News Release Details

DAVENPORT, Iowa (Aug. 5, 2011) -- Lee Enterprises, Incorporated (NYSE: LEE) reported today that for its third fiscal quarter ended June 26, 2011, digital advertising sales increased 22.0 percent compared with a year ago, while same property revenue declined 4.2 percent, as previously announced. Cash costs excluding unusual matters declined 3.1 percent, and operating cash flow⁽¹⁾ decreased 13.3 percent.
 
Also as previously announced, results were reduced by non-cash charges for impairment of goodwill and other assets, related primarily to the recent decline in Lee's stock price. The charges have no impact on cash flows but reduced reported earnings, resulting in a loss of $3.46 per diluted common share for the quarter and a loss of $3.08 year to date. Excluding the impairment charges, a non-cash curtailment gain and other unusual matters, adjusted earnings per diluted common share⁽²⁾ were 21 cents for the quarter. Reported and adjusted earnings per diluted common share in the same quarter a year ago were 22 cents and 26 cents, respectively.
 

Mary Junck, chairman and chief executive officer, said: "Lee continues to move forward in the face of a still-unsettled economy that has weighed heavily on advertisers and disrupted many lives in our communities. Our print products continue to reach an overwhelming majority of people in our markets, while the popularity and array of our digital products continues to expand rapidly -- with digital advertising revenue up 22 percent this past quarter, unique visitors up 29 percent and mobile views up 220 percent. We continue to reset our cost structure through reorganization and reinvention of our business model, and we continue to pay down debt rapidly. Meanwhile, we are making good progress in discussions with our lenders toward a meaningful extension of our credit agreement. We have been gratified by their interest and support and look forward to a satisfactory outcome. In short, we believe we are building a strong foundation for the future."
 

THIRD QUARTER OPERATING RESULTS
 

Operating revenue for the quarter totaled $187.3 million, a decline of 4.6 percent on a reported basis compared with a year ago. Same property revenue, which was impacted by the sale of a small book publishing business in the March quarter, declined 4.2 percent. Combined print and digital advertising revenue decreased 5.6 percent to $133.0 million, with retail advertising down 4.9 percent, national down 4.9 percent and classified down 7.5 percent. Combined print and digital classified employment revenue increased 4.1 percent, while automotive decreased 3.4 percent, real estate decreased 19.5 percent and other classified decreased 11.1 percent. Digital advertising revenue on a stand-alone basis increased 22.0 percent to $15.7 million, representing 11.8 percent of total advertising revenue. Digital retail advertising revenue increased 37.5 percent and digital classified advertising decreased 2.8 percent.
 
Lee's digital sites attracted 21.6 million unique visitors in the month of June 2011, an increase of 29.1 percent from a year ago. Mobile page views in June increased 220 percent to 17.8 million. Circulation revenue decreased 0.4 percent.
 
Operating expenses, excluding depreciation, amortization and unusual matters, decreased 3.1 percent. Compensation declined 5.0 percent, with the average number of full-time equivalent employees down 4.8 percent. Newsprint and ink expense increased 7.4 percent, a result of higher prices partially offset by a reduction in newsprint volume of 5.7 percent. Other operating expenses decreased 3.0 percent. Despite the increased cost of newsprint, operating expenses, excluding depreciation, amortization and unusual matters, are expected to decrease 4-5 percent in the quarter ending Sept. 25, 2011. Such costs for the 2012 fiscal year are expected to decrease another 1-2 percent from the 2011 level.
 
Operating cash flow decreased 13.3 percent from a year ago to $40.2 million. Operating cash flow margin⁽¹⁾ decreased to 21.4 percent from 23.6 percent a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, the company recognized an operating loss of $171.6 million, compared with operating income of $30.1 million a year ago. Non-operating expenses, primarily interest expense and debt financing costs, increased $2.2 million, due to increased debt financing costs. Loss attributable to Lee Enterprises, Incorporated for the quarter totaled $155.5 million, compared with income of $10.0 million a year ago.
 
CURTAILMENT GAIN
 

A $4.0 million pretax non-cash curtailment gain resulted from changes during the quarter to postretirement medical and pension plans for certain retirees. In addition, changes in the plans reduced benefit liabilities by $4.0 million.
 
IMPAIRMENT CHARGES
 

Results for the quarter include an estimate of non-cash impairment charges to earnings. The charges, which are preliminarily estimated to total $199 million before income taxes, and $162 million after tax, reduce the book value of goodwill, mastheads and the value of TNI Partners. The charges have no effect on cash flows, but reduce reported earnings per common share, resulting in a loss for the quarter and year to date periods. The impairment testing is being performed in accordance with generally accepted accounting principles, which, among other factors, requires consideration of differences between current book value and the fair value of all of the company's assets, including current market capitalization.
 

Because of the complex nature of the calculations involved, final amounts have not yet been determined. Definitive amounts will be included in financial statements to be filed with the Securities and Exchange Commission in the company's Annual Report on Form 10-K for the year ending Sept. 25, 2011.
 
ADJUSTED EARNINGS AND EPS FOR THE QUARTER
 
Unusual matters affecting year-over-year comparisons include charges for impairment of goodwill and a curtailment gain  in the current quarter. The following table summarizes the impact from unusual matters on income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per diluted common share. Per share amounts may not add due to rounding.

	13 Weeks Ended
	June 26						June 27
	2011						2010
(Thousands of Dollars, Except Per Share Data)	Amount			Per Share			Amount			Per Share
Income (loss) attributable to Lee Enterprises, Incorporated, as reported	(155,517	)		(3.46	)		10,019			0.22
Adjustments:
Curtailment gain	(3,974	)					-
Impairment of goodwill and other assets, including TNI Partners	199,325						-
Debt financing costs	6,053						1,997
Other, net	2,248						399
	203,652						2,396
Income tax effect of adjustments, net, and unusual tax matters	(38,742	)					(838	)
	164,910			3.67			1,558			0.03
Income attributable to Lee Enterprises, Incorporated, as adjusted	9,393			0.21			11,577			0.26

YEAR TO DATE OPERATING RESULTS
 
Operating revenue for the nine months totaled $573.7 million, a decline of 3.1 percent compared with a year ago. Same property revenue decreased 2.9 percent. Combined print and digital advertising revenue decreased 4.0 percent to $408.8 million, with retail advertising down 3.7 percent, national down 8.5 percent and classified down 4.2 percent. Combined print and digital classified employment revenue increased 7.5 percent. Automotive increased 1.3 percent, real estate decreased 21.1 percent and other classified decreased 5.5 percent. Digital advertising revenue on a stand-alone basis increased 28.2 percent to $44.7 million, representing 10.9 percent of total advertising revenue. Digital retail advertising revenue increased 43.1 percent and digital classified advertising increased 1.0 percent. Circulation revenue was flat.
 
Operating expenses, excluding depreciation, amortization and unusual matters, decreased 2.4 percent. Compensation declined 4.5 percent, with the average number of full-time equivalent employees down 3.9 percent. Newsprint and ink expense increased 14.7 percent, a result of higher prices partially offset by a reduction in newsprint volume of 4.2 percent. Other operating expenses decreased 3.3 percent. 
 
Operating cash flow decreased 6.8 percent from a year ago to $123.7 million. Operating cash flow margin⁽¹⁾ decreased to 21.6 percent from 22.4 percent  a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, the company recognized an operating loss of $108.3 million, compared with operating income of $124.6 million a year ago. Non-operating expenses, primarily interest expense and debt financing costs, declined $6.0 million, due to lower debt balances, partially offset by higher debt financing costs. Loss attributable to Lee Enterprises, Incorporated totaled $138.0 million, compared with income of $40.9 million a year ago.
 
ADJUSTED EARNINGS AND EPS FOR YEAR TO DATE 
 

Unusual matters affecting year-over-year comparisons include charges for impairment of goodwill and other assets and curtailment gains in both years. The following table summarizes the impact from unusual matters on income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per diluted common share. Per share amounts may not add due to rounding.
 

	39 Weeks Ended
	June 26						June 27
	2011						2010
(Thousands of Dollars, Except Per Share Data)	Amount			Per Share			Amount			Per Share
Income (loss) attributable to Lee Enterprises, Incorporated, as reported	(138,048	)		(3.08	)		40,916			0.91
Adjustments:
Curtailment gains	(16,137	)					(45,012	)
Impairment of goodwill and other assets, including TNI Partners	199,325						3,290
Debt financing costs	9,913						5,964
Other, net	3,038						1,493
	196,139						(34,265	)
Income tax adjustment related to health care legislation	-						2,012
Income tax effect of adjustments, net, and other unusual tax matters	(35,331	)					16,175
	160,808			3.59			(16,078	)		(0.36	)
Income attributable to Lee Enterprises, Incorporated, as adjusted	22,760			0.51			24,838			0.55

 

DEBT AND FREE CASH FLOW⁽³⁾
 
Debt was reduced $21.5 million in the quarter and $77.3 million year to date. Debt, net of changes in cash, has been reduced $102 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⁽⁴⁾ at the end of the quarter totaled $118.6 million.
 
Free cash flow totaled $22.5 million for the quarter, compared with $32.1 million a year ago. Debt financing costs adversely impacted free cash flow in the current year quarter. Free cash flow in the last 12 months totaled $94.5 million.
 
ABOUT LEE

 

Lee Enterprises is the leading provider of local news and information, and a major platform for advertising, in the markets it serves, 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 22 million unique visitors in June 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 report 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, comply with or obtain amendments or waivers of the financial covenants contained in our credit facilities, if necessary, and to refinance our debt as it comes due. 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, availability of credit, 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 our publicly filed documents. Any statements that are not statements of historical fact (including statements containing the words "may", "will", "would", "could", "believe", "expect", "anticipate", "intend", "plan", "project", "consider" 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 report. We do not undertake to publicly update or revise our forward-looking statements.

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



 

LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

 

	13 Weeks Ended									39 Weeks Ended
(Thousands of Dollars and Shares, Except Per Share Data)	June 26 2011			June 27 2010			Percent Change			June 26 2011			June 27 2010			Percent Change
Advertising revenue:
Retail	73,678			79,886			(7.8	)		232,680			248,200			(6.3	)
Classified:
Daily newspapers:
Employment	6,026			5,775			4.3			16,883			15,674			7.7
Automotive	5,979			6,545			(8.7	)		17,671			18,830			(6.2	)
Real estate	4,599			5,754			(20.1	)		13,989			17,888			(21.8	)
All other	11,218			12,560			(10.7	)		32,429			34,250			(5.3	)
Other publications	6,450			7,267			(11.2	)		19,181			20,516			(6.5	)
Total classified	34,272			37,901			(9.6	)		100,153			107,158			(6.5	)
Digital	15,696			12,863			22.0			44,658			34,824			28.2
National	6,261			7,198			(13.0	)		22,022			26,577			(17.1	)
Niche publications	3,088			2,965			4.1			9,301			9,016			3.2
Total advertising revenue	132,995			140,813			(5.6	)		408,814			425,775			(4.0	)
Circulation	44,875			45,072			(0.4	)		135,173			135,205			-
Commercial printing	3,055			3,275			(6.7	)		8,998			8,901			1.1
Digital services and other	6,381			7,245			(11.9	)		20,714			22,106			(6.3	)
Total operating revenue	187,306			196,405			(4.6	)		573,699			591,987			(3.1	)
Operating expenses:
Compensation	74,458			78,372			(5.0	)		229,008			239,806			(4.5	)
Newsprint and ink	14,632			13,618			7.4			45,156			39,373			14.7
Other operating expenses	55,969			57,686			(3.0	)		173,114			178,954			(3.3	)
Workforce adjustments	2,086			395			NM			2,721			1,082			NM
	147,145			150,071			(1.9	)		449,999			459,215			(2.0	)
Operating cash flow	40,161			46,334			(13.3	)		123,700			132,772			(6.8	)
Depreciation	6,559			6,844			(4.2	)		20,376			21,378			(4.7	)
Amortization	11,047			11,307			(2.3	)		33,531			33,935			(1.2	)
Impairment of goodwill and other assets	187,325			-			NM			187,325			3,290			NM
Curtailment gains	3,974			-			NM			16,137			45,012			(64.1	)
Equity in earnings of associated companies	1,225			1,934			(36.7	)		5,078			5,401			(6.0	)
Reduction in investment in TNI Partners	12,000			-			NM			12,000			-			NM
Operating income (loss)	(171,571	)		30,117			NM			(108,317	)		124,582			NM

 

CONSOLIDATED STATEMENTS OF OPERATIONS, continued
	13 Weeks Ended									39 Weeks Ended
(Thousands of Dollars and Shares, Except Per Share Data)	June 26 2011			June 27 2010			Percent Change			June 26 2011			June 27 2010			Percent Change
Non-operating income (expense):
Financial income	102			63			61.9			179			262			(31.7	)
Financial expense	(13,223	)		(14,354	)		(7.9	)		(39,800	)		(49,802	)		(20.1	)
Debt financing costs	(6,053	)		(1,997	)		NM			(9,913	)		(5,964	)		66.2
Other, net	668			-			NM			(16	)		-			NM
	(18,506	)		(16,288	)		13.6			(49,550	)		(55,504	)		(10.7	)
Income (loss) before income taxes	(190,077	)		13,829			NM			(157,867	)		69,078			NM
Income tax expense (benefit)	(34,637	)		3,790			NM			(19,955	)		28,099			NM
Net income (loss)	(155,440	)		10,039			NM			(137,912	)		40,979			NM
Net income attributable to non-controlling interests	(77	)		(20	)		NM			(136	)		(63	)		NM
Income (loss) attributable to Lee Enterprises, Incorporated	(155,517	)		10,019			NM			(138,048	)		40,916			NM
Earnings (loss) per common share:
Basic	(3.46	)		0.22			NM			(3.08	)		0.92			NM
Diluted	(3.46	)		0.22			NM			(3.08	)		0.91			NM
Average common shares:
Basic	44,897			44,564						44,810			44,552
Diluted	44,897			45,041						44,810			44,859

 

FREE CASH FLOW

	13 Weeks Ended						39 Weeks Ended						52 Weeks Ended
(Thousands of Dollars)	June 26 2011			June 27 2010			June 26 2011			June 27 2010			June 26 2011
Operating income (loss)	(171,571	)		30,117			(108,317	)		124,582			(85,707	)
Depreciation and amortization	17,909			18,455			54,818			56,165			72,988
Impairment of goodwill and other assets	187,325			-			187,325			3,290			187,325
Curtailment gains	(3,974	)		-			(16,137	)		(45,012	)		(16,137	)
Reduction of investment in TNI	12,000			-			12,000			-			12,000
Stock compensation	253			424			1,024			1,572			1,429
Cash interest expense	(13,359	)		(14,509	)		(40,210	)		(50,268	)		(53,680	)
Debt financing costs paid	(4,180	)		-			(4,294	)		-			(4,847	)
Financial income	102			63			179			262			328
Cash income tax benefit (paid)	(568	)		(569	)		(7,739	)		765			(12,257	)
Non-controlling interests	(77	)		(20	)		(136	)		(63	)		(146	)
Capital expenditures	(1,400	)		(1,895	)		(3,641	)		(6,691	)		(6,784	)
Total	22,460			32,066			74,872			84,602			94,512

SELECTED COMBINED PRINT AND DIGITAL ADVERTISING REVENUE
 

	13 Weeks Ended									39 Weeks Ended
(Thousands of Dollars)	June 26 2011			June 27 2010			Percent Change			June 26 2011			June 27 2010			Percent Change
Retail	80,262			84,387			(4.9	)		250,026			259,512			(3.7	)
Classified:
Employment	9,994			9,600			4.1			27,843			25,901			7.5
Automotive	10,391			10,759			(3.4	)		31,533			31,128			1.3
Real estate	6,216			7,721			(19.5	)		18,847			23,892			(21.1	)
Other	15,753			17,712			(11.1	)		45,866			48,556			(5.5	)
Total classified	42,354			45,792			(7.5	)		124,089			129,477			(4.2	)
National	7,290			7,668			(4.9	)		25,397			27,771			(8.5	)

   
                          
REVENUE BY REGION
 

	13 Weeks Ended									39 Weeks Ended
(Thousands of Dollars)	June 26 2011			June 27 2010			Percent Change			June 26 2011			June 27 2010			Percent Change
Midwest	113,703			117,940			(3.6	)		345,906			354,208			(2.3	)
Mountain West	36,654			38,353			(4.4	)		109,422			112,695			(2.9	)
West	20,969			23,396			(10.4	)		65,117			70,787			(8.0	)
East/Other	15,980			16,716			(4.4	)		53,254			54,297			(1.9	)
Total	187,306			196,405			(4.6	)		573,699			591,987			(3.1	)

 

DAILY NEWSPAPER ADVERTISING VOLUME
 

	13 Weeks Ended									39 Weeks Ended
(Thousands of Inches)	June 26 2011			June 27 2010			Percent Change			June 26 2011			June 27 2010			Percent Change
Retail	2,601			2,587			0.6			7,858			7,827			0.4
Classified	2,787			2,917			(4.5	)		8,087			8,180			(1.1	)
National	98			109			(10.5	)		307			380			(19.2	)
Total	5,486			5,613			(2.3	)		16,252			16,387			(0.8	)

 

SELECTED BALANCE SHEET INFORMATION

(Thousands of Dollars)	June 26 2011			June 27 2010
Cash	23,924			15,177
Restricted cash and investments	4,972			9,448
Debt (Principal Amount)	1,004,260			1,102,005