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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6227
LEE ENTERPRISES, INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 42-0823980
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
215 N. Main Street, Davenport, Iowa 52801
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (319) 383-2100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
- --------------------------------------------------------------------------------
Common Stock - $2.00 par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
--------------------
Class B Common Stock $2.00 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of voting stock held by nonaffiliates of the
registrant as of December 1, 1999. Common Stock and Class B Common Stock,
$2.00 par value, $1,136,812,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 1, 1999. Common Stock, $2.00 par value,
33,314,738 shares; and Class B Common Stock, $2.00 par value, 10,966,544
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement dated
December 27, 1999 are incorporated by reference in Part III of this Form 10-K.
PART I
Item 1. Business
This Annual Report on Form 10-K contains certain forward-looking statements that
are based largely on the Company's current expectations and are 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, the availability of quality broadcast programming at
competitive prices, changes in the terms and conditions of network affiliation
agreements, quality and rating 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 filing.
Item 1(a) Recent business developments. 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. In addition in
November 1999 the Company canceled its local marketing agreement for KASY-TV
in Albuquerque, New Mexico. The information following includes the properties
owned as of December 1, 1999.
Item 1(b) Financial information about industry segments. See Note 12 to the
Notes to Financial Statements under Item 8, herein.
Item 1(c) Narrative description of business.
PUBLISHING
The Company and its subsidiaries publish the following:
Daily Newspapers:
Circulation
Newspaper City State Daily (M-F) Sunday
-----------------------------------------------------------------------------------------------
Southern Illinoisian Carbondale Illinois 26,108 34,681
Herald & Review Decatur Illinois 36,322 44,836
Quad City Times Davenport Iowa 52,918 74,777
Globe Gazette Mason City Iowa 19,597 24,077
Muscatine Journal Muscatine Iowa 8,393 - -
Winona Daily News Winona Minnesota 12,070 12,855
Billings Gazette Billings Montana 48,389 54,648
The Montana Standard Butte Montana 14,898 15,299
Ravalli Republic Hamilton Montana 5,200 * - -
Independent Record Helena Montana 13,369 14,303
Missoulian Missoula Montana 31,885 37,797
Beatrice Daily Sun Beatrice Nebraska 8,485 - -
Lincoln Journal Star Lincoln Nebraska 74,228 82,517
The Bismarck Tribune Bismarck North Dakota 29,958 32,653
Democrat-Herald Albany Oregon 20,569 34,107 **
Ashland Daily Tidings Ashland Oregon 4,979 * - -
Corvallis Gazette-Times Corvallis Oregon 12,879 - - **
Rapid City Journal Rapid City South Dakota 30,397 34,216
LaCrosse Tribune LaCrosse Wisconsin 31,779 40,089
Wisconsin State Journal Madison Wisconsin 87,909 158,000
The Journal Times Racine Wisconsin 29,409 32,750
--------------------------
Total paid daily and Sunday circulation 599,741 727,605
==========================
Source - Audit Bureau of Circulation (ABC): Average of 6 months ended March and September 1999.
* From publishers' statement.
** Combined edition with Democrat-Herald.
Weekly Newspapers:
Newspaper City State Day(s) Circulation
----------------------------------------------------------------------------------------------------
Bettendorf News Bettendorf Iowa Wednesday 2,600
Big Fork Eagle Big Fork Montana Wednesday 4,500
Hungry Horse News Columbia Falls Montana Thursday 7,000
Whitefish Pilot Whitefish Montana Thursday 4,000
The Plattsmouth Journal Plattsmouth Nebraska Monday and Thursday 5,000
Mandan News Mandan North Dakota Thursday 1,900
Cottage Grove Sentinel Cottage Grove Oregon Wednesday 4,500
Gresham Outlook Gresham Oregon Wednesday and Saturday 8,800
Lebanon Express Lebanon Oregon Wednesday 3,500
Newport News-Times Newport Oregon Wednesday and Friday 13,900
Sandy Post Sandy Oregon Wednesday 2,000
The Springfield News Springfield Oregon Wednesday and Saturday 11,000
-------------
Total paid weekly circulation 68,700
=============
Source: Company Statistics
The Company owns 50% of the capital stock of Madison Newspapers, Inc. and 17%
of the nonvoting common stock of The Capital Times Company. The Capital Times
Company owns the remaining 50% of the capital stock of Madison Newspapers,
Inc.
Madison Newspapers, Inc. owns the Wisconsin State Journal, a morning
newspaper published seven days each week, and The Capital Times, an afternoon
paper published Monday through Saturday each week. Both newspapers are
produced in the printing plant of Madison Newspapers, Inc., which maintains
common advertising, circulation, delivery, and business departments for the
two newspapers.
The Company has a contract to furnish the editorial and news content for the
Wisconsin State Journal. The Wisconsin State Journal is classified as one of
the Lee Group of newspapers in the newspaper field and in the rating
services.
Classified Publications:
Publication City State Day(s) Circulation
-------------------------------------------------------------------------------------------
Dandy Dime Tucson Arizona Friday 28,500
The Redding Nickel Redding California Thursday 27,500
Prairie Shopper Decatur Illinois Tuesday 45,000
Thrifty Nickel East Moline Illinois Thursday 11,700
The Gateway Express Clinton Iowa Wednesday and Friday 6,800
The Advertiser Davenport Iowa Wednesday 28,000
Winnebago/Hancock Forest City Iowa Monday 12,500
Shopper
Mason City Shopper Mason City Iowa Tuesday 34,000
The Post Muscatine Iowa Tuesday 20,900
Thrifty Nickel Billings Montana Thursday 30,000
Yellowstone Shopper Billings Montana Thursday 47,200
Mini Nickel Bozeman Montana Thursday 22,900
Nickel Saver Butte Montana Thursday 10,000
North Valley Advertiser Columbia Falls Montana Tuesday 8,000
Western Shopper Deer Lodge Montana Wednesday 4,800
The Trader Dillon Montana Monday 6,200
Consumers Press Great Falls Montana Thursday 33,000
Life & Times Press Hamilton Montana Wednesday 12,300
The Adit Helena Montana Wednesday 23,500
The Western Montana Missoula Montana Wednesday 33,000
Messenger
Nifty Nickel Las Vegas Nevada Thursday 60,000
Dickinson Finder Albuquerque New Mexico Friday 28,000
Quik Quarter/Thrifty Albuquerque New Mexico Thursday 38,000
Nickel
Dickinson Finder Dickinson North Dakota Wednesday 13,800
The Finder Mandan North Dakota Wednesday 39,200
The Finder Minot North Dakota Wednesday 18,000
The Klamath Falls Nickel Klamath Falls Oregon Thursday 19,000
The Medford Nickel Medford Oregon Thursday 27,500
Nickel Ads Portland Oregon Friday 202,000
Rapid City Advertiser Rapid City South Dakota Wednesday 28,000
Northern Hills Spearfish South Dakota Wednesday 15,000
Advertiser
Pioneer Shopper St. George Utah Thursday 27,000
Little Nickel Lynnwood Washington Wednesday and Thursday 320,000
Nickel Saver Moses Lake Washington Thursday 21,500
Nickel Nik Spokane Washington Friday 37,000
Smart Shopper Spokane Washington Friday 15,000
Buyline Walla Walla Washington Thursday 20,000
Nickel Ads Wenatchee Washington Thursday 26,500
The Foxxy Shopper LaCrosse Wisconsin Tuesday 34,000
Cover Story Madison Wisconsin Sunday 85,000
Pennysaver Racine Wisconsin Monday 65,000
Foxxy Shopper Sparta Wisconsin Tuesday 42,500
-----------
Total non-paid weekly circulation 1,627,800
===========
Source: Company statistics
Classified publications are weekly advertising publications available in
racks or delivered free by carriers or third-class mail to all households in
a particular geographic area. Classified publications offer advertisers a
cost-effective local advertising system. Classified publications are
particularly effective in large markets with high media fragmentation in
which major metropolitan newspapers generally have low penetration.
Specialty Publications and Other Products and Services:
City State
-----------------------------------------------------------------
Cars & Trucks Tuscon Arizona
Wheels for You Decatur Illinois
Lee Print Davenport Iowa
Classic Images Muscatine Iowa
Films of the Golden Age Muscatine Iowa
International Newspaper Network Big Fork Montana
Western Business Billings Montana
Intermountain Printing and Publishing Deer Lodge Montana
Ag Almanac Great Falls Montana
The Eastman's Journal Helena Montana
Montana Magazine Helena Montana
AutoFinder Missoula Montana
Broadwater Townsend Montana
Wheels for You Grand Island Nebraska
Wheels for You Lincoln Nebraska
Home Scene Las Vegas Nevada
Nifty Nickel Cars & Trucks Las Vegas Nevada
Wheels for You Albuquerque New Mexico
Farm & Ranch Guide Bismarck North Dakota
Family Times Corvallis Oregon
Internet Broadcasting Partners Portland Oregon
Tri-State Neighbor Sioux Falls South Dakota
Homes Moses Lake Washington
Drive Line Spokane Washington
Home Buyer's Guide Spokane Washington
Nickel Nik's RV Wheel Deals Spokane Washington
Nickel Nik's Truck Deals Spokane Washington
Nickel Nik's Wheel Deals Spokane Washington
Homes Wenatchee Washington
The Enterpriser LaCrosse Wisconsin
Home Buyers Guide LaCrosse Wisconsin
Wheels for You LaCrosse Wisconsin
AgriView Madison Wisconsin
Midwest Messenger Tekamah Nebraska
The Company's strategy is to increase its share of local advertising in its
existing markets, and over time, to increase circulation through internal
expansion into contiguous markets and make selective acquisitions.
The basic raw material of newspapers, classified, and specialty publications
is newsprint. The Company and its subsidiaries purchase newsprint from U.S.
and Canadian producers. The Company believes it will continue to receive a
supply of newsprint adequate to its needs. Newsprint prices are volatile and
fluctuate based upon factors which include both the foreign and domestic
production capacity and consumption. The price fluctuations can have a
significant effect on the results of operations. For the quantitative impacts
of these fluctuations, see "Management Discussion and Analysis of Financial
Condition and Results of Operations" under Item 7, herein.
Publishing revenue has traditionally been highest in the quarter ended
December 31 and, likewise, has been lowest in the quarter ended March 31.
The Company's newspapers, classified and specialty publications compete with
newspapers having national or regional circulation, magazines, radio,
television, other advertising media such as billboards, classified and
specialty publications and direct mail, as well as other information content
providers such as on-line services. In addition, many of the Company's daily
and Sunday newspapers compete with other newspapers in nearby cities and
towns.
BROADCASTING
The Company and its subsidiaries own and operate the following television
stations:
Nielsen DMA
Station Market Ranking
- --------------------------------------------------------------------------------
ABC Affiliate, KGUN-TV - Tucson, Arizona 72
CBS Affiliates:
KOIN-TV - Portland, Oregon 23
KRQE-TV - Albuquerque, New Mexico 49 (1)
KGMB-TV - Honolulu, Hawaii 71 (2)
KMTV - Omaha, Nebraska 73
NBC Affiliates:
WSAZ-TV - Huntington-Charleston, West Virginia 59
KSNW-TV - Wichita, Kansas 65 (3)
KSNT-TV - Topeka, Kansas 138
Telemundo Affiliate, KMAZ-TV - El Paso, Texas 96 (4)
(1) Combined DMA rank. KRQE-TV also operates stations KBIM-TV, Roswell, New
Mexico and KREZ-TV, Durango, Colorado.
(2) KGMB-TV also operates stations KGMD-TV, Hilo, Hawaii and KGMV-TV, Maui,
Hawaii.
(3) KSNW-TV also operates stations KSNG-TV, Garden City, Kansas; KSNC-TV, Great
Bend, Kansas; and KSNK-TV, Oberlin, Kansas/McCook, Nebraska.
(4) KZIA-TV changed its call letters to KMAZ-TV effective October 31, 1997.
Affiliation changed from UPN effective January 15, 1998.
Broadcasting revenue has traditionally been highest in the quarter ended
December 31 and, likewise, has been lowest in the quarter ended March 31.
The Company's television stations compete with other over-the-air broadcast
television stations, direct broadcast satellite ("DBS") and cable television,
radio companies, other advertising media such as newspapers, magazines and
billboards, as well as other information content providers such as on-line
services. Competition in the television broadcasting industry occurs
primarily in individual market areas. Generally, a television station in one
market does not compete with other stations in other market areas, nor does a
group of stations, such as those owned by the Company, compete with any other
group of stations as such. DBS and cable television systems in the Company's
broadcasting markets operate on a subscriber payment basis and compete by
importing out-of-market television signals or by originating programming to
the extent permitted or required by present or future rules of the Federal
Communications Commission ("FCC").
The Company's television broadcasting operations are subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended (the
"Act"). The Act empowers the FCC, among other things, to issue, revoke or
modify broadcasting licenses, to assign frequency bands, to determine the
location of stations, to regulate the apparatus used by stations, to
establish areas to be served, to adopt regulations necessary to carry out the
provisions of the Act and to impose penalties for violation of such
regulations. Television licenses are granted for a maximum period of five
years and, upon application, may be renewed for additional five-year terms.
The FCC is required to hold a hearing on a renewal application if a
substantial and material question of fact is raised with respect to the
renewal application, or if for any reason the FCC is unable to find that the
grant of the renewal application would serve the public interest, convenience
and necessity. Renewal of the Company's television licenses has never been
denied and all such licenses are now in full force and effect.
OTHER MATTERS
In the opinion of management, compliance with present statutory and
regulatory requirements respecting environmental quality will not necessitate
significant capital outlays, or materially affect the earning power of the
business of the Company, or cause material changes in the Company's business,
whether present or intended.
In September 1999, the Company, its subsidiaries and associated companies had
approximately 6,100 employees, including approximately 1,500 part-time
employees.
Item 2. Properties
The Company's executive offices are located in facilities leased at 215 North
Main Street, Davenport, Iowa.
All of the printing plants (except Madison, which is owned by Madison
Newspapers, Inc.) are owned by the Company. All printing plants (including
Madison) are well maintained, are in good condition, and are suitable for the
present office and publishing operations. Upon completion of the production
facility expansion in Lincoln, Nebraska, the Company believes all plants will
be adequately equipped with typesetting, printing and other required
equipment.
All offices, studios, and transmitter buildings of the broadcasting divisions
are owned or subject to long-term lease by the Company. All of the television
properties are adequately equipped for present operations, and are in good
condition and repair. See Item 7 "Management Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity, Capital Resources
and Commitments" for a discussion of the implementation of digital television
service. Network television programs are received via satellite.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Company
The following table shows the names and ages of all executive officers of the
Company, the period of service for each with the Company, the period during
which each has held his present office and the office held by each.
Period of Service Period In
Name Age With Company Present Office Present Office
- -------------------------------------------------------------------------------------------------------------
Richard D. Gottlieb 57 36 years 8 years President and Chief Executive
Officer
Mary E. Junck 52 7 months 7 months Executive Vice President and
Chief Operating Officer
Larry L. Bloom 50 6 years 6 years Senior Vice President - Finance,
Treasurer, and Chief
Financial Officer
Phil E. Blake 55 20 years 1 month Vice President - Publishing
Randy N. Miller 47 2 years 1 month Vice President - Publishing
Greg R. Veon 47 23 years 1 month Vice President - Publishing
Colleen B. Brown 41 1 year 6 months President of the Broadcast Group
Vytenis P. Kuraitis 51 5 years 3 years Vice President - Human
Resources
Charles D. Waterman, III 53 10 years 10 years Secretary
George C. Wahlig 52 10 years 7 years Vice President - Finance and
Chief Accounting Officer
Gregory P. Schermer 45 11 years 2 years Vice President - Interactive
Media
Mary E. Junck was elected Executive Vice President in May 1999; from May 1996 to
April 1999 she was Executive Vice President of The Times Mirror Company and
President of Eastern Newspapers. She was named Publisher and Chief Executive
Officer of The Baltimore Sun in 1993.
Phil E. Blake was elected Vice President - Publishing in November 1999. He is
presently, and for more than the past 5 years has been, publisher of the
Wisconsin State Journal and publisher and treasurer of Madison Newspapers, Inc.
Randy N. Miller was elected Vice President - Publishing in November 1999; from
June 1997 through September 1997 he was Director of Newspaper Operations and
Planning, from October 1997 through November 1999 he was appointed Vice
President - Newspaper; from February 1995 to May 1997 he was publisher of the
Battle Creek Enquirer; and for three years prior thereto he was the Vice
President for Human Resources and Strategic Planning for Detroit Newspapers.
Greg R. Veon was elected Vice President - Publishing in November 1999; from
November 1995 through November 1999 he was Vice President - Marketing; from 1992
through November 1995 he was Vice President and General Manager of KOIN-TV,
Portland, Oregon.
Colleen B. Brown was elected President of the Broadcast group in July 1999; from
June 1998 through July 1999 she was Vice President of the Broadcast group; from
1995 through July 1998 she was President and General Manager of KPNX-TV in
Phoenix, Arizona; and prior thereto she was the President and General Manager of
WFMY-TV in Greensboro, North Carolina.
Vytenis P. Kuraitis was elected Vice President - Human Resources in January
1997. From August 1994 through January 1997 he was Director of Human Resources.
Charles D. Waterman, III was elected Secretary of the Company in November 1989.
He is presently, and for more than the past five years has been, a partner in
the law firm of Lane & Waterman, Davenport, Iowa, general counsel of the
Company.
Gregory P. Schermer was elected Vice President - Interactive Media in November
1997; from 1989 through November 1997 he was, and continues to serve as,
corporate counsel for the Company.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
COMMON STOCK PRICES AND DIVIDENDS
Lee Common Stock is listed on the New York Stock Exchange. Lee Class B Common
Stock was issued to stockholders of record of the Company in 1986 pursuant to a
100% stock dividend and is converted at sale or the option of the holder into
Lee Common Stock. The table below shows the high and low prices of Lee Common
Stock for each quarter during the past three years, the closing price at the end
of each quarter and the dividends paid per share.
Quarter
--------------------------------------------
4th 3rd 2nd 1st
--------------------------------------------
STOCK PRICES
1999:
High ...... $31-1/16 $30-1/2 $31-7/16 $ 31-1/2
Low ....... 26-1/8 27-1/2 26-5/16 21-13/16
Closing ... 27-3/8 30-1/2 29 31-1/2
1998:
High ...... 31-3/4 33-7/8 33-9/16 29-13/16
Low ....... 23-1/2 27-5/16 28 25-1/2
Closing ... 25-15/16 30-5/8 33-9/16 29-9/16
1997:
High ...... 29-1/8 27 25-1/8 23-5/8
Low ....... 25 22-3/8 22-3/8 21
Closing ... 28-3/8 26-3/8 24-1/4 23-1/4
DIVIDENDS PAID
1999 ....... $ .15 $ .15 $ .15 $ .15
1998 ....... .14 .14 .14 .14
1997 ....... .13 .13 .13 .13
For a description of the relative rights of Common Stock and Class B Common
Stock, see Note 7 of the Notes to Consolidated Financial Statements under
Item 8, herein.
At September 30, 1999, the Company had 3,424 holders of Common Stock and
2,159 holders of Class B Common Stock.
Item 6. Selected Financial Data
FIVE YEAR FINANCIAL PERFORMANCE
Year Ended
September 30: 1999 1998 1997 1996 1995
------------------------------------------------
(In Thousands Except Per Share Data)
OPERATIONS
Operating revenue ........... $536,333 $517,293 $446,686 $427,369 $383,740
================================================
Income from continuing
operations ............... $ 67,973 $ 62,233 $ 62,745 $ 53,670 $ 52,232
Discontinued operations ..... - - - - - - 7,725 6,227
Gain (loss) on disposition
of discontinued
operations ............... - - - - 1,485 (15,948) - -
------------------------------------------------
Net income ....... $ 67,973 $ 62,233 $ 64,230 $ 45,447 $ 58,459
================================================
PER SHARE AMOUNTS
Weighted average
shares:
Basic .................... 44,273 44,829 46,393 46,973 46,053
Diluted .................. 44,861 45,557 47,243 47,899 46,873
Basic:
Income from continuing
operations ............. $ 1.54 $ 1.39 $ 1.35 $ 1.14 $ 1.13
Discontinued operations .. - - - - - - .16 .14
Gain (loss) on disposition
of discontinued
operations ............. - - - - .03 (.33) - -
------------------------------------------------
Net income ....... $ 1.54 $ 1.39 $ 1.38 $ .97 $ 1.27
================================================
Diluted:
Income from continuing
operations ............. $ 1.52 $ 1.37 $ 1.33 $ 1.12 $ 1.12
Discontinued operations .. - - - - - - .16 .13
Gain (loss) on disposition
of discontinued
operations ............. - - - - .03 (.33) - -
------------------------------------------------
Net income ....... $ 1.52 $ 1.37 $ 1.36 $ .95 $ 1.25
================================================
Dividends ................... $ .60 $ .56 $ .52 $ .48 $ .44
OTHER DATA
Total assets ................ $679,513 $660,585 $650,963 $527,416 $559,929
Debt, including
current maturities ....... 204,625 219,481 203,735 95,503 123,489
Stockholders' equity ........ 354,329 319,759 319,390 324,954 311,042
Item 7. Management Discussion and Analysis of Financial Condition
and Results of Operations
This Management Discussion and Analysis of Financial Condition and Results of
Operations contains certain forward-looking statements that are based largely on
the Company's current expectations and are 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, the
availability of quality broadcast programming at competitive prices, changes in
the terms and conditions of network affiliation agreements, quality and rating
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
filing.
Operating results are summarized below:
1999 1998 1997
------------------------------
(Dollars in Thousands,
Except Per Share Data)
Operating revenue ....................... $536,333 $517,293 $446,686
Percent change ....................... 3.7% 15.8% 4.5%
Income before depreciation, amortization,
interest and taxes (EBITDA) * ........ 156,488 150,423 132,455
Percent change ....................... 4.0% 13.6% 8.1%
Operating income ........................ 116,740 112,847 104,151
Percent change ....................... 3.4% 8.3% 9.9%
Income from continuing operations ....... 67,973 62,233 62,745
Percent change ....................... 9.2% (0.8)% 16.9%
Earnings per share, continuing operations
Basic ................................ 1.54 1.39 1.35
Percent change .................... 10.8% 3.0% 18.4%
Diluted .............................. 1.52 1.37 1.33
Percent change .................... 10.9% 3.0% 18.8%
* 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
our consolidated statement of cash flows, but it is a common and meaningful
alternative performance measurement for comparison to other companies in our
industry. The computation excludes the gain on sale of businesses.
The fiscal 1998 comparisons are significantly affected by the September 8, 1997
acquisition of The Pacific Northwest Group. The Pacific Northwest Group
publishes eight daily and weekly newspapers geographically clustered in Oregon's
Willamette Valley and classified publications in eight markets in the states of
Washington, Oregon, Nevada, and Utah.
If Lee had owned these properties since October 1, 1996, the operating revenue
increase for 1998 would have been 3.9%, EBITDA and operating income would have
increased 2.4%, income from continuing operations would have increased 4.6% and
earnings per share on a diluted basis would have increased 8.7%.
PUBLISHING
1999 1998 1997
-------------------------------
(Dollars in Thousands)
Operating revenue ....................... $404,608 $382,894 $318,441
Percent change ....................... 5.7% 20.2% 5.2%
Operating income:
Wholly-owned properties .............. 103,852 94,159 88,865
Percent change .................... 10.3% 6.0% 17.4%
Equity in net income ................. 9,238 8,367 7,756
Percent change .................... 10.4% 7.9% 10.7%
Operating margin, wholly-owned properties 25.7% 24.6% 27.9%
The publishing segment includes newspapers, classified and specialty
publications. Operating revenue consists of the following:
1999 1998 1997
--------------------------------
(Dollars in Thousands)
Daily newspapers:
Advertising ........... $206,228 $195,852 $179,822
Percent change ..... 5.3% 8.9% 6.3%
Circulation ........... 81,562 81,912 80,522
Percent change ..... (0.4)% 1.7% 0.9%
Other .................... 116,818 105,130 58,097
Percent change ........ 11.1% 81.0% 8.4%
Exclusive of acquisitions in 1999, 1998, and 1997, advertising revenue increased
5.1%, 5.0%, and 6.0%, circulation revenue (decreased) increased (.6%), (.6%),
and .7%, and other revenue increased 3.6%, 4.9%, and 3.8%, respectively.
The following daily newspaper advertising lineage, circulation volume
statistics, and related revenue results are presented on a pro forma basis for
daily newspapers wholly owned at the end of fiscal 1999.
Changes in advertising units for classified and local advertising, which account
for more than 70% of newspaper advertising revenue, are as follows:
ADVERTISING LINEAGE, IN THOUSANDS OF INCHES (PRO FORMA ):
1999 1998 1997
-----------------------------
Classified .................... 4,740 4,427 4,314
Percent change ............. 7.1% 2.7% 4.5%
Local ......................... 5,903 5,703 5,695
Percent change ............. 3.5% 0.1% (1.2)%
Classified advertising revenue increased approximately 6.1% in 1999, 9.7% in
1998, and 9.7% in 1997. The average rate realized decreased by (.9%) in 1999 and
increased by 6.9% in 1998, and 5.0% in 1997. In 1999 growth in advertising
lineage was in the automotive and to a lesser extent in the employment
categories. This growth offset a decrease in real estate lineage. The decrease
in the average rate realized was largely due to an increased amount of lower
rate automotive advertising. In 1998 continued significant growth in employment
and real estate advertising offset a small reduction in automotive. In 1997
significant growth in employment advertising offset softness in automotive and
other advertising.
Local "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. In
1999 local run-of-press revenue increased 3.4% and volume increased 3.5% as a
result of the continuing emphasis on price incentives in return for larger or
more frequent ads. In 1998 revenue increased 1.3% as the Company emphasized
printing and frequency which resulted in a .1% increase in local advertising
units. Revenue increased 3.1% in 1997 on higher average rates despite decreases
in advertising inches.
Total revenue realized from local and national merchants includes preprints
which have lower-priced, higher-volume distribution rates. Preprint revenue
increased 2.6% in 1999, 4.8% in 1998, and 5.2% in 1997.
In 1999 circulation revenue decreased by (.6%) as a result of a (2%) decrease in
volume offset by higher rates. In 1998 circulation revenue decreased (.6%) and
volume decreased (.7%). In 1997 circulation revenue increased .8% as a result of
higher rates, offset by a (2.3%) decrease in volume.
Other revenue consists of revenue from weekly newspapers, classified, specialty
publications, commercial printing, products delivered outside the newspaper
(which include activities such as target marketing, special event production,
and on-line service) and editorial service contracts with Madison Newspapers,
Inc.
Other revenue by category and by property is as follows:
1999 1998 1997
--------------------------
(In Thousands)
Weekly newspapers, classified and specialty publications:
Properties owned for entire period ....................... $ 24,678 $ 24,174 $ 23,083
Acquired since September 30, 1996 ........................ 54,686 46,116 2,700
Commercial printing:
Properties owned for entire period ....................... 13,673 13,858 14,351
Acquired since September 30, 1996 ........................ 1,548 947 - -
Products delivered outside the newspaper:
Properties owned for entire period ....................... 13,418 11,650 9,928
Acquired since September 30, 1996 ........................ 71 17 59
Editorial service contracts ................................. 8,744 8,368 7,976
--------------------------
$116,818 $105,130 $ 58,097
==========================
The following table sets forth the percentage of revenue of certain items in the
publishing segment.
1999 1998 1997
------------------------
Revenue .................................................... 100.0% 100.0% 100.0%
------------------------
Compensation costs ......................................... 35.2 35.1 34.0
Newsprint and ink .......................................... 9.3 10.7 9.7
Other operating expenses ................................... 23.3 23.1 23.4
------------------------
67.8 68.9 67.1
------------------------
Income before depreciation, amortization, interest and taxes 32.2 31.1 32.9
Depreciation and amortization .............................. 6.5 6.5 5.0
------------------------
Operating margin wholly-owned properties ................... 25.7% 24.6% 27.9%
========================
Exclusive of the effects of acquisitions, in 1999 costs other than depreciation
and amortization increased by 1.0%. Newsprint and ink costs decreased by (13.0%)
due to lower prices for newsprint offset by a slight increase in usage.
Compensation costs increased 4.1% due to an increase in average compensation and
hours worked. Other operating costs increased 2.8%.
Exclusive of the effects of the 1998 acquisitions, in 1998 costs other than
depreciation and amortization increased 5.2%. Newsprint and ink costs increased
12.2% due to higher prices for newsprint and greater consumption. Compensation
cost increased 5.3% due to an increase in average compensation and hours worked.
Other operating costs increased 2.1%.
Exclusive of the effects of the 1997 acquisitions, in 1997 costs other than
depreciation and amortization decreased (.5%). Newsprint and ink costs decreased
(20.9%) due to lower prices for newsprint. Newsprint consumption was flat in
1997 as compared to 1996. Compensation costs increased 4.4% as a result of
salary increases. Other operating costs increased 3.7% due to normal
inflationary increases.
BROADCASTING
1999 1998 1997
------------------------------
(Dollars in Thousands)
Operating revenue ...... $122,487 $126,032 $120,489
Percent change ...... (2.8)% 4.6% 2.3%
Operating income ....... 19,371 24,948 22,262
Percent change ...... (22.4)% 12.1% (3.0)%
Operating margin ....... 15.8% 19.8% 18.5%
Revenue for 1999 decreased $(3,545,000), (2.8)%. Local/regional/national revenue
decreased $(1,870,000), (1.8%) due to the absence of winter Olympics advertising
on our CBS affiliates and the Super Bowl on our NBC affiliates in the second
quarter offset in part by an increase in revenues in the fourth quarter.
Political advertising increased $970,000, 20.6%. Compensation received from the
television networks decreased $(900,000) in 1999 primarily as a result of the
acquisition of broadcast rights for NFL football by the CBS television network.
In return for reduced network compensation the Company received the right to
sell additional broadcast time. The networks are continuing their efforts to
reduce network compensation. In fiscal 2000 the Company anticipates receiving
$2,000,000 less network compensation than the $6,400,000 received in 1999.
Production revenues and revenues from other sources decreased $(1,752,000),
(17.5%), as a result of the sale of MIRA Creative Group and loss of NBA
production services during the strike.
Revenue for 1998 increased $5,543,000, 4.6%. Local/regional/national revenue
increased $6,834,000 due to winter Olympics advertising in the second quarter
and improved rates realized. Political advertising decreased $1,063,000.
Production revenues and revenues from other sources were flat.
Revenue for 1997 increased $2,692,000, 2.3%. Local/regional/national revenue
increased $1,342,000 while political advertising decreased $(244,000).
Production revenue increased $562,000 due to the addition of a second mobile
production facility at MIRA Productions in Portland, Oregon, and revenues from
other services increased $913,000.
The following table sets forth the percentage of revenue of certain items in the
broadcasting segment.
1999 1998 1997
------------------------
Revenue .................................................... 100.0% 100.0% 100.0%
------------------------
Compensation costs ......................................... 42.5 40.9 41.8
Programming costs .......................................... 8.5 6.6 6.6
Other operating expenses ................................... 23.3 23.6 23.4
------------------------
74.3 71.1 71.8
------------------------
Income before depreciation, amortization, interest and taxes 25.7 28.9 28.2
Depreciation and amortization .............................. 9.9 9.1 9.7
------------------------
Operating margin wholly-owned properties ................... 15.8% 19.8% 18.5%
========================
Operating income decreased in 1999 by $(5,577,000). Compensation costs increased
$557,000, 1.1% due to an increase in the average hourly rate which offset a
decrease in the number of hours worked. Programming costs increased by
$1,984,000, 23.7% due to an increase in the cost of syndicated programs and a
$732,000 write-down of nonperforming programs. In 2000 programming costs will
increase by approximately $1,000,000 as a result of changes in certain network
programming contracts. Other operating expense decreased $(1,186,000), (4.0)%
due to the sale of MIRA Creative Group, reductions in insurance costs, more
focused cost-effective station promotion, and generally tighter cost controls.
Operating income increased in 1998 by $2,686,000. Compensation costs increased
$1,092,000, 2.2% due to an increase in the average hourly rate which offset a
decrease in the number of hours worked. Programming costs increased by $462,000,
5.8% due to an increase in the cost of syndicated programs. Other operating
expense increased $1,477,000, 5.2% due to increased costs for promotion,
audience ratings services, and bad debt expense when two advertisers filed for
bankruptcy.
Operating income decreased in 1997 by $691,000. Compensation costs increased
$3,898,000, 8.4% due to an increase in the number of hours worked and an
increase in the average hourly rate. Programming costs decreased by
$(1,344,000), (14.5%), due to decreased amortization from programs amortized on
an accelerated basis offset in part by a $400,000 write-down of programming at
KMAZ-TV El Paso due to the January 1998 conversion to a Telemundo affiliate
providing Spanish language programming. Other operating expense increased 5.8%
due to the rental of two news helicopters in 1997 and increased outside
services. The primary driver of the outside services increase is MIRA
Productions, which uses contract labor and rental equipment for special
projects.
CORPORATE
Corporate costs in 1999 increased by $1,094,000, 7.5%. Increases included
depreciation, compensation, donations, and other expenses.
Corporate costs in 1998 decreased by $(105,000), (.7%). Reductions in financial
system installation costs, incentive compensation, and donations were offset by
increases in depreciation and other expenses.
Corporate costs in 1997 increased by $3,800,000, 35.1% as a result of increased
marketing costs and the enhancement of computer software.
NON-OPERATING INCOME AND EXPENSE
Interest expense decreased by approximately $(1,748,000) in 1999 primarily due
to payments on long-term debt and a $500,000 increase in capitalized interest
offset by additional deferred compensation costs. Interest expense increased by
approximately $6,300,000 in 1998 due to borrowings to finance The Pacific
Northwest Group acquisition. Interest expense decreased by approximately
$(1,300,000) in 1997 primarily due to a lower debt level. 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 $501,000, $24,000, and $1,700,000 in 1999, 1998, and 1997,
respectively, as a result of these arrangements.
Other non-operating income, net represents the gain from the sale of a shopper
publication in September 1999.
INCOME TAXES
Income taxes were 36.2%, 37.8%, and 38.0% of pretax income in 1999, 1998, and
1997, respectively. In 1999 income taxes were reduced by $1,500,000 due to a
settlement of a contingency. Exclusive of the settlement, income taxes were
37.6% of pretax income.
DISCONTINUED OPERATIONS
On January 17, 1997, the Company consummated the sale of the capital stock of
its graphic arts products subsidiary, NAPP Systems Inc., for approximately
$55,900,000, net of selling expenses. The results for NAPP Systems Inc.'s
operations have been classified as discontinued operations for all periods
presented. For the year ended September 30, 1997, the Company recorded an
after-tax gain of $1,485,000 due to higher than estimated earnings and dividends
through the closing date. For additional information related to the disposition,
see Note 2 of the Notes to Consolidated Financial Statements under Item 8,
herein.
LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS
Cash provided by operations totaled $97,852,000 in 1999. The Company has a
$50,000,000 revolving credit arrangement with banks which expires in 2003. The
major sources and uses of cash in 1999 were as follows:
(In Thousands)
--------------
Sources of cash:
Operations ................................................. $ 97,852
Short-term borrowings ...................................... 6,000
All other .................................................. 1,043
---------
104,895
---------
Uses of cash:
Acquisitions ............................................... 15,416
Purchase of property and equipment ......................... 32,431
Cash dividends paid ........................................ 26,623
Purchase of Lee Enterprises, Incorporated stock ............ 11,830
Payment of debt ............................................ 25,000
---------
111,300
---------
(Decrease) in cash .............................. $ (6,405)
=========
The Company generally finances significant acquisitions by long-term borrowings.
Capital expenditures for new and improved facilities and equipment are expected
to be about $39,500,000 in 2000. The FCC has required implementation of digital
television ("DTV") service which includes high definition television systems.
Implementation of DTV service will impose substantial additional costs on
television stations to provide the new service due to increased equipment costs.
KOIN-TV in Portland, Oregon was required by the FCC to broadcast a digital TV
signal by November 1, 1999 but has filed a request for a six-month extension.
The Company plans to spend approximately $5,000,000 in fiscal 2000 for DTV
conversion. The Company expects that the balance of capital expenditures
necessary to convert its stations to DTV will aggregate approximately
$33,000,000. The Company is currently required to convert its remaining stations
to DTV by May 1, 2002.
The Company also is in the process of building a new production facility for the
Journal Star in Lincoln, Nebraska. The total cost is expected to be
approximately $32,000,000 and will be completed in fiscal 2000. Approximately
$18,000,000 has been spent through September 30, 1999 on this project and
spending in fiscal 2000 is expected to be approximately $14,000,000.
The Company anticipates that funds necessary for capital expenditures and other
requirements will be available from internally generated funds and the Company's
revolving credit agreements.
DIVIDENDS AND COMMON STOCK PRICES
The current quarterly cash dividend is 16 cents per share, an annual rate of 64
cents.
During the fiscal year ended September 30, 1999, the Company paid dividends of
$26,623,000 or 39.2% of 1999's net income. The Company will continue to review
its dividend policy to assure that it remains consistent with its capital
demands. Covenants under borrowing arrangements are not considered restrictive
to payment of dividends. Lee Common Stock is listed on the New York Stock
Exchange. The table under Item 5 herein shows the high and low prices of Lee
Common Stock for each quarter during the past three years. It also shows the
closing price at the end of each quarter and the dividends paid in the quarter.
INFLATION
The net effect of inflation on operations has not been material in the last
several years because of efforts by the Company to lessen the effect of rising
costs through a strategy of improving productivity, controlling costs and, where
conditions permit, increasing selling prices.
YEAR 2000
The Year 2000 issue concerns the inability of information technology (IT)
systems and equipment utilizing microprocessors to recognize and process
date-sensitive information after 1999 due to the use of only the last two digits
to refer to a year. This problem could affect both computer software and
hardware and other equipment that relies on microprocessors. Management has
completed its company-wide evaluation of this impact on its IT systems and its
date-sensitive equipment. Identified critical date-sensitive equipment is
believed to be substantially Year 2000 compliant. Renovation and testing have
been completed on all significant IT systems that utilize company-developed
software that were not Year 2000 compliant. The Company has received
representations and completed testing to determine that significant software
developed by others is Year 2000 compliant. Installation of a new Year
2000-compliant financial system is complete. Testing of computer hardware for IT
systems is substantially complete.
The Company is monitoring the progress of material vendors and suppliers whose
uninterrupted delivery of product or service is material to the production or
distribution of our print and broadcast products in their efforts to become Year
2000 compliant. Material vendors and suppliers include electric utilities,
telecommunications, news and content providers, television networks, other
television programming suppliers, the U.S. Postal Service, and financial
institutions.
From September 30, 1994, through September 30, 1999, the Company spent
approximately $500,000 to address Year 2000 issues for IT systems (exclusive of
the cost of the new financial, newspaper production, and other systems that were
scheduled to be replaced before the year 2000 for reasons other than Year 2000
compliance). Total costs to address Year 2000 issues for IT systems are
currently estimated to be less than $600,000 and consist primarily of staff and
consultant costs. Year 2000 remediation will require the replacement of
telephone switches and software at a cost of approximately $1,000,000. Through
September 30, 1999 approximately $600,000 had been spent for new telephone
equipment. Funds for these costs are expected to be provided by the operating
cash flows or bank line of credit of the Company.
The Company could be faced with severe consequences if Year 2000 issues are not
identified and resolved in a timely manner by the Company and material third
parties. A worst-case scenario would result in the short-term inability of the
Company to produce or distribute newspapers or broadcast television programming
due to unresolved Year 2000 issues. This would result in lost revenues; however,
the amount would be dependent on the length and nature of the disruption, which
cannot be predicted or estimated. In light of the possible consequences, the
Company is devoting the resources needed to address Year 2000 issues in a timely
manner. Management monitors the progress of the Company's Year 2000 efforts and
provides update reports to the audit committee of the Board of Directors at each
meeting. While management expects a successful resolution of these issues, there
can be no guarantee that material third parties, on which the Company relies,
will address all Year 2000 issues on a timely basis or that their failure to
successfully address all issues would not have an adverse effect on the Company.
The Company's contingency plans in case business interruptions do occur are
substantially complete, but will continue to be refined and implemented up to
the Year 2000.
QUARTERLY RESULTS
The Company's largest source of publishing revenue, local run-of-press
advertising, is seasonal and tends to fluctuate with retail sales in markets
served. Historically, local run-of-press advertising is higher in the first and
third quarters. Newspaper classified advertising revenue (which includes real
estate and automobile ads) and broadcasting revenue are lowest in January and
February, which are included in our second fiscal quarter.
Quarterly results of operations are summarized under Item 8, herein.
Item 8. Financial Statements and Supplementary Data
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
September 30,
----------------------------
1999 1998 1997
----------------------------
(Dollars in Thousands)
ASSETS
Current Assets:
Cash and cash equivalents ................................ $ 10,536 $ 16,941 $ 14,163
Trade receivables, less allowance for doubtful
accounts 1999 $4,460; 1998 $4,110;
1997 $4,600 ........................................... 67,122 60,443 56,960
Receivables from associated companies .................... 1,438 1,437 1,437
Inventories .............................................. 3,625 3,878 3,716
Program rights and other ................................. 19,822 16,892 17,691
----------------------------
Total current assets .......................... 102,543 99,591 93,967
----------------------------
Investments:
Associated companies ..................................... 16,326 14,107 12,185
Other .................................................... 15,819 12,364 12,506
----------------------------
32,145 26,471 24,691
----------------------------
Property and Equipment:
Land and improvements .................................... 14,103 13,856 12,994
Buildings and improvements ............................... 67,342 65,945 64,937
Equipment ................................................ 246,484 219,491 194,510
----------------------------
327,929 299,292 272,441
Less accumulated depreciation ............................ 188,726 170,920 152,415
----------------------------
139,203 128,372 120,026
----------------------------
Intangibles and Other Assets:
Intangibles .............................................. 396,392 398,111 404,481
Other .................................................... 9,230 8,040 7,798
----------------------------
405,622 406,151 412,279
----------------------------
$679,513 $660,585 $650,963
============================
See Notes to Consolidated Financial Statements.
September 30,
--------------------------------
1999 1998 1997
--------------------------------
(Dollars In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current maturities of long-term
debt .................................................. $ 17,620 $ 33,453 $177,561
Accounts payable ......................................... 11,764 14,277 23,429
Compensation and other accruals .......................... 26,551 26,966 27,324
Income taxes payable ..................................... 5,378 6,475 4,754
Unearned income .......................................... 18,135 16,890 15,840
--------------------------------
Total current liabilities ..................... 79,448 98,061 248,908
--------------------------------
Long-Term Debt, net of current maturities ................... 187,005 186,028 26,174
--------------------------------
Deferred Items:
Retirement and compensation .............................. 13,781 13,117 13,948
Income taxes ............................................. 44,950 43,620 42,543
--------------------------------
58,731 56,737 56,491
--------------------------------
Stockholders' Equity:
Capital stock:
Serial convertible preferred, no par value;
authorized 500,000 shares; issued none .............. - - - - - -
Common, $2 par value; authorized
60,000,000 shares; issued and outstanding
1999 33,071,000 shares .............................. 66,142 65,144 66,719
Class B, common, $2 par value; authorized
30,000,000 shares; issued and outstanding
1999 11,188,000 shares .............................. 22,376 23,556 24,298
Additional paid-in capital ............................... 32,641 28,715 25,629
Unearned compensation .................................... (961) (650) (493)
Retained earnings ........................................ 234,131 202,994 203,237
--------------------------------
354,329 319,759 319,390
--------------------------------
$679,513 $660,585 $650,963
================================
CONSOLIDATED STATEMENTS OF INCOME
Year Ended September 30,
--------------------------------
1999 1998 1997
--------------------------------
(In Thousands Except
Per Share Data)
Operating revenue:
Publishing:
Daily newspapers:
Advertising ........................... $206,228 $195,852 $179,822
Circulation ........................... 81,562 81,912 80,522
Other ................................... 116,818 105,130 58,097
Broadcasting ............................... 122,487 126,032 120,489
Equity in net income of associated companies 9,238 8,367 7,756
--------------------------------
536,333 517,293 446,686
--------------------------------
Operating expenses:
Compensation costs ......................... 202,513 192,755 165,547
Newsprint and ink .......................... 37,447 41,165 30,906
Depreciation ............................... 21,909 19,662 17,175
Amortization of intangibles ................ 17,839 17,914 11,129
Other ...................................... 139,885 132,950 117,778
--------------------------------
419,593 404,446 342,535
--------------------------------
Operating income ................ 116,740 112,847 104,151
--------------------------------
Non-operating (income) expense, net:
Financial expense .......................... 12,863 14,611 8,321
Financial (income) ......................... (1,920) (1,896) (5,392)
Other, net ................................. (738) - - - -
--------------------------------
10,205 12,715 2,929
--------------------------------
Income from continuing operations
before taxes on income .......... 106,535 100,132 101,222
Income taxes .................................. 38,562 37,899 38,477
--------------------------------
Income from continuing operations 67,973 62,233 62,745
--------------------------------
Discontinued operations, gain on disposition
of discontinued operations, net of income
tax effect ................................. - - - - 1,485
--------------------------------
Net income ...................... $ 67,973 $ 62,233 $ 64,230
================================
Earnings per share:
Basic:
Income from continuing operations ....... $ 1.54 $ 1.39 $ 1.35
Income from discontinued operations ..... - - - - .03
--------------------------------
Net income ...................... $ 1.54 $ 1.39 $ 1.38
================================
Diluted:
Income from continuing operations ....... $ 1.52 $ 1.37 $ 1.33
Income from discontinued operations ..... - - - - .03
--------------------------------
Net income ...................... $ 1.52 $ 1.37 $ 1.36
================================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year Ended September 30,
--------------------------------------------------------------------
Amount Shares
-------------------------------- -------------------------------
1999 1998 1997 1999 1998 1997
-------------------------------- -------------------------------
(In Thousands Except Per Share Data)
Common Stock:
Balance, beginning .......... $ 65,144 $ 66,719 $ 68,578 32,572 33,359 34,289
Conversion from Class B
Common Stock ........... 1,116 649 1,131 558 325 565
Shares issued ............ 286 286 474 143 143 237
Shares reacquired ........ (404) (2,510) (3,464) (202) (1,255) (1,732)
-------------------------------- -------------------------------
Balance, ending ............. $ 66,142 $ 65,144 $ 66,719 33,071 32,572 33,359
================================ ===============================
Class B Common Stock:
Balance, beginning .......... $ 23,556 $ 24,298 $ 25,466 11,778 12,149 12,733
Conversion to Common
Stock .................. (1,116) (649) (1,131) (558) (325) (565)
Shares reacquired ........ (64) (93) (37) (32) (46) (19)
-------------------------------- -------------------------------
Balance, ending ............. $ 22,376 $ 23,556 $ 24,298 11,188 11,778 12,149
================================ ===============================
Additional Paid-In Capital:
Balance, beginning .......... $ 28,715 $ 25,629 $ 20,189
Shares issued ............ 3,926 3,086 5,440
--------------------------------
Balance, ending ............. $ 32,641 $ 28,715 $ 25,629
================================
Unearned Compensation:
Balance, beginning .......... $ (650) $ (493) $ (637)
Restricted shares issued . (1,081) (714) (405)
Restricted shares canceled 45 7 59
Amortization ............. 725 550 490
--------------------------------
Balance, ending ............. $ (961) $ (650) $ (493)
================================
Retained Earnings:
Balance, beginning .......... $202,994 $203,237 $211,358
Net income ............... 67,973 62,233 64,230
Cash dividends per share
1999 $.60; 1998 $.56;
1997 $.52 .............. (26,623) (25,160) (24,173)
Shares reacquired ........ (10,213) (37,316) (48,178)
--------------------------------
Balance, ending ............. $234,131 $202,994 $203,237
================================
Stockholders' Equity ........... $354,329 $319,759 $319,390 44,259 44,350 45,508
================================ ===============================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30,
-------------------------------
1999 1998 1997
-------------------------------
(In Thousands)
Cash Provided by Operating Activities:
Net income ........................................ $ 67,973 $ 62,233 $ 64,230
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 39,748 37,576 29,581
Gain on sale of businesses ..................... (738) - - (1,985)
Distributions less than earnings of associated
companies .................................... (2,220) (1,922) (696)
Change in assets and liabilities, net of effects
from business acquisitions:
(Increase) in receivables .................... (6,154) (3,131) (2,817)
(Increase) decrease in inventories, program
rights and other ......................... (749) 1,427 1,552
Increase (decrease) in accounts payable,
accrued expenses and unearned income ..... (2,117) 2,370 3,144
Increase (decrease) in income taxes payable .. (1,097) 1,721 516
Other, primarily deferred items .............. 3,206 465 4,021
--------------------------------
Net cash provided by operating
activities ............................. 97,852 100,739 97,546
--------------------------------
Cash (Required for) Investing Activities:
Acquisitions ...................................... (15,416) (11,944) (188,689)
Purchase of property and equipment ................ (32,431) (26,725) (16,342)
Proceeds from sale of businesses .................. 492 - - 54,795
Other ............................................. (3,867) (952) (1,838)
--------------------------------
Net cash (required for) investing
activities ............................. (51,222) (39,621) (152,074)
--------------------------------
Cash Provided by (Required for) Financing Activities:
Purchase of common stock .......................... (11,830) (51,388) (41,055)
Cash dividends paid ............................... (26,623) (25,160) (24,173)
Proceeds from long-term borrowings ................ - - 185,000 - -
Proceeds from (payments on) short-term
notes payable, net ............................. 6,000 (145,000) 130,000
Principal payments on long-term borrowings ........ (25,000) (25,000) (21,219)
Other ............................................. 4,418 3,208 5,871
--------------------------------
Net cash provided by (required for)
financing activities ................... (53,035) (58,340) 49,424
--------------------------------
Net increase (decrease) in cash and cash
equivalents ............................ (6,405) 2,778 (5,104)
Cash and cash equivalents:
Beginning ......................................... 16,941 14,163 19,267
--------------------------------
Ending ............................................ $ 10,536 $ 16,941 $ 14,163
================================
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business:
The Company has two principal businesses: publishing and broadcasting. As of
September 30, 1999, operating divisions and associated companies publish
twenty-one daily newspapers, and more than 80 other weekly, classified and
specialty publications, and operate nine full-service network-affiliated
television stations and seven satellite television stations.
Significant accounting policies:
Accounting estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Principles of consolidation: The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany items have been eliminated.
Inventories: Newsprint inventories are priced at the lower of cost or market
with cost being determined primarily by the last-in, first-out method.
Newsprint inventories as of September 30, 1999, 1998, and 1997 were less than
replacement cost by $4,710,000, $4,815,000, and $4,856,000, respectively.
Program rights: Cost of program rights is stated at the lower of cost or
estimated net realizable value. The total cost of the rights is recorded as
an asset and a liability when the program becomes available for broadcast.
Cost of program rights is charged to operations primarily on accelerated
bases related to the usage of the program. The current portion of program
rights represents those rights that will be amortized in the succeeding year.
Investments: Investments in the common stock or joint venture capital of
associated companies are reported at cost plus the Company's share of
undistributed earnings since acquisition, less amortization of intangibles.
Long-term loans to associated companies are included in investments in
associated companies.
Other investments primarily consist of various marketable securities held in
trust under a deferred compensation arrangement. These investments are
classified as trading securities and carried at fair value with gains and
losses reported in the consolidated statements of income.
Property and equipment: Property and equipment is carried at cost. Equipment,
except for printing presses and broadcast towers, is depreciated primarily by
declining-balance methods. The straight-line method is used for all other
assets. The estimated useful lives in years are as follows:
Years
------
Buildings and improvements 5-25
Publishing:
Printing presses 15-20
Other major equipment 3-11
Broadcasting:
Towers 15-20
Other major equipment 3-10
The Company capitalizes interest as part of the cost of constructing major
facilities.
Intangibles: Intangibles include covenants not to compete, consulting
agreements, customer lists, broadcast licenses and agreements, newspaper
subscriber lists, and the excess costs over fair value of net assets of
businesses acquired.
The excess costs over fair value of net tangible assets include $21,510,000
incurred prior to October 31, 1970, which is not being amortized. Excess
costs related to specialty publications are being amortized over 10 to 15
year periods. Intangibles, representing non-compete covenants, consulting
agreements, customer lists, broadcast licenses and agreements, and newspaper
subscriber lists are being amortized over periods of 3 to 40 years. The
remaining costs are being amortized over a period of 40 years. All
intangibles are amortized by the straight-line method.
The Company reviews its intangibles and other long-lived assets annually to
determine potential impairment. In performing the review, the Company
estimates the future cash flows expected to result from the use of the asset
and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount
of the asset, an impairment is recognized. The amount of impairment is
measured based upon projected discounted future cash flows using a discount
rate reflecting the Company's average cost of funds.
Unearned income: Unearned income arises as a normal part of business from
advance subscription payments for newspapers. Revenue is recognized in the
period in which it is earned.
Advertising costs: Advertising costs, which are not material, are expensed as
incurred.
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
loss carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Cash and cash equivalents: For the purpose of reporting cash flows, the
Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less at date of acquisition to be cash
equivalents.
Restricted stock: The Company amortizes as compensation cost the value of
restricted stock, issued under a long-term incentive plan, by the
straight-line method over the three year restriction period.
Note 2. Discontinued Operations
On January 17, 1997 the Company sold the capital stock of its graphic arts
products subsidiary, NAPP Systems Inc., for approximately $55,900,000, net of
selling expenses. The results for NAPP Systems Inc.'s operations have been
classified as discontinued operations and in 1997 include a gain on disposition
of $1,985,000, less income taxes of $500,000 resulting in income from
discontinued operations of $1,485,000.
Note 3. Acquisitions
On September 8, 1997, the Company acquired, for cash, 100% of the outstanding
stock of Southern Utah Media, Inc. (now known as The Pacific Northwest
Publishing Group, Inc.), Oregon News Media, Inc., and Nevada Media, Inc.
(collectively referred to as The Pacific Northwest Group). The Pacific Northwest
Group publishes daily and weekly newspapers and classified publications. The
total acquisition cost was $186,253,000. The excess of the total acquisition
cost, over the fair value of the net assets acquired, was $166,916,000.
The acquisition was accounted for as a purchase, and the results of operations
of The Pacific Northwest Group since the date of acquisition are included in the
consolidated financial statements.
The Company also acquired one daily newspaper, two weekly, and four classified
or specialty publications in 1999, five classified or specialty publications and
one commercial printer in 1998 and five classified or specialty publications in
1997.
The purchase price of business acquisitions was allocated as follows:
Year Ended September 30,
--------------------------------
1999 1998 1997
--------------------------------
(In Thousands)
Noncash working capital acquired ...... $ (100) $ 377 $ 2,897
Property and equipment ................ 1,207 1,326 16,278
Intangibles ........................... 16,048 11,485 169,554
Other long-term assets ................ - - - - 10
Issuance of note payable .............. (1,000) (1,194) (50)
Deferred items ........................ (739) (50) - -
--------------------------------
Total cash purchase price $ 15,416 $ 11,944 $188,689
================================
Note 4. Investments in Associated Companies
The Company has a 50% ownership interest in Madison Newspapers, Inc., a
newspaper publishing company operating in Madison, Wisconsin, and interests in
two Internet service ventures.
Summarized financial information of the associated companies is as follows:
Combined Associates 1999 1998 1997
---------------------------------------------------------------------------------
(In Thousands)
ASSETS
Current assets .......................................... $ 30,560 $ 25,867 $ 23,854
Investments and other assets ............................ 6,035 5,966 5,700
Property and equipment, net ............................. 9,545 10,204 9,730
--------------------------
$ 46,140 $ 42,037 $ 39,284
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ..................................... $ 14,058 $ 14,510 $ 14,792
Long-term debt .......................................... 434 661 435
Stockholders' equity .................................... 31,648 26,866 24,057
--------------------------
$ 46,140 $ 42,037 $ 39,284
==========================
Revenue ................................................. $ 91,283 $ 85,436 $ 79,677
Income before depreciation, amortization, interest,
and income taxes ..................................... 31,983 29,434 26,895
Operating income ........................................ 29,339 26,553 24,732
Net income .............................................. 18,475 16,738 15,517
Receivables from associated companies consist of dividends. Certain information
relating to Company investments in these associated companies is as follows:
1999 1998 1997
-----------------------------
(In Thousands)
Share of:
Stockholders' equity ............ $15,824 $13,433 $12,028
Undistributed earnings .......... 15,642 13,281 11,568
Note 5. Debt
The Company has a $50,000,000 unsecured revolving loan agreement with a bank
group which expires in 2003. Interest rates float at rates specified in the
agreement. There were $6,000,000 of borrowings under this agreement at September
30, 1999.
The Company has long-term obligations, net of current maturities, as follows:
September 30,
-----------------------------
1999 1998 1997
-----------------------------
(In Thousands)
Insurance companies senior notes payable,
6.14% to 6.64%, due in varying amounts
from 2001 to 2013 .................................... $185,000 $185,000 $ - -
Insurance company senior notes payable,
effective rate of 9.96%, $25,000,000
due January 1999 ..................................... - - - - 25,000
Program contracts, noninterest bearing, due
through 2002 ......................................... 2,005 1,028 1,174
-----------------------------
$187,005 $186,028 $ 26,174
=============================
Aggregate maturities during the next five years are $11,620,000, $13,180,000,
$11,980,000, $11,640,000, and $36,600,000. Covenants under these agreements are
not considered restrictive to normal operations or anticipated stockholder
dividends.
Note 6. Retirement and Compensation Plans
Substantially all the Company's employees are covered by a qualified defined
contribution retirement plan. The Company has other retirement and compensation
plans for executives and others. Retirement and compensation plan costs,
including interest on deferred compensation costs, charged to operations were
$12,000,000 in 1999, $10,400,000 in 1998, and $10,300,000 in 1997.
Note 7. Common Stock, Class B Common Stock, and Preferred Share Purchase Rights
Class B Common Stock has ten votes per share on all matters and generally votes
as a class with Common Stock (which has one vote per share). The transfer of
Class B Common Stock is restricted; however, Class B Common Stock is at all
times convertible into shares of Common Stock on a share-for-share basis. Common
Stock and Class B Common Stock have identical rights with respect to cash
dividends and upon liquidation. All outstanding Class B Common Stock converts to
Common Stock when the shares of Class B Common Stock total less than 5,600,000
shares.
On May 7, 1998, the Board of Directors adopted a Shareholder Rights Plan (Plan).
Under the Plan, the Board declared a dividend of one Preferred Share Purchase
Right (Right) for each outstanding Common and Class B Common share (Common
Shares) of the Company. The Rights are attached to and automatically trade with
the outstanding shares of the Company's Common Shares.
The Rights will become exercisable only in the event that any person or group of
affiliated persons becomes a holder of 20% or more of the Company's outstanding
Common Shares, or commences a tender or exchange offer which, if consummated,
would result in that person or group of affiliated persons owning at least 20%
of the Company's outstanding Common Shares. Once the Rights become exercisable,
they entitle all other shareholders to purchase, by payment of a $150 exercise
price, one one-thousandth of a share of Series A Participating Preferred Stock,
subject to adjustment, with a value of twice the exercise price. In addition, at
any time after a 20% position is acquired and prior to the acquisition of a 50%
position, the Board of Directors may require, in whole or in part, each
outstanding Right (other than Rights held by the acquiring person or group of
affiliated persons) to be exchanged for one share of Common Stock or one
one-thousandth of a share of Series A Preferred Stock. The Rights may be
redeemed at a price of $0.001 per Right at any time prior to their expiration on
May 31, 2008.
Note 8. Stock Option, Restricted Stock, and Stock Purchase Plans
At September 30, 1999, the Company has three stock-based compensation plans
which are described below. As permitted under generally accepted accounting
principles, grants under those plans are accounted for following APB Opinion No.
25 and related interpretations. Accordingly, no compensation cost has been
recognized for grants under the stock option or the stock purchase plans. Had
compensation costs for all of the stock-based compensation plans been determined
based on the grant date fair values of awards (the method described in FASB
Statement No. 123), reported net income and earnings per common share would have
been reduced to the pro forma amounts shown below:
1999 1998 1997
------------------------------
(Thousands, Except Per
Share Data)
Net income:
As reported ............ $ 67,973 $ 62,233 $ 64,230
Pro forma .............. 66,600 60,945 63,180
Earnings per share:
Basic:
As reported ......... 1.54 1.39 1.38
Pro forma ........... 1.50 1.36 1.36
Diluted:
As reported ......... 1.52 1.37 1.36
Pro forma ........... 1.49 1.34 1.34
The pro forma effects of applying Statement No. 123 are not indicative of future
amounts since, among other reasons, the pro forma requirements of the Statement
have been applied only to options granted after October 1, 1995.
Stock option and restricted stock plans:
The Company has reserved 5,292,000 shares of Common Stock for issuance to key
employees under an incentive and nonstatutory stock option and restricted
stock plan approved by stockholders. Options have been granted at a price
equal to the fair market value on the date of grant, and are exercisable in
cumulative installments over a ten year period. The fair value of each grant
is estimated at the grant date using the Black-Scholes option-pricing model
with the following weighted-average assumptions for grants in 1999, 1998, and
1997, respectively: dividend rates of 2.06%, 1.95%, and 2.22%; price
volatility of 18.5%, 14.5%, and 16.5%; risk-free interest rates based upon
the life of the option ranging from 4.84% to 6.03%, 5.29% to 5.77%, and 5.89%
to 6.67%; and expected lives based upon the life of the option ranging from
1.5 to 8 years.
A summary of the stock option plan is as follows:
1999 1998 1997
--------------------------
Number of Shares
--------------------------
(In Thousands)
Under option, beginning of year ................ 1,491 1,509 2,279
Granted ..................................... 185 190 155
Terminated and canceled ..................... (21) (5) (8)
Exercised ................................... (397) (203) (917)
--------------------------
Under option, end of year ...................... 1,258 1,491 1,509
==========================
Options exercisable, end of year ............... 945 1,110 1,192
==========================
Average Price
--------------------------
Granted during the year ........................ $27.62 $27.18 $22.20
Exercised during the year ...................... 15.45 15.88 13.64
Under option, end of year ...................... 19.09 17.15 15.82
Weighted-average fair value per
option of options granted ................... 6.55 6.95 5.71
A further summary of options outstanding as of September 30, 1999 is as follows:
Options
Outstanding
------------
Weighted- Options Exercisable
Average -------------------------
Number Remaining Weighted- Number Weighted-
Outstanding Contractual Average Exercisable Average
Range of (In Life Exercise (In Exercise
Exercise Prices Thousands) (In Years) Price Thousands) Price
- --------------------------------------------------------------------------------
$11 to $14 287 1.7 $ 11.02 287 $11.02
$15 to $20 498 4.6 17.16 498 17.16
$20 to $22 111 6.6 21.45 70 21.42
$25 to $30 345 8.3 27.17 73 27.34
$31 to $34 17 3.1 32.46 17 32.46
----- ----
1,258 5.1 19.02 945 16.88
===== ====
Restricted stock is subject to an agreement requiring forfeiture by the
employee in the event of termination of employment within three years of the
grant date for reasons other than normal retirement, death or disability. In
1999, 1998, and 1997, the Company granted 39,000, 26,000, and 18,000 shares,
respectively, of restricted stock to employees. As of September 30, 1999,
72,000 shares of restricted stock were outstanding.
At September 30, 1999, 4,034,000 shares were available for granting of stock
options or issuance of restricted stock.
Stock purchase plan:
The Company has 1,196,000 additional shares of common stock available for
issuance pursuant to an employee stock purchase plan. April 30, 2000 is the
exercise date for the current offering. The purchase price is the lower of
85% of the fair market value at the date of the grant or the exercise date
which is one year from the date of the grant. The weighted-average fair value
per share of purchase rights granted in 1999, 1998, and 1997 computed using
the Black-Scholes option-pricing model was $6.34, $6.65, and $5.28,
respectively.
In 1999, 1998, and 1997 employees purchased 97,000, 95,000, and 106,000
shares, respectively, at a per share price of $24.78 in 1999, $20.98 in 1998,
and $19.02 in 1997.
Note 9. Income Tax Matters
Components of income tax expense consist of the following:
Year Ended September 30,
-------------------------
1999 1998 1997
-------------------------
(In Thousands)
Paid or payable on currently taxable income:
Federal .............................................. $30,633 $29,943 $32,188
State ................................................ 5,652 5,525 6,595
Net increase due to deferred income taxes ............... 2,277 2,431 194
-------------------------
$38,562 $37,899 $38,977
=========================
The total tax provision has been allocated to the following financial statement
items:
Year Ended September 30,
---------------------------
1999 1998 1997
---------------------------
(In Thousands)
Income from continuing operations .... $38,562 $37,899 $38,477
Discontinued operations .............. - - - - 500
---------------------------
$38,562 $37,899 $38,977
===========================
Income tax expense for the years ended September 30, 1999, 1998, and 1997 is
different than the amount computed by applying the U.S. federal income tax rate
to income before income taxes. The reasons for these differences are as follows:
% of Pretax Income
------------------------
1999 1998 1997
------------------------
Computed "expected" income tax expense .............. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit ...... 3.9 3.9 4.4
Net income of associated companies taxed at dividend
rates ............................................ (2.7) (2.6) (2.4)
Goodwill amortization ............................... 1.6 1.7 1.7
Other ............................................... (1.6) (0.2) (0.7)
------------------------
36.2% 37.8% 38.0%
========================
Foreign taxes are not material.
Net deferred tax liabilities consist of the following components as of September
30, 1999, 1998, and 1997:
1999 1998 1997
-------------------------
(In Thousands)
Deferred tax liabilities:
Property and equipment ............................... $ 8,863 $ 8,334 $ 9,409
Equity in undistributed earnings of affiliates ....... 1,267 1,096 903
Deferred gain on sale of broadcast properties ........ 3,308 3,308 3,308
Identifiable intangible assets ....................... 34,163 32,653 32,319
Other ................................................ 2,831 2,981 3,334
-------------------------
50,432 48,372 49,273
-------------------------
Deferred tax assets:
Accrued compensation ................................. 8,309 7,747 7,950
Receivable allowance ................................. 1,060 728 1,976
Loss carryforwards acquired .......................... 5,588 6,774 7,961
Capital loss carryforward ............................ 7,591 8,121 8,425
Other ................................................ 1,708 1,745 2,135
-------------------------
24,256 25,115 28,447
Less, valuation allowance ............................ 13,179 15,325 15,325
-------------------------
11,077 9,790 13,122
-------------------------
$39,355 $38,582 $36,151
=========================
The components giving rise to the net deferred tax liabilities described above
have been included in the accompanying balance sheets as of September 30, 1999,
1998, and 1997 as follows:
1999 1998 1997
------------------------------
(In Thousands)
Current assets ................... $ 5,595 $ 5,038 $ 6,392
Noncurrent liabilities ........... (44,950) (43,620) (42,543)
------------------------------
$(39,355) $(38,582) $(36,151)
==============================
The Company provided a valuation allowance due to limitations imposed by the tax
laws on the Company's ability to realize the benefit of capital loss and net
operating loss carryforwards. During the year ended September 30, 1999,
$2,146,000 of the valuation allowance was transferred to the tax contingency
which is included in income taxes payable with no effect on tax expense. As of
September 30, 1999 the Company had a net operating loss carryforward of
approximately $14,146,000 which will expire in varying amounts from 2003 to
2010.
Note 11. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
The carrying amounts of cash and cash equivalents, temporary investments,
receivables, and accounts payable approximate fair value because of the short
maturity of those instruments. The carrying value of other investments
consisting of debt and equity securities in a deferred compensation trust are
carried at fair value based upon quoted market prices, a $2,500,000 investment
in debt and equity securities in Ad One (a 7.14% interest) is carried at cost
which approximates fair market value and $3,818,000 of equity securities,
consisting primarily of the Company's 17% ownership of the nonvoting common
stock of The Capital Times Company, are carried at cost, as the fair value is
not readily determinable.
The fair value of the Company's debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities. The estimated fair values of
the Company's debt instruments are as follows:
Carrying
Amount Fair Value
--------------------
(In Thousands)
September 30:
1999 $204,625 $202,047
1998 219,481 245,784
1997 203,735 204,603
Note 11. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands except per share amounts):
Year Ended September 30,
---------------------------
1999 1998 1997
---------------------------
Numerator:
Income applicable to common shares:
Income from continuing operations ................. $67,973 $62,233 $62,745
Income from discontinued operations ............... - - - - 1,485
---------------------------
$67,973 $62,233 $64,230
===========================
Denominator:
Basic-weighted average common shares
outstanding ....................................... 44,273 44,829 46,393
Dilutive effect of employee stock options ............ 588 728 850
---------------------------
Diluted outstanding shares ........................... 44,861 45,557 47,243
===========================
Basic earnings per share:
Income from continuing operations .................... $ 1.54 $ 1.39 $ 1.35
Income from discontinued operations .................. - - - - .03
---------------------------
Net income ................................ $ 1.54 $ 1.39 $ 1.38
===========================
Diluted earnings per share:
Income from continuing operations .................... $ 1.52 $ 1.37 $ 1.33
Income from discontinued operations .................. - - - - .03
---------------------------
Net income ................................ $ 1.52 $ 1.37 $ 1.36
===========================
Note 12. Line of Business Information
Year Ended September 30,
------------------------------
1999 1998 1997
------------------------------
(In Thousands)
Revenue:
Publishing:
Wholly-owned properties .................... $404,608 $382,894 $318,441
Equity in net income of associated companies 9,238 8,367 7,756
Broadcasting .................................. 122,487 126,032 120,489
-------------------------------
Total revenue ...................... $536,333 $517,293 $446,686
===============================
Operating income:
Publishing .................................... $113,090 $102,526 $ 96,621
Broadcasting .................................. 19,371 24,948 22,262
Corporate ..................................... (15,721) (14,627) (14,732)
-------------------------------
Total operating income ............. $116,740 $112,847 $104,151
===============================
Identifiable assets:
Publishing .................................... $449,010 $425,825 $413,834
Broadcasting .................................. 192,746 190,621 195,567
Corporate ..................................... 37,757 44,139 41,562
-------------------------------
Total identifiable assets .......... $679,513 $660,585 $650,963
===============================
Depreciation:
Publishing .................................... $ 12,412 $ 11,280 $ 9,054
Broadcasting .................................. 8,143 7,259 7,432
Corporate ..................................... 1,354 1,123 689
-------------------------------
Total depreciation ................. $ 21,909 $ 19,662 $ 17,175
===============================
Amortization of intangibles:
Publishing .................................... $ 13,820 $ 13,688 $ 6,902
Broadcasting .................................. 4,019 4,226 4,227
-------------------------------
Total amortization of intangibles .. $ 17,839 $ 17,914 $ 11,129
===============================
Capital expenditures:
Publishing .................................... $ 24,197 $ 16,987 $ 8,834
Broadcasting .................................. 7,493 6,825 6,516
Corporate ..................................... 741 2,913 992
-------------------------------
Total capital expenditures ......... $ 32,431 $ 26,725 $ 16,342
===============================
Note 13. Other Information
Balance sheet information:
Program rights and other consist of the following:
September 30,
-------------------------
1999 1998 1997
-------------------------
(In Thousands)
Program rights ...................................... $ 9,650 $ 8,140 $ 7,020
Deferred income taxes ............................... 5,595 5,038 6,392
Other ............................................... 4,577 3,714 4,279
-------------------------
$19,822 $16,892 $17,691
=========================
Intangibles consist of the following:
September 30,
----------------------------
1999 1998 1997
----------------------------
(In Thousands)
Goodwill ................................................ $345,937 $332,821 $325,758
Less accumulated amortization ........................... 71,503 63,584 55,303
----------------------------
274,434 269,237 270,455
----------------------------
Noncompete covenants and consulting
agreements ........................................... 28,023 28,213 26,314
Less accumulated amortization ........................... 25,497 23,522 21,201
----------------------------
2,526 4,691 5,113
----------------------------
Customer lists, broadcasting licenses and
agreements, and newspaper subscriber lists ........... 159,805 157,011 154,444
Less accumulated amortization ........................... 40,373 32,828 25,531
----------------------------
119,432 124,183 128,913
----------------------------
$396,392 $398,111 $404,481
============================
Compensation and other accruals consist of the following:
September 30,
-------------------------
1999 1998 1997
-------------------------
(In Thousands)
Compensation ............................ $11,214 $12,092 $12,029
Vacation pay ............................ 5,402 4,384 4,080
Retirement and stock purchase plans ..... 5,324 5,005 4,708
Interest ................................ 9 519 1,639
Other ................................... 4,602 4,966 4,868
-------------------------
$26,551 $26,966 $27,324
=========================
Cash flows information:
Year Ended September 30,
----------------------------
1999 1998 1997
----------------------------
(In Thousands)
Cash payments for:
Interest, net of capitalized interest
1999 $703; 1998 $169 ................... $13,373 $ 15,731 $ 8,111
============================
Income taxes .............................. $39,528 $ 33,747 $40,767
============================
Program rights were acquired by issuing
long-term contracts as follows ............ $12,417 $ 9,017 $ 7,300
============================
Issuance of restricted common stock, net ..... $ 1,006 $ 682 $ 244
============================
Accounts payable for stock acquired .......... $ 317 $(10,926) $10,926
============================
Proceeds from sale of businesses,
net of selling costs ...................... $ 492 $ - - $55,914
Less cash retained ........................ - - - - (1,119)
----------------------------
Proceeds from sale of businesses $ 492 $ - - $54,795
============================
Note received in connection with sale of
businesses ................................ $ 525 $ - - $ - -
============================
Note 14. Subsequent Event
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. In
addition in November 1999 the Company received $1,700,000 in cancellation of its
local marketing agreement for KASY-TV in Albuquerque, New Mexico. The gain, net
of closing costs, will be approximately $19,500,000.
SUPPLEMENTARY DATA
QUARTERLY RESULTS (UNAUDITED)
4th 3rd 2nd 1st
-----------------------------------------
(In Thousands Except Per Share Data)
1999 Quarter:
Operating revenue ...................... $134,823 $135,787 $123,596 $142,127
=========================================
Net income .................. $ 16,922 $ 19,444 $ 11,968 $ 19,639
=========================================
Earnings per share:
Basic ............................... $ .38 $ .44 $ .27 $ .44
=========================================
Diluted ............................. $ .38 $ .43 $ .27 $ .44
=========================================
1998 Quarter:
Operating revenue ...................... $129,596 $135,093 $121,345 $131,259
=========================================
Net income .................. $ 14,947 $ 18,091 $ 12,611 $ 16,584
=========================================
Earnings per share:
Basic ............................... $ .34 $ .41 $ .28 $ .37
=========================================
Diluted ............................. $ .33 $ .40 $ .28 $ .36
=========================================
1997 Quarter:
Operating revenue ...................... $112,538 $112,693 $101,787 $119,668
=========================================
Income from continuing operations ...... $ 14,638 $ 17,759 $ 11,240 $ 19,108
Income from discontinued
operations .......................... - - 485 1,000 - -
-----------------------------------------
Net income .................. $ 14,638 $ 18,244 $ 12,240 $ 19,108
=========================================
Earnings per share:
Basic:
Income from continuing operations . $ .32 $ .38 $ .24 $ .41
Income from discontinued operations - - .01 .02 - -
-----------------------------------------
Net income .................. $ .32 $ .39 $ .26 $ .41
=========================================
Diluted:
Income from continuing operations . $ .31 $ .38 $ .24 $ .40
Income from discontinued operations - - .01 .02 - -
-----------------------------------------
Net income .................. $ .31 $ .39 $ .26 $ .40
=========================================
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
The information called for by Part III of this Form 10-K is omitted in
accordance with General Instruction G because the Company will file with the
Commission a definitive proxy statement pursuant to Regulation 14A not later
than 120 days after the close of the Company's fiscal year ended September 30,
1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Page Number
-----------
(a) 1. Financial Statements
Independent Auditor's Report
Financial Statements
Consolidated balance sheets as of
September 30, 1999, 1998, and 1997
Consolidated statements of income years ended
September 30, 1999, 1998, and 1997
Consolidated statements of stockholders' equity
years ended September 30, 1999, 1998, and 1997
Consolidated statements of cash flows years ended
September 30, 1999, 1998, and 1997
Notes to consolidated financial statements
(a) 2. Financial statements schedule
Schedule
II - Valuation and qualifying accounts years ended
September 30, 1999, 1998, and 1997
All other schedules have been omitted as not required, not
applicable, not deemed material or because the information is
included in the Notes to Financial Statements.
(a) Exhibits (listed by numbers corresponding to the 3. Exhibit Table of Item
601 in Regulation S-K).
21 Subsidiaries
23 Consent of McGladrey & Pullen, LLP
24 Power of Attorney
27 Financial Data Schedule
(b) The following reports on Form 8-K were filed for the three months
ended September 30, 1999.
None
* * * * *
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1991) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking
shall be incorporated by reference into registrant's Registration
Statements on Form S-8 Nos. 2-56652 (filed June 17, 1976), 2-58393
(filed March 11, 1977), 2-77121 (filed April 22, 1982), 33-19725 (filed
January 20, 1988), 33-46708 (filed March 31, 1992), and 333-6435 and
333-6433 (filed June 20, 1996).
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person
of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
Lee Enterprises, Incorporated
and Subsidiaries
Davenport, Iowa
We have audited the accompanying consolidated balance sheets of Lee Enterprises,
Incorporated and subsidiaries as of September 30, 1999, 1998, and 1997 and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lee Enterprises,
Incorporated and subsidiaries as of September 30, 1999, 1998, and 1997 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
In our opinion, Schedule II included in this Annual Report on Form 10-K for the
year ended September 30, 1999, present fairly the information set forth therein,
in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
November 5, 1999
LEE ENTERPRISES, INCORPORATED
AND WHOLLY-OWNED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column A Column B Column C Column D Column E
(1)
Balance at Additions Charged Deduction Balance
Beginning Charged to Other from at Close
Description of Period to Income Accounts Reserves of Period
- -------------------------------------------------------------------------------------
Allowance for doubtful
accounts:
For the year ended
September 30, 1999 .... $4,110 $3,776 $ - - $3,426 $4,460
For the year ended
September 30, 1998 .... 4,600 3,486 - - 3,976 4,110
For the year ended
September 30, 1997 .... 4,000 2,934 428 (2) 2,762 4,600
(1) Represents accounts written off as uncollectible, net of recoveries which
are immaterial.
(2) Balance upon acquisition of 100% of The Pacific Northwest Group.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: December 29, 1999 LEE ENTERPRISES, INCORPORATED
--------------------------
/s/ Richard D. Gottlieb /s/ Larry L. Bloom
- --------------------------------------- --------------------------------------
Richard D. Gottlieb, Larry L. Bloom,
President, Chief Executive Officer, and Senior Vice-President of Finance,
Director Treasurer and Chief Financial
Officer
/s/ G.C. Wahlig
--------------------------------------
G. C. Wahlig,
Vice President of Finance and Chief
Accounting Officer
We, the undersigned directors of Lee Enterprises, Incorporated, hereby severally
constitute Richard D. Gottlieb and Larry L. Bloom, and each of them, our true
and lawful attorneys with full power to them, and each of them, to sign for us
and in our names, in the capacities indicated below, the Annual Report on Form
10-K of Lee Enterprises, Incorporated for the fiscal year ended September 30,
1999 to be filed herewith and any amendments to said Annual Report, and
generally do all such things in our name and behalf in our capacities as
directors to enable Lee Enterprises, Incorporated to comply with the provisions
of the Securities Exchange Act of 1934 as amended, and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or either of them, to
said Annual Report on Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
Signature Date
/s/ Rance E. Crain
- ---------------------------------------
Rance E. Crain, Director November 16, 1999
/s/ J. P. Guerin
- ---------------------------------------
J. P. Guerin, Director November 16, 1999
/s/ Mary E. Junck
- ---------------------------------------
Mary E. Junck, Director November 16, 1999
/s/ William E. Mayer
- ---------------------------------------
William E. Mayer, Director November 16, 1999
/s/ Andrew E. Newman
- ---------------------------------------
Andrew E. Newman, Director November 16, 1999
/s/ Gordon Prichett
- ---------------------------------------
Gordon Prichett , Director November 16, 1999
/s/ Charles E. Rickershauser, Jr.
- ---------------------------------------
Charles E. Rickershauser, Jr., Director November 16, 1999
/s/ Ronald L. Rickman
- ---------------------------------------
Ronald L. Rickman, Director November 16, 1999
/s/ Lloyd G. Schermer
- ----------------------------------------
Lloyd G. Schermer, Chairman of the Board
and Director November 16, 1999
/s/ Phyllis Sewell
- ----------------------------------------
Phyllis Sewell, Director November 16, 1999
/s/ Mark Vittert
- ----------------------------------------
Mark Vittert, Director November 16, 1999