UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2001
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
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(Exact name of Registrant as specified in its charter)
Delaware 42-0823980
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(State of Incorporation) (I.R.S. Employer Identification No.)
215 N. Main Street, Davenport, Iowa 52801
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(Address of Principal Executive Offices)
(563) 383-2100
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Registrant's telephone number, including area code
Name of Each Exchange
Title of Each Class On Which Registered
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Securities registered pursuant to
Section 12(b) of the Act:
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:
Class B Common Stock - $2.00 par value
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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. [ ]
State the aggregate market value of voting stock held by nonaffiliates of the
Registrant as of November 30, 2001. Common Stock and Class B Common Stock, $2.00
par value, $1,515,200,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 30, 2001. Common Stock, $2.00 par value, 33,920,305
shares and Class B Common Stock, $2.00 par value, 10,210,918 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement dated
December 27, 2001 are incorporated by reference in Part III of this Form 10-K.
TABLE OF CONTENTS Page
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for Registrant's Common Equity and Related Stockholder Matters
Selected Financial Data
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
Consolidated Financial Statements
FORWARD-LOOKING STATEMENTS
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 "believes," "expects,"
"anticipates," "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 made
as of the date of this report. The Company does not undertake to publicly update
or revise its forward-looking statements.
PART I
Item 1. Business
The Company directly, and through its ownership of associated companies,
publishes 28 daily newspapers and more than 100 other weekly, classified and
specialty publications, along with associated online services. Many of the
Company's businesses operate in geographic "clusters," which provide operational
efficiencies and extend sales penetration. The Company was founded in 1890,
incorporated in 1950, and listed on the New York Stock Exchange in 1978. Before
2001, the Company also operated a number of network-affiliated and satellite
television stations.
Advertising
More than one-half of the Company's revenue is derived from advertising. The
Company's strategies are to increase its share of local advertising through
increased sales pressure in its existing markets and, over time, to increase
circulation through internal expansion into contiguous markets, as well as make
selective acquisitions. Acquisition efforts are focused on newspapers with
circulation from 30,000 to 125,000 and other publications that expand the
Company's operating clusters.
The Company's newspapers, and 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 online services. In addition, several of the Company's daily and Sunday
newspapers compete with other local newspapers in nearby cities and towns. The
Company estimates that it captures more than one-half of advertising dollars
spent in its markets on print, broadcast and online.
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 and are particularly effective in larger
markets with high media fragmentation in which metropolitan newspapers generally
have low penetration.
In late 2000, the newspaper industry began to experience declining advertising
revenue demand for the first time in several years. The Company's enterprises
are located in mid-size and smaller markets from the Midwest to the Pacific
Northwest. These markets have been more stable than major metropolitan markets
during the current downturn in advertising spending.
Circulation
After advertising, circulation is the Company's largest source of revenue. The
Company estimates that its products are sold to approximately one-half, and read
by approximately three-fourths, of adults in its markets. For the six months
ended September 30, 2001, daily circulation improved over the prior year
comparative amount, the Company's best performance in the last 10 years. Growth
in circulation can, over time, also positively impact advertising revenue. The
Company's strategies to improve readership and circulation include continuous
improvement of content, including local news, and promotional efforts.
The Company and its affiliates publish the following daily newspapers:
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Circulation
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Newspaper City State Daily (M-F) Sunday
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Southern Illinoisan ................... Carbondale Illinois 26,944 (1) 36,361
Herald & Review ....................... Decatur Illinois 33,864 (1) 40,903
Quad City Times ....................... Davenport Iowa 50,604 (1) 71,030
Globe Gazette ......................... Mason City Iowa 18,962 (1) 23,121
Muscatine Journal ..................... Muscatine Iowa 7,978 (1) --
Winona Daily News ..................... Winona Minnesota 11,546 (1) 12,663
Billings Gazette ...................... Billings Montana 46,802 (1) 53,166
The Montana Standard .................. Butte Montana 14,020 (1) 14,256
Ravalli Republic ...................... Hamilton Montana 5,814 (2) --
Independent Record .................... Helena Montana 13,479 (1) 14,300
Missoulian ............................ Missoula Montana 29,787 (1) 36,728
Beatrice Daily Sun .................... Beatrice Nebraska 7,893 (1) --
Columbus Telegram ..................... Columbus Nebraska 9,481 (1) 10,300
Fremont Tribune ....................... Fremont Nebraska 9,213 (2) --
Lincoln Journal Star .................. Lincoln Nebraska 75,292 (1) 82,957
The Bismarck Tribune .................. Bismarck North Dakota 26,865 (1) 30,153
Democrat-Herald ....................... Albany Oregon 18,541 (1) 32,218 (3)
Ashland Daily Tidings ................. Ashland Oregon 5,133 (1) --
Corvallis Gazette-Times ............... Corvallis Oregon 12,265 (1) (3)
Rapid City Journal .................... Rapid City South Dakota 29,726 (1) 33,730
Baraboo News Republic (4) ............. Baraboo Wisconsin 4,021 (2) --
Chippewa Herald ....................... Chippewa Falls Wisconsin 7,100 (2) --
LaCrosse Tribune ...................... LaCrosse Wisconsin 31,009 (1) 40,531
The Capital Times (4) ................. Madison Wisconsin 19,871 (1) --
Wisconsin State Journal (4) ........... Madison Wisconsin 87,871 (1) 155,562
Portage Daily Register (4) ............ Portage Wisconsin 4,801 (2) --
The Journal Times ..................... Racine Wisconsin 29,136 (1) 30,039
Shawano Leader (4) .................... Shawano Wisconsin 5,735 (1) 6,095
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Total paid daily and Sunday circulation 643,753 724,113
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(1) Source: Audit Bureau of Circulations (ABC): Six months ended September
2001.
(2) Source: Company statistics.
(3) Combined edition.
(4) Published by Madison Newspapers, Inc. (MNI). The Company owns 50% of the
capital stock of MNI 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 MNI. 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.
Commercial Printing
The Company offers commercial printing services through the following entities:
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City State
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William Street Press ..................... Decatur Illinois
Hawkeye Printing ......................... Davenport Iowa
Platen Press ............................. Deer Lodge Montana
Farcountry Press ......................... Helena Montana
Broadwater Printing ...................... Townsend Montana
Oak Creek Printing ....................... Lincoln Nebraska
Little Nickel Quik Print ................. Lynnwood Washington
Spokane Print and Mail ................... Spokane Washington
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Online Services
The Company's Internet activities are comprised of websites supporting each of
its daily newspapers and investments in, or loans to, three Internet service
companies, which provide web solutions for small daily and weekly newspapers and
shoppers, provide integrated online classified solutions for the newspaper
industry, or integrate online editorial content with transactional and
promotional opportunities. The Internet activities of the newspapers are
reported and managed as a part of the Company's publishing operations.
Newsprint
The basic raw material of newspapers, and 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 that 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, included herein.
Officers
The following table lists officers of the Company as of December 1, 2001:
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Service Named
With The To Present
Name Age Company Office Present Office
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Mary E. Junck ............ 54 June 1999 January 2001 President and Chief Executive
Officer
James W. Hopson .......... 55 August 2000 August 2000 Vice President - Publishing
Brian E. Kardell ......... 38 January 1991 January 2001 Vice President - Information
Systems/Chief Information
Officer
Vytenis P. Kuraitis ...... 53 August 1994 January 1997 Vice President - Human
Resources
Michael E. Phelps ........ 55 February 2000 February 2000 Vice President - Sales &
Marketing
Gregory P. Schermer ...... 47 February 1989 November 1997 Vice President - Interactive
Media and Corporate Counsel
Carl G. Schmidt .......... 45 May 2001 May 2001 Vice President, Chief Financial
Officer and Treasurer
David B. Stoeffler ....... 42 June 1981 December 2001 Vice President for News
John VanStrydonck ........ 48 March 1981 June 2000 Vice President - Publishing
Greg R. Veon ............. 49 April 1976 November 1999 Vice President - Publishing
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Mary E. Junck was elected President and Chief Executive Officer of the Company
in January 2001. Ms. Junck was elected Executive Vice President and Chief
Operating Officer in May 1999 and President in January 2000. 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.
James W. Hopson was elected Vice President - Publishing and publisher of the
Wisconsin State Journal in July 2000. For more than the past five years prior to
July 2000, he was Chief Executive Officer of Thomson Newspapers Central Ohio
Strategic Marketing Group.
Brian E. Kardell was appointed Vice President - Information Systems/Chief
Information Officer in January 2001. From 1997 to 2001, Mr. Kardell was Chief
Information Officer. Prior to 2001, he was Director of Information Services.
Vytenis P. Kuraitis was elected Vice President - Human Resources in January
1997. From August 1994 through January 1997 he was Director of Human Resources.
Michael E. Phelps was elected Vice President - Sales and Marketing in February
2000. For more than the past five years prior to February 2000, he was managing
principal of Phelps, Cutler & Associates, newspaper management consultants.
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.
Carl G. Schmidt was elected Vice President, Chief Financial Officer and
Treasurer in May 2001. From July 1994 until September 2000, Mr. Schmidt was
Senior Vice President and Chief Financial Officer of Johnson Outdoors Inc. From
1988 to 1994 he was a partner of KPMG, LLP.
David B. Stoeffler was appointed Vice President for News in December 2001. From
1997 to December 2001, Mr. Stoeffler was Editor of the Lincoln Journal Star.
From 1995 to 1997, he was Editor of the La Crosse Tribune.
John VanStrydonck was elected Vice President - Publishing in June 2000. From
September 1994 to June 2000 he was Publisher of the Rapid City Journal and was
Chairman and Chief Operating Officer of NAPP Systems from September 1994 until
its sale by Lee in January 1997.
Greg R. Veon was elected Vice President - Publishing in November 1999; from
November 1995 through November 1999 he was Vice President - Marketing.
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.
At September 30, 2001, the Company had approximately 4,900 employees, including
approximately 1,300 part-time employees, exclusive of MNI. The Company considers
its relationship with employees to be good.
Item 2. Properties
The Company's executive offices are located in leased facilities at 215 North
Main Street, Davenport, Iowa.
All of the Company's printing facilities (except Madison, Wisconsin, which is
owned by MNI, and a leased plant in Spokane, Washington) are owned. All
facilities are well maintained, in good condition, suitable for existing office
and publishing operations and adequately equipped with typesetting, printing and
other required equipment.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
Common Stock of the Company is listed on the New York Stock Exchange. 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 Common Stock. The table below shows the high and low prices of
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.
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Quarter
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1st 2nd 3rd 4th
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STOCK PRICES
2001
High .............................. $30.69 $32.55 $34.98 $34.40
Low ............................... 24.81 26.94 29.25 29.40
Closing ........................... 29.81 30.45 33.00 31.67
2000
High .............................. $32.25 $31.56 $26.19 $28.94
Low ............................... 27.25 19.69 20.50 23.25
Closing ........................... 31.94 26.13 23.31 28.88
1999
High .............................. $31.50 $31.44 $30.50 $31.06
Low ............................... 21.81 26.31 27.50 26.13
Closing ........................... 31.50 29.00 30.50 27.38
DIVIDENDS
2001 ................................ $0.17 $0.17 $0.17 $0.17
2000 ................................ 0.16 0.16 0.16 0.16
1999 ................................ 0.15 0.15 0.15 0.15
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For a description of the relative rights of Common Stock and Class B Common
Stock, see Note 6 of the Notes to Consolidated Financial Statements, included
herein.
At September 30, 2001, the Company had 2,954 holders of Common Stock and 1,954
holders of Class B Common Stock.
On November 15, 2001, the Board of Directors declared a dividend in the amount
of 17(cent) per share on the issued and outstanding Common Stock of the Company,
and a dividend in the amount of 17(cent) per share on the issued and outstanding
Class B Common Stock of the Company, be paid on January 2, 2002, to stockholders
of record on December 3, 2001.
Item 6. Selected Financial Data
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Year Ended September 30
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(Thousands, Except Per Common Share Data) 2001 2000 1999 1998 1997
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OPERATING RESULTS
Operating revenue ...................... $ 441,153 $431,513 $413,846 $391,261 $326,197
Operating income ....................... 86,016 102,467 97,369 87,899 81,889
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Income from continuing operations ...... $ 59,457 $ 69,875 $ 56,821 $ 47,674 $ 49,879
Discontinued operations ................ 254,771 13,788 11,152 14,559 14,351
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Net income ............................. $ 314,228 $ 83,663 $ 67,973 $ 62,233 $ 64,230
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EARNINGS PER COMMON SHARE
Basic:
Continuing operations ................ $ 1.36 $ 1.59 $ 1.29 $ 1.07 $ 1.07
Discontinued operations .............. 5.82 0.31 0.25 0.32 0.31
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Net income ............................. $ 7.18 $ 1.90 $ 1.54 $ 1.39 $ 1.38
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Diluted:
Continuing operations ................ $ 1.35 $ 1.58 $ 1.27 $ 1.05 $ 1.06
Discontinued operations .............. 5.78 0.31 0.25 0.32 0.30
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Net income ............................. $ 7.13 $ 1.89 $ 1.52 $ 1.37 $ 1.36
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Weighted average common shares
outstanding:
Basic ................................ 43,784 44,005 44,273 44,829 46,393
Diluted .............................. 44,089 44,360 44,861 45,557 47,243
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Dividends .............................. $ 0.68 $ 0.64 $ 0.60 $ 0.56 $ 0.52
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BALANCE SHEET INFORMATION
Total assets ........................... $1,000,397 $746,233 $679,513 $660,585 $650,963
Debt, including current maturities ..... 173,400 222,932 204,625 219,481 203,735
Stockholders' equity ................... 681,944 395,167 354,329 319,759 319,390
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OTHER INFORMATION
EBITDA/revenue ......................... 26.8% 30.5% 30.2% 29.1% 30.2%
Operating income/revenue ............... 19.5 23.7 23.5 22.5 25.1
Income from continuing operations/
revenue .............................. 13.5 16.2 13.7 12.2 15.2
Dividends/income from continuing
operations ........................... 50.1 40.5 46.9 52.8 48.5
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion includes comments and analysis relating to the
Company's results of operations and financial condition as of and for the three
years ended September 30, 2001. This discussion should be read in conjunction
with the Consolidated Financial Statements and related Notes thereto.
FORWARD-LOOKING STATEMENTS
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 "believes," "expects,"
"anticipates," "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 made
as of the date of this report. The Company does not undertake to publicly update
or revise its forward-looking statements.
CONTINUING OPERATIONS
Operating results are summarized below:
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Year Ended September 30 Percent Change
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2001 2000
vs. vs.
(Thousands, Except Per Common Share Data) 2001 2000 1999 2000 1999
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Operating revenue ........................ $441,153 $431,513 $413,846 2.2% 4.3%
Income before interest, taxes,
depreciation and amortization
(EBITDA)(1) ............................ 118,174 131,793 124,955 (10.3) 5.5
Operating income ......................... 86,016 102,467 97,369 (16.1) 5.2
Nonoperating (income) expense, net ....... (6,418) (7,748) 10,205 (17.2) NM
Income from continuing operations ........ 59,457 69,875 56,821 (14.9) 23.0
Earnings per common share:
Basic .................................. $ 1.36 $ 1.59 $ 1.29 (14.5) 23.3
Diluted ................................ 1.35 1.58 1.27 (14.6) 24.4
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(1) EBITDA is not a financial performance measurement under United States
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 the consolidated statements
of cash flows, but it is a common and meaningful alternative performance
measurement for comparison to other companies in the newspaper publishing
industry. The computation excludes other nonoperating items, primarily the
gains and losses on sales of businesses and losses related to other
ventures.
2001 VS 2000
Revenue, as reported in the Consolidated Financial Statements, consists of the
following:
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Year Ended September 30
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Percent
(Thousands) 2001 2000 Change
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Advertising revenue:
Retail ..................................................... $169,790 $160,766 5.6%
National ................................................... 10,345 9,317 11.0
Classified:
Employment ............................................... 28,200 31,234 (9.7)
Automotive ............................................... 20,971 21,990 (4.6)
Real estate .............................................. 16,091 15,614 3.1
All other ................................................ 38,727 37,292 3.8
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Total classified ........................................... 103,989 106,130 (2.0)
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Total advertising ............................................ 284,124 276,213 2.9
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Circulation .................................................. 82,128 80,468 2.1
Other:
Commercial printing ........................................ 26,767 26,652 0.4
Internet/online ............................................ 4,380 3,250 34.8
Niche publications and other ............................... 25,843 26,609 (2.9)
Editorial service contracts, Internet service fees and other 10,260 8,944 14.7
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67,250 65,455 2.7
Equity in net income of associated companies ................. 7,651 9,377 (18.4)
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Total operating revenue ...................................... $441,153 $431,513 2.2%
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The following discussion of revenue and operating expenses is presented on an
operations basis, which includes 100% of the revenue and expenses of MNI, which
is owned 50% by the Company and accounted for in the Consolidated Financial
Statements using the equity method. It is also exclusive of acquisitions,
divestitures and corporate expenses. The Company believes such comparisons
provide the most meaningful information for an understanding of its business.
In 2001, total advertising revenue decreased $4,527,000, or 1.4%. Retail revenue
in the Company's markets was not as adversely impacted by the slowing economy as
major metropolitan markets, and increased $1,305,000, or 0.7%, in 2001.
Increased emphasis on rate discipline and new accounts helped offset declines in
advertising volume. Retail rates increased 3.0% in 2001.
Classified advertising revenue decreased approximately $5,963,000, or 4.5%, in
2001. Higher margin employment advertising at the daily newspapers accounted for
approximately 96% of the decrease and declined 12.5% for the year. Unit declines
in employment classified advertising compare favorably to national survey
amounts. The automotive category decreased to a lesser extent (6.1%) and other
categories were flat.
Circulation revenue decreased $1,038,000, or 1.1%. The Company's daily newspaper
circulation increased 0.7% and Sunday circulation declined 0.2% for the six
months ended September 30, 2001, the first upward movement in circulation since
1998, and the Company's best performance in the last 10 years. The Company is
focused on growing circulation through a number of initiatives.
Other revenue increased $986,000, or 1.4%. Internet/online revenue increased
$1,299,000, or 36.7%, due to growth in advertising revenue and cross selling
with the Company's newspapers.
The following table sets forth the percentage of revenue of the Company's
operating expenses:
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Year Ended September 30
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2001 2000
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Compensation ..................................... 35.5% 34.3%
Newsprint and ink ................................ 10.4 9.5
Other operating expenses ......................... 22.5 21.6
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68.4 65.4
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EBITDA ........................................... 31.6 34.6
Depreciation and amortization .................... 5.9 5.7
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Operating margin ................................. 25.7% 28.9%
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Costs other than depreciation and amortization increased $11,888,000, or 3.7%.
Compensation expense increased $4,339,000, or 2.5%, due to additional sales
personnel to drive local ad revenue, increases in medical costs, and one-time
costs related to workforce reductions totaling approximately $500,000. Overall,
full-time equivalent personnel declined 0.4%, 2.6% in the fourth quarter of
2001, which will mitigate normal increases in compensation costs in 2002.
Newsprint and ink costs increased $4,169,000, or 8.8%, as the result of price
increases offset in part by conservation efforts that decreased consumption by
4.5%. Other operating costs, exclusive of depreciation and amortization,
increased $3,380,000, or 3.1%. Increases in provisions for doubtful accounts
accounted for approximately one-third of the increase.
Included in corporate expenses, but not in the comparison above, is $1,700,000
of one-time costs in 2001 related to exiting certain benefit programs and
workforce reductions.
Nonoperating Income and Income Taxes
Financial income increased $25,289,000 to $28,548,000 in 2001, due primarily to
income earned on invested net proceeds from the sale of the Company's broadcast
properties in October 2000. The Company expects a significant decline in
financial income in 2002 as reinvestment rates for its investment portfolio have
decreased substantially. Further, the Company's invested balances have decreased
due to required income tax payments, offset to some extent by funds generated
from operations.
In 2001, other nonoperating income consists primarily of realized and unrealized
losses on the sale of several small publishing operations and the writedown of
certain nonoperating assets. In 2000, other nonoperating income consists
primarily of gains from the sale of publishing properties.
Income taxes were 35.7% and 36.6% of pretax income from continuing operations
for 2001 and 2000, respectively. Income taxes were reduced in 2001 due to
tax-exempt interest income and a lower effective state income tax rate.
2000 VS. 1999
Revenue, as reported in the Consolidated Financial Statements, consists of the
following:
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Year Ended September 30
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Percent
(Thousands) 2000 1999 Change
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Advertising revenue:
Retail ...................................................... $160,766 $155,379 3.5%
National .................................................... 9,317 8,736 6.7
Classified:
Employment ................................................ 31,234 26,390 18.4
Automotive ................................................ 21,990 20,330 8.2
Real estate ............................................... 15,614 13,318 17.2
All other ................................................. 37,292 40,239 (7.3)
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Total classified ............................................ 106,130 100,277 5.8
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Total advertising ............................................. 276,213 264,392 4.5
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Circulation revenue ........................................... 80,468 83,102 (3.2)
Other:
Commercial printing ........................................ 26,652 23,775 12.1
Internet/online ............................................ 3,250 1,598 103.4
Niche publications and other ............................... 26,609 22,997 15.7
Editorial service contracts, Internet service fees and other 8,944 8,744 2.3
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65,455 57,114 14.6
Equity in net income of associated companies .................. 9,377 9,238 1.5
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Total operating revenue ....................................... $431,513 $413,846 4.3%
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The following discussion of revenue and operating expenses is presented on an
operations basis, which includes 100% of the revenue and expenses of MNI, which
is owned 50% by the Company and accounted for in the Consolidated Financial
Statements using the equity method. It is also exclusive of acquisitions,
divestitures and corporate expenses. The Company believes such comparisons
provide the most meaningful information for an understanding of its business.
In 2000, total advertising revenue increased $10,003,000, or 3.2%. Retail
revenue in the Company's markets increased $3,702,000, or 2.1%, in 2000. Volume
increases resulting from emphasis on price incentives drove the increase.
Classified advertising revenue increased approximately $5,177,000, or 4.1%, in
2000. Employment, automotive and real estate advertising all increased.
Circulation revenue decreased $1,874,000, or 1.9%, primarily due to a decrease
in units. Daily newspaper circulation declined 2.7% and Sunday circulation
declined 1.6% for the six months ended September 30, 2000.
Other revenue increased $1,176,000, or 1.7%. Niche publications and other
revenue increased $2,915,000, or 10.5%, with the introduction of new products.
Internet/online revenue increased $1,690,000, or 91.3%, due to growth in
advertising revenue. Commercial printing declined $3,859,000, offsetting other
increases.
The following table sets forth the percentage of revenue of the Company's
operating expenses:
- --------------------------------------------------------------------------------
Year Ended September 30
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Compensation ..................................... 34.3% 33.6%
Newsprint and ink ................................ 9.5 9.6
Other operating expenses ......................... 21.9 22.3
- --------------------------------------------------------------------------------
65.7 65.5
- --------------------------------------------------------------------------------
EBITDA ........................................... 34.3 34.5
Depreciation and amortization .................... 5.5 5.8
- --------------------------------------------------------------------------------
Operating margin ................................. 28.8% 28.7%
- --------------------------------------------------------------------------------
Costs other than depreciation and amortization increased $6,792,000, or 2.1%.
Compensation expense increased $6,572,000, or 4.0%, due to normal increases in
rates. Newsprint and ink costs were flat as price increases were offset by a
3.7% decline in volume. Other operating costs, exclusive of depreciation and
amortization, increased $202,000, or 0.2%.
Nonoperating Income and Income Taxes
In 2000, other nonoperating income consists primarily of gains from the sale of
publishing properties.
Income taxes were 36.6% and 34.8% of pretax income from continuing operations
for 2000 and 1999, respectively. Income taxes were reduced by $1,500,000 in 1999
due to favorable settlement of a contested matter.
DISCONTINUED OPERATIONS
In March 2000, the Board of Directors of the Company made a determination to
sell its broadcast properties. In May 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 consummated the transaction in October 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 properties have been classified as discontinued operations for all
periods presented.
In July 2001, the Company completed the sale of its last broadcasting property.
Net proceeds of the sale totaled approximately $7,000,000. The after-tax gain of
approximately $4,000,000 on the sale is reflected in discontinued operations.
Operating revenue of the broadcast properties for 2001, 2000 and 1999 was
$647,000, $122,857,000 and $122,487,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by continuing operations was $107,164,000 for 2001, $103,198,000
in 2000 and $77,220,000 in 1999.
The Company anticipates that funds necessary for capital expenditures, which are
expected to total approximately $12,000,000 in 2002, and other requirements will
be available from internally generated funds, its investment portfolio and, if
necessary, by accessing the capital markets. The Company has substantial
liquidity and unused borrowing capacity, including a $50,000,000 unsecured
revolving credit agreement that expires in 2003.
Under the terms of its 1998 note purchase agreement, the Company will be
required to repay the then outstanding balance of $161,800,000 on October 1,
2002, unless the Company reinvests the net proceeds of the sale of broadcast
operations or obtains a waiver of that provision of the agreement. If the
Company is required to repay the debt prior to the original maturity date, a
prepayment penalty based on interest rates at the time of repayment will be
required. If the debt is required to be repaid on October 1, 2002, the
prepayment penalty would be approximately $14,200,000, based on interest rates
at September 30, 2001.
Other covenants under this agreement are not considered restrictive to normal
operations or historical amounts of stockholder dividends.
SEASONALITY
The Company's largest source of publishing revenue, retail advertising, is
seasonal and tends to fluctuate with retail sales in markets served.
Historically, retail run-of-press advertising is higher in the first and third
fiscal quarters. Newspaper classified advertising revenue is lowest in the
second fiscal quarter.
Quarterly results of operations are summarized in Note 13 to the Consolidated
Financial Statements, included herein.
OTHER FACTORS
The Company has not been significantly impacted by inflationary pressures over
the last several years. The Company anticipates that changing costs of
newsprint, its basic raw material, may impact future operating costs. Price
increases (or decreases) for the Company's products are implemented when deemed
appropriate by management. The Company continuously evaluates price increases,
productivity improvements and cost reductions to mitigate the impact of
inflation.
MARKET RISK MANAGEMENT
The Company is exposed to market risk stemming from changes in interest rates
and commodity prices. Changes in these factors could cause fluctuations in
earnings and cash flows. In the normal course of business, exposure to certain
of these market risks is managed as described below.
Interest Rates
Interest rate risk in the Company's investment portfolio is managed by investing
only in securities with a maturity at date of acquisition of 180 days or less.
The average maturity of the investment portfolio is 57 days at September 30,
2001. Only high-quality investments are considered.
The Company's debt structure and interest rate risk are managed through the use
of fixed and floating rate debt. The Company's primary exposure is to United
States interest rates.
Commodities
Certain materials used by the Company are exposed to commodity price changes.
The Company manages this risk through instruments such as purchase orders and
non-cancelable supply contracts. The Company is also involved in continuing
programs to mitigate the impact of cost increases through identification of
sourcing and operating efficiencies. Primary commodity price exposures are
newsprint and, to a lesser extent, ink.
A $10 per ton newsprint price increase would result in a reduction in income
from continuing operations before income taxes of approximately $660,000,
excluding MNI.
Sensitivity to Changes in Value
The estimates that follow are intended to measure the maximum potential fair
value or earnings the Company could lose in one year from adverse changes in
market interest rates under normal market conditions. The calculations are not
intended to represent actual losses in fair value or earnings that the Company
expects to incur. The estimates do not consider favorable changes in market
rates. The positions included in the calculations are temporary cash
investments, which total $211,221,000 at September 30, 2001, and fixed-rate
debt, which totals $173,400,000.
The table below presents the estimated maximum potential one-year loss in fair
value and earnings before income taxes from a 100 basis point movement in
interest rates on market risk sensitive instruments outstanding at September 30,
2001:
- --------------------------------------------------------------------------------
(Thousands) Estimated Impact on
- --------------------------------------------------------------------------------
Income from
Continuing
Operations Before
Fair Value Income Taxes
- --------------------------------------------------------------------------------
Temporary cash investments .................. $ (330) $(1,780)
Fixed rate debt ............................. (7,800) --
- --------------------------------------------------------------------------------
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Information with respect to this Item is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations under the heading
"Market Risk Management."
Item 8. Financial Statements and Supplementary Data
Information with respect to this Item is included herein on pages 17 to 38,
immediately following Part IV.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to this Item, except for certain information included
under the heading "Officers" in Part I of this Form 10-K, is included in the
Company's Proxy Statement dated December 27, 2001, which is incorporated herein
reference, under the headings "Proposal One - Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance."
Item 11. Executive Compensation
Information with respect to this Item is included in the Company's Proxy
Statement dated December 27, 2001, which is incorporated herein by reference,
under the headings "Proposal One - Election of Directors," "Compensation of
Directors" and "Executive Compensation;" provided, however, that the subsection
entitled "Executive Compensation - Report of the Executive Compensation
Committee of the Board of Directors on Executive Compensation" shall not be
deemed to be incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to this Item is included in the Company's Proxy
Statement dated December 27, 2001, which is incorporated herein by reference,
under the heading "Voting Securities and Principal Holders Thereof."
Item 13. Certain Relationships and Related Transactions
Not applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following documents are filed as part of this Form 10-K:
Financial Statements
Consolidated Balance Sheets - September 30, 2001 and 2000
Consolidated Statements of Income - Years ended
September 30, 2001, 2000 and 1999
Consolidated Statements of Stockholders' Equity
- Years ended September 30, 2001, 2000 and 1999
Consolidated Statements of Cash Flows - Years ended
September 30, 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Independent Auditor's Report
Report of Management
Financial Statement Schedules
II - Valuation and Qualifying Accounts - Years ended
September 30, 2001, 2000 and 1999
All other schedules have been omitted as not required, not applicable, not
deemed material or because the information is included in the Notes to
Consolidated Financial Statements.
Exhibits
21 Subsidiaries
23 Consent of McGladrey & Pullen, LLP
24 Power of Attorney
Reports on Form 8-K
The Company filed a report on Form 8-K dated September 5, 2001. The Company
reported under Item 5 that it has amended its 1998 Note Purchase Agreement,
extending the period for required reinvestment of proceeds from the sale of its
broadcast properties to October 1, 2002.
SIGNATURES
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 on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on the
27th day of December 2001.
LEE ENTERPRISES, INCORPORATED
/s/ Mary E. Junck /s/ Carl G. Schmidt
- ------------------------------------- ----------------------------------
Mary E. Junck Carl G. Schmidt
President and Chief Executive Officer Vice President, Chief Financial Officer
and Treasurer
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 their respective capacities on the 15th day of November, 2001.
Signature
/s/ Rance E. Crain Director
- -------------------------------------
Rance E. Crain
/s/ Richard D. Gottlieb Chairman of the Board and Director
- -------------------------------------
Richard D. Gottlieb
/s/ J. P. Guerin Director
- -------------------------------------
J. P. Guerin
/s/ Mary E. Junck President and Chief Executive Officer
- ------------------------------------- and Director
Mary E. Junck
/s/ William E. Mayer Director
- -------------------------------------
William E. Mayer
/s/ Herbert W. Moloney III Director
- -------------------------------------
Herbert W. Moloney III
/s/ Andrew E. Newman Director
- -------------------------------------
Andrew E. Newman
/s/ Gordon D. Prichett Director
- -------------------------------------
Gordon D. Prichett
/s/ Gregory P. Schermer Vice President - Interactive Media
- ------------------------------------- and Corporate Counsel and Director
Gregory P. Schermer
/s/ Phyllis Sewell Director
- -------------------------------------
Phyllis Sewell
/s/ Mark Vittert Director
- -------------------------------------
Mark Vittert
CONSOLIDATED FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditor's Report
Report of Management
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------
September 30
- --------------------------------------------------------------------------------------
(Thousands, Except Per Share Data) 2001 2000
- --------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 272,169 $ 29,427
Temporary cash investments ............................... 211,221 --
Accounts receivable, less allowance for doubtful accounts:
2001 $4,419; 2000 $3,344 ............................... 41,349 41,212
Receivable from associated companies ..................... 1,500 1,500
Inventories .............................................. 3,997 4,280
Other .................................................... 7,441 7,380
Net assets of discontinued operations .................... -- 167,767
- --------------------------------------------------------------------------------------
537,677 251,566
- --------------------------------------------------------------------------------------
Investments:
Associated companies ..................................... 18,940 19,155
Other .................................................... 13,585 15,021
- --------------------------------------------------------------------------------------
32,525 34,176
- --------------------------------------------------------------------------------------
Property and equipment:
Land and improvements .................................... 10,958 11,473
Buildings and improvements ............................... 62,914 63,893
Equipment ................................................ 179,052 172,366
- --------------------------------------------------------------------------------------
252,924 247,732
Less accumulated depreciation ............................ 133,863 120,376
- --------------------------------------------------------------------------------------
119,061 127,356
- --------------------------------------------------------------------------------------
Intangible assets .......................................... 310,590 332,520
Other ...................................................... 544 615
- --------------------------------------------------------------------------------------
$1,000,397 $ 746,233
- --------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
September 30
- -------------------------------------------------------------------------------------
2001 2000
- -------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt $ 11,600 $ 49,532
Accounts payable ..................................... 10,825 14,242
Compensation and other accrued liabilities ........... 27,232 27,603
Income taxes payable ................................. 57,281 7,799
Unearned income ...................................... 18,201 18,451
- -------------------------------------------------------------------------------------
125,139 117,627
- -------------------------------------------------------------------------------------
Long-term debt, net of current maturities .............. 161,800 173,400
- -------------------------------------------------------------------------------------
Deferred items:
Retirement and compensation .......................... 13,178 13,418
Income taxes ......................................... 18,336 46,621
- -------------------------------------------------------------------------------------
31,514 60,039
- -------------------------------------------------------------------------------------
Stockholders' equity:
Serial convertible preferred, no par value;
authorized 500 shares; issued none ................. -- --
Common Stock, $2 par value; authorized ............... 67,318 66,140
60,000 shares; issued and outstanding:
2001 33,659 shares;
2000 33,070 shares
Class B Common Stock, $2 par value; authorized ....... 20,758 21,480
30,000 shares; issued and outstanding:
2001 10,379 shares;
2000 10,740 shares
Additional paid-in capital ........................... 48,164 37,330
Unearned compensation ................................ (1,130) (1,227)
Retained earnings .................................... 546,834 271,444
- -------------------------------------------------------------------------------------
681,944 395,167
- -------------------------------------------------------------------------------------
$ 1,000,397 $ 746,233
- -------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------------------
Year Ended September 30
- -------------------------------------------------------------------------------------------
(Thousands, Except Per Common Share Data) 2001 2000 1999
- -------------------------------------------------------------------------------------------
Operating revenue:
Advertising ....................................... $ 284,124 $ 276,213 $ 264,392
Circulation ....................................... 82,128 80,468 83,102
Other ............................................. 67,250 65,455 57,114
Equity in net income of associated companies ...... 7,651 9,377 9,238
- -------------------------------------------------------------------------------------------
441,153 431,513 413,846
- -------------------------------------------------------------------------------------------
Operating expenses:
Compensation ...................................... 170,726 158,884 150,462
Newsprint and ink ................................. 43,011 38,625 37,447
Depreciation ...................................... 16,398 14,546 13,766
Amortization of intangible assets ................. 15,760 14,780 13,820
Other ............................................. 109,242 102,211 100,982
- -------------------------------------------------------------------------------------------
355,137 329,046 316,477
- -------------------------------------------------------------------------------------------
Operating income .................................... 86,016 102,467 97,369
- -------------------------------------------------------------------------------------------
Non-operating (income) expense, net:
Financial income .................................. (28,548) (3,259) (1,920)
Financial expense ................................. 11,963 12,643 12,863
Other, net ........................................ 10,167 (17,132) (738)
- -------------------------------------------------------------------------------------------
(6,418) (7,748) 10,205
- -------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 92,434 110,215 87,164
Income tax expense .................................. 32,977 40,340 30,343
- -------------------------------------------------------------------------------------------
Income from continuing operations ................... 59,457 69,875 56,821
- -------------------------------------------------------------------------------------------
Discontinued operations:
Income from discontinued operations, net of
income tax effect ............................... -- 4,738 11,152
Gain on disposition, net of income tax effect ..... 254,771 9,050 --
- -------------------------------------------------------------------------------------------
254,771 13,788 11,152
- -------------------------------------------------------------------------------------------
Net income .......................................... $ 314,228 $ 83,663 $ 67,973
- -------------------------------------------------------------------------------------------
Earnings per common share:
Basic:
Continuing operations ........................... $ 1.36 $ 1.59 $ 1.29
Discontinued operations ......................... 5.82 0.31 0.25
- -------------------------------------------------------------------------------------------
Net income .......................................... $ 7.18 $ 1.90 $ 1.54
- -------------------------------------------------------------------------------------------
Diluted:
Continuing operations ........................... $ 1.35 $ 1.58 $ 1.27
Discontinued operations ......................... 5.78 0.31 0.25
- -------------------------------------------------------------------------------------------
Net income .......................................... $ 7.13 $ 1.89 $ 1.52
- -------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------
(Thousands, Except Per Common Share Data) Year Ended September 30
- ----------------------------------------------------------------------------------------------------------------------
Amount Shares
- ------------------------------------------------------------------------------ ----------------------------------
2001 2000 1999 2001 2000 1999
- ------------------------------------------------------------------------------ ----------------------------------
Common Stock:
Balance, beginning of year ............. $ 66,140 $ 66,142 $ 65,144 33,070 33,071 32,572
Conversion from Class B
Common Stock ....................... 694 770 1,116 347 385 558
Shares issued ........................ 1,194 478 286 597 239 143
Shares reacquired .................... (710) (1,250) (404) (355) (625) (202)
- ------------------------------------------------------------------------------ ----------------------------------
Balance, end of year ................... 67,318 66,140 66,142 33,659 33,070 33,071
- ------------------------------------------------------------------------------ ----------------------------------
Class B Common Stock:
Balance, beginning of year ........... 21,480 22,376 23,556 10,740 11,188 11,778
Conversion to Common
Stock ............................ (694) (770) (1,116) (347) (385) (558)
Shares reacquired .................. (28) (126) (64) (14) (63) (32)
- ------------------------------------------------------------------------------ ----------------------------------
Balance, end of year ................... 20,758 21,480 22,376 10,379 10,740 11,188
- ------------------------------------------------------------------------------ ----------------------------------
Additional Paid-In Capital:
Balance, beginning of year ........... 37,330 32,641 28,715
Shares issued ...................... 10,834 4,689 3,926
- ------------------------------------------------------------------------------
Balance, end of year ................... 48,164 37,330 32,641
- ------------------------------------------------------------------------------
Unearned Compensation:
Balance, beginning of year ........... (1,227) (961) (650)
Restricted shares issued ........... (1,136) (1,364) (1,081)
Restricted shares canceled ......... 251 283 45
Amortization ....................... 982 815 725
- ------------------------------------------------------------------------------
Balance, end of year ................... (1,130) (1,227) (961)
- ------------------------------------------------------------------------------
Retained Earnings:
Balance, beginning of year ........... 271,444 234,131 202,994
Net income ......................... 314,228 83,663 67,973
Cash dividends per
common share: .................... (29,797) (28,288) (26,623)
2001 $0.68;
2000 $0.64;
1999 $0.60
Shares reacquired .................. (9,041) (18,062) (10,213)
- ------------------------------------------------------------------------------
Balance, end of year ................... 546,834 271,444 234,131
- ------------------------------------------------------------------------------ ----------------------------------
Total stockholders' equity ............. $ 681,944 $ 395,167 $ 354,329 44,038 43,810 44,259
- ------------------------------------------------------------------------------ ----------------------------------
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------
Year Ended September 30
- --------------------------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
- --------------------------------------------------------------------------------------------------
Cash provided by operating activities:
Net income ............................................... $ 314,228 $ 83,663 $ 67,973
Less: discontinued operations ............................ 254,771 13,788 11,152
- --------------------------------------------------------------------------------------------------
Income from continuing operations .......................... 59,457 69,875 56,821
Adjustments to reconcile income from continuing
operations to net cash provided by operating
activities of continuing operations:
Depreciation and amortization .......................... 32,158 29,326 27,586
Losses (gains) on sales, or expected sales, of assets .. 6,233 (18,439) (738)
Distributions less than earnings of associated companies (552) (2,891) (2,220)
Change in assets and liabilities, net of effects
from business acquisitions:
Decrease (increase) in receivables ..................... (654) 2,422 (3,491)
Decrease (increase) in inventories and other ........... 113 3,751 (1,218)
Increase (decrease) in accounts payable,
accrued expenses and unearned income ................. (5,232) 8,357 (1,620)
Increase (decrease) in income taxes payable ............ 6,449 2,421 (1,097)
Other .................................................. 9,192 8,376 3,197
- --------------------------------------------------------------------------------------------------
Net cash provided by operating activities .................. 107,164 103,198 77,220
- --------------------------------------------------------------------------------------------------
Cash required for investing activities:
Purchases of temporary cash investments .................. (872,836) -- --
Proceeds from sales of temporary cash investments ........ 661,615 -- --
Purchases of property and equipment ...................... (9,904) (25,392) (24,938)
Acquisitions, net ........................................ (4,518) (71,609) (15,416)
Proceeds from sales of assets ............................ 5,341 8,775 492
Other .................................................... (3,002) 929 (3,867)
- --------------------------------------------------------------------------------------------------
Net cash required for investing activities ................. (223,304) (87,297) (43,729)
- --------------------------------------------------------------------------------------------------
Cash required for financing activities:
Proceeds from (payments on) short-term notes payable, net (37,937) 30,500 6,000
Payments on long-term debt ............................... (11,600) -- (25,000)
Purchases of common stock ................................ (10,050) (20,021) (11,830)
Cash dividends paid ...................................... (29,797) (28,288) (26,623)
Other, primarily issuance of common stock ................ 11,358 4,210 4,418
- --------------------------------------------------------------------------------------------------
Net cash required for financing activities ................. (78,026) (13,599) (53,035)
- --------------------------------------------------------------------------------------------------
Net cash provided by discontinued operations ............... 436,908 16,589 13,139
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents ...... 242,742 18,891 (6,405)
Cash and cash equivalents:
Beginning of year ........................................ 29,427 10,536 16,941
- --------------------------------------------------------------------------------------------------
End of year .............................................. $ 272,169 $ 29,427 $ 10,536
- --------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company directly, and through its ownership of associated companies,
publishes 28 daily newspapers and more than 100 other weekly, classified and
specialty publications, along with associated online services.
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
Certain amounts as previously reported have been reclassified to conform with
the current year presentation.
Accounting estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities, revenue 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, or majority-owned, subsidiaries. All significant intercompany
transactions have been eliminated.
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.
Investments
All temporary cash investments, consisting of municipal and corporate debt
securities, are classified as held to maturity, as the Company has the ability
and the positive intent to do so. Such securities are stated at amortized cost,
adjusted for amortization of premium and accretion of discount. Due to the short
term nature of these investments, carrying value approximates fair value.
Investments in the common stock of associated companies are reported at cost
plus the Company's share of undistributed earnings since acquisition, less
amortization of intangible assets.
Other investments primarily consist of 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.
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 at
September 30, 2001 and 2000 were less than replacement cost by $2,954,000 and
$4,481,000, respectively.
Property and equipment
Property and equipment are carried at cost. Equipment, except for printing
presses, is depreciated primarily by declining-balance methods. The
straight-line method is used for all other assets. The estimated useful lives
are as follows:
- --------------------------------------------------------------------------------
Years
- --------------------------------------------------------------------------------
Buildings and improvements ................................ 5 - 25
Publishing:
Printing presses ........................................ 15 - 20
Other major equipment ................................... 3 - 11
- --------------------------------------------------------------------------------
The Company capitalizes interest as a component of the cost of constructing
major facilities.
Intangible assets
Intangible assets include covenants not to compete, consulting agreements,
customer lists, newspaper subscriber lists, and the excess cost over fair value
of net assets of businesses acquired.
The excess cost over fair value of net tangible assets include $6,493,000
incurred prior to October 31, 1970, which is not being amortized. Excess cost
related to specialty publications is being amortized over 10 to 15 years.
Intangible assets representing non-compete covenants, consulting agreements,
customer lists, 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 intangible assets are amortized by the straight-line method.
The Company annually reviews its intangibles and other long-lived assets 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 capital.
In 2001 the Company reduced the carrying value of certain of its intangible
assets by $4,775,000. This amount is classified as non-operating expense in the
Consolidated Statements of Income.
Revenue recognition
Advertising and circulation revenue is recognized based on date of publication.
Unearned income
Unearned income arises in the ordinary course 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 using the 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 difference 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.
Restricted stock
The Company amortizes as compensation expense 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. ACQUISITIONS AND DIVESTITURES
In March 2000, the Board of Directors of the Company made a determination to
sell its broadcast properties. In May 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 consummated the transaction in October 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 properties have been classified as discontinued operations for all
periods presented.
In July 2001, the Company completed the sale of its last broadcasting property.
Net proceeds of the sale totaled approximately $7,000,000. The after-tax gain of
approximately $4,000,000 on the sale is reflected in discontinued operations.
Income from discontinued operations consists of the following:
- -----------------------------------------------------------------------------------------
Year Ended September 30
- -----------------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------
Operating revenue ...................................... $ 647 $122,857 $122,487
- -----------------------------------------------------------------------------------------
Income from, or gain on sale of, discontinued operations $402,697 $ 23,620 $ 19,371
Income tax expense ..................................... 147,926 9,832 8,219
- -----------------------------------------------------------------------------------------
$254,771 $ 13,788 $ 11,152
- -----------------------------------------------------------------------------------------
At September 30, 2000, the assets and liabilities of discontinued operations
consisted of the following:
- --------------------------------------------------------------------------------
(Thousands)
- --------------------------------------------------------------------------------
Assets:
Accounts receivable, net .................................. $ 23,493
Program rights and other .................................. 8,190
Property and equipment, net ............................... 29,775
Intangible and other assets ............................... 122,310
- --------------------------------------------------------------------------------
183,768
- --------------------------------------------------------------------------------
Liabilities:
Current liabilities ....................................... 13,072
Deferred items and other .................................. 2,929
- --------------------------------------------------------------------------------
16,001
- --------------------------------------------------------------------------------
Net assets of discontinued operations ....................... $167,767
- --------------------------------------------------------------------------------
In 2000, the Company acquired a daily newspaper and specialty publications and
received $9,300,000 of cash in exchange for all the assets and liabilities of
two of its daily newspapers and the related specialty and classified
publications. In connection with this transaction, the Company recognized a gain
on sale of $18,439,000.
In addition, the Company acquired six weekly newspapers or specialty
publications and increased its ownership in an Internet venture in 2001;
acquired three daily newspapers, and several weekly newspapers and classified or
specialty publications in 2000; and one daily newspaper, two weekly newspapers,
and several classified or specialty publications in 1999.
All acquisitions were accounted for as purchases and, accordingly, the results
of operations since the respective dates of acquisition are included in the
Consolidated Financial Statements. Acquisitions and dispositions in 2001 did not
have a significant effect on operating results.
The purchase prices of businesses acquired or exchanged were allocated as
follows:
- --------------------------------------------------------------------------------
Year Ended September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Noncash working capital ................. $ (301) $ 1,475 $ (100)
Property and equipment .................. 1,049 8,197 1,207
Intangible assets ....................... 3,770 74,745 16,048
Other long-term assets .................. -- 54 --
Issuance of note payable ................ -- (432) (1,000)
Deferred items .......................... -- (1,170) (739)
- --------------------------------------------------------------------------------
4,518 82,869 15,416
Less fair value of assets exchanged ..... -- 11,260 --
- --------------------------------------------------------------------------------
Total cash purchase price ............... $ 4,518 $ 71,609 $ 15,416
- --------------------------------------------------------------------------------
In 2001, the Company sold several weekly and specialty publications. Proceeds
from sales of properties or exchanges consisted of the following:
- --------------------------------------------------------------------------------
Year Ended September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000
- --------------------------------------------------------------------------------
Noncash working capital ............................. $ 519 $ 111
Property and equipment .............................. 1,319 764
Intangible assets ................................... 4,961 721
- --------------------------------------------------------------------------------
6,799 1,596
Gain (loss) recognized on sales of properties ....... (1,458) 18,439
- --------------------------------------------------------------------------------
5,341 20,035
Less fair value of assets exchanged ................. -- 11,260
- --------------------------------------------------------------------------------
Proceeds from sales of properties ................... $ 5,341 $ 8,775
- --------------------------------------------------------------------------------
NOTE 3. INVESTMENTS IN ASSOCIATED COMPENIES
The Company has a 50% ownership interest in Madison Newspapers, Inc. (MNI), a
company that publishes daily and Sunday newspapers, and other publications in
Madison, three other daily newspapers and various other publications in
Wisconsin; and also holds interests in Internet service ventures.
Summarized financial information of MNI is as follows:
- --------------------------------------------------------------------------------
September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000
- --------------------------------------------------------------------------------
Assets:
Current assets ................................... $21,805 $28,102
Investments and other assets ..................... 32,175 34,025
Property and equipment, net ...................... 14,810 14,044
- --------------------------------------------------------------------------------
$68,790 $76,171
- --------------------------------------------------------------------------------
Liabilities and stockholders' equity:
Current liabilities .............................. $18,911 $23,394
Long-term debt ................................... 12,000 16,000
Stockholders' equity ............................. 37,879 36,777
- --------------------------------------------------------------------------------
$68,790 $76,171
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year Ended September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Revenue ....................................... $105,880 $ 97,279 $ 90,626
Operating expenses, excluding depreciation
and amortization ............................ 76,337 64,769 58,705
Operating income .............................. 24,824 29,781 29,325
Net income .................................... 15,302 18,791 18,461
- --------------------------------------------------------------------------------
Accounts receivable from associated companies consist of dividends from MNI.
Fees for editorial services provided to MNI by the Company are included in other
revenue and totaled $8,929,000, $8,944,000, and $8,744,000 in 2001, 2000 and
1999, respectively. Certain other information relating to the Company's
investment in MNI is as follows:
- --------------------------------------------------------------------------------
September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000
- --------------------------------------------------------------------------------
Company's share of:
Stockholders' equity ..................... $18,940 $18,388
Undistributed earnings ................... 18,690 18,164
- --------------------------------------------------------------------------------
NOTE 4. DEBT
The Company has a $50,000,000 unsecured revolving credit agreement with a bank
group that expires in 2003. Interest rates float at rates specified in the
agreement. The Company had borrowings of $37,500,000 under this agreement at
September 30, 2000.
Long-term debt consists of the following:
- --------------------------------------------------------------------------------
September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000
- --------------------------------------------------------------------------------
1998 note purchase agreement, 6.14% to 6.64%,
due in varying amounts from 2002 to 2013 ........... $173,400 $185,000
Less current maturities .............................. 11,600 11,600
- --------------------------------------------------------------------------------
$161,800 $173,400
- --------------------------------------------------------------------------------
Aggregate maturities during the next five years are $11,600,000, $11,600,000,
$36,600,000, $11,600,000, and $12,400,000, respectively. Under the terms of its
1998 note purchase agreement, the Company will be required to repay the then
outstanding balance of $161,800,000 on October 1, 2002 unless the Company
reinvests the net proceeds of sale of broadcast operations or obtains a waiver
of that provision of the agreement. If the Company is required to repay the debt
prior to the original maturity date, a prepayment penalty based on interest
rates at the time of repayment will be required. If the debt were required to be
repaid on October 1, 2002, the prepayment penalty would be approximately
$14,200,000, based on interest rates as of September 30, 2001. Covenants under
these agreements are not considered restrictive to normal operations or
historical amounts of stockholder dividends.
NOTE 5. RETIREMENT PLANS
Substantially all the Company's employees are eligible to participate in 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
continuing operations were $9,800,000 in 2001, $10,200,000 in 2000 and
$10,800,000 in 1999.
NOTE 6. 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. 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 outstanding total less than
5,600,000 shares.
In 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 share of Common Stock and Class B Common
Stock (collectively "Common Shares") of the Company. Rights are attached to and
automatically trade with the Company's Common Shares.
Rights 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 7. STOCK OWNERSHIP PLANS
At September 30, 2001, the Company has three stock-based compensation plans. 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 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:
- --------------------------------------------------------------------------------
(Thousands, Except Per Common Share Data) 2001 2000 1999
- --------------------------------------------------------------------------------
Net income:
As reported ........................... $314,228 $ 83,663 $ 67,973
Pro forma ............................. 312,470 82,035 66,600
Earnings per common share:
Basic:
As reported ......................... $ 7.18 $ 1.90 $ 1.54
Pro forma ........................... 7.14 1.86 1.50
Diluted:
As reported ......................... 7.13 1.89 1.52
Pro forma ........................... 7.09 1.85 1.49
- --------------------------------------------------------------------------------
Stock options and restricted stock
The Company has reserved 4,319,000 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: dividend rates of 2.0% to
2.6%; price volatility of 18.5% to 21.0%; risk-free interest rates based upon
the life of the option ranging from 4.4% to 6.7%; and expected lives based upon
the life of the option ranging from 0.7 to 8 years.
A summary of stock option activity is as follows:
- --------------------------------------------------------------------------------
Number of Shares
- --------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Under option, beginning of year ......... 1,178 1,258 1,491
Granted ............................... 355 282 185
Exercised ............................. (547) (336) (397)
Terminated and canceled ............... (19) (26) (21)
- --------------------------------------------------------------------------------
Under option, end of year ............... 967 1,178 1,258
- --------------------------------------------------------------------------------
Exercisable, end of year ................ 467 767 945
- --------------------------------------------------------------------------------
Average prices of options are as follows:
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Granted ............................................. $27.24 $29.11 $27.62
Exercised ........................................... 18.83 14.15 15.45
Under option, end of year ........................... 26.44 22.72 19.09
Weighted-average fair value of options granted ...... 6.97 7.75 6.55
- --------------------------------------------------------------------------------
A summary of options outstanding at September 30, 2001 is as follows:
- --------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------
Weighted-
Average
Remaining Weighted- Weighted-
Contractual Average Average
Range of Number Life Exercise Number Exercise
Exercise Prices Outstanding (In Years) Price Exercisable Price
- --------------------------------------------------------------------------------
$15 to $20 100,000 2.9 $ 17.48 100,000 $ 17.48
20 to 25 59,000 5.5 21.64 53,000 21.55
25 to 30 720,000 7.9 27.41 263,000 27.61
30 to 34 88,000 6.2 31.86 51,000 32.11
- --------------------------------------------------------------------------------
967,000 7.1 $ 26.44 467,000 $ 25.24
- --------------------------------------------------------------------------------
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 2001, 2000 and
1999, the Company granted 44,000, 46,000 and 39,000 shares, respectively, of
restricted stock to employees. At September 30, 2001, 84,000 shares of
restricted stock were outstanding.
At September 30, 2001, 3,352,000 shares were available for granting of stock
options or issuance of restricted stock.
Stock purchase plan
The Company has 1,072,000 shares of Common Stock available for issuance pursuant
to an employee stock purchase plan. April 30, 2002 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 grant or the exercise date, which is one year from the date
of grant. The weighted-average fair value of purchase rights granted in 2001,
2000 and 1999, computed using the Black-Scholes option-pricing model, were
$6.97, $5.32 and $6.34, respectively.
In 2001, 2000 and 1999 employees purchased 85,000, 124,000 and 97,000 shares,
respectively, at a price of $19.20 in 2001, $19.31 in 2000 and $24.78 in 1999.
NOTE 8. INCOME TAXES
Income tax expense consists of the following:
- --------------------------------------------------------------------------------
Year Ended September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Current:
Federal ............... $ 181,412 $ 36,036 $ 30,633
State ................. 28,937 6,612 5,652
Deferred ................ (29,446) 7,524 2,277
- --------------------------------------------------------------------------------
$ 180,903 $ 50,172 $ 38,562
- --------------------------------------------------------------------------------
Income tax expense related to continuing operations differs from the amounts
computed by applying the U.S. federal income tax rate to income before income
taxes. The reasons for these differences are as follows:
- --------------------------------------------------------------------------------
2001 2000 1999
- --------------------------------------------------------------------------------
Computed "expected" income tax expense .............. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit ...... 4.0 4.0 3.9
State income tax credits ............................ (2.4) -- --
Net income of associated companies taxed
at dividend rates ................................. (2.2) (2.3) (2.9)
Goodwill amortization ............................... 1.2 1.0 1.2
Other ............................................... 0.1 (1.1) (2.4)
- --------------------------------------------------------------------------------
35.7% 36.6% 34.8%
- --------------------------------------------------------------------------------
Net deferred tax liabilities consist of the following components:
- --------------------------------------------------------------------------------
September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment ............................... $10,374 $10,190
Equity in undistributed earnings of affiliates ....... 1,238 1,457
Deferred gain on sale of broadcast properties ........ -- 3,266
Identifiable intangible assets ....................... 13,093 38,168
Other ................................................ 185 178
- --------------------------------------------------------------------------------
24,890 53,259
- --------------------------------------------------------------------------------
Deferred tax assets:
Accrued compensation ................................. 6,644 8,181
Allowance for doubtful accounts ...................... 2,707 1,341
Capital loss carryforward ............................ -- 4,161
Other ................................................ 2,691 1,443
- --------------------------------------------------------------------------------
12,042 15,126
Less valuation allowance ............................. -- 4,161
- --------------------------------------------------------------------------------
12,042 10,965
- --------------------------------------------------------------------------------
$12,848 $42,294
- --------------------------------------------------------------------------------
Net deferred tax liabilities have been included in the accompanying Consolidated
Balance Sheets as follows:
- --------------------------------------------------------------------------------
September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000
- --------------------------------------------------------------------------------
Other current assets ..................... $ 5,488 $ 4,327
Noncurrent liabilities ................... (18,336) (46,621)
- --------------------------------------------------------------------------------
$(12,848) $(42,294)
- --------------------------------------------------------------------------------
The Company established a valuation allowance for deferred tax assets due to
limitations imposed by the tax laws on the ability to realize the benefit of
capital loss and acquired net operating loss carryforwards. Deferred tax assets
relating to the carryforwards were reduced in 2001, 2000 and 1999 as the Company
utilized the loss carryforwards on its income tax returns. The amounts relating
to these reductions in deferred tax assets were reclassified to income taxes
payable with no effect on income tax expense. The acquired net operating loss
carryforwards were associated with discontinued operations sold in October 2000.
The sale also resulted in a reduction of the income taxes payable related to
acquired net operating loss carryforwards and a corresponding $2,467,000
reduction of goodwill.
NOTE 9. 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 cash investments,
accounts receivable, 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, is
carried at fair value based upon quoted market prices. Equity securities
totaling $3,927,000, 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
(Thousands) Amount Fair Value
- --------------------------------------------------------------------------------
September 30:
2001 ....................................... $173,400 $178,100
2000 ....................................... 222,932 216,300
- --------------------------------------------------------------------------------
NOTE 10. EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per
common share:
- --------------------------------------------------------------------------------
Year Ended September 30
- --------------------------------------------------------------------------------
(Thousands, Except Per Common Share Data) 2001 2000 1999
- --------------------------------------------------------------------------------
Income applicable to common stock:
Continuing operations ....................... $ 59,457 $ 69,875 $ 56,821
Discontinued operations ..................... 254,771 13,788 11,152
- --------------------------------------------------------------------------------
Net income .................................... $314,228 $ 83,663 $ 67,973
- --------------------------------------------------------------------------------
Weighted average common shares oustanding ..... 43,873 44,099 44,347
Less non-vested restricted stock .............. 89 94 74
- --------------------------------------------------------------------------------
Basic average common shares outstanding ....... 43,784 44,005 44,273
Dilutive stock options and restricted stock ... 305 355 588
- --------------------------------------------------------------------------------
Diluted average common shares ................. 44,089 44,360 44,861
- --------------------------------------------------------------------------------
Earnings per common share:
Basic:
Continuing operations ..................... $ 1.36 $ 1.59 $ 1.29
Discontinued operations ................... 5.82 0.31 0.25
- --------------------------------------------------------------------------------
Net income .................................... $ 7.18 $ 1.90 $ 1.54
- --------------------------------------------------------------------------------
Diluted:
Continuing operations ..................... $ 1.35 $ 1.58 $ 1.27
Discontinued operations ................... 5.78 0.31 0.25
- --------------------------------------------------------------------------------
Net income .................................... $ 7.13 $ 1.89 $ 1.52
- --------------------------------------------------------------------------------
NOTE 11. OTHER INFORMATION
Intangible assets related to continuing operations consist of the following:
- --------------------------------------------------------------------------------
September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000
- --------------------------------------------------------------------------------
Goodwill ......................................... $296,280 $296,130
Less accumulated amortization .................... 66,049 54,170
- --------------------------------------------------------------------------------
230,231 241,960
- --------------------------------------------------------------------------------
Noncompete covenants and consulting
agreements ..................................... 22,805 23,878
Less accumulated amortization .................... 21,692 22,552
- --------------------------------------------------------------------------------
1,113 1,326
- --------------------------------------------------------------------------------
Customer and subscriber lists .................... 109,831 113,084
Less accumulated amortization .................... 30,585 23,850
- --------------------------------------------------------------------------------
79,246 89,234
- --------------------------------------------------------------------------------
$310,590 $332,520
- --------------------------------------------------------------------------------
Compensation and other accrued liabilities related to continuing operations
consist of the following:
- --------------------------------------------------------------------------------
September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000
- --------------------------------------------------------------------------------
Compensation ..................................... $13,698 $13,831
Retirement and stock purchase plans .............. 4,615 4,915
Interest ......................................... 5,537 6,022
Other ............................................ 3,382 2,835
- --------------------------------------------------------------------------------
$27,232 $27,603
- --------------------------------------------------------------------------------
Cash flows information is as follows:
- --------------------------------------------------------------------------------
Year Ended September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Cash payments for:
Interest, net of capitalized interest :
2000 $1,389; 1999 $703 .................... $ 13,025 $ 5,783 $ 12,881
Income taxes ................................ 165,028 42,345 39,528
Program rights acquired by issuing
long-term contracts ......................... -- 7,794 12,417
Capital expenditures related to discontinued
operations .................................. -- 7,102 7,493
- --------------------------------------------------------------------------------
NOTE 12. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated or completed after June 30, 2001. Statement 141 also specifies
criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill.
Statement 142 will require that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually. Statement 142 will also require that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with
Statement 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of.
The Company is required to adopt the provisions of Statement 141 immediately,
except with regard to business combinations initiated prior to July 1, 2001, and
Statement 142 effective October 1, 2002. Furthermore, any goodwill and any
intangible asset determined to have an indefinite useful life that are acquired
in a purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-Statement 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.
Statement 141 will require, upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and make any necessary reclassifications in
order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.
As of October 1, 2001, the date of adoption, the Company expects to have
unamortized goodwill in the amount of approximately $230,000,000, and
unamortized identifiable intangible assets in the amount of approximately
$80,000,000, which will be subject to the transition provisions of Statements
141 and 142. Amortization expense related to goodwill was $7,936,000, $6,936,000
and $6,380,000 for the years ended September 30, 2001, 2000 and 1999,
respectively.
Because of the extensive effort needed to comply with adopting Statements 141
and 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the Company's financial statements at the date of this
report. The Company does not expect any transitional impairment losses will be
required to be recognized as the cumulative effect of a change in accounting
principle.
Note 13. QUARTERLY FINANCIAL DATA (UNAUDITED)
- -------------------------------------------------------------------------------------
(Thousands, Except Per Common Share Data) 1st 2nd 3rd 4th
- -------------------------------------------------------------------------------------
2001:
Operating revenue ........................ $118,625 $102,197 $111,001 $109,330
Income from continuing operations ........ 21,015 13,141 15,736 9,565
Income (loss) from discontinued operations 250,887 (85) (34) 4,003
Net income ............................... 271,902 13,056 15,702 13,568
- -------------------------------------------------------------------------------------
Earnings per common share:
Basic:
Income from continuing operations .... $ 0.48 $ 0.30 $ 0.36 $ 0.22
Income from discontinued operations .. 5.75 -- -- 0.09
- -------------------------------------------------------------------------------------
Net income ............................... $ 6.23 $ 0.30 $ 0.36 $ 0.31
- -------------------------------------------------------------------------------------
Diluted:
Income from continuing operations .... $ 0.48 $ 0.30 $ 0.36 $ 0.22
Income from discontinued operations .. 5.71 -- -- 0.09
- -------------------------------------------------------------------------------------
Net income ............................... $ 6.19 $ 0.30 $ 0.36 $ 0.31
- -------------------------------------------------------------------------------------
2000:
Operating revenue ........................ $108,687 $100,973 $109,925 $111,928
Income from continuing operations ........ 26,396 11,737 15,955 15,787
Income from discontinued operations ...... 4,148 1,864 4,218 3,558
Net income ............................... 30,544 13,601 20,173 19,345
- -------------------------------------------------------------------------------------
Earnings per common share:
Basic:
Income from continuing operations ... $ 0.60 $ 0.27 $ 0.36 $ 0.36
Income from discontinued operations . 0.09 0.04 0.10 0.08
- -------------------------------------------------------------------------------------
Net income ............................... $ 0.69 $ 0.31 $ 0.46 $ 0.44
- -------------------------------------------------------------------------------------
Diluted:
Income from continuing operations .... $ 0.59 $ 0.27 $ 0.36 $ 0.36
Income from discontinued operations .. 0.09 0.04 0.10 0.08
- -------------------------------------------------------------------------------------
Net income ............................... $ 0.68 $ 0.31 $ 0.46 $ 0.44
- -------------------------------------------------------------------------------------
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, 2001 and 2000 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years ended September 30, 2001, 2000 and 1999. 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 auditing standards generally accepted
in the United States of America. 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, 2001 and 2000 and the results
of their operations and their cash flows for the years ended September 30, 2001,
2000 and 1999 in conformity with accounting principles generally accepted in the
United States of America.
In our opinion, Schedule II included in this Annual Report on Form 10-K for the
year ended September 30, 2001, presents fairly the information set forth
therein, in conformity with accounting principles generally accepted in the
United States of America.
/s/ McGladrey & Pullen, LLP
- ---------------------------
Davenport, Iowa
November 9, 2001
REPORT OF MANAGEMENT
The management of Lee Enterprises, Incorporated is responsible for the
preparation and integrity of all financial statements and other information
contained in this Form 10-K. We rely on a system of internal financial controls
to meet the responsibility of providing accurate financial statements. These
controls provide reasonable assurance that assets are safeguarded, that
transactions are executed in accordance with management's authorization and that
the financial statements are prepared in accordance with accounting principles
generally accepted in the United States.
The financial statements for each of the years covered in this Form 10-K have
been audited by independent auditors, who have provided an independent
assessment as to the fairness of the financial statements, after obtaining an
understanding of the Company's systems and procedures and performing such other
tests as deemed necessary.
The Audit Committee of the Board of Directors, which is composed solely of
directors who are not officers of the Company, meets with management and the
independent auditors to review the results of their work and to satisfy itself
that their respective responsibilities are being properly discharged. The
independent auditors have full and free access to the Audit Committee and have
regular discussions with the Committee regarding appropriate auditing and
financial reporting matters.
/s/ Mary E. Junck
- ------------------------------------------------------
Mary E. Junck
President and Chief Executive Officer
/s/ Carl G. Schmidt
- ------------------------------------------------------
Carl G. Schmidt
Vice President, Chief Financial Officer and Treasurer
LEE ENTERPRISES, INCORPORATED
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- ----------------------------------------------------------------------------------------------
Balance, Additions Charged Deductions Balance,
Beginning Charged to Other from End
(Thousands) of Year to Income Accounts Reserves of Year
- ----------------------------------------------------------------------------------------------
Allowance for doubtful accounts: (1)
Year ended September 30:
2001 $ 3,344 $ 4,400 $ - $ 3,325 $ 4,419
2000 4,460 3,445 (1,203)(2) 3,358 3,344
1999 4,110 3,776 - 3,426 4,460
Allowance for loss on loans:
Year ended September 30, 2001 $ - $ 2,522 $ - $ - $ 2,522
- ---------------------------------------------------------------------------------------------
(1) Represents accounts written off as uncollectible, net of recoveries, which
are immaterial.
(2) September 30, 1999 balance for discontinued operations.
EXHIBIT 21
LEE ENTERPRISES, INCORPORATED
AND SUBSIDIARIES
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%
New Mexico Broadcasting Co. .............................. New Mexico 100%
Accudata, Inc. ........................................... Iowa 100%
Target Marketing Systems, Inc. ........................... Iowa 100%
Journal-Star Printing Co. ................................ Nebraska 100%
Madison Newspapers, Inc. ................................. Wisconsin 50%
Nickel of Medford, Inc. .................................. Oregon 100%
K. Falls Basin Publishing, Inc. .......................... Oregon 100%
Davill, Inc. ............................................. Washington 100%
KMAZ, L.P. ............................................... Texas 100%
INN Partners, L.C. d/b/a International Newspaper Network . Iowa 81%
- -----------------------------------------------------------------------------------------------------
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
To the Stockholders
Lee Enterprises, Incorporated
and Subsidiaries
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 9, 2001 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, 2001 and to the reference
to us under the heading "Experts" in such Prospectuses.
/s/ McGladrey & Pullen, LLP
- ---------------------------
Davenport, Iowa
December 27, 2001
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned directors of Lee Enterprises, Incorporated, hereby severally
constitute Mary E. Junck and Carl G. Schmidt, 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, 2001 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.
Signature Date
/s/ Rance E. Crain
- ------------------------------------
Rance E. Crain, Director November 15, 2001
/s/ Richard D. Gottlieb
- ------------------------------------
Richard D. Gottlieb, Director November 15, 2001
/s/ J. P. Guerin
- ------------------------------------
J. P. Guerin, Director November 15, 2001
/s/ Mary E. Junck
- ------------------------------------
Mary E. Junck, Director November 15, 2001
/s/ William E. Mayer
- ------------------------------------
William E. Mayer, Director November 15, 2001
/s/ Herbert W. Moloney III
- ------------------------------------
Herbert W. Moloney III, Director November 15, 2001
/s/ Andrew E. Newman
- ------------------------------------
Andrew E. Newman, Director November 15, 2001
/s/ Gordon D. Prichett
- ------------------------------------
Gordon D. Prichett, Director November 15, 2001
/s/ Gregory P. Schermer
- ------------------------------------
Gregory P. Schermer, Director November 15, 2001
/s/ Phyllis Sewell
- ------------------------------------
Phyllis Sewell, Director November 15, 2001
/s/ Mark Vittert
- ------------------------------------
Mark Vittert, Director November 15, 2001