-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vy9DSSvjrvw1KSYqEO4nJx8ZASG8PmOV5CRLYdoicK8jHHDeP92/EsAOC2hgE0Fm 2Mud2UiR05kkUGMrWZfHCw== 0000743530-99-000060.txt : 19991230 0000743530-99-000060.hdr.sgml : 19991230 ACCESSION NUMBER: 0000743530-99-000060 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEE ENTERPRISES INC CENTRAL INDEX KEY: 0000058361 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 420823980 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06227 FILM NUMBER: 99782987 BUSINESS ADDRESS: STREET 1: 400 PUTNAM BLDG STREET 2: 215 N MAIN ST CITY: DAVENPORT STATE: IA ZIP: 52801 BUSINESS PHONE: 3193832100 MAIL ADDRESS: STREET 1: 400 PUTNAM BUILDING STREET 2: 215 N. MAIN STREET CITY: DAVENPORT STATE: IA ZIP: 52801 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-6227 LEE ENTERPRISES, INCORPORATED ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 42-0823980 - ------------------------ ------------------------------------ (State of Incorporation) (I.R.S. Employer Identification No.) 215 N. Main Street, Davenport, Iowa 52801 - ---------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (319) 383-2100 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange On Title of Each Class Which Registered - -------------------------------------------------------------------------------- Common Stock - $2.00 par value New York Stock Exchange Preferred Share Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Title of Class -------------------- Class B Common Stock $2.00 par value Indicate by 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of voting stock held by nonaffiliates of the registrant as of December 1, 1999. Common Stock and Class B Common Stock, $2.00 par value, $1,136,812,000. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of December 1, 1999. Common Stock, $2.00 par value, 33,314,738 shares; and Class B Common Stock, $2.00 par value, 10,966,544 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement dated December 27, 1999 are incorporated by reference in Part III of this Form 10-K. PART I Item 1. Business This Annual Report on Form 10-K 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, the availability of quality broadcast programming at competitive prices, changes in the terms and conditions of network affiliation agreements, quality and rating 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 filing. Item 1(a) Recent business developments. 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. In addition in November 1999 the Company canceled its local marketing agreement for KASY-TV in Albuquerque, New Mexico. The information following includes the properties owned as of December 1, 1999. Item 1(b) Financial information about industry segments. See Note 12 to the Notes to Financial Statements under Item 8, herein. Item 1(c) Narrative description of business. PUBLISHING The Company and its subsidiaries publish the following: Daily Newspapers: Circulation Newspaper City State Daily (M-F) Sunday ----------------------------------------------------------------------------------------------- Southern Illinoisian Carbondale Illinois 26,108 34,681 Herald & Review Decatur Illinois 36,322 44,836 Quad City Times Davenport Iowa 52,918 74,777 Globe Gazette Mason City Iowa 19,597 24,077 Muscatine Journal Muscatine Iowa 8,393 - - Winona Daily News Winona Minnesota 12,070 12,855 Billings Gazette Billings Montana 48,389 54,648 The Montana Standard Butte Montana 14,898 15,299 Ravalli Republic Hamilton Montana 5,200 * - - Independent Record Helena Montana 13,369 14,303 Missoulian Missoula Montana 31,885 37,797 Beatrice Daily Sun Beatrice Nebraska 8,485 - - Lincoln Journal Star Lincoln Nebraska 74,228 82,517 The Bismarck Tribune Bismarck North Dakota 29,958 32,653 Democrat-Herald Albany Oregon 20,569 34,107 ** Ashland Daily Tidings Ashland Oregon 4,979 * - - Corvallis Gazette-Times Corvallis Oregon 12,879 - - ** Rapid City Journal Rapid City South Dakota 30,397 34,216 LaCrosse Tribune LaCrosse Wisconsin 31,779 40,089 Wisconsin State Journal Madison Wisconsin 87,909 158,000 The Journal Times Racine Wisconsin 29,409 32,750 -------------------------- Total paid daily and Sunday circulation 599,741 727,605 ========================== Source - Audit Bureau of Circulation (ABC): Average of 6 months ended March and September 1999. * From publishers' statement. ** Combined edition with Democrat-Herald.
Weekly Newspapers: Newspaper City State Day(s) Circulation ---------------------------------------------------------------------------------------------------- Bettendorf News Bettendorf Iowa Wednesday 2,600 Big Fork Eagle Big Fork Montana Wednesday 4,500 Hungry Horse News Columbia Falls Montana Thursday 7,000 Whitefish Pilot Whitefish Montana Thursday 4,000 The Plattsmouth Journal Plattsmouth Nebraska Monday and Thursday 5,000 Mandan News Mandan North Dakota Thursday 1,900 Cottage Grove Sentinel Cottage Grove Oregon Wednesday 4,500 Gresham Outlook Gresham Oregon Wednesday and Saturday 8,800 Lebanon Express Lebanon Oregon Wednesday 3,500 Newport News-Times Newport Oregon Wednesday and Friday 13,900 Sandy Post Sandy Oregon Wednesday 2,000 The Springfield News Springfield Oregon Wednesday and Saturday 11,000 ------------- Total paid weekly circulation 68,700 =============
Source: Company Statistics The Company owns 50% of the capital stock of Madison Newspapers, Inc. and 17% of the nonvoting common stock of The Capital Times Company. The Capital Times Company owns the remaining 50% of the capital stock of Madison Newspapers, Inc. Madison Newspapers, Inc. owns the Wisconsin State Journal, a morning newspaper published seven days each week, and The Capital Times, an afternoon paper published Monday through Saturday each week. Both newspapers are produced in the printing plant of Madison Newspapers, Inc., which maintains common advertising, circulation, delivery, and business departments for the two newspapers. The Company has a contract to furnish the editorial and news content for the Wisconsin State Journal. The Wisconsin State Journal is classified as one of the Lee Group of newspapers in the newspaper field and in the rating services. Classified Publications: Publication City State Day(s) Circulation ------------------------------------------------------------------------------------------- Dandy Dime Tucson Arizona Friday 28,500 The Redding Nickel Redding California Thursday 27,500 Prairie Shopper Decatur Illinois Tuesday 45,000 Thrifty Nickel East Moline Illinois Thursday 11,700 The Gateway Express Clinton Iowa Wednesday and Friday 6,800 The Advertiser Davenport Iowa Wednesday 28,000 Winnebago/Hancock Forest City Iowa Monday 12,500 Shopper Mason City Shopper Mason City Iowa Tuesday 34,000 The Post Muscatine Iowa Tuesday 20,900 Thrifty Nickel Billings Montana Thursday 30,000 Yellowstone Shopper Billings Montana Thursday 47,200 Mini Nickel Bozeman Montana Thursday 22,900 Nickel Saver Butte Montana Thursday 10,000 North Valley Advertiser Columbia Falls Montana Tuesday 8,000 Western Shopper Deer Lodge Montana Wednesday 4,800 The Trader Dillon Montana Monday 6,200 Consumers Press Great Falls Montana Thursday 33,000 Life & Times Press Hamilton Montana Wednesday 12,300 The Adit Helena Montana Wednesday 23,500 The Western Montana Missoula Montana Wednesday 33,000 Messenger Nifty Nickel Las Vegas Nevada Thursday 60,000 Dickinson Finder Albuquerque New Mexico Friday 28,000 Quik Quarter/Thrifty Albuquerque New Mexico Thursday 38,000 Nickel Dickinson Finder Dickinson North Dakota Wednesday 13,800 The Finder Mandan North Dakota Wednesday 39,200 The Finder Minot North Dakota Wednesday 18,000 The Klamath Falls Nickel Klamath Falls Oregon Thursday 19,000 The Medford Nickel Medford Oregon Thursday 27,500 Nickel Ads Portland Oregon Friday 202,000 Rapid City Advertiser Rapid City South Dakota Wednesday 28,000 Northern Hills Spearfish South Dakota Wednesday 15,000 Advertiser Pioneer Shopper St. George Utah Thursday 27,000 Little Nickel Lynnwood Washington Wednesday and Thursday 320,000 Nickel Saver Moses Lake Washington Thursday 21,500 Nickel Nik Spokane Washington Friday 37,000 Smart Shopper Spokane Washington Friday 15,000 Buyline Walla Walla Washington Thursday 20,000 Nickel Ads Wenatchee Washington Thursday 26,500 The Foxxy Shopper LaCrosse Wisconsin Tuesday 34,000 Cover Story Madison Wisconsin Sunday 85,000 Pennysaver Racine Wisconsin Monday 65,000 Foxxy Shopper Sparta Wisconsin Tuesday 42,500 ----------- Total non-paid weekly circulation 1,627,800 ===========
Source: Company statistics Classified publications are weekly advertising publications available in racks or delivered free by carriers or third-class mail to all households in a particular geographic area. Classified publications offer advertisers a cost-effective local advertising system. Classified publications are particularly effective in large markets with high media fragmentation in which major metropolitan newspapers generally have low penetration. Specialty Publications and Other Products and Services: City State ----------------------------------------------------------------- Cars & Trucks Tuscon Arizona Wheels for You Decatur Illinois Lee Print Davenport Iowa Classic Images Muscatine Iowa Films of the Golden Age Muscatine Iowa International Newspaper Network Big Fork Montana Western Business Billings Montana Intermountain Printing and Publishing Deer Lodge Montana Ag Almanac Great Falls Montana The Eastman's Journal Helena Montana Montana Magazine Helena Montana AutoFinder Missoula Montana Broadwater Townsend Montana Wheels for You Grand Island Nebraska Wheels for You Lincoln Nebraska Home Scene Las Vegas Nevada Nifty Nickel Cars & Trucks Las Vegas Nevada Wheels for You Albuquerque New Mexico Farm & Ranch Guide Bismarck North Dakota Family Times Corvallis Oregon Internet Broadcasting Partners Portland Oregon Tri-State Neighbor Sioux Falls South Dakota Homes Moses Lake Washington Drive Line Spokane Washington Home Buyer's Guide Spokane Washington Nickel Nik's RV Wheel Deals Spokane Washington Nickel Nik's Truck Deals Spokane Washington Nickel Nik's Wheel Deals Spokane Washington Homes Wenatchee Washington The Enterpriser LaCrosse Wisconsin Home Buyers Guide LaCrosse Wisconsin Wheels for You LaCrosse Wisconsin AgriView Madison Wisconsin Midwest Messenger Tekamah Nebraska The Company's strategy is to increase its share of local advertising in its existing markets, and over time, to increase circulation through internal expansion into contiguous markets and make selective acquisitions. The basic raw material of newspapers, classified, and specialty publications is newsprint. The Company and its subsidiaries purchase newsprint from U.S. and Canadian producers. The Company believes it will continue to receive a supply of newsprint adequate to its needs. Newsprint prices are volatile and fluctuate based upon factors which include both the foreign and domestic production capacity and consumption. The price fluctuations can have a significant effect on the results of operations. For the quantitative impacts of these fluctuations, see "Management Discussion and Analysis of Financial Condition and Results of Operations" under Item 7, herein. Publishing revenue has traditionally been highest in the quarter ended December 31 and, likewise, has been lowest in the quarter ended March 31. The Company's newspapers, classified and specialty publications compete with newspapers having national or regional circulation, magazines, radio, television, other advertising media such as billboards, classified and specialty publications and direct mail, as well as other information content providers such as on-line services. In addition, many of the Company's daily and Sunday newspapers compete with other newspapers in nearby cities and towns. BROADCASTING The Company and its subsidiaries own and operate the following television stations: Nielsen DMA Station Market Ranking - -------------------------------------------------------------------------------- ABC Affiliate, KGUN-TV - Tucson, Arizona 72 CBS Affiliates: KOIN-TV - Portland, Oregon 23 KRQE-TV - Albuquerque, New Mexico 49 (1) KGMB-TV - Honolulu, Hawaii 71 (2) KMTV - Omaha, Nebraska 73 NBC Affiliates: WSAZ-TV - Huntington-Charleston, West Virginia 59 KSNW-TV - Wichita, Kansas 65 (3) KSNT-TV - Topeka, Kansas 138 Telemundo Affiliate, KMAZ-TV - El Paso, Texas 96 (4) (1) Combined DMA rank. KRQE-TV also operates stations KBIM-TV, Roswell, New Mexico and KREZ-TV, Durango, Colorado. (2) KGMB-TV also operates stations KGMD-TV, Hilo, Hawaii and KGMV-TV, Maui, Hawaii. (3) KSNW-TV also operates stations KSNG-TV, Garden City, Kansas; KSNC-TV, Great Bend, Kansas; and KSNK-TV, Oberlin, Kansas/McCook, Nebraska. (4) KZIA-TV changed its call letters to KMAZ-TV effective October 31, 1997. Affiliation changed from UPN effective January 15, 1998. Broadcasting revenue has traditionally been highest in the quarter ended December 31 and, likewise, has been lowest in the quarter ended March 31. The Company's television stations compete with other over-the-air broadcast television stations, direct broadcast satellite ("DBS") and cable television, radio companies, other advertising media such as newspapers, magazines and billboards, as well as other information content providers such as on-line services. Competition in the television broadcasting industry occurs primarily in individual market areas. Generally, a television station in one market does not compete with other stations in other market areas, nor does a group of stations, such as those owned by the Company, compete with any other group of stations as such. DBS and cable television systems in the Company's broadcasting markets operate on a subscriber payment basis and compete by importing out-of-market television signals or by originating programming to the extent permitted or required by present or future rules of the Federal Communications Commission ("FCC"). The Company's television broadcasting operations are subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Act"). The Act empowers the FCC, among other things, to issue, revoke or modify broadcasting licenses, to assign frequency bands, to determine the location of stations, to regulate the apparatus used by stations, to establish areas to be served, to adopt regulations necessary to carry out the provisions of the Act and to impose penalties for violation of such regulations. Television licenses are granted for a maximum period of five years and, upon application, may be renewed for additional five-year terms. The FCC is required to hold a hearing on a renewal application if a substantial and material question of fact is raised with respect to the renewal application, or if for any reason the FCC is unable to find that the grant of the renewal application would serve the public interest, convenience and necessity. Renewal of the Company's television licenses has never been denied and all such licenses are now in full force and effect. OTHER MATTERS In the opinion of management, compliance with present statutory and regulatory requirements respecting environmental quality will not necessitate significant capital outlays, or materially affect the earning power of the business of the Company, or cause material changes in the Company's business, whether present or intended. In September 1999, the Company, its subsidiaries and associated companies had approximately 6,100 employees, including approximately 1,500 part-time employees. Item 2. Properties The Company's executive offices are located in facilities leased at 215 North Main Street, Davenport, Iowa. All of the printing plants (except Madison, which is owned by Madison Newspapers, Inc.) are owned by the Company. All printing plants (including Madison) are well maintained, are in good condition, and are suitable for the present office and publishing operations. Upon completion of the production facility expansion in Lincoln, Nebraska, the Company believes all plants will be adequately equipped with typesetting, printing and other required equipment. All offices, studios, and transmitter buildings of the broadcasting divisions are owned or subject to long-term lease by the Company. All of the television properties are adequately equipped for present operations, and are in good condition and repair. See Item 7 "Management Discussion and Analysis of Financial Condition and Results of Operations - Liquidity, Capital Resources and Commitments" for a discussion of the implementation of digital television service. Network television programs are received via satellite. Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Executive Officers of the Company The following table shows the names and ages of all executive officers of the Company, the period of service for each with the Company, the period during which each has held his present office and the office held by each. Period of Service Period In Name Age With Company Present Office Present Office - ------------------------------------------------------------------------------------------------------------- Richard D. Gottlieb 57 36 years 8 years President and Chief Executive Officer Mary E. Junck 52 7 months 7 months Executive Vice President and Chief Operating Officer Larry L. Bloom 50 6 years 6 years Senior Vice President - Finance, Treasurer, and Chief Financial Officer Phil E. Blake 55 20 years 1 month Vice President - Publishing Randy N. Miller 47 2 years 1 month Vice President - Publishing Greg R. Veon 47 23 years 1 month Vice President - Publishing Colleen B. Brown 41 1 year 6 months President of the Broadcast Group Vytenis P. Kuraitis 51 5 years 3 years Vice President - Human Resources Charles D. Waterman, III 53 10 years 10 years Secretary George C. Wahlig 52 10 years 7 years Vice President - Finance and Chief Accounting Officer Gregory P. Schermer 45 11 years 2 years Vice President - Interactive Media
Mary E. Junck was elected Executive Vice President in May 1999; from May 1996 to April 1999 she was Executive Vice President of The Times Mirror Company and President of Eastern Newspapers. She was named Publisher and Chief Executive Officer of The Baltimore Sun in 1993. Phil E. Blake was elected Vice President - Publishing in November 1999. He is presently, and for more than the past 5 years has been, publisher of the Wisconsin State Journal and publisher and treasurer of Madison Newspapers, Inc. Randy N. Miller was elected Vice President - Publishing in November 1999; from June 1997 through September 1997 he was Director of Newspaper Operations and Planning, from October 1997 through November 1999 he was appointed Vice President - Newspaper; from February 1995 to May 1997 he was publisher of the Battle Creek Enquirer; and for three years prior thereto he was the Vice President for Human Resources and Strategic Planning for Detroit Newspapers. Greg R. Veon was elected Vice President - Publishing in November 1999; from November 1995 through November 1999 he was Vice President - Marketing; from 1992 through November 1995 he was Vice President and General Manager of KOIN-TV, Portland, Oregon. Colleen B. Brown was elected President of the Broadcast group in July 1999; from June 1998 through July 1999 she was Vice President of the Broadcast group; from 1995 through July 1998 she was President and General Manager of KPNX-TV in Phoenix, Arizona; and prior thereto she was the President and General Manager of WFMY-TV in Greensboro, North Carolina. Vytenis P. Kuraitis was elected Vice President - Human Resources in January 1997. From August 1994 through January 1997 he was Director of Human Resources. Charles D. Waterman, III was elected Secretary of the Company in November 1989. He is presently, and for more than the past five years has been, a partner in the law firm of Lane & Waterman, Davenport, Iowa, general counsel of the Company. Gregory P. Schermer was elected Vice President - Interactive Media in November 1997; from 1989 through November 1997 he was, and continues to serve as, corporate counsel for the Company. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters COMMON STOCK PRICES AND DIVIDENDS Lee Common Stock is listed on the New York Stock Exchange. Lee Class B Common Stock was issued to stockholders of record of the Company in 1986 pursuant to a 100% stock dividend and is converted at sale or the option of the holder into Lee Common Stock. The table below shows the high and low prices of Lee Common Stock for each quarter during the past three years, the closing price at the end of each quarter and the dividends paid per share. Quarter -------------------------------------------- 4th 3rd 2nd 1st -------------------------------------------- STOCK PRICES 1999: High ...... $31-1/16 $30-1/2 $31-7/16 $ 31-1/2 Low ....... 26-1/8 27-1/2 26-5/16 21-13/16 Closing ... 27-3/8 30-1/2 29 31-1/2 1998: High ...... 31-3/4 33-7/8 33-9/16 29-13/16 Low ....... 23-1/2 27-5/16 28 25-1/2 Closing ... 25-15/16 30-5/8 33-9/16 29-9/16 1997: High ...... 29-1/8 27 25-1/8 23-5/8 Low ....... 25 22-3/8 22-3/8 21 Closing ... 28-3/8 26-3/8 24-1/4 23-1/4 DIVIDENDS PAID 1999 ....... $ .15 $ .15 $ .15 $ .15 1998 ....... .14 .14 .14 .14 1997 ....... .13 .13 .13 .13 For a description of the relative rights of Common Stock and Class B Common Stock, see Note 7 of the Notes to Consolidated Financial Statements under Item 8, herein. At September 30, 1999, the Company had 3,424 holders of Common Stock and 2,159 holders of Class B Common Stock. Item 6. Selected Financial Data FIVE YEAR FINANCIAL PERFORMANCE Year Ended September 30: 1999 1998 1997 1996 1995 ------------------------------------------------ (In Thousands Except Per Share Data) OPERATIONS Operating revenue ........... $536,333 $517,293 $446,686 $427,369 $383,740 ================================================ Income from continuing operations ............... $ 67,973 $ 62,233 $ 62,745 $ 53,670 $ 52,232 Discontinued operations ..... - - - - - - 7,725 6,227 Gain (loss) on disposition of discontinued operations ............... - - - - 1,485 (15,948) - - ------------------------------------------------ Net income ....... $ 67,973 $ 62,233 $ 64,230 $ 45,447 $ 58,459 ================================================ PER SHARE AMOUNTS Weighted average shares: Basic .................... 44,273 44,829 46,393 46,973 46,053 Diluted .................. 44,861 45,557 47,243 47,899 46,873 Basic: Income from continuing operations ............. $ 1.54 $ 1.39 $ 1.35 $ 1.14 $ 1.13 Discontinued operations .. - - - - - - .16 .14 Gain (loss) on disposition of discontinued operations ............. - - - - .03 (.33) - - ------------------------------------------------ Net income ....... $ 1.54 $ 1.39 $ 1.38 $ .97 $ 1.27 ================================================ Diluted: Income from continuing operations ............. $ 1.52 $ 1.37 $ 1.33 $ 1.12 $ 1.12 Discontinued operations .. - - - - - - .16 .13 Gain (loss) on disposition of discontinued operations ............. - - - - .03 (.33) - - ------------------------------------------------ Net income ....... $ 1.52 $ 1.37 $ 1.36 $ .95 $ 1.25 ================================================ Dividends ................... $ .60 $ .56 $ .52 $ .48 $ .44 OTHER DATA Total assets ................ $679,513 $660,585 $650,963 $527,416 $559,929 Debt, including current maturities ....... 204,625 219,481 203,735 95,503 123,489 Stockholders' equity ........ 354,329 319,759 319,390 324,954 311,042
Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations This Management Discussion and Analysis of Financial Condition and Results of Operations 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, the availability of quality broadcast programming at competitive prices, changes in the terms and conditions of network affiliation agreements, quality and rating 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 filing. Operating results are summarized below: 1999 1998 1997 ------------------------------ (Dollars in Thousands, Except Per Share Data) Operating revenue ....................... $536,333 $517,293 $446,686 Percent change ....................... 3.7% 15.8% 4.5% Income before depreciation, amortization, interest and taxes (EBITDA) * ........ 156,488 150,423 132,455 Percent change ....................... 4.0% 13.6% 8.1% Operating income ........................ 116,740 112,847 104,151 Percent change ....................... 3.4% 8.3% 9.9% Income from continuing operations ....... 67,973 62,233 62,745 Percent change ....................... 9.2% (0.8)% 16.9% Earnings per share, continuing operations Basic ................................ 1.54 1.39 1.35 Percent change .................... 10.8% 3.0% 18.4% Diluted .............................. 1.52 1.37 1.33 Percent change .................... 10.9% 3.0% 18.8% * 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. The computation excludes the gain on sale of businesses. The fiscal 1998 comparisons are significantly affected by the September 8, 1997 acquisition of The Pacific Northwest Group. The Pacific Northwest Group publishes eight daily and weekly newspapers geographically clustered in Oregon's Willamette Valley and classified publications in eight markets in the states of Washington, Oregon, Nevada, and Utah. If Lee had owned these properties since October 1, 1996, the operating revenue increase for 1998 would have been 3.9%, EBITDA and operating income would have increased 2.4%, income from continuing operations would have increased 4.6% and earnings per share on a diluted basis would have increased 8.7%. PUBLISHING 1999 1998 1997 ------------------------------- (Dollars in Thousands) Operating revenue ....................... $404,608 $382,894 $318,441 Percent change ....................... 5.7% 20.2% 5.2% Operating income: Wholly-owned properties .............. 103,852 94,159 88,865 Percent change .................... 10.3% 6.0% 17.4% Equity in net income ................. 9,238 8,367 7,756 Percent change .................... 10.4% 7.9% 10.7% Operating margin, wholly-owned properties 25.7% 24.6% 27.9% The publishing segment includes newspapers, classified and specialty publications. Operating revenue consists of the following: 1999 1998 1997 -------------------------------- (Dollars in Thousands) Daily newspapers: Advertising ........... $206,228 $195,852 $179,822 Percent change ..... 5.3% 8.9% 6.3% Circulation ........... 81,562 81,912 80,522 Percent change ..... (0.4)% 1.7% 0.9% Other .................... 116,818 105,130 58,097 Percent change ........ 11.1% 81.0% 8.4% Exclusive of acquisitions in 1999, 1998, and 1997, advertising revenue increased 5.1%, 5.0%, and 6.0%, circulation revenue (decreased) increased (.6%), (.6%), and .7%, and other revenue increased 3.6%, 4.9%, and 3.8%, respectively. The following daily newspaper advertising lineage, circulation volume statistics, and related revenue results are presented on a pro forma basis for daily newspapers wholly owned at the end of fiscal 1999. Changes in advertising units for classified and local advertising, which account for more than 70% of newspaper advertising revenue, are as follows: ADVERTISING LINEAGE, IN THOUSANDS OF INCHES (PRO FORMA ): 1999 1998 1997 ----------------------------- Classified .................... 4,740 4,427 4,314 Percent change ............. 7.1% 2.7% 4.5% Local ......................... 5,903 5,703 5,695 Percent change ............. 3.5% 0.1% (1.2)% Classified advertising revenue increased approximately 6.1% in 1999, 9.7% in 1998, and 9.7% in 1997. The average rate realized decreased by (.9%) in 1999 and increased by 6.9% in 1998, and 5.0% in 1997. In 1999 growth in advertising lineage was in the automotive and to a lesser extent in the employment categories. This growth offset a decrease in real estate lineage. The decrease in the average rate realized was largely due to an increased amount of lower rate automotive advertising. In 1998 continued significant growth in employment and real estate advertising offset a small reduction in automotive. In 1997 significant growth in employment advertising offset softness in automotive and other advertising. Local "run-of-press" advertising is advertising by merchants in the local community which is printed in the newspaper, rather than "preprints", which are printed separately by the Company or others and inserted into the newspaper. In 1999 local run-of-press revenue increased 3.4% and volume increased 3.5% as a result of the continuing emphasis on price incentives in return for larger or more frequent ads. In 1998 revenue increased 1.3% as the Company emphasized printing and frequency which resulted in a .1% increase in local advertising units. Revenue increased 3.1% in 1997 on higher average rates despite decreases in advertising inches. Total revenue realized from local and national merchants includes preprints which have lower-priced, higher-volume distribution rates. Preprint revenue increased 2.6% in 1999, 4.8% in 1998, and 5.2% in 1997. In 1999 circulation revenue decreased by (.6%) as a result of a (2%) decrease in volume offset by higher rates. In 1998 circulation revenue decreased (.6%) and volume decreased (.7%). In 1997 circulation revenue increased .8% as a result of higher rates, offset by a (2.3%) decrease in volume. Other revenue consists of revenue from weekly newspapers, classified, specialty publications, commercial printing, products delivered outside the newspaper (which include activities such as target marketing, special event production, and on-line service) and editorial service contracts with Madison Newspapers, Inc. Other revenue by category and by property is as follows: 1999 1998 1997 -------------------------- (In Thousands) Weekly newspapers, classified and specialty publications: Properties owned for entire period ....................... $ 24,678 $ 24,174 $ 23,083 Acquired since September 30, 1996 ........................ 54,686 46,116 2,700 Commercial printing: Properties owned for entire period ....................... 13,673 13,858 14,351 Acquired since September 30, 1996 ........................ 1,548 947 - - Products delivered outside the newspaper: Properties owned for entire period ....................... 13,418 11,650 9,928 Acquired since September 30, 1996 ........................ 71 17 59 Editorial service contracts ................................. 8,744 8,368 7,976 -------------------------- $116,818 $105,130 $ 58,097 ==========================
The following table sets forth the percentage of revenue of certain items in the publishing segment. 1999 1998 1997 ------------------------ Revenue .................................................... 100.0% 100.0% 100.0% ------------------------ Compensation costs ......................................... 35.2 35.1 34.0 Newsprint and ink .......................................... 9.3 10.7 9.7 Other operating expenses ................................... 23.3 23.1 23.4 ------------------------ 67.8 68.9 67.1 ------------------------ Income before depreciation, amortization, interest and taxes 32.2 31.1 32.9 Depreciation and amortization .............................. 6.5 6.5 5.0 ------------------------ Operating margin wholly-owned properties ................... 25.7% 24.6% 27.9% ========================
Exclusive of the effects of acquisitions, in 1999 costs other than depreciation and amortization increased by 1.0%. Newsprint and ink costs decreased by (13.0%) due to lower prices for newsprint offset by a slight increase in usage. Compensation costs increased 4.1% due to an increase in average compensation and hours worked. Other operating costs increased 2.8%. Exclusive of the effects of the 1998 acquisitions, in 1998 costs other than depreciation and amortization increased 5.2%. Newsprint and ink costs increased 12.2% due to higher prices for newsprint and greater consumption. Compensation cost increased 5.3% due to an increase in average compensation and hours worked. Other operating costs increased 2.1%. Exclusive of the effects of the 1997 acquisitions, in 1997 costs other than depreciation and amortization decreased (.5%). Newsprint and ink costs decreased (20.9%) due to lower prices for newsprint. Newsprint consumption was flat in 1997 as compared to 1996. Compensation costs increased 4.4% as a result of salary increases. Other operating costs increased 3.7% due to normal inflationary increases. BROADCASTING 1999 1998 1997 ------------------------------ (Dollars in Thousands) Operating revenue ...... $122,487 $126,032 $120,489 Percent change ...... (2.8)% 4.6% 2.3% Operating income ....... 19,371 24,948 22,262 Percent change ...... (22.4)% 12.1% (3.0)% Operating margin ....... 15.8% 19.8% 18.5% Revenue for 1999 decreased $(3,545,000), (2.8)%. Local/regional/national revenue decreased $(1,870,000), (1.8%) due to the absence of winter Olympics advertising on our CBS affiliates and the Super Bowl on our NBC affiliates in the second quarter offset in part by an increase in revenues in the fourth quarter. Political advertising increased $970,000, 20.6%. Compensation received from the television networks decreased $(900,000) in 1999 primarily as a result of the acquisition of broadcast rights for NFL football by the CBS television network. In return for reduced network compensation the Company received the right to sell additional broadcast time. The networks are continuing their efforts to reduce network compensation. In fiscal 2000 the Company anticipates receiving $2,000,000 less network compensation than the $6,400,000 received in 1999. Production revenues and revenues from other sources decreased $(1,752,000), (17.5%), as a result of the sale of MIRA Creative Group and loss of NBA production services during the strike. Revenue for 1998 increased $5,543,000, 4.6%. Local/regional/national revenue increased $6,834,000 due to winter Olympics advertising in the second quarter and improved rates realized. Political advertising decreased $1,063,000. Production revenues and revenues from other sources were flat. Revenue for 1997 increased $2,692,000, 2.3%. Local/regional/national revenue increased $1,342,000 while political advertising decreased $(244,000). Production revenue increased $562,000 due to the addition of a second mobile production facility at MIRA Productions in Portland, Oregon, and revenues from other services increased $913,000. The following table sets forth the percentage of revenue of certain items in the broadcasting segment. 1999 1998 1997 ------------------------ Revenue .................................................... 100.0% 100.0% 100.0% ------------------------ Compensation costs ......................................... 42.5 40.9 41.8 Programming costs .......................................... 8.5 6.6 6.6 Other operating expenses ................................... 23.3 23.6 23.4 ------------------------ 74.3 71.1 71.8 ------------------------ Income before depreciation, amortization, interest and taxes 25.7 28.9 28.2 Depreciation and amortization .............................. 9.9 9.1 9.7 ------------------------ Operating margin wholly-owned properties ................... 15.8% 19.8% 18.5% ========================
Operating income decreased in 1999 by $(5,577,000). Compensation costs increased $557,000, 1.1% due to an increase in the average hourly rate which offset a decrease in the number of hours worked. Programming costs increased by $1,984,000, 23.7% due to an increase in the cost of syndicated programs and a $732,000 write-down of nonperforming programs. In 2000 programming costs will increase by approximately $1,000,000 as a result of changes in certain network programming contracts. Other operating expense decreased $(1,186,000), (4.0)% due to the sale of MIRA Creative Group, reductions in insurance costs, more focused cost-effective station promotion, and generally tighter cost controls. Operating income increased in 1998 by $2,686,000. Compensation costs increased $1,092,000, 2.2% due to an increase in the average hourly rate which offset a decrease in the number of hours worked. Programming costs increased by $462,000, 5.8% due to an increase in the cost of syndicated programs. Other operating expense increased $1,477,000, 5.2% due to increased costs for promotion, audience ratings services, and bad debt expense when two advertisers filed for bankruptcy. Operating income decreased in 1997 by $691,000. Compensation costs increased $3,898,000, 8.4% due to an increase in the number of hours worked and an increase in the average hourly rate. Programming costs decreased by $(1,344,000), (14.5%), due to decreased amortization from programs amortized on an accelerated basis offset in part by a $400,000 write-down of programming at KMAZ-TV El Paso due to the January 1998 conversion to a Telemundo affiliate providing Spanish language programming. Other operating expense increased 5.8% due to the rental of two news helicopters in 1997 and increased outside services. The primary driver of the outside services increase is MIRA Productions, which uses contract labor and rental equipment for special projects. CORPORATE Corporate costs in 1999 increased by $1,094,000, 7.5%. Increases included depreciation, compensation, donations, and other expenses. Corporate costs in 1998 decreased by $(105,000), (.7%). Reductions in financial system installation costs, incentive compensation, and donations were offset by increases in depreciation and other expenses. Corporate costs in 1997 increased by $3,800,000, 35.1% as a result of increased marketing costs and the enhancement of computer software. NON-OPERATING INCOME AND EXPENSE Interest expense decreased by approximately $(1,748,000) in 1999 primarily due to payments on long-term debt and a $500,000 increase in capitalized interest offset by additional deferred compensation costs. Interest expense increased by approximately $6,300,000 in 1998 due to borrowings to finance The Pacific Northwest Group acquisition. Interest expense decreased by approximately $(1,300,000) in 1997 primarily due to a lower debt level. 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 increased by $501,000, $24,000, and $1,700,000 in 1999, 1998, and 1997, respectively, as a result of these arrangements. Other non-operating income, net represents the gain from the sale of a shopper publication in September 1999. INCOME TAXES Income taxes were 36.2%, 37.8%, and 38.0% of pretax income in 1999, 1998, and 1997, respectively. In 1999 income taxes were reduced by $1,500,000 due to a settlement of a contingency. Exclusive of the settlement, income taxes were 37.6% of pretax income. DISCONTINUED OPERATIONS On January 17, 1997, the Company consummated the sale of the capital stock of its graphic arts products subsidiary, NAPP Systems Inc., for approximately $55,900,000, net of selling expenses. The results for NAPP Systems Inc.'s operations have been classified as discontinued operations for all periods presented. For the year ended September 30, 1997, the Company recorded an after-tax gain of $1,485,000 due to higher than estimated earnings and dividends through the closing date. For additional information related to the disposition, see Note 2 of the Notes to Consolidated Financial Statements under Item 8, herein. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS Cash provided by operations totaled $97,852,000 in 1999. The Company has a $50,000,000 revolving credit arrangement with banks which expires in 2003. The major sources and uses of cash in 1999 were as follows: (In Thousands) -------------- Sources of cash: Operations ................................................. $ 97,852 Short-term borrowings ...................................... 6,000 All other .................................................. 1,043 --------- 104,895 --------- Uses of cash: Acquisitions ............................................... 15,416 Purchase of property and equipment ......................... 32,431 Cash dividends paid ........................................ 26,623 Purchase of Lee Enterprises, Incorporated stock ............ 11,830 Payment of debt ............................................ 25,000 --------- 111,300 --------- (Decrease) in cash .............................. $ (6,405) ========= The Company generally finances significant acquisitions by long-term borrowings. Capital expenditures for new and improved facilities and equipment are expected to be about $39,500,000 in 2000. The FCC has required implementation of digital television ("DTV") service which includes high definition television systems. Implementation of DTV service will impose substantial additional costs on television stations to provide the new service due to increased equipment costs. KOIN-TV in Portland, Oregon was required by the FCC to broadcast a digital TV signal by November 1, 1999 but has filed a request for a six-month extension. The Company plans to spend approximately $5,000,000 in fiscal 2000 for DTV conversion. The Company expects that the balance of capital expenditures necessary to convert its stations to DTV will aggregate approximately $33,000,000. The Company is currently required to convert its remaining stations to DTV by May 1, 2002. The Company also is in the process of building a new production facility for the Journal Star in Lincoln, Nebraska. The total cost is expected to be approximately $32,000,000 and will be completed in fiscal 2000. Approximately $18,000,000 has been spent through September 30, 1999 on this project and spending in fiscal 2000 is expected to be approximately $14,000,000. The Company anticipates that funds necessary for capital expenditures and other requirements will be available from internally generated funds and the Company's revolving credit agreements. DIVIDENDS AND COMMON STOCK PRICES The current quarterly cash dividend is 16 cents per share, an annual rate of 64 cents. During the fiscal year ended September 30, 1999, the Company paid dividends of $26,623,000 or 39.2% of 1999's net income. The Company will continue to review its dividend policy to assure that it remains consistent with its capital demands. Covenants under borrowing arrangements are not considered restrictive to payment of dividends. Lee Common Stock is listed on the New York Stock Exchange. The table under Item 5 herein shows the high and low prices of Lee Common Stock for each quarter during the past three years. It also shows the closing price at the end of each quarter and the dividends paid in the quarter. INFLATION The net effect of inflation on operations has not been material in the last several years because of efforts by the Company to lessen the effect of rising costs through a strategy of improving productivity, controlling costs and, where conditions permit, increasing selling prices. 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 its company-wide evaluation of this impact on its IT systems and its date-sensitive equipment. Identified critical date-sensitive equipment is believed to be substantially Year 2000 compliant. Renovation and testing have been completed on all significant IT systems that utilize company-developed software that were not Year 2000 compliant. The Company has received representations and completed testing to determine that significant software developed by others is Year 2000 compliant. Installation of a new Year 2000-compliant financial system is complete. Testing of computer hardware for IT systems is substantially complete. The Company is monitoring 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. From September 30, 1994, through September 30, 1999, the Company 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 $600,000 and consist primarily of staff and consultant costs. Year 2000 remediation will require the replacement of telephone switches and software at a cost of approximately $1,000,000. Through September 30, 1999 approximately $600,000 had been spent for new telephone equipment. 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 or 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's contingency plans in case business interruptions do occur are substantially complete, but will continue to be refined and implemented up to the Year 2000. QUARTERLY RESULTS The Company's largest source of publishing revenue, local run-of-press advertising, is seasonal and tends to fluctuate with retail sales in markets served. Historically, local run-of-press advertising is higher in the first and third quarters. Newspaper classified advertising revenue (which includes real estate and automobile ads) and broadcasting revenue are lowest in January and February, which are included in our second fiscal quarter. Quarterly results of operations are summarized under Item 8, herein. Item 8. Financial Statements and Supplementary Data FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS September 30, ---------------------------- 1999 1998 1997 ---------------------------- (Dollars in Thousands) ASSETS Current Assets: Cash and cash equivalents ................................ $ 10,536 $ 16,941 $ 14,163 Trade receivables, less allowance for doubtful accounts 1999 $4,460; 1998 $4,110; 1997 $4,600 ........................................... 67,122 60,443 56,960 Receivables from associated companies .................... 1,438 1,437 1,437 Inventories .............................................. 3,625 3,878 3,716 Program rights and other ................................. 19,822 16,892 17,691 ---------------------------- Total current assets .......................... 102,543 99,591 93,967 ---------------------------- Investments: Associated companies ..................................... 16,326 14,107 12,185 Other .................................................... 15,819 12,364 12,506 ---------------------------- 32,145 26,471 24,691 ---------------------------- Property and Equipment: Land and improvements .................................... 14,103 13,856 12,994 Buildings and improvements ............................... 67,342 65,945 64,937 Equipment ................................................ 246,484 219,491 194,510 ---------------------------- 327,929 299,292 272,441 Less accumulated depreciation ............................ 188,726 170,920 152,415 ---------------------------- 139,203 128,372 120,026 ---------------------------- Intangibles and Other Assets: Intangibles .............................................. 396,392 398,111 404,481 Other .................................................... 9,230 8,040 7,798 ---------------------------- 405,622 406,151 412,279 ---------------------------- $679,513 $660,585 $650,963 ============================
See Notes to Consolidated Financial Statements. September 30, -------------------------------- 1999 1998 1997 -------------------------------- (Dollars In Thousands) LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes payable and current maturities of long-term debt .................................................. $ 17,620 $ 33,453 $177,561 Accounts payable ......................................... 11,764 14,277 23,429 Compensation and other accruals .......................... 26,551 26,966 27,324 Income taxes payable ..................................... 5,378 6,475 4,754 Unearned income .......................................... 18,135 16,890 15,840 -------------------------------- Total current liabilities ..................... 79,448 98,061 248,908 -------------------------------- Long-Term Debt, net of current maturities ................... 187,005 186,028 26,174 -------------------------------- Deferred Items: Retirement and compensation .............................. 13,781 13,117 13,948 Income taxes ............................................. 44,950 43,620 42,543 -------------------------------- 58,731 56,737 56,491 -------------------------------- Stockholders' Equity: Capital stock: Serial convertible preferred, no par value; authorized 500,000 shares; issued none .............. - - - - - - Common, $2 par value; authorized 60,000,000 shares; issued and outstanding 1999 33,071,000 shares .............................. 66,142 65,144 66,719 Class B, common, $2 par value; authorized 30,000,000 shares; issued and outstanding 1999 11,188,000 shares .............................. 22,376 23,556 24,298 Additional paid-in capital ............................... 32,641 28,715 25,629 Unearned compensation .................................... (961) (650) (493) Retained earnings ........................................ 234,131 202,994 203,237 -------------------------------- 354,329 319,759 319,390 -------------------------------- $679,513 $660,585 $650,963 ================================
CONSOLIDATED STATEMENTS OF INCOME Year Ended September 30, -------------------------------- 1999 1998 1997 -------------------------------- (In Thousands Except Per Share Data) Operating revenue: Publishing: Daily newspapers: Advertising ........................... $206,228 $195,852 $179,822 Circulation ........................... 81,562 81,912 80,522 Other ................................... 116,818 105,130 58,097 Broadcasting ............................... 122,487 126,032 120,489 Equity in net income of associated companies 9,238 8,367 7,756 -------------------------------- 536,333 517,293 446,686 -------------------------------- Operating expenses: Compensation costs ......................... 202,513 192,755 165,547 Newsprint and ink .......................... 37,447 41,165 30,906 Depreciation ............................... 21,909 19,662 17,175 Amortization of intangibles ................ 17,839 17,914 11,129 Other ...................................... 139,885 132,950 117,778 -------------------------------- 419,593 404,446 342,535 -------------------------------- Operating income ................ 116,740 112,847 104,151 -------------------------------- Non-operating (income) expense, net: Financial expense .......................... 12,863 14,611 8,321 Financial (income) ......................... (1,920) (1,896) (5,392) Other, net ................................. (738) - - - - -------------------------------- 10,205 12,715 2,929 -------------------------------- Income from continuing operations before taxes on income .......... 106,535 100,132 101,222 Income taxes .................................. 38,562 37,899 38,477 -------------------------------- Income from continuing operations 67,973 62,233 62,745 -------------------------------- Discontinued operations, gain on disposition of discontinued operations, net of income tax effect ................................. - - - - 1,485 -------------------------------- Net income ...................... $ 67,973 $ 62,233 $ 64,230 ================================ Earnings per share: Basic: Income from continuing operations ....... $ 1.54 $ 1.39 $ 1.35 Income from discontinued operations ..... - - - - .03 -------------------------------- Net income ...................... $ 1.54 $ 1.39 $ 1.38 ================================ Diluted: Income from continuing operations ....... $ 1.52 $ 1.37 $ 1.33 Income from discontinued operations ..... - - - - .03 -------------------------------- Net income ...................... $ 1.52 $ 1.37 $ 1.36 ================================
See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Year Ended September 30, -------------------------------------------------------------------- Amount Shares -------------------------------- ------------------------------- 1999 1998 1997 1999 1998 1997 -------------------------------- ------------------------------- (In Thousands Except Per Share Data) Common Stock: Balance, beginning .......... $ 65,144 $ 66,719 $ 68,578 32,572 33,359 34,289 Conversion from Class B Common Stock ........... 1,116 649 1,131 558 325 565 Shares issued ............ 286 286 474 143 143 237 Shares reacquired ........ (404) (2,510) (3,464) (202) (1,255) (1,732) -------------------------------- ------------------------------- Balance, ending ............. $ 66,142 $ 65,144 $ 66,719 33,071 32,572 33,359 ================================ =============================== Class B Common Stock: Balance, beginning .......... $ 23,556 $ 24,298 $ 25,466 11,778 12,149 12,733 Conversion to Common Stock .................. (1,116) (649) (1,131) (558) (325) (565) Shares reacquired ........ (64) (93) (37) (32) (46) (19) -------------------------------- ------------------------------- Balance, ending ............. $ 22,376 $ 23,556 $ 24,298 11,188 11,778 12,149 ================================ =============================== Additional Paid-In Capital: Balance, beginning .......... $ 28,715 $ 25,629 $ 20,189 Shares issued ............ 3,926 3,086 5,440 -------------------------------- Balance, ending ............. $ 32,641 $ 28,715 $ 25,629 ================================ Unearned Compensation: Balance, beginning .......... $ (650) $ (493) $ (637) Restricted shares issued . (1,081) (714) (405) Restricted shares canceled 45 7 59 Amortization ............. 725 550 490 -------------------------------- Balance, ending ............. $ (961) $ (650) $ (493) ================================ Retained Earnings: Balance, beginning .......... $202,994 $203,237 $211,358 Net income ............... 67,973 62,233 64,230 Cash dividends per share 1999 $.60; 1998 $.56; 1997 $.52 .............. (26,623) (25,160) (24,173) Shares reacquired ........ (10,213) (37,316) (48,178) -------------------------------- Balance, ending ............. $234,131 $202,994 $203,237 ================================ Stockholders' Equity ........... $354,329 $319,759 $319,390 44,259 44,350 45,508 ================================ ===============================
See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended September 30, ------------------------------- 1999 1998 1997 ------------------------------- (In Thousands) Cash Provided by Operating Activities: Net income ........................................ $ 67,973 $ 62,233 $ 64,230 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .................. 39,748 37,576 29,581 Gain on sale of businesses ..................... (738) - - (1,985) Distributions less than earnings of associated companies .................................... (2,220) (1,922) (696) Change in assets and liabilities, net of effects from business acquisitions: (Increase) in receivables .................... (6,154) (3,131) (2,817) (Increase) decrease in inventories, program rights and other ......................... (749) 1,427 1,552 Increase (decrease) in accounts payable, accrued expenses and unearned income ..... (2,117) 2,370 3,144 Increase (decrease) in income taxes payable .. (1,097) 1,721 516 Other, primarily deferred items .............. 3,206 465 4,021 -------------------------------- Net cash provided by operating activities ............................. 97,852 100,739 97,546 -------------------------------- Cash (Required for) Investing Activities: Acquisitions ...................................... (15,416) (11,944) (188,689) Purchase of property and equipment ................ (32,431) (26,725) (16,342) Proceeds from sale of businesses .................. 492 - - 54,795 Other ............................................. (3,867) (952) (1,838) -------------------------------- Net cash (required for) investing activities ............................. (51,222) (39,621) (152,074) -------------------------------- Cash Provided by (Required for) Financing Activities: Purchase of common stock .......................... (11,830) (51,388) (41,055) Cash dividends paid ............................... (26,623) (25,160) (24,173) Proceeds from long-term borrowings ................ - - 185,000 - - Proceeds from (payments on) short-term notes payable, net ............................. 6,000 (145,000) 130,000 Principal payments on long-term borrowings ........ (25,000) (25,000) (21,219) Other ............................................. 4,418 3,208 5,871 -------------------------------- Net cash provided by (required for) financing activities ................... (53,035) (58,340) 49,424 -------------------------------- Net increase (decrease) in cash and cash equivalents ............................ (6,405) 2,778 (5,104) Cash and cash equivalents: Beginning ......................................... 16,941 14,163 19,267 -------------------------------- Ending ............................................ $ 10,536 $ 16,941 $ 14,163 ================================
See Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business: The Company has two principal businesses: publishing and broadcasting. As of September 30, 1999, operating divisions and associated companies publish twenty-one daily newspapers, and more than 80 other weekly, classified and specialty publications, and operate nine full-service network-affiliated television stations and seven satellite television stations. Significant accounting policies: Accounting estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany items have been eliminated. Inventories: Newsprint inventories are priced at the lower of cost or market with cost being determined primarily by the last-in, first-out method. Newsprint inventories as of September 30, 1999, 1998, and 1997 were less than replacement cost by $4,710,000, $4,815,000, and $4,856,000, respectively. Program rights: Cost of program rights is stated at the lower of cost or estimated net realizable value. The total cost of the rights is recorded as an asset and a liability when the program becomes available for broadcast. Cost of program rights is charged to operations primarily on accelerated bases related to the usage of the program. The current portion of program rights represents those rights that will be amortized in the succeeding year. Investments: Investments in the common stock or joint venture capital of associated companies are reported at cost plus the Company's share of undistributed earnings since acquisition, less amortization of intangibles. Long-term loans to associated companies are included in investments in associated companies. Other investments primarily consist of various marketable securities held in trust under a deferred compensation arrangement. These investments are classified as trading securities and carried at fair value with gains and losses reported in the consolidated statements of income. Property and equipment: Property and equipment is carried at cost. Equipment, except for printing presses and broadcast towers, is depreciated primarily by declining-balance methods. The straight-line method is used for all other assets. The estimated useful lives in years are as follows: Years ------ Buildings and improvements 5-25 Publishing: Printing presses 15-20 Other major equipment 3-11 Broadcasting: Towers 15-20 Other major equipment 3-10 The Company capitalizes interest as part of the cost of constructing major facilities. Intangibles: Intangibles include covenants not to compete, consulting agreements, customer lists, broadcast licenses and agreements, newspaper subscriber lists, and the excess costs over fair value of net assets of businesses acquired. The excess costs over fair value of net tangible assets include $21,510,000 incurred prior to October 31, 1970, which is not being amortized. Excess costs related to specialty publications are being amortized over 10 to 15 year periods. Intangibles, representing non-compete covenants, consulting agreements, customer lists, broadcast licenses and agreements, and newspaper subscriber lists are being amortized over periods of 3 to 40 years. The remaining costs are being amortized over a period of 40 years. All intangibles are amortized by the straight-line method. The Company reviews its intangibles and other long-lived assets annually to determine potential impairment. In performing the review, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment is recognized. The amount of impairment is measured based upon projected discounted future cash flows using a discount rate reflecting the Company's average cost of funds. Unearned income: Unearned income arises as a normal part of business from advance subscription payments for newspapers. Revenue is recognized in the period in which it is earned. Advertising costs: Advertising costs, which are not material, are expensed as incurred. Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Cash and cash equivalents: For the purpose of reporting cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less at date of acquisition to be cash equivalents. Restricted stock: The Company amortizes as compensation cost the value of restricted stock, issued under a long-term incentive plan, by the straight-line method over the three year restriction period. Note 2. Discontinued Operations On January 17, 1997 the Company sold the capital stock of its graphic arts products subsidiary, NAPP Systems Inc., for approximately $55,900,000, net of selling expenses. The results for NAPP Systems Inc.'s operations have been classified as discontinued operations and in 1997 include a gain on disposition of $1,985,000, less income taxes of $500,000 resulting in income from discontinued operations of $1,485,000. Note 3. Acquisitions On September 8, 1997, the Company acquired, for cash, 100% of the outstanding stock of Southern Utah Media, Inc. (now known as The Pacific Northwest Publishing Group, Inc.), Oregon News Media, Inc., and Nevada Media, Inc. (collectively referred to as The Pacific Northwest Group). The Pacific Northwest Group publishes daily and weekly newspapers and classified publications. The total acquisition cost was $186,253,000. The excess of the total acquisition cost, over the fair value of the net assets acquired, was $166,916,000. The acquisition was accounted for as a purchase, and the results of operations of The Pacific Northwest Group since the date of acquisition are included in the consolidated financial statements. The Company also acquired one daily newspaper, two weekly, and four classified or specialty publications in 1999, five classified or specialty publications and one commercial printer in 1998 and five classified or specialty publications in 1997. The purchase price of business acquisitions was allocated as follows: Year Ended September 30, -------------------------------- 1999 1998 1997 -------------------------------- (In Thousands) Noncash working capital acquired ...... $ (100) $ 377 $ 2,897 Property and equipment ................ 1,207 1,326 16,278 Intangibles ........................... 16,048 11,485 169,554 Other long-term assets ................ - - - - 10 Issuance of note payable .............. (1,000) (1,194) (50) Deferred items ........................ (739) (50) - - -------------------------------- Total cash purchase price $ 15,416 $ 11,944 $188,689 ================================ Note 4. Investments in Associated Companies The Company has a 50% ownership interest in Madison Newspapers, Inc., a newspaper publishing company operating in Madison, Wisconsin, and interests in two Internet service ventures. Summarized financial information of the associated companies is as follows: Combined Associates 1999 1998 1997 --------------------------------------------------------------------------------- (In Thousands) ASSETS Current assets .......................................... $ 30,560 $ 25,867 $ 23,854 Investments and other assets ............................ 6,035 5,966 5,700 Property and equipment, net ............................. 9,545 10,204 9,730 -------------------------- $ 46,140 $ 42,037 $ 39,284 ========================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities ..................................... $ 14,058 $ 14,510 $ 14,792 Long-term debt .......................................... 434 661 435 Stockholders' equity .................................... 31,648 26,866 24,057 -------------------------- $ 46,140 $ 42,037 $ 39,284 ========================== Revenue ................................................. $ 91,283 $ 85,436 $ 79,677 Income before depreciation, amortization, interest, and income taxes ..................................... 31,983 29,434 26,895 Operating income ........................................ 29,339 26,553 24,732 Net income .............................................. 18,475 16,738 15,517
Receivables from associated companies consist of dividends. Certain information relating to Company investments in these associated companies is as follows: 1999 1998 1997 ----------------------------- (In Thousands) Share of: Stockholders' equity ............ $15,824 $13,433 $12,028 Undistributed earnings .......... 15,642 13,281 11,568 Note 5. Debt The Company has a $50,000,000 unsecured revolving loan agreement with a bank group which expires in 2003. Interest rates float at rates specified in the agreement. There were $6,000,000 of borrowings under this agreement at September 30, 1999. The Company has long-term obligations, net of current maturities, as follows: September 30, ----------------------------- 1999 1998 1997 ----------------------------- (In Thousands) Insurance companies senior notes payable, 6.14% to 6.64%, due in varying amounts from 2001 to 2013 .................................... $185,000 $185,000 $ - - Insurance company senior notes payable, effective rate of 9.96%, $25,000,000 due January 1999 ..................................... - - - - 25,000 Program contracts, noninterest bearing, due through 2002 ......................................... 2,005 1,028 1,174 ----------------------------- $187,005 $186,028 $ 26,174 =============================
Aggregate maturities during the next five years are $11,620,000, $13,180,000, $11,980,000, $11,640,000, and $36,600,000. Covenants under these agreements are not considered restrictive to normal operations or anticipated stockholder dividends. Note 6. Retirement and Compensation Plans Substantially all the Company's employees are covered by a qualified defined contribution retirement plan. The Company has other retirement and compensation plans for executives and others. Retirement and compensation plan costs, including interest on deferred compensation costs, charged to operations were $12,000,000 in 1999, $10,400,000 in 1998, and $10,300,000 in 1997. Note 7. Common Stock, Class B Common Stock, and Preferred Share Purchase Rights Class B Common Stock has ten votes per share on all matters and generally votes as a class with Common Stock (which has one vote per share). The transfer of Class B Common Stock is restricted; however, Class B Common Stock is at all times convertible into shares of Common Stock on a share-for-share basis. Common Stock and Class B Common Stock have identical rights with respect to cash dividends and upon liquidation. All outstanding Class B Common Stock converts to Common Stock when the shares of Class B Common Stock total less than 5,600,000 shares. On May 7, 1998, the Board of Directors adopted a Shareholder Rights Plan (Plan). Under the Plan, the Board declared a dividend of one Preferred Share Purchase Right (Right) for each outstanding Common and Class B Common share (Common Shares) of the Company. The Rights are attached to and automatically trade with the outstanding shares of the Company's Common Shares. The Rights will become exercisable only in the event that any person or group of affiliated persons becomes a holder of 20% or more of the Company's outstanding Common Shares, or commences a tender or exchange offer which, if consummated, would result in that person or group of affiliated persons owning at least 20% of the Company's outstanding Common Shares. Once the Rights become exercisable, they entitle all other shareholders to purchase, by payment of a $150 exercise price, one one-thousandth of a share of Series A Participating Preferred Stock, subject to adjustment, with a value of twice the exercise price. In addition, at any time after a 20% position is acquired and prior to the acquisition of a 50% position, the Board of Directors may require, in whole or in part, each outstanding Right (other than Rights held by the acquiring person or group of affiliated persons) to be exchanged for one share of Common Stock or one one-thousandth of a share of Series A Preferred Stock. The Rights may be redeemed at a price of $0.001 per Right at any time prior to their expiration on May 31, 2008. Note 8. Stock Option, Restricted Stock, and Stock Purchase Plans At September 30, 1999, the Company has three stock-based compensation plans which are described below. As permitted under generally accepted accounting principles, grants under those plans are accounted for following APB Opinion No. 25 and related interpretations. Accordingly, no compensation cost has been recognized for grants under the stock option or the stock purchase plans. Had compensation costs for all of the stock-based compensation plans been determined based on the grant date fair values of awards (the method described in FASB Statement No. 123), reported net income and earnings per common share would have been reduced to the pro forma amounts shown below: 1999 1998 1997 ------------------------------ (Thousands, Except Per Share Data) Net income: As reported ............ $ 67,973 $ 62,233 $ 64,230 Pro forma .............. 66,600 60,945 63,180 Earnings per share: Basic: As reported ......... 1.54 1.39 1.38 Pro forma ........... 1.50 1.36 1.36 Diluted: As reported ......... 1.52 1.37 1.36 Pro forma ........... 1.49 1.34 1.34 The pro forma effects of applying Statement No. 123 are not indicative of future amounts since, among other reasons, the pro forma requirements of the Statement have been applied only to options granted after October 1, 1995. Stock option and restricted stock plans: The Company has reserved 5,292,000 shares of Common Stock for issuance to key employees under an incentive and nonstatutory stock option and restricted stock plan approved by stockholders. Options have been granted at a price equal to the fair market value on the date of grant, and are exercisable in cumulative installments over a ten year period. The fair value of each grant is estimated at the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants in 1999, 1998, and 1997, respectively: dividend rates of 2.06%, 1.95%, and 2.22%; price volatility of 18.5%, 14.5%, and 16.5%; risk-free interest rates based upon the life of the option ranging from 4.84% to 6.03%, 5.29% to 5.77%, and 5.89% to 6.67%; and expected lives based upon the life of the option ranging from 1.5 to 8 years. A summary of the stock option plan is as follows: 1999 1998 1997 -------------------------- Number of Shares -------------------------- (In Thousands) Under option, beginning of year ................ 1,491 1,509 2,279 Granted ..................................... 185 190 155 Terminated and canceled ..................... (21) (5) (8) Exercised ................................... (397) (203) (917) -------------------------- Under option, end of year ...................... 1,258 1,491 1,509 ========================== Options exercisable, end of year ............... 945 1,110 1,192 ========================== Average Price -------------------------- Granted during the year ........................ $27.62 $27.18 $22.20 Exercised during the year ...................... 15.45 15.88 13.64 Under option, end of year ...................... 19.09 17.15 15.82 Weighted-average fair value per option of options granted ................... 6.55 6.95 5.71 A further summary of options outstanding as of September 30, 1999 is as follows: Options Outstanding ------------ Weighted- Options Exercisable Average ------------------------- Number Remaining Weighted- Number Weighted- Outstanding Contractual Average Exercisable Average Range of (In Life Exercise (In Exercise Exercise Prices Thousands) (In Years) Price Thousands) Price - -------------------------------------------------------------------------------- $11 to $14 287 1.7 $ 11.02 287 $11.02 $15 to $20 498 4.6 17.16 498 17.16 $20 to $22 111 6.6 21.45 70 21.42 $25 to $30 345 8.3 27.17 73 27.34 $31 to $34 17 3.1 32.46 17 32.46 ----- ---- 1,258 5.1 19.02 945 16.88 ===== ==== Restricted stock is subject to an agreement requiring forfeiture by the employee in the event of termination of employment within three years of the grant date for reasons other than normal retirement, death or disability. In 1999, 1998, and 1997, the Company granted 39,000, 26,000, and 18,000 shares, respectively, of restricted stock to employees. As of September 30, 1999, 72,000 shares of restricted stock were outstanding. At September 30, 1999, 4,034,000 shares were available for granting of stock options or issuance of restricted stock. Stock purchase plan: The Company has 1,196,000 additional shares of common stock available for issuance pursuant to an employee stock purchase plan. April 30, 2000 is the exercise date for the current offering. The purchase price is the lower of 85% of the fair market value at the date of the grant or the exercise date which is one year from the date of the grant. The weighted-average fair value per share of purchase rights granted in 1999, 1998, and 1997 computed using the Black-Scholes option-pricing model was $6.34, $6.65, and $5.28, respectively. In 1999, 1998, and 1997 employees purchased 97,000, 95,000, and 106,000 shares, respectively, at a per share price of $24.78 in 1999, $20.98 in 1998, and $19.02 in 1997. Note 9. Income Tax Matters Components of income tax expense consist of the following: Year Ended September 30, ------------------------- 1999 1998 1997 ------------------------- (In Thousands) Paid or payable on currently taxable income: Federal .............................................. $30,633 $29,943 $32,188 State ................................................ 5,652 5,525 6,595 Net increase due to deferred income taxes ............... 2,277 2,431 194 ------------------------- $38,562 $37,899 $38,977 =========================
The total tax provision has been allocated to the following financial statement items: Year Ended September 30, --------------------------- 1999 1998 1997 --------------------------- (In Thousands) Income from continuing operations .... $38,562 $37,899 $38,477 Discontinued operations .............. - - - - 500 --------------------------- $38,562 $37,899 $38,977 =========================== Income tax expense for the years ended September 30, 1999, 1998, and 1997 is different than the amount computed by applying the U.S. federal income tax rate to income before income taxes. The reasons for these differences are as follows: % of Pretax Income ------------------------ 1999 1998 1997 ------------------------ Computed "expected" income tax expense .............. 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit ...... 3.9 3.9 4.4 Net income of associated companies taxed at dividend rates ............................................ (2.7) (2.6) (2.4) Goodwill amortization ............................... 1.6 1.7 1.7 Other ............................................... (1.6) (0.2) (0.7) ------------------------ 36.2% 37.8% 38.0% ======================== Foreign taxes are not material. Net deferred tax liabilities consist of the following components as of September 30, 1999, 1998, and 1997: 1999 1998 1997 ------------------------- (In Thousands) Deferred tax liabilities: Property and equipment ............................... $ 8,863 $ 8,334 $ 9,409 Equity in undistributed earnings of affiliates ....... 1,267 1,096 903 Deferred gain on sale of broadcast properties ........ 3,308 3,308 3,308 Identifiable intangible assets ....................... 34,163 32,653 32,319 Other ................................................ 2,831 2,981 3,334 ------------------------- 50,432 48,372 49,273 ------------------------- Deferred tax assets: Accrued compensation ................................. 8,309 7,747 7,950 Receivable allowance ................................. 1,060 728 1,976 Loss carryforwards acquired .......................... 5,588 6,774 7,961 Capital loss carryforward ............................ 7,591 8,121 8,425 Other ................................................ 1,708 1,745 2,135 ------------------------- 24,256 25,115 28,447 Less, valuation allowance ............................ 13,179 15,325 15,325 ------------------------- 11,077 9,790 13,122 ------------------------- $39,355 $38,582 $36,151 =========================
The components giving rise to the net deferred tax liabilities described above have been included in the accompanying balance sheets as of September 30, 1999, 1998, and 1997 as follows: 1999 1998 1997 ------------------------------ (In Thousands) Current assets ................... $ 5,595 $ 5,038 $ 6,392 Noncurrent liabilities ........... (44,950) (43,620) (42,543) ------------------------------ $(39,355) $(38,582) $(36,151) ============================== The Company provided a valuation allowance due to limitations imposed by the tax laws on the Company's ability to realize the benefit of capital loss and net operating loss carryforwards. During the year ended September 30, 1999, $2,146,000 of the valuation allowance was transferred to the tax contingency which is included in income taxes payable with no effect on tax expense. As of September 30, 1999 the Company had a net operating loss carryforward of approximately $14,146,000 which will expire in varying amounts from 2003 to 2010. Note 11. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. The carrying amounts of cash and cash equivalents, temporary investments, receivables, and accounts payable approximate fair value because of the short maturity of those instruments. The carrying value of other investments consisting of debt and equity securities in a deferred compensation trust are carried at fair value based upon quoted market prices, a $2,500,000 investment in debt and equity securities in Ad One (a 7.14% interest) is carried at cost which approximates fair market value and $3,818,000 of equity securities, consisting primarily of the Company's 17% ownership of the nonvoting common stock of The Capital Times Company, are carried at cost, as the fair value is not readily determinable. The fair value of the Company's debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The estimated fair values of the Company's debt instruments are as follows: Carrying Amount Fair Value -------------------- (In Thousands) September 30: 1999 $204,625 $202,047 1998 219,481 245,784 1997 203,735 204,603 Note 11. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share amounts): Year Ended September 30, --------------------------- 1999 1998 1997 --------------------------- Numerator: Income applicable to common shares: Income from continuing operations ................. $67,973 $62,233 $62,745 Income from discontinued operations ............... - - - - 1,485 --------------------------- $67,973 $62,233 $64,230 =========================== Denominator: Basic-weighted average common shares outstanding ....................................... 44,273 44,829 46,393 Dilutive effect of employee stock options ............ 588 728 850 --------------------------- Diluted outstanding shares ........................... 44,861 45,557 47,243 =========================== Basic earnings per share: Income from continuing operations .................... $ 1.54 $ 1.39 $ 1.35 Income from discontinued operations .................. - - - - .03 --------------------------- Net income ................................ $ 1.54 $ 1.39 $ 1.38 =========================== Diluted earnings per share: Income from continuing operations .................... $ 1.52 $ 1.37 $ 1.33 Income from discontinued operations .................. - - - - .03 --------------------------- Net income ................................ $ 1.52 $ 1.37 $ 1.36 ===========================
Note 12. Line of Business Information Year Ended September 30, ------------------------------ 1999 1998 1997 ------------------------------ (In Thousands) Revenue: Publishing: Wholly-owned properties .................... $404,608 $382,894 $318,441 Equity in net income of associated companies 9,238 8,367 7,756 Broadcasting .................................. 122,487 126,032 120,489 ------------------------------- Total revenue ...................... $536,333 $517,293 $446,686 =============================== Operating income: Publishing .................................... $113,090 $102,526 $ 96,621 Broadcasting .................................. 19,371 24,948 22,262 Corporate ..................................... (15,721) (14,627) (14,732) ------------------------------- Total operating income ............. $116,740 $112,847 $104,151 =============================== Identifiable assets: Publishing .................................... $449,010 $425,825 $413,834 Broadcasting .................................. 192,746 190,621 195,567 Corporate ..................................... 37,757 44,139 41,562 ------------------------------- Total identifiable assets .......... $679,513 $660,585 $650,963 =============================== Depreciation: Publishing .................................... $ 12,412 $ 11,280 $ 9,054 Broadcasting .................................. 8,143 7,259 7,432 Corporate ..................................... 1,354 1,123 689 ------------------------------- Total depreciation ................. $ 21,909 $ 19,662 $ 17,175 =============================== Amortization of intangibles: Publishing .................................... $ 13,820 $ 13,688 $ 6,902 Broadcasting .................................. 4,019 4,226 4,227 ------------------------------- Total amortization of intangibles .. $ 17,839 $ 17,914 $ 11,129 =============================== Capital expenditures: Publishing .................................... $ 24,197 $ 16,987 $ 8,834 Broadcasting .................................. 7,493 6,825 6,516 Corporate ..................................... 741 2,913 992 ------------------------------- Total capital expenditures ......... $ 32,431 $ 26,725 $ 16,342 ===============================
Note 13. Other Information Balance sheet information: Program rights and other consist of the following: September 30, ------------------------- 1999 1998 1997 ------------------------- (In Thousands) Program rights ...................................... $ 9,650 $ 8,140 $ 7,020 Deferred income taxes ............................... 5,595 5,038 6,392 Other ............................................... 4,577 3,714 4,279 ------------------------- $19,822 $16,892 $17,691 ========================= Intangibles consist of the following: September 30, ---------------------------- 1999 1998 1997 ---------------------------- (In Thousands) Goodwill ................................................ $345,937 $332,821 $325,758 Less accumulated amortization ........................... 71,503 63,584 55,303 ---------------------------- 274,434 269,237 270,455 ---------------------------- Noncompete covenants and consulting agreements ........................................... 28,023 28,213 26,314 Less accumulated amortization ........................... 25,497 23,522 21,201 ---------------------------- 2,526 4,691 5,113 ---------------------------- Customer lists, broadcasting licenses and agreements, and newspaper subscriber lists ........... 159,805 157,011 154,444 Less accumulated amortization ........................... 40,373 32,828 25,531 ---------------------------- 119,432 124,183 128,913 ---------------------------- $396,392 $398,111 $404,481 ============================
Compensation and other accruals consist of the following: September 30, ------------------------- 1999 1998 1997 ------------------------- (In Thousands) Compensation ............................ $11,214 $12,092 $12,029 Vacation pay ............................ 5,402 4,384 4,080 Retirement and stock purchase plans ..... 5,324 5,005 4,708 Interest ................................ 9 519 1,639 Other ................................... 4,602 4,966 4,868 ------------------------- $26,551 $26,966 $27,324 ========================= Cash flows information: Year Ended September 30, ---------------------------- 1999 1998 1997 ---------------------------- (In Thousands) Cash payments for: Interest, net of capitalized interest 1999 $703; 1998 $169 ................... $13,373 $ 15,731 $ 8,111 ============================ Income taxes .............................. $39,528 $ 33,747 $40,767 ============================ Program rights were acquired by issuing long-term contracts as follows ............ $12,417 $ 9,017 $ 7,300 ============================ Issuance of restricted common stock, net ..... $ 1,006 $ 682 $ 244 ============================ Accounts payable for stock acquired .......... $ 317 $(10,926) $10,926 ============================ Proceeds from sale of businesses, net of selling costs ...................... $ 492 $ - - $55,914 Less cash retained ........................ - - - - (1,119) ---------------------------- Proceeds from sale of businesses $ 492 $ - - $54,795 ============================ Note received in connection with sale of businesses ................................ $ 525 $ - - $ - - ============================ Note 14. Subsequent Event 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. In addition in November 1999 the Company received $1,700,000 in cancellation of its local marketing agreement for KASY-TV in Albuquerque, New Mexico. The gain, net of closing costs, will be approximately $19,500,000. SUPPLEMENTARY DATA QUARTERLY RESULTS (UNAUDITED) 4th 3rd 2nd 1st ----------------------------------------- (In Thousands Except Per Share Data) 1999 Quarter: Operating revenue ...................... $134,823 $135,787 $123,596 $142,127 ========================================= Net income .................. $ 16,922 $ 19,444 $ 11,968 $ 19,639 ========================================= Earnings per share: Basic ............................... $ .38 $ .44 $ .27 $ .44 ========================================= Diluted ............................. $ .38 $ .43 $ .27 $ .44 ========================================= 1998 Quarter: Operating revenue ...................... $129,596 $135,093 $121,345 $131,259 ========================================= Net income .................. $ 14,947 $ 18,091 $ 12,611 $ 16,584 ========================================= Earnings per share: Basic ............................... $ .34 $ .41 $ .28 $ .37 ========================================= Diluted ............................. $ .33 $ .40 $ .28 $ .36 ========================================= 1997 Quarter: Operating revenue ...................... $112,538 $112,693 $101,787 $119,668 ========================================= Income from continuing operations ...... $ 14,638 $ 17,759 $ 11,240 $ 19,108 Income from discontinued operations .......................... - - 485 1,000 - - ----------------------------------------- Net income .................. $ 14,638 $ 18,244 $ 12,240 $ 19,108 ========================================= Earnings per share: Basic: Income from continuing operations . $ .32 $ .38 $ .24 $ .41 Income from discontinued operations - - .01 .02 - - ----------------------------------------- Net income .................. $ .32 $ .39 $ .26 $ .41 ========================================= Diluted: Income from continuing operations . $ .31 $ .38 $ .24 $ .40 Income from discontinued operations - - .01 .02 - - ----------------------------------------- Net income .................. $ .31 $ .39 $ .26 $ .40 =========================================
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable. PART III The information called for by Part III of this Form 10-K is omitted in accordance with General Instruction G because the Company will file with the Commission a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the close of the Company's fiscal year ended September 30, 1999. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Page Number ----------- (a) 1. Financial Statements Independent Auditor's Report Financial Statements Consolidated balance sheets as of September 30, 1999, 1998, and 1997 Consolidated statements of income years ended September 30, 1999, 1998, and 1997 Consolidated statements of stockholders' equity years ended September 30, 1999, 1998, and 1997 Consolidated statements of cash flows years ended September 30, 1999, 1998, and 1997 Notes to consolidated financial statements (a) 2. Financial statements schedule Schedule II - Valuation and qualifying accounts years ended September 30, 1999, 1998, and 1997 All other schedules have been omitted as not required, not applicable, not deemed material or because the information is included in the Notes to Financial Statements. (a) Exhibits (listed by numbers corresponding to the 3. Exhibit Table of Item 601 in Regulation S-K). 21 Subsidiaries 23 Consent of McGladrey & Pullen, LLP 24 Power of Attorney 27 Financial Data Schedule (b) The following reports on Form 8-K were filed for the three months ended September 30, 1999. None * * * * * For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1991) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 2-56652 (filed June 17, 1976), 2-58393 (filed March 11, 1977), 2-77121 (filed April 22, 1982), 33-19725 (filed January 20, 1988), 33-46708 (filed March 31, 1992), and 333-6435 and 333-6433 (filed June 20, 1996). Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. INDEPENDENT AUDITOR'S REPORT To the Stockholders Lee Enterprises, Incorporated and Subsidiaries Davenport, Iowa We have audited the accompanying consolidated balance sheets of Lee Enterprises, Incorporated and subsidiaries as of September 30, 1999, 1998, and 1997 and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lee Enterprises, Incorporated and subsidiaries as of September 30, 1999, 1998, and 1997 and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. In our opinion, Schedule II included in this Annual Report on Form 10-K for the year ended September 30, 1999, present fairly the information set forth therein, in conformity with generally accepted accounting principles. /s/ McGladrey & Pullen, LLP Davenport, Iowa November 5, 1999 LEE ENTERPRISES, INCORPORATED AND WHOLLY-OWNED SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In Thousands) Column A Column B Column C Column D Column E (1) Balance at Additions Charged Deduction Balance Beginning Charged to Other from at Close Description of Period to Income Accounts Reserves of Period - ------------------------------------------------------------------------------------- Allowance for doubtful accounts: For the year ended September 30, 1999 .... $4,110 $3,776 $ - - $3,426 $4,460 For the year ended September 30, 1998 .... 4,600 3,486 - - 3,976 4,110 For the year ended September 30, 1997 .... 4,000 2,934 428 (2) 2,762 4,600 (1) Represents accounts written off as uncollectible, net of recoveries which are immaterial. (2) Balance upon acquisition of 100% of The Pacific Northwest Group.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: December 29, 1999 LEE ENTERPRISES, INCORPORATED -------------------------- /s/ Richard D. Gottlieb /s/ Larry L. Bloom - --------------------------------------- -------------------------------------- Richard D. Gottlieb, Larry L. Bloom, President, Chief Executive Officer, and Senior Vice-President of Finance, Director Treasurer and Chief Financial Officer /s/ G.C. Wahlig -------------------------------------- G. C. Wahlig, Vice President of Finance and Chief Accounting Officer We, the undersigned directors of Lee Enterprises, Incorporated, hereby severally constitute Richard D. Gottlieb and Larry L. Bloom, and each of them, our true and lawful attorneys with full power to them, and each of them, to sign for us and in our names, in the capacities indicated below, the Annual Report on Form 10-K of Lee Enterprises, Incorporated for the fiscal year ended September 30, 1999 to be filed herewith and any amendments to said Annual Report, and generally do all such things in our name and behalf in our capacities as directors to enable Lee Enterprises, Incorporated to comply with the provisions of the Securities Exchange Act of 1934 as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or either of them, to said Annual Report on Form 10-K and any and all amendments thereto. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: Signature Date /s/ Rance E. Crain - --------------------------------------- Rance E. Crain, Director November 16, 1999 /s/ J. P. Guerin - --------------------------------------- J. P. Guerin, Director November 16, 1999 /s/ Mary E. Junck - --------------------------------------- Mary E. Junck, Director November 16, 1999 /s/ William E. Mayer - --------------------------------------- William E. Mayer, Director November 16, 1999 /s/ Andrew E. Newman - --------------------------------------- Andrew E. Newman, Director November 16, 1999 /s/ Gordon Prichett - --------------------------------------- Gordon Prichett , Director November 16, 1999 /s/ Charles E. Rickershauser, Jr. - --------------------------------------- Charles E. Rickershauser, Jr., Director November 16, 1999 /s/ Ronald L. Rickman - --------------------------------------- Ronald L. Rickman, Director November 16, 1999 /s/ Lloyd G. Schermer - ---------------------------------------- Lloyd G. Schermer, Chairman of the Board and Director November 16, 1999 /s/ Phyllis Sewell - ---------------------------------------- Phyllis Sewell, Director November 16, 1999 /s/ Mark Vittert - ---------------------------------------- Mark Vittert, Director November 16, 1999 EX-21 2 LEE ENTERPRISES, INCORPORATED AND WHOLLY-OWNED SUBSIDIARIES EXHIBIT 21 - WHOLLY-OWNED SUBSIDIARIES AND ASSOCIATED COMPANIES Percentage of Voting Securities State of Organization Owned - --------------------------------------------------------------------------------------------------------------- Lee Enterprises, Incorporated Delaware Parent Lee Technical Systems, Inc. Iowa 100% Lee Consolidated Holdings Co. South Dakota 100% KOIN-TV, Inc. Delaware 100% New Mexico Broadcasting Company, Inc. New Mexico 100% Accudata, Inc. Iowa 100% Target Marketing Systems, Inc. Iowa 100% Journal-Star Printing Co. Nebraska 100% Madison Newspapers, Inc. Wisconsin 50% SJL of Kansas Corp. Kansas 100% Oregon News Media, Inc. Delaware 100% Pacific Northwest Publishing Group, Inc. Delaware 100% Nevada Media, Inc. Delaware 100% IBS/Lee Partners LLC Delaware 50% Nickel of Medford, Inc. Oregon 100% Klamath Falls Basin Publishing, Inc. Oregon 100% Davill, Inc. Washington 100%
EX-23 3 Exhibit 23 INDEPENDENT AUDITOR'S CONSENT To the Stockholders Lee Enterprises, Incorporated Davenport, Iowa We consent to the incorporation by reference in the Registration Statements on Form S-8 No. 2-56652, No. 2-77121, No. 2-58393, No. 33-19725, No. 33-46708, No. 333-6435 and No. 333-6433 and in the related Prospectuses of our report dated November 5, 1999 with respect to the financial statements of Lee Enterprises, Incorporated, incorporated by reference and the schedule included in this Annual Report on Form 10-K for the year ended September 30, 1999 and to the reference to us under the heading "Experts" in such Prospectuses. /s/ McGladrey & Pullen, LLP Davenport, Iowa December 24, 1999 EX-24 4 EXHIBIT 24 POWER OF ATTORNEY We, the undersigned directors of Lee Enterprises, Incorporated, hereby severally constitute Richard D. Gottlieb and Larry L. Bloom, and each of them, our true and lawful attorneys with full power to them, and each of them, to sign for us and in our names, the capacities indicated below, the Annual Report on Form 10-K of Lee Enterprises, Incorporated for the fiscal year ended September 30, 1999 to be filed herewith and any amendments to said Annual Report, and generally do all such things in our name and behalf in our capacities as directors to enable Lee Enterprises, Incorporated to comply with the provisions of the Securities Exchange Act of 1934 as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or either of them, to said Annual Report on Form 10-K and any and all amendments thereto. Date /s/ Rance E. Crain - --------------------------------------- Rance E. Crain, Director November 16, 1999 /s/ J. P. Guerin - --------------------------------------- J. P. Guerin, Director November 16, 1999 /s/ Mary E. Junck - --------------------------------------- Mary E. Junck, Director November 16, 1999 /s/ William E. Mayer - --------------------------------------- William E. Mayer, Director November 16, 1999 /s/ Andrew E. Newman - --------------------------------------- Andrew E. Newman, Director November 16, 1999 /s/ Gordon Prichett - --------------------------------------- Gordon Prichett , Director November 16, 1999 /s/ Charles E. Rickershauser, Jr. - --------------------------------------- Charles E. Rickershauser, Jr., Director November 16, 1999 /s/ Ronald L. Rickman - --------------------------------------- Ronald L. Rickman, Director November 16, 1999 /s/ Lloyd G. Schermer - ---------------------------------------- Lloyd G. Schermer, Chairman of the Board and Director November 16, 1999 /s/ Phyllis Sewell - ----------------------------------------- Phyllis Sewell, Director November 16, 1999 /s/ Mark Vittert - ----------------------------------------- Mark Vittert, Director November 16, 1999 EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1999 FORM 10-K OF LEE ENTERPRISES INCORPORATED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 YEAR SEP-30-1999 SEP-30-1999 10,536 15,819 71,582 4,460 3,625 102,543 327,929 188,726 679,513 79,448 187,005 0 0 88,518 265,811 679,513 527,095 536,333 0 0 419,593 3,776 12,863 106,535 38,562 67,973 0 0 0 67,973 1.54 1.52
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