UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended December 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-6227
Lee Enterprises, Incorporated
A Delaware Corporation I.D. #42-0823980
215 N. Main Street
Davenport, Iowa 52801
Phone: (319) 383-2100
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding At December 31, 1998
Common Stock, $2.00 par value 32,775,310
Class "B" Common Stock, $2.00 par value 11,546,055
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
LEE ENTERPRISES, INCORPORATED
consolidated statements of income
(In Thousands, Except Per Share Data)
1998 1997
- -------------------------------------------------------------------------
(Unaudited)
Three Months Ended December 31:
Operating revenue:
Publishing:
Daily newspapers:
Advertising ........................... $ 54,890 $ 52,005
Circulation ........................... 20,689 20,791
Other .................................... 28,716 25,059
Broadcasting ............................... 35,590 31,255
Equity in net income of associated companies 2,242 2,149
--------------------
142,127 131,259
--------------------
Operating expenses:
Compensation costs ......................... 51,303 47,668
Newsprint and ink .......................... 10,828 10,562
Depreciation ............................... 5,085 4,620
Amortization of intangibles ................ 4,403 4,456
Other ...................................... 35,708 33,855
--------------------
107,327 101,161
--------------------
Operating income ................... 34,800 30,098
--------------------
Financial (income) expense, net
Financial (income) ......................... (1,216) (530)
Financial expense .......................... 4,266 3,706
--------------------
3,050 3,176
--------------------
Income before taxes on income ...... 31,750 26,922
Income taxes .................................. 12,111 10,338
--------------------
Net income ......................... $ 19,639 $ 16,584
====================
Average outstanding shares:
Basic ...................................... 44,268 45,316
====================
Diluted .................................... 44,843 46,025
====================
Earnings per share:
Basic ...................................... $ 0.44 $ 0.37
====================
Diluted .................................... $ 0.44 $ 0.36
====================
Dividends per share ........................... $ 0.15 $ 0.14
====================
<PAGE>
LEE ENTERPRISES, INCORPORATED
condensed consolidated balance sheets
(In Thousands)
<TABLE>
December 31, September 30,
ASSETS 1998 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
Cash and cash equivalents ............................................... $ 39,888 $ 16,941
Accounts receivable, net ................................................ 68,403 61,880
Newsprint inventory ..................................................... 2,384 3,878
Program rights and other ................................................ 14,451 16,892
------------------
Total current assets ...................................... 125,126 99,591
Investments ............................................................. 27,406 26,471
Property and equipment, net ............................................. 132,027 128,372
Intangibles and other assets ............................................ 401,650 406,151
------------------
$686,209 $660,585
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ..................................................... $111,430 $ 98,061
Long-term debt, less current maturities ................................. 186,039 186,028
Deferred items .......................................................... 57,848 56,737
Stockholders' equity .................................................... 330,892 319,759
------------------
$686,209 $660,585
==================
</TABLE>
<PAGE>
LEE ENTERPRISES, INCORPORATED
Condensed consolidated statements of cash flows
(In Thousands)
<TABLE>
Three Months Ended December 31: 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
Cash Provided by Operations:
Net income ................................................. $ 19,639 $ 16,584
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization ........................... 9,488 9,076
Distributions in excess of current earnings of associated
companies ............................................. 1,758 1,813
Other balance sheet changes ............................. 2,975 3,282
-------------------
Net cash provided by operations ................. 33,860 30,755
-------------------
Cash (Required for) Investing Activities:
Purchase of property and equipment ......................... (8,870) (4,347)
Other ...................................................... (42) (95)
-------------------
Net cash (required for) investing activities .... (8,912) (4,442)
-------------------
Cash (Required for) Financing Activities:
Purchase of Lee Common Stock ............................... (2,126) (22,482)
Proceeds from short-term notes payable, net ................ - - 5,000
Other ...................................................... 125 153
-------------------
Net cash (required for) financing activities .... (2,001) (17,329)
-------------------
Net increase in cash and cash equivalents ....... 22,947 8,984
Cash and cash equivalents:
Beginning .................................................. 16,941 14,163
-------------------
Ending ..................................................... $ 39,888 $ 23,147
===================
</TABLE>
<PAGE>
Lee Enterprises, Incorporated
Notes to unaudited condensed consolidated financial information
- -------------------------------------------------------------------------------
Note 1. Basis of Presentation
The information furnished reflects all adjustments, consisting of normal
recurring accruals, which are, in the opinion of management, necessary to a fair
presentation of the financial position as of December 31, 1998 and the results
of operations and cash flows for the three months ended December 31, 1998 and
1997.
Note 2. Investment in Associated Companies
Condensed operating results of Madison Newspapers, Inc. (50% owned) and other
unconsolidated associated companies are as follows:
<TABLE>
Three Months Ended
December 31,
------------------
1998 1997
-----------------
(In Thousands)
(Unaudited)
<S> <C> <C>
Revenues ....................................................... $23,591 $21,785
Operating expenses, except depreciation and amortization ....... 15,627 14,245
Income before depreciation and amortization, interest, and taxes 7,964 7,540
Depreciation and amortization .................................. 793 712
Operating income ............................................... 7,171 6,828
Financial income ............................................... 323 333
Income before income taxes ..................................... 7,494 7,161
Income taxes ................................................... 3,032 2,885
Net income ..................................................... 4,462 4,276
</TABLE>
Note 3. Cash Flows Information
The components of other balance sheet changes are:
<TABLE>
Three Months Ended
December 31,
-------------------
1998 1997
-------------------
(In Thousands)
(Unaudited)
<S> <C> <C>
(Increase) in receivables ............................................... $ (7,960) $ (7,536)
Decrease in inventories, film rights and other .......................... 1,746 2,452
(Decrease) in accounts payable, accrued expenses and
unearned income ...................................................... (1,798) (855)
Increase in income taxes payable ........................................ 10,800 9,311
Other ................................................................... 187 (90)
-------------------
$ 2,975 $ 3,282
===================
</TABLE>
<PAGE>
Note 4. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share amounts):
Three Months Ended
December 31,
---------------------
1998 1997
----------------------
(Unaudited)
(In Thousands)
Numerator, income applicable to common
shares, net income ............................ $19,639 $16,584
======================
Denominator:
Basic, weighted average common shares
outstanding ................................ 44,268 45,316
Dilutive effect of employee stock options ..... 575 709
---------------------
Diluted outstanding shares ......... 44,843 46,025
=====================
Earnings per share:
Basic ......................................... $ 0.44 $ 0.37
Diluted ....................................... 0.44 0.36
Note 5. Change in Accounting Principles
In June 1997, the FASB issued Statement No. 130 "Reporting Comprehensive Income"
and Statement No. 131 "Disclosures about Segments of an Enterprise and Related
Information". Statement No. 130 establishes standards for reporting
comprehensive income in financial statements. Statement No. 131 expands certain
reporting and disclosure requirements for segments from current standards. The
Company adopted these standards effective for the fiscal year beginning October
1, 1998. The adoption of these new standards did not result in material changes
to previously reported amounts or disclosures.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operations by line of business are as follows:
Three Months
Ended December 31, Percent
----------------------- Increase
1998 1997 (Decrease)
-------------------------------
(Unaudited)
(Dollars In Thousands)
Revenue:
Publishing .............................. $ 106,537 $ 100,004 6.5%
Broadcasting ............................ 35,590 31,255 13.9
-------------------------------
$ 142,127 $ 131,259 8.3%
===============================
Income before depreciation and amortization,
interest, and taxes (EBITDA): *
Publishing .............................. $ 35,720 $ 34,706 2.9%
Broadcasting ............................ 12,528 8,423 48.7
Corporate ............................... (3,960) (3,955) (0.1)
-------------------------------
$ 44,288 $ 39,174 13.1%
===============================
Operating income:
Publishing .............................. $ 29,277 $ 28,610 2.3%
Broadcasting ............................ 9,807 5,680 72.7
Corporate and other ..................... (4,284) (4,192) (2.2)
------------------------------
$ 34,800 $ 30,098 15.6%
==============================
Capital expenditures:
Publishing .............................. $ 5,593 $ 2,631
Broadcasting ............................ 2,895 1,450
Corporate ............................... 382 266
----------------------
$ 8,870 $ 4,347
======================
* EBITDA is not a financial performance measurement under generally accepted
accounting principles (GAAP), and should not be considered in isolation or
a substitute for GAAP performance measurements. EBITDA is also not
reflected in our consolidated statement of cash flows; but it is a common
and meaningful alternative performance measurement for comparison to other
companies in our industry.
PUBLISHING
Wholly-owned daily newspaper advertising revenue increased $2,885,000, 5.5%.
Advertising revenue from local merchants increased $2,047,000, 6.5%. Local
"run-of-press" advertising increased $1,799,000, 8.5%, as a result of an 8.5%
increase in advertising inches. Local preprint revenue increased $248,000, 2.4%.
Classified advertising revenue increased $699,000, 4.4%, as a result of higher
average rates and a 2.3% increase in advertising inches. Circulation revenue was
flat due to promotional pricing and minimal rate increases.
Other revenue consists of revenue from weekly newspapers, classified and
specialty publications, commercial printing, products delivered outside the
newspaper (which include activities such as target marketing and special event
production) and editorial service contracts with Madison Newspapers, Inc.
<PAGE>
Other revenue by category and by property is as follows:
Three Months Ended
December 31,
1998 1997
---------------------
(Unaudited)
Weekly newspapers, classified and specialty (In Thousands)
publications:
Properties owned for entire period .............. $17,522 $16,467
Acquired since September 30, 1997 ............... 1,849 - -
Commercial printing ................................ 4,147 3,811
Products delivered outside the newspaper ........... 3,001 2,662
Editorial service contracts ........................ 2,197 2,119
---------------------
$28,716 $25,059
=====================
The following table sets forth the percentage of revenue of certain items in the
publishing segment.
Three Months
Ended
December 31,
1998 1997
---------------
Revenue ...................................................... 100.0% 100.0%
---------------
Compensation costs ........................................... 33.9 33.0
Newsprint and ink ............................................ 10.2 10.6
Other operating expenses ..................................... 22.4 21.7
--------------
66.5 65.3
--------------
Income before depreciation, amortization, interest and taxes . 33.5 34.7
Depreciation and amortization ................................ 6.0 6.1
---------------
Operating margin wholly-owned properties ..................... 27.5% 28.6%
===============
Exclusive of the effects of acquisitions, costs other than depreciation and
amortization increased $4,136,000, 6.3%. Compensation expense increased
$2,466,000, 7.5%, due primarily to an increase in average compensation rate,
unfavorable medical plan experience, and an increase in employee benefits for
recently acquired properties. Newsprint and ink costs increased $139,000, 1.3%,
due to increased consumption. Newsprint prices started to decline in December
but did not have a significant impact on the results of the quarter. Other
operating costs exclusive of depreciation and amortization increased $1,531,000,
7.0% due to higher distribution expenses and other cost increases.
BROADCASTING
Revenue for the quarter increased $4,335,000, 13.9%, as political advertising
increased $5,037,000, while local/regional/national advertising was flat.
Production revenue and revenues from other services decreased $(350,000),
(15.3%) due to loss of production revenue from the NBA lockout.
The following table sets forth the percentage of revenue of certain items in the
broadcasting segment.
Three
Months Ended
December 31,
--------------
1998 1997
---------------
Revenue ...................................................... 100.0% 100.0%
--------------
Compensation costs ........................................... 37.1 40.8
Programming costs ............................................ 6.7 7.1
Other operating expenses ..................................... 21.0 25.2
--------------
64.8 73.1
--------------
Income before depreciation, amortization, interest and taxes . 35.2 26.9
Depreciation and amortization ................................ 7.6 8.7
--------------
Operating margin wholly-owned properties ..................... 27.6% 18.2%
==============
<PAGE>
Compensation costs increased $480,000, 3.8% due to increases in average
compensation. Programming costs for the quarter increased $138,000, 6.2%,
primarily due to increased costs of syndicated programming. Other operating
expenses, exclusive of depreciation and amortization, decreased $(388,000),
(4.9%) due primarily to reductions in sales and audience promotion expenses.
CORPORATE COSTS
Corporate costs increased by $92,000, 2.2%, as a result of increased relocation
expenses, offset in part by reduced consulting expenses.
FINANCIAL EXPENSE AND INCOME TAXES
Interest on deferred compensation agreements for executives and others is offset
by financial income earned on the invested funds held in trust. Financial income
and interest expense increased by $707,000 and $9,000 in 1998 and 1997,
respectively, as a result of these arrangements.
Income taxes were 38.1% and 38.4% of pre-tax income for the quarters ended
December 31, 1998 and 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations, which is the Company's primary source of liquidity,
was $33,860,000 for the quarter. Available cash balances, cash flow from
operations and bank lines of credit provide adequate liquidity. Covenants
related to the Company's credit agreements are not considered restrictive to
operations and anticipated stockholder dividends.
YEAR 2000
The Year 2000 issue concerns the inability of information technology (IT)
systems and equipment utilizing microprocessors to recognize and process
date-sensitive information after 1999 due to the use of only the last two digits
to refer to a year. This problem could affect both computer software and
hardware and other equipment that relies on microprocessors. Management has
completed a company-wide evaluation of this impact on its IT systems and its
date-sensitive publishing equipment. The evaluation of broadcasting equipment is
expected to be complete by March 31, 1999. Renovation and testing have been
completed on all significant IT systems that utilize company-developed software
that were not Year 2000 compliant with the exception of the newspaper
advertising system. That system has been renovated and tested. Installation of
the renovated advertising system is scheduled to be complete by January 31,
1999. The Company has received representations that significant software
developed by others is Year 2000 compliant. Testing of these systems is expected
to be complete by March 31, 1999. Installation of a new Year 2000-compliant
financial system is approximately 75% complete and is planned to be complete by
July 31, 1999. Testing of computer hardware for IT systems is approximately 90%
complete. Renovation efforts and testing of systems/equipment are expected to be
complete by June 30, 1999.
The Company will monitor the progress of material vendors and suppliers whose
uninterrupted delivery of product or service is material to the production or
distribution of our print and broadcast products in their efforts to become Year
2000 compliant. Material vendors and suppliers include electric utilities,
telecommunications, news and content providers, television networks, other
television programming suppliers, the U.S. Postal Service, and financial
institutions.
<PAGE>
From September 30, 1994 through December 31, 1998, the Company has spent
approximately $500,000 to address Year 2000 issues for IT systems (exclusive of
the cost of the new financial, newspaper production and other systems that were
scheduled to be replaced before the year 2000 for reasons other than Year 2000
compliance). Total costs to address Year 2000 issues for IT systems are
currently estimated to be less than $1,000,000 and consist primarily of staff
and consultant costs. Year 2000 remediation will require the replacement of
telephone switches and software at a cost of $600,000 to $1,000,000. Through
December 31, 1998 approximately $300,000 had been spent for new telephone
equipment. An estimate of the cost of replacement of newspaper and broadcasting
equipment will be available after the completion of the evaluations described
above. Funds for these costs are expected to be provided by the operating cash
flows or bank line of credit of the Company.
The Company could be faced with severe consequences if Year 2000 issues are not
identified and resolved in a timely manner by the Company and material third
parties. A worst-case scenario would result in the short-term inability of the
Company to produce/distribute newspapers or broadcast television programming due
to unresolved Year 2000 issues. This would result in lost revenues; however, the
amount would be dependent on the length and nature of the disruption, which
cannot be predicted or estimated. In light of the possible consequences, the
Company is devoting the resources needed to address Year 2000 issues in a timely
manner. Management monitors the progress of the Company's Year 2000 efforts and
provides update reports to the audit committee of the Board of Directors at each
meeting. While management expects a successful resolution of these issues, there
can be no guarantee that material third parties, on which the Company relies,
will address all Year 2000 issues on a timely basis or that their failure to
successfully address all issues would not have an adverse effect on the Company.
The Company is in the process of reviewing its existing contingency plans in
case business interruptions do occur. Management expects the review of these
plans to be complete by June 30, 1999.
SAFE HARBOR STATEMENT
This report contains certain forward-looking statements that are based largely
on the Company's current expectations and are subject to certain risks, trends,
and uncertainties that could cause actual results to differ materially from
those anticipated. Among such risks, trends, and uncertainties are changes in
advertising demand, newsprint prices, interest rates, regulatory rulings,
availability of quality broadcast programming at competitive prices; quality and
ratings of network over-the-air broadcast programs, legislative or regulatory
initiatives affecting the cost of delivery of over-the-air broadcast programs to
the Company's customers, and other economic conditions and the effect of
acquisitions, investments, and dispositions on the Company's results of
operations or financial condition. The words "believe," "expect," "anticipate,"
"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 as of the date of this
report. Further information concerning the Company and its businesses, including
factors that potentially could materially affect the Company's financial
results, is included in the Company's annual report on Form 10-K.
<PAGE>
LEE ENTERPRISES, INCORPORATED
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Ex-27 Financial Data Schedule
(b) Report on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEE ENTERPRISES, INCORPORATED
Date
/s/ G.C. Wahlig 2/2/99
- ------------------------------------- -------------------------
G.C. Wahlig, Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998 FORM 10-Q OF LEE ENTERPRISES, INCORPORATED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 39,888
<SECURITIES> 0
<RECEIVABLES> 73,048
<ALLOWANCES> 4,645
<INVENTORY> 2,384
<CURRENT-ASSETS> 125,126
<PP&E> 307,899
<DEPRECIATION> 175,872
<TOTAL-ASSETS> 686,209
<CURRENT-LIABILITIES> 111,430
<BONDS> 186,039
0
0
<COMMON> 88,642
<OTHER-SE> 242,250
<TOTAL-LIABILITY-AND-EQUITY> 686,209
<SALES> 139,885
<TOTAL-REVENUES> 142,127
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 107,327
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,266
<INCOME-PRETAX> 31,750
<INCOME-TAX> 12,111
<INCOME-CONTINUING> 19,639
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,639
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
