UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ x ] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended March 31, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-6227
Lee Enterprises, Incorporated
A Delaware Corporation I.D. #42-0823980
215 N. Main Street, Davenport, Iowa 52801
Phone: (319) 383-2100
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Class Outstanding at March 31, 2000
- --------------------------------------- -----------------------------
Common stock, $2.00 par value 33,298,232
Class "B" Common Stock, $2.00 par value 10,845,006
PART I. FINANCIAL INFORMATION
Item. 1.
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------------------------
2000 1999 2000 1999
--------------------------------------------
(Unaudited)
Operating revenue:
Advertising ................................. $ 62,040 $ 59,812 $132,173 $129,187
Circulation ................................. 19,972 20,661 40,184 41,626
Other ....................................... 17,003 14,315 33,055 28,270
Equity in net income of associated companies 1,958 1,736 4,248 3,978
--------------------------------------------
100,973 96,524 209,660 203,061
--------------------------------------------
Operating expenses:
Compensation costs .......................... 38,328 36,103 78,009 74,187
Newsprint and ink ........................... 8,997 9,107 18,010 19,935
Depreciation ................................ 3,577 3,370 7,053 6,712
Amortization of intangibles ................. 3,734 3,464 7,470 6,889
Other ....................................... 25,307 24,173 51,731 50,038
--------------------------------------------
79,943 76,217 162,273 157,761
--------------------------------------------
Operating income ..................... 21,030 20,307 47,387 45,300
--------------------------------------------
Nonoperating (income) expenses, net
Financial (income) .......................... (609) (235) (1,663) (1,451)
Financial expense ........................... 2,758 2,986 6,143 7,252
Other, primarily (gain) on sale of properties 218 - - (18,031) - -
--------------------------------------------
2,367 2,751 (13,551) 5,801
--------------------------------------------
Income from continuing operations
before taxes on income ............... 18,663 17,556 60,938 39,499
Income taxes ................................... 6,926 6,549 22,805 14,670
--------------------------------------------
Income from continuing operations .... 11,737 11,007 38,133 24,829
--------------------------------------------
Discontinued operations:
Income from discontinued operations,
net of income tax effect ................. 590 961 4,738 6,778
Gain on disposal of operations, net of
income tax effect ........................ 1,274 - - 1,274 - -
--------------------------------------------
1,864 961 6,012 6,778
--------------------------------------------
Net income ........................... $ 13,601 $ 11,968 $ 44,145 $ 31,607
============================================
Average outstanding shares:
Basic ....................................... 44,098 44,246 44,132 44,257
Diluted ..................................... 44,423 44,859 44,527 44,851
Earnings per share:
Basic:
Income from continuing operations ........ $ 0.27 $ 0.25 $ 0.86 $ 0.56
Income from discontinued operations ...... 0.04 0.02 0.14 0.15
---------------------------------------------
Net income ............................. $ 0.31 $ 0.27 $ 1.00 $ 0.71
=============================================
Diluted:
Income from continuing operations ........ $ 0.27 $ 0.25 $ 0.85 $ 0.55
Income from discontinued operations ...... 0.04 0.02 0.14 0.15
---------------------------------------------
Net income ............................. $ 0.31 $ 0.27 $ 0.99 $ 0.70
=============================================
Dividends per share ............................ $ 0.16 $ 0.15 $ 0.32 $ 0.30
=============================================
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, September 30,
ASSETS 2000 1999
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash and cash equivalents ............................................................ $ 38,836 $ 10,536
Accounts receivable, net ............................................................. 37,979 68,560
Newsprint inventory .................................................................. 2,383 3,625
Other ................................................................................ 8,856 19,822
Net assets of discontinued operations ................................................ 170,179 - -
--------------------
Total current assets ....................................................... 258,233 102,543
Investments .......................................................................... 33,183 32,145
Property and equipment, net .......................................................... 118,299 139,203
Intangibles and other assets ......................................................... 283,208 405,622
--------------------
$692,923 $679,513
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities .................................................................. $ 65,920 $ 79,448
Long-term debt, less current maturities .............................................. 185,000 187,005
Deferred items ....................................................................... 62,799 58,731
Stockholders' equity ................................................................. 379,204 354,329
--------------------
$692,923 $679,513
====================
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
2000 1999
- ----------------------------------------------------------------------------------------
(Unaudited)
Six Months Ended March 31:
Cash Provided by Operating Activities:
Net income .................................................. $ 44,145 $ 31,607
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization ............................. 20,537 19,150
Gain on sale of properties ................................ (18,439) - -
Distributions in excess of earnings of associated companies 1,184 1,650
Other balance sheet changes ............................... 17,536 (1,151)
-------------------
Net cash provided by operating activities ............... 64,963 51,256
-------------------
Cash (Required for) Investing Activities:
Purchase of property and equipment .......................... (18,359) (16,301)
Acquisitions ................................................ (8,075) (2,147)
Proceeds from sale of assets ................................ 8,775 - -
Other ....................................................... (42) (127)
-------------------
Net cash (required for) investing activities ............ (17,701) (18,575)
-------------------
Cash Provided by (Required for) Financing Activities:
Purchase of common stock .................................... (6,214) (2,265)
Cash dividends paid ......................................... (7,071) (6,654)
Principal payments on long-term debt ........................ - - (25,000)
Principal payments on short-term notes payable, net ......... (6,000) - -
Other ....................................................... 323 156
-------------------
Net cash (required for) financing activities ............ (18,962) (33,763)
-------------------
Net increase (decrease) in cash and cash equivalents .... 28,300 (1,082)
Cash and cash equivalents:
Beginning ................................................... 10,536 16,941
-------------------
Ending ...................................................... $ 38,836 $ 15,859
===================
LEE ENTERPRISES, INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Note 1. Basis of Presentation
The information furnished reflects all adjustments, consisting of normal
recurring accruals, which are, in the opinion of management, necessary to a fair
presentation of the financial position as of March 31, 2000 and the results of
operations for the three- and six-month periods ended March 31, 2000 and 1999
and cash flows for the six-month periods ended March 31, 2000 and 1999.
Note 2. Investment in Associated Companies
Condensed operating results of Madison Newspapers, Inc. (50% owned) and other
unconsolidated associated companies are as follows (dollars in thousands):
Three Six
Months Ended Months Ended
March 31, March 31,
---------------- ----------------
2000 1999 2000 1999
---------------- ----------------
Revenues ................................... $23,825 $21,660 $48,097 $45,250
Operating expenses, except
depreciation and amortization ........... 17,213 15,487 33,503 31,114
Income before depreciation and amortization,
interest, and taxes ..................... 6,612 6,173 14,594 14,136
Depreciation and amortization .............. 720 756 1,441 1,549
Operating income ........................... 5,892 5,417 13,153 12,587
Financial income ........................... 638 363 1,035 686
Income before income taxes ................. 6,530 5,780 14,188 13,273
Income taxes ............................... 2,613 2,285 5,692 5,316
Net income ................................. 3,917 3,495 8,496 7,957
Note 3. Cash Flows Information
The components of other balance sheet changes are:
Six Months Ended
March 31,
-----------------
2000 1999
-----------------
(In Thousands)
Decrease in receivables ................................ $ 5,104 $ 244
Decrease in inventories and other ...................... 2,201 1,347
(Decrease) in accounts payable, accrued expenses and
unearned income ..................................... (911) (3,556)
Increase in income taxes payable ....................... 2,594 163
Other, primarily deferred items ........................ 8,548 651
-----------------
$17,536 $(1,151)
=================
Note 4. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share amounts):
Three Months Six Months
Ended March 31, Ended March 31,
------------------- -------------------
2000 1999 2000 1999
------------------- -------------------
Numerator:
Income applicable to common shares:
Income from continuing operations ................ $ 11,737 $ 11,007 $ 38,133 $ 24,829
Income from discontinued operations .............. 1,864 961 6,012 6,778
-----------------------------------------
$ 13,601 $ 11,968 $ 44,145 $ 31,607
=========================================
Denominator:
Basic-weighted average common shares
outstanding ...................................... 44,098 44,246 44,132 44,257
Dilutive effect of employee stock options .......... 325 613 395 594
-----------------------------------------
Diluted outstanding shares ..................... 44,423 44,859 44,527 44,851
=========================================
Basic earnings per share:
Income from continuing operations .................. 0.27 0.25 0.86 0.56
Income from discontinued operations ................ 0.04 0.02 0.14 0.15
-----------------------------------------
Net income ..................................... 0.31 0.27 1.00 0.71
=========================================
Diluted earnings per share:
Income from continuing operations .................. 0.27 0.25 0.85 0.55
Income from discontinued operations ................ 0.04 0.02 0.14 0.15
-----------------------------------------
Net income ..................................... 0.31 0.27 0.99 0.70
=========================================
Note 5. Sale of Assets
On October 1, 1999 the Company sold substantially all the assets used in, and
liabilities related to, the publication, marketing, and distribution of two
daily newspapers and the related specialty and classified publications in
Kewanee, Geneseo, and Aledo, Illinois and Ottumwa, Iowa in exchange for
$9,300,000 of cash and a daily newspaper and specialty publications in Beatrice,
Nebraska.
Note 6. Reclassification
Certain items on the statement of income for the quarter ended and six-month
period ended March 31, 1999 have been reclassified with no effect on net income
or earnings per share, to be consistent with the classifications adopted for the
quarter and six-month periods ended March 31, 2000.
Note 7. Discontinued operations
On March 1, 2000, the Company decided to discontinue the operations of the
Broadcast division. On May 7, 2000 the Company entered into an agreement to sell
certain of their broadcasting properties, consisting of eight network-affiliated
and seven satellite television stations, to Emmis Communications Corporation.
The purchase price is approximately $562,500,000. The sale is subject to various
conditions, including Hart-Scott-Rodino clearance and approval by the Federal
Communications Commission, and other customary contingencies for a transaction
of this nature. The sale is anticipated to be completed later this year.
The income from discontinued operations consist of the following:
Three Six
Months Ended Months Ended
-------------- ----------------
March 31, March 31,
-------------- ----------------
2000 1999 2000 1999
--------------------------------
Income from discontinued operations
through March 1, 2000 .................... $1,147 $1,846 $ 8,218 $11,653
Income from measurement date to
March 31, 2000 ........................... 2,178 - - 2,178 - -
--------------------------------
3,325 1,846 10,396 11,653
Income taxes ................................ 1,461 885 4,384 4,875
--------------------------------
$1,864 $ 961 $ 6,012 $ 6,778
================================
At March 31, 2000, the assets and liabilities of the Broadcast division
consisted of the following:
Assets:
Accounts receivable, net ................................. $ 23,611
Program rights and other ................................. 4,799
Property and equipment, net .............................. 30,498
Intangibles and other assets ............................. 122,719
--------
181,627
--------
Liabilities:
Current liabilities ...................................... 10,457
Deferred items ........................................... 991
--------
11,448
--------
Net assets of discontinued operations ....................... $170,179
========
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Selected operations information is as follows (dollars in thousands, except per
share data):
Three Months Six Months
Ended Ended
March 31, March 31,
---------------- Percent ---------------- Percent
2000 1999 Increase 2000 1999 Increase
------------------------- ------------------------
Income from continuing
operations before depreciation
and amortization, interest and
taxes (EBITDA): *
Publishing locations ........... $31,443 $30,474 3.2% $68,979 $66,194 4.2%
Corporate ...................... (3,102) (3,333) 6.9 (7,069) (7,293) 3.1
---------------------------------------------------
$28,341 $27,141 4.4% $61,910 $58,901 5.1%
===================================================
Operating income:
Publishing locations ........... $24,462 $24,025 1.8% $55,095 $53,302 3.4%
Corporate ...................... (3,432) (3,718) 8.3 (7,708) (8,002) 3.7
-------------------------------------------------
$21,030 $20,307 3.6% $47,387 $45,300 4.6%
=================================================
Capital expenditures:
Publishing locations ........... $ 8,275 $ 5,184 $15,600 $10,777
Broadcasting ................... 784 2,247 1,971 5,142
Corporate ...................... 319 - - 788 382
---------------- ----------------
$ 9,378 $ 7,431 $18,359 $16,301
================ ================
<FN>
* EBITDA is not a financial performance measurement under generally accepted
accounting principles (GAAP), and should not be considered in isolation or as
a substitute for GAAP performance measurements. EBITDA is also not reflected
in our consolidated statement of cash flows, but it is a common and
meaningful alternative performance measurement for comparison to other
companies in our industry.
</FN>
QUARTER ENDED MARCH 31, 2000
PUBLISHING
Exclusive of acquisitions and dispositions, publishing advertising revenue
increased $2,000,000, 3.4%. Advertising revenue from local merchants increased
$116,000, .4%, as a result of a late Easter. Local "run-of-press" advertising
decreased $(76,000), (.3%). Local preprint revenue increased $191,000, 2.3%.
Classified advertising revenue increased $1,491,000, 7.0%, primarily in the
employment and automotive categories. Circulation revenue decreased $(313,000),
(1.6%), as a result of a decrease in units.
Other revenue consists of revenue from commercial printing, products delivered
outside the newspaper (which include activities such as target marketing and
special event production) and editorial service contracts with Madison
Newspapers, Inc.
Other revenue by category is as follows:
Three Months
Ended March 31,
-----------------
2000 1999
-----------------
(In Thousands)
Commercial printing ...................................... $ 5,630 $ 5,690
New revenue* ............................................. 7,360 5,913
Editorial service contracts .............................. 2,572 2,396
Acquisitions and dispositions since September 31, 1998 ... 1,441 316
-----------------
$17,003 $14,315
=================
* Includes internet/online, niche publications, books, and other events
and promotions.
The following table sets forth the percentage of revenue of certain items in the
publishing operations.
Three
Months Ended
March 31,
---------------
2000 1999
---------------
Revenue ...................................................... 100.0% 100.0%
---------------
Compensation costs ........................................... 36.1 35.9
Newsprint and ink ............................................ 8.9 9.4
Other operating expenses ..................................... 23.8 23.1
---------------
68.8 68.4
---------------
Income before depreciation, amortization, interest and taxes . 31.2 31.6
Depreciation and amortization ................................ 6.9 6.7
---------------
Operating margin wholly-owned properties ..................... 24.3% 24.9%
===============
QUARTER ENDED MARCH 31, 2000
Exclusive of the effects of acquisitions and dispositions, costs other than
depreciation and amortization increased $2,788,000, 4.4%. Compensation expense
increased $1,426,000, 4.3%, due primarily to an increase in average compensation
rates. Newsprint and ink costs decreased $(401,000), (4.5)%, due primarily to
lower prices paid for newsprint. Other operating costs, exclusive of
depreciation and amortization, increased $1,763,000, 8.3%. Approximately
one-half of the increase resulted from insurance cost savings in 1999 which did
not reoccur in 2000.
DISCONTINUED OPERATIONS, BROADCASTING
Exclusive of the effects of a local marketing agreement (LMA) contract
termination, net revenue increased $935,000, 3.6%, as political advertising
increased $558,000 to $579,000 and local/regional/national advertising increased
$930,000, 4.0%. Production revenue and revenues from other services increased
$107,000, 5.6%. Network compensation decreased by $(641,000).
Exclusive of the disposition, compensation costs increased $189,000, 1.5%.
Programming costs for the quarter increased $426,000, 19.7%, primarily due to
higher costs of new programming. Other operating expenses, exclusive of
depreciation and amortization, decreased $1,420,000, (19.7)%, due to reduction
in travel, bad debts, outside services, sales and audience promotion expenses.
NONOPERATING INCOME AND INCOME TAXES
Interest on deferred compensation arrangements for executives and others is
offset by financial income earned on the invested funds held in trust. Financial
income and interest expense increased by $260,000 in 2000, as a result of these
arrangements.
Income taxes were 37.1% and 37.3% of pretax income from continuing operations
for the quarters ended March 31, 2000 and 1999, respectively.
SIX MONTHS ENDED MARCH 31, 2000
PUBLISHING
Exclusive of acquisitions and dispositions, publishing advertising revenue
increased $2,455,000, 2.0%. Advertising revenue from local merchants decreased
$(700,000), (1.0)%. Local "run-of-press" advertising decreased $(1,212,000),
(2.3)%, as a result of decreased spending and a shift to preprint advertising by
large retailers. Local preprint revenue increased $511,000, 2.7%. Classified
advertising revenue increased $2,512,000, 5.9%, as a result of a 11.6% increase
in advertising inches primarily in employment and automotive categories, offset
by lower average rates. Circulation revenue decreased $(713,000), (1.8)% as a
result of a decrease in units.
SIX MONTHS ENDED MARCH 31, 2000
Other revenue consists of revenue from commercial printing, products delivered
outside the newspaper (which include activities such as target marketing and
special event production) and editorial service contracts with Madison
Newspapers, Inc.
Other revenue by category and by property is as follows:
Six Months Ended
March 31,
----------------
2000 1999
----------------
(In Thousands)
Commercial printing .................................... 11,287 11,905
New revenue * .......................................... 14,500 11,100
Editorial service contracts ............................ 4,868 4,593
Acquisitions and dispositions since September 30, 1998 . 2,370 672
----------------
$33,025 $28,270
================
* Includes internet/online, niche publications, books, and other events
and promotions.
The following table sets forth the percentage of revenue of certain items in the
publishing operations.
Six Months Ended
March 31,
----------------
2000 1999
----------------
Revenue .................................................... 100.0% 100.0%
---------------
Compensation costs ......................................... 35.2 34.8
Newsprint and ink .......................................... 8.6 9.8
Other operating expenses ................................... 23.3 22.8
---------------
67.1 67.4
===============
Income before depreciation, amortization, interest and taxes 32.9 32.6
Depreciation and amortization .............................. 6.6 6.3
---------------
Operating margin wholly-owned properties ................... 26.3% 26.3%
===============
Exclusive of the effects of acquisitions, costs other than depreciation and
amortization increased $2,997,000, 2.3%. Compensation expense increased
$2,464,000, 3.6%, due primarily to an increase in average compensation rates.
Newsprint and ink costs decreased $(2,460,000), (12.6)%, due primarily to lower
prices paid for newsprint. Other operating costs, exclusive of depreciation and
amortization, increased $2,993,000, 6.8%, due to higher technology and promotion
expenses. Approximately one-third of the increase resulted from insurance cost
savings in 1999 that did not reoccur in 2000.
SIX MONTHS ENDED MARCH 31, 2000
DISCONTINUED OPERATIONS, BROADCASTING
Exclusive of the effects of the LMA contract termination, revenue decreased
$(1,952,000), (3.2)%, as political advertising decreased $(4,328,000), (77.7)%
and local/regional/national advertising increased $3,199,000, 6.5%. Production
revenue and revenues from other services increased $115,000, 3.0%. Network
compensation decreased by $(1,152,000).
Exclusive of the disposition, compensation costs increased $235,000, .9%.
Programming costs increased $851,000, 19.6%, primarily due to higher costs of
new programming. Other operating expenses, exclusive of depreciation and
amortization, decreased $1,282,000, (8.9)%, due to reduction in travel, bad
debts, outside services, sales and audience promotion expenses.
NONOPERATING INCOME AND INCOME TAXES
Interest expense decreased due to payments on long-term debt and changes in the
deferred compensation arrangements as previously discussed which increased
financial income and interest expense by $832,000 in 2000.
Income taxes were 37.5% and 37.1% of pretax income from continuing operations
for the six-months ended March 31, 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations, which is the Company's primary source of liquidity,
generated $64,963,000 for the six month period ended March 31, 2000. Available
cash balances, cash flow from operations, and bank lines of credit provide
adequate liquidity. Covenants related to the Company's credit agreement are not
considered restrictive to operations and anticipated stockholder dividends.
SAFE HARBOR STATEMENT
The Private Securities Litigation Reform Act of 1995 provides a "Safe Harbor"
for forward-looking statements. This report contains certain information which
may be deemed forward-looking that is based largely on the Company's current
expectations and is subject to certain risks, trends, and uncertainties that
could cause actual results to differ materially from those anticipated. Among
such risks, trends, and uncertainties are changes in advertising demand,
newsprint prices, interest rates, regulatory rulings, availability of quality
broadcast programming at competitive prices, changes in the terms and conditions
of network affiliation agreements, quality and ratings of network over-the-air
broadcast programs, legislative or regulatory initiatives affecting the cost of
delivery of over-the-air broadcast programs to the Company's customers, and
other economic conditions and the effect of acquisitions, investments, and
dispositions on the Company's results of operations or financial condition. The
words "believe," "expect," "anticipate," "intends," "plans," "projects,"
"considers," and similar expressions generally identify forward-looking
statements. Readers are cautioned not to place undue reliance on such
forward-looking statements, which are as of the date of this report. Further
information concerning the Company and its businesses, including factors that
potentially could materially affect the Company's financial results, is included
in the Company's annual report on Form 10-K. The Company does not undertake to
publicly update or revise its forward-looking statements.
LEE ENTERPRISES, INCORPORATED
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the Company was held on January 25, 2000.
b) William E. Mayer and Mark Vittert were re-elected directors and
Gregory P. Schermer was elected director for three-year terms
expiring at the 2003 annual meeting. J.P. Guerin was re-elected as
a director for a one-year term expiring at the 2001 annual
meeting. Directors whose terms of office continued after the
meeting include: Rance E. Crain, Richard D. Gottlieb, Mary E.
Junck, Phyllis Sewell, Andrew E. Newman, Ronald L. Rickman, and
Gordon D. Prichett.
(c) Votes were cast of which 5,502,735 were voted in person and the
remaining votes were cast by proxy as follows:
Vote For Withheld
-------------------------------
William E. Mayer 117,088,573 712,824
Gregory P. Schermer 112,264,202 5,537,195
Mark Vittert 117,096,531 704,866
J.P. Guerin 117,056,423 744,974
Abstentions and broker non-votes were not significant.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(e) Exhibits
(3) Bylaws
(10) Employment agreement
(27) Financial data schedule
(f) Report on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEE ENTERPRISES, INCORPORATED
DATE May 15, 2000 /s/ G. C. Wahlig
------------------------ --------------------------------------
G. C. Wahlig, Chief Accounting Officer