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 26, 2010
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 whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12
months (or such shorter period that the Registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [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 [X] Non-accelerated filer (Do not check if a smaller reporting company) [ ] 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 28, 2010: approximately $141,794,000. 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, 2010. Common Stock,
$2 par value, 39,332,296 shares and Class B Common Stock, $2 par value, 5,618,075 shares.
Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement to be filed in January 2011 are incorporated by reference in
Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
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
(Removed and Reserved)
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
Item 15
Exhibits and Financial Statement Schedules
Part IV
Signatures
Exhibit Index
Consolidated Financial Statements
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40
44
References to “we”, “our”, “us” and the like throughout this document refer to Lee Enterprises, Incorporated (the
"Company").
References to 2010, 2009, 2008 and the like mean the fiscal years ended the last Sunday in September.
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 our 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 our control, are
our ability to generate cash flows and maintain liquidity sufficient to service our debt, and comply with or obtain
amendments or waivers of the financial covenants contained in our 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 our 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. We do not undertake to publicly update
or revise our forward-looking statements.
PART I
We experienced significant net losses in 2009 and 2008, due primarily to non-cash charges for impairment of goodwill
and other assets. 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.
ITEM 1. BUSINESS
We are 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 digital products and nearly 300 weekly newspapers and
specialty publications in 23 states.
The Company was founded in 1890, incorporated in 1950, and listed on the New York Stock Exchange (“NYSE”) in
1978. Until 2001, we also operated a number of network-affiliated and satellite television stations. We have acquired
and divested a number of businesses since 2001. The most significant of these transactions is discussed more fully
below.
PULITZER ACQUISITION
In 2005, we 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 Partners (“TNI”), as discussed more
fully below. The acquisition of Pulitzer increased our paid circulation by more than 50% and revenue by more than
60% at that time. The acquisition was financed primarily with debt.
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 supports its related digital products. 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 support the related digital products,
as well as publish approximately 75 weekly newspapers, shoppers and niche publications that serve markets in the
Midwest, Southwest and West. In 2006, we sold the assets of The Daily News in Rhinelander, Wisconsin, the smallest
of these newspapers. In 2008, we sold the assets of The Daily Chronicle in DeKalb, Illinois.
1
TNI Partners
As a result of the acquisition of Pulitzer, we own a 50% interest in TNI, the Tucson, Arizona newspaper partnership.
TNI, acting as agent for our 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 digital products 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. Under the amended and restated operating agreement
between Star Publishing and Citizen, 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 (“Agency 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 Agency Agreement expires in 2015, but contains an option, which may be exercised by
either party, to renew the agreement for successive periods of 25 years each. Star Publishing and Citizen also have
a reciprocal right of first refusal to acquire the 50% interest in TNI owned by Citizen and Star Publishing, respectively,
under certain circumstances.
MADISON NEWSPAPERS
We own 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 supports
their related digital products. MNI conducts business under the trade name Capital Newspapers. We have a contract
to furnish the editorial and news content for the Wisconsin State Journal, which is published by MNI, and periodically
provide 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.
ADVERTISING
Approximately 72% of our 2010 revenue was derived from advertising. Our strategies are to increase our share of
local advertising through increased sales activities in our existing markets and, over time, to increase our print and
digital audiences through internal expansion into existing and contiguous markets and enhancement of digital products.
Our advertising results have historically benchmarked favorably to national averages, as compiled by the Newspaper
Association of America (“NAA”).
Several of our 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 and/or production of the publications. Sales
penetration can improve if the sales effort is successful in cross-selling advertising into multiple publications and digital.
A table under the caption “Daily Newspapers and Markets” in Item 1, included herein, identifies those groups of our
newspapers operating in clusters.
Our newspapers, classified and specialty publications, and digital products 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 digital 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 our daily and Sunday newspapers compete with other local daily
or weekly newspapers. We estimate we capture a substantial share of the total advertising dollars spent in each of
2
our markets.
The number of competitors in any given market varies. However, all of the forms of competition noted above exist to
some degree in our markets, including those listed in the table under the caption “Daily Newspapers and Markets” in
Item 1, included herein.
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.
Digital advertising consists of display, banner, behavioral targeting, search, rich media, directories, classified
or other advertising on websites or mobile devices associated and integrated with our print publications,
other digital applications, 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.
Our many geographic markets have differences in their advertising rate structures, some of which are highly complex.
A single operation has scores of rate alternatives.
The advertising environment is influenced by the state of the overall economy, including unemployment rates, inflation,
energy prices and consumer interest rates. Our 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.
DIGITAL ADVERTISING AND SERVICES
Our digital activities include websites supporting each of our daily newspapers and certain of our other publications.
Certain of our website content is also available through output to mobile devices, including telephones and tablet
devices. In addition, we also support a number of discrete mobile applications, such as for high school, college and
professional sports. Digital activities of the newspapers are reported and managed as a part of our publishing operations.
In 2007, in conjunction with several other major publishing organizations (“Consortium”), we 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. The HotJobs platform
was acquired in August 2010 by Monster Worldwide, Inc., which has assumed the relationship with the Consortium
under the original Yahoo! contract. In addition, the Consortium and Yahoo! have worked together to provide new
behavioral targeting, search, content and local applications across the newspapers' digital products, further enhancing
the value of these sites as a destination for digital users. The Consortium currently includes more than 30 companies
and approximately 800 local newspapers across the United States.
We also own 82.5% of an Internet service company, INN Partners, L.C. (doing business as TownNews.com), which
provides digital infrastructure and digital publishing services for more than 1,500 daily and weekly newspapers and
shoppers, including those of the Company.
Our digital businesses again experienced rapid growth in the second half of 2010 after recession-related declines in
2009 and 2008. Digital advertising represented 9.3% of total advertising revenue in the 13 weeks ended September
26, 2010.
3
AUDIENCES
Based on independent research, we estimate that, in an average week, our newspapers and digital products reach
approximately 82% of adults in our larger markets. Scarborough Research from 2009 estimates the St. Louis Post-
Dispatch has the 3rd largest integrated print and digital audience among the top 25 most populated U.S. markets.
Readership by young adults is also significant in our larger markets, as summarized in the table below. We are reaching
an increasingly larger share of the markets through the combination of stable newspaper readership and rapid digital
audience growth, as illustrated in the table below, as well as through additional specialty and niche publications. In
2010, for the first time, we measured use of our daily newspapers by non-readers ("print users").
Audience reach is summarized as follows:
(Percent, Past Seven Days)
2007
2008
2009
2010
2007
2008
2009
2010
All Adults
Age 18-29
Print users (1)
Print only readers
Print and digital readers
Digital only readers
Total reach
Total print reach (1)
Total digital reach
NA
48
13
5
66
61
18
NA
49
16
6
71
65
22
NA
45
16
7
68
61
23
16
43
15
8
82
74
24
NA
35
14
6
55
49
20
NA
38
18
9
65
56
27
NA
38
15
8
61
53
23
23
31
13
9
77
68
22
(1)
Print users not measured prior to 2010. As a result, print reach in 2010 is not comparable to prior periods presented.
Source:
Lee Enterprises Audience Report, Thoroughbred Research. January - June 2007, 2008, 2009 and 2010.
Markets:
Margin of Error:
St. Louis, MO, Madison, WI, Escondido, CA, Northwest Indiana, Lincoln, NE, Davenport, IA, Billings, MT, Bloomington,
IL, Sioux City, IA, Waterloo, IA
Total sample +/- 1.1%, Total digital sample +/- 1.3%
After advertising, print circulation is our largest source of revenue. We generally have not charged for digital access
to our content. According to Editor and Publisher International Yearbook data as reported by the NAA, nationwide daily
newspaper circulation unit sales peaked in 1984 and Sunday circulation unit sales peaked in 1990. For the six months
ended September 2010, our daily circulation, which includes TNI and MNI, as measured by the Audit Bureau of
Circulations (“ABC”) declined 3.9%, and Sunday circulation declined 4.9%. The industry experienced declines of 4.9%
daily and 4.4% Sunday.
Growth in print and digital audiences which reached more than 520 million page views and almost 49 million unique
visitors in the 13 weeks ended September 26, 2010, can, over time, also positively impact advertising revenue. Our
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 our products. Customer service can also influence print circulation. In 2010, the introduction of new
mobile and tablet applications positively impacted our digital audiences.
Our 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 our senior management. 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.
Our circulation sales channels continue to evolve through an emphasis on targeted direct mail and email to acquire
new subscribers and retain current subscribers.
4
DAILY NEWSPAPERS AND MARKETS
The Company, TNI and MNI publish the following daily newspapers and maintain the following primary digital sites:
Newspaper
Primary Website
Location
Daily (2)
Sunday
Paid Circulation (1)
stltoday.com
azstarnet.com
St. Louis, MO
Tucson, AZ
207,145
90,604
St. Louis Post-Dispatch
Arizona Daily Star (3)
Capital Newspapers (4)
Wisconsin State Journal
Daily Citizen
Portage Daily Register
Baraboo News Republic
The Times
madison.com
wiscnews.com/bdc
wiscnews.com/pdr
wiscnews.com/bnr
nwitimes.com
Madison, WI
Beaver Dam, WI
Portage, WI
Baraboo, WI
Munster,
Valparaiso, and
Crown Point, IN
Escondido and
Temecula, CA
North County Times and the Californian
nctimes.com
Lincoln Group
Lincoln Journal Star
Columbus Telegram
Fremont Tribune
Beatrice Daily Sun
Quad-Cities Group
Quad-City Times
Muscatine Journal
The Pantagraph
The Courier
Billings Gazette
Sioux City Journal
The Daily Herald
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 Journal Times
Missoula Group
Missoulian
Ravalli Republic
The Southern Illinoisan
The Bismarck Tribune
journalstar.com
columbustelegram.com
fremonttribune.com
beatricedailysun.com
Lincoln, NE
Columbus, NE
Fremont, NE
Beatrice, NE
qctimes.com
muscatinejournal.com
pantagraph.com
wcfcourier.com
billingsgazette.com
siouxcityjournal.com
heraldextra.com
herald-review.com
jg-tc.com
jg-tc.com
poststar.com
Davenport, IA
Muscatine, IA
Bloomington, IL
Waterloo and
Cedar Falls, IA
Billings, MT
Sioux City, IA
Provo, UT
Decatur, IL
Mattoon, IL
Charleston, IL
Glens Falls, NY
lacrossetribune.com
winonadailynews.com
chippewa.com
La Crosse, WI
Winona, MN
Chippewa Falls,
WI
journaltimes.com
Racine, WI
missoulian.com
ravallinews.com
thesouthern.com
bismarcktribune.com
Missoula, MT
Hamilton, MT
Carbondale, IL
Bismarck, ND
5
365,589
130,241
121,947
—
—
—
91,978
87,950
8,859
4,328
3,821
83,877
69,991
71,290
67,137
8,075
7,352
5,508
47,166
5,939
39,019
38,870
38,660
35,639
28,916
28,453
8,247
5,052
26,798
26,581
9,467
5,589
26,373
26,206
4,794
25,981
25,490
(7)
(7)
(7)
(5)
(7)
(7)
(8)
72,939
9,054
—
—
62,321
—
42,906
46,543
45,743
37,948
41,701
43,439
—
—
30,257
35,387
10,248
5,700
29,023
29,460
—
32,218
28,722
Newspaper
Primary Website
Location
Daily (2)
Sunday
Paid Circulation (1)
Rapid City Journal
Casper Star-Tribune
The Daily News
Magic Valley Group
The Times-News
Elko Daily Free Press
Central Coast Newspapers
Santa Maria Times
The Lompoc Record
Mid-Valley News Group
Albany Democrat-Herald
Corvallis Gazette-Times
Globe Gazette
Napa Valley Register
The Times and Democrat
Independent Record
The Sentinel
The Montana Standard
Arizona Daily Sun
The World
The Sentinel
The Garden Island
The Citizen
The Ledger Independent
Daily Journal
rapidcityjournal.com
Rapid City, SD
trib.com
tdn.com
Casper, WY
Longview, WA
magicvalley.com
Twin Falls, ID
elkodaily.com
Elko, NV
25,185
24,121
20,152
(7)
19,431
5,792
(7)
(8)
santamariatimes.com
lompocrecord.com
Santa Maria, CA
Lompoc, CA
16,351
4,136
democratherald.com
gazettetimes.com
globegazette.com
napavalleyregister.com
thetandd.com
helenair.com
cumberlink.com
mtstandard.com
azdailysun.com
theworldlink.com
hanfordsentinel.com
kauaiworld.com
auburnpub.com
maysville-online.com
dailyjournalonline.com
Albany, OR
Corvallis, OR
Mason City, IA
Napa, CA
Orangeburg, SC
Helena, MT
Carlisle, PA
Butte, MT
Flagstaff, AZ
Coos Bay, OR
Hanford, CA
Lihue, HI
Auburn, NY
Maysville, KY
Park Hills, MO
14,999
10,284
14,864
13,992
13,395
13,292
12,780
12,556
10,392
10,260
9,575
9,122
8,903
7,004
6,478
1,380,951
(6)
(7)
(7)
(7)
(7)
(7)
(7)
(7)
(7)
(7)
30,139
26,012
20,078
21,059
—
14,686
4,173
15,581
10,413
19,389
13,805
14,182
14,067
14,129
12,710
10,803
—
—
8,762
11,033
—
6,886
1,652,561
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Source: ABC: Six months ended September 2010, unless otherwise noted.
Daily amounts are Monday - Friday average, unless otherwise noted.
Owned by Star Publishing but published through TNI.
Owned by MNI.
Daily amounts are Monday - Thursday average and Saturday.
Daily amounts are Tuesday - Friday average.
Daily amounts are Monday - Saturday average.
Source: Company statistics.
NEWSPRINT
The basic raw material of newspapers, and classified and specialty publications, is newsprint. We purchase newsprint
from U.S. and Canadian producers. We believe we will continue to receive a supply of newsprint adequate for our
needs and consider our 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 2009 and September 2010, the Resource Information Systems Incorporated
("RISI") 30-pound index rose 43.4% in the eastern United States and 40.2% in the west. Price fluctuations can have
a significant effect on our results of operations. We have 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.
6
EXECUTIVE TEAM
The following table lists our executive team members as of November 30, 2010:
Name
Age
Mary E. Junck
Joyce L. Dehli
Paul M. Farrell
Suzanna M. Frank
Karen J. Guest
Michael R. Gulledge
Daniel K. Hayes
Brian E. Kardell
Vytenis P. Kuraitis
Kevin D. Mowbray
Gregory P. Schermer
Carl G. Schmidt
Greg R. Veon
63
52
54
40
57
50
65
47
62
48
56
54
58
Service
With The
Company
Named
To Current
Position
June 1999
January 2002
Current Position
Chairman, President and Chief
Executive Officer
August 1987
February 2006
Vice President - News
May 2007
May 2007
Vice President - Sales &
Marketing
December 2003
March 2008
Vice President - Audience
July 2006
July 2006
Vice President - Law and Chief
Legal Officer
October 1982
May 2005
Vice President - Publishing
September 1969
September 2005
January 1991
August 2003
August 1994
January 1997
Vice President - Corporate
Communications
Vice President - Production and
Chief Information Officer
Vice President - Human
Resources
September 1986
November 2004
Vice President - Publishing
February 1989
November 1997
Vice President - Interactive Media
May 2001
May 2001
Vice President, Chief Financial
Officer and Treasurer
April 1976
November 1999
Vice President - Publishing
Mary E. Junck was elected Chairman, President and Chief Executive Officer in 2002.
Joyce L. Dehli was appointed Vice President - News in February 2006. From April 2005 to February 2006, she served
as Director of Editorial Development.
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.
Suzanna M. Frank was appointed Vice President - Audience in March 2008. From 2003 to March 2008 she served as
Director of Research and Marketing.
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.
Daniel K. Hayes was appointed Vice President - Corporate Communications in September 2005.
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.
7
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. Since 2007, he has also
served as a Vice President - Publishing.
Greg R. Veon was elected a Vice President - Publishing in 1999.
EMPLOYEES
At September 26, 2010, we had approximately 6,815 employees, including approximately 1,745 part-time employees,
exclusive of TNI and MNI. Full-time equivalent employees at September 26, 2010 totaled approximately 6,098. We
consider our relationships with our employees to be good.
Bargaining unit employees represent 593 or 71%, 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 2015. New contracts were
reached with various units in the last several years: the St. Louis Newspaper Guild/CWA Local 36047 ("St. Louis
Newspaper Guild") (240 employees) was signed in 2010 and expires in 2015; Miscellaneous Drivers, Helpers, and
Health Care and Public Employee's Local Union 610 (10 dock employees) was signed in 2011 and expires in 2014;
the CWA Local 6300, Print and Media Sector (5 typographical employees) was signed in 2009 and expires in 2012;
the Graphic Communications Conference/IBT Local 38N (75 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; and the Communication Workers of America AFL-CIO Local 14620 (248
mailers) was signed in 2004 and expires in 2011.
Approximately 68 employees in six additional locations are represented by collective bargaining units. Contracts at
two of these locations have expired and negotiations are ongoing.
In 2009, employees of selected departments of The Pantagraph, in an election conducted by the National Labor
Relations Board, overwhelmingly rejected an organization attempt by the St. Louis Newspaper Guild.
CORPORATE GOVERNANCE AND PUBLIC INFORMATION
We have a long, substantial history of sound corporate governance practices. The Board of Directors has a lead
independent director, and has had one for many years. Currently, nine of eleven 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 our 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 ("SEC") filings, financial statistics, annual reports, investor presentations, governance documents,
newspaper profiles and digital links. We make available via our 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.
ITEM 1A. RISK FACTORS
Risk exists that our past results may not be indicative of future results. A discussion of our risk factors follows. See
also, “Forward-Looking Statements”, included herein. In addition, a number of other factors (those identified elsewhere
in this document) may cause actual results to differ materially from expectations.
DEBT AND LIQUIDITY
We May Have Insufficient Earnings Or Liquidity To Meet Our Future Debt Obligations
We have a substantial amount of debt, as discussed more fully (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, we completed a comprehensive restructuring of our Credit Agreement and a refinancing of
our Pulitzer Notes debt, substantially enhancing our liquidity and operating flexibility until April 2012.
8
At September 26, 2010, we had $285,425,000 outstanding under the revolving credit facility, and after consideration
of the 2009 Amendments and letters of credit, have approximately $75,677,000 available for future use. Including cash
and restricted cash, our liquidity at September 26, 2010 totals $104,722,000. This liquidity amount excludes any future
cash flows. Mandatory principal payments on debt in 2011 total $81,500,000. Since February 2009, we have satisfied
all interest payments and substantially all principal payments due under our debt facilities with our cash flows. We
expect all interest and principal payments due in 2011 will be satisfied by our continuing cash flows, which will allow
us to maintain, or increase, the current level of liquidity.
Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and
to refinance or amend our debt agreements as they become due, or earlier if available liquidity is consumed. We are
in compliance with our debt covenants at September 26, 2010.
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, as defined, occurs and is not remedied. Many of those
consequences are beyond our control and the control of 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.
Since November 30, 2009, the full amount of the outstanding balance under the Credit Agreement has been 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 our financing arrangements.
ECONOMIC CONDITIONS
General Economic Conditions May Continue To Impact Our Revenue And Operating Results
According to the National Bureau of Economic Research, the United States economy was in a recession from December
2007 until June 2009. It is widely believed that certain elements of the economy, such as housing, auto sales and
employment, were in decline before December 2007, and have still not recovered to pre-recession levels. 2010, 2009
and 2008 revenue, operating results and cash flows were significantly impacted by the recession. The duration and
depth of an economic recession, and pace of economic recovery, in markets in which we operate may influence our
future results.
OPERATING REVENUE
Our Revenue May Not Return To Historical Levels
A significant portion of our revenue is derived from advertising. The demand for advertising is sensitive to the overall
level of economic activity, both locally and nationally.
Operating revenue in most categories decreased in 2010, 2009 and 2008 and may decrease in the future. Such
decreases may not be offset by growth in advertising in other categories, such as digital revenue which, until 2008,
had been rising significantly and began to rise again in 2010. 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. Web sites and applications for mobile devices
distributing news and other content continue to gain popularity. As a result, audience attention and advertising spending
are shifting and may continue to shift from traditional media to digital media. We expect that advertisers will allocate
greater portions of their future budgets to digital media, which can offer more measurable returns than traditional print
media through pay for performance and keyword-targeted advertising. To the extent that advertisers shift advertising
expenditures to other media outlets, including those on the Internet, the profitability of our business may continue to
be impacted.
The rates we charge for advertising are, in part, related to the size of the audience of our publications and digital
products. There is significant competition for readers and viewers from other media. Our 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 our outlets for such information.
9
Retail Advertising
including major
Many advertisers,
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. Our 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
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 digital, declined as
unemployment increased. This trend began to reverse in 2010.
In 2010, 2009 and 2008, 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 2010, 2009 and 2008, due to industry-wide issues affecting
certain domestic auto manufacturers and the overall decline in economic conditions leading to the last recession.
See Item 1, “Advertising”, included herein, for additional information on the risks associated with advertising revenue.
Circulation
Though our overall audience is growing and our circulation unit results have historically benchmarked favorably to
national averages, as compiled by the ABC, circulation unit sales have nonetheless been declining fractionally for
several years. The possibility exists that future circulation price increases may be difficult to accomplish as a result of
future declines in circulation unit sales, and that price decreases may be necessary to retain or grow circulation unit
volume. We are reaching increasingly larger audiences through stable newspaper readership and rapid digital audience
growth. Nonetheless, declines in circulation unit sales could also adversely impact advertising revenue.
In addition, as audience attention increasingly focuses on digital media, circulation of our newspapers may be adversely
affected, which may decrease circulation revenue and exacerbate declines in print advertising. If we are not successful
in growing our digital businesses to offset declines in revenues from our print products, our business, financial condition
and prospects will be adversely affected.
See Item 1, “Audiences”, included herein, for additional information on the risks associated with circulation revenue.
OPERATING EXPENSES
We May Not Be Able To Reduce Future Expenses To Offset Potential Revenue Declines
We reduced operating expenses, excluding depreciation, amortization, impairment charges and other unusual costs,
by $60,060,000, or 9.0%, in 2010, by $150,033,000, or 18.3%, in 2009 and by $26,995,000, or 3.2%, in 2008. Such
expense reductions are not expected to significantly impact our ability to deliver advertising and content to our
customers.
As a result of the significant reductions of our cost structure we have achieved since 2007, future cost reductions will
be more difficult to accomplish. 2011 operating expenses, excluding depreciation and amortization, are expected to
increase less than 1%.
Newsprint comprises a significant amount of our 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
We May Incur Additional Non-Cash Impairment Charges
We have significant amounts of goodwill and identified intangible assets. In 2009 and 2008, we recorded substantial
impairment charges to reduce the value of certain of these assets. Should general economic, market or business
conditions decline, and have a negative impact on our stock price or cash flows, we 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.
10
EQUITY CAPITAL
A Decrease In Our Stock Price May Limit The Ability To Trade Our Stock
Or For The Company To Raise Equity Capital
As of December 24, 2008, our Common Stock traded at an average 30-day closing market price of less than $1 per
share. Under the NYSE listing standards, if our Common Stock fails to maintain an adequate per share price and total
market capitalization, our Common Stock could be removed from the NYSE and traded in the over the counter market.
In December 2008, the NYSE notified us that our Common Stock did not meet the NYSE continued listing standard
due to the failure to maintain an adequate share price. Subsequent to that date, the NYSE temporarily suspended the
standard through July 2009, and extended our six-month cure period until December 2009. In September 2009, the
NYSE notified us that our average share price had risen sufficiently to cure the share price deficiency. We may be able
to mitigate the effect of a low stock price in the future through implementation of a reverse stock split. All of these
factors, along with volatile equity market conditions, could limit our ability to raise new equity capital in the future.
None.
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2. PROPERTIES
Our executive offices are located in leased facilities at 201 North Harrison Street, Suite 600, Davenport, Iowa. The
initial lease term expires in 2019.
All of our 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 our facilities
is individually significant to our business.
Information related to St. Louis facilities at September 26, 2010 is as follows:
(Square Feet)
PD LLC
Suburban Journals
Owned
Leased
749,000
89,000
23,000
39,000
Several of our daily newspapers, as well as many of our and MNI's nearly 300 other publications, are printed at other
Company facilities, or such printing is outsourced, to enhance operating efficiency. We are continuing to evaluate
additional insourcing and outsourcing opportunities in order to more effectively manage our operating and capital costs.
Our 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
We are 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 we are unable to predict the ultimate outcome of these legal actions,
it is our opinion that the disposition of these matters will not have a material adverse effect on our Consolidated Financial
Statements, taken as a whole.
In 2008, a group of newspaper carriers filed suit against us in the United States District Court for the Southern District
of California, claiming to be employees and not independent contractors of ours. The plaintiffs seek relief related to
violation of various employment-based statutes, and request punitive damages and attorneys' fees. In July 2010, the
trial court judge granted the plaintiffs' petition for class certification. We filed an interlocutory appeal which was denied.
Discovery in the case will proceed in the normal course and we intend to bring a motion to reverse the class certification
ruling upon completion of that process. At this time we are unable to predict whether the ultimate economic outcome,
if any, could have a material effect on our Consolidated Financial Statements, taken as a whole. We deny the allegations
of employee status, consistent with our past practices and industry practices, and intend to vigorously contest the
action, which is not covered by insurance.
11
ITEM 4. REMOVED AND RESERVED
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock 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 our stockholders of record 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.
(Dollars)
STOCK PRICES
2010
High
Low
Closing
2009
High
Low
Closing
2008
High
Low
Closing
DIVIDENDS
2008
December
March
June
September
Quarter Ended
4.50
2.15
3.47
3.97
0.30
0.41
17.96
13.61
14.53
4.77
2.96
3.39
0.65
0.24
0.28
14.91
9.26
10.76
4.52
2.49
2.57
1.89
0.29
0.53
11.32
4.21
4.40
0.19
0.19
0.19
3.15
1.93
2.68
3.43
0.50
2.75
5.00
2.22
3.35
0.19
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 26, 2010, we had 6,825 holders of Common Stock and 1,176 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 our Credit Agreement require us to suspend stockholder dividends and share repurchases
through April 2012. See Note 7 of the Notes to Consolidated Financial Statements, included herein.
12
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, 2010 (with September 30, 2005 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©: 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.
The value of $100 invested on September 30, 2005 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.
(Dollars)
2005
2006
2007
2008
Lee Enterprises, Incorporated
Peer Group Index
S&P 500 Stock Index
100.00
100.00
100.00
60.81
86.02
110.79
38.62
73.23
129.01
9.68
47.89
100.66
2009
7.61
37.37
93.7
2010
7.41
35.84
103.22
September 30
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, and The Washington Post Company.
Sun-Times Media Group, Inc., which was previously included in the Peer Group Index, is no longer publicly traded.
13
Selected financial data is as follows:
(Thousands of Dollars and
Shares, Except Per Common Share Data)
OPERATING RESULTS (1)
ITEM 6. SELECTED FINANCIAL DATA
2010
2009
2008
2007
2006
Operating revenue
780,648
842,030
1,028,868
1,120,194
1,121,390
Operating expenses, excluding depreciation,
amortization, and impairment of goodwill and
other assets
Depreciation and amortization
Impairment of goodwill and other assets (2)
Curtailment gains
Equity in earnings of associated companies
Reduction in investment in TNI (2)
Operating income (loss)
Financial income
Financial expense
609,745
73,179
3,290
45,012
7,746
—
675,035
79,599
245,953
—
5,120
19,951
821,846
91,078
1,070,808
—
10,211
104,478
853,375
92,700
—
3,731
20,124
—
843,577
90,276
4,837
—
20,739
—
147,192
(173,388)
(1,049,131)
197,974
203,439
411
(71,631)
1,886
(92,892)
5,857
(71,472)
7,613
(90,341)
6,054
(95,939)
Income (loss) from continuing operations
46,178
(180,062)
(871,228)
81,397
72,009
Discontinued operations
Net income (loss)
—
(5)
285
671
54
46,178
(180,067)
(870,943)
82,068
72,063
Income (loss) attributable to Lee Enterprises,
Incorporated
Income (loss) from continuing operations
attributable to Lee Enterprises, Incorporated
EARNINGS (LOSS) PER COMMON SHARE
46,105
(123,191)
(880,316)
80,999
70,832
46,105
(123,186)
(880,601)
80,328
70,778
Basic:
Continuing operations
Discontinued operations
Diluted:
Continuing operations
Discontinued operations
Weighted average common shares:
Basic
Diluted
Dividends per common share
BALANCE SHEET INFORMATION (End of Year)
1.03
—
1.03
1.03
—
1.03
(2.77)
—
(2.77)
(2.77)
—
(2.77)
44,555
44,955
—
44,442
44,442
—
(19.65)
0.01
(19.64)
(19.65)
0.01
(19.64)
44,813
44,813
0.76
1.76
0.01
1.77
1.75
0.01
1.77
1.56
—
1.56
1.55
—
1.56
45,671
45,804
0.72
45,421
45,546
0.72
Total assets
Debt, including current maturities (3)
Debt, net of cash, restricted cash and
investments (3)
Stockholders' equity
1,440,116
1,515,612
2,016,367
3,260,963
3,329,809
1,081,590
1,168,335
1,332,375
1,395,625
1,525,000
1,052,545
56,823
1,151,106
1,182,856
1,284,565
1,420,302
23,598
155,518
1,086,442
990,625
(1) Results of discontinued operations have been restated for all periods presented.
14
(2) The Company recorded pretax, non-cash impairment charges to reduce the carrying value of assets as follows:
(Thousands of Dollars)
Goodwill
Nonamortized intangible assets
Amortizable intangible assets
Property and equipment
Reduction in investment in TNI
2010
—
—
—
3,290
3,290
—
3,290
2009
193,471
14,055
33,848
4,579
245,953
19,951
265,904
2008
908,977
13,027
143,785
5,019
1,070,808
104,478
1,175,286
(3) 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 our results of operations and financial condition
as of, and for each of the three years ended, September 26, 2010. 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, we believe the use of
non-GAAP financial measures provides meaningful supplemental information with which to evaluate our financial
performance, or assist in forecasting and analyzing future periods. We also believe 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 (loss) before depreciation, amortization, impairment of
goodwill and other assets, curtailment gains 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. We believe 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 of Dollars)
2010
Percent of
Revenue
2009
Percent of
Revenue
2008
Percent of
Revenue
Operating cash flow
170,903
21.9
166,995
19.8
207,022
Depreciation and amortization
Impairment of goodwill and
other assets
Curtailment gains
Equity in earnings of associated
companies
Reduction in investment in TNI
Operating income (loss)
(73,179)
(3,290)
45,012
7,746
—
147,192
(9.4)
(0.4)
5.8
1.0
—
18.9
(79,599)
(9.5)
(91,078)
(245,953)
—
5,120
(19,951)
(173,388)
(29.2)
—
(1,070,808)
—
0.6
(2.4)
NM
10,211
(104,478)
(1,049,131)
20.1
(8.9)
NM
—
1.0
(10.2)
NM
Adjusted Net Income and Adjusted Earnings Per Common Share
Adjusted net income and adjusted earnings per common share, which are defined as income (loss) attributable to Lee
Enterprises, Incorporated and earnings (loss) per common share adjusted to exclude both unusual matters and those
of a substantially non-recurring nature, are non-GAAP financial measures that are used in the analysis below. We
believe these measures provide meaningful supplemental information by identifying matters that are not indicative of
15
core business operating results or are of a substantially non-recurring nature.
Reconciliations of adjusted net income and adjusted earnings per common share to income (loss) attributable to Lee
Enterprises, Incorporated and earnings (loss) per common share, respectively, the most directly comparable measures
under GAAP, are set forth in Item 7, included herein, 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, if any, consummated in the current or prior year. We believe such comparisons provide meaningful
supplemental information for an understanding of changes in our revenue and operating expenses. Same property
comparisons exclude TNI and MNI. We own 50% of TNI and also own 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
Our discussion and analysis of financial condition and results of operations are based upon our Consolidated Financial
Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements
requires us 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, we evaluate our estimates.
We base our 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 our
accounting policies.
Goodwill and Other Intangible Assets
In assessing the recoverability of goodwill and other nonamortized intangible assets, we make a determination of the
fair value of our 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. A non-cash 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 us. 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.
We analyze 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. See Note 6 of the Notes to Consolidated Financial
Statements, included herein, for a more detailed explanation of our intangible assets.
Due primarily to the continuing, and (at the time) increasing difference between our stock price and the per share
carrying value of our net assets, we analyzed the carrying value of our net assets in 2008 and again in 2009. Deterioration
in our revenue and the overall recessionary operating environment for us and other publishing companies were also
factors in the timing of the analyses.
As a result, we recorded pretax, non-cash charges to reduce the carrying value of goodwill, nonamortized and
amortizable intangible assets in 2008 and 2009. Additional pretax, non-cash charges were recorded to reduce the
carrying value of TNI. We also recorded pretax, non-cash charges to reduce the carrying value of property and
equipment in 2008, 2009 and 2010. We recorded deferred income tax benefits related to these charges.
16
A summary of impairment charges is included in the table below:
(Thousands of Dollars)
Goodwill
Nonamortized intangible assets
Amortizable intangible assets
Property and equipment
Reduction in investment in TNI
2010
2009
2008
—
—
—
3,290
3,290
—
3,290
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
We review our amortizable intangible assets for impairment when indicators of impairment are present. We assess
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.
We also periodically evaluate our determination of the useful lives of amortizable intangible assets. Any resulting
changes in the useful lives of such intangible assets will not impact our cash flows. 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.
At September 26, 2010, our fair value exceeds carrying value. Based on substantial impairment charges recorded in
both 2009 and 2008, and the most recent testing performed at September 26, 2010, we do not believe our reporting
unit is at risk of failing future goodwill impairment testing. However, future decreases in our market value, or significant
differences in revenue, expenses or cash flows from estimates used to determine fair value, could affect this
determination.
Pension, Postretirement and Postemployment Benefit Plans
We evaluate our 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, as applicable. If we 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.
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 our opinion,
it is more likely than not 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. Recent
changes in accounting for uncertain tax positions can result in additional variability in our effective income tax rate.
We file income tax returns with the Internal Revenue Service (“IRS”) and various state tax jurisdictions. From time to
time, we are subject to routine audits by those agencies, and those audits may result in proposed adjustments. We
have considered the alternative interpretations that may be assumed by the various taxing agencies, believe our
positions taken regarding our 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. We do not believe the final resolution of such matters will be material
to our consolidated financial position or cash flows.
17
Revenue Recognition
Advertising revenue is recorded when advertisements are placed in the publication or on the related digital product.
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
We are self-insured for health care, workers compensation and certain long-term disability costs of our employees,
subject to stop loss insurance, which limits exposure to large claims. We accrue our 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.
Our 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 our liability for such claims could increase the volatility of expenses for such self-insured risks.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 2010, we adopted Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 810,
Consolidation. FASB ASC 810 requires that noncontrolling interests be reported as a separate component of
stockholders' equity. Net income (loss) including the portion attributable to our noncontrolling interests is included in
net income (loss) in the Consolidated Statements of Operations and Comprehensive Income (Loss) and will continue
to be used to determine earnings (loss) per common share. FASB ASC 810 also requires certain prospective changes
in accounting for noncontrolling interests primarily related to increases and decreases in ownership and changes in
control. As required, the presentation and disclosure requirements were adopted through retrospective application,
and prior period information has been reclassified accordingly. Adoption of FASB ASC 810 did not have a material
effect on our Consolidated Financial Statements.
In 2010, we adopted FASB Staff Position ("FSP") 132(R)-1, Disclosures about Postretirement Benefit Plan Assets,
codified in ASC 715, Compensation-Retirement Benefits. FSP 132(R)-1 requires additional disclosures relating to
investment strategies, major categories of plan assets, concentrations of risk within plan assets and valuation
techniques used to measure the fair value of plan assets. Adoption of FSP 132(R)-1 did not have a material effect on
our Consolidated Financial Statements.
18
CONTINUING OPERATIONS
2010 vs. 2009
Operating results, as reported in the Consolidated Financial Statements, are summarized below:
(Thousands of Dollars, Except Per Common Share Data)
Advertising revenue:
Retail
Classified:
Daily newspapers:
Employment
Automotive
Real estate
All other
Other publications
Total classified
Digital
National
Niche publications
Total advertising revenue
Circulation
Commercial printing
Digital 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
Curtailment gains
Equity in earnings of associated companies
Reduction in investment in TNI
Operating income (loss)
Non-operating expense, net
Income (loss) from before income taxes
Income tax expense (benefit)
Income (loss) from continuing operations
Discontinued operations, net
Net income (loss)
Net income attributable to non-controlling interests
Decrease in redeemable non-controlling interest
Income (loss) attributable to Lee Enterprises, Incorporated
Other comprehensive loss, net
Comprehensive income (loss)
2010
2009
Percent
Change
322,961
358,104
(9.8)
21,393
25,063
23,587
46,039
27,762
143,844
47,290
33,749
12,260
560,104
179,851
11,762
28,931
780,648
315,698
54,436
238,191
1,420
609,745
170,903
73,179
3,290
45,012
7,746
—
147,192
72,392
74,800
28,622
46,178
—
46,178
(73)
—
46,105
(14,704)
31,401
26,489
30,465
30,066
44,635
30,660
162,315
42,073
39,047
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)
(180,062)
(5)
(180,067)
(179)
57,055
(123,191)
(21,839)
(145,030)
(19.2)
(17.7)
(21.5)
3.1
(9.5)
(11.4)
12.4
(13.6)
(6.7)
(8.9)
(2.9)
(8.8)
(1.3)
(7.3)
(6.9)
(24.7)
(7.3)
(78.6)
(9.7)
2.3
(8.1)
(98.7)
NM
51.3
NM
NM
(18.8)
NM
NM
NM
NM
NM
(59.2)
NM
NM
(32.7)
NM
Income (loss) from continuing operations attributable to Lee
Enterprises, Incorporated
46,105
(123,186)
NM
Earnings (loss) per common share attributable to Lee Enterprises,
Incorporated:
Basic
Diluted
1.03
1.03
(2.77)
(2.77)
NM
NM
19
Total operating revenue decreased 7.3% in 2010. 2010 and 2009 revenue, operating results and cash flows were
significantly impacted by the economic recession that began in December 2007 and ended in June 2009. It is widely
believed certain elements of the economy, such as employment, housing and auto sales, were in decline prior to
December 2007 and have still not recovered to pre-recession levels. The duration and depth of the economic recession,
and pace of economic recovery, in markets in which we operate may influence our future results.
Year-over-year revenue trends improved significantly overall as 2010 progressed. In the 13 weeks ended September
27, 2009, total operating revenue decreased 20.0%, compared to the prior year period. In the 13 weeks ended
September 26, 2010, total operating revenue declined 3.7%. Certain categories of advertising, such as digital, and
employment and auto classified advertising, turned positive compared to 2009 at different points in 2010.
In the 13
weeks ending December 26, 2010, we expect total operating revenue to decrease approximately 1.0%.
Advertising Revenue
In 2010, advertising revenue decreased $54,570,000, or 8.9%. On a combined basis, print and digital retail advertising
decreased 8.1%. Print retail revenue decreased $35,143,000, or 9.8%, in 2010. A 6.4% decrease in daily newspaper
retail advertising lineage contributed to the overall decrease. Average retail rates, excluding preprint insertions,
decreased 8.6% in 2010. Retail preprint insertion revenue decreased 5.4%. Digital retail advertising increased 24.0%,
partially offsetting print declines.
The table below combines print and digital advertising revenue and reclassifies certain print retail revenue to classified
based on the primary business of the advertiser:
(Thousands of Dollars)
Retail
Classified:
Employment
Automotive
Real estate
Other
Total classified revenue
2010
2009
339,219
369,304
35,470
40,823
31,647
65,332
41,626
45,574
39,331
65,715
173,272
192,246
Percent
Change
(8.1)
(14.8)
(10.4)
(19.5)
(0.6)
(9.9)
On a combined basis, print and digital classified revenue decreased 9.9%. Print classified advertising revenue
decreased $18,471,000, or 11.4%, in 2010. Higher rate print employment advertising at the daily newspapers decreased
19.2% for the year, reflecting high unemployment nationally. Print automotive advertising decreased 17.7%. Print real
estate advertising decreased 21.5% 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 3.1%. Classified advertising rates decreased 8.9%. Digital classified advertising decreased 0.2%.
Advertising lineage, as reported for our daily newspapers only, consists of the following:
(Thousands of Inches)
Retail
Classified
National
2010
10,287
11,137
475
21,899
2009
10,993
11,607
488
23,088
Percent
Change
(6.4)
(4.0)
(2.7)
(5.2)
On a stand-alone basis, digital advertising revenue increased 12.4% in 2010. Year-over-year total digital advertising
turned positive in the month of December 2009 and has been rising steadily since that time.
National advertising decreased $5,298,000, or 13.6%, in 2010 due to a 2.7% decline in lineage and a 19.9% decrease
in average national rate. Advertising in niche publications decreased 6.7%.
Despite declines in advertising revenue, our total advertising results have historically benchmarked favorably to industry
averages reported by the NAA.
20
Circulation and Other Revenue
Circulation revenue decreased $5,303,000, or 2.9% in 2010. Our daily newspaper circulation units, including TNI and
MNI, as measured by the ABC, declined 3.9% for the six months ended September 2010, compared to the same period
in 2009, and Sunday circulation declined 4.9%, compared with industry average declines of 4.9% daily and 4.4%
Sunday. Factors contributing to the declines include selective price increases and general economic conditions. For
the six months ended March 2010, total average daily circulation units, including TNI and MNI, declined 4.8% and
Sunday circulation decreased 4.1%. Research in our larger markets indicates we are reaching an increasingly larger
share of the markets through the combination of stable newspaper readership and rapid digital audience growth.
Commercial printing revenue decreased $1,133,000, or 8.8%, in 2010. Digital services and other revenue decreased
$376,000, or 1.3%, in 2010.
Operating Expenses
Costs other than depreciation, amortization, impairment charges and other unusual matters decreased $60,060,000,
or 9.0%, in 2010.
Compensation expense decreased $23,316,000, or 6.9%, in 2010 driven by a decline in average full time equivalent
employees of 8.2%. Bonus programs and certain other employee benefits were also substantially reduced, beginning
in 2009.
Newsprint and ink costs decreased $17,875,000, or 24.7% in 2010, a result of a reduction in newsprint volume of
12.8% and lower cost of newsprint for most of the year. See Item 7A, “Commodities”, included herein, for further
discussion and analysis of the impact of newsprint on our business.
Other operating costs, which are comprised of all operating expenses not considered to be compensation, newsprint,
depreciation, amortization or unusual matters, decreased $18,869,000, or 7.3%, in 2010.
Reductions in staffing resulted in workforce adjustment costs totaling $1,420,000 and $5,813,000 in 2010 and 2009,
respectively.
We are engaged in various efforts to continue to contain future growth in operating expenses. We expect our operating
expenses, excluding depreciation, amortization and unusual costs, to decline approximately 1% in the 13 weeks ending
December 26, 2010, compared to the prior year period and increase less than 1% in 2011.
Results of Operations
As a result of the factors noted above, operating cash flow increased 2.3% to $170,903,000 in 2010 from $166,995,000
in 2009. Operating cash flow margin increased to 21.9% from 19.8% in 2009 reflecting a smaller percentage decrease
in operating revenue than the decrease in operating expenses, as well as decreased workforce adjustment and transition
costs in 2010.
Depreciation expense decreased $4,836,000, or 14.7% due to lower levels of capital spending in 2010 and 2009.
Amortization expense decreased $1,584,000, or 3.4%, in 2010 due to impairment charges in 2009, which reduced the
balances of amortizable intangible assets.
In 2010, we reduced the carrying value of equipment no longer in use by $3,290,000.
Due primarily to the continuing and (at the time) increasing difference between our stock price and the per share
carrying value of our net assets, we analyzed the carrying value of our net assets in 2009. Deterioration in our revenue
and the overall recessionary operating environment for us and other publishing companies were also factors in the
timing of the analyses.
As a result, we recorded pretax, non-cash charges to reduce the carrying value of goodwill and nonamortized and
amortizable intangible assets in 2009. Additional pretax, non-cash charges were recorded to reduce the carrying value
of TNI. We also recorded pretax, non-cash charges to reduce the carrying value of property and equipment in 2009
and 2010. We recorded deferred income tax benefits related to these charges.
21
A summary of impairment charges is included in the table below:
(Thousands of Dollars)
Goodwill
Nonamortized intangible assets
Amortizable intangible assets
Property and equipment
Reduction in investment in TNI
2010
2009
—
—
—
3,290
3,290
—
3,290
193,471
14,055
33,848
4,579
245,953
19,951
265,904
In December 2009, we notified certain participants in our postretirement medical plans of changes to be made to the
plans, including increases in participant premium cost-sharing and elimination of coverage for certain participants. The
changes resulted in non-cash curtailment gains of $31,130,000 which were recognized in the 13 weeks ended
December 27, 2009, reduced 2010 net periodic postretirement medical cost by $1,460,000 beginning in the 13 weeks
ended March 28, 2010, and reduced the benefit obligation liability at December 27, 2009 by $28,750,000.
In March 2010, members of the St. Louis Newspaper Guild voted to approve a new 5.5 year contract, effective in April
2010. The new contract eliminated postretirement medical coverage for active employees and defined pension benefits
were frozen. The elimination of postretirement medical coverage resulted in non-cash curtailment gains of $11,878,000,
which were recognized in the 13 weeks ended March 28, 2010 and reduced the benefit obligation liability at March
28, 2010 by $6,576,000. The freeze of defined pension benefits resulted in non-cash curtailment gains of $2,004,000,
which were recognized in the 13 weeks ended March 28, 2010, reduced 2010 net periodic pension expenses by
$668,000 beginning in the 13 weeks ended June 27, 2010, and reduced the benefit obligation liability at March 28,
2010 by $2,004,000.
Increases in participant premium cost sharing, as discussed more fully above, were treated as negative plan
amendments. Curtailment treatment was utilized in situations in which coverage was eliminated. Curtailment gains
were calculated by revaluation of plan liabilities after consideration of other plan changes.
In November 2010, we notified certain participants in our 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 January 2011 and will reduce the
benefit obligation by up to $15,000,000. We will also recognize non-cash curtailment gains of up to $10,000,000
related to certain of the changes in 2011.
Equity in earnings in associated companies increased $2,626,000, or 51.3%, in 2010. 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.
The factors noted above resulted in operating income of $147,192,000 in 2010 and an operating loss of $173,388,000
in 2009.
Non-Operating Income and Expense
Financial expense, including amortization of debt financing costs, decreased $21,261,000, or 22.9%, to $71,631,000
in 2010 due to lower debt balances and lower interest rates.
As discussed more fully (and certain capitalized terms used below defined) under Item 7, “Liquidity and Capital
Resources”, amendments to our Credit Agreement consummated in 2009 increased financial expense in 2009 in
relation to LIBOR. We are 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 we could also be subject to additional non-
cash payment-in-kind interest if leverage increases above specified levels. At the September 2010 leverage level, our
debt under the Credit Agreement will be priced at the applicable LIBOR minimum of 1.25% plus 2.875%. The interest
rate on the Pulitzer Notes increased 1% to 9.05% in February 2009, and increased 0.5% in April 2010 to 9.55%. The
interest rate will increase by 0.5% per year thereafter.
22
Overall Results
We recognized an income tax expense of 38.3% of income from continuing operations before income taxes in 2010
and income tax benefit of 31.4% of loss from continuing operations before income taxes in 2009.
In March 2010, as a result of health care legislation enacted at that time, we wrote off $2,012,000 of deferred income
tax assets due to the loss of future tax deductions for providing retiree prescription drug benefits. Deferred income tax
expense related to curtailment gains also increased the effective tax rate in 2010. See Note 14 of the Notes to
Consolidated Financial Statements, included herein, for a reconciliation of the expected federal income tax rates to
the actual tax rates.
As discussed more fully (and certain capitalized terms used below defined) in Note 19 of 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. We recorded the present value of
the remaining amount of this potential liability in our Consolidated Balance Sheet in 2008. In 2009, we accrued increases
in the liability totaling $1,466,000, which increased loss attributable to Lee Enterprises, Incorporated. 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. We recorded a liability of $2,300,000 in 2009 as an estimate of the amount of the Herald Value to be disbursed.
The determination of the amount of the Herald Value was based on an estimate of fair value using both market and
income-based approaches. The actual amount of the Herald Value at the date of settlement 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. Cash settlement of the Herald Value is limited by the terms of the Credit
Agreement.
The Redemption Agreement also terminated Herald's right to exercise its rights under the 2010 Redemption. As a
result, we reversed substantially all of our liability related to 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.
23
As a result of the factors noted above, income attributable to Lee Enterprises, Incorporated totaled $46,105,000 in
2010 compared with a loss of $123,191,000 in 2009. We recorded earnings per diluted common share of $1.03 in
2010 and a loss per diluted common share of $2.77 in 2009. Excluding unusual matters, as detailed in the table below,
diluted earnings per common share, as adjusted, were $0.71 in 2010, compared to $0.35 in 2009. Per share amounts
may not add due to rounding.
(Thousands of Dollars, Except Per Share Data)
Amount
Per Share
Amount
Per Share
2010
2009
Income (loss) attributable to Lee Enterprises,
Incorporated, as reported
Adjustments:
Impairment of goodwill and other assets, including
TNI
Curtailment gains
Debt financing costs
Other, net
Income tax effect of adjustments, net, and other
unusual tax matters
Net income, as adjusted
Change in redeemable non-controlling interest liability
Income attributable to Lee Enterprises, Incorporated,
as adjusted
46,105
1.03
(123,191)
(2.77)
3,290
(45,012)
8,514
1,960
(31,248)
17,167
(14,081)
32,024
—
32,024
265,904
—
17,467
6,848
290,219
(94,518)
195,701
72,510
(57,055)
15,455
(0.31)
0.71
—
0.71
4.40
1.63
(1.28)
0.35
24
Operating results, as reported in the Consolidated Financial Statements, are summarized below:
2009 vs. 2008
(Thousands of Dollars, Except Per Common Share Data)
Advertising revenue:
Retail
Classified:
Daily newspapers:
Employment
Automotive
Real estate
All other
Other publications
Total classified
Digital
National
Niche publications
Total advertising revenue
Circulation
Commercial printing
Digital 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 before income taxes
Income tax benefit
Loss from continuing operations
Discontinued operations, net
Net loss
Net income attributable to non-controlling interests
Decrease (increase) in redeemable non-controlling interest
Loss attributable to Lee Enterprises, Incorporated
Other comprehensive income (loss), net
Comprehensive loss
2009
2008
Percent
Change
358,104
434,069
(17.5)
26,489
30,465
30,066
44,635
30,660
162,315
42,073
39,047
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)
(180,062)
(5)
(180,067)
(179)
57,055
(123,191)
(21,839)
(145,030)
59,457
45,388
43,282
43,006
43,361
234,494
55,119
44,143
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)
(871,228)
285
(870,943)
(535)
(8,838)
(880,316)
1,001
(879,315)
(55.4)
(32.9)
(30.5)
3.8
(29.3)
(30.8)
(23.7)
(11.5)
(17.3)
(21.6)
(5.3)
(19.4)
(13.1)
(18.2)
(19.6)
(30.4)
(12.2)
94.0
(17.9)
(19.3)
(12.6)
(77.0)
(49.9)
(80.9)
(83.5)
37.8
(76.4)
(66.0)
(79.3)
NM
(79.3)
(66.5)
NM
(86.0)
NM
(83.5)
Loss from continuing operations attributable to Lee Enterprises,
Incorporated
(123,186)
(880,601)
(86.0)
Loss per common share attributable to Lee Enterprises, Incorporated:
Basic
Diluted
(2.77)
(2.77)
(19.65)
(19.65)
(85.9)
(85.9)
25
Total operating revenue decreased 18.2% in 2009. 2009 and 2008 revenue, operating results and cash flows were
significantly impacted by the economic recession that began in December 2007 and ended in June 2009. It is widely
believed certain elements of the economy, such as employment, housing and auto sales, were in decline prior to
December 2007 and have still not recovered to pre-recession levels.
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 digital 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 contributed to the overall decrease. Same property average retail rates, excluding preprint
insertions, decreased 10.9% in 2009. Retail preprint insertion revenue decreased 12.5%. Digital retail advertising
increased 6.1%, partially offsetting print declines.
The table below combines print and digital advertising revenue and reclassifies certain print retail revenue to classified
based on the primary business of the advertiser:
(Thousands of Dollars, Same Property)
Retail
Classified:
Employment
Automotive
Real estate
Other
2009
2008
369,302
439,354
41,627
44,885
39,331
65,715
90,830
62,938
57,389
72,177
Total classified revenue
191,558
283,334
Percent
Change
(15.9)
(54.2)
(28.7)
(31.5)
(9.0)
(32.4)
On a combined basis, print and digital 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 our daily newspapers only, consists of the following:
(Thousands of Inches)
Retail
Classified
National
2009
10,993
11,607
488
23,088
2008
12,639
14,317
612
27,568
Percent
Change
(13.0)
(18.9)
(20.2)
(16.3)
On a stand-alone basis, digital advertising revenue decreased 23.7% on a same property basis in 2009, due to
decreases in digital classified sales, partially offset by a 6.1% increase in digital retail revenue.
National advertising decreased $5,096,000, or 11.5%, on a same property basis in 2009 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.
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%. Our total average daily newspaper circulation units, including TNI and MNI, as measured by
the ABC, declined 6.5% 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
26
of 10.6% daily and 7.4% Sunday. We estimate that more than 60% of our 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.
Same property commercial printing revenue decreased $3,098,000, or 19.4%, in 2009. Same property digital 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 matters 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.
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 newsprint on our business.
Other operating costs, which are comprised of all operating expenses not considered to be compensation, newsprint,
depreciation, amortization or unusual matters, 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.
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 our stock price and the per share
carrying value of our net assets, we analyzed the carrying value of our net assets in 2008 and again in 2009. Deterioration
in our revenue and the overall recessionary operating environment for us and other publishing companies were also
factors in the timing of the analyses.
As a result, we recorded pretax, non-cash charges to reduce the carrying value of goodwill and nonamortized and
amortizable intangible assets in 2008 and 2009. Additional pretax, non-cash charges were recorded to reduce the
carrying value of TNI. We also recorded pretax, non-cash charges to reduce the carrying value of property and
equipment. We recorded deferred income tax benefits related to these charges.
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A summary of impairment charges is included in the table below:
(Thousands of Dollars)
Goodwill
Nonamortized intangible assets
Amortizable intangible assets
Property and equipment
Reduction in investment in TNI
2009
2008
193,471
14,055
33,848
4,579
908,977
13,027
143,785
5,019
245,953
1,070,808
19,951
104,478
265,904
1,175,286
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 in 2009 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.
Overall Results
We recognized 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. See Note 14 of the Notes to Consolidated Financial
Statements, included herein, for a reconciliation of the expected federal income tax rates to the actual tax rates.
As discussed more fully (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. We recorded the present value of
the remaining amount of this potential liability in our Consolidated Balance Sheet in 2008. In 2009 and 2008, we
accrued increases in the liability totaling $1,466,000 and $8,838,000, respectively, which increased net loss attributable
to Lee Enterprises, Incorporated. 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. We recorded a liability of $2,300,000 in 2009 as an estimate of the amount of the Herald Value to be disbursed.
The determination of the amount of the Herald Value was based on an estimate of fair value using both market and
income-based approaches. The actual amount of the Herald Value at the date of settlement 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. Cash settlement of the Herald Value is limited by the terms of the Credit
Agreement.
The Redemption Agreement also terminated Herald's right to exercise its rights under the 2010 Redemption. As a
result, we reversed substantially all of our liability related to 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.
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As a result of the factors noted above, loss attributable to Lee Enterprises, Incorporated totaled $123,191,000 in 2009
compared to a loss attributable to Lee Enterprises, Incorporated of $880,316,000 in 2008. We recorded a loss per
diluted common share of $2.77 in 2009 and $19.64 in 2008. Excluding unusual matters, 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 of Dollars, Except Per Share Data)
Amount
Per Share
Amount
Per Share
2009
2008
Loss attributable to Lee Enterprises, Incorporated, as
reported
Adjustments:
(123,191)
(2.77)
(880,316)
(19.64)
Impairment of goodwill and other assets, including TNI
265,904
Debt financing costs
Other, net
Income tax effect of adjustments, net, and other unusual
tax matters
Net income, as adjusted
Change in redeemable minority interest liability
Income attributable to Lee Enterprises, Incorporated, as
adjusted
LIQUIDITY AND CAPITAL RESOURCES
17,467
6,848
290,219
(94,518)
195,701
72,510
(57,055)
1,175,286
3,505
4,463
1,183,254
(265,979)
917,275
36,959
8,838
4.40
1.63
(1.28)
15,455
0.35
45,797
20.47
0.82
0.20
1.02
Operating Activities
Cash provided by operating activities of continuing operations was $106,571,000 in 2010, $74,057,000 in 2009 and
$136,612,000 in 2008. Operating income substantially improved in 2010. Depreciation and amortization decreased
as discussed more fully under "Results of Operations". In 2010, we also recognized non-cash curtailment gains totaling
$45,012,000. Operating losses in 2009 and 2008 were caused primarily by non-cash charges for impairment of goodwill
and other assets and reduction of our investment in TNI, net of the related deferred income tax benefit. The net change
in all of the aforementioned factors accounted for the majority of the increase in cash provided by operating activities
between years. 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 deferred income taxes, operating assets
and liabilities and the timing of income tax payments accounted for the bulk of the remainder of the change in cash
provided by operating activities in all years.
Investing Activities
Cash required for investing activities totaled $7,690,000 in 2010 and $14,963,000 in 2008, and cash provided from
investing activities totaled $108,985,000 in 2009. Capital spending totaled $9,458,000 in 2010, $11,555,000 in 2009
and $20,606,000 in 2008 and accounted for substantially all of the net usage of funds in 2010. We liquidated
$120,000,000 of our restricted cash and investments in 2009 in order to fund a $120,000,000 reduction in the balance
of the Pulitzer Notes.
We anticipate that funds necessary for capital expenditures, which are expected to total between $10,000,000 and
$13,000,000 in 2011, and other requirements, will be available from internally generated funds, or availability under
our Credit Agreement. The 2009 Amendments, as discussed more fully below, limit capital expenditures to $30,000,000
in 2011.
Financing Activities
Cash required for financing activities totaled $87,364,000 in 2010, $198,591,000 in 2009 and $113,360,000 in 2008.
Debt reduction accounted for the majority of the usage of funds in all years. The final dividend declared in 2008 was
paid in 2009, as were financing costs related to the 2009 Amendments.
In 2008, 1,722,280 shares of Common Stock were acquired and returned to authorized shares at an average price of
29
$10.98. The 2009 Amendments require us to suspend stockholder dividends and share repurchases through April
2012.
Credit Agreement
In 2006, we 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, we 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 our
existing and future, direct and indirect subsidiaries in which we hold 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.
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, our 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 $635,665,000 at September 26, 2010, and the $375,000,000
revolving credit facility, which has a balance of $285,425,000 at September 26, 2010, bear interest, at our 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 our 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 26, 2010, all of our outstanding debt under the Credit Agreement is based
on one month borrowing. At the September 26, 2010 leverage level, our debt under the Credit Agreement will be priced
at 1.25% plus a LIBOR margin of 2.875%.
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 our leverage level exceeds 7.5:1 at the end of the previous quarter. At
September 26, 2010, 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 our total leverage ratio is below 6.0:1 in September
2011 or we refinance the Credit Agreement in advance of its April 2012 maturity.
Principal Payments
We 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. We are required to repay principal amounts, on a quarterly basis until maturity, under the A
Term Loan. Total A Term Loan payments in 2010 and 2009 were $79,220,000 and $104,490,000, respectively. The
2009 Amendments reduce the amount and delay the timing of mandatory principal payments under the A Term Loan.
Payments due in 2011 total $65,000,000. Payments due in 2012 prior to the April 2012 maturity total $70,000,000.
The scheduled payment at maturity is $500,665,000 plus the balance of the revolving credit facility outstanding at that
time.
In addition to the scheduled payments,we are required to make mandatory prepayments under the A Term Loan under
certain other conditions. The Credit Agreement requires us to apply the net proceeds from asset sales to repayment
of the A Term Loan. In 2010 and 2009, we made payments totaling $1,420,000 and $440,000, respectively, related to
this provision.
30
The Credit Agreement also requires us to accelerate future payments under the A Term Loan in the amount of 75% of
our excess cash flow, as defined. We had no excess cash flow in 2010 or 2009. We 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.
Covenants and Other Matters
its type. At
The Credit Agreement contains customary affirmative and negative covenants for financing of
September 26, 2010, we were 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
totals $1,081,590,000 at September 26, 2010, 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 and
curtailment gains.
The 2009 Amendments amended our covenants to take into account economic conditions and the changes to
leverage ratio at September 26, 2010 was 4.92:1. Under the 2009
amortization of debt noted above. Our total
Amendments, our maximum total leverage ratio limit will decrease from 7.75:1 in September 2010 to 7.5:1 in December
2010, decrease to 7.25:1 in March 2011, decrease to 7.0:1 in June 2011 and decrease to 6.75:1 in September 2011.
Each change in the maximum total leverage ratio noted above is effective on the last day of the quarter.
The Credit Agreement also includes a minimum interest expense coverage ratio, as defined, which is based on the
same measure of trailing 12 month operating results noted above. Our interest expense coverage ratio at September 26,
2010 was 3.11:1. The minimum interest expense coverage ratio is 1.55:1 in September 2010, and will increase
periodically thereafter until it reaches 2.25:1 in March 2012.
The 2009 Amendments required us 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 our 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 of our future cash flows 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, of which $160,500,000 remains outstanding at September 26, 2010, 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 their 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,
our 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, at
which time it increased to 9.55%. 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 consent from the Noteholders and the
Lenders, 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,
31
2009 and an additional principal payment from restricted cash of $4,500,000 in October 2010. In 2010 and 2009, all
payments due were made prior to the end of the previous fiscal quarter.
In addition to the scheduled payments, we are required to make mandatory payments under the Pulitzer Notes under
certain other conditions. The Notes Amendment requires us to apply the net proceeds from asset sales to repayment
of the Pulitzer Notes. In 2010, we made a $500,000 payment related to this provision.
The Notes Amendment establishes a reserve of restricted cash of up to $9,000,000 (which was reduced 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. In 2010, a principal prepayment of $1,000,000 was made under the Pulitzer Notes from excess cash
flow of Pulitzer. There was no excess cash flow in 2009.
The Pulitzer Notes contain certain covenants and conditions including the maintenance, by Pulitzer, of the maximum
ratio of debt to EBITDA (limit of 3.5:1 at September 26, 2010), 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 (limit of 2.7:1 at September 26, 2010), 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 26, 2010, 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 26, 2010, the
unaccreted balance totals $837,000. 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
At September 26, 2010, we had $285,425,000 outstanding under the revolving credit facility, and after consideration
of the 2009 Amendments and letters of credit, have approximately $75,677,000 available for future use. Including cash
and restricted cash, our liquidity at September 26, 2010 totals $104,722,000. This liquidity amount excludes any future
cash flows. Mandatory principal payments on debt in 2011 total $81,500,000. Since February 2009, we have satisfied
all interest payments and substantially all principal payments due under our debt facilities with our cash flows. We
expect all interest and principal payments due in 2011 will be satisfied by our continuing cash flows, which will allow
us to maintain, or increase, the current level of liquidity.
Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and
to refinance or amend our debt agreements as they become due, or earlier if available liquidity is consumed. We are
in compliance with our debt covenants at September 26, 2010.
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 our control, and the control of 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 discussed more fully 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 our liquidity.
In 2010, we filed a Form S-3 shelf registration statement ("Shelf") with the SEC, which has been declared effective.
32
The Shelf gives us the flexibility to issue and publicly distribute various types of securities, including preferred stock,
common stock, secured or unsecured debt securities, purchase contracts and units consisting of any combination of
such securities, from time to time, in one or more offerings, up to an aggregate amount of $750,000,000. The Shelf
enables us to sell securities quickly and efficiently when market conditions are favorable or financing needs arise. Net
proceeds from the sale of any securities must be used generally to reduce debt subject to conditions of existing debt
agreements.
Other
In 2009, we 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 26, 2010, we have total unamortized financing costs of $11,797,000.
At September 26, 2010, our weighted average cost of debt was 4.93%.
Aggregate maturities of debt in 2011 and 2012 are $81,500,000 and $1,000,090,000, respectively.
Discontinued Operations and Other Matters
Cash required by discontinued operations totaled $5,000 in 2009 and provided $15,170,000 in 2008. Cash proceeds
from the sales of discontinued operations were the primary source of funds in 2008.
Cash and cash equivalents increased $11,517,000 in 2010, decreased $15,554,000 in 2009 and increased $23,459,000
in 2008.
SEASONALITY
Our 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
Price increases (or decreases) for our products are implemented when deemed appropriate by us. We continuously
evaluate price increases, productivity improvements, sourcing efficiencies and other cost reductions to mitigate the
impact of inflation.
CHANGES IN LAWS AND REGULATIONS
Energy costs have become more volatile, and may increase in the future as a result of carbon emissions legislation
currently under consideration in the United States Congress or under regulations being developed by the United States
Environmental Protection Agency.
The Patient Protection and Affordable Care Act, along with its companion reconciliation legislation (together the
"Affordable Care Act") were enacted into law in March 2010. As a result, in March 2010, we wrote off $2,012,000 of
deferred income tax assets due to the loss of future tax deductions for providing retiree prescription drug benefits.
We expect the Affordable Care Act will be supported by a substantial number of underlying regulations, many of which
have not been issued. Accordingly, a complete determination of the impact of the Affordable Care Act cannot be made
at this time. However, we expect our future health care costs to increase more rapidly based on analysis published by
the United States Department of Health and Human Services, input from independent advisors and our understanding
of various provisions of the Affordable Care Act that differ from our current medical plans, such as:
•
•
•
Higher maximum age for dependent coverage;
Elimination of lifetime benefit caps; and,
Free choice vouchers for certain lower income employees.
Administrative costs are also likely to increase as a result of new compliance reporting. New costs being imposed on
other medical care businesses, such as health insurers, pharmaceutical companies and medical device manufacturers,
may be passed on to us in the form of higher costs. We may be able to mitigate certain of these future cost increases
33
through changes in plan design.
We do not expect the Affordable Care Act will have a significant impact on our postretirement medical benefit obligation
liability.
CONTRACTUAL OBLIGATIONS
The following table summarizes the more significant of our contractual obligations.
(Thousands of Dollars)
Payments (or Commitments) Due by Year(s)
Nature of Obligation
Debt (principal amount) (1)
Financial expense (2)(3)
Operating lease obligations
Capital expenditure commitments
Total
1,081,590
85,400
16,024
532
1,183,546
Less
Than 1
81,500
52,300
4,073
532
1-3
1,000,090
33,100
5,500
—
138,405
1,038,690
3-5
—
—
2,027
—
2,027
More
Than 5
—
—
4,424
—
4,424
(1)
(2)
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.
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 26, 2010 as increased by our applicable margin of 2.875% at such date applied to the outstanding balance
at September 26, 2010, 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 26, 2010, as reduced by
future contractual maturities of such debt. Changes in interest rates in excess of the minimum LIBOR level, changes in our applicable
interest rate margin due to changes in our maximum total leverage ratio, use of LIBOR borrowing periods in excess of 30 days,
use of borrowing rates not based on LIBOR, use of 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. We estimate cash requirements for these obligations in 2011 totaling approximately
$4,497,000. See Notes 9 and 10 of the Notes to Consolidated Financial Statements, included herein.
The table above also excludes future cash requirements, if any, 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 26, 2010 is $2,300,000.
See Note 19 of the Notes to Consolidated Financial Statements, included herein.
A substantial amount of our 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
We are 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 our restricted cash and investments is managed by investing only in short-term securities. Only
U.S. Government and related securities are permitted.
Debt
Our debt structure and interest rate risk are managed through the use of fixed and floating rate debt. Our primary
exposure is to LIBOR. A 100 basis point increase or decrease to LIBOR would, if in excess of LIBOR minimums
discussed more fully below, decrease or increase respectively, income from continuing operations before income taxes
34
on an annualized basis by approximately $9,211,000 based on $921,090,000 of floating rate debt outstanding at
September 26, 2010.
Our 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 26, 2010, all of our outstanding debt
under the Credit Agreement is based on one month borrowing. Based on the difference between interest rates at the
end of November 2010 and our 1.25% minimum rate for one month borrowing, 30 day LIBOR would need to increase
approximately 100 basis points before our borrowing cost would begin to be impacted by an increase in interest rates.
Since November 30, 2009, the full amount of the outstanding balance under the Credit Agreement has been subject
to floating interest rates, as all interest rate swaps and collars expired or were terminated at or prior to that date. At
September 26, 2010, approximately 85% of the principal amount of our debt is subject to floating interest rates. We
regularly evaluate alternatives to hedge the related interest rate risk.
Certain of our 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 us are exposed to commodity price changes. We manage this risk through instruments such
as purchase orders and non-cancelable supply contracts. We participate in a buying cooperative with other publishing
companies, primarily for the acquisition of newsprint. We are 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.
North American newsprint producers have taken significant steps since October 2009 to balance newsprint production
capacity against declining North American demand by permanently reducing manufacturing capacity and significantly
increasing export shipments to markets outside North America. Throughout 2010, export tonnes, in particular, have
been utilized to solidify newsprint order backlogs, thereby supporting domestic, North American newsprint price levels
and increases. North American producers have implemented several price increases beginning in October 2009,
resulting in increased purchase costs. As a result, we expect 2011 newsprint costs to be higher than 2010. The final
extent of future price change announcements, if any, is subject to negotiations with each newsprint producer.
North America's two largest newsprint producers, AbitibiBowater Incorporated and White Birch Paper Holding Company,
are operating under U.S and Canadian financial reorganization protection. AbitibiBowater filed for protection in April
2009 and is expected to exit reorganization in December 2010. White Birch Paper Holding Company filed for protection
in February 2010 and is negotiating its exit plan.
A $10 per tonne price increase for 30 pound newsprint would result in an annualized reduction in income before income
taxes of approximately $935,000 based on anticipated consumption in 2011, excluding consumption of TNI and MNI
and the impact of LIFO accounting. Such prices may also decrease. We manage significant newsprint inventories,
which may help to mitigate the impact of future price increases.
SENSITIVITY TO CHANGES IN VALUE
Our 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 we are unable, as of
September 26, 2010, to measure the maximum potential impact on fair value of our fixed rate debt from adverse
changes in market interest rates under normal market conditions. The change in value, if determined, could be
significant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this Item is included herein under the caption “Consolidated Financial Statements”.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Information with respect to this Item is included in our Proxy Statement to be filed in January 2011, which is incorporated
herein by reference, under the caption “Relationship with Independent Registered Public Accounting Firm”.
35
ITEM 9A. CONTROLS AND PROCEDURES
In order to ensure that the information that must be disclosed in filings with the SEC is recorded, processed, summarized
and reported in a timely manner, we have disclosure controls and procedures in place. Our chief executive officer,
Mary E. Junck, and chief financial officer, Carl G. Schmidt, have reviewed and evaluated disclosure controls and
procedures as of September 26, 2010, 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 26, 2010.
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 26, 2010. 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 26, 2010.
KPMG LLP, the Company's independent registered public accounting firm, issued an attestation report on the
effectiveness of the Company's internal control over financial reporting. Their report appears on the following page.
/s/ Mary E. Junck
Mary E. Junck
Chairman, President and Chief Executive Officer
(Principal Executive (Officer)
December 10, 2010
/s/ Carl G. Schmidt
Carl G. Schmidt
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
December 10, 2010
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Lee Enterprises, Incorporated:
We have audited Lee Enterprises, Incorporated and subsidiaries (the Company) internal control over financial reporting
as of September 26, 2010, based on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting included in the accompanying Management's Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Lee Enterprises, Incorporated maintained, in all material respects, effective internal control over financial
reporting as of September 26, 2010, based on criteria in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Lee Enterprises, Incorporated and subsidiaries as of September 26, 2010
and September 27, 2009, and the related consolidated statements of operations and comprehensive income (loss),
stockholders' equity, and cash flows for each of the 52-week periods ended September 26, 2010, September 27, 2009,
and September 28, 2008, and our report dated December 10, 2010, expressed an unqualified opinion on those
consolidated financial statements.
/s/ KPMG LLP
Chicago, Illinois
December 10, 2010
37
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 our executive officers included under the
caption “Executive Team” in Part I of this Form 10-K, is included in our Proxy Statement to be filed in January 2011,
which is incorporated herein by reference, under the captions “Proposal 1 - Election of Directors” and “Section 16(a)
Beneficial Ownership Reporting Compliance”. Our executive officers are those elected officers whose names and
certain information are set forth under the caption “Executive Team” in Part 1 of this Annual Report on Form 10-K.
We have a Code of Business Conduct and Ethics ("Code") that applies to all of our employees, including our principal
executive officer, and principal financial and accounting officer. The Code is monitored by the Audit Committee of our
Board of Directors and is annually affirmed by our directors and executive officers. We maintain a corporate governance
page on our 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 us from, a provision of the Code will be posted on our website.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this Item is included in our Proxy Statement to be filed in January 2011, 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 our Proxy Statement to be filed in January 2011, which is incorporated
herein by reference, under the caption “Voting Securities and Principal Holders Thereof” and “Equity Compensation
Plan Information”.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
AND DIRECTOR INDEPENDENCE
Information with respect to this Item is included in our Proxy Statement to be filed in January 2011, which is incorporated
herein by reference, under the caption “Directors' Meetings and Committees of the Board of Directors”.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information with respect to this Item is included in our Proxy Statement to be filed in January 2011, which is incorporated
herein by reference, under the caption “Relationship with Independent Registered Public Accounting Firm”.
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 26, 2010,
September 27, 2009 and September 28, 2008
Consolidated Balance Sheets - September 26, 2010 and September 27, 2009
Consolidated Statements of Stockholders' Equity - Years ended September 26, 2010, September 27, 2009 and
September 28, 2008
Consolidated Statements of Cash Flows - Years ended September 26, 2010, September 27, 2009 and
September 28, 2008
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
38
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, included herein.
EXHIBITS
See Exhibit Index, included herein.
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 10th day of December 2010.
LEE ENTERPRISES, INCORPORATED
/s/ Mary E. Junck
Mary E. Junck
/s/ Carl G. Schmidt
Carl G. Schmidt
Chairman, President and Chief Executive Officer
Vice President, Chief Financial Officer and Treasurer
(Principal Executive Officer)
(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 10th day of December 2010.
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/ Brent Magid
Brent Magid
/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/ Carl G. Schmidt
Carl G. Schmidt
/s/ Mark B. Vittert
Mark B. Vittert
Director
Director
Director
Chairman, President and Chief Executive Officer,
and Director
Director
Director
Director
Director
Director
Vice President - Interactive Media, and Director
Vice President, Chief Financial Officer and Treasurer
Director
39
EXHIBIT INDEX
Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by us with the SEC,
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 *
3.1 *
3.2 *
4 *
10.1 *
10.2 *
10.3 *
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)
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 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 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 on May 26, 1998 (File
No. 1-6227), as supplemented by Form 8-A/A, Amendment No. 1, filed 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)
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)
10.4 *
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)
40
Number
10.5 *
10.6 *
10.7 *
10.8 *
10.9 *
10.10 *
10.11 *
10.12 *
10.13 *
10.14 *
10.15 *
10.16 *
10.17 *
10.18 *
Description
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)
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)
41
Number
10.19 *
10.20 *
10.21 *
10.22 *
10.23 *
10.24 *
10.25 *
10.26 *
10.27 *
10.28 *
10.29 *
10.30*
10.31*
10.32*
10.33 *
10.34 *
10.35 *
Description
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)
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)
Amended and Restated Partnership Agreement, dated as of November 30, 2009, between Star Publishing
Company and Citizen Publishing Company (Exhibit 10.2 to Form 10-Q for the Fiscal Quarter Ended
December 27, 2009)
Amended and Restated Management Agreement, dated as of November 30, 2009, between Star
Publishing Company and Citizen Publishing Company (Exhibit 10.1 to Form 10-Q for the Fiscal Quarter
Ended December 27, 2009)
License Agreement (Star), as amended and restated November 30, 2009, between Star Publishing
Company and TNI Partners (Exhibit 10.3 to Form 10-Q for the Fiscal Quarter Ended December 27, 2009)
License Agreement (Citizen), as amended and restated November 30, 2009, between Citizen Publishing
Company and TNI Partners (Exhibit 10.4 to Form 10-Q for the Fiscal Quarter Ended December 27, 2009)
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)
10.36 +*
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)
42
Number
10.37.1 +*
10.37.2 +*
10.38 +*
10.39 +*
10.40 +*
10.41 +*
10.42 +*
10.43 +*
10.44 +*
21
23.1
23.2
23.3
24
31.1
31.2
32
Description
Amended and Restated Lee Enterprises, Incorporated 1990 Long-Term Incentive Plan (effective October
1, 1999, as amended effective January 6, 2010) (Exhibit B to Schedule 14A Definitive Proxy Statement
for 2010)
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)
Amended and Restated Lee Enterprises, Incorporated 1996 Stock Plan for Non-Employee Directors
Effective February 17, 2010 (Exhibit A to Schedule 14A Definitive Proxy Statement for 2010)
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 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
43
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
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
Report of Independent Registered Public Accounting Firm
45
46
48
49
50
81
44
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Thousands of Dollars, Except Per Common Share Data)
2010
2009
2008
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
Workforce adjustments and transition costs
Total operating expenses
Curtailment gains
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) before income taxes
Income tax expense (benefit)
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)
Net income attributable to non-controlling interests
Decrease (increase) in redeemable non-controlling interest
Income (loss) attributable to Lee Enterprises, Incorporated
Other comprehensive income (loss), net
Comprehensive income (loss)
560,104
179,851
40,693
780,648
315,698
54,436
238,191
27,971
45,208
3,290
1,420
686,214
45,012
7,746
—
147,192
411
(63,117)
(8,514)
(1,172)
(72,392)
74,800
28,622
46,178
—
—
46,178
(73)
—
46,105
(14,704)
31,401
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)
(180,062)
—
(5)
(180,067)
(179)
57,055
(123,191)
(21,839)
(145,030)
783,699
195,457
49,712
1,028,868
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)
(871,228)
84
201
(870,943)
(535)
(8,838)
(880,316)
1,001
(879,315)
Income (loss) from continuing operations attributable to Lee Enterprises,
Incorporated
46,105
(123,186)
(880,601)
Earnings (loss) per common share:
Basic:
Continuing operations
Discontinued operations
Diluted:
Continuing operations
Discontinued operations
Dividends per common share
1.03
—
1.03
1.03
—
1.03
—
(2.77)
—
(2.77)
(2.77)
—
(2.77)
—
(19.65)
0.01
(19.64)
(19.65)
0.01
(19.64)
0.76
The accompanying Notes are an integral part of the Consolidated Financial Statements.
45
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
ASSETS
Current assets:
September 26
2010
September 27
2009
Cash and cash equivalents
19,422
7,905
Accounts receivable, less allowance for doubtful accounts:
2010 $5,763; 2009 $6,275
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
77,558
—
10,822
2,687
11,128
79,731
5,625
13,854
3,638
7,354
121,617
118,107
58,122
9,623
9,594
77,339
28,075
194,344
316,697
811
539,927
304,527
235,400
433,552
558,140
14,068
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
Total assets
1,440,116
1,515,612
The accompanying Notes are an integral part of the Consolidated Financial Statements.
46
(Thousands of Dollars and Shares, Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt
Accounts payable
Compensation and other accrued liabilities
Income taxes payable
Unearned revenue
Total current liabilities
Long-term debt, net of current maturities
Pension obligations
Postretirement and postemployment benefit obligations
Deferred income taxes
Income taxes payable
Other
Total liabilities
Stockholders' equity:
September 26
2010
September 27
2009
81,500
30,529
38,117
1,082
36,624
187,852
1,000,927
54,566
9,979
102,616
11,919
15,150
89,800
31,377
42,755
—
37,001
200,933
1,079,993
45,953
40,687
93,766
12,839
17,591
1,383,009
1,491,762
Serial convertible preferred stock, no par value; authorized 500 shares; none
issued
Common Stock, $2 par value; authorized 120,000 shares; issued and
outstanding:
—
—
78,554
78,278
2010; 39,277 shares;
2009; 39,139 shares
Class B Common Stock, $2 par value; authorized 30,000 shares; issued and
outstanding:
11,352
11,552
2010; 5,676 shares;
2009; 5,776 shares
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income
Total stockholders' equity
Non-controlling interests
Total equity
Total liabilities and equity
139,460
(179,194)
6,651
56,823
284
57,107
137,713
(225,299)
21,354
23,598
252
23,850
1,440,116
1,515,612
The accompanying Notes are an integral part of the Consolidated Financial Statements.
47
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Thousands of Dollars and Shares)
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 compensation
Income tax expense related to stock
compensation
Shares redeemed
Balance, end of year
Retained earnings (accumulated deficit):
Balance, beginning of year
Net income (loss)
Net income attributable to non-
controlling interests
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:
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
Amount
Shares
2010
2009
2008
2010
2009
2008
78,278
78,222
79,958
39,139
39,111
39,979
200
190
(114)
78,554
11,552
(200)
11,352
406
82
(432)
78,278
11,958
(406)
11,552
458
1,404
(3,598)
78,222
12,416
(458)
11,958
100
95
(57)
39,277
5,776
(100)
5,676
203
41
(216)
39,139
5,979
(203)
5,776
229
702
(1,799)
39,111
6,208
(229)
5,979
137,713
1,911
134,289
3,440
132,090
6,176
—
(164)
139,460
—
(16)
137,713
(3,413)
(564)
134,289
(225,299)
46,178
(112,144)
(180,067)
819,786
(870,943)
(73)
—
—
—
—
—
(179,194)
(179)
—
—
(267)
67,358
—
(225,299)
(535)
(15,472)
(1,733)
—
(8,838)
(34,409)
(112,144)
21,354
43,193
42,192
2,334
1,004
(4,776)
—
(680)
72
(26,179)
—
9,142
6,651
56,823
(33,897)
(903)
12,637
21,354
23,598
8,354
—
(2,649)
43,193
155,518
44,953
44,915
45,090
The accompanying Notes are an integral part of the Consolidated Financial Statements.
48
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
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
Curtailment gains
Reduction in investment in TNI
Accretion of debt fair value adjustment
Stock compensation expense
Distributions greater (less) than earnings of associated companies
Deferred income tax expense (benefit)
Debt financing costs
Changes in operating assets and liabilities:
Decrease in receivables
Decrease (increase) in inventories and other
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
Decrease (increase) in restricted cash
Proceeds from sale of assets
Acquisitions, net
Other
Net cash provided by (required for) investing activities of continuing
operations
Cash provided by (required for) financing activities of continuing
operations:
Proceeds from long-term debt
Payments on long-term debt
Debt financing costs paid
Cash dividends paid
Common stock transactions, net
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
2010
2009
2008
46,178
—
46,178
73,179
3,290
(45,012)
—
(621)
1,974
334
18,943
8,480
7,798
3,031
(180,067)
(5)
(180,062)
79,599
245,953
—
19,951
(3,807)
3,013
(609)
(78,500)
17,467
15,174
3,866
(870,943)
285
(871,228)
91,078
1,070,808
—
104,478
(7,990)
5,905
1,772
(261,738)
3,505
19,777
(4,875)
(6,450)
(39,067)
(18,304)
(3,261)
162
(1,454)
106,571
—
—
(9,458)
(299)
2,332
—
(265)
(7,690)
83,800
(170,545)
(453)
—
(166)
(87,364)
—
—
11,517
7,905
19,422
(6,677)
(4,208)
1,964
74,057
(47,777)
166,109
(11,555)
(2,291)
1,418
—
3,081
(315)
5,125
(1,386)
136,612
(115,555)
87,873
(20,606)
13,771
12,685
(1,624)
8,493
108,985
(14,963)
195,950
(359,990)
(26,061)
(8,539)
49
(198,591)
(5)
—
(15,554)
23,459
7,905
134,400
(197,650)
—
(32,573)
(17,537)
(113,360)
(8,741)
23,911
23,459
—
23,459
The accompanying Notes are an integral part of the Consolidated Financial Statements.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
References to "we", "our", "us" and the like throughout the Consolidated Financial Statements refer to Lee Enterprises,
Incorporated (the "Company").
Lee Enterprises, Incorporated 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 digital products and nearly 300
weekly newspapers and specialty publications in 23 states. We currently operate in a single operating segment.
1
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Consolidated Financial Statements include our accounts and those of our subsidiaries, all of which are wholly-
owned, except for our 50% interest in TNI Partners (“TNI”), 50% interest in Madison Newspapers, Inc. (“MNI”) and
82.5% interest in INN Partners, L.C. (“INN”).
Certain amounts as previously reported have been reclassified to conform with the current year presentation. See
Note 3.
References to 2010, 2009, 2008 and the like mean the fiscal years ended the last Sunday in September.
Subsequent Events
We have evaluated subsequent events through December 10, 2010. The Annual Report on Form 10-K was filed with
the Securities and Exchange Commission on December 10, 2010, which is the date the Consolidated Financial
Statements were issued. No events have occurred subsequent to September 26, 2010 that require disclosure or
recognition in these financial statements, except as included herein.
Accounting Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles ("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
All significant intercompany transactions and balances have been eliminated.
Investments in TNI and MNI are accounted for using the equity method and are reported at cost plus our share of
undistributed earnings since acquisition less, for TNI, amortization of intangible assets.
Cash and Cash Equivalents
We consider 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
We evaluate our 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 26, 2010 and September 27, 2009 are less than
replacement cost by $3,486,000 and $1,693,000, respectively.
50
The components of newsprint inventory by cost method are as follows:
(Thousands of Dollars)
First-in, first-out
Last-in, first-out
September 26
2010
September 27
2009
2,615
5,131
7,746
3,309
6,798
10,107
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 discussed more fully (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 (which was reduced to $4,500,000 in October 2010) to facilitate the
liquidity of the operations of Pulitzer. Investments 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 insertion 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 insertion equipment
Other
Years
5 - 54
2 - 28
3 - 20
We capitalize interest as a component of the cost of constructing major facilities. At September 26, 2010 and
September 27, 2009, capitalized interest was not significant.
We recognize 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 using the straight line method as
follows:
Customer lists
Newspaper subscriber lists
Noncompete and consulting agreements
Years
5 - 23
7 - 33
5 - 15
In assessing the recoverability of goodwill and other nonamortized intangible assets, we make a determination of the
fair value of our 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. A non-cash impairment charge will generally be recognized when the
51
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 us. 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.
We analyze 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.
We review our amortizable intangible assets for impairment when indicators of impairment are present. We assess
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.
We also periodically evaluate the useful lives of amortizable intangible assets. Any resulting changes in the useful
lives of such intangible assets will not impact our cash flows. 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, we also recognized minority interest in the earnings of St. Louis Post-Dispatch LLC (“PD LLC”)
and STL Distribution Services LLC (“DS LLC”). As discussed more fully (and certain capitalized terms used below
defined) in Notes 7 and 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, we recorded the repurchase obligation for the minority interest in PD LLC and DS LLC and elected the accretion
method under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("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
of 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 digital product.
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 our advertising and promotion expense consists of ads placed in our own publications and
digital products using available space. The incremental cost of such advertising is not significant and is not measured
separately by us. External advertising costs are not significant and are expensed as incurred.
Pension, Postretirement and Postemployment Benefit Plans
We evaluate our liabilities 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 we used different estimates and assumptions regarding these plans, the funded status of the plans could
52
vary significantly, resulting in recognition of different amounts of expense over future periods.
For 2010 and 2009, we used a fiscal year end measurement date for all our pension and postretirement obligations
in accordance with FASB ASC Topic 715, Retirement Plans. In 2008, we 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 our opinion,
it is more likely than not 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.
We recognize 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. We record
interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Interest Rate Exchange Agreements
Until 2009, we 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. We 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 2010, all interest rate swaps and collars expired or were terminated and the full amount of the outstanding balance
under the Credit Agreement, as discussed more fully in Note 7, as of September 26, 2010 has been subject to floating
interest rates. In 2009, we marked all interest rate exchange agreements to market, which resulted in recognition of
interest expense of $268,000.
Stock Compensation
We have four stock-based compensation plans. We account for grants under those plans under the fair value expense
recognition provisions of FASB ASC Topic 718, Compensation-Stock Compensation. We amortize 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
We are self-insured for health care, workers compensation and certain long-term disability costs of our employees,
subject to stop loss insurance, which limits exposure to large claims. We accrue our 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 performance bonds totaling $7,460,000
at September 26, 2010 are outstanding in support of our insurance program.
Our 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 businesses 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.
53
In 2008, we 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.
These acquisitions did not have a material effect on the Consolidated Financial Statements.
3
DISCONTINUED OPERATIONS
In 2008, we sold our 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 years presented.
Results of discontinued operations consist of the following:
(Thousands of Dollars)
Operating revenue
Income from discontinued operations
Gain (loss) on sale of discontinued operations, before income taxes
Income tax expense (benefit), net
2009
—
—
(8)
(3)
(5)
2008
1,376
128
5,786
5,629
285
Income tax expense related to discontinued operations differs from the amounts computed by applying the U.S. federal
income tax rate as follows:
(Percent)
Computed “expected” income tax expense (benefit)
State income taxes (benefit), net of federal income tax impact
Other, primarily goodwill basis differences
2009
(35.0)
(3.0)
0.5
(37.5)
2008
35.0
3.0
57.2
95.2
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 our 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 digital 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.
54
Summarized financial information of TNI is as follows:
(Thousands of Dollars)
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 of Dollars)
Operating revenue
Operating expenses, excluding depreciation and amortization
Company's 50% share
Less amortization of intangible assets
Equity in earnings of TNI
September 26
2010
September 27
2009
7,812
32
7,844
5,109
2,735
7,844
2009
74,407
66,535
7,872
3,936
1,425
2,511
6,772
19
6,791
5,431
1,360
6,791
2008
98,156
76,978
21,178
10,589
4,418
6,171
2010
64,379
53,707
10,672
5,336
1,156
4,180
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 our Consolidated Statements
of Operations and Comprehensive Income (Loss). These amounts totaled $291,000, $1,184,000, and $1,337,000, in
2010, 2009, and 2008, respectively. Fees for editorial services provided to TNI by Star Publishing totaled $7,510,000,
$8,594,000, and $9,298,000 in 2010, 2009 and 2008, respectively.
Our 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.
At September 26, 2010, the carrying value of the Company's 50% investment in TNI is $34,324,000. The difference
between our carrying value and our 50% share of the members' equity of TNI relates principally to goodwill of
$19,876,000 and other identified intangible assets of $12,634,000, certain of which are being amortized over their
estimated useful lives through 2020. See Note 6.
Annual amortization of intangible assets for the five years ending September 2015 is estimated to be $1,215,000,
$1,215,000, $1,113,000, $911,000 and $911,000, respectively.
Madison Newspapers, Inc.
We have 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 digital sites. Net income or loss of MNI
(after income taxes) is allocated equally to us 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.
55
Summarized financial information of MNI is as follows:
(Thousands of Dollars)
ASSETS
Current assets
Investments and other assets
Property and equipment, net
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Other liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Summarized results of MNI are as follows:
(Thousands of Dollars)
Operating revenue
Operating expenses, excluding depreciation and amortization
Operating income
Net income
Company's 50% share of net income
September 26
2010
September 27
2009
20,284
30,982
10,013
61,279
8,583
5,100
47,596
61,279
2010
75,137
61,763
11,002
7,132
3,566
2009
79,291
68,296
7,755
5,218
2,609
17,677
31,481
11,346
60,504
7,941
4,299
48,264
60,504
2008
100,352
84,345
11,949
8,080
4,040
Fees for editorial, marketing and information technology services provided to MNI by us are included in other revenue
in the Consolidated Statements of Operations and Comprehensive Income (Loss) and totaled $8,764,000, $10,151,000
and $11,095,000, in 2010, 2009 and 2008, respectively.
Certain other information relating to our investment in MNI is as follows:
(Thousands of Dollars)
Company's share of:
Stockholders' equity
Undistributed earnings
September 26
2010
September 27
2009
23,798
23,548
24,132
23,882
5
MARKETABLE SECURITIES AVAILABLE-FOR-SALE
In 2009, we sold our available for sale securities, which totaled $119,027,000 at September 28, 2008, and used the
proceeds primarily to reduce debt. See Note 7.
Proceeds from the sale of such securities total $166,109,000 in 2009 and $87,873,000 in 2008. We 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.
56
6
GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill related to continuing operations are as follows:
(Thousands of Dollars)
Goodwill, gross amount
Accumulated impairment losses
Goodwill, beginning of year
Impairment
Goodwill, end of year
2010
2009
1,536,000
(1,102,448)
433,552
—
433,552
1,536,000
(908,977)
627,023
(193,471)
433,552
Identified intangible assets related to continuing operations consist of the following:
(Thousands of Dollars)
Nonamortized intangible assets:
Mastheads
Amortizable intangible assets:
Customer and newspaper subscriber lists
Less accumulated amortization
Noncompete and consulting agreements
Less accumulated amortization
September 26
2010
September 27
2009
44,754
44,754
885,713
372,337
513,376
28,658
28,648
10
558,140
885,713
327,133
558,580
28,658
28,644
14
603,348
Due primarily to the continuing, and (at the time) increasing difference between our stock price and the per share
carrying value of our net assets, we analyzed the carrying value of our net assets in 2008 and again in 2009. Deterioration
in our revenue and the overall recessionary operating environment for us and other publishing companies were also
factors in the timing of the analyses.
As a result, we recorded pretax, non-cash charges to reduce the carrying value of goodwill, nonamortized and
amortizable intangible assets in 2008 and 2009. Additional pretax, non-cash charges were recorded to reduce the
carrying value of TNI. We also recorded pretax, non-cash charges to reduce the carrying value of property and
equipment in 2008, 2009 and 2010. We recorded deferred income tax benefits related to these charges.
A summary of impairment charges is included in the table below:
(Thousands of Dollars)
Goodwill
Nonamortized intangible assets
Amortizable intangible assets
Property and equipment
Reduction in investment in TNI
2010
2009
2008
—
—
—
3,290
3,290
—
3,290
193,471
14,055
33,848
4,579
908,977
13,027
143,785
5,019
245,953
1,070,808
19,951
104,478
265,904
1,175,286
Annual amortization of intangible assets for the five years ending September 2015 is estimated to be $44,570,000,
$42,716,000, $39,139,000, $38,987,000, and $38,554,000, respectively.
57
7
DEBT
Credit Agreement
In 2006, we 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, we 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 our
existing and future, direct and indirect subsidiaries in which we hold a direct or indirect interest of more than 50% (the
“Credit Parties”); provided however, that our wholly-owned subsidiary Pulitzer Inc. ("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.
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, our 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 $635,665,000 at September 26, 2010, and the $375,000,000
revolving credit facility which has a balance of $285,425,000 at September 26, 2010, bear interest, at our 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 our 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 26, 2010, all of our outstanding debt under the Credit Agreement is based
on one month borrowing. At the September 26, 2010 leverage level, our debt under the Credit Agreement is priced at
1.25% plus a LIBOR margin of 2.875%.
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 our total leverage ratio exceeds 7.5:1 at the end of the previous quarter. At
September 26, 2010, 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 our total leverage ratio is below 6.0:1 in September
2011 or we refinance the Credit Agreement in advance of its April 2012 maturity.
Principal Payments
We 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. We are required to repay principal amounts, on a quarterly basis until maturity, under the A
Term Loan. Total A Term Loan payments in 2010 and 2009 were $79,220,000 and $104,490,000, respectively. The
2009 Amendments reduce the amount and delay the timing of mandatory principal payments under the A Term Loan.
Payments due in 2011 total $65,000,000. Payments due in 2012 prior to the April 2012 maturity total $70,000,000.
The scheduled payment at maturity is $500,665,000, plus the balance of the revolving credit facility outstanding at that
time.
In addition to the scheduled payments, we are required to make mandatory prepayments under the A Term Loan under
certain other conditions. The Credit Agreement requires us to apply the net proceeds from asset sales to repayment
of the A Term Loan. In 2010 and 2009, we made payments totaling $1,420,000 and $440,000, respectively, related to
this provision.
58
The Credit Agreement also requires us to accelerate future payments under the A Term Loan in the amount of 75% of
our annual excess cash flow, as defined. We had no excess cash flow in 2010 or 2009. We 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.
Covenants and Other Matters
its type. At
The Credit Agreement contains customary affirmative and negative covenants for
September 26, 2010, we were 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
totals $1,081,590,000 at September 26, 2010, 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 and
curtailment gains.
financing of
The 2009 Amendments amended our covenants to take into account economic conditions and the changes to
leverage ratio at September 26, 2010 was 4.92:1. Under the 2009
amortization of debt noted above. Our total
Amendments, our maximum total leverage ratio limit will decrease from 7.75:1 in September 2010 to 7.5:1 in December
2010, decrease to 7.25:1 in March 2011, decrease to 7.0:1 in June 2011 and decrease to 6.75:1 in September 2011.
Each change in the maximum total leverage ratio noted above is effective on the last day of the quarter.
The Credit Agreement also includes a minimum interest expense coverage ratio, as defined, which is based on the
same measure of trailing 12 month operating results noted above. Our interest expense coverage ratio at September 26,
2010 was 3.11:1. The minimum interest expense coverage ratio is 1.55:1 in September 2010 and will
increase
periodically thereafter until it reaches 2.25:1 in March 2012.
The 2009 Amendments required us 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 our 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 or our future cash flows 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, of which $160,500,000 remains outstanding at September 26, 2010, 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 their 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,
our 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, at
which time it increased to 9.55%. 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 consent from the Noteholders and the
Lenders, 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,
59
2009 and an additional principal payment from restricted cash of $4,500,000 in October 2010. In 2010 and 2009, all
payments due were made prior to the end of the previous fiscal quarter.
In addition to the scheduled payments, we are required to make mandatory payments under the Pulitzer Notes under
certain other conditions. The Notes Amendment requires us to apply the net proceeds from asset sales to repayment
of the Pulitzer Notes. In 2010, we made a $500,000 payment related to this provision.
The Notes Amendment establishes a reserve of restricted cash of up to $9,000,000 (which was reduced 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. In 2010, a principal prepayment of $1,000,000 was made under the Pulitzer Notes from excess cash
flow of Pulitzer. There was no excess cash flow in 2009.
The Pulitzer Notes contain certain covenants and conditions including the maintenance, by Pulitzer, of the maximum
ratio of debt to EBITDA (limit of 3.5:1 at September 26, 2010), 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 (limit of 2.7:1 at September 26, 2010), 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 26, 2010, 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 26, 2010, the
unaccreted balance totals $837,000. 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
At September 26, 2010, we had $285,425,000 outstanding under the revolving credit facility, and after consideration
of the 2009 Amendments and letters of credit, have approximately $75,677,000 available for future use. Including cash
and restricted cash, our liquidity at September 26, 2010 totals $104,722,000. This liquidity amount excludes any future
cash flows. Mandatory principal payments on debt in 2011 total $81,500,000. Since February 2009, we have satisfied
all interest payments and substantially all principal payments due under our debt facilities with our cash flows. We
expect all interest and principal payments due in 2011 will be satisfied by our continuing cash flows, which will allow
us to maintain, or increase, the current level of liquidity.
Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and
to refinance or amend our debt agreements as they become due, or earlier if available liquidity is consumed. We are
in compliance with our debt covenants at September 26, 2010.
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, as defined, occurs and is not remedied. Many of those
consequences are beyond our control, and the control of 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 discussed more fully in Note 19, eliminated the potential requirement for a substantial cash
outflow in April 2010. This event also substantially enhanced our liquidity.
In 2010, we filed a Form S-3 shelf registration statement ("Shelf") with the SEC, which has been declared effective.
The Shelf gives us the flexibility to issue and publicly distribute various types of securities, including preferred stock,
60
common stock, secured or unsecured debt securities, purchase contracts and units consisting of any combination of
such securities, from time to time, in one or more offerings, up to an aggregate amount of $750,000,000. The Shelf
enables us to sell securities quickly and efficiently when market conditions are favorable or financing needs arise. Net
proceeds from the sale of any securities must be used generally to reduce debt subject to conditions of existing debt
agreements.
Other
In 2009, we 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 26, 2010, we have total unamortized financing costs of $11,797,000.
Debt is summarized as follows:
(Thousands of Dollars)
Credit Agreement:
A Term Loan
Revolving credit facility
Pulitzer Notes:
Principal amount
Unaccreted fair value adjustment
Less current maturities
Balance
September 26
2010
September 27
2009
Interest Rate
September 26
2010
635,665
285,425
160,500
837
1,082,427
81,500
1,000,927
714,885
275,450
178,000
1,458
1,169,793
89,800
1,079,993
4.125
4.125
9.55
At September 26, 2010, our weighted average cost of debt is 4.93%.
Aggregate maturities of debt in 2011 and 2012 are $81,500,000 and $1,000,090,000, respectively.
8
INTEREST RATE EXCHANGE AGREEMENTS
At September 27, 2009, we 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 our interest rate on debt in the amounts, and for the time periods, of such instruments.
In 2008, we 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 our
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, we recorded a liability of $3,445,000 related to the fair value of such instruments. In 2009, we
marked all interest rate change agreements to market, which resulted in recognition of interest expense of $268,000.
61
The Company's interest rate exchange agreements at September 27, 2009 consisted of the following:
(Thousands of Dollars)
Notional Amount
Start Date
Maturity Date
Rate(s)
Fair Value
VARIABLE TO FIXED RATE SWAPS
COLLARS
50,000
50,000
25,000
125,000
75,000
75,000
150,000
November 30, 2005
November 30, 2009
November 30, 2005
November 30, 2009
November 30, 2005
November 30, 2010
4.315
4.325
4.395
November 30, 2007
November 30, 2009
November 30, 2007
November 30, 2009
3.53-5.00
3.61-5.00
(514)
(501)
(1,177)
(2,192)
(618)
(635)
(1,253)
In November 2009, we terminated the $25,000,000 interest rate swap maturing in November 2010. We paid $1,243,000
to the counterparty in settlement and recognized a loss of $713,000.
Since November 30, 2009, the full amount of the outstanding balance under the Credit Agreement has been subject
to floating interest rates as all interest rate swaps and collars expired or were terminated at or prior to that date. At
September 26, 2010, approximately 85% of the principal amount of our debt is subject to floating interest rates.
9
PENSION PLANS
We have several noncontributory defined benefit pension plans that together cover selected employees. Benefits under
the plans are generally based on salary and years of service. Our 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.
For 2010 and 2009, we used a fiscal year end measurement date for all of our pension obligations in accordance with
FASB ASC Topic 715. In 2008 we used a June 30 measurement date. The change in the measurement date resulted
in a decrease to the pension liability of $260,000, a decrease of $591,000 to accumulated deficit and a decrease of
$331,000 to other comprehensive income.
The cost components of our pension plans are as follows:
(Thousands of Dollars)
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
Net periodic pension cost (benefit)
2010
792
8,888
(9,568)
453
(136)
(2,004)
(1,575)
2009
1,076
9,550
(11,669)
(1,181)
(137)
—
(2,361)
2008
1,501
9,333
(13,743)
(1,697)
(132)
—
(4,738)
Net periodic pension benefit of $122,000, $122,000 and $238,000 is allocated to TNI in 2010, 2009 and 2008,
respectively.
62
Changes in benefit obligations and plan assets are as follows:
(Thousands of Dollars)
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial loss
Benefits paid
Adjustment for FASB ASC Topic 715
Curtailment gain
Benefit obligation, end of year
Fair value of plan assets, beginning of year:
Actual return on plan assets
Benefits paid
Administrative expenses paid
Adjustment for FASB ASC Topic 715
Fair value of plan assets, end of year
Funded status - benefit obligation in excess of plan assets
Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:
2010
167,880
792
8,888
13,615
(10,992)
—
(2,004)
178,179
124,177
14,067
(10,992)
(1,788)
—
125,464
52,715
2009
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
(Thousands of Dollars)
Pension obligations
Accumulated other comprehensive loss (before income taxes)
Amounts recognized in accumulated other comprehensive income are as follows:
(Thousands of Dollars)
Unrecognized net actuarial loss
Unrecognized prior service benefit
September 26
2010
September 27
2009
52,715
(29,209)
43,703
(18,621)
September 26
2010
September 27
2009
(30,409)
1,200
(29,209)
(19,958)
1,337
(18,621)
We expect to recognize $852,000 and $137,000 of unrecognized net actuarial loss and unrecognized prior service
benefit, respectively, in net periodic pension cost in 2011.
The accumulated benefit obligation for the plans total $177,472,000 at September 26, 2010 and $165,070,000 at
September 27, 2009. 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 $178,179,000, $177,472,000, and
$125,464,000, respectively, at September 26, 2010.
Assumptions
Weighted-average assumptions used to determine benefit obligations are as follows:
(Percent)
Discount rate
Rate of compensation increase
September 26
2010
September 27
2009
4.8
3.5
5.5
3.5
63
Weighted-average assumptions used to determine net periodic benefit cost are as follows:
(Percent)
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
2010
5.5
8.0
3.5
2009
6.75
8.0
3.5
2008
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 primary objective of our investment strategy is to satisfy our pension obligations at a reasonable cost. Assets are
actively invested to balance real growth of capital through appreciation and reinvestment of dividend and interest
income and safety of invested funds.
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 our 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 weighted-average asset allocation of our pension assets is as follows:
(Percent)
Asset Class
Equity securities
Debt securities
Cash and cash equivalents
Actual Allocation
Policy Allocation
September 26
2010
September 27
2009
65 to 70
30 to 35
70
25
5
71
29
—
Plan assets include no Company securities. Assets include cash and cash equivalents from time to time due to the
need to reallocate assets within policy guidelines. In October 2010, asset allocation was again within such guidelines.
Fair Value Measurements
The fair value hierarchy of pension assets at September 26, 2010 is as follows:
(Thousands of Dollars)
Cash and cash equivalents
Domestic equity securities
International equity securities
Debt securities
Quoted Prices in
Active Markets
(Level 1)
6,929
22,674
—
—
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
—
45,798
18,829
31,234
(Level 3)
—
—
—
—
Valuation methodologies used for investments measured at fair value are as follows:
Cash and cash equivalents consist of short term deposits valued based on quoted prices in active markets.
Such investments are classified as Level 1.
Equity securities are valued based on the closing market price in an active market and are classified as
Level 1. Certain investments in commingled funds are valued at the net asset value of units held at the
end of the period based upon the value of the underlying investments as determined by quoted market
prices. Such investments are classified as Level 2.
Debt securities consist of corporate bonds and government securities that are valued based upon quoted
64
market prices. Such investments are classified as Level 1. Certain investments in commingled funds are
valued at the net asset value of units held at the end of the period based upon the value of the underlying
investments as determined by quoted market prices. Such investments are classified as Level 2.
There were no purchases, sales or transfers of assets classified as Level 3 in 2010.
Cash Flows
Based on our forecast at September 26, 2010, we expect to make contributions totaling $2,137,000 to our pension
trust in 2011.
We anticipate future benefit payments to be paid from the pension trust as follows:
(Thousands of Dollars)
2011
2012
2013
2014
2015
2016-2020
Other Plans
11,277
11,047
11,089
11,133
11,130
56,235
We are 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 $2,217,000 and $2,617,000
at September 26, 2010 and September 27, 2009, respectively.
Certain of our employees participate in multi-employer retirement plans sponsored by their respective bargaining units.
The amount charged to operating expense, representing our required contributions to these plans, is approximately
$497,000 in 2010, $529,000 in 2009 and $2,230,000 in 2008.
In 2010, we received a request for withdrawal from a multi-employer plan in the amount of $1,637,000. A liability for
the withdrawal was previously accrued and is expected to be paid in 2011.
10
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
We provide retiree medical and life insurance benefits under postretirement plans at several of our 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. Our liability and related expense
for benefits under the postretirement plans are recorded over the service period of active employees based upon
annual actuarial calculations. We accrue 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, we adopted the recognition and disclosure provisions of FASB ASC Topic 715,
Retirement Plans. FASB ASC Topic 715 requires us to recognize the over-funded or under-funded status of a defined
benefit postretirement plan as an asset or liability in our Consolidated Balance Sheets and recognize 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 2010 and 2009, we used a fiscal year end measurement date for all of our postretirement obligations in accordance
with FASB ASC Topic 715. In 2008, we 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, an increase of $858,000 to accumulated deficit
and a decrease of $572,000 to other comprehensive income.
65
The net periodic postretirement benefit cost components for our postretirement plans are as follows:
(Thousands of Dollars)
Service cost for benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of net actuarial gain
Amortization of prior service benefit
Curtailment gains
Net periodic postretirement benefit cost (benefit)
Changes in benefit obligations and plan assets are as follows:
2010
361
2,971
(2,274)
(2,447)
(1,994)
(43,008)
(46,391)
(Thousands of Dollars)
Benefit obligation, beginning of year
Service cost
Interest cost
Actuarial gain
Benefits paid, net of premiums received
Changes in plan provisions
Curtailment
Medicare Part D subsidies
Reclassifications
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, net of premiums and Medicare Part D subsidies received
Adjustment for FASB ASC Topic 715
Fair value of plan assets at measurement date
Funded status - benefit obligation in excess of plan assets
Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:
2009
770
5,022
(2,409)
(2,760)
(2,197)
—
(1,574)
2010
80,947
361
2,971
2,352
(3,330)
(5,065)
(30,260)
340
2,166
—
50,482
41,053
1,212
2,172
(2,990)
—
41,447
9,035
2008
2,100
6,610
(2,194)
(633)
(233)
—
5,650
2009
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
(Thousands of Dollars)
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 of Dollars)
Unrecognized net actuarial gain
Unrecognized prior service benefit
September 26
2010
September 27
2009
2,360
6,675
42,415
2,640
37,254
57,954
September 26
2010
September 27
2009
31,055
11,360
42,415
36,917
21,037
57,954
We expect to recognize $2,622,000 and $1,266,000 of unrecognized net actuarial gain and unrecognized prior service
66
benefit, respectively, in net periodic postretirement benefit cost in 2011.
Assumptions
Weighted-average assumptions used to determine benefit obligations are as follows:
(Percent)
Discount rate
Expected long-term return on plan assets
September 26
2010
September 27
2009
4.8
5.75
5.5
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:
(Percent)
Discount rate
Expected long-term return on plan assets
Assumed health care cost trend rates are as follows:
2010
5.5
5.75
2009
6.75
5.75
2008
5.75
5.0
(Percent)
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
September 26
2010
September 27
2009
11.0
4.0
2017
9.0
5.0
2013
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 plans.
A one percentage point change in assumed health care cost trend rates would have the following annualized effects
on reported amounts for 2010:
(Thousands of Dollars)
Effect on net periodic postretirement benefit cost
Effect on postretirement benefit obligation
Plan Assets
One Percentage Point
Increase
Decrease
212
4,215
(185)
(3,680)
The primary objective of our investment strategy is to satisfy our postretirement obligations at a reasonable cost. Assets
are actively invested to balance real growth of capital through appreciation and reinvestment of dividend and interest
income and safety of invested funds.
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 our 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.
67
The weighted-average asset allocation of our postretirement assets is as follows:
(Percent)
Asset Class
Equity securities
Debt securities
Actual Allocation
Policy Allocation
September 26
2010
September 27
2009
0-10
90-100
11
89
3
97
Plan assets include no Company securities.
Fair Value Measurements
The fair value hierarchy of postretirement assets at September 26, 2010 is as follows:
(Thousands of Dollars)
Cash and cash equivalents
Domestic equity securities
International equity securities
Debt securities
Quoted Prices in
Active Markets
(Level 1)
2
1,275
—
36,888
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
—
1,685
1,597
—
—
—
—
—
Valuation methodologies used for investments measured at fair value are as follows:
Cash and cash equivalents consist of short term deposits valued based on quoted prices in active markets.
Such investments are classified as Level 1.
Equity securities are valued based on the closing market price in an active market and are classified as
Level 1. Certain investments in commingled funds are valued at the net asset value of units held at the
end of the period based upon the value of the underlying investments as determined by quoted market
prices. Such investments are classified as Level 2.
Debt securities consist of corporate bonds and government securities that are valued based upon quoted
market prices. Such investments are classified as Level 1. Certain investments in commingled funds are
valued at the net asset value of units held at the end of the period based upon the value of the underlying
investments as determined by quoted market prices. Such investments are classified as Level 2.
There were no purchases, sales or transfers of assets classified as Level 3 in 2010.
Cash Flows
Based on our forecast at September 26, 2010, we expect to contribute $2,360,000 to our postretirement plans in 2011.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Modernization
Act”) was signed into law. The Modernization 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 at least
actuarially equivalent (as that term is defined in the Act) to Medicare Part D. We concluded we qualify for the Subsidy
under the Modernization Act since the prescription drug benefits provided under our 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
Modernization Act.
68
We anticipate future benefit payments to be paid either with future contributions to the plan or directly from plan assets,
as follows:
(Thousands of Dollars)
2011
2012
2013
2014
2015
2016-2020
2011 Changes to Plans
Gross
Payments
4,110
4,570
4,470
4,490
4,460
Less
Medicare
Part D
Subsidy
(250)
(260)
(280)
(300)
(310)
Net
Payments
3,860
4,310
4,190
4,190
4,150
21,070
(1,680)
19,390
In November 2010, we notified certain participants in our 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 January 2011 and will reduce the
benefit obligation by up to $15,000,000. We will also recognize non-cash curtailment gains of up to $10,000,000
related to certain of the changes, in 2011.
2010 Changes to Plans
In December 2009, we notified certain participants in our postretirement medical plans of changes to be made to the
plans, including increases in participant premium cost-sharing and elimination of coverage for certain participants. The
changes resulted in non-cash curtailment gains of $31,130,000, which were recognized in the 13 weeks ended March
28, 2010, reduced 2010 net periodic postretirement medical cost by $1,460,000 beginning in the 13 weeks ended
March 28, 2010, and reduced the benefit obligation liability at December 27, 2009 by $28,750,000.
In March 2010, members of the St. Louis Newspaper Guild voted to approve a new 5.5 year contract, effective April
1, 2010. The new contract eliminated postretirement medical coverage for active employees and defined pension
benefits were frozen. The elimination of postretirement medical coverage resulted in non-cash curtailment gains of
$11,878,000, which were recognized in the 13 weeks ended March 28, 2010 and reduced the benefit obligation liability
at March 28, 2010 by $6,576,000. The freeze of defined pension benefits resulted in non-cash curtailment gains of
$2,004,000, which were recognized in the 13 weeks ended March 28, 2010, reduced 2010 net periodic pension
expenses by $668,000 beginning in the 13 weeks ended June 27, 2010, and reduced the benefit obligation liability at
March 28, 2010 by $2,004,000.
Increases in participant premium cost-sharing discussed more fully above were treated as negative plan amendments.
Curtailment treatment was utilized in situations in which coverage was eliminated. Curtailment gains were calculated
by revaluation of plan liabilities after consideration of other plan changes.
The Patient Protection and Affordable Care Act, along with its companion reconciliation legislation (together the
“Affordable Care Act”), were enacted into law in March 2010. We expect the Affordable Care Act will be supported by
a substantial number of underlying regulations, many of which have not been issued. Accordingly, a complete
determination of the impact of the Affordable Care Act cannot be made at this time. However, we do not expect the
Affordable Care Act will have a significant impact on our postretirement medical benefit obligation liability.
2009 Changes to Plans
In October and December 2008, we notified certain participants in our 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.
69
Postemployment Plan
Our postemployment benefit obligation, representing certain disability benefits, is $3,304,000 at September 26, 2010
and $3,433,000 at September 27, 2009.
11 OTHER RETIREMENT PLANS
Substantially all of our employees are eligible to participate in a qualified defined contribution retirement plan. We also
have other retirement and compensation plans for executives and others. Benefits under such plans were substantially
reduced or eliminated in 2010 and 2009.
Retirement and compensation plan costs, including interest on deferred compensation costs, charged to continuing
operations are $1,891,000 in 2010, $6,702,000 in 2009 and $24,325,000 in 2008.
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.
At November 30, 2010, 5,618,075 shares of Class B Common Stock were outstanding.
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 our 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 our 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 AParticipating 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.
13
STOCK OWNERSHIP PLANS
Total non-cash stock compensation expense is $1,974,000, $3,013,000 and $5,905,000, in 2010, 2009 and 2008,
respectively.
Stock Options
We have reserved 4,955,188 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
70
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
Canceled
Under option, end of year
Exercisable, end of year
2010
1,009
—
(69)
940
423
2009
263
783
(37)
1,009
191
2008
1,195
—
(932)
263
171
In 2008, we canceled 852,000 outstanding stock options for certain of our key employees who voluntarily tendered
such options to us for cancellation and termination without consideration or promise of consideration for their shares.
Weighted average prices of stock options are as follows:
(Dollars)
Granted
Under option, end of year
2010
—
8.77
2009
2.07
9.40
2008
—
34.69
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.
Volatility (percent)
Risk-free interest rate
Expected life (years)
Estimated fair value (dollars)
2009
105
2.45
4.7
1.57
A summary of stock options outstanding at September 26, 2010 is as follows:
(Dollars)
Options Outstanding
Options Exercisable
Range of
Exercise
Prices
Number
Outstanding
Weighted Average
Remaining Contractual
Life (Years)
Weighted
Average
Exercise Price
Number
Exercisable
Weighted
Average
Exercise Price
1 to 25
745,900
25 to 30
30 to 35
35 to 40
40 to 45
45 to 50
86,570
25,966
45,685
18,108
17,842
940,071
8.8
5.7
2.1
3.8
3.0
4.1
7.9
2.07
28.62
32.51
38.28
43.27
47.63
8.77
228,600
86,570
25,966
45,685
18,108
17,842
422,771
2.07
28.62
32.51
38.28
43.27
47.63
16.98
Total unrecognized compensation expense for unvested stock options at September 26, 2010 is $724,000, which will
be recognized over a weighted average period of 1.9 years.
The aggregate intrinsic value of options outstanding and exercisable at September 26, 2010 is $80,000.
In 2011, 1,104,500 stock options were awarded with a $2.57 exercise price and a fair value of $2.00 per share. The
fair value is based on an expected life of 4.7 years, volatility of 111%, and a risk free rate of 1.01%. Expense of
$2,057,000 will be recognized over a three year period.
71
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
2010
453
—
(143)
(11)
299
Weighted average grant date fair values of restricted Common Stock are as follows:
(Dollars)
Outstanding, beginning of year
Granted
Vested
Forfeited
Outstanding, end of year
2010
19.35
—
28.73
15.02
15.02
2009
746
—
(114)
(179)
453
2009
21.60
—
39.53
15.94
19.35
2008
416
482
(112)
(40)
746
2008
36.60
15.02
46.66
27.95
21.60
The fair value of restricted Common Stock vested in 2010, 2009 and 2008, is $554,000, $171,000 and $1,743,000,
respectively.
Total unrecognized compensation expense for unvested restricted Common Stock as of September 26, 2010 is
$293,000, which will be recognized over a weighted average period of less than one year.
At September 26, 2010, 4,015,117 shares are available for granting of non-qualified stock options or issuance of
restricted Common Stock.
Stock Purchase Plans
We have 270,000 shares of Common Stock available for issuance pursuant to our Employee Stock Purchase Plan
(the “ESPP”). The purchase price is 85% of the fair market value on the exercise date. Our expense in 2008 was
based on the difference between the fair value of shares purchased and the purchase price.
In 2009, the ESPP was suspended. In 2008, employees purchased 150,000 shares under the ESPP at a price of $6.60.
The market value on the purchase date was $7.77 in 2008.
We also have 8,700 shares of Common Stock available for issuance under our 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 shares at a weighted average price of $5.20 in 2008.
The weighted average market value on the purchase dates in 2008 was $6.11.
72
14
INCOME TAXES
Income tax expense (benefit) consists of the following:
(Thousands of Dollars)
Current:
Federal
State
Deferred
Continuing operations
Discontinued operations
2010
2009
2008
8,673
833
19,116
28,622
28,622
—
28,622
(3,573)
643
(79,582)
(82,512)
24,442
3,383
(264,829)
(237,004)
(82,509)
(242,633)
(3)
5,629
(82,512)
(237,004)
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:
(Percent)
Computed “expected” income tax expense (benefit)
State income taxes (benefit), net of federal tax expense (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
Tax law change
Other
2010
35.0
4.3
(1.4)
(0.8)
(3.5)
—
(0.1)
4.2
0.6
38.3
2009
(35.0)
(3.7)
(0.3)
—
—
12.2
(6.1)
—
1.5
(31.4)
2008
(35.0)
(3.0)
(0.1)
(0.1)
(0.3)
14.9
2.3
—
(0.5)
(21.8)
73
Net deferred income tax liabilities consist of the following components:
(Thousands of Dollars)
Deferred income tax liabilities:
Property and equipment
Investments
Identified intangible assets
Long-term debt and interest rate exchange agreements
Deferred income tax assets:
Accrued compensation
Allowance for doubtful accounts and losses on loans
Pension and postretirement benefits
State operating loss carryforwards
Accrued expenses
Other
Valuation allowance
Net deferred income tax liabilities
Net deferred income tax liabilities are classified as follows:
(Thousands of Dollars)
Current assets
Non-current liabilities
Net deferred income tax liabilities
September 26
2010
September 27
2009
(29,659)
(26,443)
(62,731)
(1,450)
(32,975)
(18,185)
(59,036)
(1,398)
(120,283)
(111,594)
6,462
1,745
5,384
20,897
5,767
3,124
43,379
(23,025)
(99,929)
7,458
1,682
3,950
18,205
6,747
3,893
41,935
(20,469)
(90,128)
September 26
2010
September 27
2009
2,687
(102,616)
(99,929)
3,638
(93,766)
(90,128)
We 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, we recognized a $1,733,000 increase in income taxes payable, which was accounted for as
a reduction of retained earnings. We 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 2010 changes in gross unrecognized tax benefits is as follows:
(Thousands of Dollars)
Balance, beginning of year
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
2010
10,186
(860)
355
(503)
(9)
9,169
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $5,693,000
at September 26, 2010. We recognize 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, $1,705,000
at September 26, 2010 and $1,645,000 at September 27, 2009. There were no amounts provided for penalties at
September 26, 2010 or September 27, 2009.
At September 26, 2010, we had approximately $645,309,000 of net operating loss carryforwards (“NOLs”) for state
tax purposes that expire between 2015 and 2030. Such NOLs result in a deferred income tax asset of $20,897,000
74
at September 26, 2010, of which $20,137,000 is offset by a valuation allowance. The valuation allowance not related
to NOLs is $2,889,000 at September 26, 2010 and $2,412,000 at September 27, 2009.
15
FAIR VALUE OF FINANCIAL INSTRUMENTS
We 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 which 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.
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 26, 2010:
(Thousands of Dollars)
Level 1
Level 2
Level 3
Total
Herald Value - liability (see Note 19)
—
—
2,300
2,300
There were no realized or unrealized gains or losses, purchases, sales, or transfers related to the Herald Value in
2010.
In 2010, 2009 and 2008, we reduced the carrying value of equipment no longer in use by $3,290,000, $4,579,000 and
$5,019,000, respectively, based on estimates of the related fair value in the current market. Based on age, condition
and marketability we estimated the equipment had no value.
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 our 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. Our fixed rate debt consists of the $160,500,000 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 domestic credit markets that exists in the current recession, we are unable,
as of September 26, 2010 and September 27, 2009, to determine the fair value of such debt. The value, if determined,
would likely be less than the carrying amount. The determination of the amount of the Herald Value is based on an
estimate of fair value using both market and income-based approaches.
75
16
EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per common share:
(Thousands of Dollars, Except Per Common Share Data)
2010
2009
2008
Income (loss) attibutable to Lee Enterprises, Incorporated:
Continuing operations
Discontinued operations
Weighted average Common Shares
Less non-vested restricted Common Stock
Basic average Common Shares
Dilutive stock options and restricted Common Stock
Diluted average Common Shares
Earnings (loss) per common share:
Basic:
Continuing operations
Discontinued operations
Diluted:
Continuing operations
Discontinued operations
46,105
—
46,105
44,902
(347)
44,555
400
44,955
1.03
—
1.03
1.03
—
1.03
(123,186)
(880,601)
(5)
285
(123,191)
(880,316)
44,952
(510)
44,442
—
44,442
(2.77)
—
(2.77)
(2.77)
—
(2.77)
45,478
(665)
44,813
—
44,813
(19.65)
0.01
(19.64)
(19.65)
0.01
(19.64)
For 2010, 2009, and 2008, we had 942,000, 314,000, and 263,000 weighted average shares, respectively, subject to
issuance under our 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 or 2008.
17
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Valuation and qualifying account information related to the allowance for doubtful accounts receivable is as follows:
(Thousands of Dollars)
Balance, beginning of year
Additions charged to expense
Deductions from reserves
Balance, end of year
18
OTHER INFORMATION
Compensation and other accrued liabilities consist of the following:
(Thousands of Dollars)
Compensation
Retirement and stock purchase plans
Interest
Other
76
2010
6,275
3,043
(3,555)
5,763
2009
6,647
5,995
(6,367)
6,275
2008
10,266
5,977
(9,596)
6,647
September 26
2010
September 27
2009
12,113
7,632
4,703
13,669
38,117
12,858
10,533
5,644
13,720
42,755
Cash payments are as follows:
(Thousands of Dollars)
Interest
Debt financing costs
Income taxes, net of refunds
2010
65,791
453
3,753
2009
80,690
26,061
5,829
2008
80,960
—
26,173
Components of accumulated other comprehensive income, net of deferred income taxes, are as follows:
(Thousands of Dollars)
Pension and postretirement benefits
Unrealized loss on interest rate exchange agreements
19 COMMITMENTS AND CONTINGENT LIABILITIES
Operating Leases
September 26
2010
September 27
2009
6,651
—
6,651
22,800
(1,446)
21,354
We have operating lease commitments for certain of our 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 2015 and thereafter are $4,073,000, $3,228,000, $2,272,000, $1,024,000,
$1,003,000 and $4,424,000, respectively. Total operating lease expense is $4,549,000, $5,029,000 and $5,325,000,
in 2010, 2009 and 2008, respectively.
Capital Expenditures
At September 26, 2010, we had construction and equipment purchase commitments totaling approximately $532,000.
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 PD LLC Operating Agreement
(the "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. We recorded the present value of the remaining amount of this potential liability
in our 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, we accrued increases in the liability totaling
$1,466,000 and $8,838,000, respectively, which increased net loss attributable to Lee Enterprises, Incorporated. 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. We recorded a liability of $2,300,000 in 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. Cash
77
settlement of the Herald Value is limited by the terms of the Credit Agreement.
The Redemption Agreement also terminated Herald's right to exercise its rights under the 2010 Redemption. As a
result, we reversed substantially all of our 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 us 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, we announced our intention to acquire up to $30,000,000 of 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.
The 2009 Amendments to the Credit Agreement require us 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. We are unable to reasonably estimate the ultimate amount or timing of cash settlements with the respective
taxing authorities for such matters. See Note 14.
We file income tax returns with the IRS and various state tax jurisdictions. From time to time, we are subject to routine
audits by those agencies, and those audits may result in proposed adjustments. We have considered the alternative
interpretations that may be assumed by the various taxing agencies, believe our positions taken regarding our 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. We do not believe the final resolution of such matters will be material to our consolidated financial
position or cash flows.
We have various income tax examinations ongoing and at various stages of completion, but generally the income tax
returns have been audited or closed to audit through 2005.
Legal Proceedings
We are 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 we are unable to predict the ultimate outcome of these legal actions,
it is our opinion that the disposition of these matters will not have a material adverse effect on our Consolidated Financial
Statements, taken as a whole.
In 2008, a group of newspaper carriers filed suit against us in the United States District Court for the Southern District
of California, claiming to be employees and not independent contractors of ours. The plaintiffs seek relief related to
violation of various employment-based statutes, and request punitive damages and attorneys' fees. In July 2010, the
trial court judge granted the plaintiffs' petition for class certification. We filed an interlocutory appeal which was denied.
Discovery in the case will proceed in the normal course and we intend to bring a motion to reverse the class certification
ruling upon completion of that process. At this time we are unable to predict whether the ultimate economic outcome,
if any, could have a material effect on our Consolidated Financial Statements, taken as a whole. We deny the allegations
of employee status, consistent with our past practices and industry practices, and intend to vigorously contest the
action, which is not covered by insurance.
20
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 2010, we adopted FASB ASC 810, Consolidation. FASB ASC 810 requires that noncontrolling interests be reported
as a separate component of stockholders' equity. Net income (loss) including the portion attributable to our
income (loss) in the Consolidated Statements of Operations and
noncontrolling interests is included in net
78
Comprehensive Income (Loss) and will continue to be used to determine earnings (loss) per common share. FASB
ASC 810 also requires certain prospective changes in accounting for noncontrolling interests primarily related to
increases and decreases in ownership and changes in control. As required, the presentation and disclosure
requirements were adopted through retrospective application, and prior period information has been reclassified
accordingly. Adoption of FASB ASC 810 did not have a material effect on our Consolidated Financial Statements.
In 2010, we adopted FASB Staff Position ("FSP") 132(R)-1, Disclosures about Postretirement Benefit Plan Assets,
codified in ASC 715, Compensation-Retirement Benefits. FSP 132(R)-1 requires additional disclosures relating to
investment strategies, major categories of plan assets, concentrations of risk within plan assets and valuation
techniques used to measure the fair value of plan assets. Adoption of FSP 132(R)-1 did not have a material effect on
our Consolidated Financial Statements.
79
21 QUARTERLY FINANCIAL DATA (UNAUDITED)
(Thousands of Dollars, Except Per Common Share Data)
December
March
June
September
Quarter Ended
2010
Operating revenue
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Income (loss) attributable to Lee Enterprises,
Incorporated
Earnings per common share:
Basic:
Income from continuing operations
Discontinued operations
Diluted:
Income from continuing operations
Discontinued operations
2009
Operating revenue
Income (loss) from continuing operations
Discontinued operations
Net income (loss)
Income (loss) attributable to Lee Enterprises,
Incorporated
Earnings (loss) per common share:
Basic:
Income from continuing operations
Discontinued operations
Diluted:
Income from continuing operations
Discontinued operations
209,838
185,744
196,405
188,660
27,959
—
27,959
2,982
—
2,982
10,039
—
10,039
27,907
2,991
10,019
0.63
—
0.63
0.62
—
0.62
0.07
—
0.07
0.07
—
0.07
0.22
—
0.22
0.22
—
0.22
5,199
—
5,199
5,189
0.12
—
0.12
0.11
—
0.11
243,555
198,844
203,805
195,826
(47,463)
(5)
(47,468)
(109,889)
—
(109,889)
(24,492)
—
(24,492)
1,782
—
1,782
(48,677)
(51,757)
(24,512)
1,755
(1.10)
—
(1.10)
(1.10)
—
(1.10)
(1.16)
—
(1.16)
(1.16)
—
(1.16)
(0.55)
—
(0.55)
(0.55)
—
(0.55)
0.04
—
0.04
0.04
—
0.04
Results of operations for the December and March quarters of 2010 include non-cash curtailment gains of $31,130,000
and $13,882,000, respectively. Results of operations for the December, March and June quarters of 2009 include non-
cash impairment charges, net of deferred income tax benefit, of $54,321,000, $114,739,000 and $27,946,000,
respectively.
80
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 26, 2010 and September 27, 2009, and the related consolidated statements of
operations and comprehensive income (loss), stockholders' equity, and cash flows for each of the 52-week periods
ended September 26, 2010, September 27, 2009, and September 28, 2008. 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 26, 2010 and
September 27, 2009, and for the 52-week periods then ended. The Company's investment in MNI at September 26,
2010 and September 27, 2009, was $23,798,000, and $24,132,000, respectively, and its equity in earnings of MNI
was $3,566,000 and $2,609,000 for the 52-week periods then ended, respectively. The consolidated financial
statements of MNI for these periods 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 periods ended September 26,
2010 and 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 reports of 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 and subsidiaries
as of September 26, 2010 and September 27, 2009, and the results of their operations and their cash flows for each
of the 52-week periods ended September 26, 2010, September 27, 2009, and September 28, 2008, 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 Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC)
Topic 715, Retirement Plans.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the effectiveness of Lee Enterprises, Incorporated and subsidiaries internal control over financial reporting as
of September 26, 2010, based on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated December 10,
2010, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
/s/ KPMG LLP
Chicago, Illinois
December 10, 2010
81
LEE ENTERPRISES, INCORPORATED
AND SUBSIDIARIES
SUBSIDIARIES AND ASSOCIATED COMPANIES
EXHIBIT 21
State of
Organization
Percentage of Voting
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%
EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Lee Enterprises, Incorporated:
We consent to the incorporation by reference in the registration statements (No. 333-06435, No. 333-132768, Post-
Effective Amendment No. 1 to 333-132768, No. 333-167908, and No. 333-167909) on Forms S-8 and (No. 333-167907)
on Form S-3 of Lee Enterprises, Incorporated of our reports dated December 10, 2010, with respect to the consolidated
balance sheets of Lee Enterprises, Incorporated and subsidiaries as of September 26, 2010 and September 27, 2009,
and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and
cash flows for each of the 52-week periods ended September 26, 2010, September 27, 2009, and September 28,
2008, and the effectiveness of internal control over financial reporting as of September 26, 2010, which reports appear
in the annual report on Form 10-K of Lee Enterprises, Incorporated for the fiscal year ended September 26, 2010.
Our report dated December 10, 2010, on the consolidated financial statements 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 Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 715, Retirement Plans.
/s/ KPMG LLP
Chicago, Illinois
December 10, 2010
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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.
EXHIBIT 23.2
/s/ McGladrey & Pullen LLP
Madison, Wisconsin
December 11, 2009
EXHIBIT 23.3
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.
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 26, 2010 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
/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/ Brent Magid
Brent Magid, 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
December 10, 2010
December 10, 2010
December 10, 2010
December 10, 2010
December 10, 2010
December 10, 2010
December 10, 2010
December 10, 2010
December 10, 2010
December 10, 2010
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Mary E. Junck, certify that:
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 10, 2010
/s/ Mary E. Junck
Mary E. Junck
Chairman, President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Carl G. Schmidt, certify that:
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 year (the Registrant's fourth fiscal
annual 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 10, 2010
/s/ Carl G. Schmidt
Carl G. Schmidt
Vice President, Chief Financial Officer and Treasurer
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 26, 2010 ("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.
Date: December 10, 2010
/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.