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, 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 June 30, 1996
Common Stock, $2.00 par value 34,309,608
Class "B" Common Stock, $2.00 par value 12,717,947
PART I. FINANCIAL INFORMATION
Item 1.
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
Three Months Ended June 30, Nine Months Ended June 30,
------------------------------ ------------------------------
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------
Operating revenue:
Newspaper:
Advertising $ 43,362 $ 42,740 $ 126,180 $ 112,403
Circulation 19,967 19,427 59,918 53,372
Other 13,826 12,383 41,071 36,278
Broadcasting 30,671 25,061 88,200 76,129
Graphic arts 17,344 15,785 49,386 44,297
Equity in net income of associated
companies 1,664 1,710 4,847 6,356
------------------------------ -------------------------------
126,834 117,106 369,602 328,835
------------------------------ -------------------------------
Operating expenses:
Compensation costs 41,335 38,107 124,446 110,091
Newsprint and ink 9,539 8,567 29,777 21,710
Depreciation 4,251 3,270 12,197 9,090
Amortization of intangibles 3,800 3,553 11,498 9,578
Other 37,753 34,125 112,685 99,449
------------------------------ -------------------------------
96,678 87,622 290,603 249,918
------------------------------ -------------------------------
Operating income 30,156 29,484 78,999 78,917
------------------------------ -------------------------------
Financial (income) expense, net:
Financial (income) (663) (901) (1,751) (2,334)
Financial expense 2,347 2,917 7,335 8,837
------------------------------ -------------------------------
1,684 2,016 5,584 6,503
------------------------------ -------------------------------
Income before taxes
on income 28,472 27,468 73,415 72,414
Income taxes 11,427 11,033 29,625 28,037
------------------------------ -------------------------------
Net income $ 17,045 $ 16,435 $ 43,790 $ 44,377
============================== ===============================
Weighted average number of shares 47,938 48,364 48,021 46,476
============================== ===============================
Earnings per share $ 0.36 $ 0.34 $ 0.91 $ 0.95
============================== ===============================
Dividends per share $ 0.12 $ 0.11 $ 0.36 $ 0.33
============================== ===============================
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, September 30,
ASSETS 1996 1995
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash and cash equivalents $ 25,991 $ 10,683
Temporary investments 200
Accounts receivable, net 66,321 58,584
Inventories 15,177 18,355
Film rights and other 13,636 16,687
----------------------------------
Total current assets 121,125 104,509
Investments 21,292 19,700
Property and equipment, net 109,326 108,196
Intangibles and other assets 312,452 327,524
----------------------------------
$ 564,195 $ 559,929
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------
Current liabilities $ 111,771 $ 116,527
Long-term debt, less current maturities 69,617 75,511
Deferred items 53,925 56,849
Stockholders' equity 328,882 311,042
----------------------------------
$ 564,195 $ 559,929
==================================
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended June 30: 1996 1995
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash Provided by Operations:
Net income $ 43,790 $ 44,377
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 23,695 18,668
Distributions in excess of earnings of associated
companies 1,166 1,769
Other balance sheet changes (7,228) (761)
----------------------------------
Net cash provided by operations 61,423 64,053
----------------------------------
Cash Provided by (Required for) Investing Activities:
Acquisitions (367) 7,144
Purchase of temporary investments (200) (200)
Proceeds from maturities of temporary investments 400 38,859
Purchase of property and equipment (13,866) (10,643)
Other (1,320) (964)
----------------------------------
Net cash provided by (required for)
investing activities (15,353) 34,196
----------------------------------
Cash (Required for) Financing Activities:
Purchase of common stock (11,654) (26,450)
Cash dividends paid (11,316) (9,827)
Payment of debt (25,076) (25,000)
Proceeds from long-term borrowings 15,000
Other 2,284 757
----------------------------------
Net cash (required for) financing activities (30,762) (60,520)
----------------------------------
Net increase in cash and cash equivalents 15,308 37,729
Cash and cash equivalents:
Beginning 10,683 18,784
----------------------------------
Ending $ 25,991 $ 56,513
==================================
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, 1996 and the results of
operations for the three and nine month periods ended June 30, 1996 and 1995 and
cash flows for the nine month periods needed June 30, 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 June 30, Nine Months Ended June 30,
------------------------------ ------------------------------
1996 1995 1996 1995
--------------------------------------------------------------
Revenues $ 18,226 $ 17,427 $ 54,576 $ 68,110
Operating expenses, except
depreciation and amortization 12,506 11,502 37,871 46,276
Depreciation and amortization 433 444 1,363 1,708
Operating income 5,287 5,481 15,342 20,126
Financial income 287 312 876 1,212
Income before income taxes 5,573 5,793 16,218 21,338
Income taxes 2,249 2,339 6,522 8,579
Net income 3,324 3,454 9,696 12,759
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 4. Inventories
Inventories consist of the following:
June 30, September 30,
1996 1995
---------------------------------
(In Thousands)
(Unaudited)
Newsprint $ 2,279 $ 3,634
Media products and services:
Raw material 5,514 7,554
Finished goods 7,384 7,167
---------------------------------
$ 15,177 $ 18,355
=================================
Note 5. Cash Flows Information
The components of other balance sheet changes are:
Nine Months Ended June 30,
---------------------------------
1996 1995
---------------------------------
(In Thousands)
(Unaudited)
(Increase) in receivables $ (9,175) $ (6,128)
(Increase) decrease in inventories, film rights and other 2,098 (428)
Increase (decrease) in accounts payable, accrued expenses
and unearned income (5,987) 4,877
Increase in income taxes payable 4,622 277
Other, primarily deferred items 1,214 (323)
---------------------------------
$ (7,228) $ (1,725)
=================================
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating results:
Three Months Ended June 30, Nine Months Ended June 30,
----------------------------- -------------------------------
1996 1995 1996 1995
--------------------------------------------------------------
(Dollar Amounts in Thousands Except for Per Share Data)
Operating revenue $ 126,834 $ 117,106 $ 369,602 $ 328,835
Percent change 8.3% 12.4%
Income before depreciation and
amortization, interest and taxes
(EBITDA) 38,207 36,307 102,694 97,585
Percent change 5.2% 5.2%
Operating income 30,156 29,484 78,999 78,917
Percent change 2.3% 0.1%
Net income 17,045 16,435 43,790 44,377
Percent change 3.7% (1.3)%
Earnings per share $ 0.36 $ 0.34 $ 0.91 $ 0.95
Percent change 5.9% (4.2)%
As if the acquisition of Journal-Star Printing Co. and SJL of Kansas Corp. had
occurred on October 1, 1994.
Three Months Ended June 30, Nine Months Ended June 30,
----------------------------- -------------------------------
1996 1995 1996 1995
--------------------------------------------------------------
(Dollar Amounts in Thousands Except for Per Share Data)
Proforma:
Operating revenue $ 126,834 $ 121,325 $ 369,602 $ 355,566
Percent change 4.5% 4.0%
Income before depreciation and
amortization, interest and
taxes (EBITDA) 38,207 37,795 102,694 106,498
Percent change 1.1% (3.6)%
Operating income 30,156 30,183 78,999 84,068
Percent change (0.1)% (6.0)%
Net income 17,045 16,387 43,790 44,770
Percent change 4.0% (2.2)%
Earnings per share $ 0.36 $ 0.34 $ 0.91 $ 0.92
Percent change 5.9% (1.1)%
Operations by line of business are as follows:
Three Months Ended June 30, Nine Months Ended June 30,
----------------------------- -------------------------------
1996 1995 1996 1995
--------------------------------------------------------------
(In Thousands)
Operating revenue:
Newspapers $ 78,841 $ 76,274 $ 232,059 $ 208,452
Broadcasting 30,671 25,061 88,200 76,129
Graphic arts 17,322 15,771 49,343 44,254
------------------------------ -------------------------------
$ 126,834 $ 117,106 $ 369,602 $ 328,835
============================== ===============================
Income before depreciation and
amortization, interest and taxes
(EBITDA):
Newspapers $ 25,752 $ 25,238 $ 71,613 $ 67,258
Broadcasting 10,425 9,253 27,017 29,056
Graphic arts 4,228 5,038 12,194 11,385
Corporate (2,198) (3,222) (8,130) (10,114)
------------------------------ -------------------------------
$ 38,207 $ 36,307 $ 102,694 $ 97,585
============================== ===============================
Operating income:
Newspapers $ 21,998 $ 21,666 $ 60,728 $ 58,164
Broadcasting 7,342 7,259 17,907 23,268
Graphic arts 3,161 3,916 8,917 7,994
Corporate (2,345) (3,357) (8,553) (10,509)
------------------------------ -------------------------------
$ 30,156 $ 29,484 $ 78,999 $ 78,917
============================== ===============================
Capital expenditures:
Newspapers $ 3,269 $ 2,183 $ 8,302 $ 5,268
Broadcasting 1,428 1,870 4,951 5,066
Graphic arts 24 15 251 61
Corporate 186 11 362 248
------------------------------ -------------------------------
$ 4,907 $ 4,079 $ 13,866 $ 10,643
============================== ===============================
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 nine months ended June 30, 1995 would have been
$80,150,000. 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 August 28, 1995, the Company also purchased all of the stock of SJL of
Kansas Corp. which operates NBC affiliates KSNW-TV and KSNT-TV in Wichita and
Topeka, Kansas.
QUARTER ENDED JUNE 30, 1996
Newspapers:
Wholly-owned daily newspaper advertising revenue increased $622,000, 1.5%.
Advertising revenue from local merchants increased $283,000, 1.2%. Local
"run-of-press" advertising increased $885,000, 5.4% as a result of higher
average rates. Advertising inches increased less than 1%. Local preprint
revenue decreased $602,000, 7.6% due to reductions in distribution of
preprints by merchants. Classified advertising revenue increased $964,000,
7.1% as a .6% decrease in units was offset by higher average rates. These
increases were offset by a $625,000 decrease in national and other
advertising revenue. Circulation revenue increased $540,000, 2.8% as a result
of higher rates which offset a 2.3% decrease in volume. Other revenue at
daily newspapers increased $1,564,000, 22.8% primarily as a result of
increases in commercial printing and other nontraditional products and
services.
Wholly-owned daily newspaper compensation expense increased $863,000, 3.8%
due primarily to increases in average compensation. Newsprint and ink costs
increased $942,000, 11.1%. The increase was a result of higher unit costs and
a 1.2% increase in consumption due to increased commercial printing activity.
Other operating expenses exclusive of depreciation and amortization increased
$85,000, .6%.
Revenues from weekly newspapers, shoppers and specialty publications
decreased $121,000, 2.2% primarily as a result of reduction in book
publishing revenue and the elimination of nonperforming properties. Operating
income decreased $245,000 due to development costs of the Company's new
tourism publication.
Broadcasting:
Exclusive of the effects of the acquisition of SJL of Kansas Corp., revenue
for the quarter increased $548,000, 2.2%, as political advertising increased
$1,140,000, local/regional advertising decreased $1,323,000, 9.9%, national
advertising increased $523,000, 5.9% and production revenue increased
$244,000. Compensation costs increased $484,000, 5.4% due to an increase in
the number of hours worked in production operations and normal compensation
increases. Programming costs increased $377,000, 24.8% primarily due to
higher program acquisition costs. Other operating expenses exclusive of
depreciation and amortization increased $50,000, .9% for the quarter.
Graphic Arts:
Graphic arts revenue increased $1,559,000, 9.9%, 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. Revenue from the letterpress business is expected to decrease
each year as conversions to offset or flexographic printing continue.
Operating income decreased $755,000, 19.3% due to operating margins from
distribution being lower than the margin on manufactured products.
Corporate:
Corporate costs were reduced by $500,000 due to favorable experience in the
Company's self funded medical plan.
Financial Expense and Income Taxes:
Interest expense was reduced due to 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 40.1% and 40.2% of pre-tax income for the
quarters ended June 30, 1996 and 1995, respectively.
NINE MONTHS ENDED JUNE 30, 1996
Newspapers:
On a proforma basis for newspapers owned at the end of fiscal 1995,
wholly-owned daily newspaper advertising revenue increased $2,227,000, 1.8%.
Advertising revenue from local merchants increased $1,267,000, 1.7%. Local
"run-of-press" advertising increased $1,079,000, 2.1% as a result of higher
average rates which offset a 3.0% decrease in advertising inches. Local
preprint revenue increased $188,000, .8%. Classified advertising revenue
increased $2,137,000, 5.8% as a 1.7% decrease in units primarily related to
weakness in the automotive segment in the first six months of the year was
offset by higher average rates. These increases were offset by a $1,177,000
decrease in national and other advertising revenue. Circulation revenue
increased $2,414,000, 4.2% as a result of higher average rates which offset a
2% decrease in volume. Other revenue at daily newspapers increased
$2,971,000, 13.8% primarily as a result of increases in commercial printing
and other nontraditional products and services.
On a proforma basis for newspapers owned at the end of fiscal 1995,
wholly-owned daily newspaper compensation expense increased $2,562,000, 3.8%
due primarily to increases in average compensation. Newsprint and ink costs
increased $5,132,000, 21.1%. Higher unit costs were offset in part by a .1%
decrease in consumption. Other operating expenses exclusive of depreciation
and amortization decreased $57,000, .1%.
Revenues from weekly newspapers, shoppers and specialty publications
increased $873,000, 5.6%, primarily as a result of revenue from properties
acquired since the beginning of the first quarter of the last fiscal year.
Operating income decreased $268,000 due to development costs of the Company's
new tourism publication.
Broadcasting:
Exclusive of the effects of the acquisition of SJL of Kansas Corp. revenue
decreased $1,717,000, 2.3%, as political advertising decreased $934,000,
local/regional advertising decreased $2,665,000, 6.9% national advertising
increased $892,000, 3.6% and production revenue increased $575,000.
Compensation costs increased $1,946,000, 7.3% due primarily to an increase in
the number of hours worked in production operations. Programming costs
increased $995,000, 20.1% primarily due to higher program acquisition costs.
Other operating expenses exclusive of depreciation and amortization increased
$976,000, 6.3%.
Graphic Arts:
Graphic arts revenue increased $5,079,000, 11.5%, 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 letterpress customers completed conversion to offset
or flexographic printing. Revenue from the letterpress business is expected
to decrease each year as conversions continued. Operating income increased
$923,000, 11.5% due to the increased sales volume and a reduction in spending
on new product initiatives.
Equity in Net Income of Associated Companies:
Equity in net income of associated companies decreased $1,509,000. 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 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 40.4% and 38.7% of pre-tax income for the nine months ended
June 30, 1996 and 1995, respectively. The increase in the effective income
tax rate was due to an increase in nondeductible intangible asset
amortizations. Elimination of the Journal-Star Printing Company deferred
taxes discussed above decreased the 1995 effective rate by 1.2%.
Liquidity and Capital Resources:
Cash provided by operations, which is the Company's primary source of
liquidity, generated $61,423,000 for the nine month period ended June 30,
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.
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:------------------------ --------------------------------------
G.C. Wahlig, Chief Accounting Officer