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, 1996
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, 1996
Common Stock, $2.00 par value 34,031,889
Class "B" Common Stock, $2.00 par value 12,926,570
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,
1996 1995 1996 1995
(Unaudited)
Operating revenue:
Newspaper:
Advertising $ 37,617 $ 31,809 $ 82,818 $ 69,663
Circulation 19,767 16,869 39,951 33,945
Other 14,119 12,567 27,245 23,895
Broadcasting 27,188 21,721 57,529 51,068
Graphic arts 16,161 13,809 32,042 28,512
Equity in net income of
associated companies 1,261 1,866 3,183 4,646
$116,113 $ 98,641 $242,768 $211,729
Operating expenses:
Compensation costs $ 41,473 $ 35,730 $ 83,111 $ 71,984
Newsprint and ink 10,023 6,367 20,238 13,143
Depreciation 3,999 2,975 7,946 5,820
Amortization of intangibles 3,925 3,004 7,698 6,025
Other 36,413 31,392 74,932 65,324
$ 95,833 $ 79,468 $193,925 $162,296
Operating income $ 20,280 $ 19,173 $ 48,843 $ 49,433
Financial (income) expense,
net:
Financial (income) $ (561) $ (622) $ (1,088) $ (1,433)
Financial expense 2,433 2,664 4,988 5,920
$ 1,872 $ 2,042 $ 3,900 $ 4,487
Income before taxes
on income $ 18,408 $ 17,131 $ 44,943 $ 44,946
Income taxes 7,603 6,015 18,198 17,004
Net income $ 10,805 $ 11,116 $ 26,745 $ 27,942
Weighted average number of
shares 47,780 45,220 48,063 45,520
Earnings per share $ .23 $ .25 $ .56 $ .61
Dividends per share $ .12 $ .11 $ .24 $ .22
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, September 30,
1996 1995
(Unaudited)
ASSETS
Cash and cash equivalents $ 10,617 $ 10,683
Temporary investments 200 200
Accounts receivable, net 60,474 58,584
Inventories 16,973 18,355
Film rights and other 14,144 16,687
Total current assets $102,408 $104,509
Investments 20,894 19,700
Property and equipment, net 109,228 108,196
Intangibles and other assets 316,308 327,524
$548,838 $559,929
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $107,537 $116,527
Long-term debt, less current maturities 70,319 75,511
Deferred items 54,039 56,849
Stockholders' equity 316,943 311,042
$548,838 $559,929
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
1996 1995
(Unaudited)
Six Months Ended March 31:
CASH PROVIDED BY OPERATIONS
Net income $ 26,745 $ 27,942
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization 15,644 11,845
Distributions in excess of
earnings of associated companies 1,425 2,066
Other balance sheet changes (8,218) (2,323)
Net cash provided by operations $ 35,596 $ 39,530
CASH PROVIDED BY (REQUIRED FOR) INVESTING
ACTIVITIES
Acquisitions $ - - $ 7,194
Purchase of temporary investments (200) (200)
Proceeds from maturities of temporary
investments 200 38,859
Purchase of property and equipment (8,959) (6,564)
Other (1,181) (980)
Net cash provided by (required for)
investing activities $(10,140) $ 38,309
CASH (REQUIRED FOR) FINANCING ACTIVITIES
Purchase of common stock $ (9,959) $(19,369)
Cash dividends paid (5,680) (4,933)
Proceeds from long-term borrowings 15,000 - -
Payment of debt (25,058) (25,000)
Other 175 (765)
Net cash (required for) financing
activities $(25,522) $(50,067)
Net increase (decrease) in cash and
cash equivalents $ (66) $ 27,772
Cash and cash equivalents:
Beginning 10,683 18,784
Ending $ 10,617 $ 46,556
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, 1996 and the results of operations for the three- and six-month
periods ended March 31, 1996 and 1995 and cash flows for the six-month
periods ended March 31, 1996 and 1995.
NOTE 2. COMMON STOCK SPLIT
On November 9, 1995, the Board of Directors declared a two-for-one
stock split on the Company's common stock and Class B common stock
effected in the form of a stock dividend payable December 8, 1995, to
holders of record on November 20, 1995. All share and per share data
is stated to reflect the split.
NOTE 3. INVESTMENT IN ASSOCIATED COMPANIES
Condensed operating results of unconsolidated associated companies are
as follows:
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
(In Thousands)
(Unaudited)
Revenues $ 17,059 $ 23,792 $ 36,350 $ 50,683
Operating expenses,
except depreciation
and amortization 12,638 17,315 25,364 34,774
Depreciation and
amortization 469 653 930 1,264
Operating income 3,952 5,824 10,056 14,645
Financial income 281 405 589 900
Income before income
taxes 4,233 6,229 10,645 15,545
Income taxes 1,704 2,492 4,272 6,240
Net income 2,529 3,737 6,373 9,305
a. Madison Newspapers, Inc. (50% owned)
b. Journal-Star Printing Co. (49.75% owned) until March 31, 1995
c. Quality Information Systems (50% owned)
NOTE 4. INVENTORIES
Inventories consist of the following:
March 31, September 30,
1996 1995
In Thousands)
(Unaudited)
Newsprint $ 3,019 $ 3,634
Graphic arts products:
Raw material 6,429 7,554
Finished goods 7,525 7,167
$ 16,973 $ 18,355
LEE ENTERPRISES, INCORPORATED
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
NOTE 5. CASH FLOWS INFORMATION
The components of other balance sheet changes are:
Six Months Ended
March 31,
1996 1995
(In Thousands)
(Unaudited)
(Increase) in receivables $ (3,328) $ (1,851)
Decrease in inventories, film
rights and other 1,943 1,397
Increase (decrease) in accounts payable,
accrued expenses and unearned income (7,806) 2,112
Increase (decrease) in income taxes
payable 163 (3,713)
Other, primarily deferred items 810 (268)
$ (8,218) $ (2,323)
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,
1996 1995 1996 1995
(Dollar Amounts in Thousands Except For
Per Share Data)
Revenue $116,113 $ 98,641 $242,768 $211,729
Percent change 17.7% 14.7%
Income before
depreciation
and amortization,
interest and
taxes (EBITDA) 28,204 25,152 64,487 61,278
Percent change 12.1% 5.2%
Operating income 20,280 19,173 48,843 49,433
Percent change 5.8% (1.2%)
Net income 10,805 11,116 26,745 27,942
Percent change (2.8%) (4.3%)
Earnings per share $ .23 $ .25 $ .56 $ .61
Percent change (8.0%) (8.2%)
As if the acquisition of Journal-Star Printing Co. and SJL of Kansas Corp. had
occurred on October 1, 1994.
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
(Dollar Amounts in Thousands Except For
Per Share Data)
Proforma:
Revenue $116,113 $109,280 $242,768 $234,241
Percent change 6.3% 3.6%
Income before
depreciation
and amortization,
interest and
taxes (EBITDA) 28,204 28,811 64,487 68,703
Percent change (2.1%) (6.1%)
Operating income 20,280 21,349 48,843 53,885
Percent change (5.0%) (9.4%)
Net income 10,805 10,958 26,745 28,383
Percent change (1.4%) (5.8%)
Earnings per share $ .23 $ .23 $ .56 $ .58
Percent change - -% (3.4%)
Operations by line of business are as follows:
Three Months Ended Six Months Ended
March 31, March 31,
1996 1995 1996 1995
(In Thousands)
Revenue:
Newspapers $ 72,793 $ 63,127 $153,218 $132,178
Broadcasting 27,188 21,721 57,529 51,068
Graphic arts 16,132 13,793 32,021 28,483
$116,113 $ 98,641 $242,768 $211,729
Income before
depreciation and
amortization, interest
and taxes (EBITDA):
Newspapers $ 19,714 $ 18,363 $ 45,861 $ 42,020
Broadcasting 6,716 6,309 16,592 19,803
Graphic arts 4,349 3,502 7,966 6,347
Corporate (2,575) (3,022) (5,932) (6,892)
$ 28,204 $ 25,152 $ 64,487 $ 61,278
Operating income:
Newspapers $ 16,133 $ 15,573 $ 38,730 $ 36,498
Broadcasting 3,616 4,391 10,565 16,009
Graphic arts 3,248 2,366 5,756 4,078
Corporate (2,717) (3,157) (6,208) (7,152)
$ 20,280 $ 19,173 $ 48,843 $ 49,433
Capital expenditures:
Newspapers $ 3,020 $ 1,955 $ 5,033 $ 3,322
Broadcasting 1,462 1,523 3,523 3,196
Graphic arts - - 5 227 46
Corporate 131 - - 176 - -
$ 4,613 $ 3,483 $ 8,959 $ 6,564
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 3,293,286 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 for the three months ended March 31, 1995 would have been
$20,406,000. 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 August 28, 1995, the Company also purchased stock of SJL of Kansas Corp.
which operates NBC affiliates KSNW-TV and KSNT-TV in Wichita and Topeka,
Kansas.
QUARTER ENDED MARCH 31, 1996
Newspapers:
On a proforma basis for newspapers owned at the end of fiscal 1995, wholly-
owned daily newspaper advertising revenue increased $415,000, 1.1%.
Advertising revenue from local merchants increased $323,000, 1.5%. Local
"run-of-press" advertising increased $337,000, 2.3% as a result of higher
average rates which offset a 3.1% decrease in advertising inches. Local
preprint revenue decreased $14,000, (.2%) due to reductions in the volume of
material distributed by merchants. Classified advertising revenue increased
$605,000, 5.2% as a 1.5% decrease in units primarily related to weakness in
the automotive segment was offset by higher average rates. These increases
were partially offset by decreases in national and other advertising
revenue. Circulation revenue increased $809,000, 4.3% as a result of higher
rates which offset a 1.9% decrease in volume. Other revenue at daily
newspapers increased $1,092,000, 15.5% primarily as a result of increases in
commercial printing and other products delivered outside the newspaper.
On a proforma basis for newspapers owned at the end of fiscal 1995, wholly-
owned daily newspaper compensation expense increased $815,000, 3.6% due
primarily to increases in average compensation. Newsprint and ink costs
increased $2,469,000, 33.1%. The increase was a result of higher unit costs
and a 1.1% increase in consumption. Other operating expenses exclusive of
depreciation and amortization decreased $78,000, (.5%).
Revenues from weekly newspapers, shoppers and specialty publications
increased $612,000, 11.4% primarily as a result of revenue from properties
acquired since the beginning of the first quarter of the last fiscal year.
Broadcasting:
Exclusive of the effects of the acquisition of SJL of Kansas Corp. revenue
for the quarter increased $939,000, 5.1%, as political advertising increased
$831,000, local/regional advertising decreased $746,000 (6.4%), national
advertising increased $418,000, 5.7% and production revenue increased
$523,000. Compensation costs increased $945,000, 10.7% due primarily to an
8.0% increase in the number of hours worked. This increase along with a
$587,000, 11.9% increase in other operating expenses exclusive of
depreciation and amortization were primarily attributable to development of
a local marketing agreement (LMA) with KASY-TV, a UPN affiliate in
Albuquerque, New Mexico along with Portland, Oregon flood coverage costs and
costs related to increased production revenue. Programming costs increased
$210,000, 12.5% primarily due to higher program acquisition costs,
approximately one half of the increase related to KASY-TV programming.
Graphic Arts:
Graphic arts revenue increased $2,352,000, 17.0%, as decreased unit volume
from NAPP's letterpress plate business was offset by higher selling prices,
growth in the flexographic printing plate business and revenue from the
distribution of flexographic commercial printing plates which commenced in
September 1995. Several customers completed conversion from letterpress to
offset or flexographic printing. Revenue from the letterpress business is
expected to decrease each year as conversions continue. Operating income
increased $882,000, 37.3% due to manufacturing efficiencies and a reduction
in spending on new product initiatives.
Equity in Net Income of Associated Companies:
Equity in net income of associated companies decreased $605,000. The prior
year included $614,000 of equity in net income of Journal-Star Printing Co.
Financial Expense and Income Taxes:
Interest expense was reduced due to net payments on long-term debt, offset
in part, by $15,000,000 of short-term borrowings to finance the acquisition
of SJL of Kansas Corp.
Income taxes were 41.3% and 35.1% of pre-tax income for the quarters ended
March 31, 1996 and 1995, respectively. The increase in the effective income
tax rate in 1996 was due to an increase in nondeductible intangible asset
amortizations and the absence of a one-time $838,000 benefit realized in
1995 related to the acquisition of the Journal-Star Printing Company. That
one-time benefit reduced the 1995 effective tax rate by 4.9%.
SIX MONTHS ENDED MARCH 31, 1996
Newspapers:
On a proforma basis for newspapers owned at the end of fiscal 1995, wholly-
owned daily newspaper advertising revenue increased $1,604,000, 2.0%.
Advertising revenue from local merchants increased $984,000, 2.0%. Local
"run-of-press" advertising increased $194,000, .6% as a result of higher
average rates which offset a 4.8% decrease in advertising inches. Local
preprint revenue increased $790,000, 5.4%. Classified advertising revenue
increased $1,174,000, 5.0% as a 2.3% decrease in units primarily related to
weakness in the automotive segment was offset by higher average rates.
These increases were partially offset by decreases in national and other
advertising revenue. Circulation revenue increased $1,874,000, 4.9% as a
result of higher rates which offset a 1.9% decrease in volume. Other
revenue at daily newspapers increased $2,538,000, 18.7% primarily as a
result of increases in commercial printing and other products delivered
outside the newspaper.
On a proforma basis for newspapers owned at the end of fiscal 1995, wholly-
owned daily newspaper compensation expense increased $1,594,000, 3.5% due
primarily to increases in average compensation. Newsprint and ink costs
increased $4,727,000, 30.9%. Higher unit costs were offset in part by a .7%
decrease in consumption. Other operating expenses exclusive of depreciation
and amortization decreased $309,000, (1.0%).
Revenues from weekly newspapers, shoppers and specialty publications
increased $994,000, 9.8%, primarily as a result of revenue from properties
acquired since the beginning of the first quarter of the last fiscal year.
Broadcasting:
Exclusive of the effects of the acquisition of SJL of Kansas Corp. revenue
for the period decreased $2,266,000, (4.4%), as political advertising
decreased $2,075,000, local/regional advertising decreased $1,341,000,
(5.3%), national advertising increased $368,000, 2.3% and production revenue
increased $330,000. Compensation costs increased $1,461,000, 8.2% due
primarily to a 9.0% increase in the number of hours worked. Programming
costs for the period increased $618,000, 18.0% primarily due to higher
program acquisition costs. Other operating expenses exclusive of
depreciation and amortization increased $925,000, 9.2% for the period.
Graphic Arts:
Graphic arts revenue increased $3,530,000, 12.4%, as decreased unit volume
from NAPP's letterpress plate business was offset by higher selling prices,
growth in the flexographic printing plate business and revenue from the
distribution of flexographic commercial printing plates which commenced in
September 1995. Several customers completed conversion from letterpress to
offset or flexographic printing. Revenue from the letterpress business is
expected to decrease each year as conversions continue. Operating income
increased $1,678,000, 41.1% due to manufacturing efficiencies and a
reduction in spending on new product initiatives.
Equity in Net Income of Associated Companies:
Equity in net income of associated companies decreased $1,463,000. The
prior year included $1,423,000 of equity in net income of Journal-Star
Printing Co.
Financial Expense and Income Taxes:
Interest expense was reduced due to net payments on long-term debt, offset
in part, by $15,000,000 of short-term borrowings to finance the acquisition
of SJL of Kansas Corp.
Income taxes were 40.5% and 37.8% of pre-tax income for the six months ended
March 31, 1996 and 1995, respectively. The increase in the effective income
tax rate was due to an increase in nondeductible intangible asset
amortizations and the absence of a one-time tax benefit as discussed above.
The one-time benefit decreased the 1995 effective rate by 1.9%.
Liquidity and Capital Resources:
Cash provided by operations, which is the Company's primary source of
liquidity, generated $35,596,000 for the six month period ended March 31,
1996. Available cash balances, cash flow from operations and bank lines-of-
credit provide adequate liquidity. 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 1, 1996.
(b) Rance E. Crain, Richard D. Gottlieb and Phyllis Sewell were re-
elected directors for three-year terms expiring at the 1999 annual
meeting. Richard W. Sonnenfeldt was re-elected as a director for
a one-year term expiring at the 1997 annual meeting. Directors
whose terms of office continued after the meeting include: Lloyd
G. Schermer, Andrew E. Newman, Ronald L. Rickman, J.P. Guerin,
Charles E. Rickershauser and Mark Vittert.
(c) Votes were cast all by proxy, for nominees for director as
follows:
Vote
For Withheld
Rance E. Crain 137,506,225 977,337
Richard D. Gottlieb 137,501,731 981,831
Phyllis Sewell 134,811,157 3,672,405
Richard W. Sonnenfeldt 134,774,920 3,708,642
Abstentions and broker non-votes were not significant.
Each of the following proposals, as described in the Proxy
Statement, was adopted by the affirmative vote set forth below:
For Against Abstain
Proposal #2 to establish
an Annual Incentive Bonus
Program for Key Executives 126,395,583 10,532,560 1,555,419
Proposal #3 to amend the
1990 Long-Term Incentive
Plan 128,339,964 8,086,135 2,057,463
Proposal #4 to amend and
extend the 1977 Employee
Stock Purchase Plan 132,702,689 4,861,069 919,804
Proposal #5 to adopt the
1996 Stock Plan for
Non-Employee Directors 122,374,419 14,706,286 1,402,857
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Computation of Earnings Per Share
(b) There were no reports on Form 8-K required to be filed during the
quarter for which this report is filed.
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 5/7/96 \s\ G. C. Wahlig
G. C. Wahlig, Chief Accounting
Officer