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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 1-6227
LEE ENTERPRISES, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 42-0823980
(State of Incorporation) (I.R.S. Employer Identification No.)
215 N. Main Street, Davenport, Iowa 52801
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (319) 383-2100
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange On
Title of Each Class Which Registered
Common Stock $2.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Class B Common Stock $2.00 par value
Indicate by 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of voting stock held by nonaffiliates
of the registrant as of December 8, 1995. Common Stock and Class B Common
Stock, $2.00 par value: $933,750,000.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of December 8, 1995. Common Stock, $2.00 par
value, 34,249,246 shares; and Class B Common Stock, $2.00 par value,
13,157,547 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement
dated December 27, 1995 are incorporated by reference in Part III of this
Form 10-K.
PART I
Item 1. Business
Item 1(a) Recent business developments. On March 31, 1995 Lee
acquired the 50.25% interest in Journal-Star Printing Co. (JSPC) not
previously owned, making JSPC a wholly-owned subsidiary. On August 28,
1995, Lee acquired the stock of SJL of Kansas Corp. (SJL) which operates
NBC affiliates KSNW-TV and KSNT-TV in Wichita and Topeka, Kansas. For
additional information related to the acquisitions, see Note 3 to the
Notes to Financial Statements under Item 8, herein.
Item 1(b) Financial information about industry segments. See Note 11
to the Notes to Financial Statements under Item 8, herein.
Item 1(c) Narrative description of business.
NEWSPAPERS
The Company and its subsidiaries publish the following daily
newspapers:
Quad-City Times - Davenport, Iowa
The Wisconsin State Journal - Madison, Wisconsin
The Lincoln Journal-Star - Lincoln, Nebraska
The Journal Times - Racine, Wisconsin
LaCrosse Tribune - LaCrosse, Wisconsin
Gazette Times - Corvallis, Oregon
Globe-Gazette - Mason City, Iowa
Ottumwa Courier - Ottumwa, Iowa
Star Courier - Kewanee, Illinois
Muscatine Journal - Muscatine, Iowa
Billings Gazette - Billings, Montana
The Montana Standard - Butte, Montana
Missoulian - Missoula, Montana
Independent Record - Helena, Montana
Bismarck Tribune - Bismarck, North Dakota
Herald and Review - Decatur, Illinois
Southern Illinoisan - Carbondale, Illinois
Winona Daily News - Winona, Minnesota
Rapid City Journal - Rapid City, South Dakota
One daily and Sunday newspaper, The Wisconsin State Journal, and one
daily newspaper, The Capital Times, are published in Madison, Wisconsin,
both of which are owned by Madison Newspapers, Inc. The Company owns 50%
of the outstanding capital stock of Madison Newspapers, Inc. The Company
has a contract to furnish the editorial and news content for The Wisconsin
State Journal, which is a morning newspaper published seven days each
week. The Capital Times Company, of which the Company owns 17% of the
nonvoting common stock, owns the other 50% of the outstanding capital
stock of Madison Newspapers, Inc., and has a similar contract to furnish
the editorial and news content for The Capital Times, which is an
afternoon newspaper published daily, except Sunday. Both newspapers are
produced in the printing plant of Madison Newspapers, Inc., which
maintains common advertising, circulation, delivery and business
departments for the two newspapers. The Company is compensated for
supplying the editorial and news content. In the newspaper field and
rating services The Wisconsin State Journal is classified as one of the
Lee Group of newspapers.
The Company also publishes 39 weekly newspapers, shoppers and special
industry publications.
The basic raw material of newspapers is newsprint. The Company and
its subsidiaries purchase newsprint from U.S. and Canadian producers. The
Company believes it will continue to receive a supply of newsprint
adequate to its needs. Price increases for newsprint are probable in the
future.
Newspaper revenue has traditionally been highest in the quarter
ended December 31 and, likewise, has been lowest in the quarter ended
March 31.
The Company's newspapers compete with newspapers having national
or regional circulation, as well as magazines, radio, television and other
advertising media such as billboards, shoppers and direct mail. In
addition, many of the Company's daily and Sunday newspapers compete with
other newspapers in nearby cities and towns.
BROADCASTING
The Company and its subsidiaries own and operate the following
television stations:
Nielsen DMA
Station Market Ranking
ABC Affiliate, KGUN-TV - Tucson, Arizona 80
CBS Affiliates:
KOIN-TV - Portland, Oregon 24
KRQE-TV - Albuquerque, New Mexico 48
KGMB-TV - Honolulu, Hawaii 70
KMTV - Omaha, Nebraska 75
NBC Affiliates:
WSAZ-TV - Huntington-Charleston, West Virginia 57
KSNW-TV - Wichita, Kansas 63
KSNT-TV - Topeka, Kansas 140
Paramount Affiliate, KZIA-TV - El Paso, Texas 99
[FN]
Combined DMA rank. KRQE-TV also operates satellite stations KBIM-
TV Roswell, New Mexico and KREZ-TV, Durango, Colorado.
KGMB-TV also operates satellite stations KGMD-TV, Hilo, Hawaii and
KGMV-TV, Maui, Hawaii.
KSNW-TV also operates satellite stations KSNG-TV Garden City,
Kansas; KSNC-TV Great Bend, Kansas; and KSNK-TV Oberlin,
Kansas/McCook, Nebraska
Broadcasting revenue has traditionally been highest in the quarter
ended December 31 and, likewise, has been lowest in the quarter ended
March 31.
The Company's television stations are in competition with other over-
the-air broadcast, direct broadcast satellite ("DBS") and cable
television, and radio companies, as well as other advertising media such
as newspapers, magazines and billboards. Competition in the television
broadcasting industry occurs primarily in individual market areas.
Generally, a television station in one market does not compete with other
stations in other market areas, nor does a group of stations, such as
those owned by the Company, compete with any other group of stations as
such. DBS and cable television systems in the Company's broadcasting
markets operate on a subscriber payment basis and compete by importing
out-of-market television signals or by originating programming to the
extent permitted or required by present or future rules of the Federal
Communications Commission ("FCC").
The Company's television broadcasting operations are subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended
(the "Act"). The Act empowers the FCC, among other things, to issue,
revoke or modify broadcasting licenses, to assign frequency bands, to
determine the location of stations, to regulate the apparatus used by
stations, to establish areas to be served, to adopt regulations necessary
to carry out the provisions of the Act and to impose penalties for
violation of such regulations. Television licenses are granted for a
maximum period of five years and, upon application, may be renewed for
additional five-year terms. The FCC is required to hold a hearing on a
renewal application if a conflicting application is filed, if a
substantial and material question of fact is raised with respect to the
renewal application, or if for any reason the FCC is unable to find that
the grant of the renewal application would serve the public interest,
convenience and necessity. Renewal of the Company's television licenses
has never been denied and all such licenses are now in full force and
effect.
GRAPHIC ARTS
NAPP Systems Inc. ("NAPP") is engaged in the business of manufacturing
and selling photosensitive letterpress (NAPPlate) and flexographic
(NAPPflex) polymer printing plates and selling related plate processing
equipment manufactured under contracts by others to newspaper publishers,
preprint, or telephone directory printing businesses located throughout
the world. NAPP also distributes commercial flexographic printing plates
and related plate processing equipment manufactured by others.
NAPP is subject to competition in the printing plate business.
Present supplies and/or contracts with suppliers of aluminum, steel and
chemicals used in manufacturing of NAPP plates are deemed adequate. Price
increases for these raw materials are probable in the future, but these
increases will affect competition as well as NAPP.
Under a License Agreement dated April 1, 1995 with Nippon Paint Co.,
Ltd. ("Nippon"), former owner of 50% of the outstanding capital stock of
NAPP, NAPP acquired a fully paid-up license on a worldwide, nonassignable
and sublicensable basis to exclusive use of Nippon's NAPPflex patent
rights in development, design, manufacture, marketing, sale, and
distribution of NAPPflex printing plates for use by newsprint, preprint,
and telephone directory printing businesses.
OTHER MATTERS
Compliance with present statutory and regulatory requirements
respecting environmental quality will not necessitate significant capital
outlays, or materially affect the earning power of the business of the
Company, or cause material changes in the Company's business, whether
present or intended.
In September 1995, the Company, its subsidiaries and associated
companies had approximately 5,600 employees, including approximately 1,900
part-time employees.
Item 2. Properties
The Company's executive offices are located in facilities leased at
215 North Main Street, Davenport, Iowa.
All of the newspaper printing plants (except Madison) are owned by the
Company. All newspaper printing plants (including Madison) are well
maintained, are in good condition, and are suitable for the present office
and publishing operations of the newspapers. All newspaper plants are
adequately equipped with typesetting, printing and other equipment
required in the publication of newspapers.
All offices, studios, and transmitter buildings of the broadcasting
divisions are owned or subject to long-term lease by the Company. All of
the television properties are adequately equipped for present operations,
and are in good condition and repair. Network television programs are
received via satellite.
The office, production and primary warehouse facilities of NAPP are
located in buildings in San Marcos, California which are owned by NAPP,
are in good condition and repair, and are suitable for its operations.
Item 3. Legal Proceedings
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Company
The following table shows the names and ages of all executive officers
of the Company, the period of service for each with the Company, the period
during which each has held his present office and the office held by each.
Period Of
Service Period In
With Present
Name Age Company Office Present Office
Richard D. Gottlieb 53 32 years 4 years President and
Chief
Executive
Officer
Larry L. Bloom 48 2 1/2 Years 2 1/2 Years Vice-President
& Treasurer
Ronald L. Rickman 57 36 years 12 years Vice-President
Gary N. Schmedding 57 23 years 7 years Vice-President
Greg R. Veon 43 19 years 1 month Vice-President
Floyd Whellan 58 9 years 9 years Vice-President
Charles D. Waterman, III 49 6 years 6 years Secretary
George C. Wahlig 48 6 years 3 years Principal
Accounting
Officer
John VanStrydonck 42 14 years 4 years Chairman and
CEO, NAPP
Systems Inc.
Richard D. Gottlieb was elected Chief Executive Officer of the Company
in May 1991, and was elected President and Chief Operating Officer of the
Company in November 1986.
Larry L. Bloom was elected Vice-President of Finance, Treasurer and
Chief Financial Officer in June 1993 and for more than five years prior
thereto he was in financial management positions with the New York Daily
News, most recently serving as senior vice-president and chief financial
officer.
Gary N. Schmedding was elected a Vice-President of the Company in
January 1989; from February 1987 to February 1989 he was general manager of
WSAZ-TV.
Greg R. Veon was elected a Vice-President of the Company in November
1995; from 1992 through November 1995 he was Vice-President and General
Manager of KOIN-TV, Portland, Oregon; for more than 2 years prior thereto he
was publisher of the Herald & Review, Decatur, Illinois.
Charles D. Waterman, III was elected Secretary of the Company in
November 1989. He is presently, and for more than the past five years has
been, a partner in the law firm of Lane & Waterman, Davenport, Iowa, general
counsel of the Company.
George C. Wahlig was elected Principal Accounting Officer of the Company
in November 1992; from May 1990 to November 1992 he was Director of Finance
and for more than two years prior to May 1990 he was a partner in the public
accounting firm of McGladrey & Pullen.
John VanStrydonck was elected President and Chief Executive Officer of
NAPP Systems Inc. in July of 1991 and Chairman and CEO in September 1994.
For more than three years prior thereto he was publisher of the Globe-
Gazette in Mason City, Iowa.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
COMMON STOCK PRICES AND DIVIDENDS
Lee Common Stock is listed on the New York Stock Exchange. The table below
shows the high and low prices of Lee Common Stock for each quarter during
the past three years, the closing price at the end of each quarter and the
dividends paid per share, after giving retroactive effect for the two-for-
one stock split.
Quarter
4th 3rd 2nd 1st
STOCK PRICES
1995:
High $21-11/16 $19-5/16 $18-3/8 $17-3/8
Low 18-1/8 17-7/16 16-13/16 15-7/8
Closing 21-11/16 19-1/16 17-3/4 17-1/4
1994:
High $17-3/4 $17-3/4 $19-1/16 $17-1/2
Low 16 15-7/8 16-7/8 15-1/2
Closing 17-1/4 16 17-9/16 17-1/2
1993:
High $15-13/16 $15-1/8 $15-3/4 $17-1/4
Low 13-3/4 13-5/8 14-1/4 15-1/8
Closing 15-11/16 13-5/8 14-13/16 15-1/4
DIVIDENDS PAID
1995 $ .11 $ .11 $ .11 $ .11
1994 .10-1/2 .10-1/2 .10-1/2 .10-1/2
1993 .10 .10 .10 .10
For a description of the relative rights of Common Stock and Class B
Common Stock, see Note 7 of the Notes to Financial Statements under Item 8
herein.
At September 30, 1995, the Company had 4,678 holders of Common Stock and
2,863 holders of Class B Common Stock.
Item 6. Selected Financial Data
FIVE YEAR FINANCIAL PERFORMANCE
Year Ended September 30: 1995 1994 1993 1992 1991
(In Thousands Except Per Share Data)
OPERATIONS
Operating revenue $ 443,188 $ 402,551 $ 372,907 $ 363,918 $ 346,260
Net income $ 58,459 $ 50,854 $ 41,236 $ 38,492 $ 31,501
PER SHARE AMOUNTS
Weighted average
shares 46,962 46,850 46,920 46,682 46,584
Earnings $1.24 $1.09 $ .88 $ .82 $ .68
Dividends .44 .42 .40 .38-1/2 .38
OTHER DATA
Total assets $ 559,929 $ 474,701 $ 482,317 $ 504,985 $ 490,264
Debt, including current
maturities 123,489 130,532 160,214 173,537 191,096
Stockholders' equity 311,042 241,930 223,482 203,812 183,035
Item 7. Management Discussion and Analysis of Financial Condition
and Results of Operations
Management Review and Discussion
Operating results are summarized below:
1995 1994 1993
(In Thousands)
Operating revenue $443,188 $402,551 $372,907
Percent change 10.1% 7.9% 2.5%
Operating income 103,432 95,477 81,139
Percent change 8.3% 17.7% 1.2%
Net income 58,459 50,854 41,236
Percent change 15.0% 23.3% 7.1%
Earnings per share 1.24 1.09 .88
Percent change 13.8% 23.9% 7.3%
The fiscal 1995 comparisons are affected by two significant acquisitions.
On March 31, 1995 Lee acquired the 50.25% interest in Journal-Star Printing
Co. (JSPC) not previously owned, making JSPC a wholly-owned subsidiary. On
August 28, 1995, Lee acquired the stock of SJL of Kansas Corp. (SJL) which
operates NBC network affiliated television stations KSNW-TV and KSNT-TV in
Wichita and Topeka, Kansas and three satellite stations that comprise a
network that covers all western Kansas and parts of southwest Nebraska.
Fiscal 1994 and 1993 comparisons were not affected by significant
acquisitions. The following unaudited proforma operating results are as if
the 1995 acquisitions had occurred on October 1, 1993.
1995 1994
(Proforma in
Thousands)
Operating revenue $472,048 $444,918
Percent change 6.1%
Operating income 108,329 102,218
Percent change 6.0%
Net income 58,231 52,648
Percent change 10.6%
Earnings per share 1.20 1.05
Percent change 14.3%
NEWSPAPERS
1995 1994 1993
(In Thousands)
Operating revenue $274,835 $241,032 $223,423
Percent change 14.0% 7.9% 4.6%
Operating income:
Wholly-owned properties 68,366 65,881 58,434
Percent change 3.8% 12.7% (1.2%)
Equity in net income 8,325 10,031 9,502
Percent change (17.0%) 5.6% 9.6%
Operating margin, wholly-owned properties 24.9% 27.3% 26.2%
The newspaper segment includes daily and weekly newspapers, shoppers, and
specialty publications. Operating revenue consists of the following:
1995 1994 1993
(In Thousands)
Daily newspaper:
Advertising $153,325 $134,322 $126,920
Percent change 14.1% 5.8% 3.4%
Circulation 72,863 66,302 63,285
Percent change 9.9% 4.8% 5.7%
Other 48,647 40,408 33,218
Percent change 20.4% 21.6% 7.1%
The JSPC acquisition accounted for a 9.0% increase in advertising revenue
and a 6.1% increase in circulation revenue in 1995.
In the tables that follow, newspaper advertising linage, circulation volume
statistics, and related revenue results are presented on a proforma basis
for newspapers owned at the end of fiscal 1995.
Changes in advertising units for classified and local advertising, which
account for more than 70% of newspaper advertising revenue, are as follows:
ADVERTISING LINAGE, IN THOUSANDS OF INCHES (PROFORMA)
1995 1994 1993
Classified 3,674 3,586 3,313
Percent change 2.5% 8.2% 3.0%
Local 5,422 5,481 5,533
Percent change (1.1%) (.9%) (2.7%)
Classified advertising revenue increased approximately 9.1% in 1995, 13.3%
in 1994, and 4.7% in 1993. The average rate realized increased 6.5% in
1995, 4.7% in 1994, and 1.6% in 1993. In 1995 growth was led by increases
in employment, private party advertising and, in the first part of the year
automotive.
Local "run-of-press" advertising represents advertising by merchants in the
local community which is printed in the newspaper rather than "preprints"
which are printed separately by the Company or others and inserted into the
newspaper. Revenue increased 2.2% and 3.3% in 1995 and 1994, respectively,
on higher average rates despite a 1.1% and .9% decrease in advertising
inches. In 1993 revenue was flat due to the 2.7% decrease in volume.
Total revenue realized from local and national merchants is increasing
despite the shift from run-of-press advertising to preprints which have
lower-priced, higher-volume distribution rates. Preprint revenue increased
$1,839,000 (5.4%) in 1995, $1,774,000 (5.5%) in 1994, and $1,787,000 (5.9%)
in 1993 primarily as a result of increases in volume. The rate of growth in
advertising revenues began to decline late in fiscal 1995. This decline is
expected to continue into 1996.
In 1995 and 1994 circulation revenue increased 3.8% and 4.7%, respectively,
as a result of higher rates which offset .9% and .6% decreases in volume.
The 1993 increase in circulation revenue was a result of a 5.3% increase in
price and a .3% increase in the number of subscribers.
Other revenue consists of revenue from products delivered outside the
newspaper (which include activities such as target marketing and special
event production), weekly and specialty publications, commercial printing
and editorial service contracts with Madison Newspapers, Inc. and, through
March 31, 1995, with Journal-Star Printing Co.
Other income by category and by property is as follows:
1995 1994 1993
(In Thousands)
Products delivered outside the newspaper:
Properties owned for entire period $ 6,347 $ 4,467 $ 2,273
Acquired since September 30, 1992 229 - - - -
Weekly and specialty publications:
Properties owned for entire period 15,732 15,233 13,497
Acquired since September 30, 1992 5,333 2,151 - -
Commercial printing:
Properties owned for entire period 11,799 10,178 9,305
Acquired since September 30, 1992 781 - - - -
Editorial service contracts 8,426 8,379 8,143
$ 48,647 $ 40,408 $ 33,218
The following table sets forth the percentage of revenue of certain items in
the newspaper segment.
1995 1994 1993
Revenue 100.0% 100.0% 100.0%
Compensation costs 34.4% 34.9% 34.9%
Newsprint and ink 11.6 9.0 9.8
Other operating expenses 24.5 24.4 23.9
70.5% 68.3% 68.6%
Income before depreciation, amortization,
interest and taxes 29.5% 31.7% 31.4%
Depreciation and amortization 4.6 4.4 5.2
Operating margin wholly-owned properties 24.9% 27.3% 26.2%
Exclusive of the effects of acquisitions, in 1995 costs other than
depreciation and amortization increased 8.2%. Newsprint and ink costs
increased 32.1% as price increases offset the 1.4% reduction in newsprint
usage. Compensation costs increased 5.2% primarily as a result of salary
increases. Other operating expenses increased by 4.9% due to normal
inflationary increases.
Exclusive of the effects of the specialty publication acquisitions, in 1994
costs other than depreciation and amortization increased 5.7%. Compensation
costs increased 6.9% primarily due to a 1.8% increase in hours worked and
salary increases. Total hours worked increased primarily due to the non-
traditional revenue activities. Newsprint and ink costs decreased 1.1%.
Increased newsprint rebates offset a 4% increase in newsprint usage by
newspapers and a 11% increase in commercial printing volume. Other
operating expenses increased 7.1% primarily due to non-traditional services
and normal inflationary increases.
In 1993 costs other than depreciation and amortization increased 7.5%.
Compensation costs increased 3.7% primarily as a result of salary increases.
Newsprint and ink costs increased 10.0% primarily as a result of reduced
newsprint rebates and an increase in commercial printing. Other operating
expenses increased 12.2% primarily due to costs related to non-traditional
services and normal inflationary increases.
Newsprint suppliers continue to implement price increases. If newsprint
prices actually increase as indicated, our costs per ton could increase in
excess of 25% in 1996.
BROADCASTING
1995 1994 1993
(Dollars In Thousands)
Operating revenue $100,586 $ 90,000 $ 81,284
Percent change 11.8% 10.7% 2.7%
Operating income 26,934 21,494 16,712
Percent change 25.3% 28.6% 19.7%
Operating margin 26.8% 23.9% 20.6%
Exclusive of the effects of the SJL acquisition, operating revenue and
operating income increased 10.1% and 26.7%, respectively in 1995.
Local/regional revenue increased $1,400,000, national advertising increased
$3,200,000, political advertising increased $1,700,000 and network
compensation increased $1,900,000.
The full year of operations from the acquisition of KZIA-TV, then operating
in Las Cruces, New Mexico, increased operating revenue in 1994 by $400,000.
Exclusive of the effects of this acquisition, local/regional revenue
increased $4,700,000 and national advertising increased $4,300,000.
Included in these increases are the effects of the Winter Olympics on our
four CBS affiliates and their satellite stations.
Political advertising in 1993 increased $1,100,000 over the prior year.
Local/regional advertising increased by $2,500,000 which was offset, in
part, by a $1,200,000 decrease in national advertising. In 1995 political
revenues totaled approximately $4,400,000. While we anticipate some
revenues in fiscal 1996 from political campaigns, the bulk of these revenues
may not be replaced due to the current softness in national spot advertising
and less robust conditions in several of our local markets. Network
compensation decreased $300,000 for the year, primarily at the Company's
CBS-affiliated stations.
The following table sets forth the percentage of revenue of certain items in
the broadcasting segment.
1995 1994 1993
Revenue 100.0% 100.0% 100.0%
Compensation costs 37.1% 38.9% 39.1%
Programming costs 6.2 7.4 9.4
Other operating expenses 21.8 21.4 21.4
65.1% 67.7% 69.9%
Income before depreciation, amortization,
interest and taxes 34.9% 32.3% 30.1%
Depreciation and amortization 8.1 8.4 9.5
Operating margin wholly-owned properties 26.8% 23.9% 20.6%
Exclusive of the effects of the SJL acquisition, operating income increased
by $5,700,000 in 1995. Compensation costs increased 4.6% primarily due to
increased hours worked. Programming costs decreased by $530,000 (8.0%) as a
result of a shift from more expensive syndicated programming to locally
originated news programming. Other operating expense increased 10.3% due to
costs related to the higher business activity levels and sales and audience
promotion.
Operating income increased in 1994 by $4,800,000. Compensation costs
increased $3,200,000 or 10.1%, due to an increase in incentive compensation
related to increases in advertising revenue and an increase of 5.1% in the
number of hours worked (including the effects of the acquisition of KZIA-
TV). Portland, Omaha and Huntington all expanded news programming which
required additional staffing and other related costs. Program costs
declined $1,000,000 primarily due to the trend discussed above. Other
operating expenses increased $1,800,000 or 10.4%, due to costs related to
the higher business activity levels.
Operating income increased $2,600,000 in 1993. Programming costs decreased
by $3,300,000 reflecting trends from 1992. Compensation costs increased
5.0% primarily as a result of salary increases. Other operating expenses
increased by 5.1% reflecting increased sales promotion costs and
inflationary cost increases.
GRAPHIC ARTS
Graphic arts revenue decreased $2,046,000 in 1995 while operating income
increased $658,000. Decreased unit volume from NAPP's letterpress plate
business was offset by higher selling prices and growth in the flexographic
printing plate business. Profit from large infrequently occurring equipment
sales contributed $1,400,000 to operating income.
In 1994 NAPP's revenue increased 5.2% due primarily to higher flexographic
printing plate sales. The contribution from letterpress printing plates for
the year was flat as higher average prices offset increased manufacturing
costs and a 10% reduction in plate volume.
NAPP presently expects conversion to offset or flexographic printing by its
existing newspaper letterpress customer base within the next ten to fifteen
years. The timing of conversion to offset or flexographic printing by
present newspaper customers of NAPP in future periods is difficult to
predict since printing equipment may be retired based on considerations
other than physical condition. The decision will also be impacted by a
number of factors beyond NAPP's control, including economic conditions in
NAPP's worldwide market.
NAPP may be able to offset a portion of the loss in newspaper letterpress
revenues by increasing the newspaper market for its flexographic product,
increasing revenues from the commercial flexographic printing plate
distribution business which NAPP established in September 1995 and
increasing product offerings in the commercial letterpress printing market,
development of additional products for use in other printing technologies
and marketing of the cost-effective letterpress printing technology in
Eastern Europe and other countries where newspaper markets are developing.
There is no assurance that NAPP will be successful in replacing its
newspaper letterpress revenues.
During 1993 NAPP restructured its European operations and appointed a
distributor for the European market. The distribution agreement provides
for payment in U.S. dollars, which substantially reduces NAPP's exposure to
fluctuation in foreign currency exchange rates. Costs of approximately
$2,000,000 related to closing NAPP's United Kingdom sales office were offset
in part by a one-time sale of letterpress printing plate inventories to the
new distributor.
INTEREST EXPENSE
Interest expense decreased by approximately $1,700,000 in 1995 and 1994 and
$1,600,000 in 1993. The most significant element of the decrease was a
lower debt level which reduced interest by approximately $2,000,000,
$1,700,000 and $800,000, respectively. In 1993 there was a $400,000
reduction in interest expense as a result of the continuing phase-out of the
Company's Deferred Compensation Unit Plan. In 1995 a $500,000 increase in
interest on deferred compensation was offset by an increase in financial
income earned on the invested funds.
INCOME TAXES
Income taxes were 38.6% of pretax income in 1995, 40.1% in 1994 and 39.3% in
1993. In 1995 the effective tax rate was decreased by .9% as a result of
the elimination of the deferred income taxes related to the undistributed
income of the 49.75% interest in JSPC. The effect of the federal income tax
rate increase was approximately $200,000 in 1994 and $1,000,000 including a
$500,000 increase in deferred income tax credits in 1993. The 1993 increase
was offset by the reduction in the income tax interest contingency related
to the income tax basis of acquired intangibles due to favorable court
rulings for taxpayers with similar circumstances and changes in the income
tax law. The effective tax rate for 1996 is expected to be approximately
39%.
LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS
Cash provided by operations is the Company's primary source of liquidity,
generating $72,571,000 in 1995. The major sources and uses of cash in 1995
were as follows:
(In Thousands)
Sources of cash:
Operations $ 72,571
Maturities of temporary investments, net 38,659
New borrowings 35,000
All other 1,002
$147,232
Uses of cash:
Acquisitions $ 41,609
Purchase property and equipment 17,435
Cash dividends paid 20,295
Purchase stock 30,925
Pay debt 45,069
$155,333
Decrease in cash $ (8,101)
The Company has financed significant acquisitions by long-term borrowings.
The long-term borrowings may not be prepaid without a substantial prepayment
penalty.
Capital expenditures for new and improved facilities and equipment are
expected to be about $20,000,000 in 1996. The Company anticipates that
funds necessary for capital expenditures and other requirements will be
available from internally generated funds. The Company also has $15,000,000
available pursuant to a bank line-of-credit.
DIVIDENDS AND COMMON STOCK PRICES
The current quarterly cash dividend is $.12 per share, an annual rate of $.48.
During the fiscal year ended September 30, 1995, the Company paid
$20,295,000 or 34.7% of the current year's earnings in dividends. The
Company will continue to review its dividend policy to assure that it
remains consistent with its capital demands. Covenants under long-term
obligations are not considered restrictive to payment of dividends. Lee
common stock is listed on the New York Stock Exchange. The table under Item
5 herein shows the high and low prices of Lee common stock for each quarter
during the past three years. It also shows the closing price at the end of
each quarter and the dividends paid in the quarter.
INFLATION
The net effect of inflation on operations has not been material in the last
few years because of efforts by the Company to lessen the effect of rising
costs through a strategy of improving productivity, controlling costs and,
where competitive conditions permit, increasing selling prices.
QUARTERLY RESULTS
The Company's largest source of newspaper revenue, local run-of-press
advertising, is seasonal and tends to fluctuate with retail sales in markets
served. Historically, local run-of-press advertising is higher in the first
and third quarters. Newspaper classified advertising revenue (which
includes real estate and automobile ads) and broadcasting revenue are lowest
in January and February which are included in our second fiscal quarter.
Quarterly results of operations are summarized under Item 8 herein.
Item 8. Financial Statements and Supplementary Data
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
September 30,
1995 1994 1993
(Dollars In Thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,683 $ 18,784 $ 17,072
Temporary investments 200 38,859 45,500
Trade receivables, less allowance for
doubtful accounts 1995 $4,100; 1994
$4,100; 1993 $3,400 57,146 46,170 43,284
Receivables from associated companies 1,438 2,169 2,137
Inventories 18,355 13,147 11,177
Program rights and other 16,687 16,578 15,952
Total current assets $104,509 $135,707 $135,122
INVESTMENTS
Associated companies $ 10,754 $ 21,969 $ 20,305
Other 8,946 7,437 6,650
$ 19,700 $ 29,406 $ 26,955
PROPERTY AND EQUIPMENT
Land and improvements $ 12,053 $ 11,392 $ 11,319
Buildings and improvements 64,768 56,675 55,177
Equipment 176,642 152,547 137,917
$253,463 $220,614 $204,413
Less accumulated depreciation 145,267 138,450 129,057
$108,196 $ 82,164 $ 75,356
INTANGIBLES AND OTHER ASSETS
Intangibles $321,014 $225,633 $242,267
Other 6,510 1,791 2,617
$327,524 $227,424 $244,884
$559,929 $474,701 $482,317
See Notes to Consolidated Financial Statements.
September 30,
1995 1994 1993
(Dollars In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable and current maturities of
long-term debt $ 47,978 $ 31,891 $ 32,748
Accounts payable 24,155 17,336 13,215
Compensation and other accruals 28,431 26,523 25,078
Income taxes payable 2,656 12,971 10,808
Unearned income 13,307 11,009 9,859
Total current liabilities $116,527 $ 99,730 $ 91,708
LONG-TERM DEBT, net of current maturities $ 75,511 $ 98,641 $127,466
DEFERRED ITEMS
Retirement and compensation $ 11,632 $ 13,021 $ 13,747
Income taxes 45,217 21,379 25,914
$ 56,849 $ 34,400 $ 39,661
STOCKHOLDERS' EQUITY
Capital stock:
Serial convertible preferred, no par
value; authorized 500,000 shares;
issued none
Common, $2 par value; authorized
60,000,000 shares; issued and
outstanding 1995 34,198,000 shares $ 68,396 $ 32,130 $ 31,826
Class B, common, $2 par value;
authorized 30,000,000 shares;
issued and outstanding 1995 13,168,000
shares 26,336 13,390 14,374
Additional paid-in capital 17,404 6,497 3,469
Unearned compensation (533) (665) (901)
Retained earnings 199,439 190,578 174,714
$311,042 $241,930 $223,482
$559,929 $474,701 $482,317
CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30,
1995 1994 1993
(In Thousands
Except Per Share Data)
Operating revenue:
Newspaper:
Advertising $153,325 $134,322 $126,920
Circulation 72,863 66,302 63,285
Other 48,647 40,408 33,218
Broadcasting 100,586 90,000 81,284
Graphic arts 59,490 61,357 58,651
Equity in net income of associated
companies 8,277 10,162 9,549
$443,188 $402,551 $372,907
Operating expenses:
Compensation costs $148,894 $138,486 $128,734
Newsprint and ink 31,936 21,744 21,936
Depreciation 12,731 10,916 11,131
Amortization of intangibles 13,243 12,580 13,645
Other 132,952 123,348 116,322
$339,756 $307,074 $291,768
Operating income $103,432 $ 95,477 $ 81,139
Financial (income) expense:
Interest expense $ 11,902 $ 13,576 $ 15,312
Financial (income) (3,704) (2,984) (2,103)
$ 8,198 $ 10,592 $ 13,209
Income before taxes on income $ 95,234 $ 84,885 $ 67,930
Income taxes 36,775 34,031 26,694
Net income $ 58,459 $ 50,854 $ 41,236
Weighted average number of shares 46,962 46,850 46,920
Earnings per share $ 1.24 $ 1.09 $ .88
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30,
1995 1994 1993
(In Thousands)
CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 58,459 $ 50,854 $ 41,236
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 25,974 23,496 24,776
Distributions in excess of (less than)
earnings of associated companies 206 (1,696) (1,563)
Change in assets and liabilities, net
of effects from business
acquisitions:
(Increase) decrease in receivables (4,849) (2,631) 529
(Increase) decrease in inventories,
program rights and other (4,717) (4,013) 1,447
Increase (decrease) in accounts
payable, accrued expenses and
unearned income 6,619 5,038 (10,154)
Increase (decrease) in income taxes
payable (10,469) 2,163 884
Other, primarily deferred items 1,348 4,564 1,120
Net cash provided by operating
activities $ 72,571 $ 77,775 $ 58,275
CASH (REQUIRED FOR) INVESTING ACTIVITIES
Acquisitions $(41,609) $ (4,132) $ (444)
Additional investment in associated
companies - - - - (50)
Purchase of property and equipment (17,435) (17,611) (9,988)
Purchase of temporary investments (200) (117,732) (87,500)
Proceeds from maturities of temporary
investments 38,859 124,373 66,800
Other (1,509) (787) (95)
Net cash (required for) investing
activities $(21,894) $(15,889) $(31,277)
CASH (REQUIRED FOR) FINANCING ACTIVITIES
Purchase of common stock $(30,925) $(16,498) $ (8,702)
Cash dividends paid (20,295) (19,367) (18,495)
Proceeds from long-term borrowings 20,000 - - - -
Proceeds from short-term notes payable 15,000 - - - -
Principal payments on long-term
borrowings (45,069) (26,667) (11,070)
Other 2,511 2,358 5,070
Net cash (required for) financing
activities $(58,778) $(60,174) $(33,197)
Net increase (decrease) in cash
and cash equivalents $ (8,101) $ 1,712 $ (6,199)
Cash and cash equivalents:
Beginning 18,784 17,072 23,271
Ending $ 10,683 $ 18,784 $ 17,072
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30,
Amount Shares
1995 1994 1993 1995 1994 1993
(In Thousands Except Per Share Data)
COMMON STOCK
Balance, beginning $ 32,130 $ 31,826 $ 41,842 32,130 31,826 41,842
Conversion from Class B
Common Stock 252 988 432 252 988 432
Stock split 34,198 - - - - - - - - - -
Cancellation of treasury
stock - - - - (10,480) - - - - (10,480)
Shares issued 3,508 462 560 3,508 462 560
Shares reacquired (1,692) (1,146) (528) (1,692) (1,146) (528)
Balance, ending $ 68,396 $ 32,130 $ 31,826 34,198 32,130 31,826
CLASS B COMMON STOCK
Balance, beginning $ 13,390 $ 14,374 $ 18,606 13,390 14,374 18,606
Conversion to Common Stock (252) (988) (432) (252) (988) (432)
Stock split 13,168 - - - - - - - - - -
Cancellation of treasury
stock - - - - (3,712) - - - - (3,712)
Shares issued 38 14 90 38 14 90
Shares reacquired (8) (10) (178) (8) (10) (178)
Balance, ending $ 26,336 $ 13,390 $ 14,374 13,168 13,390 14,374
ADDITIONAL PAID-IN CAPITAL
Balance, beginning $ 6,497 $ 3,469 $ - -
Shares issued 58,273 3,028 3,469
Common stock split (Note 2) (47,366) - - - -
Balance, ending $ 17,404 $ 6,497 $ 3,469
UNEARNED COMPENSATION
Balance, beginning $ (665) $ (901) $ (760)
Restricted shares issued (496) (474) (787)
Restricted shares canceled 24 22 118
Amortization 604 688 528
Balance, ending $ (533) $ (665) $ (901)
Years Ended September 30,
Amount Shares
1995 1994 1993 1995 1994 1993
(In Thousands Except Per Share Data)
RETAINED EARNINGS
Balance, beginning $190,578 $174,714 $256,519
Net income 58,459 50,854 41,236
Cash dividends per share
1995 $.44; 1994 $.42;
1993 $.40 (20,295) (19,367) (18,495)
Treasury stock issued for
less than cost or
canceled - - - - (98,203)
Shares reacquired (29,303) (15,623) (6,343)
Balance, ending $199,439 $190,578 $174,714
TREASURY STOCK
Balance, beginning $ - - $ - - $112,395 - - - - 7,096
Cancellation of treasury
stock - - - - (112,395) - - - - (7,096)
Balance, ending $ - - $ - - $ - - - - - - - -
STOCKHOLDERS' EQUITY $311,042 $241,930 $223,482 47,366 45,520 46,200
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company has three principal businesses: newspaper
publishing, broadcasting and sale of graphic arts products and
services. As of September 30, 1995, operating divisions and
associated companies publish 19 daily newspapers and operate
nine television stations and seven satellite stations.
Graphic arts products and services consist primarily of the
operations of NAPP Systems Inc., a manufacturer and
distribution of graphic arts products.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All
significant intercompany items have been eliminated.
TEMPORARY INVESTMENTS:
Temporary investments are carried at cost which approximates
fair value.
INVENTORIES:
Newsprint inventories are priced at the lower of cost or
market with cost being determined primarily by the last-in,
first-out method. Newsprint inventories as of September 30,
1995, 1994 and 1993 were less than replacement cost by
$4,896,000, $2,985,000, and $3,148,000, respectively.
Graphic arts inventories are valued at the lower of standard
cost (which approximates cost on a first-in, first-out method)
or market.
PROGRAM RIGHTS:
Cost of program rights is stated at the lower of cost or
estimated realizable value. The total cost of the rights is
recorded as an asset and a liability when the program becomes
available for broadcast. Cost of program rights is charged to
operations primarily on accelerated bases related to the usage
of the program. The current portion of program rights
represents those rights that will be amortized in the
succeeding year.
INVESTMENTS:
Investments in the common stock or joint venture capital of
associated companies are reported at cost plus the Company's
share of undistributed earnings since acquisition, less
amortization of intangibles.
Long-term loans to associated companies are included in
investments in associated companies.
Other investments primarily consist of various trading
securities held in a Rabbi Trust and are carried at fair
value.
PROPERTY AND EQUIPMENT:
Property and equipment is carried at cost. Equipment, except
for newspaper presses and broadcast towers, is depreciated
primarily by declining-balance methods. The straight-line
method is used for all other assets. The estimated useful
lives in years are as follows:
Years
Buildings and improvements 5-25
Newspaper:
Presses 15-20
Other major equipment 3-11
Broadcasting:
Towers 15-20
Other major equipment 3-10
Manufacturing equipment 5-8
The Company capitalizes interest as part of the cost of
constructing major facilities.
INTANGIBLES:
Intangibles include covenants not-to-compete, consulting
agreements, customer lists, broadcast licenses and agreements,
newspaper subscriber lists, and the excess costs over fair
value of net assets of businesses acquired.
The excess costs over fair value of net tangible assets
include $21,510,000 related to the newspaper and broadcast
segments incurred prior to October 31, 1970, which is not
being amortized. Excess costs related to shoppers are being
amortized over a 10 to 15 year period. Intangibles related to
the graphic arts segment are being amortized over a period of
20 years. Intangibles, representing non-compete covenants,
consulting agreements, customer lists, broadcast licenses and
agreements and newspaper subscriber lists are being amortized
over a period of 3 to 40 years. The remaining newspaper and
broadcast segment costs are being amortized over a period of
40 years. All intangibles are amortized by the straight-line
method.
The Company reviews its intangibles annually to determine
potential impairment by comparing the carrying value of the
intangibles with the anticipated future cash flows of the
related property.
ADVERTISING COSTS:
Advertising costs, which are not material, are expensed as
incurred.
INCOME TAXES:
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date
of enactment.
EARNINGS PER SHARE:
Earnings per share are calculated using the weighted average
number of common stock, Class B Common Stock and common stock
equivalent shares outstanding resulting from employee stock
option and purchase plans.
CASH AND CASH EQUIVALENTS:
For the purpose of reporting cash flows, the Company considers
all highly liquid debt instruments purchased with an original
maturity of three months or less at date of acquisition to be
cash equivalents.
RESTRICTED STOCK:
The Company amortizes as compensation cost the value of
restricted stock, issued under a long-term incentive plan, by
the straight-line method over the three year restriction
period.
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 to holders of
record on November 20, 1995. Common Stock issued, Class B
Common Stock issued, and additional paid-in capital as of
September 30, 1995 have been restated to reflect this split.
The number of shares issued at September 30, 1995 after giving
effect to the split was 34,198,000 common shares and 13,168,000
Class B Common shares (17,099,000 common shares and 6,584,000
Class B Common shares before the split).
All share and per share data, including stock option and stock
purchase plan information, is stated to reflect the split.
NOTE 3. ACQUISITIONS
On March 31, 1995, the Company issued 3,293,000 shares of common
stock, in exchange for 50.25% of the outstanding shares of
Journal-Star Printing Co., a subsidiary which prior to the
acquisition was 49.75% owned by the Company. The total
acquisition cost over the fair value of the net assets acquired
was $41,586,000.
The acquisition has been accounted for as a purchase. The
results of operations of 100% of the Journal-Star Printing Co.
since the date of acquisition are included in the consolidated
financial statements. Equity in net income was recorded for the
Company's 49.75% interest in income through March 31, 1995.
On August 28, 1995, the Company acquired, for cash 100% of the
outstanding stock of SJL of Kansas Corp., the owner of two
television stations in Wichita and Topeka, Kansas. The total
acquisition cost was $51,100,000. The excess of the total
acquisition cost, over the fair value of the net assets acquired
was $19,790,000.
The acquisition has been accounted for as a purchase and results
of operations of SJL of Kansas Corp. since the date of
acquisition is included in the consolidated financial
statements.
Unaudited pro forma consolidated results of operations for the
years ended September 30, 1995 and 1994 as though 100% of the
Journal-Star Printing Co. and SJL of Kansas Corp. had been
acquired as of October 1, 1993 follows:
Year Ended
September 30,
1995 1994
(In Thousands
Except Per Share
Data)
Operating revenue $472,048 $444,918
Net income 58,231 52,648
Earnings per share 1.20 1.05
The above amounts reflect adjustments for amortization of
intangibles, additional depreciation on revalued purchased
assets and imputed interest on borrowed funds.
The Company also acquired four alternative publications and a
satellite television station in 1995, two alternative
publications in 1994, and an independent television station in
1993.
The purchase price of business acquisitions was allocated as
follows:
Years Ended September 30,
1995 1994 1993
(In Thousands)
Noncash working capital
acquired $ 1,723 $ 161 $ 27
Property and equipment 21,484 436 505
Intangibles 108,890 3,535 67
Other long-term assets 6,370 - - - -
Debt assumed (1,871) - - - -
Issuance of note payable (2,315) - - - -
Deferred items (22,682) - - (155)
Common stock issued (58,250) - - - -
Total cash purchase
price $ 53,349 $ 4,132 $ 444
Less equity interest in cash
balance at date of acquisition (11,740) - - - -
$ 41,609 $ 4,132 $ 444
NOTE 4. INVESTMENTS IN ASSOCIATED COMPANIES
The Company has a 50% ownership interest in Madison Newspapers,
Inc., a newspaper publishing company operating in Madison,
Wisconsin, and a direct marketing venture, Quality Information
Systems. The Company had until March 31, 1995 (see Note 3) an
effective 50% ownership interest in Journal-Star Printing Co., a
newspaper publishing company in Lincoln, Nebraska.
Summarized financial information of the associated companies is
as follows:
Combined Associates 1995 1994 1993
(In Thousands)
Assets
Current assets $ 22,873 $ 35,895 $ 36,420
Investments and other assets 3,865 13,757 14,486
Property and equipment, net 6,359 13,835 8,608
$ 33,097 $ 63,487 $ 59,514
Liabilities and
Stockholders' Equity
Current liabilities $ 12,180 $ 17,839 $ 17,684
Long-term debt 590 615 615
Deferred items - - 2,414 1,915
Stockholders' equity 20,327 42,619 39,300
$ 33,097 $ 63,487 $ 59,514
Revenue $ 85,421 $ 98,011 $ 92,097
Income before depreciation,
interest and income taxes 27,159 33,454 31,333
Operating income 25,104 31,629 29,600
Net income 16,076 20,353 19,124
Receivables from associated companies consist of dividends.
Certain information relating to Company investments in these
associated companies is as follows:
1995 1994 1993
(In Thousands)
Share of:
Stockholders' equity $ 10,164 $ 21,265 $ 19,601
Undistributed earnings 9,946 19,508 17,844
NOTE 5. DEBT
The Company has long-term obligations, net of current maturities,
as follows:
September 30,
1995 1994 1993
(In Thousands)
Insurance companies notes
payable:
Senior notes $ - - $ 20,000 $ 20,000
Senior notes, effective rate
of 9.92%, $25,000,000 due
January 1998 and 1999 50,000 75,000 100,000
Bank term loan, 6.17%, due
January 1997 20,000 - - - -
Program contracts, noninterest
bearing, due through 1999 2,763 2,040 4,366
Other 5.0%-6.2%, due through
2010 2,748 1,601 3,100
$ 75,511 $ 98,641 $127,466
At September 30, 1995 the Company had $15,000,000 of borrowings
under unsecured line-of-credit agreements with two banks. The
agreements provide for quarterly interest payments at a variable
interest rate, currently 6.25%, and are due in August 1996. The
Company also has $15,000,000 available under a credit agreement
with a bank which terminates in July 1998. Interest rates float
at rates specified in the agreement.
Aggregate maturities during the next five years are $32,978,000,
$23,344,000, $25,681,000, $25,222,000, and $1,264,000. Covenants
under these agreements are not considered restrictive to normal
operations or anticipated stockholder dividends.
NOTE 6. RETIREMENT AND COMPENSATION PLANS
Substantially all the Company's employees are covered by a
qualified defined contribution retirement plan. The Company has
other retirement and compensation plans for executives and
others. Retirement and compensation plan costs, including
interest on deferred compensation costs, charged to operations
were $9,200,000 in 1995, $10,200,000 in 1994, and $7,800,000 in
1993.
NOTE 7. COMMON STOCK AND CLASS B COMMON STOCK
Class B Common Stock has ten votes per share on all matters and
generally votes as a class with Common Stock (which has one vote
per share). The transfer of Class B Common Stock is restricted;
however, Class B Common Stock is at all times convertible into
shares of Common Stock on a share-for-share basis. Common Stock
and Class B Common Stock have identical rights with respect to
cash dividends and upon liquidation.
During 1993, the Board of Directors retired 14,192,000 shares of
treasury stock and adopted the policy of retiring all shares of
the Company's common stock as it is repurchased.
NOTE 8. STOCK OPTION AND RESTRICTED STOCK
AND STOCK PURCHASE PLANS
Stock option and restricted stock plans:
The Company has reserved 7,114,000 common shares for issuance
to key employees under incentive and nonstatutory stock option
plans and a restricted stock plan approved by stockholders.
Options have been granted at a price equal to the fair market
value on the date of grant, and are exercisable in cumulative
installments over a ten-year period. All option grants are for
common stock. Other pertinent information related to the stock
option plans is as follows:
Number of Shares
1995 1994 1993
(In Thousands)
Under option, beginning of
year 2,406 2,556 2,682
Granted 192 198 372
Terminated and canceled (10) (34) (22)
Exercised (368) (314) (476)
Under option, end of year 2,220 2,406 2,556
Options exercisable, end of
year 1,778 1,856 1,738
Average Price
1995 1994 1993
Granted during the year $16.66 $16.03 $15.54
Exercised during the year 11.45 12.37 9.94
Under option, end of year 13.79 13.20 12.91
Restricted stock is subject to an agreement requiring
forfeiture by the employee in the event of termination of
employment within three years of the grant date for reasons
other than normal retirement, death or disability. As of
September 30, 1995, 156,000 shares of restricted stock were
outstanding.
At September 30, 1995, 4,894,000 shares were available for
granting of stock options or issuance of restricted stock.
Stock purchase plan:
The Company has 218,000 additional shares of common stock
available for issuance pursuant to a non-officer employee stock
purchase plan. April 30, 1996 is the exercise date for the
current offering. The purchase price is the lower of 85% of
the fair market value at the date of the grant or the exercise
date which is one year from the date of the grant.
In 1995, 1994 and 1993 employees purchased 108,000, 120,000,
and 108,000 shares, respectively, at a per share price of
$14.90 in 1995, $12.49 in 1994, and $12.38 in 1993.
NOTE 9. INCOME TAX MATTERS
Components of income tax expense consist of the following:
Years Ended September 30,
1995 1994 1993
(In Thousands)
Paid or payable on currently
taxable income:
Federal $29,031 $27,846 $21,554
State 5,948 5,535 4,311
Net increase due to deferred
income taxes 1,796 650 829
$36,775 $34,031 $26,694
Income tax expense for the years ended September 30, 1995, 1994,
and 1993 is different than the amount computed by applying the
U.S. federal income tax rate to income before income taxes. The
reasons for these differences are as follows:
% Of Pre-Tax Income
1995 1994 1993
Computed "expected" income tax
expense 35.0% 35.0% 34.8%
State income taxes, net of
federal tax benefit 4.4 4.2 4.2
Net income of associated companies
taxed at dividend rates (2.7) (3.7) (4.4)
Effect of change in tax rates on
deferred taxes - - - - .7
Goodwill amortization 3.0 3.3 4.7
Other (1.1) 1.3 (.7)
38.6% 40.1% 39.3%
Foreign taxes are not material.
Net deferred tax liabilities consist of the following components
as of September 30, 1995, 1994 and 1993:
1995 1994 1993
(In Thousands)
Deferred tax liabilities:
Property and equipment $ 8,607 $ 3,429 $ 3,728
Equity in undistributed
earnings of affiliates 883 1,676 1,529
Deferred gain on sale of
broadcast properties 3,308 3,308 3,308
Identifiable intangible
assets 36,179 19,686 23,120
Other 2,303 - - - -
$ 51,280 $ 28,099 $ 31,685
Deferred tax assets:
Accrued compensation $ 7,501 $ 7,525 $ 6,670
Receivable allowance 1,550 1,746 1,493
Loss carryforwards acquired 10,779 784 1,703
Other 2,654 3,084 3,411
$ 22,484 $ 13,139 $ 13,277
Less, valuation allowance 10,498 - - 1,703
11,986 $ 13,139 $ 11,574
$ 39,294 $ 14,960 $ 20,111
The components giving rise to the net deferred tax liabilities
described above have been included in the accompanying balance
sheets as of September 30, 1995, 1994, and 1993 as follows:
1995 1994 1993
(In Thousands)
Current assets $ 5,923 $ 6,419 $ 5,803
Noncurrent liabilities (45,217) (21,379) (25,914)
$ 39,294 $(14,960) $(20,111)
The Company provided a valuation allowance of $10,498,000 during
1995 at the time SJL of Kansas Corp. was acquired because of
limitations imposed by the tax laws on the Company's ability to
realize the benefit of the acquired operating loss carryforwards.
During 1994, as a result of changes in the operations of New
Mexico Broadcasting Company, Inc. management has determined that
it is more likely than not that the Company's remaining net
operating losses will be utilized and, accordingly, reduced the
valuation allowance that it has previously established by
$1,703,000 with a corresponding reduction in goodwill. As of
September 30, 1995 the SJL net operating loss carryforward was
approximately $27,000,000 and will expire in various amounts from
1999 to 2010.
The Company changed its estimate of the tax basis of acquired
intangibles and reduced goodwill by $5,877,000 and $20,632,000
during the years ended September 30, 1994 and 1993, respectively.
In 1995 the Company settled Internal Revenue Service examinations
related to the amortization of intangibles on the basis
previously estimated.
NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value.
The carrying amounts of cash and cash equivalents, temporary
investments, and accrued expenses approximate fair value because
of the short maturity of those instruments.
The fair value of the Company's debt is estimated based on the
quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same
remaining maturities. The estimated fair values of the Company's
debt instruments are as follows:
Carrying Fair
Amount Value
(In Thousands)
September 30:
1995 $123,489 $127,723
1994 130,532 134,130
1993 160,214 174,199
NOTE 11. LINE OF BUSINESS INFORMATION
Year Ended September 30,
1995 1994 1993
(In Thousands)
Revenues:
Newspapers:
Wholly-owned properties $274,835 $241,032 $223,423
Equity in net income of
associated companies 8,325 10,031 9,502
Broadcasting 100,586 90,000 81,284
Graphic Arts:
Wholly-owned properties 59,490 61,357 58,651
Equity in net income
(loss) of associated
companies (48) 131 47
Total revenue $443,188 $402,551 $372,907
Operating income:
Newspapers $ 76,691 $ 75,912 $ 67,936
Broadcasting 26,934 21,494 16,712
Graphic arts 11,979 11,321 8,187
Corporate and other (12,172) (13,250) (11,696)
Total operating
income $103,432 $ 95,477 $ 81,139
Identifiable assets:
Newspapers $229,765 $174,695 $168,432
Broadcasting 211,652 139,401 147,270
Graphic arts 87,880 88,225 95,641
Corporate 30,632 72,380 70,974
Total identifiable
assets $559,929 $474,701 $482,317
Depreciation:
Newspapers $ 7,041 $ 5,645 $ 6,087
Broadcasting 4,388 3,917 3,635
Graphic arts 766 850 804
Corporate 536 504 605
Total depreciation $ 12,731 $ 10,916 $ 11,131
Amortization of intangibles:
Newspapers $ 5,746 $ 4,927 $ 5,584
Broadcasting 3,755 3,661 4,069
Graphic arts 3,742 3,992 3,992
Total amortization
of intangibles $ 13,243 $ 12,580 $ 13,645
Capital expenditures:
Newspapers $ 9,875 $ 12,993 $ 2,113
Broadcasting 7,141 4,298 3,715
Graphic arts 63 170 398
Corporate 356 150 3,762
Total capital
expenditures $ 17,435 $ 17,611 $ 9,988
NOTE 12. OTHER INFORMATION
Balance sheet information:
Inventories consist of the following:
September 30,
1995 1994 1993
(In Thousands)
Newsprint $ 3,634 $ 2,343 $ 2,904
Graphic arts products:
Raw material 7,554 5,684 4,737
Finished goods 7,167 5,120 3,536
$ 18,355 $ 13,147 $ 11,177
Program rights and other consist of the following:
September 30,
1995 1994 1993
(In Thousands)
Program rights $ 6,793 $ 6,278 $ 7,507
Deferred income taxes 5,923 6,419 5,803
Other 3,971 3,881 2,642
$ 16,687 $ 16,578 $ 15,952
Intangibles consist of the following:
September 30,
1995 1994 1993
(In Thousands)
Goodwill $268,945 $206,525 $212,030
Less, accumulated
amortization 64,185 56,631 49,508
$204,760 $149,894 $162,522
Covenants and consulting
agreements $ 25,739 $ 25,315 $ 23,955
Less, accumulated
amortization 15,811 13,543 10,302
$ 9,928 $ 11,772 $ 13,653
Customer lists, broadcasting
licenses and agreements and
newspaper subscriber lists $124,472 $ 79,432 $ 79,332
Less, accumulated
amortization 18,146 15,465 13,240
$106,326 $ 63,967 $ 66,092
$321,014 $225,633 $242,267
Compensation and other accruals consist of the following:
September 30,
1995 1994 1993
(In Thousands)
Compensation $ 10,355 $ 9,684 $ 10,777
Deferred compensation,
current portion 1,394 1,567 173
Vacation pay 4,824 3,892 3,811
Retirement and stock
purchase plans 2,941 2,769 2,192
Interest 1,834 2,365 2,831
Other 7,083 6,246 5,294
$ 28,431 $ 26,523 $ 25,078
Cash flows information:
Year Ended September 30,
1995 1994 1993
(In Thousands)
Cash payments for:
Interest $ 12,433 $ 14,042 $ 15,515
Income taxes $ 45,294 $ 31,218 $ 24,743
Program rights were acquired
by issuing long-term
contracts as follows $ 6,000 $ 3,600 $ 4,900
Issuance of restricted
common stock, net $ 334 $ 452 $ 669
Change in tax contingency
estimates:
Reduction in goodwill $ - - $ 7,580 $ 20,632
Reduction in:
Deferred income taxes $ - - $ 5,801 $ 9,060
Income taxes payable - - 1,779 11,572
$ - - $ 7,580 $ 20,632
SUPPLEMENTARY DATA
QUARTERLY RESULTS (UNAUDITED)
4th 3rd 2nd 1st
(In Thousands Except Per Share Data)
1995 Quarter:
Operating revenue $114,353 $117,106 $ 98,641 $113,088
Net income 14,082 16,435 11,116 16,826
Earnings per common and common
equivalent share $ .29 $ .34 $ .25 $ .37
1994 Quarter:
Operating revenue $102,519 $103,022 $ 94,923 $102,087
Net income 13,606 14,367 9,564 13,317
Earnings per common and common
equivalent share $ .29 $ .31 $ .20 $ .28
1993 Quarter:
Operating revenue $ 94,608 $ 97,043 $ 84,909 $ 96,347
Net income 11,383 11,849 6,501 11,503
Earnings per common and common
equivalent share $ .24 $ .25 $ .14 $ .24
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
Not applicable.
PART III
The information called for by Part III of this Form 10-K is omitted
in accordance with General Instruction G because the Company will file with
the Commission a definitive proxy statement pursuant to Regulation 14A not
later than 120 days after the close of the Company's fiscal year ended
September 30, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) 1. Financial Statements
Independent Auditor's Report
and Consent
Financial Statements
Consolidated balance sheets as of September 30,
1995, 1994 and 1993
Consolidated statements of income years ended
September 30, 1995, 1994 and 1993
Consolidated statements of stockholders' equity
years ended September 30, 1995, 1994 and 1993
Consolidated statements of cash flows years
ended September 30, 1995, 1994 and 1993
Notes to consolidated financial statements
(a) 2. Financial statements schedule
Schedule
XII - Valuation and qualifying accounts years
ended September 30, 1995, 1994 and 1993
All other schedules have been omitted as not
required, not applicable, not deemed material
or because the information is included in the
Notes to Financial Statements.
(a) 3. Exhibits (listed by numbers corresponding to the
Exhibit Table of Item 601 in Regulation S-K).
11 Computation of earnings per share years ended
September 30, 1995, 1994 and 1993
21 Subsidiaries
24 Power of Attorney
27 Financial Data Schedule
(b) The following report on Form 8-K was filed for the three months
ended September 30, 1995:
Date of report: September 18, 1995
Item: 5 - Announce completion of transaction to purchase SJL
of Kansas Corp.
Financial statements filed: none
* * * * *
For the purposes of complying with the amendments to
the rules governing Form S-8 (effective July 13, 1991)
under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking
shall be incorporated by reference into registrant's
Registration Statements on Form S-8 Nos. 2-56652 (filed
June 17, 1976), 2-58393 (filed March 11, 1977), 2-77121
(filed April 22, 1982), 33-19725 (filed January 20, 1988),
and 33-46708 (filed March 31, 1992).
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act of 1933, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
INDEPENDENT AUDITOR'S REPORT
AND CONSENT
To the Stockholders
Lee Enterprises, Incorporated
and Subsidiaries
Davenport, Iowa
We have audited the accompanying consolidated balance sheets of Lee
Enterprises, Incorporated and subsidiaries as of September 30, 1995, 1994
and 1993 and the related consolidated statements of income, stockholders'
equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lee
Enterprises, Incorporated and subsidiaries as of September 30, 1995, 1994
and 1993 and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting
principles.
In our opinion, schedules included in this Annual Report on Form 10-K
for the year ended September 30, 1995, present fairly the information set
forth therein, in conformity with generally accepted accounting principles.
We consent to the incorporation by reference in the Registration
Statements on Form S-8 No. 2-56652, No. 2-77121, No. 2-58393, No. 33-19725,
and No. 33-46708 (filed March 31, 1992) and in the related Prospectuses of
our report dated October 26, 1995 with respect to the financial statements
of Lee Enterprises, Incorporated, incorporated by reference and the
schedule included in this Annual Report on Form 10-K for the year ended
September 30, 1995 and to the reference to us under the heading "Experts"
in such Prospectuses.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa
October 26, 1995, except for Note 2 as to which the
date is November 9, 1995
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date December 27, 1995 LEE ENTERPRISES, INCORPORATED
/s/ Richard D. Gottlieb /s/ Larry L. Bloom
Richard D. Gottlieb, President Larry L. Bloom,
Chief Executive Officer, and Vice-President of Finance,
Director Treasurer and Chief Financial
Officer
/s/ G. C. Wahlig
G. C. Wahlig,
Principal Accounting Officer
We, the undersigned directors of Lee Enterprises, Incorporated, hereby
severally constitute Richard D. Gottlieb and Larry L. Bloom, and each of
them, our true and lawful attorneys with full power to them, and each of
them, to sign for us and in our names, in the capacities indicated below,
the Annual Report on Form 10-K of Lee Enterprises, Incorporated for the
fiscal year ended September 30, 1995 to be filed herewith and any
amendments to said Annual Report, and generally do all such things in our
name and behalf in our capacities as directors to enable Lee Enterprises,
Incorporated to comply with the provisions of the Securities Exchange Act
of 1934 as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorneys, or either of them, to said Annual Report on
Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated:
Signature Title Date
/s/ Lloyd G. Schermer Chairman of the
Lloyd G. Schermer Board of Directors November 9, 1995
/s/ J. P. Guerin
J. P. Guerin Director November 9, 1995
/s/ Phyllis Sewell
Phyllis Sewell Director November 9, 1995
/s/ Mark Vittert
Mark Vittert Director November 9, 1995
/s/ Ronald L. Rickman
Ronald L. Rickman Director November 9, 1995
/s/ Richard W. Sonnenfeldt
Richard W. Sonnenfeldt Director December 16, 1995
/s/ Rance E. Crain
Rance E. Crain Director November 9, 1995
/s/ Charles E. Rickershauser, Jr.
Charles E. Rickershauser, Jr. Director November 9, 1995
/s/ Andrew E. Newman
Andrew E. Newman Director November 9, 1995
LEE ENTERPRISES, INCORPORATED
AND WHOLLY-OWNED SUBSIDIARIES
SCHEDULE XII - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column A Column B Column C Column D Column E
Balance At Additions Charged Deduction Balance
Beginning Charged To Other From At Close
Description Of Period To Income Accounts Reserves Of Period
Allowance for doubtful
accounts:
For the year ended
September 30, 1995 $ 4,100 $ 1,525 $ 408 <2> $ 1,933 $ 4,100
For the year ended
September 30, 1994 $ 3,400 $ 2,200 $ - - $ 1,500 $ 4,100
For the year ended
September 30, 1993 $ 3,500 $ 1,500 $ - - $ 1,600 $ 3,400
Represents accounts written off as uncollectible, net of recoveries which are
immaterial.
Balance upon consolidation of Journal-Star Printing Company's 49.75% previously owned
and acquisition of 50.25% interest and acquisition of SJL of Kansas, Corp.