EX-99.1 2 earningsrelease2011q1.htm EARNINGS RELEASE WebFilings | EDGAR view
 

Exhibit 99.1 - Earnings Release – First fiscal quarter ended December 26, 2010.
201 N. Harrison St.
Davenport, IA 52801
www.lee.net
 
NEWS RELEASE
 
Lee Enterprises posts 38% growth in digital ad revenue
 
DAVENPORT, Iowa (January 18, 2011) — Lee Enterprises, Incorporated (NYSE: LEE) reported today that for its first fiscal quarter ended December 26, 2010, digital advertising sales increased 37.8 percent compared with a year ago, while the decline in total revenue moderated to 1.0 percent, as forecast. Cash costs decreased 2.0 percent, more than forecast, and operating cash flow(1) increased 1.8 percent.
 
Earnings per diluted common share were 42 cents, compared with 62 cents a year ago. Excluding non-cash curtailment gains and other unusual matters in both years, adjusted earnings per diluted common share(2) increased to 29 cents from 22 cents a year ago.
 
Mary Junck, chairman and chief executive officer, said:
 
“Our digital growth continues at an aggressive pace. In addition to our 38 percent growth in digital advertising revenue, we're up 25 percent in online unique visitors and 256 percent in mobile page views. As we introduce more new digital services and as the economy further recovers, we expect total revenue comparisons will continue to improve.
 
“In driving our strong digital growth, we have established robust mobile sites in all our markets, along with separate smartphone applications in most locations. Last fall we rolled out additional mobile apps in 19 markets providing in-depth coverage of local sports. Also, we have expanded our digital product portfolio to meet the increasing needs of our customers with capabilities for video, local business directories, digital couponing and search engine optimization.
 
“All by themselves, our newspapers remain, by far, the primary source of local news, information and advertising in our communities. Our online sites and digital products are expanding that reach through smartphones, e-readers and tablets. The result is a huge, growing audience spanning all ages. Our latest independent research shows that, over the course of a week, our newspapers and digital products touch 82 percent of all adults in our larger markets and 77 percent of 18- to 29-year-olds. In many of our smaller markets, our reach is even higher."
 
FIRST QUARTER OPERATING RESULTS
 
Operating revenue for the quarter totaled $207.7 million, a decline of 1.0 percent compared with a year ago. Combined print and digital advertising revenue decreased 1.7 percent to $151.8 million, with retail advertising down 1.9 percent, national down 5.8 percent and classified down 0.2 percent. Combined print and digital employment advertising revenue increased 12.7 percent. Automotive increased 8.4 percent, real estate decreased 20.3 percent and other classified decreased 1.4 percent. Digital advertising revenue on a stand-alone basis increased 37.8 percent to $14.7 million, representing 9.7 percent of total advertising revenue. Digital retail advertising revenue increased 49.1 percent and digital classified advertising increased 7.3 percent.
 

1
 

Lee's digital sites attracted 51.4 million unique visitors during the quarter, an increase of 25.1 percent from a year ago, with approximately 517.0 million page views. The number of mobile page views grew 256 percent to 25.8 million. Circulation revenue increased 0.8 percent, the company's first quarterly increase since 2007.
 
Operating expenses, excluding depreciation and amortization, decreased 2.0 percent. Compensation declined 5.0 percent, with the average number of full-time equivalent employees down 3.2 percent. Newsprint and ink expense increased 23.5 percent, a result of higher prices partially offset by a reduction in newsprint volume of 2.8 percent. Other operating expenses decreased 2.9 percent. Despite the increased cost of newsprint, operating expenses, excluding depreciation, amortization and unusual matters, are expected to increase less than 1 percent for the year.
 
Operating cash flow increased 1.8 percent from a year ago to $54.1 million. Operating cash flow margin(1) increased to 26.1 percent from 25.3 percent a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income totaled $49.2 million, compared with $67.8 million a year ago, due to a smaller curtailment gain in the current year quarter. Operating income margin was 23.7 percent in the current year quarter. Non-operating expenses, primarily interest expense and debt financing costs, declined $5.9 million. Income attributable to Lee Enterprises, Incorporated totaled $18.9 million, compared with $27.9 million a year ago.
 
CURTAILMENT GAIN
 
A $10.2 million pretax non-cash curtailment gain resulted from changes during the quarter to postretirement medical plans for certain retirees. In addition, the plan changes reduced benefit liabilities by $15.1 million.
 
ADJUSTED EARNINGS AND EPS FOR THE QUARTER
 
Unusual matters affecting year-over-year comparisons consist primarily of curtailment gains in both years. 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
 
December 26
 
 
December 27
 
 
2010
 
 
2009
 
(Thousands of Dollars, Except Per Share Data)
Amount
 
 
Per Share
 
 
Amount
 
 
Per Share
 
 
 
 
 
 
 
 
 
Income attributable to Lee Enterprises, Incorporated, as reported
18,945
 
 
0.42
 
 
27,907
 
 
0.62
 
Adjustments(3):
 
 
 
 
 
 
 
Curtailment gains
(10,172
)
 
 
 
(31,130
)
 
 
Other, net
313
 
 
 
 
789
 
 
 
 
(9,859
)
 
 
 
(30,341
)
 
 
Income tax effect of adjustments, net, and other unusual tax matters
3,917
 
 
 
 
12,487
 
 
 
 
(5,942
)
 
(0.13
)
 
(17,854
)
 
(0.40
)
Income attributable to Lee Enterprises, Incorporated, as adjusted(3)
13,003
 
 
0.29
 
 
10,053
 
 
0.22
 
 
DEBT AND FREE CASH FLOW(4)
 
Debt was reduced $29.7 million in the quarter, compared with $7.1 million in the prior year quarter. Debt, net of changes in cash, has been reduced $111.4 million in the last 12 months.
 
Carl Schmidt, vice president, chief financial officer and treasurer, said Lee remains in compliance with financial covenants and expects to continue repaying debt primarily with ongoing cash flow. Liquidity(5) at the end of the quarter totaled $103.8 million, which is comparable to the September 2010 level, and compares to $82.0 million of debt repayments due in the next four quarters.
 

2
 

Free cash flow totaled $41.1 million for the quarter, an 18.4 percent increase from $34.7 million a year ago. Free cash flow in the last 12 months totaled $110.6 million.
 
ABOUT LEE
  
Lee Enterprises is a premier provider of local news, information and advertising in primarily midsize markets, with 49 daily newspapers and a joint interest in four others, rapidly growing digital products and nearly 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 digital sites attract more than 19 million unique visitors monthly. 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.
 
 
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 26, 2010. 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.
 
Contact: dan.hayes@lee.net, (563) 383-2100
 
 
 
 

3
 

LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
13 Weeks Ended
(Thousands of Dollars and Shares, Except Per Share Data)
December 26 2010
 
 
December 27 2009
 
 
Percent Change
 
 
 
 
 
 
 
Advertising revenue:
 
 
 
 
 
Retail
91,491
 
 
94,779
 
 
(3.5
)
Classified:
 
 
 
 
 
Daily newspapers:
 
 
 
 
 
Employment
5,244
 
 
4,789
 
 
9.5
 
Automotive
5,957
 
 
6,405
 
 
(7.0
)
Real estate
4,997
 
 
6,371
 
 
(21.6
)
All other
11,089
 
 
11,179
 
 
(0.8
)
Other publications
6,400
 
 
6,599
 
 
(3.0
)
Total classified
33,687
 
 
35,343
 
 
(4.7
)
Digital
14,674
 
 
10,649
 
 
37.8
 
National
9,003
 
 
10,645
 
 
(15.4
)
Niche publications
2,911
 
 
2,986
 
 
(2.5
)
Total advertising revenue
151,766
 
 
154,402
 
 
(1.7
)
Circulation
45,478
 
 
45,115
 
 
0.8
 
Commercial printing
3,052
 
 
2,931
 
 
4.1
 
Digital services and other
7,372
 
 
7,390
 
 
(0.2
)
Total operating revenue
207,668
 
 
209,838
 
 
(1.0
)
Operating expenses:
 
 
 
 
 
Compensation
78,020
 
 
82,136
 
 
(5.0
)
Newsprint and ink
15,674
 
 
12,693
 
 
23.5
 
Other operating expenses
59,669
 
 
61,477
 
 
(2.9
)
Workforce adjustments
192
 
 
397
 
 
(51.6
)
 
153,555
 
 
156,703
 
 
(2.0
)
Operating cash flow
54,113
 
 
53,135
 
 
1.8
 
Depreciation
6,523
 
 
7,362
 
 
(11.4
)
Amortization
11,283
 
 
11,320
 
 
(0.3
)
Curtailment gains
10,172
 
 
31,130
 
 
(67.3
)
Equity in earnings of associated companies
2,705
 
 
2,190
 
 
23.5
 
Operating income
49,184
 
 
67,773
 
 
(27.4
)
 

4
 

CONSOLIDATED STATEMENTS OF OPERATIONS, continued
 
 
 
13 Weeks Ended
(Thousands of Dollars and Shares, Except Per Share Data)
December 26 2010
 
 
December 27 2009
 
 
Percent Change
 
 
 
 
 
 
 
Non-operating income (expense):
 
 
 
 
 
Financial income
59
 
 
54
 
 
9.3
 
Financial expense
(13,437
)
 
(19,804
)
 
(32.2
)
Debt financing costs
(1,966
)
 
(1,995
)
 
(1.5
)
Other, net
(453
)
 
—
 
 
NM
 
 
(15,797
)
 
(21,745
)
 
(27.4
)
Income before income taxes
33,387
 
 
46,028
 
 
(27.5
)
Income tax expense
14,407
 
 
18,069
 
 
(20.3
)
Net income
18,980
 
 
27,959
 
 
(32.1
)
Net income attributable to non-controlling interests
(35
)
 
(52
)
 
(32.7
)
Income attributable to Lee Enterprises, Incorporated
18,945
 
 
27,907
 
 
(32.1
)
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
Basic
0.42
 
 
0.63
 
 
(33.3
)
Diluted
0.42
 
 
0.62
 
 
(32.3
)
 
 
 
 
 
 
Average common shares:
 
 
 
 
 
Basic
44,680
 
 
44,531
 
 
 
Diluted
44,680
 
 
44,759
 
 
 
 
FREE CASH FLOW
 
13 Weeks
Ended
 
52 Weeks Ended
(Thousands of Dollars)
December 26 2010
 
 
December 27 2009
 
 
December 26 2010
 
 
 
 
 
 
 
Operating income
49,184
 
 
67,773
 
 
128,603
 
Depreciation and amortization
18,109
 
 
18,926
 
 
73,518
 
Impairment of goodwill and other assets
—
 
 
—
 
 
3,290
 
Curtailment gains
(10,172
)
 
(31,130
)
 
(24,054
)
Stock compensation
519
 
 
685
 
 
1,811
 
Cash interest expense
(13,574
)
 
(19,960
)
 
(57,352
)
Debt financing costs paid
(93
)
 
—
 
 
(646
)
Financial income
59
 
 
54
 
 
416
 
Cash income tax benefit (paid)
(1,795
)
 
1,271
 
 
(6,819
)
Non-controlling interests
(35
)
 
(52
)
 
(56
)
Capital expenditures
(1,105
)
 
(2,868
)
 
(8,071
)
Total
41,097
 
 
34,699
 
 
110,640
 

5
 

SELECTED COMBINED PRINT AND DIGITAL ADVERTISING REVENUE
 
13 Weeks Ended
(Thousands of Dollars)
December 26 2010
 
 
December 27 2009
 
 
Percent Change
 
 
 
 
 
 
 
Retail
96,457
 
 
98,294
 
 
(1.9
)
National
10,299
 
 
10,929
 
 
(5.8
)
 
 
 
 
 
 
Classified:
 
 
 
 
 
Automotive
11,092
 
 
10,230
 
 
8.4
 
Employment
8,745
 
 
7,762
 
 
12.7
 
Real estate
6,736
 
 
8,455
 
 
(20.3
)
Other
15,525
 
 
15,747
 
 
(1.4
)
Total classified
42,098
 
 
42,194
 
 
(0.2
)
 
REVENUE BY REGION
 
13 Weeks Ended
(Thousands of Dollars)
December 26 2010
 
 
December 27 2009
 
 
Percent Change
 
 
 
 
 
 
 
Midwest
125,929
 
 
126,375
 
 
(0.4
)
Mountain West
38,957
 
 
39,615
 
 
(1.7
)
West
23,797
 
 
24,952
 
 
(4.6
)
East/Other
18,985
 
 
18,896
 
 
0.5
 
Total
207,668
 
 
209,838
 
 
(1.0
)
 
DAILY NEWSPAPER ADVERTISING VOLUME
 
13 Weeks Ended
(Thousands of Inches)
December 26 2010
 
 
December 27 2009
 
 
Percent Change
 
 
 
 
 
 
 
Retail
2,922
 
 
2,860
 
 
2.1
 
Classified
2,687
 
 
2,708
 
 
(0.8
)
National
116
 
 
151
 
 
(23.1
)
Total
5,725
 
 
5,719
 
 
0.1
 
 
SELECTED BALANCE SHEET INFORMATION
(Thousands of Dollars)
December 26 2010
 
 
December 27 2009
 
 
 
 
 
Cash
17,007
 
 
10,594
 
Restricted cash and investments
5,123
 
 
9,363
 
Debt (principal amount)
1,051,940
 
 
1,161,169
 

6
 

SELECTED STATISTICAL INFORMATION
 
13 Weeks Ended
 
December 26 2010
 
 
December 27 2009
 
 
Percent Change
 
 
 
 
 
 
 
Capital expenditures (thousands of dollars)
1,105
 
 
2,868
 
 
(61.5
)
Newsprint volume (tonnes)
22,801
 
 
23,454
 
 
(2.8
)
Average full-time equivalent employees
6,099
 
 
6,298
 
 
(3.2
)
 
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 financial measures. Reconciliations of operating cash flow to operating income, 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 attributable to Lee Enterprises, Incorporated, and earnings per common share adjusted to exclude both unusual matters and those of a substantially non-recurring nature, are non-GAAP (Generally Accepted Accounting Principles) financial measures. See (1) above. Reconciliations of adjusted net income and adjusted earnings per common share to income attributable to Lee Enterprises, Incorporated, and earnings per common share are included in tables in this release.
 
 
(3)
In 2010 and 2009, adjusted earnings and adjusted earnings per common share included adjustments to remove debt financing costs, due to significant debt financing costs charged to expense in 2009. 2011 and 2010 debt financing costs do not contain any usual comparative differences. Accordingly, this adjustment has been removed. As a result, 2010 adjusted earnings and adjusted earnings per common share will differ from amounts previously reported.
 
 
(4)
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, the most directly comparable GAAP measure, are included in a table accompanying this release. Changes in working capital are excluded.
 
 
(5)
Liquidity is defined as the sum of cash, restricted cash and revolving credit facility availability.
 
 
(6)
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.
 
 

7