Lee Enterprises Reports Improved Revenue Trend

DAVENPORT, Iowa--()--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 second fiscal quarter ended March 29, 2015, the same earnings as a year ago. Excluding unusual matters, adjusted earnings per diluted common share(2) totaled 2 cents, compared with earnings of 5 cents a year ago.

“Our full access subscription model is now in 43 markets, allowing subscribers to consume local news, information and advertising using all of our print and digital platforms.”

Mary Junck, chairman and chief executive officer, said: “We’re seeing positive results from our many sales initiatives as our operating revenue trend for the quarter improved to up 0.9% as reported and down 1.8% on a comparable basis. March especially was the bright spot, posting nearly flat revenue - our best month since April 2013. Total digital revenue increased 33.9% from the same quarter a year ago."

"Our full access subscription model is now in 43 markets, allowing subscribers to consume local news, information and advertising using all of our print and digital platforms.

“We’re focused on providing easy and effective ways for small and mid-sized local advertisers to reach more customers, and through our digital agency, we can tailor programs for larger local businesses with more specific goals. Advertisers are reaching massive audiences through our print and digital products."

She added: "For the first six months of our fiscal year, cash costs(2), on a comparable basis, decreased 1.2%. Our keen focus on business transformation allows us to improve our full-year guidance, and we now expect comparable cash costs to decrease up to 2.75% in 2015. At the same time, we remain committed to providing exceptional journalism, as evidenced by the Pulitzer Prize for Breaking News Photography recently awarded to the St. Louis Post-Dispatch. Their recent work is outstanding, and the Post-Dispatch staff is extremely deserving of this recognition."

She also noted the following financial highlights for the quarter:

  • Digital advertising revenue increased 8.3% and mobile advertising revenue, which is included in digital advertising, increased 37.9%;
  • Subscription revenue, excluding the subscription-related expense reclassification discussed more fully below, increased 4.7%, and we expect full year 2015 subscription revenue, excluding the impact of the reclassification, to increase 2.5-3.0%; and
  • Debt was reduced $20.3 million in the quarter and, when including $32 million borrowed to pay 2014 refinancing costs, debt was reduced $80.8 million in the last twelve months.

SECOND QUARTER OPERATING RESULTS

Operating revenue for the 13 weeks ended March 29, 2015 totaled $155.5 million, an increase of 0.9% 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 1.8%. This 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.

Combined print and digital advertising and marketing services revenue decreased 4.9% to $97.7 million, with retail advertising down 5.1%, classified down 4.8% and national down 11.8%. Retail preprint advertising decreased 5.6%. Combined print and digital classified employment revenue decreased 5.1%, while automotive decreased 9.6%, real estate decreased 10.1% and other classified increased 0.7%. Digital advertising and marketing services revenue on a stand-alone basis increased 8.3% to $18.8 million. Print advertising and marketing services revenue on a stand-alone basis decreased 7.6%.

Subscription revenue increased 14.7%. Excluding the impact of the subscription-related expense reclassification, subscription revenue increased 4.7%. Our average daily newspaper circulation, including TNI and MNI and digital subscribers, totaled 1.0 million in the 13 weeks ended March 29, 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 $27.4 million in the quarter, up 33.9%.

Cash costs increased 3.3% for the 13 weeks ended March 29, 2015. Compensation increased 3.7%, driven by increases in employee medical and pension costs, as well as compensation increases, which were partially offset by a decline in the average number of full-time equivalent employees of 3.9%. Newsprint and ink expense decreased 17.9%, primarily the result of lower newsprint prices and a reduction in newsprint volume of 10.9%. Other operating expenses increased 5.9%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 0.2%. We expect our full year cash costs, excluding the impact of the subscription-related expense reclassification, to decrease between 2.25%-2.75% in 2015. To achieve this level of cost reduction, cash costs for the remainder of the fiscal year will need to decrease by 3.3%-4.3%, which significantly exceeds the decrease of 1.2% for the 26 weeks ended March 29, 2015. This acceleration of cost reduction in the latter half of 2015 may also have a favorable impact on the following year.

Operating cash flow decreased 7.7% from a year ago to $30.2 million. Operating cash flow margin(2) decreased to 19.4%, compared to 21.2% a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income totaled $20.2 million in the current year quarter, compared with $23.7 million a year ago. Operating income margin was 13.0% in the current year quarter. The subscription-related expense reclassification reduced operating cash flow margin and operating income margin by 0.6% and 0.4%, respectively.

Non-operating expenses decreased 14.8% for the 13 weeks ended March 29, 2015. Interest expense decreased 10.5% due to lower debt balances and non-cash interest expense of $1.2 million in the prior year quarter. We recognized $1.5 million of amortization of debt refinancing costs in the current year quarter compared to $0.1 million in the prior year quarter. We recognized $2.1 million of non-operating income 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 $1.8 million, compared with $1.5 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
    March 29
2015
  March 30
2014
(Thousands of Dollars, Except Per Share Data)   Amount   Per Share   Amount   Per Share
   
Income attributable to Lee Enterprises, Incorporated, as reported 1,800   0.03 1,486   0.03
Adjustments:
Debt financing costs 1,493 99
Amortization of debt present value adjustment 1,196
Warrants fair value adjustment (2,081 )
Other, net   436         414      
(152 ) 1,709
Income tax effect of adjustments, net   (666 )       (567 )    
    (818 )   (0.02 )   1,142     0.02
Income attributable to Lee Enterprises, Incorporated, as adjusted   982     0.02     2,628     0.05
 

SUBSCRIPTION EXPENSE RECLASSIFICATION

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

    13 Weeks Ended  
(Thousands of Dollars)   March 29
2015
  March 30
2014
  Percent Change  
     
Subscription revenue, as reported 48,111 41,952 14.7
Adjustment for subscription-related expense reclassification   (4,605 )   (400 )   NM  
Subscription revenue, as adjusted   43,506     41,552     4.7  
 
Total operating revenue, as reported 155,529 154,093 0.9
Adjustment for subscription-related expense reclassification   (4,605 )   (400 )   NM  
Total operating revenue, as adjusted   150,924     153,693     (1.8 )
 
Other cash costs, as reported 55,839 52,712 5.9
Adjustment for subscription-related expense reclassification   (4,605 )   (400 )   NM  
Other cash costs, as adjusted   51,234     52,312     (2.1 )
 
Total cash costs, as reported 125,376 121,416 3.3
Adjustment for subscription-related expense reclassification   (4,605 )   (400 )   NM  
Total cash costs, as adjusted   120,771     121,016     (0.2 )
 

Approximately $4,272,000, or 92.8% of the reclassification impacts revenue and cash costs of our Lee Legacy operations, and approximately $333,000, or 7.2% impacts Pulitzer.

FULL ACCESS SUBSCRIPTION INITIATIVE

As previously reported, we launched our full access subscription initiative in our first markets a year ago. As of today, 43 markets have been launched and we are on track to launch substantially all of our remaining markets before June 2015. In most of our markets, more than 30% of our subscribers have activated their ability to access our comprehensive digital content. 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(3)

Operating revenue for the 26 weeks ended March 29, 2015, totaled $331.7 million, an increase of 0.1% compared with the 26 weeks ended March 30, 2014. Excluding the impact of the subscription-related expense reclassification, operating revenue decreased 2.7%.

Combined print and digital advertising and marketing services revenue decreased 5.3% to $213.1 million, retail advertising decreased 6.0%, classified decreased 4.1% and national decreased 8.0%. Retail preprint advertising decreased 7.1%. Combined print and digital classified employment revenue decreased 1.3%, while automotive decreased 9.7%, real estate decreased 8.9% and other classified decreased 0.1%. Digital advertising and marketing services revenue on a stand-alone basis increased 7.7% to $38.8 million and now totals 18.2% of total advertising and marketing services revenue. Mobile advertising revenue increased 34.9%. Print advertising and marketing services revenue on a stand-alone basis decreased 7.8%.

Subscription revenue increased 12.7%. Excluding the impact of the subscription-related expense reclassification, subscription revenue increased 2.4%. Our average daily newspaper circulation, including TNI and MNI and digital subscribers, totaled 1.0 million in the 26 weeks ended March 29, 2015. Sunday circulation totaled 1.5 million.

Total digital revenue totaled $54.6 million year to date, up 29.7% compared with a year ago.

Cash costs for the 26 weeks ended March 29, 2015 increased 2.4% compared to the same period a year ago. Compensation increased 1.6%, with the average number of full-time equivalent employees down 3.7%. Newsprint and ink expense decreased 17.0%, primarily the result of lower newsprint prices and a reduction in newsprint volume of 12.1%. Other operating expenses increased 6.6%. Excluding the impact of the subscription-related expense reclassification, cash costs decreased 1.2%.

Operating cash flow decreased 7.2% from a year ago to $76.1 million. Operating cash flow margin decreased to 23.0% from 24.7% a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income decreased to $57.7 million in the 26 weeks ended March 29, 2015, compared with $63.9 million a year ago. Operating income margin was 17.4% in the 26 weeks ended March 29, 2015. The subscription-related expense reclassification reduced operating cash flow margin and operating income margin by 0.7% and 0.5%, respectively.

Non-operating expenses decreased 6.7% in the 26 weeks ended March 29, 2015 compared to the same period a year ago. Interest expense decreased 10.1% due to lower debt balances in the current year and non-cash interest expense of $2.4 million in the prior year period. We charged $2.6 million of debt financing costs to expense in the current year period compared to $0.2 million in the prior year period. We recognized $0.8 million of non-operating income in the current year period from the change in fair value of stock warrants. Income attributable to Lee Enterprises, Incorporated for the year totaled $11.6 million, compared to income of $13.4 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.

            26 Weeks Ended
    March 29
2015
  March 30
2014
(Thousands of Dollars, Except Per Share Data)   Amount   Per Share   Amount   Per Share
   
Income attributable to Lee Enterprises, Incorporated, as reported 11,553   0.21 13,378   0.25
Adjustments:
Debt financing costs 2,595 203
Amortization of debt present value adjustment 2,394
Warrants fair value adjustment (779 )
Other, net   382         577      
2,198 3,174
Income tax effect of adjustments, net   (1,031 )       (1,079 )    
    1,167     0.02     2,095     0.04
Income attributable to Lee Enterprises, Incorporated, as adjusted   12,720     0.24     15,473     0.29
 

SUBSCRIPTION EXPENSE RECLASSIFICATION

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

    26 Weeks Ended  
(Thousands of Dollars)   March 29
2015
  March 30
2014
  Percent Change  
     
Subscription revenue, as reported 98,509 87,405 12.7
Adjustment for subscription-related expense reclassification   (9,412 )   (400 )   NM  
Subscription revenue, as adjusted   89,097     87,005     2.4  
 
Total operating revenue, as reported 331,683 331,478 0.1
Adjustment for subscription-related expense reclassification   (9,412 )   (400 )   NM  
Total operating revenue, as adjusted   322,271     331,078     (2.7 )
 
Other cash costs, as reported 115,021 107,870 6.6
Adjustment for subscription-related expense reclassification   (9,412 )   (400 )   NM  
Other cash costs, as adjusted   105,609     107,470     (1.7 )
 
Total cash costs, as reported 255,552 249,483 2.4
Adjustment for subscription-related expense reclassification   (9,412 )   (400 )   NM  
Total cash costs, as adjusted   246,140     249,083     (1.2 )
 

Approximately $8,716,000, or 92.6% of the reclassification impacts revenue and cash costs of our Lee Legacy operations, and approximately $696,000, or 7.4% impacts Pulitzer.

DEBT AND FREE CASH FLOW(2)

Debt was reduced $20.3 million in the quarter and $40.5 million for the fiscal year to date. As of March 29, 2015 the principal amount of debt was $764.3 million. Including $32.0 million borrowed to pay 2014 refinancing costs that has since been repaid, debt has been reduced $80.8 million in the last twelve months ended March 29, 2015.

Unlevered free cash flow(2) totaled $31.4 million in the current year quarter compared to $32.2 million in the same quarter a year ago. Unlevered free cash flow totaled $77.2 million for the fiscal year to date compared to $82.3 million a year ago and $154.2 million over the last twelve months. Liquidity at March 29, 2015 totaled $44.0 million compared to $27.4 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) 888-554-1422 and entering a conference passcode of 598707 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 1.5 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 INCOME

(UNAUDITED)

    13 Weeks Ended     26 Weeks Ended  
(Thousands of Dollars, Except Per Share Data)   March 29
2015
  March 30
2014
  Percent Change     March 29
2015
  March 30
2014
  Percent Change  
           
Advertising and marketing services:
Retail 61,520 64,806 (5.1 ) 138,332 147,084 (6.0 )
Classified:
Employment 7,646 8,060 (5.1 ) 15,070 15,269 (1.3 )
Automotive 6,242 6,904 (9.6 ) 13,580 15,043 (9.7 )
Real estate 3,708 4,125 (10.1 ) 7,782 8,544 (8.9 )
All other   10,377   10,304     0.7     20,739   20,757   (0.1 )
Total classified 27,973 29,393 (4.8 ) 57,171 59,613 (4.1 )
National 5,375 6,094 (11.8 ) 12,526 13,611 (8.0 )
Niche publications and other   2,797   2,427     15.2     5,113   4,802   6.5  
Total advertising and marketing services revenue   97,665   102,720     (4.9 )   213,142   225,110   (5.3 )
Subscription 48,111 41,952 14.7 98,509 87,405 12.7
Commercial printing 2,774 2,992 (7.3 ) 5,591 6,023 (7.2 )
Digital services and other   6,979   6,429     8.6     14,441   12,940   11.6  
Total operating revenue   155,529   154,093     0.9     331,683   331,478   0.1  
Operating expenses:
Compensation 61,236 59,071 3.7 123,173 121,212 1.6
Newsprint and ink 7,661 9,334 (17.9 ) 16,507 19,895 (17.0 )
Other operating expenses 55,839 52,712 5.9 115,021 107,870 6.6
Workforce adjustments   640   299     NM     851   506   68.2  
Cash costs   125,376   121,416     3.3     255,552   249,483   2.4  
Operating cash flow 30,153 32,677 (7.7 ) 76,131 81,995 (7.2 )
Depreciation 4,686 5,275 (11.2 ) 9,301 10,407 (10.6 )
Amortization 6,880 6,916 (0.5 ) 13,760 13,809 (0.4 )
Loss (gain) on sales of assets, net 5 (1,641 ) NM (252 ) (1,631 ) (84.5 )
Equity in earnings of associated companies   1,653   1,593     3.8     4,410   4,512   (2.3 )
Operating income   20,235     23,720     (14.7 )   57,732     63,922     (9.7 )
Non-operating income (expense):
Financial income 102 101 1.0 180 221 (18.6 )
Interest expense (18,403 ) (20,552 ) (10.5 ) (37,193 ) (41,379 ) (10.1 )
Debt financing costs (1,493 ) (99 ) NM (2,595 ) (203 ) NM
Other, net   2,318     27     NM     1,140     121     NM  
    (17,476 )   (20,523 )   (14.8 )   (38,468 )   (41,240 )   (6.7 )
Income before income taxes 2,759 3,197 (13.7 ) 19,264 22,682 (15.1 )
Income tax expense   717     1,492     (51.9 )   7,215     8,875     (18.7 )
Net income 2,042 1,705 19.8 12,049 13,807 (12.7 )
Net income attributable to non-controlling interests   (242 )   (219 )   10.5     (496 )   (429 )   15.6  
Income attributable to Lee Enterprises, Incorporated   1,800     1,486     21.1     11,553     13,378     (13.6 )
 
Earnings per common share:
Basic 0.03 0.03 0.22 0.26 (15.4 )
Diluted   0.03     0.03         0.21     0.25     (16.0 )
 

SELECTED CONSOLIDATED FINANCIAL INFORMATION

(UNAUDITED)

    13 Weeks Ended   26 Weeks Ended   52 Weeks Ended
(Thousands of Dollars)   March 29
2015
  March 30
2014
  March 29
2015
  March 30
2014
  March 29
2015
         
Advertising and marketing services 97,665 102,720 213,142 225,110 430,034
Subscription 48,111 41,952 98,509 87,405 187,931
Other   9,753     9,421     20,032     18,963     38,937  
Total operating revenue   155,529     154,093     331,683     331,478     656,902  
Compensation 61,236 59,071 123,173 121,212 245,015
Newsprint and ink 7,661 9,334 16,507 19,895 34,606
Other operating expenses 55,839 52,712 115,021 107,870 226,480
Depreciation and amortization 11,566 12,191 23,061 24,216 49,293
Loss (gain) on sales of assets, net 5 (1,641 ) (252 ) (1,631 ) 217
Impairment of goodwill and other assets 868
Workforce adjustments   640     299     851     506     1,610  
Total operating expenses 136,947 131,966 278,361 272,068 558,089
Equity in earnings of TNI and MNI   1,653     1,593     4,410     4,512     8,195  
Operating income 20,235 23,720 57,732 63,922 107,008
Adjusted to exclude:
Depreciation and amortization 11,566 12,191 23,061 24,216 49,293
Loss (gain) on sales of assets, net 5 (1,641 ) (252 ) (1,631 ) 217
Impairment of intangible and other assets 868
Equity in earnings of TNI and MNI   (1,653 )   (1,593 )   (4,410 )   (4,512 )   (8,195 )
Operating cash flow 30,153 32,677 76,131 81,995 149,191
Add:
Ownership share of TNI and MNI EBITDA (50%) 2,212 2,031 5,969 5,952 11,252
Adjusted to exclude:
Stock compensation   640     420     1,083     684     1,880  
Adjusted EBITDA(2) 33,005 35,128 83,183 88,631 162,323
Adjusted to exclude:
Ownership share of TNI and MNI EBITDA (50%) (2,212 ) (2,031 ) (5,969 ) (5,952 ) (11,252 )
Add (deduct):
Distributions from TNI and MNI 3,128 2,494 6,072 5,309 10,760
Capital expenditures, net of insurance proceeds (2,128 ) (2,600 ) (5,675 ) (4,895 ) (12,604 )
Pension contributions (435 ) (705 ) (435 ) (705 ) (1,252 )
Cash income tax refunds (payments)   68     (103 )   64     (117 )   6,203  
Unlevered free cash flow 31,426 32,183 77,240 82,271 154,178
Add (deduct):
Financial income 102 101 180 221 344
Interest expense to be settled in cash (18,404 ) (19,356 ) (37,193 ) (38,984 ) (75,539 )
Debt financing costs paid   (65 )   (266 )   (82 )   (268 )   (31,401 )
Free cash flow   13,059     12,662     40,145     43,240     47,582  
 

SELECTED LEE LEGACY(2) ONLY FINANCIAL INFORMATION

(UNAUDITED)

    13 Weeks Ended   26 Weeks Ended   52 Weeks Ended
(Thousands of Dollars)   March 29
2015
  March 30
2014
  March 29
2015
  March 30
2014
  March 29
2015
         
Advertising and marketing services 69,018 72,055 149,073 155,263 300,629
Subscription 32,513 26,727 66,058 55,477 124,574
Other   8,593     8,412     17,374     16,629     33,952  
Total operating revenue   110,124     107,194     232,505     227,369     459,155  
Compensation 46,273 44,123 92,519 89,948 183,212
Newsprint and ink 5,727 6,733 12,250 14,070 25,263
Other operating expenses 31,919 28,633 65,497 57,754 126,716
Depreciation and amortization 7,884 8,226 15,834 16,309 32,198
Loss (gain) on sales of assets, net 4 (1,635 ) (75 ) (1,650 ) 213
Impairment of goodwill and other assets 868
Workforce adjustments   241     122     313     171     693  
Total operating expenses 92,048 86,202 186,338 176,602 369,163
Equity in earnings of MNI   444     313     1,556     1,443     3,498  
Operating income 18,520 21,305 47,723 52,210 93,490
Adjusted to exclude:
Depreciation and amortization 7,884 8,226 15,834 16,309 32,198
Loss (gain) on sales of assets, net 4 (1,635 ) (75 ) (1,650 ) 213
Impairment of intangible and other assets 868
Equity in earnings of MNI   (444 )   (313 )   (1,556 )   (1,443 )   (3,498 )
Operating cash flow 25,964 27,583 61,926 65,426 123,271
Add:
Ownership share of MNI EBITDA (50%) 898 646 2,906 2,673 6,137
Adjusted to exclude:
Stock compensation   640     420     1,083     684     1,880  
Adjusted EBITDA 27,502 28,649 65,915 68,783 131,288
Adjusted to exclude:
Ownership share of MNI EBITDA (50%) (898 ) (646 ) (2,906 ) (2,673 ) (6,137 )
Add (deduct):
Distributions from MNI 1,250 1,250 3,000 2,750 5,000
Capital expenditures, net of insurance proceeds (1,438 ) (2,082 ) (3,518 ) (4,245 ) (8,961 )
Pension contributions (87 )
Cash income tax refunds (payments) 157 (103 ) 153 (117 ) 4
Intercompany charges not settled in cash (2,318 ) (2,099 ) (4,636 ) (4,198 ) (10,116 )
Other                   (2,000 )
Unlevered free cash flow 24,255 24,969 58,008 60,300 108,991
Add (deduct):
Financial income 102 101 180 221 344
Interest expense to be settled in cash (18,086 ) (18,206 ) (36,415 ) (36,561 ) (73,345 )
Debt financing costs paid   (65 )   (266 )   (82 )   (268 )   (31,393 )
Free cash flow   6,206     6,598     21,691     23,692     4,597  
 

SELECTED PULITZER(2) ONLY FINANCIAL INFORMATION

(UNAUDITED)

    13 Weeks Ended   26 Weeks Ended   52 Weeks Ended
(Thousands of Dollars)   March 29
2015
  March 30
2014
  March 29
2015
  March 30
2014
  March 29
2015
         
Advertising and marketing services 28,647 30,665 64,069 69,847 129,405
Subscription 15,598 15,225 32,451 31,928 63,357
Other   1,160     1,009     2,658     2,334     4,985  
Total operating revenue   45,405     46,899     99,178     104,109     197,747  
Compensation 14,963 14,948 30,654 31,264 61,803
Newsprint and ink 1,934 2,601 4,257 5,825 9,343
Other operating expenses 23,920 24,079 49,524 50,116 99,764
Depreciation and amortization 3,682 3,965 7,227 7,907 17,095
Loss (gain) on sales of assets, net 1 (6 ) (177 ) 19 4
Workforce adjustments   399     177     538     335     917  
Total operating expenses 44,899 45,764 92,023 95,466 188,926
Equity in earnings of TNI   1,209     1,280     2,854     3,069     4,697  
Operating income 1,715 2,415 10,009 11,712 13,518
Adjusted to exclude:
Depreciation and amortization 3,682 3,965 7,227 7,907 17,095
Loss (gain) on sales of assets, net 1 (6 ) (177 ) 19 4
Equity in earnings of TNI   (1,209 )   (1,280 )   (2,854 )   (3,069 )   (4,697 )
Operating cash flow 4,189 5,094 14,205 16,569 25,920
Add:
Ownership share of TNI EBITDA (50%)   1,314     1,385     3,063     3,279     5,115  
Adjusted EBITDA 5,503 6,479 17,268 19,848 31,035
Adjusted to exclude:
Ownership share of TNI EBITDA (50%) (1,314 ) (1,385 ) (3,063 ) (3,279 ) (5,115 )
Add (deduct):
Distributions from TNI 1,878 1,244 3,072 2,559 5,760
Capital expenditures, net of insurance proceeds (690 ) (518 ) (2,157 ) (650 ) (3,643 )
Pension contributions (435 ) (705 ) (435 ) (705 ) (1,165 )
Cash income tax refunds (payments) (89 ) (89 ) 6,199
Intercompany charges not settled in cash 2,318 2,099 4,636 4,198 10,116
Other                   2,000  
Unlevered free cash flow 7,171 7,214 19,232 21,971 45,187
Deduct:
Interest expense to be settled in cash (318 ) (1,150 ) (778 ) (2,423 ) (2,194 )
Debt financing costs paid                   (8 )
Free cash flow   6,853     6,064     18,454     19,548     42,985  
 

REVENUE BY REGION

    13 Weeks Ended   26 Weeks Ended
(Thousands of Dollars)   March 29
2015
  March 30
2014
  Percent Change   March 29
2015
  March 30
2014
  Percent Change
           
Midwest 94,995 94,702 0.3 204,261 206,647 (1.2 )
Mountain West 31,017 30,419 2.0 66,757 65,103 2.5
West 10,520 10,144 3.7 22,484 21,806 3.1
East/Other   18,997     18,828     0.9     38,181     37,922     0.7  
Total   155,529     154,093     0.9     331,683     331,478     0.1  
 

SELECTED BALANCE SHEET INFORMATION

(Thousands of Dollars)   March 29
2015
  September 28
2014
Cash   11,350     16,704
Debt (Principal Amount):    
Revolving Facility 5,000
1st Lien Term Loan 205,250 226,750
Notes 400,000 400,000
2nd Lien Term Loan 150,000 150,000
Pulitzer Notes   9,000     23,000
    764,250     804,750
 

SELECTED STATISTICAL INFORMATION

    13 Weeks Ended   26 Weeks Ended
    March 29
2015
  March 30
2014
  Percent Change   March 29
2015
  March 30
2014
  Percent Change
           

Capital expenditures, net of insurance proceeds (Thousands of Dollars)

2,128 2,600 (18.2 ) 5,675 4,895 15.9
Newsprint volume (Tonnes) 12,462 13,981 (10.9 ) 26,279 29,911 (12.1 )
Average full-time equivalent employees 4,312 4,486 (3.9 ) 4,384 4,551 (3.7 )
Average common shares - basic (Thousands of Shares) 52,494 52,223 0.5 52,482 52,151 0.6
Average common shares - diluted (Thousands of Shares) 53,875 53,798 0.1 53,916 53,541 0.7
Shares outstanding at end of period (Thousands of Shares)               54,528     53,596     1.7  
 

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) 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.

Contacts

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

Release Summary

Lee Enterprises reports improved revenue trend

Lee Enterprises, Incorporated