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, 1997
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, 1997
Common stock, $2.00 par value 34,110,498
Class "B" Common Stock, $2.00 par value 12,341,995
PART I. FINANCIAL INFORMATION
Item. 1.
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
Three Months Ended Six Months Ended
March 31, March 31,
------------------- --------------------
1997 1996 1997 1996
------------------- --------------------
Operating revenue:
Newspaper:
Advertising ...................... $ 40,035 $ 37,617 $ 88,328 $ 82,818
Circulation ...................... 19,826 19,767 40,020 39,951
Other ............................ 14,306 14,127 28,194 27,260
Broadcasting ........................ 26,039 27,188 61,420 57,529
Equity in net income of associated
companies ........................ 1,581 1,261 3,493 3,183
--------------------------------------------
101,787 99,960 221,455 210,741
--------------------------------------------
Operating expenses:
Compensation costs .................. 40,466 38,484 81,789 77,098
Newsprint and ink ................... 6,936 10,023 14,900 20,238
Depreciation ........................ 3,974 3,834 7,955 7,607
Amortization of intangibles ......... 2,702 2,989 5,405 5,827
Other ............................... 28,709 27,653 59,994 56,970
--------------------------------------------
82,787 82,983 170,043 167,740
--------------------------------------------
Operating income ............. 19,000 16,977 51,412 43,001
--------------------------------------------
Financial (income) expenses, net
Financial (income) .................. (1,454) (561) (1,998) (1,088)
Financial expense ................... 2,027 2,433 3,769 4,988
--------------------------------------------
573 1,872 1,771 3,900
--------------------------------------------
Income from continuing
operations before taxes on
income ....................... 18,427 15,105 49,641 39,101
Income taxes ........................... 7,187 6,021 19,293 15,325
--------------------------------------------
Income from continuing
operations ................... 11,240 9,084 30,348 23,776
Income from discontinued operations, net
of income tax effect ................ 1,000 1,721 1,000 2,969
--------------------------------------------
Net income ................... $ 12,240 $ 10,805 $ 31,348 $ 26,745
============================================
Weighted average number of
shares .............................. 47,407 47,780 47,617 48,063
=============================================
Earnings per share:
Income from continuing operations ... $ 0.24 $ 0.19 $ 0.64 $ 0.49
Income from discontinuing operations 0.02 0.04 0.02 0.07
---------------------------------------------
Net income ................... $ 0.26 $ 0.23 $ 0.66 $ 0.56
=============================================
Dividends per share .................... $ 0.13 $ 0.12 $ 0.26 $ 0.24
=============================================
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31, September 30,
ASSETS 1997 1996
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents .................................................. $ 62,515 $ 19,267
Accounts receivable, net ................................................... 50,630 50,211
Newsprint inventory ........................................................ 2,583 3,668
Program rights and other ................................................... 12,408 17,183
Net assets of discontinued operations ...................................... 992 56,379
---------------------
Total current assets ............................................. 129,128 146,708
Investments ................................................................ 22,890 22,156
Property and equipment, net ................................................ 104,404 104,705
Intangibles and other assets ............................................... 248,959 253,847
---------------------
$505,381 $527,416
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------
Current liabilities ........................................................ $ 96,395 $ 97,777
Long-term debt, less current maturities .................................... 27,117 52,290
Deferred items ............................................................. 53,164 52,395
Stockholders' equity ....................................................... 328,705 324,954
---------------------
$505,381 $527,416
=====================
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
1997 1996
- ----------------------------------------------------------------------------------------
Six Months Ended March 31:
Cash Provided by Operations:
Net income .................................................. $ 31,348 $ 26,745
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and amortization ............................. 14,637 15,644
Distributions in excess of earnings of associated companies 1,643 1,425
Adjustment of estimated loss on disposition of discontinued
operations ............................................. (1,000)
Other balance sheet changes ............................... 7,122 (8,218)
-------------------
Net cash provided by operations ......................... 53,750 35,596
-------------------
Cash Provided by (Required For) Investing Activities:
Purchase of temporary investments ........................... - - (200)
Proceeds from maturities of temporary investments ........... - - 200
Purchase of property and equipment .......................... (7,727) (8,959)
Proceeds from sale of subsidiary ............................ 55,000
Other ....................................................... (939) (1,181)
-------------------
Net cash provided by (required for) investing activities 46,334 (10,140)
-------------------
Cash (Required For) Financing Activities:
Purchase of common stock .................................... (16,833) (9,959)
Cash dividends paid ......................................... (6,104) (5,680)
Proceeds from long-term borrowings .......................... - - 15,000
Payment of debt ............................................. (35,000) (25,058)
Other ....................................................... 1,101 175
-------------------
Net cash (required for) financing activities ............ (56,836) (25,522)
-------------------
Net increase (decrease) in cash and cash equivalents .... 43,248 (66)
Cash and cash equivalents:
Beginning ................................................... 19,267 10,683
-------------------
Ending ...................................................... $ 62,515 $ 10,617
===================
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, 1997 and the results of
operations for the three- and six-month periods ended March 31, 1997 and 1996
and cash flows for the six-month periods ended March 31, 1997 and 1996.
Note 2. Investment in Associated Companies
Condensed operating results of unconsolidated associated companies are as
follows:
Three Months Six Months
Ended March 31, Ended March 31,
---------------- ----------------
1997 1996 1997 1996
---------------- ----------------
Revenues ....................... $19,029 $17,059 $38,806 $36,350
Operating expenses, except
depreciation and amortization 13,469 12,638 26,658 25,364
Depreciation and amortization .. 502 469 1,003 930
Operating income ............... 5,058 3,952 11,144 10,056
Financial income ............... 237 281 554 589
Income before income taxes ..... 5,295 4,233 11,699 10,645
Income taxes ................... 2,132 1,704 4,710 4,272
Net income ..................... 3,163 2,529 6,988 6,373
a. Madison Newspapers, Inc. (50% owned)
b. Quality Information Systems (50% owned)
c. INN Partnership, LC (an effective 50% owned)
Note 3. Cash Flows Information
The components of other balance sheet changes are:
Six Months
Ended March 31,
-----------------
1997 1996
-----------------
(In Thousands)
(Unaudited)
(Increase) in receivables ................................... $(1,762) $(3,328)
Decrease in inventories, film rights and other .............. 3,809 1,943
Increase (decrease) in accounts payable, accrued expenses
and unearned income ...................................... 4,473 (7,806)
Increase in income taxes payable ............................ 1,244 163
Other, primarily deferred items ............................. (642) 810
-----------------
$ 7,122 $(8,218)
=================
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Operating results:
Three Months Six Months
Ended March 31, Ended March 31,
------------------- ------------------
1997 1996 1997 1996
------------------- ------------------
Revenue ............................ $101,787 $ 99,960 $221,455 $210,741
Percent change .................. 1.8% 5.1%
Income before depreciation and
amortization, interest and taxes
(EBITDA) ........................ 25,676 23,800 64,772 56,435
Percent change .................. 7.9% 14.8%
Operating income ................... 19,000 16,977 51,412 43,001
Percent change .................. 11.9% 19.6%
Income from continuing operations .. 11,240 9,084 30,348 23,776
Percent change .................. 23.7% 27.6%
Net income ......................... 12,240 10,805 31,348 26,745
Percent change .................. 13.3% 17.2%
Earnings per share:
Income from continuing operations $ 0.24 $ 0.19 $ 0.64 $ 0.49
Percent change ............... 26.3% 30.6%
Net income ...................... 0.26 0.23 0.66 0.56
Percent change ............... 13.0% 17.9%
Operations by line of business are as follows:
Three Months Six Months
Ended March 31, Ended March 31,
-------------------- -----------------------
1997 1996 1997 1996
-------------------- -----------------------
Revenue:
Newspapers ................................. $ 75,748 $ 72,772 $160,035 $153,212
Broadcasting ............................... 26,039 27,188 61,420 57,529
-----------------------------------------------
$101,787 $ 99,960 $221,455 $210,741
===============================================
Income before depreciation and
amortization, interest and taxes
(EBITDA):
Newspapers ................................. $ 24,016 $ 19,659 $ 54,135 $ 45,775
Broadcasting ............................... 4,863 6,716 17,788 16,592
Corporate .................................. (3,203) (2,575) (7,151) (5,932)
-----------------------------------------------
$ 25,676 $ 23,800 $ 64,772 $ 56,435
===============================================
Operating income:
Newspapers ................................. $ 20,337 $ 16,078 $ 46,724 $ 38,644
Broadcasting ............................... 2,012 3,616 12,134 10,565
Corporate .................................. (3,349) (2,717) (7,446) (6,208)
-----------------------------------------------
$ 19,000 $ 16,977 $ 51,412 $ 43,001
===============================================
Capital expenditures:
Newspapers ................................. $ 2,120 $ 3,020 $ 3,708 $ 5,033
Broadcasting ............................... 1,305 1,462 3,833 3,523
Graphic arts ............................... - - - - - - 227
Corporate .................................. - - 131 186 176
-----------------------------------------------
$ 3,425 $ 4,613 $ 7,727 $ 8,959
===============================================
QUARTER ENDED MARCH 31, 1997
NEWSPAPERS
Wholly-owned daily newspaper advertising revenue increased $2,418,000, 6.4%.
Advertising revenue from local merchants increased $932,000, 4.3%. Local
"run-of-press" advertising increased $521,000, 3.4%, as a result of higher
average rates which offset a 1.8% decrease in advertising inches. Local preprint
revenue increased $411,000, 6.5%. Classified advertising revenue increased
$1,110,000, 9.0%, as a result of higher average rates and 2.1% increase in
advertising inches. The employment category was the biggest contributor to the
increase. Circulation revenue increased $59,000, .3%, as a result of higher
rates which offset a 2.9% decrease in volume. Other revenue at daily newspapers
increased $25,000, .3%.
Wholly-owned daily newspaper compensation expense increased $845,000, 3.6%, due
primarily to increases in average compensation. Newsprint and ink costs
decreased $3,098,000, (31.2%), due to lower newsprint prices. Newsprint prices
remain below prior year levels; however, newsprint suppliers have announced
their intention to increase prices in the third quarter of the fiscal year.
Based on present market conditions, we anticipate prices to remain below prior
year levels for the balance of the fiscal year but price increases are probable
in the future. Other operating expenses exclusive of depreciation and
amortization increased $906,000, 6.3%.
Revenues from weekly newspapers, shoppers, and specialty publications increased
$154,000, 2.6%. Operating income increased $183,000, 120.4%, due to lower costs
of outside printing.
BROADCASTING
Revenue for the quarter decreased $1,149,000, (4.2%), as political advertising
decreased $730,000, (89.0%), and local/regional/national advertising decreased
$520,000, (2.5%). Production revenue decreased $144,000, (8.6%). Advertising
revenue growth may be adversely affected in the balance of the fiscal year due
to limited political advertising which amounted to approximately $4,000,000 in
the last six months of fiscal 1996. We are also affected, but less
significantly, by the loss of Olympic advertising as NBC affiliated revenue
accounts for only 30% of our broadcast revenue.
Compensation costs increased $682,000, 5.8%, due to a 2.7% increase in the
number of hours worked and an increase in the average hourly rates. Programming
costs for the quarter decreased $344,000, (15.7%), primarily due to decreased
amortization from programs amortized on an accelerated basis. Other operating
expenses exclusive of depreciation and amortization increased $366,000, 5.6%,
primarily due to increased audience promotions.
CORPORATE COSTS
Corporate costs increased by $632,000, 23.3%, as a result of increased marketing
costs and the enhancement of computer software.
FINANCIAL EXPENSE AND INCOME TAXES
The increase in interest income reflects the investment of the proceeds from the
sale of NAPP Systems Inc. on January 17, 1997.
Interest expense was reduced due to payments on long-term debt, along with
payment of short-term borrowings used to finance the acquisition of SJL of
Kansas Corp.
Income taxes were 39.0% and 39.9% of pre-tax income for the quarters ended March
31, 1997 and 1996, respectively.
SIX MONTHS ENDED MARCH 31, 1997
NEWSPAPERS
Wholly-owned daily newspaper advertising revenue increased $5,510,000, 6.7%.
Advertising revenue from local merchants increased $2,840,000, 5.7%. Local
"run-of-press" advertising increased $2,277,000, 6.6%, as a result of higher
average rates and a 1.5% increase in advertising inches. The period between
Thanksgiving and Christmas was shorter than normal and merchants increased their
advertising to stimulate sales. Local preprint revenue increased $563,000, 3.6%.
Classified advertising revenue increased $2,115,000, 8.5%, as a result of higher
average rates and a 3.2% increase in advertising inches. The employment category
was the biggest contributor to the increase. Circulation revenue increased
$69,000, .2%, as a result of higher rates which offset a 2.7% decrease in
volume. Other revenue at daily newspapers increased $503,000, 3.1%, primarily as
a result of increases in commercial printing and other non-traditional products
and services.
Wholly-owned daily newspaper compensation expense increased $2,110,000, 4.5%,
due primarily to increases in average compensation. Newsprint and ink costs
decreased $5,342,000, (26.7%), due to lower newsprint prices. Other operating
expense exclusive of depreciation and amortization increased $1,439,000, 4.8%.
Revenues from weekly newspapers, shoppers and specialty publications increased
$413,000, 3.7%. Operating income increased $131,000.
BROADCASTING
Revenue for the period increased $3,891,000, 6.8%, as political advertising
increased $3,506,000, 179.6%, and local/regional/national advertising decreased
$212,000, (.4%). Production revenue increased $245,000, 8.7%, primarily due to
increased corporate/studio business at MIRA Creative Group in Portland, Oregon.
Compensation costs increased $1,880,000, 8.2%, due to a 3.5% increase in the
number of hours worked and an increase in the average hourly rates. Programming
costs for the quarter decreased $820,000, (17.5%), primarily due to decreased
amortization from programs amortized on an accelerated basis. Other operating
expenses exclusive of depreciation and amortization increased $1,635,000, 12.4%,
primarily due to increased audience promotion for the November ratings period,
and outside services.
CORPORATE COSTS
Corporate costs increased by $1,238,000, 19.9%, as a result of increased
marketing costs, the enhancement of computer software, and relocation costs.
FINANCIAL EXPENSE AND INCOME TAXES
The increase in interest income reflects the investment of the proceeds from the
sale of NAPP Systems Inc. on January 17, 1997.
Interest expense was reduced due to payments of long-term debt, along with
payment of short-term borrowings used to finance the acquisition of SJL of
Kansas Corp.
Income taxes were 38.9% and 39.2% of pre-tax income for the six months ended
March 31, 1997 and 1996, respectively.
DISCONTINUED OPERATIONS
On January 17, 1997, the Company closed on the sale of its graphic arts products
subsidiary, NAPP Systems Inc. for approximately $56,000,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations, which is the Company's primary source of liquidity,
generated $53,750,000 for the six month period ended March 31, 1997. Available
cash balances and cash flow from operations provide adequate liquidity.
Covenants related to the Company's credit agreement are not considered
restrictive to operations and anticipated stockholder dividends.
SAFE HARBOR STATEMENT
This report contains forward-looking statements and includes assumptions
concerning the Company's operations, future results and prospects. These
forward-looking statements are based on current expectations and are subject to
risks and uncertainties. In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Company provides the
following cautionary statements identifying important economic, political, and
technological factors which, among others, could cause the actual results or
events to differ materially from those set forth or implied by the
forward-looking statements or assumptions.
Such factors include the following: (i) changes in the current and future
business environment, including interest rates and capital and consumer
spending; (ii) prices for newsprint products; (iii) the availability of quality
broadcast programming at competitive prices; (iv) the quality and ratings of
network over-the-air broadcast programs; and (v) legislative or regulatory
initiatives affecting the cost of delivery of over-the-air broadcast programs to
the Company's customers. Further information concerning the Company and its
businesses, including factors that potentially could materially affect the
Company's financial results, is included in the Company's annual report on Form
10-K.
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 January 29, 1997.
(b) J.P. Guerin, Charles E. Rickershauser, Jr. and Mark Vittert were
re-elected directors of three-year terms expiring at the 2000
annual meeting. Richard W. Sonnenfeldt was re-elected as a
director for a one-year term expiring at the 1998 annual meeting.
Directors whose terms of office continued after the meeting
include: Lloyd G. Schermer, Andrew E. Newman, Ronald L. Rickman,
Rance E. Crain, Richard D. Gottlieb and Phyllis Sewell.
(c) Votes were cast, all by proxy, for nominees for director as
follows:
Vote
For Withheld
--------------------------
J.P. Guerin 117,351,779 14,790,305
Charles E. Rickershauser, Jr. 117,352,401 14,789,683
Mark Vittert 117,319,326 14,822,758
Richard W. Sonnenfeldt 117,299,998 14,842,086
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) The following report on Form 8-K was filed during the three
months ended March 31, 1997.
Date of report: January 30, 1997
Item 2. Announce that on January 17, 1997 the sale of the
graphic arts product subsidiary, NAPP Systems Inc. to
Polyfibron Technologies, Inc. was completed.
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 9, 1997 /s/ G. C. Wahlig
G. C. Wahlig, Chief Accounting Officer
LEE ENTERPRISES, INCORPORATED
PART I. EXHIBIT 11
Computation of Earnings Per Common Share
(In Thousands Except Per Share Amounts)
Three Months Six Months
Ended March 31, Ended March 31,
---------------- ----------------
1997 1996 1997 1996
---------------- ----------------
Income applicable to common shares:
Income from continuing operations ...... $11,240 $ 9,084 $30,348 $23,776
Income from discontinued operations .... 1,000 1,721 1,000 2,969
----------------------------------
Net income ...................... $12,240 $10,805 $31,348 $26,745
==================================
Shares:
Weighted average common shares
outstanding ......................... 46,567 47,026 46,768 47,202
Dilutive effect of certain stock options 840 754 849 861
----------------------------------
Average common shares
outstanding, as adjusted ........ 47,407 47,780 47,617 48,063
==================================
Earnings per share of common stock:
Income from continuing operations ...... $ 0.24 $ 0.19 $ 0.64 $ 0.49
Income from discontinued operations .... 0.02 0.04 0.02 0.07
----------------------------------
Net income ...................... $ 0.26 $ 0.23 $ 0.66 $ 0.56
==================================
5
1,000
6-MOS
SEP-30-1997
MAR-31-1997
62,515
0
55,182
4,552
2,583
129,128
249,335
144,931
505,381
96,395
27,117
0
0
92,905
235,800
505,381
217,962
221,455
0
0
170,043
0
3,769
49,641
19,293
30,348
1,000
0
0
31,348
.66
.66
