UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended September 30, 2002
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
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(Exact name of Registrant as specified in its charter)
Delaware 42-0823980
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(State of Incorporation) (I.R.S. Employer Identification No.)
215 N. Main Street, Davenport, Iowa 52801
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(Address of principal executive offices)
(563) 383-2100
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Registrant's telephone number, including area code
Name of Each Exchange
Title of Each Class On Which Registered
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Securities registered pursuant to
Section 12(b) of the Act:
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:
Class B Common Stock - $2.00 par value
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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. [ ]
State the aggregate market value of voting stock held by nonaffiliates of the
Registrant as of November 29, 2002. Common Stock and Class B Common Stock, $2.00
par value, $1,493,437,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 29, 2002. Common Stock, $2.00 par value, 34,741,422
shares and Class B Common Stock, $2.00 par value, 9,672,943 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement dated
December 27, 2002 are incorporated by reference in Part III of this Form 10-K.
TABLE OF CONTENTS PAGE
Forward Looking Statements
Business
Properties
Legal Proceedings
Submission of Matters to a Vote of Security Holders
Market for Registrant's Common Equity and Related Stockholder Matters
Selected Financial Data
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Directors and Executive Officers of the Registrant
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
Certain Relationships and Related Transactions
Controls and Procedures
Exhibits, Financial Statement Schedules and Reports on Form 8-K
Signatures
Certification of Chief Executive Officer
Certification of Chief Financial Officer
Exhibit Index
Consolidated Financial Statements
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.
PART I
ITEM 1. BUSINESS
The Company directly, and through its ownership of associated companies,
publishes 44 daily newspapers in 18 states and more than 175 other weekly,
classified and specialty publications, along with associated online services.
The Company was founded in 1890, incorporated in 1950, and listed on the New
York Stock Exchange in 1978. Before 2001, the Company also operated a number of
network-affiliated and satellite television stations.
In April 2002, the Company acquired ownership of 15 daily newspapers and a joint
interest in the Sioux City, Iowa daily newspaper by purchasing Howard
Publications, Inc. (Howard). This acquisition was consistent with the strategy
the Company announced in 2000 to buy daily newspapers with circulation of 30,000
to 125,000. These acquisitions increased the Company's circulation by more than
75 percent, to 1.1 million daily and 1.2 million on Sunday, and increased its
revenue by nearly 50 percent. In July 2002, the Company acquired the remaining
50 percent of the Sioux City newspaper.
The Company owns 50% of the capital stock of Madison Newspapers, Inc. (MNI) 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 MNI. The Company
has a contract to furnish the editorial and news content for the Wisconsin State
Journal, which is published by MNI, and periodically provides other services to
MNI. The Wisconsin State Journal is classified as one of the Lee group of
newspapers in the newspaper field and in the rating services. Results of MNI are
accounted for using the equity method.
Advertising
Approximately two-thirds of the Company's revenue is derived from advertising.
The Company's strategies are to increase its share of local advertising through
increased sales pressure in its existing markets and, over time, to increase
circulation through internal expansion into contiguous markets, as well as make
selective acquisitions. Acquisition efforts are focused on newspapers with
circulation from 30,000 to 125,000, as noted above, and other publications that
expand the Company's operating revenue.
Many of the Company's businesses operate in geographic groups of publications,
or "clusters," which provide operational efficiencies and extend sales
penetration. Operational efficiencies are obtained through consolidation of
sales forces, back office operations such as finance or human resources,
management or production of the publications. Sales penetration can occur if the
sales effort is successful in cross-selling advertising into multiple
publications. The table under the caption "Circulation" in Item 1 identifies
those groups of newspapers operating in clusters.
The Company's newspapers, and classified and specialty publications compete with
newspapers having national or regional circulation, magazines, radio,
television, other advertising media such as billboards, other classified and
specialty publications, direct mail, as well as other information content
providers such as online services. In addition, several of the Company's daily
and Sunday newspapers compete with other local newspapers in nearby cities and
towns. The Company estimates that it captures more than one-half of the total
advertising dollars spent in its markets on print, broadcast and online.
The number of competitors in any given market varies, and cannot be estimated
with any degree of certainty. However, all of the forms of competition noted
above exist to some degree in most of the Company's markets, the principal ones
of which are listed in the table under the caption "Circulation" in Item 1. The
Company's competitors use pricing, frequency and other methods to compete for
advertising business.
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 and are particularly effective in larger
markets with high media fragmentation in which metropolitan newspapers generally
have low penetration.
The following broadly define major categories of advertising revenue:
Retail advertising is revenue earned from sales of display advertising
space, or for preprinted advertising inserted in the publication, to local
accounts.
National advertising is revenue earned from display advertising space, or
for preprinted advertising inserted in the publication, to national
accounts, if there is no local retailer representing the account in the
market.
Classified advertising, which includes automotive, real estate, employment
and other categories, is revenue earned from sales of advertising space in
the classified section of the publication.
The Company's many geographic markets have significant differences in their
advertising rate structures, some of which are highly complex. A single
operation often has scores of rate alternatives.
Late in 2000, the newspaper industry began to experience declining advertising
revenue demand for the first time in several years. The advertising environment
has been adversely impacted by the state of the slowing overall economy. The
Company's enterprises are located in mid-size and smaller markets. These markets
have been more stable than major metropolitan markets during the current
downturn in advertising spending.
Circulation
After advertising, circulation is the Company's largest source of revenue. The
Company estimates that its products are sold to approximately one-half, and read
by approximately three-fourths, of adults in its markets. For the six months
ended September 2002, daily circulation of newspapers owned in both 2002 and
2001, as measured by the Audit Bureau of Circulations (ABC), increased 1.0% and
Sunday circulation was flat, the third consecutive six-month period of
improvement for the Company. Growth in circulation can, over time, also
positively impact advertising revenue. The Company's strategies to improve
readership and circulation include continuous improvement of content and
promotional efforts. Content can include focus on local news, other content,
layout, reduction of factual errors or in other ways. Promotional efforts
include advertising, contests and other efforts to increase awareness of the
products. Customer service can also influence circulation. Initiatives vary from
property to property and are determined principally by the publishers at the
local level in collaboration with senior management.
Circulation competition exists in all markets, even from unpaid products, but is
most significant in markets with competing daily newspapers. These markets tend
to be those markets near major metropolitan areas, where the size of the
population is sufficient to support more than one daily newspaper.
The Company and its affiliate MNI publish the following daily newspapers:
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Paid Circulation
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Newspaper City State Daily Sunday
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North County Times (5) Oceanside California 92,490 (1) 93,337 (1)
and Escondido
Madison Newspapers (4)
Wisconsin State Journal Madison Wisconsin 89,569 (1) 154,427 (1) (3)
The Capital Times Madison Wisconsin 20,389 (1) - (3)
Daily Citizen Beaver Dam Wisconsin 10,593 (1) -
Portage Daily Register Portage Wisconsin 4,850 (1) -
Baraboo News Republic Baraboo Wisconsin 3,975 (1) -
The Times (5) Munster Indiana 84,176 (1) 91,673 (1)
Lincoln Group
Lincoln Journal Star Lincoln Nebraska 74,586 (1) 83,387 (1)
Columbus Telegram Columbus Nebraska 9,471 (1) 10,373 (1)
Fremont Tribune Fremont Nebraska 8,299 (1) -
Beatrice Daily Sun Beatrice Nebraska 7,983 (1) -
Quad-Cities Group
Quad-City Times Davenport Iowa 51,385 (1) 71,239 (1)
Muscatine Journal Muscatine Iowa 7,998 (1) -
Billings Gazette Billings Montana 47,019 (1) 52,684 (1)
Waterloo-Cedar Falls Courier (5) Waterloo Iowa 44,688 (1) 52,182 (1)
Sioux City Journal (5) Sioux City Iowa 41,577 (1) 42,243 (1)
Central Illinois Group
Herald & Review Decatur Illinois 34,831 (1) 41,249 (1)
Journal Gazette (5) Mattoon Illinois 11,201 (1) -
Times-Courier (5) Charleston Illinois 6,904 (1) -
The Post-Star (5) Glens Falls New York 34,202 (1) 37,650 (1)
River Valley Group
La Crosse Tribune La Crosse Wisconsin 31,903 (1) 40,879 (1)
Winona Daily News Winona Minnesota 11,545 (1) 12,258 (1)
Casper Star-Tribune (5) Casper Wyoming 30,646 (1) 33,369 (1)
Missoula Group
Missoulian Missoula Montana 30,066 (1) 34,998 (1)
Ravalli Republic Hamilton Montana 4,468 (2) -
Rapid City Journal Rapid City South Dakota 29,820 (1) 34,242 (1)
The Journal Times Racine Wisconsin 29,217 (1) 31,336 (1)
The Southern Illinoisan Carbondale Illinois 28,267 (1) 36,381 (1)
The Bismarck Tribune Bismarck North Dakota 27,531 (1) 31,120 (1)
The Times-News (5) Twin Falls Idaho 22,656 (1) 23,103 (1)
The Daily News (5) Longview Washington 22,350 (1) 21,704 (1)
Globe Gazette Mason City Iowa 19,005 (1) 23,005 (1)
Mid-Valley News Group
Democrat-Herald Albany Oregon 17,989 (1) 31,401 (1) (3)
Corvallis Gazette-Times Corvallis Oregon 11,949 (1) - (3)
The Times and Democrat (5) Orangeburg South Carolina 17,970 (1) 18,375 (1)
The Sentinel (5) Carlisle Pennsylvania 14,739 (1) 14,918 (1)
The Montana Standard Butte Montana 14,383 (1) 14,412 (1)
The Journal-Standard (5) Freeport Illinois 13,693 (1) 14,003 (1)
The Leader (5) Corning New York 13,385 (1) 13,146 (1)
Independent Record Helena Montana 13,713 (1) 14,610 (1)
The Citizen (5) Auburn New York 13,084 (1) 14,752 (1)
The Ledger Independent (5) Maysville Kentucky 8,491 (2) -
The Chippewa Herald Chippewa Falls Wisconsin 6,987 (2) 7,063 (1)
Shawano Leader (4) Shawano Wisconsin 5,639 (1) 6,085 (1)
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1,125,682 1,201,604
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(1) Source: ABC: Six months ended September 2002.
(2) Source: Company statistics.
(3) Combined edition.
(4) Owned by MNI, which is 50% owned by the Company.
(5) Acquired in 2002.
Commercial Printing
The Company offers commercial printing services through the following entities:
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City State
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William Street Press Decatur Illinois
Hawkeye Printing Davenport Iowa
Trico Communications Davenport Iowa
Platen Press Butte Montana
Farcountry Press Helena Montana
Broadwater Printing Townsend Montana
Journal Star Commercial Printing Lincoln Nebraska
Little Nickel Quik Print Lynwood Washington
Spokane Print and Mail Spokane Washington
Triangle Press Chippewa Falls Wisconsin
Wingra Printing (1) Madison Wisconsin
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(1) Owned by MNI, which is 50% owned by the Company.
Certain of the Company's newspapers also directly provide commercial printing
services.
Online Services
The Company's online activities are comprised of websites supporting each of its
daily newspapers and certain of its other publications. The Company also owns
81% of an Internet service company which provides web infrastructure for more
than 650 small daily and weekly newspapers, and shoppers. Internet activities of
the newspapers and majority owned businesses are reported and managed as a part
of the Company's publishing operations. In addition, the Company has a minority
investment in, or loans to, two Internet service companies, which provide
integrated online classified solutions for the newspaper industry, or integrate
online editorial content with transactional and promotional opportunities.
Online businesses of the Company have experienced rapid growth over the last
several years, which is expected to continue.
Newsprint
The basic raw material of newspapers, and 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 for its needs. Newsprint prices are volatile and fluctuate
based upon factors that 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 "Quantitative And Qualitative Disclosures About Market Risk"
under Item 7A, included herein.
Executive Team
The following table lists executive team members of the Company as of November
29, 2002:
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Named
Service To Present
Name Age With The Company Office Present Office
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Mary E. Junck 55 June 1999 January 2002 Chairman, President and Chief
Executive Officer
Nancy L. Green 61 December 2000 September 2002 Vice President - Circulation
Michael R. Gulledge 42 October 1982 February 2002 Group Publisher
Daniel K. Hayes 57 September 1969 April 1998 Director of Communications
James W. Hopson 56 July 2000 July 2000 Vice President - Publishing
Brian E. Kardell 39 January 1991 January 2001 Vice President - Information
Systems and Chief
Information Officer
Vytenis P. Kuraitis 54 August 1994 January 1997 Vice President - Human
Resources
Linda Ritchie Lindus 54 April 2000 February 2002 Group Publisher
Kevin E. Mowbray 40 September 1986 July 2002 Vice President - Sales &
Marketing
Michael E. Phelps 56 February 2000 June 2002 Vice President - Publishing
Gregory P. Schermer 48 February 1989 November 1997 Vice President - Interactive
Media and Corporate Counsel
Carl G. Schmidt 46 May 2001 May 2001 Vice President, Chief
Financial Officer and Treasurer
David B. Stoeffler 43 June 1981 December 2001 Vice President - News
John VanStrydonck 49 March 1981 June 2000 Vice President - Publishing
Greg R. Veon 50 April 1976 November 1999 Vice President - Publishing
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Mary E. Junck was elected Chairman, President and Chief Executive Officer in
January 2002. From January 2001 to January 2002 she served as President and
Chief Executive Officer. From January 2000 to January 2001 she served as
President and Chief Operating Officer. From May 1999 to January 2000 she served
as Executive Vice President and Chief Operating Officer. 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.
Nancy L. Green was appointed Vice President - Circulation in September 2002.
From December 2000 to September 2002, she served as Director of Circulation
Sales, Distribution and Marketing. For more than five years prior to December
2000, she served as a vice president in the University System of Georgia.
Michael R. Gulledge was appointed Group Publisher in February 2002 and named
Publisher of the Billings Gazette in October 2000. From November 1996 to October
2000, he served as General Manager and Publisher of the Herald & Review.
Daniel K. Hayes was appointed Director of Communications in April 1998. From
March 1986 to April 1998, he served as Editor of the Quad-City Times.
James W. Hopson was elected Vice President - Publishing and named Publisher of
the Wisconsin State Journal in July 2000. He was elected Chairman of MNI in
January 2002. For more than the past five years prior to July 2000, he served as
Chief Executive Officer of Thomson Newspapers Central Ohio Strategic Marketing
Group.
Brian E. Kardell was appointed Vice President - Information Systems and Chief
Information Officer in January 2001. From 1997 to 2001, Mr. Kardell was Chief
Information Officer. Prior to 2001, he served as Director of Information
Services.
Vytenis P. Kuraitis was elected Vice President - Human Resources in January
1997. From August 1994 through January 1997 he served as Director of Human
Resources.
Linda Ritchie Lindus was appointed Group Publisher in February 2002, and was
named Publisher of the Herald & Review in July 2002. From April 2000 to February
2002, she served as Publisher of The Southern Illinoisan. From 1999 to April
2000 she served as Publisher of The Spectrum and Chief Executive Officer of the
Utah Strategic Marketing Group of Thomson Newspapers. From 1997 to 1999 she
served as Director of Advertising and New Initiatives at The Spectrum.
Kevin E. Mowbray was elected Vice President - Sales & Marketing in July 2002.
For the past two years he was Publisher of the The Bismarck Tribune. From 1998
to 2000 he served as General Manager of the Missoulian. From 1995 to 1998 he
served as Advertising Manager of the Lincoln Journal Star.
Michael E. Phelps was elected Vice President - Publishing and named Publisher of
the Quad City Times in June 2002. He served as Vice President - Sales and
Marketing from February 2000 to June 2002. For more than the past five years
prior to February 2000, he was managing principal of Phelps, Cutler &
Associates, newspaper management consultants.
Gregory P. Schermer was elected Vice President - Interactive Media in November
1997. He has served as Corporate Counsel of the Company since 1989.
Carl G. Schmidt was elected Vice President, Chief Financial Officer and
Treasurer in May 2001. For more than the past five years prior to May 2001, he
served as Senior Vice President and Chief Financial Officer of Johnson Outdoors
Inc.
David B. Stoeffler was appointed Vice President - News in December 2001. From
1997 to December 2001, Mr. Stoeffler was Editor of the Lincoln Journal Star.
From 1995 to 1997, he served as Editor of the La Crosse Tribune.
John VanStrydonck was elected Vice President - Publishing in June 2000 and named
Publisher of the Missoulian in October 2002. From September 1994 to June 2000 he
was Publisher of the Rapid City Journal and served as Chairman and Chief
Operating Officer of NAPP Systems from September 1994 until its sale by Lee in
January 1997.
Greg R. Veon was elected Vice President - Publishing in November 1999. From
November 1995 through November 1999 he served as Vice President - Marketing.
Employees
At September 30, 2002, the Company had approximately 6,700 employees, including
approximately 1,300 part-time employees, exclusive of MNI. The Company considers
its relationship with its employees to be good.
Approximately 90 employees in three locations are members of collective
bargaining units.
Other Matters
In the opinion of management, compliance with present statutory and regulatory
requirements respecting environmental quality will not necessitate significant
capital outlays, materially affect the earning power of the business of the
Company, or cause material changes in the Company's business, whether present or
intended.
ITEM 2. PROPERTIES
The Company's executive offices are located in leased facilities at 215 North
Main Street, Davenport, Iowa. The lease expires in December 2003 and comparable
space is available if it is not renewed.
All of the Company's printing facilities (except Madison, Wisconsin, which is
owned by MNI, and a leased plant in Spokane, Washington) are owned. All
facilities are well maintained, in good condition, suitable for existing office
and publishing operations and adequately equipped. None of the Company's
facilities are individually significant to its business.
The Baraboo News Republic, Corvallis Gazette-Times, Muscatine Journal, Ravalli
Republic, Times Courier and Winona Daily News, as well as many of the Company's
more than 175 other publications, are printed at other Lee facilities to enhance
operating efficiency. The Company's newspapers and other publications have
formal or informal arrangements for backup of printing in the event of a
disruption in production capability.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
Common Stock of the Company is listed on the New York Stock Exchange. Class B
Common Stock is not traded on an exchange but is readily convertible to Common
Stock. 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 at the
option of the holder, into Common Stock. The table below shows the high and low
prices of Common Stock for each quarter during the past three years, the closing
price at the end of each quarter and the dividends per share.
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Quarter
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1st 2nd 3rd 4th
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STOCK PRICES
2002
High $37.60 $37.23 $40.09 $35.87
Low 29.88 33.36 34.86 28.90
Closing 36.37 36.90 35.00 32.86
2001
High $30.69 $32.55 $34.98 $34.40
Low 24.81 26.94 29.25 29.40
Closing 29.81 30.45 33.00 31.67
2000
High $32.25 $31.56 $26.19 $28.94
Low 27.25 19.69 20.50 23.25
Closing 31.94 26.13 23.31 28.88
DIVIDENDS
2002 $0.17 $0.17 $0.17 $0.17
2001 0.17 0.17 0.17 0.17
2000 0.16 0.16 0.16 0.16
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Common Stock and Class B Common Stock have identical rights with respect to cash
dividends and upon liquidation. For a more complete description of the relative
rights of Common Stock and Class B Common Stock, see Note 8 of the Notes to
Consolidated Financial Statements, included herein.
At September 30, 2002, the Company had 2,830 holders of Common Stock and 1,868
holders of Class B Common Stock.
On November 14, 2002, the Board of Directors declared a dividend in the amount
of $0.17 per share on the issued and outstanding Common Stock and Class B Common
Stock of the Company, be paid on January 2, 2003, to stockholders of record on
December 2, 2002.
ITEM 6. SELECTED FINANCIAL DATA
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Year Ended September 30
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(Thousands, Except Per Common Share Data) 2002 2001 2000 1999 1998
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(2) (3)
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OPERATING RESULTS
Operating revenue $525,896 $426,966 $416,089 $400,709 $379,737
EBITDA (1) 147,830 110,332 122,057 115,528 105,355
Depreciation and amortization 35,050 31,357 28,571 26,990 25,625
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Operating income, before equity 112,780 78,975 93,486 88,538 79,730
in net income of associated
companies
Equity in net income of associated
companies 9,057 7,651 9,377 9,238 8,367
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Operating income 121,837 86,626 102,863 97,776 88,097
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Financial income 6,007 28,548 3,259 1,920 1,896
Financial expense (15,777) (11,963) (12,643) (12,863) (14,611)
Income from continuing operations 81,029 59,829 70,117 57,069 47,795
Discontinued operations 946 254,399 13,546 10,904 14,438
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Net income $ 81,975 $314,228 $83,663 $67,973 $62,233
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EARNINGS PER COMMON SHARE
Basic:
Continuing operations $ 1.84 $ 1.37 $ 1.59 $ 1.29 $ 1.07
Discontinued operations 0.02 5.81 0.31 0.25 0.32
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Net income $ 1.86 $ 7.18 $ 1.90 $ 1.54 $ 1.39
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Diluted:
Continuing operations $ 1.83 $ 1.36 $ 1.58 $ 1.27 $ 1.05
Discontinued operations 0.02 5.77 0.31 0.25 0.32
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Net income $ 1.85 $ 7.13 $ 1.89 $ 1.52 $ 1.37
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Weighted average common shares
outstanding:
Basic 44,087 43,784 44,005 44,273 44,829
Diluted 44,351 44,089 44,360 44,861 45,557
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Dividends per common share $ 0.68 $ 0.68 $ 0.64 $ 0.60 $ 0.56
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BALANCE SHEET INFORMATION
Total assets $1,463,830 $1,000,397 $762,236 $679,513 $660,585
Debt, including current maturities 409,300 173,400 214,173 192,000 209,991
Stockholders' equity 741,256 681,944 395,167 354,329 319,579
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(1) EBITDA (earnings before interest, taxes, depreciation and amortization) is
not a financial performance measurement under United States generally
accepted accounting principles (GAAP), and should not be considered in
isolation or as a substitute for GAAP performance measurements. EBITDA is
also not reflected in the Consolidated Statements of Cash Flows, but is a
common and meaningful alternative performance measurement. The computation
of EBITDA also excludes other non-operating items, primarily gains and
losses on sales of businesses, losses related to other ventures and equity
in net income of associated companies. EBITDA presented may not be
comparable to similarly titled measures of other companies.
(2) Includes six months of operations from the Howard acquisition, which was
consummated in April 2002.
(3) Includes gain on the sale of the Company's broadcast properties, as
reported in discontinued operations.
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Year Ended September 30
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2002 2001 2000 1999 1998
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OTHER INFORMATION
EBITDA as a percent of revenue 28.1% 25.8% 29.3% 28.8% 27.7%
Operating income as a percent of
revenue 23.2 20.3 24.7 24.4 23.2
Income from continuing operations
as a percent of revenue 15.4 14.0 16.9 14.2 12.6
Dividends as a percent of income
from continuing operations 37.2 49.8 40.3 46.7 52.8
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ITEM 7. 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
years ended, September 2002. This discussion should be read in conjunction with
the Consolidated Financial Statements and related Notes thereto.
CONTINUING OPERATIONS
Operating results, as reported in the Consolidated Financial Statements, are
summarized below:
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Year Ended September 30 Percent Change
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- ------------------------------------------------------------------------ ------------------------------------
2002 2001
vs vs
(Thousands, Except Per Common Share Data) 2002 2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------
Operating revenue $525,896 $426,966 $416,089 23.2% 2.6%
Income before interest, taxes
depreciation and amortization
(EBITDA) 147,830 110,332 122,057 34.0 (9.6)
Operating income 121,837 86,626 102,863 40.6 (15.8)
Non-operating (income) expense,
net 10,778 (6,418) (7,748) NM (17.2)
Income from continuing operations 81,029 59,829 70,117 35.4 (14.7)
Earnings per common share:
Basic $ 1.84 $ 1.37 $ 1.59 34.3% (13.8)%
Diluted 1.83 1.36 1.58 34.6 (13.9)
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2002 vs. 2001
Revenue
Revenue, as reported in the Consolidated Financial Statements, consists of the following:
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Year Ended September 30
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(Thousands) 2002 2001 Percent
Change
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Advertising revenue:
Retail $212,356 $166,524 27.5%
National 12,355 10,335 19.5
Classified:
Employment 30,857 28,134 9.7
Automotive 29,324 20,939 40.0
Real estate 21,624 15,967 35.4
All other 47,811 38,053 25.6
- --------------------------------------------------------------------------------------------------------------------
Total classified 129,616 103,093 25.7
- --------------------------------------------------------------------------------------------------------------------
Total advertising 354,327 279,952 26.6
- --------------------------------------------------------------------------------------------------------------------
Circulation 105,711 81,441 29.8
Other:
Commercial printing 22,266 25,233 (11.8)
Online 7,363 5,640 30.5
Niche publications and other 36,229 34,700 4.4
- --------------------------------------------------------------------------------------------------------------------
65,858 65,573 0.4
- --------------------------------------------------------------------------------------------------------------------
Total operating revenue $525,896 $426,966 23.2%
- --------------------------------------------------------------------------------------------------------------------
All categories of revenue were substantially impacted by the acquisition of
Howard, which the Company purchased in April 2002. In total, acquisitions
accounted for $113,594,000 of revenue in 2002. Businesses sold in 2002, but
still included in continuing operations, accounted for $4,060,000 of revenue in
the current year and $11,754,000 of revenue in 2001.
2002 had one fewer Sunday than the prior year. Sundays generate substantially
more advertising and circulation revenue than any other day of the week.
Revenue - Same Property
The following discussion of revenue is presented on an operating basis, which
includes 100% of the revenue of MNI, which is owned 50% by the Company and
accounted for in the Consolidated Financial Statements using the equity method.
It is exclusive of acquisitions and divestitures. The Company believes such
comparisons provide the most meaningful information for an understanding of
changes in its revenue.
In 2002, total advertising revenue decreased $6,674,000, or 2.0%. Retail revenue
in the Company's markets was not as adversely impacted by the slowing economy as
major metropolitan markets, and increased $1,248,000, or 0.6%, in 2002.
Increased emphasis on rate discipline and new accounts helped offset declines in
advertising volume. Retail rates, excluding preprint insertions, increased 2.1%
in 2002. Rate discipline means adhering to standard rates rather than
negotiating specific rates for individual customer situations.
Classified advertising revenue decreased approximately $7,653,000, or 5.9%, in
2002. Higher margin employment advertising at the daily newspapers accounted for
more than 100% of the decrease and declined 22.4% for the year. Unit declines in
employment classified advertising compare favorably to national survey amounts.
The automotive category increased by 0.9% due to promotional financing, real
estate increased 3.4% due to lower interest rates, and other classified
advertising increased 1.4%. Classified rates declined 9.3%, primarily due to
declines in employment-related advertising.
Advertising lineage, as reported on a same property operating basis for daily
newspapers only, consists of the following:
- ---------------------------------------------------------------------------------------------------------------
Year Ended September 30
- ---------------------------------------------------------------------------------------------------------------
(Thousands of Inches) 2002 2001 Percent Change
- ---------------------------------------------------------------------------------------------------------------
Retail 7,155 7,240 (1.2)%
National 371 396 (6.3)
Classified 6,602 6,513 1.4
- ---------------------------------------------------------------------------------------------------------------
14,128 14,149 (0.1)%
- ---------------------------------------------------------------------------------------------------------------
Circulation revenue decreased $253,000, or 0.2%, in 2002 primarily due to the
loss of a Sunday. The Company's average daily newspaper circulation units
increased 1.0% and Sunday circulation was flat for the six months ended
September 2002. For the six months ended March 2002, daily circulation increased
1.8% and Sunday circulation increased 0.4%. The Company is focused on growing
circulation units and revenue through a number of initiatives.
Commercial printing revenue declined $3,560,000, or 11.0%, in 2002 due, in part,
to economic conditions and the loss of certain key customers. Online revenue
increased $1,377,000, or 22.3%, in 2002 due to growth in advertising revenue and
cross selling with the Company's newspapers.
Operating Expenses
The following table sets forth the percentage of revenue of the Company's
operating expenses as reported in the Consolidated Financial Statements:
- ------------------------------------------------------------------------------------------------------------
Year Ended September 30
- ------------------------------------------------------------------------------------------------------------
2002 2001
- ------------------------------------------------------------------------------------------------------------
Compensation 39.3% 39.2%
Newsprint and ink 8.3 9.8
Other operating expenses 24.3 25.2
- ------------------------------------------------------------------------------------------------------------
71.9 74.2
- ------------------------------------------------------------------------------------------------------------
EBITDA 28.1 25.8
Depreciation and amortization 6.7 7.3
- ------------------------------------------------------------------------------------------------------------
Operating margin, before equity in net income of 21.4% 18.5%
associated companies
- ------------------------------------------------------------------------------------------------------------
Costs other than depreciation and amortization increased $61,432,000, or 19.4%,
in 2002. All categories of expenses were impacted by the acquisition of Howard,
which the Company purchased in April 2002. In total, acquisitions accounted for
$79,848,000 of operating costs, excluding depreciation and amortization, in the
current year. Businesses sold in 2002, but still included in continuing
operations, accounted for $3,362,000 of operating expenses other than
depreciation and amortization in the current year and $10,401,000 of such
expenses in 2001. Compensation expense increased $39,277,000, or 23.5%, in 2002
as workforce reductions, delayed salary increases and both one-time and
permanent changes in benefit programs in existing businesses were more than
offset by costs of acquired businesses. Newsprint and ink costs increased
$1,718,000, or 4.1%, in 2002 as volume increases related to acquired businesses
more than offset price decreases and same property volume declines. Newsprint
prices began rising late in 2002 and may negatively impact 2003 results. Other
operating costs, exclusive of depreciation and amortization, increased
$20,437,000, or 19.0%, in 2002 as costs of acquired businesses more than offset
cost savings on a same property basis.
In 2002, the Company adopted the provisions of FASB Statement 142. As a result,
goodwill and indefinite useful life intangible assets acquired in a purchase
business combination are no longer being amortized, but are tested for
impairment at least annually. Amortization expense related to goodwill was
$7,815,000 in 2001. The increase in depreciation and amortization expense in
2002 is primarily due to the acquisition of Howard, offset by the elimination of
goodwill amortization.
EBITDA improved 34.0% to $147,830,000 in 2002 from $110,332,000 in 2001. EBITDA
margin improved to 28.1% from 25.8% in the prior year. The Company's efforts at
controlling expenses and lower newsprint prices all contributed to the
improvement, offset to some extent by lower margins of acquired businesses.
Operating margin, before equity in net income of associated companies, increased
to 21.4% in 2002 from 18.5% for the same reasons, but was further impacted by a
higher level of amortization from acquisitions, offset by the goodwill
accounting change.
Non-operating Income and Expense
Financial income decreased $22,541,000 to $6,007,000 in 2002. The Company's
invested balances decreased $433,000,000 due to the April 2002 acquisition of
Howard. Balances were further reduced in 2002 by final income tax payments
related to the sale of broadcast properties in October 2000. Reinvestment rates
have also declined from the prior year.
In 2001, other non-operating expense consists primarily of realized and
unrealized losses on the sale of several small publications and the write down
of certain non-operating assets.
Overall Results
Income taxes were 27.0% and 35.7% of pretax income from continuing operations in
2002 and 2001, respectively. The favorable resolution of tax issues reduced
income tax expense by approximately $10,100,000 in 2002. The effective rate
would have been 36.1% without this event.
As a result of all of the above, earnings from continuing operations totaled
$81,029,000 in 2002, compared to $59,829,000 in 2001. Earnings per diluted
common share increased to $1.83 in 2002 from $1.36 in 2001.
The following table reconciles reported per share results to results adjusted
for significant items that affect the comparability of the respective years:
- ------------------------------------------------------------------------------------------------------------
Year Ended September 30
- ------------------------------------------------------------------------------------------------------------
2002 2001
- ------------------------------------------------------------------------------------------------------------
Diluted earnings per share from continuing operations, as reported $ 1.83 $ 1.36
Favorable resolution of tax issues (0.23) -
Higher interest rates and higher invested balances in prior year,
exclusive of the effect of funds used for acquisitions - (0.18)
New accounting rules for amortization of intangible assets
adopted in October 2001 - 0.14
Losses on sales of businesses and other items - 0.14
- ------------------------------------------------------------------------------------------------------------
Diluted earnings per share from continuing operations, as adjusted $ 1.60 $ 1.46
- ------------------------------------------------------------------------------------------------------------
2001 VS 2000
Revenue
Revenue, as reported in the Consolidated Financial Statements, consists of the
following:
- --------------------------------------------------------------------------------
Year Ended September 30
- --------------------------------------------------------------------------------
(Thousands) 2001 2000 Percent
Change
- --------------------------------------------------------------------------------
Advertising:
Retail $166,524 $ 157,865 5.5%
National 10,335 9,312 11.0
Classified:
Employment 28,134 31,163 (9.7)
Automotive 20,939 21,973 (4.7)
Real estate 15,967 15,496 3.0
All other 38,053 36,797 3.4
- --------------------------------------------------------------------------------
Total classified 103,093 105,429 (2.2)
- --------------------------------------------------------------------------------
Total advertising 279,952 272,606 2.7
- --------------------------------------------------------------------------------
Circulation 81,441 79,792 2.1
Other:
Commercial printing 25,233 24,976 1.0
Online 5,640 3,252 73.4
Niche publications and other 34,700 35,463 (2.2)
- --------------------------------------------------------------------------------
65,573 63,691 3.0
- --------------------------------------------------------------------------------
Total operating revenue $426,966 $416,089 2.6%
- --------------------------------------------------------------------------------
In total, acquisitions accounted for $27,172,000 of revenue in 2001 and
$11,526,000 in 2000. Businesses sold in 2001, but still included in continuing
operations, accounted for $3,725,000 of revenue in 2001 and $7,688,000 of
revenue in 2000.
2001 included one more Sunday than the prior year. Sundays generate
substantially more advertising and circulation revenue than any other day of the
week.
Revenue - Same Property
The following discussion of revenue is presented on an operating basis, which
includes 100% of the revenue of MNI, which is owned 50% by the Company and
accounted for in the Consolidated Financial Statements using the equity method.
It is exclusive of acquisitions and divestitures. The Company believes such
comparisons provide the most meaningful information for an understanding of
changes in its revenue.
In 2001, total advertising revenue decreased $4,613,000, or 1.4%. Retail revenue
in the Company's markets was not as adversely impacted by the slowing economy as
major metropolitan markets and increased $1,267,000 or 0.7%, in 2001. Retail
rates, excluding preprint insertions, increased 3.0%.
Classified advertising revenue decreased approximately $6,007,000, or 4.6%, in
2001. Higher margin employment revenue declined $5,740,000, or 12.5%, along with
automotive which was down $1,798,000, or 6.2%. Real estate and all other
classified revenue increased. Classified rates declined 3.3%.
Advertising lineage, as reported on a same property operating basis for daily
newspapers only, consists of the following:
- --------------------------------------------------------------------------------
Year Ended September 30
- --------------------------------------------------------------------------------
(Thousands of Inches) 2001 2000 Percent Change
- --------------------------------------------------------------------------------
Retail 6,092 6,437 (5.3)%
National 370 368 0.5
Classified 5,971 6,162 (3.1)
- --------------------------------------------------------------------------------
12,433 12,667 (1.8)%
- --------------------------------------------------------------------------------
Circulation revenue decreased $1,002,000, or 1.0%, in 2001. Average daily
newspaper circulation units increased 0.9% and Sunday circulation declined 0.2%
for the six months ended September 2001.
Commercial printing decreased $902,000, or 3.7%. Online revenue increased
$1,227,000, or 34.6%, due to growth in advertising revenue. Niche publications
and other revenue decreased $656,000, or 1.6%, in 2001.
Operating Expenses
The following table sets forth the percentage of revenue of the Company's
operating expenses as reported in the Consolidated Financial Statements:
- --------------------------------------------------------------------------------
Year Ended September 30
- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Compensation 39.2% 37.4%
Newsprint and ink 9.8 9.1
Other operating expenses 25.2 24.2
- --------------------------------------------------------------------------------
74.2 70.7
- --------------------------------------------------------------------------------
EBITDA 25.8 29.3
Depreciation and amortization 7.3 6.9
- --------------------------------------------------------------------------------
Operating margin, before equity in net income
of associated companies 18.5% 22.4%
- --------------------------------------------------------------------------------
All categories of costs were impacted by the full year effect of acquisitions
consummated in 2000. Costs other than depreciation and amortization increased
$22,602,000, or 7.7%, in 2001. Compensation expense increased $11,623,000, or
7.5%, due to normal increases in rates in addition to the impact of
acquisitions. Newsprint and ink costs increased $4,190,000, or 11.1%. Other
operating costs, exclusive of depreciation and amortization, increased
$6,789,000, or 6.7%, in 2001.
Non-operating Income and Expenses
Financial income increased $25,289,000 to $28,548,000 in 2001. The Company's
invested balances increased substantially due to the October 2000 sale of
broadcast properties. In 2001 and 2000, other non-operating income and expense
consisted primarily of realized gains and realized and unrealized losses on the
sale or exchange of several small publishing operations. In 2001, the Company
also recognized a write down of certain non-operating assets.
Overall Results
Income taxes were 35.7% and 36.6% of pretax income from continuing operations in
2001 and 2000, respectively.
As a result of all of the above, earnings from continuing operations totaled
$59,829,000 in 2001 compared to $70,117,000 in 2000. Earnings per diluted common
share decreased to $1.36 in 2001, from $1.58.
DISCONTINUED OPERATIONS
In March 2000, the Board of Directors of the Company made a determination to
sell its broadcast properties. In May 2000 the Company entered into an agreement
to sell substantially all of its broadcasting operations, consisting of eight
network-affiliated and seven satellite television stations, to Emmis
Communications Corporation and consummated the transaction in October 2000. The
net proceeds of approximately $565,000,000 resulted in an after-tax gain for
financial reporting purposes of approximately $250,800,000 in 2001. Results for
the broadcast properties have been classified as discontinued operations for all
periods presented.
In July 2001, the Company completed the sale of its last broadcasting property.
Net proceeds of the sale totaled approximately $7,600,000. The after-tax gain of
approximately $4,000,000 on the sale is reflected in discontinued operations in
2001.
A $4,000,000 reduction of income tax expense has been recorded in results from
discontinued operations in 2002, from changes in estimates related to state
taxes on the sale of broadcasting operations.
In July 2002, the Company acquired the remaining fifty percent interest in SCN.
The Company's Flathead group of weekly newspapers in Montana was transferred as
partial consideration for the purchase. The Company recognized an after-tax loss
of $2,688,000 on the transfer of the Flathead newspapers, which is recorded in
discontinued operations in 2002.
In October 2002, the Company completed the sale of its Ashland, Oregon, daily
newspaper. The transaction resulted in an after-tax loss on sale of $300,000,
which is recorded in discontinued operations in 2002. Results are recorded in
discontinued operations for all periods presented in accordance with the
provisions of FASB Statement 144, Accounting for the Impairment or Disposal of
Long-Lived Assets.
Revenue of discontinued operations in 2002, 2001 and 2000 was $5,668,000,
$7,184,000 and $128,904,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities of continuing operations was $115,301,000
in 2002, $106,735,000 in 2001, and $102,685,000 in 2000. Increased income from
continuing operations, offset by increases in working capital, accounted for the
change between 2002 and 2001. Decreased income from continuing operations,
offset by decreases in working capital and losses on sales of businesses,
accounted for the change between 2001 and 2000.
Cash required for investing activities totaled $547,474,000 in 2002,
$223,304,000 in 2001, and $87,297,000 in 2000. Acquisitions accounted for
substantially all of the usage in 2002 and 2000. Investment purchases related to
the sale of broadcast operations and cash flow from operations were responsible
for the primary usage of funds in 2001. The investment portfolio was largely
liquidated in 2002 to fund acquisitions.
The Company anticipates that funds necessary for capital expenditures, which are
expected to total approximately $19,000,000 in 2003, and other requirements will
be available from internally generated funds, availability under its existing
credit agreement and, if necessary, by accessing the capital markets.
Cash provided by financing activities totaled $217,163,000 in 2002, and required
$78,026,000 in 2001 and $13,599,000 in 2000.
The Company entered into a five-year, $350,000,000 credit agreement in March
2002. The primary purposes of the agreement are to fund the acquisition of
Howard, and to provide liquidity for other corporate purposes. $279,000,000 was
borrowed under this agreement in 2002 to consummate the acquisitions of Howard
and SCN.
Under the terms of the Company's 1998 Note Purchase Agreement (1998 Agreement),
the Company was required to repay the outstanding balance of $161,800,000 in
October 2002 unless the Company reinvested the net proceeds of the sale of its
broadcast operations or obtained a waiver or amendment of that provision of the
1998 Agreement. The acquisition of Howard satisfied the conditions of the
Company's 1998 Agreement with regard to reinvestment of the net proceeds of the
sale of broadcast operations. If repayment had been required, a substantial
prepayment penalty would have also been required, based upon interest rates in
effect at that time.
Debt agreements provide for restrictions as to indebtedness, liens, sales,
mergers, acquisitions and investments and require the Company to maintain
leverage and interest coverage ratios. Covenants under these agreements are not
considered restrictive to normal operations or historical amounts of stockholder
dividends. At September 30, 2002, the Company was in compliance with these
covenants. Aggregate maturities during the five years ending September 2007 are
$14,600,000, $36,600,000, $11,600,000, $12,400,000 and $256,900,000,
respectively.
Cash required for discontinued operations totaled $42,778,000 in 2002, primarily
for income tax payments related to the gain on sale of broadcast operations.
Cash provided by discontinued operations totaling $437,337,000 in 2001 primarily
reflects net proceeds from the sale of such operations.
SEASONALITY
The Company's largest source of publishing revenue, retail advertising, is
seasonal and tends to fluctuate with retail sales in markets served.
Historically, retail advertising is higher in the first and third fiscal
quarters. Newspaper classified advertising revenue is lowest in the second
fiscal quarter.
Quarterly results of operations are summarized in Note 18 to the Consolidated
Financial Statements, included herein.
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.
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 herein, for a
description of the Company's accounting policies used in the preparation of its
Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS
In 2002, the Company entered into a four-year contract for the annual purchase
of 45,000 metric tonnes of newsprint, at market prices, from a single supplier.
The commitment represents approximately one-third of the Company's annual
volume, inclusive of MNI. The commitment is reduced to the extent it exceeds 75%
of the Company's annual usage. The Company has other newsprint commitments, both
formal and informal, for lesser amounts, with other suppliers.
ITEM 7A. 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 a 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 in LIBOR would decrease
income from continuing operations before income taxes approximately $2,445,000,
based on floating rate debt outstanding at September 30, 2002.
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 tonne newsprint price increase would result in a reduction in
income from continuing operations before income taxes of approximately
$1,115,000, excluding MNI, 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 fixed rate debt, which totals
$161,800,000 at September 30, 2002.
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 September 30, 2002 is approximately $7,200,000. There is no
impact on operating results from such changes in interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this Item is included herein under the caption
"Consolidated Financial Statements".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company dismissed McGladrey & Pullen, LLP (McGladrey) as its independent
accountant, effective June 30, 2002. In connection with the audits of the fiscal
years ended September 30, 2001 and 2000, and during the interim period prior to
the dismissal, there were no disagreements with McGladrey on any matter of
accounting principle or practice, financial statement disclosure, or auditing
scope or procedure. The Audit Committee of the Company appointed Deloitte &
Touche LLP (Deloitte) as its new independent accountant, effective July 1, 2002,
after evaluating several firms, including McGladrey. The Company previously
reported this change in accountants in a Current Report on Form 8-K dated July
2, 2002.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to this Item, except for certain information included
under the caption "Officers" in Part I of this Form 10-K, is included in the
Company's Proxy Statement dated December 27, 2002, which is incorporated herein
by reference, under the captions "Proposal 1 - Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance".
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this Item is included in the Company's Proxy
Statement dated December 27, 2002, which is incorporated herein by reference,
under the captions "Proposal 1 - Election of Directors," "Compensation of
Directors" and "Executive Compensation"; provided, however, that the subsection
entitled "Executive Compensation - Report of the Executive Compensation
Committee of the Board of Directors on Executive Compensation" shall not be
deemed to be incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain information with respect to this Item is included in the Company's Proxy
Statement dated December 27, 2002, which is incorporated herein by reference,
under the caption "Voting Securities and Principal Holders Thereof".
Information as of September 30, 2002 with respect to equity compensation plans
is as follows:
- ---------------------------------------------------------------------------------------------------------------------
Number of
Number of securities to Weighted average securities
be issued upon exercise exercise price of remaining
of outstanding options, outstanding options, available for
Plan Category warrants and rights warrants and rights future issuance
- --------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by stockholders (1)(2) 1,048,809 $ 29.04 3,038,235
- --------------------------------------------------------------------------------------------------------------------
(1) 1990 Long-Term Incentive Plan.
(2) Excludes purchase rights accruing under the Company's Employees' Stock
Purchase Plan (Purchase Plan), which has a stockholder approved reserve of
925,000 shares. Under the Purchase Plan, each eligible employee may
purchase up to 5% of base compensation not to exceed $25,000 on the last
business day of April each year at a purchase price per share equal to 85%
of the lower of the average of the high and low market price on either the
first or last business day of the plan year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Vertis, Inc. (Vertis) provides the Company, in the normal course of business,
with an Internet subscription service that allows access to advertising
prototypes. Fees paid to Vertis totaled $76,000 in 2002. Director Herbert W.
Moloney III is Chief Operating Officer, North America, of Vertis.
ITEM 14. 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 September 30, 2002, 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 September 30, 2002.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report on Form 10-K:
Financial Statements
Consolidated Balance Sheets - September 30, 2002 and 2001
Consolidated Statements of Income - Years ended September 30, 2002,
2001 and 2000
Consolidated Statements of Stockholders' Equity - Years ended September 30,
2002, 2001 and 2000
Consolidated Statements of Cash Flows - Years ended September 30, 2002,
2001 and 2000
Notes to Consolidated Financial Statements
Independent Auditors' Reports
Report of Management
Financial Statement Schedules
All schedules have been omitted as not required, not applicable, not deemed
material or because the information is included in the Notes to Consolidated
Financial Statements.
Exhibits
See Exhibit Index.
Reports on Form 8-K
On July 2, 2002, the Company filed a Current Report on Form 8-K reporting
"Changes in Registrant's Certifying Accountant" pursuant to Item 9 reporting
that the Company has dismissed McGladrey as its independent accountant,
effective June 30, 2002, and appointed Deloitte as its new independent
accountant, effective July 1, 2002. The Form 8-K further stated that during the
fiscal years ended September 30, 2001 and 2000, and during the interim period
prior to the dismissal, there were no disagreements with McGladrey on any matter
of accounting principle or practice, financial statement disclosure, or auditing
scope or procedure.
SIGNATURES
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 on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on the
27th day of December 2002.
LEE ENTERPRISES, INCORPORATED
/s/ Mary E. Junck /s/ Carl G. Schmidt
- ------------------------------------- ----------------------------------
Mary E. Junck Carl G. Schmidt
Chairman, President and Chief Vice President, Chief Financial Officer
Executive Officer and Treasurer
(Principal Financial and Accounting
Officer)
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 their respective capacities on the 14th day of November, 2002.
Signature
/s/ Rance E. Crain Director
- -------------------------------------
Rance E. Crain
/s/ Mary E. Junck Chairman, President and Chief Executive
- ------------------------------------- Officer and Director
Mary E. Junck
/s/ William E. Mayer Director
- -------------------------------------
William E. Mayer
/s/ Herbert W. Moloney III Director
- -------------------------------------
Herbert W. Moloney III
/s/ Andrew E. Newman Director
- -------------------------------------
Andrew E. Newman
/s/ Gordon D. Prichett Director
- -------------------------------------
Gordon D. Prichett
/s/ Gregory P. Schermer Vice President - Interactive Media
- ------------------------------------- and Corporate Counsel and Director
Gregory P. Schermer
/s/ Mark Vittert Director
- -------------------------------------
Mark Vittert
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Mary E. Junck, certify that:
1. I have reviewed this Annual Report on Form 10-K (Annual Report) of Lee
Enterprises, Incorporated (Registrant);
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state 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 Annual Report;
3. Based on my knowledge, the Consolidated Financial Statements, and other
financial information included in this Annual 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
Annual 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-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures 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 Annual Report
is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Annual Report (Evaluation Date); and
c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the Audit
Committee of the Registrant's Board of Directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
Annual Report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 27, 2002 /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 Annual Report on Form 10-K (Annual Report) of Lee
Enterprises, Incorporated (Registrant);
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state 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 Annual Report;
3. Based on my knowledge, the Consolidated Financial Statements, and other
financial information included in this Annual 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
Annual 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-14 and 15d-14) for the Registrant and have:
a) designed such disclosure controls and procedures 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 Annual Report
is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Annual Report (Evaluation Date); and
c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the Audit
Committee of the Registrant's Board of Directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
Annual Report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 27, 2002 /s/ Carl G. Schmidt
------------------------------
Carl G. Schmidt
Vice President, Chief Financial Officer and Treasurer
EXHIBIT INDEX
Exhibits marked with an asterisk (*) are incorporated by reference to documents
previously filed by the Company with the Securities and Exchange Commission, as
indicated. Exhibits marked with a plus (+) are management contracts or
compensatory plan contracts or arrangements filed pursuant to Item
601(b)(10)(iii)(A) of Regulation S-K. All other documents listed are filed with
this Annual Report on Form 10-K.
- --------------------------------------------------------------------------------
Number Description
- --------------------------------------------------------------------------------
2.1* Acquisition Agreement by and among Lee Enterprises, Incorporated,
Howard Publications, Inc., Howard Energy Co., Inc. and the
stockholders of Howard Publications, Inc. named therein dated February
11, 2002 and First Amendment thereto dated March 29, 2002 (Exhibit 2.1
to Current Report on Form 8-K dated April 1, 2002)
2.2* Escrow Agreement by and among Lee Enterprises, Incorporated, and HPI
Indemnifying Stockholders listed on Schedule I attached thereto, and
Wells Fargo Iowa, N.A. as Escrow Agent dated as of April 1, 2002
(Exhibit 2.2 to Current Report on Form 8-K dated April 1, 2002)
3.1 Restated Certificate of Incorporation of Lee Enterprises, Incorporated
as of November 14, 2002
3.2* Lee Enterprises, Incorporated Amended and Restated By-Laws as of
January 23, 2002 (Exhibit 3 to Form 10-Q for Quarter Ended March 31,
2002)
4* Rights Agreement, dated as of May 7, 1998, between Lee Enterprises,
Incorporated and The First Chicago Trust Company of New York, which
includes the form of Certificate of Designation of the Preferred Stock
as Exhibit A, the form of Right Certificate as Exhibit B and the
Summary of Rights as Exhibit C (Exhibit 1 to Current Report on Form
8-K dated May 7, 1998)
10.+* Lee Enterprises, Incorporated 1990 Long-Term Incentive Plan
effective as of October 1, 1999, as amended, restated and extended on
January 26, 1999 (Exhibit A to Schedule 14A Definitive Proxy Statement
for 1998)
10.1a+ Forms of related Incentive Stock Option Agreement, Non-Qualified
Stock Option Agreement and Restricted Stock Option Agreement related
to Lee Enterprises, Incorporated 1990 Long-Term Incentive Plan
effective as of October 1, 1999, as amended, restated and extended on
January 26, 1999
10.2+* Lee Enterprises, Incorporated Amended and Restated 1977 Employees'
Stock Purchase Plan as amended February 1, 1996 (Exhibit B to Schedule
14A Definitive Proxy Statement for 1996)
10.3+* Lee Enterprises, Incorporated 1996 Stock Plan for Non-Employee
Directors, effective February 1, 1996 (Exhibit C to Schedule 14A
Definitive Proxy Statement for 1996)
10.4+ Lee Enterprises, Incorporated Supplementary Benefits Plan
10.5+* Form of Employment Agreement for Lee Enterprises, Incorporated
Executive Officers Group (Exhibit 10 to Annual Report on Form 10-K for
the Fiscal Year Ended September 30, 1998)
10.6+* Form of Indemnification Agreement for Lee Enterprises, Incorporated
Directors and Executive Officers Group (Exhibit 10 to Annual Report on
Form 10-K for the Fiscal Year Ended September 30,1998)
16* Former Independent Accountant's Letter (Exhibit 16 to Current Report
on Form 8-K dated July 2, 2002)
- --------------------------------------------------------------------------------
Number Description
- --------------------------------------------------------------------------------
21 Subsidiaries and associated companies
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of McGladrey & Pullen, LLP
24 Power of Attorney
99.* Note Purchase Agreement by and among Lee Enterprises, Incorporated and
the Purchasers named therein dated as of March 15, 1998 (Exhibit 99 to
Current Report on Form 8-K dated March 31, 1998).
99.1a* First Amendment to the Note Purchase Agreement, dated as of August
30, 2001, by and among Lee Enterprises, Incorporated and the
Purchasers named therein dated as of March 15, 1998 (Exhibit 99.1 to
Current Report on Form 8-K dated September 5, 2001)
99.2* Credit Agreement among Lee Enterprises, Incorporated, Bank of
America, N.A., as Administrative Agent and other lenders party thereto
dated as of March 28, 2002 (Exhibit 99 to Current Report on Form 8-K
dated April 1, 2002)
99.3* Statement under Oath of Chief Executive Officer (Exhibit 99.1 to Form
10-Q for Quarter Ended June 30, 2002)
99.4* Statement under Oath of Chief Financial Officer (Exhibit 99.2 to Form
10-Q for Quarter Ended June 30, 2002)
99.5 Sarbanes-Oxley Act Section 906 Certification
CONSOLIDATED FINANCIAL STATEMENTS PAGE
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Reports
Report of Management
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------------------------------------------------------------------------------------------
Year Ended September 30
- ---------------------------------------------------------------------------------------------------------------------
(Thousands, Except Per Common Share Data) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Operating revenue:
Advertising $354,327 $279,954 $272,606
Circulation 105,711 81,441 79,792
Other 65,858 65,571 63,691
- ---------------------------------------------------------------------------------------------------------------------
525,896 426,966 416,089
- ---------------------------------------------------------------------------------------------------------------------
Operating expenses:
Compensation 206,454 167,177 155,554
Newsprint and ink 43,727 42,009 37,819
Depreciation 18,127 15,992 14,207
Amortization of intangible assets 16,923 15,365 14,364
Other 127,885 107,448 100,659
- ---------------------------------------------------------------------------------------------------------------------
413,116 347,991 322,603
- ---------------------------------------------------------------------------------------------------------------------
Operating income, before equity in net income of 112,780 78,975 93,486
associated companies
Equity in net income of associated companies 9,057 7,651 9,377
- ---------------------------------------------------------------------------------------------------------------------
Operating income 121,837 86,626 102,863
- ---------------------------------------------------------------------------------------------------------------------
Non-operating income (expense), net:
Financial income 6,007 28,548 3,259
Financial expense (15,777) (11,963) (12,643)
Gain (loss) on sales of businesses (339) (6,233) 18,439
Other, net (669) (3,934) (1,307)
- ---------------------------------------------------------------------------------------------------------------------
(10,778) 6,418 7,748
- ---------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 111,059 93,044 110,611
Income tax expense 30,030 33,215 40,494
- ---------------------------------------------------------------------------------------------------------------------
Income from continuing operations 81,029 59,829 70,117
- ---------------------------------------------------------------------------------------------------------------------
Discontinued operations:
Income (loss) from discontinued operations, net of
income tax effect (176) (373) 4,496
Gain on dispositions, net of income tax effect 1,122 254,772 9,050
- ---------------------------------------------------------------------------------------------------------------------
946 254,399 13,546
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 81,975 $314,228 $ 83,663
- ---------------------------------------------------------------------------------------------------------------------
Earnings per common share:
Basic:
Continuing operations $ 1.84 $ 1.37 $ 1.59
Discontinued operations 0.02 5.81 0.31
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 1.86 $ 7.18 $ 1.90
- ---------------------------------------------------------------------------------------------------------------------
Diluted:
Continuing operations $ 1.83 $ 1.36 $ 1.58
Discontinued operations 0.02 5.77 0.31
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 1.85 $ 7.13 $ 1.89
- ---------------------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------
September 30
- ------------------------------------------------------------------------------------------------------------
(Thousands, Except Per Share Data) 2002 2001
- ------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 14,381 $ 272,169
Temporary cash investments - 211,221
Accounts receivable, less allowance for doubtful accounts:
2002 $6,035; 2001 $4,328 57,313 40,644
Receivable from associated companies 1,500 1,500
Inventories 10,166 3,889
Deferred income taxes 7,812 5,488
Other 2,986 1,900
Assets of discontinued operations 9,869 11,329
- ------------------------------------------------------------------------------------------------------------
104,027 548,140
- ------------------------------------------------------------------------------------------------------------
Investments:
Associated companies 20,278 18,940
Other 7,460 13,771
- ------------------------------------------------------------------------------------------------------------
27,738 32,711
- ------------------------------------------------------------------------------------------------------------
Property and equipment:
Land and improvements 21,095 10,356
Buildings and improvements 96,442 61,925
Equipment 231,752 176,944
- ------------------------------------------------------------------------------------------------------------
349,289 249,225
Less accumulated depreciation 144,992 132,736
- ------------------------------------------------------------------------------------------------------------
204,297 116,489
- ------------------------------------------------------------------------------------------------------------
Goodwill 609,792 225,147
Other intangible assets 513,109 77,552
Other 4,867 358
- ------------------------------------------------------------------------------------------------------------
$1,463,830 $1,000,397
- ------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
September 30
- -----------------------------------------------------------------------------------------------------------------
2002 2001
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt $ 14,600 $ 11,600
Accounts payable 21,015 10,782
Compensation and other accrued liabilities 32,591 27,048
Income taxes payable 5,103 57,281
Dividends payable 7,533 -
Liabilities of discontinued operations 157 479
Unearned revenue 27,750 17,949
- -----------------------------------------------------------------------------------------------------------------
108,749 125,139
- -----------------------------------------------------------------------------------------------------------------
Long-term debt, net of current maturities 394,700 161,800
Deferred items:
Retirement and compensation 7,655 13,178
Income taxes 210,475 18,336
Other 995 -
- -----------------------------------------------------------------------------------------------------------------
722,574 318,453
- -----------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Serial convertible preferred stock, no par value;
authorized 500 shares; none issued - -
Common Stock, $2 par value; authorized 69,242 67,318
60,000 shares; issued and outstanding:
2002 34,621 shares;
2001 33,659 shares
Class B Common Stock, $2 par value; authorized 19,380 20,758
30,000 shares; issued and outstanding:
2002 9,690 shares;
2001 10,379 shares
Additional paid-in capital 55,797 48,164
Unearned compensation (1,845) (1,130)
Retained earnings 598,682 546,834
- -----------------------------------------------------------------------------------------------------------------
741,256 681,944
- -----------------------------------------------------------------------------------------------------------------
$1,463,830 $1,000,397
- -----------------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Year Ended September 30
- ----------------------------------------------------------------------------------------------------------------------------
Amount Shares
- ---------------------------------------------------------------------------------------- ----------------------------------
(Thousands, Except Per Common Share Data) 2002 2001 2000 2002 2001 2000
- ---------------------------------------------------------------------------------------- ----------------------------------
Common Stock: $ 67,318 $ 66,140 $ 66,142 33,659 33,070 33,071
Balance, beginning of year
Conversion from Class B
Common Stock 1,378 694 770 689 347 385
Shares issued 580 1,194 478 290 597 239
Shares reacquired (34) (710) (1,250) (17) (355) (625)
- ---------------------------------------------------------------------------------------- -----------------------------------
Balance, end of year 69,242 67,318 66,140 34,621 33,659 33,070
- ---------------------------------------------------------------------------------------- -----------------------------------
Class B Common Stock:
Balance, beginning of year 20,758 21,480 22,376 10,379 10,740 11,188
Conversion to Common
Stock (1,378) (694) (770) (689) (347) (385)
Shares reacquired - (28) (126) - (14) (63)
- ---------------------------------------------------------------------------------------- -----------------------------------
Balance, end of year 19,380 20,758 21,480 9,690 10,379 10,740
- ---------------------------------------------------------------------------------------- -----------------------------------
Additional paid-in capital:
Balance, beginning of year 48,164 37,330 32,641
Shares issued 7,633 10,834 4,689
- ----------------------------------------------------------------------------------------
Balance, end of year 55,797 48,164 37,330
- ----------------------------------------------------------------------------------------
Unearned compensation:
Balance, beginning of year (1,130) (1,227) (961)
Restricted shares issued (2,067) (1,136) (1,364)
Restricted shares canceled 92 251 283
Amortization 1,260 982 815
- ----------------------------------------------------------------------------------------
Balance, end of year (1,845) (1,130) (1,227)
- ----------------------------------------------------------------------------------------
Retained earnings:
Balance, beginning of year 546,834 271,444 234,131
Net income 81,975 314,228 83,663
Cash dividends per
common share: (30,075) (29,797) (28,288)
2002 $0.68;
2001 $0.68;
2000 $0.64
Shares reacquired (52) (9,041) (18,062)
- ----------------------------------------------------------------------------------------
Balance, end of year 598,682 546,834 271,444
- ---------------------------------------------------------------------------------------- -----------------------------------
Total stockholders' equity $ 741,256 $ 681,944 $ 395,167 44,311 44,038 43,810
- ---------------------------------------------------------------------------------------- -----------------------------------
The accompanying Notes are an integral part of the Consolidated Financial
Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------
Year Ended September 30
- ------------------------------------------------------------------------------------------------------------------------
(Thousands) 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities:
Net income $ 81,975 $ 314,228 $ 83,663
Less: discontinued operations (946) (254,399) (13,546)
- ------------------------------------------------------------------------------------------------------------------------
Income from continuing operatio