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