UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended December 31, 2000 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 1-6227 Lee Enterprises, Incorporated A Delaware Corporation I.D. #42-0823980 215 N. Main Street Davenport, Iowa 52801 Phone: (319) 383-2100 Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding At December 31, 2000 - --------------------------------------- -------------------------------- Common Stock, $2.00 par value 32,996,368 Class "B" Common Stock, $2.00 par value 10,714,920
PART I. FINANCIAL INFORMATION Item 1. LEE ENTERPRISES, INCORPORATED Consolidated Statements of Income (In Thousands, Except Per Share Data) 2000 1999 - -------------------------------------------------------------------------------- Three Months Ended December 31: (Unaudited) Operating revenue: Advertising ................................... $ 77,685 $ 70,133 Circulation ................................... 21,173 20,212 Other ......................................... 17,201 16,052 Equity in net income of associated companies .. 2,566 2,290 ------------------ 118,625 108,687 ------------------ Operating expenses: Compensation costs ............................ 43,525 39,681 Newsprint and ink ............................. 11,137 9,013 Depreciation .................................. 4,129 3,476 Amortization of intangibles ................... 3,901 3,736 Other ......................................... 28,284 26,424 ------------------- 90,976 82,330 ------------------- Operating income ....................... 27,649 26,357 ------------------- Nonoperating income (expense), net Financial income .............................. 9,511 1,054 Financial (expense) ........................... (3,164) (3,385) Other, net .................................... (405) 18,249 ------------------- 5,942 15,918 ------------------- Income from continuing operations before taxes on income ................. 33,591 42,275 Income taxes ...................................... 12,576 15,879 ------------------- Income from continuing operations ...... 21,015 26,396 ------------------- Discontinued operations: Income from discontinued operations, net of income tax effect ...................... - - 4,148 Gain on disposition, net of income tax effect ... 250,887 - - ------------------- 250,887 4,148 ------------------- Net income ............................. $271,902 $ 30,544 =================== Average outstanding shares: Basic ........................................... 43,666 44,165 Diluted ......................................... 43,961 44,630 Earnings per share: Basic : Income from continuing operations ............. $ 0.48 $ 0.60 Income from discontinued operations ........... 5.75 0.09 ------------------- Net income ............................. $ 6.23 $ 0.69 =================== Diluted: Income from continuing operations ............. $ 0.48 $ 0.59 Income from discontinued operations ........... 5.71 0.09 ------------------- Net income ............................. $ 6.19 $ 0.68 =================== Dividends per share ........................... $ 0.17 $ 0.16 ===================
LEE ENTERPRISES, INCORPORATED Condensed Consolidated Balance Sheets (In Thousands) December 31, September 30, ASSETS 2000 2000 - -------------------------------------------------------------------------------- (Unaudited) Cash and cash equivalents ......................... $ 98,388 $ 29,427 Temporary cash investments ........................ 479,190 - - Accounts receivable, net .......................... 47,675 42,712 Newsprint inventory ............................... 3,960 4,280 Other ............................................. 7,003 7,380 Net assets of discontinued operations ............. 576 167,767 ---------------------- Total current assets ...................... 636,792 251,566 Investments ....................................... 32,420 34,176 Property and equipment, net ....................... 126,750 127,356 Intangibles and other assets ...................... 331,229 333,135 ---------------------- $1,127,191 $ 746,233 ======================= LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- Current liabilities: Current maturities of long-term debt ............ $ 185,437 $ 49,532 Income taxes payable ............................ 191,396 7,799 Other ........................................... 64,850 60,296 ---------------------- Total current liabilities ................. 441,683 117,627 Long-term debt, less current maturities ........... - - 173,400 Deferred items .................................... 29,729 60,039 Stockholders' equity .............................. 655,779 395,167 ---------------------- $1,127,191 $ 746,233 ======================
LEE ENTERPRISES, INCORPORATED Condensed Consolidated Statements of Cash Flows (In Thousands) <TABLE> Three Months Ended December 31: 2000 1999 - -------------------------------------------------------------------------------------- (Unaudited) <S> <C> <C> Cash Provided by Operating Activities: Net income .................................................. $271,902 $ 30,544 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization ............................. 8,043 10,191 Gain on sale of properties ................................ (396,329) (18,249) Distributions in excess of current earnings of associated companies ............................................... 2,489 1,786 Other balance sheet changes ............................... 146,295 12,750 ------------------- Net cash provided by operating activities ............. 32,400 37,022 ------------------- Cash Provided by (Required for) Investing Activities: Purchase of property and equipment .......................... (3,821) (8,981) Purchase of temporary cash investments ...................... (479,190) - - Acquisitions ................................................ (3,335) (3,329) Proceeds from sale of assets, net ........................... 565,264 8,585 Other ....................................................... (786) (33) ------------------- Net cash provided by (required for) investing activities ................................ 78,132 (3,758) ------------------- Cash (Required for) Financing Activities: Purchase of Lee Common Stock ................................ (4,296) (3,922) Payments on short-term notes payable, net ................... (37,500) (6,000) Other ....................................................... 225 261 ------------------- Net cash (required for) financing activities .......... (41,571) (9,661) ------------------- Net increase in cash and cash equivalents ............. 68,961 23,603 Cash and cash equivalents: Beginning ................................................... 29,427 10,536 ------------------- Ending ...................................................... $ 98,388 $ 34,139 =================== </TABLE>
Lee Enterprises, Incorporated Notes to Unaudited Condensed Consolidated Financial Information - -------------------------------------------------------------------------------- Note 1. Basis of Presentation The information furnished reflects all adjustments, consisting of normal recurring accruals, which are, in the opinion of management, necessary to a fair presentation of the financial position as of December 31, 2000 and the results of operations and cash flows for the three months ended December 31, 2000 and 1999. Note 2. Investment in Associated Companies The Company has a 50% ownership interest in Madison Newspapers, Inc., a newspaper company which publishes daily, Sunday, and weekly publications in Madison and three other daily newspapers, seven weekly publications, and various other classified publications in Wisconsin, and also holds interests in Internet service ventures. The condensed operating results of Madison Newspapers, Inc. set forth below include the results of operations of three daily newspapers, five weekly publications, and three other classified publications acquired by Madison Newspapers, Inc. on July 1, 2000 from Independent Media Group, Inc.: Three Months Ended December 31, ------------------ 2000 1999 ------------------ (In Thousands) (Unaudited) Revenues .................................................... $29,459 $24,063 Operating expenses, except depreciation and amortization .... 19,651 16,101 Income before depreciation and amortization, interest, and taxes ................................................. 9,808 7,962 Depreciation and amortization ............................... 1,161 715 Operating income ............................................ 8,647 7,247 Financial income (expense) .................................. (55) 402 Income before income taxes .................................. 8,592 7,649 Income taxes ................................................ 3,460 3,079 Net income .................................................. 5,132 4,570 Note 3. Cash Flows Information The components of other balance sheet changes are: Three Months Ended December 31, -------------------- 2000 1999 -------------------- (In Thousands) (Unaudited) (Increase) in receivables ........................... $ (4,949) $ (6,211) Decrease in inventories and other ................... 697 1,907 (Decrease) in accounts payable, accrued expenses and unearned income .................................. (3,480) (3,043) Increase in income taxes payable .................... 183,597 13,552 Deferred income taxes ............................... (29,665) - - Other ............................................... 95 6,545 -------------------- $146,295 $ 12,750 ====================
Note 4. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share amounts): Three Months Ended December 31, ------------------- 2000 1999 ------------------- (Unaudited) (In Thousands) Numerator: Income applicable to common shares: Income from continuing operations .................... $ 21,015 $ 26,396 Income from discontinued operations .................. 250,887 4,148 ------------------- $271,902 $ 30,544 =================== Denominator: Basic, weighted average common shares outstanding .......................................... 43,666 44,165 Dilutive effect of employee stock options .............. 295 465 ------------------- Diluted outstanding shares ....................... 43,961 44,630 =================== Basic earnings per share: Income from continuing operations ...................... $ 0.48 $ 0.60 Income from discontinued operations .................... 5.75 0.09 ------------------- Net Income ....................................... $ 6.23 $ 0.69 =================== Diluted earnings per share: Income from continuing operations ...................... $ 0.48 $ 0.59 Income from discontinued operations .................... 5.71 0.09 ------------------- Net Income ....................................... $ 6.19 $ 0.68 =================== Note 5. Gain on Sale of Properties On October 1, 1999 the Company acquired a daily newspaper and specialty publications in Beatrice, Nebraska and received $9,300,000 of cash in exchange for all the assets used in, and liabilities related to, the publication, marketing, and distribution of two daily newspapers and the related specialty and classified publications in Kewanee, Geneseo, and Aledo, Illinois and Ottumwa, Iowa. In connection with this transaction, the Company recognized a gain on sale of $18,439,000, which is included in other nonoperating income in 1999. Note 6. Discontinued Operations On March 1, 2000, the Company decided to discontinue the operations of the Broadcast division. On May 7, 2000 the Company entered into an agreement to sell substantially all of its broadcasting operations, consisting of eight network-affiliated and seven satellite television stations, to Emmis Communications Corporation and closed the transaction on October 1, 2000. The net proceeds of approximately $565,000,000 resulted in an after-tax gain for financial reporting purposes of approximately $251,000,000. The results for the broadcast operations have been classified as discontinued operations for all periods presented in the consolidated statements of income. Under the terms of its senior note agreement, the Company will be required to repay the outstanding balance of $173,400,000 on October 1, 2001 unless the Company reinvests the net proceeds of the broadcast sale or obtains a waiver of that provision of the agreement. Therefore, the $173,400,000 has been classified as a current liability as of December 31, 2000. On January 18, 2001, the Company entered into an agreement to sell its remaining broadcast property which will complete the Company's exit from television broadcasting. The assets and liabilities of the remaining broadcast property has been classified in the consolidated balance sheet as "net assets of discontinued operations" as of December 31, 2000.
The income from discontinued operations consists of the following: Three Months Ended December 31, -------------------- 2000 1999 -------------------- (In Thousands) (Unaudited) Income from discontinued operations .................. $ - - $ 7,071 Gain on disposition .................................. 396,329 - - Income taxes ......................................... 145,442 2,923 -------------------- $250,887 $ 4,148 ==================== The assets and liabilities of the Broadcast division consisted of the following: December 31, 2000 -------------- (In Thousands) (Unaudited) Assets: Accounts receivable, net .................................... $156 Property and equipment, net ................................. 388 Intangibles and other assets ................................ 55 ---- 599 ---- Liabilities ................................................. 23 ---- Net assets of discontinued operations ....................... $576 ==== Note 7. Amortization of Intangibles Amortization of goodwill was $1,864,000 in 2000 and $1,734,000 in 1999, including approximately $700,000 in each period that is not deductible for income tax purposes. Note 8. Reclassification Certain items on the statements of income for the three months ended December 31, 1999 have been reclassified with no effect on net income or earnings per share to be consistent with the classifications adopted for the three months ended December 31, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Operating results are summarized below: Three Months Ended December 31, -------------------------- 2000 1999 -------------------------- (Dollars In Thousands, Except Per Share Data) Operating revenue ................................. $ 118,625 $ 108,687 Percent change .................................. 9.1% 2.0% Income before depreciation, amortization, interest and taxes (EBITDA) * ................... 35,679 33,569 Percent change .................................. 6.3% 5.7% Operating income .................................. 27,649 26,357 Percent change .................................. 4.9% 5.5% Non-operating income (expense), net ............... 5,942 15,918 Income from continuing operations ................. 21,015 26,396 Percent change .................................. (20.4)% 91.0% Earnings per share, continuing operations Basic ........................................... 0.48 0.6 Percent change ................................ (20.0)% 93.6% Diluted ......................................... 0.48 0.59 Percent change ................................ (18.6)% 90.3% * EBITDA is not a financial performance measurement under generally accepted accounting principles (GAAP), and should not be considered in isolation or a substitute for GAAP performance measurements. EBITDA is also not reflected in the consolidated statement of cash flows; but it is a common and meaningful alternative performance measurement for comparison to other companies in the publishing industry. The computation excludes other non-operating items which are primarily the gain on sale of businesses. Operating revenue consists of the following: Three Months Ended December 31, ---------------------- 2000 1999 ---------------------- (Dollars In Thousands) Advertising revenue: Retail advertising: Retail - "run-of-press" ......................... $ 32,242 $ 30,009 Retail - preprint and other ..................... 16,784 13,484 -------------------- Total retail advertising .......................... 49,026 43,493 Percent change .................................. 12.7% (1.3)% National .......................................... 3,054 2,224 Percent change .................................. 37.3% 13.5% Classified ........................................ 24,129 23,120 Percent change .................................. 4.4% 4.6% Other ............................................. 1,476 1,296 Percent change .................................. 13.9% 5.5% Total advertising ................................... 77,685 70,133 Percent change .................................... 10.8% 1.1% Circulation revenue ................................. 21,173 20,212 Percent change .................................... 4.8% (3.6)% Other revenue ....................................... 17,201 16,052 Percent change .................................... 7.2% 15.0% The following advertising and circulation revenue results are presented exclusive of acquisitions and dispositions. Retail "run-of-press" advertising is advertising by merchants in the local community which is printed in the newspaper, rather than "preprints", which are printed separately by the Company or others and inserted into the newspaper. Retail revenue increased $819,000, 2.7% in 2000, primarily attributable to increased spending by advertisers which was offset in part by a shift to preprint advertising. Total revenue realized from retail and national merchants includes preprints, which have lower-priced, higher-volume distribution rates. Preprint revenue increased $1,159,000, 9.5% in 2000.
Classified advertising revenue increased approximately $256,000, 1.1% in 2000. Growth in advertising revenue was principally in the employment and real estate categories partially offset by a decrease in automotive advertising. In 2000, total advertising revenue increased $3,266,000, 4.7%. In 2000 circulation revenue increased $48,000, .2% in part due to an additional Sunday in the quarter which has a higher rate, offset by a decline in units. Other revenue consists of revenue from commercial printing, products and services delivered outside the newspaper (which include activities such as target marketing, special event production, and online services), and editorial service contracts with Madison Newspapers, Inc. Other revenue by category is as follows: Three Months Ended December 31, ------------------ 2000 1999 ------------------ (In Thousands) Commercial printing .................................... $ 7,157 $ 6,410 ------------------ New revenue: Niche publications ................................... 3,432 2,712 Internet/online ...................................... 1,293 629 Other ................................................ 3,000 4,005 ------------------ Total new revenue ...................................... 7,725 7,346 ------------------ Editorial service contracts ............................ 2,319 2,296 ------------------ $17,201 $16,052 ================== In 2000 exclusive of acquisitions and dispositions, other revenue increased $447,000, 3.1%. Commercial printing decreased by $(47,000), (.8%) due to a decline in volume. Niche publications revenue increased $865,000, 33.7% with the introductions of new products. Internet/online revenue increased $313,000, 49.8% due to growth in advertising revenue. Other revenue declined $(707,000), (19.6%) due to a reduction in target marketing and the absence of promotional activities related to the new millennium for which revenues were received in 1999. The following table sets forth the percentage of revenue of certain items. Three Months Ended December 31, --------------- 2000 1999 --------------- Revenue .................................................... 100.0% 100.0% --------------- Compensation costs ......................................... 37.5 37.3 Newsprint and ink .......................................... 9.6 8.5 Other operating expenses ................................... 24.4 24.8 --------------- 71.5 70.6 --------------- Income before depreciation, amortization, interest and taxes ................................................ 28.5 29.4 Depreciation and amortization .............................. 6.9 6.8 --------------- Operating margin wholly-owned properties ................... 21.6% 22.6% =============== Exclusive of the effects of acquisitions and dispositions, in 2000 costs other than depreciation and amortization increased $2,908,000, 3.9%. Compensation expense increased $1,273,000, 3.3%, due primarily to an increase in the average compensation rate and increased sales positions. Newsprint and ink costs increased $1,481,000, 17.1%, due primarily to higher prices. Other operating costs exclusive of depreciation and amortization increased $154,000, .6% due to higher prices offset in part by cost controls.
NONOPERATING INCOME AND INCOME TAXES Interest on deferred compensation agreements for executives and others is offset by financial income earned on the invested funds held in trust. Financial income and interest expense (decreased) by $(130,000) in 2000 as a result of these arrangements. Financial income increased $8,457,000 due primarily to income earned on the invested proceeds from the sale of its broadcast properties. In 2000, other non-operating income, net consists of losses related to its 6.3% interest in Ad One, LLC, a provider of integrated online classified solutions for the newspaper industry. In 1999, other non-operating income, net consists primarily of a $18,439,000 gain from the sale of publishing properties and losses related to Ad One, LLC. Income taxes were 37.4% and 37.6% of pre-tax income for the three months ended December 31, 2000 and 1999, respectively. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations, which is the Company's primary source of liquidity, was $32,400,000 for the three months ended December 31, 2000. The Company anticipates that funds necessary for capital expenditures and other requirements will be available from internally generated funds and the net after-tax proceeds from the sale of its broadcast properties. Under the terms of its senior note agreement, the Company will be required to repay the outstanding balance of $173,400,000 on October 1, 2001 unless the Company reinvests the net proceeds of the sale of its broadcast properties in operating assets of the Company or obtains a waiver of that provision of the agreement. Other covenants under these agreements are not considered restrictive to normal operations or anticipated stockholder dividends. SAFE HARBOR STATEMENT The Private Securities Litigation Reform Act of 1995 provides a "Safe Harbor" for forward-looking statements. This report contains certain information which may be deemed forward-looking that is based largely on the Company's current expectations and is subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends, and uncertainties are changes in advertising demand, newsprint prices, interest rates, regulatory rulings, other economic conditions, and the effect of acquisitions, investments, and dispositions on the Company's results of operations or financial condition. The words "believe," "expect," "anticipate," "intends," "plans," "projects," "considers," and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are as of the date of this report. Further information concerning the Company and its businesses, including factors that potentially could materially affect the Company's financial results, is included in the Company's annual report on Form 10-K. The Company does not undertake to publicly update or revise its forward-looking statements.
LEE ENTERPRISES, INCORPORATED PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) The following report of Form 8-K was filed during the three months ended December 31, 2000. Date of Report: October 2, 2000 Item 2. The Company announced the completion of the sale of certain of its broadcasting properties to Emmis Communications Corporation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LEE ENTERPRISES, INCORPORATED /s/ G. C. Wahlig Date January 30, 2001 - --------------------------------------- ------------------------------- G.C. Wahlig, Vice President of Finance, Interim Chief Financial Officer, and Chief Accounting Officer