EX-99.1 2 earningsrelease2013q2.htm EARNINGS RELEASE 2013 Q2 Earnings Release


Exhibit 99.1 - Earnings Release – Second fiscal quarter ended March 31, 2013.
201 N. Harrison St.
Davenport, IA 52801
www.lee.net

NEWS RELEASE    
 
Lee Enterprises reports improved revenue trend, lower costs
 
DAVENPORT, Iowa (April 23, 2013) — Lee Enterprises, Incorporated (NYSE: LEE), a major provider of local news, information and advertising in 50 markets, today reported an improved revenue trend and continued cost reduction for its second fiscal quarter ended March 31, 2013. Preliminary(1) results reflect a loss of 12 cents per diluted common share, compared with a loss of 54 cents a year ago. Excluding unusual matters, adjusted loss per diluted common share(2) totaled 5 cents, compared with a loss of 3 cents a year ago.

“Lee continues to post strong cash flow and reduce debt ahead of schedule as we build on our ability to resume revenue growth,” said Mary Junck, chairman and chief executive officer. She also noted:

•
Revenue trends continue to improve, with total revenue down 2.4% from the same quarter a year ago, the best results in over two years.

•
Mobile advertising revenue continues to grow rapidly, up 165% over a year ago, to $1.4 million.

•
Debt was reduced $23.9 million in the quarter and more than $100 million since refinancing in January 2012.

•
As of March 31, 2013, the principal amount of debt totaled $893.0 million, 18 months ahead of plan.

SECOND QUARTER OPERATING RESULTS(3) 

Operating revenue for the 13 weeks ended March 31, 2013 totaled $160.6 million, a decrease of 2.4% compared with a year ago. Combined print and digital advertising revenue decreased 5.3% to $106.5 million, with retail advertising down 2.7%, classified down 7.0% and national down 20.1%. Combined print and digital classified employment revenue decreased 3.0%, while automotive decreased 12.6%, real estate decreased 11.0% and other classified decreased 3.8%. Digital advertising revenue on a stand-alone basis decreased 0.1% to $15.0 million. Print advertising revenue on a stand-alone basis decreased 6.1%. Circulation revenue increased 3.4%.

Operating expenses, excluding depreciation, amortization and unusual matters, decreased 2.9%. Compensation decreased 6.2%, with the average number of full-time equivalent employees down 8.2%. Newsprint and ink expense decreased 12.5%, a result of a reduction in newsprint volume of 10.5%. Other operating expenses increased 3.9%.

Operating cash flow(4) decreased 0.9% from a year ago to $31.9 million. Operating cash flow margin(4) increased to 19.9% from 19.6% a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income increased 10.3% to $18.7 million in the current year quarter, compared with $16.9 million a year ago. Non-operating expenses, primarily interest expense and debt financing costs, increased 9.8%, due to higher interest rates on debt, which were partially offset by lower debt balances. The Company recognized $36.6 million of reorganization costs in the prior year quarter. As previously reported, the Company completed the sale of The Garden Island in the quarter, resulting in a loss of $2.1 million after income taxes, which is included in discontinued

1


operations. Loss attributable to Lee Enterprises, Incorporated for the quarter totaled $6.0 million, compared with a loss of $26.6 million a year ago.

ADJUSTED EARNINGS AND EPS FOR THE QUARTER

The following table summarizes the impact from unusual matters on loss attributable to Lee Enterprises, Incorporated and loss per diluted common share. Per share amounts may not add due to rounding.
 
 
 
 
 
13 Weeks Ended
 
 
March 31
2013
 
 
March 25
2012
 
(Thousands of Dollars, Except Per Share Data)
Amount

 
Per Share

 
Amount

 
Per Share

 
 
 
 
 
 
 
 
Loss attributable to Lee Enterprises, Incorporated, as reported
(5,995
)
 
(0.12
)
 
(26,625
)
 
(0.54
)
Adjustments:
 
 
 
 
 
 
 
Debt financing and reorganization costs
1,454

 
 
 
38,635

 
 
Other, net
506

 
 
 
463

 
 
 
1,960

 
 
 
39,098

 
 
Income tax effect of adjustments, net
(689
)
 
 
 
(13,810
)
 
 
 
1,271

 
0.02

 
25,288

 
0.51

Unusual matters related to discontinued operations
2,181

 
0.04

 
48

 
—

Loss attributable to Lee Enterprises, Incorporated, as adjusted
(2,543
)
 
(0.05
)
 
(1,289
)
 
(0.03
)
 
YEAR TO DATE OPERATING RESULTS(3) 

Operating revenue for the 26 weeks ended March 31, 2013, totaled $345.3 million, a decrease of 2.9% compared with a year ago. Combined print and digital advertising revenue decreased 5.8% to $234.6 million, with retail advertising down 3.3%, classified down 7.3% and national down 22.5%. Combined print and digital classified employment revenue decreased 5.8%, while automotive decreased 9.7%, real estate decreased 11.2% and other classified decreased 4.7%. Digital advertising revenue on a stand-alone basis increased 2.4% to $31.2 million. Print advertising revenue on a stand-alone basis decreased 6.9%. Circulation revenue increased 3.7%.

Operating expenses, excluding depreciation, amortization and unusual matters, decreased 3.4%. Compensation decreased 5.5%, with the average number of full-time equivalent employees down 8.4%. Newsprint and ink expense decreased 12.8%, a result of a reduction in newsprint volume of 11.6%. Other operating expenses increased 1.6%.

Operating cash flow(4) decreased 2.0% from a year ago to $83.4 million. Operating cash flow margin increased to 24.2% from 23.9% a year ago. Including equity in earnings of associated companies, depreciation and amortization, as well as unusual matters in both years, operating income increased 4.1% to $58.2 million in the current year, compared with $55.9 million a year ago. Non-operating expenses increased 10.5% due to higher interest rates on debt, partially offset by lower debt balances and a $6.9 million gain on sale of an investment. The Company recognized $37.9 million of reorganization costs in the prior year. Loss from discontinued operations, net of income taxes totaled $1.2 million in the current year compared to $0.1 million a year ago. Income attributable to Lee Enterprises, Incorporated totaled $8.6 million, compared to a loss of $12.1 million a year ago.


2


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 income per diluted common share. Per share amounts may not add due to rounding.
 
 
 
 
 
26 Weeks Ended
 
 
March 31
2013
 
 
March 25
2012
 
(Thousands of Dollars, Except Per Share Data)
Amount

 
Per Share

 
Amount

 
Per Share

 
 
 
 
 
 
 
 
Income (loss) attributable to Lee Enterprises, Incorporated, as reported
8,575

 
0.17

 
(12,072
)
 
(0.26
)
Adjustments:
 
 
 
 
 
 
 
Debt financing and reorganization costs
3,122

 
 
 
41,776

 
 
Gain on sale of investment, net
(6,909
)
 
 
 
—

 
 
Other, net
1,309

 
 
 
742

 
 
 
(2,478
)
 
 
 
42,518

 
 
Income tax effect of adjustments, net
865

 
 
 
(15,003
)
 
 
 
(1,613
)
 
(0.03
)
 
27,515

 
0.58

Unusual matters related to discontinued operations
1,014

 
0.02

 
73

 
—

Income attributable to Lee Enterprises, Incorporated, as adjusted
7,976

 
0.15

 
15,516

 
0.33


DEBT AND FREE CASH FLOW(5) 

Debt was reduced $23.9 million in the quarter, $52.9 million for the year to date and $72.5 million in the last 12 months. At March 31, 2013, the principal amount of debt totaled $893.0 million, just under the amount projected in Lee's Plan of Reorganization for September 2014. Free cash flow from continuing operations totaled $9.8 million for the quarter, compared with $0.5 million a year ago. An increase in interest expense in the current year quarter adversely impacted free cash flow, while debt financing and reorganization costs reduced prior year results. Absent a significant increase in LIBOR, Lee expects financial expense to begin to decline in the June 2013 quarter due to lower debt balances and cycling of interest rate changes. Free cash flow in the 53 weeks ended March 2013 totaled $63.2 million, net of $8.9 million of debt financing and reorganization costs paid. Liquidity at the end of the quarter totaled $51.2 million, compared to required debt payments of $14.4 million in the next 12 months.


3


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 1.4 million Sunday, reaching nearly four million readers in print alone. Lee's websites and mobile and tablet products attracted 23.2 million unique visitors in March 2013. 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 news 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, comply with or obtain amendments or waivers of the financial covenants contained in our credit facilities, if necessary, and to refinance our debt as it comes due. Other risks and uncertainties include the impact and duration of continuing adverse conditions in certain aspects of the economy affecting our business, changes in advertising demand, potential changes in newsprint and other commodity prices, energy costs, interest rates, labor costs, legislative and regulatory rulings, difficulties in achieving planned expense reductions, maintaining employee and customer relationships, increased capital costs, maintaining 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”, “believe”, “expect”, “anticipate”, “intend”, “plan”, “project”, “consider” 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.

Contact: dan.hayes@lee.net, (563) 383-2100





4


LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
13 Weeks Ended
 
 
26 Weeks Ended
 
(Thousands of Dollars and Shares, Except Per
Share Data)
March 31
2013
March 25
2012

Percent Change

 
March 31
2013
March 25
2012

Percent Change

 
 
 
 
 
 
 
 
Advertising revenue:
 
 
 
 
 
 
 
Retail
65,583
67,400

(2.7
)
 
150,140
155,271

(3.3
)
Classified:
 
 
 
 
 
 
 
Employment
8,673
8,940

(3.0
)
 
16,366
17,378

(5.8
)
Automotive
8,303
9,500

(12.6
)
 
17,620
19,506

(9.7
)
Real estate
4,424
4,973

(11.0
)
 
9,076
10,223

(11.2
)
All other
11,510
11,959

(3.8
)
 
23,143
24,283

(4.7
)
Total classified
32,910
35,372

(7.0
)
 
66,205
71,390

(7.3
)
National
5,557
6,955

(20.1
)
 
13,376
17,251

(22.5
)
Niche publications
2,454
2,692

(8.8
)
 
4,843
5,104

(5.1
)
Total advertising revenue
106,504
112,419

(5.3
)
 
234,564
249,016

(5.8
)
Circulation
43,970
42,505

3.4

 
90,026
86,811

3.7

Commercial printing
3,121
2,971

5.0

 
6,423
6,023

6.6

Other
7,008
6,737

4.0

 
14,245
13,882

2.6

Total operating revenue
160,603
164,632

(2.4
)
 
345,258
355,732

(2.9
)
Operating expenses:
 
 
 
 
 
 
 
Compensation
64,209
68,426

(6.2
)
 
130,165
137,763

(5.5
)
Newsprint and ink
10,712
12,244

(12.5
)
 
22,886
26,234

(12.8
)
Other operating expenses
53,259
51,280

3.9

 
107,470
105,822

1.6

Workforce adjustments
512
468

9.4

 
1,315
766

71.7

 
128,692
132,418

(2.8
)
 
261,836
270,585

(3.2
)
Operating cash flow
31,911
32,214

(0.9
)
 
83,422
85,147

(2.0
)
Depreciation
5,444
5,948

(8.5
)
 
10,931
11,943

(8.5
)
Amortization
9,539
10,770

(11.4
)
 
19,093
21,544

(11.4
)
Equity in earnings of associated companies
1,733
1,430

21.2

 
4,778
4,241

12.7

Operating income
18,661
16,926

10.3

 
58,176
55,901

4.1



5


CONSOLIDATED STATEMENTS OF OPERATIONS, continued
 
 
 
 
 
 
 
 
 
 
 
 
 
13 Weeks Ended
 
 
26 Weeks Ended
 
(Thousands of Dollars and Shares, Except Per Share Data)
March 31
2013

March 25
2012

Percent Change

 
March 31
2013

March 25
2012

Percent Change

 
 
 
 
 
 
 
 
Non-operating income (expense):
 
 
 
 
 
 
 
Financial income
5

54

(90.7
)
 
85

109

(22.0
)
Financial expense
(22,933
)
(20,312
)
12.9

 
(46,399
)
(33,064
)
40.3

Debt financing costs
(42
)
(715
)
(94.1
)
 
(89
)
(2,739
)
(96.8
)
Other, net
(61
)
—

NM

 
6,946

—

NM

 
(23,031
)
(20,973
)
9.8

 
(39,457
)
(35,694
)
10.5

Income (loss) before reorganization costs and income taxes
(4,370
)
(4,047
)
8.0

 
18,719

20,207

(7.4
)
Reorganization costs
—

36,626

NM

 
—

37,867

NM

Income (loss) before income taxes
(4,370
)
(40,673
)
(89.3
)
 
18,719

(17,660
)
NM

Income tax expense (benefit)
(808
)
(14,416
)
(94.4
)
 
8,640

(5,882
)
NM

Income (loss) from continuing operations
(3,562
)
(26,257
)
(86.4
)
 
10,079

(11,778
)
NM

Discontinued operations, net of income taxes
(2,293
)
(285
)
NM

 
(1,247
)
(141
)
NM

Net income (loss)
(5,855
)
(26,542
)
(77.9
)
 
8,832

(11,919
)
NM

Net income attributable to non-controlling interests
(140
)
(83
)
68.7

 
(257
)
(153
)
68.0

Income (loss) attributable to Lee Enterprises, Incorporated
(5,995
)
(26,625
)
(77.5
)
 
8,575

(12,072
)
NM

 
 
 
 
 
 
 
 
Income (loss) from continuing operations attributable to Lee Enterprises, Incorporated
(3,702
)
(26,340
)
(85.9
)
 
9,822

(11,931
)
NM

 
 
 
 
 
 
 
 
Earnings (loss) per common share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
(0.07
)
(0.53
)
(86.8
)
 
0.19

(0.25
)
NM

Discontinued operations
(0.04
)
(0.01
)
NM

 
(0.02
)
—

NM

 
(0.12
)
(0.54
)
(77.8
)
 
0.17

(0.26
)
NM

 
 
 
 
 
 
 
 
Diluted:
 
 
 
 
 
 
 
Continuing operations
(0.07
)
(0.53
)
(86.8
)
 
0.19

(0.25
)
NM

Discontinued operations
(0.04
)
(0.01
)
NM

 
(0.02
)
—

NM

 
(0.12
)
(0.54
)
(77.8
)
 
0.17

(0.26
)
NM

 
 
 
 
 
 
 
 
Average common shares:
 
 
 
 
 
 
 
Basic
51,796

49,552

 
 
51,795

47,242

 
Diluted
51,796

49,552

 
 
51,866

47,242

 


6


FREE CASH FLOW FROM CONTINUING OPERATIONS
 
13 Weeks Ended
 
 
26 Weeks Ended
 
 
53 Weeks Ended

(Thousands of Dollars)
March 31
2013

March 25
2012

 
March 31
2013

March 25
2012

 
March 31
2013

 
 
 
 
 
 
 
 
Operating income
18,661

16,926

 
58,176

55,901

 
105,696

Depreciation and amortization
15,164

16,899

 
30,385

33,848

 
62,399

Impairment of goodwill and other assets
—

—

 
—

—

 
1,388

Stock compensation
364

244

 
730

489

 
1,308

Financial income
5

54

 
85

109

 
212

Cash interest expense
(21,521
)
(19,084
)
 
(43,367
)
(31,961
)
 
(89,694
)
Debt financing and reorganization costs paid
—

(13,319
)
 
(40
)
(23,455
)
 
(8,885
)
Cash income tax benefit (paid)
(93
)
8

 
(333
)
(124
)
 
931

Non-controlling interests
(140
)
(83
)
 
(257
)
(153
)
 
(503
)
Capital expenditures
(2,621
)
(1,129
)
 
(4,809
)
(3,040
)
 
(9,612
)
Total
9,819

516

 
40,570

31,614

 
63,240


REVENUE BY REGION
 
13 Weeks Ended
 
 
26 Weeks Ended
 
(Thousands of Dollars)
March 31
2013

March 25
2012

Percent Change

 
March 31
2013

March 25
2012

Percent Change

 
 
 
 
 
 
 
 
Midwest
99,875

102,069

(2.1
)
 
216,610

224,112

(3.3
)
Mountain West
31,561

32,402

(2.6
)
 
67,669

69,838

(3.1
)
West
10,470

11,282

(7.2
)
 
22,777

24,088

(5.4
)
East/Other
18,697

18,879

(1.0
)
 
38,202

37,694

1.3

Total
160,603

164,632

(2.4
)
 
345,258

355,732

(2.9
)

SELECTED BALANCE SHEET INFORMATION
(Thousands of Dollars)
March 31
2013

March 25
2012

 
 
 
Cash
21,246

29,655

Debt (Principal Amount)
893,000

965,500


SELECTED STATISTICAL INFORMATION
 
13 Weeks Ended
 
 
26 Weeks Ended
 
 
March 31
2013

March 25
2012

Percent Change

 
March 31
2013

March 25
2012

Percent Change

 
 
 
 
 
 
 
 
Capital expenditures (Thousands of Dollars)
2,621

1,129

NM

 
4,809

3,040

58.2

Newsprint volume (Tonnes)
16,161

18,054

(10.5
)
 
33,873

38,311

(11.6
)
Average full-time equivalent employees
4,770

5,194

(8.2
)
 
4,838

5,284

(8.4
)
Shares outstanding (Thousands of Shares)


 
 
52,296

51,701

1.2



7


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 final information.

 
 
(2)
Adjusted income (loss) and adjusted earnings (loss) per common share, which 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, are non-GAAP (Generally Accepted Accounting Principles) financial measures. Reconciliations of adjusted income (loss) and adjusted earnings (loss) per common share to income (loss) attributable to Lee Enterprises, Incorporated, and earnings (loss) per common share are included in tables 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.
 
 
(3)
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.
 
 
 
Results of North County Times operations and The Garden Island operations have been reclassified as discontinued operations for all periods presented.
 
 
(4)
Operating cash flow, which is defined as operating income (loss) 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. See (2) above. Reconciliations of operating cash flow to operating income (loss), the most directly comparable GAAP measure, are included in a table accompanying this release.
 
 
(5)
Free cash flow from continuing operations, which is defined as operating income (loss), 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 (2) above. Reconciliations of free cash flow from continuing operations to operating income (loss), the most directly comparable GAAP measure, are included in a table accompanying this release. Changes in working capital, asset sales and discontinued operations are excluded.

8