Lee Enterprises Reports Preliminary Earnings for First Fiscal Quarter

Lee Enterprises, Incorporated (NYSE:LEE), reported today that preliminary diluted earnings per common share from continuing operations were 15 cents for its first fiscal quarter ended Dec. 28, 2008, compared with 48 cents a year ago. Excluding unusual items⁽¹⁾, earnings were 21 cents per share, compared with 48 cents a year ago.

The preliminary amounts do not include the possible impact of additional impairment charges. Such charges would not impact cash flows but would reduce reported earnings per common share. An estimate of such charges, if any are determined to be necessary, will be included in financial statements to be filed with the Securities and Exchange Commission in the company's Form 10-Q on or before Feb. 6, 2009.

Mary Junck, chairman and chief executive officer, said:

"We are reducing costs aggressively in this extraordinary time while still protecting our position as the premier provider of news, information and advertising in our local markets. We reduced staffing by more than 10 percent in our first quarter and have since announced additional reductions in many locations. We have outsourced or consolidated printing in several locations so far, and we also have begun outsourcing distribution where opportunities exist to reduce costs. Among steps to conserve newsprint, all of our newspapers are moving to narrower page widths. We also have discontinued less profitable specialty publications. As a result of those steps and many others, we expect to reduce cash costs in 2009 by 10-11 percent.

"Regarding debt, we are encouraged by the decision of the Pulitzer Noteholders to extend their waiver to allow time for us to complete negotiations with them and our bank lenders. Also, as part of our plan to return to compliance with New York Stock Exchange listing standards, we will ask the stockholders at our annual meeting to authorize the board of directors to implement a reverse stock split, if necessary. We continue to believe that Lee will emerge strong when the economy recovers.”

Total operating revenue from continuing operations for the quarter decreased 13.0 percent from a year ago to $243.6 million. Combined print and online advertising revenue decreased 15.2 percent to $184.6 million, with retail advertising down 9.8 percent, and classified down 27.1 percent. Combined print and online employment advertising revenue decreased 42.6 percent, automotive decreased 23.2 percent and real estate decreased 29.7 percent. Online advertising revenue declined 13.8 percent, with online retail advertising up 19.1 percent and online classified advertising down 31.5 percent. National advertising revenue decreased 5.4 percent. Circulation revenue declined 4.5 percent.

Operating expenses, excluding unusual items, depreciation and amortization, decreased 8.6 percent to $189.6 million. Compensation, excluding unusual items, declined 12.7 percent, with full-time equivalent employees down 10.6 percent. Newsprint and ink expense increased 0.2 percent and other cash costs decreased 5.6 percent.

Operating cash flow⁽²⁾ decreased 26.6 percent compared with a year ago to $53.1 million. Operating income, which includes equity in earnings of associated companies, depreciation and amortization, decreased 37.6 percent to $33.5 million.

Non-operating expense, which consists primarily of financial expense, net of financial income, decreased 1.7 percent to $18.7 million. Income from continuing operations before income taxes decreased 57.3 percent to $14.8 million. Income from continuing operations decreased 64.0 percent to $7.8 million. Net income available to common stockholders decreased 69.3 percent to $6.8 million.

Free cash flow⁽³⁾ totaled $30.2 million for the quarter, compared with $48.1 million a year ago.

ADJUSTED EARNINGS AND EPS⁽¹⁾

Unusual items affecting year-over-year comparisons for the quarter included, in 2008, workforce adjustments at several locations, a curtailment gain, reduction in the value of certain press equipment no longer in use, and an adjustment for the current value of the company’s future liability related to acquisition of the 5 percent minority share in its St. Louis partnership. The following table summarizes the impact from unusual items on income available to common stockholders and earnings per diluted common share. Per share amounts may not add due to rounding.

IMPAIRMENT CHARGES

In fiscal 2008, Lee recorded after-tax non-cash charges totaling $893.7 million to reduce the carrying value of goodwill, other assets and the company's investment in TNI Partners. The charges have no effect on cash flows but reduce reported earnings per common share. Many public companies have been required to reduce the carrying value of their intangible assets as a result of significant declines in equity market value and other events. Impairment testing is performed in accordance with generally accepted accounting principles, which, among other factors, requires consideration of differences between current book value and the estimated fair value of the company's net assets, and comparison of the estimated fair value of the company's net assets to its current market capitalization.

ABOUT LEE

Lee Enterprises is a premier provider of local news, information and advertising in primarily midsize markets, with 49 daily newspapers and a joint interest in four others, online sites and more than 300 specialty publications in 23 states. 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.

FORWARD-LOOKING STATEMENTS — 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, that is based largely on the Company’s (as defined below) 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 of continuing adverse economic conditions, potential changes in advertising demand, 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 and other results of operations or financial conditions, difficulties in maintaining employee and customer relationships, increased capital and other costs, competition and other risks detailed from time to time in the Company’s publicly filed documents. 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 undertake to publicly update or revise its forward-looking statements.