-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JiwSUMdUQqHBAv6h+LGryHDyklqeyErOg/Lk4IOCdpaaeZKqMsCCZ25rzRN9FjI3 NYMy2JYdW9oF99EOTOTDXQ== 0000743530-95-000061.txt : 19951228 0000743530-95-000061.hdr.sgml : 19951228 ACCESSION NUMBER: 0000743530-95-000061 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951227 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEE ENTERPRISES INC CENTRAL INDEX KEY: 0000058361 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 420823980 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06227 FILM NUMBER: 95604763 BUSINESS ADDRESS: STREET 1: 400 PUTNAM BLDG STREET 2: 215 N MAIN ST CITY: DAVENPORT STATE: IA ZIP: 52801 BUSINESS PHONE: 3193832100 MAIL ADDRESS: STREET 1: 400 PUTNAM BUILDING STREET 2: 215 N. MAIN STREET CITY: DAVENPORT STATE: IA ZIP: 52801 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September 30, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File Number 1-6227 LEE ENTERPRISES, INCORPORATED (Exact name of registrant as specified in its charter) Delaware 42-0823980 (State of Incorporation) (I.R.S. Employer Identification No.) 215 N. Main Street, Davenport, Iowa 52801 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (319) 383-2100 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange On Title of Each Class Which Registered Common Stock $2.00 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Title of Class Class B Common Stock $2.00 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of voting stock held by nonaffiliates of the registrant as of December 8, 1995. Common Stock and Class B Common Stock, $2.00 par value: $933,750,000. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of December 8, 1995. Common Stock, $2.00 par value, 34,249,246 shares; and Class B Common Stock, $2.00 par value, 13,157,547 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement dated December 27, 1995 are incorporated by reference in Part III of this Form 10-K. PART I Item 1. Business Item 1(a) Recent business developments. On March 31, 1995 Lee acquired the 50.25% interest in Journal-Star Printing Co. (JSPC) not previously owned, making JSPC a wholly-owned subsidiary. On August 28, 1995, Lee acquired the stock of SJL of Kansas Corp. (SJL) which operates NBC affiliates KSNW-TV and KSNT-TV in Wichita and Topeka, Kansas. For additional information related to the acquisitions, see Note 3 to the Notes to Financial Statements under Item 8, herein. Item 1(b) Financial information about industry segments. See Note 11 to the Notes to Financial Statements under Item 8, herein. Item 1(c) Narrative description of business. NEWSPAPERS The Company and its subsidiaries publish the following daily newspapers: Quad-City Times - Davenport, Iowa The Wisconsin State Journal - Madison, Wisconsin The Lincoln Journal-Star - Lincoln, Nebraska The Journal Times - Racine, Wisconsin LaCrosse Tribune - LaCrosse, Wisconsin Gazette Times - Corvallis, Oregon Globe-Gazette - Mason City, Iowa Ottumwa Courier - Ottumwa, Iowa Star Courier - Kewanee, Illinois Muscatine Journal - Muscatine, Iowa Billings Gazette - Billings, Montana The Montana Standard - Butte, Montana Missoulian - Missoula, Montana Independent Record - Helena, Montana Bismarck Tribune - Bismarck, North Dakota Herald and Review - Decatur, Illinois Southern Illinoisan - Carbondale, Illinois Winona Daily News - Winona, Minnesota Rapid City Journal - Rapid City, South Dakota One daily and Sunday newspaper, The Wisconsin State Journal, and one daily newspaper, The Capital Times, are published in Madison, Wisconsin, both of which are owned by Madison Newspapers, Inc. The Company owns 50% of the outstanding capital stock of Madison Newspapers, Inc. The Company has a contract to furnish the editorial and news content for The Wisconsin State Journal, which is a morning newspaper published seven days each week. The Capital Times Company, of which the Company owns 17% of the nonvoting common stock, owns the other 50% of the outstanding capital stock of Madison Newspapers, Inc., and has a similar contract to furnish the editorial and news content for The Capital Times, which is an afternoon newspaper published daily, except Sunday. Both newspapers are produced in the printing plant of Madison Newspapers, Inc., which maintains common advertising, circulation, delivery and business departments for the two newspapers. The Company is compensated for supplying the editorial and news content. In the newspaper field and rating services The Wisconsin State Journal is classified as one of the Lee Group of newspapers. The Company also publishes 39 weekly newspapers, shoppers and special industry publications. The basic raw material of newspapers is newsprint. The Company and its subsidiaries purchase newsprint from U.S. and Canadian producers. The Company believes it will continue to receive a supply of newsprint adequate to its needs. Price increases for newsprint are probable in the future. Newspaper revenue has traditionally been highest in the quarter ended December 31 and, likewise, has been lowest in the quarter ended March 31. The Company's newspapers compete with newspapers having national or regional circulation, as well as magazines, radio, television and other advertising media such as billboards, shoppers and direct mail. In addition, many of the Company's daily and Sunday newspapers compete with other newspapers in nearby cities and towns. BROADCASTING The Company and its subsidiaries own and operate the following television stations: Nielsen DMA Station Market Ranking ABC Affiliate, KGUN-TV - Tucson, Arizona 80 CBS Affiliates: KOIN-TV - Portland, Oregon 24 KRQE-TV - Albuquerque, New Mexico 48 KGMB-TV - Honolulu, Hawaii 70 KMTV - Omaha, Nebraska 75 NBC Affiliates: WSAZ-TV - Huntington-Charleston, West Virginia 57 KSNW-TV - Wichita, Kansas 63 KSNT-TV - Topeka, Kansas 140 Paramount Affiliate, KZIA-TV - El Paso, Texas 99 [FN] Combined DMA rank. KRQE-TV also operates satellite stations KBIM- TV Roswell, New Mexico and KREZ-TV, Durango, Colorado. KGMB-TV also operates satellite stations KGMD-TV, Hilo, Hawaii and KGMV-TV, Maui, Hawaii. KSNW-TV also operates satellite stations KSNG-TV Garden City, Kansas; KSNC-TV Great Bend, Kansas; and KSNK-TV Oberlin, Kansas/McCook, Nebraska Broadcasting revenue has traditionally been highest in the quarter ended December 31 and, likewise, has been lowest in the quarter ended March 31. The Company's television stations are in competition with other over- the-air broadcast, direct broadcast satellite ("DBS") and cable television, and radio companies, as well as other advertising media such as newspapers, magazines and billboards. Competition in the television broadcasting industry occurs primarily in individual market areas. Generally, a television station in one market does not compete with other stations in other market areas, nor does a group of stations, such as those owned by the Company, compete with any other group of stations as such. DBS and cable television systems in the Company's broadcasting markets operate on a subscriber payment basis and compete by importing out-of-market television signals or by originating programming to the extent permitted or required by present or future rules of the Federal Communications Commission ("FCC"). The Company's television broadcasting operations are subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Act"). The Act empowers the FCC, among other things, to issue, revoke or modify broadcasting licenses, to assign frequency bands, to determine the location of stations, to regulate the apparatus used by stations, to establish areas to be served, to adopt regulations necessary to carry out the provisions of the Act and to impose penalties for violation of such regulations. Television licenses are granted for a maximum period of five years and, upon application, may be renewed for additional five-year terms. The FCC is required to hold a hearing on a renewal application if a conflicting application is filed, if a substantial and material question of fact is raised with respect to the renewal application, or if for any reason the FCC is unable to find that the grant of the renewal application would serve the public interest, convenience and necessity. Renewal of the Company's television licenses has never been denied and all such licenses are now in full force and effect. GRAPHIC ARTS NAPP Systems Inc. ("NAPP") is engaged in the business of manufacturing and selling photosensitive letterpress (NAPPlate) and flexographic (NAPPflex) polymer printing plates and selling related plate processing equipment manufactured under contracts by others to newspaper publishers, preprint, or telephone directory printing businesses located throughout the world. NAPP also distributes commercial flexographic printing plates and related plate processing equipment manufactured by others. NAPP is subject to competition in the printing plate business. Present supplies and/or contracts with suppliers of aluminum, steel and chemicals used in manufacturing of NAPP plates are deemed adequate. Price increases for these raw materials are probable in the future, but these increases will affect competition as well as NAPP. Under a License Agreement dated April 1, 1995 with Nippon Paint Co., Ltd. ("Nippon"), former owner of 50% of the outstanding capital stock of NAPP, NAPP acquired a fully paid-up license on a worldwide, nonassignable and sublicensable basis to exclusive use of Nippon's NAPPflex patent rights in development, design, manufacture, marketing, sale, and distribution of NAPPflex printing plates for use by newsprint, preprint, and telephone directory printing businesses. OTHER MATTERS Compliance with present statutory and regulatory requirements respecting environmental quality will not necessitate significant capital outlays, or materially affect the earning power of the business of the Company, or cause material changes in the Company's business, whether present or intended. In September 1995, the Company, its subsidiaries and associated companies had approximately 5,600 employees, including approximately 1,900 part-time employees. Item 2. Properties The Company's executive offices are located in facilities leased at 215 North Main Street, Davenport, Iowa. All of the newspaper printing plants (except Madison) are owned by the Company. All newspaper printing plants (including Madison) are well maintained, are in good condition, and are suitable for the present office and publishing operations of the newspapers. All newspaper plants are adequately equipped with typesetting, printing and other equipment required in the publication of newspapers. All offices, studios, and transmitter buildings of the broadcasting divisions are owned or subject to long-term lease by the Company. All of the television properties are adequately equipped for present operations, and are in good condition and repair. Network television programs are received via satellite. The office, production and primary warehouse facilities of NAPP are located in buildings in San Marcos, California which are owned by NAPP, are in good condition and repair, and are suitable for its operations. Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Executive Officers of the Company The following table shows the names and ages of all executive officers of the Company, the period of service for each with the Company, the period during which each has held his present office and the office held by each. Period Of Service Period In With Present Name Age Company Office Present Office Richard D. Gottlieb 53 32 years 4 years President and Chief Executive Officer Larry L. Bloom 48 2 1/2 Years 2 1/2 Years Vice-President & Treasurer Ronald L. Rickman 57 36 years 12 years Vice-President Gary N. Schmedding 57 23 years 7 years Vice-President Greg R. Veon 43 19 years 1 month Vice-President Floyd Whellan 58 9 years 9 years Vice-President Charles D. Waterman, III 49 6 years 6 years Secretary George C. Wahlig 48 6 years 3 years Principal Accounting Officer John VanStrydonck 42 14 years 4 years Chairman and CEO, NAPP Systems Inc. Richard D. Gottlieb was elected Chief Executive Officer of the Company in May 1991, and was elected President and Chief Operating Officer of the Company in November 1986. Larry L. Bloom was elected Vice-President of Finance, Treasurer and Chief Financial Officer in June 1993 and for more than five years prior thereto he was in financial management positions with the New York Daily News, most recently serving as senior vice-president and chief financial officer. Gary N. Schmedding was elected a Vice-President of the Company in January 1989; from February 1987 to February 1989 he was general manager of WSAZ-TV. Greg R. Veon was elected a Vice-President of the Company in November 1995; from 1992 through November 1995 he was Vice-President and General Manager of KOIN-TV, Portland, Oregon; for more than 2 years prior thereto he was publisher of the Herald & Review, Decatur, Illinois. Charles D. Waterman, III was elected Secretary of the Company in November 1989. He is presently, and for more than the past five years has been, a partner in the law firm of Lane & Waterman, Davenport, Iowa, general counsel of the Company. George C. Wahlig was elected Principal Accounting Officer of the Company in November 1992; from May 1990 to November 1992 he was Director of Finance and for more than two years prior to May 1990 he was a partner in the public accounting firm of McGladrey & Pullen. John VanStrydonck was elected President and Chief Executive Officer of NAPP Systems Inc. in July of 1991 and Chairman and CEO in September 1994. For more than three years prior thereto he was publisher of the Globe- Gazette in Mason City, Iowa. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters COMMON STOCK PRICES AND DIVIDENDS Lee Common Stock is listed on the New York Stock Exchange. The table below shows the high and low prices of Lee Common Stock for each quarter during the past three years, the closing price at the end of each quarter and the dividends paid per share, after giving retroactive effect for the two-for- one stock split. Quarter 4th 3rd 2nd 1st STOCK PRICES 1995: High $21-11/16 $19-5/16 $18-3/8 $17-3/8 Low 18-1/8 17-7/16 16-13/16 15-7/8 Closing 21-11/16 19-1/16 17-3/4 17-1/4 1994: High $17-3/4 $17-3/4 $19-1/16 $17-1/2 Low 16 15-7/8 16-7/8 15-1/2 Closing 17-1/4 16 17-9/16 17-1/2 1993: High $15-13/16 $15-1/8 $15-3/4 $17-1/4 Low 13-3/4 13-5/8 14-1/4 15-1/8 Closing 15-11/16 13-5/8 14-13/16 15-1/4 DIVIDENDS PAID 1995 $ .11 $ .11 $ .11 $ .11 1994 .10-1/2 .10-1/2 .10-1/2 .10-1/2 1993 .10 .10 .10 .10 For a description of the relative rights of Common Stock and Class B Common Stock, see Note 7 of the Notes to Financial Statements under Item 8 herein. At September 30, 1995, the Company had 4,678 holders of Common Stock and 2,863 holders of Class B Common Stock. Item 6. Selected Financial Data FIVE YEAR FINANCIAL PERFORMANCE Year Ended September 30: 1995 1994 1993 1992 1991 (In Thousands Except Per Share Data) OPERATIONS Operating revenue $ 443,188 $ 402,551 $ 372,907 $ 363,918 $ 346,260 Net income $ 58,459 $ 50,854 $ 41,236 $ 38,492 $ 31,501 PER SHARE AMOUNTS Weighted average shares 46,962 46,850 46,920 46,682 46,584 Earnings $1.24 $1.09 $ .88 $ .82 $ .68 Dividends .44 .42 .40 .38-1/2 .38 OTHER DATA Total assets $ 559,929 $ 474,701 $ 482,317 $ 504,985 $ 490,264 Debt, including current maturities 123,489 130,532 160,214 173,537 191,096 Stockholders' equity 311,042 241,930 223,482 203,812 183,035 Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations Management Review and Discussion Operating results are summarized below: 1995 1994 1993 (In Thousands) Operating revenue $443,188 $402,551 $372,907 Percent change 10.1% 7.9% 2.5% Operating income 103,432 95,477 81,139 Percent change 8.3% 17.7% 1.2% Net income 58,459 50,854 41,236 Percent change 15.0% 23.3% 7.1% Earnings per share 1.24 1.09 .88 Percent change 13.8% 23.9% 7.3% The fiscal 1995 comparisons are affected by two significant acquisitions. On March 31, 1995 Lee acquired the 50.25% interest in Journal-Star Printing Co. (JSPC) not previously owned, making JSPC a wholly-owned subsidiary. On August 28, 1995, Lee acquired the stock of SJL of Kansas Corp. (SJL) which operates NBC network affiliated television stations KSNW-TV and KSNT-TV in Wichita and Topeka, Kansas and three satellite stations that comprise a network that covers all western Kansas and parts of southwest Nebraska. Fiscal 1994 and 1993 comparisons were not affected by significant acquisitions. The following unaudited proforma operating results are as if the 1995 acquisitions had occurred on October 1, 1993. 1995 1994 (Proforma in Thousands) Operating revenue $472,048 $444,918 Percent change 6.1% Operating income 108,329 102,218 Percent change 6.0% Net income 58,231 52,648 Percent change 10.6% Earnings per share 1.20 1.05 Percent change 14.3% NEWSPAPERS 1995 1994 1993 (In Thousands) Operating revenue $274,835 $241,032 $223,423 Percent change 14.0% 7.9% 4.6% Operating income: Wholly-owned properties 68,366 65,881 58,434 Percent change 3.8% 12.7% (1.2%) Equity in net income 8,325 10,031 9,502 Percent change (17.0%) 5.6% 9.6% Operating margin, wholly-owned properties 24.9% 27.3% 26.2% The newspaper segment includes daily and weekly newspapers, shoppers, and specialty publications. Operating revenue consists of the following: 1995 1994 1993 (In Thousands) Daily newspaper: Advertising $153,325 $134,322 $126,920 Percent change 14.1% 5.8% 3.4% Circulation 72,863 66,302 63,285 Percent change 9.9% 4.8% 5.7% Other 48,647 40,408 33,218 Percent change 20.4% 21.6% 7.1% The JSPC acquisition accounted for a 9.0% increase in advertising revenue and a 6.1% increase in circulation revenue in 1995. In the tables that follow, newspaper advertising linage, circulation volume statistics, and related revenue results are presented on a proforma basis for newspapers owned at the end of fiscal 1995. Changes in advertising units for classified and local advertising, which account for more than 70% of newspaper advertising revenue, are as follows: ADVERTISING LINAGE, IN THOUSANDS OF INCHES (PROFORMA) 1995 1994 1993 Classified 3,674 3,586 3,313 Percent change 2.5% 8.2% 3.0% Local 5,422 5,481 5,533 Percent change (1.1%) (.9%) (2.7%) Classified advertising revenue increased approximately 9.1% in 1995, 13.3% in 1994, and 4.7% in 1993. The average rate realized increased 6.5% in 1995, 4.7% in 1994, and 1.6% in 1993. In 1995 growth was led by increases in employment, private party advertising and, in the first part of the year automotive. Local "run-of-press" advertising represents advertising by merchants in the local community which is printed in the newspaper rather than "preprints" which are printed separately by the Company or others and inserted into the newspaper. Revenue increased 2.2% and 3.3% in 1995 and 1994, respectively, on higher average rates despite a 1.1% and .9% decrease in advertising inches. In 1993 revenue was flat due to the 2.7% decrease in volume. Total revenue realized from local and national merchants is increasing despite the shift from run-of-press advertising to preprints which have lower-priced, higher-volume distribution rates. Preprint revenue increased $1,839,000 (5.4%) in 1995, $1,774,000 (5.5%) in 1994, and $1,787,000 (5.9%) in 1993 primarily as a result of increases in volume. The rate of growth in advertising revenues began to decline late in fiscal 1995. This decline is expected to continue into 1996. In 1995 and 1994 circulation revenue increased 3.8% and 4.7%, respectively, as a result of higher rates which offset .9% and .6% decreases in volume. The 1993 increase in circulation revenue was a result of a 5.3% increase in price and a .3% increase in the number of subscribers. Other revenue consists of revenue from products delivered outside the newspaper (which include activities such as target marketing and special event production), weekly and specialty publications, commercial printing and editorial service contracts with Madison Newspapers, Inc. and, through March 31, 1995, with Journal-Star Printing Co. Other income by category and by property is as follows: 1995 1994 1993 (In Thousands) Products delivered outside the newspaper: Properties owned for entire period $ 6,347 $ 4,467 $ 2,273 Acquired since September 30, 1992 229 - - - - Weekly and specialty publications: Properties owned for entire period 15,732 15,233 13,497 Acquired since September 30, 1992 5,333 2,151 - - Commercial printing: Properties owned for entire period 11,799 10,178 9,305 Acquired since September 30, 1992 781 - - - - Editorial service contracts 8,426 8,379 8,143 $ 48,647 $ 40,408 $ 33,218 The following table sets forth the percentage of revenue of certain items in the newspaper segment. 1995 1994 1993 Revenue 100.0% 100.0% 100.0% Compensation costs 34.4% 34.9% 34.9% Newsprint and ink 11.6 9.0 9.8 Other operating expenses 24.5 24.4 23.9 70.5% 68.3% 68.6% Income before depreciation, amortization, interest and taxes 29.5% 31.7% 31.4% Depreciation and amortization 4.6 4.4 5.2 Operating margin wholly-owned properties 24.9% 27.3% 26.2% Exclusive of the effects of acquisitions, in 1995 costs other than depreciation and amortization increased 8.2%. Newsprint and ink costs increased 32.1% as price increases offset the 1.4% reduction in newsprint usage. Compensation costs increased 5.2% primarily as a result of salary increases. Other operating expenses increased by 4.9% due to normal inflationary increases. Exclusive of the effects of the specialty publication acquisitions, in 1994 costs other than depreciation and amortization increased 5.7%. Compensation costs increased 6.9% primarily due to a 1.8% increase in hours worked and salary increases. Total hours worked increased primarily due to the non- traditional revenue activities. Newsprint and ink costs decreased 1.1%. Increased newsprint rebates offset a 4% increase in newsprint usage by newspapers and a 11% increase in commercial printing volume. Other operating expenses increased 7.1% primarily due to non-traditional services and normal inflationary increases. In 1993 costs other than depreciation and amortization increased 7.5%. Compensation costs increased 3.7% primarily as a result of salary increases. Newsprint and ink costs increased 10.0% primarily as a result of reduced newsprint rebates and an increase in commercial printing. Other operating expenses increased 12.2% primarily due to costs related to non-traditional services and normal inflationary increases. Newsprint suppliers continue to implement price increases. If newsprint prices actually increase as indicated, our costs per ton could increase in excess of 25% in 1996. BROADCASTING 1995 1994 1993 (Dollars In Thousands) Operating revenue $100,586 $ 90,000 $ 81,284 Percent change 11.8% 10.7% 2.7% Operating income 26,934 21,494 16,712 Percent change 25.3% 28.6% 19.7% Operating margin 26.8% 23.9% 20.6% Exclusive of the effects of the SJL acquisition, operating revenue and operating income increased 10.1% and 26.7%, respectively in 1995. Local/regional revenue increased $1,400,000, national advertising increased $3,200,000, political advertising increased $1,700,000 and network compensation increased $1,900,000. The full year of operations from the acquisition of KZIA-TV, then operating in Las Cruces, New Mexico, increased operating revenue in 1994 by $400,000. Exclusive of the effects of this acquisition, local/regional revenue increased $4,700,000 and national advertising increased $4,300,000. Included in these increases are the effects of the Winter Olympics on our four CBS affiliates and their satellite stations. Political advertising in 1993 increased $1,100,000 over the prior year. Local/regional advertising increased by $2,500,000 which was offset, in part, by a $1,200,000 decrease in national advertising. In 1995 political revenues totaled approximately $4,400,000. While we anticipate some revenues in fiscal 1996 from political campaigns, the bulk of these revenues may not be replaced due to the current softness in national spot advertising and less robust conditions in several of our local markets. Network compensation decreased $300,000 for the year, primarily at the Company's CBS-affiliated stations. The following table sets forth the percentage of revenue of certain items in the broadcasting segment. 1995 1994 1993 Revenue 100.0% 100.0% 100.0% Compensation costs 37.1% 38.9% 39.1% Programming costs 6.2 7.4 9.4 Other operating expenses 21.8 21.4 21.4 65.1% 67.7% 69.9% Income before depreciation, amortization, interest and taxes 34.9% 32.3% 30.1% Depreciation and amortization 8.1 8.4 9.5 Operating margin wholly-owned properties 26.8% 23.9% 20.6% Exclusive of the effects of the SJL acquisition, operating income increased by $5,700,000 in 1995. Compensation costs increased 4.6% primarily due to increased hours worked. Programming costs decreased by $530,000 (8.0%) as a result of a shift from more expensive syndicated programming to locally originated news programming. Other operating expense increased 10.3% due to costs related to the higher business activity levels and sales and audience promotion. Operating income increased in 1994 by $4,800,000. Compensation costs increased $3,200,000 or 10.1%, due to an increase in incentive compensation related to increases in advertising revenue and an increase of 5.1% in the number of hours worked (including the effects of the acquisition of KZIA- TV). Portland, Omaha and Huntington all expanded news programming which required additional staffing and other related costs. Program costs declined $1,000,000 primarily due to the trend discussed above. Other operating expenses increased $1,800,000 or 10.4%, due to costs related to the higher business activity levels. Operating income increased $2,600,000 in 1993. Programming costs decreased by $3,300,000 reflecting trends from 1992. Compensation costs increased 5.0% primarily as a result of salary increases. Other operating expenses increased by 5.1% reflecting increased sales promotion costs and inflationary cost increases. GRAPHIC ARTS Graphic arts revenue decreased $2,046,000 in 1995 while operating income increased $658,000. Decreased unit volume from NAPP's letterpress plate business was offset by higher selling prices and growth in the flexographic printing plate business. Profit from large infrequently occurring equipment sales contributed $1,400,000 to operating income. In 1994 NAPP's revenue increased 5.2% due primarily to higher flexographic printing plate sales. The contribution from letterpress printing plates for the year was flat as higher average prices offset increased manufacturing costs and a 10% reduction in plate volume. NAPP presently expects conversion to offset or flexographic printing by its existing newspaper letterpress customer base within the next ten to fifteen years. The timing of conversion to offset or flexographic printing by present newspaper customers of NAPP in future periods is difficult to predict since printing equipment may be retired based on considerations other than physical condition. The decision will also be impacted by a number of factors beyond NAPP's control, including economic conditions in NAPP's worldwide market. NAPP may be able to offset a portion of the loss in newspaper letterpress revenues by increasing the newspaper market for its flexographic product, increasing revenues from the commercial flexographic printing plate distribution business which NAPP established in September 1995 and increasing product offerings in the commercial letterpress printing market, development of additional products for use in other printing technologies and marketing of the cost-effective letterpress printing technology in Eastern Europe and other countries where newspaper markets are developing. There is no assurance that NAPP will be successful in replacing its newspaper letterpress revenues. During 1993 NAPP restructured its European operations and appointed a distributor for the European market. The distribution agreement provides for payment in U.S. dollars, which substantially reduces NAPP's exposure to fluctuation in foreign currency exchange rates. Costs of approximately $2,000,000 related to closing NAPP's United Kingdom sales office were offset in part by a one-time sale of letterpress printing plate inventories to the new distributor. INTEREST EXPENSE Interest expense decreased by approximately $1,700,000 in 1995 and 1994 and $1,600,000 in 1993. The most significant element of the decrease was a lower debt level which reduced interest by approximately $2,000,000, $1,700,000 and $800,000, respectively. In 1993 there was a $400,000 reduction in interest expense as a result of the continuing phase-out of the Company's Deferred Compensation Unit Plan. In 1995 a $500,000 increase in interest on deferred compensation was offset by an increase in financial income earned on the invested funds. INCOME TAXES Income taxes were 38.6% of pretax income in 1995, 40.1% in 1994 and 39.3% in 1993. In 1995 the effective tax rate was decreased by .9% as a result of the elimination of the deferred income taxes related to the undistributed income of the 49.75% interest in JSPC. The effect of the federal income tax rate increase was approximately $200,000 in 1994 and $1,000,000 including a $500,000 increase in deferred income tax credits in 1993. The 1993 increase was offset by the reduction in the income tax interest contingency related to the income tax basis of acquired intangibles due to favorable court rulings for taxpayers with similar circumstances and changes in the income tax law. The effective tax rate for 1996 is expected to be approximately 39%. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS Cash provided by operations is the Company's primary source of liquidity, generating $72,571,000 in 1995. The major sources and uses of cash in 1995 were as follows: (In Thousands) Sources of cash: Operations $ 72,571 Maturities of temporary investments, net 38,659 New borrowings 35,000 All other 1,002 $147,232 Uses of cash: Acquisitions $ 41,609 Purchase property and equipment 17,435 Cash dividends paid 20,295 Purchase stock 30,925 Pay debt 45,069 $155,333 Decrease in cash $ (8,101) The Company has financed significant acquisitions by long-term borrowings. The long-term borrowings may not be prepaid without a substantial prepayment penalty. Capital expenditures for new and improved facilities and equipment are expected to be about $20,000,000 in 1996. The Company anticipates that funds necessary for capital expenditures and other requirements will be available from internally generated funds. The Company also has $15,000,000 available pursuant to a bank line-of-credit. DIVIDENDS AND COMMON STOCK PRICES The current quarterly cash dividend is $.12 per share, an annual rate of $.48. During the fiscal year ended September 30, 1995, the Company paid $20,295,000 or 34.7% of the current year's earnings in dividends. The Company will continue to review its dividend policy to assure that it remains consistent with its capital demands. Covenants under long-term obligations are not considered restrictive to payment of dividends. Lee common stock is listed on the New York Stock Exchange. The table under Item 5 herein shows the high and low prices of Lee common stock for each quarter during the past three years. It also shows the closing price at the end of each quarter and the dividends paid in the quarter. INFLATION The net effect of inflation on operations has not been material in the last few years because of efforts by the Company to lessen the effect of rising costs through a strategy of improving productivity, controlling costs and, where competitive conditions permit, increasing selling prices. QUARTERLY RESULTS The Company's largest source of newspaper revenue, local run-of-press advertising, is seasonal and tends to fluctuate with retail sales in markets served. Historically, local run-of-press advertising is higher in the first and third quarters. Newspaper classified advertising revenue (which includes real estate and automobile ads) and broadcasting revenue are lowest in January and February which are included in our second fiscal quarter. Quarterly results of operations are summarized under Item 8 herein. Item 8. Financial Statements and Supplementary Data FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS September 30, 1995 1994 1993 (Dollars In Thousands) ASSETS CURRENT ASSETS Cash and cash equivalents $ 10,683 $ 18,784 $ 17,072 Temporary investments 200 38,859 45,500 Trade receivables, less allowance for doubtful accounts 1995 $4,100; 1994 $4,100; 1993 $3,400 57,146 46,170 43,284 Receivables from associated companies 1,438 2,169 2,137 Inventories 18,355 13,147 11,177 Program rights and other 16,687 16,578 15,952 Total current assets $104,509 $135,707 $135,122 INVESTMENTS Associated companies $ 10,754 $ 21,969 $ 20,305 Other 8,946 7,437 6,650 $ 19,700 $ 29,406 $ 26,955 PROPERTY AND EQUIPMENT Land and improvements $ 12,053 $ 11,392 $ 11,319 Buildings and improvements 64,768 56,675 55,177 Equipment 176,642 152,547 137,917 $253,463 $220,614 $204,413 Less accumulated depreciation 145,267 138,450 129,057 $108,196 $ 82,164 $ 75,356 INTANGIBLES AND OTHER ASSETS Intangibles $321,014 $225,633 $242,267 Other 6,510 1,791 2,617 $327,524 $227,424 $244,884 $559,929 $474,701 $482,317 See Notes to Consolidated Financial Statements. September 30, 1995 1994 1993 (Dollars In Thousands) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and current maturities of long-term debt $ 47,978 $ 31,891 $ 32,748 Accounts payable 24,155 17,336 13,215 Compensation and other accruals 28,431 26,523 25,078 Income taxes payable 2,656 12,971 10,808 Unearned income 13,307 11,009 9,859 Total current liabilities $116,527 $ 99,730 $ 91,708 LONG-TERM DEBT, net of current maturities $ 75,511 $ 98,641 $127,466 DEFERRED ITEMS Retirement and compensation $ 11,632 $ 13,021 $ 13,747 Income taxes 45,217 21,379 25,914 $ 56,849 $ 34,400 $ 39,661 STOCKHOLDERS' EQUITY Capital stock: Serial convertible preferred, no par value; authorized 500,000 shares; issued none Common, $2 par value; authorized 60,000,000 shares; issued and outstanding 1995 34,198,000 shares $ 68,396 $ 32,130 $ 31,826 Class B, common, $2 par value; authorized 30,000,000 shares; issued and outstanding 1995 13,168,000 shares 26,336 13,390 14,374 Additional paid-in capital 17,404 6,497 3,469 Unearned compensation (533) (665) (901) Retained earnings 199,439 190,578 174,714 $311,042 $241,930 $223,482 $559,929 $474,701 $482,317 CONSOLIDATED STATEMENTS OF INCOME Years Ended September 30, 1995 1994 1993 (In Thousands Except Per Share Data) Operating revenue: Newspaper: Advertising $153,325 $134,322 $126,920 Circulation 72,863 66,302 63,285 Other 48,647 40,408 33,218 Broadcasting 100,586 90,000 81,284 Graphic arts 59,490 61,357 58,651 Equity in net income of associated companies 8,277 10,162 9,549 $443,188 $402,551 $372,907 Operating expenses: Compensation costs $148,894 $138,486 $128,734 Newsprint and ink 31,936 21,744 21,936 Depreciation 12,731 10,916 11,131 Amortization of intangibles 13,243 12,580 13,645 Other 132,952 123,348 116,322 $339,756 $307,074 $291,768 Operating income $103,432 $ 95,477 $ 81,139 Financial (income) expense: Interest expense $ 11,902 $ 13,576 $ 15,312 Financial (income) (3,704) (2,984) (2,103) $ 8,198 $ 10,592 $ 13,209 Income before taxes on income $ 95,234 $ 84,885 $ 67,930 Income taxes 36,775 34,031 26,694 Net income $ 58,459 $ 50,854 $ 41,236 Weighted average number of shares 46,962 46,850 46,920 Earnings per share $ 1.24 $ 1.09 $ .88 See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended September 30, 1995 1994 1993 (In Thousands) CASH PROVIDED BY OPERATING ACTIVITIES Net income $ 58,459 $ 50,854 $ 41,236 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,974 23,496 24,776 Distributions in excess of (less than) earnings of associated companies 206 (1,696) (1,563) Change in assets and liabilities, net of effects from business acquisitions: (Increase) decrease in receivables (4,849) (2,631) 529 (Increase) decrease in inventories, program rights and other (4,717) (4,013) 1,447 Increase (decrease) in accounts payable, accrued expenses and unearned income 6,619 5,038 (10,154) Increase (decrease) in income taxes payable (10,469) 2,163 884 Other, primarily deferred items 1,348 4,564 1,120 Net cash provided by operating activities $ 72,571 $ 77,775 $ 58,275 CASH (REQUIRED FOR) INVESTING ACTIVITIES Acquisitions $(41,609) $ (4,132) $ (444) Additional investment in associated companies - - - - (50) Purchase of property and equipment (17,435) (17,611) (9,988) Purchase of temporary investments (200) (117,732) (87,500) Proceeds from maturities of temporary investments 38,859 124,373 66,800 Other (1,509) (787) (95) Net cash (required for) investing activities $(21,894) $(15,889) $(31,277) CASH (REQUIRED FOR) FINANCING ACTIVITIES Purchase of common stock $(30,925) $(16,498) $ (8,702) Cash dividends paid (20,295) (19,367) (18,495) Proceeds from long-term borrowings 20,000 - - - - Proceeds from short-term notes payable 15,000 - - - - Principal payments on long-term borrowings (45,069) (26,667) (11,070) Other 2,511 2,358 5,070 Net cash (required for) financing activities $(58,778) $(60,174) $(33,197) Net increase (decrease) in cash and cash equivalents $ (8,101) $ 1,712 $ (6,199) Cash and cash equivalents: Beginning 18,784 17,072 23,271 Ending $ 10,683 $ 18,784 $ 17,072 See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, Amount Shares 1995 1994 1993 1995 1994 1993 (In Thousands Except Per Share Data) COMMON STOCK Balance, beginning $ 32,130 $ 31,826 $ 41,842 32,130 31,826 41,842 Conversion from Class B Common Stock 252 988 432 252 988 432 Stock split 34,198 - - - - - - - - - - Cancellation of treasury stock - - - - (10,480) - - - - (10,480) Shares issued 3,508 462 560 3,508 462 560 Shares reacquired (1,692) (1,146) (528) (1,692) (1,146) (528) Balance, ending $ 68,396 $ 32,130 $ 31,826 34,198 32,130 31,826 CLASS B COMMON STOCK Balance, beginning $ 13,390 $ 14,374 $ 18,606 13,390 14,374 18,606 Conversion to Common Stock (252) (988) (432) (252) (988) (432) Stock split 13,168 - - - - - - - - - - Cancellation of treasury stock - - - - (3,712) - - - - (3,712) Shares issued 38 14 90 38 14 90 Shares reacquired (8) (10) (178) (8) (10) (178) Balance, ending $ 26,336 $ 13,390 $ 14,374 13,168 13,390 14,374 ADDITIONAL PAID-IN CAPITAL Balance, beginning $ 6,497 $ 3,469 $ - - Shares issued 58,273 3,028 3,469 Common stock split (Note 2) (47,366) - - - - Balance, ending $ 17,404 $ 6,497 $ 3,469 UNEARNED COMPENSATION Balance, beginning $ (665) $ (901) $ (760) Restricted shares issued (496) (474) (787) Restricted shares canceled 24 22 118 Amortization 604 688 528 Balance, ending $ (533) $ (665) $ (901) Years Ended September 30, Amount Shares 1995 1994 1993 1995 1994 1993 (In Thousands Except Per Share Data) RETAINED EARNINGS Balance, beginning $190,578 $174,714 $256,519 Net income 58,459 50,854 41,236 Cash dividends per share 1995 $.44; 1994 $.42; 1993 $.40 (20,295) (19,367) (18,495) Treasury stock issued for less than cost or canceled - - - - (98,203) Shares reacquired (29,303) (15,623) (6,343) Balance, ending $199,439 $190,578 $174,714 TREASURY STOCK Balance, beginning $ - - $ - - $112,395 - - - - 7,096 Cancellation of treasury stock - - - - (112,395) - - - - (7,096) Balance, ending $ - - $ - - $ - - - - - - - - STOCKHOLDERS' EQUITY $311,042 $241,930 $223,482 47,366 45,520 46,200
See Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: The Company has three principal businesses: newspaper publishing, broadcasting and sale of graphic arts products and services. As of September 30, 1995, operating divisions and associated companies publish 19 daily newspapers and operate nine television stations and seven satellite stations. Graphic arts products and services consist primarily of the operations of NAPP Systems Inc., a manufacturer and distribution of graphic arts products. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany items have been eliminated. TEMPORARY INVESTMENTS: Temporary investments are carried at cost which approximates fair value. INVENTORIES: Newsprint inventories are priced at the lower of cost or market with cost being determined primarily by the last-in, first-out method. Newsprint inventories as of September 30, 1995, 1994 and 1993 were less than replacement cost by $4,896,000, $2,985,000, and $3,148,000, respectively. Graphic arts inventories are valued at the lower of standard cost (which approximates cost on a first-in, first-out method) or market. PROGRAM RIGHTS: Cost of program rights is stated at the lower of cost or estimated realizable value. The total cost of the rights is recorded as an asset and a liability when the program becomes available for broadcast. Cost of program rights is charged to operations primarily on accelerated bases related to the usage of the program. The current portion of program rights represents those rights that will be amortized in the succeeding year. INVESTMENTS: Investments in the common stock or joint venture capital of associated companies are reported at cost plus the Company's share of undistributed earnings since acquisition, less amortization of intangibles. Long-term loans to associated companies are included in investments in associated companies. Other investments primarily consist of various trading securities held in a Rabbi Trust and are carried at fair value. PROPERTY AND EQUIPMENT: Property and equipment is carried at cost. Equipment, except for newspaper presses and broadcast towers, is depreciated primarily by declining-balance methods. The straight-line method is used for all other assets. The estimated useful lives in years are as follows: Years Buildings and improvements 5-25 Newspaper: Presses 15-20 Other major equipment 3-11 Broadcasting: Towers 15-20 Other major equipment 3-10 Manufacturing equipment 5-8 The Company capitalizes interest as part of the cost of constructing major facilities. INTANGIBLES: Intangibles include covenants not-to-compete, consulting agreements, customer lists, broadcast licenses and agreements, newspaper subscriber lists, and the excess costs over fair value of net assets of businesses acquired. The excess costs over fair value of net tangible assets include $21,510,000 related to the newspaper and broadcast segments incurred prior to October 31, 1970, which is not being amortized. Excess costs related to shoppers are being amortized over a 10 to 15 year period. Intangibles related to the graphic arts segment are being amortized over a period of 20 years. Intangibles, representing non-compete covenants, consulting agreements, customer lists, broadcast licenses and agreements and newspaper subscriber lists are being amortized over a period of 3 to 40 years. The remaining newspaper and broadcast segment costs are being amortized over a period of 40 years. All intangibles are amortized by the straight-line method. The Company reviews its intangibles annually to determine potential impairment by comparing the carrying value of the intangibles with the anticipated future cash flows of the related property. ADVERTISING COSTS: Advertising costs, which are not material, are expensed as incurred. INCOME TAXES: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. EARNINGS PER SHARE: Earnings per share are calculated using the weighted average number of common stock, Class B Common Stock and common stock equivalent shares outstanding resulting from employee stock option and purchase plans. CASH AND CASH EQUIVALENTS: For the purpose of reporting cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less at date of acquisition to be cash equivalents. RESTRICTED STOCK: The Company amortizes as compensation cost the value of restricted stock, issued under a long-term incentive plan, by the straight-line method over the three year restriction period. NOTE 2. COMMON STOCK SPLIT On November 9, 1995, the Board of Directors declared a two-for- one stock split on the Company's Common Stock and Class B Common Stock effected in the form of a stock dividend to holders of record on November 20, 1995. Common Stock issued, Class B Common Stock issued, and additional paid-in capital as of September 30, 1995 have been restated to reflect this split. The number of shares issued at September 30, 1995 after giving effect to the split was 34,198,000 common shares and 13,168,000 Class B Common shares (17,099,000 common shares and 6,584,000 Class B Common shares before the split). All share and per share data, including stock option and stock purchase plan information, is stated to reflect the split. NOTE 3. ACQUISITIONS On March 31, 1995, the Company issued 3,293,000 shares of common stock, in exchange for 50.25% of the outstanding shares of Journal-Star Printing Co., a subsidiary which prior to the acquisition was 49.75% owned by the Company. The total acquisition cost over the fair value of the net assets acquired was $41,586,000. The acquisition has been accounted for as a purchase. The results of operations of 100% of the Journal-Star Printing Co. since the date of acquisition are included in the consolidated financial statements. Equity in net income was recorded for the Company's 49.75% interest in income through March 31, 1995. On August 28, 1995, the Company acquired, for cash 100% of the outstanding stock of SJL of Kansas Corp., the owner of two television stations in Wichita and Topeka, Kansas. The total acquisition cost was $51,100,000. The excess of the total acquisition cost, over the fair value of the net assets acquired was $19,790,000. The acquisition has been accounted for as a purchase and results of operations of SJL of Kansas Corp. since the date of acquisition is included in the consolidated financial statements. Unaudited pro forma consolidated results of operations for the years ended September 30, 1995 and 1994 as though 100% of the Journal-Star Printing Co. and SJL of Kansas Corp. had been acquired as of October 1, 1993 follows: Year Ended September 30, 1995 1994 (In Thousands Except Per Share Data) Operating revenue $472,048 $444,918 Net income 58,231 52,648 Earnings per share 1.20 1.05 The above amounts reflect adjustments for amortization of intangibles, additional depreciation on revalued purchased assets and imputed interest on borrowed funds. The Company also acquired four alternative publications and a satellite television station in 1995, two alternative publications in 1994, and an independent television station in 1993. The purchase price of business acquisitions was allocated as follows: Years Ended September 30, 1995 1994 1993 (In Thousands) Noncash working capital acquired $ 1,723 $ 161 $ 27 Property and equipment 21,484 436 505 Intangibles 108,890 3,535 67 Other long-term assets 6,370 - - - - Debt assumed (1,871) - - - - Issuance of note payable (2,315) - - - - Deferred items (22,682) - - (155) Common stock issued (58,250) - - - - Total cash purchase price $ 53,349 $ 4,132 $ 444 Less equity interest in cash balance at date of acquisition (11,740) - - - - $ 41,609 $ 4,132 $ 444 NOTE 4. INVESTMENTS IN ASSOCIATED COMPANIES The Company has a 50% ownership interest in Madison Newspapers, Inc., a newspaper publishing company operating in Madison, Wisconsin, and a direct marketing venture, Quality Information Systems. The Company had until March 31, 1995 (see Note 3) an effective 50% ownership interest in Journal-Star Printing Co., a newspaper publishing company in Lincoln, Nebraska. Summarized financial information of the associated companies is as follows: Combined Associates 1995 1994 1993 (In Thousands) Assets Current assets $ 22,873 $ 35,895 $ 36,420 Investments and other assets 3,865 13,757 14,486 Property and equipment, net 6,359 13,835 8,608 $ 33,097 $ 63,487 $ 59,514 Liabilities and Stockholders' Equity Current liabilities $ 12,180 $ 17,839 $ 17,684 Long-term debt 590 615 615 Deferred items - - 2,414 1,915 Stockholders' equity 20,327 42,619 39,300 $ 33,097 $ 63,487 $ 59,514 Revenue $ 85,421 $ 98,011 $ 92,097 Income before depreciation, interest and income taxes 27,159 33,454 31,333 Operating income 25,104 31,629 29,600 Net income 16,076 20,353 19,124 Receivables from associated companies consist of dividends. Certain information relating to Company investments in these associated companies is as follows: 1995 1994 1993 (In Thousands) Share of: Stockholders' equity $ 10,164 $ 21,265 $ 19,601 Undistributed earnings 9,946 19,508 17,844 NOTE 5. DEBT The Company has long-term obligations, net of current maturities, as follows: September 30, 1995 1994 1993 (In Thousands) Insurance companies notes payable: Senior notes $ - - $ 20,000 $ 20,000 Senior notes, effective rate of 9.92%, $25,000,000 due January 1998 and 1999 50,000 75,000 100,000 Bank term loan, 6.17%, due January 1997 20,000 - - - - Program contracts, noninterest bearing, due through 1999 2,763 2,040 4,366 Other 5.0%-6.2%, due through 2010 2,748 1,601 3,100 $ 75,511 $ 98,641 $127,466 At September 30, 1995 the Company had $15,000,000 of borrowings under unsecured line-of-credit agreements with two banks. The agreements provide for quarterly interest payments at a variable interest rate, currently 6.25%, and are due in August 1996. The Company also has $15,000,000 available under a credit agreement with a bank which terminates in July 1998. Interest rates float at rates specified in the agreement. Aggregate maturities during the next five years are $32,978,000, $23,344,000, $25,681,000, $25,222,000, and $1,264,000. Covenants under these agreements are not considered restrictive to normal operations or anticipated stockholder dividends. NOTE 6. RETIREMENT AND COMPENSATION PLANS Substantially all the Company's employees are covered by a qualified defined contribution retirement plan. The Company has other retirement and compensation plans for executives and others. Retirement and compensation plan costs, including interest on deferred compensation costs, charged to operations were $9,200,000 in 1995, $10,200,000 in 1994, and $7,800,000 in 1993. NOTE 7. COMMON STOCK AND CLASS B COMMON STOCK Class B Common Stock has ten votes per share on all matters and generally votes as a class with Common Stock (which has one vote per share). The transfer of Class B Common Stock is restricted; however, Class B Common Stock is at all times convertible into shares of Common Stock on a share-for-share basis. Common Stock and Class B Common Stock have identical rights with respect to cash dividends and upon liquidation. During 1993, the Board of Directors retired 14,192,000 shares of treasury stock and adopted the policy of retiring all shares of the Company's common stock as it is repurchased. NOTE 8. STOCK OPTION AND RESTRICTED STOCK AND STOCK PURCHASE PLANS Stock option and restricted stock plans: The Company has reserved 7,114,000 common shares for issuance to key employees under incentive and nonstatutory stock option plans and a restricted stock plan approved by stockholders. Options have been granted at a price equal to the fair market value on the date of grant, and are exercisable in cumulative installments over a ten-year period. All option grants are for common stock. Other pertinent information related to the stock option plans is as follows: Number of Shares 1995 1994 1993 (In Thousands) Under option, beginning of year 2,406 2,556 2,682 Granted 192 198 372 Terminated and canceled (10) (34) (22) Exercised (368) (314) (476) Under option, end of year 2,220 2,406 2,556 Options exercisable, end of year 1,778 1,856 1,738 Average Price 1995 1994 1993 Granted during the year $16.66 $16.03 $15.54 Exercised during the year 11.45 12.37 9.94 Under option, end of year 13.79 13.20 12.91 Restricted stock is subject to an agreement requiring forfeiture by the employee in the event of termination of employment within three years of the grant date for reasons other than normal retirement, death or disability. As of September 30, 1995, 156,000 shares of restricted stock were outstanding. At September 30, 1995, 4,894,000 shares were available for granting of stock options or issuance of restricted stock. Stock purchase plan: The Company has 218,000 additional shares of common stock available for issuance pursuant to a non-officer employee stock purchase plan. April 30, 1996 is the exercise date for the current offering. The purchase price is the lower of 85% of the fair market value at the date of the grant or the exercise date which is one year from the date of the grant. In 1995, 1994 and 1993 employees purchased 108,000, 120,000, and 108,000 shares, respectively, at a per share price of $14.90 in 1995, $12.49 in 1994, and $12.38 in 1993. NOTE 9. INCOME TAX MATTERS Components of income tax expense consist of the following: Years Ended September 30, 1995 1994 1993 (In Thousands) Paid or payable on currently taxable income: Federal $29,031 $27,846 $21,554 State 5,948 5,535 4,311 Net increase due to deferred income taxes 1,796 650 829 $36,775 $34,031 $26,694 Income tax expense for the years ended September 30, 1995, 1994, and 1993 is different than the amount computed by applying the U.S. federal income tax rate to income before income taxes. The reasons for these differences are as follows: % Of Pre-Tax Income 1995 1994 1993 Computed "expected" income tax expense 35.0% 35.0% 34.8% State income taxes, net of federal tax benefit 4.4 4.2 4.2 Net income of associated companies taxed at dividend rates (2.7) (3.7) (4.4) Effect of change in tax rates on deferred taxes - - - - .7 Goodwill amortization 3.0 3.3 4.7 Other (1.1) 1.3 (.7) 38.6% 40.1% 39.3% Foreign taxes are not material. Net deferred tax liabilities consist of the following components as of September 30, 1995, 1994 and 1993: 1995 1994 1993 (In Thousands) Deferred tax liabilities: Property and equipment $ 8,607 $ 3,429 $ 3,728 Equity in undistributed earnings of affiliates 883 1,676 1,529 Deferred gain on sale of broadcast properties 3,308 3,308 3,308 Identifiable intangible assets 36,179 19,686 23,120 Other 2,303 - - - - $ 51,280 $ 28,099 $ 31,685 Deferred tax assets: Accrued compensation $ 7,501 $ 7,525 $ 6,670 Receivable allowance 1,550 1,746 1,493 Loss carryforwards acquired 10,779 784 1,703 Other 2,654 3,084 3,411 $ 22,484 $ 13,139 $ 13,277 Less, valuation allowance 10,498 - - 1,703 11,986 $ 13,139 $ 11,574 $ 39,294 $ 14,960 $ 20,111 The components giving rise to the net deferred tax liabilities described above have been included in the accompanying balance sheets as of September 30, 1995, 1994, and 1993 as follows: 1995 1994 1993 (In Thousands) Current assets $ 5,923 $ 6,419 $ 5,803 Noncurrent liabilities (45,217) (21,379) (25,914) $ 39,294 $(14,960) $(20,111) The Company provided a valuation allowance of $10,498,000 during 1995 at the time SJL of Kansas Corp. was acquired because of limitations imposed by the tax laws on the Company's ability to realize the benefit of the acquired operating loss carryforwards. During 1994, as a result of changes in the operations of New Mexico Broadcasting Company, Inc. management has determined that it is more likely than not that the Company's remaining net operating losses will be utilized and, accordingly, reduced the valuation allowance that it has previously established by $1,703,000 with a corresponding reduction in goodwill. As of September 30, 1995 the SJL net operating loss carryforward was approximately $27,000,000 and will expire in various amounts from 1999 to 2010. The Company changed its estimate of the tax basis of acquired intangibles and reduced goodwill by $5,877,000 and $20,632,000 during the years ended September 30, 1994 and 1993, respectively. In 1995 the Company settled Internal Revenue Service examinations related to the amortization of intangibles on the basis previously estimated. NOTE 10. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. The carrying amounts of cash and cash equivalents, temporary investments, and accrued expenses approximate fair value because of the short maturity of those instruments. The fair value of the Company's debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The estimated fair values of the Company's debt instruments are as follows: Carrying Fair Amount Value (In Thousands) September 30: 1995 $123,489 $127,723 1994 130,532 134,130 1993 160,214 174,199 NOTE 11. LINE OF BUSINESS INFORMATION Year Ended September 30, 1995 1994 1993 (In Thousands) Revenues: Newspapers: Wholly-owned properties $274,835 $241,032 $223,423 Equity in net income of associated companies 8,325 10,031 9,502 Broadcasting 100,586 90,000 81,284 Graphic Arts: Wholly-owned properties 59,490 61,357 58,651 Equity in net income (loss) of associated companies (48) 131 47 Total revenue $443,188 $402,551 $372,907 Operating income: Newspapers $ 76,691 $ 75,912 $ 67,936 Broadcasting 26,934 21,494 16,712 Graphic arts 11,979 11,321 8,187 Corporate and other (12,172) (13,250) (11,696) Total operating income $103,432 $ 95,477 $ 81,139 Identifiable assets: Newspapers $229,765 $174,695 $168,432 Broadcasting 211,652 139,401 147,270 Graphic arts 87,880 88,225 95,641 Corporate 30,632 72,380 70,974 Total identifiable assets $559,929 $474,701 $482,317 Depreciation: Newspapers $ 7,041 $ 5,645 $ 6,087 Broadcasting 4,388 3,917 3,635 Graphic arts 766 850 804 Corporate 536 504 605 Total depreciation $ 12,731 $ 10,916 $ 11,131 Amortization of intangibles: Newspapers $ 5,746 $ 4,927 $ 5,584 Broadcasting 3,755 3,661 4,069 Graphic arts 3,742 3,992 3,992 Total amortization of intangibles $ 13,243 $ 12,580 $ 13,645 Capital expenditures: Newspapers $ 9,875 $ 12,993 $ 2,113 Broadcasting 7,141 4,298 3,715 Graphic arts 63 170 398 Corporate 356 150 3,762 Total capital expenditures $ 17,435 $ 17,611 $ 9,988 NOTE 12. OTHER INFORMATION Balance sheet information: Inventories consist of the following: September 30, 1995 1994 1993 (In Thousands) Newsprint $ 3,634 $ 2,343 $ 2,904 Graphic arts products: Raw material 7,554 5,684 4,737 Finished goods 7,167 5,120 3,536 $ 18,355 $ 13,147 $ 11,177 Program rights and other consist of the following: September 30, 1995 1994 1993 (In Thousands) Program rights $ 6,793 $ 6,278 $ 7,507 Deferred income taxes 5,923 6,419 5,803 Other 3,971 3,881 2,642 $ 16,687 $ 16,578 $ 15,952 Intangibles consist of the following: September 30, 1995 1994 1993 (In Thousands) Goodwill $268,945 $206,525 $212,030 Less, accumulated amortization 64,185 56,631 49,508 $204,760 $149,894 $162,522 Covenants and consulting agreements $ 25,739 $ 25,315 $ 23,955 Less, accumulated amortization 15,811 13,543 10,302 $ 9,928 $ 11,772 $ 13,653 Customer lists, broadcasting licenses and agreements and newspaper subscriber lists $124,472 $ 79,432 $ 79,332 Less, accumulated amortization 18,146 15,465 13,240 $106,326 $ 63,967 $ 66,092 $321,014 $225,633 $242,267 Compensation and other accruals consist of the following: September 30, 1995 1994 1993 (In Thousands) Compensation $ 10,355 $ 9,684 $ 10,777 Deferred compensation, current portion 1,394 1,567 173 Vacation pay 4,824 3,892 3,811 Retirement and stock purchase plans 2,941 2,769 2,192 Interest 1,834 2,365 2,831 Other 7,083 6,246 5,294 $ 28,431 $ 26,523 $ 25,078 Cash flows information: Year Ended September 30, 1995 1994 1993 (In Thousands) Cash payments for: Interest $ 12,433 $ 14,042 $ 15,515 Income taxes $ 45,294 $ 31,218 $ 24,743 Program rights were acquired by issuing long-term contracts as follows $ 6,000 $ 3,600 $ 4,900 Issuance of restricted common stock, net $ 334 $ 452 $ 669 Change in tax contingency estimates: Reduction in goodwill $ - - $ 7,580 $ 20,632 Reduction in: Deferred income taxes $ - - $ 5,801 $ 9,060 Income taxes payable - - 1,779 11,572 $ - - $ 7,580 $ 20,632 SUPPLEMENTARY DATA QUARTERLY RESULTS (UNAUDITED) 4th 3rd 2nd 1st (In Thousands Except Per Share Data) 1995 Quarter: Operating revenue $114,353 $117,106 $ 98,641 $113,088 Net income 14,082 16,435 11,116 16,826 Earnings per common and common equivalent share $ .29 $ .34 $ .25 $ .37 1994 Quarter: Operating revenue $102,519 $103,022 $ 94,923 $102,087 Net income 13,606 14,367 9,564 13,317 Earnings per common and common equivalent share $ .29 $ .31 $ .20 $ .28 1993 Quarter: Operating revenue $ 94,608 $ 97,043 $ 84,909 $ 96,347 Net income 11,383 11,849 6,501 11,503 Earnings per common and common equivalent share $ .24 $ .25 $ .14 $ .24 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable. PART III The information called for by Part III of this Form 10-K is omitted in accordance with General Instruction G because the Company will file with the Commission a definitive proxy statement pursuant to Regulation 14A not later than 120 days after the close of the Company's fiscal year ended September 30, 1995. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements Independent Auditor's Report and Consent Financial Statements Consolidated balance sheets as of September 30, 1995, 1994 and 1993 Consolidated statements of income years ended September 30, 1995, 1994 and 1993 Consolidated statements of stockholders' equity years ended September 30, 1995, 1994 and 1993 Consolidated statements of cash flows years ended September 30, 1995, 1994 and 1993 Notes to consolidated financial statements (a) 2. Financial statements schedule Schedule XII - Valuation and qualifying accounts years ended September 30, 1995, 1994 and 1993 All other schedules have been omitted as not required, not applicable, not deemed material or because the information is included in the Notes to Financial Statements. (a) 3. Exhibits (listed by numbers corresponding to the Exhibit Table of Item 601 in Regulation S-K). 11 Computation of earnings per share years ended September 30, 1995, 1994 and 1993 21 Subsidiaries 24 Power of Attorney 27 Financial Data Schedule (b) The following report on Form 8-K was filed for the three months ended September 30, 1995: Date of report: September 18, 1995 Item: 5 - Announce completion of transaction to purchase SJL of Kansas Corp. Financial statements filed: none * * * * * For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1991) under the Securities Act of 1933, the undersigned registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into registrant's Registration Statements on Form S-8 Nos. 2-56652 (filed June 17, 1976), 2-58393 (filed March 11, 1977), 2-77121 (filed April 22, 1982), 33-19725 (filed January 20, 1988), and 33-46708 (filed March 31, 1992). Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. INDEPENDENT AUDITOR'S REPORT AND CONSENT To the Stockholders Lee Enterprises, Incorporated and Subsidiaries Davenport, Iowa We have audited the accompanying consolidated balance sheets of Lee Enterprises, Incorporated and subsidiaries as of September 30, 1995, 1994 and 1993 and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lee Enterprises, Incorporated and subsidiaries as of September 30, 1995, 1994 and 1993 and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. In our opinion, schedules included in this Annual Report on Form 10-K for the year ended September 30, 1995, present fairly the information set forth therein, in conformity with generally accepted accounting principles. We consent to the incorporation by reference in the Registration Statements on Form S-8 No. 2-56652, No. 2-77121, No. 2-58393, No. 33-19725, and No. 33-46708 (filed March 31, 1992) and in the related Prospectuses of our report dated October 26, 1995 with respect to the financial statements of Lee Enterprises, Incorporated, incorporated by reference and the schedule included in this Annual Report on Form 10-K for the year ended September 30, 1995 and to the reference to us under the heading "Experts" in such Prospectuses. /s/ McGladrey & Pullen, LLP Davenport, Iowa October 26, 1995, except for Note 2 as to which the date is November 9, 1995 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. Date December 27, 1995 LEE ENTERPRISES, INCORPORATED /s/ Richard D. Gottlieb /s/ Larry L. Bloom Richard D. Gottlieb, President Larry L. Bloom, Chief Executive Officer, and Vice-President of Finance, Director Treasurer and Chief Financial Officer /s/ G. C. Wahlig G. C. Wahlig, Principal Accounting Officer We, the undersigned directors of Lee Enterprises, Incorporated, hereby severally constitute Richard D. Gottlieb and Larry L. Bloom, and each of them, our true and lawful attorneys with full power to them, and each of them, to sign for us and in our names, in the capacities indicated below, the Annual Report on Form 10-K of Lee Enterprises, Incorporated for the fiscal year ended September 30, 1995 to be filed herewith and any amendments to said Annual Report, and generally do all such things in our name and behalf in our capacities as directors to enable Lee Enterprises, Incorporated to comply with the provisions of the Securities Exchange Act of 1934 as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or either of them, to said Annual Report on Form 10-K and any and all amendments thereto. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: Signature Title Date /s/ Lloyd G. Schermer Chairman of the Lloyd G. Schermer Board of Directors November 9, 1995 /s/ J. P. Guerin J. P. Guerin Director November 9, 1995 /s/ Phyllis Sewell Phyllis Sewell Director November 9, 1995 /s/ Mark Vittert Mark Vittert Director November 9, 1995 /s/ Ronald L. Rickman Ronald L. Rickman Director November 9, 1995 /s/ Richard W. Sonnenfeldt Richard W. Sonnenfeldt Director December 16, 1995 /s/ Rance E. Crain Rance E. Crain Director November 9, 1995 /s/ Charles E. Rickershauser, Jr. Charles E. Rickershauser, Jr. Director November 9, 1995 /s/ Andrew E. Newman Andrew E. Newman Director November 9, 1995 LEE ENTERPRISES, INCORPORATED AND WHOLLY-OWNED SUBSIDIARIES SCHEDULE XII - VALUATION AND QUALIFYING ACCOUNTS (In Thousands)
Column A Column B Column C Column D Column E Balance At Additions Charged Deduction Balance Beginning Charged To Other From At Close Description Of Period To Income Accounts Reserves Of Period Allowance for doubtful accounts: For the year ended September 30, 1995 $ 4,100 $ 1,525 $ 408 <2> $ 1,933 $ 4,100 For the year ended September 30, 1994 $ 3,400 $ 2,200 $ - - $ 1,500 $ 4,100 For the year ended September 30, 1993 $ 3,500 $ 1,500 $ - - $ 1,600 $ 3,400 Represents accounts written off as uncollectible, net of recoveries which are immaterial. Balance upon consolidation of Journal-Star Printing Company's 49.75% previously owned and acquisition of 50.25% interest and acquisition of SJL of Kansas, Corp.
EX-11 2 LEE ENTERPRISES, INCORPORATED AND WHOLLY-OWNED SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE Year Ended September 30, 1995 1994 1993 Amounts In Thousands, Except Per Share Data Number of shares of common stock outstanding at beginning of the period 45,520 46,254 46,256 Weighted average number of shares of common stock issued (reacquired) during the period 700 (56) 80 Weighted average number of common stock equivalents 742 652 584 Weighted average number of shares of common stock outstanding during each period 46,962 46,850 46,920 Net income $58,459 $50,854 $41,236 Earnings per share of common stock $ 1.24 $ 1.09 $ .88 EX-21 3 LEE ENTERPRISES, INCORPORATED AND WHOLLY-OWNED SUBSIDIARIES EXHIBIT 21 - WHOLLY-OWNED SUBSIDIARIES AND ASSOCIATED COMPANIES Percentage Of Voting State Of Securities Incorporation Owned Lee Enterprises, Incorporated Delaware Parent Lee Technical Systems, Inc. Iowa 100% Lee Consolidated Holdings Co. South Dakota 100% KOIN-TV, Inc. Delaware 100% NAPP Systems Inc. Iowa 100% New Mexico Broadcasting Company, Inc. New Mexico 100% Accudata, Inc. Iowa 100% Target Marketing Systems, Inc. Iowa 100% Journal-Star Printing Co. Nebraska 100% Madison Newspapers, Inc. Wisconsin 50% SJL of Kansas Corp. Kansas 100% EX-24 4 EXHIBIT 24 POWER OF ATTORNEY 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, 1994 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. Date /s/ Rance E. Crain Rance E. Crain, Director November 9, 1995 /s/ J. P. Guerin J. P. Guerin, Director November 9, 1995 /s/ Andrew E. Newman Andrew E. Newman, Director November 9, 1995 /s/ Charles E. Rickershauser, Jr. Charles E. Rickershauser, Jr., Director November 9, 1995 /s/ Ronald L. Rickman Ronald L. Rickman November 9, 1995 /s/ Lloyd G. Schermer Lloyd G. Schermer, Chairman of the Board and Director November 9, 1995 /s/ Phyllis Sewell Phyllis Sewell, Director November 9, 1995 /s/ Richard W. Sonnenfeldt Richard W. Sonnenfeldt December 16, 1995 /s/ Mark Vittert Mark Vittert, Director November 9, 1995 EX-27 5
5 This schedule contains summary financial information extracted from the September 30, 1995 Form 10-K for Lee Enterprises, Incorporated and is qualified in its entirety by reference to such financial statements. 1,000 YEAR SEP-30-1995 SEP-30-1995 10,883 8,946 62,684 4,100 18,355 104,509 253,463 145,267 559,929 116,527 75,511 94,732 0 0 216,310 559,929 434,911 443,188 0 0 339,756 1,525 11,902 95,234 36,775 58,459 0 0 0 58,459 1.24 1.24
-----END PRIVACY-ENHANCED MESSAGE-----