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Lee Enterprises is the premier publisher of daily newspapers in midsize markets. Our stock is traded on the New York Stock Exchange under the symbol LEE. Lee owns 38 daily newspapers and a joint interest in six others, along with associated online services. Our 44 daily newspapers in 18 states have Primary Markets combined circulation of 1.1 million daily and California New York ● Oceanside/Escondido ● Auburn 1.2 million Sunday. Idaho ● Corning ● ● Twin Falls Glens Falls Illinois North Dakota We also publish nearly 200 weekly newspapers, ● ● Carbondale Bismarck shoppers and classified and specialty publications. ● Decatur Oregon ● Freeport ● Albany ● Mattoon/Charleston ● Corvallis Lee is 113 years old and is based in Davenport, Iowa. Indiana ● Portland ● Munster/ Pennsylvania Northwest Indiana ● Carlisle Also see: www.lee.net Iowa South Carolina ● Davenport/Quad-Cities ● Orangeburg ● Mason City South Dakota ● Muscatine ● Rapid City ● Sioux City ● Waterloo/Cedar Falls Washington Kentucky ● Longview ● ● Seattle Table of Contents Maysville ● Spokane Minnesota Wisconsin ● 1 Winona ● Baraboo Summary Financial Information Montana ● Beaver Dam 2-3 Letter to Stockholders ● Billings ● Chippewa Falls ● Butte ● La Crosse 4-8 Top Priorities actions and results ● Hamilton ● Madison ● Helena ● Portage ● Form 10-K ● Missoula ● Racine Inside Back Cover Nebraska ● Shawano ● Beatrice Wyoming Board of Directors ● Columbus ● Casper ● Fremont Executive Team ● Lincoln Directory See Form 10-K for list of daily newspapers Lee Enterprises 2003 Annual Report 1 Summary Financial Information Continuing Operations Revenue 656.7 Lee Enterprises, Incorporated, and Subsidiaries Millions of Dollars 523.7 (Thousands, Except Per Common Share Data) 2003 2002 416.1 427.0 379.7 400.7 For The Year Ended September 30 Operating revenue . $ 656,741 $ 523,656 Operating cash flow (1) . 176,550 145,021 137,987 Operating income . 119,028 1998 1999 2000 2001 2002 2003 Income from continuing operations . 78,061 78,884 Operating Cash Flow 176.6 Discontinued operations . (20) 946 Millions of Dollars 145.0 Net income . 78,041 79,830 113.8 120.0 103.7 108.0 At Year End Total assets . $ 1,421,377 $ 1,463,830 Debt, including current maturities . 305,200 409,300 1998 1999 2000 2001 2002 2003 Stockholders’ equity . 802,156 742,774 Earnings Per Common Share Diluted 1.78* 1.75 Per Common Share (Diluted) Dollars 1.54 Income from continuing operations . $ 1.75 $ 1.78 1.32 1.24 Discontinued operations . – 0.02 1.02 Net income . 1.75 1.80 Dividends . 0.68 0.68 1998 1999 2000 2001 2002 2003 (1) Operating cash flow is a non-GAAP financial measure under SEC rules. See Item 7 in Form 10-K. * Includes favorable resolution of tax issues of 23 cents 2 Lee Enterprises 2003 Annual Report To Our Stockholders Mary Junck Chairman, President and Chief Executive Officer Fiscal 2003 was another outstanding year for Lee Enterprises. Despite a tough economy, we posted strong growth, and for the second year in a row, we achieved our own ambitious goals for cash flow and earnings. Here’s why: ● We stuck to our knitting in 2003. We kept tightly focused on our top five priorities and worked diligently at good execution. Although the advertising climate stayed cool much of the year, more than half of our newspapers exceeded their planned growth in 2003. As our 2004 priorities card shows, we’re contin- uing to zero in on Photograph by Jeff Cook,Quad-City Times growing revenue, improving reader- increased page views and spectacular online ship and circulation, revenue growth. emphasizing strong local news, enriching our websites and care- ● Our circulation volumes remained strong fully controlling our costs. after two years of industry-leading growth, even as we cycled against our own success. ● We completed the successful integration of the 16 newspapers we acquired from Howard ● We reduced our debt by more than $104 Publications in 2002 and delivered on our million in 2003, lowering our debt to oper- projections for accelerated growth in both ating cash flow ratio at year-end to 1.7. revenue and cash flow. ● The quality of our local news continued to ● Throughout Lee, we aggressively pursued improve in 2003, as our editors intensified revenue growth at every turn, increasing their efforts to engage readers, as well as active accounts, conducting 74 sales blitzes in provide significant enterprise reporting and 41 markets, and launching more than 20 new other depth and breadth in coverage. niche publications. ● We launched major cost-saving initiatives in ● We deployed our successful online model 2003, including several large tax projects and throughout Lee, resulting in dramatically a procurement function. We also rolled out a 3 secure website that gives employees the communications company, he was, of course, ability to manage their benefits choices and vitally interested in our business, but more so access a wide array of other information he was interested in Lee’s culture. Lee reflects from work or home. Rance’s traits — honest, straight-forward, decent and fair. Because of his vision — and at ● Also, we emphasized people development in a times, courage — Lee has become a better big way, providing more training and better company.” Thank you, developmental opportunities for thousands of Rance. employees. We’re blessed with a wealth of talented people in Lee, and our bench New to our board this strength has never been better. year is Nancy Donovan, who brings a 28-year For more about our actions on revenue, circula- background of leader- tion, news, online and cost management, please ship in marketing and Rance Crain Nancy Donovan see the five pages that follow. financial services. On top of her many qualifications, she’s a big fan As another mark of our success in 2003, Lee of newspapers and understands our strengths stock began the new fiscal year at all-time and opportunities, as well as the unique and highs. vital role we fill in the communities we serve. We continue to search actively for more acquisi- She’s a great addition to our board, and we’re tion opportunities. Our primary target is daily delighted to gain her voice and insight. newspapers with circulation of 30,000-plus in Finally and most importantly, I wish to thank midsize growth markets. We’re also interested the people of Lee. As throughout Lee’s 113-year in smaller publications with clustering oppor- history, our collective success in 2003 flowed tunities in existing markets. directly from their individual dedication, In looking back on 2003, let me close this letter inspiration, creativity, and just plain hard with notes of appreciation. work. Our people are the first, second, third and ultimate reasons Lee performed so well in The first is to the Lee Board of Directors and, such a challenging year. To everyone across especially, as he prepares to retire from the Lee, thank you again for keeping our company board after 13 years, Rance Crain. New regula- strong and growing. tions require all boards to perform heavy lifting these days, but that’s been the case in Lee for With best wishes for the new year, many years. Of our nine directors, seven are independent. Long before others were required to do the same, they provided strong, as well as wise, oversight. Rance has been a case in point. As a fellow board member, Mark Vittert, said recently at Mary Junck our annual awards banquet: “Rance was the Chairman, President and perfect director. As president of his own Chief Executive Officer 4 Lee Enterprises 2003 Annual Report Winning ideas, pinpoint market data, niche products and fast- paced selling lead topline focus In 2003 we built our advertiser base, developed hot categories and launched new niche products like never before. We drove revenue through targeted, data-driven selling. We stepped up sales intensity. We gained market share from other media. We shared winning ideas across Lee and rolled Photograph by Kirk John Mitchell,The Times of Northwest Indiana out model revenue programs and companywide resources to our new newspapers. ● Top Jobs, our online recruitment upsell Here’s a small sampling of our many revenue program, topped $1 million by year’s end — actions in 2003: new revenue in a particularly difficult cate- gory. ● Our sales blitzes (see photo and caption) ● targeted inactive accounts, competing media We launched nine business journals, 10 and product launches, bringing in more than upscale House to Home magazines and 13 $13.3 million in new revenue. Wheels publications, along with a variety of other niche products, with more in the hopper ● One blitz alone, in Madison, Wisconsin, rang for 2004. In Northwest Indiana, our House to up $1 million. In Oceanside/Escondido, Cali- Home launch yielded more than $320,000 in fornia, a blitz of yellow pages advertisers signed contracts. captured $660,000, while a blitz targeting radio ● and competing media generated $500,000. We also trained, trained and trained, with breakthrough courses on strategic selling in ● We grew active accounts by 2.1 percent. key categories and growing market share. AMAZING ARLEEN — The 2003 recipient of the Lee President’s Award for Spirit is Arleen Hubble, a selfless volunteer in Longview, Washington, where she’s also an outstanding advertising sales representative for The Daily News. Arleen has organized the city’s big Fourth of July and Christmas parades for nearly two decades, runs downtown street fairs to help local businesses, serves in an array of service organizations and leads a breast cancer support group. She does lots more that nobody even knows about. For example, the publisher happened to spot her early one Saturday morning as she was planting flowers at an intersection; otherwise, no one ever would have found out who did the good deed. In addition, she’s a top performer for the newspaper.