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 June 30, 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 June 30, 1995
Common Stock, $2.00 par value 17,178,566
Class "B" Common Stock, $2.00 par value 6,595,965
PART I. FINANCIAL INFORMATION
Item 1.
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
Three Months Nine Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
(Unaudited)
Operating revenue:
Newspaper:
Advertising $ 42,740 $ 35,027 $112,403 $100,229
Circulation 19,427 16,585 53,372 49,433
Other 12,383 10,233 36,278 29,594
Broadcasting 25,061 23,179 76,129 67,006
Media products and services 15,785 15,439 44,297 46,511
Equity in net income of
associated companies 1,710 2,559 6,356 7,259
$117,106 $103,022 $328,835 $300,032
Operating expenses:
Compensation costs $ 38,107 $ 34,657 $110,091 $103,266
Newsprint and ink 8,567 6,113 21,710 16,828
Depreciation 3,270 2,692 9,090 8,024
Amortization of intangibles 3,553 3,130 9,578 9,463
Other 34,125 30,147 99,449 91,675
$ 87,622 $ 76,739 $249,918 $229,256
Operating income $ 29,484 $ 26,283 $ 78,917 $ 70,776
Financial (income) expense,
net:
Financial (income) $ (901) $ (760) $ (2,334) $ (2,009)
Financial expense 2,917 3,219 8,837 10,314
$ 2,016 $ 2,459 $ 6,503 $ 8,305
Income before taxes
on income $ 27,468 $ 23,824 $ 72,414 $ 62,471
Income taxes 11,033 9,457 28,037 25,223
Net income $ 16,435 $ 14,367 $ 44,377 $ 37,248
Weighted average number of
shares 24,182 23,413 23,238 23,445
Earnings per share $ .68 $ .61 $ 1.91 $ 1.59
Dividends per share $ .22 $ .21 $ .66 $ .63
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, September 30,
1995 1994
(Unaudited)
ASSETS
Cash and cash equivalents $ 56,513 $ 18,784
Temporary investments 200 38,859
Accounts receivable, net 55,447 48,339
Inventories 13,289 13,147
Film rights and other 12,208 16,578
Total current assets $137,657 $135,707
Investments, associated companies $ 10,629 $ 21,969
Property and equipment, net 93,488 82,164
Intangibles and other assets 285,164 234,861
$526,938 $474,701
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $129,244 $ 99,730
Long-term debt, less current maturities 52,842 98,641
Deferred items 38,747 34,400
Stockholders' equity 306,105 241,930
$526,938 $474,701
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
1995 1994
(Unaudited)
Nine Months Ended June 30:
CASH PROVIDED BY OPERATIONS
Net income $ 44,377 $ 37,248
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 18,668 17,487
Distributions in excess of
earnings of associated companies 1,769 785
Other balance sheet changes (1,725) 8,671
Net cash provided by operations $ 63,089 $ 64,191
CASH PROVIDED BY (REQUIRED FOR) INVESTING
ACTIVITIES
Acquisitions $ 7,144 $ (4,083)
Purchase of temporary investments (200) (102,003)
Proceeds from maturities of temporary
investments 38,859 100,728
Purchase of property and equipment (10,643) (11,953)
Net cash provided by (required for)
investing activities $ 35,160 $(17,311)
CASH (REQUIRED FOR) FINANCING ACTIVITIES
Purchase of common stock $(26,450) $ (2,118)
Cash dividends paid (9,827) (9,688)
Payment of debt (25,000) (27,267)
Other, primarily stock options exercised 757 2,192
Net cash (required for) financing
activities $(60,520) $(36,881)
Net increase in cash and cash
equivalents $ 37,729 $ 9,999
Cash and cash equivalents:
Beginning 18,784 17,072
Ending $ 56,513 $ 27,071
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 June 30, 1995 and the results of operations for the
three and nine month periods ended June 30, 1995 and 1994 and cash
flows for the nine month periods ended June 30, 1995 and 1994.
NOTE 2. INVESTMENT IN ASSOCIATED COMPANIES
Condensed operating results of unconsolidated associated companies
are as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
(In Thousands)
(Unaudited)
Revenues $ 17,427 $ 24,759 $ 68,110 $ 73,500
Operating expenses,
except depreciation
and amortization 11,502 16,236 46,276 49,405
Depreciation and
amortization 444 428 1,708 1,352
Operating income 5,481 8,095 20,126 22,743
Financial income 312 438 1,212 1,323
Income before income
taxes 5,793 8,533 21,338 24,066
Income taxes 2,339 3,406 8,579 9,538
Net income 3,454 5,127 12,759 14,528
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:
June 30, September 30,
1995 1994
(In Thousands)
(Unaudited)
Newsprint $ 2,821 $ 2,343
Media products and services:
Raw material 5,765 5,684
Finished goods 4,703 5,120
$ 13,289 $ 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:
Nine Months Ended
June 30,
1995 1994
(In Thousands)
(Unaudited)
(Increase) in receivables $ (6,128) $ (4,623)
(Increase) in inventories, film
rights and other (428) (406)
Increase in accounts payable,
accrued expenses and unearned income 4,877 9,098
Increase in income taxes payable 277 4,661
Other, primarily deferred items (323) (59)
$ (1,725) $ 8,671
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating results:
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
(Dollar Amounts in Thousands Except For
Per Share Data)
Actual:
Revenue $117,106 $103,022 $328,835 $300,032
Percent change 13.7% 9.6%
Operating expenses 87,622 76,739 249,918 229,256
Percent change 14.2% 9.0%
Operating income 29,484 26,283 78,917 70,776
Percent change 12.2% 11.5%
Net income 16,435 14,367 44,337 37,248
Percent change 14.4% 19.1%
Earnings per share $ .68 $ .61 $ 1.91 $ 1.59
Percent change 11.5% 20.1%
As if acquisition of Journal-Star Printing Co. had occurred on October 1,
1993.
Proforma:
Revenue $117,106 $109,776 $342,937 $319,802
Percent change 6.7% 7.2%
Operating expenses 87,622 82,377 260,725 246,240
Percent change 6.4% 5.9%
Operating income 29,484 27,399 82,212 73,562
Percent change 7.6% 11.8%
Net income 16,435 15,084 46,405 39,040
Percent change 9.0% 18.9%
Earnings per share $ .68 $ .60 $ 1.91 $ 1.56
Percent change 13.3% 22.4%
Operations by line of business are as follows:
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
(In Thousands)
Revenue:
Newspapers $ 76,274 $ 64,398 $208,452 $186,398
Broadcasting 25,061 23,179 76,129 67,006
Media products and
services 15,771 15,445 44,254 46,628
$117,106 $103,022 $328,835 $300,032
Operating income:
Newspapers $ 21,666 $ 19,672 $ 58,164 $ 55,940
Broadcasting 7,259 6,207 23,268 16,639
Media products and
services 3,916 3,694 7,994 9,531
Corporate and other (3,357) (3,290) (10,509) (11,334)
$ 29,484 $ 26,283 $ 78,917 $ 70,776
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
(In Thousands)
Depreciation and
amortization:
Newspapers $ 3,572 $ 2,787 $ 9,094 $ 8,109
Broadcasting 1,994 1,786 5,788 5,558
Media products and
services 1,122 1,117 3,391 3,446
Corporate 135 132 395 374
$ 6,823 $ 5,822 $ 18,668 $ 17,487
Capital expenditures:
Newspaper $ 2,183 $ 2,554 $ 5,268 $ 8,669
Broadcasting 1,870 746 5,066 2,983
Media products and
services 15 33 61 167
Corporate 11 20 248 134
$ 4,079 $ 3,353 $ 10,643 $ 11,953
There were no significant non-recurring items during the quarter ended
June 30, 1995.
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. In exchange the Company issued 1,646,643 shares of the
Company's common stock and the transaction 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 terminations,
relocation or 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 $80,150,000 as compared
to $70,776,000 in 1994, an increase of 13.2%. As a result of the $838,000
tax benefit, the total effect of these transactions was not significant to
net income for the nine month period ended June 30, 1995.
On March 31, 1995, the Company also purchased the assets of KREZ-TV, a CBS
affiliate in Durango, Colorado, for $1,750,000. The station will be
operated as a satellite station of KRQE-TV in Albuquerque, New Mexico.
QUARTER ENDED JUNE 30, 1995
Newspapers:
All comparisons are in a proforma basis as if the JSPC acquisition had
been effective October 1, 1993. Wholly-owned daily newspaper
advertising revenue increased $1,843,000, 4.5%. Advertising revenue
from local merchants increased $734,000, 3.1%. Local "run-of-press"
advertising increased $115,000 as a result of higher average rates which
offset a 2.5% decrease in advertising inches. Local preprint units were
up 9.7% while revenue increased $619,000, 8.5%. Classified advertising
revenue grew by $839,000, 6.6% primarily as a result of higher average
rates.
Circulation revenue increased $857,000, 4.6% as a result of higher rates
which offset an .8% decrease in volume.
Other revenue increased $2,487,000, 25.1%. Higher editorial fees from
an associated newspaper company contributed $322,000, 21.0%. Commercial
printing, target marketing and other new media products revenues
increased $1,138,000, 29.5%. Revenues from weekly newspapers, shoppers
and specialty publications increased $1,027,000, 22.8%. Of the 22.8%
increase, 11.8% relates to properties acquired since the beginning of
the first quarter of the last fiscal year.
Compensation expense increased $1,203,000, 5.1% due primarily to
increases in average compensation. Newsprint and ink costs increased
$1,387,000, 19.3%. A 20.6% increase in average unit costs was partially
offset by conservation efforts.
A 3.1% increase in newsprint used for commercial printing was more than
offset by reduced newspaper consumption for a net decrease of 1.3%.
Other costs increased $851,000, 5.2%.
Broadcasting:
Revenue for the quarter increased $1,882,000, 8.1%, primarily due to
growth in the Albuquerque, Huntington and Portland markets. Increases
in network compensation accounted for approximately 30% of the revenue
increase. Strong advertising demand offset the loss of approximately
$700,000 of political advertising revenue last year. Compensation costs
increased $309,000, 3.6%. Film amortization for the quarter declined
$226,000 primarily due to lower programming costs. Other cash costs
increased $642,000, 13.7% due to increases in consulting and contract
labor expenses.
Media Products and Services:
Revenue increased $346,000 and operating income increased $180,000,
respectively, which came in large part from operations of NAPP Systems
Inc. Higher flexographic plate and equipment sales, along with higher
average selling prices for letterpress plates, more than offset reduced
letterpress plate volume.
Equity in Net Income of Associated Companies:
Equity in net income of associated companies decreased $849,000 as
operations of JSPC are now consolidated with operations of the Company.
Financial Expenses and Income Taxes:
Interest expense was reduced due to payments on long-term debt.
Income taxes were 40.2% of pretax income for the quarter ended June 30,
1995 and 39.7% of pretax income in the quarter ended June 30, 1994.
NINE MONTHS ENDED JUNE 30, 1995
Newspapers:
All comparisons are in a proforma basis as if the JSPC acquisition had
been effective October 1, 1993. Wholly-owned daily newspaper
advertising revenue increased $6,832,000, 5.8%. Advertising revenue
from local merchants increased $3,244,000, 4.6%. Local "run-of-press"
advertising increased $1,428,000, 2.9%. Higher average rates were
realized and advertising inches were flat. Local preprint units were up
8.0% while revenue increased $1,816,000, 8.7%. Classified advertising
revenue increased $3,401,000, 10.1% as a result of a 3.5% increase in
units and higher average rates.
Circulation revenue increased $2,107,000, 3.8% as a result of higher
rates which offset a .7% decrease in volume.
Other revenue increased $7,563,000, 26.5%. Editorial fees from
associated newspaper companies increased $793,000, 16.1%. Commercial
printing, target marketing and other new media products increased
$3,514,000, 31.5%. Revenues from weekly newspapers, shoppers and
specialty publications increased $3,256,000, 26.1%. Of the 26.1%
increase, 17.6% came from properties acquired since the beginning of the
first quarter of the last fiscal year.
Compensation expense increased $4,133,000, 6.0% due to an increase in
average compensation and a 2.1% increase in the number of hours worked.
Newsprint and ink costs increased $3,696,000, 18.3%, as higher prices
accounted for 17.3% of the increase, with the balance due to an increase
in newsprint used for commercial printing. Other costs increased
$4,291,000, 8.9% which includes the effect of the other commercial
printing costs and the development costs of new products.
Broadcasting:
Revenue for the nine months increased $9,123,000, 13.6% due to growth in
local and national advertising and a $3,837,000 increase in political
advertising in the first quarter. Compensation costs increased
$1,134,000, 4.4% due to high average compensation costs and a 3.8%
increase in the number of hours worked reflecting expanded news
commitments. Programming costs declined $465,000, 9.1% due to lower
program acquisition costs. Other costs increased $1,595,000, 11.3% for
the nine month period due primarily to increases in sales and audience
promotion and consulting and contract labor expenses.
Media Products and Services:
Media products and services revenue decreased $2,214,000, 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
$1,564,000, due to lower sales levels.
Equity in Net Income of Associated Companies:
Equity in net income of associated companies decreased $903,000. As
operations of JSPC have been consolidated with operations of the Company
since March 31, 1995.
Financial Expense and Income Taxes:
Interest expense was reduced due to payments on long-term debt.
Income taxes were 38.7% of pretax income for the nine months ended
June 30, 1995 and 40.4% of pretax income in the nine months ended
June 30, 1994. The elimination of JSPC deferred income taxes discussed
above decreased the 1995 effective tax rate by 1.2%.
Liquidity and capital resources:
Cash provided by operations, which is the Company's primary source of
liquidity, generated $63,089,000 for the nine months ended June 30,
1995. Available cash balances and cash flow from operations provide
adequate liquidity. Up to $50,000,000 in bank borrowings will 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, to continue the Company's annual stock repurchase program,
and to prepay $20,000,000 of long-term debt due on January 15, 1997.
The acquisition is anticipated to close on or before August 23, 1995
following regulatory approval. The covenants related to the Cmpany's
credit agreements are not considered restrictive to operations and
anticipated stockholder dividends.
LEE ENTERPRISES, INCORPORATED
PART II. OTHER INFORMATION
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
Acquisition of 50.25% of
Journal-Star Printing Co. See Below May 8, 1995
(1) Financial statements of the business acquired: Journal Star
Printing Co.
Financial statements and independent
auditors' report on the financial
statements of Journal-Star Printing Co.
as of September 30, 1994 and for the
year then ended.
Unaudited financial statements of Journal-Star
Printing Co. as of March 31, 1995 and for the
six months ended March 31, 1994 and 1995.
(2) Proforma financial information of Lee Enterprises, Incorporated
and subsidiaires.
Unaudited proforma consolidated
statements of income for the year ended
September 30, 1994 and for the six months
ended March 31, 1994 and 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 7/28/95 /s/ G. C. Wahlig
G. C. Wahlig, Chief Accounting
Officer