UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For Quarter Ended December 31, 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 December 31, 2000
- --------------------------------------- --------------------------------
Common Stock, $2.00 par value 32,996,368
Class "B" Common Stock, $2.00 par value 10,714,920
PART I. FINANCIAL INFORMATION
Item 1.
LEE ENTERPRISES, INCORPORATED
Consolidated Statements of Income
(In Thousands, Except Per Share Data)
2000 1999
- --------------------------------------------------------------------------------
Three Months Ended December 31: (Unaudited)
Operating revenue:
Advertising ................................... $ 77,685 $ 70,133
Circulation ................................... 21,173 20,212
Other ......................................... 17,201 16,052
Equity in net income of associated companies .. 2,566 2,290
------------------
118,625 108,687
------------------
Operating expenses:
Compensation costs ............................ 43,525 39,681
Newsprint and ink ............................. 11,137 9,013
Depreciation .................................. 4,129 3,476
Amortization of intangibles ................... 3,901 3,736
Other ......................................... 28,284 26,424
-------------------
90,976 82,330
-------------------
Operating income ....................... 27,649 26,357
-------------------
Nonoperating income (expense), net
Financial income .............................. 9,511 1,054
Financial (expense) ........................... (3,164) (3,385)
Other, net .................................... (405) 18,249
-------------------
5,942 15,918
-------------------
Income from continuing operations
before taxes on income ................. 33,591 42,275
Income taxes ...................................... 12,576 15,879
-------------------
Income from continuing operations ...... 21,015 26,396
-------------------
Discontinued operations:
Income from discontinued operations,
net of income tax effect ...................... - - 4,148
Gain on disposition, net of income tax effect ... 250,887 - -
-------------------
250,887 4,148
-------------------
Net income ............................. $271,902 $ 30,544
===================
Average outstanding shares:
Basic ........................................... 43,666 44,165
Diluted ......................................... 43,961 44,630
Earnings per share:
Basic :
Income from continuing operations ............. $ 0.48 $ 0.60
Income from discontinued operations ........... 5.75 0.09
-------------------
Net income ............................. $ 6.23 $ 0.69
===================
Diluted:
Income from continuing operations ............. $ 0.48 $ 0.59
Income from discontinued operations ........... 5.71 0.09
-------------------
Net income ............................. $ 6.19 $ 0.68
===================
Dividends per share ........................... $ 0.17 $ 0.16
===================
LEE ENTERPRISES, INCORPORATED
Condensed Consolidated Balance Sheets
(In Thousands)
December 31, September 30,
ASSETS 2000 2000
- --------------------------------------------------------------------------------
(Unaudited)
Cash and cash equivalents ......................... $ 98,388 $ 29,427
Temporary cash investments ........................ 479,190 - -
Accounts receivable, net .......................... 47,675 42,712
Newsprint inventory ............................... 3,960 4,280
Other ............................................. 7,003 7,380
Net assets of discontinued operations ............. 576 167,767
----------------------
Total current assets ...................... 636,792 251,566
Investments ....................................... 32,420 34,176
Property and equipment, net ....................... 126,750 127,356
Intangibles and other assets ...................... 331,229 333,135
----------------------
$1,127,191 $ 746,233
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt ............ $ 185,437 $ 49,532
Income taxes payable ............................ 191,396 7,799
Other ........................................... 64,850 60,296
----------------------
Total current liabilities ................. 441,683 117,627
Long-term debt, less current maturities ........... - - 173,400
Deferred items .................................... 29,729 60,039
Stockholders' equity .............................. 655,779 395,167
----------------------
$1,127,191 $ 746,233
======================
LEE ENTERPRISES, INCORPORATED
Condensed Consolidated Statements of Cash Flows
(In Thousands)
Three Months Ended December 31: 2000 1999
- --------------------------------------------------------------------------------------
(Unaudited)
Cash Provided by Operating Activities:
Net income .................................................. $271,902 $ 30,544
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization ............................. 8,043 10,191
Gain on sale of properties ................................ (396,329) (18,249)
Distributions in excess of current earnings of associated
companies ............................................... 2,489 1,786
Other balance sheet changes ............................... 146,295 12,750
-------------------
Net cash provided by operating activities ............. 32,400 37,022
-------------------
Cash Provided by (Required for) Investing Activities:
Purchase of property and equipment .......................... (3,821) (8,981)
Purchase of temporary cash investments ...................... (479,190) - -
Acquisitions ................................................ (3,335) (3,329)
Proceeds from sale of assets, net ........................... 565,264 8,585
Other ....................................................... (786) (33)
-------------------
Net cash provided by (required for)
investing activities ................................ 78,132 (3,758)
-------------------
Cash (Required for) Financing Activities:
Purchase of Lee Common Stock ................................ (4,296) (3,922)
Payments on short-term notes payable, net ................... (37,500) (6,000)
Other ....................................................... 225 261
-------------------
Net cash (required for) financing activities .......... (41,571) (9,661)
-------------------
Net increase in cash and cash equivalents ............. 68,961 23,603
Cash and cash equivalents:
Beginning ................................................... 29,427 10,536
-------------------
Ending ...................................................... $ 98,388 $ 34,139
===================
Lee Enterprises, Incorporated
Notes to Unaudited Condensed Consolidated Financial Information
- --------------------------------------------------------------------------------
Note 1. Basis of Presentation
The information furnished reflects all adjustments, consisting of normal
recurring accruals, which are, in the opinion of management, necessary to a fair
presentation of the financial position as of December 31, 2000 and the results
of operations and cash flows for the three months ended December 31, 2000 and
1999.
Note 2. Investment in Associated Companies
The Company has a 50% ownership interest in Madison Newspapers, Inc., a
newspaper company which publishes daily, Sunday, and weekly publications in
Madison and three other daily newspapers, seven weekly publications, and various
other classified publications in Wisconsin, and also holds interests in Internet
service ventures. The condensed operating results of Madison Newspapers, Inc.
set forth below include the results of operations of three daily newspapers,
five weekly publications, and three other classified publications acquired by
Madison Newspapers, Inc. on July 1, 2000 from Independent Media Group, Inc.:
Three Months Ended
December 31,
------------------
2000 1999
------------------
(In Thousands)
(Unaudited)
Revenues .................................................... $29,459 $24,063
Operating expenses, except depreciation and amortization .... 19,651 16,101
Income before depreciation and amortization, interest,
and taxes ................................................. 9,808 7,962
Depreciation and amortization ............................... 1,161 715
Operating income ............................................ 8,647 7,247
Financial income (expense) .................................. (55) 402
Income before income taxes .................................. 8,592 7,649
Income taxes ................................................ 3,460 3,079
Net income .................................................. 5,132 4,570
Note 3. Cash Flows Information
The components of other balance sheet changes are:
Three Months Ended
December 31,
--------------------
2000 1999
--------------------
(In Thousands)
(Unaudited)
(Increase) in receivables ........................... $ (4,949) $ (6,211)
Decrease in inventories and other ................... 697 1,907
(Decrease) in accounts payable, accrued expenses and
unearned income .................................. (3,480) (3,043)
Increase in income taxes payable .................... 183,597 13,552
Deferred income taxes ............................... (29,665) - -
Other ............................................... 95 6,545
--------------------
$146,295 $ 12,750
====================
Note 4. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share amounts):
Three Months Ended
December 31,
-------------------
2000 1999
-------------------
(Unaudited)
(In Thousands)
Numerator:
Income applicable to common shares:
Income from continuing operations .................... $ 21,015 $ 26,396
Income from discontinued operations .................. 250,887 4,148
-------------------
$271,902 $ 30,544
===================
Denominator:
Basic, weighted average common shares
outstanding .......................................... 43,666 44,165
Dilutive effect of employee stock options .............. 295 465
-------------------
Diluted outstanding shares ....................... 43,961 44,630
===================
Basic earnings per share:
Income from continuing operations ...................... $ 0.48 $ 0.60
Income from discontinued operations .................... 5.75 0.09
-------------------
Net Income ....................................... $ 6.23 $ 0.69
===================
Diluted earnings per share:
Income from continuing operations ...................... $ 0.48 $ 0.59
Income from discontinued operations .................... 5.71 0.09
-------------------
Net Income ....................................... $ 6.19 $ 0.68
===================
Note 5. Gain on Sale of Properties
On October 1, 1999 the Company acquired a daily newspaper and specialty
publications in Beatrice, Nebraska and received $9,300,000 of cash in exchange
for 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 connection with this transaction, the Company recognized a
gain on sale of $18,439,000, which is included in other nonoperating income in
1999.
Note 6. 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
substantially all of its broadcasting operations, consisting of eight
network-affiliated and seven satellite television stations, to Emmis
Communications Corporation and closed the transaction on October 1, 2000. The
net proceeds of approximately $565,000,000 resulted in an after-tax gain for
financial reporting purposes of approximately $251,000,000. The results for the
broadcast operations have been classified as discontinued operations for all
periods presented in the consolidated statements of income. Under the terms of
its senior note agreement, the Company will be required to repay the outstanding
balance of $173,400,000 on October 1, 2001 unless the Company reinvests the net
proceeds of the broadcast sale or obtains a waiver of that provision of the
agreement. Therefore, the $173,400,000 has been classified as a current
liability as of December 31, 2000.
On January 18, 2001, the Company entered into an agreement to sell its remaining
broadcast property which will complete the Company's exit from television
broadcasting. The assets and liabilities of the remaining broadcast property has
been classified in the consolidated balance sheet as "net assets of discontinued
operations" as of December 31, 2000.
The income from discontinued operations consists of the following:
Three Months Ended
December 31,
--------------------
2000 1999
--------------------
(In Thousands)
(Unaudited)
Income from discontinued operations .................. $ - - $ 7,071
Gain on disposition .................................. 396,329 - -
Income taxes ......................................... 145,442 2,923
--------------------
$250,887 $ 4,148
====================
The assets and liabilities of the Broadcast division consisted of the following:
December 31,
2000
--------------
(In Thousands)
(Unaudited)
Assets:
Accounts receivable, net .................................... $156
Property and equipment, net ................................. 388
Intangibles and other assets ................................ 55
----
599
----
Liabilities ................................................. 23
----
Net assets of discontinued operations ....................... $576
====
Note 7. Amortization of Intangibles
Amortization of goodwill was $1,864,000 in 2000 and $1,734,000 in 1999,
including approximately $700,000 in each period that is not deductible for
income tax purposes.
Note 8. Reclassification
Certain items on the statements of income for the three months ended December
31, 1999 have been reclassified with no effect on net income or earnings per
share to be consistent with the classifications adopted for the three months
ended December 31, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Operating results are summarized below:
Three Months Ended
December 31,
--------------------------
2000 1999
--------------------------
(Dollars In Thousands,
Except Per Share Data)
Operating revenue ................................. $ 118,625 $ 108,687
Percent change .................................. 9.1% 2.0%
Income before depreciation, amortization,
interest and taxes (EBITDA) * ................... 35,679 33,569
Percent change .................................. 6.3% 5.7%
Operating income .................................. 27,649 26,357
Percent change .................................. 4.9% 5.5%
Non-operating income (expense), net ............... 5,942 15,918
Income from continuing operations ................. 21,015 26,396
Percent change .................................. (20.4)% 91.0%
Earnings per share, continuing operations
Basic ........................................... 0.48 0.6
Percent change ................................ (20.0)% 93.6%
Diluted ......................................... 0.48 0.59
Percent change ................................ (18.6)% 90.3%
* 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
the consolidated statement of cash flows; but it is a common and meaningful
alternative performance measurement for comparison to other companies in the
publishing industry. The computation excludes other non-operating items which
are primarily the gain on sale of businesses.
Operating revenue consists of the following:
Three Months Ended
December 31,
----------------------
2000 1999
----------------------
(Dollars In Thousands)
Advertising revenue:
Retail advertising:
Retail - "run-of-press" ......................... $ 32,242 $ 30,009
Retail - preprint and other ..................... 16,784 13,484
--------------------
Total retail advertising .......................... 49,026 43,493
Percent change .................................. 12.7% (1.3)%
National .......................................... 3,054 2,224
Percent change .................................. 37.3% 13.5%
Classified ........................................ 24,129 23,120
Percent change .................................. 4.4% 4.6%
Other ............................................. 1,476 1,296
Percent change .................................. 13.9% 5.5%
Total advertising ................................... 77,685 70,133
Percent change .................................... 10.8% 1.1%
Circulation revenue ................................. 21,173 20,212
Percent change .................................... 4.8% (3.6)%
Other revenue ....................................... 17,201 16,052
Percent change .................................... 7.2% 15.0%
The following advertising and circulation revenue results are presented
exclusive of acquisitions and dispositions.
Retail "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.
Retail revenue increased $819,000, 2.7% in 2000, primarily attributable to
increased spending by advertisers which was offset in part by a shift to
preprint advertising.
Total revenue realized from retail and national merchants includes preprints,
which have lower-priced, higher-volume distribution rates. Preprint revenue
increased $1,159,000, 9.5% in 2000.
Classified advertising revenue increased approximately $256,000, 1.1% in 2000.
Growth in advertising revenue was principally in the employment and real estate
categories partially offset by a decrease in automotive advertising.
In 2000, total advertising revenue increased $3,266,000, 4.7%.
In 2000 circulation revenue increased $48,000, .2% in part due to an additional
Sunday in the quarter which has a higher rate, offset by a decline in units.
Other revenue consists of revenue from commercial printing, products and
services delivered outside the newspaper (which include activities such as
target marketing, special event production, and online services), and editorial
service contracts with Madison Newspapers, Inc.
Other revenue by category is as follows:
Three Months Ended
December 31,
------------------
2000 1999
------------------
(In Thousands)
Commercial printing .................................... $ 7,157 $ 6,410
------------------
New revenue:
Niche publications ................................... 3,432 2,712
Internet/online ...................................... 1,293 629
Other ................................................ 3,000 4,005
------------------
Total new revenue ...................................... 7,725 7,346
------------------
Editorial service contracts ............................ 2,319 2,296
------------------
$17,201 $16,052
==================
In 2000 exclusive of acquisitions and dispositions, other revenue increased
$447,000, 3.1%. Commercial printing decreased by $(47,000), (.8%) due to a
decline in volume. Niche publications revenue increased $865,000, 33.7% with the
introductions of new products. Internet/online revenue increased $313,000, 49.8%
due to growth in advertising revenue. Other revenue declined $(707,000), (19.6%)
due to a reduction in target marketing and the absence of promotional activities
related to the new millennium for which revenues were received in 1999.
The following table sets forth the percentage of revenue of certain items.
Three Months
Ended
December 31,
---------------
2000 1999
---------------
Revenue .................................................... 100.0% 100.0%
---------------
Compensation costs ......................................... 37.5 37.3
Newsprint and ink .......................................... 9.6 8.5
Other operating expenses ................................... 24.4 24.8
---------------
71.5 70.6
---------------
Income before depreciation, amortization, interest
and taxes ................................................ 28.5 29.4
Depreciation and amortization .............................. 6.9 6.8
---------------
Operating margin wholly-owned properties ................... 21.6% 22.6%
===============
Exclusive of the effects of acquisitions and dispositions, in 2000 costs other
than depreciation and amortization increased $2,908,000, 3.9%. Compensation
expense increased $1,273,000, 3.3%, due primarily to an increase in the average
compensation rate and increased sales positions. Newsprint and ink costs
increased $1,481,000, 17.1%, due primarily to higher prices. Other operating
costs exclusive of depreciation and amortization increased $154,000, .6% due to
higher prices offset in part by cost controls.
NONOPERATING INCOME AND INCOME TAXES
Interest on deferred compensation agreements for executives and others is offset
by financial income earned on the invested funds held in trust. Financial income
and interest expense (decreased) by $(130,000) in 2000 as a result of these
arrangements. Financial income increased $8,457,000 due primarily to income
earned on the invested proceeds from the sale of its broadcast properties.
In 2000, other non-operating income, net consists of losses related to its 6.3%
interest in Ad One, LLC, a provider of integrated online classified solutions
for the newspaper industry. In 1999, other non-operating income, net consists
primarily of a $18,439,000 gain from the sale of publishing properties and
losses related to Ad One, LLC.
Income taxes were 37.4% and 37.6% of pre-tax income for the three months ended
December 31, 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations, which is the Company's primary source of liquidity,
was $32,400,000 for the three months ended December 31, 2000.
The Company anticipates that funds necessary for capital expenditures and other
requirements will be available from internally generated funds and the net
after-tax proceeds from the sale of its broadcast properties.
Under the terms of its senior note agreement, the Company will be required to
repay the outstanding balance of $173,400,000 on October 1, 2001 unless the
Company reinvests the net proceeds of the sale of its broadcast properties in
operating assets of the Company or obtains a waiver of that provision of the
agreement. Other covenants under these agreements are not considered restrictive
to normal operations or 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, other economic conditions,
and the effect of acquisitions, investments, and dispositions on the Company's
results of operations or financial condition. The words "believe," "expect,"
"anticipate," "intends," "plans," "projects," "considers," and similar
expressions generally identify forward-looking statements. Readers are cautioned
not to place undue reliance on such forward-looking statements, which are as of
the date of this report. Further information concerning the Company and its
businesses, including factors that potentially could materially affect the
Company's financial results, is included in the Company's annual report on Form
10-K. The Company does not undertake to publicly update or revise its
forward-looking statements.
LEE ENTERPRISES, INCORPORATED
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) The following report of Form 8-K was filed during the three
months ended December 31, 2000.
Date of Report: October 2, 2000
Item 2. The Company announced the completion of the sale of
certain of its broadcasting properties to Emmis Communications
Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEE ENTERPRISES, INCORPORATED
/s/ G. C. Wahlig Date January 30, 2001
- --------------------------------------- -------------------------------
G.C. Wahlig, Vice President of Finance,
Interim Chief Financial Officer, and
Chief Accounting Officer