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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6227
Lee Enterprises, Incorporated
(Exact name of Registrant as specified in its Charter)
Delaware 42-0823980
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
215 N. Main Street, Davenport, Iowa 52801
(Address of principal executive offices)
(563) 383-2100
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant(1) has filed all reports required
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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [x] No [ ]
As of June 30, 2003, 35,270,008 shares of Common Stock and 9,313,656 shares of
Class B Common Stock of the Registrant were outstanding.
LEE ENTERPRISES, INCORPORATED
TABLE OF CONTENTS PAGE
- ------------------------------------------------------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income - 1
Three months and nine months ended June 30, 2003
and 2002
Consolidated Balance Sheets - 2
June 30, 2003 and September 30, 2002
Consolidated Statements of Cash Flows - 3
Nine months ended June 30, 2003 and 2002
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 15
Market Risk
Item 4. Controls and Procedures 16
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 17
EXHIBITS 31 Rule 13a-14(a)/15d-14(a) Certifications
32 Section 1350 Certifications
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30 June 30
- ----------------------------------------------------------------------------------------------------------------------------------
(Thousands, except per common share data) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------------
Operating revenue:
Advertising $ 115,099 $ 110,208 $ 336,983 $ 243,217
Circulation 33,052 31,567 99,777 72,019
Other 20,098 17,771 57,369 48,178
- ----------------------------------------------------------------------------------------------------------------------------------
168,249 159,546 494,129 363,414
- ----------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Compensation 67,884 63,280 203,790 144,362
Newsprint and ink 15,124 13,258 42,890 31,188
Depreciation 4,483 6,367 13,703 13,867
Amortization of intangible assets 6,964 5,830 20,828 9,506
Other 37,680 37,216 113,286 86,822
- ----------------------------------------------------------------------------------------------------------------------------------
132,135 125,951 394,497 285,745
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income, before equity in net
income of associated companies 36,114 33,595 99,632 77,669
Equity in net income of associated companies 1,962 2,867 5,733 6,796
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income 38,076 36,462 105,365 84,465
- ----------------------------------------------------------------------------------------------------------------------------------
Nonoperating income (expense), net:
Financial income 373 470 916 5,705
Financial expense (4,072) (5,117) (13,032) (10,999)
Other, net (408) 9 (795) (299)
- ----------------------------------------------------------------------------------------------------------------------------------
(4,107) (4,638) (12,911) (5,593)
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 33,969 31,824 92,454 78,872
Income tax expense 12,511 1,637 33,894 18,404
- ----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 21,458 30,187 58,560 60,468
- ----------------------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Gain (loss) from discontinued operations, net
of income tax effect - 33 (1) (197)
Gain (loss) on disposition, net of income tax effect - 1,300 (19) 1,390
- ----------------------------------------------------------------------------------------------------------------------------------
- 1,333 (20) 1,193
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 21,458 $ 31,520 $ 58,540 $ 61,661
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings per common share:
Basic:
Continuing operations $ 0.48 $ 0.68 $ 1.32 $ 1.37
Discontinued operations - 0.03 - 0.03
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 0.48 $ 0.71 $ 1.32 $ 1.40
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted:
Continuing operations $ 0.48 $ 0.68 $ 1.32 $ 1.36
Discontinued operations - 0.03 - 0.03
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 0.48 $ 0.71 $ 1.32 $ 1.39
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends per common share $ 0.17 $ 0.17 $ 0.51 $ 0.51
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the Consolidated Financial Statements.
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
June 30 September 30
(Thousands, except per share data) 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 20,960 $ 14,381
Accounts receivable, net 59,663 57,313
Receivable from associated companies - 1,500
Inventories 8,828 10,166
Other 12,342 10,798
Assets of discontinued operations - 7,723
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets 101,793 101,881
- ----------------------------------------------------------------------------------------------------------------------------------
Investments 28,466 28,776
Property and equipment, net 197,919 204,297
Goodwill 611,486 611,938
Other intangible assets 492,814 513,109
Other 3,551 3,829
- ----------------------------------------------------------------------------------------------------------------------------------
$ 1,436,029 $ 1,463,830
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt $ 36,600 $ 14,600
Accounts payable 17,679 21,015
Compensation and other accrued liabilities 31,966 32,591
Income taxes payable 13,913 5,103
Dividends payable 7,574 7,533
Unearned revenue 28,575 27,750
Liabilities of discontinued operations - 157
- ----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 136,307 108,749
- ----------------------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current maturities 294,600 394,700
Deferred items 216,429 216,612
Other 895 995
Stockholders' equity:
Serial convertible preferred stock, no par value; - -
authorized 500 shares: none issued
Common Stock, $2 par value; authorized 60,000 70,540 69,242
shares; issued and outstanding:
June 30, 2003 35,270 shares;
September 30, 2002 34,621 shares
Class B Common Stock, $2 par value; authorized 18,628 19,380
30,000 shares; issued and outstanding:
June 30, 2003 9,314 shares;
September 30, 2002 9,690 shares
Additional paid-in capital 76,774 67,084
Unearned compensation (2,899) (1,845)
Retained earnings 624,755 588,913
- ----------------------------------------------------------------------------------------------------------------------------------
787,798 742,774
- ----------------------------------------------------------------------------------------------------------------------------------
$ 1,436,029 $ 1,463,830
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the Consolidated Financial Statements.
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
June 30
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands) 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities:
Net income $ 58,540 $ 61,661
Gain (loss) from discontinued operations (20) 1,193
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 58,560 60,468
Adjustments to reconcile income from continuing operations to net
cash provided by operating activities of continuing operations:
Depreciation and amortization 34,531 23,373
Stock compensation expense 3,447 2,875
Distributions in excess of (less than) current earnings of associated
companies (108) 3,330
Other, net 5,766 (5,236)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 102,196 84,810
- ----------------------------------------------------------------------- -------------- ------------------ -------------------
- ----------------------------------------------------------------------- -------------- ------------------ -------------------
Cash provided by (required for) investing activities:
Proceeds from sales of temporary cash investments, net - 211,221
Purchases of property and equipment (8,450) (7,775)
Acquisitions, net (482) (697,233)
Proceeds from sales of assets 4,435 7,075
Other (75) 232
- -----------------------------------------------------------------------------------------------------------------------------
Net cash required for investing activities (4,572) (486,480)
- ----------------------------------------------------------------------- -------------- ------------------ -------------------
Cash provided by (required for) financing activities:
Payments on notes payable (3,000) -
Proceeds from long-term debt 26,000 264,000
Payments on long-term debt (101,100) (11,600)
Common stock transactions (272) (322)
Dividends paid (22,635) (15,014)
Other 5,362 3,409
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (required for) financing activities (95,645) 240,473
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (required for) discontinued operations 4,600 (43,162)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 6,579 (204,359)
Cash and cash equivalents:
Beginning of period 14,381 272,169
- -----------------------------------------------------------------------------------------------------------------------------
End of period $ 20,960 $ 67,810
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the Consolidated Financial Statements.
LEE ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 Basis of Presentation
The Consolidated Financial Statements included herein are unaudited. In the
opinion of management, these financial statements contain all adjustments
(consisting of only normal recurring items) necessary to present fairly the
financial position of Lee Enterprises, Incorporated and subsidiaries (the
Company) as of June 30, 2003 and its results of operations and cash flows
for the periods presented. These Consolidated Financial Statements should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto included in the Company's 2002 Annual Report on Form 10-K.
Because of seasonal and other factors, the results of operations for the
three months and nine months ended June 30, 2003 are not necessarily
indicative of the results to be expected for the full year.
Effective October 1, 2002, the Company adopted the fair value provisions of
FASB Statement 123, Accounting for Stock-Based Compensation, as amended by
FASB Statement 148, Accounting for Stock-Based Compensation - Transition
and Disclosure, and all prior periods have been restated. See Note 5.
Certain amounts as previously reported have been reclassified to conform
with the current period presentation.
2 Acquisitions
In April 2002, the Company acquired the stock of Howard Publications, Inc.
(Howard), a privately owned company comprised of 15 daily newspapers, 50%
of the stock of Sioux City Newspapers, Inc. (SCN), and related specialty
publications. The transaction was valued at approximately $696,800,000
after taking into account $50,000,000 of cash on the Howard balance sheet
to be retained by the Company and other adjustments. Certain non-publishing
businesses of Howard were not included in the transaction.
The Company paid the purchase price and expenses related to the transaction
from $433,000,000 of available funds, including proceeds from the sale of
its broadcast properties, and revolving loans under the terms of a five
year, $350,000,000 credit agreement.
In July 2002, the Company acquired the remaining 50% interest in SCN from a
privately owned company. The transaction was valued at $57,000,000 and was
funded in part with approximately $42,000,000 in cash and temporary cash
investments. The remainder of the purchase price was funded by the
Company's credit agreement. $3,000,000 of the purchase price was paid in
November 2002. The Company's Flathead group of weekly newspapers in Montana
was transferred as partial consideration for the purchase.
The pro forma consolidated statement of income information for the nine
months ended June 30, 2002, set forth below, presents the results of
operations as if the acquisitions of Howard and SCN had occurred at the
beginning of the period and is not necessarily indicative of future results
or actual results that would have been achieved had the acquisitions
occurred as of the beginning of the period.
--------------------------------------------------------------------------
Nine Months
Ended
June 30
(Thousands, except per common share data) 2002
--------------------------------------------------------------------------
Operating revenue $ 479,563
Income from continuing operations 65,081
Earnings per common share:
Basic $ 1.48
Diluted 1.47
--------------------------------------------------------------------------
3 Investment in Associated Companies
The Company has a 50% ownership interest in Madison Newspapers, Inc. (MNI),
a company that publishes daily and Sunday newspapers and other publications
in Madison, Wisconsin, and other Wisconsin locations and also holds
interests in internet service ventures.
Summarized financial information of MNI is as follows:
-----------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30 June 30
-----------------------------------------------------------------------------------------------------------------------
(Thousands) 2003 2002 2003 2002
-----------------------------------------------------------------------------------------------------------------------
Operating revenue $ 28,794 $ 27,980 $ 84,592 $ 78,850
Operating expenses, excluding depreciation
and amortization 20,813 19,214 61,336 55,257
Depreciation and amortization 1,473 1,407 4,243 3,382
Operating income 6,508 7,359 19,013 20,211
Net income 3,924 4,395 11,466 12,254
-----------------------------------------------------------------------------------------------------------------------
Debt of MNI totaled $32,344,000 at June 30, 2003 and September 30, 2002.
4 Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill are as follows:
-----------------------------------------------------------------------------------------------------------------------
Nine Months Ended
(Thousands) June 30, 2003
-----------------------------------------------------------------------------------------------------------------------
Goodwill, beginning of period $ 611,938
Goodwill adjustments related to acquisitions (452)
-----------------------------------------------------------------------------------------------------------------------
Goodwill, end of period $ 611,486
-----------------------------------------------------------------------------------------------------------------------
Identified intangible assets related to continuing operations consist of the following:
-----------------------------------------------------------------------------------------------------------------------
June 30 September 30
(Thousands) 2003 2002
-----------------------------------------------------------------------------------------------------------------------
Unamortizable intangible assets:
Mastheads $ 26,022 $ 26,022
Amortizable intangible assets:
Noncompete covenants and consulting agreements 28,431 28,406
Less accumulated amortization (23,611) (21,967)
-----------------------------------------------------------------------------------------------------------------------
4,820 6,439
-----------------------------------------------------------------------------------------------------------------------
Customer and newspaper subscriber lists 525,732 525,224
Less accumulated amortization (63,760) (44,576)
-----------------------------------------------------------------------------------------------------------------------
461,972 480,648
-----------------------------------------------------------------------------------------------------------------------
$ 492,814 $ 513,109
-----------------------------------------------------------------------------------------------------------------------
Annual amortization of intangible assets related to continuing operations for the five years ending June 2008 is
estimated to be $27,834,000, $25,984,000, $23,374,000, $23,367,000 and $23,062,000 respectively.
5 Stock Ownership Plans
A summary of activity related to the Company's stock option plan is as follows:
----------------------------------------------------------------------------------------------------------------------
Weighted
Average
Exercise Price
(Thousands, except per common share data) Shares
----------------------------------------------------------------------------------------------------------------------
Outstanding at September 30, 2002 1,049 $ 29.04
Granted 301 32.52
Exercised (127) 24.99
Cancelled (8) 30.79
----------------------------------------------------------------------------------------------------------------------
Outstanding at June 30, 2003 1,215 $ 30.31
----------------------------------------------------------------------------------------------------------------------
Options to purchase 1,071,011 shares of common stock with a weighted
average exercise price of $28.95 per share were outstanding at June 30,
2002.
At June 30, 2003, the Company has three stock-based employee compensation
plans. Prior to October 1, 2002, the Company accounted for those plans
under the recognition and measurement provisions of APB Opinion 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, no compensation cost had been recognized for grants under the
stock option or stock purchase plans. Effective October 1, 2002, the
Company adopted the fair value recognition provisions of FASB Statement
123, Accounting for Stock-Based Compensation, for stock-based employee
compensation, as amended by FASB Statement 148, Accounting for Stock-Based
Compensation - Transition and Disclosure. All prior periods presented have
been restated to reflect the compensation cost that would have been
recognized had the recognition provisions of Statements 123 and 148 been
applied to all awards granted to employees after October 1, 1995. The
cumulative effect of the adoption of Statements 123 and 148 decreased
non-current deferred income tax liabilities and increased stockholders'
equity by $1,518,000 at September 30, 2002.
The impact of the adoption of Statements 123 and 148 on both income from
continuing operations and diluted earnings per common share is as follows:
-----------------------------------------------------------------------------------------------------------------------
Three Months Ended
----------------------------------------------------------------------------------------------------- Year Ended
(Thousands, except per December 31 March 31 June 30 September 30 September 30
common share data) 2001 2002 2002 2002 2002
-----------------------------------------------------------------------------------------------------------------------
Income from continuing
operations:
As reported $ 18,037 $ 13,226 $ 30,756 $ 19,010 $ 81,029
Additional stock
compensation expense
(net of income tax
expense) (423) (559) (569) (594) (2,145)
-----------------------------------------------------------------------------------------------------------------------
As adjusted $ 17,614 $ 12,667 $ 30,187 $ 18,416 $ 78,884
-----------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
As reported $ 0.41 $ 0.30 $ 0.69 $ 0.43 $ 1.83
Additional stock
compensation expense (0.01) (0.01) (0.01) (0.01) (0.05)
-----------------------------------------------------------------------------------------------------------------------
As adjusted $ 0.40 $ 0.29 $ 0.68 $ 0.42 $ 1.78
-----------------------------------------------------------------------------------------------------------------------
6 Income Taxes
The provision for income taxes includes deferred taxes and is based upon
estimated annual effective tax rates in the tax jurisdictions in which the
Company operates.
7 Earnings Per Common Share
The following table sets forth the computation of basic and diluted earnings per common share:
-----------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
June 30 June 30
-----------------------------------------------------------------------------------------------------------------------
(Thousands, except per common share data) 2003 2002 2003 2002
-----------------------------------------------------------------------------------------------------------------------
Income applicable to common stock:
Continuing operations $ 21,458 $ 30,187 $ 58,560 $ 60,468
Discontinued operations - 1,333 (20) 1,193
-----------------------------------------------------------------------------------------------------------------------
Net income $ 21,458 $ 31,520 $ 58,540 $ 61,661
-----------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 44,517 44,265 44,437 44,172
Less non-vested restricted stock 166 121 160 118
-----------------------------------------------------------------------------------------------------------------------
Basic average common shares 44,351 44,144 44,277 44,054
Dilutive stock options and restricted stock 223 330 167 295
-----------------------------------------------------------------------------------------------------------------------
Diluted average common shares 44,574 44,474 44,444 44,349
-----------------------------------------------------------------------------------------------------------------------
Earnings per common share:
Basic:
Continuing operations $ 0.48 $ 0.68 $ 1.32 $ 1.37
Discontinued operations - 0.03 - 0.03
-----------------------------------------------------------------------------------------------------------------------
Net income $ 0.48 $ 0.71 $ 1.32 $ 1.40
-----------------------------------------------------------------------------------------------------------------------
Diluted:
Continuing operations $ 0.48 $ 0.68 $ 1.32 $ 1.36
Discontinued operations - 0.03 - 0.03
-----------------------------------------------------------------------------------------------------------------------
Net income $ 0.48 $ 0.71 $ 1.32 $ 1.39
-----------------------------------------------------------------------------------------------------------------------
8 Impact of Recently Issued Accounting Standards
In July 2002, the FASB issued Statement 146, Accounting for Costs
Associated with Exit or Disposal Activities. Statement 146 requires
companies to recognize liabilities and costs associated with exit or
disposal activities initiated after December 2002 when they are incurred,
rather than when management commits to a plan to exit an activity.
Statement 146 will affect only the timing of the recognition of future
restructuring costs and is not expected to have a material effect on the
Company's Consolidated Financial Statements.
On January 17, 2003, the FASB issued Interpretation 46, Consolidation of
Variable Interest Entities - an interpretation of ARB No. 51,
(Interpretation 46). This interpretation provides new consolidation
accounting guidance for entities involved with special purpose entities
(SPE). This guidance will require a primary beneficiary, defined as an
entity which participates in either a majority of the risks or rewards of
such SPE, to consolidate the SPE. An SPE would not be subject to this
interpretation if such entity has sufficient voting equity capital
(presumed to require a minimum of 10%), such that the entity is able to
finance its activities without additional subordinated financial support
from other parties. Interpretation 46 is not expected to have a material
effect on the Company's Consolidated Financial Statements.
In May 2003, the FASB issued Statement 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
Statement 150 establishes standards for how companies classify and measure
certain financial instruments with characteristics of both liabilities and
equity. The statement requires companies to classify a financial instrument
that is within its scope as a liability (or an asset in some
circumstances). Statement 150 is effective for the Company for the three
months ending September 30, 2003 and is not expected to have a material
impact on the Company's Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion includes comments and analysis relating to the
Company's results of operations and financial condition as of and for the three
months and nine months ended June 30, 2003. This discussion should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto
and the 2002 Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "Safe Harbor"
for forward-looking statements. This report contains information that may be
deemed forward-looking and that is based largely on the Company's current
expectations and is subject to certain risks, trends and uncertainties that
could cause actual results to differ materially from those anticipated. Among
such risks, trends and other uncertainties are changes in advertising demand,
newsprint prices, interest rates, labor costs, legislative and regulatory
rulings and other results of operations or financial conditions, difficulties in
integration of acquired businesses or maintaining employee and customer
relationships and increased capital and other costs. The words "may," "will,"
"would," "could," "believes," "expects," "anticipates," "intends," "plans,"
"projects," "considers" and similar expressions generally identify
forward-looking statements. Readers are cautioned not to place undue reliance on
such forward-looking statements, which are made as of the date of this report.
The Company does not undertake to publicly update or revise its forward-looking
statements.
NON-GAAP FINANCIAL MEASURES
Operating Cash Flow
Operating cash flow, which is defined as operating income before depreciation,
amortization, and equity in net income of associated companies, and operating
cash flow margin (operating cash flow divided by operating revenue) represent
non-GAAP financial measures that are used in the analyses below. A
reconciliation of operating cash flow to operating income, the most directly
comparable measure under accounting principles generally accepted in the United
States of America (GAAP), is included in tables under the captions Operating
Expenses and Results of Operations. The Company believes that operating cash
flow and the related margin percentage are useful measures of evaluating its
financial performance because of their focus on the Company's results from
operations before depreciation and amortization. The Company also believes that
these measures are several of the alternative financial measures of performance
used by investors, rating agencies and financial analysts to estimate the value
of a company and evaluate its ability to meet debt service requirements.
Same Property Comparisons
Certain information below, as noted, is presented on a same property basis,
which is exclusive of acquisitions and divestitures consummated in the current
or prior year. The Company believes such comparisons provide meaningful
information for an understanding of changes in its revenue and operating
expenses. Same property comparisons also exclude Madison Newspapers, Inc. (MNI),
in order to comply with newly issued SEC regulations related to disclosure of
non-GAAP financial measures. Lee owns 50% of the capital stock of MNI, which for
financial reporting purposes is reported using the equity method of accounting.
Same property comparisons similarly exclude corporate office costs.
CONTINUING OPERATIONS - THREE MONTHS ENDED JUNE 30, 2003
Operating results, as reported in the Consolidated Financial Statements, are summarized below:
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
June 30
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands, except per common share data) 2003 2002 Percent Change
- -----------------------------------------------------------------------------------------------------------------------------
Operating revenue $ 168,249 $ 159,546 5.5%
Operating cash flow 47,561 45,792 3.9
Operating income 38,076 36,462 4.4
Nonoperating expense, net (4,107) (4,638) (11.4)
Income from continuing operations 21,458 30,187 (28.9)
Earnings per common share:
Basic $ 0.48 $ 0.68 (29.4)%
Diluted 0.48 0.68 (29.4)
- -----------------------------------------------------------------------------------------------------------------------------
Operating Revenue
Revenue, as reported in the Consolidated Financial Statements, consists of the following:
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended Percent Change
June 30
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands) 2003 2002 Total Same Property
- -----------------------------------------------------------------------------------------------------------------------------
Advertising revenue:
Retail $ 68,881 $ 65,244 5.6% 1.1%
National 3,963 3,770 5.1 (1.3)
Classified:
Employment 9,778 9,392 4.1 (10.7)
Automotive 10,538 9,120 15.5 0.5
Real estate 8,195 6,442 27.2 7.2
All other 13,744 16,240 (15.4) (7.4)
- -----------------------------------------------------------------------------------------------------------------------------
Total classified 42,255 41,194 2.6 (2.9)
- -----------------------------------------------------------------------------------------------------------------------------
Total advertising 115,099 110,208 4.4 (0.5)
- -----------------------------------------------------------------------------------------------------------------------------
Circulation 33,052 31,567 4.7 (0.8)
Other:
Commercial printing 5,691 5,808 (2.0) (1.2)
Online 3,106 1,994 55.8 28.7
Niche publications and other 11,301 9,969 13.4 12.1
- -----------------------------------------------------------------------------------------------------------------------------
Total operating revenue $ 168,249 $ 159,546 5.5% 1.0%
- -----------------------------------------------------------------------------------------------------------------------------
Revenue in the current year quarter was impacted by the acquisition of the
remaining 50% of Sioux City Newspapers (SCN) in July 2002. In the prior year
quarter, SCN was accounted for using the equity method. In total, acquisitions
accounted for $62,292,000 of revenue in the current year quarter and $54,193,000
in the prior year quarter. SCN added $5,718,000 of revenue in the current year
quarter. Businesses sold in the year ended September 2002, but still included in
continuing operations, did not impact the current year quarter but accounted for
$450,000 of revenue in the prior year quarter. See Note 2 to the Consolidated
Financial Statements included herein.
Sundays generate substantially more advertising and circulation revenue than any
other day of the week. The quarter ended June 30, 2003 had the same number of
Sundays as the same period last year.
For the quarter ended June 30, 2003, total same property revenue increased
$1,052,000, or 1.0%, and total same property advertising revenue decreased
$328,000 or 0.5%. Same property retail revenue increased $437,000 or 1.1%. Same
property average retail rate, excluding preprint insertions, increased 5.1%.
Same property classified advertising revenue decreased approximately 2.9% for
the quarter ended June 30, 2003. Higher margin employment advertising at the
daily newspapers decreased 10.7% on a same property basis for the quarter, but
was offset by a significant same property revenue increase in real estate of
7.2%. Same property automotive classified advertising increased 0.5%. Same
property average classified rate declined 2.9%.
Advertising lineage, as reported on a same property basis for the Company's
daily newspapers, consists of the following:
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
June 30
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands of Inches) 2003 2002 Percent Change
- -----------------------------------------------------------------------------------------------------------------------------
Retail 1,481 1,523 (2.8)%
National 78 90 (13.3)
Classified 1,522 1,512 0.7
- -----------------------------------------------------------------------------------------------------------------------------
3,081 3,125 (1.4)%
- -----------------------------------------------------------------------------------------------------------------------------
Same property circulation revenue decreased $152,000 or 0.8%, in the current
year quarter. The Company's unaudited same property average daily newspaper
circulation units decreased 0.4% and Sunday circulation declined 1.0% for the
three months ended June 2003, compared to the same period in the prior year.
Unaudited circulation of acquired businesses increased 0.6% daily and 1.3%
Sunday, including SCN in both periods. Total circulation, including MNI, was
flat both daily and Sunday. The Company remains focused on growing circulation
units and revenue through a number of initiatives. Same property commercial
printing revenue declined $62,000 or 1.2%. Same property online revenue
increased $541,000 or 28.7%, due to growth in advertising revenue and
cross-selling with the Company's newspapers. Niche publication and other revenue
increased 12.1% on a same property basis.
Operating Expenses and Results of Operations
The following table sets forth the Company's operating expenses and results of
operations, as reported in the Consolidated Financial Statements:
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
June 30
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands) 2003 2002 Percent Change
- -----------------------------------------------------------------------------------------------------------------------------
Compensation $ 67,884 $ 63,280 7.3%
Newsprint and ink 15,124 13,258 14.1
Other operating expenses 37,680 37,216 1.2
- -----------------------------------------------------------------------------------------------------------------------------
120,688 113,754 6.1
- -----------------------------------------------------------------------------------------------------------------------------
Operating cash flow 47,561 45,792 3.9
Depreciation and amortization 11,447 12,197 (6.1)
- -----------------------------------------------------------------------------------------------------------------------------
Operating income, before equity in net income
of associated companies 36,114 33,595 7.5
Equity in net income of associated companies 1,962 2,867 (31.6)
- -----------------------------------------------------------------------------------------------------------------------------
Operating income $ 38,076 $ 36,462 4.4%
- -----------------------------------------------------------------------------------------------------------------------------
Costs other than depreciation and amortization increased $6,934,000 or 6.1%.
Expenses in the current year quarter were impacted by the acquisition of the
remaining 50% of SCN in July 2002. In the prior year quarter, SCN was accounted
for using the equity method. In total, acquisitions accounted for $43,839,000 of
operating costs, excluding depreciation and amortization, in the current year
quarter and $38,231,000 in the prior year quarter. SCN added $3,391,000 of such
costs in the current year quarter. Businesses sold did not impact operating
expenses in the current year quarter, but accounted for $265,000 of operating
expenses other than depreciation and amortization in the prior year quarter. On
a same property basis, such costs increased 3.5%.
Compensation expense increased $4,604,000 or 7.3%, in the current year quarter
due to costs of acquired businesses and a 4.3% increase in same property
compensation expense. Higher medical expenses, normal salary adjustments, higher
incentive compensation from increasing revenue, and one-time and permanent cost
reductions in benefit programs in the prior year quarter contributed to the
increase in same property costs. Same property full time equivalent employees
decreased 0.8% year over year. Exclusive of the prior year changes in benefit
programs, same property compensation expense increased 1.5% in the current year
quarter. Newsprint and ink costs increased $1,866,000 or 14.1%, in the current
year quarter due to newsprint price increases combined with an increase in
usage. Same property newsprint and ink expense increased by 5.7% in the quarter
and volume declined 0.9%. Other operating costs, exclusive of depreciation and
amortization, increased $464,000 or 1.2%, in the current year quarter. On a same
property basis, other operating costs increased 1.3%. The increase in
amortization expense is primarily due to the acquisition of SCN. At June 30,
2002, the Company had not yet completed the determination of fair value and
estimated useful lives of the assets and liabilities of Howard and the related
allocation of the purchase price. Such determinations, which were made during
the three months ended September 30, 2002, are the primary reason for the
reduction in depreciation expense during the three months ended June 30, 2003.
Operating cash flow improved 3.9% to $47,561,000 in the current year quarter
from $45,792,000 in the prior year. Operating cash flow margin declined to 28.3%
from 28.7% in the prior year due to higher newsprint prices, coupled with lower
margins of acquired businesses and other cost increases as noted above. Equity
in net income of associated companies declined during the three months ended
June 30, 2003 due primarily to the inclusion of SCN in consolidated results in
the current year. Operating income increased 4.4% to $38,076,000. Operating
income margin decreased to 22.6% from 22.9% for the same reasons cited for the
change in operating cash flow margin, but was further impacted by a higher level
of amortization expense from the acquisition of SCN offset by lower
depreciation.
Nonoperating Income and Expense
Financial income decreased $97,000 to $373,000. The decrease is due to lower
yields on invested balances and lower balances due to the acquisition of SCN.
Financial expense decreased due to lower interest rates and debt reduction from
operating cash flow.
Overall Results
The effective income tax rates were 36.8% and 5.1% for the quarters ended June
30, 2003 and 2002, respectively. The prior year tax rate was lower primarily due
to tax-exempt interest income and the favorable resolution of tax issues that
reduced tax expense by $10,000,000. Had the tax issue resolution not occurred in
2002, the effective tax rate would have been 36.6%.
As a result of all of the above, earnings per diluted common share from
continuing operations decreased 29.4% to $0.48 per share from $0.68 per share in
the prior year quarter. The adoption of FASB Statements 123 and 148 reduced the
prior year's quarterly results by $0.01 per share. The favorable resolution of
tax issues increased the prior year's results by $0.22 per share.
CONTINUING OPERATIONS - NINE MONTHS ENDED JUNE 30, 2003
Operating results, as reported in the Consolidated Financial Statements, are
summarized below:
- -----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
June 30
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands, except per common share data) 2003 2002 Percent Change
- -----------------------------------------------------------------------------------------------------------------------------
Operating revenue $ 494,129 $ 363,414 36.0%
Operating cash flow 134,163 101,042 32.8
Operating income 105,365 84,465 24.7
Nonoperating expense, net (12,911) (5,593) 130.8
Income from continuing operations 58,560 60,468 (3.2)
Earnings per common share:
Basic $ 1.32 $ 1.37 (3.6)%
Diluted 1.32 1.36 (2.9)
- -----------------------------------------------------------------------------------------------------------------------------
Operating Revenue
Revenue, as reported in the Consolidated Financial Statements, consists of the
following:
- -----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Percent Change
June 30
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands) 2003 2002 Total Same Property
- -----------------------------------------------------------------------------------------------------------------------------
Advertising revenue:
Retail $ 205,493 $ 147,869 39.0% 2.4%
National 11,795 8,925 32.2 (3.3)
Classified:
Employment 27,775 19,579 41.9 (5.6)
Automotive 30,186 19,289 56.5 1.0
Real estate 22,850 13,947 63.8 8.4
All other 38,884 33,608 15.7 (0.4)
- -----------------------------------------------------------------------------------------------------------------------------
Total classified 119,695 86,423 38.5 0.2
- -----------------------------------------------------------------------------------------------------------------------------
Total advertising 336,983 243,217 38.6 1.4
- -----------------------------------------------------------------------------------------------------------------------------
Circulation 99,777 72,019 38.5 (0.4)
Other:
Commercial printing 16,548 16,811 (1.6) (5.3)
Online 8,285 5,040 64.4 34.1
Niche publications and other 32,536 26,327 23.6 5.5
- -----------------------------------------------------------------------------------------------------------------------------
Total operating revenue $ 494,129 $ 363,414 36.0% 2.1%
- -----------------------------------------------------------------------------------------------------------------------------
All categories of revenue were substantially impacted by the acquisition of
Howard, which the Company purchased in April 2002. Revenue in the current year
nine month period was also impacted by the acquisition of the remaining 50% of
SCN in July 2002. In the prior year nine month period, SCN was accounted for
using the equity method. In total, acquisitions accounted for $181,977,000 of
revenue in the nine months ended June 30, 2003 and $54,193,000 in the prior
year. Businesses sold in the year ended September 2002, but still included in
continuing operations, did not impact the nine months ended June 30, 2003 but
accounted for $3,598,000 of revenue in the prior year nine month period.
Sundays generate substantially more advertising and circulation revenue than any
other day of the week. The nine months ended June 30, 2003 had the same number
of Sundays as the same period last year.
For the nine months ended June 30, 2003, total same property revenue increased
$6,527,000 or 2.1%, and total same property advertising revenue increased
$2,779,000 or 1.4%. Same property retail revenue increased $2,906,000 or 2.4%.
Same property average retail rate, excluding preprint insertions, increased
3.6%.
Same property classified advertising revenue increased approximately 0.2% for
the nine months ended June 30, 2003. Higher margin employment advertising at the
daily newspapers decreased 5.6% for the nine month period, but was more than
offset by a significant revenue increase in same property real estate of 8.4%.
Same property average automotive advertising increased 1.0%. Same property
average classified rates decreased 0.8%.
Advertising lineage, as reported on a same property basis for the Company's
daily newspapers, consists of the following:
- -----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
June 30
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands of Inches) 2003 2002 Percent Change
- -----------------------------------------------------------------------------------------------------------------------------
Retail 4,538 4,568 (0.7)%
National 223 262 (14.9)
Classified 4,234 4,197 0.9
- -----------------------------------------------------------------------------------------------------------------------------
8,995 9,027 (0.4)%
- -----------------------------------------------------------------------------------------------------------------------------
Same property circulation revenue decreased $213,000 or 0.4%, in the current
year nine month period. The Company's same property unaudited average daily
newspaper circulation units increased 0.4% and Sunday circulation declined 0.5%
for the nine months ended June 2003, compared to the same period in the prior
year. The Company remains focused on growing circulation units and revenue
through a number of initiatives.
Same property commercial printing revenue declined $869,000 or 5.3%. Same
property online revenue increased $1,673,000 or 34.1%, due to growth in
advertising revenue and cross-selling with the Company's newspapers. Niche
publication and other revenue increased 12.6% on a same property basis.
Operating Expenses and Results of Operations
The following table sets forth the Company's operating expenses and results of
operations, as reported in the Consolidated Financial Statements:
- -----------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
June 30
- -----------------------------------------------------------------------------------------------------------------------------
(Thousands) 2003 2002 Percent Change
- -----------------------------------------------------------------------------------------------------------------------------
Compensation $ 203,790 $ 144,362 41.2%
Newsprint and ink 42,890 31,188 37.5
Other operating expenses 113,286 86,822 30.5
- -----------------------------------------------------------------------------------------------------------------------------
359,966 262,372 37.2
- -----------------------------------------------------------------------------------------------------------------------------
Operating cash flow 134,163 101,042 32.8
Depreciation and amortization 34,531 23,373 47.7
- -----------------------------------------------------------------------------------------------------------------------------
Operating income, before equity in net income
of associated companies 99,632 77,669 28.3
Equity in net income of associated companies 5,733 6,796 (15.6)
- -----------------------------------------------------------------------------------------------------------------------------
Operating income $ 105,365 $ 84,465 24.7%
- -----------------------------------------------------------------------------------------------------------------------------
Costs other than depreciation and amortization increased $97,594,000 or 37.2%.
All categories of expenses were substantially impacted by the acquisition of
Howard, which the Company purchased in April 2002. Expenses in the current year
nine month period were also impacted by the acquisition of the remaining 50% of
SCN in July 2002. In the prior year nine month period, SCN was accounted for
using the equity method. In total, acquisitions accounted for $130,018,000 of
operating costs, excluding depreciation and amortization, in the current year
nine month period and $38,231,000 in the prior year. Businesses sold did not
impact operating expenses in the current year nine month period, but accounted
for $3,045,000 of operating expenses other than depreciation and amortization in
the prior year nine month period. On a same property basis, such costs increased
3.1%.
Compensation expense increased $59,428,000 or 41.2%, in the current year nine
month period due to costs of acquired businesses and a 6.1% increase in same
property compensation expense. Higher medical expenses, normal salary
adjustments, higher incentive compensation from increasing revenue, and one-time
and permanent cost reductions in benefit programs in the prior year nine month
period contributed to the increase in same property costs. Same property full
time equivalent employees decreased 0.9% year over year. Exclusive of the prior
year changes in benefit programs, same property compensation expense increased
3.3% in the current year nine month period. Newsprint and ink costs increased
$11,702,000 or 37.5%, in the current year nine month period as volume increases
related to acquired businesses more than offset overall lower prices and same
property declines in volume. Same property newsprint and ink expense decreased
by 5.2% in the nine month period and volume declined 1.5%. Other operating
costs, exclusive of depreciation and amortization, increased $26,464,000 or
30.5%, in the current year nine month period due to the costs of acquired
businesses. On a same property basis, other operating costs increased 1.4%. The
increase in amortization expense is primarily due to the acquisitions of Howard
and SCN. At June 30, 2002, the Company had not yet completed the determination
of fair value and estimated useful lives of the assets and liabilities of Howard
and the related allocation of the purchase price. Such determinations, which
were made during the three months ended September 30, 2002, are the primary
reason for the reduction in depreciation expense during the nine months ended
June 30, 2003.
Operating cash flow improved 32.8% to $134,163,000 in the current year nine
month period from $101,042,000 in the prior year. Operating cash flow margin
declined to 27.2% from 27.8% in the prior year. Lower overall newsprint prices
were offset by lower margins of acquired businesses and other cost increases as
noted above. Equity in net income of associated companies declined during the
nine months ended June 30, 2003 due primarily to the inclusion of SCN in
consolidated results in the current year. Operating income increased 24.7% to
$105,365,000. Operating income margin decreased to 21.3% from 23.2% for the same
reasons cited for the change in operating cash flow margin, but was further
impacted by a higher level of amortization expense and lower depreciation from
acquisitions.
Nonoperating Income and Expense
Financial income decreased $4,789,000 to $916,000. The Company's invested
balances were substantially reduced in April 2002 by the acquisition of Howard.
Financial expense increased due to debt from the acquisitions of Howard and SCN,
offset by lower interest rates and subsequent debt reduction from operating cash
flow.
Overall Results
The effective income tax rates were 36.7% and 23.3% for the nine month period
ended June 30, 2003 and 2002, respectively. The prior year tax rate was lower
primarily due to tax-exempt interest income and the favorable resolution of tax
issues that reduced income tax expense by approximately $10,000,000 in 2002. Had
the tax issue resolution not occurred in 2002 the effective tax rate would have
been 36.0%.
As a result of all of the above, earnings per diluted common share from
continuing operations decreased 2.9% to $1.32 per share from $1.36 per share in
the prior year nine month period. The adoption of FASB Statements 123 and 148
reduced the prior year's results from $1.40 to $1.36 per share. The favorable
resolution of tax issues increased the prior year's results by $0.22 per share.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities of continuing operations was $102,196,000
for the nine months ended June 30, 2003 and $84,810,000 for the same period in
2002. Decreased income from continuing operations, offset by increased
amortization and changes in working capital account for the change between
years.
Cash required for investing activities totaled $4,572,000 for the nine months
ended June 30, 2003, and $486,480,000 in the same period in 2002. Acquisitions
account for substantially all of the prior year usage.
The Company anticipates that funds necessary for capital expenditures, and other
requirements, will be available from internally generated funds, availability
under its existing credit agreement or, if necessary, by accessing the capital
markets.
Cash required for financing activities totaled $95,645,000 during the nine
months ended June 30, 2003, and provided $240,473,000 in the prior year. Debt
repayments totaling $104,100,000 and dividends were the primary uses of funds in
the current year period. Acquisitions were the primary use of funds in the prior
year.
The Company entered into a five year, $350,000,000 credit agreement in March
2002. The primary purposes of the agreement were to fund the acquisitions of
Howard and SCN, and to provide liquidity for other corporate purposes.
$264,000,000 was borrowed under this agreement in the quarter ended June 30,
2002. In July 2002 the Company borrowed $15,000,000 to consummate the
acquisition of SCN.
Cash provided by discontinued operations totaling $4,600,000 in the current year
primarily represents net proceeds from the sale of businesses. Cash required for
discontinued operations totaled $43,162,000 during the nine months ended June
30, 2002, primarily for income tax payments related to the gain on sale of
discontinued operations.
Cash and cash equivalents increased $6,579,000 for the nine months ended June
30, 2003 and decreased $204,359,000 for the same period in 2002.
INFLATION
The Company has not been significantly impacted by inflationary pressures over
the last several years. The Company anticipates that changing costs of
newsprint, its basic raw material, may impact future operating costs. Price
increases (or decreases) for the Company's products are implemented when deemed
appropriate by management. The Company continuously evaluates price increases,
productivity improvements and cost reductions to mitigate the impact of
inflation.
In June 2003, several newsprint manufacturers announced price increases of $50
per metric ton, effective for deliveries in August 2003. The final extent of
changes in current prices, if any, is subject to negotiation between such
manufacturers and the Company. See Item 3.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's Consolidated Financial Statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates, including those related to bad debts, investments, intangible
assets, remaining useful lives of long-lived assets and income taxes. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
See Note 1 to the Consolidated Financial Statements, included in the 2002 Annual
Report on Form 10-K, for a description of the Company's accounting policies used
in the preparation of its Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk stemming from changes in interest rates
and commodity prices. Changes in these factors could cause fluctuations in
earnings and cash flows. In the normal course of business, exposure to certain
of these market risks is managed as described below.
Interest Rates
Interest rate risk in the Company's investment portfolio is managed by investing
only in securities with maturity at date of acquisition of 180 days or less.
Only high-quality investments are considered. In April 2002, the Company
liquidated substantially all of its investment portfolio in conjunction with the
acquisition of Howard.
The Company's debt structure and interest rate risk are managed through the use
of fixed and floating rate debt. The Company's primary exposure is to the London
Interbank Offered Rate (LIBOR). A one percent increase to LIBOR would decrease
income from continuing operations before income taxes on an annualized basis by
approximately $1,810,000 based on floating rate debt outstanding at June 30,
2003, excluding MNI.
Commodities
Certain materials used by the Company are exposed to commodity price changes.
The Company manages this risk through instruments such as purchase orders and
non-cancelable supply contracts. The Company is also involved in continuing
programs to mitigate the impact of cost increases through identification of
sourcing and operating efficiencies. Primary commodity price exposures are
newsprint and, to a lesser extent, ink.
A $10 per metric ton newsprint price increase would result in, excluding MNI, an
annualized reduction in income from continuing operations before income taxes of
approximately $1,098,000, based on anticipated consumption in 2003.
Sensitivity to Changes in Value
The estimate that follows is intended to measure the maximum potential impact on
fair value of fixed rate debt of the Company in one year from adverse changes in
market interest rates under normal market conditions. The calculations are not
intended to represent actual losses in fair value that the Company expects to
incur. The estimates do not consider favorable changes in market rates. The
position included in the calculations is the Company's fixed rate debt, which
totals $150,200,000 at June 30, 2003.
The estimated maximum potential one-year loss in fair value from a 100 basis
point movement in interest rates on market risk sensitive instruments
outstanding at June 30, 2003 is approximately $6,573,000. There is no impact on
operating results from such changes in interest rates.
Item 4. Controls and Procedures
In order to ensure that the information that must be disclosed in filings with
the Securities and Exchange Commission is recorded, processed, summarized and
reported in a timely manner, the Company has disclosure controls and procedures
in place. The Chief Executive Officer, Mary E. Junck, and Chief Financial
Officer, Carl G. Schmidt, have reviewed and evaluated disclosure controls and
procedures as of June 30, 2003, and have concluded that such controls and
procedures are appropriate and that no changes are required.
There have been no significant changes in internal controls, or in other factors
that could affect internal controls, since June 30, 2003.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit 31 Rule 13a-14(a)/15d-14(a) Certifications
Exhibit 32 Section 1350 Certifications
Reports on Form 8-K
The following reports on Form 8-K were filed during the three months ended June
30, 2003.
Date of Report: April 21, 2003
Item 9 and 12. The Company announced earnings for the three months and nine
months ended March 31, 2003 and revenue statistics for the month of March 2003.
Date of Report: May 21, 2003
Item 9 and 12. The Company announced revenue statistics for the month of April
2003.
Date of Report: June 23, 2003
Item 9. The Company announced revenue statistics for the month of May 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEE ENTERPRISES, INCORPORATED
/s/ Carl G. Schmidt DATE: August 14, 2003
- -----------------------------------------------------
Carl G. Schmidt
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Exhibit 31
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Mary E. Junck, certify that:
1. I have reviewed this quarterly report on Form 10-Q (Quarterly Report) of Lee
Enterprises, Incorporated (Registrant);
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the Consolidated Financial Statements, and other
financial information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Registrant as of, and for, the periods presented in this Quarterly
Report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under or
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this Quarterly Report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures and presented in this Quarterly Report our conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this Quarterly Report based on
such evaluation; and
c) disclosed in this Quarterly Report any change in the Registrant's
internal control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the Registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
Registrant's auditors and the Audit Committee of Registrant's Board of Directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to affect the Registrant's ability to record,
process, summarize and report financial data; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
control over financial reporting
Date: August 14, 2003
/s/ Mary E. Junck
-----------------------------------------------
Mary E. Junck
Chairman, President and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Carl G. Schmidt, certify that:
1. I have reviewed this quarterly report on Form 10-Q (Quarterly Report) of Lee
Enterprises, Incorporated (Registrant);
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the Consolidated Financial Statements, and other
financial information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the Registrant as of, and for, the periods presented in this Quarterly
Report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under or
supervision, to ensure that material information relating to the
Registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this Quarterly Report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures and presented in this Quarterly Report our conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this Quarterly Report based on
such evaluation; and
c) disclosed in this Quarterly Report any change in the Registrant's
internal control over financial reporting that occurred during the
Registrant's most recent fiscal quarter (the Registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting;
5. The Registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
Registrant's auditors and the Audit Committee of Registrant's Board of Directors
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to affect the Registrant's ability to record,
process, summarize and report financial data; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
control over financial reporting
Date: August 14, 2003
/s/ Carl G. Schmidt
-----------------------------------------------------
Carl G. Schmidt
Vice President, Chief Financial Officer and Treasurer
Exhibit 32
The following statement is being furnished to the Securities and Exchange
Commission solely for purposes of Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350), which carries with it certain criminal penalties in the event
of a knowing or willful misrepresentation.
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: Lee Enterprises, Incorporated
Ladies and Gentlemen:
In accordance with the requirements of Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350), each of the undersigned hereby certifies that to our
knowledge:
(i) this quarterly report on Form 10-Q for the period ended June 30, 2003
(Quarterly Report), fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
and
(ii) the information contained in this Quarterly Report fairly presents, in all
material respects, the financial condition and results of operations of Lee
Enterprises, Incorporated for the periods presented in the Quarterly
Report.
Dated as of this 14th day of August, 2003
/s/ Mary E. Junck /s/ Carl G. Schmidt
- -------------------------------- ---------------------------------------
Mary E. Junck Carl G. Schmidt
Chairman, President and Vice President, Chief Financial Officer
Chief Executive Officer and Treasurer
A signed original of this written statement required by Section 906 has been
provided to Lee Enterprises, Incorporated and will be retained by Lee
Enterprises, Incorporated and furnished to the Securities and Exchange
Commission upon request.