Lee Enterprises Reports Preliminary Results for Second Fiscal Quarter

Business Wire, April 21, 2008

Compared with a year ago, operating cash flow(2) decreased 15.8 percent to $116.6 million. Operating income, which includes equity in earnings of associated companies and depreciation and amortization, decreased 26.6 percent to $76.0 million.

Non-operating expenses, which consist primarily of financial expense, net of financial income, decreased 15.4 percent to $36.3 million. Income from continuing operations before income taxes decreased 34.6 percent to $39.6 million. Income from continuing operations decreased 35.3 percent, to $24.8 million. Net income, including discontinued operations, was $25.2 million.

Free cash flow totaled $57.9 million year to date, compared with $58.9 million a year ago. Net debt was reduced by $40.2 million year to date.

PD LLC LIABILITY

In 2000, Pulitzer Inc. (Pulitzer), which is now a wholly owned subsidiary of the company, and The Herald Company, Inc. (Herald Inc.) completed the transfer of their respective interests in the assets and operations of the St. Louis Post-Dispatch and certain related businesses to a new joint venture known as St. Louis Post-Dispatch LLC (PD LLC). Under the terms of the operating agreement governing PD LLC, Pulitzer and another subsidiary hold a 95 percent interest in the results of operations of PD LLC, and The Herald Publishing Company, LLC (Herald), as successor to Herald Inc., holds a 5 percent interest. Herald's 5 percent interest has been reported as minority interest in the company's Consolidated Statements of Income and Comprehensive Income at historical cost, plus accumulated earnings since the acquisition of Pulitzer. At March 30, 2008, this liability totaled approximately $7.7 million.

On May 1, 2010, Herald will have a one-time right to require PD LLC to redeem Herald's interest in PD LLC, together with Herald's interest in a related entity (the 2010 Redemption). The May 1, 2010, redemption price for Herald's interest will be determined pursuant to a formula. Based on this formula, the present value of the 2010 Redemption at March 30, 2008, is approximately $70.8 million. The company has concluded the remaining amount of this potential liability should be recorded in its Consolidated Balance Sheet as of March 30, 2008, with the offset primarily to goodwill in the amount of $55.6 million, and the remainder recorded as a reduction to retained earnings. The company has been disclosing this obligation since its acquisition of Pulitzer in 2005.

Recording of the liability for the 2010 Redemption at the present time will also result in a reduction of earnings per common share for the quarter ended March 30, 2008, of 17 cents, which accounts primarily for the time value of the increase in the liability since the date of acquisition of Pulitzer in 2005. The company estimates the ongoing impact on earnings per common share of up to 8 to 10 cents per year through April 2010. There is no impact on net income based on application of current accounting standards. Also, under such standards, if the 2010 Redemption does not occur, the liability and earnings per common share impact discussed above will be reversed in May 2010.