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, 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 June 30, 1997
- --------------------------------------- -----------------------------
Common Stock, $2.00 par value 34,153,683
Class "B" Common Stock, $2.00 par value 12,247,268
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,
--------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------
Operating revenue:
Newspaper:
Advertising ...................... $ 45,991 $ 43,362 $134,319 $126,180
Circulation ...................... 20,199 19,967 60,219 59,918
Other ............................ 13,890 13,835 42,084 41,095
Broadcasting ........................ 30,675 30,671 92,095 88,200
Equity in net income of associated
companies ........................ 1,938 1,664 5,431 4,847
--------------------------------------------
112,693 109,499 334,148 320,240
--------------------------------------------
Operating expenses:
Compensation costs .................. 40,807 38,396 122,596 115,494
Newsprint and ink ................... 7,938 9,539 22,838 29,777
Depreciation ........................ 4,366 4,120 12,321 11,727
Amortization of intangibles ......... 2,703 2,864 8,108 8,691
Other ............................... 27,943 27,647 87,937 84,617
--------------------------------------------
83,757 82,566 253,800 250,306
--------------------------------------------
Operating income ......... 28,936 26,933 80,348 69,934
--------------------------------------------
Financial (income) expense, net:
Financial (income) .................. (1,145) (663) (3,143) (1,751)
Financial expense ................... 1,346 2,347 5,115 7,335
--------------------------------------------
201 1,684 1,972 5,584
--------------------------------------------
Income from continuing
operations before taxes on
income ................... 28,735 25,249 78,376 64,350
Income taxes ........................... 10,976 9,868 30,269 25,193
--------------------------------------------
Income from continuing
operations ............... 17,759 15,381 48,107 39,157
Income from discontinued operations
net of income tax effect ............ 485 1,664 1,485 4,633
--------------------------------------------
Net income ............... $ 18,244 $ 17,045 $ 49,592 $ 43,790
============================================
Weighted average number of shares ...... 47,231 47,938 47,488 48,021
============================================
Earnings per share:
Income from continuing operations ... 0.38 0.32 1.01 0.81
Income from discontinued operations . 0.01 0.04 0.03 0.10
--------------------------------------------
Net income ............... $ 0.39 $ 0.36 $ 1.04 $ 0.91
============================================
Dividends per share .................... $ 0.13 $ 0.12 $ 0.39 $ 0.36
============================================
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30, September 30,
ASSETS 1997 1996
- -------------------------------------------------------------------------------
(Unaudited)
Cash and cash equivalents ...................... $ 70,106 $ 19,267
Accounts receivable, net ....................... 54,526 50,211
Newsprint inventory ............................ 2,021 3,668
Program rights and other ....................... 12,080 17,183
Net assets of discontinued operations .......... -- 56,379
-------------------------
Total current assets ............. 138,733 146,708
Investments .................................... 23,338 22,156
Property and equipment, net .................... 104,378 104,705
Intangibles and other assets ................... 247,209 253,847
-------------------------
$513,658 $527,416
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ............................ $ 97,439 $ 97,777
Long-term debt, less current maturities ........ 27,021 52,290
Deferred items ................................. 53,265 52,395
Stockholders' equity ........................... 335,933 324,954
------------------------
$513,658 $527,416
========================
LEE ENTERPRISES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended June 30: 1997 1996
- -------------------------------------------------------------------------------
(Unaudited)
Cash Provided by Operations:
Net income ......................................... $ 49,592 $ 43,790
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization .................... 21,706 23,695
Distributions in excess of earnings of associated
companies ..................................... 1,140 1,166
Adjustment of estimated loss on disposition of
discontinued operations ....................... (1,985)
Other balance sheet changes ...................... 6,835 (7,228)
-------------------
Net cash provided by operations ............ 77,288 61,423
-------------------
Cash Provided by (Required for) Investing Activities:
Acquisitions ....................................... (1,200) (367)
Purchase of property and equipment ................. (11,229) (13,866)
Purchase of temporary investments .................. -- (200)
Proceeds from maturities of temporary investments .. -- 400
Net proceeds from sale of subsidiary ............... 54,795 --
Other .............................................. (884) (1,320)
-------------------
Net cash provided by (required for)
investing activities ....................... 41,482 (15,353)
-------------------
Cash (Required for) Financing Activities:
Purchase of common stock ........................... (25,902) (11,654)
Cash dividends paid ................................ (12,149) (11,316)
Payment of debt .................................... (35,000) (25,076)
Proceeds from long-term borrowings ................. -- 15,000
Other .............................................. 5,120 2,284
-------------------
Net cash (required for) financing activities (67,931) (30,762)
-------------------
Net increase in cash and cash equivalents .. 50,839 15,308
Cash and cash equivalents:
Beginning ............................................. 19,267 10,683
-------------------
Ending ................................................ $ 70,106 $ 25,991
===================
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, 1997 and the results of
operations for the three and nine month periods ended June 30, 1997 and 1996 and
cash flows for the nine month periods needed June 30, 1997 and 1996.
Note 2. Investment in Associated Companies
Condensed operating results of unconsolidated associated companies are as
follows:
Nine Months Three Months
Ended June 30, Ended June 30,
----------------------------------
1997 1996 1997 1996
----------------------------------
Revenues ....................... $19,963 $18,226 $58,769 $54,576
Operating expenses, except
depreciation and amortization 13,235 12,506 39,893 37,871
Depreciation and amortization .. 502 433 1,506 1,363
Operating income ............... 6,226 5,287 17,370 15,342
Financial income ............... 293 286 847 876
Income before income taxes ..... 6,519 5,573 18,217 16,218
Income taxes ................... 2,642 2,249 7,352 6,522
Net income ..................... 3,877 3,324 10,865 9,696
a. Madison Newspaper, 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:
Nine Months Ended
June 30,
----------------
1997 1996
----------------
(In Thousands)
(Unaudited)
(Increase) in receivables ................................... $(5,658) $(9,175)
Decrease in inventories, film rights and other .............. 3,063 2,098
Increase (decrease) in accounts payable, accrued expenses
and unearned income ...................................... 5,222 (5,987)
Increase in income taxes payable ............................ 1,599 4,622
Other, primarily deferred items ............................. 2,609 1,214
----------------
$ 6,835 $(7,228)
================
Note 4. Pending Accounting Changes
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, "Earnings Per Share." This Statement simplifies the
computation of earnings per share and makes the computation more consistent with
those of International Accounting Standards. The Statement is effective for
periods ending after December 15, 1997. The Company does not expect the adoption
of this new standard to significantly impact previously reported earnings per
share or earnings per share trends.
In June 1997, the FASB issued Statement No. 130 "Reporting Comprehensive Income"
and Statement No. 131 "Disclosures About Segments of an Enterprise and Related
Information." Statement No. 130 establishes standards for reporting
comprehensive income in financial statements. Statement No. 131 expands certain
reporting and disclosure requirements for segments from current standards. The
Statements are effective for fiscal years beginning after December 15, 1997 and
the Company does not expect the adoption of these new standards to result in
material changes to previously reported amounts or disclosures.
Note 5. Subsequent Events
On July 25, 1997 Lee Enterprises, Incorporated entered into a definitive
agreement to acquire the Pacific Northwest Publishing Group from ABC, Inc., a
wholly-owned subsidiary of The Walt Disney Company ("Seller"). The Pacific
Northwest Publishing Group publishes daily and weekly newspapers, shoppers and
specialty publications. The shopper and specialty publication group covers eight
markets in the states of Washington, Oregon, Nevada, and Utah. They are grouped
into three geographic regions with total circulation of 980,000 and estimated
readership of over 2.2 million. The newspaper group publishes eight Oregon
newspapers geographically clustered in the Willamette Valley. The two daily and
six weekly newspapers have an aggregate paid circulation of approximately
67,000.
The transaction, which is subject to requisite regulatory approval discussed
below and other customary contingencies for a transaction of this nature, is
expected to close before September 30, 1997. The purchase price is approximately
$185 million. The acquisition will be affected by registrant's acquisition of
all of the outstanding shares of common stock of Southern Utah Media, Inc., a
Delaware corporation, Nevada Media Inc., a Delaware corporation, and Oregon News
Media Inc., a Delaware corporation, from Seller.
The transaction is subject to the approval of the Federal Trade Commission and
the United States Department of Justice pursuant to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Nine Months
Ended June 30, Ended June 30,
------------------- ------------------
1997 1996 1997 1996
----------------------------------------
(Dollar Amounts in Thousands Except
for Per Share Data)
Operating revenue .................. $112,693 $109,499 $334,148 $320,240
Percent change .................. 2.9% 4.3%
Income before depreciation and
amortization, interest and taxes
(EBITDA) ........................ 36,005 33,917 100,777 90,352
Percent change .................. 6.1% 11.5%
Operating income ................... 28,936 26,933 80,348 69,934
Percent change .................. 7.4% 14.9%
Income from continuing operations .. 17,759 15,381 48,107 39,157
Percent change .................. 15.5% 22.9%
Net income ......................... 18,244 17,045 49,592 43,790
Percent change .................. 7.0% 13.2%
Earnings per share:
Income from continuing operations $ 0.38 $ 0.32 $ 1.01 $ 0.81
Percent change ................ 18.8% 24.7%
Net income ...................... 0.39 0.36 1.04 0.91
Percent change ................ 8.3% 14.3%
Operations by line of business are as follows:
Three Months Nine Months
Ended June 30, Ended June 30,
--------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------
(In Thousands)
Operating revenue:
Newspapers .......................... $ 82,018 $ 78,828 $242,053 $232,040
Broadcasting ........................ 30,675 30,671 92,095 88,200
--------------------------------------------
$112,693 $109,499 $334,148 $320,240
============================================
Income before depreciation and
amortization, interest and taxes
(EBITDA):
Newspapers .......................... $ 30,321 $ 25,690 $ 84,456 $ 71,465
Broadcasting ........................ 9,113 10,425 26,901 27,017
Corporate ........................... (3,429) (2,198) (10,580) (8,130)
--------------------------------------------
$ 36,005 $ 33,917 $100,777 $ 90,352
============================================
Operating income:
Newspapers .......................... $ 26,423 $ 21,936 $ 73,147 $ 60,580
Broadcasting ........................ 6,097 7,342 18,231 17,907
Corporate ........................... (3,584) (2,345) (11,030) (8,553)
--------------------------------------------
$ 28,936 $ 26,933 $ 80,348 $ 69,934
============================================
Capital expenditures:
Newspapers .......................... $ 1,424 $ 3,269 $ 5,132 $ 8,302
Broadcasting ........................ 1,426 1,428 5,259 4,951
Graphic arts ........................ -- 24 -- 251
Corporate ........................... 652 186 838 362
--------------------------------------------
$ 3,502 $ 4,907 $ 11,229 $ 13,866
============================================
QUARTER ENDED JUNE 30, 1997
Newspapers:
Wholly-owned daily newspaper advertising revenue increased $2,629,000, 6.1%.
Advertising revenue from local merchants increased $561,000, 2.3%. Local
"run-of-press" advertising decreased $28,000, (.2%). Advertising inches
decreased (4.5%). Local preprint revenue increased $589,000, 8.0%. Classified
advertising revenue increased $1,711,000, 11.8% as a result of higher average
rates and a 7.2% increase in advertising volume. Employment and real estate
advertising led the increase. Circulation revenue increased $232,000, 1.2% as a
result of higher rates which offset a 1.9% decrease in volume. Other revenue at
daily newspapers decreased $316,000, (3.8%).
Wholly-owned daily newspaper compensation expense increased $417,000, 1.8% due
primarily to increases in average compensation. Newsprint and ink costs
decreased $1,581,000, (16.8%) due to lower newsprint prices. Other operating
expenses exclusive of depreciation and amortization decreased $390,000, (2.6%).
Revenues from weekly newspapers, shoppers and specialty publications increased
$371,000, 6.9% (5.8% exclusive of acquisitions). Operating income increased
$140,000.
Broadcasting:
Revenue for the quarter remained even as political advertising decreased
$1,159,000, (81.9%), local/regional/national advertising increased $430,000,
1.7% and production revenue increased $321,000, 22.4%. Compensation costs
increased $1,344,000, 11.7% due to a 4.1% increase in the number of hours worked
and an increase in the average hourly rate. Programming costs decreased
$330,000, (15.2%) primarily due to decreased amortization from programs
amortized on an accelerated basis. Other operating expenses exclusive of
depreciation and amortization increased $302,000, 4.6% for the quarter.
Corporate:
Corporate costs increased $1,239,000 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
payments of short-term borrowings used to finance the acquisition of SJL of
Kansas Corp.
Income taxes were 38.2% and 39.1% of pre-tax income for the quarters ended June
30, 1997 and 1996, respectively.
NINE MONTHS ENDED JUNE 30, 1997
Newspaper:
Wholly-owned daily newspaper advertising revenue increased $8,139,000, 6.5%.
Advertising revenue from local merchants increased $3,401,000, 4.6%. Local
"run-of-press" advertising increased $2,249,000, 4.3%, as a result of higher
average rates. Local preprint revenue increased $1,152,000, 5.1%. Classified
advertising revenue increased $3,827,000, 9.7%, as a result of higher average
rates and a 4.6% increase in advertising inches. The employment category was the
biggest contributor to the increase. Circulation revenue increased $302,000,
.5%, as a result of higher rates which offset a 2.2% decrease in volume. Other
revenue at daily newspapers increased $205,000, .8%, primarily as a result of
increases in commercial printing and other non-traditional products and
services.
Wholly-owned daily newspaper compensation expense increased $2,527,000, 3.6%,
due primarily to increases in average compensation. Newsprint and ink costs
decreased $6,923,000, (23.5%), due to lower newsprint prices. Other operating
expense exclusive of depreciation and amortization increased $1,049,000, 2.3%.
Revenues from weekly newspapers, shoppers and specialty publications increased
$784,000, 4.7%. Operating income increased $271,000.
Broadcasting:
Revenue for the period increased $3,895,000, 4.4%, as political advertising
increased $2,347,000, 69.7%, and local/regional/national advertising increased
$217,000, .3%. Production revenue increased $566,000, 13.4%, primarily due to
increased corporate/studio business at MIRA Creative Group in Portland, Oregon.
Compensation costs increased $3,223,000, 9.3%, due to a 3.7% increase in the
number of hours worked and an increase in the average hourly rates. Programming
costs for the period decreased $1,150,000, (16.8%), primarily due to decreased
amortization from programs amortized on an accelerated basis. Other operating
expenses exclusive of depreciation and amortization increased $1,938,000, 9.8%,
primarily due to increased audience promotion for the November ratings period
and outside services.
Corporate Costs:
Corporate costs increased by $2,477,000, 29.0%, 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 38.6% and 39.1% of pre-tax income for the nine months ended
June 30, 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 $56,500,000.
Liquidity and Capital Resources:
Cash provided by operations, which is the Company's primary source of liquidity,
generated $77,288,000 for the nine month period ended June 30, 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.
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: August 13, 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 Nine Months
Ended June 30, Ended June 30,
---------------- ----------------
1997 1996 1997 1996
- ------------------------------------------------------------------------------------
Income applicable to common shares:
Income from continuing operations ........... $17,759 $15,381 $48,107 $39,157
Income from discontinued operations ......... 485 1,664 1,485 4,633
---------------------------------
Net income ....................... $18,244 $17,045 $49,592 $43,790
==================================
Shares:
Weighted average common shares
outstanding .............................. 46,401 46,974 46,646 47,126
Dilutive effect of certain stock
operations ............................... 830 964 842 895
----------------------------------
Average common shares outstanding,
as adjusted ...................... 47,231 47,938 47,488 48,021
==================================
Earnings per share of common stock:
Income from continuing operations ........... $ 0.38 $ 0.32 $ 1.01 $ 0.81
Income from discontinued operations ......... 0.01 0.04 0.03 0.10
----------------------------------
Net income ....................... $ 0.39 $ 0.36 $ 1.04 $ 0.91
==================================
5
1,000
9-MOS
SEP-30-1997
JUN-30-1997
70,106
0
58,658
4,132
2,021
138,733
252,000
147,622
513,658
97,439
27,021
0
0
92,802
243,131
513,658
328,717
334,148
0
0
253,800
0
5,115
78,376
30,269
48,107
1,485
0
0
49,592
1.04
1.04
