Lee Enterprises Reports Results for Fourth Fiscal Quarter

December 11, 2014

DAVENPORT, Iowa--(BUSINESS WIRE)--Dec. 11, 2014-- Lee Enterprises, Incorporated (NYSE:LEE), a major provider of local news, information and advertising in 50 markets, today reported preliminary(1) earnings of 6 cents per diluted common share for its fourth fiscal quarter ended September 28, 2014, compared with a loss of $1.71 a year ago. Excluding unusual matters, adjusted earnings per diluted common share(2) totaled 2 cents, compared with earnings of 25 cents a year ago. For the full year, earnings per diluted common share totaled $0.13 compared to a loss of $1.51 in the prior year, and adjusted earnings per diluted common share decreased to $0.41 from $0.47.

Mary Junck, chairman and chief executive officer, said: “Lee continues to drive digital revenue and audiences at an accelerating pace. Our rapid digital growth, along with our many print and new digital initiatives, positions us especially well, we believe, for a strong 2015. Our successful introduction of full access subscriptions also continues to heighten our optimism, as our unmatched local news gives us a powerful advantage in every market.”

She added: “For the fiscal year, through our business transformation initiatives, we reduced cash costs(2) 2.4% as reported, and 3.7% excluding the subscription-related expense reclassification, exceeding our previous guidance of a decrease of 3.0-3.5%. Since 2007 we have reduced cash costs by more than 37%, totaling $297 million. Additionally, we achieved our sixth consecutive year of strong and stable adjusted EBITDA(2) and unlevered free cash flow(2) and returned to profitability for the first year since 2010.”

She also noted the following financial highlights for the quarter:

  • Total digital revenue increased 24.6% from the same quarter a year ago, with the trend improving each quarter of this year;
  • Digital advertising revenue increased 14.8% and represented 18.5% of total advertising revenue;
  • Mobile advertising revenue increased 38.3%;
  • We have rolled out our full access subscription model in the majority of our markets;
  • Overall revenue trends improved again this quarter, with total revenue down 0.2% from the same quarter a year ago;
  • Digital audiences continued to grow at a double digit clip with 231.3 million mobile, tablet, desktop and app page views and 30.0 million unique visitors in the month of September 2014; and
  • Debt was reduced $10.3 million in the quarter and another $12.3 million since the end of our fiscal year.

FOURTH QUARTER OPERATING RESULTS

Operating revenue for the 13 weeks ended September 28, 2014 totaled $162.1 million, a decrease of 0.2% compared with a year ago. Excluding the impact of a subscription-related expense reclassification as a result of moving to fee-for-service delivery contracts at several of our newspapers, operating revenue decreased 3.0%. This reclassification will increase both print subscription revenue and operating expenses, with no impact on operating cash flow(2) or operating income. Certain delivery expenses were previously reported as a reduction of revenue. A table later in this release details the impact of the reclassification on revenue and cash costs.

Combined print and digital advertising and marketing services revenue decreased 3.4% to $106.6 million, with retail advertising down 4.6%, classified down 3.6% and national up 5.6%. Retail preprint advertising decreased 4.9%. Combined print and digital classified employment revenue increased 2.2%, while automotive decreased 13.3%, real estate decreased 6.8% and other classified increased 0.5%. Digital advertising and marketing services revenue on a stand-alone basis increased 14.8% to $19.7 million and now totals 18.5% of total advertising and marketing services revenue. Mobile advertising revenue increased 38.3%. Print advertising and marketing services revenue on a stand-alone basis decreased 6.7%.

Subscription revenue increased 6.1%. Excluding the impact of the subscription-related expense reclassification, subscription revenue decreased 4.2%.

Total digital revenue, including advertising, marketing services, subscriptions and digital businesses, totaled $24.7 million in the quarter, up 24.6%.

Cash costs increased 2.7% for the 13 weeks ended September 28, 2014. Compensation decreased 1.3%, with the average number of full-time equivalent employees down 3.3%. Newsprint and ink expense decreased 12.3%, primarily the result of a reduction in newsprint volume of 10.7%. Other operating expenses increased 10.6%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 0.8%. We expect our cash costs, excluding the subscription-related expense reclassification, to decrease 1.0-2.0% in the December 2014 quarter.

Operating cash flow decreased 10.0% from a year ago to $33.7 million. Operating cash flow margin(2) decreased to 20.8%, compared to 23.1% a year ago. We recorded $2.6 million of non-cash impairment losses in the current year quarter compared to $171.1 million in the prior year quarter. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income totaled $20.7 million in the current year quarter, compared with an operating loss of $142.4 million a year ago. Operating income margin was 12.8% in the current year quarter.

Non-operating expenses decreased 27.4% for the 13 weeks ended September 28, 2014. Interest expense decreased 11.2% due to lower debt balances and non-cash interest expense of $1.2 million in the prior year quarter. We recognized $5,543,000 of non-operating income in the current year quarter due to the change in fair value of stock warrants issued in connection with our refinancing in 2014. Income attributable to Lee Enterprises, Incorporated for the quarter totaled $3.2 million, compared with a loss of $88.7 million a year ago.

ADJUSTED EARNINGS AND EPS FOR THE QUARTER

The following table summarizes the impact from unusual matters on income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per diluted common share. Per share amounts may not add due to rounding.

             
            13 Weeks Ended
    September 28     September 29
      2014     2013
(Thousands of Dollars, Except Per Share Data)     Amount     Per Share     Amount     Per Share
 
Income (loss) attributable to Lee Enterprises, Incorporated, as reported 3,162     0.06 (88,697 )     (1.71 )
Adjustments:
Impairment of intangible and other assets 2,644 171,094
Debt financing and reorganization costs 992 88
Other, net     (4,227 )             1,726          
(591 ) 172,908
Income tax effect of adjustments, net     (1,733 )             (71,093 )        
      (2,324 )     (0.04 )     101,815       1.96  
Income attributable to Lee Enterprises, Incorporated, as adjusted     838       0.02       13,118       0.25  
 

FULL ACCESS SUBSCRIPTION INITIATIVE

As previously reported, we launched our full access subscription initiative in April. As of today, 30 markets have been launched and we are on track to launch all of our markets before June 2015. Early results are promising, with large numbers of print subscribers activating their digital subscriptions in the markets launched. And, thanks in part to a major customer service initiative, subscriber losses have been lower than expected. We expect subscription revenue in the December 2014 quarter, excluding the impact of the subscription-related expense reclassification, to be comparable to the prior year level. Also as previously reported, due to the timing of the rollout and subscriber renewal dates, we expect the bulk of the positive revenue from this initiative to be realized in 2015.

YEAR-TO-DATE OPERATING RESULTS(3)

In 2014, we continued to drive strong digital revenue growth, transform our business, and rapidly reduce debt. Highlights for the year include the following:

  • Digital advertising revenue reached $75.2 million for the year, an increase of 12.0%, contributing to total digital revenue growth of 17.1% and improved overall advertising trends compared to the prior year;
  • We reduced reported cash costs 2.4%, and 3.7% excluding the subscription-related expense reclassification, exceeding guidance of a decrease of 3.0-3.5%. Since 2007 we have reduced cash costs of our continuing operations by more than 37%, totaling $297 million;
  • We achieved our sixth consecutive year of strong and stable adjusted EBITDA and unlevered free cash flow;
  • The Company returned to profitability, as reported, for the first year since 2010;
  • We completed a comprehensive refinancing of our long-term debt, significantly extending maturities, improving operating flexibility and providing a substantial runway for the future;
  • Debt principal reduction totaled $42.8 million in 2014 and $32 million borrowed to fund refinancing costs was also repaid; and
  • The Company’s stock price increased 24% during the year, resulting in an increase in equity value to stockholders of $38 million.

Operating revenue for the 52 weeks ended September 28, 2014, totaled $656.7 million, a decrease of 2.7% compared with the 52 weeks ended September 29, 2013. Excluding the impact of the subscription-related expense reclassification, operating revenue decreased 3.7%.

Combined print and digital advertising and marketing services revenue decreased 4.0% to $442.0 million, retail advertising decreased 3.4%, classified decreased 7.0% and national increased 3.6%. Retail preprint advertising decreased 1.7%. Combined print and digital classified employment revenue decreased 1.3%, while automotive decreased 14.2%, real estate decreased 6.2% and other classified decreased 6.1%. Digital advertising and marketing services revenue on a stand-alone basis increased 12.0% to $75.2 million. Mobile advertising revenue increased 27.6%. Print advertising and marketing services revenue on a stand-alone basis decreased 6.8%.

Subscription revenue decreased 0.1%. Excluding the impact of the subscription-related expense reclassification, subscription revenue decreased 3.9%.

Total digital revenue totaled $90.2 million year to date, up 17.1% compared with a year ago.

Cash costs for the 52 weeks ended September 28, 2014 decreased 2.4% compared to the same period a year ago. Compensation decreased 4.6%, with the average number of full-time equivalent employees down 4.8%. Newsprint and ink expense decreased 12.6%, primarily the result of a reduction in newsprint volume of 11.5%. Other operating expenses increased 3.0%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 3.7%.

Operating cash flow decreased 3.5% from a year ago to $155.1 million. Operating cash flow margin decreased to 23.6% from 23.8% a year ago. We recorded $3.0 million of noncash impairment losses in the current year compared to $171.1 million in the prior year. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income increased to $113.2 million in the 52 weeks ended September 28, 2014, compared with an operating loss of $57.3 million a year ago.

Non-operating expenses increased 21.2%, as we charged $22.9 million of debt financing costs to expense and recorded a $2.3 million loss related to a litigation settlement in 2014. These costs were partially offset by a 10.9% decrease in interest expense in the current year, due to lower debt balances and the refinancing of the Pulitzer Notes in May 2013, and $6,122,000 of non-operating income from the change in fair value of stock warrants. We recorded a $6.9 million gain on sale of an investment in the prior year period. Income attributable to Lee Enterprises, Incorporated for the year totaled $6.8 million, compared to a loss of $78.3 million a year ago.

ADJUSTED EARNINGS AND EPS FOR THE YEAR TO DATE

The following table summarizes the impact from unusual matters on income attributable to Lee Enterprises, Incorporated and earnings per diluted common share. Per share amounts may not add due to rounding.

                       
                      52 Weeks Ended
    September 28     September 29
      2014     2013
(Thousands of Dollars, Except Per Share Data)     Amount     Per Share     Amount     Per Share
 
Income (loss) attributable to Lee Enterprises, Incorporated, as reported 6,795     0.13 (78,317 )     (1.51 )
Adjustments:
Impairment of intangible and other assets 2,980 171,094
Gain on sale of investment, net (6,909 )
Debt financing and reorganization costs 22,927 646
Other, net     891               7,828          
26,798 172,659
Income tax effect of adjustments, net     (11,487 )             (70,991 )        
15,311 0.28 101,668 1.96
Unusual matters related to discontinued operations                 1,014       0.02  
Income attributable to Lee Enterprises, Incorporated, as adjusted     22,106       0.41       24,365       0.47  
 

SUBSCRIPTION EXPENSE RECLASSIFICATION

Certain results, excluding the impact of the subscription-related expense reclassification, are as follows:

             
      13 Weeks Ended     52 Weeks Ended
    Sept 28   Sept 29   Percent     Sept 28   Sept 29   Percent

(Thousands of Dollars)

    2014   2013   Change     2014   2013   Change
 
Subscription revenue, as reported 46,081 43,447 6.1 176,826 177,056 (0.1 )
Adjustment for subscription-related expense reclassification     (4,442 )       NM       (6,707 )       NM  
Subscription revenue, as adjusted     41,639     43,447     (4.2 )     170,119     177,056     (3.9 )
 
Total operating revenue, as reported 162,094 162,462 (0.2 ) 656,697 674,740 (2.7 )
Adjustment for subscription-related expense reclassification     (4,442 )       NM       (6,707 )       NM  
Total operating revenue, as adjusted     157,652     162,462     (3.0 )     649,990     674,740     (3.7 )
 
Total cash costs, as reported 128,347 124,959 2.7 501,642 514,013 (2.4 )
Adjustment for subscription-related expense reclassification     (4,442 )       NM       (6,707 )       NM  
Total cash costs, as adjusted     123,905     124,959     (0.8 )     494,935     514,013     (3.7 )
 

DEBT AND FREE CASH FLOW(2)

Debt was reduced $10.3 million in the quarter and by a net amount of $42.8 million for the fiscal year. As of September 28, 2014 the principal amount of debt was $804.8 million. As previously announced, on March 31, 2014, we completed a comprehensive refinancing of our long-term debt and borrowed an additional $32.0 million of debt in order to pay related debt refinancing costs, which was also repaid during the year.

Unlevered free cash flow totaled $32.2 million in the current year quarter compared to $47.5 million in the same quarter a year ago. Timing of receipt of income tax refunds was the biggest reason for the decrease. Unlevered free cash flow totaled $159.2 million for the fiscal year compared to $166.8 million in the prior year.

CONFERENCE CALL INFORMATION

As previously announced, we will hold an earnings conference call and audio webcast later today at 9 a.m. Central Standard Time. The live webcast will be accessible at lee.net and will be available for replay two hours later. The call also may be monitored on a listen-only conference line by dialing (toll free) 888-397-5339 and entering a conference passcode of 354430 at least five minutes before the scheduled start.

ABOUT LEE

Lee Enterprises is a leading provider of local news and information, and a major platform for advertising, in its markets, with 46 daily newspapers and a joint interest in four others, rapidly growing digital products and nearly 300 specialty publications in 22 states. Lee's newspapers have circulation of 1.1 million daily and 1.4 million Sunday, reaching nearly four million readers in print alone. Lee's websites and mobile and tablet products attracted 30.0 million unique visitors in September 2014. Lee's markets include St. Louis, MO; Lincoln, NE; Madison, WI; Davenport, IA; Billings, MT; Bloomington, IL; and Tucson, AZ. Lee Common Stock is traded on the New York Stock Exchange under the symbol LEE. For more information about Lee, please visit www.lee.net.

FORWARD-LOOKING STATEMENTS — 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 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;
  • Our ability to comply with the financial covenants in our credit facilities;
  • Our ability to refinance our debt as it comes due;
  • That the warrants issued in our refinancing will not be exercised;
  • The impact and duration of adverse conditions in certain aspects of the economy affecting our business;
  • Changes in advertising demand;
  • Potential changes in newsprint, other commodities and energy costs;
  • Interest rates;
  • Labor costs;
  • Legislative and regulatory rulings;
  • Our ability to achieve planned expense reductions;
  • Our ability to maintain employee and customer relationships;
  • Our ability to manage increased capital costs;
  • Our ability to maintain our listing status on the NYSE;
  • Competition; and
  • Other risks detailed from time to time in our publicly filed documents.

Any statements that are not statements of historical fact (including statements containing the words “may”, “will”, “would”, “could”, “believes”, “expects”, “anticipates”, “intends”, “plans”, “projects”, “considers” and similar expressions) generally should be considered forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this release. We do not undertake to publicly update or revise our forward-looking statements, except as required by law.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)
             
      13 Weeks Ended     52 Weeks Ended

 

    Sept 28   Sept 29   Percent     Sept 28   Sept 29   Percent

(Thousands of Dollars, Except Per Share Data)

    2014   2013   Change     2014   2013   Change
 
Advertising and marketing services:
Retail 65,815 68,979 (4.6 ) 282,407 292,417 (3.4 )
Classified:
Employment 8,576 8,395 2.2 33,123 33,560 (1.3 )
Automotive 7,238 8,350 (13.3 ) 29,547 34,424 (14.2 )
Real estate 4,586 4,920 (6.8 ) 17,699 18,862 (6.2 )
All other     11,618     11,566     0.5       44,298     47,197     (6.1 )
Total classified 32,018 33,231 (3.6 ) 124,667 134,043 (7.0 )
National 5,988 5,672 5.6 24,867 23,999 3.6
Niche publications and other     2,787     2,433     14.5       10,060     10,081     (0.2 )
Total advertising and marketing services revenue     106,608     110,315     (3.4 )     442,001     460,540     (4.0 )
Subscription 46,081 43,447 6.1 176,826 177,056 (0.1 )
Commercial printing 2,880 2,945 (2.2 ) 12,050 12,625 (4.6 )
Digital services and other     6,525     5,755     13.4       25,820     24,519     5.3  
Total operating revenue     162,094     162,462     (0.2 )     656,697     674,740     (2.7 )
Operating expenses:
Compensation 61,511 62,327 (1.3 ) 243,054 254,831 (4.6 )
Newsprint and ink 8,874 10,123 (12.3 ) 37,994 43,481 (12.6 )
Other operating expenses 57,621 52,090 10.6 219,329 213,021 3.0
Workforce adjustments     341     419     (18.6 )     1,265     2,680     (52.8 )
Cash costs     128,347     124,959     2.7       501,642     514,013     (2.4 )
Operating cash flow 33,747 37,503 (10.0 ) 155,055 160,727 (3.5 )
Depreciation 5,220 5,179 0.8 20,920 21,302 (1.8 )
Amortization 6,880 5,590 23.1 27,591 34,225 (19.4 )
Loss (gain) on sales of assets, net 284 87 NM (1,338 ) 110 NM
Impairment of intangible and other assets 2,644 171,094 (98.5 ) 2,980 171,094 (98.3 )
Equity in earnings of associated companies     1,949     2,015     (3.3 )     8,297     8,685     (4.5 )
Operating income (loss)     20,668     (142,432 )   NM       113,199     (57,319 )   NM  
 
CONSOLIDATED STATEMENTS OF OPERATIONS, continued        
                                         
      13 Weeks Ended     52 Weeks Ended

 

    Sept 28   Sept 29   Percent Sept 28 Sept 29 Percent

(Thousands of Dollars and Shares, Except Per Share Data)

    2014   2013   Change     2014   2013   Change
 
Non-operating income (expense):
Financial income 79 81 (2.5 ) 385 300 28.3
Interest expense (18,691 ) (21,056 ) (11.2 ) (79,724 ) (89,447 ) (10.9 )
Debt financing costs (992 ) (88 ) NM (22,927 ) (646 ) NM
Other, net     4,607     411     NM       3,028     7,889     (61.6 )
      (14,997 )   (20,652 )   (27.4 )     (99,238 )   (81,904 )   21.2  
Income (loss) before income taxes 5,671 (163,084 ) NM 13,961 (139,223 ) NM
Income tax expense (benefit)     2,296     (74,548 )   NM       6,290     (62,745 )   NM  
Income (loss) from continuing operations 3,375 (88,536 ) NM 7,671 (76,478 ) NM
Discontinued operations, net of income taxes         1     NM           (1,246 )   NM  
Net income (loss) 3,375 (88,535 ) NM 7,671 (77,724 ) NM
Net income attributable to non-controlling interests     (213 )   (162 )   31.5       (876 )   (593 )   47.7  
Income (loss) attributable to Lee Enterprises, Incorporated     3,162     (88,697 )   NM       6,795     (78,317 )   NM  
 
Income (loss) from continuing operations attributable to Lee Enterprises, Incorporated     3,162     (88,698 )   NM       6,795     (77,071 )   NM  
 
Earnings (loss) per common share:
Basic:
Continuing operations 0.06 (1.71 ) NM 0.13 (1.49 ) NM
Discontinued operations             NM           (0.02 )   NM  
      0.06     (1.71 )   NM       0.13     (1.51 )   NM  
 
Diluted:
Continuing operations 0.06 (1.71 ) NM 0.13 (1.49 ) NM
Discontinued operations             NM           (0.02 )   NM  
      0.06     (1.71 )   NM       0.13     (1.51 )   NM  
 
Average common shares:
Basic 52,442 51,916 52,273 51,833
Diluted     53,988     51,916             53,736     51,833        
 
       
SELECTED CONSOLIDATED FINANCIAL INFORMATION

(UNAUDITED)

                   
      13 Weeks Ended     52 Weeks Ended  
Sept 28 Sept 29 Sept 28 Sept 29

(Thousands of Dollars)

    2014   2013     2014   2013  
 
Advertising and marketing services 106,608 110,315 442,001 460,540
Subscription 46,081 43,447 176,826 177,056
Other     9,405   8,700     37,870   37,144  
Total operating revenue     162,094   162,462     656,697   674,740  
Compensation 61,511 62,327 243,054 254,831
Newsprint and ink 8,874 10,123 37,994 43,481
Other operating expenses 57,621 52,090 219,329 213,021
Depreciation and amortization 12,100 10,769 48,511 55,527
Loss (gain) on sales of assets, net 284 87 (1,338 ) 110
Impairment of goodwill and other assets 2,644 171,094 2,980 171,094
Workforce adjustments     341   419     1,265   2,680  
Total operating expenses 143,375 306,909 551,795 740,744
Equity in earnings of associated companies     1,949   2,015     8,297   8,685  
Operating income (loss) 20,668 (142,432 ) 113,199 (57,319 )
Adjusted to exclude:
Depreciation and amortization 12,100 10,769 48,511 55,527
Loss (gain) on sales of assets, net 284 87 (1,338 ) 110
Impairment of intangible and other assets 2,644 171,094 2,980 171,094
Equity in earnings of associated companies     (1,949 ) (2,015 )   (8,297 ) (8,685 )
Operating cash flow 33,747 37,503 155,055 160,727
Add:
Ownership share of TNI and MNI EBITDA (50%) 2,697 2,451 11,236 11,761
Adjusted to exclude:
Stock compensation     400   152     1,481   1,261  
Adjusted EBITDA(2) 36,844 40,106 167,772 173,749
Adjusted to exclude:
Ownership share of TNI and MNI EBITDA (50%) (2,697 ) (2,451 ) (11,236 ) (11,761 )
Add (deduct):
Distributions from TNI and MNI 2,342 3,219 9,996 11,398
Capital expenditures, net of insurance proceeds (3,620 ) (2,905 ) (11,824 ) (9,740 )
Pension contributions (800 ) (1,522 ) (6,016 )
Cash income tax refunds (payments)     89   9,486     6,022   9,126  
Unlevered free cash flow (2) 32,158 47,455 159,208 166,756
Add (deduct):
Financial income 79 81 385 300
Interest expense to be settled in cash (18,692 ) (19,871 ) (77,330 ) (84,012 )
Debt financing costs paid     (311 ) (305 )   (31,587 ) (1,071 )
Free cash flow (deficit)     13,234   27,360     50,676   81,973  
 

SELECTED LEE LEGACY(2) ONLY FINANCIAL INFORMATION

(UNAUDITED)

                 
      13 Weeks Ended       52 Weeks Ended  
    Sept 28   Sept 29     Sept 28   Sept 29

(Thousands of Dollars)

    2014     2013       2014     2013  
 
Advertising and marketing services 75,408 76,920 306,818 317,161
Subscription 30,492 27,307 113,992 110,335
Other     8,249     7,632       33,208     31,079  
Total operating revenue     114,149     111,859       454,018     458,575  
Compensation 45,606 46,059 180,641 185,470
Newsprint and ink 6,461 7,202 27,084 30,195
Other operating expenses 32,265 27,163 118,971 112,768
Depreciation and amortization 8,529 6,722 33,163 27,291
Loss (gain) on sales of assets, net 281 82 (1,362 ) 134
Impairment of goodwill and other assets 42 523 378 523
Workforce adjustments     116     360       551     1,546  
Total operating expenses 93,300 88,111 359,426 357,927
Equity in earnings of associated companies     1,152     852       3,384     3,509  
Operating income 22,001 24,600 97,976 104,157
Adjusted to exclude:
Depreciation and amortization 8,529 6,722 33,163 27,291
Loss (gain) on sales of assets, net 281 82 (1,362 ) 134
Impairment of intangible and other assets 42 523 378 523
Equity in earnings of associated companies     (1,152 )   (852 )     (3,384 )   (3,509 )
Operating cash flow 29,701 31,075 126,771 128,596
Add:
Ownership share of MNI EBITDA (50%) 1,795 1,183 5,905 5,964
Adjusted to exclude:
Stock compensation     400     152       1,481     1,261  
Adjusted EBITDA 31,896 32,410 134,157 135,821
Adjusted to exclude:
Ownership share of MNI EBITDA (50%) (1,795 ) (1,183 ) (5,905 ) (5,964 )
Add (deduct):
Distributions from MNI 1,000 1,250 4,750 5,250
Capital expenditures, net of insurance proceeds (2,543 ) (2,586 ) (9,688 ) (7,713 )
Pension contributions (70 ) (87 )
Cash income tax refunds (payments) 51 (5 ) (266 ) (365 )
Intercompany charges not settled in cash (3,381 ) (1,958 ) (9,678 ) (8,396 )
Other               (2,000 )   (2,000 )
Unlevered free cash flow 25,158 27,928 111,283 116,633
Add (deduct):
Financial income 79 81 385 300
Interest expense to be settled in cash (18,095 ) (18,187 ) (73,491 ) (74,641 )
Debt financing costs paid     (311 )   (40 )     (31,579 )   (140 )
Free cash flow     6,831     9,782       6,598     42,152  
 
 

SELECTED PULITZER(2) ONLY FINANCIAL INFORMATION

(UNAUDITED)

 
      13 Weeks Ended     52 Weeks Ended  
    Sept 28   Sept 29   Sept 28 Sept 29

(Thousands of Dollars)

    2014     2013     2014   2013  
 
Advertising and marketing services 31,200 33,395 135,183 143,379
Subscription 15,589 16,140 62,834 66,721
Other     1,156     1,068     4,662   6,065  
Total operating revenue     47,945     50,603     202,679   216,165  
Compensation 15,905 16,268 62,413 69,361
Newsprint and ink 2,413 2,921 10,910 13,286
Other operating expenses 25,356 24,927 100,358 100,253
Depreciation and amortization 3,571 4,047 15,348 28,236
Loss (gain) on sales of assets, net 3 5 24 (24 )
Impairment of goodwill and other assets 2,602 170,571 2,602 170,571
Workforce adjustments     225     59     714   1,134  
Total operating expenses 50,075 218,798 192,369 382,817
Equity in earnings of associated companies     797     1,163     4,913   5,176  
Operating income (loss) (1,333 ) (167,032 ) 15,223 (161,476 )
Adjusted to exclude:
Depreciation and amortization 3,571 4,047 15,348 28,236
Loss (gain) on sales of assets, net 3 5 24 (24 )
Impairment of intangible and other assets 2,602 170,571 2,602 170,571
Equity in earnings of associated companies     (797 )   (1,163 )   (4,913 ) (5,176 )
Operating cash flow 4,046 6,428 28,284 32,131
Add:
Ownership share of TNI EBITDA (50%)     902     1,268     5,331   5,797  
Adjusted EBITDA 4,948 7,696 33,615 37,928
Adjusted to exclude:
Ownership share of TNI EBITDA (50%) (902 ) (1,268 ) (5,331 ) (5,797 )
Add (deduct):
Distributions from TNI 1,342 1,969 5,246 6,148
Capital expenditures, net of insurance proceeds (1,077 ) (319 ) (2,136 ) (2,027 )
Pension contributions (730 ) (1,435 ) (6,016 )
Cash income tax refunds (payments) 38 9,491 6,288 9,491
Intercompany charges not settled in cash 3,381 1,958 9,678 8,396
Other             2,000   2,000  
Unlevered free cash flow 7,000 19,527 47,925 50,123
Add (deduct):
Interest expense to be settled in cash (597 ) (1,684 ) (3,839 ) (9,371 )
Debt financing costs paid         (265 )   (8 ) (931 )
Free cash flow     6,403     17,578     44,078   39,821  
 
       

REVENUE BY REGION

             
     

13 Weeks Ended

    52 Weeks Ended
Sept 28   Sept 29   Percent Sept 28   Sept 29   Percent

(Thousands of Dollars)

    2014   2013   Change     2014   2013   Change
 
Midwest 99,685 101,355 (1.6 ) 408,526 423,823 (3.6 )
Mountain West 33,760 32,994 2.3 132,319 134,173 (1.4 )
West 11,053 10,820 2.2 43,928 44,870 (2.1 )
East/Other     17,596     17,293     1.8       71,924     71,874     0.1  
Total     162,094     162,462     (0.2 )     656,697     674,740     (2.7 )
 

SELECTED BALANCE SHEET INFORMATION

     
           
September 28 September 29

(Thousands of Dollars)

    2014   2013
 
Cash 16,704 17,562
Debt (Principal Amount)     804,750     847,500

SELECTED STATISTICAL INFORMATION

                   
        13 Weeks Ended       52 Weeks Ended  
      Sept 28     Sept 29     Percent     Sept 28     Sept 29     Percent
        2014     2013     Change       2014     2013     Change  
 
Capital expenditures, net of insurance proceeds (Thousands of Dollars) 3,620 2,905 24.6 11,824 9,740 21.4
Newsprint volume (Tonnes) 13,691 15,334 (10.7 ) 58,007 65,560 (11.5 )
Average full-time equivalent employees 4,443 4,596 (3.3 ) 4,515 4,740 (4.8 )
Shares outstanding at end of period (Thousands of Shares)                           53,747     52,434     2.5  
 

NOTES

(1)   This earnings release is a preliminary report of results for the periods included. The reader should refer to the Company's most recent reports on Form 10-Q and on Form 10-K for definitive information.
 
(2) The following are non-GAAP (Generally Accepted Accounting Principles) financial measures for which reconciliations to relevant GAAP measures are included in tables accompanying this release:
 

Adjusted EBITDA is defined as operating income (loss), plus depreciation, amortization, impairment charges, stock compensation and 50% of EBITDA from associated companies, minus equity in earnings of associated companies and curtailment gains.
 

Adjusted Income (Loss) and Adjusted Earnings (Loss) Per Common Share 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.
 

Cash Costs are defined as compensation, newsprint and ink, other operating expenses and certain unusual matters, such as workforce adjustment costs. Depreciation, amortization, impairment charges, other non-cash operating expenses and other unusual matters are excluded.
 

Operating Cash Flow is defined as operating income (loss) plus depreciation, amortization and impairment charges, minus equity in earnings of associated companies and curtailment gains. Operating Cash Flow margin is defined as operating cash flow divided by operating revenue. The terms operating cash flow and EBITDA are used interchangeably.
 

Unlevered Free Cash Flow is defined as operating income (loss), plus depreciation, amortization, impairment charges, stock compensation, distributions from associated companies and cash income tax refunds, minus equity in earnings of associated companies, curtailment gains, cash income taxes, pension contributions and capital expenditures. Changes in working capital, asset sales, minority interest and discontinued operations are excluded. Free Cash Flow also includes financial income, interest expense and debt financing and reorganization costs.
 
We also present selected information for Lee Legacy and Pulitzer Inc. ("Pulitzer"). Lee Legacy constitutes the business of the Company excluding Pulitzer, a wholly-owned subsidiary of the Company.
 
No non-GAAP financial measure should be considered as a substitute for any related GAAP financial measure. However, the Company believes the use of non-GAAP financial measures provides meaningful supplemental information with which to evaluate its financial performance, or assist in forecasting and analyzing future periods. The Company also believes such non-GAAP financial measures are alternative indicators of performance used by investors, lenders, rating agencies and financial analysts to estimate the value of a publishing business and its ability to meet debt service requirements.
 
(3) Certain amounts as previously reported have been reclassified to conform with the current period presentation. The prior periods have been adjusted for comparative purposes, and the reclassifications have no impact on earnings.
Results of North County Times operations and The Garden Island operations have been reclassified as discontinued operations for all periods presented.

Source: Lee Enterprises

Lee Enterprises
Dan Hayes, 563-383-2100
dan.hayes@lee.net