UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended March 31, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-6227
Lee Enterprises, Incorporated
A Delaware Corporation I.D. #42-0823980
215 N. Main Street, Davenport, Iowa 52801
Phone: (319) 383-2100
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No
[ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Class Outstanding at March 31, 1995
Common Stock, $2.00 par value 17,242,290
Class "B" Common Stock, $2.00 par value 6,641,510
PART I. FINANCIAL INFORMATION
Item 1.
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
Three Months Six Months
Ended March 31, Ended March 31,
1995 1994 1995 1994
(Unaudited)
Operating revenue:
Newspaper:
Advertising $ 31,809 $ 30,194 $ 69,663 $ 65,202
Circulation 16,869 16,406 33,945 32,848
Other 12,567 10,031 23,895 19,361
Broadcasting 21,721 20,893 51,068 43,827
Media products and services 13,809 15,440 28,512 31,072
Equity in net income of
associated companies 1,866 1,959 4,646 4,700
$ 98,641 $ 94,923 $211,729 $197,010
Operating expenses:
Compensation costs $ 35,730 $ 34,506 $ 71,984 $ 68,609
Newsprint and ink 6,367 4,859 13,143 10,715
Depreciation 2,975 2,649 5,820 5,332
Amortization of intangibles 3,004 3,173 6,025 6,333
Other 31,392 30,282 65,324 61,528
$ 79,468 $ 75,469 $162,296 $152,517
Operating income $ 19,173 $ 19,454 $ 49,433 $ 44,493
Financial (income) expense,
net:
Financial (income) $ (622) $ (540) $ (1,433) $ (1,249)
Financial expense 2,664 3,363 5,920 7,095
$ 2,042 $ 2,823 $ 4,487 $ 5,846
Income before taxes
on income $ 17,131 $ 16,631 $ 44,946 $ 38,647
Income taxes 6,015 7,067 17,004 15,766
Net income $ 11,116 $ 9,564 $ 27,942 $ 22,881
Weighted average number of
shares 22,610 23,461 22,760 23,461
Earnings per share $ .49 $ .41 $ 1.23 $ .98
Dividends per share $ .22 $ .21 $ .44 $ .42
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, September 30,
1995 1994
(Unaudited)
ASSETS
Cash and cash equivalents $ 46,556 $ 18,784
Temporary investments 200 38,859
Accounts receivable, net 51,170 48,339
Inventories 13,056 13,147
Film rights and other 12,564 16,578
Total current assets $123,546 $135,707
Investments, associated companies 10,332 21,969
Property and equipment, net 92,440 82,164
Intangibles and other assets 288,790 234,861
$515,108 $474,701
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $103,401 $ 99,730
Long-term debt, less current maturities 73,367 98,641
Deferred items 38,373 34,400
Stockholders' equity 299,967 241,930
$515,108 $474,701
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
1995 1994
(Unaudited)
Six Months Ended March 31:
CASH PROVIDED BY OPERATIONS
Net income $ 27,942 $ 22,881
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 11,845 11,665
Distributions in excess of
earnings of associated companies 2,066 1,624
Other balance sheet changes (3,303) 5,806
Net cash provided by operations $ 38,550 $ 41,976
CASH PROVIDED BY (REQUIRED FOR) INVESTING
ACTIVITIES
Acquisitions $ 7,194 $ (2,370)
Purchase of temporary investments (200) (67,579)
Proceeds from maturities of temporary
investments 38,859 71,484
Purchase of property and equipment (6,564) (8,600)
Net cash provided by (required for)
investing activities $ 39,289 $ (7,065)
CASH (REQUIRED FOR) FINANCING ACTIVITIES
Purchase of common stock $(19,369) $ (1,933)
Cash dividends paid (4,933) (4,836)
Payment of debt (25,000) (25,667)
Other (765) 309
Net cash (required for) financing
activities $(50,067) $(32,127)
Net increase in cash and cash
equivalents $ 27,772 $ 2,784
Cash and cash equivalents:
Beginning 18,784 17,072
Ending $ 46,556 $ 19,856
LEE ENTERPRISES, INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
NOTE 1. BASIS OF PRESENTATION
The information furnished reflects all adjustments, consisting of
normal recurring accruals, which are, in the opinion of
management, necessary to a fair presentation of the financial
position as of March 31, 1995 and the results of operations for
the three- and six-month periods ended March 31, 1995 and 1994 and
cash flows for the six-month periods ended March 31, 1995 and
1994.
NOTE 2. INVESTMENT IN ASSOCIATED COMPANIES
Condensed operating results of unconsolidated associated companies
are as follows:
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
(In Thousands)
(Unaudited)
Revenues $ 23,792 $ 22,877 $ 50,683 $ 48,741
Operating expenses,
except depreciation
and amortization 17,315 16,462 34,774 33,169
Depreciation and
amortization 653 432 1,264 924
Operating income 5,824 5,983 14,645 14,648
Financial income 405 440 900 885
Income before income
taxes 6,229 6,423 15,545 15,533
Income taxes 2,492 2,526 6,240 6,132
Net income 3,737 3,897 9,305 9,401
a. Madison Newspaper, Inc. (50% owned)
b. Journal-Star Printing Co. (49.75% owned) until March 31, 1995
c. Quality Information Systems (50% owned)
NOTE 3. INVENTORIES
Inventories consist of the following:
March 31, September 30,
1995 1994
(In Thousands)
(Unaudited)
Newsprint $ 2,560 $ 2,343
Media products and services:
Raw material 5,784 5,684
Finished goods 4,712 5,120
$ 13,056 $ 13,147
LEE ENTERPRISES, INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
NOTE 4. CASH FLOWS INFORMATION
The components of other balance sheet changes are:
Six Months Ended
March 31,
1995 1994
(In Thousands)
(Unaudited)
(Increase) in receivables $ (1,851) $ (204)
Decrease in inventories, film
rights and other 1,397 2,728
Increase in accounts payable,
accrued expenses and unearned income 2,112 2,287
Increase (decrease) in income taxes
payable (3,713) 1,557
Other, primarily deferred items (1,248) (562)
$ (3,303) $ 5,806
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating results:
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
(Dollar Amounts in Thousands Except For
Per Share Data)
Revenue $ 98,641 $ 94,923 $211,729 $197,010
Percent change 3.9% 7.5%
Operating expenses 79,468 75,469 162,296 152,517
Percent change 5.3% 6.4%
Operating income 19,173 19,454 49,433 44,493
Percent change (1.4%) 11.1%
Net income 11,116 9,564 27,942 22,881
Percent change 16.2% 22.1%
Earnings per share $ .49 $ .41 $ 1.23 $ .98
Percent change 19.5% 25.5%
Operations by line of business are as follows:
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
(In Thousands)
Revenue:
Newspapers $ 63,127 $ 58,532 $132,178 $122,000
Broadcasting 21,721 20,893 51,068 43,827
Media products and
services 13,793 15,498 28,483 31,183
$ 98,641 $ 94,923 $211,729 $197,010
Operating income:
Newspapers $ 15,705 $ 16,364 $ 36,498 $ 36,268
Broadcasting 4,391 4,626 16,009 10,432
Media products and
services 2,366 3,005 4,078 5,837
Corporate and other (3,289) (4,541) (7,152) (8,044)
$ 19,173 $ 19,454 $ 49,433 $ 44,493
Three Months Ended Six Months Ended
March 31, March 31,
1995 1994 1995 1994
(In Thousands)
Depreciation and
amortization:
Newspapers $ 2,790 $ 2,663 $ 5,522 $ 5,322
Broadcasting 1,918 1,924 3,794 3,772
Media products and
services 1,136 1,117 2,269 2,329
Corporate 135 118 260 242
$ 5,979 $ 5,822 $ 11,845 $ 11,665
Capital expenditures:
Newspaper $ 1,955 $ 3,010 $ 3,322 $ 6,115
Broadcasting 1,523 1,393 3,196 2,237
Media products and
services 5 68 46 134
Corporate - - 114 - - 114
$ 3,483 $ 4,585 $ 6,564 $ 8,600
On March 31, 1995, the Company acquired the 50.25% interest in Journal-Star
Printing Co. ("JSPC") not previously owned, making JSPC a wholly-owned
subsidiary. The transaction involved the issuance of 1,646,643 shares of
the Company's common stock and was accounted for as a purchase. The 49.75%
interest previously owned by the Company is accounted for by the equity
method through March 31, 1995.
As a result of the acquisition deferred income taxes related to the
undistributed income of the 49.75% interest in JSPC were recognized as a
reduction of income tax expense and certain contract termination, relocation
and reorganization payments related to the 49.75% ownership interest were
recognized as expense as of March 31, 1995. Without these one-time costs
operating income would have been $20,406,000 as compared to $19,454,000 in
1994, an increase of 4.9%. As a result of the $838,000 tax benefit, the
total effect of these transactions was not significant to net income for the
three and six month periods ended March 31, 1995.
On March 31, 1995, the Company also purchased the assets of KREZ-TV, a CBS
affiliate in Durango, Colorado, which will be operated as a satellite
station of KRQE-TV in Albuquerque, New Mexico.
QUARTER ENDED MARCH 31, 1995
Newspapers:
Wholly-owned daily newspaper advertising revenue increased $1,615,000,
5.3%. Advertising revenue from local merchants increased $951,000, 5.0%.
Local "run-of-press" advertising increased $319,000 as a result of higher
average rates which offset an .8% decrease in advertising inches. Local
preprint units were up 5.0% while revenue increased $632,000, 9.4%.
Classified advertising revenue grew by $1,071,000, 12.5% as a result of a
7.2% increase in units in the recruitment and private party segments which
offset weakness in the automotive and real estate segments and higher
average rates.
Circulation revenue increased $463,000, 2.8% as a result of higher rates
which offset a 1.2% decrease in volume.
Other revenue increased $2,536,000, 25.3%. Higher editorial fees from
associated newspaper companies contributed $438,000, 19.0%. Commercial
printing, target marketing and other non-traditional products and services
revenues increased $716,000, 19.2%. Revenues from weekly newspapers,
shoppers and specialty publications increased $1,382,000, 34.6%. Of the
34.6% increase, 23.4% relates to properties acquired since the beginning
of the first quarter of the last fiscal year.
Exclusive of the effects of the JSPC transactions compensation expense
increased $1,132,000, 5.5% due primarily to increases in average
compensation. Newsprint and ink costs increased $1,518,000, 31.3%.
Higher unit costs represented substantially all of the increase.
Increases in newsprint used for commercial printing were offset by reduced
newspaper consumption. Other costs increased $421,000, 3.0%.
Broadcasting:
Revenue for the quarter increased $828,000, 4.0% as the Company overcame
the absence of the 1994 winter olympics, carried on our five CBS
affiliates last year. Network compensation accounted for $613,000 of the
increase. The operating comparisons were affected by the Winter Olympics
carried on our five CBS affiliates last year. The revenue increase in the
second quarter of last year was 14.9%. Compensation costs increased
$373,000, 4.4% due to an increase in average compensation and a 2.6%
increase in the number of hours worked. Programming costs for the quarter
declined $27,000 primarily due to lower program acquisition costs. Other
costs increased $617,000, 13.8% for the quarter due to sales and audience
promotion.
Media Products and Services:
Media products and services revenue decreased $1,631,000, 10.6% as
decreased unit volume from NAPP's letterpress plate business was only
partially offset by higher selling prices and growth in the flexographic
printing plate business. Letterpress customers reduced inventory levels
and several customers completed conversion to offset or flexographic
printing. Revenue from the letterpress business is expected to decrease
each year as conversions continue. Operating income decreased $639,000,
21.3% due to the lower sales levels.
Equity in Net Income of Associated Companies:
Equity in net income of associated companies decreased $93,000, as
increases in net income were offset by higher editorial fees charged to
the associated newspaper companies by the Company.
Financial Expenses and Income Taxes:
Interest expense was reduced due to payments on long-term debt.
Without the $838,000 decrease from the elimination of JSPC deferred income
taxes discussed above, income taxes would have been 40.0% of pretax income
for the quarter ended March 31, 1995 as compared to 42.5% of pretax income
in the quarter ended March 31, 1994.
SIX MONTHS ENDED MARCH 31, 1995
Newspapers:
Wholly-owned daily newspaper advertising revenue increased $4,461,000,
6.8%. Advertising revenue from local merchants increased $2,459,000,
6.2%. Local "run-of-press" advertising increased $1,475,000, 5.3%.
Higher average rates were realized in addition to growth in advertising
inches of 1.7%. Local preprint units were up 7.1% while revenue increased
$984,000, 8.3%. Classified advertising revenue increased $2,244,000,
12.7% as a result of a 6.1% increase in units in the recruitment segments,
more advertising by individual customers, and higher average rates.
Circulation revenue increased $1,097,000, 3.3% as a result of higher rates
which offset a decrease in volume.
Other revenue increased $7,241,000, 16.5%. Editorial fees from associated
newspaper companies increased $497,000, 11.1%. Commercial printing,
target marketing and other non-traditional products increased $1,808,000,
26.1%. Revenues from weekly newspapers, shoppers and specialty
publications increased $2,229,000, 28.0%. Of the 28.0% increase, 20.8%
came from properties acquired since the beginning of the first quarter of
the last fiscal year.
Exclusive of the effects of the JSPC transactions and other acquisitions,
compensation expense increased $2,242,000, 5.4% due to an increase in
average compensation and a 2.6% increase in the number of hours worked.
Newsprint and ink costs increased $2,378,000, 22.7%, as higher prices
accounted for 21.0% of the increase, with the balance due to an increase
in newsprint used for commercial printing. Other costs increased
$2,305,000, 8.1% which includes the effect of other commercial printing
costs and the development costs of new products.
Broadcasting:
Revenue for the six months increased $6,113,000, 14.5% due to growth in
local and national advertising and a $3,837,000 increase in political
advertising in the first quarter. Compensation costs increased $825,000,
4.9% due to high average compensation costs and a 3.3% increase in the
number of hours worked. Programming costs declined $239,000, 7.0% due to
lower program acquisition costs. Other costs increased $953,000, 10.1%
for the six month period due primarily to sales and audience promotion.
Media Products and Services:
Media products and services revenue decreased $2,560,000, 8.2% as
decreased unit volume from NAPP's letterpress plate business was only
partially offset by higher selling prices and growth in the flexographic
printing plate business. Letterpress customers reduced inventory levels
and several customers completed conversion to offset or flexographic
printing. Revenue from the letterpress business is expected to decrease
each year as conversions continue. Operating income decreased $1,759,000,
30.1% due to lower sales levels.
Equity in Net Income of Associated Companies:
Equity in net income of associated companies decreased $54,000. An
$86,000 increase in the net income of associated newspaper companies was
offset by a reduction in earnings of 50%-owned strategic alliances.
Financial Expense and Income Taxes:
Interest expense was reduced due to payments on long-term debt.
Income taxes were 37.8% of pretax income for the six months ended
March 31, 1995 and 40.8% of pretax income in the six months ended
March 31, 1994. The elimination of JSPC deferred income taxes discussed
above decreased the 1995 effective tax rate by 1.9%.
Liquidity and capital resources:
Cash provided by operations, which is the Company's primary source of
liquidity, generated $38,550,000 for the six months ended March 31, 1995.
Available cash balances and cash flow from operations provide adequate
liquidity. Bank borrowings may be utilized to pay a portion of the
$48,750,000 purchase price of NBC affiliates KSNW-TV and KSNT-TV in
Wichita and Topeka, Kansas, respectively and to continue the companies
annual stock repurchase program. The acquisition is anticipated to close
on or before June 30, 1995 following regulatory approval. The covenants
related to the Company's credit agreements are not considered restrictive
to operations and anticipated stockholder dividends.
LEE ENTERPRISES, INCORPORATED
PART II. OTHER INFORMATION
Item 4. Submission of matters a vote of security holders
(a) The annual meeting of the Company was held on February 3,
1995.
(b) Lloyd G. Schermer, Andrew E. Newman and Ronald L. Rickman were
re-elected directors for a three-year term expiring at the
1998 annual meeting. Richard W. Sonnenfeldt was re-elected as
a director for a one-year term expiring at the 1996 annual
meeting. Directors whose terms of office continued after the
meeting include: Rance E. Crain, Richard D. Gottlieb, Phyllis
Sewell, J.P. Guerin, Charles E. Rickershauser and Mark
Vittert.
(c) No other matters were voted upon at the meeting. Votes were
cast for nominees for director as follows:
For Against
Lloyd G. Schermer 67,150,931 333,012
Andrew E. Newman 67,164,885 319,058
Ronald L. Rickman 67,150,864 333,079
Richard W. Sonnenfeldt 66,930,502 553,441
Votes withheld, abstentions and broker non-votes were not
significant.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Computation of Earnings Per Share
(b) Reports on Form 8-K filed during the quarter for which this
report is filed are as follows:
Financial
Statements Date of
Items Reported Filed Report
Definitive Agreements for
acquisition of 50.25% of
Journal-Star Printing Co.
and 100% of SJL of Kansas
Corp. None March 17, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEE ENTERPRISES, INCORPORATED
DATE May 5, 1995 /s/ G. C. Wahlig
G. C. Wahlig, Chief Accounting
Officer