Published: November 08, 2010
Lee Enterprises Reports Continued Earnings Growth in Fiscal Q4
Lee Enterprises, Incorporated (NYSE: LEE)
reported today that for its fourth fiscal quarter ended September 26, 2010,
earnings per diluted common share were 11 cents, compared with 4 cents a
year ago. Excluding adjustments for unusual matters(1) in both years,
earnings per diluted common share were 16 cents, compared with 5 cents a
year ago.
Lower interest expense, overall reduction in operating expenses and strong
digital revenue growth contributed to the results, while newsprint costs
increased and total year-over-year revenue performance mirrored the
previous quarter.
Mary Junck, chairman and chief executive officer, said: "The economic
recovery in our markets stalled a bit in the September quarter, but the
revenue trend improved markedly in October, and we expect the improvement
to continue in November, as we continue ratcheting up digital sales, which
have been growing at a double-digit clip since February. In 2010, we have
been building on our rapid digital audience growth by providing local news
and information through mobile apps for smartphones, and this fall we have
begun rolling out apps with extensive coverage of local prep and college
sports. As technology and media choices continue to evolve, we are making
sure that our newspapers and digital products remain, by far, the primary
source of local news, information and advertising in our communities,
reaching more than 80 percent of all adults."
FOURTH QUARTER RESULTS
Operating revenue for the quarter totaled $188.7 million, a decline of 3.7
percent from a year ago. Combined print and digital advertising revenue
decreased 4.4 percent to $134.3 million, with retail advertising down 4.4
percent, national down 11.7 percent and classified down 3.5 percent.
Combined print and digital employment advertising revenue grew for the
second consecutive quarter, up 7.9 percent in the September quarter.
Automotive decreased 1.6 percent for the quarter but increased in
September. Real estate decreased 19.5 percent for the quarter and other
classified decreased 1.7 percent. Digital advertising revenue on a
stand-alone basis increased 22.4 percent to $12.5 million, representing 9.3
percent of total advertising revenue. Digital retail advertising revenue
climbed 38.6 percent and digital classified revenue rose 8.1 percent.
Circulation revenue declined 1.2 percent.
Operating expenses, excluding depreciation, amortization and impairment
charges in the prior year, decreased 3.1 percent. Newsprint and ink expense
increased 40.2 percent, a result of price increases and accounting
adjustments. Last-in first-out (LIFO) newsprint accounting charges were
$3.3 million unfavorable compared to the prior year quarter, as prices were
decreasing in 2009 but increasing throughout 2010. Excluding such charges,
newsprint and ink expense increased 7.8 percent for the quarter. Newsprint
volume declined 6.2 percent. Compensation expense declined 4.6 percent,
with the average number of full-time equivalent employees down 5.4 percent.
Operating costs, excluding depreciation and amortization, are expected to
be down more than 1 percent in the December 2010 quarter in spite of higher
newsprint costs.
Operating cash flow(2) decreased 5.9 percent from a year ago to $38.1
million. Operating cash flow margin(2) was 20.2 percent. Including equity in
earnings of associated companies, depreciation and amortization, as well as
unusual matters in both years, operating income totaled $22.6 million,
compared with $21.0 million a year ago. Operating income margin was 12.0
percent in the current year quarter. Non-operating expenses, primarily
interest expense and debt financing costs, declined 24.4 percent to $16.9
million from $22.3 million. Year end adjustments to income tax liabilities
reduced the effective income tax rate for the quarter. Income attributable
to Lee Enterprises, Incorporated totaled $5.2 million, compared with $1.8
million a year ago.
ADJUSTED EARNINGS AND EPS FOR THE QUARTER
Unusual matters affecting year-over-year comparisons include debt financing
costs in both years and impairment charges in 2009. 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
-------------------------------------------
Sept 26 Sept 27
2010 2009
--------------------- ---------------------
(Thousands, Except Per Share) Amount Per Share Amount Per Share
---------- ---------- ---------- ----------
Income attributable to Lee
Enterprises, Incorporated, as
reported $ 5,189 $ 0.11 $ 1,755 $ 0.04
Adjustments:
Impairment of goodwill and
other assets -- 1,381
Debt financing costs 2,550 1,833
Other, net 465 2,095
---------- ---------- ---------- ----------
3,015 5,309
Income tax effect of
adjustments, net, and other
unusual tax matters (1,020) (4,651)
---------- ---------- ---------- ----------
1,995 0.04 658 0.01
---------- ---------- ---------- ----------
Income attributable to Lee
Enterprises, Incorporated, as
adjusted $ 7,184 $ 0.16 $ 2,413 $ 0.05
========== ========== ========== ==========
AUDIENCES
The number of unique visitors at Lee digital platforms totaled 48.9 million
in the quarter, an increase of 27.1 percent from a year ago.
Paid newspaper circulation, in the six-month Audit Bureau of Circulations
Fas-Fax period ended September 30, 2010, decreased 3.9 percent daily and
4.9 percent Sunday, compared with industry average declines of 4.9 percent
daily and 4.4 percent Sunday. Factors contributing to the declines include
selective price increases and general economic conditions.
The latest Lee Enterprises Audience Report, for the January-June 2010
survey period in Lee's top 12 markets, shows that overall audience reach
remains strong at 66 percent of adults either reading the newspaper or
visiting the newspaper website over the course of a week. An additional 16
percent used the newspaper in some way, such as accessing advertising or
other information, for a total reach among all adults of 82 percent in a
week. The report, from Thoroughbred Research, carries an overall margin of
error of 1 percentage point.
FISCAL 2010 RESULTS
Operating revenue for the year totaled $780.6 million, a decline of 7.3
percent compared with a year ago. Combined print and digital advertising
revenue decreased 8.9 percent to $560.1 million, with retail advertising
down 8.1 percent, national down 11.6 percent and classified down 9.9
percent. Combined print and digital employment advertising revenue
decreased 14.8 percent, automotive decreased 10.4 percent, real estate
decreased 19.5 percent and other classified declined 0.6 percent. Digital
advertising revenue on a stand-alone basis increased 12.4 percent to $47.3
million. Circulation revenue declined 2.9 percent. Operating expenses,
excluding depreciation, amortization and impairment charges in both years,
decreased 9.7 percent, with compensation down 6.9 percent and newsprint and
ink down 24.7 percent.
Operating cash flow increased 2.3 percent compared with a year ago to
$170.9 million. Operating cash flow margin was 21.9 percent. Including
equity in earnings of associated companies, depreciation and amortization,
as well as curtailment gains, impairment charges and other unusual matters,
operating income totaled $147.2 million, compared with an operating loss of
$173.4 million a year ago. Operating income margin was 18.9 percent for the
year. Non-operating expenses, primarily interest expense and debt financing
costs, declined 18.8 percent. Income attributable to Lee Enterprises,
Incorporated totaled $46.1 million, compared with a loss of $123.2 million
a year ago.
FISCAL 2010 ADJUSTED EARNINGS AND EPS
For the year, earnings per diluted common share were $1.03, compared with a
loss of $2.77 a year ago. Excluding adjustments for unusual matters,
earnings per diluted common share were $0.71, more than double $0.35 a year
ago.
Unusual matters affecting year-over-year comparisons include, in 2010,
curtailment gains and the impact of health care legislation. Impairment
charges and debt financing costs impact both years. Also, $71.3 million of
the liability related to the redemption of the minority interest in St.
Louis initially recorded in 2008 was reversed in 2009, increasing 2009
results by $57.1 million. The following table summarizes the impact from
unusual matters on income (loss) attributable to Lee Enterprises,
Incorporated and earnings (loss) per diluted common share. Per share
amounts may not add due to rounding.
52 Weeks Ended
---------------------------------------------------
Sept 26 Sept 27
2010 2009
------------------------- -------------------------
(Thousands, Except Per
Share) Amount Per Share Amount Per Share
------------ ------------ ------------ ------------
Income (loss)
attributable to Lee
Enterprises,
Incorporated, as
reported $ 46,105 $ 1.03 $ (123,191) $ (2.77)
Adjustments:
Impairment of goodwill
and other assets,
including TNI 3,290 265,904
Curtailment gains (45,012) --
Debt financing costs 8,514 17,467
Other, net 1,960 6,848
------------ ------------ ------------ ------------
(31,248) 290,219
Income tax effect of
adjustments, net, and
other unusual tax
matters 17,167 (94,518)
------------ ------------ ------------ ------------
(14,081) (0.31) 195,701 4.40
------------ ------------ ------------ ------------
Net income, as adjusted 32,024 0.71 72,510 1.63
Change in redeemable
non-controlling
interest liability -- -- (57,055) (1.28)
------------ ------------ ------------ ------------
Income attributable to
Lee Enterprises,
Incorporated, as
adjusted $ 32,024 $ 0.71 $ 15,455 $ 0.35
============ ============ ============ ============
DEBT AND FREE CASH FLOW(3)
Debt was reduced $20.4 million in the quarter, compared with $20.0 million
in the prior year quarter, and has been reduced $86.7 million year to date.
Debt, net of changes in cash, has been reduced $98.6 million in the last 12
months. Debt repayments to date in the December 2010 quarter total $12.5
million and already exceed repayments in the full December quarter in 2009.
Carl Schmidt, vice president, chief financial officer and treasurer, said:
"Lee readily meets all financial covenants and expects to continue repaying
debt primarily with ongoing cash flow. Liquidity(4) at the end of the
quarter totaled $104.7 million, which is improved from the June 2010 level,
and compares to $81.5 million of debt repayments due in the next four
quarters."
Free cash flow totaled $19.6 million for the quarter, compared with $20.4
million a year ago. Timing of income tax payments accounts for the decline
in the quarter. For the year, free cash flow increased 82.9 percent and
totaled $104.2 million, compared with $57.0 million in 2009.
ABOUT LEE
Lee Enterprises is a leading provider of local news, information and
advertising in primarily midsize markets, with 49 daily newspapers and a
joint interest in four others, 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 16 million unique
visits monthly, and Lee's weekly publications have distribution of four
million households. Lee's markets include St. Louis, Mo.; Lincoln, Neb.;
Madison, Wis.; Davenport, Iowa; Billings, Mont.; Bloomington, Ill.; and
Tucson, Ariz. Lee stock is traded on the New York Stock Exchange under the
symbol LEE. For more information about Lee, please visit www.lee.net.
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
13 Weeks Ended 52 Weeks Ended
------------------------- ------------------------------
(Thousands,
Except Per Sept 26 Sept 27 Sept 26
Share) 2010 2009 % 2010 Sept 27 2009 %
-------- -------- ------- --------- ------------ -------
Advertising
revenue:
Retail $ 74,760 $ 79,828 (6.3)% $ 322,961 $ 358,104 (9.8)%
Classified:
Daily
newspapers:
Employment 5,719 5,550 3.0 21,393 26,489 (19.2)
Automotive 6,233 6,754 (7.7) 25,063 30,465 (17.7)
Real estate 5,698 7,302 (22.0) 23,587 30,066 (21.5)
All other 11,789 12,063 (2.3) 46,039 44,635 3.1
Other
publica-
tions 7,246 7,367 (1.6) 27,762 30,660 (9.5)
-------- -------- ------- --------- ------------ -------
Total
classified 36,685 39,036 (6.0) 143,844 162,315 (11.4)
Digital 12,466 10,183 22.4 47,290 42,073 12.4
National 7,172 8,300 (13.6) 33,749 39,047 (13.6)
Niche
publications 3,244 3,181 2.0 12,260 13,135 (6.7)
-------- -------- ------- --------- ------------ -------
Total
advertising
revenue 134,327 140,528 (4.4) 560,104 614,674 (8.9)
-------- -------- ------- --------- ------------ -------
Circulation 44,646 45,192 (1.2) 179,851 185,154 (2.9)
Commercial
printing 2,861 2,887 (0.9) 11,762 12,895 (8.8)
Digital services
and other 6,826 7,219 (5.4) 28,931 29,307 (1.3)
-------- -------- ------- --------- ------------ -------
Total operating
revenue 188,660 195,826 (3.7) 780,648 842,030 (7.3)
-------- -------- ------- --------- ------------ -------
Operating
expenses:
Compensation 75,893 79,533 (4.6) 315,698 339,014 (6.9)
Newsprint and
ink 15,063 10,741 40.2 54,436 72,311 (24.7)
Other
operating
expenses 59,236 63,121 (6.2) 238,191 257,060 (7.3)
Workforce
adjustments
and
transition
costs 337 1,920 (82.4) 1,420 6,650 (78.6)
-------- -------- ------- --------- ------------ -------
150,529 155,315 (3.1) 609,745 675,035 (9.7)
-------- -------- ------- --------- ------------ -------
Operating cash
flow 38,131 40,511 (5.9) 170,903 166,995 2.3
Depreciation 6,593 8,048 (18.1) 27,971 32,807 (14.7)
Amortization 11,274 11,000 2.5 45,208 46,792 (3.4)
Impairment of
goodwill and
other assets -- 1,381 NM 3,290 245,953 (98.7)
Curtailment
gains -- -- -- 45,012 -- NM
Equity in
earnings of
associated
companies:
Madison
Newspapers 837 641 30.6 3,566 2,609 36.7
TNI Partners 1,509 229 NM 4,180 2,511 66.5
Reduction in
investment in
TNI Partners -- -- -- -- 19,951 NM
-------- -------- ------- --------- ------------ -------
Operating income
(loss) 22,610 20,952 7.9 147,192 (173,388) NM
-------- -------- ------- --------- ------------ -------
CONSOLIDATED STATEMENTS OF OPERATIONS, continued
Non-operating income (expense):
Financial
income 149 10 NM 411 1,886 (78.2)
Financial
expense (13,315) (20,503) (35.1) (63,117) (75,425) (16.3)
Debt
financing
costs (2,550) (1,833) 39.1 (8,514) (17,467) (51.3)
Other,
net (1,172) -- NM (1,172) 1,823 NM
----------- ----------- ------- ----------- ------------ -------
(16,888) (22,326) (24.4) (72,392) (89,183) (18.8)
----------- ----------- ------- ----------- ------------ -------
Income (loss)
from
continuing
operations
before
income
taxes 5,722 (1,374) NM 74,800 (262,571) NM
Income tax
expense
(benefit) 523 (3,156) NM 28,622 (82,509) NM
----------- ----------- ------- ----------- ------------ -------
Income
(loss)
from
continuing
operations 5,199 1,782 NM 46,178 (180,062) NM
Discontinued
operations -- -- -- -- (5) NM
----------- ----------- ------- ----------- ------------ -------
Net income
(loss) 5,199 1,782 NM 46,178 (180,067) NM
----------- ----------- ------- ----------- ------------ -------
Net income
attributable
to non-
controlling
interests 10 27 (63.0) 73 179 (59.2)
Decrease
in
redeemable
non-
controlling
interest -- -- -- -- 57,055 NM
----------- ----------- ------- ----------- ------------ -------
Income
(loss)
attributable
to Lee
Enterprises,
Incorpor-
ated $ 5,189 $ 1,755 NM $ 46,105 $ (123,191) NM
=========== =========== ======= =========== ============ =======
Income
(loss)
from
continuing
operations
attributable
to Lee
Enterprises,
Incorpor-
ated $ 5,189 $ 1,755 NM $ 46,105 $ (123,186) NM
=========== =========== ======= =========== ============ =======
Earnings
(loss)
per
common
share:
Basic:
Continuing
opera-
tions $ 0.12 $ 0.04 NM $ 1.03 $ (2.77) NM
Discontinued
opera-
tions -- -- -- -- -- --
----------- ----------- ------- ----------- ------------ -------
$ 0.12 $ 0.04 NM $ 1.03 $ (2.77) NM
=========== =========== ======= =========== ============ =======
Diluted:
Continuing
opera-
tions $ 0.11 $ 0.04 NM $ 1.03 $ (2.77) NM
Discontinued
opera-
tions -- -- -- -- -- --
----------- ----------- ------- ----------- ------------ -------
$ 0.11 $ 0.04 NM $ 1.03 $ (2.77) NM
=========== =========== ======= =========== ============ =======
Average
common
shares:
Basic 44,564 44,461 44,555 44,442
Diluted 45,246 45,349 44,955 44,442
=========== =========== ======= =========== ============ =======
FREE CASH FLOW
13 Weeks Ended 52 Weeks Ended
------------------------- -------------------------
(Thousands) Sept 26 2010 Sept 27 2009 Sept 26 2010 Sept 27 2009
------------ ------------ ------------ ------------
Operating income
(loss) $ 22,610 $ 20,952 $ 147,192 $ (173,388)
Depreciation and
amortization 18,171 19,381 74,335 81,024
Impairment of goodwill
and other assets -- 1,381 3,290 245,953
Reduction in investment
in TNI Partners -- -- -- 19,951
Curtailment gains -- -- (45,012) --
Stock compensation 405 676 1,977 3,013
Cash financial expense (13,470) (20,676) (63,738) (79,231)
Debt financing costs
paid (553) (56) (553) (26,061)
Financial income 149 10 411 1,886
Cash income tax benefit
(paid) (4,518) 476 (3,753) (5,260)
Non-controlling
interests (10) (27) (73) (179)
Capital expenditures (3,145) (1,738) (9,834) (10,702)
------------ ------------ ------------ ------------
Total $ 19,639 $ 20,379 $ 104,242 $ 57,006
============ ============ ============ ============
SELECTED COMBINED PRINT AND DIGITAL ADVERTISING REVENUE
13 Weeks Ended 52 Weeks Ended
---------------------------- --------------------------
Sept 26 Sept 27 Sept 26 Sept 27
(Thousands) 2010 2009 % 2010 2009 %
--------- --------- -------- --------- --------- ------
Retail $ 78,961 $ 82,587 (4.4)% $ 339,219 $ 369,304 (8.1)%
National 7,582 8,588 (11.7) 35,352 39,988 (11.6)
Classified:
Employment 9,683 8,974 7.9 35,470 41,626 (14.8)
Automotive 10,328 10,496 (1.6) 40,823 45,574 (10.4)
Real estate 7,755 9,637 (19.5) 31,647 39,331 (19.5)
Other 16,776 17,065 (1.7) 65,332 65,715 (0.6)
--------- --------- -------- --------- --------- ------
Total
classified $ 44,542 $ 46,172 (3.5)% $ 173,272 $ 192,246 (9.9)%
========= ========= ======== ========= ========= ======
REVENUE BY REGION
13 Weeks Ended 52 Weeks Ended
---------------------------- ----------------------------
Sept 26 Sept 27 Sept 26 Sept 27
(Thousands) 2010 2009 % 2010 2009 %
--------- --------- -------- --------- --------- --------
Midwest $ 112,570 $ 115,419 (2.5)% $ 466,775 $ 502,534 (7.1)%
Mountain West 36,759 38,107 (3.5) 149,053 158,852 (6.2)
West 22,017 24,153 (8.8) 92,805 102,953 (9.9)
East/Other 17,314 18,147 (4.6) 72,015 77,691 (7.3)
--------- --------- -------- --------- --------- --------
Total $ 188,660 $ 195,826 (3.7)% $ 780,648 $ 842,030 (7.3)%
========= ========= ======== ========= ========= ========
DAILY NEWSPAPER ADVERTISING VOLUME
13 Weeks Ended 52 Weeks Ended
------------------------- ------------------------
Sept 26 Sept 27 Sept 26 Sept 27
(Thousands of Inches) 2010 2009 % 2010 2009 %
-------- -------- ------- -------- -------- ------
Retail 2,447 2,560 (4.4)% 10,287 10,993 (6.4)%
National 96 116 (17.9) 475 488 (2.7)
Classified 2,944 2,952 (0.3) 11,137 11,607 (4.0)
-------- -------- ------- -------- -------- ------
Total 5,487 5,628 (2.5)% 21,899 23,088 (5.2)%
======== ======== ======= ======== ======== ======
SELECTED BALANCE SHEET INFORMATION
(Thousands) Sept 26 2010 Sept 27 2009
------------------- -------------------
Cash $ 19,422 $ 7,905
Restricted cash and investments 9,623 9,324
Debt (principal amount) 1,081,590 1,168,335
=================== ===================
SELECTED STATISTICAL INFORMATION
13 Weeks Ended 52 Weeks Ended
------------------------- ------------------------
(Dollars in Sept 26 Sept 27 Sept 26 Sept 27
Thousands) 2010 2009 % 2010 2009 %
-------- -------- ------- -------- -------- ------
Capital expenditures $ 3,145 $ 1,738 81.0% $ 9,834 $ 10,702 (8.1)%
Newsprint volume
(tonnes) 22,153 23,608 (6.2)% 90,127 103,324 (12.8)%
Average full-time
equivalent employees 6,100 6,445 (5.4)% 6,164 6,718 (8.2)%
======== ======== ======= ======== ======== ======
NOTES:
(1) Adjusted net income and adjusted earnings 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 net income and adjusted earnings per common share to income (loss)
attributable to Lee Enterprises, Incorporated, and earnings (loss) per
common share are included in tables in 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) 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. See (1) above. Reconciliations of operating cash flow to
operating income (loss), the most directly comparable GAAP measure, are
included in a table accompanying this release.
(3) Free cash flow, which is defined as operating income, plus depreciation
and amortization, impairment charges, stock compensation, financial income
and cash income tax benefit, minus curtailment gains, financial expense
(exclusive of non-cash amortization and accretion), cash income taxes,
capital expenditures and minority interest, is a non-GAAP financial
measure. See (1) above. Reconciliations of free cash flow to operating
income (loss), the most directly comparable GAAP measure, are included in a
table accompanying this release. Changes in working capital are excluded.
(4) Liquidity is defined as the sum of cash, restricted cash and revolving
credit facility availability.
(5) Certain amounts as previously reported have been reclassified to
conform with the current period presentation. The prior period has been
adjusted for comparative purposes, and the reclassifications have no impact
on earnings.
FORWARD-LOOKING STATEMENTS -- The Private Securities Litigation Reform Act
of 1995 provides a "safe harbor" for forward-looking statements. This news
release contains information that may be deemed forward-looking that is
based largely on Lee Enterprises, Incorporated's current expectations, and
is subject to certain risks, trends and uncertainties that could cause
actual results to differ materially from those anticipated. Among such
risks, trends and other uncertainties, which in some instances are beyond
its control, are the Company's ability to generate cash flows and maintain
liquidity sufficient to service its debt, and comply with or obtain
amendments or waivers of the financial covenants contained in its credit
facilities, if necessary. Other risks and uncertainties include the impact
and duration of continuing adverse economic conditions, changes in
advertising demand, potential changes in newsprint and other commodity
prices, energy costs, interest rates and the availability of credit due to
instability in the credit markets, labor costs, legislative and regulatory
rulings, difficulties in achieving planned expense reductions, maintaining
employee and customer relationships, increased capital costs, competition
and other risks detailed from time to time in the Company's publicly filed
documents, including the Company's Annual Report on Form 10-K for the year
ended September 27, 2009. Any statements that are not statements of
historical fact (including statements containing the words "may," "will,"
"would," "could," "believes," "expects," "anticipates," "intends," "plans,"
"projects," "considers" and similar expressions) generally should be
considered forward-looking statements. Readers are cautioned not to place
undue reliance on such forward-looking statements, which are made as of the
date of this release. The Company does not undertake to publicly update or
revise its forward-looking statements.
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