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, 1999
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, 1999
- --------------------------------------------------------------------------------
Common Stock, $2.00 par value 33,256,790
Class "B" Common Stock, $2.00 par value 10,938,182
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1.
LEE ENTERPRISES, INCORPORATED
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
1999 1998
- --------------------------------------------------------------------------------
Three Months Ended December 31: .................. (Unaudited)
Operating revenue:
Publishing:
Advertising .............................. $ 70,133 $ 69,375
Circulation .............................. 20,212 20,965
Other .................................... 16,052 13,955
Broadcasting ............................... 33,998 35,590
Equity in net income of associated companies 2,261 2,242
--------------------
142,656 142,127
--------------------
Operating expenses:
Compensation costs ......................... 52,855 51,303
Newsprint and ink .......................... 9,013 10,828
Depreciation ............................... 5,467 5,085
Amortization of intangibles ................ 4,724 4,403
Other ...................................... 37,169 35,708
--------------------
109,228 107,327
--------------------
Operating income ................... 33,428 34,800
--------------------
Nonoperating (income) expense, net
Financial (income) ......................... (1,054) (1,216)
Financial expense .......................... 3,385 4,266
Gain on sale of properties ................. (18,249) - -
--------------------
(15,918) 3,050
--------------------
Income before taxes on income ...... 49,346 31,750
Income taxes .................................. 18,802 12,111
--------------------
Net income ......................... $ 30,544 $ 19,639
====================
Average outstanding shares:
Basic ...................................... 44,165 44,268
====================
Diluted .................................... 44,630 44,843
====================
Earnings per share:
Basic ...................................... $ 0.69 $ 0.44
====================
Diluted .................................... $ 0.68 $ 0.44
====================
Dividends per share ........................... $ 0.16 $ 0.15
====================
<PAGE>
LEE ENTERPRISES, INCORPORATED
Condensed Consolidated Balance Sheets
(In Thousands)
December 31, September 30,
ASSETS 1999 1999
- --------------------------------------------------------------------------------
(Unaudited)
Cash and cash equivalents ........................ $ 34,139 $ 10,536
Accounts receivable, net ......................... 72,733 68,560
Newsprint inventory .............................. 3,488 3,625
Program rights and other ......................... 15,059 19,822
----------------------
Total current assets ............... 125,419 102,543
Investments ...................................... 32,848 32,145
Property and equipment, net ...................... 143,696 139,203
Intangibles and other assets ..................... 408,738 405,622
----------------------
$ 710,701 $ 679,513
======================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Current liabilities .............................. $ 87,577 $ 79,448
Long-term debt, less current maturities .......... 186,154 187,005
Deferred items ................................... 62,596 58,731
Stockholders' equity ............................. 374,374 354,329
----------------------
$ 710,701 $ 679,513
======================
<PAGE>
LEE ENTERPRISES, INCORPORATED
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Three Months Ended December 31: 1999 1998
- --------------------------------------------------------------------------------
(Unaudited)
Cash Provided by Operations:
Net income ..................................... $ 30,544 $ 19,639
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization ............... 10,191 9,488
Gain on sale of properties .................. (18,249) - -
Distributions in excess of current earnings
of associated companies ................... 1,786 1,758
Other balance sheet changes ................. 12,750 2,975
----------------------
Net cash provided by operations ..... 37,022 33,860
----------------------
Cash (Required for) Investing Activities:
Purchase of property and equipment ............. (8,981) (8,870)
Acquisitions ................................... (3,329) - -
Proceeds from sale of assets ................... 8,585 - -
Other .......................................... (33) (42)
----------------------
Net cash (required for) investing
activities .................. (3,758) (8,912)
----------------------
Cash (Required for) Financing Activities:
Purchase of Lee Common Stock ................... (3,922) (2,126)
Payments on short-term notes payable, net ...... (6,000) - -
Other .......................................... 261 125
----------------------
Net cash (required for) financing
activities .................. (9,661) (2,001)
----------------------
Net increase in cash and cash
equivalents ................. 23,603 22,947
Cash and cash equivalents:
Beginning ....................................... 10,536 16,941
----------------------
Ending .......................................... $ 34,139 $ 39,888
======================
<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, 1999 and the results
of operations and cash flows for the three months ended December 31, 1999 and
1998.
Note 2. Investment in Associated Companies
Condensed operating results of Madison Newspapers, Inc. (50% owned) and other
unconsolidated associated companies are as follows:
Three Months Ended
December 31,
------------------------
1999 1998
------------------------
(In Thousands)
(Unaudited)
Revenues ......................................... $ 24,428 $ 23,591
Operating expenses, except depreciation and
amortization ........................... 16,502 15,627
Income before depreciation and amortization,
interest, and taxes .................... 7,926 7,964
Depreciation and amortization .................... 722 793
Operating income ................................. 7,204 7,171
Financial income ................................. 397 323
Income before income taxes ....................... 7,601 7,494
Income taxes ..................................... 3,080 3,032
Net income ....................................... 4,521 4,462
Note 3. Cash Flows Information
The components of other balance sheet changes are:
Three Months Ended
December 31,
------------------------
1999 1998
------------------------
(In Thousands)
(Unaudited)
(Increase) in receivables ......................... $ (6,211) $ (7,960)
Decrease in inventories, film rights and other .... 1,907 1,746
(Decrease) in accounts payable, accrued expenses
and unearned income .......................... (3,043) (1,798)
Increase in income taxes payable .................. 13,552 10,800
Other ............................................. 6,545 187
---------------------
$ 12,750 $ 2,975
=====================
<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,
------------------------
1999 1998
------------------------
(Unaudited)
(In Thousands)
Numerator, income applicable to common
shares, net income ............................ $ 30,544 $ 19,639
========================
Denominator:
Basic, weighted average common shares
outstanding ................................ 44,165 44,268
Dilutive effect of employee stock options ..... 465 575
------------------------
Diluted outstanding shares ......... 44,630 44,843
========================
Earnings per share:
Basic ......................................... $ 0.69 $ 0.44
Diluted ....................................... 0.68 0.44
Note 5. Sale of Assets
On October 1, 1999 the Company sold substantially all the assets used in, and
liabilities related to, the publication, marketing, and distribution of two
daily newspapers and the related specialty and classified publications in
Kewanee, Geneseo, and Aledo, Illinois and Ottumwa, Iowa in exchange for
$9,300,000 of cash and a daily newspaper and specialty publications in Beatrice,
Nebraska.
Note 6. Reclassification
Certain expenses on the statement of income for the quarter ended December 31,
1998 have been reclassified with no effect on net income or earnings per share,
to be consistent with the classifications adopted for the quarter ended December
31, 1999.
<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
1999 1998 (Decrease)
--------------------------------------------
(Unaudited)
(Dollars In Thousands)
Revenue:
Publishing ................ $ 108,687 $ 106,537 2.0%
Broadcasting .............. 33,969 35,590 (4.6)
-----------------------
$ 142,656 $ 142,127 0.4%
=======================
Income before depreciation and
amortization, interest,
and taxes (EBITDA): *
Publishing ................ $ 37,536 $ 35,720 5.1%
Broadcasting .............. 10,050 12,528 (19.8)
Corporate ................. (3,967) (3,960) (0.2)
-----------------------
$ 43,619 $ 44,288 (1.5)%
=======================
Operating income:
Publishing ................ $ 30,633 $ 29,277 4.6%
Broadcasting .............. 7,071 9,807 (27.9)
Corporate and other ....... (4,276) (4,284) 1.9
-----------------------
$ 33,428 $ 34,800 (3.9)%
=======================
Capital expenditures:
Publishing ................ $ 7,325 $ 5,593
Broadcasting .............. 1,187 2,895
Corporate ................. 469 382
-----------------------
$ 8,981 $ 8,870
=======================
* 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
Exclusive of acquisitions and dispositions, publishing advertising revenue
increased $617,000, .9%. Advertising revenue from local merchants decreased
$(816,000), (2.0%). Local "run-of-press" advertising decreased $(1,136,000),
(3.8)%, as a result of decreased spending and a shift to preprint advertising by
large retailers. Local preprint revenue increased $320,000, 2.9%. Classified
advertising revenue increased $1,021,000, 4.7%, as a result of a 9.6% increase
in advertising inches primarily in employment and automotive categories, offset
by lower average rates. Circulation revenue decreased $(400,000), (2.0%) as a
result of a decrease in units.
Other revenue consists of revenue from 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.
Other revenue by category is as follows:
Three Months Ended
December 31,
------------------------
1999 1998
------------------------
(Unaudited)
(In Thousands)
Commercial printing .............................. $ 5,657 $ 6,215
New revenue * .................................... 7,140 5,187
Editorial service contracts ...................... 2,296 2,197
Acquisitions and dispositions since October 1, 1998 959 356
--------------------
$16,052 $13,955
====================
* Includes internet/online, niche publications, books and other events and
promotions.
<PAGE>
The following table sets forth the percentage of revenue of certain items in the
publishing segment.
Three Months Ended
December 31,
1999 1998
------------------------
Revenue .......................................... 100.0% 100.0%
-------------------
Compensation costs ............................... 34.4 33.9
Newsprint and ink ................................ 8.3 10.2
Other operating expenses ......................... 22.8 22.4
-------------------
65.5 66.5
-------------------
Income before depreciation, amortization, interest
and taxes ................................... 34.5 33.5
Depreciation and amortization .................... 6.4 6.0
-------------------
Operating margin wholly-owned properties ......... 28.1% 27.5%
===================
Exclusive of the effects of acquisitions and dispositions, costs other than
depreciation and amortization increased $209,000, .3%. Compensation expense
increased $1,038,000, 3.0%, due primarily to an increase in the average
compensation rate and unfavorable medical plan experience. Newsprint and ink
costs decreased $(2,059,000), (19.4)%, due to lower prices and reduced
consumption. Other operating costs exclusive of depreciation and amortization
increased $1,230,000, 5.4% due to higher technology and promotion costs.
BROADCASTING
Revenue for the quarter includes a $1,700,000 local marketing agreement (LMA)
contract termination payment. Exclusive of that disposition, revenue for the
quarter decreased $(2,887,000), (8.3)%, as political advertising decreased
$(4,886,000), while local/regional/national increased $2,269,000 due to better
inventory management and pricing. Production revenue and revenues from other
services were essentially flat. Network compensation decreased by $(511,000).
The following table sets forth the percentage of revenue of certain items in the
broadcasting segment.
Three Months Ended
December 31,
------------------------
1999 1998
------------------------
Revenue .......................................... 100.0% 100.0%
------------------
Compensation costs ............................... 38.8 37.1
Programming costs ................................ 9.7 6.7
Other operating expenses ......................... 21.9 21.0
------------------
70.4 64.8
------------------
Income before depreciation, amortization, interest
and taxes ................................... 29.6 35.2
Depreciation and amortization .................... 8.8 7.6
------------------
Operating margin wholly-owned properties ......... 20.8% 27.6%
==================
Exclusive of the disposition, compensation costs increased $46,000, .4%.
Programming costs for the quarter increased $426,000, 19.5%, due to increased
costs of programming. Other operating expenses, exclusive of depreciation and
amortization, increased $138,000, 1.9% primarily due to an increase in bad debts
and outside services offset by a reduction in sales and audience promotion
expenses.
NONOPERATING INCOME 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 $572,000 and $707,000 in 1999 and 1998,
respectively, as a result of these arrangements. Exclusive of the effects of the
deferred compensation agreements, financial expense decreased by $746,000 due to
reduced debt levels.
<PAGE>
On October 1, 1999 the Company exchanged four properties in Iowa and Illinois
for a property in Nebraska and $9,300,000 in cash resulting in a $18,249,000
gain. Exclusive of this gain, diluted earnings per share were $.44.
Income taxes were 38.1% of pre-tax income for the quarters ended December 31,
1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations, which is the Company's primary source of liquidity,
was $37,022,000 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. The Company has not
experienced any significant Year 2000 issues to date. The company believes that
February 29, 2000 is the remaining potentially significant date on which Year
2000 issues could arise due to the way the leap year occurs.
The Company will continue to monitor material vendors and suppliers whose
uninterrupted delivery of product or service is material to the production or
distribution of our print and broadcast products. 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.
The Company could be faced with severe consequences if Year 2000 issues arise
and are not 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 prepared to devote the resources needed to address any remaining Year
2000 issues in a timely manner. 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 has contingency plans in case business interruptions do occur.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "Safe Harbor"
for forward-looking statements. This report contains certain information which
may be deemed forward-looking 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 uncertainties are changes in advertising demand,
newsprint prices, interest rates, regulatory rulings, availability of quality
broadcast programming at competitive prices, changes in the terms and conditions
of network affiliation agreements, 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. The company does not undertake to
publically update or revise its forward-looking statements.
<PAGE>
LEE ENTERPRISES, INCORPORATED
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(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
/s/ G.C. Wahlig Date February 1, 2000
- ------------------------------------- -------------------
G.C. Wahlig, Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 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-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 31,439
<SECURITIES> 0
<RECEIVABLES> 77,194
<ALLOWANCES> 4,461
<INVENTORY> 3,488
<CURRENT-ASSETS> 125,419
<PP&E> 335,301
<DEPRECIATION> 191,605
<TOTAL-ASSETS> 710,701
<CURRENT-LIABILITIES> 87,577
<BONDS> 186,154
0
0
<COMMON> 88,390
<OTHER-SE> 285,984
<TOTAL-LIABILITY-AND-EQUITY> 710,701
<SALES> 140,395
<TOTAL-REVENUES> 142,656
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 109,228
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,385
<INCOME-PRETAX> 49,346
<INCOME-TAX> 18,802
<INCOME-CONTINUING> 30,544
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,544
<EPS-BASIC> .69
<EPS-DILUTED> .68
</TABLE>
