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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
42-0823980
(State of incorporation)
(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
Name of Each Exchange On Which Registered
Securities registered pursuant to Section 12(b) of the Act:
 
Common Stock - $2 par value
New York Stock Exchange
Preferred Share Purchase Rights
New York Stock Exchange
 
 
Securities registered pursuant to Section 12(g) of the Act:
 
Class B Common Stock - $2 par value
  ;
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] 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 a nd 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]
              &nb sp;                          
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.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
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.
 
< td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;">
 
< /tr>
TABLE OF CONTENTS
PAGE
 
 
 
 
 
Part I
 
 
 
Item 1
 
 
 
Item 1A
 
 
 
Item 1B
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
 
Part II
 
 
 
Item 5
 
 
Item 6
 
 
 
Item 7
 
 
 
I tem 7A
 
 
 
Item 8
 
 
 
Item 9
 
 
 
Item 9A
 < /div>
 
 
Item 9B
 
 
 
Part III
 
 
 
Item 10
 
 
 
Item 11
 
 
 
Item 12
 
 
 
Item 13
 
 
 
Item 14
 
 
 
Part IV
 
 
 
Item 15
 
 
 
 
 
 
 
 
 
Table of Contents

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 stat ements 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 a cquisition 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
Table of Contents

TNI Partners
 
As a result of the acquisition of Pulitzer, we own a 50% in terest 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 publicat ions. 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 met hod. 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 a nd 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, Wiscon sin, 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 favo rably 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 eac h of

2
Table of Contents

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. < /font>
 
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 ha ve 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.
 
< a name="sEFF1EE96AD50678EDD9C3E4DCE1E17B2">
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 U nited 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 ra pid 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 ma rkets, 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:
 
All Adults
 
Age 18-29
(Percent, Past Seven Days)
2007
2008
2009
2010
 
 
2007
2008
2009
2010
 
 
 
 
 
 
 
 
 
 
 
Print users (1)
NA
NA
NA
16
 
 
NA
NA
NA
23
 
Print only readers
48
49
45
43
 
 
35
38
38
31
 
Print and digital readers
13
16
16
15
 
 
14
18
15
13
 
Digital only readers
5
6
7
8
 
 
6
9
8
9
 
Total reach
66
71
68
82
 
 
55
65
61
77
 
 
 
 
 
 
 
 
 
 
 < /div>
Total print reach (1)
61
65
61
74
 
 
49
56
53
68
 
Total digital reach
18
22
23
24
 
 
20
27
23
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:
St. Louis, MO, Madison, WI, Escondido, CA, Northwest Indiana, Lincoln, NE, Davenport, IA, Billings, MT, Bloomington, IL, Sioux City, IA, Waterloo, IA
Margin of Error:
Total sample +/- 1.1%, Total digital sa mple +/- 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 Circulation s (“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 fo cus 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 emphas is 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:
< td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;padding-right:2px;border-top:1px solid #000000;border-bottom:1px solid #000000;">
Primary Website
< tr>
 
 
 
Paid Circulation (1)
Newspaper
Location
  Daily (2) 
 
Sunday
 
 
 
 
 
 
St. Louis Post-Dispatch
stltoday.com
St. Louis, MO
207,145
 
 
365,589
 
Arizona Daily Star (3)
azstarnet.com
Tucson, AZ
90,604
 
 
130,241
 
Capital Newspapers (4)
 
 
 
 
 
Wisconsin State Journal
madison.com
Madison, WI
87,950
 
 
121,947
 
Daily Citizen
wiscnews.com/bdc
Beaver Dam, WI
8,859
 
 
—
 
Portage Daily Register
wiscnews.com/pdr
Portage, WI
4,328
 
 
—
 
Baraboo News Republic
wiscnews.com/bnr
Baraboo, WI
3,821
 
 
—
 
The Times
nwitimes.com
Munster,
 Valparaiso, and
 Crown Point, IN
83,877
 
 
91,978
 
North County Times and the Californian
nctimes.com
Escondido and
 Temecula, CA
69,991< /div>
 
 
71,290
 
Li ncoln Group
 
 
 
 
 
Lincoln Journal Star
journalstar.com
Lincoln, NE
67,137
 
 
72,939
 
Columbus Telegram
columbustelegram.com
Columbus, NE
8,075
 
 
9,054
 
Fremont Tribune
fremonttribune.com
Fremont, NE
7,352
 
 
—
 
Beatrice Daily Sun
beatricedailysun.com
Beatrice, NE
5,508
 
 
—
 
Quad-Cities Group
 
 
 
 
 
Quad-City Times
qctimes.com
Davenport, IA
47,166
 
 
62,321
&n bsp;
Muscatine Journal
muscatinejournal.com
Muscatine, IA
5,939
 
 
—
 
The Pantagraph
pantagraph.com
Bloomington, IL
39,019
 
 
42,906
 
The Courier
wcfcourier.com
Waterloo and
 Cedar Falls, IA
38,870
 
 
46,543
 
Billings Gazette
billingsgazette.com
Billings, MT< /font>
38,660
 
(7) 
45,743
 
Sioux City Journal
siouxcityjournal.com
Sioux City, IA
35,639
 
(7) 
37,948
 
The Daily Herald
heraldextra.com
Provo, UT
28,916
 
 
41,701
 
Central Illinois Newspaper Group
 
 
 
 
 
Herald & Review
herald-review.com
Decatur, IL
28,453
 
(7) 
43,439
 
Journal Gazette
jg-tc.com
Mattoon, IL
8,247
 
 
—
 
Times-Courier
jg-tc.com
Charleston, IL
5,052
 
 
—
 
The Post-Star
poststar.com
Glens Falls, NY
26,798
 
 
30,257
 
River Valley Newspaper Group
 
 
 
 
 
La Crosse Tribune
lacrossetribune.com
La Crosse, WI
26,581
 
 
35,387
 
Winona Daily News
winonadailynews.com
Winona, MN
9,467
 
 
10,248
 
The Chippewa Herald
chippewa.com
Chippewa Falls, WI
5,589
 
(5) 
5,700
 
The Journal Times
journaltimes.com
Racine, WI
26,373
 
(7) 
29,023
 
Missoula Group
 
 
 
 
 
Missoulian
missoulian.com
Missoula, MT
26,206
 
(7) 
29,460
 
Ravalli Republic
ravallinews.com
Hamilton, MT
4,794
 
(8) 
—
 
The Southern Illinoisan
thesouthern.com
Carbondale, IL
25,981
 
 
32,218
 
The Bismarck Tribune
bismarcktribune.com
Bismarck, ND
25,490
 
 
28,722
 

5

 
Paid Circulation (1)
Newspaper
Primary Website
Location
  Daily (2)
 
Sunday
 
 
 
 
 
 
Rapid City Journal
rapidcityjournal.com
Rapid City, SD
25,185
 
 
30,139
 
Casper Star-Tribune
trib.com
Casper, WY
24,121
 
 
26,012
 
The Daily News
tdn.com
Longview, WA
20,152
 
(7) 
20,078
 
Magic V alley Group
 
 
 
 
 
The Times-News
magicvalley.com
Twin Falls, ID
19,431
 
(7) 
21,059
 
Elko Daily Free Press
elkodaily.com
Elko, NV
5,792
 < /div>
(8) 
—
 
Central Coast Newspapers
 
 
 
 
 
Santa Maria Times
santamariatimes.com
Santa Maria, CA
16 ,351
 
 
14,686
 
The Lompoc Record
lompocrecord.com
Lompoc, CA
4,136
 
(6) 
4,173
 
Mid-Valley News Group
 
 
 
 
 
Albany Democrat-Herald
democratherald.com
Albany, OR
14,999
 
(7) 
15,581
 
Corvallis Gazett e-Times
gazettetimes.com
Corvallis, OR
10,284
 
(7) 
10,413
 
Globe Gazette
globegazette.com
Mason City, IA
14,864
 
(7) 
19,389
 
Napa Valley Register
napavalleyregister.com
Napa, CA
13,992
 
 
13,805
 
< div style="text-align:left;font-size:10pt;">The Times and Democrat
thetandd.com
Orangeburg, SC
13,395
 
(7) 
14,182
 
Independent Record
helenair.com
Helena, MT
13,292
 
 
14,067
 
The Sentinel
cumberlink.com
Carlisle, PA
12,780
 
(7) 
14,129
 
The Montana Standard
mtstandard.com
Butte, MT
12,556
 
(7) 
12,710
 
Arizona Daily Sun
azdailysun.com
Flagstaff, AZ
10,392
 
(7) 
10,803
 
The World
theworldlink.com
Coos Bay, OR
10,260
 
 
—
 
The Sentinel
hanfordsentinel.com
Hanford, CA
9,575
 
 
—
 
The Garden Island
kauaiworld.com
Lihue, HI
9,122
 
(7) 
8,762
 
The Citizen
auburnpub.com
Auburn, NY
8,903
 
 
11,033
 
The Ledger Independent
maysville-online.com
Maysville, KY
7,004
 
 
—
 
Daily Journal
dailyjournalonline.com
Park Hills, MO
6,478
 
(7) 
6,886
 
 
 
 
1,380,951
 
 
1,652,561
 
(1)
Source: ABC: Six months ended September 2010, unless otherwise noted.
(2)
Daily amounts are Monday - Friday average, unless otherwise noted.
(3)
Owned by Star Publishing but published through TNI.
(4)
Owned by MNI.
(5)
Daily amounts are Monday - Thursday average and Saturday.
(6)
Daily amounts are Tuesday - Friday average.
(7)
Daily amounts are Monday - Saturday average.
(8)
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
Service
With The
Company
Named
To Current
Position
Current Position
 
 
 
 
 < /font>
Mary E. Junck
63
June 1999
January 2002
Chairman, President and Chief Executive Officer
 
 
 
 
 
Joyce L. Dehli
52
August 1987
February 2006
Vice President - News
 
 
 
 
 
Paul M. Farrell
54
May 2007
May 2007
Vice President - Sales & Marketing
 
 
 
 
 
Suzanna M. Frank
40
December 2003
March 2008
Vice President - Audience
 
 
 
 
 
Karen J. Guest
57
July 2006
July 2006
Vice President - Law and Chief Legal Officer
 
 
 
 
 
Michael R. Gulledge
50
October 1982
May 2005
Vice President - Publishing
 
 
 
 
 
Daniel K. Hayes
65
September 1969
September 2005
Vice President - Corporate Communications
 
 
 
 
 
Brian E. Kardell
47
January 1991
August 2003
Vice President - Production and Chief Information Officer
 
 
 
 
 
Vytenis P. Kuraitis
62
August 1994
January 1997
Vice Pr esident - Human Resources
 
 
 
 
 
Kevin D. Mowbray
48
September 1986
November 2004
Vice President - Publishing
 
 
&n bsp;
 
 
Gregory P. Schermer
56
February 1989
November 1997
Vice President - Interactive Media
 
 
 
 
 
Carl G. Schmidt
54
May 2001
May 2001
Vice President, Chief Financial Officer and Treasurer
 
 
 
 
 
Greg R. Veon
58
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.
 

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Table of Contents

Gregory P. Schermer was elected Vice President - Interacti ve 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; Miscell aneous 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.
 

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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 am ount 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 abilit y 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, &ldq uo;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 Researc h, 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 shi ft 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
Table of Contents

Retail Advertising
 
Many advertisers, including major retail store chains, automobile manufacturers and dealers, banks and telecommunications companies, have experienced significant merger and acquisition activity over the last severa l 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 ac celerated, 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 reductio ns 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 su ch assets.

10
Table of Contents

 
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. Sub sequent 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.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None.
 
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)
< font style="font-family:Arial;font-size:10pt;">Owned
 
Leased
 
 
 
 
PD LLC
749,000
 
23,000
 
Suburban Journals
89,000
 
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 evalu ate 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 vi olation 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
Table of Contents

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.
 
Quarter Ended
(Dollars)
December
 
 
March
 
 
June
 
 
September
 
 
 
 
 
 
 
 
 
STOCK PRICES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2010
 
 
 
 
 
 
 
High
4.50
 
 
4.77
 
 
4.52
 
 
3.15
 
Low
2.15
 
 
2.96
 
 
2.49
 
 
1.93
 
Closing
3.47
 
 
3.39
&n bsp;
 
2.57
 
 
2.68
 
 
 
 
 
 
 
 
 
2009
 
 
 
 
 
 
 
High
3.97
 
 < /div>
0.65
 
 
1.89
 
 
3.43
 
Low
0.30
 
 
0.24
 
 
0.29
 
 
0.50
 
Closing
0.41
 
 
0.28
 
 
0.53
 
 
2.75
 
 
 
 
 
 
 
 
 
2008
 
 
 
 
 
 
 
High
17.96
 
 
14.91
 
 
11.32
 
 
5.00
 
Low
13.61
 
 
9.26
 
 
4.21
 
 
2.22
 
Closing
14.53
& nbsp;
 
10.76
 
 
4.40
 
 
3.35
 
 
 
 
 
 
 
 
 
DIVIDENDS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2008
0.19
 
 
0.19
 
 
0.19
 
 
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
Table of Contents

Performance Presentation
 
The following graph compares the quarterly per centage 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.
 
September 30
(Dollars)
2005
 
 
2006
 
 
20 07
 
 
2008
 
 
2009
 
 
2010
 
 
 
 
 
 
 
 
 
 
 
 
 
Lee Enterprises, Incorporated
100.00
 
 
60.81
 
 
38.62
 
 
9.68
 < /div>
 
7.61
 
 
7.41
 
Peer Group Index
100.00
 
 
86.02
 
 
73.23
 
 
47.89
 
 
37.37
 
 
35.84
 
S&P 500 Stock Index
100.00
 
 
110.79
 
 
129.01
 
 
100.66
 
 
93.7
 
 
103.22
  ;
 
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
Table of Contents

ITEM 6.  SELECTED FINANCIAL DATA
 
Selected financial data is as follows:
< td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;border-bottom:1px solid #000000;">
—
70,778
 
(Thousands of Dollars and Shares, Except Per Common Shar e Data)
2010
 
 
2009
 
 
2008
 
 
2007
 
 
2006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING RESULTS (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
609,745
 
 
675,035
 
 
821,846
 
 
853,375
 
 
843,577
 
Depreciation and amortization
73,179
 
 
79,599
 
 
91,078
 
 
92,700
 
 
90,276
 
Impairment of goodwill and other assets (2)
3,290
 
 
245,953
 
 
1,070,808
 
 
—
 
 
4,837
 
Curtailment gains
45,012
 
 
—
 
 
—
 
 
3,731
 
 
—
 
Equity in earnings of associated companies
7,746
 
 
5,120
 
 
10,211
 
 
20,124
 
 
20,739
 
Reduction in investment in TNI (2)
—
 
 
19,951
 
 
104,478
 
 
—
 
 
 
Operating income (loss)
147,192
 
 
(173,388
)
 
(1,049,131
)
 
197,974
 
 
203,439
 
Financial income
411
 
 
1,886
 
 
5,857
 
 
7,613
 
 
6,054
 
Financial expense
(71,631
)
 
(92,892
)
 
(71,472
)
 
(90,341
)
 
(95,939
)
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
46,178
 
 
(180,062
)
 
(871,228
)
 
81,397
 
 
72,009
 
Discontinued operations
—
 
 
(5
)
 
285
&nb sp;
 
671
 
 
54
 
Net income (loss)
46,178
 
 
(180,067
)
 
(870,943
)
 
82,068
 
 
72,063
 
 
 
 
 
 
 
 
 
 
 
Income (loss) attributable to Lee Enterprises, Incorporated
46,105
 
 
(123,191
)
 
(880,316
)
 
80,999
 
 
70,832
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Lee Enterprises, Incorporated
46,105
 
 
(123,186
)
 
(880,601
)
 
80,328
 
 
 
 
 
 
 
 
 
 
 
 
EARNINGS (LOSS) PER COMMON SHARE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
Continuing operations
1.03
 
 
(2.77
)
 
(19.65
)
 
1.76
 
 
1.56
 
Discontinued operations
—
 
 
—
 
 
0.01
 
 
0.01
 
 
—
 
 
1.03
 
 
(2.77
)
 
(19.64
)
 
1.77
 
 
1.56
 
 
Diluted:
 
 
 
 
 
 
 
 
 
Continuing operations
1.03
 
 
(2.77
)
 
(19.65
)
 
1.75
 
 
1.55
 
Discontinued operations
—
 
 
—
 
 
0.01
 
 
0.01
 
 
—
 
 
1.03
 
 
(2.77
)
 
(19.64
)
 
1.77
 
 
1.56
 
 
Weighted average common shares:
 
 
 
 
 
 
 
 
Basic
44,555
 
 
44,442
 
 
44,813
 
 
45,671
 
 
45,421
 
Diluted
44,955
 
 
44,442
 
 
44,813
 
 
45,804
 
 
45,546
 
 
Dividends per common share
—
 
 
—
 
 
0.76
 
 
0.72
 
 
0.72
 
 
 
 
 
 
 
 
 
 
BALANCE SHEET INFORMATION (End of Year)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
1,440,116
 
 
1,515,612
 
 
2,016,367
 
 
3,260,963
 
 
3,329,809
 
Debt, including current maturities (3)
1,081,590
 
 
1,168,335
 
 
1,332,375
 
 
1,395,625
 
 
1,525,000
 
Debt, net of cash, restricted cash and investments (3)
1,052,545
 
 
1,151,106
 
 
1,182,856
 
 
1,284,565
 
 
1,420,302
 
Stockholders' equity
56,823
 
 
23,598
 
 
155,518
 
 
1,086,442
 
 
990,625
 
(1
)
Results of discontinued operations have been restated for all periods presented.

14
Table of Contents

(2
)
The Company recorded pretax, non-cash impairment charges to reduce the carrying value of assets as follows:
 
3,290
(Thousands of Dollars)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
Goodwill
—
 
 
193,471
 
 
908,977
 
Nonamortized intangible assets
—
 
 
14,055
 
 
13,027
 
Amortizable intangible assets
—
 
 
33,848
 
 
143,785
 
Property and equipment
3,290
 
 
4,579
 
 
5,019
 
 
3,290
 
 
245,953
 
 
1,070,808
 
Reduction in investment in TNI
—
 
 
19,951
 < /div>
 
104,478
 
 
 
 
265,904
 
 
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, th e most directly comparable measures under GAAP, are included in the table below:
< td style="vertical-align:bottom;padding-left:2px;padding-top:2px;padding-bottom:2px;">
(9.5
)
(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
 
20.1
 
Depreciation and amortization
(73,179
)
(9.4
)
 
(79,599
)
)
 
(91,078
)
(8.9
)
Impairment of goodwill and othe r assets
(3,290
)
(0.4
)
 
(245,953
)
(29.2
)
 
(1,070,808
)
NM
 
Curtailment gains
45,012
 
5.8
 
 
—
 
—
 
 
—
 
—
 
Equity in earnings of associated companies
7,746
 
1.0
 
 
5,120
 
0.6
 
 
10,211
 
1.0
 
Reduction in investment in TNI
—< /font>
 
—
 
 
(19,951
(2.4
)
 
(104,478
)
(10.2
)
Operating income (loss)
147,192
 
18.9
 
 
(173,388
)
NM
 
 
(1,049,131
)
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
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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 informa tion 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) increasi ng 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 r elated to these charges.
 

16
Table of Contents

A summary of impairment charges is included in the table below:
(Thousands of Dollars)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Goodwill
—
 
 
193,471
 
 
908,977
 
Nonamortized intangible assets
—
 
 
14,055
 
 
13,027
 
Amortizable intangible assets
—
 
 
33,848
 
 
143,785
 
Property and equipment
3,290
 
 
4,579
 
 
5,019
 
 
3,290
 
 
245,953
 
 
1,070,808
 
Reduction in investment in TNI
—
 
 
19,951
 
 
104,478
 
 
3,290
 
 
265,904
 
 
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 an d 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 uncert ain 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 Compreh ensive 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
Table of Contents

 
 Revenue Reco gnition
 
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 retai ned 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 primari ly 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
Table of Contents

CONTINUING OPERATIONS
 
2010 vs. 2009
 
Operating results, as reported in the Consolidated Financial Statements, are summarized below:
NM
(Thousands of Dollars, Except Per Common Share Data)
2010
 
 
2009
 
 
Percent Change
 
 
 
 
 
 
 
Advertising revenue:
 
 
 
 
 
Retail
322,961
 
 
358,104
 
 
(9.8
)
Classified:
 
 
 
 
 
 
 
 
Daily newspapers:
 
 
 
 
 
 
 
 
Employment
21,393
 
 
26,489
 
 
(19.2
)
Automotive
25,063
 
 
30,465
 
 
(17.7
)
Real estate
23,587
 
 
30,066
 
 
(21.5
)
All other
46,039
 
 
44,635
 
 
3.1
 
Other publications
27,762
 
 
30,660
 
 
(9.5
)
Total classified
143,844
 
 
162,315
 
 
(11.4
)
Digital
47,290
 
 
42,073
 
 
12.4
 
National
33,749
 
 
39,047
 
 
(13.6
)
Niche publications
12,260
 
 
13,135
 
 
(6.7
)
Total advertising revenue
560,104
 
 
614,674
 
 
(8.9
)
Circulation
179,851
 
 
185,154
 
 
(2.9
)
Commercial printi ng
11,762
 
 
12,895
 
 
(8.8
)
Digital services and other
28,931
 
 
29,307
 
 
(1.3
)
Total operating revenue
780,648
 
 
842,030
 
 
(7.3
)
Compensation
315,698
 
 
339,014
 
 
(6.9
)
Newsprint and ink
54,436
 
 
72,311
 
 
(24.7
)
Other operating expenses
238,191
 
 
257,060
 
 
(7.3
)
Workforce adjustments and transition costs
1,420
 
 
6,650
 
 
(78.6
)
 
609,745
 
 
675,035
 
 
(9.7
)
Operating cash flow
170,903
 
 
166,995
 
 
2.3
 
Depreciation and amortization
73,179
< font style="font-family:inherit;font-size:10pt;"> 
 
79,599
 
 
(8.1
)
Impairment of goodwill and other assets
3,290
 
 
245,953
 
 
(98.7
)
Curtailment gains
45,012
 
 
—
 
 
NM
 
Equity in earnings of associated companies
7,746
 
 
5,120
 
 
51.3
 
Reduction in investment in TNI
—
 
 
19,951
 
 
NM
 
Operating income (loss)
147,192
 
 
(173,388
)
 
NM
 
Non-operating expense, net
72,392
 
 
89,183
 
 
(18.8
)
Income (loss) from before income taxes
74,800
 
 
(262,571
)
 
NM
 
Income tax expense (benefit)
28,622
 
  ;
(82,509
)
 
NM
 
Income (loss) from continuing operations
46,178
 
 
(180,062
)
 
NM
 
Discontinued operations, net
—
 
 
(5
)
 
NM
 
Net income (loss)
46,178
 
 
(180,067
)
 
 
Net income attributable to non-controlling interests
(73
)
 
(179
)
 
(59.2
)
Decrease in redeemable non-controlling interest
—
 
 
57,055
 
 
NM
 
Income (loss) attributable to Lee Enterprises, Incorporated
46,105
 
 
(123,191
)
 
NM
 
Other comprehensive loss, net
(14,704
)
 
(21,839
< /td>
)
 
(32.7
)
Comprehensive income (loss)
31,401
 
&nbs p;
(145,030
)
 
NM
 
 
 
 
 
 
 
Income (loss) fr om continuing operations attributable to Lee Enterprises, Incorporated
46,105
 
 
(123,186
)
 
NM
 
 
 
 
 
 
 
Earnings (loss) per common share attributable to Lee Enterprises, Incorporated:
 
 
 
 
 
 
 
 
Basic
1.03
 
 
(2.77
)
 
NM
 
Diluted
1.03
 
 
(2.77
)
 
NM
 

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Table of Contents

Total operating revenue decreased 7.3% in 2010. 2010 and 2009 revenu e, 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%. Certai n 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)
2010
 
 
2009
 
 
Percent
Change
 
 
 
 
 
 
 
Retail
339,219
 
 
< font style="font-family:Arial;font-size:10pt;font-style:normal;font-weight:normal;text-decoration:none;">369,304
 
 
(8.1
)
 
 
 
 
 
 
Classified:
 
 
 
 
 < /font>
Employment
35,470
 
 
41,626
 
 
(14.8
)
Automotive
40,823
 
 
45,574
 
 
(10.4
)
Real estate
31,647
 
 
39,331
 
 
(19.5
)
Other
65,332
 
 
65,715
 
 
(0.6
)
Total classified revenue
173,272
 
 
192,246
 
 
(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)
2010
 
 
2009
 
 
Percent 
Change
 
 
 
 
 
 
 
Retail
10,287
 
 
10,993
 
 
(6.4
)
Classified
11,137
 
 
11,607
 
 
(4.0
)
National
475
 
 
488
 
 
(2.7
)
 
21,899
 
 
23,088
 
 
(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
Table of Contents

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, “Com modities”, 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 us e 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)
2010
 
 
2009
 
 
 
 
 
Goodwill
—
 
 
193,471
 
Nonamortized intangible assets
—
 
 
14,055
 
Amortizable intangible assets
—
 
 
33,848
 
Property and equipment
3,290
 
 
4,579
 
 
3,290
 
 
245,953
 
Reduction in investment in TNI
—
 
 
19,951
 
 
3,290
 
 
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 in terest 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.
 
2010
 
2009
(Thousands of Dollars, Except Per Share Data)
Amount
 
 
Per Share
 
 
Amount
 
 
Per Share
 
 
 
 
 
 
 
 
 
Income (loss) attributable to Lee Enterprises, Incorporated, as reported
46,105
 
 
1.03
 
 
(123,191
)
 
(2.77
)
Adjustments:
 
 
 
 
 
 
 
Impairment of goodwill and other assets, including TNI
3,290
 
 
 
 
265,904
 
 
 
Curtailment gains
(45,012
)
 
 
 
—
 
 
 
Debt financing costs
8,514
 
 
 
 
17,467
 
 
 
Other, net
1,960
 
 
 
 
6,848
 
 
 
 
(31,248
)
 
 
 
290,219
 
 
 
Income tax effect of adjustments, net, and other unusual tax matters
17,167
 
&nbs p;
 
 
(94,518
)
 
 
 
(14,081
)
 
(0.31
)
 
195,701
 
 
4.40
 
Net income, as adjusted
32,024
 
 
0.71
 
 
72,510
 
 
1.63
 
Change in redeemable non-controlling interest liability
—
 
 
—
 
 
(57,055
)
 
(1.28
)
Income attributable to Lee Enterprises, Incorporated, as adjusted
32,024
 < /div>
 
0.71
 
 
15,455
 
 
0.35
 
 

24

2009 vs. 2008
 
Operating results, as reported in the Consolidated Financial Statements, are summarized below:
< td style="vertical-align:bottom;background-color:#cceeff;padding-left:2px;padding-top:2px;padding-bottom:2px;border-bottom:1px solid #000000;">
(5
(Thousands of Dollars, Except Per Common Share Data)
2009
 
 
2008
 
 
Percent Change
 
 
 
 
 
 
 
Advertising revenue:
 
 
 
 
 
Retail
358,104
 
 
434,069
 
 
(17.5
)
Classified:
 
 
 
 
 
Daily newspapers:
 
 
 
 
 
Employment
26,489
 
 
59,457
 
 
(55.4
)
Automotive
30,465
 
 
45,388
 
 
(32.9
)
Real estate
30,066
 
 
43,282
 
 
(30.5
)
All other
44,635
 
 
43,006
 
 
3.8
< /td>
 
Other publications
30,660
 
 
43,361
 
 
(29 .3
)
Total classified
162,315
 
 
234,494
 
 
(30.8
)
Digital
42,073
 
 
55,119
 
 
(23.7
)
National
39,047
 
 
44,143
 
 
(11.5
)
Niche publications
13,135
&nbs p;
 
15,874
 
 
(17.3
)
Total advertising revenue
614,674
 
 
783,699
 
 
(21.6
)
Circulation
185,154
 
 
195,457
 
 
(5.3
)
Commercial printing
12,895
 
 
15,993
 
 
(19.4
)
Digital services and other
29,307
 
 
33,719
 
 
(13.1
)
Total operating revenue
842,030
 
 
1,028,868
 
 
(18.2
)
Compensation
339,014
 
 
421,652
 
 
(19.6
)
Newsprint and ink
72,311
 
 
103,926
 
 
(30.4
)
Other operating expenses
257,060
 
 
292,840
 
 
(12.2
)
Workforce adjustments and transition costs
6,650
 
 
3,428
 
 
94.0
 
 
675,035
 
 
821,846
 
 
(17.9
)
Operating cash flow
166,995
 
 
207,022
 
 
(19.3
)
Depreciation and amortization
79,599
 
 
91,078
 
 
(12.6
)
Impairment of goodwill and other assets
245,953
 
 
1,070,808
 
 
(77.0
)
Equity in earnings of associated companies
5,120
 
 
10,211
 
 
(49.9
)
Reduction in investment in TNI
19,951
& nbsp;
 
104,478
 
 
(80.9
)
Operating loss
(173,388
)
 
(1,049,131
)
 
(83.5
)
< font style="font-family:Arial;font-size:10pt;">Non-operating expense, net
89,183
 
 
64,730
 
 
37.8
 
Loss before income taxes
(262,571
)
 < /div>
(1,113,861
)
 
(76.4
)
Income tax benefit
(82,509
)
 
(242,633
)
 
(66.0
)
Loss from continuing operations
(180,062
)
 
(871,228
)
 
(79.3
)
Discontinued operations, net
)
 
285
 
 
NM
 
Net loss
(180,067
)
 
(870,943
)
 
(79.3
)
Net income attributable to non-controlling interests
(179
)
 
(535
)
 
(66.5
)
Decrease (increase) in redeemable non-controlling interest
57,055
 
 
(8,838
)
 
NM
 
Loss attributable to Lee Enterprises, Incorporated
(123,191
)
 
(880,316
)
 
(86.0
)
O ther comprehensive income (loss), net
(21,839
)
 
1,001
 
 
NM
 
Comprehensive loss
(145,030
)
 
(879,315
)
 
(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
(2.77
)
&n bsp;
(19.65
)
 
(85.9
)
Diluted
(2.77
)
 
(19.65
)
 
(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 adverti sing 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)
2009
 
 
2008
 
 
Percent 
Change
 
 
 
 
 
 
 
Retail
369,302
 
 
439,354
 
 
(15.9
)
 
 
 
 
 
 
Classified:
 
< div style="overflow:hidden;font-size:10pt;"> 
 
 
 
Employment
41,627
 
 
90,830
 
 
(54.2
)
Automotive
44,885
 
 
62,938
 
 
(28.7
)
Real estate
39,331
 
 
57,389
 < /font>
 
(31.5
)
Other
65,715
 
 
72,177
 
 
(9.0
)
Total classified revenue
191,558
 
 
283,334
 
 
(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 pro perty 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)
2009
 
 
2008
 
 
Percent 
Change
 
 
 
 
 
 
 
Retail
10,993
 
 
12,639
 
 
(13.0
)
Classified
11,607
 
 
14,317
 
 
(18.9
)
National
488
 
 
612
 
 
(20.2
)
 
23,088
 
 
27,568
 
 
(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 nati onal 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%, si gnificantly 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 outper forming 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, amort ization, 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 de creased 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, ope rating 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.
 

27

A summary of impairment charges is included in the table below:
(Thousands of Dollars)
2009
 
 
2008
 
 
 
 
 
Goodwill
193,471
 
 
908,977
 
Nonamortized intangible assets
14,055
 
 
13,027
 
Amortizable intangible assets
33,848
 
 
143,785
 
Property and equipment
4,579
 
 
5,019
 
 
245,953
 
 
1,070,808
 
Reduction in investment in TNI
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 Redempt ion 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.

28
< a style="text-decoration:underline;color:#0000FF;" href="#s841839AFC805758D0C7C3E441FB9EFAC">Table of Contents

 
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.
 
2009
 
2008
(Thousands of Dollars, Except Per Share Data)
Amount
 
Per Share
 
Amount
 
Per Share
 
 
 
 
 
 
 
 
Loss attributable to Lee Enterprises, Incorporated, as reported
(123,191
)
 
(2.77
)
 
(880,316
)
 
(19.64
)
Adjustments:
 
 
 
 
 
 
 
Impairment of goodwill and other assets, including TNI
265,904
 
 
 
 
1,175,286
 
 
 
Debt financing costs
17,467
 
 
 
 
3,505
 
 
 
Other, net
6,848
 
 
 
 
4,463
 
 
 
 
290,219
 
 
 
 
1,183,254
 
 
 
Income tax effect of adjustments, net, and other unusual tax matters
(94,518
)
 
 
 
(265,979
)
 
 
 
195,701
 
 
4.40
 
 
917,275
 
 
20.47
 
Net income, as adjusted
72,510
 
 
1.63
 
 
36,959
 
 
0.82
 
Change in redeemable minority interest liability
(57,055
)
 
< /td>
(1.28
)
 
8,838
 
 
0.20
 
Income attributable to Lee Enterprises, Incorporated, as adjusted
15,455
 
 
0.35
 
 
45,797
 
 
1.02
 
 
LIQUIDITY AND CAPITAL RESOURCES
 
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, supple mental 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 substa ntially 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 20 09, 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 complete d 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 Pulitz er 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%.
&nbs p;
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
 
The Credit Agreement contains customary affirmative and negative covenants for financing of its type. At 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 princip al 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 amortization of debt noted above. Our total leverage ratio at September 26, 2010 was 4.92:1. Under the 2009 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 permi tted 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 insti tutional 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.
&nb sp;
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 prepaymen ts, 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.
 
< div style="line-height:120%;text-align:justify;font-size:10pt;">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 c ash 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 Gua ranty 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 S eptember 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 doc uments.
 
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 su bject 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 A greement 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.
 
Dis continued 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
Total
 
 
Less
Than 1
 
 
1-3
 
 
3-5
 
 
More
Than 5
 
 
 
 
 
 
 
 
 
 
 
Debt (principal amount) (1)
1,081,590
 
 
81,500
 
 
1,000,090
 
 
—
 
 
—
 
Financial expense (2)(3)
85,400
 
 
52,300
 
 
33,100
 
 
—
 
 
—
 
Operating lease obligations
16,024
 
 
4,073
 
 
5,500
& nbsp;
 
2,027
 
 
4,424
 
Capital expenditure commitments
532
 
 
532
 
 
—
 
 
—
 
 
—
 
 
1,183,546
 
 
138,405
 
 
1,038,690
 
 
2,027
 
 
4,424
 
(1)
Maturities of long-term debt exclude the possible impact of acceleration of amounts due under the Credit Agreement or Pulitzer Notes due to a future default under such agreements. See Note 7 of the Notes to Consolidated Financial Statements, included herein.
(2)
Financ ial 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 o f 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 b etween 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 AN D 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.
 
< div style="line-height:120%;text-align:justify;font-size:10pt;">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 T NI 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 It em 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 inte rnal control over financial reporting. Their report appears on the following page.
/s/ Mary E. Junck
 
/s/ Carl G. Schmidt
Mary E. Junck
 
Carl G. Schmidt
Chairman, Preside nt and Chief Executive Officer
 
Vice President, Chief Financial Officer
(Principal Executive (Officer)
 
and Treasurer
 
 
(Principal Financial and Accounting Officer)
December 10, 2010
 
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 fairl y 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 e ffectiveness 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
 
 
 

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ITEM 9B. OTHER INFORMATION
 
None.
 
PART III
 
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 ref erence, 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 gover nance 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
Table of Contents

FINANCIAL STATEMENT SCHEDULES
 
All schedules have been omitted as not required, not applicable, not deemed m aterial or because the information is included in the Notes to Consolidated Financial Statements, included herein.
 
EXHIBITS
 
See Exhibit Index, included herein.
 
SIGNAT URES
 
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 < /div>
/s/ Mary E. Junck
 
/s/ Carl G. Schmidt
Mary E. Junck
 
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.
< /tr>
Signature
 
 
 
 
 
 
/s/ Richa rd R. Cole
 
Director
Richard R. Cole
 
 
 
 
 
/s/ Nancy S. Donovan
 
Director
Nancy S. Donovan
 
 
 
 
 
/s/ Leonard J. Elmore
 
Director
Leonard J. Elmore
 
 
 
 
 
/s/ Mary E. Junck
 
Chairman, President and Chief Executive Officer,
Mary E. Junck
 
and Director
 
 
 
/s/ Brent Magid
 
Director
Brent Magid
 
 
 
 
 
/s/ William E. Mayer
 
Director
William E. Mayer
 
 
 
 
 
/s/ Herbert W. Moloney III
 
Director
Herbert W. Moloney III
 
 
 
 
 
/s/ Andrew E. Newman
 
Director
Andrew E. Newman
 
 
 
 
 
/s/ Gordon D. Prichett
 
Director
Gordon D. Prichett
 
 
 
 
 
/s/ Gregory P. Schermer
 
Vice President - Interactive Media, and Director
Gregory P. Schermer
 
 
 
 
 
/s/ Carl G. Schmidt
 
Vice President, Chief Financial Officer and Treasurer
Carl G. Schmidt
 
 
 
 
 
/s/ Mark B. Vittert
 
Director
Mark B. Vittert
 
 

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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 *
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)
 
 
2.2 *
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)
 
 
2.3 *
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)
 
 
3.1 *
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)
  ;
 
3.2 *
Amended By-Laws of Lee Enterprises, Incorporated effective May 17, 2007. (Exhibit 99.1 to Form 8-K filed May 21, 2007)
 
 
4 *
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 am ended 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.
 
 
10.1 *
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., Chi cago Branch, as Co-Documentation Agents (Exhibit 10 to Form 10-Q for the Fiscal Quarter Ended December 31, 2005)
 
 
10.2 *
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)
 
 
10.3 *
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, dat ed 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
Table of Contents

10.16 *
Number
Description
 
 
10.5 *
< div style="text-align:justify;font-size:10pt;">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 Marc h 29, 2009)
 
 
10.6 *
Security Agreement, dated as of November 21, 2008, among Lee Enterprises, Incorpora ted 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)
 
 
10.7 *
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)
 
 
10.8 *
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)
 
 
10.9 *
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)
 
 
10.10 *
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)< /div>
 
 
10.11 *
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)
 
 
10.12 *
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)
 
 
10.13 *
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)
 
 
10.14 *
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)
10.15 *
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)
 
 
10.17 *
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)
 
 
10.18 *
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
Table of Contents

Number
Description
 
 
10.19 *
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)
 
 
10.20 *
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)
 
 
10.21 *
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)< /div>
 
 
10.22 *
Pulitzer Inc. Guaranty Agreement, dated as of May 1, 2000 as amended by Amendment No. 1 to Gua ranty 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)
 
 
10.23 *
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)
 
 
10.24 *
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)
 
 
10.25 *
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)
 
 
10.26 *
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)
 
 
10.27 *
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)
 
 
10.28 *
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)
 
 
10.29 *
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)
 
 
10.30*
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)
 
 
10.31*
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)
 
 
10.32* 
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)
 
 
10.33 *
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)
 
 
10.34 *
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)
 
 
10.35 *
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 L ee Enterprises, Incorporated for non-employee director deferred compensation (Exhibit 10.7 to Form 10-K for the Fiscal Year Ended September 30, 2004)
 

42
Table of Contents

Number
Description
 
 
10.37.1 +*
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)
 
 
10.37.2 +*
Forms of related Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement, Accelerated Ownership Stock Option Agreement and Restricted Stock Agreement related to Lee Enterprises, Incorporated 1990 Long-Term Incentive Plan (effective as of October 1, 1999, as amended November 16, 2005). (Exhibit 10.15.1a to Form 10-K for the Fiscal Year Ended September 30, 2005)
 
 
10.38 +*
Amended and Restated Lee Enterprises, Incorporated 1996 Stock Plan for Non-Employee Directors Effectiv e February 17, 2010 (Exhibit A to Schedule 14A Definitive Proxy Statement for 2010)
 
 
10.39 +*
Le e 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)
 
 
10.40 +*
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)
 
 
10.41 +*
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)
 
 
10.42 +*
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)
 
 
10.43 +*
Lee Enterprises, Incorporated 2005 Incentive Compensation Program (Appendix A to Schedule 14A Definitive Proxy Statement for 2005)
 
 
10.44 +*
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)
 
&n bsp;
21
Subsidiaries and associated companies
 
 
23.1
Consent of KPMG LLP, Independent Registered Public Accounting Firm
 
 
23.2
Consent of McGladrey & Pullen LLP, Independent Registered Public Accounting Firm
 
 
23.3
Report of McGladrey & Pullen LLP, Independent Registered Public Accounting Firm
 
 
24
Power of Attorney
 
 
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
32
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 

43
Table of Contents

CONSOLIDATED FINANCIAL STATEMENTS
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 

44
Table of Contents

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Thousands of Dollars, Except Per Common Share Data)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Operating revenue:
 
 
 
 
 
A dvertising
560,104
 
 
614,674
 
 
783,699
 
Circulation
179,851
 
 
185,154
 
 
195,457
 
Other
40,693
 
 
42,202
 
 
49,712
 
Total operating revenue
780,648
 
 
842,030
 
 
1,028,868
 
Operating expenses:
 
 
 
 
 
Compensation
315,698
 
 
339,014
 
 
421,652
 
Newsprint and ink
54,436
 
 
72,311
 
 
103,926
 
Other operating expenses
238,191
 
 
257,060
 
 
292,840
 
Depreciation
27,971
 
 
32,807
 
 
34,670
 
Amortization of intangible assets
45,208
 
 
46,792
 
 
56,408
&nb sp;
Impairment of goodwill and other assets
3,290
 
 
245,953
 
 
1,070,808
 
Workforce adjustments and transition costs
1,420
 
 
6,650
 
 
3,428
 
Total operating expenses
686,214
 
 
1,000,587
 
 
1,983,732
 
Curtailment gains
45,012
 
 
—
 < /div>
 
—
 
Equity in earnings of associated companies
7,746
 
 
5,120
 
 
10,211
 
Reduction in investment in TNI
—
 
 
(19,951
)
 
(104,478
)
Operating income (loss)
147,192
 
 
(173,388
)
 
(1,049,131
)
Non-operating income (expense):
 
 
 
 
 
Financial income
411
 
 
1,886
 
 
5,857
 
Financial expense
(63,117
)
 
(75,425
)
 
(67,967
)
Debt financing costs
(8,514
)
 
(17,467
)
 
(3,505
)
Other, net
(1,172
)
 
1,823
 
 
885
 
Total non-operating expense, net
(72,392
)
 
(89,183
)
 
(64,730
)
Income (loss) before income taxes
74,800
 
 
(262,571
)
 
(1,113,861
)
Income tax expense (benefit)
28,622
 
 
(82,509
)
 
(242,633
)
Income (loss) from continuing operations
46,178
 
 
(180,062
)
 
(871,228
)
Discontinued operations:
 
 
 
 
 
Income from discontinued operations, net of income tax effect
—
 
 
—
 
 
84
 
Gain (loss) on disposition, net of income tax effect
—
 
 
(5
)
 
201
 
Net income (loss )
46,178
 
 
(180,067
)
 
(870,943
)
Net income attributable to non-controlling interests
(73
)
 
(179
)
 
(535
)
Decrease (increase) in redeemable non-controlling interest
—
 
 
57,055
 
 
(8,838
)
Income (loss) attributable to Lee Enterprises, Incorporated
46,105
 
 
(123,191
)
 
(880,316
)
Other comprehensive income (loss), net
(14,704
)
 
(21,839
)
 
1,001
 
Comprehensive income (loss)
31,401
 
 
(145,030
)
 
(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
1.03
 
 
(2.77
)
 
(19.65
)
Discontinued operations
—
 
 
—
 
 
0.01
 
 
1.03
 
 
(2.77
)
 
(19.64
)
 
 
 
 
 
 
Diluted:
 
 
 
 
 
Continuing operations
1.03
 
 
(2.77
)
 
(19.65
)
Discontinued operations
—
 
 
—
 
 
0.01
 < /div>
 
1.03
 
 
(2.77
)
 
(19.64
)
 
 
 
 
 
 
Dividends per common share
—
 
 
—
 
 
0.76
 
 
The accompanying Notes are an integral part of the Consolidated Financial Statements.
45
Table of Contents

CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
19,422
 
 
7,905
 
Accounts receivable, less allowance for doubtful accounts:
 
 
 
2010 $5,763; 2009 $6,275
77,558
 
 
79,731
 
Income taxes receivable
—
 
 
5,625
 
Inventories
10,822
 
 
13,854
 
Deferred income taxes
2,687
 
 
3,638
 
Other
11,128
 
 
7,354
 
Total current assets
121,617
 
 
118,107
 
Investments:
 
 
 
Associated companies
58,122
 
 
58,073
 
Restricted cash and investments
9,623
 
 
9,324
 
Other
9,594
 
 
9,498
 
Total investments
77,339
 
 
76,895
 
Property and equipment:
 
 
 
Land and improvements
28,075
 
 
30,365
 
Buildings and improvements
194,344
 
 
195,573
 
Equipment
316,697
 
 
316,364
 
Construction in process
811
 
 
1,985
 
 
539,927
 
 
544,287
 
Less accumulated depreciation
304,527
 
 
281,318
 
Property and equipment, net
235,400
 
 
262,969
 
Goodwill
433,552
 
 
433,552
 
Other intangible assets, net
558,140
 
 
603,348
 
Other
14,068
 
 
20,741
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets
1,440,116
 
 
1,515,612
 
 
The accompanying Notes are an integral part of the Consolidated Financial Statements.
 

46
Table of Contents

2010; 39,277 shares;
(Thousands of Dollars and Shares, Except Per Share Data)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
81,500
 
 
89,800
 
Accounts payable
30,529
 
 
31,377
 
Compensation and other accrued liabilities
38,117
 
 
42,755
 
Income taxes payable
1,082
 
 
—
 
Unearned revenue
36,624
 
 
37,001
 
Total current liabilities
187,852
 
 
200,933
 
Long-term debt, net of current maturities
1,000,927
 
 
1,079,993
 
Pension obligations
54,566
 
 
45,953
 
Postretirement and postemployment benefit obligations
9,979
 
 
40,687
 
Deferred income taxes
102,616
 
 
93,766
 
Income taxes payable
11,919
 
 
12,839
 
Other
15,150
 
 
17,591
 
Total liabilities
1,383,009
 
 
1,491,762
 
Stockholders' equity:
 
 
 
Serial convertible preferred stock, no par value; authorized 500 shares; none issued
—
 
 
—
 
Common Stock, $2 par value; authorized 120,000 shares; issued and outstanding:
78,554
 
 
78,278
 
 
 
 
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
139,460
 
 
137,713
 
Accumulated deficit
(179,194
)
 
(225,299
)
Accumulated other comprehensive income
6,651
 
 
21,354
 
  Total stockholders' equity
56,823
 
 
23,598
 
  Non-controlling interests
284
 
 
252
 
Total equity
57,107
 
 
23,850
 
Total liabilities and equity
1,440,116
 
 
1,515,612
 
 
The accompanying Notes are an integral part of the Consolidated Financial Statements.
 

47
Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
< td style="vertical-align:bottom;">
 
 
Amount
 
Shares
(Thousands of Dollars and Shares)
2010
 
 
2009
 
 
2008
 
 
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
 
Common Stock:
78,278
 
 
78,222
 
 
79,958
 
 
39,139
 
 
39,111
 
 
39,979
 
Balance, beginning of year
 
 
 
 
 
 
 
 
 
 
 
Conversion from Class B Common Stock
200
 
 
406
 
 
458
 
 
100
 
 
203
 
 
229
 
Shares issued
190
 
 
82
 
 
1,404
 
 
95
 
 
41
 
 
702
 
Shares reacquired
(114
)
 
(432
)
 
(3,598
)
 
(57
)
 
(216
)
 
(1,799
)
Balance, end of year
78,554
 
 
78,278
 
 
78,222
 
 
39,277
 
 
39,139
 
 
39,111
 
Class B Common Stock:
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of year
11,552
 
 
11,958
 
 
12,416
 
 
5,776
 
 
5,979
 
 
6,208
 
Conversion to Common Stock
(200
)
 
(406
)
 
(458
)
 
(100
)
 
(203
)
 
(229
)
Balance, end of year
11,352
 
 
11,552
 
 
11,958
 
 
5,676
 
 
5,776
 
 
5,979
 
Additional paid-in capital:
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of year
137,713
 
 
134,289
 
 
132,090
 
 
 
 
 
 
 
    Stock compensation
1,911
 
 
3,440
 
 
6,176
 
 
 
 
 
 
 
Income tax expense related to stock compensation
—
 
 
—
 
 
(3,413
)
 
 
 
 
 
 
Shares redeemed
(164
)
 
(16
)
 
(564
)
 
 
 
 
 
 
Balance, end of year
139,460
 
 
137,713
 
 
134,289
 
 
 
 
 
 
 
Retained earnings (accumulated deficit):
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of year
(225,299
)
 
(112,144
)
 
819,786
 
 
 
 
 
 
Net income (loss)
46,178
 
 
(180,067
)
 
(870,943
)
 
 
 
 
 
 
Net income attributable to non-controlling interests
(73
)
 
(179
)
 
(535
)
 
 
 
 
 
 
Shares reacquired
—
 
 
—
 
 
(15,472
)
 
 
 
 
 
 
Adoption of FASB ASC Topic 740
—
 
 
—
 
 
(1,733
)
 
 
 
 
 
 
Adoption of FASB ASC Topic 715
—
 
 
(267
)
 
—
 
 
 
 
 
 
 
Change in redeemable minority interest
—
 
 
67,358
 
 
(8,838
)
 
 
 
 
 
 
Cash dividends
—
 
 
—
 
 
(34,409
)
 
 
 
 
 
 
Balance, end of year
(179,194
)
 
(225,299
)
 
(112,144
)
 
 
 
 
 
 
Accumulated other comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of year
21,354
< font style="font-family:inherit;font-size:10pt;"> 
 
43,193
 
 
42,192
 
 
 
 
 
 
 
Unrealized gain (loss) on interest rate exchange agreements
2,334
 
 
1,004
 
 
(4,776
)
 
 
 
 
 
 
Unrealized gain (loss) on available-for-sale securities
—
 
 
(680
)
 
72
 
 
 
 
 
 
 
Change in pension and postretirement benefits
(26,179
)
 
(33,897
)
 
8,354
 
 
 
 
 
 
 
Adoption of FASB ASC Topic 715
—
 
 
(903
)
 
—
 
 
 
 
 
 
 
Deferred income taxes, net
9,142
 
 
12,637
 
 
(2,649
)
 
 
 
 
 
 
Balance, end of year
6,651
 
 
21,354
 
 
43,193
 
 
 
< font style="font-family:inherit;font-size:10pt;"> 
 
 
 
Total stockholders' equity
56,823
 
 
23,598
 
 
155,518
 
 
44,953
 
 
44,915
 
 
45,090
 
 
The accompanying Notes are an integral part of the Consolidated Financial Statements.

48
Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Cash provided by operating activities:
 
 
 
 
 
Net income (loss)
46,178
 
 
(180,067
)
 
(870,943
)
Results of discontinued operations
—
 
 
(5
)
 
285
 
Income (loss) from continuing operations
46,178
 
 
(180,062
)
 
(871,228
)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities of continuing operations:
 
 
 
 
 
Depreciation and amortization
73,179
 
 
79,599
 
< /td>
 
91,078
 
Impairment of goodwill and other assets
3,290
 
 
245,953
 
 
1,070,808
 
Curtailment gains
(45,012
)
 
—
 
 
—
 
Reduction in investment in TNI
—
 
 
19,951
 
 
104,478
 
Accretion of debt fair value adjustment
(621
)
 
(3,807
)
 
(7,990
)
Stock compensation expense
1,974
 
 
3,013
 
 
5,905
 
Distributions greater (less) than earnings of associated companies
334
 
 
(609
)
 
1,772
 
Deferred income tax expense (benefit)
18,943
 < /font>
 
(78,500
)
 
(261,738
)
Debt financing costs
8,480
 
 
17,467
 
 
3,505
 
Changes in operating assets and liabilities:
 
 
 
 
 
Decrease in receivables
7,798
 
 
15,174
 
 
19,777
 
Decrease (increase) in inventories and other
3,031
 
 
3,866
 
 
(4,875
)
Decrease in accounts payable, accrued expenses and unearned revenue
(6,450
)
 
(39,067
)
 
(18,304
)
Decrease in pension, postretirement and post employment benefits
(3,261
)
 
(6,677
)
 
(315
)
Change in income taxes receivable or payable
162
 
 
(4,208
)
 
5,125
 
Other
(1,454
)
 
1,964
 
 
(1,386
)
Net cash provided by operating activities of continuing operations
106,571
 
 
74,057
 
 
136,612
 
Cash provided by (required for) investing activities of continuing operations:
 
 
 
 
 
Purchases of marketable securities
—
 
 
(47,777
)
 
(115,555
)
Sales or maturities of marketable securities
—
 
 
166,109
 
 
87,873
 
Purchases of property and equipment
(9,458
)
 
(11,555
)
 
(20,606
)
Decrease (increase) in restricted cash
(299
)
 
(2,291
)
 
13,771
 
Proceeds from sale of assets
2,332
 
 
1,418
 
 
12,685
 
Acquisitions, net
—
 
 
—
 
 
(1,624
)
Other
(265
)
 
3,081
 
 
8,493
 
Net cash provided by (required for) investing activities of continuing operations
(7,690
)
 
108,985
 
 
(14,963
)
Cash provided by (required for) financing activities of continuing operations:
 
 
 
 
 
Proceeds from long-term debt
83,800
 
 
195,950
 
 
134,400
 
Payments on long-term debt
(170,545
)
 
(359,990
)
 
(197,650
)
Debt financing costs paid
(453
)
 
(26,061
)
 
—
 
Cash dividends paid
—
 
 
(8,539
)
 
(32,573
)
Common stock transactions, net
(166
)
 
49
 
 
(17,537
)
Net cash required for financing activities of continuing operations
(87,364
)
 
(198,591
)
 
(113,360
)
Net cash provided by (required for) discontinued operations:
 
 
 
 
 
Operating activities
—
 
 
(5
)
 
(8,741
)
Investing activities
—
 
 
—
 
 
23,911
 
Net increase (decrease) in cash and cash equivalents
11,517
 
 
(15,554
)
 
23,459
 
Cash and cash equivalents:
 
 
 
 
 
Beginning of year
7,905
 
 
23,459
 
 
—
 
End of year
19,422
 
 
7,905
 
 
23,459
 
 
The accompanying Notes are an integral part of the Consolidated Financial Statements.

49
Table of Contents

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, excep t 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 C onsolidated 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)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
First-in, first-out
2,615
 
 
3,309
 
Last-in, first-out
5,131
 
 
6,798
 
 
7,746
 
 
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:
 
Years
 
 
Buildings and improvements
5 - 54
Printing presses and insertion equipment
2 - 28
Other
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:
 
Years
 
 
Customer lists
5 - 23< /div>
Newspaper subscriber lists
7 - 33
Noncompete and consulting agreements
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
Table of Contents

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 inc lude, 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 amor tization 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
Table of Contents

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 recor d 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.
 
St ock 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. < /div>
  
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
&n bsp;
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 Stateme nts.
 

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)
2009
 
 
2008
 
 
 
 
 
Operating revenue
—
 
 
1,376
 
 
 
 
 
 
 
Income from discontinued operations
—
 
 
128
 
Gain (loss) on sale of discontinued operations, before income taxes
(8
)
 
5,786
 
Income tax expense (benefit), net
(3
)
 
5,629
 
 
(5
)
 
285
 
 
Income tax expense related to discontinued operations differs from the amounts computed by applying the U.S. federal income tax rate as follows:
 
2009
 
 
2008
 
 
 
 
Computed “expected” income tax expense (benefit)
(35.0
)
 
35.0
State income taxes (benefit), net of federal income tax impact
(3.0
)
 
3.0
Other, primarily goodwill basis differences
0.5
 
 
57.2
 
(37.5
)
 
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 digita l 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)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Current assets
7,812
 
 
6,772
 
Investments and other assets
32
 
 
19
 
Total assets
7,844
 
 
6,791
 
 
 
 
 
LIABILITIES AND MEMBERS' EQUITY
 
 
 
 
 
 
 
Current liabilities
5,109
 
 
5,431
 
Members' equity
2,735
 
 
1,360
 
Total liabilities and members' equity
7,844
 
 
6,791
 
 
Summarized results of TNI are as follows:
(Thousands of Dollars)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Operating revenue
64,379
 
 
74,407
 
 
98,156
 
Operating expenses, excluding depreciation and amortization
53,707
 
< /td>
 
66,535
 
 
76,978
 
 
10,672
 
 
7,872
 
 
21,178
 
 
 
 
 
 
 
Company's 50% share
5,336
 
 
3,936
 
 
10,589
 
Less amortization of intangible assets
1,156
 
 
1,425
 
 
4,418
 
Equity in earnings of TNI
4,180
 
 
2,511
 
 
6,171
 
 
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)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Current assets
20,284
 
 
17,677
 
Investments and other assets
30,982
 
 
31,481
 
Property and equipment, net
10,013
 
 
11,346
 
Total assets
61,279
 
 
60,504
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities
8,583
 
 
7,941
 
Other liabilities
5,100
 
 
4,299
 
Stockholders' equity
47,596
 
 
48,264
 
Total liabilities and stockholders' equity
61,279
 
 
60,504
 
 
Summarized results of MNI are as fol lows:
(Thousands of Dollars)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Operating revenue
75,137
 
 
79,291
 
 
100,352
 
Operating expenses, excluding depreciation and amortization
61,763
 
 
68,296
 
 
84,345
 
Operating income
11,002
 
 
7,755
 
 
11,949
 
Net income
7,132
 
 
5,218
 
 
8,080
 
 
 
 
 
 
 
Company's 50% share of net income
3,566
 
 
2,609
 
 
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)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
Comp any's share of:
 
 
 
Stockholders' equity
23,798
 
 
24,132
 
Undistributed earnings
23,548
 
 
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 gros s 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)
2010
 
 
2009
 
 
 
 
 
Goodwill, gross amount
1,536,000
 
 
1,536,000
 
Accumulated impairment losses
(1,102,448
)
 
(908,977
)
Goodwill, beginning of year
433,552
 
 
627,023
 
Impairment
—
 
 
(193,471
)
Goodwill, end of year
433,552
 
 
433,552
 
  
Identified intangible assets related to continuing operations consist of the following:
(Thousands of Dollars)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
Nonamortized intangible assets:
 
 
 
Mastheads
44,754
 
 
44,754
 
Amortizable intangible assets:
 
 
 
Customer and newspaper subscriber lists
885,713
 
 
885,713
 
Less accumulated amortization
372,337
 
 
327,133
 
 
513,376
 
 
558,580
 
Noncompete and consulting agreements
28,658
 
 
28,658
 
Less accumulated amortization
28,648
 
 
28,644
 
 
10
 
 
14
 
 
558,140
 
 
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 t he 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)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Goodwill
—
 
 
193,471
 
 
908,977
 
Nonamortized intangible assets
—
 
 
14,055
 
 
13,027
 
Amortizable intangible assets
—
 
 
33,848
 
 
143,785
 
Property and equipment
3,290
 
 
4,579
 
 
5,019
 
 
3,290
 
 
245,953
 
 
1,070,808
 
Reduction in investment in TNI
—
 
 
19,951
 
 
104,478
 
 
3,290
 
 
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 Am endments”).
 
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 t he 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
 
Th e Credit Agreement contains customary affirmative and negative covenants for financing of its type. At 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 amortization of debt noted above. Our total leverage ratio at September 26, 2010 was 4.92:1. Under the 2009 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&rdqu o;) 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 manda tory 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 Pulitz er'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 Puli tzer 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 < font style="font-family:Arial;font-size:10pt;color:#000000;text-decoration:none;">$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 agreemen ts 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, w hich 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 q uickly 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 expen sed 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:
 
Balance
 
Interest Rate
(Thousands of Dollars)
September 26
2010
 
 
September 27
2009
 
 
September 26
2010
 
 
 
 
 
 
Credit Agreement:
 
 
 
 
 
A Term Loan
635,665
 
 
714,885
 
 
4.125
Revolving credit facility
285,425
 
 
275,450
 
 
4.125
Pulitzer Notes:
 
 
 
 
 
Principal amount
160,500
 
 
178,000
 
 
9.55
Unaccreted fair value adjustment
837
 
&nbs p;
1,458
 
 
 
 
1,082,427
 
 
1,169,793
 
 
 
Less current maturities
81,500
 
 
89,800
 
 
 
 
1,000,927
 
 
1,079,993
 
 
 
 
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 li mited 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
 
 
 
 
 
 
 
 
 
 
50,000
 
November 30, 2005
November 30, 2009
4.315
 
(514
)
50,000
 
November 30, 2005
November 30, 2009
4.325
 
(501
)
25,000
 
November 30, 2005
November 30, 2010
4.395
 
(1,177
)
125,000
 
 
 
 
 
(2,192
)
 
 
 
 
 
 
COLLARS
 
 
 
 
 
 
&nbs p;
 
 
 
 
75,000
 
November 30, 2007
November 30, 2009
3.53-5.00
 
(618
)
75,000
 
November 30, 2007
November 30, 2009
3.61-5.00< /font>
 
(635
)
150,000
 
 
 
 
 
(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 noncont ributory 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)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Service cost for benefits earned during the year
792
 
 
1,076
 
 
1,501
 
Interest cost on projected benefit obligation
8,888
 
 
9,550
 
 
9,333
 
Expected return on plan assets
(9,568
)
 
(11,669
)
 
(13,743
)
Amortization of net gain
453
 
 
(1,181
)
 
(1,697
)
Amortization of prior service cost
(136
)
 
(137
)
 
(132
)
Curtailment gains
(2,004
)
 
—
 
 
—
 
Net periodic pension cost (benefit)
(1,575
)
 
(2,361
)
 
(4,738
)
 
Net periodic pension benefit of $122,000, $122,000 an d $238,000 is allocated to TNI in 2010, 2009 and 2008, respectively.
 

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Changes in benefit obligations and plan assets are as follows:
(Thousands of Dollars)
2010
 
 
2009
 
 
 
 
 
Benefit obligation, beginning of year
167,880
 
 
147,424
 
Service cost
792
 
 
1,076
&nb sp;
Interest cost
8,888
 
 
9,550
 
Actuarial loss
13,615
 
 
21,676
 
Benefits paid
(10,992
)
 
(14,504
)
Adjustment for FASB ASC Topic 715
—
 
 
2,658
 
Curtailment gain
(2,004
)
 
—
 
Benefit obligation, end of year
178,179
 
 
167,880
 
Fair value of plan assets, beginning of year:
124,177
 
 
151,801
 
Actual return on plan assets
14,067
 
 
(13,692
)
Benefits paid
(10,992< /font>
)
 
(14,504
)
Administrative expenses paid
(1,788
)
 
(2,345
)
Adjustment for FASB ASC Topic 715
—
 
 
2,917
 
Fair value of plan assets, end of year
125,464
 
 
124,177
 
Funded status - benefit obligation in excess of plan assets
52,715
 
 
43,703
 
 
Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:
(Thousands of Dollars)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
Pension obligations
52,715
 
 
43,703
 
Accumulated other comprehensive loss (before income taxes)
(29,209
)
 
(18,621
)
 
Amounts recognized in accumulated other comprehensive income are as follows:
(Thousands of Dollars)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
Unrecognized net actuarial loss
(30,409
)
 
(19,958
)
Unrecognized prior service benefit
1,200
 
 
1,337
 
 
(29,209< /div>
)
 
(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)
September 26
2010
 
September 27
2009
 
 
 
 
Discount rate
4.8
 
5.5
Rate of compensation increase
3.5
 
3.5
 

63

Weighted-average assumptions used to determine net periodic benefit cost are as follows:
(Percent)
2010
2009
2008
 
 
 
 
Discount rate
5.5
6.75
5.75
Expected long-term return on plan assets
8.0
8.0
8.0
Rate of compensation increase
3.5
3.5
4.0
 
The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns and current market conditions.
 
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 inv estment 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)
 
Actual Allocation
Asset Class
Policy Allocation
September 26
2010
September 27
2009
 
 
 
 
 
Equity securities
65 to 70
70
71
 
Debt securities
30 to 35
25
29
 
Cash and cash equivalents
 
5
—
 
 
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)
Quoted Prices in Active Markets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
 
 
 
 
Cash and cash equivalents
6,929
 
—
 
—
 
Domestic equity securities
22,674
 
45,798
 
—
 
International equity securities
—
 
18,829
 
—
 
Debt securities
—
 
31,234
 
—
 
 
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
11,277
 
2012
11,047
 
2013
11,089
 
2014
11,133
 
2015
11,130
 
2016-2020
56,235
 
 
Other Plans
 
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, P D 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 obli gations 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)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Service cost for benefits earned during the year
361
 
 
770
 
 
2,100
 
Interest cost on projected benefit obligation
2,971
 
 
5,022
 
 
6,610
 
Expected return on plan assets
(2,274
)
 
(2,409
)
 
(2,194
)
Amortization of net actuarial gain
(2,447
)
 
(2,760
)
 
(633
)
Amortization of prior service benefit
(1,994
)
 
(2,197< /div>
)
 
(233
)
Curtailment gains
(43,008
)
 
—
 
 
—
 
Net periodic postretirement benefit cost (benefit)
(46,391
)
 
(1,574
)
 
5,650
 
 
Changes in benefit obligations and plan assets are as follows:
(Thousands of Dollars)
2010
 
 
2009
 
 
 
 
 
Benefit obligation, beginning of year
80,947
 
 
103,145
 
Service cost
361
 
 
770
 
Interest cost
2,971
 
 
5,022
 
Actuarial gain
2,352
 
< font style="font-family:inherit;font-size:10pt;"> 
(2,788
)
Benefits paid, net of premiums received
(3,330
)
 
(7,078
)
Changes in plan provisions
(5,065
)
 
(20,673
)
Curtailment
(30,260
)
 
—
 
Medicare Part D subsidies
340
 
 
517
 
Reclassifications
2,166
 
 
—
 
Adjustment for FASB ASC Topic 715
—
 
 
2,032
 
Benefit obligation, end of year
50,482
 
 
80,947
 
Fair value of plan assets, beginning of year
41,053
 
 
44,786
 
Actual return on plan assets
1,212
 
&nb sp;
719
 
Employer contributions
2,172
 
 
1,507
 
Benefits paid, net of premiums and Medicare Part D subsidies received
(2,990
)
 
(6,560
)
Adjustment for FASB ASC Topic 715
—
 
 
601
 
Fair value of plan assets at measurement date
41,447
 
 
41,053
 
Funded status - benefit obligation in excess of plan assets
9,035
 
 
39,894
 
 
Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:
(Thousands of Dollars)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
Current portion of benefit obligation
2,360
 
 
2,640
 
Postretirement benefit obligations
6,675
 
 
37,254
 
Accumulated other comprehensive income (before income tax benefit)
42,415
 
 
57,954
 
 
Amounts recognized in accumulated other comprehensive income are as follows:
(Thousands of Dollars)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
Unrecognized net actuarial gain
31,055
 
 
36,917
 
Unrecognized prior service benefit
11,360
 
 
21,037
 
 
42,415
 
 
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)
September 26
2010
 
September 27
2009
 
 
 
 
Discount rate
4.8
 
5.5
Expected long-term return on plan assets
5.75
 
5.75
 
The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns and current market conditions.
 
Weighted-average assumptions used to determine net periodic benefit cost are as follows:
(Percent)
2010   
 
2009
 
2008
 
 
 
 
 
 
Discount rate
5.5
 
6.75
 
5.75
Expected long-term return on plan assets
5.75
 
5.75
 
5.0
 
Assumed health care cost trend rates are as follows:
(Percent)
September 26
2010
 
September 27
2009
 
 
 
 
Health care cost trend rates
11.0
 
9.0
Rates to which the cost trend rate is assumed to decline (the “Ultimate Trend Rates”)
4.0
 
5.0
Year in which the rate reaches the Ultimate Trend Rates
2017
 
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:
 
One Percentage Point
(Thousands of Dollars)
Increase
 
 
Decrease
 
 
 
 
 
Effect on net periodic postretirement benefit cost
212
 
 
(185
)
Effect on postretirement benefit obligation
4,215
 
 
(3,680
)
 
Plan Assets
 
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 establis hes 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)
 
Actual Allocation
Asset Class
Polic y Allocation
September 26
2010
September 27
2009
 
 
 
 
Equity securities
0-10
11
3
Debt securities
90-100
89
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)
Quoted Prices in Active Markets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
 
 
 
 
Cash and cash equivalents
2
 
—
 
—
 
Domestic equity securities
1,275
 
1,685
 
—
 
International equity securities
—
 
1,597
 
—
 
Debt securities
36,888
 
—
 
—
 
 
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 n et 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)
Gross
Payments
 
 
Less
Medicare
Part D
Subsidy
 
 
Net
Payments
 
 
 
 
 
 
 
2011
4,110
 
 
(250
)
 
3,860
 
< /td>
2012
4,570
 
 
(260
)
 
4,310
 
2013
4,470
 
 
(280
)
 
4,190
 
2014
4,490
 
 
(300
)
 
4,190
 
2015
4,460
 
 
(310
)
 
4,150
 
2016-2020
21,070
 
 
(1,680
)
 
19,390
 
 
2011 Changes to Plans
 
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 pos tretirement 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 co verage 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 amend ments. 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 o bligation 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, effe ctive 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 establish ed 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 ti mes 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 A Participating Preferred Stock, subject to adjustment, with a value of twice the exercise price. In addition, at any time after a 15% position is acquired and prior to the acquisition of a 50% position, the Board of Directors may require, in whole or in part, each outstanding Right (other than Rights held by the acquiring person or group of affiliated persons) to be exchanged for one share of Common Stock or one one-thousandth of a share of Series A Preferred Stock. The Rights may be redeemed at a price of $0.001 per Right at any time prior to their expiration.
 
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 in centive and nonstatutory stock option and restricted stock plan approved by stockholders. Options are granted at a price equal to the fair market value on the date of the grant and are exercisable, upon vesting, over a ten year period.

70

 
A summary of stock option activity is as follows:
(Thousands of Shares)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Under option, beginning of year
1,009
 
 
263
 
 
1,195
 
Granted
—
 
 
783
 
 
—
 
Canceled
(69
)
 
(37
)
 
(932
)
Under option, end of year
940
 
 
1,009
 
 
263
 
 
 
 
 
 
 
Exercisable, end of year
423
 
 
191
 
 
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:
< td width="2%">
(Dollars)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Granted
—
 
 
2.07
 
 
—
 
Under option, end of year
8.77
 
 
9.40
 
 
34.69
 
 
The fair value of each grant is estimated at the grant date using the Black-Scholes option-pricing model. The table be low outlines the weighted average assumptions for options granted.
 
 
 
2009
 
 
 
 
 
Volatility (percent)
 
 
105
 
Risk-free interest rate
 
 
2.45
 
Ex pected life (years)
 
 
4.7
 
Estimated fair value (dollars)
 
 
1.57
 
 
A summary of stock options outstanding at September 26, 2010 is as follows:
< /td>
(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
 
8.8
 
2.07
 
 
228,600
 
 
2.07
 
25 to 30
86,570
 
5.7
 
28.62
 
 
86,570
 
 
28.62
 
30 to 35
25,966
 
2.1
 
32.51
 
 
25,966
 
 
32.51
 
35 to 40
45,685
 
3.8
 
38.28
 
 
45,685
 
 
38.28
 
40 to 45
18,108
 
3.0
 
43.27
 
 
18,108
 
 
43.27
 
45 to 50
17,842
 
4.1
 
47.63
 
 
17,842
 
 
47.63
 
 
940,071
 
7.9
 
8.77
 
 
422,771
 
 
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)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Outstanding, beginning of year
453
 
 
746
 
 
416
 
Granted
—
 
 
—
 
 
482
 
Vested
(143
)
 
(114
)
 
(112
)
Forfeited
(11
)
 
(179
)
 
(40
)
Outstanding, end of year
299
 
 
453
 
 
746
 
 
Weighted average grant date fair values of restricted Common Stock are as follows:
(Dollars)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Outstanding, beginning of year
19.35
 
 
21.60
 
 
36.60
 
Granted
—
 
 
—
 
 
15.02
 
Vested
28.73
 
 
39.53
 
 
46.66
 
Forfeited
15.02
 
 
15.94
 
 
27.95
 
Outstanding, end of year
15.02
 
 
19.35
 
 
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.
< font style="font-family:inherit;font-size:7pt;"> 

72

14
INCOME TAXES
 
Income tax expense (benefit) consists of the following:
(Thousands of Dollars)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Cu rrent:
 
 
 
 
 
Federal
8,673
 
 
(3,573
)
 
24,442
 
State
833
 
 
643
 
 
3,383
 
Deferred
19,116
 
 
(79,582
)
 
(264,829
)
 
28,622
 
 
(82,512
)
 
(237,004
)
 
 
 
 
 
 
Continuing operations
28,622
 
 
(82,509
)
 
(242,633
)
Discontinued operations
—
 
 
(3
)
 
5,629
 
 
28,622
 
 
(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)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Computed “expec ted” income tax expense (benefit)
35.0
 
 
(35.0
)
 
(35.0
)
State income taxes (benefit), net of federal tax expense (benefit)
4.3
 
 
(3.7
)
 
(3.0
)
Net income of associated companies taxed at dividend rates
(1.4
)
 
(0.3
)
 
(0.1
)
Domestic production deduction
(0.8
)
 
—
 
 
(0.1
)
Resolution of tax matters
(3.5
)
 
—
 
 
(0.3
)
Impairment of goodwill and other assets
—
 
 
12.2
 
 
14.9
 
Valuation allowance
(0.1
)
 
(6.1< /font>
)
 
2.3
 
Tax law change
4.2
 
 
—
 
 
—
 
Other
0.6
 
 
1.5
 
 
(0.5
)
 
38.3
 
 
(31.4
)
 
(21.8
)
 

73

Net deferred income tax liabilities consist of the following components:
(Thousands of Dollars)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
Deferred income tax liabilities:
 
 
 
Property and equipment
(29,659
)
 
(32,975
)
Investments
(26,443
)
 
(18,185
)
Identified intangible assets
(62,731
)
 
(59,036
)
    Long-term debt and interest rate exchange agreements
(1,450
)
 
(1,398
)
 
(120,283
)
 
(111,594
)
Deferred income tax assets:
 
 
< div style="text-align:left;font-size:4pt;"> 
Accrued compensation
6,462
 
 
7,458
 
Allowance for doubtful accounts and losses on loans
1,745
 
 
1,682
 
Pension and postretirement benefits
5,384
 
 
3,950
 
State operating loss carryforwards
20,897
 
 
18,205
 
Accrued expenses
5,767
 
 
6,747
 
Other
3,124
 
 
3,893
 
 
43,379
 
&nb sp;
41,935
 
Valuation allowance
(23,025
)
 
(20,469
)
Net deferred income tax liabilities
(99,929
)
 
(90,128
)
 
Net deferred income tax liabilities are classified as follows:
(Thousands of Dollars)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
Current assets
2,687
 
 
3,638
 
Non-current liabilities
< font style="font-family:Arial;font-size:10pt;font-style:normal;font-weight:normal;text-decoration:none;">(102,616
)
 
(93,766
)
Net deferred income tax liabilities
(99,929
)
 
(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)
2010
 
 
 
Balance, beginning of year
10,186
 
Decreases in tax positions for prior years
(860
)
Increases in tax positions for the current year
355
 
Lapse in statute of limitations
(503
)
Settled items
(9
)
Balance, end of year
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 simil ar 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 summariz es the financial instruments measured at fair value in the accompanying Consolidated Financial Statements as of September 26, 2010:
< td style="vertical-align:bottom;background-color:#cceeff;border-bottom:2px solid #000000;">
 
(Thousands of Dollars)
Level 1
 
 
Level 2
 
 
Level 3
& nbsp;
 
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 Heral d 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 valu e 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 wi th 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:
Discontinued operations
 
(Thousands of Dollars, Except Per Common Share Data)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Income (loss) attibutable to Lee Enterprises, Incorporated:
 
 
 
 
 
Continuing operations
46,105
 
 
(123,186
)
 
(880,601
)
—
 
 
(5
)
 
285
 
 
46,105
 
 
(123,191
)
 
(880,316
)
 
 
 
 
 
 
Weighted average Common Shares
44,902
 
 
44,952
 
 
45,478
 
Less non-vested restricted Common Stock
(347
)
 
(510
)
 
(665
)
Basic average Common Shares
44,555
 
 
44,442
 
 
44,813
 
Dilutive stock options and restricted Common Stock
400
 
 
—
 
 
—
 
Diluted average Common Shares
44,955
 
 
44,442
 
 
44,813
 
 
 
 
 
 
 
Earnings (loss) per common share:
 
 
 
 
< /td>
 
Basic:
 
 
 
 
 
Continuing operations
1.03
 
 
(2.77
)
 
(19.65
)
Discontinued operations
—
 
 
—
 
0.01
 
 
1.03
 
 
(2.77
)
 
(19.64
)
 
 
 
 
 
 
Diluted:
 
 
 
 
 
Continuing operations
1.03
 
 
(2.77
)
 
(19.65
)
Discontinued operations
—
 
 
—
 
 
0.01
 
 
1.03
 
 
(2.77
)
 
(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
 
Valuati on and qualifying account information related to the allowance for doubtful accounts receivable is as follows:
(Thousands of Dollars)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Balance, beginning of year
6,275
 
 
6,647
 
 
10,266
 
Additions charged to expense
3,043
 
 
5,995
 
 
5,977
 
Deductions from reserves
(3,555
)
 
(6,367
)
 
(9,596
)
Balance, end of year
5,763
 
 
6,275
 
 
6,647
 
 
18
< /td>
 OTHER INFORMATION
 
Compensation and other accrued liabilities consist of the following:
(Thousands of Dollars)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
Compensation
12,113
 
 
12,858
 
Retirement and stock purchase plans
7,632
 
 
10,533
 
Interest
4,703
 
 
5,644
 
Other
13,669
 
 
13,720
 
 
38,117
 
 
42,755
 
 

76

Cash payments are as follows:
(Thousands of Dollars)
2010
 
 
2009
 
 
2008
 
 
 
 
 
 
 
Interest
65,791
 
 
80,690
 
 
80,960
 
Debt financing costs
453
 
 
26,061
 
 
—
 
Income taxes, net of refunds
3,753
 
 
5,829
 
 
26,173
 
 
Components of accumulated other comprehensive income, net of deferred income taxes, are as follows:
(Thousands of Dollars)
September 26
2010
 
 
September 27
2009
 
 
 
 
 
Pension and postretirement benefits
6,651
 
 
22,800
 
Unrealized loss on interest rate exchange agreements
—
 
 
(1,446
)
 
6,651
 
 
21,354
 
 
19
COMMITMENTS AND CONTINGENT LIABILITIES
 
Operating Leases
 
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 l ease 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 tr eated 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 l oss 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 $2,300,0 00 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 L LC 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 th ose 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 Consolida ted 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 noncontrolling interests is included in net income (loss) in the Consolidated Statements of Operations and

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 di sclosure 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)
 
Quarter Ended
(Thousands of Dollars, Except Per Common Share Data)
December
 
 
March
 
 
June
 
 
September
 
 
 
 
 
 
 
 
 
2010
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
209,838
 
 
185,744
 
 
196,405
 
 
188,660
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
27,959
< font style="font-family:inherit;font-size:10pt;"> 
 
2,982
 
 
10,039
 
 
5,199
 
Discontinued operations
—
 
 
—
 
 
—
 
 
—
 
Net income (loss)
27,959
 
 
2,982
 
 
10,039
 
 
5,199
 
 
 
 
 
 
 
 
 
Income (loss) attributable to Lee Enterprises, Incorporated
27,907
 
 
2,991
 
 
10,019
 
 
5,189
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income from continuing operations
0.63
 
 
0.07
 
 
0.22
 
 
0.12
 
Discontinued operations
—
 
 
—
 
 
—
 
 
—
 
 
0.63
 
 
0.07
 
 
0.22
 
 
0.12
 
 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
Income from continuing operations
0.62
 
 
0.07
 
 
0.22
 
 
0.11
 
Discontinued operations
—
 
 
—
 
 
—
 
 
—
 
 
0.62
 
 
0.07
 
 
0.22
 
 
0.11
 
 
 
 
 
 
 
 
 
2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
243,555
 
 
198,844
 
 
203,805
 
 
195,826
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
(47,463
)
 
(109,889
)
 
(24,492
)
 
1,782
 
Discontinued operations
(5
)
 
—
 
 
—
 
 
—
 
Net income (loss)
(47,468
)
 
(109,889
)
 
(24,492
)
 
1,782
 
 
 
 
 
 
 
 
 
Income (loss) attributable to Lee Enterprises, Incorporated
(48,677
)
 
(51,757
)
 
(24,512
)
 
1,755
 
 
 
 
 
 
 
 
 
Earnings (loss) per common share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Income from continuing operations
(1.10
)
 
(1.16
)
 
(0.55
)
 
0.04
 
Discontinued operations
—
 
 
—
 
 
—
 
 
—
 
 
(1.10
)
 
(1.16
)
 
(0.55
)
 
0.04
 
 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
Income from continuing operations
(1.10
)
 
(1.16
)
 
(0.55
)
 
0.04
 
Discontinued operations
—
 
 
—
 
 
—
 
 
—
 
 
(1.10
)
 
(1.16
)
 
(0.55
)
 
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 Sto ckholders
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. W e 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 aud its 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 St andards 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
 

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EXHIBIT 21
LEE ENTERPRISES, INCORPORATED
AND SUBSIDIARIES
 
SUBSIDIARIES AND ASSOCIATED COMPANIES
 
< /td>
 
State of
Organization
Percentage of Voting
Securities Owned
Lee Enterprises, Incorporated
Delaware
    Parent
Lee Publications, Inc.
Delaware
100
 
Accudata, Inc.
Iowa
100
 
< /td>
INN Partners, L.C. d/b/a TownNews.com
Iowa
82.5
 
Lee Procurement Solutions Co.
Iowa
100
 
Sioux City Ne wspapers, Inc.
Iowa
100
 
Journal-Star Printing Co.
Nebraska
100
 
K. Falls Basin Publishing, Inc.
Oregon
100
 
Lee Consolidated Holdings Co.
South Dakota
100
 
Madison Newspapers, Inc. d/b/a Capital Newspapers
Wisconsin
50
 
Flagstaff Publishing Co.
Washington
100
 
Hanford Sentinel, Inc.
Washington
100
 
Kauai Publishing Co.
Delaware
100
 
Napa Valley Publishing Co.
Washington
100
 
NIPC, Inc.
Delaware
100
 
Northern Lakes Publishing Co.
Delaware
100
 
Pantagraph Publishing Co.
Delaware
100
 
Pulitzer Inc.
Delaware
100
 
Pulitzer Missouri Newspapers, Inc.
Delaware
100
 
Pulitzer Newspapers, Inc.
Delaware
100
 
Lee Foundation
Iowa
100
 
Pulitzer Technologies, Inc.
Delaware
100
 
Pulitzer Utah Newspapers, Inc.
Delaware
100
 
Santa Maria Times, Inc.
Nevada
100
 
Southwestern Oregon Publishing Co.
Oregon
100
 
Star Publishing Company
Arizona
100
 
Ynez Corporation
California
100
 
Fairgrove LLC
Delaware
100
 
Homechoice, LLC
Utah
100
 
HSTAR LLC
Delaware
100
 
NLPC LLC
Delaware
100
 
NVPC LLC
< /td>
Delaware
100
 
Pulitzer Network Systems LLC
< font style="font-family:Arial;font-size:10pt;">Delaware
100
 
SHTP LLC
Delaware
100
 
SOPC LLC
Delaware
100
 
St. Louis Post-Dispatch LLC
Delaware
100
 
STL Distribution Services LLC
Delaware
100
 
Suburban Journals of Greater St. Louis LLC
Delaware
100
 
TNI Partners
Arizona
50
 
Community Distribution Partners, LLC
Montana
50
 

 
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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 effect iveness 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
 

 
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EXHIBIT 23.2
 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
We consent to the incorporation by reference in 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 and subsidiaries of our report dated November 4, 2010, 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 26, 2010.
 
 
/s/ McGladrey & Pullen LLP
 
Madison, Wisconsin
December 10, 2010
 

 
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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 sheets of Madison Newspapers, Inc. and Subsidiary as of September 26, 2010 and September 27, 2009, and the related consolidated statements of income, stockholders' equity, and cash flows for the years 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 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. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. 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 audits provide 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 26, 2010 and September 27, 2009, and the results of their operations and their cash flows for the years then ended in conformity with United States generally accepted accounting principles.
 
 
 
/s/ McGladrey & Pullen LLP
 
Madison, Wisconsin
No vember 4, 2010
 
 
 
 
 
 
 
 
 
 
 

 
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EXHIBIT 24
POWER OF ATTORNEY
 
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
December 10, 2010
 
 
/s/ Nancy S. Donovan 
 
Nancy S. Donovan, Director
December 10, 2010
 
 
/s/ Leonard J. Elmore 
 
Leonard J. Elmore, Director
December 10, 2010
 
 
/s/ Brent Magid
 
Brent Magid, Director
December 10, 2010
 
 
/s/ William E. Mayer 
 
William E. Mayer, Director
December 10, 2010
 
 
/s/ Herbert W. Moloney III 
 
Herbert W. Moloney III, Director
December 10, 2010
 
 
/s/ Andrew E. Newman 
 
Andrew E. Newman, Director
December 10, 2010
 
 
/s/ Gordon D. Prichett 
 
Gordon D. Prichett, Director
December 10, 2010
 
 
/s/ Gregory P. Schermer 
 
Gregory P. Schermer, Director
December 10, 2010
 
 
/s/ Mark Vittert 
 
Mark Vittert, Director
December 10, 2010
 

 
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Exhibit 31.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
 
I, Mary E. Junck, certify that:
1.
I have reviewed this annual report on Form 10-K ("Annual Report") of Lee Enterprises, Incorporated ("Registrant");
2.
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;
3.
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;
4.
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)
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;
 
 
b)
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;
 
 
c)
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
 
 
d)
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)
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
 
 
b)
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
 

 
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Exhibit 31.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER
 
I, Carl G. Schmidt, certify that:
1.
I have reviewed this annual report on Form 10-K ("Annual Report") of Lee Enterprises, Incorporated ("Registrant");
2.
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;
3.
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;
4.
The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedur es (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)
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;
 
 
b)
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;
 
 
c)
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
 
 
d)
disclosed in this Annual Report any change in the Registrant's internal control over financial reporting that occurred during th e 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):< /font>
 
 
a)
all significant deficiencies and material weaknesses in the design or operation o f 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
 
 
b)
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
 

 
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Exhibit 32
 
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.
 
< div style="line-height:120%;text-align:left;font-size:10pt;">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)
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
(ii)
the information contained in this Annual Report fairly presents, in all material re spects, 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
 
/s/ Carl G. Schmidt
Mary E. Junck
 
Carl G. Schmidt
Chairman, President and
 
Vice President, Chief Financial Officer
Chief Executive 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.