News Release Details

DAVENPORT, Iowa (May 2, 2011) -- Lee Enterprises, Incorporated (NYSE: LEE) reported today that for its second fiscal quarter ended March 27, 2011, digital advertising sales increased 26.3 percent compared with a year ago, while total revenue declined 3.8 percent, within the range forecast. Cash costs decreased 2.1 percent, and operating cash flow(1) decreased 11.6 percent.
 
Earnings per diluted common share declined from 7 cents a year ago to a loss of 3cents. Excluding non-cash curtailment gains and other unusual matters in both years, adjusted earnings per diluted common share(2) declined from 1 cent a year ago to a loss of 5 cents.
 
Mary Junck, chairman and chief executive officer, said: "While the upward progress in the overall business climate cooled noticeably this past quarter, we expect year over year revenue comparisons to improve again as economic conditions in our markets also improve. We believe results for the March quarter were adversely impacted by the timing of the Easter holiday, as we have historically experienced an increase in advertising revenue in the weeks preceding that holiday."
 
SECOND QUARTER OPERATING RESULTS
 
Operating revenue for the quarter totaled $178.7 million, a decline of 3.8 percent compared with a year ago. Same property revenue, which was impacted by the sale of a small book publishing business in the quarter, declined 3.6 percent. Combined print and digital advertising revenue decreased 5.0 percent to $124.1 million, with retail advertising down 5.3 percent, national down 14.9 percent and classified down 3.1 percent. Combined print and digital classified employment revenue increased 8.4 percent. Automotive increased 3.2 percent, real estate decreased 23.4 percent and other classified decreased 3.4 percent.  Digital advertising revenue on a stand-alone basis increased 26.3 percent to $14.3 million, representing 11.5 percent of total advertising revenue. Digital retail advertising revenue increased 43.8 percent and digital classified advertising decreased 0.7 percent.
 
Lee's digital sites attracted 25.0 million unique visitors in the month of March 2011, an increase of 54.1 percent from a year ago. Mobile page views in March increased 253 percent to 16.0 million. Circulation revenue decreased 0.4 percent.
 
Operating expenses, excluding depreciation and amortization, decreased 2.1 percent. Compensation declined 3.5 percent, with the average number of full-time equivalent employees down 3.8 percent. Newsprint and ink expense increased 13.7 percent, a result of higher prices partially offset by a reduction in newsprint volume of 4.1 percent. Other operating expenses decreased 3.9 percent. Despite the increased cost of newsprint, operating expenses, excluding depreciation, amortization and unusual matters, are expected to decrease approximately 2 percent in 2011, which is improved from previous forecasts.
 
Operating cash flow decreased 11.6 percent from a year ago to $29.4 million. Operating cash flow margin(1) decreased to 16.5 percent from 17.9 percent a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income totaled $14.1 million, compared with $26.7 million a year ago, due primarily to a smaller curtailment gain in the current year quarter. Operating income margin was 7.9 percent in the current year quarter. Non-operating expenses, primarily interest expense and debt financing costs, declined $2.2 million, due to lower debt balances. Loss attributable to Lee Enterprises, Incorporated for the quarter totaled $1.5 million, compared with income of $3.0 million a year ago.
 
CURTAILMENT GAIN
 
A $2.0 million pretax non-cash curtailment gain resulted from changes during the quarter to postretirement medical plans for certain retirees. In addition, the plan changes reduced benefit liabilities by $3.0 million.
 
ADJUSTED EARNINGS AND EPS FOR THE QUARTER
 
Unusual matters affecting year-over-year comparisons consist primarily of curtailment gains in both years. 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 27						March 28
	2011						2010
(Thousands of Dollars, Except Per Share Data)	Amount			Per Share			Amount			Per Share
Income (loss) attributable to Lee Enterprises, Incorporated, as reported	(1,472	)		(0.03	)		2,991			0.07
Adjustments(3):
Curtailment gains	(1,991	)					(13,882	)
Impairment of goodwill and other assets, including TNI Partners	-						3,290
Other, net	477						306
	(1,514	)					(10,286	)
Income tax effect of adjustments, net, and other unusual tax matters	845						7,925
	(669	)		(0.01	)		(2,361	)		(0.05	)
Income (loss) attributable to Lee Enterprises, Incorporated, as adjusted(3)	(2,141	)		(0.05	)		630			0.01

 

YEAR TO DATE OPERATING RESULTS
 
Operating revenue for the six months totaled $386.4 million, a decline of 2.3 percent compared with a year ago. Same property revenue decreased 2.2 percent. Combined print and digital advertising revenue decreased 3.2 percent to $275.8 million, with retail advertising down 3.1 percent, national down 9.9 percent and classified down 2.3 percent. Combined print and digital classified employment revenue increased 9.5 percent. Automotive increased 3.8 percent, real estate decreased 21.9 percent and other classified decreased 2.4 percent. Digital advertising revenue on a stand-alone basis increased 31.9 percent to $29.0 million, representing 10.5 percent of total advertising revenue. Digital retail advertising revenue increased 46.4 percent and digital classified advertising increased 3.1 percent. Circulation revenue increased 0.2 percent.
 
Operating expenses, excluding depreciation and amortization, decreased 2.0 percent. Compensation declined 4.3 percent, with the average number of full-time equivalent employees down 3.5 percent. Newsprint and ink expense increased 18.5 percent, a result of higher prices partially offset by a reduction in newsprint volume of 3.4 percent. Other operating expenses decreased 3.4 percent.  
 
Operating cash flow decreased 3.4 percent from a year ago to $83.5 million. Operating cash flow margin(1) decreased to 21.6 percent from 21.9 percent  a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income totaled $63.3 million, compared with $94.5 million a year ago, due to a smaller curtailment gain in the current year. Operating income margin was 16.4 percent in the current year. Non-operating expenses, primarily interest expense and debt financing costs, declined $8.2 million, due to lower debt balances. Income attributable to Lee Enterprises, Incorporated totaled $17.5 million, compared with $30.9 million a year ago.
 
ADJUSTED EARNINGS AND EPS FOR YEAR TO DATE  
 
Unusual matters affecting year-over-year comparisons consist primarily of curtailment gains in both years. 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 27						March 28
	2011						2010
(Thousands of Dollars, Except Per Share Data)	Amount			Per Share			Amount			Per Share
Income attributable to Lee Enterprises, Incorporated, as reported	17,471			0.39			30,897			0.69
Adjustments(3):
Curtailment gains	(12,163	)					(45,012	)
Impairment of goodwill and other assets, including TNI Partners	-						3,290
Other, net	791						1,095
	(11,372	)					(40,627	)
Income tax effect of adjustments, net, and other unusual tax matters	4,762						20,413
	(6,610	)		(0.15	)		(20,214	)		(0.45	)
Income attributable to Lee Enterprises, Incorporated, as adjusted(3)	10,861			0.24			10,683			0.24

 

DEBT AND FREE CASH FLOW(4)
 
Debt was reduced $26.2 million in the quarter and $55.8 million year to date. Debt, net of changes in cash, has been reduced $108.9 million in the last 12 months.
 
Carl Schmidt, vice president, chief financial officer and treasurer, said Lee remains in compliance with financial covenants and expects to continue repaying debt primarily with ongoing cash flow. Liquidity(5) at the end of the quarter totaled $116.7 million, which is an increase of $12.9 million from December 2010 and compares to $96.0 million of debt repayments due in the next four quarters.
 
Free cash flow totaled $11.3 million for the quarter, a 36.5 percent decrease from $17.8 million a year ago. The timing of income tax payments adversely impacted free cash flow in the current year quarter. Free cash flow in the last 12 months totaled $104.1 million.
 
ABOUT LEE

 

Lee Enterprises is the leading provider of local news and information, and a major platform for advertising, in the markets we serve, with 49 daily newspapers and a joint interest in four others, rapidly growing digital products and nearly 300 specialty publications in 23 states. Lee's newspapers have circulation of 1.4 million daily and 1.7 million Sunday, reaching nearly four million readers in print alone. Lee's digital sites attracted 25 million unique visitors in March 2011. Lee's markets include St. Louis, Mo.; Lincoln, Neb.; Madison, Wis.; Davenport, Iowa; Billings, Mont.; Bloomington, Ill.; and Tucson, Ariz. 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 news release contains information that may be deemed forward-looking that is based largely on Lee Enterprises, Incorporated's current expectations, and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and other uncertainties, which in some instances are beyond its control, are the Company's ability to generate cash flows and maintain liquidity sufficient to service its debt, and comply with or obtain amendments or waivers of the financial covenants contained in its credit facilities, if necessary. Other risks and uncertainties include the impact and duration of continuing adverse economic conditions, changes in advertising demand, potential changes in newsprint and other commodity prices, energy costs, interest rates and the availability of credit due to instability in the credit markets, labor costs, legislative and regulatory rulings, difficulties in achieving planned expense reductions, maintaining employee and customer relationships, increased capital costs, competition and other risks detailed from time to time in the Company's publicly filed documents, including the Company Annual Report on Form 10-K for the year ended September 26, 2010. 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. The Company does not undertake to publicly update or revise its forward-looking statements.

 

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

LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 

	13 Weeks Ended									26 Weeks Ended
(Thousands of Dollars and Shares, Except Per Share Data)	March 27 2011			March 28 2010			Percent Change			March 27 2011			March 28 2010			Percent Change
Advertising revenue:
Retail	67,512			73,536			(8.2	)		159,003			168,315			(5.5	)
Classified:
Daily newspapers:
Employment	5,613			5,110			9.9			10,857			9,899			9.7
Automotive	5,735			5,879			(2.5	)		11,692			12,284			(4.8	)
Real estate	4,394			5,764			(23.8	)		9,390			12,135			(22.6	)
All other	10,120			10,512			(3.7	)		21,209			21,691			(2.2	)
Other publications	6,331			6,649			(4.8	)		12,732			13,248			(3.9	)
Total classified	32,193			33,914			(5.1	)		65,880			69,257			(4.9	)
Digital	14,288			11,314			26.3			28,963			21,963			31.9
National	6,758			8,734			(22.6	)		15,761			19,379			(18.7	)
Niche publications	3,302			3,065			7.7			6,214			6,051			2.7
Total advertising revenue	124,053			130,563			(5.0	)		275,821			284,965			(3.2	)
Circulation	44,821			45,018			(0.4	)		90,298			90,133			0.2
Commercial printing	2,891			2,696			7.2			5,943			5,627			5.6
Digital services and other	6,961			7,467			(6.8	)		14,331			14,857			(3.5	)
Total operating revenue	178,726			185,744			(3.8	)		386,393			395,582			(2.3	)
Operating expenses:
Compensation	76,529			79,298			(3.5	)		154,549			161,433			(4.3	)
Newsprint and ink	14,849			13,061			13.7			30,523			25,754			18.5
Other operating expenses	57,476			59,793			(3.9	)		117,144			121,270			(3.4	)
Workforce adjustments	443			290			52.8			635			687			(7.6	)
	149,297			152,442			(2.1	)		302,851			309,144			(2.0	)
Operating cash flow	29,429			33,302			(11.6	)		83,542			86,438			(3.4	)
Depreciation	7,293			7,172			1.7			13,816			14,535			(4.9	)
Amortization	11,201			11,307			(0.9	)		22,484			22,627			(0.6	)
Impairment of goodwill and other assets	-			3,290			NM			-			3,290			NM
Curtailment gains	1,991			13,882			(85.7	)		12,163			45,012			(73.0	)
Equity in earnings of associated companies	1,148			1,277			(10.1	)		3,852			3,466			11.1
Operating income	14,074			26,692			(47.3	)		63,257			94,464			(33.0	)

 

CONSOLIDATED STATEMENTS OF OPERATIONS, continued
	13 Weeks Ended									26 Weeks Ended
(Thousands of Dollars and Shares, Except Per Share Data)	March 27 2011			March 28 2010			Percent Change			March 27 2011			March 28 2010			Percent Change
Non-operating income (expense):
Financial income	18			146			(87.7	)		77			199			(61.3	)
Financial expense	(13,140	)		(15,643	)		(16.0	)		(26,578	)		(35,448	)		(25.0	)
Debt financing costs	(1,895	)		(1,972	)		(3.9	)		(3,861	)		(3,967	)		(2.7	)
Other, net	(231	)		-			NM			(684	)		-			NM
	(15,248	)		(17,469	)		(12.7	)		(31,046	)		(39,216	)		(20.8	)
Income (loss) before income taxes	(1,174	)		9,223			NM			32,211			55,248			(41.7	)
Income tax expense	275			6,241			(95.6	)		14,682			24,309			(39.6	)
Net income (loss)	(1,449	)		2,982			NM			17,529			30,939			(43.3	)
Net (income) loss attributable to non-controlling interests	(23	)		9			NM			(58	)		(42	)		38.1
Income (loss) attributable to Lee Enterprises, Incorporated	(1,472	)		2,991			NM			17,471			30,897			(43.5	)
Earnings per common share:
Basic	(0.03	)		0.07			NM			0.39			0.69			(43.5	)
Diluted	(0.03	)		0.07			NM			0.39			0.69			(43.5	)
Average common shares:
Basic	44,855			44,563						44,766			44,547
Diluted	44,855			44,957						44,768			44,860

 

FREE CASH FLOW
	13 Weeks Ended						26 Weeks Ended						52 Weeks Ended
(Thousands of Dollars)	March 27 2011			March 28 2010			March 27 2011			March 28 2010			March 27 2011
Operating income	14,074			26,692			63,257			94,464			115,985
Depreciation and amortization	18,798			18,782			36,907			37,710			73,532
Impairment of goodwill and other assets	-			3,290			-			3,290			-
Curtailment gains	(1,991	)		(13,882	)		(12,163	)		(45,012	)		(12,163	)
Stock compensation	253			462			771			1,147			1,601
Cash interest expense	(13,277	)		(15,799	)		(26,851	)		(35,759	)		(54,830	)
Debt financing costs paid	(22	)		-			(115	)		-			(668	)
Financial income	18			146			77			199			289
Cash income tax benefit (paid)	(5,376	)		63			(7,171	)		1,334			(12,258	)
Non-controlling interests	(23	)		9			(58	)		(42	)		(89	)
Capital expenditures	(1,132	)		(1,928	)		(2,238	)		(4,796	)		(7,276	)
Total	11,322			17,835			52,416			52,535			104,123

SELECTED COMBINED PRINT AND DIGITAL ADVERTISING REVENUE

	13 Weeks Ended									26 Weeks Ended
(Thousands of Dollars)	March 27 2011			March 28 2010			Percent Change			March 27 2011			March 28 2010			Percent Change
Retail	72,918			77,013			(5.3	)		169,764			175,125			(3.1	)
Classified:
Employment	9,203			8,493			8.4			17,849			16,301			9.5
Automotive	10,326			10,002			3.2			21,142			20,369			3.8
Real estate	5,909			7,717			(23.4	)		12,631			16,171			(21.9	)
Other	14,588			15,097			(3.4	)		30,113			30,844			(2.4	)
Total classified	40,026			41,309			(3.1	)		81,735			83,685			(2.3	)
National	7,807			9,174			(14.9	)		18,107			20,103			(9.9	)

                             
REVENUE BY REGION

	13 Weeks Ended									26 Weeks Ended
(Thousands of Dollars)	March 27 2011			March 28 2010			Percent Change			March 27 2011			March 28 2010			Percent Change
Midwest	106,274			109,892			(3.3	)		232,205			236,268			(1.7	)
Mountain West	33,723			34,630			(2.6	)		72,767			74,340			(2.1	)
West	20,349			22,440			(9.3	)		44,149			47,392			(6.8	)
East/Other	18,380			18,782			(2.1	)		37,272			37,582			(0.8	)
Total	178,726			185,744			(3.8	)		386,393			395,582			(2.3	)

 

DAILY NEWSPAPER ADVERTISING VOLUME

	13 Weeks Ended									26 Weeks Ended
(Thousands of Inches)	March 27 2011			March 28 2010			Percent Change			March 27 2011			March 28 2010			Percent Change
Retail	2,336			2,380			(1.8	)		5,257			5,240			0.3
Classified	2,607			2,555			2.1			5,301			5,263			0.7
National	93			119			(22.3	)		209			271			(22.8	)
Total	5,036			5,054			(0.3	)		10,766			10,774			(0.1	)

 

SELECTED BALANCE SHEET INFORMATION

(Thousands of Dollars)	March 27 2011			March 28 2010
Cash	24,897			20,020
Restricted cash and investments	5,101			9,373
Debt (Principal Amount)	1,025,760			1,134,031

SELECTED STATISTICAL INFORMATION

	13 Weeks Ended									26 Weeks Ended
	March 27 2011			March 28 2010			Percent Change			March 27 2011			March 28 2010			Percent Change
Capital expenditures      (Thousands of Dollars)	1,132			1,928			(41.3	)		2,238			4,796			(53.3	)
Newsprint volume (Tonnes)	21,210			22,120			(4.1	)		44,011			45,574			(3.4	)
Average full-time equivalent employees	5,913			6,149			(3.8	)		6,006			6,224			(3.5	)

 

NOTES:

(1)	Operating cash flow, which is defined as operating income before depreciation, amortization, impairment charges, curtailment gains, and equity in earnings of associated companies, and operating cash flow margin (operating cash flow divided by operating revenue) are non-GAAP (Generally Accepted Accounting Principles) financial measures. Reconciliations of operating cash flow to operating income, the most directly comparable GAAP measure, are included in a table accompanying this release.
	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.
(2)	Adjusted net income (loss) and adjusted earnings (loss) per common share, which 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, are non-GAAP financial measures. See (1) above. Reconciliations of adjusted net income (loss) and adjusted earnings (loss) per common share to income (loss) attributable to Lee Enterprises, Incorporated, and earnings (loss) per common share are included in tables accompanying this release.
(3)	In 2010 and 2009, adjusted earnings and adjusted earnings per common share included adjustments to remove debt financing costs, due to significant debt financing costs charged to expense in 2009.  2011 and 2010 debt financing costs do not contain any unusual comparative differences.  Accordingly, this adjustment has been removed.  As a result, 2010 adjusted earnings and adjusted earnings per common share will differ from amounts previously reported.
(4)	Free cash flow, which is defined as operating income, plus depreciation and amortization, impairment charges, stock compensation, financial income and cash income tax benefit, minus curtailment gains, financial expense (exclusive of non-cash amortization and accretion), cash income taxes, capital expenditures and minority interest, is a non-GAAP financial measure. See (1) above. Reconciliations of free cash flow to operating income, the most directly comparable GAAP measure, are included in a table accompanying this release. Changes in working capital are excluded.
(5)	Liquidity is defined as the sum of cash, restricted cash and revolving credit facility availability.
(6)	Certain amounts as previously reported have been reclassified to conform with the current period presentation. The prior period has been adjusted for comparative purposes, and the reclassifications have no impact on earnings.