Lee Enterprises Reports Second Quarter Earnings

DAVENPORT, Iowa--(BUSINESS WIRE)--Lee Enterprises, Incorporated (NYSE: LEE), reported today that diluted earnings per common share from continuing operations were 26 cents for its second fiscal quarter ended March 31, 2007, compared with 30 cents a year ago.

Including discontinued operations, net income for the quarter totaled 26 cents per diluted common share, compared with 32 cents a year ago.

“Online advertising revenue climbed 54 percent in the quarter, and that rapid growth continues to offset softness in print advertising, particularly classified employment, automotive and real estate,” said Mary Junck, Lee chairman and chief executive officer. “Our rollout of Yahoo! HotJobs over the last two months has received a terrific reception, and our customers have already placed more than 30,000 postings on the network. While that rollout still gathers momentum, we are moving quickly on new initiatives with Yahoo and other top newspaper companies to extend our online advertising capabilities and attract even larger audiences to our sites. At the same time, we remain keenly focused on driving print revenue, increasing print and online audiences, emphasizing strong local news and controlling costs.”

Total revenue for the quarter from continuing operations decreased 1.7 percent from a year ago to $261.7 million. Total advertising revenue decreased 2.2 percent, with online advertising up 53.9 percent and national down 8.3 percent. On a combined basis, print and online retail advertising decreased 1.5 percent, and classified advertising decreased 2.0 percent. Print-only retail advertising declined 2.8 percent, and print-only classified decreased 6.5 percent. Circulation revenue declined 1.5 percent.

On a same property ⁽¹⁾ basis, which excludes the impact of acquisitions and divestitures made in the current or prior year, total revenue for the quarter decreased 1.9 percent from a year ago.

The quarter included one fewer Sunday and one additional Saturday compared with a year ago, affecting year-over-year comparisons, as Sundays normally generate substantially more print advertising revenue than any other day of the week. Day exchanges affect newspapers owned before the Pulitzer acquisition, which account for about 60 percent of revenue. The former Pulitzer newspapers use period accounting and are not affected by day exchanges.

Total operating expenses, excluding depreciation and amortization, decreased 1.3 percent for the quarter, reflecting lower newsprint costs, along with curtailment gains related to defined pension benefit and postretirement medical plans in the current year, and early retirement and transition costs in the prior year. Other operating expenses increased 4.8 percent, reflecting revenue initiatives in print and online.

Same property operating expenses, excluding unusual items, depreciation and amortization, increased 1.6 percent over a year ago, with compensation up 0.2 percent, newsprint and ink down 2.4 percent, and other operating expenses up 5.6 percent.

Operating cash flow ⁽²⁾ decreased 3.2 percent to $58.4 million. Operating income, which includes equity in earnings of associated companies and depreciation and amortization, decreased 8.0 percent to $40.0 million. Non-operating expenses, which are primarily financial expense, declined 4.8 percent to $21.0 million. Income from continuing operations before income taxes decreased 11.2 percent to $18.9 million. Income from continuing operations decreased 11.1 percent, to $11.9 million. Net income decreased 17.6 percent to $11.9 million.

YEAR TO DATE

For the six months ended March 31, 2007, total revenue from continuing operations increased 0.7 percent from a year ago to $562.2 million. Total advertising revenue increased 0.2 percent, with online advertising up 53.5 percent and national down 2.9 percent. On a combined basis, print and online retail advertising increased 0.4 percent, and classified advertising also increased 0.4 percent. Print-only retail advertising declined 0.7 percent, and print-only classified decreased 3.5 percent. Circulation revenue declined 0.1 percent.

On a same property ⁽¹⁾ basis, which excludes the impact of acquisitions and divestitures made in the current or prior year, total revenue for the six months increased 0.4 percent from a year ago.

Total operating expenses, excluding depreciation and amortization, for the six months decreased 0.8 percent, reflecting lower newsprint costs, along with curtailment gains related to the freezing of defined pension benefit plans for certain employees and modifications in defined postretirement medical benefits for certain employees in the current year, and early retirement and transition costs in the prior year. Other operating expenses increased 5.9 percent, reflecting revenue initiatives in print and online.

Same property operating expenses, excluding unusual items, depreciation and amortization, increased 2.1 percent for the six months compared with a year ago, with compensation up 0.2 percent, newsprint and ink up 1.1 percent, and other operating expenses up 5.6 percent.

There were no significant day exchanges for the six months, as the first fiscal quarter included an additional Sunday compared with a year ago, and the second quarter contained one fewer. At Lee’s 50 percent partnership in Tucson, which uses calendar year period accounting, a 53rd week of the 2006 calendar year was recognized in December 2006. Tucson results are reported as equity in earnings of associated companies. The remaining former Pulitzer enterprises will record a 53rd week in September 2007.

Operating cash flow ⁽²⁾ increased 5.3 percent to $139.3 million. Operating income, which includes equity in earnings of associated companies and depreciation and amortization, increased 4.2 percent to $104.0 million. Non-operating expenses, which are primarily financial expense, declined 4.1 percent to $42.9 million. Income from continuing operations before income taxes increased 10.9 percent to $61.0 million. Income from continuing operations increased 10.9 percent, to $38.6 million. Net income increased 3.6 percent to $38.5 million.

For the first and second fiscal quarters combined, diluted earnings per common share from continuing operations were 84 cents, compared with 77 cents a year ago.

Tables follow.

Lee Enterprises is a premier provider of local news, information and advertising in primarily midsize markets, with 51 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 more than 11 million visits monthly, and Lee’s weekly publications are distributed to more than 4.5 million households. Lee’s 55 markets include St. Louis, Mo.; Lincoln, Neb.; Madison, Wis.; Davenport, Iowa; Billings, Mont.; Bloomington, Ill.; Tucson, Ariz.; and Napa, Calif. Lee is based in Davenport, Iowa, and its stock is traded on the New York Stock Exchange under the symbol LEE. For more information about Lee Enterprises, please visit www.lee.net.

ADJUSTED EARNINGS AND EPS ⁽³⁾

The following tables summarize the impact on income from continuing operations and earnings per diluted common share from unusual costs and one-time items. Per share amounts may not add due to rounding.

		Three Months Ended March 31
		2007						2006
(Thousands, except EPS)		Amount			Per Share			Amount			Per Share
Income from continuing operations, as reported
		$	11,945		$	0.26		$	13,441		$	0.30
Adjustments to income from continuing operations:
Curtailment gains			(3,731)					-
Curtailment gains, Tucson			(1,037)					-
Early retirement program		-							281
Transition costs		-							801
			(4,768)						1,082
Income tax expense (benefits) of adjustments, net
			1,683						(388)
			(3,085)			(0.07)			694			0.02
Income from continuing operations, as adjusted
		$	8,860		$	0.19		$	14,135		$	0.31
		Six Months Ended March 31
		2007						2006
(Thousands, except EPS)		Amount			Per Share			Amount			Per Share
Income from continuing operations, as reported
		$	38,634		$	0.84		$	34,835		$	0.77
Adjustments to income from continuing operations:
Curtailment gains			(3,731)					-
Curtailment gains, Tucson			(1,037)					-
Early retirement program		-							8,654
Transition costs		-							1,153
			(4,768)						9,807
Income tax expense (benefits) of adjustments, net
			1,683						(3,521)
			(3,085)			(0.07)			6,286			0.14
Income from continuing operations, as adjusted
		$	35,549		$	0.78		$	41,121		$	0.90

LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
		Three Months Ended									Six Months Ended
		March 31									March 31
(Thousands, Except EPS Data)		2007			2006			%			2007			2006			%
Advertising revenue:
Retail		$	101,298		$	104,188		(2.8)	%		$	233,941		$	235,533		(0.7)	%
National			12,954			14,121		(8.3)				30,856			31,779		(2.9)
Classified:
Daily newspapers:
Employment			20,424			22,738		(10.2)				39,717			42,865		(7.3)
Automotive			13,144			14,573		(9.8)				27,182			28,786		(5.6)
Real estate			13,861			14,962		(7.4)				28,752			30,348		(5.3)
All other			8,604			9,151		(6.0)				18,061			18,292		(1.3)
Other publications			11,624			10,926		6.4				23,048			21,405		7.7
Total classified			67,657			72,350		(6.5)				136,760			141,696		(3.5)
Online			12,595			8,185		53.9				23,508			15,319		53.5
Niche publications			4,318			4,476		(3.5)				7,917			7,889		0.4
Total advertising revenue			198,822			203,320		(2.2)				432,982			432,216		0.2
Circulation			50,119			50,903		(1.5)				102,390			102,490		(0.1)
Commercial printing			3,922			4,146		(5.4)				8,132			8,466		(3.9)
Online services & other			8,797			7,821		12.5				18,646			15,263		22.2
Total operating revenue			261,660			266,190		(1.7)				562,150			558,435		0.7
Operating expenses:
Compensation			109,668			109,393		0.3				222,680			220,316		1.1
Newsprint and ink			27,235			28,511		(4.5)				58,336			58,671		(0.6)
Other operating expenses			70,096			66,892		4.8				145,542			137,376		5.9
Curtailment gains			(3,731)		-			NM				(3,731)		-			NM
Transition costs		-				801		NM			-				1,153		NM
Early retirement program		-				281		NM			-				8,654		NM
Operating expenses, excluding depreciation and amortization
			203,268			205,878		(1.3)				422,827			426,170		(0.8)
Operating cash flow(2)			58,392			60,312		(3.2)				139,323			132,265		5.3
Depreciation			8,691			8,005		8.6				17,038			16,039		6.2
Amortization			15,059			13,924		8.2				30,140			27,771		8.5
Equity in earnings of associated companies:
Tucson partnership			3,963			3,550		11.6				7,875			7,688		2.4
Madison Newspapers			1,342			1,467		(8.5)				3,935			3,632		8.3
Operating income			39,947			43,400		(8.0)				103,955			99,775		4.2
Non-operating income (expense):
Financial income			1,522			1,610		(5.5)				3,031			2,966		2.2
Financial expense			(22,544)			(23,694)		(4.9)				(45,979)			(47,731)		(3.7)
			(21,022)			(22,084)		(4.8)				(42,948)			(44,765)		(4.1)
Income from continuing operations before income taxes
			18,925			21,316		(11.2)				61,007			55,010		10.9
Income tax expense			6,680			7,611		(12.2)				21,569			19,652		9.8
Minority interest			300			264		13.6				804			523		53.7
Income from continuing operations
			11,945			13,441		(11.1)				38,634			34,835		10.9
Discontinued operations			(54)			994		NM				(92)			2,364		NM
Net income		$	11,891		$	14,435		(17.6)	%		$	38,542		$	37,199		3.6	%
Earnings per common share:
Basic:
Continuing operations		$	0.26		$	0.30		(13.3)	%		$	0.85		$	0.77		10.4	%
Discontinued operations		-				0.02		NM			-				0.05		NM
		$	0.26		$	0.32		(18.8)	%		$	0.85		$	0.82		3.7	%
Diluted:
Continuing operations		$	0.26		$	0.30		(13.3)	%		$	0.84		$	0.77		9.1	%
Discontinued operations		-				0.02		NM			-				0.05		NM
		$	0.26		$	0.32		(18.8)	%		$	0.84		$	0.82		2.4	%
Average common shares:
Basic			45,625			45,390						45,599			45,325
Diluted			45,805			45,526						45,721			45,462

SELECTED BALANCE SHEET INFORMATION
		March 31
(Thousands)			2007			2006
Cash		$	10,821		$	7,918
Restricted cash and investments			103,560			88,560
Debt (principal amount)			1,463,375			1,606,000

SELECTED STATISTICAL INFORMATION
		Three Months Ended									Six Months Ended
		March 31									March 31
(Dollars in thousands)			2007			2006		%				2007			2006		%
Capital expenditures		$	7,004		$	6,446		8.7	%		$	12,705		$	11,485		10.6	%
Same property newsprint volume (tonnes)
			40,938			42,665		(4.0)				85,198			89,238		(4.5)
Same property full-time equivalent employees
			8,063			8,147		(1.0)				8,137			8,242		(1.3)

NOTES:

(1) 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.

(2) 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. Reconciliations of
    operating cash flow to operating income, the most directly
    comparable measure under accounting principles generally accepted
    in the United States (GAAP), are included in tables accompanying
    this release.

(3) Adjusted earnings from continuing operations and adjusted earnings
    per common share, which are defined as income from continuing
    operations and earnings per common share adjusted to exclude
    matters of a substantially non-recurring nature, represent
    non-GAAP financial measures. Reconciliations of adjusted earnings
    from continuing operations and adjusted EPS to income from
    continuing operations and earnings per common share are included
    in tables accompanying this release.

(4) 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.

(5) The Company disclaims responsibility for updating information
    beyond the release date.

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 and increased capital and other costs. 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.