Lee Enterprises
201 N. Harrison St.
Davenport, IA
52801
(563) 383-2100 |
Lee reports preliminary Q2 results
DAVENPORT, Iowa (April 21, 2008) — As a result of a previously
announced non-cash accounting charge, Lee Enterprises, Incorporated
(NYSE: LEE), has recorded a loss of 10 cents per common share
in preliminary results for its second fiscal quarter ended March
30, 2008, compared with earnings of 26 cents a year ago. Net
income was $3.0 million, compared with $11.9 million a year ago.
Adjusted(1) for unusual
items, earnings per common share were 8 cents, compared with
19 cents a year ago.
As announced March 28, 2008, the preliminary results include
a non-cash charge of 17 cents per share to record the current
value of the company's future liability related to acquisition
of the 5 percent minority share in its St. Louis partnership.
The preliminary results do not yet include non-cash charges
for impairment of goodwill and potentially other intangible assets,
also announced March 28, 2008. An estimate of those charges will
be included in financial statements to be filed with the Securities
and Exchange Commission in the company's Form 10-Q on or before
May 9, 2008.
Mary Junck, chairman and chief executive officer, said: "The
economic slowdown has taken a toll on classified advertising
revenue, especially real estate and employment, and we're driving
hard to perform well in a tough environment. Meanwhile, our audiences
continue to grow both in print and online, further enhancing
our position as the leading provider, by far, of local news,
information and advertising in our markets."
The quarter included an additional business day, a Sunday,
compared with a year ago for all except the former Pulitzer properties,
affecting both revenue and expense comparisons.
Total operating revenue from continuing operations for the
quarter decreased 4.7 percent from a year ago to $247.7 million.
Total advertising revenue decreased 5.7 percent, to $186.1 million,
with online advertising revenue up 7.5 percent. Combined print
and online retail advertising decreased 0.4 percent. Combined
print and online classified advertising revenue decreased 12.0
percent, with employment down 14.6 percent, automotive down 11.9
percent and real estate down 22.1 percent. National advertising
revenue decreased 13.3 percent. Circulation revenue decreased
1.7 percent. Same property(2)
revenue results were identical to reported results.
Operating expenses, excluding depreciation and amortization,
increased 0.8 percent, with compensation down 2.7 percent, newsprint
and ink down 10.1 percent and other cash costs up 5.2 percent.
Same property operating expenses, excluding unusual items, declined
1.7 percent, with compensation down 2.1 percent, newsprint and
ink down 12.1 percent and other cash costs up 3.1 percent.
Compared with a year ago, operating cash flow(3) decreased 23.9 percent to $44.1 million.
Operating income, which includes equity in earnings of associated
companies and depreciation and amortization, decreased 44.1 percent
to $22.3 million.
Non-operating expenses, which consist primarily of financial
expense, net of financial income, decreased 17.8 percent to $17.3
million. Income from continuing operations before income taxes
decreased 73.5 percent to $5.0 million. Income from continuing
operations decreased 74.4 percent, to $3.0 million. Net income,
including discontinued operations, also totaled $3.0 million.
Free cash flow(4) totaled
$9.8 million for the quarter, compared with $16.9 million a year
ago. Net debt was reduced by $7.2 million in the quarter, and
$19 million of Lee common stock was repurchased.
ADJUSTED EARNINGS AND EPS
Unusual matters affecting year-over-year comparisons for the
quarter included, in 2008, workforce adjustments in several locations,
including Madison Newspapers, Inc., and recording of the current
value of the company's future liability related to acquisition
of the 5 percent minority share in its St. Louis partnership.
Unusual matters in 2007 included gains related to benefit curtailment
for certain groups of employees in Lee and in the Tucson partnership.
The following table summarizes the impact on preliminary net
income and earnings per diluted common share from unusual items.
Per share amounts may not add due to rounding.
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13 Weeks Ended 3 Months Ended
March 30, 2008 March 31, 2007
------------------- -------------------
(Thousands, except EPS) Amount Per Share Amount Per Share
-------- --------- -------- ---------
Preliminary income (loss)
available to common stockholders,
as reported....................... $(4,450) $(0.10) $11,891 $0.26
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Adjustments:
Workforce adjustments............ 411 -
Workforce adjustments, Madison... 404 -
Curtailment gains................ - (3,731)
Curtailment gains, Tucson........ - (1,037)
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815 (4,768)
Income tax expense (benefit)
of adjustments, net, and impact
on minority interest.............. (187) 1,799
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628 0.01 (2,969) (0.06)
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Preliminary income (loss)
available to common stockholders,
as adjusted....................... (3,822) (0.09) 8,922 0.19
Change in redeemable minority
interest liability................ 7,483 0.17 - -
-----------------------------------------------------------------------------
Preliminary net income, as adjusted $3,661 $0.08 $8,922 $0.19
=============================================================================
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YEAR TO DATE
For the first and second fiscal quarters combined, there were
no day exchanges compared with the previous year.
Total operating revenue from continuing operations for the
two quarters decreased 5.5 percent from a year ago to $527.6
million. Total advertising revenue decreased 6.1 percent, to
$403.7 million, with online advertising revenue up 15.1 percent.
Combined print and online retail advertising decreased 1.6 percent.
Combined print and online classified advertising revenue decreased
10.7 percent, with employment down 11.4 percent, automotive down
10.7 percent and real estate down 20.9 percent. National advertising
revenue decreased 19.6 percent. Circulation revenue decreased
3.0 percent.
Operating expenses, excluding depreciation and amortization,
decreased 2.1 percent, with compensation down 3.1 percent, newsprint
and ink down 14.8 percent and other cash costs up 1.9 percent.
Same property operating expenses, excluding unusual items, decreased
3.0 percent, with compensation down 2.0 percent, newsprint and
ink down 16.0 percent and other cash costs up 0.9 percent.
Compared with a year ago, operating cash flow (2) decreased
15.8 percent to $116.6 million. Operating income, which includes
equity in earnings of associated companies and depreciation and
amortization, decreased 26.6 percent to $76.0 million.
Non-operating expenses, which consist primarily of financial
expense, net of financial income, decreased 15.4 percent to $36.3
million. Income from continuing operations before income taxes
decreased 34.6 percent to $39.6 million. Income from continuing
operations decreased 35.3 percent, to $24.8 million. Net income,
including discontinued operations, was $25.2 million.
Free cash flow totaled $57.9 million year to date, compared
with $58.9 million a year ago. Net debt was reduced by $40.2
million year to date.
PD LLC LIABILITY
In 2000, Pulitzer Inc. (Pulitzer), which is now a wholly owned
subsidiary of the company, and The Herald Company, Inc. (Herald
Inc.) completed the transfer of their respective interests in
the assets and operations of the St. Louis Post-Dispatch and
certain related businesses to a new joint venture known as St.
Louis Post-Dispatch LLC (PD LLC). Under the terms of the operating
agreement governing PD LLC, Pulitzer and another subsidiary hold
a 95 percent interest in the results of operations of PD LLC,
and The Herald Publishing Company, LLC (Herald), as successor
to Herald Inc., holds a 5 percent interest. Herald's 5 percent
interest has been reported as minority interest in the company's
Consolidated Statements of Income and Comprehensive Income at
historical cost, plus accumulated earnings since the acquisition
of Pulitzer. At March 30, 2008, this liability totaled approximately
$7.7 million.
On May 1, 2010, Herald will have a one-time right to require
PD LLC to redeem Herald's interest in PD LLC, together with Herald's
interest in a related entity (the 2010 Redemption). The May 1,
2010, redemption price for Herald's interest will be determined
pursuant to a formula. Based on this formula, the present value
of the 2010 Redemption at March 30, 2008, is approximately $70.8
million. The company has concluded the remaining amount of this
potential liability should be recorded in its Consolidated Balance
Sheet as of March 30, 2008, with the offset primarily to goodwill
in the amount of $55.6 million, and the remainder recorded as
a reduction to retained earnings. The company has been disclosing
this obligation since its acquisition of Pulitzer in 2005.
Recording of the liability for the 2010 Redemption at the present
time will also result in a reduction of earnings per common share
for the quarter ended March 30, 2008, of 17 cents, which accounts
primarily for the time value of the increase in the liability
since the date of acquisition of Pulitzer in 2005. The company
estimates the ongoing impact on earnings per common share of
up to 8 to 10 cents per year through April 2010. There is no
impact on net income based on application of current accounting
standards. Also, under such standards, if the 2010 Redemption
does not occur, the liability and earnings per common share impact
discussed above will be reversed in May 2010.
The 2010 Redemption, if exercised, will be funded by restricted
cash and investments set aside for this purpose that will total
$150 million on May 1, 2010, the amount required to be set aside
under the operating agreement. If the 2010 Redemption is exercised,
restricted cash and investments in excess of the redemption amount
will be released for general corporate purposes. If the 2010
Redemption is not exercised, the full amount of the restricted
cash will be released at that time.
If Herald does not exercise the 2010 Redemption, PD LLC will
terminate on May 1, 2015. At that time, Herald will be entitled
to the liquidating value of its interests in PD LLC, which will
be paid in cash by the company.
The redemption of Herald's interest in PD LLC either on May
1, 2010, or upon termination of PD LLC in 2015, is expected to
generate significant tax benefits to the company as a consequence
of the resulting increase in the tax basis of the assets owned
by PD LLC and the related depreciation and amortization deductions.
IMPAIRMENT CHARGE
On March 28, 2008, Lee announced that it expects to record
a significant non-cash impairment charge to earnings in its financial
statements for the quarter ended March 30, 2008. The non-cash
impairment charge is consistent with the manner in which other
publishing companies and those in other industries are responding
to current equity market valuation issues.
The charge, which the company preliminarily estimates could
be $500 million to $700 million after income taxes, will substantially
reduce the book value of goodwill and potentially that of other
intangible assets, including certain newspaper mastheads. The
charge will have no effect on cash flows, but will reduce reported
earnings per common share, resulting in a loss for the quarter
ended March 30, 2008, and full year ending September 28, 2008.
The impairment testing is being performed in accordance with
generally accepted accounting principles, which, among other
factors, requires consideration of differences between current
book value and the fair value of all of the company's assets,
including current market capitalization.
Because of the complex nature of the calculations involved,
the final amount of the charges will not be determined for several
months. A more definitive estimate of the charges will be included
in financial statements to be filed with the Securities and Exchange
Commission in the company's Form 10-Q on or before May 9, 2008.
ABOUT LEE
Lee Enterprises is a premier provider of local news, information
and advertising in primarily midsize markets, with 50 daily newspapers
and a joint interest in five others, rapidly growing online sites
and more than 300 weekly newspapers and specialty publications
in 23 states. Lee's newspapers have circulation of 1.6 million
daily and 1.9 million Sunday, reaching more than four million
readers daily. Lee's online sites attract nearly 12 million unique
visitors monthly, and Lee's weekly publications are distributed
to more than 4.5 million households. Lee's markets include St.
Louis, Mo.; Lincoln, Neb.; Madison, Wis.; Davenport, Iowa; Billings,
Mont.; Bloomington, Ill.; Tucson, Ariz.; and Napa, Calif. Lee
stock is traded on the New York Stock Exchange under the symbol
LEE. For more information about Lee, please visit www.lee.net.
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LEE ENTERPRISES, INCORPORATED
PRELIMINARY CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
13 Weeks 3 Months 26 Weeks 6 Months
Ended Ended Ended Ended
(Thousands, Mar 30, Mar 31, Mar 30, Mar 31,
Except EPS data) 2008 2007 % 2008 2007 %
-----------------------------------------------------------------------------------
Advertising revenue:
Retail.................. $ 99,097 $100,534 (1.4)% $226,666 $232,255 (2.4)%
National................ 11,233 12,951 (13.3) 24,815 30,854 (19.6)
Classified:
Daily newspapers:
Employment............ 15,700 20,245 (22.4) 31,067 39,395 (21.1)
Automotive............ 10,895 13,116 (16.9) 22,624 27,112 (16.6)
Real estate........... 10,530 13,728 (23.3) 22,073 28,514 (22.6)
All other............. 9,805 8,544 14.8 19,793 17,887 10.7
Other publications..... 10,849 11,488 (5.6) 21,522 22,750 (5.4)
----------------------------------------------------------------------------------
Total classified........ 57,779 67,121 (13.9) 117,079 135,658 (13.7)
Online.................. 13,494 12,555 7.5 26,969 23,422 15.1
Niche publications...... 4,530 4,204 7.8 8,174 7,765 5.3
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Total advertising revenue 186,133 197,365 (5.7) 403,703 429,954 (6.1)
-----------------------------------------------------------------------------------
Circulation.............. 49,087 49,912 (1.7) 98,892 101,948 (3.0)
Commercial printing...... 3,805 3,908 (2.6) 7,980 8,092 (1.4)
Online services & other.. 8,700 8,782 (0.9) 17,006 18,462 (7.9)
-----------------------------------------------------------------------------------
Total operating revenue.. 247,725 259,967 (4.7) 527,581 558,456 (5.5)
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Operating expenses:
Compensation............ 105,985 108,938 (2.7) 214,179 221,129 (3.1)
Newsprint and ink....... 24,349 27,086 (10.1) 49,452 58,011 (14.8)
Other operating expenses 73,250 69,658 5.2 147,376 144,581 1.9
Curtailment gains....... - (3,731) NM - (3,731) NM
-----------------------------------------------------------------------------------
Operating expenses,
excluding depreciation
and amortization........ 203,584 201,951 0.8 411,007 419,990 (2.1)
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Operating cash flow(3) ... 44,141 58,016 (23.9) 116,574 138,466 (15.8)
Depreciation............. 8,817 8,591 2.6 16,976 16,839 0.8
Amortization............. 14,868 14,933 (0.4) 29,740 29,888 (0.5)
Equity in earnings of
associated companies:
Tucson partnership..... 1,221 3,963 (69.2) 3,633 7,875 (53.9)
Madison Newspapers..... 587 1,342 (56.3) 2,476 3,935 (37.1)
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Operating income......... 22,264 39,797 (44.1) 75,967 103,549 (26.6)
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Non-operating income
(expense):
Financial income....... 1,520 1,522 (0.1) 3,316 3,031 9.4
Financial expense...... (18,824) (22,544) (16.5) (39,674) (45,979) (13.7)
Other, net............. 24 - NM 24 - NM
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(17,280) (21,022) (17.8) (36,334) (42,948) (15.4)
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Income from continuing
operations before income
taxes................... 4,984 18,775 (73.5) 39,633 60,601 (34.6)
Income tax expense....... 1,961 6,627 (70.4) 14,215 21,426 (33.7)
Minority interest........ (11) 300 NM 596 804 (25.9)
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Income from continuing
operations.............. 3,034 11,848 (74.4) 24,822 38,371 (35.3)
Discontinued operations.. (1) 43 NM 337 171 NM
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Net income............... 3,033 11,891 (74.5) 25,159 38,542 (34.7)
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Change in redeemable
minority interest
liability............... 7,483 - NM 7,483 - NM
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Net income (loss)
available to common
stockholders............ $(4,450) 11,891 NM $17,676 $38,542 (54.1)%
===================================================================================
Earnings per common share:
Basic:
Continuing operations... $(0.10) $0.26 NM % $0.38 $0.84 (54.8)%
Discontinued operations. - - NM 0.01 - NM
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$(0.10) $0.26 NM % $0.39 $0.85 (54.1)%
===================================================================================
Diluted:
Continuing operations.... $(0.10) $0.26 NM % $0.38 $0.84 (54.8)%
Discontinued operations.. - - NM 0.01 - NM
-----------------------------------------------------------------------------------
$(0.10) $0.26 NM % $0.39 $0.84 (53.6)%
===================================================================================
Average common shares:
Basic.................... 44,834 45,625 45,331 45,599
Diluted.................. 44,834 45,805 45,331 45,721
===================================================================================
SELECTED COMBINED PRINT AND ONLINE ADVERTISING REVENUE
13 Weeks 3 Months 26 Weeks 6 Months
Ended Ended Ended Ended
(Thousands, Mar 30, Mar 31, Mar 30, Mar 31,
same property) 2008 2007 % 2008 2007 %
-----------------------------------------------------------------------------------
Retail................... $100,157 $100,568 (0.4)% $228,297 $231,941 (1.6)%
Classified:
Employment.............. 23,937 28,018 (14.6) 47,062 53,123 (11.4)
Automotive.............. 15,134 17,176 (11.9) 31,710 35,492 (10.7)
Real estate............. 13,889 17,828 (22.1) 29,168 36,873 (20.9)
Other................... 17,124 16,620 3.0 34,322 33,906 1.2
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Total classified........ $ 70,084 $ 79,642 (12.0) $142,262 $159,394 (10.7)%
===================================================================================
REVENUE BY REGION
13 Weeks 3 Months 26 Weeks 6 Months
Ended Ended Ended Ended
(Thousands, Mar 30, Mar 31, Mar 30, Mar 31,
same property) 2008 2007 % 2008 2007 %
-----------------------------------------------------------------------------------
Midwest.................. $148,507 $157,748 (5.9)% $319,236 $341,376 (6.5)%
Mountain West............ 45,345 45,940 (1.3) 96,227 98,482 (2.3)
West..................... 31,025 34,228 (9.4) 66,471 73,719 (9.8)
East/Other............... 22,848 22,051 3.6 45,647 44,879 1.7
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Total.................... $247,725 $259,967 (4.7)% $527,581 $558,456 (5.5)%
===================================================================================
DAILY NEWSPAPER ADVERTISING VOLUME
13 Weeks 3 Months 26 Weeks 6 Months
Ended Ended Ended Ended
(Thousands, Mar 30, Mar 31, Mar 30, Mar 31,
same property) 2008 2007 % 2008 2007 %
-----------------------------------------------------------------------------------
Retail................... 2,945 2,982 (1.2)% 6,489 6,689 (3.0)%
National................. 161 163 (1.2) 341 365 (6.6)
Classified............... 3,382 3,660 (7.6) 6,980 7,572 (7.8)
-----------------------------------------------------------------------------------
Total.................... 6,488 6,805 (4.7)% 13,810 14,626 (5.6)%
===================================================================================
SELECTED BALANCE SHEET INFORMATION
Mar 30, Mar 31,
(Thousands) 2008 2007
-----------------------------------------------------------------------------------
Cash.............................................. $ 2,478 $ 10,821
Restricted cash and investments................... 118,560 103,560
Debt (principal amount)........................... 1,365,875 1,463,375
===================================================================================
SELECTED STATISTICAL INFORMATION
13 Weeks 3 Months 26 Weeks 6 Months
Ended Ended Ended Ended
Mar 30, Mar 31, Mar 30, Mar 31,
(Dollars in thousands) 2008 2007 % 2008 2007 %
-----------------------------------------------------------------------------------
Capital expenditures..... $ 4,778 $ 7,006 (31.8)% $10,840 $12,649 (14.3)%
Same property newsprint
volume (tonnes)......... 37,196 40,730 (8.7) 77,738 84,745 (8.3)
Same property full-time
equivalent employees.... 7,802 8,022 (2.7) 7,888 8,091 (2.5)
===================================================================================
FREE CASH FLOW(4)
13 Weeks 3 Months 26 Weeks 6 Months
Ended Ended Ended Ended
Mar 30, Mar 31, Mar 30, Mar 31,
(Thousands) 2008 2007 2008 2007
-----------------------------------------------------------------------------------
Operating income................ $22,264 $39,797 $ 75,967 $103,549
Depreciation and amortization... 25,270 25,109 49,886 49,897
Stock compensation.............. 1,610 1,855 3,124 3,964
Cash interest expense........... (19,933) (23,554) (41,864) (47,974)
Financial income................ 1,520 1,522 3,316 3,031
Cash income taxes............... (16,162) (20,476) (21,125) (40,104)
Minority interest............... 11 (300) (596) (804)
Capital expenditures............ (4,778) (7,006) (10,840) (12,649)
-----------------------------------------------------------------------------------
$ 9,802 $16,947 $ 57,868 $ 58,910
===================================================================================
NOTES:
(1) Adjusted net income and adjusted earnings per common share, which are defined
as income available to common stockholders and earnings per common share
adjusted to exclude unusual matters and those of a substantially non-recurring
nature, are non-GAAP (Generally Accepted Accounting Principles) financial
measures. Reconciliations of adjusted net income and adjusted earnings per
common share to income available to common stockholders and earnings per
common share 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) Same property comparisons exclude acquisitions and divestitures made in the
current and prior year. Same property revenue also excludes Lee's 50%
ownership in Madison and Tucson, which are reported using the equity method
of accounting. Same property comparisons also exclude corporate office costs.
(3) Operating cash flow, which is defined as operating income before depreciation,
amortization and equity in earnings of associated companies, is a non-GAAP
financial measure. See (1) above. The company believes operating cash flow
provides meaningful supplemental information because of its focus on results
from operations before depreciation and amortization and earnings from equity
investments. Reconciliations of operating cash flow to operating income, the
most directly comparable GAAP measure, are included in a table accompanying
this release.
(4) Free cash flow, which is defined as operating income, plus depreciation and
amortization, stock compensation and financial income, minus 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. The company believes free cash flow provides meaningful supplemental
information because of its focus on results from operations after inclusion or
exclusion of the several factors noted above. Reconciliations of free cash flow
to operating income, the most directly comparable GAAP measure, are included in
a table accompanying this release.
(5) The 13-week period ended March 30, 2008, had one more business day, a Sunday,
than the previous year for all except the former Pulitzer properties. There were
no day exchanges in the 26-week period.
(6) Certain amounts as previously reported have been reclassified to conform with the
current period presentation. The prior period has been restated for comparative
purposes, and the reclassifications have no impact on earnings.
(7) The company disclaims responsibility for updating information beyond the release
date.
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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 and that is based largely on the Company'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
are changes in advertising demand, newsprint prices, energy costs,
interest rates, labor costs, legislative and regulatory rulings
and other results of operations or financial conditions, difficulties
in integration of acquired businesses or maintaining employee
and customer relationships, increased capital and other costs
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 30, 2007. The words "may,"
"will," "would," "could," "believes,"
"expects," "anticipates," "intends,"
"plans," "projects," "considers"
and similar expressions generally identify 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 publicly undertake to update or revise its forward-looking
statements.
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