News Release Details

DAVENPORT, Iowa--(BUSINESS WIRE)--Aug. 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 1^st 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.

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.

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						June 29
		2015						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
		June 28			June 29			Percent
(Thousands of Dollars)		2015			2014			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⁾.

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.

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						June 29
		2015						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
		June 28			June 29			Percent
(Thousands of Dollars)		2015			2014			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	)

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.

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.

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

		13 Weeks Ended									39 Weeks Ended
		June 28			June 29			Percent			June 28			June 29			Percent
(Thousands of Dollars, Except Per Share Data)		2015			2014			Change			2015			2014			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

SELECTED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)

														52 Weeks
		13 Weeks Ended						39 Weeks Ended						Ended
		June 28			June 29			June 28			June 29			June 28
(Thousands of Dollars)		2015			2014			2015			2014			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

SELECTED LEE LEGACY⁽²⁾ ONLY FINANCIAL INFORMATION
(UNAUDITED)

														52 Weeks
		13 Weeks Ended						39 Weeks Ended						Ended
		June 28			June 29			June 28			June 29			June 28
(Thousands of Dollars)		2015			2014			2015			2014			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

SELECTED PULITZER⁽²⁾ ONLY FINANCIAL INFORMATION
(UNAUDITED)

														52 Weeks
		13 Weeks Ended						39 Weeks Ended						Ended
		June 28			June 29			June 28			June 29			June 28
(Thousands of Dollars)		2015			2014			2015			2014			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

REVENUE BY REGION

		13 Weeks Ended									39 Weeks Ended
		June 28			June 29			Percent			June 28			June 29			Percent
(Thousands of Dollars)		2015			2014			Change			2015			2014			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

		June 28		September 28
(Thousands of Dollars)		2015		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		June 29			Percent			June 28		June 29		Percent
		2015		2014			Change			2015		2014		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

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:
		--	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.
		--	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.
		--	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.
		--	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.
		--	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.

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Source: Lee Enterprises, Incorporated

Lee Enterprises, Incorporated
Charles Arms, 563-383-2100
Director of Communications
IR@lee.net