LEE ENTERPRISES 2006 ANNUALLEE ENTERPRISES 2006 REPORT 2006 ANNUAL REPORT LEE ENTERPRISES, INCORPORATED ● 201 N. HARRISON ST. ● DAVENPORT, IA 52801 ● www.lee.net Premier provider of local news, information and advertising in 55 markets Corporate Office Lee Enterprises, Incorporated 201 N. Harrison St., Suite 600 Davenport, IA 52801 (563) 383-2100 Securities Market New York Stock Exchange Ticker Symbol: LEE Shareowner Services Concerning transfer of shares, lost certificates or changes of address, please contact the Transfer Agent and Registrar: Shareowner Services Wells Fargo Bank Minnesota, N.A. 161 N. Concord Exchange South St. Paul, MN 55075-1139 (800) 468-9716 www.wellsfargo.com/shareownerservices Lee Enterprises is a premier provider of local news, information and Annual Meeting advertising in primarily midsize markets, with 51 daily newspapers The annual meeting of stockholders will and a joint interest in five others, rapidly growing online sites and take place Wednesday, February 21, 2007, at 9:00 a.m. CST at the more than 300 weekly newspapers and specialty publications in 23 Figge Art Museum states. 225 W. 2nd St., Davenport, IA 52801 Lee’s newspapers have circulation of 1.6 million daily and 1.9 million Online Information www.lee.net provides a wide variety of Sunday, reaching more than four million readers daily. Lee’s online information about Lee Enterprises, including news sites attract more than three million users, and Lee’s weekly releases, Securities and Exchange Commission publications are distributed to more than 4.5 million households. filings, performance measures, annual reports, corporate governance documents and online links to Lee’s 55 newspaper markets include St. Louis, Mo.; Lincoln, Neb.; our daily newspapers. You also may sign up for e- mail notification of SEC filings and news releases. Madison, Wis.; Davenport, Iowa; Billings, Mont.; Bloomington, Ill.; Tucson, Ariz.; and Napa, Calif. Lee is based in Davenport, Iowa, General Counsel and its stock is traded on the New York Stock Exchange under the Lane & Waterman LLP 220 N. Main St., Suite 600 symbol LEE. For more information about Lee, please visit Davenport, IA 52801-1987 www.lee.net. Independent Registered Public Accounting Firm Deloitte & Touche LLP Northwest Bank Building 101 W. Second St. Davenport, IA 52801-1813 Table of Contents Career Opportunities 1 Financial Highlights Lee Enterprises offers outstanding career opportunities in journalism, advertising, sales and 2-5 Letter to Stockholders marketing, circulation, interactive media, information 6-7 2006 President’s Awards systems, production, finance and human resources. 8 Directors and Officers Lee is an equal opportunity employer. Current . openings are detailed at www.lee.net/careers. Form 10-K Financial Highlights Continuing Operations Lee Enterprises, Incorporated and Subsidiaries Operating Revenue (Thousands, Except Per Common Share Data) 2006 2005 Millions of Dollars 1,128.6 (1) For the Year Ended September 30 818.9 Operating revenue . $1,128,648 $818,890 643.3 606.5 Operating cash flow(2) . 279,360 204,779 476.6 Operating income . 204,029 158,314 Income from continuing operations . 71,136 70,862 Net income . 70,832 76,878 2002 2003 2004 2005 2006 Per Common Share (Diluted) Operating Income Income from continuing operations . $1.56 $1.56 204.0 Millions of Dollars Net income . 1.56 1.70 158.3 Dividends . 0.72 0.72 141.0 129.7 111.2 At Year End Total assets . $3,329,809 $ 3,445,200 Debt, including current maturities(3) . 1,525,000 1,688,000 Stockholders’ equity . 990,625 936,410 2002 2003 2004 2005 2006 (4) (1) Includes four months of operations from the Pulitzer acquisition, which was consummated in June 2005. Earnings Per Share (Diluted) (2) Operating cash flow is a non-GAAP financial measure under SEC rules. See Item 7 in Form 10-K. Dollars 1.96 ADJUSTED 1.84 (3) Principal amount, excluding fair value adjustments in 2006 and 2005. 1.84 ADJUSTED 1.67 (4) Adjusted EPS is a non-GAAP financial measure. See Item 7 in Form 10-K. Diluted earnings per common REPORTED 1.64 1.56 1.56 1.44 REPORTED REPORTED share from continuing operations, as reported, include: In 2002, favorable resolution of income tax issues ADJUSTED of 23 cents; in 2005, 39 cents of Pulitzer early retirement, transition and debt extinguishment costs; in 2006, 27 cents of Pulitzer early retirement, transition and reduction of value of identified intangible assets. Amounts in table do not necessarily add because of rounding. 2002 2005 2006 Earnings per common share, as adjusted $1.44 $1.96 $1.84 Adjustments 0.23 (0.39) (0.27) Earnings per common share, as reported $1.67 $1.56 $1.56 2002 2003 2004 2005 2006 Lee Enterprises 2006 Annual Report 1 Letter to Stockholders Fiscal 2007 has begun on a much brighter note than most of 2006. As I write this letter in December, our publishers and management teams have shaken off the dust of a tough year and have notched two strong revenue months in a row. While two months do not make a trend, and while it’s difficult to predict the economic winds we face in the rest of 2007, we think we’ve set a good course for the new year. Mary Junck For both Lee and the industry, 2006 was a tough year. Chairman, President and Chief Executive Officer Revenue growth sagged, especially in the Midwest, which represents 60 percent of our revenue. Although we aggressively deployed the strong Lee sales culture and launched numerous innovative sales initiatives, including nearly 300 sales blitzes, more intense competitive selling in our local territories, new frequency programs and more creative ad shapes, we were not able to overcome the downdraft in several key categories. Department stores, telecommunications, national and automotive challenged us all year long, and both real estate and employment began to cool later in the year. Nonetheless, we think we managed well in a tough environment. We streamlined our portfolio and reduced net debt by $179 million. We grew circulation in 38 of our markets — including St. Louis, where the Post-Dispatch was one of only a few metropolitan newspapers in the country to post gains. We outperformed our peers in advertising revenue and circulation, and we continued to drive online growth at a breathtaking pace. Meanwhile, we and the rest of the industry endured a barrage of misguided commentaries from pundits suggesting that both readers and advertisers were stampeding to the Internet, turning the newspaper business into toast. We think that’s just plain wrong. Despite the advertising slowdown this past year in some key categories, our business remains solid and vital. Nobody else can do what we do in our local markets, where we’re by far the main source of local news, information and advertising. That’s undisputably true both in print and online. 2 Lee Enterprises 2006 Annual Report In fact, the Internet builds on our strengths. It enables us to reach new, diverse and larger audiences. It enables us to deliver new value to advertisers and adds a rapidly growing revenue stream. This table, which uses October 2006 survey results in Lee’s top 10 markets, illustrates how: All Age Use during past 7 days Adults 18-34 Print only 50% 37% Print plus online 11% 12% Total print 61% 49% Online only 6% 8% Total reach 67% 57% Over seven days, our printed newspapers reach 61 percent of all adults in our markets. Fifty percent are newspaper readers who don’t go online to visit our websites. Eleven percent read our newspapers and also visit our websites – for a total print audience of 61 percent. Meanwhile, 6 percent of all adults use only our online sites. Our print plus online reach totals an overwhelming 67 percent of all adults in our markets. Our newspapers and websites also deliver a massive audience of young adults. As you can see in the Age 18-34 column of the chart, our newspapers attract 49 percent of young adults, and 12 percent of those readers also visit our online sites. Another 8 percent of young adults use us online only. In total, we reach 57 percent of all young adults in our markets. While our newspaper circulation and readership remain strong and fairly steady, our online audiences continue to expand very rapidly. In September, the final month of 2006, online audience growth, as measured in page views, climbed 42.5 percent over September 2005, and online same property revenue grew 44.5 percent. We credit our newsrooms and our focus on strong local news with attracting much of this growth. Already, our journalists provide breaking news throughout the day, Lee Enterprises 2006 Annual Report 3 along with a continually updated array of stories, photos, videos and interactive graphics, coupled with highly popular reader interaction and comments. Beginning in January, to expand our capabilities further, we’re launching a comprehensive training program called Lee Online University. Regional seminars and online resources will provide news and sales staffs with advanced courses and new tools as we continue to raise companywide standards and foster more innovation. We’re also building troves of compelling online-only content, much of it created by our expanding audiences. For example, at madison.com/post, you can see a blog- driven online magazine with opinions and information on hundreds of local topics. At lacrossetribune.com, outdoor enthusiasts can post photos of their catch of the day or hunting trophy. We’re also providing information that was never possible in print: At azstarnet.com, you can check local traffic on web cams, listen to police radio or preview local bands. At cedarvalleypreps.com, you can go deep, deep, deep into local high school sports.