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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, 1997
[ ] 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 1, 1997. Common Stock and Class B Common Stock, $2.00
par value: $1,132,250,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 1, 1997. Common Stock, $2.00 par value, 33,415,128
shares; and Class B Common Stock, $2.00 par value, 12,028,317 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement dated
December 29, 1997 are incorporated by reference in Part III of this Form 10-K.
PART I
Item 1. Business
Item 1(a) Recent business developments. On January 17, 1997 the Company
consummated the sale of the capital stock of its graphic arts products
subsidiary, NAPP Systems Inc., for approximately $55,900,000, net of selling
expenses. For additional information related to the disposition, see Note 2 of
the Notes to Financial Statements under Item 8, herein. On September 8, 1997,
the Company acquired the capital stock of Southern Utah Media, Inc. (now known
as Pacific Northwest Publishing Group, Inc.), Oregon News Media, Inc., and
Nevada Media, Inc. ("The Pacific Northwest Group") for approximately
$186,000,000. For additional information related to the acquisition, see Note 3
of the Notes to Financial Statements under Item 8, herein.
Item 1(b) Financial information about industry segments. See Note 12 to the
Notes to Financial Statements under Item 8, herein.
Item 1(c) Narrative description of business.
PUBLISHING
The Company and its subsidiaries publish the following:
Daily Newspapers:
Herald & Review - Decatur, Illinois
Southern Illinoisian - Carbondale
Illinois Star Courier - Kewanee, Illinois
Quad City Times - Davenport, Iowa
Globe Gazette - Mason City, Iowa
Muscatine Journal - Muscatine, Iowa
The Ottumwa Courier - Ottumwa, Iowa
Winona Daily News - Winona, Minnesota
Billings Gazette - Billings, Montana
The Montana Standard - Butte, Montana
Independent Record - Helena, Montana
Missoulian - Missoula, Montana
Lincoln Journal Star - Lincoln, Nebraska
The Bismarck Tribune - Bismarck, North Dakota
Democrat-Herald - Albany, Oregon
Ashland Daily Tidings - Ashland, Oregon
Corvallis Gazette-Times - Corvallis, Oregon
Rapid City Journal - Rapid City, South Dakota
LaCrosse Tribune - LaCrosse, Wisconsin
Wisconsin State Journal - Madison, Wisconsin
The Journal Times - Racine, Wisconsin
Weekly Newspapers:
Aledo Times Record - Aledo, Illinois
Bettendorf News - Bettendorf, Iowa
Big Fork Eagle - Big Fork, Montana
Mandan News - Mandan, North Dakota
The Plattsmouth Journal - Plattsmouth, Nebraska
Newport News-Times - Newport, Oregon
The Springfield News - Springfield, Oregon
Gresham Outlook - Gresham, Oregon
Cottage Grove Sentinel - Cottage Grove, Oregon
Lebanon Express - Lebanon, Oregon
Sandy Post - Sandy, Oregon
Classified Publications:
Dandy Dime - Tucson, Arizona
Prescott Sun - Prescott, Arizona
The Town Crier - Aledo, Illinois
The Atkinson-Annawan News - Atkinson, Illinois
Prairie Shopper - Decatur, Illinois
Henry County Advertiser - Geneseo, Illinois
Thrifty Nickel - East Moline, Illinois
The Gateway Express - Clinton, Iowa
The Advertiser - Davenport, Iowa
Winnebago/Hancock Shopper - Forest City, Iowa
Mason City Shopper - Mason City, Iowa
The Post - Muscatine, Iowa
Wapello County Shopper - Ottumwa, Iowa
Thrifty Nickel - Billings, Montana
Yellowstone Shopper - Billings, Montana
Mini Nickel - Bozeman, Montana
Nickel Saver - Butte, Montana
Western Shopper - Deer Lodge, Montana
The Trader - Dillon, Montana
Consumers Press - Great Falls, Montana
Life & Times Press, Hamilton, Montana
The Adit - Helena, Montana
The Western Montana Messenger - Missoula, Montana
Pennysaver - Dickinson, North Dakota
The Finder - Mandan, North Dakota
Nifty Nickel - Las Vegas, Nevada
Nickel Ads - Portland, Oregon
Rapid City Advertiser - Rapid City, South Dakota
Northern Hills Advertiser - Spearfish, South Dakota
Pioneer Shopper - St. Geoge, Utah
Little Nickel - Lynnwood, Washington
Nickel Saver - Moses Lake, Washington
Nickel Nik - Spokane, Washington
Nickel Ads - Wenatchee, Washington
Buyline - Walla Walla, Washington
The Foxxy Shopper - LaCrosse, Wisconsin
Cover Story - Madison, Wisconsin
Pennysaver - Racine, Wisconsin
Foxxy Shopper - Sparta, Wisconsin
Specialty Publications and Other Products and Services:
The Ridge - Aledo, Illinois
Classic Images - Muscatine, Iowa
Western Business - Billings, Montana
Ag Almanac - Great Falls, Montana
AutoFinder - Missoula, Montana
Farm & Ranch Guide - Bismarck, North Dakota
Home Scene - Las Vegas, Nevada
Las Vegas Showtime - Las Vegas, Nevada
Nifty Nickel Cars & Trucks - Las Vegas, Nevada
Tri-State Neighbor - Sioux Falls, South Dakota
Value Express - Colville, Washington
Home Buyer's Guide - Spokane, Washington
Nickel Nik's Wheel Deals - Spokane, Washington
Nickel Nick's RV Wheel Deals - Spokane, Washington
Nickel Nik's Truck Deals - Spokane, Washington
AgriView - Madison, Wisconsin
The Eastman's Journal - Thermopolis, Wyoming
Lee Print - Decatur, Illinois
Lee Direct - Davenport, Iowa
International Newspaper Network - Big Fork, Montana
Quality Information Systems - Billings, Montana
Intermountain Printing and Publishing - Deer Lodge, Montana
Internet Broadcasting Partners - Portland, Oregon
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 basic raw material of newspapers, classified and specialty publications 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. Newsprint prices are volatile and fluctuate
based upon factors which include both the foreign and domestic production
capacity and consumption. The price fluctuations can have a significant effect
on the results of operations.
Publishing 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, classified and specialty publications compete with
newspapers having national or regional circulation, magazines, radio,
television, other advertising media such as billboards, classified and specialty
publications and direct mail, as well as other information content providers
such as on-line services. 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 78
CBS Affiliates:
KOIN-TV - Portland, Oregon 24
KRQE-TV - Albuquerque, New Mexico 48 (1)
KGMB-TV - Honolulu, Hawaii 71 (2)
KMTV - Omaha, Nebraska 74
NBC Affiliates:
WSAZ-TV - Huntington-Charleston, West Virginia 57
KSNW-TV - Wichita, Kansas 65 (3)
KSNT-TV - Topeka, Kansas 139
UPN Affiliate, KMAZ-TV - El Paso, Texas 99 (4)
UPN Affiliate, KASY-TV - Albuquerque, New Mexico
(operating under local marketing agreement) 48
(1) Combined DMA rank. KRQE-TV also operates stations KBIM-TV, Roswell, New
Mexico and KREZ-TV, Durango, Colorado.
(2) KGMB-TV also operates stations KGMD-TV, Hilo, Hawaii and KGMV-TV, Maui,
Hawaii.
(3) KSNW-TV also operates stations KSNG-TV, Garden City, Kansas; KSNC-TV, Great
Bend, Kansas; and KSNK-TV, Oberlin, Kansas/McCook, Nebraska.
(4) KZIA-TV changed its call letters to KMAZ-TV effective October 31, 1997.
Affiliation will change to Telemundo (providing Spanish language
programming) effective January 15, 1998.
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 compete with other over-the-air broadcast
television stations, direct broadcast satellite ("DBS") and cable television,
radio companies, other advertising media such as newspapers, magazines and
billboards, as well as other information content providers such as on-line
services. 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 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.
OTHER MATTERS
In the opinion of management, 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 1997, the Company, its subsidiaries and associated companies had
approximately 6,100 employees, including approximately 2,000 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 printing plants (except Madison) are owned by the Company. All
printing plants (including Madison) are well maintained, are in good condition,
and are suitable for the present office and publishing operations. Upon
completion of the planned production facility expansion in Lincoln, Nebraska,
the Company believes all plants will be adequately equipped with typesetting,
printing and other required equipment.
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. See Item 7 "Management Discussion and Analysis of
Financial Condition and Results of Operation - Liquidity, Capital Resources and
Commitments" for a discussion of the implementation of digital television
service. Network television programs are received via satellite.
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
Name Age With Company Present Office Present Office
- -------------------------------------------------------------------------------------------------------------
Richard D. Gottlieb 55 34 years 6 years President and Chief Executive
Officer
Ronald L. Rickman 59 38 years 1 month President - Publishing Group
Gary N. Schmedding 59 25 years 1 month President - Broadcast Group
Group
Larry L. Bloom 48 4-1/2 years 4-1/2 years Senior Vice President - Finance,
Treasurer, and Chief
Financial Officer
Greg R. Veon 45 21 years 2 years Vice President - Marketing
Richard F. Anderson 59 1 month 1 month President - The Pacific
Northwest Group
Vytenis P. Kuraitis 49 3 years 1 year Vice President - Human
Resources
Charles D. Waterman, III 51 8 years 8 years Secretary
George C. Wahlig 50 8 years 5 years Vice President - Finance and
Chief Accounting Officer
Gregory P. Schermer 43 9 years 1 month Vice President - Interactive
Media
Ronald L. Rickman was elected President - Publishing Group in November 1997. For
more than five years prior thereto he was Vice President - Publishing Group.
Gary N. Schmedding was elected President - Broadcast Group in November 1997. For
more than five years prior thereto he was Vice President - Broadcast Group.
Larry L. Bloom was elected Vice President - Finance, Treasurer and Chief
Financial Officer in June 1993 and Senior Vice President - Finance in November
1997. 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.
Greg R. Veon was elected a Vice President - Marketing 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.
Richard F. Anderson was elected President - The Pacific Northwest Group in
November 1997; from 1992 through September 1997 he was General Manager and
President of The Pacific Northwest Publishing Group for Capital Cities/ABC, Inc.
Vytenis P. Kuraitis was elected Vice President - Human Resources in January
1997. From August 1994 through January 1997 he was Director of Human Resources.
For more than two years prior thereto, he was the National Practice Director for
Executive Compensation for AON.
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 Vice President - Finance in November 1997; from
November 1992 through November 1997 he was, and continues to be, Chief
Accounting Officer for the Company.
Gregory P. Schermer was elected a Vice President - Interactive Media in November
1997; from 1992 through November 1997 he was, and continues to serve as,
corporate counsel for the Company.
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. Lee Class B Common
Stock was issued to stockholders of record of the Company in 1986 pursuant to a
100% stock dividend and is converted at sale or the option of the holder into
Lee Common Stock. 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.
Quarter
--------------------------------------------
4th 3rd 2nd 1st
--------------------------------------------
STOCK PRICES
1997:
High $ 29-1/8 $ 27 $ 25-1/8 $ 23-5/8
Low 25 22-3/8 22-3/8 21
Closing 28-3/8 26-3/8 24-1/4 23-1/4
1996:
High 23-5/8 24-3/8 22-3/4 23
Low 19-3/4 20-1/2 20 19-11/16
Closing 22-7/8 23-5/8 21-1/8 23
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
DIVIDENDS PAID
1997 $ 0.13 $ 0.13 $ 0.13 $ 0.13
1996 0.12 0.12 0.12 0.12
1995 0.11 0.11 0.11 0.11
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, 1997, the Company had 3,982 holders of Common Stock and 2,432
holders of Class B Common Stock.
Item 6. Selected Financial Data
FIVE YEAR FINANCIAL PERFORMANCE
Year Ended
September 30: 1997 1996 1995 1994 1993
------------------------------------------------
(In Thousands Except Per Share Data)
OPERATIONS
Operating revenue ........ $446,686 $427,369 $383,740 $341,241 $314,600
================================================
Income from continuing
operations ............ $ 62,745 $ 53,670 $ 52,232 $ 45,137 $ 36,923
Discontinued operations .. -- 7,725 6,227 5,717 4,313
Gain (loss) on disposition
of discontinued
operations ............ 1,485 (15,948) -- -- --
------------------------------------------------
Net income .... $ 64,230 $ 45,447 $ 58,459 $ 50,854 $ 41,236
================================================
PER SHARE AMOUNTS
Weighted average
shares ................ 47,312 47,991 46,962 46,850 46,920
================================================
Income from continuing
operations ............ $ 1.33 $ 1.12 $ 1.11 $ 0.97 $ 0.79
Discontinued operations .. -- 0.16 0.13 0.12 0.09
Gain (loss) on disposition
of discontinued
operations ............ 0.03 (0.33) -- -- --
------------------------------------------------
Net income .... $ 1.36 $ 0.95 $ 1.24 $ 1.09 $ 0.88
================================================
Dividends ................ $ 0.52 $ 0.48 $ 0.44 $ 0.42 $ 0.40
OTHER DATA
Total assets ............. $650,963 $527,416 $559,929 $474,701 $482,317
Debt, including
current maturities .... 203,735 95,503 123,489 130,532 160,214
Stockholders' equity ..... 319,390 324,954 311,042 241,930 223,482
Item 7. Management Discussion and Analysis of Financial Condition
and Results of Operations
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in the
forward-looking statements. The Company has attempted to identify
forward-looking statements by placing an asterisk immediately following the
sentence or phrase that contains the forward-looking statement.
Operating results are summarized below:
1997 1996 1995
------------------------------
(Dollars in Thousands,
Except Per Share Data)
Operating revenue ....................... $446,686 $427,369 $383,740
Percent change ....................... 4.5% 11.4% 12.5%
Income before depreciation, amortization,
interest and taxes (EBITDA)* ......... 132,455 122,540 112,871
Percent change ....................... 8.1% 8.6% 7.4%
Operating income ........................ 104,151 94,741 91,405
Percent change ....................... 9.9% 3.6% 8.4%
Income from continuing operations ....... 62,745 53,670 52,232
Percent change ....................... 16.9% 2.8% 15.7%
Earnings per share, continuing operations 1.33 1.12 1.11
Percent change ....................... 18.8% 0.9% 14.4%
* EBITDA is not a financial performance measurement under generally accepted
accounting principles (GAAP), and should not be considered in isolation or
a substitute for GAAP performance measurements. EBITDA is also not
reflected in our consolidated statement of cash flows; but it is a common
and meaningful alternative performance measurement for comparison to other
companies in our industry.
The fiscal 1997 comparisons are not significantly affected by the September 8,
1997 acquisition of The Pacific Northwest Group. The $186,000,000 purchase price
was paid in cash from bank lines of credit and the Company's cash reserves. The
Pacific Northwest Group publishes eight daily and weekly newspapers
geographically clustered in Oregon's Willamette Valley and classified
publications in eight markets in the states of Washington, Oregon, Nevada, and
Utah. For additional information related to this acquisition, see Note 3 of the
Notes to Consolidated Financial Statements under Item 8, herein.
The fiscal 1996 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 covering all
of western Kansas and parts of southwest Nebraska.
The following unaudited pro forma operating results are as if the acquisitions
had occurred on October 1, 1995.
1997 1996
---------------------
(Pro Forma Dollars in
Thousands, Except Per
Share Data)
Operating revenue ............................ $494,764 $476,714
Percent change ............................ 3.8%
Income before depreciation, amortization,
interest and taxes ........................ 146,850 136,118
Percent change ............................ 7.9%
Operating income ............................. 111,488 100,812
Percent change ............................ 10.6%
Income from continuing operations ............ 60,224 49,920
Percent change ............................ 20.6%
Earnings per share, continuing operations .... 1.27 1.04
Percent change ............................ 22.1%
PUBLISHING
1997 1996 1995
------------------------------
(Dollars in Thousands)
Operating revenue ....................... $318,441 $302,564 $274,877
Percent change ....................... 5.2% 10.1% 14.0%
Operating income:
Wholly-owned properties .............. 88,865 75,687 68,366
Percent change .................... 17.4% 10.7% 3.8%
Equity in net income ................. 7,756 7,008 8,277
Percent change .................... 10.7% (15.3)% (18.5)%
Operating margin, wholly-owned properties 27.9% 25.0% 24.9%
The publishing segment includes newspapers, classified and specialty
publications. Operating revenue consists of the following:
1997 1996 1995
-----------------------------
(Dollars in Thousands)
Daily newspapers:
Advertising ........................ $179,822 $169,151 $153,325
Percent change .................. 6.3% 10.3% 14.1%
Circulation ........................ 80,522 79,814 72,863
Percent change .................. 0.9% 9.5% 9.9%
Other ................................. 58,097 53,599 48,689
Percent change ..................... 8.4% 10.1% 20.4%
Exclusive of The Pacific Northwest Group acquisition, advertising revenue
increased 6.0%, circulation revenue increased .7%, and other revenue increased
3.8% in 1997.
Exclusive of the JSPC acquisitions, advertising revenue increased 1.8% and 5.1%,
circulation revenue increased 4.9% and 3.8%, and other revenue increased by 9.3%
and 15.1%, in 1996 and 1995, respectively.
The following daily newspaper advertising lineage, circulation volume
statistics, and related revenue results are presented on a pro forma basis for
daily newspapers wholly owned at the end of fiscal 1997.
Changes in advertising units for classified and local advertising, which account
for more than 70% of newspaper advertising revenue, are as follows:
ADVERTISING LINEAGE, IN THOUSANDS OF INCHES (PRO FORMA ):
1997 1996 1995
--------------------------------------
Classified ..................... 4,252 4,067 4,076
Percent change .............. 4.5% (0.2)% 2.5%
Local .......................... 5,630 5,697 5,830
Percent change .............. (1.2)% (2.3)% (1.9)%
Classified advertising revenue increased approximately 9.7% in 1997, 6.5% in
1996, and 9.7% in 1995. The average rate realized increased 5.0% in 1997, 6.8%
in 1996, and 7.0% in 1995. In 1997 significant growth in employment advertising
offset softness in automotive and other advertising. In 1996 automotive
advertising decreased until late in the fiscal year. In 1995 growth was led by
increases in employment, private party and, in the first part of the year,
automotive advertising.
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 3.1%, 3.1%, and 1.9% in 1997, 1996, and 1995,
respectively, on higher average rates despite decreases in advertising inches.
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 5.2% in 1997, was
flat in 1996 due to cutbacks by advertisers during the 1995 holiday season, and
increased 5.7% in 1995.
In 1997, 1996, and 1995 circulation revenue increased .8%, 3.8%, and 3.8% as a
result of higher rates, which offset volume decreases of (2.3%), (1.7%), and
(1.2%), respectively.
Other revenue consists of revenue from weekly newspapers, classified, specialty
publications, commercial printing, products delivered outside the newspaper
(which include activities such as target marketing and special event production)
and editorial service contracts with Madison Newspapers, Inc. and, through March
31, 1995, with Journal-Star Printing Co.
Other revenue by category and by property is as follows:
1997 1996 1995
-------------------------
(In Thousands)
Weekly newspapers, classified and specialty
publications:
Properties owned for entire period ............... $20,015 $19,322 $19,390
Acquired since September 30, 1994 ................ 5,768 2,913 1,675
Commercial printing:
Properties owned for entire period ............... 14,020 14,199 11,799
Acquired since September 30, 1994 ................ 1,954 1,680 781
Products delivered outside the newspaper:
Properties owned for entire period ............... 7,127 6,896 6,389
Acquired since September 30, 1994 ................ 1,237 1,022 229
Editorial service contracts ......................... 7,976 7,567 8,426
-------------------------
$58,097 $53,599 $48,689
=========================
The following table sets forth the percentage of revenue of certain items in the
publishing segment.
1997 1996 1995
------------------------
Revenue ........................................... 100.0% 100.0% 100.0%
------------------------
Compensation costs ................................ 34.0 33.8 34.4
Newsprint and ink ................................. 9.7 12.7 11.6
Other operating expenses .......................... 23.4 23.6 24.5
------------------------
67.1 70.1 70.5
------------------------
Income before depreciation, amortization, interest
and taxes ...................................... 32.9 29.9 29.5
Depreciation and amortization ..................... 5.0 4.9 4.6
-------------------------
Operating margin wholly-owned properties .......... 27.9% 25.0% 24.9%
=========================
Exclusive of the effects of the 1997 acquisitions, in 1997 costs other than
depreciation and amortization decreased (.5%). Newsprint and ink costs decreased
(20.9%) due to lower prices for newsprint. Prices were lower in all four
quarters of 1997 as compared to the same quarters of 1996; however, after
decreases in the first and second quarters, prices increased in the third and
fourth quarters of 1997. Newsprint consumption was flat in 1997 as compared to
1996. Compensation costs increased 4.4% as a result of salary increases. Other
operating costs increased 3.7% due to normal inflationary increases.
Exclusive of the effects of the 1995 acquisitions, in 1996 costs other than
depreciation and amortization increased 3%. Newsprint and ink costs increased
9.4% due to price increases for newsprint. High prices during the first two
quarters of the fiscal year stabilized during the third quarter and were lower
in the fourth quarter of 1996 than the fourth quarter of 1995. Newsprint
consumption was flat in 1996 as compared to 1995, as higher consumption for
commercial printing was offset by conservation efforts by the newspapers.
Compensation costs increased 4% due primarily to salary increases. Other
operating costs did not increase significantly.
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.
BROADCASTING
1997 1996 1995
-----------------------------
(Dollars in Thousands)
Operating revenue ............................ $120,489 $117,797 $100,586
Percent change ............................ 2.3% 17.1% 11.8%
Operating income ............................. 22,262 22,953 26,934
Percent change ............................ (3.0)% (14.8)% 25.3%
Operating margin ............................. 18.5% 19.5% 26.8%
Revenue for 1997 increased $2,692,000, 2.3%. Local/regional/national revenue
increased $1,342,000 while political advertising decreased $244,000. Production
revenue increased $562,000 due to the addition of a second mobile production
facility at MIRA Productions in Portland, Oregon, and revenues from other
services increased $913,000.
In 1996, exclusive of the SJL acquisition, operating revenue decreased .6%.
Local/regional/national revenue decreased $2,600,000, due to softness in
automotive and retail spot buying. Political advertising increased $1,000,000.
Production revenue increased $760,000, primarily due to a new mobile production
facility at MIRA Productions in Portland, Oregon.
Exclusive of the effects of the SJL acquisition, operating revenue increased
10.1% in 1995. Local/regional/national revenue increased $4,600,000, political
advertising increased $1,700,000, and network compensation increased $1,900,000.
The following table sets forth the percentage of revenue of certain items in the
broadcasting segment.
1997 1996 1995
------------------------
Revenue ........................................... 100.0% 100.0% 100.0%
------------------------
Compensation costs ................................ 41.8 39.5 37.1
Programming costs ................................. 6.6 7.9 6.2
Other operating expenses .......................... 23.4 22.6 21.8
------------------------
71.8 70.0 65.1
------------------------
Income before depreciation, amortization, interest
and taxes ...................................... 28.2 30.0 34.9
Depreciation and amortization ..................... 9.7 10.5 8.1
------------------------
Operating margin wholly-owned properties .......... 18.5% 19.5% 26.8%
========================
Operating income decreased in 1997 by $691,000. Compensation costs increased
$3,898,000, 8.4% due to an increase in the number of hours worked and an
increase in the average hourly rate. Programming costs decreased by $1,344,000,
(14.5%), due to decreased amortization from programs amortized on an accelerated
basis offset in part by a $400,000 write-down of programming at KMAZ-TV El Paso
due to the January 1998 conversion to a Telemundo affiliate providing Spanish
language programming. Other operating expense increased 5.8% due to the rental
of two news helicopters in 1997 and increased outside services. The primary
driver of the outside services increase is MIRA Productions, which uses contract
labor and rental equipment for special projects.
Exclusive of the effects of the SJL acquisition, operating income decreased by
$6,500,000 or 23.8% in 1996. Compensation costs increased by 5.1% primarily due
to a 6.9% increase in hours worked, mainly due to expanded operations at our New
Mexico locations. Programming costs increased by $2,000,000, 31.8% as a result
of the addition of highly-rated syndicated programming and the write-down of
certain programming to net realizable value. Other operating costs increased
4.2% due to higher expenditures for repairs and maintenance and sales and
audience promotion.
Exclusive of the effects of the SJL acquisition, operating income increased by
$5,700,000 or 26.7% 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.
CORPORATE
Corporate costs in 1997 increased by $3,800,000, 35.1% as a result of increased
marketing costs and the enhancement of computer software. The Company expects to
complete year 2000 modifications of software in fiscal year 1998. The costs of
modifications for the year 2000 are not significant.
Corporate costs in 1996 decreased by $1,300,000, (10.4%) primarily due to
decreased levels of incentive compensation and lower medical plan costs
resulting from a 1995 plan redesign. Corporate costs decreased in 1995 by
$1,100,000, (8.1%) primarily due to the discontinuance of performance unit
awards under the Company's 1990 Long-Term Incentive Plan.
INTEREST EXPENSE
Interest expense decreased by approximately $1,300,000 in 1997, $2,300,000 in
1996, and $1,700,000 in 1995. The most significant element of the decrease was a
lower debt level which reduced interest expense by approximately $1,500,000,
$2,400,000, and $2,000,000, respectively. Interest on deferred compensation
arrangements for executives and others is offset by financial income earned on
the invested funds held in trust. Financial income and interest expense
increased by $1,700,000, $600,000, and $500,000 in 1997, 1996, and 1995 as a
result of these arrangements.
INCOME TAXES
Income taxes were 38.0% of pretax income in 1997, 38.8% in 1996, and 37.2% in
1995. 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 owned by the Company.
DISCONTINUED OPERATIONS
On January 17, 1997, the Company consummated the sale of the capital stock of
its graphic arts products subsidiary, NAPP Systems Inc., for approximately
$55,900,000, net of selling expenses.
The results for NAPP Systems Inc.'s operations have been classified as
discontinued operations for all periods presented in the consolidated statements
of income. The assets and liabilities of discontinued operations have been
classified in the consolidated balance sheet as "net assets of discontinued
operations" as of September 30, 1996. For the year ended September 30, 1996 the
Company recorded an after-tax charge of $15,948,000 which included estimated
earnings and dividends through the closing date. For the year ended September
30, 1997, the Company recorded an after-tax gain of $1,485,000 due to higher
than estimated earnings and dividends through the closing date. For additional
information related to the disposition, see Note 2 of the Notes to Consolidated
Financial Statements under Item 8, herein.
LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS
Cash provided by operations generated $97,546,000 in 1997. As of September 30,
1997, the Company had $55,000,000 available under its $200,000,000 revolving
credit arrangement with banks. The major sources and uses of cash in 1997 were
as follows:
(In Thousands)
Sources of cash:
Operations ................................................. $ 97,546
Short-term borrowings ...................................... 130,000
Proceeds from sale of subsidiary ........................... 54,795
All other .................................................. 4,033
---------
286,374
---------
Uses of cash:
Acquisitions ............................................... 188,689
Purchase of property and equipment ......................... 16,342
Cash dividends paid ........................................ 24,173
Purchase of Lee Enterprises, Incorporated stock ............ 41,055
Payment of debt ............................................ 21,219
---------
291,478
---------
(Decrease) in cash .............................. $ (5,104)
=========
The Company finances significant acquisitions by long-term borrowings. The
Company anticipates new long-term borrowings of $150,000,000 in 1998 related to
The Pacific Northwest Group acquisition.*
Recurring capital expenditures for new and improved facilities and equipment are
expected to be about $18,000,000 in 1998.* The FCC has begun adopting rules and
proposing others to implement digital television ("DTV") service which includes
high definition television systems. Implementation of DTV service will impose
substantial additional costs on television stations to provide the new service
due to increased equipment costs. KOIN-TV in Portland, Oregon is presently
required by the FCC to broadcast a digital TV signal by November 1999. The
Company plans to start construction of a new tower and transmitter building for
KOIN-TV in 1998 at a cost of approximately $2,500,000. The Company has not
completed its assessment of the balance of the capital expenditures required or
the benefits to the Company of converting to DTV. Consequently, the Company
cannot at this time predict the impact this conversion will have on liquidity,
capital resources, and results of operations.
The Company also is developing plans for a new production facility for the
Journal-Star in Lincoln, Nebraska. The total cost is expected to be in excess of
$20,000,000. The development is expected to take approximately 24 months and
commence in fiscal 1998. The Company anticipates that funds necessary for
capital expenditures and other requirements will be available from internally
generated funds and the Company's revolving credit agreements.*
DIVIDENDS AND COMMON STOCK PRICES
The current quarterly cash dividend is 14 cents per share, an annual rate of 56
cents.
During the fiscal year ended September 30, 1997, the Company paid dividends of
$24,173,000 or 38.5% of 1997's earnings from continuing operations. The Company
will continue to review its dividend policy to assure that it remains consistent
with its capital demands. Covenants under borrowing arrangements 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
several 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.
EMERGING ACCOUNTING STANDARDS
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.
QUARTERLY RESULTS
The Company's largest source of publishing 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,
---------------------------
1997 1996 1995
---------------------------
(Dollars in Thousands)
ASSETS
Current Assets:
Cash and cash equivalents ................................ $ 14,163 $ 19,267 $ 10,683
Temporary investments .................................... -- -- 200
Trade receivables, less allowance for doubtful
accounts 1997 $4,600; 1996 $4,000;
1995 $4,100 ........................................... 56,960 48,773 57,146
Receivables from associated companies .................... 1,437 1,438 1,438
Inventories .............................................. 3,716 3,668 18,355
Program rights and other ................................. 17,691 17,183 16,687
Net assets of discontinued operations .................... -- 56,379 --
----------------------------
Total current assets .......................... 93,967 146,708 104,509
----------------------------
Investments:
Associated companies ..................................... 12,185 11,488 10,754
Other .................................................... 12,506 10,668 8,946
----------------------------
24,691 22,156 19,700
----------------------------
Property and Equipment:
Land and improvements .................................... 12,994 10,140 12,053
Buildings and improvements ............................... 64,937 57,995 64,768
Equipment ................................................ 194,510 173,752 176,642
----------------------------
272,441 241,887 253,463
Less accumulated depreciation ............................ 152,415 137,182 145,267
----------------------------
120,026 104,705 108,196
----------------------------
Intangibles and Other Assets:
Intangibles .............................................. 404,481 246,061 321,014
Other .................................................... 7,798 7,786 6,510
----------------------------
412,279 253,847 327,524
----------------------------
$650,963 $527,416 $559,929
============================
See Notes to Consolidated Financial Statements.
September 30,
-------------------------------
1997 1996 1995
-------------------------------
(Dollars In Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current maturities of long-term
debt .................................................. $177,561 $ 43,213 $ 47,978
Accounts payable ......................................... 23,429 15,369 24,155
Compensation and other accruals .......................... 27,324 20,419 28,431
Income taxes payable ..................................... 4,754 4,738 2,656
Unearned income .......................................... 15,840 14,038 13,307
--------------------------------
Total current liabilities ..................... 248,908 97,777 116,527
--------------------------------
Long-Term Debt, net of current maturities ................... 26,174 52,290 75,511
--------------------------------
Deferred Items:
Retirement and compensation .............................. 13,948 11,611 11,632
Income taxes ............................................. 42,543 40,784 45,217
--------------------------------
56,491 52,395 56,849
--------------------------------
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
1997 33,359,000 shares .............................. 66,719 68,578 68,396
Class B, common, $2 par value; authorized
30,000,000 shares; issued and outstanding
1997 12,149,000 shares .............................. 24,298 25,466 26,336
Additional paid-in capital ............................... 25,629 20,189 17,404
Unearned compensation .................................... (493) (637) (533)
Retained earnings ........................................ 203,237 211,358 199,439
--------------------------------
319,390 324,954 311,042
--------------------------------
$650,963 $527,416 $559,929
================================
CONSOLIDATED STATEMENTS OF INCOME
Year Ended September 30,
------------------------------
1997 1996 1995
------------------------------
(In Thousands Except
Per Share Data)
Operating revenue:
Publishing:
Daily newspapers:
Advertising ........................... $179,822 $169,151 $153,325
Circulation ........................... 80,522 79,814 72,863
Other ................................... 58,097 53,599 48,689
Broadcasting ............................... 120,489 117,797 100,586
Equity in net income of associated companies 7,756 7,008 8,277
-----------------------------
446,686 427,369 383,740
-----------------------------
Operating expenses:
Compensation costs ......................... 165,547 153,076 137,368
Newsprint and ink .......................... 30,906 38,535 31,936
Depreciation ............................... 17,175 16,236 11,965
Amortization of intangibles ................ 11,129 11,563 9,501
Other ...................................... 117,778 113,218 101,565
-----------------------------
342,535 332,628 292,335
-----------------------------
Operating income ................ 104,151 94,741 91,405
-----------------------------
Financial (income) expense:
Interest expense ........................... 8,321 9,648 11,902
Financial (income) ......................... (5,392) (2,609) (3,704)
-----------------------------
2,929 7,039 8,198
-----------------------------
Income from continuing operations
before taxes on income .......... 101,222 87,702 83,207
Income taxes .................................. 38,477 34,032 30,975
-----------------------------
Income from continuing operations 62,745 53,670 52,232
-----------------------------
Discontinued operations:
Income from discontinued operations, net of
income tax effect ....................... -- 7,725 6,227
Gain (loss) on disposition of discontinued
operations, net of income tax effect .... 1,485 (15,948) --
-----------------------------
1,485 (8,223) 6,227
-----------------------------
Net income ...................... $ 64,230 $ 45,447 $ 58,459
=============================
Weighted average number of shares ............. 47,312 47,991 46,962
=============================
Earnings per share:
Income from continuing operations .......... $ 1.33 $ 1.12 $ 1.11
Income (loss) from discontinued operations . 0.03 (0.17) 0.13
-----------------------------
Net income ...................... $ 1.36 $ 0.95 $ 1.24
=============================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Year Ended September 30,
----------------------------------------------------------------
Amount Shares
------------------------------- -----------------------------
1997 1996 1995 1997 1996 1995
------------------------------- -----------------------------
(In Thousands Except Per Share Data)
Common Stock:
Balance, beginning ................... $ 68,578 $ 68,396 $ 32,130 34,289 34,198 32,130
Conversion from Class B
Common Stock .................... 1,131 862 252 565 431 252
Stock split ....................... -- -- 34,198 -- -- --
Shares issued ..................... 474 404 3,508 237 202 3,508
Shares reacquired ................. (3,464) (1,084) (1,692) (1,732) (542) (1,692)
----------------------------------------------------------------
Balance, ending ...................... $ 66,719 $ 68,578 $ 68,396 33,359 34,289 34,198
================================================================
Class B Common Stock:
Balance, beginning ................... $ 25,466 $ 26,336 $ 13,390 12,733 13,168 13,390
Conversion to Common
Stock ........................... (1,131) (862) (252) (565) (431) (252)
Stock split ....................... -- -- 13,168
Shares issued ..................... -- -- 38 -- -- 38
Shares reacquired ................. (37) (8) (8) (19) (4) (8)
----------------------------------------------------------------
Balance, ending ...................... $ 24,298 $ 25,466 $ 26,336 12,149 12,733 13,168
================================================================
Additional Paid-In Capital:
Balance, beginning ................... $ 20,189 $ 17,404 $ 6,497
Shares issued ..................... 5,440 2,785 58,273
Common Stock split ................ -- -- (47,366)
-------------------------------
Balance, ending ...................... $ 25,629 $ 20,189 $ 17,404
===============================
Unearned Compensation:
Balance, beginning ................... $ (637) $ (533) $ (665)
Restricted shares issued .......... (405) (637) (496)
Restricted shares canceled ........ 59 4 24
Amortization ...................... 490 529 604
-------------------------------
Balance, ending ...................... $ (493) $ (637) $ (533)
===============================
Retained Earnings:
Balance, beginning ................... $211,358 $199,439 $190,578
Net income ........................ 64,230 45,447 58,459
Cash dividends per share
1997 $.52; 1996 $.48;
1995 $.44 ....................... (24,173) (22,603) (20,295)
Shares reacquired ................. (48,178) (10,925) (29,303)
-------------------------------
Balance, ending ...................... $203,237 $211,358 $199,439
===============================
Stockholders' Equity .................... $319,390 $324,954 $311,042 45,508 47,022 47,366
================================================================
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30,
--------------------------------
1997 1996 1995
--------------------------------
(In Thousands)
Cash Provided by Operating Activities:
Net income ........................................ $ 64,230 $ 45,447 $ 58,459
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 29,581 32,159 25,974
(Gain) loss on disposition of discontinued
operations ................................... (1,985) 14,563
Distributions in excess of (less than) earnings
of associated companies ...................... (696) (734) 206
Change in assets and liabilities, net of effects
from business acquisitions:
(Increase) in receivables .................... (2,817) (1,347) (4,849)
(Increase) decrease in inventories, program
rights and other ......................... 1,552 768 (4,717)
Increase (decrease) in accounts payable,
accrued expenses and unearned income ..... 3,144 (9,446) 6,619
Increase (decrease) in income taxes payable .. 516 2,067 (10,469)
Other, primarily deferred items .............. 4,021 4,066 1,348
--------------------------------
Net cash provided by operating
activities ............................. 97,546 87,543 72,571
--------------------------------
Cash (Required for) Investing Activities:
Acquisitions ...................................... (188,689) -- (41,609)
Purchase of property and equipment ................ (16,342) (18,796) (17,435)
Purchase of temporary investments ................. -- (200) (200)
Proceeds from maturities of temporary
investments .................................... -- 400 38,859
Proceeds from sale of subsidiary .................. 54,795 -- --
Other ............................................. (1,838) (2,089) (1,509)
--------------------------------
Net cash (required for) investing
activities ............................. (152,074) (20,685) (21,894)
--------------------------------
Cash Provided by (Required for) Financing Activities:
Purchase of common stock .......................... (41,055) (11,917) (30,925)
Cash dividends paid ............................... (24,173) (22,603) (20,295)
Proceeds from long-term borrowings ................ -- -- 20,000
Proceeds from short-term notes payable, net ....... 130,000 -- 15,000
Principal payments on long-term borrowings ........ (21,219) (26,209) (45,069)
Other ............................................. 5,871 2,455 2,511
--------------------------------
Net cash provided by (required for)
financing activities ................... 49,424 (58,274) (58,778)
--------------------------------
Net increase (decrease) in cash and cash
cash equivalents ....................... (5,104) 8,584 (8,101)
Cash and cash equivalents:
Beginning ......................................... 19,267 10,683 18,784
--------------------------------
Ending ............................................ $ 14,163 $ 19,267 $ 10,683
================================
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 two principal businesses: publishing and broadcasting. As of
September 30, 1997, operating divisions and associated companies publish
twenty-one daily and eleven weekly newspapers, thirty-nine classified and
twenty-three specialty publications, and operate nine full-service
network-affiliated television stations and seven satellite television stations.
Significant Accounting Policies:
Accounting estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
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, 1997, 1996, and 1995 were less than replacement
cost by $4,856,000, $5,087,000, and $4,896,000, respectively.
Program rights: Cost of program rights is stated at the lower of cost or
estimated net 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 securities held in trust under a
deferred compensation arrangement. These investments are classified as trading
securities and carried at fair value with gains and losses reported in the
consolidated statements of income.
Property and equipment: Property and equipment is carried at cost. Equipment,
except for printing 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
Publishing:
Printing presses 15-20
Other major equipment 3-11
Broadcasting:
Towers 15-20
Other major equipment 3-10
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
incurred prior to October 31, 1970, which is not being amortized. Excess costs
related to specialty publications are being amortized over 10 to 15 year
periods. Intangibles, representing non-compete covenants, consulting agreements,
customer lists, broadcast licenses and agreements, and newspaper subscriber
lists are being amortized over periods of 3 to 40 years. The remaining costs are
being amortized over a period of 40 years. All intangibles are amortized by the
straight-line method.
The Company reviews its intangibles and other long-lived assets annually to
determine potential impairment. In performing the review, the Company estimates
the future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the expected future cash flows (undiscounted
and without interest charges) is less than the carrying amount of the asset, an
impairment is recognized. The amount of impairment is measured based upon
projected discounted future cash flows using a discount rate reflecting the
Company's average cost of funds.
Unearned income: Unearned income arises as a normal part of business from
advance subscription payments for newspapers. Revenue is recognized in the
period in which it is earned.
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 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 basis. 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. Discontinued Operations
On January 17, 1997 the Company sold the capital stock of its graphic arts
products subsidiary, NAPP Systems Inc., for approximately $55,900,000, net of
selling expenses. The results for NAPP Systems Inc.'s operations have been
classified as discontinued operations for all periods presented in the
consolidated statements of income. The assets and liabilities of discontinued
operations have been classified in the consolidated balance sheet as "net assets
of discontinued operations" as of September 30, 1996.
Summary operating results of discontinued operations are as follows:
1997 1996 1995
----------------------------
(In Thousands)
Revenue ...................................... $ -- $65,552 $59,448
Costs and expenses ........................... -- 51,040 47,421
----------------------------
Income before income taxes ................... -- 14,512 12,027
Provision for income taxes ................... -- 6,787 5,800
----------------------------
Income, net of tax ............. -- 7,725 6,227
----------------------------
Gain (loss) on disposition before income taxes 1,985 (14,563) --
Provision for income taxes ................... 500 1,385 --
----------------------------
Gain (loss) on disposition ..... 1,485 (15,948) --
----------------------------
Income (loss) from discontinued
operations ..................... $ 1,485 $(8,223) $ 6,227
============================
Net assets of discontinued operations as of September 30, 1996 are as follows:
Accounts receivable, net $ 9,720
Inventories 12,606
Other 206
Property and equipment, net 4,996
Intangibles, net 52,777
-------
Total 80,305
-------
Accrued loss on disposal 14,563
Deferred income taxes 1,104
Other liabilities 6,683
Long-term debt 1,427
Deferred compensation 149
-------
23,926
-------
Net assets of discontinued
operations $56,379
=======
Note 3. Acquisitions
On September 8, 1997, the Company acquired, for cash, 100% of the outstanding
stock of Southern Utah Media, Inc. (now known as The Pacific Northwest
Publishing Group, Inc.), Oregon News Media, Inc., and Nevada Media, Inc. (The
Pacific Northwest Group). The Pacific Northwest Group publishes daily and weekly
newspapers and classified publications. The total acquisition cost was
$186,253,000. The excess of the total acquisition cost, over the fair value of
the net assets acquired, was $166,916,000.
The acquisition has been accounted for as a purchase, and the results of
operations of The Pacific Northwest Group since the date of acquisition are
included in the consolidated financial statements.
Unaudited pro forma consolidated results of operations for the years ended
September 30, 1997 and 1996, as though The Pacific Northwest Group had been
acquired as of October 1, 1995 follows:
Year Ended
September 30,
-------------------
1997 1996
-------------------
(In Thousands,
Except Per
Share Data)
Operating revenue ............................ $494,764 $476,714
Income from continuing operations ............ 60,224 49,920
Earnings per share, continuing operations .... 1.27 1.04
The above amounts reflect adjustments for amortization of intangibles,
additional depreciation on revalued purchased assets, and imputed interest on
borrowed funds.
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
$40,823,000.
The acquisition was 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
$21,304,000.
The acquisition was accounted for as a purchase, and results of operations of
SJL of Kansas Corp. since the date of acquisition are included in the
consolidated financial statements.
The Company also acquired five classified or specialty publications in 1997 and
four classified or specialty publications and a satellite television station in
1995.
The purchase price of business acquisitions was allocated as follows:
Year Ended
September 30,
-----------------
1997 1995
-----------------
(In Thousands)
Noncash working capital acquired .......................... $ 2,897 $ 1,723
Property and equipment .................................... 16,278 21,484
Intangibles ............................................... 169,554 108,890
Other long-term assets .................................... 10 6,370
Debt assumed .............................................. -- (1,871)
Issuance of note payable .................................. (50) (2,315)
Deferred items ............................................ -- (22,682)
Common stock issued ....................................... -- (58,250)
------------------
Total cash purchase price ................... 188,689 53,349
Less equity interest in cash balance at date of
acquisition ............................................ -- (11,740)
------------------
$188,689 $ 41,609
==================
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 interests in
other ventures, including a direct marketing venture and a venture providing
Internet assistance to newspapers. 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 1997 1996 1995
- -------------------------------------------------------------------------------
(In Thousands)
ASSETS
Current assets ..................................... $ 23,854 $ 23,470 $ 22,873
Investments and other assets ....................... 5,700 3,912 3,865
Property and equipment, net ........................ 9,730 6,741 6,359
--------------------------
$ 39,284 $ 34,123 $ 33,097
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ............................... $ 14,792 $ 11,778 $ 12,180
Long-term debt .................................... 435 515 590
Stockholders' equity .............................. 24,057 21,830 20,327
--------------------------
$ 39,284 $ 34,123 $ 33,097
==========================
Revenue ........................................... $ 79,677 $ 73,016 $ 85,421
Income before depreciation, amortization, interest,
and income taxes ............................... 26,895 23,663 27,159
Operating income .................................. 24,732 21,962 25,104
Net income ........................................ 15,517 14,016 16,076
Receivables from associated companies consist of dividends. Certain information
relating to Company investments in these associated companies is as follows:
1997 1996 1995
------------------------------
(In Thousands)
Share of:
Stockholders' equity ................ $ 12,028 $ 10,915 $ 10,164
Undistributed earnings .............. 11,568 10,574 9,946
Note 5. Debt
At September 30, 1997 the Company had $145,000,000 of borrowings under a
$200,000,000 unsecured revolving loan agreement with a bank group which
terminates in September 1998. Interest rates float at rates specified in the
agreement.
The Company has long-term obligations, net of current maturities, as follows:
September 30,
----------------------------
1997 1996 1995
----------------------------
(In Thousands)
Insurance company senior notes payable,
effective rate of 9.96%, $25,000,000
due January 1999 ............................. $ 25,000 $ 50,000 $ 50,000
Bank term loan .................................. -- -- 20,000
Program contracts, noninterest bearing, due
through 1999 ................................. 1,174 2,290 2,763
Other ........................................... -- -- 2,748
----------------------------
$ 26,174 $ 52,290 $ 75,511
============================
Aggregate maturities during the next two years are $32,561,000 and $26,174,000.
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
$10,300,000 in 1997, $11,200,000 in 1996, and $9,200,000 in 1995.
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. All outstanding Class B Common Stock converts to
Common Stock when the shares of Class B Common Stock total less than 5,600,000
shares.
Note 8. Stock Option, Restricted Stock, and Stock Purchase Plans
At September 30, 1997, the Company has three stock-based compensation plans
which are described below. As permitted under generally accepted accounting
principles, grants under those plans are accounted for following APB Opinion No.
25 and related interpretations. Accordingly, no compensation cost has been
recognized for grants under the stock option or the stock purchase plans. Had
compensation costs for all of the stock-based compensation plans been determined
based on the grant date fair values of awards (the method described in FASB
Statement No. 123), reported net income and earnings per common share would have
been reduced to the pro forma amounts shown below:
1997 1996
----------------------
(Dollars in Thousands,
Except Per Share Data)
Net income:
As reported ....................................... $64,230 $45,447
Pro forma ......................................... 63,180 44,919
Earnings per share:
As reported ....................................... 1.36 0.95
Pro forma ......................................... 1.34 0.94
The pro forma effects of applying Statement No. 123 are not indicative of future
amounts since, among other reasons, the pro forma requirements of the Statement
have been applied only to options granted after October 1, 1995.
Stock option and restricted stock plans:
The Company has reserved 5,958,000 shares of common stock 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. The fair value of each grant is estimated
at the grant date using the Black-Scholes option-pricing model with the
following weighted-average assumptions for grants in 1997 and 1996,
respectively: dividend rate of 2.22% for all years; price volatility of 16.5%
and 19.5%; risk-free interest rates based upon the life of the option ranging
from 5.89% to 6.67% and 5.46% to 6.55%; and expected lives based upon the life
of the option ranging from 3.1 to 8 years and 4.9 to 8 years.
A summary of the stock option plans is as follows:
Number of Shares
---------------------------------
1997 1996 1995
---------------------------------
(In Thousands)
Under option, beginning of year ......... 2,279 2,220 2,406
Granted .............................. 155 241 192
Terminated and canceled .............. (8) (3) (10)
Exercised ............................ (917) (179) (368)
--------------------------------
Under option, end of year ............... 1,509 2,279 2,220
================================
Options exercisable, end of year ........ 1,192 1,861 1,778
================================
Average Price
---------------------------------
1997 1996 1995
---------------------------------
Granted during the year ................ $ 22.20 $ 19.96 $ 16.66
Exercised during the year .............. 13.64 12.64 11.45
Under option, end of year .............. 15.82 14.52 13.79
Weighted-average fair value per
option of options granted ........... 5.71 5.47
A further summary of options outstanding as of September 30, 1997 is as follows:
Options Outstanding
------------------------------------
Weighted-
Weighted- Options Exercisable
Average --------------------------
Number Remaining Weighted- Number Weighted-
Outstanding Contractual Average Exercisable Average
Range of (In Life Exercise (In Exercise
Exercise Prices Thousands) (In Years) Price Thousands) Price
- --------------------------------------------------------------------------------
$11 to $14 422 3.2 $ 11.51 422 $ 11.51
$15 to $20 928 5.5 16.71 727 16.14
$20 to $24 140 8.0 21.50 26 21.49
$24 to $26 16 5.0 25.60 15 25.58
$28 to $29 3 3.8 28.69 2 28.70
----- -----
1,509 5.0 15.82 1,192 14.77
----- -----
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. In 1997, 1996,
and 1995, the Company granted 18,000, 32,000, and 69,000 shares, respectively,
of restricted stock to employees. As of September 30, 1997, 96,000 shares of
restricted stock were outstanding.
At September 30, 1997, 4,449,000 shares were available for granting of stock
options or issuance of restricted stock.
Stock purchase plan:
The Company has 1,388,000 additional shares of common stock available for
issuance pursuant to a non-officer employee stock purchase plan. April 30, 1998
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. The weighted-average fair value
per share of purchase rights granted in 1997 and 1996, computed using the
Black-Scholes option-pricing model, was $5.28 and $4.92, respectively.
In 1997, 1996, and 1995 employees purchased 106,000, 124,000, and 109,000
shares, respectively, at a per share price of $19.02 in 1997, $15.26 in 1996,
and $14.90 in 1995.
Note 9. Income Tax Matters
Components of income tax expense consist of the following:
Year Ended September 30,
-------------------------
1997 1996 1995
-------------------------
(In Thousands)
Paid or payable on currently taxable income:
Federal ......................................... $32,188 $32,965 $29,031
State ........................................... 6,595 6,541 5,948
Net increase due to deferred income taxes .......... 194 2,698 1,796
-------------------------
$38,977 $42,204 $36,775
=========================
The total tax provision has been allocated to the following financial statement
items:
Year Ended September 30,
-------------------------
1997 1996 1995
-------------------------
(In Thousands)
Income from continuing operations .................. $38,477 $34,032 $30,975
Discontinued operations:
Income from discontinued operations ............. -- 6,787 5,800
Disposition of discontinued operations .......... 500 1,385 --
-------------------------
$38,977 $42,204 $36,775
=========================
Income tax expense for the years ended September 30, 1997, 1996, and 1995 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
-----------------------
1997 1996 1995
-----------------------
Computed "expected" income tax expense ............. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit ..... 4.4 4.4 4.4
Net income of associated companies taxed at dividend
rates ........................................... (2.4) (2.5) (3.1)
Goodwill amortization .............................. 1.7 2.0 1.7
Other .............................................. (0.7) (0.1) (0.8)
-----------------------
38.0% 38.8% 37.2%
=======================
Foreign taxes are not material.
Net deferred tax liabilities consist of the following components as of September
30, 1997, 1996, and 1995:
1997 1996 1995
-------------------------
(In Thousands)
Deferred tax liabilities:
Property and equipment ........................... $ 9,409 $ 9,054 $ 8,607
Equity in undistributed earnings of affiliates ... 903 897 883
Deferred gain on sale of broadcast properties .... 3,308 3,308 3,308
Identifiable intangible assets ................... 32,319 32,409 36,179
Other ............................................ 3,334 2,657 2,303
-------------------------
49,273 48,325 51,280
-------------------------
Deferred tax assets:
Accrued compensation ............................. 7,950 7,290 7,501
Receivable allowance ............................. 1,976 1,774 1,550
Loss carryforwards acquired ...................... 7,961 9,147 10,544
Capital loss carryforward ........................ 5,752 5,752 --
Other ............................................ 2,135 2,155 2,654
-------------------------
25,774 26,118 22,249
Less, valuation allowance ........................ 12,652 12,652 10,263
-------------------------
13,122 13,466 11,986
-------------------------
$36,151 $34,859 $39,294
=========================
The components giving rise to the net deferred tax liabilities described above
have been included in the accompanying balance sheets as of September 30, 1997,
1996, and 1995 as follows:
1997 1996 1995
-------------------------------
(In Thousands)
Current assets ............................... $ 6,392 $ 5,925 $ 5,923
Noncurrent liabilities ....................... (42,543) (40,784) (45,217)
-------------------------------
$(36,151) $(34,859) $(39,294)
===============================
The Company provided a valuation allowance of $5,752,000 during 1996 due to
limitations imposed by the tax laws on the Company's ability to realize the
benefit of the capital loss carryforward related to the disposal of NAPP Systems
Inc. In addition, as a result of the operations of SJL of Kansas Corp. (SJL)
management has determined that the valuation allowance related to the acquired
operating loss carryforward should be reduced to $6,900,000 from the original
reserve of $10,263,000 with a corresponding $3,363,000 reduction to goodwill. As
of September 30, 1997 the SJL net operating loss carryforward was approximately
$20,000,000 and will expire in varying amounts from 1999 to 2010.
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,
receivables, and accounts payable approximate fair value because of the short
maturity of those instruments. The carrying value of other investments is as
follows: $8,688,000 of debt and equity securities in a deferred compensation
trust are carried at fair value based upon quoted market prices and $3,818,000
of equity securities, consisting primarily of the Company's 17% ownership of the
nonvoting common stock of The Capital Times Company, are carried at cost, as the
fair value is not readily determinable.
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
Amount Fair Value
----------------------
(In Thousands)
September 30:
1997 ............................... $203,735 $204,603
1996 ............................... 95,503 97,672
1995 ............................... 123,489 127,723
Note 11. 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 12. Line of Business Information
Year Ended September 30,
-----------------------------
1997 1996 1995
-----------------------------
(In Thousands)
Revenue:
Publishing:
Wholly-owned properties .................. $318,441 $302,564 $274,877
Equity in net income of associated
companies ............................. 7,756 7,008 8,277
Broadcasting ................................ 120,489 117,797 100,586
-----------------------------
Total revenue .................... $446,686 $427,369 $383,740
=============================
Operating income:
Publishing .................................. $ 96,621 $ 82,695 $ 76,643
Broadcasting ................................ 22,262 22,953 26,934
Corporate and other ......................... (14,732) (10,907) (12,172)
-----------------------------
Total operating income ........... $104,151 $ 94,741 $ 91,405
=============================
Identifiable assets:
Publishing .................................. $413,834 $226,097 $229,765
Broadcasting ................................ 195,567 198,441 211,652
Graphic arts (discontinued operations) ...... -- 56,379 87,880
Corporate ................................... 41,562 46,499 30,632
-----------------------------
Total identifiable assets ........ $650,963 $527,416 $559,929
=============================
Depreciation:
Publishing .................................. $ 9,054 $ 8,063 $ 7,041
Broadcasting ................................ 7,432 7,309 4,388
Corporate ................................... 689 864 536
-----------------------------
Total depreciation ............... $ 17,175 $ 16,236 $ 11,965
=============================
Amortization of intangibles:
Publishing .................................. $ 6,902 $ 6,505 $ 5,746
Broadcasting ................................ 4,227 5,058 3,755
-----------------------------
Total amortization of intangibles $ 11,129 $ 11,563 $ 9,501
=============================
Capital expenditures:
Publishing .................................. $ 8,834 $ 11,018 $ 9,875
Broadcasting ................................ 6,516 6,948 7,141
Graphic arts (discontinued operations) ...... -- 290 63
Corporate ................................... 992 540 356
-----------------------------
Total capital expenditures ....... $ 16,342 $ 18,796 $ 17,435
=============================
Note 13. Other Information
Balance sheet information:
Inventories consist of the following:
September 30,
------------------------------
1997 1996 1995
------------------------------
(In Thousands)
Newsprint .................................... $ 3,716 $ 3,668 $ 3,634
Graphic arts products:
Raw material .............................. -- -- 7,554
Finished goods ............................ -- -- 7,167
------------------------------
$ 3,716 $ 3,668 $ 18,355
==============================
Program rights and other consist of the
following:
Program rights .............................. $ 7,020 $ 6,577 $ 6,793
Deferred income taxes ....................... 6,392 5,925 5,923
Other ....................................... 4,279 4,681 3,971
------------------------------
$ 17,691 $ 17,183 $ 16,687
==============================
Intangibles consist of the following:
Goodwill .................................... $325,758 $194,746 $268,945
Less, accumulated amortization .............. 55,303 50,240 64,185
------------------------------
270,455 144,506 204,760
------------------------------
Non-compete covenants and consulting
agreements ............................... 26,314 25,739 25,739
Less, accumulated amortization .............. 21,201 18,859 15,811
------------------------------
5,113 6,880 9,928
------------------------------
Customer lists, broadcasting licenses and
agreements and newspaper subscriber lists . 154,444 116,472 124,472
25,531 21,797 18,146
------------------------------
128,913 94,675 106,326
------------------------------
$404,481 $246,061 $321,014
==============================
Compensation and other accruals consist of the following:
September 30,
-------------------------
1997 1996 1995
-------------------------
(In Thousands)
Compensation ........................................ $12,029 $ 8,156 $10,355
Deferred compensation, current portion .............. -- 96 1,394
Vacation pay ........................................ 4,080 3,946 4,824
Retirement and stock purchase plans ................. 4,708 2,930 2,941
Interest ............................................ 1,639 1,429 1,834
Other ............................................... 4,868 3,862 7,083
------------------------
$27,324 $20,419 $28,431
========================
Cash flows information:
Year Ended September 30,
---------------------------
1997 1996 1995
---------------------------
(In Thousands)
Cash payments for:
Interest ...................................... $ 8,111 $10,052 $12,433
===========================
Income taxes .................................. $40,767 $41,021 $45,294
===========================
Program rights were acquired by issuing
long-term contracts as follows ................ $ 7,300 $ 7,700 $ 6,000
===========================
Issuance of restricted common stock, net ......... $ 244 $ 590 $ 334
===========================
Change in tax contingency estimates:
Reduction in goodwill ......................... $ -- $ 3,363 $ --
===========================
Reduction in deferred income taxes ............ $ -- $ 3,363 $ --
===========================
Change in purchase accounting estimates:
Reduction in identified intangibles ........... $ -- $ 8,000 $ --
Additional long-term debt ..................... -- 16 --
---------------------------
$ -- $ 8,016 $ --
===========================
Reduction in deferred income taxes ............... $ -- $ 2,666 $ --
Increase in goodwill ............................. -- 4,085 --
Increase in other long-term assets ............... -- 1,265 --
---------------------------
$ -- $ 8,016 $ --
===========================
Accounts payable for stock acquired .............. $10,926 $ -- $ --
===========================
Proceeds from sale of NAPP Systems Inc.,
net of selling costs .......................... $55,914 $ -- $ --
Less cash retained ............................ (1,119) -- --
---------------------------
Proceeds from sale of subsidiary ... $54,795 $ -- $ --
===========================
SUPPLEMENTARY DATA
QUARTERLY RESULTS (UNAUDITED)
4th 3rd 2nd 1st
-----------------------------------------
(In Thousands Except Per Share Data)
1997 Quarter:
Operating revenue .............................. $112,538 $112,693 $101,787 $119,668
=========================================
Income from continuing operations .............. $ 14,638 $ 17,759 $ 11,240 $ 19,108
Income from discontinued
operations .................................. -- 485 1,000 --
-----------------------------------------
Net income .......................... $ 14,638 $ 18,244 $ 12,240 $ 19,108
=========================================
Earnings per common and common equivalent share:
Income from continuing operations ........... $ 0.31 $ 0.38 $ 0.24 $ 0.40
Income from discontinued
operations ................................ -- 0.01 0.02 --
-----------------------------------------
Net income .......................... $ 0.31 $ 0.39 $ 0.26 $ 0.40
=========================================
1996 Quarter:
Operating revenue .............................. $107,129 $109,499 $ 99,960 $110,781
=========================================
Income from continuing operations .............. $ 14,513 $ 15,381 $ 9,084 $ 14,692
Income (loss) from discontinued
operations .................................. (12,856) 1,664 1,721 1,248
-----------------------------------------
Net income .......................... $ 1,657 $ 17,045 $ 10,805 $ 15,940
=========================================
Earnings per common and common equivalent share:
Income from continuing operations ........... $ 0.30 $ 0.32 $ 0.19 $ 0.30
Income (loss) from discontinued
operations ................................ (0.27) 0.03 0.04 0.03
-----------------------------------------
Net income .......................... $ 0.03 $ 0.35 $ 0.23 $ 0.33
=========================================
1995 Quarter:
Operating revenue .............................. $ 99,150 $101,313 $ 84,849 $ 98,428
=========================================
Income from continuing operations .............. $ 11,925 $ 14,315 $ 9,941 $ 16,051
Income from discontinued operations ............ 2,157 2,120 1,175 775
-----------------------------------------
Net income .......................... $ 14,082 $ 16,435 $ 11,116 $ 16,826
=========================================
Earnings per common and common equivalent share:
Income from continuing operations ........... $ 0.25 $ 0.30 $ 0.22 $ 0.35
Income from discontinued operations ......... 0.04 0.04 0.03 0.02
-----------------------------------------
Net income .......................... $ 0.29 $ 0.34 $ 0.25 $ 0.37
=========================================
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,
1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
Page Number
-----------
(a) 1. Financial Statements
Independent Auditor's Report and Consent
Financial Statements
Consolidated balance sheets as of
September 30, 1997, 1996, and 1995
Consolidated statements of income years ended
September 30, 1997, 1996, and 1995
Consolidated statements of stockholders' equity
years ended September 30, 1997, 1996, and 1995
Consolidated statements of cash flows years ended
September 30, 1997, 1996, and 1995
Notes to consolidated financial statements
(a) 2. Financial statements schedule
Schedule
II - Valuation and qualifying accounts years ended
September 30, 1997, 1996, and 1995
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, 1997, 1996, and 1995
21 Subsidiaries
24 Power of Attorney
(b) The following reports on Form 8-K were filed for the three
months ended September 30, 1997.
Date of Report: July 28, 1997
Item 5: Announce the signing of the letter of intent to purchase
The Pacific Northwest Publishing Group
Financial statements filed: none
Date of Report: September 8, 1997
Item 2: Announce completion of the transaction to purchase
The Northwest Publishing Group
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), 33-46708 (filed March 31, 1992), and
333-6435 and 333-6433 (filed June 20, 1996).
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, 1997, 1996 and 1995 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, 1997, 1996 and 1995 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, 1997, 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, No. 33-46708, No.
333-6435 and No. 333-6433 and in the related Prospectuses of our report dated
November 3, 1997 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, 1997 and to the reference
to us under the heading "Experts" in such Prospectuses.
/s/ McGLADREY & PULLEN, LLP
Davenport, Iowa
November 3, 1997
LEE ENTERPRISES, INCORPORATED
AND WHOLLY-OWNED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column A Column B Column C Column D Column E
(1)
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, 1997 ... $ 4,000 $ 2,934 $ 428 (4) $ 2,762 $ 4,600
For the year ended
September 30, 1996 ... 4,100 2,560 (375) 2,285 4,000
For the year ended
September 30, 1995 ... 4,100 1,525 408 1,933 4,100
(1) Represents accounts written off as uncollectible, net of recoveries which
are immaterial.
(2) 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.
(3) Balance upon disposal of NAPP Systems Inc.
(4) Balance upon acquisition of 100% of The Pacific Northwest Group.
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 29, 1997 LEE ENTERPRISES, INCORPORATED
/s/ Richard D. Gottlieb /s/ Larry L. Bloom
- -------------------------------------- ---------------------------------
Richard D. Gottlieb, President Larry L. Bloom,
Chief Executive Officer, and Senior Vice-President of Finance,
Director Treasurer and Chief Financial
Officer
/s/ G.C. Wahlig
---------------------------------
G. C. Wahlig,
Vice President of Finance and
Chief 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,
1997 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 18, 1997
/s/ J. P. Guerin
J. P. Guerin Director November 18, 1997
/s/ Phyllis Sewell
Phyllis Sewell Director November 18, 1997
/s/ Mark Vittert
Mark Vittert Director November 18, 1997
/s/ Ronald L. Rickman
Ronald L. Rickman Director November 18, 1997
/s/ Richard W. Sonnenfeldt
Richard W. Sonnenfeldt Director November 18, 1997
/s/ Rance E. Crain
Rance E. Crain Director November 18, 1997
/s/ Charles E. Rickershauser, Jr.
Charles E. Rickershauser, Jr. Director November 18, 1997
/s/ Andrew E. Newman
Andrew E. Newman Director November 18, 1997