly principal payments of $4,000,000 beginning on June 29, 2009 and an
additional principal payment from restricted cash, if any, of up to $4,500,000 in October 2010. In 2009, the $4,000,000 payments due on June 29,
2009 and September 30, 2009 were made prior to the end of the previous fiscal quarter.
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The Notes Amendment establishes a reserve of restricted cash of up to $9,000,000 (reducing to $4,500,000 in October 2010) to facilitate the
liquidity of the operations of Pulitzer. All other previously existing restricted cash requirements were eliminated. The Notes Amendment allocates a
percentage of Pulitzer’s quarterly excess cash flow (as defined in the Note Agreement) between Pulitzer and the Credit Parties and requires
prepayments to the Noteholders under certain specified events. There was no excess cash flow in 2009.
The Pulitzer Notes contain certain covenants and conditions including the maintenance, by Pulitzer, of the ratio of debt to EBITDA, as defined in
the Guaranty Agreement, minimum net worth and limitations on the incurrence of other debt. The Notes Amendment added a requirement to
maintain minimum interest coverage, as defined. The Notes Amendment amended the Pulitzer Notes and the Guaranty Agreement covenants to
take into account economic conditions and the changes to amortization of debt noted above. At September 27, 2009, Pulitzer was in compliance
with such covenants.
Further, the Notes Amendment added and amended other covenants including limitations or restrictions on additional debt, distributions, loans,
advances, investments, acquisitions, dispositions and mergers. Such covenants require that substantially all future cash flows of Pulitzer are
required to be directed first toward repayment of the Pulitzer Notes and that cash flows of Pulitzer are largely segregated from those of the Credit
Parties.
The Credit Agreement contains a cross-default provision tied to the terms of the Pulitzer Notes and the Pulitzer Notes have limited cross-default
provisions tied to the terms of the Credit Agreement.
The 2005 purchase price allocation of Pulitzer resulted in an increase in the value of the Pulitzer Notes in the amount of $31,512,000, which was
recorded as debt in the Consolidated Balance Sheets. At September 27, 2009, the unaccreted balance totals $1,458,000. This amount is being
accreted over the remaining life of the Pulitzer Notes, until April 2012, as a reduction in interest expense using the interest method. This accretion
will not increase the principal amount due, or reduce the amount of interest to be paid, to the Noteholders.
Liquidity
The Company expects to utilize a portion of its capacity under its revolving credit facility to fund part of 2010 principal payments required under the
Credit Agreement. At September 27, 2009, the Company had $275,450,000 outstanding under the revolving credit facility, and after consideration
of the 2009 Amendments and letters of credit, has approximately $83,000,000 available for future use. Including cash and restricted cash, the
Company’s liquidity at September 27, 2009 totals $99,900,000. This liquidity amount excludes any future cash flows. Mandatory principal
payments on debt in 2010 total $89,800,000. The Company expects all 2010 interest payments and a substantial amount of principal payments
due in 2010 will be satisfied by the Company’s continuing cash flows.
The Company’s ability to operate as a going concern is dependent on its ability to remain in compliance with debt covenants and to refinance or
amend its debt agreements as they become due, or earlier if available liquidity is consumed. The Company is in compliance with its debt
covenants at September 27, 2009.
There are numerous potential consequences under the Credit Agreement, and Guaranty Agreement and Note Agreement related to the Pulitzer
Notes, if an Event of Default occurs and is not remedied. Many of those consequences are beyond the control of the Company, Pulitzer, and PD
LLC, respectively. The occurrence of one or more Events of Default would give rise to the right of the Lenders or the Noteholders, or both of them,
to exercise their remedies under the Credit Agreement and the Note and Guaranty Agreements, respectively, including, without limitation, the right
to accelerate all outstanding debt and take actions authorized in such circumstances under applicable collateral security documents.
The 2010 Redemption, as more fully discussed in Note 19 of the Notes to Consolidated Financial Statements, included herein, eliminated the
potential requirement for a substantial cash outflow in April 2010. This event also substantially enhanced the Company’s liquidity.
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Other
The Company paid fees to the Lenders and Noteholders for the 2009 Amendments and Notes Amendment which, along with the related legal and
financial advisory expenses, totaled $26,061,000. $15,500,000 of the fees were capitalized and are being expensed over the remaining term of the
Credit Agreement and Pulitzer Notes, until April 2012. At September 27, 2009, the Company has total unamortized financing costs of $19,576,000.
At September 27, 2009, the Company’s weighted average cost of debt (including the effect of interest rate swaps and collars) was 6.66%.
Aggregate maturities of debt in 2010, 2011 and 2012 are $89,800,000, $81,000,000, and $997,535,000, respectively.
Discontinued Operations and Other Matters
Cash required by discontinued operations totaled $5,000 in 2009 and provided $15,170,000 and $23,189,000 in 2008 and 2007, respectively.
Cash proceeds from the sales of discontinued operations and cash generated from operations were the primary sources of funds in 2008 and
2007.
Cash and cash equivalents decreased $15,554,000 in 2009, increased $23,459,000 in 2008, and decreased $8,638,000 in 2007.
SEASONALITY
The Company’s largest source of publishing revenue, retail advertising, is seasonal and tends to fluctuate with retail sales in markets served.
Historically, retail advertising is higher in the first and third fiscal quarters. Advertising revenue is lowest in the second fiscal quarter.
Quarterly results of operations are summarized in Note 21 of the Notes to Consolidated Financial Statements, included herein.
INFLATION
The Company anticipates that changing costs of newsprint, its basic raw material, may impact future operating costs. Energy costs have also
become more volatile, and may increase in the future as a result of carbon emissions legislation currently under consideration in the United States
Congress. Price increases (or decreases) for the Company’s products are implemented when deemed appropriate by management. The
Company continuously evaluates price increases, productivity improvements, sourcing efficiencies and other cost reductions to mitigate the impact
of inflation.
CONTRACTUAL OBLIGATIONS
The following table summarizes the more significant of the Company’s contractual obligations.
(Thousands)
Nature of Obligation
(1)
Debt (principal amount)
(2)(3)
Financial expense
Operating lease obligations
Capital expenditure commitments
Payments (or Commitments) Due by Year(s)
Total
Less
Than 1
1-3
3-5
More
Than 5
$ 1,168,335
165,661
19,501
482
$ 1,353,979
$ 89,800
67,433
4,178
482
$ 161,893
$ 1,078,535
98,228
6,518
-
$ 1,183,281
$
-
-
3,178
-
$ 3,178
$
-
-
5,627
-
$ 5,627
(1) Maturities of long-term debt exclude the possible impact of acceleration of amounts due under the Credit Agreement or Pulitzer Notes due to
a future default under such agreements. See Note 7 of the Notes to Consolidated Financial Statements, included herein.
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(2) Financial expense includes an estimate of interest expense for the Credit Agreement and Pulitzer Notes until their respective maturities in
April 2012. Financial expense under the Credit Agreement is estimated based on the 30 day minimum LIBOR level of 1.25% at September 27,
2009 as increased by the Company’s applicable margin of 4% at such date and the impact of interest rate swaps and collars, applied to the
outstanding balance at September 27, 2009, as reduced by future contractual maturities of such debt. Financial expense under the Pulitzer
Notes is estimated based on the fixed contractual interest rates applied to the outstanding balance at September 27, 2009, as reduced by
future contractual maturities of such debt. Changes in interest rates in excess of the minimum LIBOR level, changes in the Company’s
applicable interest rate margin due to changes in the Company’s maximum total leverage ratio, use of LIBOR borrowing periods in excess of
30 days, use of borrowing rates not based on LIBOR, use of additional interest rate hedging instruments, and/or principal payments in excess
of contractual maturities or based on other requirements of the Credit Agreement or Pulitzer Notes could significantly change this estimate.
See Note 7 of the Notes to Consolidated Financial Statements, included herein.
(3) Financial expense excludes amortization of debt financing costs totaling $26,061,000, as such costs were paid in 2009 and prior years. See
Note 7 of the Notes to Consolidated Financial Statements, included herein.
The table above excludes future cash requirements for pension, postretirement and postemployment obligations. The periods in which these
obligations will be settled in cash are not readily determinable and are subject to numerous future events and assumptions. The Company’s
estimate of cash requirements for these obligations in 2010 is approximately $2,600,000. See Notes 9 and 10 of the Notes to Consolidated
Financial Statements, included herein.
The table above excludes future cash requirements for the payment of the Herald Value to be settled between April 2013 and April 2015. The
estimated value of the Herald Value at September 27, 2009 is $2,300,000. See Note 19 of the Notes to Consolidated Financial Statements,
included herein.
A substantial amount of the Company’s deferred income tax liabilities is related to acquisitions and will not result in future cash payments. See
Note 14 of the Notes to Consolidated Financial Statements, included herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk stemming from changes in interest rates and commodity prices. Changes in these factors could cause
fluctuations in earnings and cash flows. In the normal course of business, exposure to certain of these market risks is managed as described
below.
INTEREST RATES
Restricted Cash and Investments
Interest rate risk in the Company’s restricted cash and investments is managed by investing only in short-term securities. Only U.S. Government
and related securities are permitted.
Debt
The Company’s debt structure and interest rate risk are managed through the use of fixed and floating rate debt. The Company’s primary
exposure is to LIBOR. A 100 basis point increase or decrease to LIBOR would, in theory, decrease or increase respectively, income from
continuing operations before income taxes on an annualized basis by approximately $7,153,000, based on $715,335,000 of floating rate debt
outstanding at September 27, 2009, after consideration of the interest rate swaps discussed below, and excluding debt subject to interest rate
collars discussed below and debt of MNI.
The Company’s debt under the Credit Agreement is subject to minimum interest rate levels of 1.25%, 2.0% and 2.5% for borrowings for one
month, three month and six month periods, respectively. At September 27, 2009, all of the Company’s outstanding debt under the Credit
Agreement is based on one month borrowing. Based on the difference between interest rates at the end of November 2009 and the Company’s
minimum rate for one month borrowing, 30 day LIBOR would need to increase approximately 100 basis points before the Company’s borrowing
cost would begin to be impacted by an increase in interest rates.
At September 27, 2009, the Company had outstanding interest rate swaps in the notional amount of $125,000,000. The interest rate swaps had
original terms of four or five years, carried interest rates from
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Table of Contents
4.3% to 4.4% (plus the applicable LIBOR margin) and effectively fixed the Company’s interest rate on debt in the amount, and for the time periods,
of such instruments.
In 2008, the Company executed interest rate collars in the notional amount of $150,000,000. The collars had a two year term and limited LIBOR to
an average floor of 3.57% and a cap of 5.0%. Such collars effectively limited the range of the Company’s exposure to interest rates to LIBOR
greater than the floor and less than the cap (in either case plus the applicable LIBOR margin) for the time period of such instruments.
At September 27, 2009, after consideration of the interest rate swaps described above, approximately 74% of the principal amount of the
Company’s debt was subject to floating interest rates. The interest rate collars described above limited the Company’s exposure to interest rates
on an additional 13% of the principal amount of its debt.
As of November 30, 2009, the full amount of the outstanding balance under the Credit Agreement became subject to floating interest rates, as all
interest rate swaps and collars expired or were terminated at or prior to that date.
Certain of the Company’s interest-earning assets, including those in employee benefit plans, also function as a natural hedge against fluctuations
in interest rates on debt.
COMMODITIES
Certain materials used by the Company are exposed to commodity price changes. The Company manages this risk through instruments such as
purchase orders and non-cancelable supply contracts. The Company is a participant in a buying cooperative with other publishing companies,
primarily for acquisition of newsprint. The Company is also involved in continuing programs to mitigate the impact of cost increases through
identification of sourcing and operating efficiencies. Primary commodity price exposures are newsprint and, to a lesser extent, ink and energy
costs.
Significant declines in North American newsprint demand led to an approximate 45% price decline between December 2008 and August 2009.
2009 declines in newsprint demand were driven by the recessionary pressures on print advertising as well as noteworthy newsprint conservation
programs, particularly web width size reductions, initiated in 2008. The 2009 demand decline outpaced the North American newsprint suppliers’
ability to reduce newsprint production, which led to excess inventories at both the producer and publisher levels. Most newsprint producers
reported late summer 2009 transaction selling prices to be below cash operating costs. This operating loss position, along with the move of the
largest North American newsprint producer AbitibiBowater Inc., to seek financial reorganization, has sparked several consecutive monthly price
increase announcements, beginning in September 2009, certain of which have since been delayed or rescinded. Some North American newsprint
producers have removed production capacity on a permanent basis in addition to idling excess capacity on an indefinite, but temporary basis, in
an effort to balance capacity with current demand trends and support the announced price increases and their return to a positive cash flow
position. The final extent of changes in price, if any, is subject to negotiation between newsprint producers and the Company.
A $10 per tonne price increase for 30 pound newsprint would result in an annualized reduction in income before income taxes of approximately
$981,000 based on anticipated consumption in 2010, excluding consumption of MNI and TNI and the impact of LIFO accounting. Such prices may
also decrease. The Company substantially increased its supply of newsprint in 2009, which may help to mitigate the impact of recently announce
price increases.
SENSITIVITY TO CHANGES IN VALUE
The Company’s fixed rate debt consists of the Pulitzer Notes, which are not traded on an active market and held by a small group of Noteholders.
Coupled with the volatility of substantially all domestic credit markets that exists the Company is unable, as of September 27, 2009, to measure
the maximum potential impact on fair value of fixed rate debt of the Company from adverse changes in market interest rates under normal market
conditions. The change in value, if determined, would likely be significant.
Changes in the value of interest rate swaps and interest rate collars from movements in interest rates are not determinable, due to the number of
variables involved in the pricing of such instruments. However, increases in interest rates would generally result in increases in the fair value of
such instruments.
39
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Table of Contents
Information with respect to this Item is included herein under the caption “Consolidated Financial Statements”.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in January 2010, which is incorporated herein by
reference, under the caption “Relationship with Independent Registered Public Accounting Firm”.
ITEM 9A. CONTROLS AND PROCEDURES
In order to ensure that the information that must be disclosed in filings with the Securities and Exchange Commission is recorded, processed,
summarized and reported in a timely manner, the Company has disclosure controls and procedures in place. The Company’s chief executive
officer, Mary E. Junck, and chief financial officer, Carl G. Schmidt, have reviewed and evaluated disclosure controls and procedures as of
September 27, 2009, and have concluded that such controls and procedures are effective.
There have been no changes in internal control over financial reporting that have materially affected or are reasonably likely to materially affect
such controls, during the year ended September 27, 2009.
40
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Lee Enterprises, Incorporated (the Company) is responsible for establishing and maintaining adequate internal control over
financial reporting. The Company’s internal control system is designed to provide reasonable assurance regarding the preparation and fair
presentation of the Company’s Consolidated Financial Statements in accordance with generally accepted accounting principles in the United
States of America.
Any internal control system, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Accordingly, even
those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management of the Company assessed the effectiveness of the Company’s internal control over financial reporting as of September 27, 2009. In
making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control – Integrated Framework. Based on the assessment and those criteria, we believe that the Company maintained effective internal
control over financial reporting as of September 27, 2009.
The 2009 Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered
public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only
management’s report in this Annual Report on Form 10-K.
/s/ Mary E. Junck
Mary E. Junck
Chairman, President and Chief Executive Officer
December 11, 2009
/s/ Carl G. Schmidt
Carl G. Schmidt
Vice President, Chief Financial Officer
and Treasurer
December 11, 2009
41
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
None.
PART III
ITEM 9B. OTHER INFORMATION
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
Information with respect to this Item, except for certain information related to the Company’s Executive Officers, included under the caption
“Executive Team” in Part I of this Form 10-K, is included in the Company’s Proxy Statement to be filed in January 2010, which is incorporated
herein by reference, under the captions “Proposal 1 – Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance”. The
Company’s Executive Officers are those elected officers whose names and certain information are set forth under the caption “Executive Team” in
Part 1 of this Form 10-K.
The Company has a Code of Business Conduct and Ethics (Code) that applies to all of its employees, including its principal executive officer, and
principal financial and accounting officer. The Code is monitored by the Audit Committee of the Company’s Board of Directors and is annually
affirmed by its directors and executive officers. The Company maintains a corporate governance page on its website which includes the Code. The
corporate governance page can be found at www.lee.net by clicking on “Governance.” A copy of the Code will also be provided without charge to
any stockholder who requests it. Any future amendment to, or waiver granted by the Company from, a provision of the Code will be posted on the
Company’s website.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in January 2010, which is incorporated herein by
reference, under the captions, “Compensation of Directors”, “Executive Compensation” and “Compensation Discussion and Analysis”; provided,
however, that the subsection entitled “Executive Compensation – Report of the Executive Compensation Committee of the Board of Directors on
Executive Compensation” shall not be deemed to be incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in January 2010, which is incorporated herein by
reference, under the caption “Voting Securities and Principal Holders Thereof” and “Equity Compensation Plan Information”.
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Table of Contents
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in January 2010, which is incorporated herein by
reference, under the caption “Directors’ Meetings and Committees of the Board of Directors”.
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in January 2010, which is incorporated herein by
reference, under the caption “Relationship with Independent Registered Public Accounting Firm”.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Annual Report on Form 10-K:
FINANCIAL STATEMENTS
Consolidated Statements of Operations and Comprehensive Income (Loss) – Years ended September 27, 2009, September 28, 2008, and
September 30, 2007
Consolidated Balance Sheets – September 27, 2009 and September 28, 2008
Consolidated Statements of Stockholders’ Equity – Years ended September 27, 2009, September 28, 2008, and September 30, 2007
Consolidated Statements of Cash Flows – Years ended September 27, 2009, September 28, 2008, and September 30, 2007
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted as not required, not applicable, not deemed material or because the information is included in the Notes to
Consolidated Financial Statements.
EXHIBITS
See Exhibit Index, included herein.
43
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on the 11 th day of December 2009.
LEE ENTERPRISES, INCORPORATED
/s/ Mary E. Junck
Mary E. Junck
Chairman, President and Chief Executive Officer
/s/ Carl G. Schmidt
Carl G. Schmidt
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in their respective capacities on the 11 th day of December 2009.
Signature
/s/ Richard R. Cole
Richard R. Cole
/s/ Nancy S. Donovan
Nancy S. Donovan
/s/ Leonard J. Elmore
Leonard J. Elmore
/s/ Mary E. Junck
Mary E. Junck
/s/ William E. Mayer
William E. Mayer
/s/ Herbert W. Moloney III
Herbert W. Moloney III
/s/ Andrew E. Newman
Andrew E. Newman
/s/ Gordon D. Prichett
Gordon D. Prichett
/s/ Gregory P. Schermer
Gregory P. Schermer
/s/ Mark B. Vittert
Mark B. Vittert
Director
Director
Director
Chairman, President, and
Chief Executive Officer, and Director
Director
Director
Director
Director
Vice President – Interactive Media,
and Director
Director
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Table of Contents
EXHIBIT INDEX
Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by the Company with the Securities and
Exchange Commission, as indicated. Exhibits marked with a plus (+) are management contracts or compensatory plan contracts or arrangements
filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K. All other documents listed are filed with this Annual Report on Form 10-K.
Number
Description
2.1 *
2.2 *
2.3 *
2.4 *
3.1 *
3.2 *
4 *
10.1 *
Agreement and Plan of Merger dated as of January 29, 2005 among Lee Enterprises, Incorporated, LP Acquisition Corp. and
Pulitzer Inc. (Exhibit 2.1 to Form 8-K filed February 3, 2005)
Amended and Restated Agreement and Plan of Merger by and among Pulitzer Publishing Company, Pulitzer Inc. and
Hearst-Argyle Television, Inc. dated as of May 25, 1998 (Exhibit 10.1 to Form 10-Q for the Fiscal Quarter Ended June 30, 2005)
Asset Purchase Agreement dated September 6, 2006 by and among Lee Enterprises, Incorporated, Lee Procurement Solutions
Co. and Sound Publishing, Inc. (Exhibit 2.3 to Form 10-K for the Fiscal Year Ended September 30, 2006)
Asset Purchase Agreement dated September 5, 2006 by and among Lee Enterprises, Incorporated, Lee Procurement and Target
Media Partners Operating Company, LLC (Exhibit 2.4 to Form 10-K for the Fiscal Year Ended September 30, 2006)
Restated Certificate of Incorporation of Lee Enterprises, Incorporated, as amended, as of March 3, 2005 (Exhibit 3.1 to Form 10-Q
for the Fiscal Quarter Ended March 31, 2005)
Amended By-Laws of Lee Enterprises, Incorporated effective May 17, 2007. (Exhibit 99.1 to Form 8-K filed May 21, 2007)
The description of the Company’s preferred stock purchase rights contained in its report on Form 8-K, filed with the SEC on May
7, 1998, and related Rights Agreement, dated as of May 7, 1998 (“Rights Agreement”), between the Company and The First
Chicago Trust Company of New York (“First Chicago”), as amended by Amendment No. 1 to the Rights Agreement dated January
1, 2008 between the Company and Wells Fargo Bank, N.A. (as successor rights agent to First Chicago) contained in the
Company’s report on Form 8-K filed with the SEC on January 11, 2008 as Exhibit 4.2, and the related form of Certificate of
Designation of the Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights as Exhibit
C, included as Exhibit 1.1 to the Company’s registration statement on Form 8-A filed with the SEC on May 26, 1998 (File No.
1-6227), as supplemented by Form 8-A/A, Amendment No. 1, filed with the SEC on January 11, 2008.
Amended and Restated Credit Agreement, dated as of December 21, 2005, by and among Lee Enterprises, Incorporated, the
lenders from time to time party thereto, Deutsche Bank Trust Company Americas, as Administrative Agent, Deutsche Bank
Securities Inc. and SunTrust Capital Markets, Inc., as Joint Lead Arrangers, Deutsche Bank Securities Inc., as Book Running
Manager, SunTrust Bank, as Syndication Agent and Bank of America, N.A., The Bank of New York and The Bank of
Tokyo-Mitsubishi, Ltd., Chicago Branch, as Co-Documentation Agents (Exhibit 10 to Form 10-Q for the Fiscal Quarter Ended
December 31, 2005)
45
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Table of Contents
Number
10.2 *
10.3 *
10.4 *
10.5 *
10.6 *
10.7 *
10.8 *
10.9 *
Description
First Amendment and Waiver to Credit Agreement, dated as of September 29, 2008, among Lee Enterprises, Incorporated (the
“Company”), the Lenders party thereto, Deutsche Bank Trust Company Americas, as Administrative Agent, related to the
Company’s Amended and Restated Credit Agreement, dated as of December 21, 2005, by and among the Company, Deutsche
Bank Trust Company Americas, as Administrative Agent, Deutsche Bank Securities Inc. and SunTrust Capital Markets, Inc., as
Joint Lead Arrangers, Deutsche Bank Securities Inc., as Book Running Manager, SunTrust Bank, as Syndication Agent, and Bank
of America, N.A., The Bank of New York and The Bank of Tokyo-Mitsubishi, Ltd., Chicago Branch, as Co-Documentation Agents
and other lenders thereto (Exhibit 10.1 to Form 8-K filed December 17, 2008)
Second Amendment to Credit Agreement, dated as of October 29, 2008, among Lee Enterprises, Incorporated (the “Company”),
the Lenders party thereto, Deutsche Bank Trust Company Americas, as Administrative Agent, related to the Company’s Amended
and Restated Credit Agreement, dated as of December 21, 2005, by and among the Company, Deutsche Bank Trust Company
Americas, as Administrative Agent, Deutsche Bank Securities Inc. and SunTrust Capital Markets, Inc., as Joint Lead Arrangers,
Deutsche Bank Securities Inc., as Book Running Manager, SunTrust Bank, as Syndication Agent, and Bank of America, N.A., The
Bank of New York and The Bank of Tokyo-Mitsubishi, Ltd., Chicago Branch, as Co-Documentation Agents and other lenders
thereto (Exhibit 10.1 to Form 8-K filed December 17, 2008)
Second Waiver to Credit Agreement, dated as of December 22, 2008, among Lee Enterprises, Incorporated, the lenders party
thereto and Deutsche Bank Trust Company Americas, as Administrative Agent (Exhibit 10.4 to Form 10-K for the Fiscal Year
Ended September 28, 2008)
Third Amendment, Consent and Waiver to Credit Agreement and First Amendment to Intercompany Subordination Agreement and
Mortgages, dated as of February 18, 2009, among Lee Enterprises, Incorporated (“Company”), Deutsche Bank Trust Company
Americas (“Deutsche Bank Trust”), as Administrative Agent and as Collateral Agent, and the Lenders party to the Amended and
Restated Credit Agreement, dated as of December 21, 2005, among the Company, Deutsche Bank Trust, as Administrative
Agent, Deutsche Bank Securities Inc. and SunTrust Capital Markets, Inc., as Joint Lead Arrangers, Deutsche Bank Securities Inc.,
as Book Running Manager, SunTrust Bank, as Syndication Agent, and Bank of America, N.A., The Bank of New York and The
Bank of Tokyo-Mitsubishi, Ltd., Chicago Branch, as Co-Documentation Agents and other Lenders party thereto. (Exhibit 10.1 to
Form 10-Q for the Fiscal Quarter Ended March 29, 2009)
Security Agreement, dated as of November 21, 2008, among Lee Enterprises, Incorporated and certain of its subsidiaries in favor
of Deutsche Bank Trust Company Americas, as Collateral Agent (Exhibit 10.1 to Form 8-K filed December 17, 2008)
Amended and Restated Pledge Agreement, dated as of December 21, 2005, among Lee Enterprises, Incorporated (“Company”)
and certain Subsidiaries of the Company party thereto and Deutsche Bank Trust Company Americas, as Collateral Agent
(Exhibit 10.2 to Form 10-Q for the Fiscal Quarter Ended March 29, 2009)
Amended and Restated Subsidiaries Guaranty, dated as of December 21, 2005, among Lee Enterprises, Incorporated
(“Company”) and certain Subsidiaries of the Company party thereto in favor of Deutsche Bank Trust Company Americas, as
Administrative Agent (Exhibit 10.3 to Form 10-Q for the Fiscal Quarter Ended March 29, 2009)
Amended and Restated Intercompany Subordination Agreement, dated as of December 21, 2005, among Lee Enterprises,
Incorporated (“Company”) and certain Subsidiaries of the Company party thereto and Deutsche Bank Trust Company Americas,
as Collateral Agent (Exhibit 10.4 to Form 10-Q for the Fiscal Quarter Ended March 29, 2009)
46
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Number
10.10 *
10.11 *
10.12 *
10.13 *
10.14 *
10.15 *
10.16 *
10.17 *
10.18 *
10.19 *
10.20 *
10.21 *
10.22 *
Description
St. Louis Post-Dispatch LLC Note Agreement, dated as of May 1, 2000, as amended by Amendment No. 1 to Note Agreement,
entered into as of November 23, 2004 (Exhibit 10.8 to Form 10-Q for the Fiscal Quarter Ended June 30, 2005)
Amendment No. 2 to Note Agreement, entered into as of February 1, 2006, by and between St. Louis Post-Dispatch LLC and the
Note Holders party thereto related to the St. Louis Post-Dispatch LLC Note Agreement, dated as of May 1, 2000, as amended
(Exhibit 10.14 to Form 10-K for the Fiscal Year Ended September 28, 2008)
Amendment No. 3 to Note Agreement, entered into as of November 19, 2008, by and between St. Louis Post-Dispatch LLC and
the Note Holders party thereto related to St. Louis Post-Dispatch LLC Note Agreement, dated as of May 1, 2000, as amended
(Exhibit 10.15 to Form 10-K for the Fiscal Year Ended September 28, 2008)
Limited Waiver to Note Agreement and Guaranty Agreement entered into as of December 26, 2008 by and among St. Louis
Post-Dispatch LLC, Pulitzer Inc. and the Note Holders party thereto (Exhibit 10.16 to Form 10-K for the Fiscal Year Ended
September 28, 2008)
Fourth Amendment to Note Agreement and First Amendment to Limited Waiver to Note Agreement and Guaranty Agreement
entered into as of January 16, 2009 by and among St. Louis Post-Dispatch LLC, Pulitzer Inc. and the Noteholders party thereto
(Exhibit 10.1 to Form 8-K filed January 20, 2009)
Second Amendment to Limited Waiver to Note Agreement and Guaranty Agreement entered into as of January 30, 2009 by and
among St. Louis Post-Dispatch LLC, Pulitzer Inc. and the Noteholders party thereto (Exhibit 10.1 to Form 8-K filed February 3,
2009)
Third Amendment to Limited Waiver to Note Agreement and Guaranty Agreement, dated as of February 6, 2009, among St. Louis
Post-Dispatch LLC, Pulitzer Inc. and the Noteholders party thereto (Exhibit 10.5 to Form 10-Q for the Fiscal Quarter Ended March
29, 2009)
Limited Waiver and Amendment No. 5 to Note Agreement, dated as of February 18, 2009, among St. Louis Post-Dispatch LLC
and the Noteholders party thereto (Exhibit 10.6 to Form 10-Q for the Fiscal Quarter Ended March 29, 2009)
Security Agreement, dated as of February 18, 2009, among Pulitzer Inc., St. Louis Post-Dispatch LLC and each Subsidiary of the
Company party thereto (Exhibit 10.7 to Form 10-Q for the Fiscal Quarter Ended March 29, 2009)
Pledge Agreement, dated as of February 18, 2009, among Pulitzer Inc., St. Louis Post-Dispatch LLC and each Subsidiary of
Pulitzer Inc. party thereto in favor of The Bank New York Mellon Trust Company, N.A., as Collateral Agent, on behalf and for the
benefit of the Secured Parties (as defined therein) (Exhibit 10.8 to Form 10-Q for the Fiscal Quarter Ended March 29, 2009)
Set-Off Agreement, dated as of February 18, 2009, among Lee Enterprises, Incorporated, Lee Procurement Solutions Co. and
Pulitzer Inc. (Exhibit 10.10 to Form 10-Q for the Fiscal Quarter Ended March 29, 2009)
Redemption Agreement, dated February 18, 2009, among St. Louis Post-Dispatch LLC, STL Distribution Services LLC, The
Herald Publishing Company, LLC, Pulitzer Inc. and Pulitzer Technologies, Inc. (Exhibit 10.12 to Form 10-Q for the Fiscal Quarter
Ended March 29, 2009)
Pulitzer Inc. Guaranty Agreement, dated as of May 1, 2000 as amended by Amendment No. 1 to Guaranty Agreement, dated as
of August 7, 2000, as further amended by Amendment No. 2 to Guaranty Agreement, dated as of November 23, 2004, and further
amended by Amendment No. 3 to Guaranty Agreement, dated as of June 3, 2005 (Exhibit 10.9 to Form 10-Q for the Fiscal
Quarter Ended June 30, 2005)
47
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Number
10.23 *
10.24 *
10.25 *
10.26 *
10.27 *
10.28 *
10.29 *
10.30 *
10.31 *
10.32 *
10.33 +*
10.34.1 +*
10.35.2 +*
Description
Amendment No. 4 to Guaranty Agreement, dated as of February 1, 2006, by Pulitzer Inc. related to the Pulitzer Inc. Guaranty
Agreement, dated as of May 1, 2000, as amended (Exhibit 10.18 to Form 10-K for the Fiscal Year Ended September 28,
2008)
Limited Waiver and Amendment No. 5 to Guaranty Agreement, dated as of February 18, 2009, among Pulitzer Inc., in favor of
the Noteholders under the Note Agreement, dated as of May 1, 2000, among St. Louis Post-Dispatch LLC and the
Noteholders party thereto (Exhibit 10.11 to Form 10-Q for the Fiscal Quarter Ended March 29, 2009)
Subsidiary Guaranty Agreement, dated as of February 18, 2009, among the Subsidiaries of Pulitzer Inc. party thereto in favor
of the Noteholders under the Note Agreement, dated as of May 1, 2000, among St. Louis Post-Dispatch LLC and the
Noteholders party thereto (Exhibit 10.9 to Form 10-Q for the Fiscal Quarter Ended March 29, 2009)
Operating Agreement of St. Louis Post-Dispatch LLC, dated as of May 1, 2000, as amended by Amendment No. 1 to
Operating Agreement of St. Louis Post-Dispatch LLC, dated as of June 1, 2001 (Exhibit 10.5 to Form 10-Q for the Fiscal
Quarter Ended June 30, 2005)
Amendment Number Two to Operating Agreement of St. Louis Post-Dispatch LLC, effective February 18, 2009, between
Pulitzer Inc. and Pulitzer Technologies, Inc. (Exhibit 10.13 to Form 10-Q for the Fiscal Quarter Ended March 29, 2009)
Amended and Restated Joint Operating Agreement, dated December 22, 1988, between Star Publishing Company and
Citizen Publishing Company (Exhibit 10.2 to Form 10-Q for the Fiscal Quarter Ended June 30, 2005)
Partnership Agreement, dated December 22, 1988, between Star Publishing Company and Citizen Publishing Company
(Exhibit 10.3 to Form 10-Q for the Fiscal Quarter Ended June 30, 2005)
Lease Agreement between Ryan Companies US, Inc. and Lee Enterprises, Incorporated dated May 2003 (Exhibit 10.7 to
Form 10-K for the Fiscal Year Ended September 30, 2003)
License Agreement, dated as of May 1, 2000, by and between Pulitzer Inc. and St. Louis Post-Dispatch LLC (Exhibit 10.7 to
Form 10-Q for the Fiscal Quarter Ended June 30, 2005)
Non-Confidentiality Agreement, dated as of May 1, 2000 (Exhibit 10.10 to Form 10-Q for the Fiscal Quarter Ended June 30,
2005)
Form of Director Compensation Agreement of Lee Enterprises, Incorporated for non-employee director deferred
compensation (Exhibit 10.7 to Form 10-K for the Fiscal Year Ended September 30, 2004)
Lee Enterprises, Incorporated 1990 Long-Term Incentive Plan (effective October 1, 1999, as amended effective January 10,
2008) (Exhibit 10.1 to Form 10-Q for the Fiscal Quarter Ended March 30, 2008)
Forms of related Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement, Accelerated Ownership Stock
Option Agreement and Restricted Stock Agreement related to Lee Enterprises, Incorporated 1990 Long-Term Incentive Plan
(effective as of October 1, 1999, as amended November 16, 2005). (Exhibit 10.15.1a to Form 10-K for the Fiscal Year Ended
September 30, 2005)
10.36.3 +*
Form of Key Executive Restricted Stock Agreement related to Lee Enterprises, Incorporated 1990 Long-Term Incentive Plan
(Exhibit 10.2 to Form 8-K filed November 26, 2004)
48
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Number
10.37 +*
10.38 +*
10.39 +*
10.40 +*
10.41 +*
10.42 +*
10.43 +*
21
23.1
23.2
23.3
23.4
24
31.1
31.2
32
Description
Lee Enterprises, Incorporated Amended and Restated 1996 Stock Plan for Non-Employee Directors (Exhibit A to Schedule 14A
Definitive Proxy Statement for 2003)
Lee Enterprises, Incorporated Supplementary Benefit Plan, Amended and Restated as of January 1, 2008 (Exhibit 10.25 to Form
10-K for the Fiscal Year Ended September 28, 2008)
Lee Enterprises, Incorporated Outside Directors Deferral Plan, Amended and Restated as of January 1, 2008 (Exhibit 10.26 to
Form 10-K for the Fiscal Year Ended September 28, 2008)
Form of Amended and Restated Employment Agreement for certain Lee Enterprises, Incorporated Executive Officers Group
(Exhibit 10.2 to Form 10-Q for the Fiscal Quarter Ended March 30, 2008)
Form of Indemnification Agreement for Lee Enterprises, Incorporated Directors and Executive Officers Group (Exhibit 10.2 to
Form 10-Q for the Fiscal Quarter Ended March 30, 2008)
Lee Enterprises, Incorporated 2005 Incentive Compensation Program (Appendix A to Schedule 14A Definitive Proxy Statement
for 2005)
Cancellation Agreement dated November 19, 2004 between Lee Enterprises, Incorporated and Mary E. Junck (Exhibit 10.1 to
Form 8-K filed on November 26, 2004)
Subsidiaries and associated companies
Consent of KPMG LLP, Independent Registered Public Accounting Firm
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm
Consent of McGladrey & Pullen LLP, Independent Registered Public Accounting Firm
Report of McGladrey & Pullen LLP, Independent Registered Public Accounting Firm
Power of Attorney
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
49
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firms
50
PAGE
51
52
54
55
56
89
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Thousands, Except Per Common Share Data)
2009
2008
Revised-See Note 14
2007
$
783,699
195,457
49,712
1,028,868
$
865,412
203,481
51,301
1,120,194
$
614,674
185,154
42,202
842,030
339,014
72,311
257,060
32,807
46,792
245,953
-
6,650
1,000,587
5,120
(19,951)
(173,388)
1,886
(75,425)
(17,467)
1,823
(89,183)
(262,571)
(82,509)
179
(180,241)
-
(5)
(180,246)
57,055
(123,191)
(21,839)
$ (145,030)
$
421,652
103,926
292,840
34,670
56,408
1,070,808
-
3,428
1,983,732
10,211
(104,478)
(1,049,131)
5,857
(67,967)
(3,505)
885
(64,730)
(1,113,861)
(242,633)
535
(871,763)
84
201
(871,478)
(8,838)
(880,316)
1,001
(879,315)
$
$(2.77)
-
$(2.77)
$(19.65)
0.01
$(19.64)
$(2.77)
-
$(2.77)
$(19.65)
0.01
$(19.64)
$ -
$ 0.76
439,426
111,842
294,145
32,955
59,745
-
(3,731)
7,962
942,344
20,124
-
197,974
7,613
(86,852)
(3,489)
(21)
(82,749)
115,225
33,828
1,069
80,328
580
91
80,999
-
80,999
(1,898)
79,101
$1.76
0.01
$1.77
$1.75
0.01
$1.77
$0.72
Operating revenue:
Advertising
Circulation
Other
Total operating revenue
Operating expenses:
Compensation
Newsprint and ink
Other operating expenses
Depreciation
Amortization of intangible assets
Impairment of goodwill and other assets
Curtailment gains
Workforce adjustments, transition costs and early retirement programs
Total operating expenses
Equity in earnings of associated companies
Reduction in investment in TNI
Operating income (loss)
Non-operating income (expense):
Financial income
Financial expense
Debt financing costs
Other, net
Total non-operating expense, net
Income (loss) from continuing operations before income taxes
Income tax expense (benefit)
Minority interest
Income (loss) from continuing operations
Discontinued operations:
Income from discontinued operations, net of income tax effect
Gain (loss) on disposition, net of income tax effect
Net income (loss)
Decrease (increase) in redeemable minority interest
Income (loss) available to common stockholders
Other comprehensive income (loss), net
Comprehensive income (loss) available to common stockholders
Earnings (loss) per common share:
Basic:
Continuing operations
Discontinued operations
Diluted:
Continuing operations
Discontinued operations
Dividends per common share
The accompanying Notes are an integral part of the Consolidated Financial Statements.
51
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
CONSOLIDATED BALANCE SHEETS
(Thousands, Except Per Share Data)
ASSETS
Current assets:
September 27
2009
September 28
2008
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts:
$
7,905
$
23,459
2009 $6,275; 2008 $6,647
Income taxes receivable
Inventories
Deferred income taxes
Other
Total current assets
Investments:
Associated companies
Restricted cash and investments
Other
Total investments
Property and equipment:
Land and improvements
Buildings and improvements
Equipment
Construction in process
Less accumulated depreciation
Property and equipment, net
Goodwill
Other intangible assets, net
Other
Total assets
The accompanying Notes are an integral part of the Consolidated Financial Statements.
52
79,731
5,625
13,854
3,638
7,354
118,107
58,073
9,324
9,498
76,895
30,365
195,573
316,364
1,985
544,287
281,318
262,969
433,552
603,348
20,741
1,515,612
$
100,380
-
18,952
3,675
7,313
153,779
81,022
126,060
16,621
223,703
30,729
196,159
314,338
4,317
545,543
252,715
292,828
627,023
701,184
17,850
2,016,367
$
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt
Accounts payable
Compensation and other accrued liabilities
Income taxes payable
Dividends payable
Unearned revenue
Total current liabilities
Long-term debt, net of current maturities
Pension obligations
Postretirement and postemployment benefit obligations
Other retirement and compensation obligations
Deferred income taxes
Redeemable and other minority interest
Income taxes payable
Other
Total liabilities
Stockholders’ equity:
Serial convertible preferred stock, no par value; authorized 500 shares; none issued
Common Stock, $2 par value; authorized 120,000 shares; issued and outstanding:
2009; 39,139 shares;
2008; 39,111 shares
Class B Common Stock, $2 par value; authorized 30,000 shares; issued and
outstanding:
2009; 5,776 shares;
2008; 5,979 shares
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
53
September 27
2009
September 28
2008
Revised-See Note 14
$
89,800
31,377
42,755
-
-
37,001
200,933
1,079,993
45,953
40,687
1,539
93,766
252
12,839
16,052
1,492,014
-
78,278
$
1,337,640
53,827
60,416
5,431
8,539
38,871
1,504,724
-
2,803
58,767
9,845
187,869
72,244
11,756
12,841
1,860,849
-
78,222
11,552
11,958
137,713
(225,299)
21,354
23,598
1,515,612
$
134,289
(112,144)
43,193
155,518
2,016,367
$
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Thousands)
Common Stock:
Balance, beginning of year
Conversion from Class B Common Stock
Shares issued
Shares reacquired
Balance, end of year
Class B Common Stock:
Balance, beginning of year
Conversion to Common Stock
Balance, end of year
Additional paid-in capital:
Balance, beginning of year
Stock option expense
Amortization of restricted Common Stock
Income tax expense of stock options exercised
Shares issued (redeemed)
Balance, end of year
Retained earnings (accumulated deficit):
Balance, beginning of year
Net income (loss)
Shares reacquired
Adoption of FASB ASC Topic 740
Adoption of FASB ASC Topic 715
Change in redeemable minority interest
Cash dividends
Balance, end of year
Accumulated other comprehensive income:
2009
Amount
2008
Revised-See Note 14
2007
2009
Shares
2008
2007
$
78,222 $
79,958 $
78,974
39,111 39,979 39,487
203
41
(216)
186
354
(48)
39,139 39,111 39,979
229
702
(1,799)
5,979
(203)
5,776
6,208
(229)
5,979
6,394
(186)
6,208
406
82
(432)
78,278
11,958
(406)
11,552
134,289
194
3,246
-
(16)
137,713
(112,144)
(180,246)
-
-
(267)
67,358
-
(225,299)
458
1,404
(3,598)
78,222
12,416
(458)
11,958
132,090
1,507
4,669
(3,413)
(564)
134,289
819,786
(871,478)
(15,472)
(1,733)
-
(8,838)
(34,409)
(112,144)
372
708
(96)
79,958
12,788
(372)
12,416
123,738
2,144
5,199
(686)
1,695
132,090
771,947
80,999
-
-
-
-
(33,160)
819,786
Balance, beginning of year
Unrealized gain (loss) on interest rate exchange
agreements
Unrealized gain (loss) on available-for-sale securities
Change in pension and postretirement benefits
Adoption of FASB ASC Topic 715
Deferred income taxes, net
Balance, end of year
Total stockholders’ equity
43,193
42,192
3,178
(3,796)
(4,776)
1,004
716
72
(680)
-
8,354
(33,897)
65,780
-
(903)
(23,686)
(2,649)
12,637
21,354
42,192
43,193
23,598 $ 155,518 $ 1,086,442
$
The accompanying Notes are an integral part of the Consolidated Financial Statements.
54
44,915 45,090 46,187
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
2009
2008
Revised-See Note 14
2007
$ (180,246)
(5)
(180,241)
$ (871,478)
285
(871,763)
$
80,999
671
80,328
79,599
245,953
19,951
(3,807)
3,013
(609)
(78,500)
17,467
15,174
3,866
(39,067)
(6,677)
(4,208)
2,143
74,057
(47,777)
166,109
(11,555)
1,418
-
(2,291)
3,081
108,985
(359,990)
195,950
(26,061)
(8,539)
(56)
105
(198,591)
(5)
-
(15,554)
91,078
1,070,808
104,478
(7,990)
5,905
1,772
(261,738)
3,505
19,777
(4,875)
(18,304)
(315)
5,125
(851)
136,612
(115,555)
87,873
(20,606)
12,685
(1,624)
13,771
8,493
(14,963)
(197,650)
134,400
-
(32,573)
(19,483)
1,946
(113,360)
(8,741)
23,911
23,459
-
23,459
92,700
-
-
(7,579)
7,193
(792)
(6,091)
3,489
(6,247)
5,439
18,264
(3,314)
(14,504)
(1,256)
167,630
(90,005)
78,018
(34,381)
1,334
(1,065)
(1,165)
8,741
(38,523)
(196,375)
67,000
-
(33,038)
(1,099)
2,578
(160,934)
502
22,687
(8,638)
8,638
-
$
23,459
7,905
$
$
Table of Contents
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
Cash provided by operating activities:
Net income (loss)
Results of discontinued operations
Income (loss) from continuing operations
Adjustments to reconcile income (loss) from continuing operations to net cash provided by
operating activities of continuing operations:
Depreciation and amortization
Impairment of goodwill and other assets
Reduction in investment in TNI
Accretion of debt fair value adjustment
Stock compensation expense
Distributions greater (less) than earnings of associated companies
Decrease in deferred income taxes
Debt financing costs
Change in operating assets and liabilities, net of acquisitions:
Decrease (increase) in receivables
Decrease (increase) in inventories and other
Increase (decrease) in accounts payable, accrued expenses and unearned
revenue
Decrease in pension, postretirement and post employment benefits
Change in income taxes receivable or payable
Other
Net cash provided by operating activities of continuing operations
Cash provided by (required for) investing activities of continuing operations:
Purchases of marketable securities
Sales or maturities of marketable securities
Purchases of property and equipment
Proceeds from sale of assets
Acquisitions, net
Decrease (increase) in restricted cash
Other
Net cash provided by (required for) investing activities of continuing operations
Cash provided by (required for) financing activities of continuing operations:
Payments on long-term debt
Proceeds from long-term debt
Debt financing costs paid
Cash dividends paid
Purchases of Common Stock
Other, primarily issuance of Common Stock
Net cash required for financing activities of continuing operations
Net cash provided by (required for) discontinued operations:
Operating activities
Investing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents:
Beginning of year
End of year
The accompanying Notes are an integral part of the Consolidated Financial Statements.
55
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lee Enterprises, Incorporated (“Company”), is a premier provider of local news, information and advertising in primarily midsize markets, with 49
daily newspapers and a joint interest in four others, rapidly growing online sites and nearly 300 weekly newspapers and specialty publications in
23 states. The Company currently operates in a single operating segment.
In 2009, the Financial Accounting Standards Board (“FASB”) issued Statement 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles (“ASC”), which became the source of accounting principles to be applied in the preparation
of financial statements for nongovernmental agencies. ASC is effective for the Company as of September 27, 2009. ASC did not have any impact
on the Company’s Consolidated Financial Statements since it was not intended to change existing accounting principles generally accepted in the
United States of America (“GAAP”), except as related to references for authoritative literature.
1 SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned, except for its
50% interest in TNI Partners (“TNI”), 50% interest in Madison Newspapers, Inc. (“MNI”), and 82.5% interest in INN Partners, L.C. (“INN”).
The Company has evaluated subsequent events through December 11, 2009. The Annual Report on Form 10-K was filed with the Securities and
Exchange Commission on December 11, 2009, which is the date the Consolidated Financial Statements were issued. No events have occurred
subsequent to September 27, 2009 that require disclosure or recognition in these financial statements except as included herein.
Certain amounts as previously reported have been reclassified to conform with the current period presentation. See Notes 3 and 7.
References to 2009, 2008, 2007 and the like mean the fiscal years ended the last Sunday in September.
Fiscal Year
The Company’s 2009 fiscal year ended on the last Sunday in September. Beginning in 2008, all of the Company’s enterprises use period
accounting. The Company and its enterprises owned before the Pulitzer Inc. (“Pulitzer”) acquisition, which accounted for approximately 63% of
revenue in 2008, used calendar accounting prior to 2008, with a September 30 fiscal year end. Pulitzer operations used period accounting in all
periods presented. The table below summarizes days of business activity in years presented:
(Business Days)
Period Ended:
December
March
June
September
Debt and Liquidity
Enterprises Owned Prior
to Pulitzer Acquisition
2009
and
2008
2007
Pulitzer Enterprises
TNI
2009
and 2008
2007
2009
and 2008
91
91
91
91
364
92
90
91
92
365
91
91
91
91
364
91
91
91
98
371
91
91
91
91
364
2007
98
91
91
91
371
As discussed more fully in Note 7 (and certain capitalized terms used below defined), in February 2009, the Company completed a comprehensive
restructuring of its Credit Agreement and a refinancing of its
56
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Pulitzer Notes debt, substantially enhancing its liquidity and operating flexibility until April 2012. The Company disclosed in its 2008 Annual Report
on Form 10-K, in part, that the ability to extend or refinance the Pulitzer Notes as they become due and to delay the acceleration of debt maturities
upon the expiration of existing waivers of default under both the Credit Agreement and the Pulitzer Notes were factors that raised significant
uncertainty about the Company’s ability to continue as a going concern. The restructuring of the Credit Agreement and refinancing of the Pulitzer
Notes resolve these issues.
Accounting Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amount of assets and liabilities, revenue and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its wholly-owned, or majority-owned, subsidiaries. All significant
intercompany transactions have been eliminated.
Investments in MNI and TNI are accounted for using the equity method and are reported at cost plus the Company’s share of undistributed
earnings since acquisition less, for TNI, amortization of intangible assets.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less at date of acquisition to be
cash equivalents. Outstanding checks in excess of funds on deposit are included in accounts payable and are classified as financing activities in
the Consolidated Statements of Cash Flows.
Accounts Receivable
The Company evaluates its allowance for doubtful accounts receivable based on historical credit experience, payment trends and other economic
factors. Delinquency is determined based on timing of payments in relation to billing dates. Accounts considered to be uncollectible are written off.
Inventories
Newsprint inventories are priced at the lower of cost or market, with cost being determined by the first-in, first-out or last-in, first-out methods.
Newsprint inventories at September 27, 2009 and September 28, 2008 are less than replacement cost by $1,693,000 and $5,580,000,
respectively.
The components of newsprint inventory by cost method are as follows:
(Thousands)
First-in, first-out
Last-in, first-out
September 27
2009
September 28
2008
$
$
3,309
6,798
10,107
$
$
8,695
5,833
14,528
Other inventories consisting of ink, plates and film are priced at the lower of cost or market, with cost being determined by the first-in, first-out
method.
Restricted Cash and Investments
As more fully discussed (and certain capitalized terms used below defined) in Note 7, the Notes Amendment establishes a Reserve of restricted
cash of up to $9,000,000 (reducing to $4,500,000 in
57
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 2010) to facilitate the liquidity of the operations of Pulitzer. All other previously existing restricted cash requirements have been
eliminated. Investments in the Reserve are limited to U.S. government and related securities and are recorded at fair value, with unrealized gains
and losses reported, net of applicable income taxes, in accumulated other comprehensive income. The cost basis used to determine realized
gains and losses is specific identification.
Other Investments
Other investments primarily consist of marketable securities held in trust under a deferred compensation arrangement and investments for which
no established market exists. Marketable securities are classified as trading securities and carried at fair value with gains and losses reported in
earnings. Non-marketable securities are carried at cost.
Property and Equipment
Property and equipment are carried at cost. Equipment, except for printing presses and mailroom equipment, is depreciated primarily by
declining-balance methods. The straight-line method is used for all other assets. The estimated useful lives are as follows:
Buildings and improvements
Printing presses and mailroom equipment
Other
Years
5 – 54
2 – 28
3 – 20
The Company capitalizes interest as a component of the cost of constructing major facilities. At September 27, 2009 and September 28, 2008,
capitalized interest was not significant.
The Company recognizes the fair value of a liability for a legal obligation to perform an asset retirement activity, when such activity is a condition of
a future event and the fair value of the liability can be estimated.
Goodwill and Other Intangible Assets
Intangible assets include covenants not to compete, consulting agreements, customer lists, newspaper subscriber lists and mastheads. Intangible
assets subject to amortization are being amortized as follows:
Noncompete and consulting agreements
Customer lists
Newspaper subscriber lists
Years
5 – 15
5 – 23
7 – 33
In assessing the recoverability of goodwill and other nonamortized intangible assets, the Company makes a determination of the fair value of its
business. Fair value is determined using a combination of an income approach, which estimates fair value based upon future revenue, expenses
and cash flows discounted to their present value, and a market approach, which estimates fair value using market multiples of various financial
measures compared to a set of comparable public companies in the publishing industry. An impairment charge will generally be recognized when
the carrying amount of the net assets of the business exceeds its estimated fair value.
The required valuation methodology and underlying financial information that are used to determine fair value require significant judgments to be
made by management. These judgments include, but are not limited to, long term projections of future financial performance and the selection of
appropriate discount
58
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Table of Contents
rates used to determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could
produce significantly different results.
The Company analyzes goodwill and other nonamortized intangible assets for impairment on an annual basis, or more frequently if impairment
indicators are present. Such indicators of impairment include, but are not limited to, changes in business climate and operating or cash flow losses
related to such assets.
The Company reviews its amortizable intangible assets for impairment when indicators of impairment are present. The Company assesses
recoverability of these assets by comparing the estimated undiscounted cash flows associated with the asset or asset group with their carrying
amount. The impairment amount, if any, is calculated based on the excess of the carrying amount over the fair value of those assets.
The Company also periodically evaluates the useful lives of amortizable intangible assets. Any resulting changes in the useful lives of such
intangible assets will not impact the cash flows of the Company. However, a decrease in the useful lives of such intangible assets would increase
future amortization expense and decrease future reported operating results and earnings per common share. See Note 6.
Minority Interest
Minority interest in earnings of INN is recognized in the Consolidated Financial Statements.
Until February 2009, the Company also recognized minority interest in the earnings of St. Louis Post-Dispatch LLC (“PD LLC”) and STL
Distribution Services LLC (“DS LLC”). As more fully discussed (and certain capitalized terms used below defined) in Note 19, in February 2009, in
conjunction with the Notes Amendment, PD LLC redeemed the 5% interest in both PD LLC and DS LLC owned by Herald pursuant to a
Redemption Agreement and adopted conforming amendments to the Operating Agreement. As a result, the value of Herald’s former interest will
be settled, at a date determined by Herald between April 2013 and April 2015, based on a calculation of 10% of the fair market value of PD LLC
and DS LLC at the time of settlement, less the balance, as adjusted, of the Pulitzer Notes or the equivalent successor debt, if any.
In 2008, the Company recorded the repurchase obligation for the minority interest in PD LLC and DS LLC and elected the accretion method under
FASB ASC Topic 480, Distinguishing Liabilities from Equity, to record increases or decreases in the expected value of the 2010 Redemption as an
adjustment to retained earnings. Changes in the expected value of the 2010 Redemption had a corresponding impact on income (loss) available
to common stockholders and earnings (loss) per common share through February 2009, the date the related agreements were amended. There
was no impact on net income (loss) from the application FASB ASC Topic 480 to the 2010 Redemption. See Note 19.
Revenue Recognition
Advertising revenue is recorded when advertisements are placed in the publication or on the related online site. Circulation revenue is recorded as
newspapers are distributed over the subscription term. Other revenue is recognized when the related product or service has been delivered.
Unearned revenue arises in the ordinary course of business from advance subscription payments for publications or advance payments for
advertising.
Advertising Costs
A substantial amount of the Company’s advertising and promotion expense consists of ads placed in its own publications and on its own websites
using available space. The incremental cost of such advertising is not significant and is not measured separately by the Company. External
advertising costs are not significant and are expensed as incurred.
Pension, Postretirement and Postemployment Benefit Plans
The Company evaluates its liability for pension, postretirement and postemployment benefit plans based upon computations made by consulting
actuaries, incorporating estimates and actuarial assumptions of
59
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
future plan service costs, future interest costs on projected benefit obligations, rates of compensation increases, employee turnover rates,
anticipated mortality rates, expected investment returns on plan assets, asset allocation assumptions of plan assets, and other factors. If the
Company used different estimates and assumptions regarding these plans, the funded status of the plans could vary significantly, resulting in
recognition of different amounts of expense over future periods.
For 2009, the Company used a September 27 measurement date for all its pension and postretirement obligations in accordance with FASB ASC
Topic 715, Retirement Plans. In 2008 and 2007, the Company used a June 30 measurement date. See Notes 9 and 10.
Income Taxes
Deferred income taxes are provided using the liability method, whereby deferred income tax assets are recognized for deductible temporary
differences and loss carryforwards and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are
the difference between the reported amounts of assets and liabilities and their tax basis. Deferred income tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be
realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Beginning with the adoption of FASB ASC Topic 740, Income Taxes, as of October 1, 2007, the Company recognizes the effect of income tax
positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount
that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in
judgment occurs. The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Interest Rate Exchange Agreements
Until 2009, the Company accounted for interest rate exchange agreements, which are comprised of floating-to-fixed rate interest rate swaps, or
interest rate collars, as cash flow hedges. The Company expected that the fair value of these agreements would significantly offset changes in the
cash flows of the associated floating rate debt. The fair value of such instruments was recorded in accumulated other comprehensive income, net
of applicable income tax expense or benefit.
In 2009, the Company marked all interest rate exchange agreements to market, which resulted in recognition of interest expense of $268,000.
Stock Compensation
The Company has four stock-based compensation plans. The Company accounts for grants under those plans under the fair value expense
recognition provisions of FASB ASC Topic 718, Compensation-Stock Compensation. The Company amortizes as compensation expense the
value of stock options and restricted Common Stock using the straight-line method over the vesting or restriction period, which is generally one to
three years.
Uninsured Risks
The Company is self-insured for health care, workers compensation and certain long-term disability costs of its employees, subject to stop loss
insurance, which limits exposure to large claims. The Company accrues its estimated health care costs in the period in which such costs are
incurred, including an estimate of incurred but not reported claims. Other risks are insured and carry deductible losses of varying amounts. Letters
of credit and a performance bond totaling $7,460,000 at September 27, 2009 are outstanding in support of the Company’s insurance program.
60
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Table of Contents
The Company’s accrued reserves for health care and workers compensation claims are based upon estimates of the remaining liability for
retained losses made by consulting actuaries. The amount of workers compensation reserve has been determined based upon historical patterns
of incurred and paid loss development factors from the insurance industry.
Discontinued Operations
In accordance with the provisions of FASB ASC Topic 360, Property, Land and Equipment, the operations and related losses on properties sold,
or identified as held for sale, have been presented as discontinued operations in the Consolidated Statements of Operations and Comprehensive
Income (Loss) for all years presented. Gains are recognized when realized. See Note 3.
2 ACQUISITIONS
All acquisitions are accounted for using the purchase method and, accordingly, the results of operations since the respective dates of acquisition
are included in the Consolidated Financial Statements.
In 2008, the Company purchased a specialty publication at a cost of $400,000 and a newspaper distribution business at a cost of $240,000 and
made final cash payments totaling $984,000 related to newspaper distribution business purchases in 2007.
In 2007, the Company purchased a minority interest in an online employment application from PowerOne Media, LLC (“PowerOne”), in which the
Company and MNI owned minority interests, at a cost of $118,000. In 2007, PowerOne was dissolved. In 2007, the Company purchased several
newspaper distribution businesses at a cost of $1,911,000 of which $984,000 was included in accounts payable at September 30, 2007. In 2007,
the Company also purchased a specialty publication at a cost of $20,000.
These acquisitions did not have a material effect on the Consolidated Financial Statements.
3 DISCONTINUED OPERATIONS
In 2008, the Company sold its daily newspaper in DeKalb, Illinois for $24,000,000, before income taxes. The transaction resulted in an after tax
gain of $219,000, which is recorded in discontinued operations in 2008. Results of DeKalb operations have been classified as discontinued
operations for all periods presented.
In 2007, the Company sold a weekly newspaper in Oregon for $250,000.
Results of discontinued operations consist of the following:
(Thousands)
Operating revenue
Income from discontinued operations
Gain (loss) on sale of discontinued operations, before income taxes
Income tax expense (benefit), net
2009
2008
2007
$ -
$ 1,376
$ 7,581
$
$
-
(8)
(3)
(5)
$
128
5,786
5,629
285
$
$
$
882
156
367
671
Income tax expense related to discontinued operations differs from the amounts computed by applying the U.S. federal income tax rate as follows:
Computed “expected” income tax expense (benefit)
State income taxes (benefit), net of federal income tax impact
Other, primarily goodwill basis differences
61
2009
2008
2007
(35.0)%
(3.0)
0.5
(37.5)%
35.0%
3.0
57.2
95.2%
35.0%
0.4
-
35.4%
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tax expense of $3,382,000 recorded in results of discontinued operations in 2008 is related to goodwill basis differences recognized as a result of
the sale of DeKalb operations.
4 INVESTMENTS IN ASSOCIATED COMPANIES
TNI Partners
In Tucson, Arizona, TNI, acting as agent for the Company’s subsidiary, Star Publishing Company (“Star Publishing”), and Citizen Publishing
Company (“Citizen”), a subsidiary of Gannett Co. Inc., is responsible for printing, delivery, advertising, and circulation of the Arizona Daily Star
and, until May 2009, the Tucson Citizen, as well as their related online operations and specialty publications. TNI collects all receipts and income
and pays substantially all operating expenses incident to the partnership’s operations and publication of the newspapers and other media.
Income or loss of TNI (before income taxes) is allocated equally to Star Publishing and Citizen.
In May 2009, Citizen discontinued print publication of the Tucson Citizen. The change resulted in workforce adjustments and other transitions
costs of approximately $1,925,000 in 2009, of which $1,093,000 was incurred directly by TNI.
Summarized financial information of TNI is as follows:
(Thousands)
ASSETS
Current assets
Investments and other assets
Total assets
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities
Members’ equity
Total liabilities and members’ equity
Summarized results of TNI are as follows:
(Thousands)
Operating revenue
Operating expenses, excluding depreciation and amortization
Company’s 50% share
Less amortization of intangible assets
Equity in earnings of TNI
September 27
2009
September 28
2008
$
$
$
$
6,772
19
6,791
5,431
1,360
6,791
$
$
$
$
12,516
19
12,535
7,032
5,503
12,535
2009
2008
2007
$ 74,407
66,535
7,872
$
$ 98,156
76,978
$ 21,178
$ 118,120
81,528
36,592
$
$
$
3,936
1,425
2,511
$ 10,589
4,418
6,171
$
$
$
18,296
6,339
11,957
Star Publishing’s 50% share of TNI depreciation and certain general and administrative expenses associated with its share of the operation and
administration of TNI are reported as operating expenses in the Company’s Consolidated Statements of Operations and Comprehensive Income
(Loss). These amounts totaled $1,184,000, $1,337,000, and $1,434,000, in 2009, 2008, and 2007, respectively. Fees for editorial services
provided to TNI by Star totaled $8,594,000, $9,298,000 and $8,541,000 in 2009, 2008 and 2007, respectively.
The Company’s impairment analysis resulted in pretax reductions in the carrying value of TNI totaling $19,951,000 and $104,478,000 in 2009 and
2008, respectively. See Note 6.
62
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Table of Contents
At September 27, 2009, the carrying value of the Company’s 50% investment in TNI is $33,941,000. The difference between the Company’s
carrying value and its 50% share of the members’ equity of TNI relates principally to goodwill of $19,876,000, and other identified intangible assets
of $13,791,000, certain of which are being amortized over their estimated useful lives through 2020. See Note 6.
In 2007, defined pension benefits for certain TNI employees were frozen at then current levels. As a result, TNI recognized a non-cash curtailment
gain of $2,074,000. See Note 9.
Annual amortization of intangible assets is estimated to be $1,215,000 in each year from 2010 through 2012, $1,113,000 in 2013 and $911,000 in
2014.
Madison Newspapers, Inc.
The Company has a 50% ownership interest in MNI, which publishes daily and Sunday newspapers, and other publications in Madison,
Wisconsin, and other Wisconsin locations, and operates their related online sites. Net income or loss of MNI (after income taxes) is allocated
equally to the Company and The Capital Times Company (“TCT”). MNI conducts its business under the trade name Capital Newspapers.
In 2008, one of MNI’s daily newspapers, The Capital Times, decreased print publication from six days per week to one day. The change resulted
in workforce adjustment and transition costs of $2,578,000 in 2008.
Summarized financial information of MNI is as follows:
(Thousands)
ASSETS
Current assets
Investments and other assets
Property and equipment, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities, excluding debt
Debt, including current maturities
Other liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Summarized results of MNI are as follows:
(Thousands)
Operating revenue
Operating expenses, excluding depreciation and amortization
Operating income
Net income
Company’s 50% share of net income
September 27
2009
September 28
2008
$
$
$
$
17,677
31,481
11,346
60,504
7,941
-
4,299
48,264
60,504
$
$
$
$
17,678
32,594
12,583
62,855
10,025
2,285
3,500
47,045
62,855
2009
2008
2007
$ 79,291
68,296
7,755
5,218
2,609
$
$ 100,352
84,345
11,949
8,080
4,040
$
$ 111,968
81,793
25,871
16,334
8,167
$
Fees for editorial, marketing and information technology services provided to MNI by the Company are included in other revenue in the
Consolidated Statements of Operations and Comprehensive Income (Loss) and totaled $10,151,000, $11,095,000, and $10,636,000, in 2009,
2008, and 2007, respectively.
63
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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain other information relating to the Company’s investment in MNI is as follows:
(Thousands)
Company’s share of:
Stockholders’ equity
Undistributed earnings
September 27
2009
September 28
2008
$
24,132
23,882
$
23,522
23,272
5 MARKETABLE SECURITIES AVAILABLE-FOR-SALE
Marketable securities, which are comprised of debt securities issued by the U.S. government and agencies, and which include certain of the
Company’s restricted cash and investments, are classified as available-for-sale securities at September 28, 2008, and consisted of the following:
(Thousands)
Amortized cost
Gross unrealized gains
Gross unrealized losses
Fair value
September 28
2008
$
$
118,347
899
(219)
119,027
In 2009, the Company sold its available for sale securities and used the proceeds primarily to reduce debt. See Note 7.
Proceeds from the sale of such securities total $166,109,000 in 2009, $87,873,000 in 2008, and $78,018,000 in 2007. The Company recognized
gross realized gains of $1,856,000 and gross unrealized losses of $46,000 in 2009. No significant gross realized gains or losses were realized in
2008 and 2007.
6 GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill related to continuing operations are as follows:
(Thousands)
Goodwill, beginning of year
Goodwill, related to redeemable minority interest (see Note 19)
Goodwill related to acquisitions
Goodwill impairment
Other
Goodwill, end of year
2009
2008
$ 627,023
-
-
(193,471)
-
$ 433,552
$ 1,505,460
55,594
(25,098)
(908,977)
44
627,023
$
In 2008, the Company recorded a reduction to goodwill totaling $25,098,000 to reflect a correction to the original 2005 purchase accounting of
Pulitzer. The adjustment also reduced deferred income taxes by $25,098,000. There is no impact on earnings or stockholders’ equity from such
adjustments.
64
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Table of Contents
Identified intangible assets related to continuing operations consist of the following:
(Thousands)
Nonamortized intangible assets:
Mastheads
Amortizable intangible assets:
Customer and newspaper subscriber lists
Less accumulated amortization
Noncompete and consulting agreements
Less accumulated amortization
September 27
2009
September 28
2008
$
44,754
$
59,869
885,713
327,133
558,580
28,658
28,644
14
$603,348
921,642
280,359
641,283
28,658
28,626
32
$701,184
Due primarily to the continuing, and (at the time) increasing difference between its stock price and the per share carrying value of its net assets,
the Company analyzed the carrying value of its net assets as of December 28, 2008 and again as of March 29, 2009. Deterioration in the
Company’s revenue and the overall recessionary operating environment for the Company and other publishing companies were also factors in the
timing of the analyses.
As a result, in 2009 the Company recorded pretax, non-cash charges to reduce the carrying value of goodwill by $193,471,000. The Company
also recorded pretax, non-cash charges of $14,055,000 and $33,848,000 to reduce the carrying value of nonamortized and amortizable intangible
assets, respectively. $19,951,000 of additional pretax charges were recorded as a reduction in the carrying value of the Company’s investment in
TNI. The Company also recorded additional, pretax non-cash charges of $4,579,000 to reduce the carrying value of property and equipment. The
Company recorded $64,319,000 of income tax benefit related to these charges.
For similar reasons, in 2008 the Company recorded pretax, non-cash charges to reduce the carrying value of goodwill by $908,977,000. The
Company also recorded pretax, non-cash charges of $13,027,000 and $143,785,000 to reduce the carrying value of nonamortized and
amortizable intangible assets, respectively. $104,478,000 of additional pretax charges were recorded as a reduction in the carrying value of the
Company’s investment in TNI. The Company also recorded additional, pretax non-cash charges of $5,019,000 to reduce the carrying value of
property and equipment. The Company recorded $281,564,000 of income tax benefit related to these charges.
Annual amortization of intangible assets for the five years ending September 2014 is estimated to be $45,210,000, $44,570,000, $42,717,000,
$39,140,000, and $39,022,000, respectively.
7 DEBT
Credit Agreement
In 2006, the Company entered into an amended and restated credit agreement (“Credit Agreement”) with a syndicate of financial institutions (the
“Lenders”). The Credit Agreement provided for aggregate borrowing of up to $1,435,000,000 and replaced a $1,550,000,000 credit agreement
consummated in 2005. In February 2009, the Company completed a comprehensive restructuring of the Credit Agreement, which supplemented
amendments consummated earlier in 2009 (together, the “2009 Amendments”).
Security
The Credit Agreement is fully and unconditionally guaranteed on a joint and several basis by substantially all of the Company’s existing and future,
direct and indirect subsidiaries in which the Company holds a direct or indirect interest of more than 50% (the “Credit Parties”); provided however,
that Pulitzer and its subsidiaries will not become Credit Parties for so long as their doing so would violate the terms of the
65
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pulitzer Notes discussed more fully below. The Credit Agreement is secured by first priority security interests in the stock and other equity
interests owned by the Credit Parties in their respective subsidiaries.
As a result of the 2009 Amendments, the Credit Parties pledged substantially all of their tangible and intangible assets, and granted mortgages
covering certain real estate, as collateral for the payment and performance of their obligations under the Credit Agreement. Assets of Pulitzer and
its subsidiaries, TNI, the Company’s ownership interest in, and assets of, MNI and certain employee benefit plan assets are excluded.
Interest Payments
Debt under the A Term Loan, which has a balance of $714,885,000 at September 27, 2009, and the $375,000,000 revolving credit facility which
has a balance of $275,450,000 at September 27, 2009, bear interest, at the Company’s option, at either a base rate or an adjusted Eurodollar rate
(“LIBOR”), plus an applicable margin. The base rate for the facility is the greater of (i) the prime lending rate of Deutsche Bank Trust Company
Americas at such time; (ii) 0.5% in excess of the overnight federal funds rate at such time; or (iii) 30 day LIBOR plus 1.0%. The applicable margin
is a percentage determined according to the following: For revolving loans and A Term Loans maintained as base rate loans: 1.625% to 3.5%, and
maintained as Eurodollar loans: 2.625% to 4.5% depending, in each instance, upon the Company’s leverage ratio at such time.
Minimum LIBOR levels of 1.25%, 2.0% and 2.5% for borrowings for one month, three month and six month periods, respectively, are also in effect.
At September 27, 2009, all of the Company’s outstanding debt under the Credit Agreement is based on one month borrowing. At the
September 27, 2009 leverage level, the Company’s debt under the Credit Agreement will be priced at a LIBOR margin of 400 basis points.
Under the 2009 Amendments, contingent, non-cash payment-in-kind interest expense of 1.0% to 2.0% will be accrued in a quarterly period only in
the event the Company’s leverage level exceeds 7.5:1 at the end of the previous quarter. At September 27, 2009, this provision is not applicable.
Such non-cash charges, if any, will be added to the principal amount of debt and will be reversed, in whole or in part, in the event the Company’s
total leverage ratio is below 6.0:1 in September 2011 or the Company refinances the Credit Agreement in advance of its April 2012 maturity.
Principal Payments
The Company may voluntarily prepay principal amounts outstanding or reduce commitments under the Credit Agreement at any time, in whole or
in part, without premium or penalty, upon proper notice and subject to certain limitations as to minimum amounts of prepayments. The Company is
required to repay principal amounts, on a quarterly basis until maturity, under the A Term Loan. Total A Term Loan payments in 2009 and 2008
were $104,490,000 and $62,250,000, respectively. The 2009 Amendments reduce the amount and delay the timing of mandatory principal
payments under the A Term Loan. Payments in 2010 and 2011 total $77,800,000 and $65,000,000, respectively. Payments in 2012 prior to the
April 2012 maturity total $70,000,000. The scheduled payment at maturity is $502,085,000, plus the balance of the revolving credit facility
outstanding at that time.
In addition to the scheduled payments, the Company is required to make mandatory prepayments under the A Term Loan under certain other
conditions. The Credit Agreement requires the Company to apply the net proceeds from asset sales to repayment of the A Term Loan.
Repayments in 2008 met required repayments related to its sales transactions. In 2009, the Company made a $440,000 payment related to this
provision.
The Credit Agreement also requires the Company to accelerate future payments under the A Term Loan in the amount of 75% of its excess cash
flow, as defined, beginning in 2008. The Company had no excess cash flow in 2009. The Company had excess cash flow of approximately
$62,000,000 in 2008 and, as a result, paid $46,325,000 originally due under the A Term Loan in March and June 2009. The acceleration of such
payments due to asset sales or excess cash flow does not change the due dates of other A Term Loan payments.
66
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Covenants and Other Matters
The Credit Agreement contains customary affirmative and negative covenants for financing of its type. At September 27, 2009, the Company was
in compliance with such covenants. These financial covenants include a maximum total leverage ratio, as defined. The total leverage ratio is
based primarily on the sum of the principal amount of debt, which equals $1,168,335,000 at September 27, 2009, plus letters of credit and certain
other factors, divided by a measure of trailing 12 month operating results, which includes several elements, including distributions from TNI and
MNI.
The 2009 Amendments amended the Company’s covenants to take into account economic conditions and the changes to amortization of debt
noted above. The Company’s total leverage ratio at September 27, 2009 was 6.49:1. Under the 2009 Amendments, the Company’s maximum total
leverage ratio limit will increase from 8.25:1 in September 2009 to 8.75:1 in December 2009, decrease to 8.5:1 in June 2010, decrease to 7.75:1 in
September 2010, decrease to 7.5:1 in December 2010, decrease to 7.25:1 in March 2011 and decrease to 7.0:1 in June 2011. Each change in the
leverage ratio limit noted above is effective on the last day of the quarter.
The Credit Agreement also includes a minimum interest expense coverage ratio, as defined. The Company’s interest expense coverage ratio at
September 27, 2009 was 2.22:1. The minimum interest expense coverage ratio is 1.6:1 in September 2009, will decrease thereafter to 1.4:1
through March 2010 and increase periodically thereafter until it reaches 2.25:1 in March 2012.
The 2009 Amendments require the Company to suspend stockholder dividends and share repurchases through April 2012. The 2009
Amendments also limit capital expenditures to $20,000,000 per year, with a provision for carryover of unused amounts from the prior year. Further,
the 2009 Amendments modify other covenants, including restricting the Company’s ability to make additional investments and acquisitions without
the consent of the Lenders, limiting additional debt beyond that permitted under the Credit Agreement, and limiting the amount of unrestricted cash
and cash equivalents the Credit Parties may hold to a maximum of $10,000,000 for a five day period. Such covenants require that substantially all
future cash flows of the Company are required to be directed toward debt reduction. Finally, the 2009 Amendments eliminated an unused
incremental term loan facility.
Pulitzer Notes
In conjunction with its formation in 2000, PD LLC borrowed $306,000,000 (the “Pulitzer Notes”) from a group of institutional lenders (the
“Noteholders”). The aggregate principal amount of the Pulitzer Notes was payable in April 2009.
In February 2009, the Pulitzer Notes and the Guaranty Agreement described below were amended (the “Notes Amendment”). Under the Notes
Amendment, PD LLC repaid $120,000,000 of the principal amount of the debt obligation using substantially all of its previously restricted cash,
which totaled $129,810,000 at December 28, 2008. The remaining debt balance of $186,000,000 was refinanced by the Noteholders until April
2012.
The Pulitzer Notes are guaranteed by Pulitzer pursuant to a Guaranty Agreement dated May 1, 2000 (the “Guaranty Agreement”) with the
Noteholders. The Notes Amendment provides that the obligations under the Pulitzer Notes are fully and unconditionally guaranteed on a joint and
several basis by Pulitzer’s existing and future subsidiaries (excluding Star Publishing and TNI). Also, as a result of the Notes Amendment, Pulitzer
and each of its subsidiaries pledged substantially all of its tangible and intangible assets, and granted mortgages covering certain real estate, as
collateral for the payment and performance of their obligations under the Pulitzer Notes. Assets and stock of Star Publishing, the Company’s
ownership interest in TNI and certain employee benefit plan assets are excluded.
The Notes Amendment increased the rate paid on the outstanding principal balance to 9.05% until April 28, 2010. The interest rate will increase by
0.5% per year thereafter.
67
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pulitzer may voluntarily prepay principal amounts outstanding or reduce commitments under the Pulitzer Notes at any time, in whole or in part,
without premium or penalty, upon proper notice and subject to certain limitations as to minimum amounts of prepayments. The Notes Amendment
provides for mandatory scheduled prepayments, including quarterly principal payments of $4,000,000 beginning on June 29, 2009 and an
additional principal payment from restricted cash, if any, of up to $4,500,000 in October 2010. In 2009, the $4,000,000 payments due on June 29,
2009 and September 30, 2009 were made prior to the end of the previous fiscal quarter.
The Notes Amendment establishes a reserve of restricted cash of up to $9,000,000 (reducing to $4,500,000 in October 2010) to facilitate the
liquidity of the operations of Pulitzer. All other previously existing restricted cash requirements were eliminated. The Notes Amendment allocates a
percentage of Pulitzer’s quarterly excess cash flow (as defined) between Pulitzer and the Credit Parties and requires prepayments to the
Noteholders under certain specified events. There was no excess cash flow in 2009.
The Pulitzer Notes contain certain covenants and conditions including the maintenance, by Pulitzer, of the ratio of debt to EBITDA, as defined in
the Guaranty Agreement, minimum net worth and limitations on the incurrence of other debt. The Notes Amendment added a requirement to
maintain minimum interest coverage, as defined. The Notes Amendment amended the Pulitzer Notes and the Guaranty Agreement covenants to
take into account economic conditions and the changes to amortization of debt noted above. At September 27, 2009, Pulitzer was in compliance
with such covenants.
Further, the Notes Amendment added and amended other covenants including limitations or restrictions on additional debt, distributions, loans,
advances, investments, acquisitions, dispositions and mergers. Such covenants require that substantially all future cash flows of Pulitzer are
required to be directed first toward repayment of the Pulitzer Notes and that cash flows of Pulitzer are largely segregated from those of the Credit
Parties.
The Credit Agreement contains a cross-default provision tied to the terms of the Pulitzer Notes and the Pulitzer Notes have limited cross-default
provisions tied to the terms of the Credit Agreement.
The 2005 purchase price allocation of Pulitzer resulted in an increase in the value of the Pulitzer Notes in the amount of $31,512,000, which was
recorded as debt in the Consolidated Balance Sheets. At September 27, 2009, the unaccreted balance totals $1,458,000. This amount is being
accreted over the remaining life of the Pulitzer Notes, until April 2012, as a reduction in interest expense using the interest method. This accretion
will not increase the principal amount due, or reduce the amount of interest to be paid, to the Noteholders.
Liquidity
The Company expects to utilize a portion of its capacity under its revolving credit facility to fund part of 2010 principal payments required under the
Credit Agreement. At September 27, 2009, the Company had $275,450,000 outstanding under the revolving credit facility, and after consideration
of the 2009 Amendments and letters of credit, has approximately $83,000,000 available for future use. Including cash and restricted cash, the
Company’s liquidity at September 27, 2009 totals $99,900,000. This liquidity amount excludes any future cash flows. Mandatory principal
payments on debt in 2010 total $89,800,000. The Company expects all 2010 interest payments and a substantial amount of principal payments
due in 2010 will be satisfied by the Company’s continuing cash flows.
The Company’s ability to operate as a going concern is dependent on its ability to remain in compliance with debt covenants and to refinance or
amend its debt agreements as they become due, or earlier if available liquidity is consumed. The Company is in compliance with its debt
covenants at September 27, 2009.
There are numerous potential consequences under the Credit Agreement, and Guaranty Agreement and Note Agreement related to the Pulitzer
Notes, if an Event of Default occurs and is not remedied. Many of those consequences are beyond the control of the Company, Pulitzer, and PD
LLC, respectively. The occurrence of one or more Events of Default would give rise to the right of the Lenders or the
68
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Noteholders, or both of them, to exercise their remedies under the Credit Agreement and the Note and Guaranty Agreements, respectively,
including, without limitation, the right to accelerate all outstanding debt and take actions authorized in such circumstances under applicable
collateral security documents.
The 2010 Redemption, as discussed more fully in Note 19, eliminated the potential requirement for a substantial cash outflow in April 2010. This
event also substantially enhanced the Company’s liquidity.
Other
The Company paid fees to the Lenders and Noteholders for the 2009 Amendments and Notes Amendment which, along with the related legal and
financial advisory expenses, totaled $26,061,000. $15,500,000 of the fees were capitalized and are being expensed over the remaining term of the
Credit Agreement and Pulitzer Notes, until April 2012. At September 27, 2009, the Company has total unamortized financing costs of $19,576,000.
Debt consists of the following:
(Thousands)
Credit Agreement:
A Term Loan
Revolving credit facility
Pulitzer Notes:
Principal amount
Unaccreted fair value adjustment
Less current maturities
Balance
September 27
2009
September 28
2008
Interest Rate
September 27
2009
$
$
714,885
275,450
178,000
1,458
1,169,793
89,800
1,079,993
$
$
819,375
207,000
306,000
5,265
1,337,640
1,337,640
-
5.25%
5.25
9.05
At September 27, 2009, the Company’s weighted average cost of debt (including the effect of interest rate swaps and collars) was 6.66%.
Aggregate maturities of debt in 2010, 2011 and 2012 are $89,800,000, $81,000,000, and $997,535,000, respectively.
The Company has classified in the September 27, 2009 Consolidated Balance Sheet all amounts outstanding under the Credit Agreement and
Pulitzer Notes based on their scheduled maturity dates, as determined under the 2009 Amendments and the Notes Amendment, respectively.
Balances as of September 28, 2008 have not been reclassified.
8 INTEREST RATE EXCHANGE AGREEMENTS
At September 27, 2009, the Company had outstanding interest rate swaps in the notional amount of $125,000,000. The interest rate swaps had
original terms of four or five years, carried interest rates from 4.3% to 4.4% (plus the applicable LIBOR margin) and effectively fixed the
Company’s interest rate on debt in the amounts, and for the time periods, of such instruments.
In 2008, the Company executed interest rate collars in the notional amount of $150,000,000. The collars had a two year term and limited LIBOR to
an average floor of 3.57% and a cap of 5.0%. Such collars effectively limited the range of the Company’s exposure to interest rates to LIBOR
greater than the floor and less than the cap (in either case plus the applicable LIBOR margin) for the time period of such instruments.
At September 27, 2009 and September 28, 2008, the Company recorded a liability of $3,445,000 and $3,337,000, respectively, related to the fair
value of such instruments. In 2008 the change in this fair
69
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value was recorded in other comprehensive income, net of income taxes. In 2009, the Company marked all interest rate change agreements to
market, which resulted in recognition of interest expense of $268,000.
At September 27, 2009, after consideration of the interest rate swaps described above, approximately 74% of the principal amount of the
Company’s debt was subject to floating interest rates. The interest rate collars described above limited the Company’s exposure to interest rates
on an additional 13% or the principal amount of its debt.
The Company’s interest rate exchange agreements at September 27, 2009 consisted of the following:
(Thousands)
Notional Amount
VARIABLE TO FIXED RATE SWAPS
$ 50,000
50,000
25,000
$125,000
COLLARS
$ 75,000
75,000
$150,000
Start Date
Maturity Date
Rate(s)
Fair Value
November 30, 2005
November 30, 2005
November 30, 2005
November 30, 2009
November 30, 2009
November 30, 2010
4.315%
4.325
4.395
November 30, 2007
November 30, 2007
November 30, 2009
November 30, 2009
3.53-5.00%
3.61-5.00
$
$
$
$
(514)
(501)
(1,177)
(2,192)
(618)
(635)
(1,253)
In November 2009, the Company terminated the $25,000,000 interest rate swap maturing in November 2010. The Company paid $1,243,000 to
the counterparty in settlement and recognized a loss of $713,000.
As of November 30, 2009, the full amount of the outstanding balance under the Credit Agreement is subject to floating interest rates as all interest
rate swaps and collars expired or were terminated at or prior to that date.
9 PENSION PLANS
The Company and its subsidiaries have several noncontributory defined benefit pension plans that together cover a significant number of St. Louis
Post-Dispatch and selected other employees. Benefits under the plans are generally based on salary and years of service. The Company’s liability
and related expense for benefits under the plans are recorded over the service period of active employees based upon annual actuarial
calculations. Plan funding strategies are influenced by tax regulations. Plan assets consist primarily of domestic and foreign corporate equity
securities, government and corporate bonds, and cash.
Effective September 30, 2007, the Company adopted the recognition and disclosure provisions of ASC Topic 715, Retirement Plans. FASB ASC
Topic 715 requires the recognition of the over-funded or under-funded status of a defined benefit plan as an asset or liability in its balance sheet
and recognition of the changes in that funded status in the year in which the changes occur as a component of other comprehensive
income. Adoption of the recognition and disclosure provisions of ASC Topic 715 resulted in an increase in assets and decrease in liabilities in the
aggregate amounts of $9,591,000, and $32,649,000, respectively, and an increase in stockholders’ equity of $26,944,000, net of the related
income tax effect.
For 2009, the Company used a September 27 measurement date for all of its pension obligations in accordance with FASB ASC Topic 715. In
2008 and 2007, the Company used a June 30 measurement date. The change in the measurement date resulted in a decrease to the pension
liability of $260,000, an increase of $591,000 to retained earnings and a decrease of $331,000 to other comprehensive income.
70
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
The cost components of the Company’s pension plans are as follows:
(Thousands)
2009
2008
2007
Service cost for benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of net gain
Amortization of prior service cost
Curtailment gains
Early retirement program benefits (see Note 19)
Net periodic pension benefit
$
$
1,076
9,550
(11,669)
(1,181)
(137)
-
-
(2,361)
$
$
1,501
9,333
(13,743)
(1,697)
(132)
-
-
(4,738)
$
1,909
9,172
(12,827)
(1,355)
(93)
(3,865)
3,869
$ (3,190)
Net periodic pension benefit of $122,000, $238,000, and $2,136,000, is allocated to TNI in 2009, 2008, and 2007, respectively.
Changes in benefit obligations and plan assets are as follows:
(Thousands)
2009
2008
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Adjustment for FASB ASC Topic 715
Change in plan provisions
Benefit obligation, end of year
Fair value of plan assets, beginning of year:
Actual return on plan assets
Benefits paid
Administrative expenses paid
Employer contributions
Adjustment for FASB ASC Topic 715
Fair value of plan assets at measurement date
Funded status – benefit obligation greater (less) than plan assets
Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:
(Thousands)
Other non-current assets
Pension obligations
Accumulated other comprehensive income (loss) (before income taxes)
Amounts recognized in accumulated other comprehensive income are as follows:
(Thousands)
Unrecognized net actuarial gain (loss)
Unrecognized prior service benefit
71
$ 147,424
1,076
9,550
21,676
(14,504)
2,658
-
167,880
151,801
(13,692)
(14,504)
(2,345)
-
2,917
124,177
43,703
$
$ 167,838
1,501
9,333
(20,853)
(10,345)
-
(50)
147,424
177,179
(13,738)
(10,345)
(1,425)
130
-
151,801
(4,377)
September 27
2009
September 28
2008
$
-
43,703
(18,621)
$
4,941
564
32,408
September 27
2009
September 28
2008
$
$
(19,958)
1,337
(18,621)
$
$
30,901
1,507
32,408
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company expects to recognize $453,000 and $137,000 of unrecognized net actuarial loss and unrecognized prior service benefit,
respectively, in net periodic pension cost in 2010.
The accumulated benefit obligation for the plans total $165,070,000 at September 27, 2009, and $144,937,000 at September 28, 2008. The
projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets are $167,880,000, $165,070,000, and $124,177,000, respectively, at September 27, 2009.
Assumptions
Weighted-average assumptions used to determine benefit obligations are as follows:
Discount rate
Rate of compensation increase
Weighted-average assumptions used to determine net periodic benefit cost are as follows:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
September 27
2009
September 28
2008
5.5%
3.5
6.75%
3.5
2009
2008
2007
6.75%
8.0
3.5
5.75%
8.0
4.0
5.75%
8.0
4.0
The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns and
current market conditions.
Plan Assets
The weighted-average asset allocation of the Company’s pension assets is as follows:
Asset Class
Equity securities
Debt securities and cash
Actual Allocation
September 27
September 28
Policy Allocation
2009
65 to 70%
30 to 35
71%
29
2008
68%
32
An investment policy outlines the governance structure for decision making, sets investment objectives and restrictions, and establishes criteria for
selecting and evaluating investment managers. The use of derivatives is strictly prohibited, except on a case-by-case basis where the manager
has a proven capability, and only to hedge quantifiable risks such as exposure to foreign currencies. An investment committee, consisting of
Company executives and supported by independent consultants, is responsible for monitoring compliance with the investment policy. Assets are
periodically redistributed to maintain the appropriate policy allocation.
The pension trust holds no Company securities, directly or through separate accounts.
Cash Flows
Based on its forecast at September 27, 2009, the Company does not expect to make contributions to its pension trust in 2010.
72
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
The Company anticipates future benefit payments, which reflect future service, to be paid from the pension trust as follows:
(Thousands)
2010
2011
2012
2013
2014
2015-2019
2007 Curtailment
$ 11,161
10,897
10,912
10,986
11,049
56,053
In 2007, defined pension benefits for certain of the Company’s employees were frozen at then current levels. As a result, the Company recognized
a non-cash curtailment gain of $1,791,000 and also recognized the Company’s 50% share of the $2,074,000 non-cash curtailment gain
recognized by TNI. See Note 4.
Other Plans
The Company is obligated under an unfunded plan to provide fixed retirement payments to certain former employees. The plan is frozen and no
additional benefits are being accrued. The accrued liability under the plan is $2,617,000 and $2,634,000 at September 27, 2009 and
September 28, 2008, respectively.
Certain of the Company’s employees participate in multi-employer retirement plans sponsored by their respective bargaining units. The amount
charged to operating expense, representing the Company’s required contributions to these plans, is approximately $529,000 in 2009, $2,230,000
in 2008, and $597,000 in 2007.
10 POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company provides retiree medical and life insurance benefits under postretirement plans at several of its operating locations. The level and
adjustment of participant contributions vary depending on the specific plan. In addition, PD LLC provides postemployment disability benefits to
certain employee groups prior to retirement at the St. Louis Post-Dispatch. The Company’s liability and related expense for benefits under the
postretirement plans are recorded over the service period of active employees based upon annual actuarial calculations. The Company accrues
postemployment disability benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid.
Effective September 30, 2007 the Company adopted the recognition and disclosure provisions of FASB ASC Topic 715, Retirement Plans. FASB
ASC Topic 715 requires the Company to recognize the over-funded or under-funded status of a defined benefit postretirement plan as an asset or
liability in its balance sheet and recognition of the changes in that funded status in the year in which the changes occur as a component of other
comprehensive income. Adoption of the recognition and disclosure provisions of FASB ASC Topic 715 resulted in a decrease in liabilities in the
aggregate amount of $23,540,000, and an increase in stockholders’ equity of $13,968,000, net of the related income tax effect.
For 2009, the Company used a September 27 measurement date for all of its postretirement obligations in accordance with FASB ASC Topic 715.
In 2008 and 2007, the Company used a June 30 measurement date. The change in the measurement date resulted in an increase to the benefit
obligation liability of $1,430,000, a decrease of $858,000 to retained earnings and a decrease of $572,000 to other comprehensive income.
73
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The net periodic postretirement benefit cost components for the Company’s postretirement plans are as follows:
(Thousands)
Service cost for benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of net gain
Amortization of prior service cost
Curtailment gain
Change in early retirement program benefits
Net periodic postretirement benefit cost (benefit)
Changes in benefit obligations and plan assets are as follows:
2009
2008
2007
$
770
5,022
(2,409)
(2,760)
(2,197)
-
-
$ (1,574)
$ 2,100
6,610
(2,194)
(633)
(233)
-
-
$ 5,650
$ 2,099
6,932
(2,189)
(101)
(175)
(1,940)
386
$ 5,012
(Thousands)
2009
2008
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial gain
Benefits paid, net of premiums received
Change in plan provisions
Medicare Part D subsidies
Adjustment for FASB ASC Topic 715
Benefit obligation, end of year
Fair value of plan assets, beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Adjustment for FASB ASC Topic 715
Fair value of plan assets at measurement date
Funded status – benefit obligation in excess of plan assets
Funding changes made after measurement date
Net liability recognized in the Consolidated Balance Sheets
Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:
(Thousands)
Current portion of benefit obligation
Postretirement benefit obligations
Accumulated other comprehensive income (before income tax benefit)
Amounts recognized in accumulated other comprehensive income are as follows:
(Thousands)
Unrecognized net actuarial gain
Unrecognized prior service benefit
74
$ 103,145
770
5,022
(2,788)
(7,078)
(20,673)
517
2,032
80,947
44,786
719
1,507
(6,560)
601
41,053
39,894
-
39,894
$
$ 118,278
2,100
6,610
(18,156)
(6,079)
-
392
-
103,145
44,885
3,076
2,513
(5,688)
-
44,786
58,359
1,122
59,481
$
September 27
2009
$ 2,640
37,254
57,954
September 28
2008
$ 4,260
55,221
41,712
September 27
2009
September 28
2008
$36,917
21,037
$57,954
$39,093
2,619
$41,712
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
The Company expects to recognize $2,217,000 and $2,530,000 of unrecognized net actuarial gain and unrecognized prior service benefit,
respectively, in net periodic postretirement benefit cost in 2010.
Assumptions
Weighted-average assumptions used to determine benefit obligations are as follows:
Discount rate
Expected long-term return on plan assets
September 27
2009
September 28
2008
5.50%
5.75
6.75%
5.75
The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns and
current market conditions.
Weighted-average assumptions used to determine net periodic benefit cost are as follows:
Discount rate
Expected long-term return on plan assets
Assumed health care cost trend rates are as follows:
2009
2008
2007
5.50%
5.75
5.75%
5.0
5.75%
5.0
September 27
2009
September 28
2008
Health care cost trend rates
Rates to which the cost trend rate is assumed to decline (the “Ultimate Trend
Rates”)
Year in which the rate reaches the Ultimate Trend Rates
9.0%
5.0
2013
8.0%
4.5-5.0
2011
Administrative costs related to indemnity plans are assumed to increase at the health care cost trend rates noted above.
Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement health care plans. A one percentage
point change in assumed health care cost trend rates would have the following annualized effects on reported amounts for 2009:
(Thousands)
Effect on net periodic postretirement benefit cost
Effect on postretirement benefit obligation
One Percentage
Point
Increase
Decrease
$
485
7,543
$
(440)
(6,669)
Plan Assets
The weighted-average asset allocation of the Company’s postretirement fund at September 27, 2009 and September 28, 2008, is as follows:
Asset Class
Equity securities
Debt securities and cash
Policy Allocation
Actual Allocation
September 27
September 28
0-5%
95-100
75
2009
3%
97
2008
- %
100
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An investment policy outlines the governance structure for decision making, sets investment objectives and restrictions, and establishes criteria for
selecting and evaluating investment managers. The use of derivatives is strictly prohibited, except on a case-by-case basis where the manager
has a proven capability, and only to hedge quantifiable risks such as exposure to foreign currencies. An investment committee, consisting of
Company executives and supported by independent consultants, is responsible for monitoring compliance with the investment policy. In 2009, the
investment policy allocation was revised to allow equity investments.
The postretirement fund holds no Company securities, directly or through separate accounts.
Cash Flows
Based on its forecast at September 27, 2009, the Company expects to contribute $2,600,000 to its postretirement plans in 2010.
In December 2003 the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act
introduced a prescription drug benefit under Medicare (“Medicare Part D”) and a federal subsidy to sponsors of retiree health care benefit plans
(“Subsidy”) that provide a benefit that is at least actuarially equivalent (as that term is defined in the Act) to Medicare Part D. The Company
concluded that it qualifies for the Subsidy under the Act since the prescription drug benefits provided under the Company’s postretirement health
care plans generally require lower premiums from covered retirees and have lower deductibles than the benefits provided in Medicare Part D and,
accordingly, are actuarially equivalent to or better than, the benefits provided under the Act.
The Company anticipates future benefit payments, which reflect future services, to be paid either with future contributions to the plan or directly
from plan assets, as follows:
(Thousands)
2010
2011
2012
2013
2014
2015-2019
2010 Changes to Plans
Gross
Payments
$
6,100
6,260
6,360
6,370
6,330
30,840
Less
Medicare
Part D
Subsidy
$
(460)
(480)
(510)
(530)
(550)
(3,020)
Net
Payments
$
5,640
5,780
5,850
5,840
5,780
27,820
In December 2009, the Company notified certain participants in its postretirement medical plans of changes to be made to the plans, including
increases in employee premiums and elimination of coverage for certain participants. The changes are expected to reduce annual net periodic
postretirement medical cost beginning in 2010, and will reduce the benefit obligation by up to $30,000,000. The Company may also recognize
non-cash gains related to certain of the changes in 2010.
2009 Changes to Plans
In October and December 2008, the Company notified certain participants in its postretirement medical plans of administrative changes to be
made to the plans, effective in January 2009, including increases in employee premiums, changes in the plans’ reimbursement of medical
expenses covered by Medicare, elimination of certain coverage options and the establishment of an account-based structure. The changes
reduced the benefit obligation by $23,047,000, effective as of December 2008.
76
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
2007 Curtailment
In 2007, defined postretirement medical benefits for certain of the Company’s employees were modified. As a result, the Company recognized a
non-cash curtailment gain of $1,940,000.
Postemployment Plan
The Company’s postemployment benefit obligation, representing certain disability benefits at the St. Louis Post-Dispatch, is $3,433,000 at
September 27, 2009 and $3,547,000 at September 28, 2008.
11 OTHER RETIREMENT PLANS
Substantially all of the Company’s employees are eligible to participate in a qualified defined contribution retirement plan. The Company also has
other retirement and compensation plans for executives and others. Benefits under such plans were substantially reduced or eliminated in 2009.
Retirement and compensation plan costs, including interest on deferred compensation costs, charged to continuing operations are $6,702,000 in
2009, $24,325,000 in 2008, and $24,664,000 in 2007.
In conjunction with the acquisition of Pulitzer, an existing supplemental benefit retirement plan (“SERP”) was amended and converted into an
individual account plan. An account was established for each participant and was credited with an amount representing the present value of the
participant’s accrued benefit under the SERP, plus adjustments for certain individuals subject to existing transition agreements. Interest was
credited to each account at an annual rate of 5.75%. The SERP, as amended, was liquidated in 2008, at which time each participant received a
lump sum payment equal to the balance in his account. Retired participants continued to receive annuity payments until the liquidation of the
SERP. The final payment amount totaled $17,926,000.
12 COMMON STOCK, CLASS B COMMON STOCK, AND PREFERRED SHARE PURCHASE RIGHTS
Class B Common Stock has ten votes per share on all matters and generally votes as a class with Common Stock (which has one vote per share).
The transfer of Class B Common Stock is restricted. Class B Common Stock is at all times convertible into shares of Common Stock on a
share-for-share basis. Common Stock and Class B Common Stock have identical rights with respect to cash dividends and upon liquidation. All
outstanding Class B Common Stock converts to Common Stock when the shares of Class B Common Stock outstanding total less than 5,600,000
shares.
In 1998, the Board of Directors adopted a Shareholder Rights Plan (the “Plan”). Under the Plan, the Board of Directors declared a dividend of one
Preferred Share Purchase Right (“Right”) for each outstanding share of Common Stock and Class B Common Stock (collectively “Common
Shares”) of the Company. Rights are attached to, and automatically trade with, the Company’s Common Shares.
In 2008, the Board of Directors approved an amendment to the Plan. The amendment increased the beneficial ownership threshold to 25% from
20% for stockholders purchasing Common Stock for passive investment only and decreased the threshold to 15% for all other investors. In
addition, the amendment extended the expiration of the Plan to May 31, 2018 from May 31, 2008.
Rights become exercisable only in the event that any person or group of affiliated persons other than a passive investor becomes a holder of 15%
or more of the Company’s outstanding Common Shares, or commences a tender or exchange offer which, if consummated, would result in that
person or group of affiliated persons owning at least 15% of the Company’s outstanding Common Shares. Once the Rights become exercisable,
they entitle all other stockholders to purchase, by payment of a $150 exercise price, one one-thousandth of a share of Series A Participating
Preferred Stock, subject to adjustment, with a value of twice the exercise price. In addition, at any time after a 15% position is acquired and prior to
the acquisition of a 50% position, the Board of Directors may require, in whole or in part, each outstanding Right (other than Rights held by the
acquiring person or group of affiliated persons) to be exchanged for one share of Common Stock or one one-thousandth of a share of Series A
Preferred Stock. The Rights may be redeemed at a price of $0.001 per Right at any time prior to their expiration.
77
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13 STOCK OWNERSHIP PLANS
Total non-cash stock compensation expense is $3,013,000, $5,905,000, and $7,193,000, in 2009, 2008, and 2007, respectively.
Stock Options
The Company has reserved 1,898,259 shares of Common Stock for issuance to employees under an incentive and nonstatutory stock option and
restricted stock plan approved by stockholders. Options are granted at a price equal to the fair market value on the date of the grant and are
exercisable, upon vesting, over a ten year period.
A summary of stock option activity is as follows:
(Thousands of Shares)
Under option, beginning of year
Granted
Exercised
Canceled
Under option, end of year
Exercisable, end of year
Weighted average prices of stock options are as follows:
Granted
Exercised
Under option, end of year
2009
2008
2007
939
263 1,195
304
783 -
(1)
- -
(932)
(47)
263 1,195
(37)
1,009
191
171
749
2009
2008
2007
$
2.07
-
9.40
$ -
-
34.69
$ 28.72
21.50
35.61
The fair value of each grant is estimated at the grant date using the Black-Scholes option-pricing model. The table below outlines the weighted
average assumptions for options granted.
Dividend yield
Volatility
Risk-free interest rate
Expected life (years)
Estimated fair value
A summary of stock options outstanding at September 27, 2009 is as follows:
2009
2007
- %
105.0%
2.45%
4.7
1.57
$
2.5%
18.7%
4.5%
4.7
$ 5.16
Range of
Exercise
Prices
$ 1 to 25
25 to 30
30 to 35
35 to 40
40 to 45
45 to 50
Options Outstanding
Number
Outstanding
Weighted Average
Remaining Contractual
Life (Years)
Weighted
Average
Exercise Price
Options Exercisable
Number
Exercisable
Weighted
Average
Exercise Price
783,000
99,430
30,466
51,165
23,008
22,352
1,009,421
$
2.07
28.69
32.51
38.42
43.26
47.63
$9.40
9.9
6.3
2.8
4.6
3.5
4.4
8.8
78
-
64,455
30,466
51,165
23,008
22,352
191,446
$
-
28.68
32.51
38.42
43.26
47.63
$35.86
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Total unrecognized compensation expense for unvested stock options at September 27, 2009 is $1,182,000, which will be recognized over a
weighted average period of 2.8 years. In 2008, the Company canceled 852,000 outstanding stock options for certain of its key employees who
voluntarily tendered such options to the Company for cancellation and termination without consideration or promise of consideration for their
shares.
There were no exercises of stock options in 2009 or 2008. The exercise of stock options in 2007 resulted in cash proceeds of $28,000, and
income tax benefits of $3,000.
The intrinsic value of stock options exercised in 2007 is $7,000. The aggregate intrinsic value of options outstanding and exercisable at
September 27, 2009, is zero.
Restricted Common Stock
Restricted Common Stock is subject to an agreement requiring forfeiture by the employee in the event of termination of employment, generally
within three years of the grant date for reasons other than normal retirement, death or disability.
A summary of restricted Common Stock activity follows:
(Thousands of Shares)
Outstanding, beginning of year
Granted
Vested
Forfeited
Outstanding, end of year
Weighted average grant date fair values of restricted Common Stock are as follows:
Outstanding, beginning of year
Granted
Vested
Forfeited
Outstanding, end of year
2009
2008
2007
746
-
(114)
(179)
453
416
482
(112)
(40)
746
335
197
(106)
(10)
416
2009
2008
2007
$ 21.60
-
39.53
15.94
19.35
$ 36.60
15.02
46.66
27.95
21.60
$ 43.91
28.73
45.24
34.94
36.60
The fair value of restricted Common Stock vested in 2009, 2008, and 2007, is $171,000, $1,743,000, and $3,004,000, respectively.
Total unrecognized compensation expense for unvested restricted Common Stock as of September 27, 2009 is $2,033,000, which will be
recognized over a weighted average period of less than one year.
At September 27, 2009, 888,838 shares are available for granting of non-qualified stock options or issuance of restricted Common Stock.
Stock Purchase Plans
The Company has 270,000 shares of Common Stock available for issuance pursuant to the Company’s Employee Stock Purchase Plan (the
“ESPP”). In 2007, the purchase price provision of the ESPP was amended to 85% of the fair market value on the exercise date, beginning with the
2008 offering. The Company’s expense in 2008 and 2007 is based on the difference between the fair value of shares purchased and the purchase
price.
79
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2009, the ESPP was suspended. In 2008 and 2007, employees purchased 150,000 and 121,000 shares, respectively, under the ESPP at a
price of $6.60 in 2008 and $22.48 in 2007. The market value on the purchase date was $7.77 in 2008 and $26.18 in 2007.
The Company also has 8,700 shares of Common Stock available for issuance under the Company’s Supplemental Employee Stock Purchase
Plan (the “SPP”). Under the SPP, an offering period is each three-month calendar quarter, unless changed, and the last business day of each
calendar quarter is the exercise date for such quarterly offering period. The purchase price is 85% of the market price on the last business day of
each calendar quarter during the offering period.
In 2009, the SPP was suspended. Employees purchased 73,000, and 25,000 shares, respectively, at a weighted average price of $5.20 in 2008
and $19.47 in 2007 under the SPP. The weighted average market values on the purchase dates in 2008 and 2007 are $6.11, and $22.91
respectively.
14 INCOME TAXES
Income tax expense (benefit) consists of the following:
(Thousands)
Current:
Federal
State
Deferred
Continuing operations
Discontinued operations
2009
2008
2007
$
(3,573)
643
(79,582)
$ (82,512)
$ (82,509)
(3)
$ (82,512)
$
24,442
3,383
(264,829)
$ (237,004)
$ (242,633)
5,629
$ (237,004)
$ 36,623
3,881
(6,309)
$ 34,195
$ 33,828
367
$ 34,195
Income tax expense (benefit) related to continuing operations differs from the amounts computed by applying the U.S. federal income tax rate to
income (loss) before income taxes. The reasons for these differences are as follows:
Computed “expected” income tax expense (benefit)
State income taxes, net of federal tax benefit
Net income of associated companies taxed at dividend rates
Domestic production deduction
Resolution of tax matters
Impairment of goodwill and other assets
Valuation allowance
Other
2009
2008
2007
(35.0)%
(3.7)
(0.3)
-
-
12.2
(6.1)
1.5
(31.4)%
(35.0)%
(3.0)
(0.1)
(0.1)
(0.3)
14.9
2.3
(0.5)
(21.8)%
35.0%
3.0
(2.0)
(0.8)
(5.9)
-
-
0.1
29.4%
80
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Net deferred income tax liabilities consist of the following components:
(Thousands)
Deferred income tax liabilities:
Property and equipment
Investments in partnerships
Identified intangible assets
Deferred income tax assets:
Accrued compensation
Allowance for doubtful accounts and losses on loans
Pension and postretirement benefits
Long-term debt and interest rate exchange agreements
State operating loss carryforwards
Accrued expenses
Other
Valuation allowance
Net deferred income tax liabilities
Net deferred income tax liabilities are classified as follows:
(Thousands)
Current assets
Non-current liabilities
Net deferred income tax liabilities
September 27
2009
September 28
2008
$
(32,975)
(18,185)
(59,036)
(110,196)
7,458
1,682
3,950
(1,398)
18,205
6,747
3,893
40,537
(20,469)
(90,128)
$
$
$
(35,339)
(45,082)
(103,234)
(183,655)
11,737
1,668
(943)
(2,276)
13,266
5,774
3,258
32,484
(33,023)
(184,194)
September 27
2009
September 28
2008
$
$
3,638
(93,766)
(90,128)
$
$
3,675
(187,869)
(184,194)
The Company adopted the provisions of FASB ASC Topic 740, Income Taxes, as of October 1, 2007. As a result of the adoption of FASB ASC
Topic 740, the Company recognized a $1,733,000 increase in income taxes payable, which was accounted for as a reduction of retained earnings.
The Company also recognized a $196,000 purchase accounting-related decrease in income taxes payable, which was accounted for as a
decrease in goodwill.
A reconciliation of 2009 changes in gross unrecognized tax benefits is as follows:
(Thousands)
Balance, beginning of year
Increases in tax positions for prior years
Decreases in tax positions for prior years
Increases in tax positions for the current year
Lapse in statute of limitations
Settled items
Balance, end of year
2009
$ 12,815
299
(2,670)
1,331
(1,134)
(455)
$ 10,186
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $6,342,000 at September 27, 2009. The
Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. The amount of accrued
interest related to unrecognized tax benefits was, net of tax, $1,645,000 at September 27, 2009 and $1,152,000 at September 28, 2008. There
were no amounts provided for penalties at September 27, 2009.
81
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At September 27, 2009, the Company has approximately $560,218,000 of net operating loss carryforwards (“NOLs”) for state tax purposes that
expire between 2010 and 2029. Such NOLs result in a deferred income tax asset of $18,205,000 at September 27, 2009, of which $18,057,000 is
offset by a valuation allowance. The valuation allowance not related to NOLs is $2,412,000 at September 27, 2009 and $21,071,000 at
September 28, 2008.
Correction of an Error
The Company recorded a $30,019,000 increase in the valuation allowance for deferred tax assets in the 13 weeks ended September 28, 2008. In
the 13 weeks ended December 28, 2008, the Company determined that it had not considered the benefit of net operating loss carrybacks in its
determination of the 2008 valuation allowance for deferred tax assets. The correction of this error resulted in a decrease of $8,431,000 in the
valuation allowance included in net deferred income tax liabilities recorded as of September 28, 2008, a corresponding increase in income tax
benefit in the 13 weeks ended September 28, 2008, and a decrease in diluted loss per common share of $0.19. The Company determined that the
impact of this error on previously issued Consolidated Financial Statements is not material. The September 28, 2008 Consolidated Balance Sheet,
and the related Consolidated Statements of Operations and Comprehensive Income (Loss), Stockholders’ Equity and Cash Flows for 2008,
included herein, have been revised to reflect the corrected amounts.
15 FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company adopted FASB ASC Topic 820, Fair Value Measurements and Disclosures, in 2009. FASB ASC Topic 820 defines fair value,
establishes a framework for measuring fair value and expands disclosures about fair value measurements. FASB ASC Topic 820 establishes a
three-level hierarchy of fair value measurements based on whether the inputs to those measurements are observable or unobservable and
consists of the following levels:
•
•
•
Level 1 – Quoted prices for identical instruments in active markets;
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that
are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
The following table summarizes the financial instruments measured at fair value in the accompanying Consolidated Financial Statements as of
September 27, 2009:
(Thousands)
Level 2
Level 3
Total
Interest rate swaps and collars – liability
Herald Value – liability (see Note 19)
$ 3,445
-
$
-
2,300
$ 3,445
2,300
In 2009, the Company reduced the carrying value of property and equipment no longer in use by $4,579,000, based on estimates of the related
fair value in the current market.
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to
estimate value. The carrying amounts of cash equivalents, accounts receivable, and accounts payable approximate fair value because of the short
maturity of those instruments. The carrying value of other investments, consisting of debt and equity securities in a deferred compensation trust, is
carried at fair value based upon quoted market prices. Investments totaling $8,608,000, consisting primarily of the Company’s 17% ownership of
the nonvoting common stock of TCT, are carried at cost. The fair value of floating rate debt cannot be determined as an active market for such
debt does not exist. The Company’s fixed rate debt consists of the $178,000,000 principal amount of Pulitzer Notes, as discussed more fully in
Note 7, which is not traded on an active market and is held by a small group of Noteholders. Coupled with the volatility of substantially all
82
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
domestic credit markets that exists in the current recession, the Company is unable, as of September 27, 2009 and September 28, 2008, to
determine the fair value of such debt. The value, if determined, would likely be less than the carrying amount.
16 EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per common share:
(Thousands, Except Per Common Share Data)
2009
2008
2007
Income (loss) available to common stockholders:
Continuing operations
Discontinued operations
Weighted average Common Shares
Less non-vested restricted Common Stock
Basic average Common Shares
Dilutive restricted Common Stock
Diluted average Common Shares
Earnings (loss) per common share:
Basic:
Continuing operations
Discontinued operations
Diluted:
Continuing operations
Discontinued operations
$ (123,186)
(5)
$ (123,191)
$ (880,601)
285
$ (880,316)
$ 80,328
671
$ 80,999
44,952
(510)
44,442
-
44,442
45,478
(665)
44,813
-
44,813
46,088
(417)
45,671
133
45,804
$(2.77)
-
$ 2.77)
$(19.65)
0.01
$(19.64)
$(2.77)
-
$(2.77)
$(19.65)
0.01
$(19.64)
$1.76
0.01
$1.77
$1.75
0.01
$1.77
For 2009, 2008, and 2007, the Company had 314,000, 263,000, and 1,128,000 weighted average shares, respectively, subject to issuance under
its stock option and employee stock purchase plans that have no intrinsic value. No stock options were considered in the computation of earnings
(loss) per common share in 2009, 2008 or 2007.
17 ALLOWANCE FOR DOUBTFUL ACCOUNTS
Valuation and qualifying account information related to the allowance for doubtful accounts receivable is as follows:
(Thousands)
Balance, beginning of year
Additions charged to expense
Deductions from reserves
Balance, end of year
2009
2008
2007
$ 6,647
5,995
(6,367)
$ 6,275
$ 10,266
5,977
(9,596)
6,647
$
$ 11,247
5,727
(6,708)
$ 10,266
83
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18 OTHER INFORMATION
Compensation and other accrued liabilities consist of the following:
(Thousands)
Compensation
Retirement and stock purchase plans
Interest
Other
Cash payments are as follows:
(Thousands)
Interest
Debt financing costs
Income taxes, net of refunds
September 27
2009
September 28
2008
$
$
12,858
10,533
5,644
13,720
42,755
$
$
21,706
13,486
8,872
16,352
60,416
2009
$ 80,690
26,061
6,905
2008
$ 80,960
-
26,173
2007
$ 86,767
-
55,693
Components of accumulated other comprehensive income, net of deferred income taxes, are as follows:
(Thousands)
Unrealized loss on interest rate exchange agreements
Unrealized gain on available-for-sale securities
Pension and postretirement benefits
Total accumulated other comprehensive income
19 COMMITMENTS AND CONTINGENT LIABILITIES
Operating Leases
September 27
2009
September 28
2008
$
$
(1,446)
-
22,800
21,354
$
$
(2,069)
434
44,828
43,193
The Company has operating lease commitments for certain of its office, production, and distribution facilities. Management expects that in the
normal course of business, existing leases will be renewed or replaced. Minimum lease payments during the five years ending September 2014
and thereafter are $4,178,000, $3,651,000, $2,867,000, $2,177,000, $1,001,000, and $5,627,000, respectively. Total operating lease expense is
$5,029,000, $5,325,000, and $5,518,000, in 2009, 2008, and 2007, respectively.
Capital Expenditures
At September 27, 2009, the Company had construction and equipment purchase commitments totaling approximately $482,000.
St. Louis Post-Dispatch Early Retirement Programs
In 2007, the St. Louis Post-Dispatch concluded an offering of early retirement incentives that resulted in an adjustment of staffing levels. 60
employees volunteered to take advantage of the offer, which includes enhanced pension and insurance benefits, and lump-sum cash payments
based on continuous service. The initial cost totaled $10,704,000 before income tax benefit of which $7,962,000 was recorded as expense in
2007. The $2,742,000 remaining cost was offset against previously existing unrecognized gains in certain of the Company’s defined benefit plans.
Approximately $3,700,000 of the cost represents cash payments, with the remainder due primarily to enhancements of pension and other
postretirement benefits. Cash payments of $442,000 were made in 2007, and the remainder was paid in 2008.
84
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Redemption of PD LLC Minority Interest
In 2000, Pulitzer and The Herald Company Inc. (“Herald Inc.”) completed the transfer of their respective interests in the assets and operations of
the St. Louis Post-Dispatch and certain related businesses to a new joint venture, known as PD LLC. Pulitzer is the managing member of PD LLC.
Under the terms of the related Operating Agreement, Pulitzer and another subsidiary held a 95% interest in the results of operations of PD LLC
and The Herald Publishing Company, LLC (“Herald”), as successor to Herald Inc., held a 5% interest. Until February 2009, Herald’s 5% interest
was reported as minority interest in the Consolidated Statements of Operations and Comprehensive Income (Loss) at historical cost, plus
accumulated earnings since the acquisition of Pulitzer.
Also, under the terms of the Operating Agreement, Herald Inc. received on May 1, 2000 a cash distribution of $306,000,000 from PD LLC. This
distribution was financed by the Pulitzer Notes. Pulitzer’s investment in PD LLC was treated as a purchase for accounting purposes and a
leveraged partnership for income tax purposes.
The Operating Agreement provided Herald a one-time right to require PD LLC to redeem its interest in PD LLC, together with its interest, if any, in
DS LLC (the “2010 Redemption”). The 2010 Redemption price for Herald’s interest was to be determined pursuant to a formula. The Company
recorded the present value of the remaining amount of this potential liability in its Consolidated Balance Sheet in 2008, with the offset primarily to
goodwill in the amount of $55,594,000, and the remainder recorded as a reduction of retained earnings. In 2009 and 2008, the Company accrued
increases in the liability totaling $1,466,000 and $8,838,000, respectively, which increased net loss available to common stockholders. The
present value of the 2010 Redemption in February 2009, was approximately $73,602,000.
In February 2009, in conjunction with the Notes Amendment, PD LLC redeemed the 5% interest in PD LLC and DS LLC owned by Herald
pursuant to a Redemption Agreement and adopted conforming amendments to the Operating Agreement. As a result, the value of Herald’s former
interest (the “Herald Value”) will be settled, at a date determined by Herald between April 2013 and April 2015, based on a calculation of 10% of
the fair market value of PD LLC and DS LLC at the time of settlement, less the balance, as adjusted, of the Pulitzer Notes or the equivalent
successor debt, if any. The Company has recorded a liability of $2,300,000 at September 27, 2009 as an estimate of the amount of the Herald
Value to be disbursed. The actual amount of the Herald Value will depend on such variables as future cash flows and indebtedness of PD LLC
and DS LLC, market valuations of newspaper properties and the timing of the request for redemption.
The Redemption Agreement also terminated Herald’s right to exercise its rights under the 2010 Redemption. As a result, the Company reversed
substantially all of its liability for the 2010 Redemption in 2009. The reversal reduced liabilities by $71,302,000 and increased comprehensive
income by $58,521,000 and stockholders’ equity by $68,824,000.
The redemption of Herald’s interest in PD LLC and DS LLC is expected to generate significant tax benefits to the Company as a consequence of
the resulting increase in the tax basis of the assets owned by PD LLC and DS LLC and the related depreciation and amortization deductions. The
increase in basis to be amortized for income tax purposes over a 15 year period beginning in February 2009 is approximately $258,000,000.
Pursuant to an Indemnity Agreement dated May 1, 2000 (the “Indemnity Agreement”) between Herald Inc. and Pulitzer, Herald agreed to
indemnify Pulitzer for any payments that Pulitzer may make under the Guaranty Agreement. The Indemnity Agreement and related obligations of
Herald to indemnify Pulitzer were also terminated pursuant to the Redemption Agreement.
Stock Repurchase Program
In 2008, the Company announced its intention to acquire up to $30,000,000 of its Common Stock in open market and private transactions. In
2008, 1,722,280 shares were acquired and returned to authorized shares at an average price of $10.98.
85
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The 2009 Amendments to the Credit Agreement require the Company to suspend share repurchases through April 2012.
Income Taxes
Commitments exclude unrecognized tax benefits to be recorded in accordance with FASB ASC Topic 740, Income Taxes. The Company is unable
to reasonably estimate the ultimate amount or timing of cash settlements with the respective taxing authorities for such matters. See Note 14.
The Company files income tax returns with the IRS and various state tax jurisdictions. From time to time, the Company is subject to routine audits
by those agencies, and those audits may result in proposed adjustments. The Company has considered the alternative interpretations that may be
assumed by the various taxing agencies, believes its positions taken regarding its filings are valid, and that adequate tax liabilities have been
recorded to resolve such matters. However, the actual outcome cannot be determined with certainty and the difference could be material, either
positively or negatively, to the Consolidated Statements of Operations and Comprehensive Income (Loss) in the periods in which such matters are
ultimately determined. The Company does not believe the final resolution of such matters will be material to its consolidated financial position or
cash flows.
The IRS has completed its review of the Company’s income tax returns through 2004 and the tax returns of Pulitzer through 2005. The Company
has various state income tax examinations ongoing and at various stages of completion, but generally the state income tax returns have been
audited or closed to audit through 2005.
Legal Proceedings
The Company is involved in a variety of legal actions that arise in the normal course of business. Insurance coverage mitigates potential loss for
certain of these matters. While the Company is unable to predict the ultimate outcome of these legal actions, it is the opinion of management that
the disposition of these matters will not have a material adverse effect on the Company’s Consolidated Financial Statements, taken as a whole.
In 2008, a group of newspaper carriers filed suit against the Company in the United States District Court for the Southern District of California,
claiming to be employees and not independent contractors of the Company. The plaintiffs seek relief related to violation of various
employment-based statutes, and request punitive damages and attorneys’ fees. The suit is in the discovery stage and an initial decision by the
judge regarding class certification is expected in 2010. At this time the Company is unable to predict whether the ultimate economic outcome, if
any, could have a material effect on the Company’s Consolidated Financial Statements, taken as a whole. The Company denies the allegations of
employee status, consistent with past practices of the Company and the industry, and intends to vigorously contest the action, which is not
covered by insurance.
20 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 2008, the FASB issued ASC Topic 805, Business Combinations, and ASC Topic 810, Consolidations. FASB ASC Topic 805 establishes
requirements for how an acquirer in a business combination recognizes and measures the assets acquired, liabilities assumed, and any
noncontrolling interests. For the Company, the provisions of FASB ASC Topic 805 are effective for business combinations occurring in 2010.
FASB ASC Topic 810 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and
classified as a component of stockholders’ equity. FASB ASC Topic 810 is effective for the Company in 2010. The effect of FASB ASC Topic 805
is dependent on future transactions. The effect of FASB ASC Topic 810 will not materially affect the Company’s Consolidated Financial
Statements.
In 2008, the FASB issued ASC Topic 815, Derivatives and Hedging. FASB ASC Topic 815 requires disclosure regarding the objectives and
strategies for using derivative instruments and the credit-risk-related features. ASC Topic 815 also requires disclosure of the fair value amounts
and the gains and loses on derivative instruments in tabular form. ASC Topic 815 is effective for the Company in 2010.
86
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
21 QUARTERLY FINANCIAL DATA (UNAUDITED)
(Thousands, Except Per Common Share Data)
December
March
June
September
Quarter Ended
2009
Operating revenue
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Income (loss) available to common stockholders
Earnings (loss) per common share:
Basic:
Income from continuing operations
Discontinued operations
Diluted:
Income from continuing operations
Discontinued operations
2008
Operating revenue
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Income (loss) available to common stockholders
Earnings (loss) per common share:
Basic:
Income from continuing operations
Discontinued operations
Diluted:
Income from continuing operations
Discontinued operations
243,555
$
198,844
$ 203,805
(47,633)
(5)
(47,638)
$ (109,851)
-
$ (109,851)
$ (24,512)
-
$ (24,512)
(48,677)
$
(51,757)
$ (24,512)
(1.10)
-
(1.10)
(1.10)
-
(1.10)
$
$
$
$
(1.16)
-
(1.16)
(1.16)
-
(1.16)
$
$
$
$
(0.55)
-
(0.55)
(0.55)
-
(0.55)
279,856
$
247,725
$ 256,394
21,788
338
22,126
$ (705,553)
(1)
$ (705,554)
22,126
$ (713,037)
0.48
0.01
0.48
0.48
0.01
0.48
$
$
$
$
(15.90)
-
(15.90)
(15.90)
-
(15.90)
$
$
$
$
$
$
$
3,539
(52)
3,487
2,832
0.07
-
0.06
0.06
-
0.06
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
195,826
1,755
-
1,755
1,755
0.04
-
0.04
0.04
-
0.04
244,893
(191,537)
-
(191,537)
(192,237)
(4.34)
-
(4.34)
(4.34)
-
(4.34)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
87
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
Results of operations for the first, second and third quarters of 2009 include non-cash impairment charges, net of deferred income taxes of
$54,321,000, $114,739,000 and $27,946,000, respectively.
Results of operations for the second, third and fourth quarters of 2008 include non-cash impairment charges, net of deferred income taxes, of
$708,587,000, $8,605,000, and $176,530,000, respectively. Income taxes for the fourth quarter of 2008 include additional income tax expense of
$21,071,000 related to an increase in the valuation allowance for deferred tax assets. See Note 14.
88
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Lee Enterprises, Incorporated:
We have audited the accompanying consolidated balance sheets of Lee Enterprises, Incorporated and subsidiaries (the Company) as of
September 27, 2009 and September 28, 2008, and the related consolidated statements of operations and comprehensive income (loss),
stockholders’ equity and cash flows for the 52-week periods then ended. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not
audit the consolidated financial statements of Madison Newspapers, Inc. and Subsidiary (MNI), (a 50 percent owned investee company) as of
September 27, 2009 and for the 52-week period then ended. The Company’s investment in MNI at September 27, 2009, was $24,131,000, and its
equity in earnings of MNI was $2,609,000 for the 52-week period then ended. The consolidated financial statements of MNI for this period were
audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for MNI as of and
for the 52-week period ended September 27, 2009, is based solely on the report of the other auditors.
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 and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Lee Enterprises, Incorporated as of September 27, 2009 and September 28, 2008, and the results of
their operations and their cash flows for the 52-week periods then ended in conformity with U.S. generally accepted accounting principles.
As discussed in Notes 9 and 10 to the consolidated financial statements, effective September 27, 2009, the Company changed the measurement
date of its pension and postretirement obligations to the date of the fiscal year-end balance sheet in accordance with ASC Topic 715, Retirement
Plans. As discussed in Note 14 to the consolidated financial statements, effective October 1, 2007, the Company changed its method of
accounting for uncertain tax positions in accordance with ASC Topic 740, Income Taxes.
/s/ KPMG LLP
Chicago, Illinois
December 11, 2009
89
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders
Lee Enterprises, Incorporated and subsidiaries
Davenport, Iowa
We have audited, before the effects of the retrospective adjustments for the discontinued operations discussed in Note 3 to the consolidated
financial statements, the Consolidated Statements of Operations and Comprehensive Income (Loss), Stockholders’ Equity, and Cash Flows for
the year ended September 30, 2007 of Lee Enterprises, Incorporated and subsidiaries (the “Company”) (the 2007 consolidated financial
statements before the effects of the retrospective adjustments discussed in Note 3 to the consolidated financial statements are not presented
herein). 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 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 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 audit provides a reasonable basis for our opinion.
In our opinion, such 2007 consolidated financial statements, before the effects of the retrospective adjustments for the discontinued operations
discussed in Note 3 to the consolidated financial statements, present fairly, in all material respects, the results of operations and cash flows of Lee
Enterprises, Incorporated and subsidiaries for the year ended September 30, 2007, in conformity with accounting principles generally accepted in
the United States of America.
We were not engaged to audit, review, or apply any procedures to the retrospective adjustments for the discontinued operations discussed in Note
3 to the consolidated financial statements and, accordingly, we do not express an opinion or any other form of assurance about whether such
retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.
As discussed in Notes 9 and 10 to the consolidated financial statements, the Company adopted ASC Topic 715, Retirement Plans, which changed
its method of accounting for pension and other post retirement benefits as of September 30, 2007.
Davenport, Iowa
November 29, 2007
90
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
LEE ENTERPRISES, INCORPORATED
AND SUBSIDIARIES
SUBSIDIARIES AND ASSOCIATED COMPANIES
EXHIBIT 21
State of
Percentage of Voting
Organization
Securities Owned
Lee Enterprises, Incorporated
Lee Publications, Inc.
Accudata, Inc.
INN Partners, L.C. d/b/a TownNews.com
Lee Procurement Solutions Co.
Sioux City Newspapers, Inc.
Journal-Star Printing Co.
K. Falls Basin Publishing, Inc.
Lee Consolidated Holdings Co.
Madison Newspapers, Inc. d/b/a Capital Newspapers
Flagstaff Publishing Co.
Hanford Sentinel, Inc.
Kauai Publishing Co.
Napa Valley Publishing Co.
NIPC, Inc.
Northern Lakes Publishing Co.
Pantagraph Publishing Co.
Pulitzer Inc.
Pulitzer Missouri Newspapers, Inc.
Pulitzer Newspapers, Inc.
Lee Foundation
Pulitzer Technologies, Inc.
Pulitzer Utah Newspapers, Inc.
Santa Maria Times, Inc.
Southwestern Oregon Publishing Co.
Star Publishing Company
Ynez Corporation
Fairgrove LLC
Homechoice, LLC
HSTAR LLC
NLPC LLC
NVPC LLC
Pulitzer Network Systems LLC
SHTP LLC
SOPC LLC
St. Louis Post-Dispatch LLC
STL Distribution Services LLC
Suburban Journals of Greater St. Louis LLC
TNI Partners
Community Distribution Partners, LLC
Delaware
Delaware
Iowa
Iowa
Iowa
Iowa
Nebraska
Oregon
South Dakota
Wisconsin
Washington
Washington
Delaware
Washington
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Iowa
Delaware
Delaware
Nevada
Oregon
Arizona
California
Delaware
Utah
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Arizona
Montana
Parent
100%
100%
82.5%
100%
100%
100%
100%
100%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
50%
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
The Board of Directors
Lee Enterprises, Incorporated
We consent to the incorporation by reference in the Registration Statements (No. 333-06435, No. 333-105219, No. 333-132767, No. 333-132768
and Post-Effective Amendment No. 1 to 333-132768) on Form S-8 of Lee Enterprises, Incorporated (the Company) of our report dated
December 11, 2009, with respect to the consolidated balance sheets of Lee Enterprises, Incorporated and subsidiaries as of September 27, 2009
and September 28, 2008, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash
flows for the 52-week periods then ended, which report appears in the September 27, 2009 annual report on Form 10-K of Lee Enterprises,
Incorporated.
Our report states that effective September 27, 2009, the Company changed the measurement date of its pension and postretirement obligations to
the date of the fiscal year-end balance sheet in accordance with ASC Topic 715, Retirement Plans, and effective October 1, 2007, changed its
method of accounting for uncertain tax positions in accordance with ASC Topic 740, Income Taxes.
/s/ KPMG LLP
Chicago, Illinois
December 11, 2009
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.2
We consent to the incorporation by reference in Registration Statements No. 333-06435, No. 333-105219, No. 333-132767, No. 333-132768 and
Post-Effective Amendment No. 1 to 333-132768 on Form S-8 of our report dated November 29, 2007, relating to the consolidated financial
statements of Lee Enterprises, Incorporated and subsidiaries for the year ended September 30, 2007 (before retrospective adjustments to the
2007 consolidated financial statements (not presented herein)) (which report expresses an unqualified opinion and includes an explanatory
paragraph regarding the adoption of ASC Topic 715, Retirement Plans, appearing in this Annual Report on Form 10-K of Lee Enterprises,
Incorporated and subsidiaries for the year ended September 27, 2009.
/S/ DELOITTE & TOUCHE LLP
Davenport, Iowa
December 11, 2009
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.3
We consent to the incorporation by reference in Registration Statements No 333-06435, No. 333-105219, No. 333-132767, No. 333-132768 and
Post-Effective Amendment No. 1 to 333-132768 on Form S-8 of Lee Enterprises, Incorporated and Subsidiaries of our report dated November 6,
2009, relating to our audit of the consolidated financial statements of Madison Newspapers, Inc. and Subsidiary, which appears in this Annual
Report on Form 10-K for the year ended September 27, 2009.
/s/ McGladrey & Pullen LLP
Madison, Wisconsin
December 11, 2009
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
EXHIBIT 23.4
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Madison Newspapers, Inc.
Madison, Wisconsin
We have audited the accompanying consolidated balance sheet of Madison Newspapers, Inc. and Subsidiary as of September 27, 2009, and the
related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended. 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 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 the financial statements are free of material
misstatement. An audit includes consideration of internal controls over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Madison
Newspapers, Inc. and Subsidiary as of September 27, 2009, and the results of their operations and their cash flows for the year then ended in
conformity with U.S. generally accepted accounting principles.
/s/ McGladrey & Pullen LLP
Madison, Wisconsin
November 6, 2009
McGladrey & Pullen, LLP is a member firm of RSM International,
an affiliation of separate and independent legal entities.
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
POWER OF ATTORNEY
EXHIBIT 24
We, the undersigned directors of Lee Enterprises, Incorporated, hereby severally constitute Mary E. Junck and Carl G. Schmidt, and each of them,
our true and lawful attorneys with full power to them, and each of them, to sign for us and in our names, in the capacities indicated below, the
Annual Report on Form 10-K of Lee Enterprises, Incorporated for the fiscal year ended September 27, 2009 to be filed herewith and any
amendments to said Annual Report, and generally do all such things in our name and behalf in our capacities as directors to enable Lee
Enterprises, Incorporated to comply with the provisions of the Securities Exchange Act of 1934 as amended, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or either of them, to said
Annual Report on Form 10-K and any and all amendments thereto.
Signature
Date
December 11, 2009
December 11, 2009
December 11, 2009
December 11, 2009
December 11, 2009
December 11, 2009
December 11, 2009
December 11, 2009
December 11, 2009
/s/ Richard R. Cole
Richard R. Cole, Director
/s/ Nancy S. Donovan
Nancy S. Donovan, Director
/s/ Leonard J. Elmore
Leonard J. Elmore, Director
/s/ William E. Mayer
William E. Mayer, Director
/s/ Herbert W. Moloney III
Herbert W. Moloney III, Director
/s/ Andrew E. Newman
Andrew E. Newman, Director
/s/ Gordon D. Prichett
Gordon D. Prichett, Director
/s/ Gregory P. Schermer
Gregory P. Schermer, Director
/s/ Mark Vittert
Mark Vittert, Director
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
I, Mary E. Junck, certify that:
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
EXHIBIT 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K (Annual Report) of Lee Enterprises, Incorporated (Registrant);
Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this Annual Report;
Based on my knowledge, the Consolidated Financial Statements, and other financial information included in this Annual Report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods
presented in this Annual Report;
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the Registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this Annual Report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, 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;
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Annual Report our
conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this Annual
Report based on such evaluation; and
disclosed in this Annual Report any change in the Registrant’s internal control over financial reporting that occurred during the
Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the Registrant’s auditors and the Audit Committee of Registrant’s Board of Directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s
internal control over financial reporting.
Date: December 11, 2009
/s/ Mary E. Junck
Mary E. Junck
Chairman, President and Chief Executive
Officer
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
I, Carl G. Schmidt, certify that:
CERTIFICATION OF CHIEF FINANCIAL OFFICER
EXHIBIT 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K (Annual Report) of Lee Enterprises, Incorporated (Registrant);
Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this Annual Report;
Based on my knowledge, the Consolidated Financial Statements, and other financial information included in this Annual Report, fairly
present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods
presented in this Annual Report;
The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)
and 15d-15(f)) for the Registrant and have:
a)
b)
c)
d)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this Annual Report is being prepared;
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, 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;
evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Annual Report our
conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this Annual
Report based on such evaluation; and
disclosed in this Annual Report any change in the Registrant’s internal control over financial reporting that occurred during the
Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.
The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the Registrant’s auditors and the Audit Committee of Registrant’s Board of Directors (or persons performing the equivalent functions):
a)
b)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s
internal control over financial reporting.
Date: December 11, 2009
/s/ Carl G. Schmidt
Carl G. Schmidt
Vice President, Chief Financial Officer
and Treasurer
Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009
The following statement is being furnished to the Securities and Exchange Commission solely for purposes of Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350), which carries with it certain criminal penalties in the event of a knowing or willful misrepresentation.
EXHIBIT 32
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
RE: Lee Enterprises, Incorporated
Ladies and Gentlemen:
In accordance with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), each of the undersigned hereby certifies
that to our knowledge:
(i)
(ii)
this annual report on Form 10-K for the period ended September 27, 2009 (Annual Report), fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
the information contained in this Annual Report fairly presents, in all material respects, the financial condition and results of operations of
Lee Enterprises, Incorporated for the periods presented in the Annual Report.
Dated as of this 11 th day of December 2009.
/s/ Mary E. Junck
Mary E. Junck
Chairman, President and
Chief Executive Officer
/s/ Carl G. Schmidt
Carl G. Schmidt
Vice President, Chief Financial Officer
and Treasurer
A signed original of this written statement required by Section 906 has been provided to Lee Enterprises, Incorporated and will be retained by Lee
Enterprises, Incorporated and furnished to the Securities and Exchange Commission upon request.
_______________________________________________
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Source: LEE ENTERPRISES, INC, 10-K, December 11, 2009