News Column

Lee Enterprises Reports Results for Third Fiscal Quarter

August 7, 2014

DAVENPORT, Iowa--(BUSINESS WIRE)-- Lee Enterprises, Incorporated (NYSE:LEE), a major provider of local news, information and advertising in 50 markets, today reported a preliminary(1) loss of 19 cents per diluted common share for its third fiscal quarter ended June 29, 2014, compared with earnings of 3 cents a year ago. Excluding unusual matters, adjusted earnings per diluted common share(2) totaled 11 cents, compared with earnings of 6 cents a year ago.

Mary Junck, chairman and chief executive officer, said: "Total digital revenue in the third quarter continued its impressive growth, increasing over 17%, thanks to 13% digital advertising growth and the launch of our full-access subscription model. Our optimism about the full access subscription model is growing as we have now launched in fourteen, primarily larger markets, with the early results promising. We plan to continue the roll out to the majority of our markets by the end of the fiscal year and while the third quarter results are impacted by our debt refinancing costs, our enterprises continue to drive strong cash flows."

She also noted:

  • Revenue trends improved again this quarter, with total revenue down 2.3% from the same quarter a year ago;
  • Mobile advertising revenue increased 25.1%, to $1.9 million;
  • Digital audiences continued to grow at a double digit clip with 211.4 million mobile, tablet, desktop and app page views and 23.1 million unique visitors in the month of June 2014;
  • We are on track to achieve our 3.0-3.5% cash cost(2) reduction target for 2014; and
  • Since our March 31, 2014 refinancing and prior to the end of the third quarter, we have repaid $30.0 million of debt, bringing the balance largely in line with where it was before the refinancing was completed.

    THIRD QUARTER OPERATING RESULTS

    Operating revenue for the 13 weeks ended June 29, 2014 totaled $163.1 million, a decrease of 2.3% compared with a year ago. Excluding the impact of a subscription-related expense reclassification as a result of moving to fee-for-service delivery contracts at several of our newspapers, operating revenue decreased 3.4%. This reclassification will increase both print subscription revenue and operating expenses, with no impact on operating cash flow(2) or operating income. A table later in this release details the impact of the reclassification on revenue and cash costs.

    Combined print and digital advertising and marketing services revenue decreased 3.2% to $110.3 million, an improvement from recent trends, with retail advertising down 3.1%, classified down 4.6% and national up 5.6%. Retail preprint advertising decreased 1.3%. Combined print and digital classified employment revenue increased 5.1%, while automotive decreased 14.0%, real estate decreased 6.1% and other classified decreased 4.5%. Digital advertising and marketing services revenue on a stand-alone basis increased 13.0% to $19.5 million and now totals 17.7% of total advertising and marketing services revenue. Print advertising and marketing services revenue on a stand-alone basis decreased 6.1%.

    Subscription revenue decreased 0.6%. Excluding the impact of the subscription-related expense reclassification, subscription revenue decreased 4.8%.

    Total digital revenue, including advertising, marketing services, subscriptions and digital businesses, totaled $23.4 million in the quarter, up 17.4%.

    Cash costs decreased 2.7% for the 13 weeks ended June 29, 2014. Compensation decreased 3.2%, with the average number of full-time equivalent employees down 3.5%. Newsprint and ink expense decreased 11.9%, primarily a result of a reduction in newsprint volume of 11.9%. Other operating expenses increased 0.7%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 4.1%.

    Operating cash flowdecreased 1.2% from a year ago to $39.3 million. Operating cash flow margin(2) increased to 24.1%, compared to 23.8% a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income increased 6.2% to $28.6 million in the current year quarter, compared with $26.9 million a year ago. Operating income margin increased to 17.5% up from 16.1% a year ago.

    Non-operating expenses increased 97.2% for the 13 weeks ended June 29, 2014. We charged $21.7 million of debt financing costs to expense and also recorded a $2.3 million loss related to a litigation settlement in the current year quarter. Interest expense decreased by 10.6% due to lower debt balances and the refinancing of the Pulitzer Notes in May 2013. Loss attributable to Lee Enterprises, Incorporated for the quarter totaled $9.7 million, compared with income of $1.8 million a year ago.

    ADJUSTED EARNINGS AND EPS FOR THE 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 29   June 30
        2014     2013

    (Thousands of Dollars, Except Per Share Data)

      Amount     Per Share     Amount     Per Share
     
    Income (loss) attributable to Lee Enterprises, Incorporated, as reported (9,746 )   (0.19 ) 1,795   0.03
    Adjustments:
    Impairment of intangible and other assets 336
    Litigation settlement 2,300
    Debt financing and reorganization costs 21,732 468
    Amortization of debt present value adjustment 1,216
    Other, net   (153 )         544      
    24,215 2,228
    Income tax effect of adjustments, net   (8,472 )         (763 )    
        15,743     0.30     1,465     0.03
    Income attributable to Lee Enterprises, Incorporated, as adjusted   5,997     0.11     3,260     0.06
     


    FULL-ACCESS SUBSCRIPTION INITIATIVE

    As previously reported, we launched our full-access subscription initiative in April. As of today, fourteen markets have been launched and we are on track to launch the majority of our markets before the end of our fiscal year. Early results are promising, with more than 20% of print subscribers activating their digital subscriptions in several of the early launch markets. And, thanks, in part, to a major customer service initiative, subscriber losses have been lower than expected. Digital subscription revenue increased 116.0% in the quarter, largely due to full-access. Also as previously reported, due to the timing of the rollout and subscriber renewal dates, we expect the bulk of the revenue from this initiative to be realized in 2015.

    YEAR-TO-DATE OPERATING RESULTS(3)

    Operating revenue for the 39 weeks ended June 29, 2014, totaled $494.6 million, a decrease of 3.5% compared with the 39 weeks ended June 30, 2013. Excluding the impact of the subscription-related expense reclassification, operating revenue decreased 3.9%.

    Combined print and digital advertising and marketing services revenue decreased 4.2% to $335.4 million, retail advertising decreased 3.1%, classified decreased 8.1% and national increased 3.0%. Combined print and digital classified employment revenue decreased 2.5%, while automotive decreased 14.4%, real estate decreased 5.9% and other classified decreased 8.3%. Digital advertising and marketing services revenue on a stand-alone basis increased 11.0% to $55.5 million. Mobile advertising revenue increased 23.6%, to $5.1 million.

    Print advertising and marketing services revenue on a stand-alone basis decreased 6.8%.

    Subscription revenue decreased 2.1%. Excluding the impact of the subscription-related expense reclassification, subscription revenue decreased 3.8%.

    Total digital revenue totaled $65.5 million year to date, up 14.5% compared with a year ago.

    Cash costs for the 39 weeks ended June 29, 2014 decreased 4.0% compared to the same period a year ago. Compensation decreased 5.7%, with the average number of full-time equivalent employees down 5.2%. Newsprint and ink expense decreased 12.7%, a result of a reduction in newsprint volume of 11.8%. Other operating expenses increased 0.5%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 4.6%.

    Operating cash flow decreased 1.6% from a year ago to $121.3 million. Operating cash flow margin increased to 24.5% from 24.1% a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income increased 8.7% to $92.5 million in the 39 weeks ended June 29, 2014, compared with $85.1 million a year ago.

    Non-operating expenses increased 37.5%, as we charged $21.9 million of debt financing costs to expense in the current year period. These costs were partially offset by a 10.8% decrease in interest expense in the current year due to lower debt balances and the refinancing of the Pulitzer Notes in May 2013. We recorded a $6.9 million gain on sale of an investment in the prior year period. Income attributable to Lee Enterprises, Incorporated totaled $3.6 million, compared to $10.4 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 29     June 30
        2014     2013
    (Thousands of Dollars, Except Per Share Data)   Amount     Per Share     Amount     Per Share
     
    Income attributable to Lee Enterprises, Incorporated, as reported 3,632   0.07 10,372   0.20
    Adjustments:
    Impairment of intangible and other assets 336
    Gain on sale of investment, net (6,909 )
    Litigation settlement 2,300
    Debt financing and reorganization costs 21,935 557
    Amortization of debt present value adjustment 2,394 3,932
    Other, net   424           2,170      
    27,389 (250 )
    Income tax effect of adjustments, net   (9,551 )         102      
    17,838 0.33 (148 )
    Unusual matters related to discontinued operations           1,014     0.02
    Income attributable to Lee Enterprises, Incorporated, as adjusted   21,470     0.40     11,238     0.22
     


    Certain results, excluding the impact of the subscription-related expense reclassification, are as follows:

                 
        13 Weeks Ended     39 Weeks Ended  
      June 29   June 30    

    Percent

      June 29   June 30    

    Percent

    (Thousands of Dollars)

      2014     2013    

    Change

        2014     2013    

    Change

     
     
    Subscription revenue, as reported 43,339 43,583 (0.6 ) 130,744 133,609 (2.1 )
    Adjustment for subscription-related expense reclassification   (1,842 )       NM     (2,242 )       NM  
    Subscription revenue, as adjusted   41,497     43,583     (4.8 )   128,502     133,609     (3.8 )
     
    Total operating revenue, as reported 163,125 167,019 (2.3 ) 494,603 512,277 (3.5 )
    Adjustment for subscription-related expense reclassification   (1,842 )       NM     (2,242 )       NM  
    Total operating revenue, as adjusted   161,283     167,019     (3.4 )   492,361     512,277     (3.9 )
     
    Total cash costs, as reported 123,813 127,217 (2.7 ) 373,296 389,051 (4.0 )
    Adjustment for subscription-related expense reclassification   (1,842 )       NM     (2,242 )       NM  
    Total cash costs, as adjusted   121,971     127,217     (4.1 )   371,054     389,051     (4.6 )
     


    DEBT AND FREE CASH FLOW(2)

    The principal amount of debt totaled $815.0 million at June 29, 2014. As previously announced, on March 31, 2014, subsequent to the end of the March quarter, we completed a comprehensive refinancing of our long-term debt and incurred an additional $32.0 million of debt in order to pay related debt refinancing costs. Debt payments since the refinancing totaled $30.0 million in the quarter, resulting in a $2.0 million increase in debt in the June quarter. Debt has been reduced $58.5 million in the last twelve months. We expect debt principal payments to fluctuate more in the future due to the semi-annual timing of Senior Notes interest payments in March and September.

    Unlevered free cash flow increased 25.5%, due primarily to the timing of an income tax refund in the current year quarter and pension contributions in the prior year quarter. Free cash flow was negative $5.8 million for the quarter due to $31.0 million of debt refinancing costs paid, compared with free cash flow of $14.4 million a year ago. In the last twelve months, free cash flow totaled $64.8 million.

    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 lee.net and will be available for replay two hours later. The call also may be monitored on a listen-only conference line by dialing (toll free) 877-407-0613 and entering a conference passcode of 13581947 at least five minutes before the scheduled start.

    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 1.2 million daily and 1.5 million Sunday, reaching nearly four million readers in print alone. Lee's websites and mobile and tablet products attracted 23.1 million unique visitors in June 2014. 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 or obtain amendments or waivers of the financial covenants contained in our credit facilities, if necessary;
  • 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 29   June 30   Percent   June 29   June 30     Percent

    (Thousands of Dollars and Shares, Except Per Share Data)

      2014   2013     Change     2014     2013     Change  
     
    Advertising and marketing services
    Retail 69,507 71,718 (3.1 ) 216,591 223,438 (3.1 )
    Classified:
    Employment 9,277 8,824 5.1 24,546 25,165 (2.5 )
    Automotive 7,266 8,452 (14.0 ) 22,309 26,074 (14.4 )
    Real estate 4,569 4,864 (6.1 ) 13,113 13,941 (5.9 )
    All other   11,926   12,491     (4.5 )   32,683     35,634     (8.3 )
    Total classified 33,038 34,631 (4.6 ) 92,651 100,814 (8.1 )
    National 5,268 4,988 5.6 18,879 18,327 3.0
    Niche publications and other   2,471   2,607     (5.2 )   7,273     7,646     (4.9 )
    Total advertising and marketing services revenue   110,284   113,944     (3.2 )   335,394     350,225     (4.2 )
    Subscription 43,339 43,583 (0.6 ) 130,744 133,609 (2.1 )
    Commercial printing 3,147 3,258 (3.4 ) 9,170 9,681 (5.3 )
    Digital services and other   6,355   6,234     1.9     19,295     18,762     2.8  
    Total operating revenue   163,125   167,019     (2.3 )   494,603     512,277     (3.5 )
    Operating expenses:
    Compensation 60,330 62,340 (3.2 ) 181,543 192,505 (5.7 )
    Newsprint and ink 9,224 10,471 (11.9 ) 29,120 33,357 (12.7 )
    Other operating expenses 53,840 53,461 0.7 161,708 160,929 0.5
    Workforce adjustments   419   945     (55.7 )   925     2,260     (59.1 )
    Cash costs   123,813   127,217     (2.7 )   373,296     389,051     (4.0 )
    Operating cash flow 39,312 39,802 (1.2 ) 121,307 123,226 (1.6 )
    Depreciation 5,293 5,327 (0.6 ) 15,700 16,123 (2.6 )
    Amortization 6,901 9,542 (27.7 ) 20,710 28,635 (27.7 )
    Loss (gain) on sales of assets, net 9 (112 ) NM (1,622 ) 23 NM
    Impairment of intangible and other assets 336 NM 336 NM
    Equity in earnings of associated companies   1,836   1,893     (3.0 )   6,348     6,671     (4.8 )
    Operating income   28,609   26,938     6.2     92,531     85,116     8.7  
     
    CONSOLIDATED STATEMENTS OF OPERATIONS, continued
                                         
        13 Weeks Ended     39 Weeks Ended  
      June 29   June 30   Percent   June 29   June 30   Percent
    (Thousands of Dollars and Shares, Except Per Share Data)   2014     2013     Change     2014     2013     Change  
     
    Non-operating income (expense):
    Financial income 85 134 (36.6 ) 306 219 39.7
    Interest expense (19,654 ) (21,991 ) (10.6 ) (61,033 ) (68,390 ) (10.8 )
    Debt financing costs (21,732 ) (468 ) NM (21,935 ) (557 ) NM
    Other, net   (1,701 )   520     NM     (1,579 )   7,466     NM  
        (43,002 )   (21,805 )   97.2     (84,241 )   (61,262 )   37.5  
    Income (loss) before income taxes (14,393 ) 5,133 NM 8,290 23,854 (65.2 )
    Income tax expense (benefit)   (4,882 )   3,165     NM     3,995     11,805     (66.2 )
    Income (loss) from continuing operations (9,511 ) 1,968 NM 4,295 12,049 (64.4 )
    Discontinued operations, net of income taxes           NM         (1,247 )   NM  
    Net income (loss) (9,511 ) 1,968 NM 4,295 10,802 (60.2 )
    Net income attributable to non-controlling interests   (235 )   (173 )   35.8     (663 )   (430 )   54.2  
    Income (loss) attributable to Lee Enterprises, Incorporated   (9,746 )   1,795     NM     3,632     10,372     (65.0 )
     
    Income (loss) from continuing operations attributable to Lee Enterprises, Incorporated   (9,746 )   1,795     NM     3,632     11,619     (68.7 )
     
    Earnings (loss) per common share:
    Basic:
    Continuing operations (0.19 ) 0.03 NM 0.07 0.22 (68.2 )
    Discontinued operations           NM         (0.02 )   NM  
        (0.19 )   0.03     NM     0.07     0.20     (65.0 )
     
    Diluted:
    Continuing operations (0.19 ) 0.03 NM 0.07 0.22 (68.2 )
    Discontinued operations           NM         (0.02 )   NM  
        (0.19 )   0.03     NM     0.07     0.20     (65.0 )
     
    Average common shares:
    Basic 52,344 51,825 52,215 51,805
    Diluted   52,344     52,038           53,655     51,912        
     

    SELECTED CONSOLIDATED FINANCIAL INFORMATION

    (UNAUDITED)

       
          52 Weeks
        13 Weeks Ended     39 Weeks Ended     Ended  
    June 29   June 30June 29   June 30June 29

    (Thousands of Dollars)

      2014     2013     2014     2013     2014  
     
    Advertising and marketing services 110,284 113,944 335,394 350,225 445,709
    Subscription 43,339 43,583 130,744 133,609 174,192
    Other   9,502     9,492     28,465     28,443     37,165  
    Total operating revenue   163,125     167,019     494,603     512,277     657,066  
    Compensation 60,330 62,340 181,543 192,505 243,870
    Newsprint and ink 9,224 10,471 29,120 33,357 39,244
    Other operating expenses 53,840 53,461 161,708 160,929 213,800
    Depreciation and amortization 12,194 14,869 36,410 44,758 47,180
    Loss (gain) on sales of assets, net 9 (112 ) (1,622 ) 23 (1,535 )
    Impairment of goodwill and other assets 336 336 171,430
    Workforce adjustments   419     945     925     2,260     1,344  
    Total operating expenses 136,352 141,974 408,420 433,832 715,333
    Equity in earnings of associated companies   1,836     1,893     6,348     6,671     8,362  
    Operating income (loss) 28,609 26,938 92,531 85,116 (49,905 )
    Adjusted to exclude:
    Depreciation and amortization 12,194 14,869 36,410 44,758 47,180
    Loss (gain) on sales of assets, net 9 (112 ) (1,622 ) 23 (1,535 )
    Impairment of intangible and other assets 336 336 171,430
    Equity in earnings of associated companies   (1,836 )   (1,893 )   (6,348 )   (6,671 )   (8,362 )
    Operating cash flow 39,312 39,802 121,307 123,226 158,808
    Add:
    Ownership share of TNI and MNI EBITDA (50%) 2,587 2,770 8,540 9,310 11,009
    Adjusted to exclude:
    Stock compensation   397     377     1,081     1,109     1,233  
    Adjusted EBITDA(2) 42,296 42,949 130,928 133,645 171,050
    Adjusted to exclude:
    Ownership share of TNI and MNI EBITDA (50%) (2,587 ) (2,770 ) (8,540 ) (9,310 ) (11,009 )
    Add (deduct):
    Distributions from TNI and MNI 2,346 3,394 7,654 8,179 10,873
    Capital expenditures (3,309 ) (2,136 ) (8,204 ) (6,835 ) (11,109 )
    Pension contributions (17 ) (5,741 ) (722 ) (6,016 ) (722 )
    Cash income tax refunds (payments)   6,051     (27 )   5,933     (360 )   15,419  
    Unlevered free cash flow (2) 44,780 35,669 127,049 119,303 174,502
    Add (deduct):
    Financial income 85 134 306 219 387
    Interest expense settled in cash (19,654 ) (20,775 ) (58,639 ) (64,141 ) (78,510 )
    Debt financing costs paid   (31,008 )   (666 )   (31,276 )   (766 )   (31,581 )
    Free cash flow (deficit)   (5,797 )   14,362     37,440     54,615     64,798  
     

    SELECTED LEE LEGACY(2) ONLY FINANCIAL INFORMATION

    (UNAUDITED)

               
          52 Weeks
        13 Weeks Ended     39 Weeks Ended     Ended  
    June 29   June 30June 29   June 30June 29

    (Thousands of Dollars)

      2014     2013     2014     2013     2014  
     
    Advertising and marketing services 76,148 78,266 231,411 240,241 308,331
    Subscription 28,022 27,092 83,499 83,028 110,807
    Other   8,330     7,774     24,959     23,446     32,591  
    Total operating revenue   112,500     113,132     339,869     346,715     451,729  

    Compensation

    45,086 45,457 135,035 139,412 181,094
    Newsprint and ink 6,550 7,224 20,623 22,992 27,826
    Other operating expenses 28,954 27,741 86,706 85,605 113,869
    Depreciation and amortization 8,322 6,837 24,633 20,569 31,314
    Loss (gain) on sales of assets, net 8 (98 ) (1,643 ) 52 (1,561 )
    Impairment of goodwill and other assets 336 336 859
    Workforce adjustments   265     572     436     1,185     796  
    Total operating expenses 89,521 87,733 266,126 269,815 354,197
    Equity in earnings of associated companies   790     877     2,232     2,658     3,084  
    Operating income 23,769 26,276 75,975 79,558 100,616
    Adjusted to exclude:
    Depreciation and amortization 8,322 6,837 24,633 20,569 31,314
    Loss (gain) on sales of assets, net 8 (98 ) (1,643 ) 52 (1,561 )
    Impairment of intangible and other assets 336 336 859
    Equity in earnings of associated companies   (790 )   (877 )   (2,232 )   (2,658 )   (3,084 )
    Operating cash flow 31,645 32,138 97,069 97,521 128,144
    Add:
    Ownership share of MNI EBITDA (50%) 1,436 1,598 4,110 4,781 5,311
    Adjusted to exclude:
    Stock compensation   397     377     1,081     1,109     1,233  
    Adjusted EBITDA 33,478 34,113 102,260 103,411 134,688
    Adjusted to exclude:
    Ownership share of MNI EBITDA (50%) (1,436 ) (1,598 ) (4,110 ) (4,781 ) (5,311 )
    Add (deduct):
    Distributions from MNI 1,000 1,850 3,750 4,000 5,000
    Capital expenditures (2,900 ) (1,685 ) (7,145 ) (5,127 ) (9,731 )
    Pension contributions (17 ) (17 ) (17 )
    Cash income tax refunds (payments) (199 ) (27 ) (317 ) (360 ) (322 )
    Intercompany charges not settled in cash (2,099 ) (2,146 ) (6,297 ) (6,438 ) (8,255 )
    Other   (2,000 )       (2,000 )   (2,000 )   (2,000 )
    Unlevered free cash flow 25,827 30,507 86,124 88,705 114,052
    Add (deduct):
    Financial income 85 134 306 219 387
    Interest expense settled in cash (18,834 ) (18,619 ) (55,397 ) (56,454 ) (73,584 )
    Debt financing costs paid   (31,000 )       (31,268 )   (100 )   (31,308 )
    Free cash flow (deficit)   (23,922 )   12,022     (235 )   32,370     9,547  
     

    SELECTED PULITZER(2) ONLY FINANCIAL INFORMATION

    (UNAUDITED)

               
          52 Weeks
        13 Weeks Ended     39 Weeks Ended     Ended  
    June 29   June 30June 29   June 30June 29

    (Thousands of Dollars)

      2014     2013     2014     2013     2014  
     
    Advertising and marketing services 34,136 35,678 103,983 109,984 137,378
    Subscription 15,317 16,491 47,245 50,581 63,385
    Other   1,172     1,718     3,506     4,997     4,574  
    Total operating revenue   50,625     53,887     154,734     165,562     205,337  
    Compensation 15,244 16,883 46,508 53,093 62,776
    Newsprint and ink 2,674 3,247 8,497 10,365 11,418
    Other operating expenses 24,886 25,720 75,002 75,324 99,931
    Depreciation and amortization 3,872 8,032 11,777 24,189 15,866
    Loss (gain) on sales of assets, net 1 (14 ) 21 (29 ) 26
    Impairment of goodwill and other assets 170,571
    Workforce adjustments   154     373     489     1,075     548  
    Total operating expenses 46,831 54,241 142,294 164,017 361,136
    Equity in earnings of associated companies   1,046     1,016     4,116     4,013     5,278  
    Operating income (loss) 4,840 662 16,556 5,558 (150,521 )
    Adjusted to exclude:
    Depreciation and amortization 3,872 8,032 11,777 24,189 15,866
    Loss (gain) on sales of assets, net 1 (14 ) 21 (29 ) 26
    Impairment of intangible and other assets 170,571
    Equity in earnings of associated companies   (1,046 )   (1,016 )   (4,116 )   (4,013 )   (5,278 )
    Operating cash flow 7,667 7,664 24,238 25,705 30,664
    Add:
    Ownership share of TNI EBITDA (50%)   1,151     1,172     4,430     4,529     5,698  
    Adjusted EBITDA 8,818 8,836 28,668 30,234 36,362
    Adjusted to exclude:
    Ownership share of TNI EBITDA (50%) (1,151 ) (1,172 ) (4,430 ) (4,529 ) (5,698 )
    Add (deduct):
    Distributions from TNI 1,346 1,544 3,904 4,179 5,873
    Capital expenditures (409 ) (451 ) (1,059 ) (1,708 ) (1,378 )
    Pension contributions (5,741 ) (705 ) (6,016 ) (705 )
    Cash income tax refunds (payments) 6,250 6,250 15,741
    Intercompany charges not settled in cash 2,099 2,146 6,297 6,438 8,255
    Other   2,000         2,000     2,000     2,000  
    Unlevered free cash flow 18,953 5,162 40,925 30,598 60,450
    Add (deduct):
    Interest expense settled in cash (820 ) (2,156 ) (3,242 ) (7,687 ) (4,926 )
    Debt financing costs paid   (8 )   (666 )   (8 )   (666 )   (273 )
    Free cash flow   18,125     2,340     37,675     22,245     55,251  
     

    REVENUE BY REGION

         
        13 Weeks Ended     39 Weeks Ended  
      June 29   June 30   Percent   June 29   June 30   Percent

    (Thousands of Dollars)

      2014   2013   Change     2014   2013   Change  
     
    Midwest 102,194 105,858 (3.5 ) 308,841 322,468 (4.2 )
    Mountain West 33,455 33,510 (0.2 ) 98,558 101,179 (2.6 )
    West 11,070 11,273 (1.8 ) 32,875 34,050 (3.5 )
    East/Other   16,406   16,378   0.2     54,329   54,580   (0.5 )
    Total   163,125   167,019   (2.3 )   494,603   512,277   (3.5 )
     

    SELECTED BALANCE SHEET INFORMATION

     
      June 29   June 30

    (Thousands of Dollars)

      2014   2013
     
    Cash 17,758 11,630

    Debt (Principal Amount)

      815,000   873,500
     

    SELECTED STATISTICAL INFORMATION

         
        13 Weeks Ended     39 Weeks Ended  
      June 29   June 30   Percent   June 29   June 30   Percent
        2014   2013   Change     2014   2013   Change  
     
    Capital expenditures (Thousands of Dollars) 3,309 2,136 54.9 8,204 6,835 20.0
    Newsprint volume (Tonnes) 14,405 16,353 (11.9 ) 44,317 50,226 (11.8 )
    Average full-time equivalent employees 4,514 4,678 (3.5 ) 4,539 4,787 (5.2 )
    Shares outstanding at end of period (Thousands of Shares)                 53,694   52,389   2.5  
     

    NOTES

     
    (1)   This earnings release is a preliminary report of results for the periods included. The reader should refer to the Company's Quarterly Reports on Form 10-Q and Annual Reports 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 associated companies, minus equity in earnings of associated companies 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 associated companies 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 associated companies and cash income tax refunds, minus equity in earnings of associated companies, curtailment gains, cash income taxes, pension contributions and capital expenditures. Changes in working capital, asset sales, minority interest and discontinued operations are excluded. Free Cash Flow also includes financial income, interest expense and debt financing and reorganization costs.
     
    We also present selected information for Lee Legacy and Pulitzer Inc. ("Pulitzer"). Lee Legacy constitutes the business of the Company excluding Pulitzer, a wholly-owned subsidiary of the Company.
     
    No non-GAAP financial measure should be considered as a substitute for any related GAAP financial measure. However, the Company believes the use of non-GAAP financial measures provides meaningful supplemental information with which to evaluate its financial performance, or assist in forecasting and analyzing future periods. The Company also believes such non-GAAP financial measures are alternative indicators of performance used by investors, lenders, rating agencies and financial analysts to estimate the value of a publishing business and its ability to meet debt service requirements.
     
    (3) Certain amounts as previously reported have been reclassified to conform with the current period presentation. The prior periods have been adjusted for comparative purposes, and the reclassifications have no impact on earnings.
     
    Results ofNorth County Times operations and The Garden Islandoperations have been reclassified as discontinued operations for all periods presented.





    Lee Enterprises

    Dan Hayes, 563-383-2100

    dan.hayes@lee.net

    Source: Lee Enterprises, Incorporated


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