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2015 Q3 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 6, 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 August 6, 2015, Lee Enterprises, Incorporated reported its preliminary results for the third fiscal quarter ended June 28, 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 August 6, 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
 
 
 
 
/s/ Ronald A. Mayo
 
 
 
 
 
Date:
August 6, 2015
By:
 
 
 
 
Ronald A. Mayo
 
 
 
 
Vice President, Chief Financial Officer,
 
 
 
 
and Treasurer
 


INDEX TO EXHIBITS

Exhibit No.
Description
 
 
99.1
News Release dated August 6, 2015




2015 Q3 Earnings Release


Exhibit 99.1 - News Release – Third fiscal quarter ended June 28, 2015.
201 N. Harrison St.
Davenport, IA 52801
www.lee.net

NEWS RELEASE    
 
Lee Enterprises reports third quarter earnings
 
DAVENPORT, Iowa (August 6, 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 third fiscal quarter ended June 28, 2015, compared to a loss of 19 cents a year ago. Excluding unusual matters, adjusted earnings per diluted common share(2) totaled 9 cents, compared with earnings of 11 cents a year ago.

“We continue to see strong growth in digital advertising, digital services and subscription revenue,” Mary Junck, chairman and chief executive officer said.  “Total digital revenue increased 28.6% in the quarter,” she said.  “We also had significant growth in digital services — up 19.7% in the quarter — largely fueled by TownNews.com, a Lee Enterprises subsidiary that provides digital services including web hosting and content management for web, print and mobile products to Lee Enterprises properties as well as 1,500 other newspapers. Digital advertising revenue increased 6.5% for the quarter driven by strong growth in retail," Junck added.

“We are using substantially all of our free cash flow(2) to reduce debt,” Junck said. "In the third fiscal quarter, we repaid $19.3 million in debt including the milestone of paying off the Pulitzer Notes almost two years early. The repayment of the Pulitzer Notes not only reduces our debt but also simplifies our capital structure and should result in a more rapid paydown of our debt under the 1st Lien Term Loan(3)."

She added: "In the third quarter, we reduced cash costs(2) on a comparable basis after excluding unusual matters, 3.9%, or $4.8 million. Our keen focus on cost control allows us to improve our guidance, and we now expect fourth quarter cash costs to decrease between 5.5%-6.0%.

“Lee also has an active real estate monetization program with more than $15 million of real estate assets listed for sale, including the headquarters of the St. Louis Post-Dispatch."

Junck also noted the following financial highlights for the quarter:

•
Digital advertising revenue increased 6.5% and represents 20.7% of our total advertising revenue. Digital retail advertising increased 12.0%.

•
Mobile advertising revenue, which is included in digital advertising, increased 23.2%.

•
Subscription revenue, excluding the subscription-related expense reclassification discussed more fully below, increased 3.4%, and we expect full year 2015 subscription revenue, excluding the impact of the reclassification, to increase 2.5-3.0%.

•
Debt was reduced $70.0 million in the last twelve months.


1


THIRD QUARTER OPERATING RESULTS

Operating revenue for the 13 weeks ended June 28, 2015 totaled $157.5 million, a decrease of 3.4% compared with a year ago. However, the month-over-month revenue trend improved in both May and June of 2015.

Excluding the impact of a subscription-related expense reclassification as a result of moving to fee-for-service delivery contracts at most of our newspapers, operating revenue decreased 5.1%. The delivery expense 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.

Advertising and marketing services revenue combined decreased 8.9% to $100.5 million, with retail advertising down 8.3%, classified down 11.9% and national down 12.5%. Combined print and digital classified employment revenue decreased 14.5%, while automotive decreased 14.5%, real estate decreased 16.0% and other classified decreased 6.6%. Digital advertising and marketing services revenue on a stand-alone basis increased 6.5% to $20.8 million.

Subscription revenue increased 9.4%. Excluding the impact of the subscription-related expense reclassification, subscription revenue increased 3.4%. Average daily newspaper circulation, including TNI(3) and MNI(3) and digital subscribers, totaled 1.0 million in the 13 weeks ended June 28, 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 $30.1 million in the quarter, up 28.6%, and represents 19.1% of total operating revenue.

Cash costs decreased 1.2% for the 13 weeks ended June 28, 2015. Excluding the impact of the subscription-related expense reclassification and unusual matters, cash costs decreased 3.9% for the 13 weeks ended June 28, 2015. Compensation decreased 3.1%, primarily as a result of reduced staffing levels. Newsprint and ink expense decreased 19.5%, primarily the result of lower newsprint prices and a reduction in newsprint volume of 13.4%. Other operating expenses increased 2.9%. Excluding the subscription-related expense reclassification, other operating expense decreased 2.1%.

We expect our fourth quarter cash costs, excluding the impact of the subscription-related expense reclassification and unusual matters, to decrease between 5.5%-6.0%, a further improvement from the decrease of 2.2% for the 39 weeks ended June 28, 2015. These additional cost reductions in the second half of fiscal year 2015 are expected to have a favorable impact on the fiscal year 2016 cash costs.

Operating cash flow decreased 10.4% from a year ago to $35.2 million. Excluding unusual matters, operating cash flow decreased 8.7%. Operating cash flow margin(2) decreased to 22.4%, compared to 24.1% a year ago. The subscription-related expense reclassification reduced operating cash flow margin by 0.7%. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income totaled $24.8 million in the current year quarter, compared with $28.6 million a year ago.

Non-operating expenses decreased 52.2% for the 13 weeks ended June 28, 2015 due to the debt refinancing costs paid in the same quarter of the prior year. Interest expense decreased 7.8%, or $1.5 million, due to lower debt balances. We recognized $1.4 million of debt refinancing costs in the current year quarter compared to $21.7 million in the prior year quarter. We recognized $1.1 million of non-operating expense 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 $1.9 million, compared with a loss of $9.7 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
 
 
June 28
2015
 
 
June 29
2014
 
(Thousands of Dollars, Except Per Share Data)
Amount

 
Per Share

 
Amount

 
Per Share

 
 
 
 
Income (loss) attributable to Lee Enterprises, Incorporated, as reported
1,882

 
0.03

 
(9,746
)
 
(0.19
)
Adjustments:
 
 
 
 
 
 
 
Impairment of intangible and other assets
—

 
 
 
336

 
 
Debt financing costs
1,445

 
 
 
21,732

 
 
Warrants fair value adjustment
1,091

 
 
 
(579
)
 
 
Litigation settlement
—

 
 
 
2,300

 
 
Workforce adjustments and other, net
1,188

 
 
 
426

 
 
 
3,724

 
 
 
24,215

 
 
Income tax effect of adjustments, net
(866
)
 
 
 
(8,675
)
 
 
 
2,858

 
0.05

 
15,540

 
0.30

Income attributable to Lee Enterprises, Incorporated, as adjusted
4,740

 
0.09

 
5,794

 
0.11

SUBSCRIPTION EXPENSE RECLASSIFICATION

Certain results, excluding the impact of the subscription-related expense reclassification, are as follows:
 
13 Weeks Ended
 
(Thousands of Dollars)
June 28
2015

June 29
2014

Percent Change

 
 
 
 
Subscription revenue, as reported
47,394

43,339

9.4

Adjustment for subscription-related expense reclassification
(4,512
)
(1,864
)
NM

Subscription revenue, as adjusted
42,882

41,475

3.4

 
 
 
 
Total operating revenue, as reported
157,546

163,125

(3.4
)
Adjustment for subscription-related expense reclassification
(4,512
)
(1,864
)
NM

Total operating revenue, as adjusted
153,034

161,261

(5.1
)
 
 
 
 
Other cash costs, as reported
55,405

53,840

2.9

Adjustment for subscription-related expense reclassification
(4,512
)
(1,864
)
NM

Other cash costs, as adjusted
50,893

51,976

(2.1
)
 
 
 
 
Total cash cost excluding unusual matters
121,268

123,394

(1.7
)
Adjustment for subscription-related expense reclassification
(4,512
)
(1,864
)
NM

Total cash cost excluding unusual matters, as adjusted
116,756

121,530

(3.9
)
 
 
 
 
Total cash costs, as reported
122,325

123,813

(1.2
)
Adjustment for subscription-related expense reclassification
(4,512
)
(1,864
)
NM

Total cash costs, as adjusted
117,813

121,949

(3.4
)
Approximately $4,166,000, or 92.3% of the reclassification impacts revenue and cash costs of our Lee Legacy(2) operations, and approximately $346,000, or 7.7% impacts Pulitzer(2).


3


FULL ACCESS SUBSCRIPTION INITIATIVE

As previously reported, we launched our full access subscription initiative in our first markets more than a year ago and as of today substantially all of our markets have launched a full access subscription model. 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(4) 

Operating revenue for the 39 weeks ended June 28, 2015, totaled $489.2 million, a decrease of 1.1% compared with the 39 weeks ended June 29, 2014. Excluding the impact of the subscription-related expense reclassification, operating revenue decreased 3.5%.

Advertising and marketing services revenue combined decreased 6.5% to $313.6 million, retail advertising decreased 6.7%, classified decreased 6.9% and national decreased 9.2%. Combined print and digital classified employment revenue decreased 6.3%, while automotive decreased 11.3%, real estate decreased 11.4% and other classified decreased 2.5%. Digital advertising and marketing services revenue on a stand-alone basis increased 7.3% to $59.5 million. Mobile advertising revenue increased 30.7%.

Subscription revenue increased 11.6%. Excluding the impact of the subscription-related expense reclassification, subscription revenue increased 2.7%. Our average daily newspaper circulation, including TNI and MNI and digital subscribers, totaled 1.0 million in the 39 weeks ended June 28, 2015. Sunday circulation totaled 1.4 million.

Total digital revenue was $84.7 million year to date, up 29.3% compared with a year ago.

Cash costs for the 39 weeks ended June 28, 2015 increased 1.2% compared to the same period a year ago. Excluding the impact of the subscription-related expense reclassification and unusual matters, cash costs decreased 2.2%. Compensation increased slightly, due to an increase in employee medical and pension costs as well as salary increases, partially offset by a decrease in the average number of full-time equivalent employees of 4.5%. Newsprint and ink expense decreased 17.8%, primarily the result of lower newsprint prices and a reduction in newsprint volume of 12.6%. Other operating expenses increased 5.4% and excluding the impact of the subscription-related expenses reclassification other operating expense decreased 1.8%, or $2.9 million.

Operating cash flow decreased 8.2% from a year ago to $111.4 million. Operating cash flow margin decreased to 22.8% from 24.5% a year ago. The subscription-related expense reclassification reduced operating cash flow margin by 0.7%. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income decreased to $82.6 million in the 39 weeks ended June 28, 2015, compared with $92.5 million a year ago.

Non-operating expenses decreased 29.9% in the 39 weeks ended June 28, 2015 compared to the same period a year ago. Cash interest expense decreased 5.7%, or $3.3 million, due to lower debt balances in the current year. We recognized non-cash interest expense of $2.4 million in the prior year to date period. We recognized $4.0 million of debt financing costs in the current year period compared to $21.9 million in the prior year period. Income attributable to Lee Enterprises, Incorporated for the year totaled $13.4 million, compared to income of $3.6 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.
 
 
 
 
 
39 Weeks Ended
 
 
June 28
2015
 
 
June 29
2014
 
(Thousands of Dollars, Except Per Share Data)
Amount

 
Per Share

 
Amount

 
Per Share

 
 
 
 
Income attributable to Lee Enterprises, Incorporated, as reported
13,435

 
0.25

 
3,632

 
0.07

Adjustments:
 
 
 
 
 
 
 
Impairment of intangible and other assets
—

 
 
 
336

 
 
Debt financing costs
4,040

 
 
 
21,935

 
 
Amortization of debt present value adjustment
—

 
 
 
2,394

 
 
Warrants fair value adjustment
312

 
 
 
(579
)
 
 
Litigation settlement
—

 
 
 
2,300

 
 
Workforce adjustments and other, net
1,570

 
 
 
1,003

 
 
 
5,922

 
 
 
27,389

 
 
Income tax effect of adjustments, net
(1,897
)
 
 
 
(9,754
)
 
 
 
4,025

 
0.07

 
17,635

 
0.33

Income attributable to Lee Enterprises, Incorporated, as adjusted
17,460

 
0.32

 
21,267

 
0.40


SUBSCRIPTION EXPENSE RECLASSIFICATION

Certain results, excluding the impact of the subscription-related expense reclassification, are as follows:
 
39 Weeks Ended
 
(Thousands of Dollars)
June 28
2015

June 29
2014

Percent Change

 
 
 
 
Subscription revenue, as reported
145,904

130,744

11.6

Adjustment for subscription-related expense reclassification
(13,924
)
(2,265
)
NM

Subscription revenue, as adjusted
131,980

128,479

2.7

 
 
 
 
Total operating revenue, as reported
489,229

494,603

(1.1
)
Adjustment for subscription-related expense reclassification
(13,924
)
(2,265
)
NM

Total operating revenue, as adjusted
475,305

492,338

(3.5
)
 
 
 
 
Other cash costs, as reported
170,426

161,708

5.4

Adjustment for subscription-related expense reclassification
(13,924
)
(2,265
)
NM

Other cash costs, as adjusted
156,502

159,443

(1.8
)
 
 
 
 
Total cash costs excluding unusual matters
375,969

372,371

1.0

Adjustment for subscription-related expense reclassification
(13,924
)
(2,265
)
NM

Total cash cost excluding unusual matters, as adjusted
362,045

370,106

(2.2
)
 
 
 
 
Total cash costs, as reported
377,877

373,296

1.2

Adjustment for subscription-related expense reclassification
(13,924
)
(2,265
)
NM

Total cash costs, as adjusted
363,953

371,031

(1.9
)


5


Approximately $12,883,000, or 92.5% of the reclassification impacts revenue and cash costs of our Lee Legacy operations, and approximately $1,041,000, or 7.5% impacts Pulitzer.

DEBT AND FREE CASH FLOW

Debt was reduced $19.3 million in the quarter, $59.8 million fiscal year to date and $70.0 million in the last twelve months ended June 28, 2015. As of June 28, 2015 the principal amount of debt was $745.0 million.

Unlevered free cash flow(2) totaled $34.7 million in the current year quarter compared to $44.8 million in the same quarter a year ago. Unlevered free cash flow totaled $111.9 million for the fiscal year to date compared to $127.0 million a year ago and $144.1 million over the last twelve months. Tax refunds of $6.1 million in the 13 weeks ended June 29, 2014 increased our free cash flow in the prior year periods. At June 28, 2015, liquidity, including cash and availability under our Revolving Facility, totaled $51.8 million compared to $32.9 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) 888-481-2848 and entering a conference passcode of 899517 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 1.4 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 OPERATIONS
(UNAUDITED)
 
13 Weeks Ended
 
 
39 Weeks Ended
 
(Thousands of Dollars, Except Per Share Data)
June 28
2015

June 29
2014

Percent Change

 
June 28
2015

June 29
2014

Percent Change

 
 
 
 
 
 
 
 
Advertising and marketing services:
 

 

 

 
 
 
 
Retail
63,754

69,507

(8.3
)
 
202,086

216,591

(6.7
)
Classified:
 
 
 
 
 
 
 
Employment
7,929

9,277

(14.5
)
 
23,000

24,546

(6.3
)
Automotive
6,213

7,266

(14.5
)
 
19,793

22,309

(11.3
)
Real estate
3,837

4,569

(16.0
)
 
11,619

13,113

(11.4
)
All other
11,143

11,926

(6.6
)
 
31,881

32,683

(2.5
)
Total classified
29,122

33,038

(11.9
)
 
86,293

92,651

(6.9
)
National
4,608

5,268

(12.5
)
 
17,134

18,879

(9.2
)
Niche publications and other
3,006

2,471

21.7

 
8,119

7,273

11.6

Total advertising and marketing services revenue
100,490

110,284

(8.9
)
 
313,632

335,394

(6.5
)
Subscription
47,394

43,339

9.4

 
145,904

130,744

11.6

Commercial printing
3,239

3,147

2.9

 
8,830

9,170

(3.7
)
Digital services
3,070

2,565

19.7

 
9,267

7,257

27.7

Other
3,353

3,790

(11.5
)
 
11,596

12,038

(3.7
)
Total operating revenue
157,546

163,125

(3.4
)
 
489,229

494,603

(1.1
)
Operating expenses:
 
 
 
 
 
 
 
Compensation
58,442

60,330

(3.1
)
 
181,615

181,543

—

Newsprint and ink
7,421

9,224

(19.5
)
 
23,928

29,120

(17.8
)
Other operating expenses
55,405

53,840

2.9

 
170,426

161,708

5.4

Workforce adjustments
1,057

419

NM

 
1,908

925

NM

Cash costs
122,325

123,813

(1.2
)
 
377,877

373,296

1.2

Operating cash flow
35,221

39,312

(10.4
)
 
111,352

121,307

(8.2
)
Depreciation
4,559

5,293

(13.9
)
 
13,860

15,700

(11.7
)
Amortization
6,836

6,901

(0.9
)
 
20,597

20,710

(0.5
)
Loss (gain) on sales of assets, net
686

9

NM

 
434

(1,622
)
NM

Impairment of intangible and other assets
—

336

NM

 
—

336

NM

Equity in earnings of associated companies
1,705

1,836

(7.1
)
 
6,114

6,348

(3.7
)
Operating income
24,845

28,609

(13.2
)
 
82,575

92,531

(10.8
)
Non-operating income (expense):
 

 

 
 
 
 
 
Financial income
79

85

(7.1
)
 
258

306

(15.7
)
Interest expense
(18,121
)
(19,654
)
(7.8
)
 
(55,314
)
(61,033
)
(9.4
)
Debt financing costs
(1,445
)
(21,732
)
(93.4
)
 
(4,040
)
(21,935
)
(81.6
)
Other, net
(1,082
)
(1,701
)
(36.4
)
 
58

(1,579
)
NM

 
(20,569
)
(43,002
)
(52.2
)
 
(59,038
)
(84,241
)
(29.9
)
Income (loss) before income taxes
4,276

(14,393
)
NM

 
23,537

8,290

NM

Income tax expense (benefit)
2,141

(4,882
)
NM

 
9,353

3,995

NM

Net income (loss)
2,135

(9,511
)
NM

 
14,184

4,295

NM

Net income attributable to non-controlling interests
(253
)
(235
)
7.7

 
(749
)
(663
)
13.0

Income (loss) attributable to Lee Enterprises, Incorporated
1,882

(9,746
)
NM

 
13,435

3,632

NM

 
 
 
 
 
 
 
 
Earnings (loss) per common share:
 
 
 
 
 
 
 
Basic
0.04

(0.19
)
NM

 
0.26

0.07

NM

Diluted
0.03

(0.19
)
NM

 
0.25

0.07

NM




8


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

(Thousands of Dollars)
June 28
2015

June 29
2014

 
June 28
2015

June 29
2014

 
June 28
2015

 
 
 
 
 
 
 
 
Advertising and marketing services
100,490

110,284

 
313,632

335,394

 
420,240

Subscription
47,394

43,339

 
145,904

130,744

 
191,986

Other
9,662

9,502

 
29,693

28,465

 
39,097

Total operating revenue
157,546

163,125

 
489,229

494,603


651,323

Compensation
58,442

60,330

 
181,615

181,543

 
243,126

Newsprint and ink
7,421

9,224

 
23,928

29,120

 
32,802

Other operating expenses
55,405

53,840

 
170,426

161,708

 
228,047

Depreciation and amortization
11,395

12,194

 
34,457

36,410

 
48,492

Loss (gain) on sales of assets, net
686

9

 
434

(1,622
)
 
894

Impairment of goodwill and other assets
—

336

 
—

336

 
532

Workforce adjustments
1,057

419

 
1,908

925

 
2,249

Total operating expenses
134,406

136,352

 
412,768

408,420

 
556,142

Equity in earnings of TNI and MNI
1,705

1,836

 
6,114

6,348

 
8,063

Operating income
24,845

28,609

 
82,575

92,531

 
103,244

Adjusted to exclude:
 
 
 
 
 
 
 
Depreciation and amortization
11,395

12,194

 
34,457

36,410

 
48,492

Loss (gain) on sales of assets, net
686

9

 
434

(1,622
)
 
894

Impairment of intangible and other assets
—

336

 
—

336

 
532

Equity in earnings of TNI and MNI
(1,705
)
(1,836
)
 
(6,114
)
(6,348
)
 
(8,063
)
Operating cash flow
35,221

39,312

 
111,352

121,307

 
145,099

Add:
 
 
 
 
 
 
 
Ownership share of TNI and MNI EBITDA (50%)
2,464

2,587

 
8,432

8,540

 
11,129

Adjusted to exclude:
 
 
 
 
 
 
 
Stock compensation
562

397

 
1,645

1,081

 
2,045

Adjusted EBITDA(2)
38,247

42,296

 
121,429

130,928

 
158,273

Adjusted to exclude:
 
 
 
 
 
 
 
Ownership share of TNI and MNI EBITDA (50%)
(2,464
)
(2,587
)
 
(8,432
)
(8,540
)
 
(11,129
)
Add (deduct):
 
 
 
 
 
 
 
Distributions from TNI and MNI
2,041

2,346

 
8,113

7,654

 
10,455

Capital expenditures, net of insurance proceeds
(2,011
)
(3,309
)
 
(7,686
)
(8,204
)
 
(11,306
)
Pension contributions
(1,130
)
(17
)
 
(1,565
)
(722
)
 
(2,365
)
Cash income tax refunds (payments)
(1
)
6,051

 
63

5,933

 
152

Unlevered free cash flow
34,682

44,780

 
111,922

127,049

 
144,080

Add (deduct):
 
 
 
 
 
 
 
Financial income
79

85

 
258

306

 
337

Interest expense to be settled in cash
(18,121
)
(19,654
)
 
(55,314
)
(58,639
)
 
(74,005
)
Debt financing costs paid
(395
)
(31,008
)
 
(477
)
(31,276
)
 
(788
)
Free cash flow
16,245

(5,797
)
 
56,389

37,440

 
69,624



9


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

(Thousands of Dollars)
June 28
2015

June 29
2014

 
June 28
2015

June 29
2014

 
June 28
2015

 
 
 
 
 
 
 
 
Advertising and marketing services
69,973

76,148

 
219,046

231,411

 
294,454

Subscription
31,876

28,022

 
97,935

83,499

 
128,428

Other
8,391

8,330

 
25,764

24,959

 
34,012

Total operating revenue
110,240

112,500

 
342,745

339,869

 
456,894

Compensation
44,187

45,086

 
136,706

135,035

 
182,312

Newsprint and ink
5,387

6,550

 
17,637

20,623

 
24,098

Other operating expenses
31,660

28,954

 
97,157

86,706

 
129,424

Depreciation and amortization
7,839

8,322

 
23,850

24,633

 
31,712

Loss (gain) on sales of assets, net
(73
)
8

 
(324
)
(1,643
)
 
133

Impairment of goodwill and other assets
—

336

 
—

336

 
532

Workforce adjustments
442

265

 
755

436

 
871

Total operating expenses
89,442

89,521

 
275,781

266,126

 
369,082

Equity in earnings of MNI
746

790

 
2,301

2,232

 
3,453

Operating income
21,544

23,769

 
69,265

75,975

 
91,265

Adjusted to exclude:
 
 
 
 
 
 
 
Depreciation and amortization
7,839

8,322

 
23,850

24,633

 
31,712

Loss (gain) on sales of assets, net
(73
)
8

 
(324
)
(1,643
)
 
133

Impairment of intangible and other assets
—

336

 
—

336

 
532

Equity in earnings of MNI
(746
)
(790
)
 
(2,301
)
(2,232
)
 
(3,453
)
Operating cash flow
28,564

31,645

 
90,490

97,069

 
120,189

Add:
 
 
 
 
 
 
 
Ownership share of MNI EBITDA (50%)
1,401

1,436

 
4,306

4,110

 
6,101

Adjusted to exclude:
 
 
 
 
 
 
 
Stock compensation
562

397

 
1,645

1,081

 
2,045

Adjusted EBITDA
30,527

33,478

 
96,441

102,260

 
128,335

Adjusted to exclude:
 
 
 
 
 
 
 
Ownership share of MNI EBITDA (50%)
(1,401
)
(1,436
)
 
(4,306
)
(4,110
)
 
(6,101
)
Add (deduct):
 
 
 
 
 
 
 
Distributions from MNI
1,000

1,000

 
4,000

3,750

 
5,000

Capital expenditures, net of insurance proceeds
(1,556
)
(2,900
)
 
(5,074
)
(7,145
)
 
(7,617
)
Pension contributions
—

(17
)
 
—

(17
)
 
(70
)
Cash income tax refunds (payments)
(1
)
(199
)
 
152

(317
)
 
203

Intercompany charges not settled in cash
(2,317
)
(2,099
)
 
(6,953
)
(6,297
)
 
(10,334
)
Other
(2,000
)
(2,000
)
 
(2,000
)
(2,000
)
 
(2,000
)
Unlevered free cash flow
24,252

25,827

 
82,260

86,124

 
107,416

Add (deduct):
 
 
 
 
 
 
 
Financial income
79

85

 
258

306

 
337

Interest expense to be settled in cash
(18,000
)
(18,834
)
 
(54,415
)
(55,397
)
 
(72,509
)
Debt financing costs paid
(296
)
(31,000
)
 
(378
)
(31,268
)
 
(689
)
Free cash flow
6,035

(23,922
)
 
27,725

(235
)
 
34,555





10


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

(Thousands of Dollars)
June 28
2015

June 29
2014

 
June 28
2015

June 29
2014

 
June 28
2015

 
 
 
 
 
 
 
 
Advertising and marketing services
30,517

34,136

 
94,586

103,983

 
125,786

Subscription
15,518

15,317

 
47,969

47,245

 
63,558

Other
1,271

1,172

 
3,929

3,506

 
5,085

Total operating revenue
47,306

50,625

 
146,484

154,734

 
194,429

Compensation
14,255

15,244

 
44,909

46,508

 
60,814

Newsprint and ink
2,034

2,674

 
6,291

8,497

 
8,704

Other operating expenses
23,745

24,886

 
73,269

75,002

 
98,623

Depreciation and amortization
3,556

3,872

 
10,607

11,777

 
16,780

Loss (gain) on sales of assets, net
759

1

 
758

21

 
761

Workforce adjustments
615

154

 
1,153

489

 
1,378

Total operating expenses
44,964

46,831

 
136,987

142,294

 
187,060

Equity in earnings of TNI
959

1,046

 
3,813

4,116

 
4,610

Operating income
3,301

4,840

 
13,310

16,556

 
11,979

Adjusted to exclude:
 
 
 
 
 
 
 
Depreciation and amortization
3,556

3,872

 
10,607

11,777

 
16,780

Loss (gain) on sales of assets, net
759

1

 
758

21

 
761

Equity in earnings of TNI
(959
)
(1,046
)
 
(3,813
)
(4,116
)
 
(4,610
)
Operating cash flow
6,657

7,667

 
20,862

24,238

 
24,910

Add:
 
 
 
 
 
 
 
Ownership share of TNI EBITDA (50%)
1,063

1,151

 
4,126

4,430

 
5,028

Adjusted EBITDA
7,720

8,818

 
24,988

28,668

 
29,938

Adjusted to exclude:
 
 
 
 
 
 
 
Ownership share of TNI EBITDA (50%)
(1,063
)
(1,151
)
 
(4,126
)
(4,430
)
 
(5,028
)
Add (deduct):
 
 
 
 
 
 
 
Distributions from TNI
1,041

1,346

 
4,113

3,904

 
5,455

Capital expenditures, net of insurance proceeds
(455
)
(409
)
 
(2,612
)
(1,059
)
 
(3,689
)
Pension contributions
(1,130
)
—

 
(1,565
)
(705
)
 
(2,295
)
Cash income tax refunds (payments)
—

6,250

 
(89
)
6,250

 
(51
)
Intercompany charges not settled in cash
2,317

2,099

 
6,953

6,297

 
10,334

Other
2,000

2,000

 
2,000

2,000

 
2,000

Unlevered free cash flow
10,430

18,953

 
29,662

40,925

 
36,664

Deduct:
 
 
 
 
 
 
 
Interest expense to be settled in cash
(121
)
(820
)
 
(899
)
(3,242
)
 
(1,496
)
Debt financing costs paid
(99
)
(8
)
 
(99
)
(8
)
 
(99
)
Free cash flow
10,210

18,125

 
28,664

37,675

 
35,069



11


REVENUE BY REGION
 
13 Weeks Ended
 
 
39 Weeks Ended
 
(Thousands of Dollars)
June 28
2015

June 29
2014

Percent Change

 
June 28
2015

June 29
2014

Percent Change

 
 
 
 
 
 
 
 
Midwest
98,512

102,194

(3.6
)
 
302,773

308,841

(2.0
)
Mountain West
31,779

33,455

(5.0
)
 
98,536

98,558

—

West
10,995

11,070

(0.7
)
 
33,478

32,875

1.8

East/Other
16,260

16,406

(0.9
)
 
54,442

54,329

0.2

Total
157,546

163,125

(3.4
)
 
489,229

494,603

(1.1
)

SELECTED BALANCE SHEET INFORMATION
(Thousands of Dollars)
 
June 28
2015

September 28
2014

Cash
 
18,904

16,704

Debt (Principal Amount):
 
 
 
Revolving Facility
 
—

5,000

1st Lien Term Loan
 
195,000

226,750

Notes
 
400,000

400,000

2nd Lien Term Loan
 
150,000

150,000

Pulitzer Notes
 
—

23,000

 

745,000

804,750


SELECTED STATISTICAL INFORMATION
 
13 Weeks Ended
 
 
39 Weeks Ended
 
 
June 28
2015

June 29
2014

Percent Change

 
June 28
2015

June 29
2014

Percent Change

 
 
 
 
 
 
 
 
Capital expenditures, net of insurance proceeds (Thousands of Dollars)
2,011

3,309

(39.2
)
 
7,686

8,204

(6.3
)
Newsprint volume (Tonnes)
12,471

14,405

(13.4
)
 
38,749

44,317

(12.6
)
Average full-time equivalent employees
4,237

4,514

(6.1
)
 
4,335

4,539

(4.5
)
Average common shares - basic (Thousands of Shares)
52,597

52,344

0.5

 
52,521

52,216

0.6

Average common shares - diluted (Thousands of Shares)
54,056

52,344

3.3

 
53,957

53,655

0.6

Shares outstanding at end of period (Thousands of Shares)
 
 
 
 
54,749

53,694

2.0



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)
The 1st Lien Term Loan is the $250 million first lien term loan and $40 million revolving facility under a First Lien Credit Agreement dated as of March 31, 2014. TNI refers to TNI Partners publishing operations in Tucson, AZ. MNI refers to Madison Newspapers, Inc. publishing operations in Madison, WI.
 
 
 
 
 
 
 
 
(4)
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