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

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended September 30, 2003

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
(Exact name of Registrant as specified in its charter)

    Delaware                                 42-0823980
            (State of Incorporation)    (I.R.S. Employer Identification No.)

215 N. Main Street, Davenport, Iowa 52801
(Address of Principal Executive Offices)

(563) 383-2100
Registrant’s telephone number, including area code

                                 Title of Each Name of Each Exchange On Which Registered

Securities registered pursuant to Section 12(b) of the Act:      
                 Common Stock - $2.00 par value            New York Stock Exchange 
                Preferred Share Purchase Rights            New York Stock Exchange 
Securities registered pursuant to Section 12(g) of the Act: 
             Class B Common Stock - $2.00 par value 

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

State the aggregate market value of voting stock held by nonaffiliates of the Registrant as of November 28, 2003. Common Stock and Class B Common Stock, $2.00 par value, $1,881,719,000.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 28, 2003. Common Stock, $2.00 par value, 35,833,883 shares and Class B Common Stock, $2.00 par value, 9,084,142 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement dated December 23, 2003 are incorporated by reference in Part III of this Form 10-K.

TABLE OF CONTENTS PAGE

    
Forward Looking Statements
    
Business
    
Properties
    
Legal Proceedings
    
Submission of Matters to a Vote of Security Holders
    
Market for Registrant's Common Equity and Related Stockholder Matters 10 
    
Selected Financial Data 11 
    
Management's Discussion and Analysis of Financial Condition 12 
and Results of Operations
    
Quantitative and Qualitative Disclosures about Market Risk 21 
    
Financial Statements and Supplementary Data 22 
    
Changes in and Disagreements with Accountants on Accounting 22 
and Financial Disclosure
    
Controls and Procedures 22 
    
Directors and Executive Officers of the Registrant 23 
    
Executive Compensation 23 
    
Security Ownership of Certain Beneficial Owners and Management 23 
    
Certain Relationships and Related Transactions 23 
    
Principal Accounting Fees and Services 23 
    
Exhibits, Financial Statement Schedules and Reports on Form 8 K 24 
    
Signatures 25 
    
Exhibit Index 26 
    
Consolidated Financial Statements 28 
    

FORWARD LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “Safe Harbor” for forward-looking statements. This report contains information that may be deemed forward-looking and 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 other uncertainties are changes in advertising demand, newsprint prices, interest rates, labor costs, legislative and regulatory rulings and other results of operations or financial conditions, difficulties in integration of acquired businesses or maintaining employee and customer relationships and increased capital and other costs. The words “may,” “will,” “would,” “could,” “believes,” “expects,” “anticipates,” “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 made as of the date of this report. The Company does not undertake to publicly update or revise its forward-looking statements.

PART I

ITEM 1. BUSINESS

The Company directly, and through its ownership of associated companies, publishes 44 daily newspapers in 18 states and nearly 200 weekly, classified and specialty publications, along with associated online services. The Company was founded in 1890, incorporated in 1950, and listed on the New York Stock Exchange in 1978. Before 2001, the Company also operated a number of network-affiliated and satellite television stations.

The Company is focused on five key strategic priorities. They are to:

Certain aspects of these priorities are discussed below.

HOWARD AND SIOUX CITY ACQUISITIONS

In April 2002, the Company acquired ownership of 15 daily newspapers and a 50% interest in the Sioux City, Iowa daily newspaper (SCN) by purchasing Howard Publications, Inc. (Howard). This acquisition was consistent with the strategy the Company announced in 2000 to buy daily newspapers with daily circulation of 30,000 or more. These acquisitions increased the Company’s circulation by more than 75 percent, to 1.1 million daily and 1.2 million on Sunday, and increased its revenue by nearly 50 percent. In July 2002, the Company acquired the remaining 50% of SCN.

A key reason for the acquisitions is that historically, Howard and SCN generated substantially less revenue per paid unit of circulation than the Company’s existing newspapers. The expectation was that faster revenue growth could be achieved by applying the Company’s successful selling strategies and tactics to Howard and SCN.

In 2002 and 2003, the Company devoted significant attention to the successful integration of Howard and SCN into its business. The Company made significant and immediate changes to systems, payroll, benefits and other areas of operations. The Company devoted resources and training to bring the Company’s successful selling strategies and tactics to Howard and SCN. The Company believes the integration is now completed and was accomplished with minimal disruption to the business and with low turnover of key personnel.

One measure of the success of the Company’s strategy to grow the business is its enterprise value, which is defined as the market value of equity of the business, plus debt outstanding, less cash assets. The chart above depicts the Company’s enterprise value, which has nearly doubled, to more than $2 billion in the last two years.

MADISON NEWSPAPERS

The Company owns 50% of the capital stock of Madison Newspapers, Inc. (MNI) and 17% of the nonvoting common stock of The Capital Times Company. The Capital Times Company owns the remaining 50% of the capital stock of MNI. The Company has a contract to furnish the editorial and news content for the Wisconsin State Journal, which is published by MNI, and periodically provides other services to MNI. The Wisconsin State Journal is classified as one of the Lee group of newspapers in the newspaper field and in the rating services. Results of MNI are accounted for using the equity method. In 2003, MNI adopted the trade name Capital Newspapers.

ADVERTISING

More than 70% of the Company’s revenue is derived from advertising. The Company’s strategies are to increase its share of local advertising through increased sales pressure in its existing markets and, over time, to increase circulation through internal expansion into contiguous markets, as well as make selective acquisitions. Acquisition efforts are focused on newspapers with daily circulation of 30,000 or more, as noted above, and other publications that expand the Company’s operating revenue.

Many of the Company’s businesses operate in geographic groups of publications, or “clusters,” which provide operational efficiencies and extend sales penetration. Operational efficiencies are obtained through consolidation of sales forces, back office operations such as finance or human resources, management or production of the publications. Sales penetration can occur if the sales effort is successful in cross-selling advertising into multiple publications. A table under the caption “Circulation” in Item 1 identifies those groups of newspapers operating in clusters.

The Company’s newspapers and classified and specialty publications compete with newspapers having regional circulation, magazines, radio, television, other advertising media such as billboards, other classified and specialty publications, direct mail, yellow pages directories, as well as other information content providers such as online services. In addition, several of the Company’s daily and Sunday newspapers compete with other local newspapers in nearby cities and towns. The Company estimates that it captures more than one-half of the total advertising dollars spent in its markets on print, broadcast and online.

The number of competitors in any given market varies, and cannot be estimated with any degree of certainty. However, all of the forms of competition noted above exist to some degree in the Company’s markets, the principal ones of which are listed in a table under the caption “Circulation” in Item 1. The Company’s competitors use pricing, frequency and other methods to compete for advertising business.

Classified publications are periodic advertising publications available in racks or delivered free, by carriers or third-class mail, to all, or selected, households in a particular geographic area. Classified publications offer advertisers a cost-effective local advertising system and are particularly effective in larger markets with high media fragmentation in which metropolitan newspapers generally have low penetration.

The following broadly define major categories of advertising revenue:

  Retail advertising is revenue earned from sales of display advertising space, or for preprinted advertising inserted in the publication, to local accounts.

  National advertising is revenue earned from display advertising space, or for preprinted advertising inserted in the publication, to national accounts, if there is no local retailer representing the account in the market.

  Classified advertising, which includes automotive, real estate for sale or rent, employment and other categories, is revenue earned from sales of advertising space in the classified section of the publication or from publications consisting primarily of such advertising.

  Niche publications are specialty publications, such as lifestyle, business or home improvement publications that contain significant amounts of advertising.

  Online advertising consists of display, banner, classified or other advertising on websites supporting the Company’s print publications.

The Company’s many geographic markets have significant differences in their advertising rate structures, some of which are highly complex. A single operation often has scores of rate alternatives.

Late in 2000, the newspaper industry began to experience declining advertising revenue demand for the first time in several years. The chart above compares newspaper advertising spending, as measured by the Newspaper Association of America and the Company’s same property advertising revenue for the last three fiscal years. The advertising environment has continued to be adversely impacted by the state of the overall economy, including higher unemployment rates. The Company’s enterprises are located in mid-size and smaller markets. These markets have been more stable than major metropolitan markets during the current downturn in advertising spending but may not experience increases in such spending as significant as those in major metropolitan markets when the economy improves.

CIRCULATION

After advertising, circulation is the Company’s largest source of revenue. The Company estimates that its products are sold to approximately one-half, and read by approximately three-fourths, of adults in its markets. For the six months ended September 2003, daily circulation of newspapers owned in both 2003 and 2002, which includes Howard and MNI, as measured by the Audit Bureau of Circulations (ABC), decreased 0.1% and Sunday circulation increased 0.3%. Growth in circulation can, over time, also positively impact advertising revenue. The Company’s strategies to improve readership and circulation include continuous improvement of content and promotional efforts. Content can include focus on local news, features, other content, layout, reduction of factual errors or in other ways. Promotional efforts include advertising, contests and other efforts to increase awareness of the products. Customer service can also influence circulation. All enterprises are focused on increasing the number of subscribers who pay for their subscriptions via automated payment mechanisms, such as credit cards or checking account withdrawals. Customers using these payments methods have historically higher retention. Other initiatives vary from property to property and are determined principally by the publishers at the local level in collaboration with senior management of the Company.

Circulation competition exists in all markets, even from unpaid products, but is most significant in markets with competing daily newspapers. These markets tend to be those markets near major metropolitan areas, where the size of the population is sufficient to support more than one daily newspaper.

Changes in telemarketing regulations effective in October 2003 may impact the Company’s ability to obtain new subscribers using this channel. Other methods to attract and retain subscribers have been, and remain in use. However, telemarketing has historically been the largest single source of new subscribers.

The Company and MNI publish the following daily newspapers:


Paid Circulation(1)

Newspaper   City   State       Daily        Sunday

North County Times (5)     Oceanside     California      92,212         95,183       
                                       and Escondido                          
Madison Newspapers (4)  
   Wisconsin State Journal   Madison   Wisconsin    89,084         152,899    (3 )
   The Capital Times   Madison   Wisconsin    19,608             (3 )
   Daily Citizen   Beaver Dam   Wisconsin    10,078                
   Portage Daily Register   Portage   Wisconsin    5,022                
   Baraboo News Republic   Baraboo   Wisconsin    4,090                
The Times (5)   Munster   Indiana    86,835         94,696       
Lincoln Group  
   Lincoln Journal Star   Lincoln   Nebraska    74,795         83,984       
   Columbus Telegram   Columbus   Nebraska    9,347         10,251       
   Fremont Tribune   Fremont   Nebraska    8,176                
   Beatrice Daily Sun   Beatrice   Nebraska    7,998                
Quad-Cities Group  
   Quad-City Times   Davenport   Iowa    51,876         71,539       
   Muscatine Journal   Muscatine   Iowa    8,105                
Billings Gazette   Billings   Montana    46,980         52,164       
Waterloo-Cedar Falls Courier (5)   Waterloo   Iowa    44,005         51,497       
Sioux City Journal (5)   Sioux City   Iowa    42,613         42,902       
Central Illinois Newspaper Group  
  Herald & Review   Decatur   Illinois    34,325         42,344       
  Journal Gazette (5)   Mattoon   Illinois    10,746                
  Times-Courier (5)   Charleston   Illinois    6,887                
The Post-Star (5)   Glens Falls   New York    34,193         37,244       
River Valley Group  
  La Crosse Tribune   La Crosse   Wisconsin    31,464         41,069       
   Winona Daily News   Winona   Minnesota    11,628         12,920       
Casper Star-Tribune (5)   Casper   Wyoming    30,745         33,264       
Missoula Group  
  Missoulian   Missoula   Montana    30,162         34,845       
  Ravalli Republic   Hamilton   Montana    4,677    (2 )    
Rapid City Journal   Rapid City   South Dakota    29,618         34,377       
The Journal Times   Racine   Wisconsin    28,698         30,680       
The Southern Illinoisan   Carbondale   Illinois    28,344         36,760       
The Bismarck Tribune   Bismarck   North Dakota    27,548         30,950       
The Times-News (5)   Twin Falls   Idaho    22,837         22,879       
The Daily News (5)   Longview   Washington    22,216         21,591       
Globe Gazette   Mason City   Iowa    19,071         23,118       
The Times and Democrat (5)   Orangeburg   South Carolina    17,560         17,553       
Mid-Valley News Group  
   Democrat-Herald   Albany   Oregon    17,450         30,534    (3 )
   Corvallis Gazette-Times   Corvallis   Oregon    11,706             (3 )
The Sentinel (5)   Carlisle   Pennsylvania    14,516         14,863       
The Montana Standard   Butte   Montana    14,436         15,031       
Independent Record   Helena   Montana    14,046         14,525       
The Journal-Standard (5)   Freeport   Illinois    13,566         14,014       
The Leader (5)   Corning   New York    13,436         13,318       
The Citizen (5)   Auburn   New York    13,116         14,778       
The Ledger Independent (5)   Maysville   Kentucky    8,480    (2 )         
The Chippewa Herald   Chippewa Falls   Wisconsin    6,702         6,800       
Shawano Leader (4)   Shawano   Wisconsin    6,072         6,496       

                                                1,125,069         1,205,068       

(1)     Source: ABC: Six months ended September 2003, unless otherwise noted.
(2)     Source: Company statistics.
(3)     Combined edition.
(4)     Owned by MNI, which is 50% owned by the Company.
(5)     Acquired in 2002.

ONLINE ADVERTISING AND SERVICES

The Company’s online activities are comprised of websites supporting each of its daily newspapers and certain of its other publications. The Company also owns 81% of an Internet service company (Townnews.com) which provides web infrastructure for more than 800 small daily and weekly newspapers, and shoppers. Internet activities of the newspapers and majority owned businesses are reported and managed as a part of the Company’s publishing operations. In addition, the Company has a minority investment in, or loans to, two Internet service companies, which provide integrated online classified solutions for the newspaper industry, integrate online editorial content and provide transactional and promotional opportunities.

Online businesses of the Company have experienced rapid growth over the last several years, which is expected to continue.

COMMERCIAL PRINTING

The Company offers commercial printing services through the following entities:


                                                               City  State

William Street Press Decatur Illinois
Hawkeye Printing Davenport Iowa
Trico Communications Davenport Iowa
Platen Press Butte Montana
Farcountry Press Helena Montana
Broadwater Printing Townsend Montana
Journal Star Commercial Printing Lincoln Nebraska
Little Nickel Quik Print Lynnwood Washington
Spokane Print and Mail Spokane Washington
Triangle Press Chippewa Falls Wisconsin
Wingra Printing (1) Madison Wisconsin

(1)     Owned by MNI, which is 50% owned by the Company.

Certain of the Company’s newspapers also directly provide commercial printing services. Commercial printing business is highly competitive and generally has lower operating margins than newspapers.

NEWSPRINT

The basic raw material of newspapers, and classified and specialty publications, 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 for its needs. Newsprint prices are volatile and fluctuate based upon factors that include both foreign and domestic production capacity and consumption. Between September 2002 and September 2003, the RISI 30 pound newsprint price index rose 8.7%. Price fluctuations can have a significant effect on the results of operations. For additional information regarding supply of newsprint, see “Contractual Obligations” under Item 7, included herein. For the quantitative impacts of these fluctuations, see “Quantitative And Qualitative Disclosures About Market Risk” under Item 7A, included herein.

EXECUTIVE TEAM

The following table lists executive team members of the Company as of November 28, 2003:


                             Service     Named           
                           With The   To Present       
        Name    Ag e Company   Office   Present Office  

Mary E. Junck    56   June 1999   January 2002   Chairman, President and Chief  
                                      Executive Officer  

Nancy L. Green
    61   December 2000   September 2002   Vice President - Circulation  

Michael R. Gulledge
    43   October 1982   February 2002   Group Publisher  

Daniel K. Hayes
    58   September 1969   April 1998   Director of Communications  

James W. Hopson
    57   July 2000   July 2000   Vice President - Publishing  

Brian E. Kardell
    40   January 1991   August 2003   Vice President - Production  
                                      and Chief Information Officer  

Vytenis P. Kuraitis
    55   August 1994   January 1997   Vice President - Human  
                                      Resources  

Linda Ritchie Lindus
    55   April 2000   February 2002   Group Publisher  

Kevin E. Mowbray
    41   September 1986   July 2002   Vice President - Sales &  
                                      Marketing  

Michael E. Phelps
    57   February 2000   June 2002   Vice President - Publishing  

Gregory P. Schermer
    49   February 1989   November 1997   Vice President - Interactive  
                                      Media and Corporate Counsel  

Carl G. Schmidt
    47   May 2001   May 2001   Vice President, Chief  
                                      Financial Officer and  
                                      Treasurer  

David B. Stoeffler
    44   June 1981   December 2001   Vice President - News  

John VanStrydonck
    50   March 1981   June 2000   Vice President - Publishing  

Greg R. Veon
    51   April 1976   November 1999   Vice President - Publishing  

Mary E. Junck was elected Chairman, President and Chief Executive Officer in January 2002. From January 2001 to January 2002 she served as President and Chief Executive Officer. From January 2000 to January 2001 she served as President and Chief Operating Officer. From May 1999 to January 2000 she served as Executive Vice President and Chief Operating Officer. From May 1996 to April 1999 she was Executive Vice President of The Times Mirror Company and President of Eastern Newspapers. She was named Publisher and Chief Executive Officer of The Baltimore Sun in 1993.

Nancy L. Green was appointed Vice President – Circulation in September 2002. From December 2000 to September 2002, she served as Director of Circulation Sales, Distribution and Marketing. For more than five years prior to December 2000, she served as a vice president in the University System of Georgia.

Michael R. Gulledge was appointed Group Publisher in February 2002 and named Publisher of the Billings Gazette in October 2000. From November 1996 to October 2000, he served as General Manager and Publisher of the Herald & Review.

Daniel K. Hayes was appointed Director of Communications in April 1998. From March 1986 to April 1998, he served as Editor of the Quad-City Times.

James W. Hopson was elected Vice President – Publishing and named Publisher of the Wisconsin State Journal in July 2000. He is also President of MNI. For more than the past five years prior to July 2000, he served as Chief Executive Officer of Thomson Newspapers Central Ohio Strategic Marketing Group.

Brian E. Kardell was appointed Vice President – Production and Chief Information Officer in August 2003. From 2001 to August 2003, he served as Vice President – Information Systems and Chief Information Officer. From 1997 to 2001, Mr. Kardell was Chief Information Officer. Prior to 2001, he served as Director of Information Services.

Vytenis P. Kuraitis was elected Vice President – Human Resources in January 1997. From August 1994 to January 1997 he served as Director of Human Resources.

Linda Ritchie Lindus was appointed Group Publisher in February 2002, and was named Publisher of the Herald & Review in July 2002. From April 2000 to February 2002, she served as Publisher of The Southern Illinoisan. From 1999 to April 2000 she served as Publisher of The Spectrum and Chief Executive Officer of the Utah Strategic Marketing Group of Thomson Newspapers. From 1997 to 1999 she served as Director of Advertising and New Initiatives at The Spectrum.

Kevin E. Mowbray was elected Vice President – Sales & Marketing in July 2002. From 2000 to July 2002 he was Publisher of The Bismarck Tribune. From 1998 to 2000 he served as General Manager of the Missoulian. From 1995 to 1998 he served as Advertising Manager of the Lincoln Journal Star.

Michael E. Phelps was elected Vice President – Publishing and named Publisher of the Quad-City Times in June 2002. He served as Vice President – Sales and Marketing from February 2000 to June 2002. For more than the past five years prior to February 2000, he was managing principal of Phelps, Cutler & Associates, newspaper management consultants.

Gregory P. Schermer was elected Vice President – Interactive Media in November 1997. He has served as Corporate Counsel of the Company since 1989.

Carl G. Schmidt was elected Vice President, Chief Financial Officer and Treasurer in May 2001. For more than the past five years prior to May 2001, he served as Senior Vice President and Chief Financial Officer of Johnson Outdoors Inc.

David B. Stoeffler was appointed Vice President – News in December 2001. From 1997 to December 2001, he was Editor of the Lincoln Journal Star.

John VanStrydonck was elected Vice President – Publishing in June 2000 and named Publisher of the Missoulian in October 2002. From September 1994 to June 2000 he was Publisher of the Rapid City Journal.

Greg R. Veon was elected Vice President – Publishing in November 1999. From November 1995 through November 1999 he served as Vice President – Marketing.

EMPLOYEES

At September 30, 2003, the Company had approximately 6,700 employees, including approximately 1,500 part-time employees, exclusive of MNI. The Company considers its relationship with its employees to be good.

Approximately 110 employees in three locations are members of collective bargaining units.

CORPORATE GOVERNANCE AND PUBLIC INFORMATION

The Company has a long, substantial history with regard to sound corporate governance practices. The Board of Directors has a lead independent director, and has had one for many years. Currently, seven of nine members of the Board of Directors are independent, as are all positions on the Board’s Audit, Executive Compensation and Nominating and Corporate Governance committees. The Audit Committee approves all services to be provided by the Company’s audit firm.

In addition, information with regard to the Company’s revenue, including same property results, is reported to the public on a monthly basis, as is certain other statistical information, improving the timeliness of reporting of information to investors. The Company was also among the first in the nation to voluntarily record expense related to employee stock options.

At www.lee.net, you may access a wide variety of information, including news releases, Securities and Exchange Commission filings, financial statistics, annual reports, presentations, governance facts, newspaper profiles and online links. The Company makes available via its website all filings made by the Company under the Securities Exchange Act of 1934, including Forms 10-K, 10-Q and 8-K, and amendments thereto as soon as reasonably practicable after such filing with the Securities and Exchange Commission.

OTHER MATTERS

In the opinion of management, compliance with present statutory and regulatory requirements respecting environmental quality will not necessitate significant capital outlays, materially affect the earning power of the business of the Company, or cause material changes in the Company’s business, whether present or intended.

ITEM 2. PROPERTIES

The Company’s executive offices are located in leased facilities at 215 North Main Street, Davenport, Iowa. The lease expires in December 2003, but has been extended until the premises are vacated in 2004. Comparable space has been leased.

All of the Company’s printing facilities (except Madison, Wisconsin, which is owned by MNI, a leased plant in Spokane, Washington and leased land for the Helena, Montana plant) are owned. All facilities are well maintained, in good condition, suitable for existing office and publishing operations and adequately equipped. None of the Company’s facilities are individually significant to its business.

The Baraboo News Republic, Corvallis Gazette-Times, Muscatine Journal, Ravalli Republic, Times Courier and Winona Daily News, as well as many of the Company’s and MNI’s almost 200 other publications, are printed at other Lee facilities to enhance operating efficiency. The Company’s newspapers and other publications have formal or informal arrangements for backup of printing in the event of a disruption in production capability.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in a variety of legal actions that arise in the normal course of business. Insurance coverage mitigates potential loss for certain of these matters. While the Company is unable to predict the ultimate outcome of these legal actions, it is the opinion of management that the disposition of these matters will not have a material adverse effect on the Company’s Consolidated Financial Statements, taken as a whole.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS

Common Stock of the Company is listed on the New York Stock Exchange. Class B Common Stock is not traded on an exchange but is readily convertible to Common Stock. Class B Common Stock was issued to stockholders of record of the Company in 1986 pursuant to a 100% stock dividend and is converted at sale, or at the option of the holder, into Common Stock. The table below shows the high and low prices of Common Stock for each quarter during the past three years, the closing price at the end of each quarter and the dividends per share.


                              Quarter       

   1st   2nd   3rd   4th    

STOCK PRICES
 
           
2003
 
                       
 High  $34 .70 $34 .50 38 .55 $40 .68
   Low  29 .75 $30 .35 $31 .35 $36 .40
   Closing  33 .52 $31 .52 $37 .53 $38 .67
2002
 
                       
   High  $37 .60 $37 .23 $40 .09 $35 .87
   Low  29 .88 33 .36 34 .86 28 .90
   Closing  36 .37 36 .90 35 .00 32 .86
2001
 
                       
   High  $30 .69 $32 .55 $34 .98 $34 .40
   Low  24 .81 26 .94 29 .25 29 .40
   Closing  29 .81 30 .45 33 .00 31 .67
DIVIDENDS
 
           
2003
 
$0 .17 $0 .17 $0 .17 $0 .17
2002  0 .17 0 .17 0 .17 0 .17
2001  0 .17 0 .17 0 .17 0 .17

Common Stock and Class B Common Stock have identical rights with respect to cash dividends and upon liquidation. For a more complete description of the relative rights of Common Stock and Class B Common Stock, see Note 8 of the Notes to Consolidated Financial Statements, included herein.

At September 30, 2003, the Company had 2,649 holders of Common Stock and 1,765 holders of Class B Common Stock.

On November 12, 2003, the Board of Directors declared a dividend in the amount of $0.18 per share on the issued and outstanding Common Stock and Class B Common Stock of the Company, be paid on January 2, 2004, to stockholders of record on December 1, 2003.

ITEM 6. SELECTED FINANCIAL DATA


Year Ended September 30   

(Thousands, Except Per Common Share Data)    2003    2002    2001    2000    1999  

          (2) (5)  (3) (4) (5)    (4) (5)  (4) (5)
OPERATING RESULTS                           
                            
Operating revenue   $ 656,741   $ 523,656   $ 426,966   $ 416,089   $ 400,709  
                            
Operating cash flow (1)    176,550    145,021    107,979    119,965    113,847  
Depreciation and amortization    46,616    35,050    31,357    28,571    26,990  

Operating income, before equity                           
   in net income of associated                           
   companies    129,934    109,971    76,622    91,394    86,857  
Equity in net income of associated                           
   companies    8,053    9,057    7,651    9,377    9,238  

Operating income    137,987    119,028    84,273    100,771    96,095  


  
Financial income    1,120    6,007    28,548    3,259    1,920  
Financial expense    (16,535 )  (15,777 )  (11,963 )  (12,643 )  (12,863 )

  
Income from continuing operations    78,061    78,884    58,071    68,489    55,696  
Discontinued operations    (20 )  946    254,399    13,546    10,904  

Net income   $ 78,041   $ 79,830   $ 312,470   $ 82,035   $ 66,600  


  
EARNINGS PER COMMON SHARE                           

  
Basic:                           
   Continuing operations   $ 1.76   $ 1.79   $ 1.33   $ 1.56   $ 1.26  
   Discontinued operations     -    0.02    5.81    0.31    0.25  

 Net income   $ 1.76   $ 1.81   $ 7.14   $ 1.86   $ 1.50  


  
Diluted:                           
   Continuing operations   $ 1.75   $ 1.78   $ 1.32   $ 1.54   $ 1.24  
   Discontinued operations     -    0.02    5.77    0.31    0.24  

Net income   $ 1.75   $ 1.80   $ 7.09   $ 1.85   $ 1.48  


  
Weighted average common shares:                           
   Basic    44,316    44,087    43,784    44,005    44,273  
   Diluted    44,513    44,351    44,089    44,360    44,861  


  
Dividends per common share   $ 0.68   $ 0.68   $ 0.68   $ 0.64   $ 0.60  


  
BALANCE SHEET INFORMATION (end of year)                           

  
Total assets   $ 1,421,377   $ 1,463,830   $ 1,000,397   $ 762,236   $ 679,513  
Debt, including current maturities    305,200    409,300    173,400    214,173    192,000  
Stockholders' equity    802,156    742,774    683,193    396,242    355,076  

(1)     Operating cash flow (OCF) is not a financial performance measurement under accounting principles generally accepted in the           United States of America (GAAP), and should not be considered in isolation or as a substitute for GAAP performance measurements.           OCF is also not reflected in the Consolidated Statements of Cash Flows, but is a common and meaningful alternative performance           measurement. See “Non-GAAP Financial Measures” under Item 7, included herein.
(2)     Includes six months of operations from the Howard acquisition, which was consummated in April 2002.
(3)     Includes gain on the sale of the Company’s broadcast properties, as reported in discontinued operations.
(4)     Effective in 2002, the Company adopted FASB Statement 142. See Note 1 to the Consolidated Financial Statements.
(5)     Effective in 2003, the Company adopted the fair value provisions of accounting for stock-based compensation, and all prior periods           have been restated. See Note 9 to the Consolidated Financial Statements.


                                                                                                                                                                          Year Ended September 30

  2003  2002  2001  2000  1999 


OTHER INFORMATION
 
Operating cash flow as a percent of
     revenue 26.9% 27.7% 25.3% 28.8% 28.4%
Operating income as a percent of
    revenue 21.0     22.7     19.7     24.2     24.0   
Income from continuing operations
    as a percent of revenue 11.9     15.1     13.6     16.5      13.9    
Dividends as a percent of income
    from continuing operations 38.8     38.1     51.3     41.3     47.8    

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion includes comments and analysis relating to the Company’s results of operations and financial condition as of, and for the three years ended, September 2003. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto.

NON-GAAP FINANCIAL MEASURES

Operating Cash Flow

Operating cash flow, which is defined as operating income before depreciation, amortization, and equity in net income of associated companies, and operating cash flow margin (operating cash flow divided by operating revenue) represent non-GAAP financial measures that are used in the analyses below. A reconciliation of operating cash flow to operating income, the most directly comparable measure under accounting principles generally accepted in the United State of America (GAAP), is included in tables under the captions “Operating Expenses and Results of Operations”. The Company believes that operating cash flow and the related margin percentage are useful measures of evaluating its financial performance because of their focus on the Company’s results from operations before depreciation and amortization. The Company also believes that these measures are several of the alternative financial measures of performance used by investors, lenders, rating agencies and financial analysts to estimate the value of a company and evaluate its ability to meet debt service requirements.

Same Property Comparisons

Certain information below, as noted, is presented on a same property basis, which is exclusive of acquisitions and divestitures consummated in the current or prior year. The Company believes such comparisons provide meaningful information for an understanding of changes in its revenue and operating expenses. Same property comparisons exclude Madison Newspapers, Inc. (MNI). Lee owns 50% of the capital stock of MNI, which for financial reporting purposes is reported using the equity method of accounting. Same property comparisons also exclude corporate office costs.

CRITICAL ACCOUNTING POLICIES

The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to intangible assets and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Additional information follows with regard to certain of the most critical of the Company’s accounting policies.

Goodwill and Intangible Asset Impairment

In assessing the recoverability of the Company’s goodwill and other intangible assets, the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the respective assets. The Company adopted Financial Accounting Standards Board Statement 142, Goodwill and Other Intangible Assets, in 2002 and analyzes its goodwill and indefinite life intangible assets for impairment on an annual basis or more frequently if impairment indicators are present. See Note 5 to the Company’s Consolidated Financial Statements for a more detailed explanation of the Company’s intangible assets.

Income Taxes

Deferred income taxes are provided using the liability method, whereby deferred income tax assets are recognized for deductible temporary differences and loss carryforwards and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax basis. Deferred income 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 income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company files income tax returns with various state tax jurisdictions and the Internal Revenue Service. From time to time the Company is audited by those agencies, and those audits may result in proposed adjustments. The Company has considered the alternative interpretations that may be assumed by the various taxing agencies and does not anticipate any material adverse impact on its earnings as a result of such audits.

Revenue Recognition

Advertising revenues are recorded when advertisements are placed in the publication and circulation revenues are recorded as newspapers are delivered over the subscription term. Other revenue is recognized when the related product or service has been delivered. Unearned revenue arises in the ordinary course of business from advance subscription payments for newspapers.

CONTINUING OPERATIONS

Operating results, as reported in the Consolidated Financial Statements, are summarized below:


Year Ended September 30    Percent Change

                                                                      2003    2002  
                       vs      vs    
(Thousands, Except Per Common Share Data)    2003    2002    2001    2002    2001  


  
Operating revenue   $ 656,741   $ 523,656   $ 426,966    25.4 %  22.6 %
Operating cash flow    176,550    145,021    107,979    21.7  34.3
Operating income    137,987    119,028    84,273    15.9  41.2
Non operating (income) expense,  
  net    16,464    10,778    (6,418 )  52.8  NM
Income from continuing operations    78,061    78,884    58,071    (1.0 )  35.8

  
Earnings per common share:                                
  Basic   $ 1.76   $ 1.79   $ 1.33    (1.7 )%  34.6 %
  Diluted    1.75    1.78    1.32    (1.7 )  34.8

2003 vs. 2002

Operating Revenue

Revenue, as reported in the Consolidated Financial Statements, consists of the following:


Year Ended September 30    Percent Change

(Thousands)      2003    2002    Tota l  Same Property


  
Advertising revenue:                  
   Retail   $ 272,381   $ 214,171    27 .2%  2 .0%
   National    15,634    12,335    26 .7  (1 .6)
   Classified:                  
      Daily newspapers:                  
         Employment    38,719    30,856    25 .5  (5 .1)
         Automotive    40,861    29,324    39 .3  0 .6
         Real estate    31,623    21,624    46 .2  9 .7
         All other    29,445    24,518    20 .1  (2 .0)
      Other publications    28,696    28,174    1 .9  2 .8

   Total classified    169,344    134,496    25 .9  1 .0
   Niche publications    15,246    11,161    36 .6  28 .6
   Online    8,383    4,982    68 .3  29 .9

Total advertising revenue    480,988    377,145    27 .5  3 .0

Circulation    133,148    105,711    26 .0  (0 .2)
Commercial printing    18,947    20,327    (6 .8)  (9 .0)
Online services and other    23,658    20,473    15 .6  7 .1

Total operating revenue   $ 656,741   $ 523,656    25 .4%  2 .0%

All categories of revenue were substantially impacted by the acquisitions of Howard Publications (Howard), which the Company purchased in April 2002, and the remaining 50% of Sioux City Newspapers (SCN) in July 2002. In total, acquisitions accounted for $242,803,000 of revenue in 2003 and $113,579,000 of revenue in 2002. Businesses sold in 2002, but still included in continuing operations did not impact 2003 but accounted for $4,060,000 of revenue in the prior year.

Sundays generate substantially more advertising and circulation revenue than any other day of the week. The year ended September 30, 2003 had the same number of Sundays as 2002.

Advertising Revenue

In 2003, total same property advertising revenue increased $8,511,000, or 3.0%. Same property retail revenue in the Company’s markets was not as adversely impacted by the economy as major metropolitan markets, and increased $3,273,000, or 2.0%, in 2003. Increased emphasis on rate discipline and new accounts helped offset declines in advertising volume. Same property average retail rates, excluding preprint insertions, increased 4.2% in 2003. Rate discipline means adhering to standard rates rather than negotiating specific rates for individual customer situations.

Same property classified advertising revenue increased approximately $1,033,000, or 1.0%, in 2003. Higher margin employment advertising at the daily newspapers decreased 5.1% for the year. The Company’s declines in employment classified advertising compare favorably to national survey amounts. The September 2003 Help Wanted Index, as calculated by the Conference Board, declined 14% from the prior year level. Same property average automotive advertising increased by 0.6% due to promotional financing. Same property real estate advertising increased 9.7% due to lower mortgage interest rates and increases in advertising of real estate for rent from growth in home ownership. Other daily newspaper classified advertising decreased 2.0%. Same property classified advertising rates declined 0.5%, primarily due to declines in employment advertising.

Advertising lineage, as reported on a same property basis for the Company’s daily newspapers only, consists of the following:


                                                                                                                                                                 Year Ended September 30

(Thousands of Inches)          2003    2002    Percent Change


  
Retail       6,028    6,084    (0 .9)%
National       297    337    (11 .9)
Classified       5,805    5,770    0 .6

                                   12,130    12,191    (0 .5)%

Advertising in niche publications, a strategic focus for the Company, increased 28.6% on a same property basis, due to new publications in existing markets and penetration of new and existing markets. Online advertising increased 29.9% on a same property basis, due to expanded use of the Company’s online business model and cross-selling with the Company’s print publications.

Circulation and Other Revenue

Same property circulation revenue decreased $153,000, or 0.2%, in 2003. The Company’s total average daily newspaper circulation units, including MNI, as measured by the Audit Bureau of Circulations, decreased 0.1% and Sunday circulation increased 0.3% for the six months ended September 2003. For the six months ended March 2003, total average daily circulation units, including MNI, increased 0.7% and Sunday circulation increased 0.3% compared to the same period in the prior year. The Company is focused on growing circulation units and revenue through a number of initiatives. Changes in telemarketing regulations in effect in 2004 may impact the Company’s ability to solicit new subscribers, and the cost of such solicitation, in the future.

Same property commercial printing revenue declined $1,757,000, or 9.0%, in 2003 due, in part, to economic conditions and the loss of certain key customers. Same property online services and other revenue increased $1,321,000, or 7.1%, in 2003.

Operating Expenses and Results of Operations

The following table sets forth the Company’s operating expenses and overall results as reported in the Consolidated Financial Statements:


Year Ended    
September 30    Percent Change

(Thousands)      2003    2002    Tota l  Same Property


  
Compensation   $ 272,311   $ 209,263    30 .1%  5 .7%
Newsprint and ink    57,773    43,727    32 .1  (2 .2)
Other operating expenses    150,107    125,645    19 .5  (0 .6)

                                              480,191    378,635    26 .8  2 .6
Operating cash flow    176,550    145,021    21 .7  0 .7
Depreciation and amortization    46,616    35,050    33 .0  (7 .1)

Operating income, before equity in net    129,934    109,971    18 .2  2 .1
    income of associated companies  
Equity in net income of associated companies    8,053    9,057    (11 .1)  N A

Operating income    137,987    119,028    15 .9  N A
Non-operating income (expense), net    (16,464 )  (10,778 )  52 .8  N A

Income from continuing operations before    121,523    108,250    12 .3  N A
   income taxes  
Income tax expense    43,462    29,366    48 .0  N A

Income from continuing operations   $ 78,061   $ 78,884    (1 .0)%  N A

Costs other than depreciation and amortization increased $101,556,000, or 26.8%, in 2003. All categories of expenses were impacted by the acquisitions of Howard, which the Company purchased in April 2002, and the remaining 50% of SCN in July 2002. In total, acquisitions accounted for $175,516,000 of operating costs, excluding depreciation and amortization, in 2003 and $79,833,000 in the prior year. Businesses sold did not impact operating expenses in 2003, but accounted for $3,362,000 of operating expenses other than depreciation and amortization in the prior year.

Compensation expense increased $63,048,000, or 30.1%, in 2003 due to costs of acquired businesses and a 5.7% increase in same property compensation expense. Higher medical expenses, normal salary adjustments, higher incentive compensation from increasing revenue, and one-time and permanent cost reductions in benefit programs in 2002 contributed to the increase in same property costs. Exclusive of the prior year changes in benefit programs, same property compensation expense increased 2.9% in 2003. Same property full time equivalent employees declined 1.1% in 2003 from the prior year level, offsetting other compensation cost increases. Several of the factors noted above are expected to contribute to an increase of 4.5 – 5.5% in compensation expense in 2004.

Newsprint and ink costs increased $14,046,000, or 32.1%, in 2003 as volume increases related to acquired businesses more than offset overall lower prices and same property volume declines. Newsprint unit costs rose throughout 2003 and may negatively impact 2004 results. Other operating costs, exclusive of depreciation and amortization, increased $24,462,000, or 19.5%, in 2003 as costs of acquired businesses more than offset 0.6% cost savings on a same property basis. The increase in depreciation and amortization expense in 2003 is primarily due to the acquisitions of Howard and SCN.

Operating cash flow improved 21.7% to $176,550,000 in 2003 from $145,021,000 in 2002. Operating cash flow margin declined to 26.9% from 27.7% in the prior year reflecting a full year of results of acquired businesses with lower margins in the current year compared to six months in the prior year. Equity in net income in associated companies declined during 2003 due primarily to the inclusion of SCN in consolidated results in the current year. In the prior year, SCN was accounted for as an equity investment from April through June, prior to the acquisition of the remaining 50% in July 2002. Operating income margin decreased to 21.0% in 2003 from 22.7% for the same reasons, but was further impacted by a higher level of amortization from acquisitions.

Non-operating Income and Expense

Financial income decreased $4,887,000 to $1,120,000 in 2003. The Company’s invested balances decreased $433,000,000 due to the April 2002 acquisition of Howard. Balances were further reduced in 2002 by final income tax payments related to the sale of broadcast properties in 2001. Reinvestment rates have also declined from the prior year. Financial expense increased to $16,535,000 due to increased debt from the acquisitions of Howard and SCN, offset by lower interest rates and subsequent debt reduction from operating cash flow.

Overall Results

Income taxes were 35.8% and 27.1% of pretax income from continuing operations in 2003 and 2002, respectively. The favorable resolution of tax issues reduced income tax expense by approximately $10,100,000 in 2002. The effective rate would have been 36.5% in 2002 without this event.

As a result of all of the above, income from continuing operations totaled $78,061,000 in 2003, compared to $78,884,000 in 2002. Earnings per diluted common share decreased to $1.75 in 2003 from $1.78 in 2002. The adoption of FASB Statements 123 and 148, which relate to accounting for stock-based compensation, reduced 2002 reported results from $1.83 to $1.78 per share. The favorable resolution of tax issues increased 2002 results by $0.23 per share.


2002 vs. 2001

Operating Revenue

Revenue, as reported in the Consolidated Financial Statements, consists of the following:


Year Ended    
September 30              Percent Change

(Thousands)      2002    2001    Tota l  Same Property


  
Advertising revenue:                          
   Retail   $ 214,171   $ 168,203    27 .3%  0 .8%
   National    12,335    10,330    19 .4  (5 .6)
   Classified:                          
      Daily newspapers:                          
       Employment    30,856    28,134    9 .7  (20 .1)
       Automotive    29,324    20,939    40 .0  1 .0
       Real estate    21,624    15,967    35 .4  2 .0
       All other    24,518    13,156    86 .4  2 .2
      Other publications    28,174    28,885    (2 .5)  2 .7

   Total classified    134,496    107,081    25 .6  (4 .0)
   Niche publications    11,161    11,304    (1 .3)  (1 .5)
   Online    4,982    3,891    28 .0  18 .9

Total advertising revenue    377,145    300,809    25 .4  (1 .0)

Circulation    105,711    81,441    29 .8  (0 .6)
Commercial printing    20,327    25,233    (19 .4)  (12 .5)
Online services and other    20,473    19,483    5 .1  (6 .5)

Total operating revenue   $ 523,656   $ 426,966    22 .6%  (1 .8)%

All categories of revenue were substantially impacted by the acquisitions of Howard, which the Company purchased in April 2002, and the remaining 50% of SCN in July 2002. In total, acquisitions accounted for $113,579,000 of revenue in 2002. Businesses sold in 2002, but still included in continuing operations, accounted for $4,060,000 of revenue in 2002 and $11,754,000 of revenue in 2001.

2002 had one fewer Sunday than the prior year. Sundays generate substantially more advertising and circulation revenue than any other day of the week.

Advertising Revenue

In 2002, total same property advertising revenue decreased $2,934,000, or 1.0%. Same property retail revenue in the Company’s markets was not as adversely impacted by the slowing economy as major metropolitan markets, and increased $1,211,000, or 0.8%, in 2002. Increased emphasis on rate discipline and new accounts helped offset declines in advertising volume. Same property retail rates, excluding preprint insertions, increased 2.8% in 2002.

Same property classified advertising revenue decreased approximately $4,148,000, or 4.0%, in 2002. Higher margin employment advertising at the daily newspapers accounted for more than 100% of the decrease and declined 20.1% for the year. Same property automotive advertising increased by 1.0% due to promotional financing, real estate advertising increased 2.0% due to lower mortgage interest rates, and other daily newspaper classified advertising increased 2.2%. Same property classified advertising rates declined 7.9%, primarily due to declines in employment advertising.

Advertising lineage, as reported on a same property basis for the Company’s daily newspapers only, consists of the following:


                                                                                                                                                              Year Ended September 30

(Thousands of Inches)            2002    2001    Percent Change

Retail        6,084    6,245    (2 .6)%
National        337    368    (8 .4)
Classified        5,770    5,700    1 .2

                           12,191    12,313    (1 .0)%

Advertising in niche publications decreased 1.5% on a same property basis. Online advertising increased 18.9% on a same property basis, due to cross selling with the Company’s print publications.

Circulation and Other Revenue

Same property circulation revenue decreased $461,000, or 0.6%, in 2002 primarily due to the loss of a Sunday. The Company’s same property average daily newspaper circulation units, including MNI, as measured by the Audit Bureau of Circulations, increased 1.2% and Sunday circulation increased 0.3% for the six months ended September 2002 compared to the same period in the prior year. Total daily and Sunday circulation increased 0.1% and decreased 0.1%, respectively, in the same period. For the six months ended March 2002, same property average daily circulation units, including MNI, increased 2.0% and Sunday circulation increased 0.6% compared to the same period in the prior year. The Company is focused on growing circulation units and revenue through a number of initiatives.

Same property commercial printing revenue declined $3,051,000, or 12.5%, in 2002 due, in part, to economic conditions and the loss of certain key customers. Same property online services and other revenue decreased $1,163,000, or 6.5%, in 2002.

Operating Expenses and Results of Operations

The following table sets forth the Company’s operating expenses and overall results as reported in the Consolidated Financial Statements:


                                                                                                                                                                 Year Ended
                                                                                                                                                                September 30                             Percent Change

(Thousands)      2002    2001    Tota l  Same Property


  
Compensation   $ 209,263   $ 169,530    23 .4%  (3 .6)%
Newsprint and ink    43,727    42,009    4 .1  (19 .1)
Other operating expenses    125,645    107,448    16 .9  (4 .3)

                                               378,635    318,987    18 .7  (6 .1)

Operating cash flow    145,021    107,979    34 .3  7 .9
Depreciation and amortization    35,050    31,357    11 .8  (26 .7)

Operating income, before equity in net income  
   of associated companies    109,971    76,622    43 .5  17 .9
Equity in net income of associated companies    9,057    7,651    18 .4  N A

Operating income    119,028    84,273    41 .2  N A
Non-operating income (expense), net    (10,778 )  6,418    N M  N A

Income from continuing operations before  
   income taxes    108,250    90,691    19 .4  N A
Income tax expense    29,366    32,620    (10 .0)  N A

Income from continuing operations   $ 78,884   $ 58,071    35 .8%  N A

Costs other than depreciation and amortization increased $59,648,000, or 18.7%, in 2002. All categories of expenses were impacted by the acquisitions of Howard, which the Company purchased in April 2002, and the remaining 50% of SCN in July 2002. In total, acquisitions accounted for $79,833,000 of operating costs, excluding depreciation and amortization, in 2002. Businesses sold in 2002, but still included in continuing operations accounted for $3,362,000 of operating expenses other than depreciation and amortization in 2002 and $10,401,000 of such expenses in 2001.

Compensation expense increased $39,733,000, or 23.4%, in 2002 as workforce reductions, delayed salary increases and one-time and permanent changes in benefit programs in existing businesses were more than offset by costs of acquired businesses. Newsprint and ink costs increased $1,718,000, or 4.1%, in 2002 as volume increases related to acquired businesses more than offset price decreases and same property volume declines. Other operating costs, exclusive of depreciation and amortization, increased $18,197,000, or 16.9%, in 2002 as costs of acquired businesses more than offset cost savings on a same property basis.

In 2002, the Company adopted the provisions of FASB Statement 142. As a result, goodwill and indefinite useful life intangible assets acquired in a purchase business combination are no longer being amortized, but are tested for impairment at least annually. Amortization expense related to goodwill was $7,815,000 in 2001. The increase in depreciation and amortization expense in 2002 is primarily due to the acquisitions of Howard and SCN, offset by the elimination of goodwill amortization.

Operating cash flow improved 34.3% to $145,021,000 in 2002 from $107,979,000 in 2001. Operating cash flow margin improved to 27.7% from 25.3% in the prior year. The Company’s efforts at controlling expenses and lower newsprint prices all contributed to the improvement, offset to some extent by lower margins of acquired businesses. Equity in net income of associated companies increased due primarily to the inclusion of SCN for part of the year. SCN was accounted for as an equity investment from April through June 2002, prior to the acquisition of the remaining 50% of SCN in July 2002. Operating income margin increased to 22.7% in 2002 from 19.7% for the same reasons, but was further impacted by a higher level of amortization from acquisitions, offset by the goodwill accounting change.

Non-operating Income and Expense

Financial income decreased $22,541,000 to $6,007,000 in 2002. The Company’s invested balances decreased $433,000,000 due to the April 2002 acquisition of Howard. Balances were further reduced in 2002 by final income tax payments related to the sale of broadcast properties in 2001. Reinvestment rates also declined from the prior year. Financial expense increased to $15,777,000 due to increased debt from the acquisitions of Howard and SCN, offset by lower interest rates and subsequent debt reduction from operating cash flows.

Overall Results

Income taxes were 27.1% and 36.0% of pretax income from continuing operations in 2002 and 2001, respectively. The favorable resolution of tax issues reduced income tax expense by approximately $10,100,000 in 2002. The effective rate would have been 36.5% in 2002 without this event.

As a result of all of the above, income from continuing operations totaled $78,884,000 in 2002, compared to $58,071,000 in 2001. Earnings per diluted common share increased to $1.78 in 2002 from $1.32 in 2001. The favorable resolution of tax issues increased 2002 results by $0.23 per share.

DISCONTINUED OPERATIONS

In March 2000, the Board of Directors of the Company made a determination to sell its broadcast properties. In May 2000, the Company entered into an agreement to sell substantially all of its broadcasting operations, consisting of eight network-affiliated and seven satellite television stations, to Emmis Communications Corporation and consummated the transaction in October 2000. The net proceeds of approximately $565,000,000 resulted in an after-tax gain for financial reporting purposes of approximately $250,800,000 in 2001. Results for the broadcast properties have been classified as discontinued operations for all periods presented.

In July 2001, the Company completed the sale of its last broadcasting property. Net proceeds of the sale totaled approximately $7,600,000. The after-tax gain of approximately $4,000,000 on the sale is reflected in discontinued operations in 2001.

A $4,000,000 reduction of income tax expense has been recorded in results from discontinued operations in 2002, from changes in estimates related to state taxes on the sale of broadcasting operations.

In July 2002, the Company acquired the remaining 50% of SCN. The Company’s Flathead group of weekly newspapers in Montana was transferred as partial consideration for the purchase. The Company recognized an after-tax loss of $2,688,000 on the transfer of the Flathead newspapers, which is recorded in discontinued operations in 2002.

In October 2002, the Company completed the sale of its Ashland, Oregon, daily newspaper. The transaction resulted in an after-tax loss on sale of $300,000, which is recorded in discontinued operations in 2002. An additional after-tax loss of $20,000 was recorded in 2003. Results are recorded in discontinued operations for all periods presented in accordance with the provisions of FASB Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

Revenue from discontinued operations in 2002 and 2001 was $5,668,000 and $7,184,000, respectively. There was no revenue from discontinued operations in 2003.

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities of continuing operations was $140,969,000 in 2003, $115,301,000 in 2002 and $106,735,000 in 2001. Decreases in working capital and increased depreciation and amortization from the acquisitions of Howard and SCN in 2002 accounted for the change between 2003 and 2002. Increased income from continuing operations, offset by increases in working capital, accounted for the change between 2002 and 2001.

Cash required for investing activities totaled $12,791,000 in 2003, $547,474,000 in 2002, and $223,304,000 in 2001. Capital spending accounted for substantially all of the usage of funds in 2003. Acquisitions accounted for substantially all of the usage of funds in 2002. Investment purchases related to the sale of broadcast operations and cash flow from operations were responsible for the primary usage of funds in 2001. The investment portfolio was largely liquidated in 2002 to fund acquisitions.

The Company anticipates that funds necessary for capital expenditures, which are expected to total approximately $20,000,000 in 2004, and other requirements will be available from internally generated funds, availability under its existing credit agreement or, if necessary, by accessing the capital markets.

Financing activities provided funds of $217,163,000 in 2002. Such activities required funds of $135,764,000 in 2003 and $78,026,000 in 2001 primarily for debt reduction and dividends. The Company’s cash dividend payments have been influenced by timing. The annual dividend in 2001, 2002 and 2003 has remained $0.68 per share.

The Company entered into a five-year, $350,000,000 credit agreement in March 2002. The primary purposes of the agreement were to fund the acquisition of Howard, and to provide liquidity for other corporate purposes. $279,000,000 was borrowed under this agreement in 2002 to consummate the acquisitions of Howard and SCN. At September 30, 2003 the outstanding principal balance was $155,000,000.

Debt agreements provide for restrictions as to indebtedness, liens, sales, mergers, acquisitions and investments and require the Company to maintain leverage and interest coverage ratios. Covenants under these agreements are not considered restrictive to normal operations or historical amounts of stockholder dividends. At September 30, 2003, the Company was in compliance with these covenants.

Cash provided by discontinued operations totaled $4,269,000 in 2003 and primarily reflects net proceeds from the sale of the Ashland, Oregon daily newspaper. Cash required for discontinued operations totaled $42,778,000 in 2002, primarily for income tax payments related to the gain on sale of broadcast operations. Cash provided by discontinued operations totaling $437,337,000 in 2001 primarily reflects net proceeds from the sale of broadcast operations.

SEASONALITY

The Company’s largest source of publishing revenue, retail advertising, is seasonal and tends to fluctuate with retail sales in markets served. Historically, retail advertising is higher in the first and third fiscal quarters. Newspaper classified advertising revenue is lowest in the second fiscal quarter.

Quarterly results of operations are summarized in Note 18 to the Consolidated Financial Statements, included herein.

INFLATION

The Company has not been significantly impacted by inflationary pressures over the last several years. The Company anticipates that changing costs of newsprint, its basic raw material, may impact future operating costs. Price increases (or decreases) for the Company’s products are implemented when deemed appropriate by management. The Company continuously evaluates price increases, productivity improvements and cost reductions to mitigate the impact of inflation.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2003, the FASB issued Interpretation 46, Consolidation of Variable Interest Entities — an interpretation of ARB No. 51. This interpretation provides new consolidation accounting guidance for entities involved with variable interest entities (VIE). This guidance requires a primary beneficiary, defined as an entity which participates in either a majority of the risks or rewards of such VIE, to consolidate the VIE. A VIE would not be subject to this interpretation if such entity has sufficient voting equity capital (presumed to require a minimum of 10%), such that the entity is able to finance its activities without additional subordinated financial support from other parties. The adoption of Interpretation 46 did not have a material effect on the Company’s Consolidated Financial Statements.

In May 2003, the FASB issued Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. Statement 150 establishes standards for how companies classify and measure certain financial instruments with characteristics of both liabilities and equity. The statement requires companies to classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Certain provisions of Statement 150 were effective for the Company for the three months ended September 2003 and the adoption of those provisions did not have a material impact on the Company’s Consolidated Financial Statements.

CONTRACTUAL OBLIGATIONS

The following table summarizes the more significant of the Company’s contractual obligations.


(Thousands of Dollars)                                                                                                         Payments (Or Commitments) Due By Year

                                 Less Than              More  
Nature of Obligation    Total    1    1-3    3-5    Than 5  


  
Long-term debt   $ 305,200   $ 36,600   $ 24,000   $ 179,800   $ 64,800  
Lease obligations    16,833    2,081    3,336    2,232    9,184  

Total   $ 322,033   $ 38,681   $ 27,336   $ 182,032   $ 73,984  


  
Newsprint (metric tons)    298,000    122,000    170,000    6,000             -  

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk stemming from changes in interest rates and commodity prices. Changes in these factors could cause fluctuations in earnings and cash flows. In the normal course of business, exposure to certain of these market risks is managed as described below.

INTEREST RATES

The Company’s debt structure and interest rate risk are managed through the use of fixed and floating rate debt. The Company’s primary exposure is to the London Interbank Offered Rate (LIBOR). A one percent increase in LIBOR would decrease income from continuing operations before income taxes approximately $1,550,000, based on floating rate debt outstanding at September 30, 2003, excluding MNI.

Interest rate risk in the Company’s investment portfolio is managed by investing only in securities with a maturity at date of acquisition of 180 days or less. Only high-quality investments are considered. In April 2002, the Company liquidated substantially all of its investment portfolio in conjunction with the acquisition of Howard.

COMMODITIES

Certain materials used by the Company are exposed to commodity price changes. The Company manages this risk through instruments such as purchase orders and non-cancelable supply contracts. The Company is also involved in continuing programs to mitigate the impact of cost increases through identification of sourcing and operating efficiencies. Primary commodity price exposures are newsprint and, to a lesser extent, ink.

A $10 per metric ton newsprint price increase would result in a reduction in income from continuing operations before income taxes of approximately $1,104,000, based on actual consumption in 2003, excluding MNI.

SENSITIVITY TO CHANGES IN VALUE

The estimate that follows is intended to measure the maximum potential impact on fair value of fixed rate debt of the Company in one year from adverse changes in market interest rates under normal market conditions. The calculation is not intended to represent the actual loss in fair value that the Company expects to incur. The estimate does not consider favorable changes in market rates. The position included in the calculation is fixed rate debt, which totals $150,200,000 at September 30, 2003, excluding MNI.

The estimated maximum potential one-year loss in fair value from a 100 basis point movement in interest rates on market risk sensitive instruments outstanding at September 30, 2003 is approximately $6,100,000. There is no impact on operating results from such changes in interest rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this Item is included herein under the caption “Consolidated Financial Statements”.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

In order to ensure that the information that must be disclosed in filings with the Securities and Exchange Commission is recorded, processed, summarized and reported in a timely manner, the Company has disclosure controls and procedures in place. The Chief Executive Officer, Mary E. Junck, and Chief Financial Officer, Carl G. Schmidt, have reviewed and evaluated disclosure controls and procedures as of September 30, 2003, and have concluded that such controls and procedures are appropriate and that no changes are required.

There have been no significant changes in internal controls, or in other factors that could affect internal controls, since September 30, 2003.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to this Item, except for certain information included under the caption “Executive Team” in Part I of this Form 10-K, is included in the Company’s Proxy Statement dated December 23, 2003, which is incorporated herein by reference, under the captions “Proposal 1 — Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance”.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to this Item is included in the Company’s Proxy Statement dated December 23, 2003, which is incorporated herein by reference, under the captions “Proposal 1 — Election of Directors”, “Compensation of Directors” and “Executive Compensation”; provided, however, that the subsection entitled “Executive Compensation – Report of the Executive Compensation Committee of the Board of Directors on Executive Compensation” shall not be deemed to be incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Certain information with respect to this Item is included in the Company’s Proxy Statement dated December 23, 2003, which is incorporated herein by reference, under the caption “Voting Securities and Principal Holders Thereof”.

Information as of September 30, 2003 with respect to equity compensation plans is as follows:


Plan Category Number of Securities
To Be Issued Upon
Exercise Of
Outstanding
Options, Warrants
And Rights

Weighted Average
Exercise Price Of
Outstanding
Options,Warrants
And Rights
           Number Of
           Securities
           Remaining
           Available For
           Future
           Issuance

                     

Equity compensation plans                
  approved by stockholders (1)(2)   1,177,509   $30.39               2,673,764      

(1)     1990 Long-Term Incentive Plan.
(2)     Excludes purchase rights accruing under the Company’s Employees’ Stock Purchase Plan (Purchase Plan), which has a stockholder          approved reserve of 849,000 shares. Under the Purchase Plan, each eligible employee may purchase shares up to 5% of base          compensation not to exceed $25,000 on the last business day of April each year at a purchase price per share equal to 85% of the lower          of the average of the high and low market price on either the first or last business day of the plan year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Vertis, Inc. (Vertis) provides the Company, in the normal course of business, with an Internet subscription service that allows access to advertising prototypes. Fees paid to Vertis totaled $112,000 in 2003. A director of the Company is an officer of Vertis. In 2003, Vertis acquired The Newspaper Network, Inc. (TNN), which is in the business of placing advertising, including advertising in the Company’s newspapers, for its clients. TNN customarily receives fees from its clients for such services, but receives no compensation from the Company.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information with respect to this Item is included in the Company’s Proxy Statement dated December 23, 2003, which is incorporated herein by reference, under the caption “Relationship with Independent Public Accountants”.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The following documents are filed as part of this Annual Report on Form 10-K:

FINANCIAL STATEMENTS

Consolidated Balance Sheets – September 30, 2003 and 2002
Consolidated Statements of Income – Years ended September 30, 2003, 2002 and 2001
Consolidated Statements of Stockholders’ Equity — Years ended September 30, 2003, 2002 and 2001
Consolidated Statements of Cash Flows – Years ended September 30, 2003, 2002 and 2001
Notes to Consolidated Financial Statements
Independent Auditors’ Reports
Report of Management

FINANCIAL STATEMENT SCHEDULES

All schedules have been omitted as not required, not applicable, not deemed material or because the information is included in the Notes to Consolidated Financial Statements.

EXHIBITS

See Exhibit Index.

REPORTS ON FORM 8-K

The following report on Form 8-K was filed during the three months ended September 30, 2003:


Date of Report     Item(s)     Disclosure(s)    


  
July 21, 2003   9 and 12   Earnings for the three months and nine months ended June 30, 2003 and revenue statistics for  
                    the month of June 2003.  

SIGNATURES

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 on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on the 23rd day of December 2003.

LEE ENTERPRISES, INCORPORATED

         
/s/ Mary E. Junck   /s/ Carl G. Schmidt  
__________________________________   __________________________________  
Mary E. Junck   Carl G. Schmidt  
Chairman, President and Chief Executive Officer   Vice President, Chief Financial Officer   
    and Treasuer   
    (Principal Financial and Accounting Officer)   

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 their respective capacities on the 12th day of November, 2003.

                       Signature


/s/ Rance E. Crain Director
________________________________
Rance E. Crain


/s/ Nancy S. Donovan Director
________________________________
Nancy S. Donovan


/s/ Mary E. Junck Chairman, President, and Chief
________________________________   and Corporate Counsel and Director
Mary E. Junck


/s/ William E. Mayer Director
________________________________
William E. Mayer


/s/ Herbert W. Moloney III Director
________________________________
Herbert W. Moloney III


/s/ Andrew E. Newman Director
________________________________
Andrew E. Newman


/s/ Gordon D. Prichett Director
________________________________
Gordon D. Prichett


/s/ Gregory P. Schermer Vice President - Interactive Media
________________________________   and Corporate Counsel and Director
Gregory P. Schermer


/s/ Mark Vittert Director
________________________________
/s/ Mark Vittert


EXHIBIT INDEX

Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by the Company with the Securities and Exchange Commission, as indicated. Exhibits marked with a plus (+) are management contracts or compensatory plan contracts or arrangements filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K. All other documents listed are filed with this Annual Report on Form 10-K.


Number                                                                                              Description

2.1* Acquisition Agreement by and among Lee Enterprises, Incorporated, Howard Publications, Inc., Howard Energy Co., Inc. and the stockholders of Howard Publications, Inc. named therein dated February 11, 2002 and First Amendment thereto dated March 29, 2002 (Exhibit 2.1 to Current Report on Form 8-K dated April 1, 2002)

2.2* Escrow Agreement by and among Lee Enterprises, Incorporated, and HPI Indemnifying Stockholders listed on Schedule I attached thereto, and Wells Fargo Iowa, N.A. as Escrow Agent dated as of April 1, 2002 (Exhibit 2.2 to Current Report on Form 8-K dated April 1, 2002)

3.1* Restated Certificate of Incorporation of Lee Enterprises, Incorporated as of November 14, 2002 (Exhibit 3.1 to Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2002)

3.2* Lee Enterprises, Incorporated Amended and Restated By-Laws as of January 23, 2002 (Exhibit 3 to Form 10-Q for Quarter Ended March 31, 2002)

4* Rights Agreement, dated as of May 7, 1998, between Lee Enterprises, Incorporated and The First Chicago Trust Company of New York, which includes the form of Certificate of Designation of the Preferred Stock as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights as Exhibit C (Exhibit 1 to Current Report on Form 8-K dated May 7, 1998)

10.1+* Lee Enterprises, Incorporated 1990 Long-Term Incentive Plan effective as of October 1, 1999, as amended, restated and extended on January 26, 1999 (Exhibit A to Schedule 14A Definitive Proxy Statement for 1998)

10.1a+* Forms of related Incentive Stock Option Agreement, Non-Qualified Stock Option Agreement and Restricted Stock Option Agreement related to Lee Enterprises, Incorporated 1990 Long-Term Incentive Plan effective as of October 1, 1999, as amended, restated and extended on January 26, 1999 (Exhibit 10.1a to Annual Report on form 10-K for the Fiscal Year Ended September 30, 2002)

10.2+* Lee Enterprises, Incorporated Amended and Restated 1977 Employees' Stock Purchase Plan as amended February 1, 1996 (Exhibit B to Schedule 14A Definitive Proxy Statement for 1996)

10.3+* Lee Enterprises, Incorporated 1996 Stock Plan for Non-Employee Directors, effective February 1, 1996 (Exhibit C to Schedule 14A Definitive Proxy Statement for 1996)

10.4+* Lee Enterprises, Incorporated Supplementary Benefit Plan (Exhibit 10.4 to Annual Report on Form 10-K for the Fiscal Year Ended September 30, 2002)

10.5+* Form of Employment Agreement for Lee Enterprises, Incorporated Executive Officers Group (Exhibit 10 to Annual Report on Form 10-K for the Fiscal Year Ended September 30, 1998)

10.6+* Form of Indemnification Agreement for Lee Enterprises, Incorporated Directors and Executive Officers Group (Exhibit 10 to Annual Report on Form 10-K for the Fiscal Year Ended September 30,1998)


Number                                                                                              Description

10.7 Lease Agreement between Ryan Companies US, Inc. and Lee Enterprises, Incorporated dated May 2003

16* Former Independent Accountant's Letter (Exhibit 16 to Current Report on Form 8-K dated July 2, 2002)

21 Subsidiaries and associated companies

23.1 Consent of Deloitte & Touche LLP

23.2 Consent of McGladrey & Pullen, LLP

24 Power of Attorney

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1* Note Purchase Agreement by and among Lee Enterprises, Incorporated and the Purchasers named therein dated as of March 15, 1998 (Exhibit 99 to Current Report on Form 8-K dated March 31, 1998).

99.1a* First Amendment to the Note Purchase Agreement, dated as of August 30, 2001, by and among Lee Enterprises, Incorporated and the Purchasers named therein dated as of March 15, 1998 (Exhibit 99.1 to Current Report on Form 8-K dated September 5, 2001)

99.2* Credit Agreement among Lee Enterprises, Incorporated, Bank of America, N.A., as Administrative Agent and other lenders party thereto dated as of March 28, 2002 (Exhibit 99 to Current Report on Form 8-K dated April 1, 2002)


CONSOLIDATED FINANCIAL STATEMENTS   PA GE

Consolidated Statements of Income

  29

 
Consolidated Balance Sheets

  30

 
Consolidated Statements of Stockholders' Equity

  32

 
Consolidated Statements of Cash Flows

  33

 
Notes to Consolidated Financial Statements

  34

 
Independent Auditors' Reports

  51

 
Report of Management  53  

CONSOLIDATED STATEMENTS OF INCOME

   Year Ended September 30

(Thousands, Except Per Common Share Data)    2003    2002    2001  


  
Operating revenue:                    
   Advertising   $ 480,988   $ 377,145   $ 300,809  
   Circulation    133,148    105,711    81,441  
   Other    42,605    40,800    44,716  

                                                          656,741    523,656    426,966  

Operating expenses:                    
   Compensation    272,311    209,263    169,530  
   Newsprint and ink    57,773    43,727    42,009  
   Depreciation    18,817    18,127    15,992  
   Amortization of intangible assets    27,799    16,923    15,365  
   Other    150,107    125,645    107,448  

                                                          526,807    413,685    350,344  

Operating income, before equity in net income of                    
    associated companies    129,934    109,971    76,622  
Equity in net income of associated companies    8,053    9,057    7,651  

Operating income    137,987    119,028    84,273  

Non-operating income (expense), net:                    
   Financial income    1,120    6,007    28,548  
   Financial expense    (16,535 )  (15,777 )  (11,963 )
   Loss on sales of businesses    (14 )  (339 )  (6,233 )
   Other, net    (1,035 )  (669 )  (3,934 )

                                                          (16,464 )  (10,778 )  6,418  

Income from continuing operations before income taxes    121,523    108,250    90,691  
Income tax expense    43,462    29,366    32,620  

Income from continuing operations    78,061    78,884    58,071  

Discontinued operations:                    
   Loss from discontinued operations, net of income tax  
      effect    -    (176 )  (373 )
   Gain (loss) on dispositions, net of income tax effect    (20 )  1,122    254,772  

                                                          (20 )  946    254,399  

Net income   $ 78,041   $ 79,830   $ 312,470  


  
Earnings per common share:  
   Basic:                    
      Continuing operations   $ 1.76   $ 1.79   $ 1.33  
      Discontinued operations    -    0.02    5.81  

Net income   $ 1.76   $ 1.81   $ 7.14  


  
   Diluted:  
      Continuing operations   $ 1.75   $ 1.78   $ 1.32  
      Discontinued operations    -    0.02    5.77  

Net income   $ 1.75   $ 1.80   $ 7.09  

The accompanying Notes are an integral part of the Consolidated Financial Statements.

CONSOLIDATED BALANCE SHEETS


  September 30

(Thousands, Except Per Share Data)     2003          2002  


  
ASSETS                    

  
Current assets:                    
   Cash and cash equivalents   $ 11,064         $ 14,381  
   Accounts receivable, less allowance for doubtful accounts:                    
      2003 $5,596; 2002 $6,035    58,698          57,313  
   Receivable from associated companies    1,500          1,500  
   Inventories    9,603          10,166  
   Deferred income taxes    5,431          7,812  
   Other    3,589          2,986  
   Assets of discontinued operations    -             7,723  

                                                               89,885          101,881  

Investments:                    
   Associated companies    21,205          20,278  
   Other    8,267          8,498  

                                                               29,472          28,776  

Property and equipment:                    
   Land and improvements    21,271          21,095  
   Buildings and improvements    96,736          96,442  
   Equipment    240,047          231,752  

                                                               358,054          349,289  
   Less accumulated depreciation    157,098          144,992  

                                                               200,956          204,297  

Goodwill    611,011          611,938  
Other intangible assets    486,369          513,109  
Other    3,684          3,829  

  

    1,421,377     $ 1,463,830  

The accompanying Notes are an integral part of the Consolidated Financial Statements.


   September 30

                                                           2003        2002  


  
LIABILITIES AND STOCKHOLDERS' EQUITY                  

  
Current liabilities:                  
   Notes payable and current maturities of long-term debt   $ 36,600       $ 14,600  
   Accounts payable    20,284        21,015  
   Compensation and other accrued liabilities    33,142        32,591  
   Income taxes payable    16,553        5,103  
   Dividends payable    -           7,533  
   Liabilities of discontinued operations    -           157  
   Unearned revenue    27,972        27,750  

                                                           134,551        108,749  

Long-term debt, net of current maturities    268,600        394,700  
Deferred items:                  
   Retirement and compensation    8,159        7,655  
   Income taxes    207,090        208,957  
Other    821        995  

                                                           619,221        721,056  

Stockholders' equity:                  
   Serial convertible preferred stock, no par value;    -           -     
      authorized 500 shares; none issued                  
   Common Stock, $2 par value; authorized    70,994        69,242  
      60,000 shares; issued and outstanding:                  
         2003 35,497 shares;                  
         2002 34,621 shares                  
   Class B Common Stock, $2 par value; authorized    18,248        19,380  
      30,000 shares; issued and outstanding:                  
         2003 9,124 shares;                  
         2002 9,690 shares                  
   Additional paid-in capital    78,697        67,084  
   Unearned compensation    (2,457 )      (1,845 )
   Retained earnings    636,674        588,913  

                                                           802,156        742,774  

                                                          $1,421,377       $ 1,463,830  

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


   Year Ended September 30

         Amount       Shares

(Thousands, Except Per Common Share Data)    2003    2002    2001    2003    2002    2001  


  
Common Stock:   $ 69,242   $ 67,318   $ 66,140    34,621    33,659    33,070  
   Balance, beginning of year                                      
      Conversion from Class B                                      
         Common Stock    1,132    1,378    694    566    689    347  
      Shares issued    638    580    1,194    319    290    597  
      Shares reacquired    (18 )  (34 )  (710 )  (9 )  (17 )  (355 )

Balance, end of year    70,994    69,242    67,318    35,497    34,621    33,659  


  
Class B Common Stock:                                      
   Balance, beginning of year    19,380    20,758    21,480    9,690    10,379    10,740  
      Conversion to Common                                      
         Stock    (1,132 )  (1,378 )  (694 )  (566 )  (689 )  (347 )
      Shares reacquired    -       -       (28 )  -       -       (14 )

Balance, end of year    18,248    19,380    20,758    9,124    9,690    10,379  


  
Additional paid-in capital:                                      
   Balance, beginning of year    67,084    57,037    44,271                    
      Stock option expense, net    3,060    2,414    1,932                    
      Shares issued    8,553    7,633    10,834                    

Balance, end of year    78,697    67,084    57,037                    


  
Unearned compensation:                                      
   Balance, beginning of year    (1,845 )  (1,130 )  (1,227 )                  
      Restricted shares issued    (2,309 )  (2,067 )  (1,136 )                  
      Restricted shares canceled    9    92    251                    
      Amortization    1,688    1,260    982                    

Balance, end of year    (2,457 )  (1,845 )  (1,130 )                  


  
Retained earnings:                                      
   Balance, beginning of year    588,913    539,210    265,578                    
      Net income    78,041    79,830    312,470                    
      Cash dividends per                                      
         common share:    (30,259 )  (30,075 )  (29,797 )                  
            2003 $0.68;                                      
             2002 $0.68;                                      
             2001 $0.68  
      Shares reacquired    (21 )  (52 )  (9,041 )                  

Balance, end of year    636,674    588,913    539,210                    

Total stockholders' equity   $ 802,156   $ 742,774   $ 683,193    44,621    44,311    44,038  

The accompanying Notes are an integral part of the Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS


      Year Ended September 30

(Thousands)      2003    2002    2001  


  
Cash provided by operating activities:                    
   Net income   $ 78,041   $ 79,830   $ 312,470  
   Results of discontinued operations    20    (946 )  (254,399 )

Income from continuing operations    78,061    78,884    58,071  
Adjustments to reconcile income from continuing                    
   operations to net cash provided by operating                    
   activities of continuing operations:                    
     Depreciation and amortization    46,616    35,050    31,357  
     Stock compensation expense    4,628    3,936    3,216  
     Losses on sales, or expected sales, of businesses    30    339    6,233  
     Distributions less than earnings of associated                    
       companies    (927 )  (1,338 )  (552 )
     Change in operating assets and liabilities, net of                    
       effects from business acquisitions:                    
            Decrease (increase) in receivables    (1,326 )  2,722    (636 )
            Decrease (increase) in inventories and other    2,341    (6,562 )  47  
            Decrease in accounts payable,                    
              accrued expenses and unearned revenue    (770 )  (98 )  (5,507 )
            Increase (decrease) in income taxes payable    11,450    (9,702 )  6,449  
            Other    866    12,070    8,057  

Net cash provided by operating activities    140,969    115,301    106,735  

Cash required for investing activities:                    
   Sales (purchases) of temporary cash investments, net    -       211,221    (211,221 )
   Purchases of property and equipment    (16,128 )  (13,522 )  (9,904 )
   Acquisitions, net    (1,073 )  (753,089 )  (4,518 )
   Proceeds from sales of businesses    -       7,509    5,341  
   Other    4,410    407    (3,002 )

Net cash required for investing activities    (12,791 )  (547,474 )  (223,304 )

Cash provided by (required for) financing activities:                    
   Proceeds from (payments on) notes payable, net    (3,000 )  3,000    (37,937 )
   Payments on long-term debt    (141,100 )  (46,100 )  (11,600 )
   Purchases of common stock    (272 )  (341 )  (10,050 )
   Proceeds from long-term debt    40,000    279,000    -     
   Financing costs    -       (2,442 )  -     
   Cash dividends paid    (37,792 )  (22,542 )  (29,797 )
   Other, primarily issuance of common stock    6,400    6,588    11,358  

Net cash provided by (required for) financing activities    (135,764 )  217,163    (78,026 )

Net cash provided by (required for) discontinued  
   operations    4,269    (42,778 )  437,337  

Net increase (decrease) in cash and cash equivalents    (3,317 )  (257,788 )  242,742  
Cash and cash equivalents:                    
   Beginning of year    14,381    272,169    29,427  

End of year   $ 11,064   $ 14,381   $ 272,169  

The accompanying Notes are an integral part of the Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company directly, and through its ownership of associated companies, publishes 44 daily newspapers in 18 states and nearly 200 weekly, classified and specialty publications, along with associated online services. The Company currently operates in a single business segment as its enterprises have similar economic characteristics, products, customers and distribution.

1   SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Certain amounts as previously reported have been reclassified to conform with the current year presentation.

Effective in October 2002, the Company adopted the fair value provisions of accounting for stock-based compensation, and all prior periods have been restated. See Note 9.

References to 2003, 2002 and 2001 mean the years ended September 30, 2003, 2002 and 2001, respectively.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, revenue 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, or majority-owned, subsidiaries. All significant intercompany transactions have been eliminated.

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.

Investments

Investments in the common stock of associated companies are accounted for using the equity method and are reported at cost plus the Company’s share of undistributed earnings since acquisition, less amortization of intangible assets.

Other investments primarily consist of marketable securities held in trust under a deferred compensation arrangement and investments for which no established market exists. Marketable securities are classified as trading securities and carried at fair value with gains and losses reported in the Consolidated Statements of Income. Non-marketable securities are carried at cost.

Accounts Receivable

The Company evaluates its allowance for doubtful accounts receivable based on the customer’s historical credit experience, payment trends, and other economic factors, to the extent available.

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 at September 30, 2003 and 2002 were less than replacement cost by $2,439,000 and $1,887,000, respectively.

Other inventories consisting of ink, plates and film are priced at the lower of cost or market, with cost being determined by the first-in, first-out method.

Property and Equipment

Property and equipment are carried at cost. Equipment, except for printing presses and mailroom equipment, is depreciated primarily by declining-balance methods. The straight-line method is used for all other assets. The estimated useful lives are as follows:


        Years


Buildings and improvements   5 - 49  
Printing presses and mailroom equipment   4 - 28  
Other   3 - 11  

The Company capitalizes interest as a component of the cost of constructing major facilities.

Goodwill and Other Intangible Assets

Intangible assets include covenants not to compete, consulting agreements, customer lists, newspaper subscriber lists, mastheads and other. Intangible assets subject to amortization are being amortized as follows:


        Years


  
Noncompete and consulting agreements     3 - 15  
Customer lists     3 - 23  
Newspaper subscriber lists   12 - 33  
Other          10  

In July 2001, the Financial Accounting Standards Board (FASB) issued Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated or completed after June 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 requires that goodwill and intangible assets with indefinite useful lives, such as mastheads, no longer be amortized, but instead tested for impairment at least annually. Statement 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with Statement 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.

In August 2001, the FASB issued Statement 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes Statement 121, discussed above, but retains the fundamental provisions of Statement 121 with regard to recognition and measurement of impairment of long-lived assets.

The Company was required to adopt the provisions of Statement 141 immediately, except with regard to business combinations initiated prior to July 2001, and Statements 142 and 144 effective no later than 2003. Furthermore, intangible assets determined to have an indefinite useful life and goodwill that are acquired in a purchase business combination completed after June 2001 may not be amortized. The Company elected to adopt Statements 142 and 144 effective in 2002.

Statement 141 requires, upon adoption of Statement 142, that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination, and make any necessary reclassifications in order to conform with the new criteria for recognition apart from goodwill. Upon adoption of Statement 142, the Company reassessed the useful lives and residual values of all intangible assets acquired in purchase business combinations. There were no significant reclassifications or impairment losses identified as a result of adoption. In addition, the Company is required to periodically test the intangible assets identified as having an indefinite useful life and goodwill for impairment in accordance with the provisions of Statement 142.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The impact of adoption of these statements is as follows:


      Year Ended September 30

(Thousands)       2003  2002  2001    

Income from continuing operations, as reported   $ 78,061   $ 78,884   $ 58,071  
Goodwill amortization, net of income tax benefit    -    -    5,861  
Goodwill amortization of associated companies    -    -    236  

Income from continuing operations, as adjusted    78,061    78,884    64,168  
Discontinued operations    (20 )  946    254,399  

Net income, as adjusted   $ 78,041   $ 79,830   $ 318,567  

The earnings per common share impact related to the adoption of these statements is as follows:


      Year Ended September 30

       2003   2002   2001    


  
Basic:                          
   Income from continuing operations, as reported   $1.76   $ 1 .79 $1 .33  
   Goodwill amortization      -       -   0 .14

   Income from continuing operations, as adjusted    1.76    1 .79  1 .47  
   Discontinued operations    -       0 .02  5 .81  

Net income, as adjusted   $1.76  1 .81 $7 .28


  
Diluted:  
   Income from continuing operations, as reported   $1.75 $1 .78 $1 .32
   Goodwill amortization    -        -            0 .14

   Income from continuing operations, as adjusted    1.75  1 .78  1 .46
   Discontinued operations    -    0 .02  5 .77

Net income, as adjusted   $1.75 $1 .80 $7 .23

Revenue Recognition

Advertising revenues are recorded when advertisements are placed in the publication and circulation revenues are recorded as newspapers are delivered over the subscription term. Other revenue is recognized when the related product or service has been delivered. Unearned revenue arises in the ordinary course of business from advance subscription payments for newspapers.

Advertising Costs

Advertising costs, which are not material, are expensed as incurred.

Income Taxes

Deferred income taxes are provided using the liability method, whereby deferred income tax assets are recognized for deductible temporary differences and loss carryforwards and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax basis. Deferred income 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 income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company files income tax returns with various state tax jurisdictions and the Internal Revenue Service. From time to time the Company is audited by those agencies, and those audits may result in proposed adjustments. The Company has considered the alternative interpretations that may be assumed by the various taxing agencies and does not anticipate any material adverse impact on its earnings as a result of such audits.

Stock Compensation

The Company has three stock-based compensation plans. Prior to 2003, the Company accounted for grants under those plans under APB Opinion 25 and related interpretations. Accordingly, no compensation cost was recognized for grants under the stock option or stock purchase plans. Effective in October 2002, the Company adopted the fair value expense recognition provisions of FASB Statement 123, Accounting for Stock-Based Compensation, for stock-based employee compensation, as amended by FASB Statement 148, Accounting for Stock-Based Compensation – Transition and Disclosure. All prior periods presented have been restated to reflect the compensation cost that would have been recognized had the recognition provisions of Statements 123 and 148 been applied to all awards granted to employees after October 1, 1995.

The Company amortizes as compensation expense the value of restricted stock, issued under a long-term incentive plan, by the straight-line method over the restriction period, which is generally three years. See Note 9.

Uninsured Risks

The Company is self-insured for health care costs of its employees, subject to stop loss insurance, which limits exposure to large claims. The Company accrues its estimated health care costs in the period in which such costs are incurred, including an estimate of incurred but not reported claims. Other insurance carries deductible losses of varying amounts. Letters of credit totaling $3,070,000 at September 30, 2003 are outstanding in support of the Company’s insurance program.

Discontinued Operations

In accordance with the provisions of FASB Statement 144, the operations and related losses on properties sold, or identified as held for sale in 2002, have been presented as discontinued operations in the Consolidated Statements of Income for all periods presented. Gains are recognized when realized.

2 ACQUISITIONS AND DIVESTITURES

All acquisitions are accounted for as a purchase and, accordingly, the results of operations since the respective dates of acquisition are included in the Consolidated Financial Statements.

The Company acquired three specialty publications at a cost of $1,073,000 in 2003.

In April 2002, the Company acquired the stock of Howard Publications, Inc. (Howard), a privately owned company comprised of 15 daily newspapers, 50% of the stock of Sioux City Newspapers, Inc. (SCN), and related specialty publications. The transaction was valued at approximately $696,800,000 after taking into account $50,000,000 of cash on the Howard balance sheet retained by the Company, and other adjustments. Certain non-publishing businesses of Howard were not included in the transaction.

The Company paid the purchase price and expenses related to the transaction from $433,000,000 of available funds, including proceeds from the sale of its broadcast properties in 2001, and revolving loans under the terms of a five year, $350,000,000 credit agreement.

The representations and warranties of Howard stockholders were secured for varying amounts pursuant to an escrow agreement between the Company and the indemnifying Howard stockholders.

In July 2002, the Company acquired the remaining 50% of SCN from a privately owned company. The transaction was valued at approximately $57,000,000 and was funded in part with approximately $42,000,000 in cash and temporary cash investments. The remainder of the purchase price was funded by the Company’s credit agreement. $3,000,000 of the purchase price was payable in November 2002. The Company’s Flathead group of weekly newspapers in Montana was transferred as partial consideration for the purchase.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma consolidated income information for 2002 and 2001, set forth below, presents results of operations as if the acquisitions of Howard and SCN had occurred at the beginning of each year and are not necessarily indicative of future results or actual results that would have been achieved had the acquisitions occurred as of the beginning of the respective years. Pro forma results do not include the acquisitions made in 2003 and 2001 because the impact is not significant.


      Year Ended September 30

(Thousands, Except Per Common Share Data) (Unaudited)    2002    2001  


  
Operating revenue   $ 643,516   $ 655,560  
Income from continuing operations    79,755    43,052  
Earnings per common share:  
   Basic   $ 1.81   $ 0.98  
   Diluted    1.80    0.98  


  
The purchase price allocation for Howard, including SCN and direct costs of acquisitions, is as follows:  

  

 (Thousands)  


  
Current assets         $ 24,501  
Property and equipment          93,941  
Goodwill          394,332  
Other intangible assets          453,703  

Total assets acquired          966,477  
Current liabilities          27,237  
Long-term liabilities          185,394  

          $ 753,846  


  
Acquired intangible assets consist of the following:  

  

           Weighted Average
           Amortization Period
(Thousands)Amount       (Years)             


  
Amortizable intangible assets:              
  Customer lists$361,074     23        
  Newspaper subscriber lists60,607       24         
  Noncompete agreements6,000       3         

                                                                                                                  427,681       23        
Unamortizable intangible assets:             
  Mastheads26,022           

                                                                                                                  $453,703         

The Company acquired six weekly newspapers or specialty publications and increased its ownership in an Internet venture in 2001.

The Company sold several weekly and specialty publications in 2002 and 2001. These transactions were initiated prior to the adoption of Statement 144 and, accordingly, results to the respective dates of sale and the gain or loss on sale are included in continuing operations. Proceeds from sales of properties or exchanges consist of the following:


      Year Ended September 30

(Thousands)    2002        2001  


  
Noncash working capital   $ 492       $ 519  
Property and equipment    327        1,319  
Intangible assets    7,029        4,961  

     7,848        6,799  

  
Loss recognized on sales, or expected sales,  
  of businesses    (339 )      (1,458 )

                                                                                                             $ 7,509       $ 5,341  

In 2001, the Company also recorded an expected loss of $4,775,000 related to businesses identified for sale. The properties were sold in 2002 and an additional loss of approximately $339,000 was recognized. These amounts are classified as non-operating expense in the Consolidated Statements of Income.

3 DISCONTINUED OPERATIONS

In March 2000, the Board of Directors of the Company made a determination to sell its broadcast properties. In May 2000, the Company entered into an agreement to sell substantially all of its broadcasting operations, consisting of eight network-affiliated and seven satellite television stations, to Emmis Communications Corporation and consummated the transaction in October 2000. The net proceeds of approximately $565,000,000 resulted in an after-tax gain for financial reporting purposes of approximately $250,800,000 in 2001. Results for the broadcast properties have been classified as discontinued operations for all periods presented.

In July 2001, the Company completed the sale of its last broadcasting property. Net proceeds of the sale totaled approximately $7,600,000. The after-tax gain of approximately $4,000,000 on the sale is reflected in discontinued operations in 2001.

The Company’s Flathead group of weekly newspapers in Montana was transferred as partial consideration for the purchase of the remaining 50% of SCN. The Company recognized an after-tax loss of $2,688,000 on the transfer of the Flathead newspapers, which is recorded in discontinued operations in 2002.

In October 2002, the Company completed the sale of its Ashland, Oregon, daily newspaper. The transaction resulted in an after-tax loss on sale of $300,000, which is recorded in discontinued operations in 2002. An additional after tax loss of approximately $20,000 was recognized in 2003. Results for Flathead and Ashland are recorded in discontinued operations for all periods presented in accordance with the provisions of Statement 144.

Income from discontinued operations consists of the following:


              Year Ended September 30

(Thousands)    2003    2002    2001  


  
Operating revenue   $ -        $ 5,668   $ 7,184  

  
Income from, or gain (loss) on sale of,                    
  discontinued operations    (34 )  (5,271 )  402,086  
Income tax expense (benefit)    (14 )  (6,217 )  147,687  

                                                                                                         $ (20 ) $ 946   $ 254,399  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income tax benefit related to discontinued operations differs from the amounts computed by applying the U.S. federal income tax rate in 2002 as follows:


                                                                       Year Ended
                                                                       September 30                                                                                                         2002


  
 Computed "expected" income tax benefit    (35 .0)%
 State income taxes, net of federal tax benefit    (3 .8)
 Resolution of tax issues    (75 .9)
 Other    (3 .2)

                                                                                                                  (117 .9)%

A $4,000,000 reduction of income tax expense has been recorded in results from discontinued operations in 2002, from changes in estimates related to state taxes on the sale of broadcasting operations. The difference from the U.S. federal income tax rate in 2003 and 2001 is primarily attributable to state income taxes.

The components of assets and liabilities of discontinued operations at September 30, 2002 are not significant.

4 INVESTMENTS IN ASSOCIATED COMPANIES

The Company has a 50% ownership interest in Madison Newspapers, Inc. (MNI), a company that publishes daily and Sunday newspapers, and other publications in Madison, Wisconsin, and other Wisconsin locations. MNI conducts its business under the trade name Capital Newspapers.

Summarized financial information of MNI is as follows:


                                                                           September 30

(Thousands)           2003    2002  


  
ASSETS                    

  
Current assets         $ 23,573   $ 24,284  
Investments and other assets          48,302    49,608  
Property and equipment, net          15,847    13,972  

          $ 87,722   $ 87,864  


  
LIABILITIES AND STOCKHOLDERS' EQUITY                    

  
Current liabilities, excluding debt         $ 13,568   $ 14,673  
Debt, including current maturities          29,844    32,344  
Other          1,900    291  
Stockholders' equity          42,410    40,556  

          $ 87,722   $ 87,864  


  

                         Year Ended September 30

(Thousands)    2003    2002    2001  


  
Operating revenue   $ 112,471   $ 106,527   $ 105,880  
Operating expenses, excluding depreciation                    
   and amortization    80,977    74,188    76,484  
Operating income    26,410    27,703    24,824  
Net income    16,106    16,927    15,302  

Accounts receivable from associated companies consist of dividends due from MNI. Fees for editorial, marketing and information technology services provided to MNI by the Company are included in other revenue and totaled $9,665,000, $8,962,000 and $9,300,000 in 2003, 2002 and 2001, respectively. In 2003, the Company also received $694,000 for purchase of a software system.

Certain other information relating to the Company’s investment in MNI is as follows:


                          September 30

(Thousands)    2003    2002  


  
Company's share of:          
   Stockholders' equity   $21,205   $20,278  
   Undistributed earnings    20,955    20,028  

In April 2002, a subsidiary of MNI acquired certain of the assets of Citizen Newspapers, LLC, which owned the Beaver Dam Daily Citizen and various other publications in Wisconsin. The purchase price was approximately $18,440,000.

5 GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill are as follows:


                                                                                                        Year Ended
                                                                                                       September 30

  (Thousands)    2003    2002  


  
 Goodwill, beginning of year    $ 611,938    $ 225,147  
 Goodwill related to acquisitions    (927 )  395,223  
 Goodwill related to sales of businesses    -      (8,432 )

 Goodwill, end of year    $ 611,011    $ 611,938  

Identified intangible assets related to continuing operations consist of the following:


                                                                   September 30

  (Thousands)          2003    2002  


  
 Unamortizable intangible assets:                    
     Mastheads         $ 26,022    $ 26,022  
 Amortizable intangible assets:                    
     Noncompete and consulting agreements          28,441    28,406  
     Less accumulated amortization          24,168    21,967  

                                                                                                                       4,273    6,439  

     Customer and newspaper subscriber lists          526,202    525,224  
     Less accumulated amortization          70,128    44,576  

           456,074    480,648  

                                                                                                                      $ 486,369    $ 513,109  

Annual amortization of intangible assets related to continuing operations for the five years ending September 2008 is estimated to be $27,810,000, $24,901,000, $23,382,000, $23,340,000 and $23,165,000, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6 DEBT

In conjunction with the acquisition of Howard, the Company entered into a five-year, $350,000,000 credit agreement dated as of March 28, 2002 among the Company, Bank of America, N.A. (BofA), as administrative agent, and the other lenders party thereto. The previously existing revolving credit agreement was simultaneously cancelled. The interest rate of the revolving loans at September 30, 2003 is, at the option of the Company, LIBOR plus 1.125% or a base rate equal to the greater of the federal funds rate plus 0.5% or the BofA prime rate. The weighted average interest rate on floating rate debt was 2.26% and 3.07% at September 30, 2003 and 2002, respectively.

Debt consists of the following:


      September 30

(Thousands)    2003    2002  

                                                                                                            $ 155,000    $ 244,500  
2002 credit agreement              
1998 Note Purchase Agreement, 6.14% to 6.64%              
   due in varying amounts to 2013    150,200    161,800  
Other, repaid in 2003    -       3,000  

                                                                                                            305,200    409,300  
Less current maturities    36,600    14,600  

                                                                                                            $ 268,600    $ 394,700  

Aggregate maturities during the five years ending September 2008 are $36,600,000, $11,600,000, $12,400,000, $167,400,000 and $12,400,000, respectively.

Debt agreements provide for restrictions as to indebtedness, liens, sales, mergers, acquisitions and investments and require the Company to maintain leverage and interest coverage ratios. Covenants under these agreements are not considered restrictive to normal operations or historical amounts of stockholder dividends. At September 30, 2003, the Company was in compliance with these covenants.

7 RETIREMENT PLANS

Substantially all the Company’s employees are eligible to participate in a qualified defined contribution retirement plan. The Company also has other retirement and compensation plans for executives and others. Retirement and compensation plan costs, including interest on deferred compensation costs, charged to continuing operations are $17,064,000 in 2003, $13,885,000 in 2002 and $12,153,000 in 2001.

The Company is obligated under an unfunded plan to provide certain fixed retirement payments to certain former employees. The plan is frozen and no additional benefits are being accrued. The accrued liability under the plan was $3,317,000 and $3,457,000 at September 30, 2003 and 2002, respectively.

8 COMMON STOCK, CLASS B COMMON STOCK, AND PREFERRED SHARE PURCHASE RIGHTS

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. 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. All outstanding Class B Common Stock converts to Common Stock when the shares of Class B Common Stock outstanding total less than 5,600,000 shares.

In 1998, the Board of Directors adopted a Shareholder Rights Plan (Plan). Under the Plan, the Board declared a dividend of one Preferred Share Purchase Right (Right) for each outstanding share of Common Stock and Class B Common Stock (collectively Common Shares) of the Company. Rights are attached to and automatically trade with the Company’s Common Shares.

Rights become exercisable only in the event that any person or group of affiliated persons becomes a holder of 20% or more of the Company’s outstanding Common Shares, or commences a tender or exchange offer which, if consummated, would result in that person or group of affiliated persons owning at least 20% of the Company’s outstanding Common Shares. Once the Rights become exercisable, they entitle all other stockholders to purchase, by payment of a $150 exercise price, one one-thousandth of a share of Series A Participating Preferred Stock, subject to adjustment, with a value of twice the exercise price. In addition, at any time after a 20% position is acquired and prior to the acquisition of a 50% position, the Board of Directors may require, in whole or in part, each outstanding Right (other than Rights held by the acquiring person or group of affiliated persons) to be exchanged for one share of Common Stock or one one-thousandth of a share of Series A Preferred Stock. The Rights may be redeemed at a price of $0.001 per Right at any time prior to their expiration in May 2008.

9 STOCK OWNERSHIP PLANS

The Company has three stock-based compensation plans. Prior to 2003, the Company accounted for grants under those plans under APB Opinion 25 and related interpretations. Accordingly, no compensation cost was recognized for grants under the stock option or stock purchase plans. Effective in October 2002, the Company adopted the fair value expense recognition provisions of Statement 123, Accounting for Stock-Based Compensation, for stock-based employee compensation, as amended by Statement 148, Accounting for Stock-Based Compensation – Transition and Disclosure. All prior periods presented have been restated to reflect the compensation cost that would have been recognized had the recognition provisions of Statement 123 and 148 been applied to all awards granted to employees after October 1, 1995. The cumulative effect of the adoption of Statements 123 and 148 decreased non-current deferred income tax liabilities by $1,075,000, decreased retained earnings by $5,866,000 and increased additional paid-in capital by $6,941,000 at October 1, 2000. Total stock compensation expense is $4,628,000, $3,936,000 and $3,216,000 in 2003, 2002, and 2001, respectively.

The impact of the adoption of Statements 123 and 148 on both income from continuing operations and the related diluted earnings per common share is as follows:


                                                         Year Ended
                                                        September 30

(Thousands, except per common share data)     2002    2001  


  
Income from continuing operations, as reported   $ 81,029   $ 59,829  
Additional stock compensation expense (net of income tax          
   benefit)    (2,145 )  (1,758 )

Income from continuing operations, as adjusted   $ 78,884   $ 58,071  


  
Diluted earnings per common share, as reported   $ 1.83 $ 1.36
Additional stock compensation expense    (0.05)  (0.04)

Diluted earnings per common share, as adjusted   $ 1.78 $ 1.32

Stock Options and Restricted Stock

The Company has reserved 3,851,000 shares of Common Stock for issuance to employees under an incentive and nonstatutory stock option and 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. The fair value of each grant is estimated at the grant date using the Black-Scholes option-pricing model with the following weighted-average assumptions for grants: dividend rates of 1.7% to 2.6%; price volatility of 20% to 29.8%; risk-free interest rates based upon the life of the option ranging from 1.1% to 5.8%; and expected lives based upon the life of the option ranging from 1 to 8 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of stock option activity is as follows:


                                                                             Number of Shares

  (Thousands)    2003    2002    2001  


  
 Under option, beginning of year    1,049    967    1,178  
    Granted    301    300    355  
    Exercised    (165 )  (174 )  (547 )
    Canceled    (8 )  (44 )  (19 )

 Under option, end of year    1,177    1,049    967  

 Exercisable, end of year    579    530    467  

Weighted average prices of options are as follows:


             2003                2002                2001  


  
 Granted   $ 32 .52      $ 35 .58      $ 27 .24
 Exercised    25 .66       25 .77       18 .83
 Under option, end of year    30 .39       29 .04       26 .44
 Fair value of options granted    7 .39       9 .74       6 .97

A summary of options outstanding at September 30, 2003 is as follows:

                           Options Outstanding
Options Exercisable         
      Range of
      Exercise
        Prices

           Number
           Outstanding

Weighted-
Average
Remaining
Contractual
Life
(In Years)

Weighted-
Average
Exercise
Price

           Number
           Exercisable

Weighted-
Average
Exercise
Price

    $15 to 20      37,000   1.2    $18.25    37,000    $18.25  
     20 to 25    44,000   3.0    21.69    44,000    21.69  
     25 to 30    439,000   5.3    27.18    354,000    27.48  
     30 to 34    368,000   8.2    32.40    56,000    31.99  
     35 to 40    289,000   8.1    35.58    88,000    35.63  

     Total    1,177,000   6.7  $30.39  579,000    $28.13

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. In 2003, 2002 and 2001, the Company granted 71,000, 58,000 and 44,000 shares, respectively, of restricted stock to employees. At September 30, 2003, 164,150 shares of restricted stock were outstanding.

At September 30, 2003, 2,674,000 shares were available for granting of stock options or issuance of restricted stock.

In November 2003, 177,600 options were granted at an exercise price of $43.25 per share and 98,400 shares of restricted stock were issued.

Stock Purchase Plan

The Company has 849,000 shares of Common Stock available for issuance pursuant to an employee stock purchase plan. April 30, 2004 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 grant or the exercise date, which is one year from the date of grant. The weighted-average fair values of purchase rights granted in 2003, 2002 and 2001, computed using the Black-Scholes option-pricing model, were $8.35, $9.23 and $6.93, respectively.

In 2003, 2002 and 2001 employees purchased 76,000, 63,000 and 85,000 shares, respectively, at a price of $30.08 in 2003, $26.44 in 2002 and $19.20 in 2001.

10 INCOME TAXES

Income tax expense consists of the following:


                                                        Year Ended September 30

  (Thousands)    2003    2002    2001  


  
 Current:                    
    Federal   $ 36,803   $ 13,115   $ 181,412  
    State    6,131    5,832    28,936  
 Deferred    514    4,202    (30,041 )

    $ 43,448   $ 23,149   $ 180,307  


  
 Continuing operations   $ 43,462   $ 29,366   $ 32,620  
 Discontinued operations    (14 )  (6,217 )  147,687  

    $ 43,448   $ 23,149   $ 180,307  

Income tax expense related to continuing operations differs from the amounts computed by applying the U.S. federal income tax rate to income before income taxes. The reasons for these differences are as follows:


      Year Ended September 30

     20 03   20 02   20 01 

 Computed "expected" income tax expense    35 .0%  35 .0%  35 .0%
 State income taxes, net of federal tax benefit    2 .1  3 .7  4 .0
 State income tax credits    -    -    (2 .5)
 Net income of associated companies taxed              
    at dividend rates    (1 .9)  (2 .5)  (2 .3)
 Goodwill amortization    -    -    1 .2
 Resolution of tax issues    -    (9 .4)  -  
 Other    0 .6  0 .3  0 .6

     35 .8%  27 .1%  36 .0%

The favorable resolution of tax issues reduced income tax expense in 2002 by approximately $10,100,000. The Company has favorably resolved one element of a federal tax claim related to the deductibility of losses on the 1997 sale of a business. Due to the uncertainty of a favorable resolution at the time of sale, the amount claimed was reserved in the Consolidated Financial Statements. The reversal has been recorded in results from continuing operations as a reduction of income tax expense in 2002.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Substantial deferred income tax liabilities were recorded in 2002 as a result of acquisitions. Net deferred income tax liabilities consist of the following components:


      September 30

  (Thousands)    2003    2002  


  
  Deferred income tax liabilities:              
    Property and equipment   $ 26,402   $ 20,543  
    Equity in undistributed earnings of affiliates    1,650    1,594  
    Identifiable intangible assets    184,616    191,952  
    Other    1,531    160  

                                                                                                            214,199    214,249  


  
 Deferred income tax assets:              
    Accrued compensation    6,403    5,406  
    Allowance for doubtful accounts