UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K / A
CURRENT REPORT
PURSUANT TO Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: June 14, 2002
Commission File Number 1-6227
Lee Enterprises, Incorporated
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(Exact name of Registrant as specified in its Charter)
Delaware 1-6277 42-0823980
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
215 N. Main Street, Davenport, Iowa 52801
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(Address of principal executive offices)
(563) 383-2100
----------------------------------------------------
(Registrant's telephone number, including area code)
1
LEE ENTERPRISES, INCORPORATED
AMENDMENT NO. 1
The undersigned Registrant hereby amends Item 7 of its April 12, 2002 and June
6, 2002 reports on Form 8-K as set forth in the pages attached hereto:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of businesses acquired:
Combined Financial Statements and Independent Auditor's Report on the
financial statements of The Newspaper Properties of Howard
Publications, Inc. as of March 31, 2002 and April 30, 2001, and for the
eleven months ended March 31, 2002, and each of the years ended April
30, 2001 and 2000.
(b) Pro forma financial information of Lee Enterprises, Incorporated and
subsidiaries:
Pro Forma Condensed Consolidated Statements of Income for the
year ended September 30, 2001 and six months ended March 31, 2002
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2002
Notes to Condensed Consolidated Pro Forma Financial Statements
(c) Exhibits
Consent of Deloitte & Touche, LLP
2
NEWSPAPER PROPERTIES OF
HOWARD PUBLICATIONS, Inc.
- --------------------------------------------------------------------------------
COMBINED FINANCIAL STATEMENTS FOR THE
11 MONTHS ENDED MARCH 31, 2002, THE
YEARS ENDED APRIL 30, 2001 AND 2000, AND
INDEPENDENT AUDITORS' REPORT
Deloitte & Touche LLP
3
Independent Auditors' Report
Howard Publications, Inc.
We have audited the accompanying combined balance sheets of the Newspaper
Properties of Howard Publications, Inc. (the Company) as of March 31, 2002, and
April 30, 2001, and the related combined statements of income, changes in
owner's equity, and cash flows for the 11 months ended March 31, 2002, and the
years ended April 30, 2001 and 2000. These combined financial statements are the
responsibility of Company management. Our responsibility is to express an
opinion on these combined 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.
As described in Note 1, the accompanying combined financial statements were
prepared from the records maintained by Howard Publications, Inc. and may not be
indicative of the conditions that would have existed or the results of
operations if the Newspaper Properties of Howard Publications, Inc. had been
operated as an unaffiliated entity. Portions of certain expenses represent
allocations made from and applicable to Howard Publications, Inc. as a whole.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of the Company as of March 31, 2002,
and April 30, 2001, and the results of its operations and its cash flows for the
11 months ended March 31, 2002, and the years ended April 30, 2001 and 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche, LLP
- --------------------------
May 24, 2002
4
NEWSPAPER PROPERTIES OF HOWARD PUBLICATIONS, INC.
COMBINED BALANCE SHEETS
MARCH 31, 2002, AND APRIL 30, 2001 (in thousands)
March 31, April 30,
2002 2001
--------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 52,130 $ 23,152
Short-term investments ...................................... -- 48,985
Accounts receivable, less allowance for doubtful accounts
of $2,187 and $2,133 ...................................... 18,104 19,428
Inventories ................................................. 2,099 2,653
Federal income tax receivable ............................... 478 2,884
Other ....................................................... 827 1,284
-------------------
Total current assets .................................. 73,638 98,386
INVESTMENTS AND OTHER ASSETS .................................. 6,455 5,387
PROPERTY, PLANT, AND EQUIPMENT:
Land and improvements ....................................... 8,408 8,408
Buildings and improvements .................................. 46,904 46,514
Equipment ................................................... 74,801 76,934
Construction in progress .................................... 24,486 10,316
-------------------
154,599 142,172
Less accumulated depreciation ......................... 85,640 85,191
-------------------
68,959 56,981
INTANGIBLE ASSETS, net ........................................ 33,652 33,738
-------------------
TOTAL ASSETS........................................... $182,704 $194,492
===================
LIABILITIES AND OWNER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................ $ 3,732 $ 3,736
Compensation and other accrued liabilities .................. 9,883 10,179
Unearned income ............................................. 9,447 9,523
-------------------
Total current liabilities ............................. 23,062 23,438
OTHER LONG-TERM OBLIGATIONS ................................... 1,875 346
OWNER'S EQUITY ................................................ 157,767 170,708
-------------------
TOTAL LIABILITIES AND OWNER'S EQUITY $182,704 $194,492
===================
5
NEWSPAPER PROPERTIES OF HOWARD PUBLICATIONS, INC.
COMBINED STATEMENTS OF INCOME
11 MONTHS ENDED MARCH 31, 2002, AND
YEARS ENDED APRIL 30, 2001 AND 2000 (in thousands)
March 31, April 30, April 30,
2002 2001 2000
----------------------------------
OPERATING REVENUES:
Advertising ............................ $ 146,649 $ 164,846 $ 166,119
Circulation ............................ 40,828 42,148 42,573
Other .................................. 1,781 2,100 2,320
----------------------------------
Total operating revenues ......... 189,258 209,094 211,012
OPERATING EXPENSES:
Compensation ........................... 67,178 72,737 71,066
Newsprint .............................. 21,784 26,031 22,572
Depreciation ........................... 7,042 9,289 10,090
General and administrative ............. 61,515 65,317 67,128
Amortization and intangible assets ..... 85 420 2,188
----------------------------------
Total operating expenses ......... 157,604 173,794 173,044
----------------------------------
Income from operations ........... 31,654 35,300 37,968
OTHER INCOME (EXPENSE):
Interest income ........................ 4,770 4,585 727
Equity in net income ................... 2,785 2,306 3,785
Other, net ............................. 196 (84) (176)
----------------------------------
Total other income ............... 7,751 6,807 4,336
----------------------------------
Income before income tax expense . 39,405 42,107 42,304
INCOME TAX EXPENSE ....................... 15,245 16,366 16,502
----------------------------------
NET INCOME ............................... $ 24,160 $ 25,741 $ 25,802
==================================
6
NEWSPAPER PROPERTIES OF HOWARD PUBLICATIONS, INC.
COMBINED STATEMENTS OF CHANGES IN OWNER'S EQUITY
11 MONTHS ENDED MARCH 31, 2002, AND
YEARS ENDED APRIL 30, 2001 AND 2000 (in thousands)
Owner's
Equity
----------
BALANCE, May 1, 1999 ..................................... $ 110,196
Net income ............................................. 25,802
Net contribution from owner ............................ 15,846
---------
BALANCE, April 30, 2000 .................................. 151,844
Net income ............................................. 25,741
Net distribution to owner .............................. (6,877)
---------
BALANCE, April 30, 2001 .................................. 170,708
Net income ............................................. 24,160
Net distribution to owner .............................. (37,101)
---------
BALANCE, March 31, 2002 .................................. $ 157,767
=========
7
NEWSPAPER PROPERTIES OF HOWARD PUBLICATIONS, INC.
COMBINED STATEMENTS OF CASH FLOWS
11 MONTHS ENDED MARCH 31, 2002, AND
YEARS ENDED APRIL 30, 2001 AND 2000 (in thousands)
March 31, April 30, April 30,
2002 2001 2000
---------------------------------
OPERATING ACTIVITIES:
Net income ........................................... $ 24,160 $ 25,741 $ 25,802
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................... 7,042 9,289 10,090
Amortization ....................................... 85 420 2,188
Gain on sale of property and investments ........... 218 6 490
Equity in net income of unconsolidated entity -
Newspaper ........................................ (2,785) (2,306) (3,785)
Deferred federal income taxes ...................... 1,378 (1,237) (2,191)
Cash provided (used) by changes in operating
assets and liabilities:
Accounts receivable .............................. 1,324 1,934 (2,790)
Federal income tax receivable .................... 2,406 (2,883) 1,173
Inventories ...................................... 554 88 (269)
Other assets ..................................... 457 255 283
Accounts payable and accrued expenses ............ (376) (5,784) 6,853
Other long-term obligations ...................... 151 -- --
--------------------------------
Net cash provided by operating activities ...... 34,614 25,523 37,844
--------------------------------
INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment ........ (19,326) (15,107) (12,666)
Write-off of advances ................................ 143
Acquisition of short-term investments ................ (258) (11,877) --
Proceeds from sales of short-term investments ........ 48,985 -- 2,169
Acquisition of West Media stock ...................... -- (51) (26,768)
Adjustment on purchase of West Media stock ........... 559 --
Dividends received from unconsolidated entity ........ 1,823 1,823 1,823
Proceeds from sale of property and other investments . 98 686 950
--------------------------------
Net cash provided (used) by investing activities 31,465 (23,967) (34,492)
--------------------------------
FINANCING ACTIVITIES:
Proceeds received from issuance of short-term
credit facility .................................... -- -- 28,404
Payments on short-term credit facility ............... -- -- (28,410)
Net contribution from (distribution to) owner .. (37,101) (6,877) 15,846
--------------------------------
Net cash provided (used) by financing activities (37,101) (6,877) 15,840
--------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ... 28,978 (5,321) 19,192
CASH AND CASH EQUIVALENTS:
Beginning of year .................................... 23,152 28,473 9,281
--------------------------------
End of year .......................................... $ 52,130 $ 23,152 $ 28,473
================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash received (paid) during the year for:
Interest ........................................... $ 4,770 $ 4,585 $ 727
Income taxes ....................................... -- 11,500 3,300
Income tax refund .................................. -- -- (3,000)
8
NEWSPAPER PROPERTIES OF HOWARD PUBLICATIONS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
11 MONTHS ENDED MARCH 31, 2002, AND
YEARS ENDED APRIL 30, 2001 AND 2000
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NOTE 1: Summary of Significant Accounting Policies
Operations: The Newspaper Properties of Howard Publications, Inc. (the Company)
are operating units of Howard Publications, Inc. (a Delaware corporation)
(Howard) engaged in the publication of newspapers at various locations
throughout the United States.
Basis of presentation: The financial statements present the results of
operations, balance sheets, owner's equity, and cash flows applicable to the
operations of the Company. The financial statements of the Company are derived
from the historic books and records of Howard. The Company does not maintain
corporate accounting, treasury, tax, and other similar corporate support
functions. For purposes of preparing the accompanying financial statements,
certain Howard corporate costs were allocated to the Company using the
allocation method described below.
Principles of combination: All significant intercompany transactions and
balances have been eliminated in combination.
Use of estimates in the preparation of financial statements: In preparing
financial statements in conformity with accounting principles generally accepted
in the United States of America, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents: The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
Short-term investments: Short-term investments include primarily U.S. Treasury
obligations and are held as available for sale.
Inventories: Inventory consists primarily of newsprint and is stated at the
lower of cost or market. Cost is determined primarily by the last-in, first-out
method.
Investments and other assets: Investments in entities in which the Company owns
at least 20% but not more than 50% of voting securities and has the ability to
exert significant influence, are accounted for under the equity method (Note 2).
Intangible assets: Intangible assets consist primarily of goodwill, which
represents the cost of acquisitions in excess of tangible and identifiable
intangible assets received. Prior to adoption of Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets, goodwill acquired after October 1970 was
amortized using the straight-line method over 40 years, and goodwill acquired
before November 1970 (approximately $3,800,000) has not been amortized. On May
1, 2001, the Company adopted SFAS No. 142. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are reviewed
annually for impairment or more frequently if impairment indicators arise.
Separable intangible assets that have finite lives will continue to be amortized
over their useful lives. As required under the statement, the Company continues
to amortize intangible assets with finite lives on a straight-line basis over a
five-year period and has ceased the amortization of goodwill upon the adoption
of the statement. As of March 31, 2002, approximately $75,000 of intangible
assets continues to be amortized over a five-year period.
Long-lived assets: The Company reviews the carrying value of its long-lived
assets for potential impairment. An impairment is considered to have occurred
when the carrying value of the asset is considered not to be recoverable. When
there are adverse changes in facts and circumstances that suggest that the value
has been impaired, an assessment is made of undiscounted future cash flows, and
the carrying values of the related assets will be reduced appropriately to their
fair values based on current market values. When market values are not
available, the fair values will be determined based on other valuation
techniques such as discounted cash flows.
9
Property, plant, and equipment: Property, plant, and equipment are carried at
cost. Equipment is depreciated using the straight-line method based on estimated
useful lives, which are as follows:
Computer equipment 3 years
Office equipment 5 - 7 years
Machinery 11 years
Buildings and improvements 10 - 40 years
Construction in progress is recorded upon the purchase of the asset but is not
depreciated until the asset is ready for its intended use.
Revenue recognition: Circulation revenue is primarily paid in advance and is
recognized over the life of the subscription. Advertising revenue is recognized
in the period earned, which is the period in which the advertising appears in
the newspaper.
Earnings per share: The Company is not a separate legal entity and has no
historical capital structure. Therefore, historical earnings per share have not
been presented in the financial statements.
Segment information: The Company has organized and managed its operations in a
single operating segment, publication of newspapers.
New accounting pronouncements: SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, is effective for all fiscal years beginning
after June 15, 2000. SFAS No. 133, as amended, established accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. Under SFAS
No. 133, certain contracts that were not formerly considered derivatives may now
meet the definition of a derivative. The Company adopted SFAS No. 133 effective
May 1, 2001. The Company does not hold any derivatives, and therefore, the
adoption had no financial statement impact.
In June 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS No. 141
requires that all business combinations be accounted for using the purchase
method of accounting; therefore, the pooling-of-interest method of accounting is
prohibited. SFAS No. 141 also requires that intangible assets acquired in a
business combination be recognized apart from goodwill if: (i) the intangible
assets arise from contractual or other legal rights or (ii) the acquired
intangible assets are capable of being separated from the acquired enterprise,
as defined in SFAS No. 141. SFAS No. 141 is effective for all business
combinations completed after June 30, 2001, and accounted for as a purchase and
for all business combinations initiated after June 30, 2001.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, which will be effective for fiscal years beginning after June 15,
2002. SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The Company does not expect that the adoption of SFAS
No. 143 will have a significant impact on the financial position or results of
operations of the Company.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which is effective for fiscal years beginning
after December 15, 2001. SFAS No. 144 supercedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
and the accounting and reporting provisions for the disposal of a segment of a
business of Accounting Principles Board (APB) Opinion No. 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. The Company does not expect that the adoption of SFAS No. 144 will
have a significant impact on the financial position or results of operations of
the Company.
10
Allocated costs: The financial statements of the Company reflect certain
allocated corporate support costs from Howard. Such allocations and charges are
based on a percentage of total corporate costs for the services provided, based
on percentage of sales. Management believes that the allocation methods used are
reasonable and reflective of the Company's proportionate share of such expenses,
and are not materially different from those that would have been incurred on a
stand-alone basis. The following summarizes the corporate costs allocated to the
Company (in thousands):
Eleven
Months Year Ended
Ended April 30,
March 31, -----------------
2002 2001 2000
-----------------------------
Account Description:
Expense - Compensation ...................... $2,475 $1,727 $1,793
Expense - General and administrative ........ 1,452 1,012 1,653
----------------------------
$3,927 $2,739 $3,446
============================
Note 2: Investments and Other Assets
The Company's long-term investments as of March 31, 2002, and April 30, 2001 and
2000, and for the eleven months ended March 31, 2002, and each of the two years
ended April 30, 2001, are summarized as follows (in thousands):
Equity Equity In
Investment Net Income
---------------------------
March 31, 2002 ........................... $6,448 $2,785
April 30, 2001 ........................... 5,387 2,306
April 30, 2000 ........................... 4,522 3,785
Newspaper publishing: Howard holds a 50% interest in Sioux City Newspapers, Inc.
(Sioux City), which is combined with the Newspaper Properties and is accounted
for under the equity method. A summary of Sioux City's unaudited financial
position and results of operations is as follows (in thousands):
March 31, April 30,
2002 2001
----------------------
Current assets ..................................... $10,827 $ 8,878
Property and equipment, net ........................ 1,075 1,057
Other assets ....................................... 2,420 765
---------------------
Total assets ............................... 14,322 10,700
Liabilities ........................................ 2,072 2,450
---------------------
Net assets ................................. $12,250 $ 8,250
=====================
Company's investment in net assets ......... $ 6,125 $ 4,125
=====================
Years Ended
Eleven Months April 30,
Ended --------------------
March 31, 2002 2001 2000
-------------------------------------
Revenues ................................ $19,476 $21,800 $22,565
======= ======= =======
Net income .............................. $ 5,570 $ 4,612 $ 5,123
======= ======= =======
Company's equity in net income .......... $ 2,785 $ 2,306 $ 2,562
======= ======= =======
Note 3: Intangible Assets
As described in Note 1, the Company adopted SFAS No. 142 on May 1, 2001.
Following SFAS No. 142, goodwill is not amortized but is tested for impairment
at the reporting unit level. The Company stopped amortizing goodwill as of the
adoption date.
11
The Company completed its initial impairment assessment of goodwill, which is
attributable to the Newspaper Properties segment, by comparing the fair value of
the segment to its carrying value, and determined that there was no impairment
upon adoption. This impairment test is required to be performed upon adoption of
SFAS No. 142 and at least annually thereafter. Based on the sale of the Company
(as discussed in Note 8), for an amount in excess of the book value, goodwill
was not deemed to be impaired at March 31, 2002.
The table below shows the effect on net income had SFAS No. 142 been adopted in
prior periods (in thousands):
March 31, April 30, April 30,
2002 2001 2000
---------------------------------
Reported net income ..................... $24,160 $25,741 $25,802
Amortization of goodwill ................ 335 2,103
---------------------------------
Adjusted net income ............. $24,160 $26,076 $27,905
=================================
Note 4: Income Taxes
The Company was not a separate taxable entity for federal or state income tax
purposes, and its operations were included in the combined Howard returns. The
Company's tax provision has been prepared in accordance with SFAS No. 109,
Accounting for Income Taxes, on a separate return basis.
Income tax expense is summarized as follows (in thousands):
Years Ended
Eleven Months April 30,
Ended ------------------------
March 31, 2002 2001 2000
-----------------------------------------
Current ............................ $ 13,867 $ 17,603 $ 18,693
Deferred ........................... 1,378 (1,237) (2,191)
-------------------------------------
Income tax expense ......... $ 15,245 $ 16,366 $ 16,502
======================================
Deferred federal income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for federal income tax purposes, primarily related
to depreciation.
Deferred federal income taxes are summarized as follows (in thousands):
March 31, April 30,
2002 2001
-----------------------
Deferred tax assets:
Current .......................................... $ 843 $ 809
Noncurrent ....................................... 67 1,503
----------------------
Total deferred tax assets .................. 910 2,312
Deferred tax liabilities:
Current .......................................... (223)
Noncurrent ....................................... (2,411) (2,658)
----------------------
Total deferred tax liabilities ............. (2,634) (2,658)
----------------------
Deferred federal income taxes, net ......... $(1,724) $ (346)
======================
Note 5. Pensions and Other Postretirement Benefit Plans
Pension plan: Howard sponsored a defined benefit pension plan covering
substantially all employees of the Company, along with other employees
affiliated with Howard. Benefits were based on the employee's compensation
before retirement. Howard's funding policy was based on the requirements of the
plan and applicable federal laws. The Company funded the plan with $1,500,000
for the 11 months ended March 31, 2002.
12
In March 2002, the plan was amended, and the plan assets were frozen as of March
1, 2002. Participants who are employees of the Company became fully vested in
their accrued benefits at March 1, 2002.
401(k) plan: Howard sponsors a contributory defined contribution plan covering
substantially all employees. The Company's employer contributions to the plan
were $212,433, $191,922, and $232,602 for the 11 months ended March 31, 2002,
and the years ended April 30, 2001, and April 30, 2000, respectively.
Note 6. Fair Value of Financial Instruments
The Company, using available market information, has determined the estimated
fair values of financial instruments; however, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. 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 fair value.
Cash and cash equivalents and accounts receivable: The carrying amounts of these
items are reasonable estimates of their fair values due to the short maturities
of these instruments.
Short-term investments: Short-term investments are classified as available for
sale. Fair value was obtained from an independent pricing service. As of April
30, 2001, there is no difference between the carrying amounts and estimated fair
values of short-term investments.
Note 7. Acquisition
In June 1999, Howard purchased the stock of Westmedia Corp. (Westmedia), a
newspaper operation in Longview, Washington, for cash of $28,719,000. In a
separate transaction, the building occupied by Westmedia was also purchased for
cash of $2,661,000 in June 1999. The transaction was accounted for under the
purchase method of accounting and resulted in goodwill of $24,320,258.
Note 8. Subsequent Events
On April 1, 2002 (closing date), the Company was sold to Lee Enterprises,
Incorporated for cash of approximately $749 million, plus or minus working
capital adjustments. The purchase price is subject to adjustment for certain
agreed-upon cash balances to be retained by Howard at the closing date, the
excess, if any, of which is to be paid to the stockholders of Howard.
Subsequent to eleven months ended March 31, 2002, Lee Enterprises, Incorporated
announced the purchase of the remaining 50% interest in Sioux City Newspapers,
Inc.
13
Lee Enterprises, Incorporated
Pro Forma Condensed Consolidated Financial Statements
On April 1, 2002, Lee Enterprises, Incorporated (Lee) consummated the
acquisition of The Newspaper Properties of Howard Publications, Inc. (Howard),
including 50% of the stock of Sioux City Newspapers, Inc. (SCN). On June 6,
2002, the Company announced it had reached an agreement to acquire the remaining
50% of the stock of SCN, including exchange of certain properties owned by Lee
(the Flathead properties).
The following Pro Forma Condensed Consolidated Financial Statements, which are
unaudited, have been prepared to give effect to the acquisitions of Howard and
SCN. The acquisitions of Howard and SCN will be accounted for under the purchase
method of accounting in accordance with Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations. Under the purchase method of
accounting, the purchase price is allocated to the identifiable tangible and
intangible assets acquired and liabilities assumed based on their estimated fair
values with the remainder allocated to goodwill. The estimated fair values
contained herein are preliminary in nature, and may not be indicative of the
final purchase price allocation, which will be based on an assessment of fair
value to be performed by an independent appraiser. Such preliminary estimates of
fair values of the assets and liabilities of Howard and SCN have been
consolidated with the recorded values of the assets and liabilities of Lee in
the Pro Forma Condensed Consolidated Financial Statements. Since the purchase
accounting information is preliminary, it has been solely prepared for the
purpose of developing such pro forma financial information. SFAS No. 142,
Goodwill and Other Intangible Assets, provides that goodwill resulting from a
business combination completed subsequent to June 30, 2001 will not be amortized
but instead is required to be tested for impairment at least annually.
The Pro Forma Condensed Consolidated Statements of Income reflect the results of
operations of Lee for the year ended September 30, 2001 and for the six-month
period ended March 31, 2002, adjusted for the pro forma effects of the
acquisitions, as if such transactions had occurred at the beginning of each
period presented. The Pro Forma Condensed Consolidated Balance Sheet as of March
31, 2002 gives effect to the acquisitions as if the acquisitions had occurred on
March 31, 2002.
The Pro Forma Condensed Consolidated Financial Statements are presented for
illustrative purposes only and are not necessarily indicative of the condensed
consolidated financial position or results of operations in future periods or
the results that actually would have been realized had Lee, Howard and SCN been
a consolidated company during the specified periods. The Pro Forma Condensed
Consolidated Balance Sheet and Pro Forma Condensed Consolidated Statements of
Income should be read in conjunction with the Notes included herein and with the
historical financial statements and notes thereto of Lee.
14
Lee Enterprises, Incorporated
Pro Forma Condensed Consolidated Statement of Income
Year Ended September 30, 2001
(Unaudited) Lee Acquired Pro Forma
(Thousands, except per share data) Enterprises Businesses Adjustments Consolidated
---------------------------------------------------------
Revenue ......................... $ 441,153 $ 226,598 $ (3,656) (1) $ 664,095
Operating expenses .............. 355,137 185,908 (3,992)(1) 554,201
17,148 (2)
------------------------------------------------------
Operating income ................ 86,016 40,690 (16,812) 109,894
Financial income ................ 28,548 4,534 (32,082)(3) 1,000
Financial expense ............... (11,963) (25,864)(4) (37,827)
Other, net ...................... (10,167) (328) (10,495)
------------------------------------------------------
Income from continuing operations
before income taxes ........... 92,434 44,896 (74,758) 62,572
Income tax expense .............. 32,977 17,925 (29,156)(5) 21,746
------------------------------------------------------
Income from continuing operations $ 59,457 $ 26,971 $ (45,602) $ 40,826
======================================================
Basic average common shares ..... 43,784 43,784
========= =========
Basic earnings per common share . $ 1.36 $ 0.93
========= =========
Diluted average common shares ... 44,089 44,089
========= =========
Diluted earnings per common share $ 1.35 $ 0.93
========= =========
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
15
Lee Enterprises, Incorporated
Pro Forma Condensed Consolidated Statement of Income
Six Months Ended March 31, 2002
(Unaudited)
(Thousands, except per share Lee Acquired Pro Forma
data) Enterprises Businesses Adjustments Consolidated
---------------------------------------------------------
Revenue ......................... $ 211,693 $ 114,261 $ (1,641) (1) $ 324,313
Operating expenses .............. 162,616 93,493 (1,851) (1) 262,832
8,574 (2)
-------------------------------------------------------
Operating income ................ 49,077 20,768 (8,364) (2) 61,481
Financial income ................ 5,235 3,148 (8,083) (3) 300
Financial expense ............... (5,882) (6,466) (4) (12,348)
Other, net ...................... (308) 90 (218)
-------------------------------------------------------
Income from continuing operations
before income taxes ........... 48,122 24,006 (22,913) 49,215
Income tax expense .............. 16,998 10,214 (8,936) (5) 18,276
-------------------------------------------------------
Income from continuing operations $ 31,124 $ 13,792 $ (13,977) $ 30,939
=======================================================
Basic average common shares ..... 44,009 44,009
========= =========
Basic earnings per common share . $ 0.71 $ 0.70
========= =========
Diluted average common shares ... 44,286 44,286
========= =========
Diluted earnings per common share $ 0.70 $ 0.70
========= =========
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
16
Lee Enterprises, Incorporated
Pro Forma Condensed Consolidated Balance Sheet
March 31, 2002
(Unaudited)
Lee Acquired Pro Forma
(Thousands) Enterprises Businesses Adjustments Consolidated
---------------------------------------------------------
Current assets:
Cash, equivalents and temporary cash investments $ 479,030 $ 59,686 $ (492,686) (1) $ 46,030
Accounts receivable, net ....................... 36,969 20,795 (337) (2) 57,427
Inventories .................................... 4,003 2,764 (31) (2) 6,736
Other .......................................... 8,039 1,313 (66) (2) 9,286
--------------------------------------------------------
Total current assets ............................. 528,041 84,558 (493,120) 119,479
Investments ...................................... 31,469 31,469
Property and equipment, net ...................... 114,984 70,042 (1,485) (2) 183,541
Intangible and other assets ...................... 301,482 34,352 (3,702) (2) 1,121,471
789,339 (3)
--------------------------------------------------------
Total assets ..................................... $ 975,976 $ 188,952 $ 291,032 $1,455,960
========================================================
Current liabilities:
Current maturities of long-term debt ........... $ 23,200 $ 23,200
Other .......................................... 69,881 25,434 (251) (2) 95,064
--------------------------------------------------------
Total current liabilities ........................ 93,081 25,434 (251) 118,264
Long-term debt, less current maturities .......... 150,200 323,300 (4) 473,500
Deferred items ................................... 30,709 2,114 133,757 (5) 166,580
--------------------------------------------------------
Total liabilities ................................ 273,990 27,548 456,806 758,344
Stockholder's equity ............................. 701,986 161,404 (4,370) (2) 697,616
(161,404) (6)
--------------------------------------------------------
Total liabilities and stockholders' equity ....... $ 975,976 $ 188,952 $ 291,032 $1,455,960
========================================================
See accompanying Notes to Pro Forma Condensed Consolidated Financial Statements.
17
Lee Enterprises, Incorporated
Notes to Pro Forma Condensed Consolidated Financial Statements
The Pro Forma Condensed Consolidated Balance Sheet and Proforma Condensed
Consolidated Statements of Income reflect the acquisitions of Howard and SCN
under the purchase method of accounting. Under the purchase method of
accounting, the purchase price is allocated to the assets acquired and the
liabilities assumed based on their estimated fair values. The preliminary fair
value of the assets acquired and liabilities assumed of Howard and SCN have been
consolidated with the recorded values of the assets and liabilities of Lee in
the Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2002.
The preliminary purchase price allocation for Howard and SCN at March 31, 2002
is as follows:
(Thousands)
Current assets ............................................ $ 24,872
Property and equipment, net ............................... 70,042
Intangible and other assets ............................... 823,691
--------
Total assets acquired ..................................... 918,605
Current liabilities ....................................... 25,434
Long-term liabilities ..................................... 135,871
--------
Net assets acquired ....................................... 757,300
Less: acquisition costs ................................... 3,000
--------
Purchase price ............................................ $754,300
========
Results of businesses disposed of during the periods included in the Pro Forma
Condensed Consolidated Statements of Income are not material.
Non-recurring transition costs have been excluded from the Pro Forma Condensed
Consolidated Statements of Income.
Separate information of SCN is as follows:
Six Months
Year Ended Ended
September 30, March 31,
2001 2002
(Thousands) --------------------------
Revenue ...................................... $21,699 $11,361
Operating expenses ........................... 15,096 7,296
Operating income ............................. 6,603 4,065
Income before income taxes ................... 6,603 4,065
Income tax expense ........................... 2,245 1,382
Net income ................................... 4,358 2,683
March 31,
2002
---------
Cash, equivalents and temporary cash
investments ................................ $7,556
Accounts receivable, net ..................... 2,691
Inventories .................................. 665
Other current assets ......................... 9
Property and equipment, net .................. 1,083
Intangible and other assets .................. 699
Other current liabilities .................... 2,372
Deferred items ............................... 239
Stockholders' equity ......................... 10,092
18
Lee Enterprises, Incorporated
Notes to Pro Forma Condensed Consolidated Financial Statements
Adjustments to the Pro Forma Condensed Consolidated Statements of Income consist
of the following:
Year Ended Six Months Ended
(Thousands) September 30, 2001 March 31, 2002
----------------------------------------
(1) Eliminate financial results of Flathead properties exchanged for SCN
Revenue $ (3,656) $ (1,641)
Operating expenses (3,992) (1,851)
(2) Increase depreciation of property and equipment and amortization
(using a useful life of 20 years) of intangible assets related to
the acquisitions 17,148 8,574
(3) Reduce financial income for investment portfolio liquidated to fund the
acquisitions and pay dividend to SCN shareholders. (32,082) (8,083)
(4) Increase interest expense for amounts borrowed to fund the acquisitions. (25,864) (6,466)
(5) Income tax expense related to pro forma adjustments. (29,156) (8,936)
Adjustments to the Proforma Condensed Consolidated Balance Sheet as of March 31,
2002 consist of the following:
(1) Reduce cash and cash equivalents and temporary cash investments
liquidated to fund the acquisitions and dividend to SCN shareholders $(492,686)
(2) Eliminate assets and liabilities, and record loss on sale of,
Flathead properties.
Current assets (434)
Long-term assets (5,187)
Current liabilities (251)
Division equity (4,370)
(3) Increase intangible assets related to the acquisitions. 789,339
(4) Increase long-term debt for amounts borrowed to fund the
acquisitions. 323,300
(5) Increase deferred income taxes related to the acquisitions. 133,757
(6) Eliminate equity of acquired businesses. (161,404)
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LEE ENTERPRISES, INCORPORATED
Date: June 14, 2002 /s/ Carl G. Schmidt
--------------------------------------------
Carl G. Schmidt
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting Officer)
20
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
2-56652, 2-77121, 2-58993, 33-19725, 33-46708, 333-6435, and 333-6433 on Form
S-8 of our report dated May 24, 2002 (which report expresses an unqualified
opinion and includes an explanatory paragraph relating to the derivation of the
financial statements and certain expense allocations) on the financial
statements of the Newspaper Properties of Howard Publications, Inc., appearing
in this Current Report on Form 8-K/A of Lee Enterprises, Inc.
/s/ Deloitte & Touche, LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
June 14, 2002
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