Item 1. Business
Item 1(a) Recent business developments. On November 4, 1996 the Company signed a letter of intent to sell its graphic arts products subsidiary, NAPP Systems Inc., for approximately $55,000,000. For additional information related to the disposition, see Note 2 of 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:
- - The Wisconsin State Journal - Madison, Wisconsin - - The Lincoln Journal-Star - Lincoln, Nebraska - - Quad-City Times - Davenport, Iowa - - Billings Gazette - Billings, Montana - - Herald and Review - Decatur, Illinois - - The Journal Times - Racine, Wisconsin - - LaCrosse Tribune - LaCrosse, Wisconsin - - Rapid City Journal - Rapid City, South Dakota - - Missoulian - Missoula, Montana - - Bismarck Tribune - Bismarck, North Dakota - - Southern Illinoisan - Carbondale, Illinois - - Globe-Gazette - Mason City, Iowa - - Ottumwa Courier - Ottumwa, Iowa - - The Montana Standard - Butte, Montana - - Independent Record - Helena, Montana - - Gazette Times - Corvallis, Oregon - - Winona Daily News - Winona, Minnesota - - Muscatine Journal - Muscatine, Iowa - - Star Courier - Kewanee, Illinois
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 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, magazines, radio, television, other advertising media such as billboards, 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 69 (2) KMTV - Omaha, Nebraska 75 NBC Affiliates: WSAZ-TV - Huntington-Charleston, West Virginia 56 KSNW-TV - Wichita, Kansas 65 (3) KSNT-TV - Topeka, Kansas 141 UPN Affiliate, KZIA-TV - El Paso, Texas 99 UPN/WB Affiliate, KASY-TV - Albuquerque, New Mexico (operating under local marketing agreement) 48
(1) Combined DMA rank. KRQE-TV also operates satellite stations KBIM-TV, Roswell, New Mexico and KREZ-TV, Durango, Colorado.
(2) KGMB-TV also operates satellite stations KGMD-TV, Hilo, Hawaii and KGMV-TV, Maui, Hawaii.
(3) 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, 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
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 1996, the Company, its subsidiaries and associated companies had approximately 5,300 employees, including approximately 1,700 part-time employees.
Item 2.
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.
Item 3.
Item 3. Legal Proceedings
Not applicable.
Item 4.
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.
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.
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.
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 two years prior thereto he was publisher of the Globe-Gazette in Mason City, Iowa.
PART II
Item 5.
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.
Quarter ---------------------------------------------------------- 4th 3rd 2nd 1st ---------------------------------------------------------- STOCK PRICES
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
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
DIVIDENDS PAID
1996 $ 0.12 $ 0.12 $ 0.12 $ 0.12 1995 0.11 0.11 0.11 0.11 1994 0.105 0.105 0.105 0.105
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, 1996, the Company had 4,313 holders of Common Stock and 2,590 holders of Class B Common Stock.
Item 6.
Item 6. Selected Financial Data
FIVE YEAR FINANCIAL PERFORMANCE
Item 7.
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:
1996 1995 1994 ---------------------------- (In Thousands)
Operating revenue ....................... $427,369 $383,740 $341,241 Percent change ....................... 11.4% 12.5% 8.5% Operating income ........................ 94,741 91,405 84,287 Percent change ....................... 3.6% 8.4% 16.5% Income from continuing operations ....... 53,670 52,232 45,137 Percent change ....................... 2.8% 15.7% 22.2% Earnings per share, continuing operations 1.12 1.11 0.97 Percent change ....................... 0.9% 14.4% 22.8%
A weak advertising environment early in the fiscal year, the cyclical effects of political advertising on our broadcast segment, and high newsprint prices which did not moderate until the second half of the fiscal year, impacted the level of growth in operating income in 1996.
On November 4, 1996 the Company entered into atentative agreement to sell NAPP Systems Inc. for approximately $55,000,000. The operations of NAPP and the related $15,948,000 loss from disposition are included in the Company's consolidated financial statements as discontinued operations.
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 covering all of western Kansas and parts of southwest Nebraska. The following unaudited proforma operating results are as if the 1995 acquisitions had occurred on October 1, 1993.
1996 1995 1994 ---------------------------- (Proforma in Thousands)
Operating revenue ....................... $427,369 $412,600 $383,608 Percent change ....................... 3.6% 7.6% Operating income ........................ 94,741 96,302 91,028 Percent change ....................... (1.6)% 5.8% Income from continuing operations ....... 53,670 52,004 46,931 Percent change ....................... 3.2% 10.8% Earnings per share, continuing operations 1.12 1.07 0.93 Percent change ....................... 4.7% 15.1%
NEWSPAPERS
1996 1995 1994 ---------------------------- (In Thousands)
Operating revenue ....................... $302,564 $274,877 $241,079 Percent change ....................... 10.1% 14.0% 7.9% Operating income: Wholly-owned properties .............. 75,687 68,366 65,881 Percent change .................... 10.7% 3.8% 12.7% Equity in net income ................. 7,008 8,277 10,162 Percent change .................... (15.3) (18.5)% 6.4% Operating margin, wholly-owned properties 25.0% 24.9% 27.3%
The newspaper segment includes daily and weekly newspapers and specialty publications. Operating revenue consists of the following:
1996 1995 1994 ---------------------------------- (In Thousands)
Daily newspapers: Advertising ............... $169,151 $153,325 $134,322 Percent change ......... 10.3% 14.1% 5.9% Circulation ............... 79,814 72,863 66,302 Percent change ......... 9.5% 9.9% 4.8% Other ........................ 53,599 48,689 40,455 Percent change ............ 10.1% 20.4% 21.8%
Exclusive of the JSPC acquisition, 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 newspaper advertising lineage, circulation volume statistics, and related revenue results are presented on a proforma basis for newspapers wholly-owned at the end of fiscal 1996.
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 (PROFORMA):
1996 1995 1994 ----------------------------------------
Classified ..................... 3,650 3,674 3,586 Percent change .............. (0.7)% 2.5% 8.2% Local .......................... 5,312 5,422 5,481 Percent change .............. (2.0)% (1.1)% (0.9)%
Classified advertising revenue increased approximately 6.6% in 1996, 9.1% in 1995 and 13.3% in 1994. The average rate realized increased 7.3% in 1996, 6.5% in 1995 and 4.7% in 1994. In 1996 automobile 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 3.2%, 2.2%, and 3.3% in 1996, 1995, and 1994, 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 was flat in 1996 due to cutbacks by advertisers during the 1995 holiday season, increased $1,839,000 (5.4%) in 1995, and $1,774,000 (5.5%) in 1994 primarily as a result of increases in volume.
In 1996, 1995, and 1994 circulation revenue increased 3.7%, 3.8%, and 4.8%, respectively, as a result of higher rates which offset 2.3%, .9%, and .6% decreases in volume. Approximately one half of the volume decrease in 1996 results from a decrease in circulation following the merger of two newspapers in Lincoln, Nebraska.
Other revenue consists of revenue from products delivered outside the newspaper (which include activities such as target marketing and special event production), specialty publications, commercial printing 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:
1996 1995 1994 ---------------------------- (In Thousands) Products delivered outside the newspaper: Properties owned for entire period ...... $ 6,896 $ 6,389 $ 4,514 Acquired since September 30, 1993 ....... 1,022 229 - - Specialty publications: Properties owned for entire period ...... 15,873 15,732 15,233 Acquired since September 30, 1993 ....... 6,362 5,333 2,151 Commercial printing: Properties owned for entire period ...... 14,199 11,799 10,178 Acquired since September 30, 1993 ....... 1,680 781 - - Editorial service contracts ................ 7,567 8,426 8,379 ---------------------------- $53,599 $48,689 $40,455 ============================
The following table sets forth the percentage of revenue of certain items in the newspaper segment.
1996 1995 1994 ------------------------
Revenue ........................................... 100.0% 100.0% 100.0% ------------------------
Compensation costs ................................ 33.8 34.4 34.9 Newsprint and ink ................................. 12.7 11.6 9.0 Other operating expenses .......................... 23.6 24.5 24.4 ------------------------ 70.1 70.5 68.3 ------------------------
Income before depreciation, amortization, interest and taxes ...................................... 29.9 29.5 31.7 Depreciation and amortization ..................... 4.9 4.6 4.4 ------------------------ Operating margin wholly-owned properties .......... 25.0% 24.9% 27.3% ========================
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.
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.
BROADCASTING
1996 1995 1994 ------------------------------ (Dollars in Thousands)
Operating revenue ............. $117,797 $100,586 $ 90,000 Percent change ............. 17.1% 11.8% 10.7% Operating income .............. 22,953 26,934 21,494 Percent change ............. (14.8)% 25.3% 28.6% Operating margin .............. 19.5% 26.8% 23.9%
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 and operating income increased 10.1% and 26.7%, respectively in 1995. Local/regional/national revenue increased $4,600,000, 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/national revenue increased $9,000,000. Included in these increases are the effects of the Winter Olympics on our four CBS affiliates and their satellite stations.
The following table sets forth the percentage of revenue of certain items in the broadcasting segment.
1996 1995 1994 ------------------------
Revenue .......................................... 100.0% 100.0% 100.0% ------------------------
Compensation costs ............................... 39.5 37.1 38.9 Programming costs ................................ 7.9 6.2 7.4 Other operating expenses ......................... 22.6 21.8 21.4 ------------------------ 70.0 65.1 67.7 ------------------------
Income before depreciation, amortization, interest and taxes ...................................... 30.0 34.9 32.3 Depreciation and amortization .................... 10.5 8.1 8.4 ------------------------ Operating margin wholly-owned properties ......... 19.5% 26.8% 23.9% ========================
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 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.
CORPORATE COSTS
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. In 1994 costs related to the performance unit awards, unfavorable medical plan experience and increased incentive compensation increased corporate costs by $1,600,000, (13.3%).
Corporate costs in 1997 are expected to increase by approximately $3,000,000 as a result of increased marketing costs and the enhancement of computer software. Incentive compensation varies based upon operating results.
INTEREST EXPENSE
Interest expense decreased by approximately $2,300,000 in 1996 and $1,700,000 in 1995 and 1994. The most significant element of the decrease was a lower debt level which reduced interest expense by approximately $2,400,000, $2,000,000 and $1,700,000, respectively. 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 38.8% of pretax income in 1996, 37.2% in 1995, and 39.0% in 1994. 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 effective tax rate for 1997 is expected to be approximately 39%.
DISCONTINUED OPERATIONS
On November 4, 1996 the Company signed a letter of intent to sell its graphic arts products subsidiary, NAPP Systems Inc., for approximately $55,000,000. For additional information related to the disposition, see Note 2 of the Notes to Financial Statements under Item 8, herein.
LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS
Cash provided by operations is the Company's primary source of liquidity, generating $87,543,000 in 1996. The major sources and uses of cash in 1996 were as follows:
(In Thousands)
Sources of cash: Operations ................................................... $87,543 All other .................................................... 566 ------- 88,109 -------
Uses of cash: Purchase of property and equipment ........................... 18,796 Cash dividends paid .......................................... 22,603 Purchase of Lee Enterprises, Incorporated stock .............. 11,917 Payment of debt .............................................. 26,209 ------- 79,525 ------- Increase in cash .................................. $ 8,584 =======
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 $18,500,000 in 1997. The Company anticipates that funds necessary for capital expenditures and other requirements will be available from internally generated funds.
DIVIDENDS AND COMMON STOCK PRICES
The current quarterly cash dividend is 13 cents per share, an annual rate of 52 cents.
During the fiscal year ended September 30, 1996, the Company paid dividends of $22,603,000 or 42.1% of year'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 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.
EMERGING ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement No. 123 "Accounting for Stock-Based Compensation" (Statement No. 123). Statement No. 123 establishes a fair value based method of accounting for stock options and other equity instruments. Statement No. 123 permits the continued use of the current intrinsic value method prescribed in Accounting Principle Board Opinion 25, "Accounting for Stock Issued to Employees" (APB 25), but requires employers to disclose proforma fair value information in the notes to the financial statements. The Company plans to continue to measure compensation cost using APB 25; therefore, the adoption of Statement No. 123 will not have any impact on the Company's financial condition or results of operations. This statement is effective for the Company's year ending September 30, 1997.
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
Item 8. Financial Statements and Supplementary Data
FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
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: newspaper publishing and broadcasting. As of September 30, 1996, operating divisions and associated companies publish 19 daily newspapers 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.
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, 1996, 1995 and 1994 were less than replacement cost by $5,087,000, $4,896,000 and $2,985,000, 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 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
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 a 10 to 15 year period. 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 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.
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 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. Discontinued Operations
On November 4, 1996 the Company signed a letter of intent to sell its graphic arts products subsidiary, NAPP Systems Inc. for approximately $55,000,000. It is anticipated that the closing will occur by January 17, 1997. 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.
Upon the signing of the letter of intent, the Company recorded an after tax charge of $15,948,000 which includes estimated earnings and dividends through the anticipated closing date.
Summary operating results of discontinued operations are as follows:
1996 1995 1994 ----------------------------- (In Thousands) Sales ....................................... $65,552 $59,448 $61,310 Costs and expenses .......................... 51,040 47,421 50,120 ----------------------------- Income before income taxes .................. 14,512 12,027 11,190 Provision for income taxes .................. 6,787 5,800 5,473 ----------------------------- Income, net of tax ............ 7,725 6,227 5,717 ----------------------------- (Loss) on disposition before income taxes ... (14,563) - - - - Provision for income taxes .................. 1,385 - - - - ----------------------------- (Loss) on disposition ......... (15,948) - - - - ----------------------------- Income (loss) from discontinued operations .................... $(8,223) $ 6,227 $ 5,717 =============================
Net assets of discontinued operations as of September 30, 1996 are as follows:
Accounts receivable, net ........................... $9720 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 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 are 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 ............................ $412,600 $383,608 Income from continuing operations ............ 52,004 46,931 Earnings per share, continuing operations .... 1.07 0.93
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 specialty publications and a satellite television station in 1995 and two specialty publications in 1994.
The purchase price of business acquisitions was allocated as follows:
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, Quality Information Systems, a direct marketing venture, and INN Partnership, LC, 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:
Receivables from associated companies consist of dividends. Certain information relating to Company investments in these associated companies is as follows:
1996 1995 1994 -------------------------------- (In Thousands) Share of: Stockholders' equity ............ $ 10,915 $ 10,164 $ 21,265 Undistributed earnings .......... 10,574 9,946 19,508
Note 5. DEBT
The Company has long-term obligations, net of current maturities, as follows:
At September 30, 1996 the Company had $15,000,000 of borrowings under an unsecured line-of-credit agreement with a bank which terminates in July 1998. Interest rates float at rates specified in the agreement.
Aggregate maturities during the next four years are $43,213,000, $26,939,000, $25,337,000, and $14,000. 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 $11,200,000 in 1996, $9,200,000 in 1995, and $10,200,000 in 1994.
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.
Note 8. Stock Option, Restricted Stock and Stock Purchase Plans
Stock option and restricted stock plans:
The Company has reserved 6,893,000 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. Other pertinent information related to the stock option plans is as follows:
Number of Shares -------------------------------- 1996 1995 1994 -------------------------------- (In Thousands)
Under option, beginning of year ......... 2,220 2,406 2,556 Granted .............................. 241 192 198 Terminated and canceled .............. (3) (10) (34) Exercised ............................ (179) (368) (314) ------------------------------- Under option, end of year ............... 2,279 2,220 2,406 ===============================
Options exercisable, end of year ........ 1,861 1,778 1,856 ===============================
Average Price -------------------------------- 1996 1995 1994 --------------------------------
Granted during the year $19.96 $16.66 $16.03 Exercised during the year 12.64 11.45 12.37 Under option, end of year 14.52 13.79 13.20
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, 1996, 130,000 shares of restricted stock were outstanding.
At September 30, 1996, 4,614,000 shares were available for granting of stock options or issuance of restricted stock.
Stock purchase plan:
The Company has 1,494,000 additional shares of common stock available for issuance pursuant to a non-officer employee stock purchase plan. April 30, 1997 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 1996, 1995 and 1994 employees purchased 124,000, 109,000, and 120,000 shares, respectively, at a per share price of $15.26 in 1996, $14.90 in 1995 and $12.49 in 1994.
Note 9. INCOME TAX MATTERS
Components of income tax expense consist of the following:
Year Ended September 30, ------------------------- 1996 1995 1994 ------------------------- (In Thousands) Paid or payable on currently taxable income: Federal .......................................... $32,965 $29,031 $27,846 State ............................................ 6,541 5,948 5,535 Net increase due to deferred income taxes ........... 2,698 1,796 650 ------------------------- $42,204 $ 36,775 $ 34,031 =========================
The total tax provision has been allocated to the following financial statement items: Year Ended September 30, ------------------------- 1996 1995 1994 ------------------------- (In Thousands)
Income from continuing operations ................. $34,032 $30,975 $28,558 Discontinued operations: Income from discontinued operations ............ 6,787 5,800 5,473 Disposition of discontinued operations ......... 1,385 - - - - ------------------------- $42,204 $36,775 $34,031 =========================
Income tax expense for the years ended September 30, 1996, 1995, and 1994 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 ----------------------- 1996 1995 1994 -----------------------
Computed "expected" income tax expense .............. 35.0% 35.0% 35.0% State income taxes, net of federal tax benefit ...... 4.4 4.4 4.2 Net income of associated companies taxed at dividend rates ............................................ (2.5) (3.1) (4.3) Goodwill amortization ............................... 2.0 1.7 1.8 Other ............................................... (0.1) (0.8) 2.1 ----------------------- 38.8% 37.2% 38.8% =======================
Foreign taxes are not material.
Net deferred tax liabilities consist of the following components as of September 30, 1996, 1995 and 1994:
The components giving rise to the net deferred tax liabilities described above have been included in the accompanying balance sheets as of September 30, 1996, 1995, and 1994 as follows:
1996 1995 1994 ----------------------------- (In Thousands)
Current assets .................................. $ 5,925 $ 5,923 $ 6,419 Noncurrent liabilities .......................... (40,784) (45,217) (21,379) ---------------------------- $(34,859) $(39,294) $(14,960) ============================
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, 1996 the SJL net operating loss carryforward was approximately $23,000,000 and will expire in varying amounts from 1999 to 2010. 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 had previously established by $1,703,000 with a corresponding reduction in goodwill. The Company changed its estimate of the tax basis of acquired intangibles and reduced goodwill by $5,877,000 during the year ended September 30, 1994.
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: $6,386,000 of debt and equity securities in a deferred compensation trust are carried at fair value based upon quoted market prices and $4,282,000 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: 1996 $ 95,503 $ 97,672 1995 123,489 127,723 1994 130,532 134,130
Note 11. LINE OF BUSINESS INFORMATION
Year Ended September 30, ----------------------------- 1996 1995 1994 ----------------------------- (In Thousands) Depreciation: Newspapers ................................. $ 8,063 $ 7,041 $ 5,645 Broadcasting ............................... 7,309 4,388 3,917 Corporate .................................. 864 536 504 ---------------------------- Total depreciation .............. $ 16,236 $ 11,965 $ 10,066 ============================
Amortization of intangibles: Newspapers ................................. $ 6,505 $ 5,746 $ 5,177 Broadcasting ............................... 5,058 3,755 3,661 ---------------------------- Total amortization of intangibles $ 11,563 $ 9,501 $ 8,838 ============================
Capital expenditures: Newspapers ................................. $ 11,018 $ 9,875 $ 12,993 Broadcasting ............................... 6,948 7,141 4,298 Graphic arts (discontinued operations) ..... 290 63 170 Corporate .................................. 540 356 150 ---------------------------- Total capital expenditures ...... $ 18,796 $ 17,435 $ 17,611 ============================
Note 12. OTHER INFORMATION
Balance sheet information:
Inventories consist of the following:
September 30, ------------------------- 1996 1995 1994 ------------------------- (In Thousands)
Newsprint .......................................... $ 3,668 $ 3,634 $ 2,343 Graphic arts products: Raw material .................................... - - 7,554 5,684 Finished goods .................................. - - 7,167 5,120 ------------------------- $ 3,668 $18,355 $13,147 =========================
Program rights and other consist of the following:
September 30, ------------------------- 1996 1995 1994 ------------------------- (In Thousands)
Program rights ..................................... $ 6,577 $ 6,793 $ 6,278 Deferred income taxes .............................. 5,925 5,923 6,419 Other .............................................. 4,681 3,971 3,881 ------------------------ $17,183 $16,687 $16,578 =========================
Intangibles consist of the following:
September 30, ---------------------------- 1996 1995 1994 ---------------------------- (In Thousands)
Goodwill ......................................... $194,746 $268,945 $206,525 Less, accumulated amortization ................... 50,240 64,185 56,631 ---------------------------- 144,506 204,760 149,894 ----------------------------
Covenants and consulting agreements .............. 25,739 25,739 25,315 Less, accumulated amortization ................... 18,859 15,811 13,543 ---------------------------- 6,880 9,928 11,772 ----------------------------
Customer lists, broadcasting licenses and agreements and newspaper subscriber lists ..... 116,472 124,472 79,432 Less, accumulated amortization ................... 21,797 18,146 15,465 ---------------------------- 94,675 106,326 63,967 ---------------------------- $246,061 $321,014 $225,633 ============================
Compensation and other accruals consist of the following:
September 30, ------------------------- 1996 1995 1994 ------------------------- (In Thousands)
Compensation ....................................... $ 8,156 $10,355 $ 9,684 Deferred compensation, current portion ............. 96 1,394 1,567 Vacation pay ....................................... 3,946 4,824 3,892 Retirement and stock purchase plans ................ 2,930 2,941 2,769 Interest ........................................... 1,429 1,834 2,365 Other .............................................. 3,862 7,083 6,246 ------------------------- $20,419 $28,431 $26,523 =========================
Cash flows information:
Year Ended September 30, ------------------------- 1996 1995 1994 ------------------------- (In Thousands)
Cash payments for: Interest ........................................ $10,052 $12,433 $14,042 =========================
Income taxes .................................... $41,021 $45,294 $31,218 =========================
Program rights were acquired by issuing long-term contracts as follows .................. $ 7,700 $ 6,000 $ 3,600 =========================
Issuance of restricted common stock, net ........... $ 590 $ 334 $ 452 ========================= Change in tax contingency estimates: Reduction in goodwill ........................... $ 3,363 $ - - $ 7,580 =========================
Reduction in: Deferred income taxes ........................ $ 3,363 $ - - $ 5,801 Income taxes payable ......................... - - - - 1,779 ------------------------- $ 3,363 $ - - $ 7,580 =========================
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 $ - - $ - - =========================
SUPPLEMENTARY DATA QUARTERLY RESULTS (UNAUDITED)
Item 9.
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, 1996.
PART IV
Item 14.
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, 1996, 1995 and 1994 Consolidated statements of income years ended September 30, 1996, 1995 and 1994 Consolidated statements of stockholders' equity years ended September 30, 1996, 1995 and 1994 Consolidated statements of cash flows years ended September 30, 1996, 1995 and 1994 Notes to consolidated financial statements
(a) 2. Financial statements schedule
Schedule
XII - Valuation and qualifying accounts years ended September 30, 1996, 1995 and 1994
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, 1996, 1995 and 1994 21 Subsidiaries 24 Power of Attorney 27 Financial Data Schedule
(b) No reports on Form 8-K were filed for the three months ended September 30, 1996:
* * * * *
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), 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, 1996, 1995 and 1994 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, 1996, 1995 and 1994 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, 1996, 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 4, 1996 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, 1996 and to the reference to us under the heading "Experts" in such Prospectuses.
/s/ McGladrey & Pullen, LLP
Davenport, Iowa November 4, 1996
LEE ENTERPRISES, INCORPORATED AND WHOLLY-OWNED SUBSIDIARIES
SCHEDULE XII - VALUATION AND QUALIFYING ACCOUNTS (In Thousands)
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, 1996 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, 1996 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 13, 1996
/s/ J. P. Guerin J. P. Guerin Director November 13, 1996
/s/ Phyllis Sewell Phyllis Sewell Director November 13, 1996
/s/ Mark Vittert Mark Vittert Director November 13, 1996
/s/ Ronald L. Rickman Ronald L. Rickman Director November 13, 1996
/s/ Richard W. Sonnenfeldt Richard W. Sonnenfeldt Director November 13, 1996
/s/ Rance E. Crain Rance E. Crain Director November 13, 1996
/s/ Charles E. Rickershauser, Jr. Charles E. Rickershauser, Jr. Director November 13, 1996
/s/ Andrew E. Newman Andrew E. Newman Director November 13, 1996