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2015 Q2 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):  May 7, 2015


_______________________________________________________________________
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 May 7, 2015, Lee Enterprises, Incorporated reported its preliminary results for the second fiscal quarter ended March 29, 2015. 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 May 7, 2015

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:
May 7, 2015
By:
 
 
 
 
Carl G. Schmidt
 
 
 
 
Vice President, Chief Financial Officer,
 
 
 
 
and Treasurer
 


INDEX TO EXHIBITS

Exhibit No.
Description
 
 
99.1
News Release dated May 7, 2015




2015 Q2 Earnings Release


Exhibit 99.1 - News Release – Second fiscal quarter ended March 29, 2015.
201 N. Harrison St.
Davenport, IA 52801
www.lee.net

NEWS RELEASE    
 
Lee Enterprises reports improved revenue trend
 
DAVENPORT, Iowa (May 7, 2015) — Lee Enterprises, Incorporated (NYSE: LEE), a major provider of local news, information and advertising in 50 markets, today reported preliminary(1) earnings of 3 cents per diluted common share for its second fiscal quarter ended March 29, 2015, the same earnings as a year ago. Excluding unusual matters, adjusted earnings per diluted common share(2) totaled 2 cents, compared with earnings of 5 cents a year ago.

Mary Junck, chairman and chief executive officer, said: “We’re seeing positive results from our many sales initiatives as our operating revenue trend for the quarter improved to up 0.9% as reported and down 1.8% on a comparable basis. March especially was the bright spot, posting nearly flat revenue - our best month since April 2013. Total digital revenue increased 33.9% from the same quarter a year ago."

"Our full access subscription model is now in 43 markets, allowing subscribers to consume local news, information and advertising using all of our print and digital platforms.

“We’re focused on providing easy and effective ways for small and mid-sized local advertisers to reach more customers, and through our digital agency, we can tailor programs for larger local businesses with more specific goals. Advertisers are reaching massive audiences through our print and digital products."

She added: "For the first six months of our fiscal year, cash costs(2), on a comparable basis, decreased 1.2%. Our keen focus on business transformation allows us to improve our full-year guidance, and we now expect comparable cash costs to decrease up to 2.75% in 2015. At the same time, we remain committed to providing exceptional journalism, as evidenced by the Pulitzer Prize for Breaking News Photography recently awarded to the St. Louis Post-Dispatch. Their recent work is outstanding, and the Post-Dispatch staff is extremely deserving of this recognition."

She also noted the following financial highlights for the quarter:

•
Digital advertising revenue increased 8.3% and mobile advertising revenue, which is included in digital advertising, increased 37.9%;

•
Subscription revenue, excluding the subscription-related expense reclassification discussed more fully below, increased 4.7%, and we expect full year 2015 subscription revenue, excluding the impact of the reclassification, to increase 2.5-3.0%; and

•
Debt was reduced $20.3 million in the quarter and, when including $32 million borrowed to pay 2014 refinancing costs, debt was reduced $80.8 million in the last twelve months.


1


SECOND QUARTER OPERATING RESULTS

Operating revenue for the 13 weeks ended March 29, 2015 totaled $155.5 million, an increase of 0.9% 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 1.8%. This reclassification increases both print subscription revenue and other operating expenses, with no impact on operating cash flow(2) or operating income. Certain delivery expenses were previously reported as a reduction of revenue. Tables later in this release detail the impact of the reclassification on revenue and cash costs.

Combined print and digital advertising and marketing services revenue decreased 4.9% to $97.7 million, with retail advertising down 5.1%, classified down 4.8% and national down 11.8%. Retail preprint advertising decreased 5.6%. Combined print and digital classified employment revenue decreased 5.1%, while automotive decreased 9.6%, real estate decreased 10.1% and other classified increased 0.7%. Digital advertising and marketing services revenue on a stand-alone basis increased 8.3% to $18.8 million. Print advertising and marketing services revenue on a stand-alone basis decreased 7.6%.

Subscription revenue increased 14.7%. Excluding the impact of the subscription-related expense reclassification, subscription revenue increased 4.7%. Our average daily newspaper circulation, including TNI and MNI and digital subscribers, totaled 1.0 million in the 13 weeks ended March 29, 2015. Sunday circulation totaled 1.4 million. Amounts are not comparable to the prior year period due to changes in measurements by the Alliance for Audited Media.

Total digital revenue, including advertising, marketing services, subscriptions and digital businesses, totaled $27.4 million in the quarter, up 33.9%.

Cash costs increased 3.3% for the 13 weeks ended March 29, 2015. Compensation increased 3.7%, driven by increases in employee medical and pension costs, as well as compensation increases, which were partially offset by a decline in the average number of full-time equivalent employees of 3.9%. Newsprint and ink expense decreased 17.9%, primarily the result of lower newsprint prices and a reduction in newsprint volume of 10.9%. Other operating expenses increased 5.9%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 0.2%. We expect our full year cash costs, excluding the impact of the subscription-related expense reclassification, to decrease between 2.25%-2.75% in 2015. To achieve this level of cost reduction, cash costs for the remainder of the fiscal year will need to decrease by 3.3%-4.3%, which significantly exceeds the decrease of 1.2% for the 26 weeks ended March 29, 2015. This acceleration of cost reduction in the latter half of 2015 may also have a favorable impact on the following year.

Operating cash flow decreased 7.7% from a year ago to $30.2 million. Operating cash flow margin(2) decreased to 19.4%, compared to 21.2% a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income totaled $20.2 million in the current year quarter, compared with $23.7 million a year ago. Operating income margin was 13.0% in the current year quarter. The subscription-related expense reclassification reduced operating cash flow margin and operating income margin by 0.6% and 0.4%, respectively.

Non-operating expenses decreased 14.8% for the 13 weeks ended March 29, 2015. Interest expense decreased 10.5% due to lower debt balances and non-cash interest expense of $1.2 million in the prior year quarter. We recognized $1.5 million of amortization of debt refinancing costs in the current year quarter compared to $0.1 million in the prior year quarter. We recognized $2.1 million 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 $1.8 million, compared with $1.5 million a year ago.


2


ADJUSTED EARNINGS AND EPS FOR THE QUARTER

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.
 
 
 
13 Weeks Ended
 
 
March 29
2015
 
 
March 30
2014
 
(Thousands of Dollars, Except Per Share Data)
Amount

 
Per Share

 
Amount

 
Per Share

 
 
 
 
Income attributable to Lee Enterprises, Incorporated, as reported
1,800

 
0.03

 
1,486

 
0.03

Adjustments:
 
 
 
 
 
 
 
Debt financing costs
1,493

 
 
 
99

 
 
Amortization of debt present value adjustment
—

 
 
 
1,196

 
 
Warrants fair value adjustment
(2,081
)
 
 
 
—

 
 
Other, net
436

 
 
 
414

 
 
 
(152
)
 
 
 
1,709

 
 
Income tax effect of adjustments, net
(666
)
 
 
 
(567
)
 
 
 
(818
)
 
(0.02
)
 
1,142

 
0.02

Income attributable to Lee Enterprises, Incorporated, as adjusted
982

 
0.02

 
2,628

 
0.05

SUBSCRIPTION EXPENSE RECLASSIFICATION

Certain results, excluding the impact of the subscription-related expense reclassification, are as follows:
 
13 Weeks Ended
 
(Thousands of Dollars)
March 29
2015

March 30
2014

Percent Change

 
 
 
 
Subscription revenue, as reported
48,111

41,952

14.7

Adjustment for subscription-related expense reclassification
(4,605
)
(400
)
NM

Subscription revenue, as adjusted
43,506

41,552

4.7

 
 
 
 
Total operating revenue, as reported
155,529

154,093

0.9

Adjustment for subscription-related expense reclassification
(4,605
)
(400
)
NM

Total operating revenue, as adjusted
150,924

153,693

(1.8
)
 
 
 
 
Other cash costs, as reported
55,839

52,712

5.9

Adjustment for subscription-related expense reclassification
(4,605
)
(400
)
NM

Other cash costs, as adjusted
51,234

52,312

(2.1
)
 
 
 
 
Total cash costs, as reported
125,376

121,416

3.3

Adjustment for subscription-related expense reclassification
(4,605
)
(400
)
NM

Total cash costs, as adjusted
120,771

121,016

(0.2
)

Approximately $4,272,000, or 92.8% of the reclassification impacts revenue and cash costs of our Lee Legacy operations, and approximately $333,000, or 7.2% impacts Pulitzer.


3


FULL ACCESS SUBSCRIPTION INITIATIVE

As previously reported, we launched our full access subscription initiative in our first markets a year ago. As of today, 43 markets have been launched and we are on track to launch substantially all of our remaining markets before June 2015. In most of our markets, more than 30% of our subscribers have activated their ability to access our comprehensive digital content. We expect subscription revenue for 2015, excluding the impact of the subscription-related expense reclassification, to increase 2.5-3.0%.  

YEAR-TO-DATE OPERATING RESULTS(3) 

Operating revenue for the 26 weeks ended March 29, 2015, totaled $331.7 million, an increase of 0.1% compared with the 26 weeks ended March 30, 2014. Excluding the impact of the subscription-related expense reclassification, operating revenue decreased 2.7%.

Combined print and digital advertising and marketing services revenue decreased 5.3% to $213.1 million, retail advertising decreased 6.0%, classified decreased 4.1% and national decreased 8.0%. Retail preprint advertising decreased 7.1%. Combined print and digital classified employment revenue decreased 1.3%, while automotive decreased 9.7%, real estate decreased 8.9% and other classified decreased 0.1%. Digital advertising and marketing services revenue on a stand-alone basis increased 7.7% to $38.8 million and now totals 18.2% of total advertising and marketing services revenue. Mobile advertising revenue increased 34.9%. Print advertising and marketing services revenue on a stand-alone basis decreased 7.8%.

Subscription revenue increased 12.7%. Excluding the impact of the subscription-related expense reclassification, subscription revenue increased 2.4%. Our average daily newspaper circulation, including TNI and MNI and digital subscribers, totaled 1.0 million in the 26 weeks ended March 29, 2015. Sunday circulation totaled 1.5 million.

Total digital revenue totaled $54.6 million year to date, up 29.7% compared with a year ago.

Cash costs for the 26 weeks ended March 29, 2015 increased 2.4% compared to the same period a year ago. Compensation increased 1.6%, with the average number of full-time equivalent employees down 3.7%. Newsprint and ink expense decreased 17.0%, primarily the result of lower newsprint prices and a reduction in newsprint volume of 12.1%. Other operating expenses increased 6.6%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 1.2%.

Operating cash flow decreased 7.2% from a year ago to $76.1 million. Operating cash flow margin decreased to 23.0% from 24.7% a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income decreased to $57.7 million in the 26 weeks ended March 29, 2015, compared with $63.9 million a year ago. Operating income margin was 17.4% in the 26 weeks ended March 29, 2015. The subscription-related expense reclassification reduced operating cash flow margin and operating income margin by 0.7% and 0.5%, respectively.

Non-operating expenses decreased 6.7% in the 26 weeks ended March 29, 2015 compared to the same period a year ago. Interest expense decreased 10.1% due to lower debt balances in the current year and non-cash interest expense of $2.4 million in the prior year period. We charged $2.6 million of debt financing costs to expense in the current year period compared to $0.2 million in the prior year period. We recognized $0.8 million of non-operating income in the current year period from the change in fair value of stock warrants. Income attributable to Lee Enterprises, Incorporated for the year totaled $11.6 million, compared to income of $13.4 million a year ago.


4


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.
 
 
 
 
 
26 Weeks Ended
 
 
March 29
2015
 
 
March 30
2014
 
(Thousands of Dollars, Except Per Share Data)
Amount

 
Per Share

 
Amount

 
Per Share

 
 
 
 
Income attributable to Lee Enterprises, Incorporated, as reported
11,553

 
0.21

 
13,378

 
0.25

Adjustments:
 
 
 
 
 
 
 
Debt financing costs
2,595

 
 
 
203

 
 
Amortization of debt present value adjustment
—

 
 
 
2,394

 
 
Warrants fair value adjustment
(779
)
 
 
 
—

 
 
Other, net
382

 
 
 
577

 
 
 
2,198

 
 
 
3,174

 
 
Income tax effect of adjustments, net
(1,031
)
 
 
 
(1,079
)
 
 
 
1,167

 
0.02

 
2,095

 
0.04

Income attributable to Lee Enterprises, Incorporated, as adjusted
12,720

 
0.24

 
15,473

 
0.29


SUBSCRIPTION EXPENSE RECLASSIFICATION

Certain results, excluding the impact of the subscription-related expense reclassification, are as follows:
 
26 Weeks Ended
 
(Thousands of Dollars)
March 29
2015

March 30
2014

Percent Change

 
 
 
 
Subscription revenue, as reported
98,509

87,405

12.7

Adjustment for subscription-related expense reclassification
(9,412
)
(400
)
NM

Subscription revenue, as adjusted
89,097

87,005

2.4

 
 
 
 
Total operating revenue, as reported
331,683

331,478

0.1

Adjustment for subscription-related expense reclassification
(9,412
)
(400
)
NM

Total operating revenue, as adjusted
322,271

331,078

(2.7
)
 
 
 
 
Other cash costs, as reported
115,021

107,870

6.6

Adjustment for subscription-related expense reclassification
(9,412
)
(400
)
NM

Other cash costs, as adjusted
105,609

107,470

(1.7
)
 
 
 
 
Total cash costs, as reported
255,552

249,483

2.4

Adjustment for subscription-related expense reclassification
(9,412
)
(400
)
NM

Total cash costs, as adjusted
246,140

249,083

(1.2
)

Approximately $8,716,000, or 92.6% of the reclassification impacts revenue and cash costs of our Lee Legacy operations, and approximately $696,000, or 7.4% impacts Pulitzer.


5


DEBT AND FREE CASH FLOW(2) 

Debt was reduced $20.3 million in the quarter and $40.5 million for the fiscal year to date. As of March 29, 2015 the principal amount of debt was $764.3 million. Including $32.0 million borrowed to pay 2014 refinancing costs that has since been repaid, debt has been reduced $80.8 million in the last twelve months ended March 29, 2015.

Unlevered free cash flow(2) totaled $31.4 million in the current year quarter compared to $32.2 million in the same quarter a year ago. Unlevered free cash flow totaled $77.2 million for the fiscal year to date compared to $82.3 million a year ago and $154.2 million over the last twelve months. Liquidity at March 29, 2015 totaled $44.0 million compared to $27.4 million of required debt principal payments over the next twelve months.

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 www.lee.net and will be available for replay two hours later. Several analysts have been invited to ask questions on the call. Questions from other participants may be submitted by participating in the webcast. The call also may be monitored on a listen-only conference line by dialing (toll free) 888-554-1422 and entering a conference passcode of 598707 at least five minutes before the scheduled start. Participants on the listen-only line will not have the opportunity to ask questions.

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 1.0 million daily and 1.5 million Sunday, reaching over three million readers in print alone. 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.



6


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.

Contact:
Charles Arms
Director of Communications
IR@lee.net
(563) 383-2100


7


CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
13 Weeks Ended
 
 
26 Weeks Ended
 
(Thousands of Dollars, Except Per Share Data)
March 29
2015

March 30
2014

Percent Change

 
March 29
2015

March 30
2014

Percent Change

 
 
 
 
 
 
 
 
Advertising and marketing services:
 
 
 
 
 
 
 
Retail
61,520

64,806

(5.1
)
 
138,332

147,084

(6.0
)
Classified:
 
 
 
 
 
 
 
Employment
7,646

8,060

(5.1
)
 
15,070

15,269

(1.3
)
Automotive
6,242

6,904

(9.6
)
 
13,580

15,043

(9.7
)
Real estate
3,708

4,125

(10.1
)
 
7,782

8,544

(8.9
)
All other
10,377

10,304

0.7

 
20,739

20,757

(0.1
)
Total classified
27,973

29,393

(4.8
)
 
57,171

59,613

(4.1
)
National
5,375

6,094

(11.8
)
 
12,526

13,611

(8.0
)
Niche publications and other
2,797

2,427

15.2

 
5,113

4,802

6.5

Total advertising and marketing services revenue
97,665

102,720

(4.9
)
 
213,142

225,110

(5.3
)
Subscription
48,111

41,952

14.7

 
98,509

87,405

12.7

Commercial printing
2,774

2,992

(7.3
)
 
5,591

6,023

(7.2
)
Digital services and other
6,979

6,429

8.6

 
14,441

12,940

11.6

Total operating revenue
155,529

154,093

0.9

 
331,683

331,478

0.1

Operating expenses:
 
 
 
 
 
 
 
Compensation
61,236

59,071

3.7

 
123,173

121,212

1.6

Newsprint and ink
7,661

9,334

(17.9
)
 
16,507

19,895

(17.0
)
Other operating expenses
55,839

52,712

5.9

 
115,021

107,870

6.6

Workforce adjustments
640

299

NM

 
851

506

68.2

Cash costs
125,376

121,416

3.3

 
255,552

249,483

2.4

Operating cash flow
30,153

32,677

(7.7
)
 
76,131

81,995

(7.2
)
Depreciation
4,686

5,275

(11.2
)
 
9,301

10,407

(10.6
)
Amortization
6,880

6,916

(0.5
)
 
13,760

13,809

(0.4
)
Loss (gain) on sales of assets, net
5

(1,641
)
NM

 
(252
)
(1,631
)
(84.5
)
Equity in earnings of associated companies
1,653

1,593

3.8

 
4,410

4,512

(2.3
)
Operating income
20,235

23,720

(14.7
)
 
57,732

63,922

(9.7
)
Non-operating income (expense):
 
 
 
 
 
 
 
Financial income
102

101

1.0

 
180

221

(18.6
)
Interest expense
(18,403
)
(20,552
)
(10.5
)
 
(37,193
)
(41,379
)
(10.1
)
Debt financing costs
(1,493
)
(99
)
NM

 
(2,595
)
(203
)
NM

Other, net
2,318

27

NM

 
1,140

121

NM

 
(17,476
)
(20,523
)
(14.8
)
 
(38,468
)
(41,240
)
(6.7
)
Income before income taxes
2,759

3,197

(13.7
)
 
19,264

22,682

(15.1
)
Income tax expense
717

1,492

(51.9
)
 
7,215

8,875

(18.7
)
Net income
2,042

1,705

19.8

 
12,049

13,807

(12.7
)
Net income attributable to non-controlling interests
(242
)
(219
)
10.5

 
(496
)
(429
)
15.6

Income attributable to Lee Enterprises, Incorporated
1,800

1,486

21.1

 
11,553

13,378

(13.6
)
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
Basic
0.03

0.03

—

 
0.22

0.26

(15.4
)
Diluted
0.03

0.03

—

 
0.21

0.25

(16.0
)



8


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

(Thousands of Dollars)
March 29
2015

March 30
2014

 
March 29
2015

March 30
2014

 
March 29
2015

 
 
 
 
 
 
 
 
Advertising and marketing services
97,665

102,720

 
213,142

225,110

 
430,034

Subscription
48,111

41,952

 
98,509

87,405

 
187,931

Other
9,753

9,421

 
20,032

18,963

 
38,937

Total operating revenue
155,529

154,093

 
331,683

331,478


656,902

Compensation
61,236

59,071

 
123,173

121,212

 
245,015

Newsprint and ink
7,661

9,334

 
16,507

19,895

 
34,606

Other operating expenses
55,839

52,712

 
115,021

107,870

 
226,480

Depreciation and amortization
11,566

12,191

 
23,061

24,216

 
49,293

Loss (gain) on sales of assets, net
5

(1,641
)
 
(252
)
(1,631
)
 
217

Impairment of goodwill and other assets
—

—

 
—

—

 
868

Workforce adjustments
640

299

 
851

506

 
1,610

Total operating expenses
136,947

131,966

 
278,361

272,068

 
558,089

Equity in earnings of TNI and MNI
1,653

1,593

 
4,410

4,512

 
8,195

Operating income
20,235

23,720

 
57,732

63,922

 
107,008

Adjusted to exclude:
 
 
 
 
 
 
 
Depreciation and amortization
11,566

12,191

 
23,061

24,216

 
49,293

Loss (gain) on sales of assets, net
5

(1,641
)
 
(252
)
(1,631
)
 
217

Impairment of intangible and other assets
—

—

 
—

—

 
868

Equity in earnings of TNI and MNI
(1,653
)
(1,593
)
 
(4,410
)
(4,512
)
 
(8,195
)
Operating cash flow
30,153

32,677

 
76,131

81,995

 
149,191

Add:
 
 
 
 
 
 
 
Ownership share of TNI and MNI EBITDA (50%)
2,212

2,031

 
5,969

5,952

 
11,252

Adjusted to exclude:
 
 
 
 
 
 
 
Stock compensation
640

420

 
1,083

684

 
1,880

Adjusted EBITDA(2)
33,005

35,128

 
83,183

88,631

 
162,323

Adjusted to exclude:
 
 
 
 
 
 
 
Ownership share of TNI and MNI EBITDA (50%)
(2,212
)
(2,031
)
 
(5,969
)
(5,952
)
 
(11,252
)
Add (deduct):
 
 
 
 
 
 
 
Distributions from TNI and MNI
3,128

2,494

 
6,072

5,309

 
10,760

Capital expenditures, net of insurance proceeds
(2,128
)
(2,600
)
 
(5,675
)
(4,895
)
 
(12,604
)
Pension contributions
(435
)
(705
)
 
(435
)
(705
)
 
(1,252
)
Cash income tax refunds (payments)
68

(103
)
 
64

(117
)
 
6,203

Unlevered free cash flow
31,426

32,183

 
77,240

82,271

 
154,178

Add (deduct):
 
 
 
 
 
 
 
Financial income
102

101

 
180

221

 
344

Interest expense to be settled in cash
(18,404
)
(19,356
)
 
(37,193
)
(38,984
)
 
(75,539
)
Debt financing costs paid
(65
)
(266
)
 
(82
)
(268
)
 
(31,401
)
Free cash flow
13,059

12,662

 
40,145

43,240

 
47,582



9


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

(Thousands of Dollars)
March 29
2015

March 30
2014

 
March 29
2015

March 30
2014

 
March 29
2015

 
 
 
 
 
 
 
 
Advertising and marketing services
69,018

72,055

 
149,073

155,263

 
300,629

Subscription
32,513

26,727

 
66,058

55,477

 
124,574

Other
8,593

8,412

 
17,374

16,629

 
33,952

Total operating revenue
110,124

107,194

 
232,505

227,369

 
459,155

Compensation
46,273

44,123

 
92,519

89,948

 
183,212

Newsprint and ink
5,727

6,733

 
12,250

14,070

 
25,263

Other operating expenses
31,919

28,633

 
65,497

57,754

 
126,716

Depreciation and amortization
7,884

8,226

 
15,834

16,309

 
32,198

Loss (gain) on sales of assets, net
4

(1,635
)
 
(75
)
(1,650
)
 
213

Impairment of goodwill and other assets
—

—

 
—

—

 
868

Workforce adjustments
241

122

 
313

171

 
693

Total operating expenses
92,048

86,202

 
186,338

176,602

 
369,163

Equity in earnings of MNI
444

313

 
1,556

1,443

 
3,498

Operating income
18,520

21,305

 
47,723

52,210

 
93,490

Adjusted to exclude:
 
 
 
 
 
 
 
Depreciation and amortization
7,884

8,226

 
15,834

16,309

 
32,198

Loss (gain) on sales of assets, net
4

(1,635
)
 
(75
)
(1,650
)
 
213

Impairment of intangible and other assets
—

—

 
—

—

 
868

Equity in earnings of MNI
(444
)
(313
)
 
(1,556
)
(1,443
)
 
(3,498
)
Operating cash flow
25,964

27,583

 
61,926

65,426

 
123,271

Add:
 
 
 
 
 
 
 
Ownership share of MNI EBITDA (50%)
898

646

 
2,906

2,673

 
6,137

Adjusted to exclude:
 
 
 
 
 
 
 
Stock compensation
640

420

 
1,083

684

 
1,880

Adjusted EBITDA
27,502

28,649

 
65,915

68,783

 
131,288

Adjusted to exclude:
 
 
 
 
 
 
 
Ownership share of MNI EBITDA (50%)
(898
)
(646
)
 
(2,906
)
(2,673
)
 
(6,137
)
Add (deduct):
 
 
 
 
 
 
 
Distributions from MNI
1,250

1,250

 
3,000

2,750

 
5,000

Capital expenditures, net of insurance proceeds
(1,438
)
(2,082
)
 
(3,518
)
(4,245
)
 
(8,961
)
Pension contributions
—

—

 
—

—

 
(87
)
Cash income tax refunds (payments)
157

(103
)
 
153

(117
)
 
4

Intercompany charges not settled in cash
(2,318
)
(2,099
)
 
(4,636
)
(4,198
)
 
(10,116
)
Other
—

—

 
—

—

 
(2,000
)
Unlevered free cash flow
24,255

24,969

 
58,008

60,300

 
108,991

Add (deduct):
 
 
 
 
 
 
 
Financial income
102

101

 
180

221

 
344

Interest expense to be settled in cash
(18,086
)
(18,206
)
 
(36,415
)
(36,561
)
 
(73,345
)
Debt financing costs paid
(65
)
(266
)
 
(82
)
(268
)
 
(31,393
)
Free cash flow
6,206

6,598

 
21,691

23,692

 
4,597





10


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

(Thousands of Dollars)
March 29
2015

March 30
2014

 
March 29
2015

March 30
2014

 
March 29
2015

 
 
 
 
 
 
 
 
Advertising and marketing services
28,647

30,665

 
64,069

69,847

 
129,405

Subscription
15,598

15,225

 
32,451

31,928

 
63,357

Other
1,160

1,009

 
2,658

2,334

 
4,985

Total operating revenue
45,405

46,899

 
99,178

104,109

 
197,747

Compensation
14,963

14,948

 
30,654

31,264

 
61,803

Newsprint and ink
1,934

2,601

 
4,257

5,825

 
9,343

Other operating expenses
23,920

24,079

 
49,524

50,116

 
99,764

Depreciation and amortization
3,682

3,965

 
7,227

7,907

 
17,095

Loss (gain) on sales of assets, net
1

(6
)
 
(177
)
19

 
4

Workforce adjustments
399

177

 
538

335

 
917

Total operating expenses
44,899

45,764

 
92,023

95,466

 
188,926

Equity in earnings of TNI
1,209

1,280

 
2,854

3,069

 
4,697

Operating income
1,715

2,415

 
10,009

11,712

 
13,518

Adjusted to exclude:
 
 
 
 
 
 
 
Depreciation and amortization
3,682

3,965

 
7,227

7,907

 
17,095

Loss (gain) on sales of assets, net
1

(6
)
 
(177
)
19

 
4

Equity in earnings of TNI
(1,209
)
(1,280
)
 
(2,854
)
(3,069
)
 
(4,697
)
Operating cash flow
4,189

5,094

 
14,205

16,569

 
25,920

Add:
 
 
 
 
 
 
 
Ownership share of TNI EBITDA (50%)
1,314

1,385

 
3,063

3,279

 
5,115

Adjusted EBITDA
5,503

6,479

 
17,268

19,848

 
31,035

Adjusted to exclude:
 
 
 
 
 
 
 
Ownership share of TNI EBITDA (50%)
(1,314
)
(1,385
)
 
(3,063
)
(3,279
)
 
(5,115
)
Add (deduct):
 
 
 
 
 
 
 
Distributions from TNI
1,878

1,244

 
3,072

2,559

 
5,760

Capital expenditures, net of insurance proceeds
(690
)
(518
)
 
(2,157
)
(650
)
 
(3,643
)
Pension contributions
(435
)
(705
)
 
(435
)
(705
)
 
(1,165
)
Cash income tax refunds (payments)
(89
)
—

 
(89
)
—

 
6,199

Intercompany charges not settled in cash
2,318

2,099

 
4,636

4,198

 
10,116

Other
—

—

 
—

—

 
2,000

Unlevered free cash flow
7,171

7,214

 
19,232

21,971

 
45,187

Deduct:
 
 
 
 
 
 
 
Interest expense to be settled in cash
(318
)
(1,150
)
 
(778
)
(2,423
)
 
(2,194
)
Debt financing costs paid
—

—

 
—

—

 
(8
)
Free cash flow
6,853

6,064

 
18,454

19,548

 
42,985



11


REVENUE BY REGION
 
13 Weeks Ended
 
26 Weeks Ended
 
(Thousands of Dollars)
March 29
2015

March 30
2014

Percent Change
 
March 29
2015

March 30
2014

Percent Change

 
 
 
 
 
 
 
 
Midwest
94,995

94,702

0.3
 
204,261

206,647

(1.2
)
Mountain West
31,017

30,419

2.0
 
66,757

65,103

2.5

West
10,520

10,144

3.7
 
22,484

21,806

3.1

East/Other
18,997

18,828

0.9
 
38,181

37,922

0.7

Total
155,529

154,093

0.9
 
331,683

331,478

0.1


SELECTED BALANCE SHEET INFORMATION
(Thousands of Dollars)
 
March 29
2015

September 28
2014

Cash
 
11,350

16,704

Debt (Principal Amount):
 
 
 
Revolving Facility
 
—

5,000

1st Lien Term Loan
 
205,250

226,750

Notes
 
400,000

400,000

2nd Lien Term Loan
 
150,000

150,000

Pulitzer Notes
 
9,000

23,000

 

764,250

804,750


SELECTED STATISTICAL INFORMATION
 
13 Weeks Ended
 
 
26 Weeks Ended
 
 
March 29
2015

March 30
2014

Percent Change

 
March 29
2015

March 30
2014

Percent Change

 
 
 
 
 
 
 
 
Capital expenditures, net of insurance proceeds (Thousands of Dollars)
2,128

2,600

(18.2
)
 
5,675

4,895

15.9

Newsprint volume (Tonnes)
12,462

13,981

(10.9
)
 
26,279

29,911

(12.1
)
Average full-time equivalent employees
4,312

4,486

(3.9
)
 
4,384

4,551

(3.7
)
Average common shares - basic (Thousands of Shares)
52,494

52,223

0.5

 
52,482

52,151

0.6

Average common shares - diluted (Thousands of Shares)
53,875

53,798

0.1

 
53,916

53,541

0.7

Shares outstanding at end of period (Thousands of Shares)
 
 
 
 
54,528

53,596

1.7



12


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:
 
ž
Adjusted EBITDA is defined as operating income (loss), plus depreciation, amortization, impairment charges, stock compensation and 50% of EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI 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 TNI and MNI 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 TNI and MNI and cash income tax refunds, minus equity in earnings of TNI and MNI, 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.

13