Lee Enterprises Reports Earnings for Third Fiscal Quarter
DAVENPORT, Iowa--(BUSINESS WIRE)--July 20, 2006--Lee Enterprises, Incorporated (NYSE:LEE), reported today that diluted earnings per common share were 50 cents for its third fiscal quarter ended June 30, 2006, compared with 41 cents a year ago, reflecting unusual costs in both years related to the acquisition of Pulitzer Inc. in June 2005.
Transition costs and a re-evaluation of intangible assets related to the acquisition of Pulitzer reduced diluted earnings per common share from continuing operations by 11 cents in the current year quarter. In 2005, transition costs and loss on early extinguishment of debt reduced earnings by 17 cents. Earnings in both the current and prior year reflect the impact of stock compensation expense, which Lee has been recognizing since October 2002.
Mary Junck, chairman and chief executive officer, said: "Exceptionally strong online advertising, niche product growth and an improved showing in retail allowed us to deliver another good quarter and meet earnings expectations, adjusted for some unusual events. Revenue growth continues to vary widely region by region in a still-uneven economic climate, but our audience growth advances across the board. We're driving larger online audiences while maintaining our solid circulation base, and in this past quarter 36 of our newspapers reported circulation gains. Meanwhile, a full year after the acquisition, we remain on course with Pulitzer and believe we've set the stage for future growth."
On a reported basis, which includes the addition of Pulitzer for the full quarter in the current year and one month of Pulitzer in the previous year, advertising revenue for the quarter increased 40.6 percent from a year ago to $234.4 million, with growth of 35.9 percent in retail, 36.6 percent in classified and 86.7 percent in national. Online advertising revenue increased 105.5 percent, and niche advertising rose 38.9 percent. Circulation revenue increased 36.3 percent. Total operating revenue increased 38.2 percent to $301.1 million.
On a same property (1) basis, which excludes the impact of Pulitzer and other acquisitions and divestitures made in the current or prior year, total advertising revenue for the quarter increased 1.8 percent from a year ago, with retail up 0.9 percent, classified down 0.4 percent, national down 8.0 percent and online advertising revenue up 44.3 percent. Circulation revenue increased 0.4 percent, and total operating revenue increased 1.3 percent.
Operating expenses, on a reported basis, excluding depreciation and amortization, increased 39.2 percent to $218.5 million for the quarter, also reflecting the acquisition of Pulitzer. Newsprint and ink expense increased 50.5 percent, compensation increased 32.2 percent, and other expenses increased 47.3 percent.
Same property expenses, excluding depreciation and amortization, increased 3.2 percent in the quarter, with newsprint and ink up 9.1 percent, compensation up 1.8 percent, and other operating expenses up 2.9 percent.
Operating cash flow (2) increased 35.5 percent to $82.6 million, including acquisitions and related costs. Operating income, which includes equity in earnings of associated companies and depreciation and amortization, increased 21.3 percent to $59.1 million. Non-operating expenses, which include financial expense related to Pulitzer, totaled $22.0 million, compared with $19.2 million a year ago. As a result, income before income taxes increased 25.8 percent to $37.1 million. Net income increased 21.5 percent to $22.7 million.
YEAR TO DATE
For the nine months ended June, diluted earnings per common share total $1.32, compared with $1.41 a year ago.
Transition costs, an early retirement program and a re-evaluation of intangible assets related to the acquisition of Pulitzer reduced diluted earnings per common share by 25 cents in the current year. In 2005, transition costs and loss on early extinguishment of debt related to Pulitzer reduced earnings by 17 cents.
On a reported basis, including acquisitions, advertising revenue for the nine months increased 58.1 percent to $682.4 million, and total operating revenue increased 54.1 percent to $879.5 million. Operating expenses, excluding depreciation and amortization, rose 59.6 percent to $660.1 million. On a same property basis, advertising revenue increased 1.6 percent, total operating revenue increased 0.8 percent, and operating expenses, excluding depreciation and amortization, increased 3.2 percent.
Operating cash flow increased 39.7 percent, to $219.5 million. Operating income rose 29.5 percent to $162.7 million. Income before income taxes decreased 5.3 percent to $96.0 million. Net income decreased 6.0 percent to $59.9 million.
INTANGIBLE ASSETS
The Company, based on its most recent analysis and in conjunction with its ongoing requirement to assess the estimated useful lives of intangible assets, has concluded that the period of economic benefit of certain identified intangible assets related to the Pulitzer acquisition has decreased. As a result, the weighted-average useful life of customer lists will be decreased prospectively from approximately 21 years to 17 years.
The change in estimated useful life of such assets resulted in recognition of additional amortization expense of $0.5 million in the three months ended June 30, 2006, of which $0.1 million reduced equity in earnings of associated companies. The Company expects amortization expense to increase by approximately $1.4 million in the three months ending September 2006 and $5.5 million in its fiscal year ending September 2007. This change in non-cash amortization expense has no impact on the Company's cash flows or debt covenants.
In the three months ended June 30, 2006, the Company also recorded a separate non-cash charge of $5.5 million to reduce the value of non-amortized masthead intangible assets of Pulitzer. Of that amount, $4.9 million is recorded in amortization expense and $0.6 million reduced equity in earnings of associated companies.
PULITZER COSTS
The following tables summarize the impact on earnings per diluted common share from unusual costs related to the Pulitzer acquisition:
Three Months Ended June 30
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2006 2005
------------------ ------------------
(Thousands, Except EPS Data) Amount Per Share Amount Per Share
-------- --------- -------- ---------
Net income, as reported......... $22,717 $0.50 $18,697 $0.41
Adjustments to net income:
Reduction of value of
identified intangible assets. 5,526 -
Transition costs............... 1,677 1,439
Loss on extinguishment of debt. - 11,181
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7,203 12,620
Income tax benefit of
adjustments, net.............. (1,984) (4,922)
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5,219 0.11 7,698 0.17
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Net income, as adjusted......... $27,936 $0.61 $26,395 $0.58
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Nine Months Ended June 30
----------------------------------------------------------------------
2006 2005
------------------ ------------------
(Thousands, Except EPS Data) Amount Per Share Amount Per Share
-------- --------- -------- ---------
Net income, as reported......... $59,916 $1.32 $63,772 $1.41
Adjustments to net income:
Early retirement program....... 8,654 -
Reduction of value of
identified intangible assets 5,526 -
Transition costs............... 2,830 1,542
Loss on extinguishment of debt. - 11,181
----------------------------------------------------------------------
17,010 12,723
Income tax benefits of
adjustments, net.............. (5,662) (4,939)
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11,348 0.25 7,784 0.17
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Net income, as adjusted......... $71,264 $1.57 $71,556 $1.58
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Consolidated statements of income and selected balance sheet tables follow. Expanded tables with same property comparisons, as well as revenue statistics for June, are available at www.lee.net/financial.
Lee Enterprises is a premier publisher of local news, information and advertising in primarily midsize markets, with 52 daily newspapers and a joint interest in six others, rapidly growing online sites and more than 300 weekly newspapers and specialty publications in 23 states. Lee's newspapers have circulation of 1.7 million daily and 1.9 million Sunday, reaching more than four million readers daily. Lee's online sites reach more than two million users, and Lee's weekly publications have distribution of more than 4.5 million households. Lee's newspapers include such markets as Napa, Calif.; Bloomington, Ill.; Billings, Mont.; Madison, Wis.; and St. Louis, Mo. Lee is based in Davenport, Iowa, and its stock is traded on the New York Stock Exchange under the symbol LEE. For more information about Lee Enterprises, please visit www.lee.net.
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended
June 30
----------------------------------------------------------------------
(Thousands, Except EPS Data) 2006 2005 %
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Advertising revenue:
Retail..................................... $122,019 $89,778 35.9 %
National................................... 13,875 7,432 86.7
Classified:
Daily newspapers:
Employment............................... 24,041 16,858 42.6
Automotive............................... 15,975 12,611 26.7
Real estate.............................. 16,513 12,199 35.4
All other................................ 10,843 7,925 36.8
Other publications........................ 16,103 11,497 40.1
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Total classified........................... 83,475 61,090 36.6
Online..................................... 10,464 5,091 105.5
Niche publications......................... 4,608 3,318 38.9
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Total advertising revenue................... 234,441 166,709 40.6
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Circulation................................. 51,849 38,040 36.3
Commercial printing......................... 6,213 5,464 13.7
Online services & other..................... 8,596 7,642 12.5
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Total operating revenue..................... 301,099 217,855 38.2
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Operating expenses:
Compensation............................... 112,585 85,173 32.2
Newsprint and ink.......................... 32,324 21,478 50.5
Other operating expenses................... 71,939 48,845 47.3
Transition costs........................... 1,677 1,439 16.5
Early retirement program................... - - -
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Operating expenses,
excluding depreciation
and amortization........................... 218,525 156,935 39.2
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Operating cash flow(2)...................... 82,574 60,920 35.5
Depreciation................................ 8,854 6,387 38.6
Amortization................................ 19,437 9,067 114.4
Equity in earnings of
associated companies:
Tucson partnership........................ 2,621 998 162.6
Madison Newspapers........................ 2,226 2,278 (2.3)
Other..................................... - - -
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Operating income............................ 59,130 48,742 21.3
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Non-operating income:
Financial income........................... 1,579 1,009 56.5
Financial expense.......................... (23,567) (9,044) 160.6
Loss on early..............................
extinguishment of debt. - (11,181) NM
Other, net................................. - 7 NM
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(21,988) (19,209) 14.5
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Income before
income taxes............................... 37,142 29,533 25.8
Income tax expense.......................... 14,056 10,691 31.5
Minority interest........................... 369 145 NM
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Net income.................................. $22,717 $18,697 21.5 %
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Earnings per common share:
Basic...................................... $0.50 $0.41 22.0 %
Diluted.................................... 0.50 0.41 22.0
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Average common shares:
Basic...................................... 45,488 45,156
Diluted.................................... 45,602 45,374
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----------------------------------------------------------------------
Nine Months Ended
June 30
----------------------------------------------------------------------
(Thousands, Except EPS Data) 2006 2005 %
----------------------------------------------------------------------
Advertising revenue:
Retail................................. $365,489 $241,882 51.1 %
National............................... 45,687 19,689 132.0
Classified:
Daily newspapers:
Employment........................... 66,984 39,942 67.7
Automotive........................... 44,790 31,707 41.3
Real estate.......................... 46,817 30,174 55.2
All other............................ 29,237 19,073 53.3
Other publications.................... 44,335 28,225 57.1
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Total classified....................... 232,163 149,121 55.7
Online................................. 26,433 11,667 126.6
Niche publications..................... 12,662 9,251 36.9
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Total advertising revenue............... 682,434 431,610 58.1
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Circulation............................. 154,790 102,298 51.3
Commercial printing..................... 17,865 15,971 11.9
Online services & other................. 24,418 20,755 17.6
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Total operating revenue................. 879,507 570,634 54.1
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Operating expenses:
Compensation........................... 341,209 227,856 49.7
Newsprint and ink...................... 93,716 54,371 72.4
Other operating expenses............... 213,646 129,767 64.6
Transition costs....................... 2,830 1,542 83.5
Early retirement program............... 8,654 - NM
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Operating expenses,
excluding depreciation
and amortization....................... 660,055 413,536 59.6
----------------------------------------------------------------------
Operating cash flow(2).................. 219,452 157,098 39.7
Depreciation............................ 25,450 16,497 54.3
Amortization............................ 47,421 22,037 115.2
Equity in earnings of
associated companies:
Tucson partnership.................... 10,309 998 933.0
Madison Newspapers.................... 5,858 6,539 (10.4)
Other................................. - (381) NM
----------------------------------------------------------------------
Operating income........................ 162,748 125,720 29.5
----------------------------------------------------------------------
Non-operating income:
Financial income....................... 4,545 1,476 207.9
Financial expense...................... (71,298) (14,630) 387.3
Loss on early..........................
extinguishment of debt. - (11,181) NM
Other, net............................. - (58) NM
----------------------------------------------------------------------
(66,753) (24,393) 173.7
----------------------------------------------------------------------
Income before
income taxes........................... 95,995 101,327 (5.3)
Income tax expense...................... 35,187 37,410 (5.9)
Minority interest....................... 892 145 NM
----------------------------------------------------------------------
Net income.............................. $59,916 $63,772 (6.0)%
======================================================================
Earnings per common share:
Basic.................................. $1.32 $1.41 (6.4)%
Diluted................................ 1.32 1.41 (6.4)
======================================================================
Average common shares:
Basic.................................. 45,380 45,090
Diluted................................ 45,509 45,311
======================================================================
SELECTED BALANCE SHEET INFORMATION
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June 30
----------------------------------------------------------------------
(Thousands) 2006 2005
----------------------------------------------------------------------
Cash.............................. $11,288 $50,529
Restricted cash and investments... 92,310 77,310
Debt (principal amount)........... 1,581,000 1,758,000
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NOTES:
(1) Same property comparisons exclude acquisitions and divestitures
made in the current and prior year. Same property revenue also
excludes revenue of Madison Newspapers, Inc., in which Lee owns a
50% share. It is reported using the equity method of accounting.
Same property comparisons also exclude corporate office costs.
(2) Operating cash flow, which is defined as operating income before
depreciation, amortization and equity in earnings of associated
companies, is a non-GAAP financial measure. A reconciliation of
operating cash flow to operating income, the most directly
comparable measure under accounting principles generally accepted
in the United States (GAAP), is reflected in the tables
accompanying this release.
(3) Certain amounts as previously reported have been reclassified to
conform with the current period presentation. The prior period has
been restated for comparative purposes, and the reclassifications
have no impact on earnings.
(4) The Company disclaims responsibility for updating information
beyond the release date.
The Private Securities Litigation Reform Act of 1995 provides a "Safe Harbor" for forward-looking statements. This release contains information that may be deemed forward-looking and that is based largely on the Company's current expectations and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and other uncertainties are changes in advertising demand, newsprint prices, energy costs, interest rates, labor costs, legislative and regulatory rulings and other results of operations or financial conditions, difficulties in integration of acquired businesses or maintaining employee and customer relationships and increased capital and other costs. The words "may," "will," "would," "could," "believes," "expects," "anticipates," "intends," "plans," "projects," "considers" and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this release. The Company does not publicly undertake to update or revise its forward-looking statements.
CONTACT:
Lee Enterprises, Incorporated
Dan Hayes, 563-383-2100
dan.hayes@lee.net
SOURCE:
Lee Enterprises, Incorporated