Lee Enterprises Reports Earnings for Third Fiscal Quarter

Business Wire, July 20, 2006

DAVENPORT, Iowa -- Lee Enterprises, Incorporated (NYSE:LEE), reported today that diluted earnings per common share were 50 cents for its third fiscal quarter ended June 30, 2006, compared with 41 cents a year ago, reflecting unusual costs in both years related to the acquisition of Pulitzer Inc. in June 2005.

Transition costs and a re-evaluation of intangible assets related to the acquisition of Pulitzer reduced diluted earnings per common share from continuing operations by 11 cents in the current year quarter. In 2005, transition costs and loss on early extinguishment of debt reduced earnings by 17 cents. Earnings in both the current and prior year reflect the impact of stock compensation expense, which Lee has been recognizing since October 2002.

Mary Junck, chairman and chief executive officer, said: "Exceptionally strong online advertising, niche product growth and an improved showing in retail allowed us to deliver another good quarter and meet earnings expectations, adjusted for some unusual events. Revenue growth continues to vary widely region by region in a still-uneven economic climate, but our audience growth advances across the board. We're driving larger online audiences while maintaining our solid circulation base, and in this past quarter 36 of our newspapers reported circulation gains. Meanwhile, a full year after the acquisition, we remain on course with Pulitzer and believe we've set the stage for future growth."

On a reported basis, which includes the addition of Pulitzer for the full quarter in the current year and one month of Pulitzer in the previous year, advertising revenue for the quarter increased 40.6 percent from a year ago to $234.4 million, with growth of 35.9 percent in retail, 36.6 percent in classified and 86.7 percent in national. Online advertising revenue increased 105.5 percent, and niche advertising rose 38.9 percent. Circulation revenue increased 36.3 percent. Total operating revenue increased 38.2 percent to $301.1 million.

On a same property (1) basis, which excludes the impact of Pulitzer and other acquisitions and divestitures made in the current or prior year, total advertising revenue for the quarter increased 1.8 percent from a year ago, with retail up 0.9 percent, classified down 0.4 percent, national down 8.0 percent and online advertising revenue up 44.3 percent. Circulation revenue increased 0.4 percent, and total operating revenue increased 1.3 percent.

Operating expenses, on a reported basis, excluding depreciation and amortization, increased 39.2 percent to $218.5 million for the quarter, also reflecting the acquisition of Pulitzer. Newsprint and ink expense increased 50.5 percent, compensation increased 32.2 percent, and other expenses increased 47.3 percent.

Same property expenses, excluding depreciation and amortization, increased 3.2 percent in the quarter, with newsprint and ink up 9.1 percent, compensation up 1.8 percent, and other operating expenses up 2.9 percent.

Operating cash flow (2) increased 35.5 percent to $82.6 million, including acquisitions and related costs. Operating income, which includes equity in earnings of associated companies and depreciation and amortization, increased 21.3 percent to $59.1 million. Non-operating expenses, which include financial expense related to Pulitzer, totaled $22.0 million, compared with $19.2 million a year ago. As a result, income before income taxes increased 25.8 percent to $37.1 million. Net income increased 21.5 percent to $22.7 million.

YEAR TO DATE

For the nine months ended June, diluted earnings per common share total $1.32, compared with $1.41 a year ago.

Transition costs, an early retirement program and a re-evaluation of intangible assets related to the acquisition of Pulitzer reduced diluted earnings per common share by 25 cents in the current year. In 2005, transition costs and loss on early extinguishment of debt related to Pulitzer reduced earnings by 17 cents.

On a reported basis, including acquisitions, advertising revenue for the nine months increased 58.1 percent to $682.4 million, and total operating revenue increased 54.1 percent to $879.5 million. Operating expenses, excluding depreciation and amortization, rose 59.6 percent to $660.1 million. On a same property basis, advertising revenue increased 1.6 percent, total operating revenue increased 0.8 percent, and operating expenses, excluding depreciation and amortization, increased 3.2 percent.

Operating cash flow increased 39.7 percent, to $219.5 million. Operating income rose 29.5 percent to $162.7 million. Income before income taxes decreased 5.3 percent to $96.0 million. Net income decreased 6.0 percent to $59.9 million.

INTANGIBLE ASSETS

The Company, based on its most recent analysis and in conjunction with its ongoing requirement to assess the estimated useful lives of intangible assets, has concluded that the period of economic benefit of certain identified intangible assets related to the Pulitzer acquisition has decreased. As a result, the weighted-average useful life of customer lists will be decreased prospectively from approximately 21 years to 17 years.