UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
[ Xx ]   Quarterly Report Under Section 13 or 15(d) of the Securities
        Exchange Act of 1934

        For Quarter Ended DecemberMarch 31, 19992000
                                       OR
[   ]   Transition Report Pursuant to Section 13 or 15(d) of the
        Securities Exchange Act of 1934

                          Commission File Number 1-6227

                          Lee Enterprises, Incorporated


A Delaware Corporation                                          I.D. #42-0823980
215 N. Main Street, Davenport, Iowa  52801
Phone:  (319) 383-2100

Indicate  by a check  mark  whether  the  registrant  (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [ Xx ] No [ ]

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practical date.

                Class                              Outstanding At Decemberat March 31, 19992000
- -----------------------------------------------------------------------------------------------------------------------            -----------------------------

Common Stock,stock, $2.00 par value                                33,256,79033,298,232
Class "B" Common Stock, $2.00 par value                      10,938,18210,845,006



                          PART I. FINANCIAL INFORMATION
ItemItem. 1.
                          LEE ENTERPRISES, INCORPORATED

                        Consolidated Statements of IncomeCONSOLIDATED STATEMENTS OF INCOME
                      (In Thousands Except Per Share Data)
1999        1998
- --------------------------------------------------------------------------------
Three Months Ended December 31: ..................         (Unaudited)
   Operating revenue:
      Publishing:
        Advertising ..............................       $ 70,133    $ 69,375
        Circulation ..............................         20,212      20,965
        Other ....................................         16,052      13,955
      Broadcasting ...............................         33,998      35,590
      Equity in net income of associated companies          2,261       2,242
                                                         --------------------
                                                          142,656     142,127
                                                         --------------------

   Operating expenses:
      Compensation costs .........................         52,855      51,303
      Newsprint and ink ..........................          9,013      10,828
      Depreciation ...............................          5,467       5,085
      Amortization of intangibles ................          4,724       4,403
      Other ......................................         37,169      35,708
                                                         --------------------
                                                          109,228     107,327
                                                         --------------------

              Operating income ...................         33,428      34,800
                                                         --------------------

   Nonoperating (income) expense, net
      Financial (income) .........................         (1,054)     (1,216)
      Financial expense ..........................          3,385       4,266
      Gain on sale of properties .................        (18,249)        - -
                                                         --------------------
                                                          (15,918)      3,050
                                                         --------------------

              Income before taxes on income ......         49,346      31,750
   Income taxes ..................................         18,802      12,111
                                                         --------------------
              Net income .........................       $ 30,544    $ 19,639
                                                         ====================

   Average outstanding shares:
      Basic ......................................         44,165      44,268
                                                         ====================
      Diluted ....................................         44,630      44,843
                                                         ====================

   Earnings per share:
      Basic ......................................       $   0.69    $   0.44
                                                         ====================
      Diluted ....................................       $   0.68    $   0.44
                                                         ====================

   Dividends per share ...........................       $   0.16    $   0.15
                                                         ====================
                                                    Three Months Ended      Six Months Ended
                                                         March 31,              March 31,
                                                   --------------------------------------------
                                                      2000       1999        2000       1999
                                                   --------------------------------------------
                                                                   (Unaudited)

Operating revenue:
   Advertising .................................   $ 62,040    $ 59,812    $132,173    $129,187
   Circulation .................................     19,972      20,661      40,184      41,626
   Other .......................................     17,003      14,315      33,055      28,270
   Equity in net income of associated companies       1,958       1,736       4,248       3,978
                                                   --------------------------------------------
                                                    100,973      96,524     209,660     203,061
                                                   --------------------------------------------
Operating expenses:
   Compensation costs ..........................     38,328      36,103      78,009      74,187
   Newsprint and ink ...........................      8,997       9,107      18,010      19,935
   Depreciation ................................      3,577       3,370       7,053       6,712
   Amortization of intangibles .................      3,734       3,464       7,470       6,889
   Other .......................................     25,307      24,173      51,731      50,038
                                                   --------------------------------------------
                                                     79,943      76,217     162,273     157,761
                                                   --------------------------------------------

          Operating income .....................     21,030      20,307      47,387      45,300
                                                   --------------------------------------------
Nonoperating (income) expenses, net
   Financial (income) ..........................       (609)       (235)     (1,663)     (1,451)
   Financial expense ...........................      2,758       2,986       6,143       7,252
   Other, primarily (gain) on sale of properties        218         - -     (18,031)        - -
                                                   --------------------------------------------
                                                      2,367       2,751     (13,551)      5,801
                                                   --------------------------------------------

          Income  from continuing operations
          before taxes on income ...............     18,663      17,556      60,938      39,499
Income taxes ...................................      6,926       6,549      22,805      14,670
                                                   --------------------------------------------
          Income from continuing operations ....     11,737      11,007      38,133      24,829
                                                   --------------------------------------------
Discontinued operations:
   Income from discontinued operations,
      net of income tax effect .................        590         961       4,738       6,778
   Gain on disposal of operations, net of
      income tax effect ........................      1,274         - -       1,274         - -
                                                   --------------------------------------------
                                                      1,864         961       6,012       6,778
                                                   --------------------------------------------
          Net income ...........................   $ 13,601    $ 11,968    $ 44,145    $ 31,607
                                                   ============================================

Average outstanding shares:
   Basic .......................................     44,098      44,246      44,132      44,257
   Diluted .....................................     44,423      44,859      44,527      44,851

Earnings per share:
   Basic:
      Income from continuing operations ........  $    0.27    $   0.25    $   0.86    $   0.56
      Income from discontinued operations ......       0.04        0.02        0.14        0.15
                                                  ---------------------------------------------
        Net income .............................  $    0.31    $   0.27    $   1.00    $   0.71
                                                  =============================================

   Diluted:
      Income from continuing operations ........  $    0.27    $   0.25    $   0.85    $   0.55
      Income from discontinued operations ......       0.04        0.02        0.14        0.15
                                                  ---------------------------------------------
        Net income .............................  $    0.31    $   0.27    $   0.99    $   0.70
                                                  =============================================

Dividends per share ............................  $    0.16    $   0.15    $   0.32    $   0.30
                                                  =============================================
LEE ENTERPRISES, INCORPORATED Condensed Consolidated Balance SheetsCONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) December 31, September 30, ASSETS 1999 1999 - -------------------------------------------------------------------------------- (Unaudited) Cash and cash equivalents ........................ $ 34,139 $ 10,536 Accounts receivable, net ......................... 72,733 68,560 Newsprint inventory .............................. 3,488 3,625 Program rights and other ......................... 15,059 19,822 ---------------------- Total current assets ............... 125,419 102,543 Investments ...................................... 32,848 32,145 Property and equipment, net ...................... 143,696 139,203 Intangibles and other assets ..................... 408,738 405,622 ---------------------- $ 710,701 $ 679,513 ====================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------- Current liabilities .............................. $ 87,577 $ 79,448 Long-term debt, less current maturities .......... 186,154 187,005 Deferred items ................................... 62,596 58,731 Stockholders' equity ............................. 374,374 354,329 ---------------------- $ 710,701 $ 679,513 ====================== March 31, September 30, ASSETS 2000 1999 - --------------------------------------------------------------------------------------------------------------- (Unaudited) Cash and cash equivalents ............................................................ $ 38,836 $ 10,536 Accounts receivable, net ............................................................. 37,979 68,560 Newsprint inventory .................................................................. 2,383 3,625 Other ................................................................................ 8,856 19,822 Net assets of discontinued operations ................................................ 170,179 - - -------------------- Total current assets ....................................................... 258,233 102,543 Investments .......................................................................... 33,183 32,145 Property and equipment, net .......................................................... 118,299 139,203 Intangibles and other assets ......................................................... 283,208 405,622 -------------------- $692,923 $679,513 ==================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities .................................................................. $ 65,920 $ 79,448 Long-term debt, less current maturities .............................................. 185,000 187,005 Deferred items ....................................................................... 62,799 58,731 Stockholders' equity ................................................................. 379,204 354,329 -------------------- $692,923 $679,513 ====================
LEE ENTERPRISES, INCORPORATED Condensed Consolidated Statements of Cash FlowsCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) Three Months Ended December 31: 1999 1998 - -------------------------------------------------------------------------------- (Unaudited) Cash Provided by Operations: Net income ..................................... $ 30,544 $ 19,639 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization ............... 10,191 9,488 Gain on sale of properties .................. (18,249) - - Distributions in excess of current earnings of associated companies ................... 1,786 1,758 Other balance sheet changes ................. 12,750 2,975 ---------------------- Net cash provided by operations ..... 37,022 33,860 ---------------------- Cash (Required for) Investing Activities: Purchase of property and equipment ............. (8,981) (8,870) Acquisitions ................................... (3,329) - - Proceeds from sale of assets ................... 8,585 - - Other .......................................... (33) (42) ---------------------- Net cash (required for) investing activities .................. (3,758) (8,912) ---------------------- Cash (Required for) Financing Activities: Purchase of Lee Common Stock ................... (3,922) (2,126) Payments on short-term notes payable, net ...... (6,000) - - Other .......................................... 261 125 ---------------------- Net cash (required for) financing activities .................. (9,661) (2,001) ---------------------- Net increase in cash and cash equivalents ................. 23,603 22,947 Cash and cash equivalents: Beginning ....................................... 10,536 16,941 ---------------------- Ending .......................................... $ 34,139 $ 39,888 ====================== 2000 1999 - ---------------------------------------------------------------------------------------- (Unaudited) Six Months Ended March 31: Cash Provided by Operating Activities: Net income .................................................. $ 44,145 $ 31,607 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization ............................. 20,537 19,150 Gain on sale of properties ................................ (18,439) - - Distributions in excess of earnings of associated companies 1,184 1,650 Other balance sheet changes ............................... 17,536 (1,151) ------------------- Net cash provided by operating activities ............... 64,963 51,256 ------------------- Cash (Required for) Investing Activities: Purchase of property and equipment .......................... (18,359) (16,301) Acquisitions ................................................ (8,075) (2,147) Proceeds from sale of assets ................................ 8,775 - - Other ....................................................... (42) (127) ------------------- Net cash (required for) investing activities ............ (17,701) (18,575) ------------------- Cash Provided by (Required for) Financing Activities: Purchase of common stock .................................... (6,214) (2,265) Cash dividends paid ......................................... (7,071) (6,654) Principal payments on long-term debt ........................ - - (25,000) Principal payments on short-term notes payable, net ......... (6,000) - - Other ....................................................... 323 156 ------------------- Net cash (required for) financing activities ............ (18,962) (33,763) ------------------- Net increase (decrease) in cash and cash equivalents .... 28,300 (1,082) Cash and cash equivalents: Beginning ................................................... 10,536 16,941 ------------------- Ending ...................................................... $ 38,836 $ 15,859 ===================
LEE ENTERPRISES, INCORPORATED Notes to Unaudited Condensed Consolidated Financial InformationNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION - -------------------------------------------------------------------------------- Note 1. Basis of Presentation The information furnished reflects all adjustments, consisting of normal recurring accruals, which are, in the opinion of management, necessary to a fair presentation of the financial position as of DecemberMarch 31, 19992000 and the results of operations for the three- and six-month periods ended March 31, 2000 and 1999 and cash flows for the three monthssix-month periods ended DecemberMarch 31, 19992000 and 1998.1999. Note 2. Investment in Associated Companies Condensed operating results of Madison Newspapers, Inc. (50% owned) and other unconsolidated associated companies are as follows:follows (dollars in thousands): Three Six Months Ended DecemberMonths Ended March 31, ------------------------March 31, ---------------- ---------------- 2000 1999 1998 ------------------------ (In Thousands) (Unaudited)2000 1999 ---------------- ---------------- Revenues ......................................... $ 24,428 $ 23,591................................... $23,825 $21,660 $48,097 $45,250 Operating expenses, except depreciation and amortization ........................... 16,502 15,627........... 17,213 15,487 33,503 31,114 Income before depreciation and amortization, interest, and taxes .................... 7,926 7,964..................... 6,612 6,173 14,594 14,136 Depreciation and amortization .................... 722 793.............. 720 756 1,441 1,549 Operating income ................................. 7,204 7,171........................... 5,892 5,417 13,153 12,587 Financial income ................................. 397 323........................... 638 363 1,035 686 Income before income taxes ....................... 7,601 7,494................. 6,530 5,780 14,188 13,273 Income taxes ..................................... 3,080 3,032............................... 2,613 2,285 5,692 5,316 Net income ....................................... 4,521 4,462................................. 3,917 3,495 8,496 7,957 Note 3. Cash Flows Information The components of other balance sheet changes are: ThreeSix Months Ended DecemberMarch 31, ----------------------------------------- 2000 1999 1998 ----------------------------------------- (In Thousands) (Unaudited) (Increase)Decrease in receivables ......................................................... $ (6,211)5,104 $ (7,960)244 Decrease in inventories film rights and other .... 1,907 1,746...................... 2,201 1,347 (Decrease) in accounts payable, accrued expenses and unearned income .......................... (3,043) (1,798)..................................... (911) (3,556) Increase in income taxes payable .................. 13,552 10,800....................... 2,594 163 Other, ............................................. 6,545 187 --------------------- $ 12,750 $ 2,975 =====================primarily deferred items ........................ 8,548 651 ----------------- $17,536 $(1,151) ================= Note 4. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share amounts): Three Months Ended December 31, ------------------------ 1999 1998 ------------------------ (Unaudited) (In Thousands) Numerator, income applicable to common shares, net income ............................ $ 30,544 $ 19,639 ======================== Denominator: Basic, weighted average common shares outstanding ................................ 44,165 44,268 Dilutive effect of employee stock options ..... 465 575 ------------------------ Diluted outstanding shares ......... 44,630 44,843 ======================== Earnings per share: Basic ......................................... $ 0.69 $ 0.44 Diluted ....................................... 0.68 0.44 Three Months Six Months Ended March 31, Ended March 31, ------------------- ------------------- 2000 1999 2000 1999 ------------------- ------------------- Numerator: Income applicable to common shares: Income from continuing operations ................ $ 11,737 $ 11,007 $ 38,133 $ 24,829 Income from discontinued operations .............. 1,864 961 6,012 6,778 ----------------------------------------- $ 13,601 $ 11,968 $ 44,145 $ 31,607 ========================================= Denominator: Basic-weighted average common shares outstanding ...................................... 44,098 44,246 44,132 44,257 Dilutive effect of employee stock options .......... 325 613 395 594 ----------------------------------------- Diluted outstanding shares ..................... 44,423 44,859 44,527 44,851 ========================================= Basic earnings per share: Income from continuing operations .................. 0.27 0.25 0.86 0.56 Income from discontinued operations ................ 0.04 0.02 0.14 0.15 ----------------------------------------- Net income ..................................... 0.31 0.27 1.00 0.71 ========================================= Diluted earnings per share: Income from continuing operations .................. 0.27 0.25 0.85 0.55 Income from discontinued operations ................ 0.04 0.02 0.14 0.15 ----------------------------------------- Net income ..................................... 0.31 0.27 0.99 0.70 =========================================
Note 5. Sale of Assets On October 1, 1999 the Company sold substantially all the assets used in, and liabilities related to, the publication, marketing, and distribution of two daily newspapers and the related specialty and classified publications in Kewanee, Geneseo, and Aledo, Illinois and Ottumwa, Iowa in exchange for $9,300,000 of cash and a daily newspaper and specialty publications in Beatrice, Nebraska. Note 6. Reclassification Certain expensesitems on the statement of income for the quarter ended Decemberand six-month period ended March 31, 19981999 have been reclassified with no effect on net income or earnings per share, to be consistent with the classifications adopted for the quarter and six-month periods ended DecemberMarch 31, 1999.2000. Note 7. Discontinued operations On March 1, 2000, the Company decided to discontinue the operations of the Broadcast division. On May 7, 2000 the Company entered into an agreement to sell certain of their broadcasting properties, consisting of eight network-affiliated and seven satellite television stations, to Emmis Communications Corporation. The purchase price is approximately $562,500,000. The sale is subject to various conditions, including Hart-Scott-Rodino clearance and approval by the Federal Communications Commission, and other customary contingencies for a transaction of this nature. The sale is anticipated to be completed later this year. The income from discontinued operations consist of the following: Three Six Months Ended Months Ended -------------- ---------------- March 31, March 31, -------------- ---------------- 2000 1999 2000 1999 -------------------------------- Income from discontinued operations through March 1, 2000 .................... $1,147 $1,846 $ 8,218 $11,653 Income from measurement date to March 31, 2000 ........................... 2,178 - - 2,178 - - -------------------------------- 3,325 1,846 10,396 11,653 Income taxes ................................ 1,461 885 4,384 4,875 -------------------------------- $1,864 $ 961 $ 6,012 $ 6,778 ================================ At March 31, 2000, the assets and liabilities of the Broadcast division consisted of the following: Assets: Accounts receivable, net ................................. $ 23,611 Program rights and other ................................. 4,799 Property and equipment, net .............................. 30,498 Intangibles and other assets ............................. 122,719 -------- 181,627 -------- Liabilities: Current liabilities ...................................... 10,457 Deferred items ........................................... 991 -------- 11,448 -------- Net assets of discontinued operations ....................... $170,179 ======== Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Operations by line of business areSelected operations information is as follows: Three Months Ended December 31, Percent ------------------------------- Increase 1999 1998 (Decrease) -------------------------------------------- (Unaudited) (Dollars In Thousands) Revenue: Publishing ................ $ 108,687 $ 106,537 2.0% Broadcasting .............. 33,969 35,590 (4.6) ----------------------- $ 142,656 $ 142,127 0.4% ======================= Income before depreciation and amortization, interest, and taxes (EBITDA)follows (dollars in thousands, except per share data): * Publishing ................ $ 37,536 $ 35,720 5.1% Broadcasting .............. 10,050 12,528 (19.8) Corporate ................. (3,967) (3,960) (0.2) ----------------------- $ 43,619 $ 44,288 (1.5)% ======================= Operating income: Publishing ................ $ 30,633 $ 29,277 4.6% Broadcasting .............. 7,071 9,807 (27.9) Corporate and other ....... (4,276) (4,284) 1.9 ----------------------- $ 33,428 $ 34,800 (3.9)% ======================= Capital expenditures: Publishing ................ $ 7,325 $ 5,593 Broadcasting .............. 1,187 2,895 Corporate ................. 469 382 ----------------------- $ 8,981 $ 8,870 ======================= * EBITDA is not a financial performance measurement under generally accepted accounting principles (GAAP), and should not be considered in isolation or a substitute for GAAP performance measurements. EBITDA is also not reflected in our consolidated statement of cash flows; Three Months Six Months Ended Ended March 31, March 31, ---------------- Percent ---------------- Percent 2000 1999 Increase 2000 1999 Increase ------------------------- ------------------------ Income from continuing operations before depreciation and amortization, interest and taxes (EBITDA): * Publishing locations ........... $31,443 $30,474 3.2% $68,979 $66,194 4.2% Corporate ...................... (3,102) (3,333) 6.9 (7,069) (7,293) 3.1 --------------------------------------------------- $28,341 $27,141 4.4% $61,910 $58,901 5.1% =================================================== Operating income: Publishing locations ........... $24,462 $24,025 1.8% $55,095 $53,302 3.4% Corporate ...................... (3,432) (3,718) 8.3 (7,708) (8,002) 3.7 ------------------------------------------------- $21,030 $20,307 3.6% $47,387 $45,300 4.6% ================================================= Capital expenditures: Publishing locations ........... $ 8,275 $ 5,184 $15,600 $10,777 Broadcasting ................... 784 2,247 1,971 5,142 Corporate ...................... 319 - - 788 382 ---------------- ---------------- $ 9,378 $ 7,431 $18,359 $16,301 ================ ================ * EBITDA is not a financial performance measurement under generally accepted accounting principles (GAAP), and should not be considered in isolation or as a substitute for GAAP performance measurements. EBITDA is also not reflected in our consolidated statement of cash flows, but it is a common and meaningful alternative performance measurement for comparison to other companies in our industry.
QUARTER ENDED MARCH 31, 2000 PUBLISHING Exclusive of acquisitions and dispositions, publishing advertising revenue increased $617,000, .9%$2,000,000, 3.4%. Advertising revenue from local merchants decreased $(816,000), (2.0%). Local "run-of-press" advertising decreased $(1,136,000), (3.8)%, as a result of decreased spending and a shift to preprint advertising by large retailers. Local preprint revenue increased $320,000, 2.9%. Classified advertising revenue increased $1,021,000, 4.7%$116,000, .4%, as a result of a 9.6% increaselate Easter. Local "run-of-press" advertising decreased $(76,000), (.3%). Local preprint revenue increased $191,000, 2.3%. Classified advertising revenue increased $1,491,000, 7.0%, primarily in advertising inches primarily inthe employment and automotive categories, offset by lower average rates.categories. Circulation revenue decreased $(400,000)$(313,000), (2.0%(1.6%), as a result of a decrease in units. Other revenue consists of revenue from commercial printing, products delivered outside the newspaper (which include activities such as target marketing and special event production) and editorial service contracts with Madison Newspapers, Inc. Other revenue by category is as follows: Three Months Ended DecemberMarch 31, ----------------------------------------- 2000 1999 1998 ------------------------ (Unaudited)----------------- (In Thousands) Commercial printing .................................................................... $ 5,6575,630 $ 6,2155,690 New revenue * .................................... 7,140 5,187revenue* ............................................. 7,360 5,913 Editorial service contracts ...................... 2,296 2,197.............................. 2,572 2,396 Acquisitions and dispositions since October 1,September 31, 1998 959 356 -------------------- $16,052 $13,955 ====================... 1,441 316 ----------------- $17,003 $14,315 ================= * Includes internet/online, niche publications, books, and other events and promotions. The following table sets forth the percentage of revenue of certain items in the publishing segment.operations. Three Months Ended DecemberMarch 31, --------------- 2000 1999 1998 --------------------------------------- Revenue ................................................................................................ 100.0% 100.0% ---------------------------------- Compensation costs ............................... 34.4 33.9........................................... 36.1 35.9 Newsprint and ink ................................ 8.3 10.2............................................ 8.9 9.4 Other operating expenses ......................... 22.8 22.4 ------------------- 65.5 66.5 -------------------..................................... 23.8 23.1 --------------- 68.8 68.4 --------------- Income before depreciation, amortization, interest and taxes ................................... 34.5 33.5. 31.2 31.6 Depreciation and amortization .................... 6.4 6.0 -------------------................................ 6.9 6.7 --------------- Operating margin wholly-owned properties ......... 28.1% 27.5% ===================..................... 24.3% 24.9% =============== QUARTER ENDED MARCH 31, 2000 Exclusive of the effects of acquisitions and dispositions, costs other than depreciation and amortization increased $209,000, .3%$2,788,000, 4.4%. Compensation expense increased $1,038,000, 3.0%$1,426,000, 4.3%, due primarily to an increase in the average compensation rate and unfavorable medical plan experience.rates. Newsprint and ink costs decreased $(2,059,000)$(401,000), (19.4)(4.5)%, due primarily to lower prices and reduced consumption.paid for newsprint. Other operating costs, exclusive of depreciation and amortization, increased $1,230,000, 5.4% due to higher technology and promotion costs.$1,763,000, 8.3%. Approximately one-half of the increase resulted from insurance cost savings in 1999 which did not reoccur in 2000. DISCONTINUED OPERATIONS, BROADCASTING Revenue forExclusive of the quarter includeseffects of a $1,700,000 local marketing agreement (LMA) contract termination, payment. Exclusive of that disposition,net revenue for the quarter decreased $(2,887,000), (8.3)%increased $935,000, 3.6%, as political advertising decreased $(4,886,000), whileincreased $558,000 to $579,000 and local/regional/national advertising increased $2,269,000 due to better inventory management and pricing.$930,000, 4.0%. Production revenue and revenues from other services were essentially flat.increased $107,000, 5.6%. Network compensation decreased by $(511,000)$(641,000). The following table sets forth the percentage of revenue of certain items in the broadcasting segment. Three Months Ended December 31, ------------------------ 1999 1998 ------------------------ Revenue .......................................... 100.0% 100.0% ------------------ Compensation costs ............................... 38.8 37.1 Programming costs ................................ 9.7 6.7 Other operating expenses ......................... 21.9 21.0 ------------------ 70.4 64.8 ------------------ Income before depreciation, amortization, interest and taxes ................................... 29.6 35.2 Depreciation and amortization .................... 8.8 7.6 ------------------ Operating margin wholly-owned properties ......... 20.8% 27.6% ================== Exclusive of the disposition, compensation costs increased $46,000, .4%$189,000, 1.5%. Programming costs for the quarter increased $426,000, 19.5%19.7%, primarily due to increasedhigher costs of new programming. Other operating expenses, exclusive of depreciation and amortization, increased $138,000, 1.9% primarilydecreased $1,420,000, (19.7)%, due to an increasereduction in travel, bad debts, and outside services, offset by a reduction in sales and audience promotion expenses. NONOPERATING INCOME AND INCOME TAXES Interest on deferred compensation agreementsarrangements for executives and others is offset by financial income earned on the invested funds held in trust. Financial income and interest expense increased by $572,000 and $707,000$260,000 in 1999 and 1998, respectively,2000, as a result of these arrangements. Income taxes were 37.1% and 37.3% of pretax income from continuing operations for the quarters ended March 31, 2000 and 1999, respectively. SIX MONTHS ENDED MARCH 31, 2000 PUBLISHING Exclusive of acquisitions and dispositions, publishing advertising revenue increased $2,455,000, 2.0%. Advertising revenue from local merchants decreased $(700,000), (1.0)%. Local "run-of-press" advertising decreased $(1,212,000), (2.3)%, as a result of decreased spending and a shift to preprint advertising by large retailers. Local preprint revenue increased $511,000, 2.7%. Classified advertising revenue increased $2,512,000, 5.9%, as a result of a 11.6% increase in advertising inches primarily in employment and automotive categories, offset by lower average rates. Circulation revenue decreased $(713,000), (1.8)% as a result of a decrease in units. SIX MONTHS ENDED MARCH 31, 2000 Other revenue consists of revenue from commercial printing, products delivered outside the newspaper (which include activities such as target marketing and special event production) and editorial service contracts with Madison Newspapers, Inc. Other revenue by category and by property is as follows: Six Months Ended March 31, ---------------- 2000 1999 ---------------- (In Thousands) Commercial printing .................................... 11,287 11,905 New revenue * .......................................... 14,500 11,100 Editorial service contracts ............................ 4,868 4,593 Acquisitions and dispositions since September 30, 1998 . 2,370 672 ---------------- $33,025 $28,270 ================ * Includes internet/online, niche publications, books, and other events and promotions. The following table sets forth the percentage of revenue of certain items in the publishing operations. Six Months Ended March 31, ---------------- 2000 1999 ---------------- Revenue .................................................... 100.0% 100.0% --------------- Compensation costs ......................................... 35.2 34.8 Newsprint and ink .......................................... 8.6 9.8 Other operating expenses ................................... 23.3 22.8 --------------- 67.1 67.4 =============== Income before depreciation, amortization, interest and taxes 32.9 32.6 Depreciation and amortization .............................. 6.6 6.3 --------------- Operating margin wholly-owned properties ................... 26.3% 26.3% =============== Exclusive of the effects of acquisitions, costs other than depreciation and amortization increased $2,997,000, 2.3%. Compensation expense increased $2,464,000, 3.6%, due primarily to an increase in average compensation rates. Newsprint and ink costs decreased $(2,460,000), (12.6)%, due primarily to lower prices paid for newsprint. Other operating costs, exclusive of depreciation and amortization, increased $2,993,000, 6.8%, due to higher technology and promotion expenses. Approximately one-third of the increase resulted from insurance cost savings in 1999 that did not reoccur in 2000. SIX MONTHS ENDED MARCH 31, 2000 DISCONTINUED OPERATIONS, BROADCASTING Exclusive of the effects of the LMA contract termination, revenue decreased $(1,952,000), (3.2)%, as political advertising decreased $(4,328,000), (77.7)% and local/regional/national advertising increased $3,199,000, 6.5%. Production revenue and revenues from other services increased $115,000, 3.0%. Network compensation decreased by $(1,152,000). Exclusive of the disposition, compensation costs increased $235,000, .9%. Programming costs increased $851,000, 19.6%, primarily due to higher costs of new programming. Other operating expenses, exclusive of depreciation and amortization, decreased $1,282,000, (8.9)%, due to reduction in travel, bad debts, outside services, sales and audience promotion expenses. NONOPERATING INCOME AND INCOME TAXES Interest expense decreased due to payments on long-term debt and changes in the deferred compensation agreements,arrangements as previously discussed which increased financial income and interest expense decreased by $746,000 due to reduced debt levels. On October 1, 1999 the Company exchanged four properties$832,000 in Iowa and Illinois for a property in Nebraska and $9,300,000 in cash resulting in a $18,249,000 gain. Exclusive of this gain, diluted earnings per share were $.44.2000. Income taxes were 38.1%37.5% and 37.1% of pre-taxpretax income from continuing operations for the quarterssix-months ended DecemberMarch 31, 2000 and 1999, and 1998.respectively. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations, which is the Company's primary source of liquidity, was $37,022,000generated $64,963,000 for the quarter.six month period ended March 31, 2000. Available cash balances, cash flow from operations, and bank lines of credit provide adequate liquidity. Covenants related to the Company's credit agreementsagreement are not considered restrictive to operations and anticipated stockholder dividends. YEAR 2000 The Year 2000 issue concerns the inability of information technology (IT) systems and equipment utilizing microprocessors to recognize and process date-sensitive information after 1999 due to the use of only the last two digits to refer to a year. This problem could affect both computer software and hardware and other equipment that relies on microprocessors. The Company has not experienced any significant Year 2000 issues to date. The company believes that February 29, 2000 is the remaining potentially significant date on which Year 2000 issues could arise due to the way the leap year occurs. The Company will continue to monitor material vendors and suppliers whose uninterrupted delivery of product or service is material to the production or distribution of our print and broadcast products. Material vendors and suppliers include electric utilities, telecommunications, news and content providers, television networks, other television programming suppliers, the U.S. Postal Service, and financial institutions. The Company could be faced with severe consequences if Year 2000 issues arise and are not resolved in a timely manner by the Company and material third parties. A worst-case scenario would result in the short-term inability of the Company to produce/distribute newspapers or broadcast television programming due to unresolved Year 2000 issues. This would result in lost revenues; however, the amount would be dependent on the length and nature of the disruption, which cannot be predicted or estimated. In light of the possible consequences, the Company is prepared to devote the resources needed to address any remaining Year 2000 issues in a timely manner. While management expects a successful resolution of these issues, there can be no guarantee that material third parties, on which the Company relies, will address all Year 2000 issues on a timely basis or that their failure to successfully address all issues would not have an adverse effect on the Company. The Company has contingency plans in case business interruptions do occur. SAFE HARBOR STATEMENT The Private Securities Litigation Reform Act of 1995 provides a "Safe Harbor" for forward-looking statements. This report contains certain information which may be deemed forward-looking that is based largely on the Company's current expectations and is subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends, and uncertainties are changes in advertising demand, newsprint prices, interest rates, regulatory rulings, availability of quality broadcast programming at competitive prices, changes in the terms and conditions of network affiliation agreements, quality and ratings of network over-the-air broadcast programs, legislative or regulatory initiatives affecting the cost of delivery of over-the-air broadcast programs to the Company's customers, and other economic conditions and the effect of acquisitions, investments, and dispositions on the Company's results of operations or financial condition. The words "believe," "expect," "anticipate," "intends," "plans," "projects," "considers," and similar expressions generally identify forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are as of the date of this report. Further information concerning the Company and its businesses, including factors that potentially could materially affect the Company's financial results, is included in the Company's annual report on Form 10-K. The companyCompany does not undertake to publicallypublicly update or revise its forward-looking statements. LEE ENTERPRISES, INCORPORATED PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) The annual meeting of the Company was held on January 25, 2000. b) William E. Mayer and Mark Vittert were re-elected directors and Gregory P. Schermer was elected director for three-year terms expiring at the 2003 annual meeting. J.P. Guerin was re-elected as a director for a one-year term expiring at the 2001 annual meeting. Directors whose terms of office continued after the meeting include: Rance E. Crain, Richard D. Gottlieb, Mary E. Junck, Phyllis Sewell, Andrew E. Newman, Ronald L. Rickman, and Gordon D. Prichett. (c) Votes were cast of which 5,502,735 were voted in person and the remaining votes were cast by proxy as follows: Vote For Withheld ------------------------------- William E. Mayer 117,088,573 712,824 Gregory P. Schermer 112,264,202 5,537,195 Mark Vittert 117,096,531 704,866 J.P. Guerin 117,056,423 744,974 Abstentions and broker non-votes were not significant. (d) Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b)(e) Exhibits (3) Bylaws (10) Employment agreement (27) Financial data schedule (f) Report on Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LEE ENTERPRISES, INCORPORATED DATE May 15, 2000 /s/ G.C.G. C. Wahlig Date February 1, 2000 - ------------------------------------- ------------------- G.C.------------------------ -------------------------------------- G. C. Wahlig, Chief Accounting Officer