10-Q 1 0001.txt 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 PART I. FINANCIAL INFORMATION Item. 1. LEE ENTERPRISES, INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (In Thousands Except Per Share Data) Three Months Ended Nine Months Ended June 30, June 30, --------------------------- ---------------------------- 2000 1999 2000 1999 ---------------------------------------------------------- (Unaudited) 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 ==========================================================
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 ==================== LEE ENTERPRISES, INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) 2000 1999 --------------------------------------------------------------------------------------- (Unaudited) 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 ===================
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 ================= 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 Nine Months Ended June 30, Ended June 30, ---------------- ----------------- 2000 1999 2000 1999 ----------------------------------- 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 ===================================
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. 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 ======== 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): Three Months Ended Nine Months Ended June 30, June 30, ------------------- Percent ------------------- Percent 2000 1999 Increase 2000 1999 Increase --------------------------------------------------------------- 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 ================== =================== * 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.
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% =============== 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. 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. 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. 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. 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