Officers, Amend Bylaw, Shareholder Vote, Other Events, Exhibits
8-K
2019-02-08
Regulation FD, Exhibits
8-K
2019-02-07
Earnings, Exhibits
8-K
2018-12-14
Regulation FD, Exhibits
8-K
2018-12-14
Earnings, Exhibits
8-K
2018-12-14
Enter Agreement, Off-BS Arrangement, Exhibits
8-K
2018-12-06
Other Events, Exhibits
8-K
2018-11-16
Regulation FD, Exhibits
8-K
2018-08-06
Officers
8-K
2018-08-03
Regulation FD, Exhibits
8-K
2018-08-03
Earnings, Exhibits
8-K
2018-08-01
Officers, Exhibits
8-K
2018-06-26
Enter Agreement, Regulation FD, Exhibits
8-K
2018-06-12
Officers, Regulation FD, Exhibits
8-K
2018-04-26
Officers
8-K
2018-02-21
Shareholder Vote
8-K
2018-01-11
Officers, Exhibits
Comparables
LYV
Live Nation Entertainment
13,550
AEG
Aegon
9,910
PRLB
Proto Labs
2,890
PPBI
Pacific Premier Bancorp
1,920
EROS
Eros International
616
CVRS
Corindus Vascular Robotics
589
HOFT
Hooker Furniture
342
NFC
New Frontier
288
BH
Biglari
236
NETE
Net Element
20
LEE 2019-03-31
Content
Part I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 6. Exhibits
Exhibits
EX-31.1
lee2019ex3113312019.htm
EX-31.2
lee2019ex3123312019.htm
EX-32
lee2019ex323312019.htm
Lee Enterprises Earnings 2019-03-31
LEE 10Q Quarterly Report
Balance Sheet
Income Statement
Cash Flow
10-Q 1 lee10q2019q23312019.htm 10-Q Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 2019
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 or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
201 N. Harrison Street, Suite 600, Davenport, Iowa 52801
(Address of principal executive offices)
(563) 383-2100
(Registrant's telephone number, including area code)
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 whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “ large accelerated filer", "accelerated filer", "small reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[ ]
Accelerated filer
[X]
Non-accelerated filer
[ ] (Do not check if a smaller reporting company)
Smaller reporting company
[ ]
Emerging growth company
[ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
As of April 30, 2019 57,722,693 shares of Common Stock of the Registrant were outstanding.
References to “we”, “our”, “us” and the like throughout this document refer to Lee Enterprises, Incorporated (the "Company"). References to "2019", "2018" and the like refer to the fiscal years ended the last Sunday in September.
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 that is based largely on our 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, which in some instances are beyond our control, are:
•Our ability to generate cash flows and maintain liquidity sufficient to service our debt;
•Our ability to comply with the financial covenants in our credit facilities;
•Our ability to refinance our debt as it comes due;
•That the warrants issued in our refinancing will not be exercised;
•The impact and duration of adverse conditions in certain aspects of the economy affecting our business;
•Changes in advertising and subscription demand;
•Changes in technology that impact our ability to deliver digital advertising;
•Potential changes in newsprint, other commodities and energy costs;
•Interest rates;
•Labor costs;
•Significant cyber security breaches of failure of our information technology systems;
•Legislative and regulatory rulings, including the 2017 Tax Act;
•Our ability to achieve planned expense reductions;
•Our ability to maintain employee and customer relationships;
•Our ability to manage increased capital costs;
•Our ability to maintain our listing status on the NYSE;
•Competition; and
•Other risks detailed from time to time in our publicly filed documents.
Any statements that are not statements of historical fact (including statements containing the words “may”, “will”, “would”, “could”, “believes”, “expects”, “anticipates”, “intends”, “plans”, “projects”, “considers” and similar expressions) generally should be considered 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. We do not undertake to publicly update or revise our forward-looking statements, except as required by law.
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited, interim, Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports. In the opinion of management, these financial statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Lee Enterprises, Incorporated and subsidiaries (the “Company”) as of March 31, 2019 and our results of operations and cash flows for the periods presented. The Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's 2018 Annual Report on Form 10-K.
Because of seasonal and other factors, the results of operations for the 13 weeks and 26 weeks ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year.
References to “we”, “our”, “us” and the like throughout the Consolidated Financial Statements refer to the Company. References to “2019”, “2018” and the like refer to the fiscal years ended the last Sunday in September.
The Consolidated Financial Statements include our accounts and those of our subsidiaries, all of which are wholly-owned, except for our 82.5% interest in INN Partners, L.C. ("TownNews.com"), 50% interest in TNI Partners (“TNI”) and 50% interest in Madison Newspapers, Inc. (“MNI”).
Investments in TNI and MNI are accounted for using the equity method and are reported at cost, plus our share of undistributed earnings since acquisition less, for TNI, amortization of intangible assets.
On June 26, 2018, we entered into an agreement with BH Media Group, Inc. ("BH Media") to manage Berkshire Hathaway's newspaper and digital operations in 30 markets (the "Management Agreement"). The Company operates BH Media consistent with how it manages its own newspaper and digital operations. Among other decisions, Berkshire Hathaway is responsible for approving operating and capital budgets. The Management Agreement extends for a term of five years and may be extended thereafter for successive one-year terms on such terms as may be mutually agreed to by the Company and Berkshire Hathaway. The Company is paid a fixed annual fee of $5 million, payable quarterly in arrears, and a variable fee based on the financial performance of BH Media. The variable fees are payable annually in arrears.
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates and judgments on an ongoing basis.
We base our 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.
New accounting pronouncements
Between 2014 and 2017, the FASB issued several new standards related to revenue recognition ("the New Revenue Standard"). The New Revenue Standard supersedes existing revenue recognition requirements and is effective in fiscal years beginning after December 15, 2017. The New Revenue Standard provides a five-step model in determining when and how revenue is recognized and requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The New Revenue Standard also requires new
disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
We adopted the New Revenue Standard on October 1, 2018, using the modified retrospective method applied to those contracts which were not completed as of that date. We completed our assessment and did not identify
any significant changes to our revenue recognition policies. We identified similar performance obligations under the New Revenue Standard as compared with the deliverables and separate units of accounting previously identified under existing guidance. As a result, the timing and amount of our revenue recognition were not impacted and we did not make any adjustments under the modified retrospective adoption method.
We have also assessed the new accounting principles related to the deferral and amortization of contract acquisition costs and due to the short-term nature of such costs, we will utilize the practical expedient to continue to expense these costs as incurred.
See Note 2 for more information on our revenues and the application of the New Revenue Standard.
In August 2016, the FASB issued a new standard to conform the presentation in the statement of cash flows for certain transactions, including cash distributions from equity method investments, among others. There was no change to the Consolidated Statement of Cash Flows as a result of the adoption of this standard for the quarter ended December 30, 2018. Specifically, distributions received from equity method investees continue to be presented on the Consolidated Statement of Cash Flows utilizing the cumulative earnings approach.
In March 2017, the FASB issued a new standard to improve the presentation of pension and postretirement benefit expense. The new standard requires that the service cost component of pension and postretirement benefits expense is recognized as compensation expense, while the remaining components of the expense (benefit) are presented as non-operating income in other, net. This new standard was adopted for the quarter ended December 30, 2018 and has been retrospectively applied to the Statement of Operations for all comparative periods presented. We recorded benefits of $711,000 and $1,422,000 in other, net in non-operating income (expense) for the 13 and the 26 weeks ended March 31, 2019, respectively. We reclassified benefits of $708,000 and $1,416,000 from compensation to other, net in non-operating income (expense) for the 13 weeks and the 26 weeks ended March 25, 2018, respectively.
In February 2018, FASB issued new guidance to allow a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from what is commonly referred to as the Tax Cuts and Jobs Act (the "2017 Tax Act"). In the first quarter of fiscal year 2018, we remeasured our deferred taxes related to unrealized gains on our investment balances using the reduced tax rate. As required by GAAP, we recognized the net tax benefit in the provision for income taxes in our consolidated operations statements, and we reclassified a $3,067,000 net tax benefit from AOCI to retained earnings in our consolidated balance sheets. Adoption of the standard had no impact to our consolidated operations statements or cash flows statements.
In February 2016, the FASB issued a new standard for the accounting treatment of leases. The new standard is based on the principle that entities should recognize assets and liabilities arising from leases. The new standard does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Leases are classified as finance or operating. The new standard's primary change is the requirement for entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term on most operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. In addition, the new standard expands the disclosure requirements of lease arrangements. Lessees have the option to use a modified retrospective transition approach, which includes a number of practical expedients. We are currently in the process of evaluating the impact of this guidance on our Consolidated Financial Statements.
In July 2018, the FASB issued a new standard which provides for an optional transition method that allows issuers to initially apply the new lease standard to all leases that exist as of the adoption date, with the cumulative effect of initially applying the new lease standard recognized as an adjustment to retained earnings as of the adoption date. We intend to adopt the optional transition approach in fiscal year 2020. To date we have made progress in our assessment of the new lease standard. We are currently compiling an inventory of leases,
evaluating the provisions of the updated guidance and assessing the impact on our Consolidated Financial Statements.
2
REVENUE
On October 1, 2018, we adopted the new revenue recognition accounting pronouncement, using the modified retrospective method applied to those contracts which were not completed as of the adoption date. Results for reporting periods beginning after October 1, 2018 are presented under the new guidance while prior period amounts are not adjusted and continue to be reported in accordance with legacy accounting under the old guidance. We did not record any adjustments to beginning retained earnings at October 1, 2018 as a result of adopting the new guidance.
The following table presents our revenues disaggregated by source:
13 Weeks Ended
26 Weeks Ended
(Thousands of Dollars)
March 31 2019
March 25 2018
March 31 2019
March 25 2018
Advertising and marketing services revenues
62,934
71,553
138,897
156,213
Subscription Revenues
45,076
45,972
91,345
94,241
TownNews and other digital services revenues
4,744
3,815
9,421
7,476
Other revenues
9,950
6,465
19,242
13,660
Total operating revenue
122,704
127,805
258,905
271,590
Recognition principles: Revenues are recognized when a performance obligation is satisfied by the transfer of control of the contracted goods or services to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services.
Advertising and marketing services revenues: Advertising and marketing services revenues include amounts charged to customers for retail or classified advertising space purchased in our newspapers, retail or classified advertisements placed on our digital platforms, and other print advertising products such as preprint inserts and direct mail. Advertising and marketing services revenues also include amounts charged to customers for digital marketing services which include: Audience extension, Search Engine Optimization ("SEO"), Search Engine Marketing ("SEM"), web and mobile production, social media services and reputation monitoring and management. The following define the timing of revenue recognition for each general revenue category:
•
Print advertising revenues are recognized at the point in time the associated publication has been delivered.
•
Digital advertising revenues are recognized at the point in time that impressions are delivered.
•
Digital marketing services revenues are recognized over the period of time which the service is performed.
Advertising and marketing services contract transaction prices consist of fixed consideration. We recognize revenue when control of the related performance obligation transfers to the customer.
Payments for advertising revenues are due upon completion of our performance obligations at previously agreed upon rates. In instances where the timing of revenue recognition differs from the timing of invoicing, such timing differences are not large. As a result, we have determined that our contracts do not include a significant financing component.
Subscription revenues: Subscription revenues include revenues for content delivered to consumers via print and digital products purchased by readers or distributors. Single copy revenues are also included in subscription revenues. Subscription revenues from single-copy and home delivery subscriptions are recognized at the point in time the publications are delivered. Digital subscription revenues are recognized over time as performance obligations are met via on-demand availability of online content made available to customers throughout the
contract term. Payments for subscription revenues are typically collected in advance, are for contract periods of one year or less and result in an unearned revenue liability that is reduced when revenue is recognized.
Other revenues: Other revenues are primarily comprised of digital services, Management Agreement revenues, commercial printing and delivery of third party products. Digital services revenues, which are primarily delivered through TownNews, are primarily comprised of contractual agreements to provide webhosting and content management services. As such, digital services revenues are recognized over the contract period. Prices for digital services are agreed upon in advance of the contract beginning and are typically billed in arrears on a monthly basis, with the exception of implementation fees which are recognized as deferred revenue and amortized over the contract period. Management Agreement revenues, consisting of fees collected from our Management Agreement, are recognized based on BH Media's financial progress toward contractual performance goals related to certain financial benchmarks. BH Media provides historical and projected financial reports, which serve as the basis for our revenue recognition. Fixed Management Agreement revenues are recognized over time and paid quarterly and variable fees are paid annually. Variable fees are recognized when the fees are deemed earned and it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Commercial printing and delivery revenues are recognized when the product is delivered to the customer.
Arrangements with multiple performance obligations: We have various advertising and subscription agreements which include both print and digital performance obligations. Revenues from sales agreements that contain multiple performance obligations are allocated to each obligation based on the relative standalone selling price. We determine standalone selling prices based on observable prices charged to customers.
Contract Assets and Liabilities: The Company’s primary source of unearned revenue is from subscriptions paid in advance of the service provided. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next twelve months in accordance with the terms of the subscriptions and other contracts with customers. The unearned revenue balances described herein are the Company's only contract liability. Unearned revenues were $25,325,000 as of March 31, 2019 and $23,895,000 as of September 30, 2018. Revenues recognized in the 13 weeks and the 26 weeks ended March 31, 2019 that were included in the contract liability as of September 30, 2018 were $4,784,000 and $20,511,000, respectively.
Contract asset balances relate to our Management Agreement revenues and were $3,461,000 as of March 31, 2019 and $0 as of September 30, 2018 and consisted solely of the variable portion of the contract. These contract asset balances are included in accounts receivable and contract assets, net. There are no other contract assets recorded. Accounts receivable, excluding allowance for doubtful accounts and contract assets, was $45,689,000 and $48,517,000 as of March 31, 2019 and September 30, 2018, respectively. Allowance for doubtful accounts was $5,473,000 and $4,806,000 as of March 31, 2019 and September 30, 2018, respectively.
Practical expedients and exemptions: Sales commissions are expensed as incurred as the associated contractual periods are one year or less. These costs are recorded within compensation. The vast majority of our contracts have original expected lengths of one year or less and revenue is earned at a rate and amount that corresponds directly with the value to the customer.
3 INVESTMENTS IN ASSOCIATED COMPANIES
TNI Partners
In Tucson, Arizona, TNI, acting as agent for our subsidiary, Star Publishing Company (“Star Publishing”), and Citizen Publishing Company (“Citizen”), a subsidiary of Gannett Co. Inc., is responsible for printing, delivery, advertising, and subscription activities of the Arizona Daily Star as well as the related digital platforms and specialty publications. TNI collects all receipts and income and pays substantially all operating expenses incident to the partnership's operations and publication of the newspaper and other media.
Income or loss of TNI (before income taxes) is allocated equally to Star Publishing and Citizen.
TNI makes weekly distributions of its earnings and for the 13 weeks ended March 31, 2019 and March 25, 2018 we received $1,957,000 and $1,631,000 in distributions, respectively. In the 26 weeks ended March 31, 2019 and March 25, 2018 we received $2,506,000 and $3,198,000 in distributions, respectively.
Madison Newspapers, Inc.
We have a 50% ownership interest in MNI, which publishes daily and Sunday newspapers, and other publications in Madison, Wisconsin, and other Wisconsin locations, and operates their related digital platforms. Net income or loss of MNI (after income taxes) is allocated equally to us and The Capital Times Company (“TCT”). MNI conducts its business under the trade name Capital Newspapers.
Summarized results of MNI are as follows:
13 Weeks Ended
26 Weeks Ended
(Thousands of Dollars)
March 31 2019
March 25 2018
March 31 2019
March 25 2018
Operating revenue
13,092
13,838
27,918
29,903
Operating expenses, excluding restructuring costs, depreciation and amortization
11,579
12,016
24,272
24,948
Restructuring costs
38
146
68
210
Depreciation and amortization
280
280
559
558
Operating income
1,195
1,396
3,019
4,187
Net income
996
928
2,394
2,656
Equity in earnings of MNI
499
464
1,197
1,328
MNI makes quarterly distributions of its earnings and in the 13 weeks ended March 31, 2019 and March 25, 2018 we received dividends of $750,000 and $1,250,000, respectively. In the 26 weeks ended March 31, 2019 and March 25, 2018 we received dividends of $1,500,000 and $2,000,000, respectively.
4
GOODWILL AND OTHER INTANGIBLE ASSETS
Changes in the carrying amount of goodwill are as follows:
Identified intangible assets consist of the following:
(Thousands of Dollars)
March 31 2019
September 30 2018
Nonamortized intangible assets:
Mastheads
21,883
21,883
Amortizable intangible assets:
Customer and newspaper subscriber lists
696,632
692,886
Less accumulated amortization
603,510
594,950
93,122
97,936
Other intangible assets, net
115,005
119,819
In January 2019, we purchased the businesses of Kenosha News and Lake Geneva Regional News. In February 2019, TownNews purchased the content management system ("CMS") business from GTxcel. Both transactions were funded with cash on the balance sheet. As part of initial estimates,$3,986,000 was recorded in goodwill and $3,650,000 was recorded in other intangible assets, net. The $3,650,000 of other intangible assets, net relate to acquired customer lists, which will be amortized over a 10 year period. These initial estimates will be reviewed in subsequent quarters as more information becomes available.
Annual amortization of intangible assets for the years ending March 2020 to March 2024 is estimated to be $16,192,000, $15,929,000, $13,289,000, $12,384,000 and $11,704,000, respectively.
5
DEBT
On March 31, 2014, we completed a comprehensive refinancing of our debt (the "2014 Refinancing"), which included the following:
•
$400,000,000 aggregate principal amount of 9.5% Senior Secured Notes (the “Notes”), pursuant to an Indenture dated as of March 31, 2014 (the “Indenture”).
•
$250,000,000 first lien term loan (the "1st Lien Term Loan") and $40,000,000 revolving facility (the "Revolving Facility") under a First Lien Credit Agreement dated as of March 31, 2014 (together the “1st Lien Credit Facility”).
•
$150,000,000 second lien term loan under a Second Lien Loan Agreement dated as of March 31, 2014 (the “2nd Lien Term Loan”).
In November 2018, we repaid, in full, the remaining balance of the 1st Lien Term Loan.
In December 2018, we amended our 1st Lien Credit Facility to amend and extend our Revolving Facility (the "Amendment"). The Amendment, among other changes, extends the maturity of the revolving loan commitments of the 1st Lien Lenders for twelve months and reduces the revolver loan commitments from $40,000,000 to $27,200,000 with a further 15% reduction to the revolving loan commitments of the 1st Lien Term Lenders effective as of July 31, 2019.
Our weighted average cost of debt, excluding amortization of debt financing costs at March 31, 2019, is 10.0%.
At March 31, 2019, aggregate minimum required maturities of debt excluding amounts required to be paid from future excess cash flow computations total $7,318,000 for the remainder of 2019, $0 in 2020, $0 in 2021, $385,000,000 in 2022 and $84,137,000 in 2023.
Notes
The Notes are senior secured obligations of the Company and mature on March 15, 2022.
At March 31, 2019, the principal balance of the Notes totaled $385,000,000.
Interest
The Notes require payment of interest semiannually on March 15 and September 15 of each year, at a fixed annual rate of 9.5%.
Redemption
We may redeem some, or all, of the principal amount of the Notes at any time as follows:
Period Beginning
Percentage of Principal Amount
March 15, 2019
102.38
March 15, 2020
100.00
If we sell certain of our assets or experience specific kinds of changes of control, we must, subject to certain exceptions, offer to purchase the Notes at 101% of the principal amount. Any redemption of the Notes must also satisfy any accrued and unpaid interest thereon.
Covenants and Other Matters
The Indenture and the 1st Lien Credit Facility contain restrictive covenants as discussed more fully below. However, certain of these covenants will cease to apply if the Notes are rated investment grade by either Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Group and there is no default or event of default under the Indenture.
1st Lien Credit Facility
The 1st Lien Term Loan was paid in full in November 2018 and has no outstanding balance as of March 31, 2019.
The 1st Lien Credit Facility consists of the $27,000,000 Revolving Facility that matures on December 28, 2019. The 1st Lien Credit Facility documents the primary terms of the 1st Lien Term Loan and the Revolving Facility.
The Revolving Facility may be used for working capital and general corporate purposes (including letters of credit). At March 31, 2019, after consideration of letters of credit, we have approximately $21,435,000 available for future use under the Revolving Facility.
Interest
Interest on the Revolving Facility, which is undrawn at March 31, 2019, accrues, at our option, at either (A) LIBOR plus 5.5%, or (B) 4.5% plus the higher of (i) the prime rate at the time, (ii) the federal funds rate plus 0.5%, or (iii) one month LIBOR plus 1.0%.
Covenants and Other Matters
The 1st Lien Credit Facility requires that we comply with certain affirmative and negative covenants customary for financing of this nature, including a maximum total leverage ratio.
The 1st Lien Credit Facility restricts us from paying dividends on our Common Stock. This restriction no longer applies if Lee Legacy Leverage is below 3.25x before and after such payments. Lee Legacy Leverage as defined is 4.28x at March 31, 2019. Further, the 1st Lien Credit Facility restricts or limits, among other things, subject to certain exceptions, the ability of the Company and its subsidiaries to: (i) incur indebtedness, (ii) enter into mergers, acquisitions and asset sales, (iii) incur or create liens and (iv) enter into transactions with certain affiliates. The 1st Lien Credit Facility contains various representations and warranties and may be terminated upon occurrence of certain events of default. The 1st Lien Credit Facility also contains cross-default provisions tied to the terms of each of the Indenture and 2nd Lien Term Loan.
2nd Lien Term Loan
The 2nd Lien Term Loan, which has a balance of $91,455,000 at March 31, 2019, bears interest at a fixed annual rate of 12.0%, payable quarterly, and matures in December 2022.
Principal Payments
Excluding excess cash flow payments, there are no scheduled mandatory amortization payments required under the 2nd Lien Term Loan.
Quarterly, we are required to prepare a calculation of excess cash flow of the Pulitzer Subsidiaries ("Pulitzer Excess Cash Flow"). Pulitzer Excess Cash Flow is generally determined as the cash earnings of the Pulitzer Subsidiaries including adjustments for changes in working capital, capital spending, pension contributions, debt principal payments and income tax payments. Pulitzer Excess Cash Flow also includes a deduction for interest costs incurred under the 2nd Lien Term Loan.
Pulitzer Excess Cash Flow is used to prepay the 2nd Lien Term Loan, at par, and is required to be paid 45 days after the end of the quarter.
Payments will also be made on the 2nd Lien Term Loan, at par, with proceeds from asset sales by the Pulitzer Subsidiaries that are not reinvested subject to certain other conditions.
During the 13 and 26 weeks ended March 31, 2019, payments on the 2nd Lien Term Loan totaled $1,377,000 and $2,101,000, respectively. For the 13 weeks ended March 31, 2019, Pulitzer Excess Cash Flow totaled $7,318,000, which will be used to make a payment on the 2nd Lien Term Loan in May 2019, at par.
Beginning March 31, 2019, voluntary payments under the 2nd Lien Term Loan are no longer subject to call premiums and are payable at par. The Indenture includes certain restrictions on voluntary payments on the 2nd Lien Term Loan.
Covenants and Other Matters
The 2nd Lien Term Loan requires that we comply with certain affirmative and negative covenants customary for financing of this nature, including the negative covenants under the 1st Lien Credit Facility discussed above. The 2nd Lien Term Loan contains various representations and warranties and may be terminated upon
occurrence of certain events of default. The 2nd Lien Term Loan also contains cross-default provisions tied to the terms of the Indenture and 1st Lien Credit Facility.
In connection with the 2nd Lien Term Loan, we entered into a Warrant Agreement dated as of March 31, 2014 (the “Warrant Agreement”). Under the Warrant Agreement, certain affiliates or designees of the 2nd Lien Lenders received on March 31, 2014 their pro rata share of warrants to purchase, in cash, an initial aggregate of 6,000,000 shares of Common Stock, subject to adjustment pursuant to anti-dilution provisions (the “Warrants”). The Warrants represent, when fully exercised, approximately 10.4% of shares of Common Stock outstanding at March 30, 2014 on a fully diluted basis. The exercise price of the Warrants is $4.19 per share.
The Warrant Agreement contains provisions requiring the Warrants to be measured at fair value and included in other liabilities in our Consolidated Balance Sheets. We re-measure the fair value of the liability each reporting period, with changes reported in other, net non-operating income (expense). The initial fair value of the Warrants was $16,930,000. See Note 10.
In connection with the issuance of the Warrants, we entered into a Registration Rights Agreement dated as of March 31, 2014 (the “Registration Rights Agreement”). The Registration Rights Agreement requires, among other matters, that we use our commercially reasonable efforts to maintain the effectiveness for certain specified periods of a shelf registration statement related to the shares of Common Stock to be issued upon exercise of the Warrants.
Security
The Notes and the 1st Lien Credit Facility are fully and unconditionally guaranteed on a joint and several first-priority basis by each of the Company's material domestic subsidiaries, excluding MNI, the Pulitzer Subsidiaries and TNI (the "Lee Legacy Assignors"), pursuant to a first lien guarantee and collateral agreement dated as of March 31, 2014 (the "1st Lien Guarantee and Collateral Agreement").
The Notes, the 1st Lien Credit Facility and the subsidiary guarantees are secured, subject to certain exceptions, priorities and limitations, by perfected security interests in all property and assets, including certain real estate, of the Lee Legacy Assignors, other than the capital stock of MNI and any property and assets of MNI (the “Lee Legacy Collateral”), on a first-priority basis, equally and ratably with all of the Lee Legacy Assignors' existing and future obligations. The Lee Legacy Collateral includes, among other things, equipment, inventory, accounts receivables, depository accounts, intellectual property and certain of their other tangible and intangible assets.
Also, the Notes and the 1st Lien Credit Facility are secured, subject to certain exceptions, priorities and limitations in the various agreements, by first-priority security interests in the capital stock of, and other equity interests owned by, the Lee Legacy Assignors (excluding the capital stock of MNI). The Notes and 1st Lien Credit Facility are subject to a Pari Passu Intercreditor Agreement dated March 31, 2014.
The Notes, the 1st Lien Credit Facility and the subsidiary guarantees are also secured, subject to permitted liens, by a second-priority security interest in the property and assets of the Pulitzer Subsidiaries that become subsidiary guarantors (the "Pulitzer Assignors") other than assets of or used in the operations or business of TNI (collectively, the “Pulitzer Collateral”). In June 2015 the Pulitzer Assignors became a party to the 1st Lien Guarantee and Collateral Agreement on a second lien basis.
Also, the Notes and the 1st Lien Credit Facility are secured, subject to certain exceptions, priorities, and limitations in the various agreements, by second-priority security interests in the capital stock of, and other equity interests in, the Pulitzer Assignors and Star Publishing’s interest in TNI.
The 2nd Lien Term Loan is fully and unconditionally guaranteed on a joint and several first-priority basis by the Pulitzer Assignors, pursuant to a Second Lien Guarantee and Collateral Agreement dated as of March 31, 2014 (the “2nd Lien Guarantee and Collateral Agreement”) among the Pulitzer Assignors and the 2nd Lien collateral agent.
Under the 2nd Lien Guarantee and Collateral Agreement, the Pulitzer Assignors have granted (i) first-priority security interests, subject to certain priorities and limitations in the various agreements, in the Pulitzer Collateral and (ii) have granted first-priority lien mortgages or deeds of trust covering certain real estate, as collateral for the payment and performance of their obligations under the 2nd Lien Term Loan.
Also, under the 2nd Lien Guarantee and Collateral Agreement, the Lee Legacy Assignors have granted (i) second-priority security interests, subject to certain priorities and limitations in the various agreements, in the Lee Legacy Collateral, and (ii) have granted second-priority lien mortgages or deeds of trust covering certain real estate, as collateral for the payment and performance of their obligations under the 2nd Lien Term Loan. Assets of, or used in the operations or business of, MNI are excluded.
The rights of each of the collateral agents with respect to the Lee Legacy Collateral and the Pulitzer Collateral are subject to customary intercreditor and intercompany agreements.
Other
In connection with the 2014 Refinancing, we capitalized $37,819,000 of debt financing costs. Amortization of debt financing costs totaled $1,525,000 in the 26 weeks ended March 31, 2019. Amortization of such costs is estimated to total $1,933,000 for the remainder of 2019, $3,989,000 in 2020, $4,154,000 in 2021, $4,332,000 in 2022, and $1,121,000 in 2023. At March 31, 2019, we have $15,529,000 of unamortized debt financing costs recorded as a reduction of Long-term debt in our Consolidated Balance Sheets.
Liquidity
At March 31, 2019, after consideration of letters of credit, we have approximately $21,435,000 available for future use under our Revolving Facility, which expires on December 28, 2019. Including cash, our liquidity at March 31, 2019 totals $38,100,000. This liquidity amount excludes any future cash flows. We expect all interest and principal payments due in the next twelve months will be satisfied by existing cash and our cash flows, which will allow us to maintain an adequate level of liquidity. The Warrants, if and when exercised, would provide additional liquidity in an amount up to $25,140,000 subject to a reduction for any amounts the Company may elect to use to repay our 1st Lien Term Loan and/or the Notes.
Excluding our Revolving Facility, which is undrawn as of March 2019, final maturities of our debt range from March 2022 through December 2022.
There are numerous potential consequences under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan, if an event of default, as defined, occurs and is not remedied. Many of those consequences are beyond our control. The occurrence of one or more events of default would give rise to the right of the applicable lender(s) to exercise their remedies under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan, respectively, including, without limitation, the right to accelerate all outstanding debt and take actions authorized in such circumstances under applicable collateral security documents.
Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and to repay, refinance or amend our debt agreements as they become due. The Notes, 1st Lien Credit Facility and 2nd Lien Term Loan have only limited affirmative covenants with which we are required to maintain compliance. We are in compliance with our debt covenants at March 31, 2019.
6
PENSION, POSTRETIREMENT AND POSTEMPLOYMENT DEFINED BENEFIT PLANS
We have several noncontributory defined benefit pension plans that together cover selected employees. Benefits under the plans were generally based on salary and years of service. Effective in 2012, substantially all benefits are frozen and only a small amount of additional benefits are being accrued. Our liability and related expense for benefits under the plans are recorded over the service period of employees based upon annual actuarial calculations. Plan funding strategies are influenced by government regulations. Plan assets consist primarily of domestic and foreign corporate equity securities, government and corporate bonds, hedge fund investments and cash.
In addition, we provide retiree medical and life insurance benefits under postretirement plans at several of our operating locations. The level and adjustment of participant contributions vary depending on the specific plan. In addition, St. Louis Post-Dispatch LLC, provides postemployment disability benefits to certain employee groups prior to retirement. Our liability and related expense for benefits under the postretirement plans are recorded over the service period of active employees based upon annual actuarial calculations. We accrue postemployment disability benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid.
We use a fiscal year end measurement date for all of our pension and postretirement medical plan obligations.
The net periodic postretirement cost (benefit) components for our postretirement plans are as follows:
PENSION PLANS
13 Weeks Ended
26 Weeks Ended
(Thousands of Dollars)
March 31 2019
March 25 2018
March 31 2019
March 25 2018
Service cost for benefits earned during the period
9
12
18
24
Interest cost on projected benefit obligation
1,641
1,438
3,282
2,876
Expected return on plan assets
(2,018
)
(1,983
)
(4,036
)
(3,966
)
Amortization of net loss
284
506
568
1,012
Amortization of prior service benefit
(25
)
(34
)
(50
)
(68
)
Pension benefit
(109
)
(61
)
(218
)
(122
)
POSTRETIREMENT MEDICAL PLANS
13 Weeks Ended
26 Weeks Ended
(Thousands of Dollars)
March 31 2019
March 25 2018
March 31 2019
March 25 2018
Interest cost on projected benefit obligation
103
90
206
181
Expected return on plan assets
(270
)
(270
)
(540
)
(540
)
Amortization of net gain
(244
)
(246
)
(488
)
(492
)
Amortization of prior service benefit
(181
)
(196
)
(362
)
(392
)
Curtailment gains
—
(2,031
)
—
(2,031
)
Postretirement medical benefit
(592
)
(2,653
)
(1,184
)
(3,274
)
At the beginning of fiscal year 2019, we adopted the new accounting standard to improve the presentation of pension and postretirement benefit expenses. As a result, the service cost for benefits earned during the period continue to be included as compensation in the Consolidated Statement of Income and Comprehensive income, while the other components of the pension benefit are recorded as non-operating income in other, net. Prior period amounts have been reclassified to conform to current period presentation.
In the 26 weeks ended March 31, 2019 we contributed $650,000 to our pension plans. Based on our forecast at March 31, 2019, we do not expect to make contributions to our pension trust during the remainder of fiscal 2019.
In March 2017, we notified certain participants in one of our post employment medical plans of changes to their plan and in December 2017 the plan was terminated. These changes resulted in a non-cash curtailment gain of $2,031,000 in the second quarter ended March 25, 2018. Curtailment gains are recorded in loss (gain) on sales of assets and other, net in the Consolidated Statements of Operations and Comprehensive income.
In the second quarter of 2019, we incurred an estimated partial liability for the CWA/ITU multi-employer plan, in the amount of $500,000, which is included in restructuring costs and other.
7
INCOME TAXES
We recorded income tax expense of $156,000 related to loss before taxes of $2,171,000 for the 13 weeks ended March 31, 2019, and income tax expenses of $4,670,000 related to income before taxes of $13,062,000 for the 26 weeks ended March 31, 2019. Including the transactional impact of revaluing tax assets and liabilities, we recorded income tax expense of $927,000 related to income of $3,460,000 for the 13 weeks ended March 25, 2018 and, including the transactional impact of revaluing tax assets and liabilities, we recorded income tax benefit of $18,763,000 related to income of $19,097,000 for the 26 weeks ended March 25, 2018.
The effective income tax rate for the 13 and 26 weeks ended March 31, 2019 was negative 7.2% and a 35.8%, respectively. The effective income tax rate for the 13 and 26 weeks ended March 25, 2018 was 26.8% expense and negative 98.3%.
The primary differences between these rates and the U.S. federal statutory rate of 21% are due to the effect of state taxes, non-deductible expenses, adjustments to reserves for uncertain tax positions, including any related interest, and mark-to-market adjustments to value the Warrants.
We file a consolidated federal tax return, as well as combined and separate tax returns in approximately 27 state and local jurisdictions. We do not currently have any federal or state income tax examinations in progress. Our income tax returns have generally been audited or closed to audit through 2012. See Note 11 for a discussion of our tax audits.
At September 25, 2018, we had approximately $63,048,000 of state net operating loss tax benefits. The Company consumed its federal net operating losses in the year ended September 30, 2018.
8
EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per common share:
13 Weeks Ended
26 Weeks Ended
(Thousands of Dollars and Shares, Except Per Share Data)
March 31 2019
March 25 2018
March 31 2019
March 25 2018
(Loss) Income attributable to Lee Enterprises, Incorporated:
(2,678
)
2,239
7,683
37,242
Weighted average common shares
57,703
57,070
57,501
56,924
Less weighted average restricted Common Stock
(2,095
)
(2,378
)
(2,097
)
(2,416
)
Basic average common shares
55,608
54,692
55,404
54,508
Dilutive stock options and restricted Common Stock
—
1,169
1,287
1,309
Diluted average common shares
55,608
55,861
56,691
55,817
Earnings per common share:
Basic
(0.05
)
0.04
0.14
0.68
Diluted
(0.05
)
0.04
0.14
0.67
For the 13 and 26 weeks ended March 31, 2019, 6,000,000 and 6,000,000, weighted average shares, respectively, were not considered in the computation of diluted earnings per common share because the exercise prices of the related stock options and Warrants were in excess of the fair market value of our Common Stock. For the 13 and 26 weeks ended March 25, 2018, 6,500,900 and 6,706,603, weighted average shares, respectively, were not considered in the computation of diluted earnings per common share because the exercise prices of the related stock options and Warrants were in excess of the fair market value of our Common Stock.
A summary of stock option activity during the 26 weeks ended March 31, 2019 follows:
(Thousands of Dollars and Shares, Except Per Share Data)
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding, September 30, 2018
1,100
1.88
Exercised
(48
)
2.36
Cancelled
(32
)
2.04
Outstanding, March 31, 2019
1,020
1.86
2.1
1,471
Exercisable, March 31, 2019
1,020
1.86
2.1
1,471
Restricted Common Stock
The table below summarizes restricted Common Stock activity during the 26 weeks ended March 31, 2019:
(Thousands of Shares, Except Per Share Data)
Shares
Weighted
Average
Grant Date
Fair Value
Outstanding, September 30, 2018
2,059
2.31
Vested
(728
)
1.53
Granted
788
2.18
Cancelled
(24
)
2.01
Outstanding, March 31, 2019
2,095
2.53
Total unrecognized compensation expense for unvested restricted Common Stock at March 31, 2019 is $2,602,633, which will be recognized over a weighted average period of 1.7 years.
10
FAIR VALUE MEASUREMENTS
We utilize FASB ASC Topic 820, Fair Value Measurements and Disclosures, to measure and report fair value. FASB ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FASB ASC Topic 820 establishes a three-level hierarchy of fair value measurements based on whether the inputs to those measurements are observable or unobservable, which consists of the following levels:
Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate value.
The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of those instruments. Investments totaling $6,068,000, including our 17% ownership of the nonvoting common stock of TCT and a private equity investment, are carried at cost. As of March 31, 2019, based on the most recent data available, the approximate fair value of the private equity
investment is $10,203,256 which is a level 3 fair value measurement. Fair value of the remaining investments approximates book value.
Our fixed rate debt consists of $385,000,000 principal amount of the Notes and $91,455,000 principal amount under the 2nd Lien Term Loan. At March 31, 2019, based on private market price quotations, the fair values were $392,311,150 and $91,455,213 for the Notes and 2nd Lien Term Loan, respectively. These represent level 2 fair value measurements.
As discussed more fully in Note 5, we recorded a liability for the Warrants issued in connection with the Warrant Agreement. The liability was initially measured at its fair value and we remeasure the liability to fair value each reporting period, with changes reported in other non-operating income (expense). The initial fair value of the Warrants was $16,930,000. The fair value of Warrants at March 2019 and December 2018 are $4,479,000, 1,726,000, respectively. Fair value is determined using the Black-Scholes option pricing model. These represent level 2 fair value measurements.
11
COMMITMENTS AND CONTINGENT LIABILITIES
Income Taxes
Commitments exclude unrecognized tax benefits to be recorded in accordance with FASB ASC Topic 740, Income Taxes. We are unable to reasonably estimate the ultimate amount or timing of cash settlements with the respective taxing authorities for such matters. See Note 7.
We file income tax returns with the Internal Revenue Service ("IRS") and various state tax jurisdictions. From time to time, we are subject to routine audits by those agencies and those audits may result in proposed adjustments. We have considered the alternative interpretations that may be assumed by the various taxing agencies, believe our positions taken regarding our filings are valid, and that adequate tax liabilities have been recorded to resolve such matters. However, the actual outcome cannot be determined with certainty and the difference could be material, either positively or negatively, to the Consolidated Statements of Operations and Comprehensive Income (Loss) in the periods in which such matters are ultimately determined. We do not believe the final resolution of such matters will be material to our consolidated financial position or cash flows.
We have various income tax examinations ongoing and at various stages of completion, but generally our income tax returns have been audited or closed to audit through 2009.
Legal Proceedings
We are 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 we are unable to predict the ultimate outcome of these legal actions, it is our opinion that the disposition of these matters will not have a material adverse effect on our Consolidated Financial Statements, taken as a whole.
Multiemployer Pension Plans
The Company contributes to three multiemployer pension plans. In June 2017, a union contract covering certain of our employees under a multiemployer pension plan expired resulting in a partial withdrawal from one of the multiemployer plans. In 2017, the Company recorded an estimate of the partial withdrawal liability totaling $2,600,000. Once the multiemployer pension plan's administrators finalize the partial withdrawal liability, it will be paid in equal installments over a twenty year period.
In the second quarter of 2019, we recorded an estimated partial liability for the CWA/ITU multi-employer plan, in the amount of $500,000, which is included in restructuring costs and other.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion includes comments and analysis relating to our results of operations and financial condition as of and for the 13 weeks and 26 weeks ended March 31, 2019. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, included herein, and our 2018 Annual Report on Form 10-K.
No non-GAAP financial measure should be considered as a substitute for any related GAAP financial measure. However, we believe the use of non-GAAP financial measures provides meaningful supplemental information with which to evaluate our financial performance, or assist in forecasting and analyzing future periods. We also believe such non-GAAP financial measures are alternative indicators of performance used by investors, lenders, rating agencies and financial analysts to estimate the value of a publishing business and its ability to meet debt service requirements.
We define our non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, as follows:
Adjusted EBITDA is a non-GAAP financial performance measure that enhances financial statement users' overall understanding of the operating performance of the Company. The measure isolates unusual, infrequent or non-cash transactions from the operating performance of the business. This allows users to easily compare operating performance among various fiscal periods and how management measures the performance of the business. This measure also provides users with a benchmark that can be used when forecasting future operating performance of the Company that excludes unusual, nonrecurring or one time transactions. Adjusted EBITDA is also a component of the calculation used by stockholders and analysts to determine the value of our business when using the market approach, which applies a market multiple to financial metrics. It is also a measure used to calculate the leverage ratio of the Company, which is a key financial ratio monitored and used by the Company and its investors. Adjusted EBITDA is defined as net income (loss), plus non-operating expenses, income tax expense (benefit), depreciation and amortization, assets loss (gain) on sales, impairments and other, restructuring costs and other, stock compensation and our 50% share of EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI and curtailment gains.
Cash Costs represent a non-GAAP financial performance measure of operating expenses which are measured on an accrual basis and settled in cash. This measure is useful to investors in understanding the components of the Company’s cash-settled operating costs. Occasionally, the Company provides forward-looking guidance of Cash Costs, which can be used by financial statement users to assess the Company's ability to manage and control its operating cost structure. Cash Costs are defined as the sum of compensation, newsprint and ink and other operating expenses. Depreciation and amortization, assets loss (gain) on sales, impairments and other, other non-cash operating expenses and other expenses are excluded. Cash Costs also exclude restructuring costs and other, which are typically paid in cash.
Total Operating Revenue Less Cash Costs, or “margin”, represents a non-GAAP financial performance measure of revenue less total cash costs, also a non-GAAP financial measure. This measure is useful to investors in understanding the profitability of the Company after direct cash costs related to the production and delivery of products are paid. Margin is also useful in developing opinions and expectations about the Company’s ability to manage and control its operating cost structure in relation to its peers.
A table reconciling adjusted EBITDA to net income, the most directly comparable measure under GAAP, is set forth below under the caption "Reconciliation of Non-GAAP Financial Measures". Reconciliations of adjusted income (loss) and adjusted earnings (loss) per diluted common share to income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per diluted common share, respectively, the most directly comparable measures under GAAP, are set forth in Item 2, included herein, under the caption “Net Income and Earnings Per Share”.
The subtotals of operating expenses representing cash costs and the reconciliation of total revenue less cash costs to operating income can be found in tables in Item 2, included herein, under the captions “13 Weeks Ended March 31, 2019" and “26 Weeks Ended March 31, 2019".
The table below reconciles the non-GAAP financial performance measure of adjusted EBITDA to net income, the most directly comparable GAAP measure:
13 Weeks Ended
26 Weeks Ended
53 Weeks Ended
(Thousands of Dollars)
March 31 2019
March 25 2018
March 31 2019
March 25 2018
March 31 2019
Net Income (loss)
(2,327
)
2,533
8,392
37,860
17,579
Adjusted to exclude
Income tax expense (benefit)
156
927
4,670
(18,763
)
7,205
Non-operating expenses, net
14,738
13,103
27,224
27,300
54,797
Equity in earnings of TNI and MNI
(1,717
)
(1,608
)
(3,846
)
(3,991
)
(9,104
)
Loss (gain) on sale of assets and other, net
83
(1,300
)
(17
)
(1,297
)
7,709
Depreciation and amortization
7,386
8,016
14,916
16,068
30,614
Restructuring costs and other
2,759
1,816
2,820
2,284
6,086
Stock compensation
426
497
888
1,016
1,731
Add:
Ownership share of TNI and MNI EBITDA (50%)
2,080
2,086
4,681
5,245
9,320
Adjusted EBITDA
23,584
26,070
59,728
65,722
125,937
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2018, the Financial Accounting Standards Board (“FASB”) issued a new standard which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The modifications remove disclosures, clarify the specific requirements of disclosures and add disclosure requirements identified as relevant. We are currently in the process of evaluating the impact of this guidance on our Consolidated Financial Statements.
In August 2018, the FASB issued a new standard which modifies the disclosure requirements on fair value measurements. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. We are currently in the process of evaluating the impact of this guidance on our Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies include the following:
•Intangible assets, other than goodwill;
•Pension, postretirement and postemployment benefit plans;
•Income taxes;
Additional information regarding these critical accounting policies can be found under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Annual Report on Form 10-K.
Lee Enterprises, Incorporated is a leading provider of high quality, trusted, local news and information, and a major platform for advertising in the markets we serve. We operate 50 principally mid-sized local media operations and manage 30 additional local media operations through an agreement with BH Media Group, Inc. (the "Management Agreement").
We reach 79% of all adults in our larger markets through a combination of our print and digital content offerings.
•
Our web and mobile sites are the number one digital source of local news in most of our markets, reaching more than 30.2 million unique visitors each month with a monthly average of 298.2 million page views. Page views per session, one metric we use to monitor engagement, increased 14.3% in 2019.
•
Our printed newspapers reach more than 0.7 million households daily and more than 1.0 million on Sunday, with estimated readership totaling three million. Digital only subscribers totaled approximately 65,000, a 55.5% increase over the prior year.
Our products include daily newspapers, websites and mobile applications, mobile news and advertising, video products, a digital marketing agency, digital services including web hosting and content management, niche publications and community newspapers. Our local media operations range from large daily newspapers and the associated digital products, such as the St. Louis Post-Dispatch, to non-daily newspapers with news websites and digital platforms serving smaller communities.
We also operate TownNews, through our 82.5% owned subsidiary INN Partners, L.C. ("TownNews"). TownNews provides state-of-the-art web hosting, content management services and video management services to nearly 2,000 other media organizations including broadcast.
We entered into the Management Agreement to manage Berkshire Hathaway's newspaper and digital operations in 30 markets. The Company operates BH Media consistent with how it manages its own newspaper and digital operations. Among other decisions, Berkshire Hathaway is responsible for approving operating and capital budgets. The Management Agreement extends for a term of five years and may be extended thereafter for successive one-year terms on such terms as may be mutually agreed to by the Company and Berkshire Hathaway. The Management Agreement provides for the Company to be paid a fixed annual fee of $5 million, payable quarterly in arrears, and a variable fee based on the financial performance of BH Media. The variable fees are payable annually in arrears.
IMPAIRMENT OF GOODWILL AND OTHER ASSETS
We have significant amounts of goodwill and identified intangible assets. Since 2007 we have recorded impairment charges totaling almost $1.3 billion to reduce the value of certain of these assets. Future decreases in our market value, or significant differences in revenue, expenses or cash flows from estimates used to determine fair value, could result in additional impairment charges in the future.
DEBT AND LIQUIDITY
We have a substantial amount of debt, as discussed more fully in Note 5 of the Notes to Consolidated Financial Statements, included herein. Since February 2009, we have satisfied all interest payments and substantially all principal payments due under our debt facilities with our cash flows and asset sales.
As of March 31, 2019, our debt consists of the following:
•
$400,000,000 aggregate principal amount of 9.5% Senior Secured Notes (the “Notes”), pursuant to an Indenture dated as of March 31, 2014 (the “Indenture”), of which $385,000,000 is outstanding at March 31, 2019;
•
$250,000,000 first lien term loan (the "1st Lien Term Loan") and $40,000,000 revolving facility (the "Revolving Facility") under a First Lien Credit Agreement dated as of March 31, 2014 (together, the “1st Lien Credit Facility”), of which $0 is outstanding at March 31, 2019; and
$150,000,000 second lien term loan under a Second Lien Loan Agreement dated as of March 31, 2014 (the “ 2nd Lien Term Loan”), of which $91,455,000 is outstanding at March 31, 2019.
In November 2018, we repaid, in full, the remaining balance of the 1st Lien Term Loan.
In December 2018 we amended our 1st Lien Credit Facility to amend and extend our Revolving Facility (the "Amendment"). The Amendment, among other changes, extends the maturity of the revolving loan commitments of the 1st Lien Lenders for twelve months, reduces the revolver loan commitments from $40,000,000 to $27,200,000 with a further 15% reduction to the revolving loan commitments of the 1st Lien Term Lenders effective as of July 31, 2019.
Our ability to make payments on our indebtedness will depend on our ability to generate future cash flows from operations. Cash generated from future asset sales could serve as an additional source of repayment. This ability, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.
At March 31, 2019, after consideration of letters of credit, we have approximately $21,435,000 available for future use under our Revolving Facility, which expires December 28, 2019. Including cash, our liquidity at March 31, 2019 totals $38,100,000. This liquidity amount excludes any future cash flows. Our adjusted EBITDA has been strong for the last seven years and totaled $125,937,000 for the trailing twelve months ended March 31, 2019, but there can be no assurance that such performance will continue. We expect all interest and principal payments due in the next twelve months will be satisfied by our cash flows from operations and certain asset sales, which will allow us to maintain an adequate level of liquidity.
At March 31, 2019, the principal amount of our outstanding debt totaled $476,455,000. The March 31, 2019 principal amount of our debt, net of cash, is 3.65 times our trailing twelve months adjusted EBITDA.
Excluding our Revolving Facility, which is undrawn as of March 31, 2019, final maturities of our debt range from March 2022 through December 2022. Our Revolving Facility expires December 28, 2019.
There are numerous potential consequences under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan, if an event of default, as defined, occurs and is not remedied. Many of those consequences are beyond our control. The occurrence of one or more events of default would give rise to the right of the applicable lender(s) to exercise their remedies under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan, respectively, including, without limitation, the right to accelerate all outstanding debt and take actions authorized in such circumstances under applicable collateral security documents.
Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and to repay, refinance or amend our debt agreements as they become due, if necessary. The Notes, 1st Lien Credit Facility and 2nd Lien Term Loan have only limited affirmative covenants with which we are required to maintain compliance. We are in compliance with our debt covenants at March 31, 2019.
Operating results, as reported in the Consolidated Financial Statements, are summarized below.
(Thousands of Dollars, Except Per Share Data)
March 31 2019
March 25 2018
Percent Change
Advertising and marketing services revenue
62,934
71,553
(12.0
)
Subscription
45,076
45,972
(1.9
)
Other
14,694
10,280
42.9
Total operating revenue
122,704
127,805
(4.0
)
Operating expenses:
Compensation
47,785
49,363
(3.2
)
Newsprint and ink
5,825
5,640
3.3
Other operating expenses
48,016
49,315
(2.6
)
Cash costs
101,626
104,318
(2.6
)
Total operating revenue less cash costs
21,078
23,487
(10.3
)
Depreciation and amortization
7,386
8,016
(7.9
)
Assets loss (gain) on sales, impairments and other, net
83
(1,300
)
NM
Restructuring costs and other
2,759
1,816
51.9
Operating expenses
111,854
112,850
(0.9
)
Equity in earnings of associated companies
1,717
1,608
6.8
Operating income
12,567
16,563
(24.1
)
Non-operating income (expense):
Interest expense
(12,140
)
(13,274
)
(8.5
)
Debt financing and administrative cost
(962
)
(1,217
)
(21.0
)
Other, net
(1,636
)
1,388
NM
Non-operating expenses, net
(14,738
)
(13,103
)
12.5
Income (loss) before income taxes
(2,171
)
3,460
NM
Income tax expense
156
927
(83.2
)
Net income (loss)
(2,327
)
2,533
NM
Net income attributable to non-controlling interests
(351
)
(294
)
19.4
Income (loss) attributable to Lee Enterprises, Incorporated
(2,678
)
2,239
NM
Other comprehensive loss, net of income taxes
(122
)
(36
)
NM
Comprehensive income (loss) attributable to Lee Enterprises, Incorporated
(2,800
)
2,203
NM
Earnings per common share:
Basic
(0.05
)
0.04
NM
Diluted
(0.05
)
0.04
NM
References to the "2019 Quarter" refer to the 13 weeks ended March 31, 2019. Similarly, references to the "2018 Quarter" refer to the 13 weeks ended March 25, 2018.
Operating Revenue
In the 2019 Quarter, advertising and marketing services revenue decreased $8,619,000, or 12.0% compared to the 2018 Quarter. The decrease in advertising and marketing services revenue is due to softness in print advertising demand resulting in reduced advertising volume primarily from large retail, big box stores and classifieds.
Digital advertising increased 5.3% to $24,068,000 in the 2019 Quarter and represents 38.2% of total advertising revenue. Digital retail advertising, which represents 61.8% of total digital advertising, increased 4.9%, partially offsetting print declines.
Subscription revenue decreased $896,000, or 1.9%, in the 2019 Quarter. Strategic pricing programs and premium content helped offset lower paid circulation units. Our average daily newspaper circulation, including TNI, MNI and digital subscribers, totaled 0.7 million in the 2019 Quarter. Sunday circulation totaled 1.0 million. Digital only subscribers totaled approximately 65,000, a 55.5% increase over the prior year.
Other revenue, which consists of digital services, Management Agreement revenues, commercial printing, revenue from delivery of third party products and the sale of books, increased 42.9% in the 2019 Quarter. The increase was due to a 30.3% increase in revenue at TownNews. Management fee revenue from BH Media Group was $3,850,000.
Excluding intercompany activity, revenue at TownNews increased 30.3% in the 2019 Quarter due to a growing broadcast customer base, gaining print market share and the impact of the GTxcel acquisition. On a stand alone basis, revenue at TownNews totaled $20,881,000 over the last twelve months.
In the 2019 Quarter, our mobile, tablet, desktop and app sites, including TNI and MNI, attracted a monthly average of 30.2 million unique visitors with 298.2 million page views, a 13.5% increase in page views compared to the 2018 Quarter. Increased audience engagement is driving a higher number pages viewed per user session in the 2019 Quarter. Research in our larger markets indicates we are maintaining our share of audience in our markets through the combination of strong digital audience growth and print newspaper readership.
Operating Expenses
Operating expenses for the 2019 Quarter decreased 0.9%. Cash costs decreased 2.6% compared to the prior year quarter.
Compensation expense decreased $1,578,000 , or 3.2% driven by an 8.7% decline in average full-time equivalent employees partially offset by unfavorable claims experience from our self insured medical plan and compensation increases. Outsourcing certain functions and continued business transformation affected the number of full-time equivalents in the 2019 Quarter.
Newsprint and ink costs increased $185,000, or 3.3%, due to significant increases in newsprint prices partially offset by a 10.4% reduction in newsprint volume from unit declines. See Item 3, “Commodities”, included herein, for further discussion and analysis of the impact of newsprint prices on our business.
Other operating expenses for the 2019 Quarter decreased $1,299,000, or 2.6%. Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation and amortization, or restructuring costs and other. The largest components of these costs include delivery, postage, outsourced printing, digital cost of goods sold and facility expenses. Cost reductions were primarily related to lower delivery and other print-related costs offset in part by higher costs associated with growing digital revenue and outsourcing.
We expect cash costs on a same property basis to be down 4-5% in fiscal year 2019.
Depreciation expense decreased $526,000, or 14.3%, and amortization expense decreased $104,000, or 2.4%, in the 2019 Quarter.
Assets loss (gain) on sales, impairments and other, was a net loss of $83,000 in the 2019 Quarter compared to a net gain of $1,300,000 in the 2018 Quarter. The net gain in the 2018 Quarter includes curtailment gains of $2,031,000.
Restructuring costs and other totaled $2,759,000 and $1,816,000 in the 2019 Quarter and 2018 Quarter, respectively. The majority of restructuring costs relate to severance. In the 2019 Quarter, we recorded an estimated withdrawal liability of $500,000 related to one of our multi-employer plans, which is included in restructuring costs and other.
Results of Operations
The factors noted above resulted in operating income of $12,567,000 in the 2019 Quarter compared to $16,563,000 in the 2018 Quarter.
Equity in earnings of TNI and MNI increased $109,000 in the 2019 Quarter.
Nonoperating Income and Expense
Interest expense decreased $1,134,000, or 8.5%, to $12,140,000 in the 2019 Quarter due to lower debt balances. Our weighted average cost of debt, excluding amortization of debt financing costs, was 10.0% at the end of the 2019 Quarter.
We recognized $962,000 of debt financing and administrative costs in the 2019 Quarter compared to $1,217,000 in the 2018 Quarter. The majority of the costs represent amortization of refinancing costs paid in 2014.
Other non-operating income and expense consists of benefits associated with our pension and other postretirement plans and the fair value adjustment of our Warrants.
We recorded $711,000 of other periodic pension benefits in the 2019 Quarter and $708,000 in the 2018 Quarter.
Due to the fluctuation in the price of our Common Stock, we recorded non-operating expense of $2,753,000 in the 2019 Quarter and non-operating income of $555,000 in the 2018 Quarter, related to the changes in the value of the Warrants.
Overall Results
We recorded an income tax expense of $156,000, or 7.2% of pretax income in the 2019 Quarter. For the 13 weeks ended March 25,2018, we recognized an income tax expense of $927,000, or 26.8% of pretax income.
NET INCOME AND EARNINGS PER SHARE
The following table summarizes the impact from the fair value adjustments of our Warrants on income attributable to Lee Enterprises, Incorporated and earnings per diluted common share. Per share amounts may not add due to rounding.
13 Weeks Ended
March 31 2019
March 25 2018
(Thousands of Dollars, Except Per Share Data)
Amount
Per Share
Amount
Per Share
Income (loss) attributable to Lee Enterprises, Incorporated, as reported
(2,678
)
(0.05
)
2,239
0.04
Adjustments:
Warrants fair value adjustment
2,753
0.05
(555
)
(0.01
)
Income attributable to Lee Enterprises, Incorporated, as adjusted
Operating results, as reported in the Consolidated Financial Statements, are summarized below.
(Thousands of Dollars, Except Per Share Data)
March 31 2019
March 25 2018
Percent Change
Total advertising and marketing services revenue
138,897
156,213
(11.1
)
Subscription
91,345
94,241
(3.1
)
Other
28,663
21,136
35.6
Total operating revenue
258,905
271,590
(4.7
)
Operating expenses:
Compensation
94,824
100,980
(6.1
)
Newsprint and ink
12,164
11,478
6.0
Other operating expenses
97,758
99,671
(1.9
)
Cash costs
204,746
212,129
(3.5
)
Total operating revenue less cash costs
54,159
59,461
(8.9
)
Depreciation and amortization
14,916
16,068
(7.2
)
Assets loss (gain) on sales, impairments and other
(17
)
(1,297
)
NM
Restructuring costs and other
2,820
2,284
23.5
Equity in earnings of associated companies
3,846
3,991
(3.6
)
Operating income
40,286
46,397
(13.2
)
Non-operating income (expense):
Interest expense
(24,397
)
(26,924
)
(9.4
)
Debt financing and administrative cost
(1,858
)
(2,313
)
(19.7
)
Other, net
(969
)
1,937
NM
Non-operating expenses, net
(27,224
)
(27,300
)
(0.3
)
Income before income taxes
13,062
19,097
(31.6
)
Income tax expense (benefit)
4,670
(18,763
)
NM
Net income
8,392
37,860
(77.8
)
Net income attributable to non-controlling interests
(709
)
(618
)
14.7
Income attributable to Lee Enterprises, Incorporated
7,683
37,242
(79.4
)
Other comprehensive (loss), net of income taxes
(244
)
(9
)
NM
Comprehensive income attributable to Lee Enterprises, Incorporated
7,439
37,233
(80.0
)
Earnings per common share:
Basic
0.14
0.68
(79.4
)
Diluted
0.14
0.67
(79.1
)
References to the "2019 Period" refer to the 26 weeks ended March 31, 2019. Similarly, references to the "2018 Period" refer to the 26 weeks ended March 25, 2018.
Operating Revenue
In the 2019 Period, advertising and marketing services revenue decreased $17,316,000, or 11.1%, compared to the 2018 Period. The decrease in advertising and marketing services revenue is due to softness in print advertising demand resulting in reduced advertising volume primarily from large retail, big box stores and classifieds.
Digital advertising increased 6.7% to $49,563,000 in the 2019 Period and represents 35.7% of total advertising and marketing services revenue. Digital retail advertising, which represents 62.6% of total digital advertising, increased 7.7%, partially offsetting print declines.
Subscription revenue decreased $2,896,000, or 3.1%, in the 2019 Period. Strategic pricing programs and premium content helped offset lower paid circulation units. Our average daily newspaper circulation, including TNI, MNI and digital subscribers, totaled 0.7 million in the 2019 Period. Sunday circulation totaled 1.0 million.
Other revenue, which consists of digital services, Management Agreement revenues, commercial printing, revenue from delivery of third party products and the sale of books, increased 35.6% in the 2019 Period. The increase was due to a 28.0% increase in revenue at TownNews. We earned $6,450,000 in management fee revenue from BH Media Group.
Excluding intercompany activity, revenue at TownNews increased 28.0% in the 2019 Period, due to growing broadcast customer base, gaining print market share and the impact of the GTxcel acquisition. On a stand alone basis, revenue at TownNews totaled $20,881,000 over the last twelve months.
In the 2019 Period, our mobile, tablet, desktop and app sites, including TNI and MNI, attracted a monthly average of 29.6 million unique visitors with 293.6 million page views, a 15.3% increase in page views compared to the 2018 Period. Increased audience engagement is driving a higher number pages viewed per user session in the 2019 Period. Research in our larger markets indicates we are maintaining our share of audience in our markets through the combination of strong digital audience growth and print newspaper readership.
Operating Expenses
Operating expenses for the 2019 Period decreased 2.9%. Cash cost decreased 3.5% compared to the prior year Period.
Compensation expense decreased $6,156,000, or 6.1%, driven by a decline of 11.4% in average full time equivalent employees.
Newsprint and ink costs increased $686,000, or 6.0%, due to significant increases in newsprint prices partially offset by a 10.6% reduction in newsprint volume from unit declines. See Item 3, “Commodities”, included herein, for further discussion and analysis of the impact of newsprint on our business.
Other operating expenses for the 2019 Period decreased $1,913,000, or 1.9%. Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation and amortization, or restructuring costs and other. The largest components of these costs include delivery, postage, outsourced printing, digital cost of goods sold and facility expenses. Cost reductions were primarily related to lower delivery and other print-related costs offset in part by higher costs associated with growing digital revenue and outsourcing.
Depreciation expense decreased $1,086,000, or 14.6%, and amortization expense decreased $66,000, or 0.8%, in the 2019 Period.
Assets loss (gain) on sales, impairments and other, was a net gain of $17,000 in the 2019 Period compared to a net gain of $1,297,000 in the 2018 Period. The net gain in the 2018 Period includes curtailment gains of $2,031,000.
Restructuring costs totaled $2,820,000 and $2,284,000 in the 2019 Period and 2018 Period, respectively. The majority of restructuring costs relate to severance and a partial withdrawal liability related to one of our multi employer pension plans.
Results of Operations
The factors noted above resulted in operating income of $40,286,000 in the 2019 Period compared to $46,397,000 in the 2018 Period.
Equity in earnings in associated companies decreased $145,000 in the 2019 Period.
Nonoperating Income and Expense
Interest expense decreased $2,527,000, or 9.4%, to $24,397,000 in the 2019 Period due to lower debt balances.
We recognized $1,858,000 of debt financing and administrative costs in the 2019 Period compared to $2,313,000 in the 2018 Period. The majority of the costs represent amortization of refinancing costs paid in 2014.
Other non-operating income and expense consists of benefits associated with our pension and other postretirement plans and the fair value adjustment of our Warrants.
We recorded $1,423,000 of other periodic pension benefits in the 2019 Period and $1,416,000 in the 2018 Period.
Due to the fluctuation in the price of our Common Stock, we recorded non-operating expense of $2,672,000 in 2019 Period and non-operating income of $124,000 in the 2018 Period, related to the changes in the value of the Warrants.
Overall Results
On December 22, 2017, the 2017 Tax Act was signed into law. Among other provisions, the 2017 Tax Act reduced the federal statutory corporate income tax rate from 35% to 21%. The reduction of the corporate tax rate caused us to re-measure our deferred tax assets and liabilities to the lower federal base rate of 21% in the 2018 Quarter. We reported a discrete adjustment from revaluing our deferred tax assets and liabilities resulting in a net decrease in income tax expense of $24,872,000 in the 2018 Quarter.
We recorded an income tax expense of $4,670,000, or 35.8%, of pretax income in the 2019 Period. For the 26 weeks ended March 25, 2018 , we recognized a $18,763,000 income tax benefit. Excluding the transitional impact from the 2017 Tax Act, the effective income tax rate for the 26 weeks ended March 25, 2018 was 32.0%.
NET INCOME AND EARNINGS PER SHARE
The following table summarizes the impact from the 2017 Tax Act as well as the warrant fair value adjustments on income attributable to Lee Enterprises, Incorporated and earnings per diluted common share. Per share amounts may not add due to rounding.
26 Weeks Ended
March 31 2019
March 25 2018
(Thousands of Dollars, Except Per Share Data)
Amount
Per Share
Amount
Per Share
Income attributable to Lee Enterprises, Incorporated, as reported
7,683
0.14
37,242
0.67
Adjustments:
Warrants fair value adjustment
2,672
0.05
(124
)
—
Income tax effect of 2017 Tax Act
—
(24,872
)
(0.45
)
Income attributable to Lee Enterprises, Incorporated, as adjusted
10,355
0.18
12,246
0.22
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Cash provided by operating activities was $27,833,000 in the 2019 Period compared to 35,115,000 in the 2018 Period. Net income for the 2019 Period totaled $8,392,000 compared to $37,860,000 in the 2018 Period. The decrease in cash provided by operating activities in the 2019 Period is mainly attributed to year over year changes in operating income.
Investing Activities
Cash required for investing activities totaled $7,538,000 in the 2019 Period compared to $923,000 in the 2018 Period. Capital spending totaled $2,459,000 in the 2019 Period compared to $2,452,000 in the 2018 Period. We spent 5,708,000 on acquisitions in the 2019 Period.
We anticipate that funds necessary for capital expenditures, which are expected to total up to $11,000,000 in 2019, and other requirements, will be available from internally generated funds or available under our Revolving Facility.
Financing Activities
Cash required for financing activities totaled $9,010,000 in the 2019 Period and $32,512,000 in the 2018 Period. Debt reduction accounted for the majority of the usage of funds in both the 2019 Period and the 2018 Period.
At March 31, 2019, after consideration of letters of credit, we have approximately $21,435,000 available for future use under our Revolving Facility. Including cash and availability under our Revolving Facility, our liquidity at March 31, 2019 totals $38,100,000. This liquidity amount excludes any future cash flows. We expect all interest and principal payments due in the next twelve months will be satisfied by our cash flows, which will allow us to maintain an adequate level of liquidity. The Warrants, if and when exercised, would provide additional liquidity in an amount up to $25,140,000.
Our Revolving Facility expires December 28, 2019.
At March 31, 2019, the principal amount of our outstanding debt totals $476,455,000. The March 31, 2019 principal amount of debt, net of cash, is 3.65 times our trailing 12 months adjusted EBITDA.
There are numerous potential consequences under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan, if an event of default, as defined, occurs and is not remedied. Many of those consequences are beyond our control. The occurrence of one or more events of default would give rise to the right of the applicable lender(s) to exercise their remedies under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan, respectively, including, without limitation, the right to accelerate all outstanding debt and take actions authorized in such circumstances under applicable collateral security documents.
Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and repay, refinance or amend our debt agreements as they become due, if available liquidity is consumed. The Notes, 1st Lien Credit Facility and 2nd Lien Term Loan have only limited affirmative covenants with which we are required to maintain compliance. We are in compliance with our debt covenants at March 31, 2019.
In February 2017 our filing of a replacement Form S-3 registration statement ("Shelf") with the SEC, was declared effective and expires February 2020. The Shelf registration gives us the flexibility to issue and publicly distribute various types of securities, including preferred stock, common stock, warrants, secured or unsecured debt securities, purchase contracts and units consisting of any combination of such securities, from time to time, in one or more offerings, up to an aggregate amount of $750,000,000. SEC issuer eligibility rules require us to have a public float of at least $75,000,000 in order to use the Shelf. Subject to maintenance of the minimum level of equity market float and the conditions of our existing debt agreements, the Shelf may enable us to sell securities quickly and efficiently when market conditions are favorable or financing needs arise. Under our existing debt agreements, net proceeds from the sale of any securities may be used generally to reduce debt.
CHANGES IN LAWS AND REGULATIONS
Pension Plans
In 2012, the Surface Transportation Extension Act of 2012 (“STEA”) was signed into law. STEA provides for changes in the determination of discount rates that result in a near-term reduction in minimum funding requirements for our defined benefit pension plans. STEA will also result in an increase in future premiums to be paid to the Pension Benefit Guarantee Corporation ("PBGC").
In 2014, the Highway and Transportation Funding Act ("HATFA") was signed into law. HATFA generally extends the relief offered under STEA and further increases premiums to be paid to the PBGC.
Income Taxes
On December 22, 2017, the 2017 Tax Act was signed into law. Among other provisions, the 2017 Tax Act reduces the federal statutory corporate income tax rate from 35% to 21%. The reduction of the corporate tax rate caused us to re-measure our deferred tax assets and liabilities to the lower federal base rate of 21%. We reported a discrete adjustment from revaluing our deferred tax assets and liabilities which resulted in a provisional net decrease in income tax expense of $24,872,000 for the 26 weeks ended March 25, 2018.
The Securities Exchange Commission has issued rules that allow for a measurement period of up to one year after the enactment date of the 2017 Tax Act to finalize the recording of the related transitional impact. Apart from any future changes in interpretations, legislative action or changes in accounting standards, we finalized and recorded the resulting adjustments as of September 30, 2018.
The United States and various state and local governments are considering increasing their respective minimum wage rates. Most of our employees earn an amount in excess of the current United States or state minimum wage rates. However, until changes to such rates are enacted, the impact of the changes cannot be determined.
INFLATION
Price increases (or decreases) for our products or services are implemented when deemed appropriate by us. We continuously evaluate price increases, productivity improvements, sourcing efficiencies and other cost reductions to mitigate the impact of inflation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are 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 ON DEBT
Our debt structure, which is entirely fixed rate, eliminates the potential impact of an increase in interest rates. At March 31, 2019, we had no floating debt outstanding. We have no interest rate hedging in place.
COMMODITIES
Newsprint prices began showing signs of weakness during the March 2019 Quarter as a result of increased supply versus declining domestic and export demand.
Our long-term supply strategy is to align the Company with those cost-effective suppliers most likely to continue producing and supplying newsprint to the North American market and geographically aligned with our print locations. Where possible the Company will align supply with the lowest cost material, but may be restricted due to shipping expenses and paper production availability.
A $10 per tonne price increase for 30 pound newsprint would result in an annualized reduction in income before taxes of approximately $331,000 annualized based on anticipated consumption in 2019, excluding consumption of TNI and MNI and the impact of LIFO accounting.
SENSITIVITY TO CHANGES IN VALUE
Our debt consists of $385,000,000 principal amount of the Notes and $91,455,000 principal amount under the 2nd Lien Term Loan, which are subject to fixed interest rates. At March 31, 2019, based on an average of private market price quotations, the fair values were $392,311,150 and $91,455,213 for the Notes and 2nd Lien Term Loan, respectively.
Item 4. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting that occurred during the 26 weeks ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
We are 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 we are unable to predict the ultimate outcome of these legal actions, it is our opinion that the disposition of these matters will not have a material adverse effect on our Consolidated Financial Statements, taken as a whole.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LEE ENTERPRISES, INCORPORATED
/s/ Timothy R. Millage
May 10, 2019
Timothy R. Millage
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
33
falsedesktopLEE2019-03-31000005836119000031{"post_metric": "https://q10k.com/post-metric", "tbl_copy_plus_disp": "https://q10k.com/tbl-copy-plus-disp", "tbl_copy_plus_copy": "https://q10k.com/tbl-copy-plus-copy", "tbl_sim": "https://q10k.com/tbl-sim", "search": "https://q10k.com/search"}{"q10k_tbl_0": "Table Of Contents \t\tPAGE\nFORWARD LOOKING STATEMENTS \t\t1\nPART I FINANCIAL INFORMATION\t\t2\n Item 1.\tFinancial Statements (Unaudited)\t2\n \tConsolidated Balance Sheets - March 31, 2019 and September 30, 2018\t2\n \tConsolidated Statements of Operations and Comprehensive Income (Loss) - 13 weeks and 26 weeks ended March 31, 2019 and March 25, 2018\t4\n \tConsolidated Statements of Stockholder's Equity - 13 weeks and 26 weeks ended March 31, 2019 and March 25, 2018\t5\n \tConsolidated Statements of Cash Flows - 26 weeks ended March 31, 2019 and March 25, 2018\t6\n \tNotes to Consolidated Financial Statements\t7\n Item 2.\tManagement's Discussion and Analysis of Financial Condition and Results of Operations\t20\n Item 3.\tQuantitative and Qualitative Disclosures About Market Risk\t32\n Item 4.\tControls and Procedures\t32\nPART II OTHER INFORMATION\t\t33\n Item 1.\tLegal Proceedings\t33\n Item 6.\tExhibits\t33\nSIGNATURES \t\t33\n", "q10k_tbl_1": "(Thousands of Dollars)\tMarch 31 2019\tSeptember 30 2018\nASSETS\t\t\nCurrent assets:\t\t\nCash and cash equivalents\t16,665\t5,380\nAccounts receivable and contract assets, net\t43,677\t43,711\nInventories\t4,068\t5,684\nOther\t4,240\t4,567\nTotal current assets\t68,650\t59,342\nInvestments:\t\t\nAssociated companies\t29,056\t29,216\nOther\t10,827\t10,958\nTotal investments\t39,883\t40,174\nProperty and equipment:\t\t\nLand and improvements\t17,224\t17,432\nBuildings and improvements\t149,802\t150,376\nEquipment\t270,960\t276,332\nConstruction in process\t2,255\t1,710\n\t440,241\t445,850\nLess accumulated depreciation\t352,304\t353,522\nProperty and equipment, net\t87,937\t92,328\nGoodwill\t250,162\t246,176\nOther intangible assets, net\t115,005\t119,819\nMedical plan assets, net\t16,277\t16,157\nOther\t1,520\t1,415\nTotal assets\t579,434\t575,411\n", "q10k_tbl_2": "(Thousands of Dollars and Shares, Except Per Share Data)\tMarch 31 2019\tSeptember 30 2018\nLIABILITIES AND EQUITY\t\t\nCurrent liabilities:\t\t\nCurrent maturities of long-term debt\t7,318\t7,027\nAccounts payable\t13,661\t12,747\nCompensation and other accrued liabilities\t17,198\t19,641\nAccrued interest\t2,224\t2,031\nUnearned revenue\t25,325\t23,895\nTotal current liabilities\t65,726\t65,341\nLong-term debt, net of current maturities\t453,608\t460,777\nPension obligations\t25,332\t26,745\nPostretirement and postemployment benefit obligations\t2,608\t2,580\nDeferred income taxes\t39,216\t39,108\nIncome taxes payable\t7,112\t6,559\nWarrants and other\t13,751\t10,561\nTotal liabilities\t607,353\t611,671\nEquity (deficit):\t\t\nStockholders' equity (deficit):\t\t\nSerial convertible preferred stock, no par value; authorized 500 shares; none issued\t-\t-\nCommon Stock, $0.01 par value; authorized 120,000 shares; issued and outstanding:\t577\t572\nMarch 31, 2019: 57,730 shares;\t\t\nSeptember 30, 2018: 57,141 shares\t\t\nClass B Common Stock, $2 par value; authorized 30,000 shares; none issued\t-\t-\nAdditional paid-in capital\t254,185\t253,511\nAccumulated deficit)\t(272,008\t(279,691)\nAccumulated other comprehensive loss)\t(11,990\t(11,746)\nTotal stockholders' deficit)\t(29,236\t(37,354)\nNon-controlling interests\t1,317\t1,094\nTotal deficit)\t(27,919\t(36,260)\nTotal liabilities and deficit\t579,434\t575,411\n", "q10k_tbl_3": "\t13 Weeks Ended\t\t26 Weeks Ended\t\n(Thousands of Dollars, Except Per Common Share Data)\tMarch 31 2019\tMarch 25 2018\tMarch 31 2019\tMarch 25 2018\nOperating revenue:\t\t\t\t\nAdvertising and marketing services\t62,934\t71,553\t138,897\t156,213\nSubscription\t45,076\t45,972\t91,345\t94,241\nOther\t14,694\t10,280\t28,663\t21,136\nTotal operating revenue\t122,704\t127,805\t258,905\t271,590\nOperating expenses:\t\t\t\t\nCompensation\t47,785\t49,363\t94,824\t100,980\nNewsprint and ink\t5,825\t5,640\t12,164\t11,478\nOther operating expenses\t48,016\t49,315\t97,758\t99,671\nDepreciation and amortization\t7,386\t8,016\t14,916\t16,068\nAssets loss (gain) on sales, impairments and other, net\t83\t(1,300)\t(17)\t(1,297)\nRestructuring costs and other\t2,759\t1,816\t2,820\t2,284\nTotal operating expenses\t111,854\t112,850\t222,465\t229,184\nEquity in earnings of associated companies\t1,717\t1,608\t3,846\t3,991\nOperating income\t12,567\t16,563\t40,286\t46,397\nNon-operating income (expense):\t\t\t\t\nInterest expense)\t(12,140\t(13,274)\t(24,397)\t(26,924)\nDebt financing and administrative costs)\t(962\t(1,217)\t(1,858)\t(2,313)\nOther, net)\t(1,636\t1,388\t(969)\t1,937\nTotal non-operating expense, net)\t(14,738\t(13,103)\t(27,224)\t(27,300)\nIncome (loss) before income taxes)\t(2,171\t3,460\t13,062\t19,097\nIncome tax expense (benefit)\t156\t927\t4,670\t(18,763)\nNet income (loss))\t(2,327\t2,533\t8,392\t37,860\nNet income attributable to non-controlling interests)\t(351\t(294)\t(709)\t(618)\nIncome (loss) attributable to Lee Enterprises, Incorporated)\t(2,678\t2,239\t7,683\t37,242\nOther comprehensive loss, net of income taxes)\t(122\t(36)\t(244)\t(9)\nComprehensive income (loss) attributable to Lee Enterprises, Incorporated)\t(2,800\t2,203\t7,439\t37,233\nEarnings per common share:\t\t\t\t\nBasic:)\t(0.05\t0.04\t0.14\t0.68\nDiluted:)\t(0.05\t0.04\t0.14\t0.67\n", "q10k_tbl_4": "(Thousands of Dollars)\tAccumulated Deficit\tCommon Stock\tAdditional paid-in capital\tAOCL\tTotal\nOctober 1, 2018)\t(279,691\t572\t253,511\t(11,746)\t(37,354)\nShares issued (redeemed)\t-\t5\t(453)\t-\t(448)\nIncome attributable to Lee Enterprises, Incorporated\t10,361\t-\t-\t-\t10,361\nStock compensation\t-\t-\t385\t-\t385\nOther comprehensive income\t-\t-\t-\t(163)\t(163)\nDeferred income taxes, net\t-\t-\t-\t41\t41\nDecember 30, 2018)\t(269,330\t577\t253,443\t(11,868)\t(27,178)\nShares issued (redeemed)\t-\t-\t317\t-\t317\nIncome attributable to Lee Enterprises, Incorporated)\t(2,678\t-\t-\t-\t(2,678)\nStock compensation\t-\t-\t425\t-\t425\nOther comprehensive income\t-\t-\t-\t(163)\t(163)\nDeferred income taxes, net\t-\t-\t-\t41\t41\nMarch 31,2019)\t(272,008\t577\t254,185\t(11,990)\t(29,236)\n", "q10k_tbl_5": "(Thousands of Dollars)\tAccumulated Deficit\tCommon Stock\tAdditional paid-in capital\tAOCL\tTotal\nSeptember 25, 2017)\t(328,524\t567\t251,790\t(16,068)\t(92,235)\nShares issued (redeemed)\t-\t4\t(465)\t-\t(461)\nIncome attributable to Lee Enterprises, Incorporated\t35,003\t-\t-\t-\t35,003\nStock compensation\t-\t-\t519\t-\t519\nOther comprehensive income\t-\t-\t-\t36\t36\nDeferred income taxes, net\t-\t-\t-\t(9)\t(9)\nDecember 24, 2017)\t(293,521\t571\t251,844\t(16,041)\t(57,147)\nShares issued (redeemed)\t-\t(1)\t19\t-\t18\nIncome attributable to Lee Enterprises, Incorporated\t2,239\t-\t-\t-\t2,239\nStock compensation\t-\t-\t439\t-\t439\nOther comprehensive income\t-\t-\t-\t(71)\t(71)\nDeferred income taxes, net\t-\t-\t-\t35\t35\nMarch 25, 2018)\t(291,282\t570\t252,302\t(16,077)\t(54,487)\n", "q10k_tbl_6": "\t26 Weeks Ended\t\n(Thousands of Dollars)\tMarch 31 2019\tMarch 25 2018\nCash provided by (required for) operating activities:\t\t\nNet income\t8,392\t37,860\nAdjustments to reconcile net income to net cash provided by operating activities:\t\t\nDepreciation and amortization\t14,916\t16,068\nCurtailment gains\t-\t(2,031)\nStock compensation expense\t810\t1,016\nDistributions greater than earnings of MNI\t303\t672\nDeferred income taxes\t190\t(19,557)\nDebt financing and administrative costs\t1,858\t2,313\nPension contributions)\t(650\t-\nOther, net)\t(505\t169\nChanges in operating assets and liabilities:\t\t\nDecrease in receivables and contract assets\t660\t4,758\nDecrease (increase) in inventories and other\t2,039\t(468)\nDecrease in accounts payable and other accrued liabilities)\t(3,051\t(4,367)\nDecrease in pension and other postretirement and postemployment benefit obligations)\t(663\t(1,575)\nChange in income taxes payable\t545\t510\nOther, including warrants\t2,989\t(253)\nNet cash provided by operating activities\t27,833\t35,115\nCash provided by (required for) investing activities:\t\t\nPurchases of property and equipment)\t(2,459\t(2,452)\nProceeds from sales of assets\t770\t1,989\nAcquisitions)\t(5,708\t(250)\nDistributions greater (less) than earnings of TNI)\t(143\t535\nOther, net\t2\t(745)\nNet cash required for investing activities)\t(7,538\t(923)\nCash required for financing activities:\t\t\nPayments on long-term debt)\t(8,404\t(32,064)\nDebt financing costs paid)\t(259\t(5)\nCommon stock transactions, net)\t(347\t(443)\nNet cash required for financing activities)\t(9,010\t(32,512)\nNet increase in cash and cash equivalents\t11,285\t1,680\nCash and cash equivalents:\t\t\nBeginning of period\t5,380\t10,621\nEnd of period\t16,665\t12,301\n", "q10k_tbl_7": "\t13 Weeks Ended\t\t26 Weeks Ended\t\n(Thousands of Dollars)\tMarch 31 2019\tMarch 25 2018\tMarch 31 2019\tMarch 25 2018\nAdvertising and marketing services revenues\t62,934\t71,553\t138,897\t156,213\nSubscription Revenues\t45,076\t45,972\t91,345\t94,241\nTownNews and other digital services revenues\t4,744\t3,815\t9,421\t7,476\nOther revenues\t9,950\t6,465\t19,242\t13,660\nTotal operating revenue\t122,704\t127,805\t258,905\t271,590\n", "q10k_tbl_8": "\t13 Weeks Ended\t\t26 Weeks Ended\t\n(Thousands of Dollars)\tMarch 31 2019\tMarch 25 2018\tMarch 31 2019\tMarch 25 2018\nOperating revenue\t11,480\t11,851\t23,644\t25,081\nOperating expenses\t8,832\t9,354\t17,928\t19,338\nOperating income\t2,648\t2,497\t5,716\t5,743\nCompany's 50% share of operating income\t1,323\t1,248\t2,858\t2,872\nLess amortization of intangible assets\t105\t104\t209\t209\nEquity in earnings of TNI\t1,218\t1,144\t2,649\t2,663\n", "q10k_tbl_9": "\t13 Weeks Ended\t\t26 Weeks Ended\t\n(Thousands of Dollars)\tMarch 31 2019\tMarch 25 2018\tMarch 31 2019\tMarch 25 2018\nOperating revenue\t13,092\t13,838\t27,918\t29,903\nOperating expenses, excluding restructuring costs, depreciation and amortization\t11,579\t12,016\t24,272\t24,948\nRestructuring costs\t38\t146\t68\t210\nDepreciation and amortization\t280\t280\t559\t558\nOperating income\t1,195\t1,396\t3,019\t4,187\nNet income\t996\t928\t2,394\t2,656\nEquity in earnings of MNI\t499\t464\t1,197\t1,328\n", "q10k_tbl_10": "\t26 Weeks Ended\n(Thousands of Dollars)\tMarch 31 2019\nGoodwill, gross amount\t1,535,155\nAccumulated impairment losses)\t(1,288,979\nGoodwill, beginning of period\t246,176\nGoodwill acquired in business combinations\t3,986\nGoodwill, end of period\t250,162\n", "q10k_tbl_11": "(Thousands of Dollars)\tMarch 31 2019\tSeptember 30 2018\nNonamortized intangible assets:\t\t\nMastheads\t21,883\t21,883\nAmortizable intangible assets:\t\t\nCustomer and newspaper subscriber lists\t696,632\t692,886\nLess accumulated amortization\t603,510\t594,950\n\t93,122\t97,936\nOther intangible assets, net\t115,005\t119,819\n", "q10k_tbl_12": "\t\t\tInterest Rates (%)\n(Thousands of Dollars)\tMarch 31 2019\tSeptember 30 2018\tMarch 31 2019\nRevolving Facility\t-\t-\t6.1\n1st Lien Term Loan\t-\t6,303\t8.5\nNotes\t385,000\t385,000\t9.5\n2nd Lien Term Loan\t91,455\t93,556\t12.0\n\t476,455\t484,859\t\nUnamortized debt issue costs)\t(15,529\t(17,055)\t\nCurrent maturities of long-term debt\t7,318\t7,027\t\nTotal long-term debt\t453,608\t460,777\t\n", "q10k_tbl_13": "Period Beginning\tPercentage of Principal Amount\nMarch 15, 2019\t102.38\nMarch 15, 2020\t100.00\n", "q10k_tbl_14": "PENSION PLANS\t13 Weeks Ended\t\t26 Weeks Ended\t\n(Thousands of Dollars)\tMarch 31 2019\tMarch 25 2018\tMarch 31 2019\tMarch 25 2018\nService cost for benefits earned during the period\t9\t12\t18\t24\nInterest cost on projected benefit obligation\t1,641\t1,438\t3,282\t2,876\nExpected return on plan assets)\t(2,018\t(1,983)\t(4,036)\t(3,966)\nAmortization of net loss\t284\t506\t568\t1,012\nAmortization of prior service benefit)\t(25\t(34)\t(50)\t(68)\nPension benefit)\t(109\t(61)\t(218)\t(122)\nPOSTRETIREMENT MEDICAL PLANS\t13 Weeks Ended\t\t26 Weeks Ended\t\n(Thousands of Dollars)\tMarch 31 2019\tMarch 25 2018\tMarch 31 2019\tMarch 25 2018\nInterest cost on projected benefit obligation\t103\t90\t206\t181\nExpected return on plan assets)\t(270\t(270)\t(540)\t(540)\nAmortization of net gain)\t(244\t(246)\t(488)\t(492)\nAmortization of prior service benefit)\t(181\t(196)\t(362)\t(392)\nCurtailment gains\t-\t(2,031)\t-\t(2,031)\nPostretirement medical benefit)\t(592\t(2,653)\t(1,184)\t(3,274)\n", "q10k_tbl_15": "\t13 Weeks Ended\t\t26 Weeks Ended\t\n(Thousands of Dollars and Shares, Except Per Share Data)\tMarch 31 2019\tMarch 25 2018\tMarch 31 2019\tMarch 25 2018\n(Loss) Income attributable to Lee Enterprises, Incorporated:)\t(2,678\t2,239\t7,683\t37,242\nWeighted average common shares\t57,703\t57,070\t57,501\t56,924\nLess weighted average restricted Common Stock)\t(2,095\t(2,378)\t(2,097)\t(2,416)\nBasic average common shares\t55,608\t54,692\t55,404\t54,508\nDilutive stock options and restricted Common Stock\t-\t1,169\t1,287\t1,309\nDiluted average common shares\t55,608\t55,861\t56,691\t55,817\nEarnings per common share:\t\t\t\t\nBasic)\t(0.05\t0.04\t0.14\t0.68\nDiluted)\t(0.05\t0.04\t0.14\t0.67\n", "q10k_tbl_16": "(Thousands of Dollars and Shares, Except Per Share Data)\tShares\tWeighted Average Exercise Price\tWeighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value\nOutstanding, September 30, 2018\t1,100\t1.88\t \nExercised)\t(48\t2.36\t \nCancelled)\t(32\t2.04\t \nOutstanding, March 31, 2019\t1,020\t1.86\t2.1 1,471\nExercisable, March 31, 2019\t1,020\t1.86\t2.1 1,471\n", "q10k_tbl_17": "(Thousands of Shares, Except Per Share Data)\tShares\tWeighted Average Grant Date Fair Value\nOutstanding, September 30, 2018\t2,059\t2.31\nVested)\t(728\t1.53\nGranted\t788\t2.18\nCancelled)\t(24\t2.01\nOutstanding, March 31, 2019\t2,095\t2.53\n", "q10k_tbl_18": "\t13 Weeks Ended\t\t26 Weeks Ended\t\t53 Weeks Ended\n(Thousands of Dollars)\tMarch 31 2019\tMarch 25 2018\tMarch 31 2019\tMarch 25 2018\tMarch 31 2019\nNet Income (loss))\t(2,327\t2,533\t8,392\t37,860\t17,579\nAdjusted to exclude\t\t\t\t\t\nIncome tax expense (benefit)\t156\t927\t4,670\t(18,763)\t7,205\nNon-operating expenses, net\t14,738\t13,103\t27,224\t27,300\t54,797\nEquity in earnings of TNI and MNI)\t(1,717\t(1,608)\t(3,846)\t(3,991)\t(9,104)\nLoss (gain) on sale of assets and other, net\t83\t(1,300)\t(17)\t(1,297)\t7,709\nDepreciation and amortization\t7,386\t8,016\t14,916\t16,068\t30,614\nRestructuring costs and other\t2,759\t1,816\t2,820\t2,284\t6,086\nStock compensation\t426\t497\t888\t1,016\t1,731\nAdd:\t\t\t\t\t\nOwnership share of TNI and MNI EBITDA (50%)\t2,080\t2,086\t4,681\t5,245\t9,320\nAdjusted EBITDA\t23,584\t26,070\t59,728\t65,722\t125,937\n", "q10k_tbl_19": "(Thousands of Dollars, Except Per Share Data)\tMarch 31 2019\tMarch 25 2018\tPercent Change\nAdvertising and marketing services revenue\t62,934\t71,553\t(12.0)\nSubscription\t45,076\t45,972\t(1.9)\nOther\t14,694\t10,280\t42.9\nTotal operating revenue\t122,704\t127,805\t(4.0)\nOperating expenses:\t\t\t\nCompensation\t47,785\t49,363\t(3.2)\nNewsprint and ink\t5,825\t5,640\t3.3\nOther operating expenses\t48,016\t49,315\t(2.6)\nCash costs\t101,626\t104,318\t(2.6)\nTotal operating revenue less cash costs\t21,078\t23,487\t(10.3)\nDepreciation and amortization\t7,386\t8,016\t(7.9)\nAssets loss (gain) on sales, impairments and other, net\t83\t(1,300)\tNM\nRestructuring costs and other\t2,759\t1,816\t51.9\nOperating expenses\t111,854\t112,850\t(0.9)\nEquity in earnings of associated companies\t1,717\t1,608\t6.8\nOperating income\t12,567\t16,563\t(24.1)\nNon-operating income (expense):\t\t\t\nInterest expense)\t(12,140\t(13,274)\t(8.5)\nDebt financing and administrative cost)\t(962\t(1,217)\t(21.0)\nOther, net)\t(1,636\t1,388\tNM\nNon-operating expenses, net)\t(14,738\t(13,103)\t12.5\nIncome (loss) before income taxes)\t(2,171\t3,460\tNM\nIncome tax expense\t156\t927\t(83.2)\nNet income (loss))\t(2,327\t2,533\tNM\nNet income attributable to non-controlling interests)\t(351\t(294)\t19.4\nIncome (loss) attributable to Lee Enterprises, Incorporated)\t(2,678\t2,239\tNM\nOther comprehensive loss, net of income taxes)\t(122\t(36)\tNM\nComprehensive income (loss) attributable to Lee Enterprises, Incorporated)\t(2,800\t2,203\tNM\nEarnings per common share:\t\t\t\nBasic)\t(0.05\t0.04\tNM\nDiluted)\t(0.05\t0.04\tNM\n", "q10k_tbl_20": "\t13 Weeks Ended\t\t\t\n\tMarch 31 2019\t\tMarch 25 2018\t\n(Thousands of Dollars, Except Per Share Data)\tAmount\tPer Share\tAmount\tPer Share\nIncome (loss) attributable to Lee Enterprises, Incorporated, as reported)\t(2,678\t(0.05)\t2,239\t0.04\nAdjustments:\t\t\t\t\nWarrants fair value adjustment\t2,753\t0.05\t(555)\t(0.01)\nIncome attributable to Lee Enterprises, Incorporated, as adjusted\t75\t-\t1,684\t0.03\n", "q10k_tbl_21": "(Thousands of Dollars, Except Per Share Data)\tMarch 31 2019\tMarch 25 2018\tPercent Change\nTotal advertising and marketing services revenue\t138,897\t156,213\t(11.1)\nSubscription\t91,345\t94,241\t(3.1)\nOther\t28,663\t21,136\t35.6\nTotal operating revenue\t258,905\t271,590\t(4.7)\nOperating expenses:\t\t\t\nCompensation\t94,824\t100,980\t(6.1)\nNewsprint and ink\t12,164\t11,478\t6.0\nOther operating expenses\t97,758\t99,671\t(1.9)\nCash costs\t204,746\t212,129\t(3.5)\nTotal operating revenue less cash costs\t54,159\t59,461\t(8.9)\nDepreciation and amortization\t14,916\t16,068\t(7.2)\nAssets loss (gain) on sales, impairments and other)\t(17\t(1,297)\tNM\nRestructuring costs and other\t2,820\t2,284\t23.5\nEquity in earnings of associated companies\t3,846\t3,991\t(3.6)\nOperating income\t40,286\t46,397\t(13.2)\nNon-operating income (expense):\t\t\t\nInterest expense)\t(24,397\t(26,924)\t(9.4)\nDebt financing and administrative cost)\t(1,858\t(2,313)\t(19.7)\nOther, net)\t(969\t1,937\tNM\nNon-operating expenses, net)\t(27,224\t(27,300)\t(0.3)\nIncome before income taxes\t13,062\t19,097\t(31.6)\nIncome tax expense (benefit)\t4,670\t(18,763)\tNM\nNet income\t8,392\t37,860\t(77.8)\nNet income attributable to non-controlling interests)\t(709\t(618)\t14.7\nIncome attributable to Lee Enterprises, Incorporated\t7,683\t37,242\t(79.4)\nOther comprehensive (loss), net of income taxes)\t(244\t(9)\tNM\nComprehensive income attributable to Lee Enterprises, Incorporated\t7,439\t37,233\t(80.0)\nEarnings per common share:\t\t\t\nBasic\t0.14\t0.68\t(79.4)\nDiluted\t0.14\t0.67\t(79.1)\n", "q10k_tbl_22": "\t\t\t26 Weeks Ended\t\n\tMarch 31 2019\t\tMarch 25 2018\t\n(Thousands of Dollars, Except Per Share Data)\tAmount\tPer Share\tAmount\tPer Share\nIncome attributable to Lee Enterprises, Incorporated, as reported\t7,683\t0.14\t37,242\t0.67\nAdjustments:\t\t\t\t\nWarrants fair value adjustment\t2,672\t0.05\t(124)\t-\nIncome tax effect of 2017 Tax Act\t-\t\t(24,872)\t(0.45)\nIncome attributable to Lee Enterprises, Incorporated, as adjusted\t10,355\t0.18\t12,246\t0.22\n", "q10k_tbl_23": "Number\tDescription\n31.1\tRule 13a-14(a)/15d-14(a) certification\n31.2\tRule 13a-14(a)/15d-14(a) certification\n32\tSection 1350 certification\n"}{"bs": "q10k_tbl_2", "is": "q10k_tbl_21", "cf": "q10k_tbl_6"}