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 June 30, 2000
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 June 30, 2000
--------------------------------------------------------------------------------
Common stock, $2.00 par value 33,049,610
Class "B" Common Stock, $2.00 par value 10,820,584
<PAGE>
PART I. FINANCIAL INFORMATION
Item. 1.
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
<TABLE>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ----------------------------
2000 1999 2000 1999
----------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Operating revenue:
Advertising $ 71,478 $ 67,641 $ 203,651 $ 196,828
Circulation 19,681 20,715 59,865 62,341
Other 16,375 14,631 49,430 42,901
Equity in net income of associated companies 2,391 2,176 6,639 6,154
----------------------------------------------------------
109,925 105,163 319,585 308,224
----------------------------------------------------------
Operating expenses:
Compensation costs 39,870 38,185 117,879 112,372
Newsprint and ink 10,118 8,802 28,128 28,737
Depreciation 3,589 3,330 10,642 10,042
Amortization of intangibles 3,402 3,453 10,872 10,342
Other 25,102 25,029 76,833 75,067
----------------------------------------------------------
82,081 78,799 244,354 236,560
----------------------------------------------------------
Operating income 27,844 26,364 75,231 71,664
----------------------------------------------------------
Nonoperating (income) expenses, net
Financial (income) (577) (700) (2,240) (2,151)
Financial expense 2,870 3,266 9,013 10,518
Other, primarily (gain) on sale of properties 195 (17,836)
----------------------------------------------------------
2,488 2,566 (11,063) 8,367
----------------------------------------------------------
2,488 2,566 (11,063) 8,367
Income from continuing operations
before taxes on income 25,356 23,798 86,294 63,297
Income taxes 9,401 7,362 32,206 22,032
----------------------------------------------------------
Income from continuing operations 15,955 16,436 54,088 41,265
----------------------------------------------------------
Discontinued operations:
Income from discontinued operations,
net of income tax effect 3,008 4,738 9,786
Gain on disposal of operations, net of
income tax effect 4,218 5,492
----------------------------------------------------------
4,218 3,008 10,230 9,786
----------------------------------------------------------
Net income $ 20,173 $ 19,444 $ 64,318 $ 51,051
==========================================================
Average outstanding shares:
Basic 44,010 44,303 44,091 44,272
Diluted 44,275 44,926 44,443 44,876
Earnings per share:
Basic:
Income from continuing operations $ 0.36 $ 0.37 $ 1.23 $ 0.93
Income from discontinued operations 0.10 0.07 0.23 0.22
----------------------------------------------------------
Net income $ 0.46 $ 0.44 $ 1.46 $ 1.15
==========================================================
Diluted:
Income from continuing operations $ 0.36 $ 0.36 $ 1.22 $ 0.92
Income from discontinued operations 0.10 0.07 0.23 0.22
----------------------------------------------------------
Net income $ 0.46 $ 0.43 $ 1.45 $ 1.14
==========================================================
Dividends per share $ 0.16 $ 0.15 $ 0.48 $ 0.45
==========================================================
</TABLE>
<PAGE>
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, September 30,
ASSETS 2000 1999
--------------------------------------------------------------------------------
(Unaudited)
Cash and cash equivalents ......................... $ 25,982 $ 10,536
Accounts receivable, net .......................... 39,783 68,560
Newsprint inventory ............................... 3,580 3,625
Other ............................................. 8,850 19,822
Net assets of discontinued operations ............. 174,551 - -
--------------------
Total current assets .................... 252,746 102,543
Investments ....................................... 32,470 32,145
Property and equipment, net ....................... 119,281 139,203
Intangibles and other assets ...................... 338,618 405,622
--------------------
$743,115 $679,513
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
Current liabilities ............................... $111,318 $ 79,448
Long-term debt, less current maturities ........... 185,000 187,005
Deferred items .................................... 61,027 58,731
Stockholders' equity .............................. 385,770 354,329
--------------------
$743,115 $679,513
====================
<PAGE>
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
2000 1999
---------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Nine Months Ended June 30:
Cash Provided by Operating Activities:
Net income .................................................. $ 64,318 $ 51,051
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization ............................. 30,615 29,101
Gain on sale of properties ................................ (18,439) - -
Distributions in excess of earnings of associated companies 302 885
Other balance sheet changes ............................... 17,606 317
-------------------
Net cash provided by operating activities ............... 94,402 81,354
-------------------
Cash (Required for) Investing Activities:
Purchase of property and equipment .......................... (24,835) (23,548)
Acquisitions ................................................ (66,837) (5,499)
Proceeds from sale of assets ................................ 8,775 - -
Other ....................................................... (854) (593)
-------------------
Net cash (required for) investing activities ............ (83,751) (29,640)
-------------------
Cash Provided by (Required for) Financing Activities:
Purchase of common stock .................................... (15,360) (6,172)
Cash dividends paid ......................................... (14,155) (13,302)
Principal payments on long-term debt ........................ - - (25,000)
Borrowings on short-term notes payable, net ................. 31,480 - -
Other ....................................................... 2,830 3,728
-------------------
Net cash provided by (required for) financing activities 4,795 (40,746)
-------------------
Net increase in cash and cash equivalents ............... 15,446 10,968
Cash and cash equivalents:
Beginning ................................................... 10,536 16,941
-------------------
Ending ...................................................... $ 25,982 $ 27,909
===================
</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 June 30, 2000 and the results of
operations for the three- and nine-month periods ended June 30, 2000 and 1999
and cash flows for the nine-month periods ended June 30, 2000 and 1999.
Note 2. Investment in Associated Companies
Condensed operating results of Madison Newspapers, Inc. (50% owned) and other
unconsolidated associated companies are as follows (dollars in thousands):
Three Months Nine Months
Ended June 30, Ended June 30,
---------------- ----------------
2000 1999 2000 1999
----------------------------------
Revenues ................................... $22,625 $22,747 $70,722 $67,997
Operating expenses, except
depreciation and amortization ........... 14,310 14,975 47,813 46,089
----------------------------------
Income before depreciation and amortization,
interest, and taxes ..................... 8,315 7,772 22,909 21,908
Depreciation and amortization .............. 476 767 1,917 2,316
----------------------------------
Operating income ........................... 7,839 7,005 20,992 19,592
Financial income ........................... 157 287 1,192 973
----------------------------------
Income before income taxes ................. 7,996 7,292 22,184 20,565
Income taxes ............................... 3,215 2,939 8,907 8,256
----------------------------------
Net income ................................. $ 4,781 $ 4,353 $ 13,277 $ 12,309
==================================
Note 3. Cash Flows Information
The components of other balance sheet changes =are:
Nine Months Ended
June 30,
-----------------
2000 1999
-----------------
(In Thousands)
Decrease (increase) in receivables ................... $ 675 $(4,821)
(Increase) in inventories and other ................. (22) (848)
Increase in accounts payable, accrued expenses and
unearned income ................................... 4,568 5,452
Increase (decrease) in income taxes payable .......... 4,467 (837)
Other ................................................ 7,918 1,371
-----------------
$17,606 $ 317
=================
<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):
<TABLE>
Three Months Nine Months
Ended June 30, Ended June 30,
---------------- -----------------
2000 1999 2000 1999
-----------------------------------
<S> <C> <C> <C> <C>
Numerator:
Income applicable to common shares:
Income from continuing operations ................ $15,955 $16,436 $54,088 $41,265
Income from discontinued operations .............. 4,218 3,008 10,230 9,786
-----------------------------------
$20,173 $19,444 $64,318 $51,051
===================================
Denominator:
Basic-weighted average common shares
outstanding ...................................... 44,010 44,303 44,091 44,272
Dilutive effect of employee stock options .......... 265 623 352 604
-----------------------------------
Diluted outstanding shares ..................... 44,275 44,926 44,443 44,876
===================================
Basic earnings per share:
Income from continuing operations .................. $ 0.36 $ 0.37 $ 1.23 $ 0.93
Income from discontinued operations ................ 0.10 0.07 0.23 0.22
-----------------------------------
Net income ..................................... $ 0.46 $ 0.44 $ 1.46 $ 1.15
===================================
Diluted earnings per share:
Income from continuing operations .................. $ 0.36 $ 0.36 $ 1.22 $ 0.92
Income from discontinued operations ................ 0.10 0.07 0.23 0.22
-----------------------------------
Net income ..................................... $ 0.46 $ 0.43 $ 1.45 $ 1.14
===================================
</TABLE>
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 items on the statements of income for the quarter ended and nine-month
periods ended June 30, 1999 have been reclassified with no effect on net income
or earnings per share, to be consistent with the classifications adopted for the
quarter and nine-month periods ended June 30, 2000.
Note 7. Discontinued operations
On March 1, 2000, the Company decided to discontinue the operations of the
Broadcast division. On May 7, 2000 the Company entered into an agreement to sell
certain of its broadcasting properties, consisting of eight network-affiliated
and seven satellite television stations, to Emmis Communications Corporation.
The purchase price is approximately $562,500,000. The sale is subject to various
conditions, including approval by the Federal Communications Commission, and
other contingencies customary for a transaction of this nature. The sale is
anticipated to be completed later this year.
<PAGE>
The income from discontinued operations consists of the following:
Three Months Nine Months
Ended Ended
----------------------------------
June 30,
----------------------------------
2000 1999 2000 1999
---------------- ----------------
Income from discontinued operations
through March 1, 2000 ................... $ - - $ 5,201 $ 8,218 $16,854
Income from measurement date to
June 30, 2000 ........................... 7,186 - - 9,364 - -
----------------------------------
7,186 5,201 17,582 16,854
Income taxes ............................... 2,968 2,193 7,352 7,068
----------------------------------
$ 4,218 $ 3,008 $10,230 $ 9,786
==================================
At June 30, 2000, the assets and liabilities of the Broadcast division consisted
of the following:
Assets:
Accounts receivable, net ................................. $ 26,236
Program rights and other ................................. 3,087
Property and equipment, net .............................. 30,436
Intangibles and other assets ............................. 125,119
--------
184,878
--------
Liabilities:
Current liabilities ...................................... 7,475
Deferred items and other ................................. 2,852
--------
10,327
--------
Net assets of discontinued operations ....................... $174,551
========
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Selected operations information is as follows (dollars in thousands, except per
share data):
<TABLE>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------- Percent ------------------- Percent
2000 1999 Increase 2000 1999 Increase
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before depreciation
and amortization, interest
taxes (EBITDA): *
Publishing locations ........... $ 38,133 $ 36,580 4.2% $107,112 $102,774 4.2%
Corporate ...................... (3,298) (3,433) 4.1 (10,367) (10,726) 3.5
---------------------------- ------------------------------
$ 34,835 $ 33,147 5.1% $ 96,745 $ 92,048 5.1%
============================ ==============================
Operating income:
Publishing locations ........... $ 31,478 $ 30,120 4.5% $ 86,573 $ 83,422 3.8%
Corporate ...................... (3,634) (3,756) 3.4 (11,342) (11,758) 3.7
---------------------------- ------------------------------
$ 27,844 $ 26,364 5.6% $ 75,231 $ 71,664 5.0%
============================ ==============================
Capital expenditures:
Publishing locations ........... $ 2,435 $ 5,265 $ 18,035 $ 16,424
Broadcasting ................... 3,928 1,369 5,899 6,511
Corporate ...................... 113 613 901 613
------------------ -------------------
$ 6,476 $ 7,247 $ 24,835 $ 23,548
================== ===================
<FN>
* EBITDA is not a financial performance measurement under generally accepted
accounting principles (GAAP), and should not be considered in isolation or as
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.
</FN>
</TABLE>
<PAGE>
QUARTER ENDED JUNE 30, 2000
PUBLISHING
Exclusive of acquisitions and dispositions, publishing advertising revenue
increased $3,466,000, 5.3%. Advertising revenue from local merchants increased
$1,847,000, 5.3%, as a result of a late Easter and strong retail advertising
performance in June. Local "run-of-press" advertising increased $1,301,000,
5.1%. Local preprint revenue increased $546,000, 6.0%. Classified advertising
revenue increased $1,357,000, 5.5%, primarily in the employment and automotive
categories. Circulation revenue decreased $(669,000), (3.4) %, primarily due to
a reduction in units and promotional pricing to maintain high penetration rates.
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 June 30,
----------------
2000 1999
----------------
(In Thousands)
Commercial printing ..................................... $ 5,689 $ 5,687
New revenue* ............................................ 6,710 6,442
Editorial service contracts ............................. 2,231 2,244
Acquisitions and dispositions since September 30, 1998 .. 1,745 258
----------------
$16,375 $14,631
================
* Includes internet/online, niche publications, books, and other events and
promotions.
The following table sets forth the percentage of revenue of certain items in the
publishing locations.
Three
Months Ended
June 30,
---------------
2000 1999
---------------
Revenue ...................................................... 100.0% 100.0%
---------------
Compensation costs ........................................... 34.6 34.4
Newsprint and ink ............................................ 9.2 8.4
Other operating expenses ..................................... 21.5 22.4
---------------
65.3 65.2
---------------
Income before depreciation, amortization, interest and taxes . 34.7 34.8
Depreciation and amortization ................................ 6.1 6.1
---------------
Operating margin wholly-owned properties ..................... 28.6% 28.7%
===============
<PAGE>
QUARTER ENDED JUNE 30, 2000
PUBLISHING (Continued)
Exclusive of the effects of acquisitions and dispositions, costs other than
depreciation and amortization increased $2,436,000, 3.7%. Compensation expense
increased $1,384,000, 4.0%, due primarily to an increase in average compensation
rates. Newsprint and ink costs increased $796,000, 9.2%, due primarily to higher
prices paid for newsprint. Other operating costs, exclusive of depreciation and
amortization, increased $256,000, 1.2%.
DISCONTINUED OPERATIONS, BROADCASTING
Exclusive of the effects of a local marketing agreement (LMA) contract
termination, net revenue increased $1,864,000, 6.2%, as political advertising
increased $1,428,000 to $1,475,000 and local/regional/national advertising
increased $1,175,000, 4.5%. Production revenue and revenues from other services
increased $160,000, 7.5%. Network compensation decreased by $(685,000).
Exclusive of the disposition, compensation costs decreased $(41,000), (.3)%.
Programming costs for the quarter increased $425,000, 20%, primarily due to
higher costs of new programming. Other operating expenses, exclusive of
depreciation and amortization, decreased $(517,000), (7.9)%, due to a reduction
in professional and consulting fees and sales and promotion expense.
NONOPERATING INCOME AND INCOME TAXES
Interest on deferred compensation arrangements for executives and others is
offset by financial income earned on the invested funds held in trust. Financial
income and interest expense decreased by $142,000 as compared to the same
quarter in fiscal 1999 from these arrangements.
Income taxes were 37.1% and 30.9% of pretax income from continuing operations
for the quarters ended June 30, 2000 and 1999, respectively. Income tax expense
was reduced by $1,500,000 in June 1999 due to the settlement of a contingency.
Exclusive of the settlement income taxes were 37.2% of pretax income from
continuing operations in 1999.
NINE MONTHS ENDED JUNE 30, 2000
PUBLISHING
Exclusive of acquisitions and dispositions, publishing advertising revenue
increased $6,083,000, 3.1%. Advertising revenue from local merchants increased
$1,147,000, 1.1%. Local "run-of-press" advertising increased $90,000, .1%. Local
preprint revenue increased $1,057,000, 3.8 %. Classified advertising revenue
increased $3,869,000, 5.7%, as a result of an increase in advertising inches
primarily in employment and automotive categories, offset by lower average
rates. Circulation revenue decreased $(1,382,000), (2.3)% as a result of a
reduction in units and promotional pricing to maintain high penetration rates.
<PAGE>
NINE MONTHS ENDED JUNE 30, 2000
PUBLISHING (Continued)
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 and by property is as follows:
Nine Months Ended
Ended June 30,
----------------
2000 1999
----------------
(In Thousands)
Commercial printing ........................................ $16,976 $17,592
New revenue* ............................................... 21,210 17,542
Editorial service contracts ................................ 7,099 6,837
Acquisitions and dispositions since September 30, 1998 ..... 4,145 930
----------------
$49,430 $42,901
================
* Includes internet/online, niche publications, books, and other events and
promotions.
The following table sets forth the percentage of revenue of certain items in the
publishing operations.
Nine Months
Ended
June 30,
---------------
2000 1999
---------------
Revenue ...................................................... 100.0% 100.0%
---------------
Compensation costs ........................................... 35.0 34.7
Newsprint and ink ............................................ 8.8 9.3
Other operating expenses ..................................... 22.7 22.6
---------------
66.5 66.6
---------------
Income before depreciation, amortization, interest and taxes . 33.5 33.4
Depreciation and amortization ................................ 6.4 6.3
---------------
Operating margin wholly-owned properties ..................... 27.1% 27.1%
===============
Exclusive of the effects of acquisitions, costs other than depreciation and
amortization increased $5,924,000, 3.0%. Compensation expense increased
$4,119,000, 4.0%, due primarily to an increase in average compensation rates.
Newsprint and ink costs decreased $(1,664,000), (5.9)%, due primarily to lower
prices paid for newsprint in the first six months. Other operating costs,
exclusive of depreciation and amortization, increased $3,469,000, 5.3%, due to
higher technology and promotion expenses. Approximately one-third of the
increase resulted from insurance cost savings in 1999 that did not reoccur in
2000.
<PAGE>
Nine Months ENDED June 30, 2000
DISCONTINUED OPERATIONS, BROADCASTING
Exclusive of the effects of the LMA contract termination, revenue decreased
$(88,000), (.1)%, as political advertising decreased $(2,900,000), (51.6)% and
local/regional/national advertising increased $4,374,000, 5.8%. Production
revenue and revenues from other services increased $275,000, 4.6%. Network
compensation decreased by $(1,837,000), (37.4)%.
Exclusive of the disposition, compensation costs increased $194,000, .5%.
Programming costs increased $1,276,000, 19.7%, primarily due to higher costs of
new programming. Other operating expenses, exclusive of depreciation and
amortization, decreased $(1,799,000), (8.6)%, due to reduction in travel,
outside services, sales and audience promotion, repairs and maintenance expenses
and professional and consultant fees.
NONOPERATING INCOME AND INCOME TAXES
Interest expense decreased due to payments on long-term debt. Changes in the
deferred compensation arrangements as previously discussed increased financial
income and interest expense by $690,000 as compared to the previous year.
Income taxes were 37.3% and 34.8% of pretax income from continuing operations
for the nine months ended June 30, 2000 and 1999, respectively. Income tax
expense was reduced by $1,500,000 in June 1999 due to the settlement of a
contingency. Exclusive of the settlement, income taxes were 37.2% of pretax
income from continuing operations in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations, which is the Company's primary source of liquidity,
generated $94,402,000 for the nine month period ended June 30, 2000. Available
cash balances, cash flow from operations, and bank lines of credit provide
adequate liquidity. Covenants related to the Company's credit agreement are not
considered restrictive to operations and anticipated stockholder dividends.
The Company has a deposit of $58,762,000 included in other assets on the June
30, 2000 balance sheet for the acquisition of properties. The transaction was
completed on July 1, 2000.
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
publicly 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:
(10) Emmis Communications Corporation Purchase and Sale Agreement
(27) Financial Data Schedule
(b) The following report on Form 8-k was filed during the three months
ended June 30, 2000.
Date of report: May 8, 2000
Item 5: The Company announced entering into an agreement with
Emmis Communication Corporation for the sale of certain
of its broadcasting properties.
<PAGE>
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 August 11, 2000 /s/ G. C. Wahlig, Chief Accounting Officer
----------------------- ------------------------------------------
G. C. Wahlig, Chief Accounting Officer
