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Lee Enterprises Reports Earnings Growth, Improving Revenue And 16% Increase In Operating Cash Flow

Carl Schmidt, vice president, chief financial officer and treasurer, said Lee continues to meet all financial covenants and expects to continue repaying debt primarily with ongoing cash flow. Liquidity at the end of the quarter totaled $92.5 million, a level virtually identical to a year ago, against $72.0-76.5 million of debt repayments due in the next four quarters.

Free cash flow totaled $17.6 million for the quarter, compared with a deficit of $6.0 million a year ago. Year to date, free cash flow totaled $52.5 million, compared with $14.5 million a year ago, resulting from improvements in operating results and reduced non-operating costs.

ABOUT LEE

Lee Enterprises is a leading provider of local news, information and advertising in primarily midsize markets, with 49 daily newspapers and a joint interest in four others, online sites and 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 daily. Lee’s online sites attract nearly 16 million unique visits monthly, and Lee’s weekly publications have distribution of four million households. Lee’s markets include St. Louis, Mo.; Lincoln, Neb.; Madison, Wis.; Davenport, Iowa; Billings, Mont.; Bloomington, Ill.; and Tucson, Ariz. Lee stock is traded on the New York Stock Exchange under the symbol LEE. For more information about Lee, please visit www.lee.net.

 
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

(Thousands, Except Per Share)

 
    13 Weeks Ended   26 Weeks Ended
  Mar 28   Mar 29     Mar 28   Mar 29  
      2010       2009     %       2010       2009     %  
Advertising revenue:
Retail $ 73,536 $ 79,853 (7.9 )% $ 168,315 $ 192,787 (12.7 )%
National 8,734 9,591 (8.9 ) 19,379 22,442 (13.6 )
Classified:
Daily newspapers:
Employment 5,110 6,413 (20.3 ) 9,899 15,099 (34.4 )
Automotive 5,879 7,461 (21.2 ) 12,284 16,104 (23.7 )
Real estate 5,764 7,314 (21.2 ) 12,135 15,440 (21.4 )
All other 10,512 9,946 5.7 21,691 19,992 8.5
Other publications     6,649       7,552     (12.0 )     13,248       15,909     (16.7 )
Total classified 33,914 38,686 (12.3 ) 69,257 82,544 (16.1 )
Online 11,314 9,919 14.1 21,963 21,540 2.0
Niche publications     3,065       3,480     (11.9 )     6,051       6,799     (11.0 )
Total advertising revenue     130,563       141,529     (7.7 )     284,965       326,112     (12.6 )
Circulation 45,018 47,086 (4.4 ) 90,133 94,642 (4.8 )
Commercial printing 2,696 3,042 (11.4 ) 5,627 6,511 (13.6 )
Online services & other     7,467       7,187     3.9       14,857       15,134     (1.8 )
Total operating revenue     185,744       198,844     (6.6 )     395,582       442,399     (10.6 )
Operating expenses:
Compensation 79,298 84,295 (5.9 ) 161,433 178,778 (9.7 )
Newsprint and ink 13,061 20,664 (36.8 ) 25,754 45,818 (43.8 )
Other operating expenses 59,793 62,871 (4.9 ) 121,270 132,821 (8.7 )

Workforce adjustments and transition costs

    290       2,351     (87.7 )     687       3,189     (78.5 )
      152,442       170,181     (10.4 )     309,144       360,606     (14.3 )
Operating cash flow 33,302 28,663 16.2 86,438 81,793 5.7
Depreciation 7,173 8,408 (14.7 ) 14,535 16,704 (13.0 )
Amortization 11,307 12,092 (6.5 ) 22,627 24,195 (6.5 )

Impairment of goodwill and other assets

3,290 144,862 (97.7 ) 3,290 214,907 (98.5 )
Curtailment gains 13,882 - NM 45,012 - NM

Equity in earnings (loss) of associated companies:

TNI Partners 820 451 81.8 1,718 2,320 (25.9 )
Madison Newspapers 457 (103 ) NM 1,748 1,092 60.1

Reduction in investment in TNI Partners

  -       9,951     NM     -       9,951     NM  
Operating income (loss)     26,691       (146,302 )   NM       94,464       (180,552 )   NM  
 

Non-operating income (expense):

Financial income 146 549 (73.4 ) 199 1,820 (89.1 )
Financial expense (15,643 ) (17,031 ) (8.1 ) (35,448 ) (35,116 ) 0.9
Debt financing costs (1,972 ) (12,927 ) (84.7 ) (3,967 ) (14,850 ) (73.3 )
Other, net   -       1,823     NM     -       1,823     NM  
      (17,469 )     (27,586 )   (36.7 )     (39,216 )     (46,323 )   (15.3 )

Income (loss) from continuing operations before income taxes

9,222 (173,888 ) NM 55,248 (226,875 ) NM

Income tax expense (benefit)

6,241 (63,999 ) NM 24,309 (69,523 ) NM
Minority interest     (9 )     (38 )   (76.3 )     42       132     (68.2 )

Income (loss) from continuing operations

2,991 (109,851 ) NM 30,897 (157,484 ) NM
Discontinued operations   -     -     NM     -       (5 )   NM  
Net income (loss)     2,991       (109,851 )   NM       30,897       (157,489 )   NM  

Change in redeemable minority interest liability

  -       58,094     NM     -       57,055     NM  

Income (loss) available to common stockholders

  $ 2,991     $ (51,757 )   NM     $ 30,897     $ (100,434 )   NM  

Earnings (loss) per common share:

Basic:
Continuing operations $ 0.07 $ (1.16 ) NM $ 0.69 $ (2.26 ) NM
Discontinued operations   -     -     -     -     -     -  
    $ 0.07     $ (1.16 )   NM     $ 0.69     $ (2.26 )   NM  
Diluted:
Continuing operations $ 0.07 $ (1.16 ) NM $ 0.69 $ (2.26 ) NM
Discontinued operations   -     -     -     -     -     -  
    $ 0.07     $ (1.16 )   NM     $ 0.69     $ (2.26 )   NM  
Average common shares:
Basic 44,563 44,449 44,547 44,427
Diluted     45,957       44,449           44,860       44,427      
 
FREE CASH FLOW
(Thousands)
 
    13 Weeks Ended   26 Weeks Ended
  Mar 28   Mar 29   Mar 28   Mar 29
      2010       2009       2010       2009  
Operating income (loss) $ 26,691 $ (146,302 ) $ 94,464 $ (180,552 )
Depreciation and amortization 18,581 20,880 37,710 41,658

Impairment of goodwill and other assets

3,290 144,862 3,290 214,907

Reduction in investment in TNI Partners

- 9,951 - 9,951
Curtailment gains (13,882 ) - (45,012 ) -
Stock compensation 462 513 1,147 1,565
Cash interest expense (15,799 ) (18,426 ) (35,759 ) (38,575 )
Debt financing costs paid - (13,138 ) - (22,840 )
Financial income 145 549 199 1,820
Cash income tax benefit (paid) 63 (1,187 ) 1,334 (5,604 )
Minority interest 9 38 (42 ) (132 )
Capital expenditures     (1,928 )     (3,721 )     (4,796 )     (7,678 )
Total   $ 17,632     $ (5,981 )   $ 52,534     $ 14,520  
 
SELECTED COMBINED PRINT AND ONLINE ADVERTISING REVENUE
(Thousands)
 
     

13 Weeks Ended

  26 Weeks Ended
  Mar 28   Mar 29     Mar 28   Mar 29  
    2010   2009   %     2010   2009   %  
Retail $ 77,249 $ 82,503 (6.4 )% $ 175,504 $ 198,126 (11.4 )%
National 9,174 9,800 (6.4 ) 20,103 22,831 (11.9 )
 
Classified:
Employment 8,458 10,131 (16.5 ) 16,219 23,411 (30.7 )
Automotive 9,766 11,083 (11.9 ) 19,996 23,813 (16.0 )
Real estate 7,752 9,423 (17.7 ) 16,245 20,174 (19.5 )
Other     15,098     15,109   (0.1 )     30,846     30,959   (0.4 )
Total classified   $ 41,074   $ 45,746   (10.2 )%   $ 83,306   $ 98,357   (15.3 )%
 
REVENUE BY REGION
(Thousands)
 
     

13 Weeks Ended

   

26 Weeks Ended

  Mar 28   Mar 29     Mar 28   Mar 29  
      2010     2009   %       2010     2009   %  
Midwest $ 109,892 $ 117,634 (6.6 )% $ 236,267 $ 265,396 (11.0 )%
Mountain West 34,445 36,737 (6.2 ) 74,060 81,938 (9.6 )
West 22,440 24,024 (6.6 ) 47,392 53,453 (11.3 )
East/Other     18,967     20,449   (7.2 )     37,863     41,612   (9.0 )
Total   $ 185,744   $ 198,844   (6.6 )%   $ 395,582   $ 442,399   (10.6 )%
 
DAILY NEWSPAPER ADVERTISING VOLUME

(Thousands of Inches)

 
   

13 Weeks Ended

    26 Weeks Ended
  Mar 28   Mar 29       Mar 28   Mar 29  
    2010   2009   %       2010   2009   %  
Retail 2,380 2,457 (3.1 )% 5,240 5,760 (9.0 )%
National 119 111 7.2 271 259 4.6
Classified   2,570   2,696   (4.7 )     5,278   5,665   (6.8 )
Total   5,069   5,264   (3.7 )%     10,789   11,684   (7.7 )%
 
SELECTED BALANCE SHEET INFORMATION
(Thousands)
 
  Mar 28   Mar 29
    2010   2009
Cash $ 20,020 $ 14,232
Restricted cash and investments 9,373 4,300
Debt (principal amount)     1,134,031     1,206,375
 
SELECTED STATISTICAL INFORMATION
(Dollars in Thousands)
 
    13 Weeks Ended   26 Weeks Ended
Mar 28   Mar 29     Mar 28   Mar 29  
    2010     2009   %       2010     2009   %  
Capital expenditures $ 1,928 $ 3,721 (48.2 )% $ 4,796 $ 7,678 (37.5 )%
Newsprint volume (tonnes) 22,120 25,331 (12.7 ) 45,574 56,105 (18.8 )

Average full-time equivalent employees

  6,148     6,659   (7.7 )     6,224     6,967   (10.7 )
 
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 (loss), 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 and adjusted earnings per common share, which are defined as income (loss) available to common stockholders and earnings (loss) per common share adjusted to exclude unusual items and those of a substantially non-recurring nature, are non-GAAP financial measures. See (1) above. Reconciliations of adjusted net income and adjusted earnings per common share to income (loss) available to common stockholders and earnings (loss) per common share are included in tables in this release.
 
(3) 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 (loss), the most directly comparable GAAP measure, are included in a table accompanying this release.
 
(4) 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.
 

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 27, 2009. 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.

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