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2014 Q3 Earnings Release 8-K






UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 8-K


CURRENT REPORT


PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


Date of Report (Date of earliest event reported):  August 7, 2014


_______________________________________________________________________
LEE ENTERPRISES, INCORPORATED
(Exact name of Registrant as specified in its charter)

_______________________________________________________________________

Commission File Number 1-6227

Delaware
(State of Incorporation)
42-0823980
(I.R.S. Employer Identification No.)


201 N. Harrison Street, Davenport, Iowa 52801
(Address of Principal Executive Offices)


(563) 383-2100
Registrant's telephone number, including area code

_____________________________________________________________________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






Item 2.02.
Results of Operation and Financial Condition.

On August 7, 2014, Lee Enterprises, Incorporated reported its preliminary results for the third fiscal quarter ended June 29, 2014.  A copy of the news release is furnished as Exhibit 99.1 to this Form 8-K and information from the news release is hereby incorporated by reference.  The information under Item 2.02 of this report shall not be treated as filed for purposes of the Securities Exchange Act of 1934, as amended.

Item 9.01. Financial Statements and Exhibits.
 
 
 
 
 
(d)
Exhibits
 
 
 
99.1
News Release dated August 7, 2014

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
LEE ENTERPRISES, INCORPORATED
 
 
 
 
 
 
 
 
 
 
Date:
August 7, 2014
By:
 
 
 
 
Carl G. Schmidt
 
 
 
 
Vice President, Chief Financial Officer,
 
 
 
 
and Treasurer
 


INDEX TO EXHIBITS

Exhibit No.
Description
 
 
99.1
News Release dated August 7, 2014




2014 Q3 Earnings Release


Exhibit 99.1 - News Release – Third fiscal quarter ended June 29, 2014.
201 N. Harrison St.
Davenport, IA 52801
www.lee.net

NEWS RELEASE    
 
Lee Enterprises reports results for third fiscal quarter
 
DAVENPORT, Iowa (August 7, 2014) — Lee Enterprises, Incorporated (NYSE: LEE), a major provider of local news, information and advertising in 50 markets, today reported a preliminary(1) loss of 19 cents per diluted common share for its third fiscal quarter ended June 29, 2014, compared with earnings of 3 cents a year ago. Excluding unusual matters, adjusted earnings per diluted common share(2) totaled 11 cents, compared with earnings of 6 cents a year ago.

Mary Junck, chairman and chief executive officer, said: “Total digital revenue in the third quarter continued its impressive growth, increasing over 17%, thanks to 13% digital advertising growth and the launch of our full-access subscription model. Our optimism about the full access subscription model is growing as we have now launched in fourteen, primarily larger markets, with the early results promising. We plan to continue the roll out to the majority of our markets by the end of the fiscal year and while the third quarter results are impacted by our debt refinancing costs, our enterprises continue to drive strong cash flows."

She also noted:

•
Revenue trends improved again this quarter, with total revenue down 2.3% from the same quarter a year ago;

•
Mobile advertising revenue increased 25.1%, to $1.9 million;

•
Digital audiences continued to grow at a double digit clip with 211.4 million mobile, tablet, desktop and app page views and 23.1 million unique visitors in the month of June 2014;

•
We are on track to achieve our 3.0-3.5% cash cost(2) reduction target for 2014; and

•
Since our March 31, 2014 refinancing and prior to the end of the third quarter, we have repaid $30.0 million of debt, bringing the balance largely in line with where it was before the refinancing was completed.

THIRD QUARTER OPERATING RESULTS

Operating revenue for the 13 weeks ended June 29, 2014 totaled $163.1 million, a decrease of 2.3% 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 3.4%. This reclassification will increase both print subscription revenue and operating expenses, with no impact on operating cash flow(2) or operating income. 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 3.2% to $110.3 million, an improvement from recent trends, with retail advertising down 3.1%, classified down 4.6% and national up 5.6%. Retail preprint advertising decreased 1.3%. Combined print and digital classified employment revenue increased 5.1%, while automotive decreased 14.0%, real estate decreased 6.1% and other classified

1


decreased 4.5%. Digital advertising and marketing services revenue on a stand-alone basis increased 13.0% to $19.5 million and now totals 17.7% of total advertising and marketing services revenue. Print advertising and marketing services revenue on a stand-alone basis decreased 6.1%.

Subscription revenue decreased 0.6%. Excluding the impact of the subscription-related expense reclassification, subscription revenue decreased 4.8%.

Total digital revenue, including advertising, marketing services, subscriptions and digital businesses, totaled $23.4 million in the quarter, up 17.4%.

Cash costs decreased 2.7% for the 13 weeks ended June 29, 2014. Compensation decreased 3.2%, with the average number of full-time equivalent employees down 3.5%. Newsprint and ink expense decreased 11.9%, primarily a result of a reduction in newsprint volume of 11.9%. Other operating expenses increased 0.7%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 4.1%.

Operating cash flow decreased 1.2% from a year ago to $39.3 million. Operating cash flow margin(2) increased to 24.1%, compared to 23.8% a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income increased 6.2% to $28.6 million in the current year quarter, compared with $26.9 million a year ago. Operating income margin increased to 17.5% up from 16.1% a year ago.

Non-operating expenses increased 97.2% for the 13 weeks ended June 29, 2014. We charged $21.7 million of debt financing costs to expense and also recorded a $2.3 million loss related to a litigation settlement in the current year quarter. Interest expense decreased by 10.6% due to lower debt balances and the refinancing of the Pulitzer Notes in May 2013. Loss attributable to Lee Enterprises, Incorporated for the quarter totaled $9.7 million, compared with income of $1.8 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
 
 
June 29
2014
 
 
June 30
2013
 
(Thousands of Dollars, Except Per Share Data)
Amount

 
Per Share

 
Amount

 
Per Share

 
 
 
 
Income (loss) attributable to Lee Enterprises, Incorporated, as reported
(9,746
)
 
(0.19
)
 
1,795

 
0.03

Adjustments:
 
 
 
 
 
 
 
Impairment of intangible and other assets
336

 
 
 
—

 
 
Litigation settlement
2,300

 
 
 
—

 
 
Debt financing and reorganization costs
21,732

 
 
 
468

 
 
Amortization of debt present value adjustment
—

 
 
 
1,216

 
 
Other, net
(153
)
 
 
 
544

 
 
 
24,215

 
 
 
2,228

 
 
Income tax effect of adjustments, net
(8,472
)
 
 
 
(763
)
 
 
 
15,743

 
0.30

 
1,465

 
0.03

Income attributable to Lee Enterprises, Incorporated, as adjusted
5,997

 
0.11

 
3,260

 
0.06


2


FULL-ACCESS SUBSCRIPTION INITIATIVE

As previously reported, we launched our full-access subscription initiative in April.  As of today, fourteen markets have been launched and we are on track to launch the majority of our markets before the end of our fiscal year. Early results are promising, with more than 20% of print subscribers activating their digital subscriptions in several of the early launch markets. And, thanks, in part, to a major customer service initiative, subscriber losses have been lower than expected. Digital subscription revenue increased 116.0% in the quarter, largely due to full-access.  Also as previously reported, due to the timing of the rollout and subscriber renewal dates, we expect the bulk of the revenue from this initiative to be realized in 2015. 

YEAR-TO-DATE OPERATING RESULTS(3) 

Operating revenue for the 39 weeks ended June 29, 2014, totaled $494.6 million, a decrease of 3.5% compared with the 39 weeks ended June 30, 2013. Excluding the impact of the subscription-related expense reclassification, operating revenue decreased 3.9%.

Combined print and digital advertising and marketing services revenue decreased 4.2% to $335.4 million, retail advertising decreased 3.1%, classified decreased 8.1% and national increased 3.0%. Combined print and digital classified employment revenue decreased 2.5%, while automotive decreased 14.4%, real estate decreased 5.9% and other classified decreased 8.3%. Digital advertising and marketing services revenue on a stand-alone basis increased 11.0% to $55.5 million. Mobile advertising revenue increased 23.6%, to $5.1 million.

Print advertising and marketing services revenue on a stand-alone basis decreased 6.8%.

Subscription revenue decreased 2.1%. Excluding the impact of the subscription-related expense reclassification, subscription revenue decreased 3.8%.

Total digital revenue totaled $65.5 million year to date, up 14.5% compared with a year ago.

Cash costs for the 39 weeks ended June 29, 2014 decreased 4.0% compared to the same period a year ago. Compensation decreased 5.7%, with the average number of full-time equivalent employees down 5.2%. Newsprint and ink expense decreased 12.7%, a result of a reduction in newsprint volume of 11.8%. Other operating expenses increased 0.5%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 4.6%.

Operating cash flow decreased 1.6% from a year ago to $121.3 million. Operating cash flow margin increased to 24.5% from 24.1% a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income increased 8.7% to $92.5 million in the 39 weeks ended June 29, 2014, compared with $85.1 million a year ago.

Non-operating expenses increased 37.5%, as we charged $21.9 million of debt financing costs to expense in the current year period. These costs were partially offset by a 10.8% decrease in interest expense in the current year due to lower debt balances and the refinancing of the Pulitzer Notes in May 2013. We recorded a $6.9 million gain on sale of an investment in the prior year period. Income attributable to Lee Enterprises, Incorporated totaled $3.6 million, compared to $10.4 million a year ago.


3


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.
 
 
 
 
 
39 Weeks Ended
 
 
June 29
2014
 
 
June 30
2013
 
(Thousands of Dollars, Except Per Share Data)
Amount

 
Per Share

 
Amount

 
Per Share

 
 
 
 
Income attributable to Lee Enterprises, Incorporated, as reported
3,632

 
0.07

 
10,372

 
0.20

Adjustments:
 
 
 
 
 
 
 
Impairment of intangible and other assets
336

 
 
 
—

 
 
Gain on sale of investment, net
—

 
 
 
(6,909
)
 
 
Litigation settlement
2,300

 
 
 
—

 
 
Debt financing and reorganization costs
21,935

 
 
 
557

 
 
Amortization of debt present value adjustment
2,394

 
 
 
3,932

 
 
Other, net
424

 
 
 
2,170

 
 
 
27,389

 
 
 
(250
)
 
 
Income tax effect of adjustments, net
(9,551
)
 
 
 
102

 
 
 
17,838

 
0.33

 
(148
)
 
—

Unusual matters related to discontinued operations
—

 
—

 
1,014

 
0.02

Income attributable to Lee Enterprises, Incorporated, as adjusted
21,470

 
0.40

 
11,238

 
0.22


Certain results, excluding the impact of the subscription-related expense reclassification, are as follows:
 
13 Weeks Ended
 
 
39 Weeks Ended
 
(Thousands of Dollars)
June 29
2014

June 30
2013

Percent Change

 
June 29
2014

June 30
2013

Percent Change

 
 
 
 
 
 
 
 
Subscription revenue, as reported
43,339

43,583

(0.6
)
 
130,744

133,609

(2.1
)
Adjustment for subscription-related expense reclassification
(1,842
)
—

NM

 
(2,242
)
—

NM

Subscription revenue, as adjusted
41,497

43,583

(4.8
)
 
128,502

133,609

(3.8
)
 
 
 
 
 
 
 
 
Total operating revenue, as reported
163,125

167,019

(2.3
)
 
494,603

512,277

(3.5
)
Adjustment for subscription-related expense reclassification
(1,842
)
—

NM

 
(2,242
)
—

NM

Total operating revenue, as adjusted
161,283

167,019

(3.4
)
 
492,361

512,277

(3.9
)
 
 
 
 
 
 
 
 
Total cash costs, as reported
123,813

127,217

(2.7
)
 
373,296

389,051

(4.0
)
Adjustment for subscription-related expense reclassification
(1,842
)
—

NM

 
(2,242
)
—

NM

Total cash costs, as adjusted
121,971

127,217

(4.1
)
 
371,054

389,051

(4.6
)

DEBT AND FREE CASH FLOW(2) 

The principal amount of debt totaled $815.0 million at June 29, 2014. As previously announced, on March 31, 2014, subsequent to the end of the March quarter, we completed a comprehensive refinancing of our long-term debt and incurred an additional $32.0 million of debt in order to pay related debt refinancing costs. Debt payments since the refinancing totaled $30.0 million in the quarter, resulting in a $2.0 million increase in debt

4


in the June quarter. Debt has been reduced $58.5 million in the last twelve months. We expect debt principal payments to fluctuate more in the future due to the semi-annual timing of Senior Notes interest payments in March and September.

Unlevered free cash flow increased 25.5%, due primarily to the timing of an income tax refund in the current year quarter and pension contributions in the prior year quarter. Free cash flow was negative $5.8 million for the quarter due to $31.0 million of debt refinancing costs paid, compared with free cash flow of $14.4 million a year ago. In the last twelve months, free cash flow totaled $64.8 million.

CONFERENCE CALL INFORMATION

As previously announced, we will hold an earnings conference call and audio webcast later today at 9 a.m. Central Daylight 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) 877-407-0613 and entering a conference passcode of 13581947 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 1.2 million daily and 1.5 million Sunday, reaching nearly four million readers in print alone. Lee's websites and mobile and tablet products attracted 23.1 million unique visitors in June 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 or obtain amendments or waivers of the financial covenants contained in our credit facilities, if necessary;
•
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.

Contact: dan.hayes@lee.net, (563) 383-2100


5



CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
13 Weeks Ended
 
 
39 Weeks Ended
 
(Thousands of Dollars and Shares, Except Per
Share Data)
June 29
2014

June 30
2013

Percent Change

 
June 29
2014

June 30
2013

Percent Change

 
 
 
 
 
 
 
 
Advertising and marketing services
 
 
 
 
 
 
 
Retail
69,507

71,718

(3.1
)
 
216,591

223,438

(3.1
)
Classified:
 
 
 
 
 
 
 
Employment
9,277

8,824

5.1

 
24,546

25,165

(2.5
)
Automotive
7,266

8,452

(14.0
)
 
22,309

26,074

(14.4
)
Real estate
4,569

4,864

(6.1
)
 
13,113

13,941

(5.9
)
All other
11,926

12,491

(4.5
)
 
32,683

35,634

(8.3
)
Total classified
33,038

34,631

(4.6
)
 
92,651

100,814

(8.1
)
National
5,268

4,988

5.6

 
18,879

18,327

3.0

Niche publications and other
2,471

2,607

(5.2
)
 
7,273

7,646

(4.9
)
Total advertising and marketing services revenue
110,284

113,944

(3.2
)
 
335,394

350,225

(4.2
)
Subscription
43,339

43,583

(0.6
)
 
130,744

133,609

(2.1
)
Commercial printing
3,147

3,258

(3.4
)
 
9,170

9,681

(5.3
)
Digital services and other
6,355

6,234

1.9

 
19,295

18,762

2.8

Total operating revenue
163,125

167,019

(2.3
)
 
494,603

512,277

(3.5
)
Operating expenses:
 
 
 
 
 
 
 
Compensation
60,330

62,340

(3.2
)
 
181,543

192,505

(5.7
)
Newsprint and ink
9,224

10,471

(11.9
)
 
29,120

33,357

(12.7
)
Other operating expenses
53,840

53,461

0.7

 
161,708

160,929

0.5

Workforce adjustments
419

945

(55.7
)
 
925

2,260

(59.1
)
Cash costs
123,813

127,217

(2.7
)
 
373,296

389,051

(4.0
)
Operating cash flow
39,312

39,802

(1.2
)
 
121,307

123,226

(1.6
)
Depreciation
5,293

5,327

(0.6
)
 
15,700

16,123

(2.6
)
Amortization
6,901

9,542

(27.7
)
 
20,710

28,635

(27.7
)
Loss (gain) on sales of assets, net
9

(112
)
NM

 
(1,622
)
23

NM

Impairment of intangible and other assets
336

—

NM

 
336

—

NM

Equity in earnings of associated companies
1,836

1,893

(3.0
)
 
6,348

6,671

(4.8
)
Operating income
28,609

26,938

6.2

 
92,531

85,116

8.7



6


CONSOLIDATED STATEMENTS OF OPERATIONS, continued
 
 
 
 
 
 
 
 
 
 
 
 
 
13 Weeks Ended
 
 
39 Weeks Ended
 
(Thousands of Dollars and Shares, Except Per Share Data)
June 29
2014

June 30
2013

Percent Change

 
June 29
2014

June 30
2013

Percent Change

 
 
 
 
 
 
 
 
Non-operating income (expense):
 
 
 
 
 
 
 
Financial income
85

134

(36.6
)
 
306

219

39.7

Interest expense
(19,654
)
(21,991
)
(10.6
)
 
(61,033
)
(68,390
)
(10.8
)
Debt financing costs
(21,732
)
(468
)
NM

 
(21,935
)
(557
)
NM

Other, net
(1,701
)
520

NM

 
(1,579
)
7,466

NM

 
(43,002
)
(21,805
)
97.2

 
(84,241
)
(61,262
)
37.5

Income (loss) before income taxes
(14,393
)
5,133

NM

 
8,290

23,854

(65.2
)
Income tax expense (benefit)
(4,882
)
3,165

NM

 
3,995

11,805

(66.2
)
Income (loss) from continuing operations
(9,511
)
1,968

NM

 
4,295

12,049

(64.4
)
Discontinued operations, net of income taxes
—

—

NM

 
—

(1,247
)
NM

Net income (loss)
(9,511
)
1,968

NM

 
4,295

10,802

(60.2
)
Net income attributable to non-controlling interests
(235
)
(173
)
35.8

 
(663
)
(430
)
54.2

Income (loss) attributable to Lee Enterprises, Incorporated
(9,746
)
1,795

NM

 
3,632

10,372

(65.0
)
 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Lee Enterprises, Incorporated
(9,746
)
1,795

NM

 
3,632

11,619

(68.7
)
 
 
 
 
 
 
 
 
Earnings (loss) per common share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
(0.19
)
0.03

NM

 
0.07

0.22

(68.2
)
Discontinued operations
—

—

NM

 
—

(0.02
)
NM

 
(0.19
)
0.03

NM

 
0.07

0.20

(65.0
)
 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
Continuing operations
(0.19
)
0.03

NM

 
0.07

0.22

(68.2
)
Discontinued operations
—

—

NM

 
—

(0.02
)
NM

 
(0.19
)
0.03

NM

 
0.07

0.20

(65.0
)
 
 
 
 
 
 
 
 
Average common shares:
 
 
 
 
 
 
 
Basic
52,344

51,825

 
 
52,215

51,805

 
Diluted
52,344

52,038

 
 
53,655

51,912

 


7


SELECTED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
 
13 Weeks Ended
 
 
39 Weeks Ended
 
 
52 Weeks Ended

(Thousands of Dollars)
June 29
2014

June 30
2013

 
June 29
2014

June 30
2013

 
June 29
2014

 
 
 
 
 
 
 
 
Advertising and marketing services
110,284

113,944

 
335,394

350,225

 
445,709

Subscription
43,339

43,583

 
130,744

133,609

 
174,192

Other
9,502

9,492

 
28,465

28,443

 
37,165

Total operating revenue
163,125

167,019

 
494,603

512,277


657,066

Compensation
60,330

62,340

 
181,543

192,505

 
243,870

Newsprint and ink
9,224

10,471

 
29,120

33,357

 
39,244

Other operating expenses
53,840

53,461

 
161,708

160,929

 
213,800

Depreciation and amortization
12,194

14,869

 
36,410

44,758

 
47,180

Loss (gain) on sales of assets, net
9

(112
)
 
(1,622
)
23

 
(1,535
)
Impairment of goodwill and other assets
336

—

 
336

—

 
171,430

Workforce adjustments
419

945

 
925

2,260

 
1,344

Total operating expenses
136,352

141,974

 
408,420

433,832

 
715,333

Equity in earnings of associated companies
1,836

1,893

 
6,348

6,671

 
8,362

Operating income (loss)
28,609

26,938

 
92,531

85,116

 
(49,905
)
Adjusted to exclude:
 
 
 
 
 
 
 
Depreciation and amortization
12,194

14,869

 
36,410

44,758

 
47,180

Loss (gain) on sales of assets, net
9

(112
)
 
(1,622
)
23

 
(1,535
)
Impairment of intangible and other assets
336

—

 
336

—

 
171,430

Equity in earnings of associated companies
(1,836
)
(1,893
)
 
(6,348
)
(6,671
)
 
(8,362
)
Operating cash flow
39,312

39,802

 
121,307

123,226

 
158,808

Add:
 
 
 
 
 
 
 
Ownership share of TNI and MNI EBITDA (50%)
2,587

2,770

 
8,540

9,310

 
11,009

Adjusted to exclude:
 
 
 
 
 
 
 
Stock compensation
397

377

 
1,081

1,109

 
1,233

Adjusted EBITDA(2)
42,296

42,949

 
130,928

133,645

 
171,050

Adjusted to exclude:
 
 
 
 
 
 
 
Ownership share of TNI and MNI EBITDA (50%)
(2,587
)
(2,770
)
 
(8,540
)
(9,310
)
 
(11,009
)
Add (deduct):
 
 
 
 
 
 
 
Distributions from TNI and MNI
2,346

3,394

 
7,654

8,179

 
10,873

Capital expenditures
(3,309
)
(2,136
)
 
(8,204
)
(6,835
)
 
(11,109
)
Pension contributions
(17
)
(5,741
)
 
(722
)
(6,016
)
 
(722
)
Cash income tax refunds (payments)
6,051

(27
)
 
5,933

(360
)
 
15,419

Unlevered free cash flow (2)
44,780

35,669

 
127,049

119,303

 
174,502

Add (deduct):
 
 
 
 
 
 
 
Financial income
85

134

 
306

219

 
387

Interest expense settled in cash
(19,654
)
(20,775
)
 
(58,639
)
(64,141
)
 
(78,510
)
Debt financing costs paid
(31,008
)
(666
)
 
(31,276
)
(766
)
 
(31,581
)
Free cash flow (deficit)
(5,797
)
14,362

 
37,440

54,615

 
64,798



8


SELECTED LEE LEGACY(2) ONLY FINANCIAL INFORMATION
(UNAUDITED)
 
13 Weeks Ended
 
 
39 Weeks Ended
 
 
52 Weeks Ended

(Thousands of Dollars)
June 29
2014

June 30
2013

 
June 29
2014

June 30
2013

 
June 29
2014

 
 
 
 
 
 
 
 
Advertising and marketing services
76,148

78,266

 
231,411

240,241

 
308,331

Subscription
28,022

27,092

 
83,499

83,028

 
110,807

Other
8,330

7,774

 
24,959

23,446

 
32,591

Total operating revenue
112,500

113,132

 
339,869

346,715

 
451,729

Compensation
45,086

45,457

 
135,035

139,412

 
181,094

Newsprint and ink
6,550

7,224

 
20,623

22,992

 
27,826

Other operating expenses
28,954

27,741

 
86,706

85,605

 
113,869

Depreciation and amortization
8,322

6,837

 
24,633

20,569

 
31,314

Loss (gain) on sales of assets, net
8

(98
)
 
(1,643
)
52

 
(1,561
)
Impairment of goodwill and other assets
336

—

 
336

—

 
859

Workforce adjustments
265

572

 
436

1,185

 
796

Total operating expenses
89,521

87,733

 
266,126

269,815

 
354,197

Equity in earnings of associated companies
790

877

 
2,232

2,658

 
3,084

Operating income
23,769

26,276

 
75,975

79,558

 
100,616

Adjusted to exclude:
 
 
 
 
 
 
 
Depreciation and amortization
8,322

6,837

 
24,633

20,569

 
31,314

Loss (gain) on sales of assets, net
8

(98
)
 
(1,643
)
52

 
(1,561
)
Impairment of intangible and other assets
336

—

 
336

—

 
859

Equity in earnings of associated companies
(790
)
(877
)
 
(2,232
)
(2,658
)
 
(3,084
)
Operating cash flow
31,645

32,138

 
97,069

97,521

 
128,144

Add:
 
 
 
 
 
 
 
Ownership share of MNI EBITDA (50%)
1,436

1,598

 
4,110

4,781

 
5,311

Adjusted to exclude:
 
 
 
 
 
 
 
Stock compensation
397

377

 
1,081

1,109

 
1,233

Adjusted EBITDA
33,478

34,113

 
102,260

103,411

 
134,688

Adjusted to exclude:
 
 
 
 
 
 
 
Ownership share of MNI EBITDA (50%)
(1,436
)
(1,598
)
 
(4,110
)
(4,781
)
 
(5,311
)
Add (deduct):
 
 
 
 
 
 
 
Distributions from MNI
1,000

1,850

 
3,750

4,000

 
5,000

Capital expenditures
(2,900
)
(1,685
)
 
(7,145
)
(5,127
)
 
(9,731
)
Pension contributions
(17
)
—

 
(17
)
—

 
(17
)
Cash income tax refunds (payments)
(199
)
(27
)
 
(317
)
(360
)
 
(322
)
Intercompany charges not settled in cash
(2,099
)
(2,146
)
 
(6,297
)
(6,438
)
 
(8,255
)
Other
(2,000
)
—

 
(2,000
)
(2,000
)
 
(2,000
)
Unlevered free cash flow
25,827

30,507

 
86,124

88,705

 
114,052

Add (deduct):
 
 
 
 
 
 
 
Financial income
85

134

 
306

219

 
387

Interest expense settled in cash
(18,834
)
(18,619
)
 
(55,397
)
(56,454
)
 
(73,584
)
Debt financing costs paid
(31,000
)
—

 
(31,268
)
(100
)
 
(31,308
)
Free cash flow (deficit)
(23,922
)
12,022

 
(235
)
32,370

 
9,547






9



SELECTED PULITZER(2) ONLY FINANCIAL INFORMATION
(UNAUDITED)
 
13 Weeks Ended
 
 
39 Weeks Ended
 
 
52 Weeks Ended

(Thousands of Dollars)
June 29
2014

June 30
2013

 
June 29
2014

June 30
2013

 
June 29
2014

 
 
 
 
 
 
 
 
Advertising and marketing services
34,136

35,678

 
103,983

109,984

 
137,378

Subscription
15,317

16,491

 
47,245

50,581

 
63,385

Other
1,172

1,718

 
3,506

4,997

 
4,574

Total operating revenue
50,625

53,887

 
154,734

165,562

 
205,337

Compensation
15,244

16,883

 
46,508

53,093

 
62,776

Newsprint and ink
2,674

3,247

 
8,497

10,365

 
11,418

Other operating expenses
24,886

25,720

 
75,002

75,324

 
99,931

Depreciation and amortization
3,872

8,032

 
11,777

24,189

 
15,866

Loss (gain) on sales of assets, net
1

(14
)
 
21

(29
)
 
26

Impairment of goodwill and other assets
—

—

 
—

—

 
170,571

Workforce adjustments
154

373

 
489

1,075

 
548

Total operating expenses
46,831

54,241

 
142,294

164,017

 
361,136

Equity in earnings of associated companies
1,046

1,016

 
4,116

4,013

 
5,278

Operating income (loss)
4,840

662

 
16,556

5,558

 
(150,521
)
Adjusted to exclude:
 
 
 
 
 
 
 
Depreciation and amortization
3,872

8,032

 
11,777

24,189

 
15,866

Loss (gain) on sales of assets, net
1

(14
)
 
21

(29
)
 
26

Impairment of intangible and other assets
—

—

 
—

—

 
170,571

Equity in earnings of associated companies
(1,046
)
(1,016
)
 
(4,116
)
(4,013
)
 
(5,278
)
Operating cash flow
7,667

7,664

 
24,238

25,705

 
30,664

Add:
 
 
 
 
 
 
 
Ownership share of TNI EBITDA (50%)
1,151

1,172

 
4,430

4,529

 
5,698

Adjusted EBITDA
8,818

8,836

 
28,668

30,234

 
36,362

Adjusted to exclude:
 
 
 
 
 
 
 
Ownership share of TNI EBITDA (50%)
(1,151
)
(1,172
)
 
(4,430
)
(4,529
)
 
(5,698
)
Add (deduct):
 
 
 
 
 
 
 
Distributions from TNI
1,346

1,544

 
3,904

4,179

 
5,873

Capital expenditures
(409
)
(451
)
 
(1,059
)
(1,708
)
 
(1,378
)
Pension contributions
—

(5,741
)
 
(705
)
(6,016
)
 
(705
)
Cash income tax refunds (payments)
6,250

—

 
6,250

—

 
15,741

Intercompany charges not settled in cash
2,099

2,146

 
6,297

6,438

 
8,255

Other
2,000

—

 
2,000

2,000

 
2,000

Unlevered free cash flow
18,953

5,162

 
40,925

30,598

 
60,450

Add (deduct):
 
 
 
 
 
 
 
Interest expense settled in cash
(820
)
(2,156
)
 
(3,242
)
(7,687
)
 
(4,926
)
Debt financing costs paid
(8
)
(666
)
 
(8
)
(666
)
 
(273
)
Free cash flow
18,125

2,340

 
37,675

22,245

 
55,251



10


REVENUE BY REGION
 
13 Weeks Ended
 
 
39 Weeks Ended
 
(Thousands of Dollars)
June 29
2014

June 30
2013

Percent Change

 
June 29
2014

June 30
2013

Percent Change

 
 
 
 
 
 
 
 
Midwest
102,194

105,858

(3.5
)
 
308,841

322,468

(4.2
)
Mountain West
33,455

33,510

(0.2
)
 
98,558

101,179

(2.6
)
West
11,070

11,273

(1.8
)
 
32,875

34,050

(3.5
)
East/Other
16,406

16,378

0.2

 
54,329

54,580

(0.5
)
Total
163,125

167,019

(2.3
)
 
494,603

512,277

(3.5
)

SELECTED BALANCE SHEET INFORMATION
(Thousands of Dollars)
June 29
2014

June 30
2013

 
 
 
Cash
17,758

11,630

Debt (Principal Amount)
815,000

873,500


SELECTED STATISTICAL INFORMATION
 
13 Weeks Ended
 
 
39 Weeks Ended
 
 
June 29
2014

June 30
2013

Percent Change

 
June 29
2014

June 30
2013

Percent Change

 
 
 
 
 
 
 
 
Capital expenditures (Thousands of Dollars)
3,309

2,136

54.9

 
8,204

6,835

20.0

Newsprint volume (Tonnes)
14,405

16,353

(11.9
)
 
44,317

50,226

(11.8
)
Average full-time equivalent employees
4,514

4,678

(3.5
)
 
4,539

4,787

(5.2
)
Shares outstanding at end of period (Thousands of Shares)
 
 
 
 
53,694

52,389

2.5



11


NOTES
(1)
This earnings release is a preliminary report of results for the periods included.  The reader should refer to the Company's Quarterly Reports on Form 10-Q and Annual Reports 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:
 
ž
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.
 
ž
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.
 
ž
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.
 
ž
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.
 
ž
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.

12