UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended June 28, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 sh ...

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 29, 2020 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 ...

Financial Data and Key Metrics Changes - Total operating revenue on a pro forma basis was $207.3 million, a 10% decline compared to the prior year, but a 100 basis point improvement from the first quarter trend [16][28] - Adjusted EBITDA in the second quarter totaled $24 million, with pro forma adjusted EBITDA for the last 12 months at $152.1 million [38] - Operating expenses decreased by 2.6% in the quarter, with cash costs down 9.8% on a pro forma basis [29] Business Line Data and Key Metrics Changes - Subscription revenue on a pro forma basis was down 2.8% in the second quarter, representing 41.5% of total operating revenue [13] - Digital-only subscribers increased by 91.7% in the second quarter compared to the same quarter a year ago, reaching nearly 200,000 [14] - Revenue at TownNews increased by 11.1% in the second quarter, despite some slowdown due to COVID-19 [15] Market Data and Key Metrics Changes - Pro forma advertising revenue in the second quarter was on par with first quarter trends, despite a significant decline in demand due to COVID-19 [10] - The company expects total operating revenue for the third quarter to be between $177 million and $180 million, down 24.9% compared to the prior year on a pro forma basis [17] Company Strategy and Development Direction - The acquisition of BH Media Group and the Buffalo News is expected to unlock significant value through synergies and reduce the cost of capital, extending the company's runway for 25 years [9][26] - The company aims to achieve more than $100 million in cash cost savings by the end of 2021 through business transformation initiatives and acquisition integration [25][36] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the future despite the significant negative impact from COVID-19, citing a favorable mix of advertising revenue and strong local advertising relationships [21][22] - The company has taken swift actions to mitigate the impacts of COVID-19, including launching a local marketing brand program that has attracted over 4,400 advertisers [11][12] Other Important Information - The company completed a comprehensive refinancing of its debt with Berkshire Hathaway, borrowing $576 million at a fixed interest rate of 9%, which is expected to save nearly $5 million annually [31][35] - As of the call, the company had more than $50 million in cash on its balance sheet, providing sufficient liquidity in the near term [20][40] Q&A Session Summary Question: How much of the $17.7 million received from asset sales came from the sale of the Oregon and California newspaper publications? - The majority of the $17.7 million came from real estate sales, with less than $4 million from the sale of four business operations out West [43]

[Forward-Looking Statements](index=4&type=section&id=FORWARD%20LOOKING%20STATEMENTS) This section outlines forward-looking statements, highlighting risks related to the pending BH Media Group acquisition, declining print revenue, and debt management - The company entered an agreement on January 29, 2020, to acquire BH Media's newspaper business and The Buffalo News, pending regulatory approvals[7](index=7&type=chunk) - Key risks include managing declining print revenue, generating sufficient cash flow for debt service, complying with credit covenants, and adapting to changes in advertising demand and technology[7](index=7&type=chunk) [PART I FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited financial statements for Q1 FY2020 show decreased net income, slight asset and liability increases, and a reduced deficit, reflecting ongoing print media challenges [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of December 29, 2019, total assets increased to **$565.7 million**, liabilities rose to **$596.7 million**, and the stockholders' deficit reduced to **$(32.7) million** Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 29, 2019 | Sep 29, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$565,730** | **$555,202** | | Cash and cash equivalents | $4,468 | $8,645 | | Goodwill | $250,309 | $250,309 | | **Total Liabilities** | **$596,700** | **$592,033** | | Long-term debt, net | $421,248 | $429,391 | | **Total Stockholders' Deficit** | **$(32,677)** | **$(38,484)** | [Consolidated Statements of Income and Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) For the 13 weeks ended December 29, 2019, net income decreased to **$5.7 million**, total operating revenue fell **10.2%**, and diluted EPS was **$0.09** Q1 Fiscal 2020 vs Q1 Fiscal 2019 Performance (in thousands, except EPS) | Metric | 13 Weeks Ended Dec 29, 2019 | 13 Weeks Ended Dec 30, 2018 | | :--- | :--- | :--- | | Total Operating Revenue | $122,343 | $136,201 | | Advertising and marketing services | $65,727 | $75,962 | | Subscription | $41,694 | $46,268 | | Operating Income | $18,306 | $27,719 | | Net Income | $5,717 | $10,719 | | Diluted EPS | $0.09 | $0.18 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations decreased to **$10.4 million**, investing activities used **$3.7 million**, and financing activities used **$10.8 million**, resulting in a **$4.2 million** cash decrease Cash Flow Summary (in thousands) | Activity | 13 Weeks Ended Dec 29, 2019 | 13 Weeks Ended Dec 30, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,361 | $19,407 | | Net cash required for investing activities | $(3,740) | $(1,395) | | Net cash required for financing activities | $(10,798) | $(7,483) | | **Net (decrease) increase in cash** | **$(4,177)** | **$10,529** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, including the January 2020 agreement to acquire BH Media Group for **$140 million** via a new **$576 million** 25-year loan, and the adoption of ASC 842 - On January 29, 2020, the company agreed to acquire BHMG's newspaper business and The Buffalo News for **$140 million**[28](index=28&type=chunk) - The acquisition will be financed by a new **$576 million**, 25-year term loan at **9.00%** interest from BH Finance, refinancing all existing debt[35](index=35&type=chunk)[62](index=62&type=chunk) - The company adopted ASC 842, recognizing **$10.1 million** in right-of-use assets and corresponding lease liabilities[43](index=43&type=chunk)[107](index=107&type=chunk) Debt Summary (in thousands) | Debt Instrument | Dec 29, 2019 | Sep 29, 2019 | | :--- | :--- | :--- | | Notes (9.5%) | $356,141 | $363,420 | | 2nd Lien Term Loan (12.0%) | $77,253 | $80,207 | | **Total Principal** | **$433,394** | **$443,627** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the strategic Berkshire Hathaway acquisition, expected to boost revenue by **87%** with **$576 million** financing, while Q1 revenue declined **10.2%** offset by digital growth - The **$140 million** acquisition of BHMG publications and The Buffalo News is expected to be immediately accretive, increasing revenue by **87%** and adjusted EBITDA by **40%**[154](index=154&type=chunk)[158](index=158&type=chunk) - The company anticipates achieving **$20-25 million** in annual revenue and cost synergies within 24 months post-acquisition[158](index=158&type=chunk)[161](index=161&type=chunk) - The new **$576 million** BH Finance loan features a **9%** fixed interest rate, 25-year maturity, no performance covenants, and refinances all existing debt[159](index=159&type=chunk) Q1 Fiscal 2020 vs Q1 Fiscal 2019 Operating Results (in thousands) | Metric | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | Total operating revenue | $122,343 | $136,201 | (10.2)% | | Cash costs | $96,441 | $103,120 | (6.5)% | | Operating income | $18,306 | $27,719 | (34.0)% | | Adjusted EBITDA | $28,122 | $36,145 | (22.2)% | - Total digital revenue grew **1.7%** to **$37.2 million**, comprising **30.4%** of total operating revenue[185](index=185&type=chunk) - Digital-only subscribers increased by **84.8%** year-over-year, reaching **105,000** total[182](index=182&type=chunk)[157](index=157&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is newsprint commodity prices, with minimal interest rate risk due to fixed-rate debt, and a strategy to mitigate price volatility - The company's debt is entirely fixed-rate, eliminating exposure to interest rate fluctuations[224](index=224&type=chunk) - A **$10** per tonne increase in newsprint price would reduce pre-tax income by approximately **$331,000** annually[227](index=227&type=chunk) - Newsprint prices decreased during the quarter due to declining domestic and export demand[225](index=225&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of December 29, 2019, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of quarter-end[229](index=229&type=chunk) - No material changes occurred in internal control over financial reporting during the quarter[230](index=230&type=chunk) [PART II OTHER INFORMATION](index=42&type=section&id=PART%20II%20OTHER%20INFORMATION) [Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal actions, which management believes will not materially adversely affect consolidated financial statements - The company is involved in routine legal actions, not expected to materially affect financial statements[232](index=232&type=chunk) [Risk Factors](index=42&type=section&id=Item%201.A%20Risk%20Factors) New risk factors relate to the pending Berkshire Hathaway acquisition, including completion failure, unrealized benefits, integration challenges, and impacts on employees and stock price - New risks from the pending Berkshire Hathaway acquisition include transaction completion failure, unrealized benefits, and integration difficulties[234](index=234&type=chunk) - Additional transaction risks include significant costs, unknown liabilities, potential litigation, and negative impacts on key employee retention[234](index=234&type=chunk) [Exhibits](index=43&type=section&id=Item%206.%20Exhibits) The report lists filed exhibits, including Rule 13a-14(a)/15d-14(a) certifications by the CEO and CFO, and a Section 1350 certification Filed Exhibits | Number | Description | | :--- | :--- | | 31.1 | Rule 13a-14(a)/15d-14(a) certification | | 31.2 | Rule 13a-14(a)/15d-14(a) certification | | 32 | Section 1350 certification |

Part I [Business Overview](index=3&type=section&id=ITEM%201.%20BUSINESS) Lee Enterprises, Incorporated is a leading local news and information provider operating 50 media businesses across 20 states, strategically focused on digital growth, local retail, and financial efficiency [Company Overview](index=3&type=section&id=Company%20Overview) Lee Enterprises, Incorporated is a leading local news and information provider operating 50 local media businesses across 20 states, including TNI Partners and Madison Newspapers, Inc - The company's products include print and digital daily, weekly, monthly, and niche publications, providing real-time content and advertising via websites and mobile applications[10](index=10&type=chunk) - The company offers marketing services through its digital marketing agency, Amplified Agency, and provides web hosting and content management services for itself and 2,000 other content producers via its subsidiary, TownNews[10](index=10&type=chunk) [Revenue Streams](index=3&type=section&id=Revenue%20Streams) The company's revenue is primarily derived from print and digital advertising, digital marketing services, publication subscriptions, and digital services - The company's revenue primarily stems from print and digital advertising, digital marketing services, publication subscriptions, and digital services (mainly through TownNews)[12](index=12&type=chunk) 2019 Fiscal Year Revenue Composition | Revenue Category | 2019 Revenue Share | | :------------------- | :------------- | | Advertising and Marketing Services | 52% | | Subscription Revenue | 37% | | Digital Services Revenue | 4% | | Other Revenue | 7% | - Advertising and marketing services revenue includes local retail, classified, national, and niche publication advertising, along with digital marketing services provided by Amplified Agency[13](index=13&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk) - Subscription revenue primarily originates from the News+ membership platform, offering access to print and digital content, as well as single-copy sales[19](index=19&type=chunk) - Digital services revenue is mainly from TownNews, which saw its total revenue grow by nearly **20% to $22.6 million in 2019**[21](index=21&type=chunk)[23](index=23&type=chunk) - Other revenue primarily comprises management agreements with BH Media Group, Inc., commercial printing, and third-party publication distribution[22](index=22&type=chunk) [Strategic Initiatives](index=5&type=section&id=Strategic%20Initiatives) The company's strategic initiatives focus on delivering valuable local news, achieving digital revenue dominance, accelerating local retail performance, and generating strong adjusted EBITDA through cost and debt reduction - The company is committed to providing valuable, highly localized, and original news and information to drive audience frequency and engagement, leveraging centralized resources to enhance content quality and efficiency[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - The company aims to become a digital revenue-led enterprise, with **digital revenue growing 4.0% to $144.6 million in 2019**, accounting for **28.4% of total operating revenue**, driven by digital audience growth, increased rates, a **79.1% rise in digital subscribers**, and rapid growth in TownNews[31](index=31&type=chunk) - The company grows digital revenue by offering digital products such as video, behavioral targeting, and social networking, as well as digital marketing services through Amplified Agency[32](index=32&type=chunk) - TownNews generated nearly **$23 million in revenue in 2019**, with a compound annual growth rate of **10.9% since 2011**, expanding its products and customer base through acquisitions of video management and streaming solutions and a WordPress content management system[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) - The company is dedicated to accelerating local retail performance, a category accounting for **over 50% of advertising revenue**, driving growth through a well-trained sales force, strong client relationships, and the success of Amplified Agency, which saw its **revenue grow 29% in 2019**[39](index=39&type=chunk)[40](index=40&type=chunk) - The company generates strong adjusted EBITDA by continuously focusing on revenue growth and rationalizing its traditional cost base, with **cash costs decreasing 5.9% on a same-store basis in 2019**[41](index=41&type=chunk) - The company expects to continue using most available cash flow to reduce debt, with **debt principal decreasing by $41.2 million in 2019**, bringing the total debt balance to **$443.6 million**[42](index=42&type=chunk)[43](index=43&type=chunk) [Key Partnerships and Subsidiaries](index=7&type=section&id=Key%20Partnerships%20and%20Subsidiaries) The company holds significant interests in TNI Partners and Madison Newspapers, Inc., and acquired Pulitzer Inc. in 2005 - The company acquired Pulitzer Inc. in 2005, which now publishes 9 daily newspapers and over 60 weekly and specialty publications, including the St. Louis Post-Dispatch[45](index=45&type=chunk)[46](index=46&type=chunk) - The company holds a **50% interest in TNI Partners**, which manages the printing, distribution, advertising, and subscription activities for the Arizona Daily Star, accounted for using the equity method[48](index=48&type=chunk)[49](index=49&type=chunk) - The company owns a **50% equity interest in Madison Newspapers, Inc. (MNI)**, which publishes daily and Sunday newspapers in Madison, Wisconsin, accounted for using the equity method[51](index=51&type=chunk) [Daily Newspapers and Markets](index=8&type=section&id=Daily%20Newspapers%20and%20Markets) This section provides key circulation and digital audience metrics for the company's major daily newspapers and digital websites in 2019 2019 Key Daily Newspaper and Digital Website Data | Newspaper | Location | 2019 Average Daily Circulation | 2019 Average Sunday Circulation | 2019 Average Monthly Unique Visitors (Thousands) | 2019 Average Monthly Page Views (Thousands) | | :------------------- | :------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | St. Louis Post-Dispatch | St. Louis, MO | 84,657 | 336,636 | 6,234 | 66,170 | | Arizona Daily Star | Tucson, AZ | 40,593 | 83,454 | 1,603 | 13,310 | | Wisconsin State Journal | Madison, WI | 51,401 | 60,789 | 2,147 | 13,127 | | The Times | Munster, Valparaiso, and Crown Point, IN | 40,328 | 52,276 | 1,772 | 30,054 | | Quad-City Times | Davenport, IA | 26,836 | 28,372 | 782 | 6,837 | | Dispatch-Argus | Moline, IL | 50,145 | 17,939 | 357 | 3,353 | | Lincoln Journal Star | Lincoln, NE | 34,462 | 40,930 | 1,872 | 21,995 | | The Pantagraph | Bloomington, IL | 17,848 | 21,336 | 624 | 8,270 | | Herald & Review | Decatur, IL | 11,787 | 18,033 | 518 | 4,751 | | The Journal Times | Racine, WI | 14,163 | 15,482 | 512 | 6,594 | | Kenosha News | Kenosha, WI | 14,165 | 16,486 | 204 | 1,984 | | Billings Gazette | Billings, MT | 21,847 | 23,123 | 1,232 | 11,257 | | The Courier | Waterloo and Cedar Falls, IA | 29,016 | 22,443 | 595 | 5,799 | | La Crosse Tribune | La Crosse, WI | 13,737 | 16,144 | 569 | 6,874 | | The Bismarck Tribune | Bismarck, ND | 17,177 | 18,627 | 552 | 6,271 | | Missoulian | Missoula, MT | 13,979 | 16,195 | 650 | 4,765 | | Sioux City Journal | Sioux City, IA | 16,871 | 17,427 | 550 | 4,010 | | Casper Star-Tribune | Casper, WY | 16,575 | 17,011 | 519 | 3,562 | | Rapid City Journal | Rapid City, SD | 13,817 | 16,853 | 533 | 4,757 | | The Post-Star | Glens Falls, NY | 13,721 | 15,733 | 663 | 7,703 | | Albany Democrat Herald | Albany, OR | 7,743 | 8,020 | 224 | 2,079 | | Corvallis Gazette Times | Corvallis, OR | 7,170 | 7,174 | 244 | 1,993 | | The Southern Illinoisan | Carbondale, IL | 8,654 | 13,719 | 400 | 2,404 | | The Times-News | Twin Falls, ID | 17,492 | 10,978 | 364 | 2,820 | | The Daily News | Longview, WA | 13,587 | 10,608 | 257 | 1,944 | | Globe Gazette | Mason City, IA | 7,267 | 8,521 | 317 | 4,531 | | Napa Valley Register | Napa, CA | 7,965 | 7,903 | 428 | 3,634 | | Arizona Daily Sun | Flagstaff, AZ | 7,011 | 7,072 | 329 | 1,868 | | The Times and Democrat | Orangeburg, SC | 6,084 | 6,218 | 328 | 2,751 | | The Citizen | Auburn, NY | 5,210 | 5,867 | 298 | 2,925 | | Santa Maria Times | Santa Maria, CA | 5,206 | 4,460 | 388 | 2,569 | | The Sentinel | Carlisle, PA | 6,086 | — | 264 | 1,968 | | The World | Coos Bay, OR | 3,705 | — | 120 | 705 | | Daily Journal | Park Hills, MO | 2,803 | — | 226 | 1,901 | | The Sentinel | Hanford, CA | 2,651 | — | 169 | 970 | | **Total** | | **706,084** | **969,609** | **29,239** | **286,560** | [Newsprint](index=9&type=section&id=Newsprint) Newsprint, a key raw material for the company's print publications, is subject to price fluctuations influenced by various market factors - Newsprint is a raw material for the company's print publications, primarily sourced from U.S. and Canadian producers[54](index=54&type=chunk) - Newsprint purchase prices are highly volatile, influenced by foreign exchange rates, tariffs, domestic and international production capacity, and consumption, with price fluctuations potentially impacting operating results[54](index=54&type=chunk) [Executive Team](index=10&type=section&id=Executive%20Team) This section lists the key members of the company's executive team, including their age, tenure, and current positions Executive Team Members | Name | Age | Date Joined Company | Date Assumed Current Position | Current Position | | :------------------- | :--- | :------------------- | :------------------- | :------------------- | | Kevin D. Mowbray | 57 | September 1986 | February 2016 | President and Chief Executive Officer | | Joseph J. Battistoni | 36 | March 2014 | November 2019 | Vice President, Local Advertising | | Nathan E. Bekke | 50 | January 1992 | February 2015 | Vice President, Consumer Sales and Marketing | | Ray G. Farris | 63 | October 2006 | December 2018 | Vice President, Group Publisher | | Suzanna M. Frank | 49 | December 2003 | March 2008 | Vice President, Audience | | Astrid J. Garcia | 69 | December 2006 | December 2013 | Vice President, Human Resources and Legal | | James A. Green | 53 | - | March 2013 | Vice President, Digital | | John M. Humenik | 56 | December 1998 | February 2015 | Vice President, News | | Timothy R. Millage | 38 | March 2010 | August 2018 | Vice President, Chief Financial Officer and Treasurer | | Douglas L. Ranes | 69 | February 2005 | November 2019 | Vice President, Production Operations | | Michele Fennelly White | 57 | June 1994 | June 2011 | Vice President, Information Technology and Chief Information Officer | [Employees](index=11&type=section&id=Employees) As of September 29, 2019, the company employed approximately 2,954 individuals, with a significant portion of St. Louis Post-Dispatch employees represented by unions - As of September 29, 2019, the company had approximately **2,954 employees**, including about **622 part-time employees**, excluding TNI and MNI[64](index=64&type=chunk) - Approximately **69% of St. Louis Post-Dispatch employees (283 individuals)** are represented by unions, with contracts expiring between March 2020 and September 2021[64](index=64&type=chunk) [Corporate Governance and Public Information](index=11&type=section&id=Corporate%20Governance%20and%20Public%20Information) The company maintains robust corporate governance practices with a strong independent board and provides extensive public information on its website - The company maintains sound corporate governance practices, with a lead independent director on its board and **7 out of 10 members identified as independent**[66](index=66&type=chunk) - In 2019, the company enhanced its corporate governance by adopting a majority vote standard for director elections, allowing proxy access, extending the shareholder proposal submission period, and nominating three new independent directors[67](index=67&type=chunk) - The company provides press releases, SEC filings, financial statistics, annual reports, investor presentations, and governance documents on its website, www.lee.net[68](index=68&type=chunk) [Forward-Looking Statements](index=12&type=section&id=Forward-Looking%20Statements) This annual report contains forward-looking statements based on current expectations, subject to risks and uncertainties that could cause actual results to differ materially - This annual report contains forward-looking statements based on current expectations, subject to specific risks, trends, and uncertainties that could cause actual results to differ materially from those anticipated[69](index=69&type=chunk) - The company does not undertake to publicly update or revise forward-looking statements, except as required by law[70](index=70&type=chunk) [Risk Factors](index=12&type=section&id=ITEM%201A.%20RISK%20FACTORS) The company faces significant risks including declining advertising revenue, challenges in digital transformation, substantial debt, liquidity constraints, LIBOR transition, intense competition, data security threats, increasing pension obligations, and newsprint price volatility - Advertising revenue may decline due to weakness in brick-and-mortar retail, and advertisers may cut budgets or shift spending priorities[73](index=73&type=chunk) - Failure to successfully navigate the shift of newspaper readership and advertising spending from traditional print to digital media could materially adversely affect the company's operating revenue and may require significant capital investment[74](index=74&type=chunk)[75](index=75&type=chunk) - The company faces significant financial risk from **$443.6 million in total consolidated debt**, increasing its vulnerability to adverse economic and industry conditions[77](index=77&type=chunk)[79](index=79&type=chunk) - As of September 29, 2019, the company's total liquidity was **$26.289 million**, with net debt at **3.6 times adjusted EBITDA**, posing a risk of insufficient future debt service or refinancing capacity[80](index=80&type=chunk)[81](index=81&type=chunk) - Debt agreements contain restrictive covenants that may limit the company's ability to grow its business or return capital to shareholders, including restrictions on incurring additional debt, making investments, transferring assets, and paying dividends[85](index=85&type=chunk)[86](index=86&type=chunk) - The anticipated discontinuation and transition away from LIBOR interest rates may impact the company[87](index=87&type=chunk) - The company faces intense competition in the local media industry, and failure to compete effectively could lead to decreased advertising and subscription revenue[88](index=88&type=chunk) - As digital revenue increases, the company will face more digital media operating risks, such as impaired advertising rates, reduced traffic, technological issues, and loss of distribution control[89](index=89&type=chunk)[90](index=90&type=chunk) - Data security breaches or information technology system failures could negatively impact the company's business, reputation, and operating results, leading to data loss, resource expenditure, legal liability, and loss of customer trust[91](index=91&type=chunk)[92](index=92&type=chunk) - Net pension liabilities increased by **$20.3 million to $47.0 million in 2019**, and continued increases in future pension and postretirement benefit obligations could reduce cash available for business operations[98](index=98&type=chunk)[99](index=99&type=chunk) - The company may face additional withdrawal liabilities from multi-employer pension plans, having fully withdrawn from the CWA/ITU plan in 2019 and incurring withdrawal liability as a result[101](index=101&type=chunk)[102](index=102&type=chunk) - Approximately **11.0% of employees are union members**, and labor disputes could impair the company's ability to produce and deliver newspapers[104](index=104&type=chunk) - Sustained increases in newsprint prices could impact the company's profitability[105](index=105&type=chunk) [Unresolved Staff Comments](index=19&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments in this report - No unresolved staff comments[108](index=108&type=chunk) [Properties](index=19&type=section&id=ITEM%202.%20PROPERTIES) The company's administrative offices are leased in Davenport, Iowa, while most major printing facilities are owned and well-maintained, with over 67% of publications printed in-house or outsourced for efficiency - The company's administrative offices are located in leased facilities in Davenport, Iowa, with a lease term extending to August 1, 2029[110](index=110&type=chunk) - All major printing facilities are owned, except for leased land at the Helena, Montana plant, and leased properties in Madison, Wisconsin, and Tucson, Arizona[111](index=111&type=chunk) - Over **67% of daily and other publications** are printed at owned facilities or outsourced to third-party printers to enhance operational efficiency[112](index=112&type=chunk) [Legal Proceedings](index=19&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company is involved in various legal proceedings arising in the normal course of business, which management believes will not materially adversely affect its consolidated financial statements - The company is involved in various legal proceedings arising in the normal course of business, with insurance coverage potentially mitigating some losses[115](index=115&type=chunk) - Management believes the disposition of these legal proceedings will not materially adversely affect the consolidated financial statements[115](index=115&type=chunk) [Mine Safety Disclosures](index=19&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - Not applicable[117](index=117&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=20&type=section&id=ITEM%205.%20MARKET%20FOR%20THE%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The company's common stock is listed on the NYSE, with 5,777 registered holders as of September 29, 2019, and its debt agreements generally restrict dividend payments and stock repurchases, leading to underperformance against peer and S&P 500 indices over five years - The company's common stock is listed on the New York Stock Exchange[119](index=119&type=chunk) Common Stock Quarterly Prices (2017-2019) | Quarter End | 2019 High | 2019 Low | 2019 Close | 2018 High | 2018 Low | 2018 Close | 2017 High | 2017 Low | 2017 Close | | :----------- | :--------- | :--------- | :----------- | :--------- | :--------- | :----------- | :--------- | :--------- | :----------- | | December | 3.05 | 1.84 | 2.13 | 2.50 | 2.15 | 2.35 | 3.76 | 2.40 | 2.90 | | March | 3.68 | 2.02 | 3.30 | 2.70 | 1.95 | 1.95 | 3.30 | 2.40 | 2.60 | | June | 3.49 | 2.12 | 2.24 | 3.30 | 2.00 | 2.85 | 3.10 | 1.75 | 1.90 | | September | 2.33 | 1.77 | 2.01 | 3.30 | 2.60 | 2.65 | 2.40 | 1.80 | 2.20 | - As of September 29, 2019, the company had **5,777 registered holders of common stock**[120](index=120&type=chunk) - The company's debt agreements generally restrict its ability to pay dividends and repurchase common stock[121](index=121&type=chunk) Five-Year Cumulative Total Return ($100 Invested on September 30, 2014) | Metric | 2015 | 2016 | 2017 | 2018 | 2019 | | :------------------- | :----- | :----- | :----- | :----- | :----- | | Lee Enterprises, Incorporated | 61.54 | 110.95 | 65.09 | 78.40 | 60.36 | | Peer Group Index | 94.68 | 98.78 | 116.93 | 137.73 | 148.49 | | S&P 500 Stock Index | 99.39 | 114.72 | 136.07 | 160.44 | 167.27 | [Selected Financial Data](index=22&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) The company's selected financial data shows a 6.3% decrease in 2019 operating revenue to $509.8 million, a significant 66.2% drop in net income to $15.9 million, continuous cash cost reduction to $398.8 million, and a total debt of $443.6 million, alongside a slight increase in stockholder deficit Selected Financial Data (Fiscal Years 2015-2019) | Metric (Thousands of Dollars, except per share data) | 2019 | 2018 | 2017 | 2016 | 2015 | | :----------------------------------- | :----- | :----- | :----- | :----- | :----- | | **Operating Results** | | | | | | | Operating Revenue | 509,854 | 543,955 | 566,943 | 614,364 | 648,543 | | Cash Costs (1) (3) | 398,815 | 423,766 | 437,767 | 477,857 | 501,629 | | Depreciation and Amortization | 29,332 | 31,766 | 41,282 | 43,441 | 45,563 | | Loss (Gain) on Asset Sales, Impairment and Other | 2,464 | 6,429 | (1,150) | (954) | 106 | | Restructuring Costs and Other | 11,635 | 5,550 | 7,523 | 1,825 | 3,304 | | Equity in Earnings of Associated Companies | 7,121 | 9,249 | 7,609 | 8,533 | 8,254 | | Operating Income (3) | 74,729 | 85,693 | 89,130 | 100,728 | 106,195 | | Interest Expense | (47,488) | (52,842) | (57,573) | (64,233) | (72,409) | | Debt Financing and Management Costs | (7,214) | (5,311) | (4,818) | (5,947) | (5,433) | | Insurance Settlement Gain | — | — | — | 30,646 | — | | Other, Net (3) | 3,813 | 3,280 | 13,477 | (9,537) | 3,213 | | Net Income | 15,909 | 47,048 | 28,605 | 36,019 | 24,318 | | Income Attributable to Lee Enterprises, Incorporated | 14,268 | 45,766 | 27,481 | 34,961 | 23,316 | | Earnings per Common Share: | | | | | | | Basic | 0.26 | 0.84 | 0.51 | 0.66 | 0.44 | | Diluted | 0.25 | 0.82 | 0.50 | 0.64 | 0.43 | | Weighted Average Common Shares: | | | | | | | Basic | 55,565 | 54,702 | 53,990 | 53,198 | 52,640 | | Diluted | 56,884 | 55,948 | 55,392 | 54,224 | 53,931 | | Total Assets | 555,202 | 575,411 | 620,850 | 662,855 | 747,825 | | Debt, including current portion (2) | 443,627 | 484,859 | 548,385 | 617,167 | 725,872 | | Debt, net of cash and restricted cash (2) | 434,982 | 479,479 | 537,764 | 600,183 | 714,738 | | Stockholders' Deficit | (38,484) | (37,354) | (92,235) | (128,485) | (159,393) | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides a detailed discussion of the company's operating results and financial condition for fiscal years 2019, 2018, and 2017, including non-GAAP financial measures, critical accounting policies, and the impact of new accounting standards, alongside an analysis of revenue, expenses, non-operating items, taxes, liquidity, and contractual obligations [Non-GAAP Financial Measures](index=23&type=section&id=NON-GAAP%20FINANCIAL%20MEASURES) The company utilizes non-GAAP financial measures such as Adjusted EBITDA, Adjusted Income (Loss), Adjusted Earnings (Loss) per Common Share, and Cash Costs to supplement GAAP information and provide a clearer understanding of operational performance and cash-settled expenses - The company uses non-GAAP financial measures such as Adjusted EBITDA, Adjusted Income (Loss), Adjusted Earnings (Loss) per Common Share, and Cash Costs to supplement GAAP financial information[133](index=133&type=chunk) - Adjusted EBITDA aims to isolate unusual, infrequent, or non-cash transactions to better understand the company's operating performance and serves as a key metric for measuring business performance and leverage[134](index=134&type=chunk) - Adjusted Income (Loss) and Adjusted Earnings (Loss) per Common Share provide useful metrics for evaluating the company's overall performance by excluding the impact of warrant valuations and the 2017 Tax Act[135](index=135&type=chunk) - Cash Costs represent operating expenses measured on an accrual basis and settled in cash, helping investors understand the components of the company's cash-settled operating costs[136](index=136&type=chunk) - Total operating revenue less cash costs (i.e., "margin") measures the company's profitability after paying direct cash costs[137](index=137&type=chunk) Reconciliation of Adjusted EBITDA to Net Income (Fiscal Years 2017-2019) | (Thousands of Dollars) | 2019 | 2018 | 2017 | | :----------------------------------- | :----- | :----- | :----- | | Net Income | 15,909 | 47,048 | 28,605 | | **Adjustments:** | | | | | Income tax expense (benefit) | 7,931 | (16,228) | 11,611 | | Non-operating expense, net | 50,889 | 54,873 | 48,914 | | Equity in earnings of TNI and MNI | (7,121) | (9,249) | (7,609) | | Loss (gain) on asset sales, impairment and other | 2,464 | 6,429 | (1,150) | | Depreciation and amortization | 29,332 | 31,766 | 41,282 | | Restructuring costs and other | 11,635 | 5,550 | 7,523 | | Equity compensation | 1,638 | 1,857 | 2,088 | | **Add:** | | | | | Ownership share of TNI and MNI EBITDA (50%) | 8,811 | 9,883 | 9,927 | | **Adjusted EBITDA** | **121,488** | **131,929** | **141,191** | [Critical Accounting Policies](index=24&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) Critical accounting policies involve management's estimates and assumptions for future events, particularly concerning impairment testing for intangible assets, and actuarial assumptions for pension and postretirement benefits, which could lead to significant differences from actual results - Critical accounting policies involve management's estimates and assumptions about future events, which may lead to significant differences between actual and estimated results[141](index=141&type=chunk) - Non-amortizing intangible assets, such as local newspaper mastheads and website domain names, are tested annually for impairment using a discounted cash flow model (relief-from-royalty method) to determine fair value[143](index=143&type=chunk)[144](index=144&type=chunk) - Amortizing intangible assets, such as customer relationships and subscriber lists, are tested for recoverability when impairment indicators arise, with no impairment indicators identified in 2019, 2018, or 2017[145](index=145&type=chunk) - Pension and postretirement benefit plan obligations and expenses are based on actuarial assumptions, with key assumptions including the discount rate and the expected long-term rate of return on plan assets[150](index=150&type=chunk)[151](index=151&type=chunk) Pension and Postretirement Benefit Plan Sensitivity Analysis (50 Basis Point Change) | Metric | Impact on 2019 Pension Expense | Impact on September 29, 2019 Obligation | | :----------------------------------- | :------------------- | :------------------- | | Pension discount rate | $— | $11,200,000 | | Postretirement and postemployment benefit discount rate | $— | $500,000 | | Pension plan assets expected return rate | $710,000 | $— | | Postretirement and postemployment benefit plan assets expected return rate | $118,000 | $— | - The determination of income tax provisions, deferred tax assets and liabilities, and valuation allowances requires significant management judgment and is based on estimates and assumptions that may differ from actual results[154](index=154&type=chunk)[156](index=156&type=chunk) [Impact of Recently Issued Accounting Standards](index=26&type=section&id=IMPACT%20OF%20RECENTLY%20ISSUED%20ACCOUNTING%20STANDARDS) The company will adopt new lease accounting standards in fiscal year 2020, expecting to recognize $9.6 million to $12.6 million in lease liabilities and right-of-use assets without significant impact on the income statement or cash flows, and is currently evaluating the impact of new expected credit loss models - The company will adopt new lease accounting standards in fiscal year 2020 (September 30, 2019), expecting to recognize **$9.6 million to $12.6 million in lease liabilities and right-of-use assets**, but anticipates no material impact on the consolidated statements of income or cash flows[158](index=158&type=chunk)[159](index=159&type=chunk) - The company will adopt new expected credit loss models beginning September 29, 2020, and is currently evaluating their impact on the consolidated financial statements[160](index=160&type=chunk) [Continuing Operations](index=27&type=section&id=CONTINUING%20OPERATIONS) In 2019, total operating revenue decreased by 6.3% due to weak print advertising and reduced subscriptions, partially offset by digital growth, while operating expenses declined due to business transformation and efficiency improvements Summary of Continuing Operations Results (Fiscal Years 2017-2019) | (Thousands of Dollars, except per share data) | 2019 | 2018 | Percent Change | 2017 | Percent Change | | :----------------------------------- | :----- | :----- | :--------- | :----- | :--------- | | Advertising and marketing services revenue | 265,933 | 303,446 | (12.4) | 331,360 | (8.4) | | Subscription revenue | 186,691 | 195,108 | (4.3) | 191,922 | 1.7 | | Other revenue | 57,230 | 45,401 | 26.1 | 43,661 | 4.0 | | **Total operating revenue** | **509,854** | **543,955** | **(6.3)** | **566,943** | **(4.1)** | | **Operating expenses:** | | | | | | | Compensation | 182,869 | 199,164 | (8.2) | 213,109 | (6.5) | | Newsprint and ink | 22,237 | 24,949 | (10.9) | 24,904 | 0.2 | | Other operating expenses | 193,709 | 199,653 | (3.0) | 199,754 | (0.1) | | **Cash costs** | **398,815** | **423,766** | **(5.9)** | **437,767** | **(3.2)** | | Total operating revenue less cash costs | 111,039 | 120,189 | (7.6) | 129,176 | (7.0) | | Depreciation and amortization | 29,332 | 31,766 | (7.7) | 41,282 | (23.1) | | Loss (gain) on asset sales, impairment and other | 2,464 | 6,429 | (61.7) | (1,150) | NM | | Restructuring costs and other | 11,635 | 5,550 | NM | 7,523 | (26.2) | | **Operating expenses** | **442,246** | **467,511** | **(5.4)** | **485,422** | **(3.7)** | | Equity in earnings of associated companies | 7,121 | 9,249 | (23.0) | 7,609 | 21.6 | | **Operating income** | **74,729** | **85,693** | **(12.8)** | **89,130** | **(3.9)** | | **Non-operating income (expense):** | | | | | | | Interest expense | (47,488) | (52,842) | (10.1) | (57,573) | (8.2) | | Debt financing and management costs | (7,214) | (5,311) | 35.8 | (4,818) | 10.2 | | Other, net | 3,813 | 3,280 | 16.3 | 13,477 | (75.7) | | **Non-operating expense, net** | **(50,889)** | **(54,873)** | **(7.3)** | **(48,914)** | **12.2)** | | Income before income taxes | 23,840 | 30,820 | (22.6) | 40,216 | (23.4) | | Income tax expense (benefit) | 7,931 | (16,228) | NM | 11,611 | NM | | **Net income** | **15,909** | **47,048** | **(66.2)** | **28,605** | **64.5)** | | Net income attributable to noncontrolling interests | (1,641) | (1,282) | 28.0 | (1,124) | 14.1 | | **Income attributable to Lee Enterprises, Incorporated** | **14,268** | **45,766** | **(68.8)** | **27,481** | **66.5)** | | Other comprehensive (loss) income, net of income taxes | (17,368) | 4,322 | NM | 6,710 | (35.6) | | **Comprehensive (loss) income attributable to Lee Enterprises, Incorporated** | **(3,100)** | **50,088** | **NM** | **34,191** | **46.5)** | | **Earnings per common share:** | | | | | | | Basic | 0.26 | 0.84 | (69.3) | 0.51 | 64.7 | | Diluted | 0.25 | 0.82 | (69.5) | 0.50 | 64.0 | - **Total operating revenue for fiscal year 2019 was $509.8 million**, a **6.3% decrease year-over-year**, primarily due to continued weakness in print advertising demand and reduced print subscriptions, partially offset by digital revenue growth[165](index=165&type=chunk) - **Advertising and marketing services revenue decreased by 12.4% in 2019**, mainly due to the ongoing decline in print advertising demand, with **digital advertising and marketing services revenue reaching $100.07 million**, representing **37.6% of total advertising revenue**[166](index=166&type=chunk) - **Subscription revenue decreased by 4.3% in 2019**, primarily due to a decline in all-access subscriptions, partially offset by strategic pricing initiatives and a **79.1% increase in digital subscribers**[167](index=167&type=chunk) - **Other revenue increased by 26.1% in 2019**, primarily driven by increased revenue from the management agreement with BHMG and a **20.3% growth in TownNews digital services revenue**[168](index=168&type=chunk) - **Total digital revenue (including digital advertising, digital subscriptions, and digital services) was $144.6 million in 2019**, a **4.0% increase year-over-year**, accounting for **28.4% of total operating revenue**[170](index=170&type=chunk) - **Operating expenses decreased by 5.4% in 2019**, primarily due to business transformation initiatives, outsourcing of some production operations, and reduced traditional print expenses, with **same-store cash costs declining 5.9%**[178](index=178&type=chunk) - **Compensation expense decreased by 8.2% in 2019**, primarily due to a **10.9% reduction in full-time employees**[179](index=179&type=chunk) - **Newsprint and ink costs decreased by 10.9% in 2019**, mainly due to a **12.3% reduction in newsprint usage** from lower print volumes, partially offset by an increase in average prices[180](index=180&type=chunk) - **Restructuring costs and other expenses were $11.635 million in 2019**, including an estimated **$3.836 million related to multi-employer pension plan withdrawals**[182](index=182&type=chunk) - The company anticipates **cash costs to decrease by 5.5% to 6.5% in 2020**, primarily due to measures taken in 2019, additional business transformation initiatives, lower print production and distribution costs, and declining newsprint prices[184](index=184&type=chunk) [Non-Operating Income and Expenses](index=30&type=section&id=NON-OPERATING%20INCOME%20AND%20EXPENSES) Non-operating income and expenses in 2019 were influenced by a 10.1% decrease in interest expense due to reduced debt, increased debt financing and management costs, and fair value adjustments for warrants - **Interest expense decreased by 10.1% to $47.488 million in 2019**, primarily due to a reduction in debt balance[194](index=194&type=chunk) - **Debt financing and management costs were $7.214 million in 2019**, an increase from 2018, primarily including amortization of 2014 refinancing costs and **$1.309 million in adjustments**[194](index=194&type=chunk) - Other non-operating income and expenses include income related to defined benefit pension plans and other postretirement benefit plans, as well as fair value adjustments for warrants[195](index=195&type=chunk)[196](index=196&type=chunk) - In 2019, **$0.612 million in non-operating income** was recorded due to changes in warrant fair value, compared to **$0.226 million in non-operating expense in 2018**[196](index=196&type=chunk) [Income Tax Expenses](index=31&type=section&id=INCOME%20TAX%20EXPENSES) The 2017 Tax Act significantly reduced the federal corporate income tax rate, leading to a $24.872 million net decrease in income tax expense in 2018, while 2019 saw an income tax expense of $7.931 million with an effective tax rate of 33.3% - The 2017 Tax Act reduced the federal statutory corporate income tax rate from **35% to 21%**, leading the company to remeasure deferred tax assets and liabilities, resulting in a **net decrease of $24.872 million in income tax expense in 2018**[201](index=201&type=chunk) - **Income tax expense was $7.931 million in 2019**, with an effective tax rate of **33.3%**; **income tax benefit was $16.228 million in 2018**, with an effective tax rate of **-52.7% (28.0% excluding the 2017 Tax Act impact)**[202](index=202&type=chunk) [Net Income and Earnings Per Share](index=31&type=section&id=NET%20INCOME%20AND%20EARNINGS%20PER%20SHARE) This section provides adjustments to reported net income and earnings per share, primarily for warrant fair value changes and the 2017 Tax Act impact Net Income and Earnings Per Share Adjustments (Fiscal Years 2017-2019) | (Thousands of Dollars, except per share data) | 2019 Amount | 2019 Per Share | 2018 Amount | 2018 Per Share | 2017 Amount | 2017 Per Share | | :----------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Reported income attributable to Lee Enterprises, Incorporated | 14,268 | 0.25 | 45,766 | 0.82 | 27,481 | 0.50 | | **Adjustments:** | | | | | | | | Warrant fair value adjustment | (612) | 0.01 | 226 | — | (10,181) | (0.19) | | Adjusted income before income taxes | 13,656 | 0.24 | 45,992 | 0.82 | 17,300 | 0.31 | | 2017 Tax Act income tax impact | — | — | (24,872) | (0.44) | — | — | | **Adjusted income attributable to Lee Enterprises, Incorporated** | **13,656** | **0.24** | **21,120** | **0.38** | **17,300** | **0.31** | [Liquidity and Capital Resources](index=31&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's liquidity and capital resources in 2019 were characterized by cash provided by operating activities of $57.676 million, cash used in investing activities of $10.933 million, and cash used in financing activities of $43.478 million for debt repayment, with total liquidity of $26.289 million and compliance with all debt covenants - **Cash provided by operating activities was $57.676 million in 2019**, a decrease from **$59.296 million in 2018**, primarily due to lower net income[206](index=206&type=chunk) - **Cash used in investing activities was $10.933 million in 2019**, primarily comprising **$5.901 million in capital expenditures** and **$6.543 million in acquisition expenditures**[210](index=210&type=chunk) - **Cash used in financing activities was $43.478 million in 2019**, primarily for debt repayment[214](index=214&type=chunk) Debt Summary (September 29, 2019) | (Thousands of Dollars) | September 29, 2019 | September 30, 2018 | Interest Rate as of September 29, 2019 (%) | | :------------------- | :------------- | :------------- | :------------------- | | Revolving credit | — | — | 6.1 | | First lien term loan | — | 6,303 | 8.3 | | Notes | 363,420 | 385,000 | 9.5 | | Second lien term loan | 80,207 | 93,556 | 12.0 | | **Total** | **443,627** | **484,859** | | | Unamortized debt issuance costs | (11,282) | (17,055) | | | Less: Current portion of long-term debt | 2,954 | 7,027 | | | **Total long-term debt** | **429,391** | **460,777** | | - As of September 29, 2019, the company's weighted average cost of debt (excluding amortization of debt financing costs) was **10.0%**[214](index=214&type=chunk) - As of September 29, 2019, the company's total liquidity was **$26.289 million**, including cash and approximately **$17.644 million available under its revolving credit facility**[217](index=217&type=chunk) - The company expects all interest and principal payments for the next 12 months to be met by cash flow and plans to amend and extend its revolving credit facility before its expiration[216](index=216&type=chunk)[217](index=217&type=chunk) - The exercise of warrants could provide up to **$25.14 million in additional liquidity**[217](index=217&type=chunk) - The company was in compliance with all debt covenants as of September 29, 2019[220](index=220&type=chunk) [Seasonality](index=33&type=section&id=SEASONALITY) The company's largest publication revenue source, retail advertising, exhibits seasonality, typically peaking in the December and June quarters and lowest in the March quarter - The company's largest publication revenue source, retail advertising, is seasonal, typically fluctuating with market retail sales, being higher in the December and June quarters and lowest in the March quarter[224](index=224&type=chunk) [Inflation](index=33&type=section&id=INFLATION) The company mitigates the impact of inflation by evaluating price increases, productivity improvements, purchasing efficiencies, and other cost reduction measures - The company mitigates the impact of inflation by evaluating price increases, productivity improvements, purchasing efficiencies, and other cost reduction measures[225](index=225&type=chunk) [Contractual Obligations](index=34&type=section&id=CONTRACTUAL%20OBLIGATIONS) This section summarizes the company's significant contractual obligations as of September 29, 2019, including debt principal, interest expense, operating lease obligations, and capital expenditure commitments Summary of Significant Contractual Obligations (September 29, 2019) | Nature of Obligation | Total (Thousands of Dollars) | Less than 1 Year (Thousands of Dollars) | 1-3 Years (Thousands of Dollars) | 3-5 Years (Thousands of Dollars) | More than 5 Years (Thousands of Dollars) | | :------------------- | :------------- | :------------- | :------------- | :------------- | :------------- | | Debt (Principal) | 443,627 | 2,954 | 440,673 | — | — | | Interest Expense | 111,093 | 43,840 | 67,253 | — | — | | Operating Lease Obligations | 15,925 | 3,402 | 4,528 | 3,003 | 4,992 | | Capital Expenditure Commitments | 1,642 | 1,642 | — | — | — | | **Total** | **572,287** | **51,838** | **512,454** | **3,003** | **4,992** | - This table does not include future cash requirements for pension, postretirement, and postemployment obligations, nor unrecognized tax benefits[227](index=227&type=chunk)[228](index=228&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company faces market risks from interest rate and commodity price changes, with its debt entirely fixed-rate and newsprint prices declining due to oversupply and reduced demand, potentially impacting future earnings - As of September 29, 2019, the company's debt structure was entirely fixed-rate, with no hedging instruments employed[230](index=230&type=chunk) - Newsprint prices peaked in the second half of 2018 and continued to decline in 2019, primarily due to oversupply and decreased demand[231](index=231&type=chunk) - For every **$10 per metric ton increase in newsprint prices**, pre-tax income is projected to decrease by approximately **$0.213 million in 2020**[233](index=233&type=chunk) - As of September 29, 2019, the fair value of the company's fixed-rate debt (notes and second lien term loan) was close to its carrying value[234](index=234&type=chunk) [Financial Statements and Supplementary Data](index=35&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This item refers to the "Consolidated Financial Statements" section within the report - This information is included in the "Consolidated Financial Statements" section of the report[236](index=236&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=35&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) This information is incorporated by reference from the company's proxy statement to be filed in January 2020 - This information is included in the company's proxy statement to be filed in January 2020 and is incorporated by reference into this report[238](index=238&type=chunk) [Controls and Procedures](index=35&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management assessed the effectiveness of disclosure controls and procedures as of September 29, 2019, concluding they were effective, and KPMG LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting - As of September 29, 2019, the company's disclosure controls and procedures were assessed as effective[240](index=240&type=chunk) - Management believes the company's internal control over financial reporting was effective as of September 29, 2019[242](index=242&type=chunk) - Independent registered public accounting firm KPMG LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[243](index=243&type=chunk)[245](index=245&type=chunk) - No significant changes in internal control over financial reporting occurred during the reporting period[244](index=244&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=37&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) This information, except for executive officer details disclosed in Part I, is incorporated by reference from the company's January 2020 proxy statement, and the company maintains a Code of Business Conduct and Ethics overseen by the Audit Committee - This information, except for executive officer details disclosed in Part I "Executive Team", is incorporated by reference from the company's proxy statement to be filed in January 2020[254](index=254&type=chunk) - The company maintains a Code of Business Conduct and Ethics applicable to all employees, including the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, overseen by the Audit Committee[255](index=255&type=chunk) [Executive Compensation](index=37&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) This information is incorporated by reference from the "Non-Employee Director Compensation," "Executive Compensation," and "Compensation Discussion and Analysis" sections of the company's January 2020 proxy statement - This information is incorporated by reference from the "Non-Employee Director Compensation," "Executive Compensation," and "Compensation Discussion and Analysis" sections of the company's proxy statement to be filed in January 2020[257](index=257&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=37&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) This information is incorporated by reference from the "Voting Securities and Principal Holders" and "Equity Compensation Plan Information" sections of the company's January 2020 proxy statement - This information is incorporated by reference from the "Voting Securities and Principal Holders" and "Equity Compensation Plan Information" sections of the company's proxy statement to be filed in January 2020[258](index=258&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=37&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) This information is incorporated by reference from the "Board Meetings and Board Committees" section of the company's January 2020 proxy statement - This information is incorporated by reference from the "Board Meetings and Board Committees" section of the company's proxy statement to be filed in January 2020[260](index=260&type=chunk) [Principal Accounting Fees and Services](index=37&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTING%20FEES%20AND%20SERVICES) This information is incorporated by reference from the "Relationship with Independent Registered Public Accounting Firm" section of the company's January 2020 proxy statement - This information is incorporated by reference from the "Relationship with Independent Registered Public Accounting Firm" section of the company's proxy statement to be filed in January 2020[262](index=262&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=38&type=section&id=ITEM%2015.%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This item lists the documents filed as part of the annual report, including consolidated financial statements, financial statement schedules, and an exhibit index - This item lists documents filed as part of the annual report, including Consolidated Statements of Income and Comprehensive Income (Loss), Consolidated Balance Sheets, Consolidated Statements of Stockholders' Equity (Deficit), Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[265](index=265&type=chunk) - All financial statement schedules have been omitted as they are not applicable or the information is included in the Notes to Consolidated Financial Statements[266](index=266&type=chunk) - The Exhibit Index contains all referenced exhibits[267](index=267&type=chunk) [Consolidated Financial Statements](index=39&type=section&id=CONSOLIDATED%20FINANCIAL%20STATEMENTS) The consolidated financial statements encompass the company and its subsidiaries, with TNI and MNI accounted for by the equity method and TownNews consolidated, covering income, comprehensive income, balance sheets, equity, and cash flows for fiscal years 2019, 2018, and 2017, along with detailed disclosures on accounting policies, revenue, investments, debt, pension plans, and unaudited quarterly data [Consolidated Statements of Income and Comprehensive Income (Loss)](index=40&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income%20(Loss)) This statement presents the company's consolidated income and comprehensive income (loss) for fiscal years 2019, 2018, and 2017, detailing operating and non-operating revenues and expenses, net income, and earnings per share Consolidated Statements of Income and Comprehensive Income (Loss) (Fiscal Years 2017-2019) | (Thousands of Dollars, except per share data) | 2019 | 2018 | 2017 | | :----------------------------------- | :----- | :----- | :----- | | **Operating revenue:** | | | | | Advertising and marketing services | 265,933 | 303,446 | 331,360 | | Subscription | 186,691 | 195,108 | 191,922 | | Other | 57,230 | 45,401 | 43,661 | | **Total operating revenue** | **509,854** | **543,955** | **566,943** | | **Operating expenses:** | | | | | Compensation | 182,869 | 199,164 | 213,109 | | Newsprint and ink | 22,237 | 24,949 | 24,904 | | Other operating expenses | 193,709 | 199,653 | 199,754 | | Depreciation and amortization | 29,332 | 31,766 | 41,282 | | Loss (gain) on asset sales, impairment and other | 2,464 | 6,429 | (1,150) | | Restructuring costs and other | 11,635 | 5,550 | 7,523 | | **Total operating expenses** | **442,246** | **467,511** | **485,422** | | Equity in earnings of associated companies | 7,121 | 9,249 | 7,609 | | **Operating income** | **74,729** | **85,693** | **89,130** | | **Non-operating income (expense):** | | | | | Interest expense | (47,488) | (52,842) | (57,573) | | Debt financing and management costs | (7,214) | (5,311) | (4,818) | | Other, net | 3,813 | 3,280 | 13,477 | | **Total non-operating expense, net** | **(50,889)** | **(54,873)** | **(48,914)** | | Income before income taxes | 23,840 | 30,820 | 40,216 | | Income tax expense (benefit) | 7,931 | (16,228) | 11,611 | | **Net income** | **15,909** | **47,048** | **28,605** | | Net income attributable to noncontrolling interests | (1,641) | (1,282) | (1,124) | | **Income attributable to Lee Enterprises, Incorporated** | **14,268** | **45,766** | **27,481** | | Other comprehensive income (loss), net of income taxes | (17,368) | 4,322 | 6,710 | | **Comprehensive income (loss) attributable to Lee Enterprises, Incorporated** | **(3,100)** | **50,088** | **34,191** | | **Earnings per common share:** | | | | | Basic: | 0.26 | 0.84 | 0.51 | | Diluted: | 0.25 | 0.82 | 0.50 | [Consolidated Balance Sheets](index=41&type=section&id=Consolidated%20Balance%20Sheets) This statement presents the company's consolidated financial position as of September 29, 2019, and September 30, 2018, detailing assets, liabilities, and stockholders' equity (deficit) Consolidated Balance Sheets (September 29, 2019 and September 30, 2018) | (Thousands of Dollars) | September 29, 2019 | September 30, 2018 | | :----------------------------------- | :------------- | :------------- | | **Assets** | | | | **Current assets:** | | | | Cash and cash equivalents | 8,645 | 5,380 | | Accounts receivable, net of allowance for doubtful accounts | 42,536 | 43,711 | | Inventories | 3,769 | 5,684 | | Prepaid expenses and other | 5,353 | 4,567 | | **Total current assets** | **60,303** | **59,342** | | **Investments:** | | | | Associated companies | 28,742 | 29,216 | | Other | 10,684 | 10,958 | | **Total investments** | **39,426** | **40,174** | | **Property and equipment:** | | | | Land and improvements | 16,979 | 17,432 | | Buildings and improvements | 148,514 | 150,376 | | Equipment | 237,289 | 276,332 | | Construction in progress | 1,980 | 1,710 | | | 404,762 | 445,850 | | Less: Accumulated depreciation | 322,723 | 353,522 | | **Property and equipment, net** | **82,039** | **92,328** | | Goodwill | 250,309 | 246,176 | | Other intangible assets, net | 107,393 | 119,819 | | Medical plan assets, net | 14,338 | 16,157 | | Other | 1,394 | 1,415 | | **Total assets** | **555,202** | **575,411** | | **Liabilities and Stockholders' Equity** | | | | **Current liabilities:** | | | | Current portion of long-term debt | 2,954 | 7,027 | | Accounts payable | 16,750 | 12,747 | | Compensation and other accrued liabilities | 17,711 | 19,641 | | Accrued interest | 1,903 | 2,031 | | Unearned revenue | 21,720 | 23,895 | | **Total current liabilities** | **61,038** | **65,341** | | Long-term debt, less current portion | 429,391 | 460,777 | | Pension obligations | 47,037 | 26,745 | | Postretirement and postemployment benefit obligations | 2,550 | 2,580 | | Deferred income taxes | 29,806 | 39,108 | | Income taxes payable | 8,742 | 6,559 | | Warrants and other | 13,469 | 10,561 | | **Total liabilities** | **592,033** | **611,671** | | **Equity (Deficit):** | | | | **Stockholders' equity (deficit):** | | | | Common stock, $0.01 par value | 577 | 572 | | Additional paid-in capital | 255,476 | 253,511 | | Accumulated deficit | (265,423) | (279,691) | | Accumulated other comprehensive loss | (29,114) | (11,746) | | **Total stockholders' deficit** | **(38,484)** | **(37,354)** | | Noncontrolling interests | 1,653 | 1,094 | | **Total deficit** | **(36,831)** | **(36,260)** | | **Total liabilities and deficit** | **555,202** | **575,411** | [Consolidated Statements of Stockholders' Equity (Deficit)](index=43&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity%20(Deficit)) This statement details the changes in the company's consolidated stockholders' equity (deficit) for fiscal years 2017, 2018, and 2019, including common stock, additional paid-in capital, accumulated deficit, and accumulated other comprehensive loss Consolidated Statements of Stockholders' Equity (Deficit) (Fiscal Years 2017-2019) | (Thousands of Dollars and Shares) | 2019 Amount | 2018 Amount | 2017 Amount | 2019 Shares | 2018 Shares | 2017 Shares | | :----------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | **Common stock:** | | | | | | | | Balance at beginning of year | 572 | 567 | 558 | 57,141 | 56,712 | 55,771 | | Shares issued | 5 | 5 | 9 | 505 | 429 | 941 | | Balance at end of year | 577 | 572 | 567 | 57,646 | 57,141 | 56,712 | | **Additional paid-in capital:** | | | | | | | | Balance at beginning of year | 253,511 | 251,790 | 249,740 | | | | | Equity compensation | 2,040 | 2,039 | 2,088 | | | | | Shares issued (redeemed) | (75) | (318) | (38) | | | | | Balance at end of year | 255,476 | 253,511 | 251,790 | | | | | **Accumulated deficit:** | | | | | | | | Balance at beginning of year | (279,691) | (328,524) | (356,005) | | | | | Net income | 15,909 | 47,048 | 28,605 | | | | | Net income attributable to noncontrolling interests | (1,641) | (1,282) | (1,124) | | | | | Cumulative effect of accounting change | — | 3,067 | — | | | | | Balance at end of year | (265,423) | (279,691) | (328,524) | | | | | **Accumulated other comprehensive income (loss):** | | | | | | | | Balance at beginning of year | (11,746) | (16,068) | (22,778) | | | | | Pension and postretirement benefit changes | (24,667) | 10,477 | 11,439 | | | | | Deferred income taxes, net | 7,299 | (3,088) | (4,729) | | | | | Cumulative effect of accounting change | — | (3,067) | — | | | | | Balance at end of year | (29,114) | (11,746) | (16,068) | | | | | **Total stockholders' deficit** | **(38,484)** | **(37,354)** | **(92,235)** | **57,646** | **57,141** | **56,712** | [Consolidated Statements of Cash Flows](index=44&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement presents the company's consolidated cash flows from operating, investing, and financing activities for fiscal years 2017, 2018, and 2019, detailing the sources and uses of cash Consolidated Statements of Cash Flows (Fiscal Years 2017-2019) | (Thousands of Dollars) | 2019 | 2018 | 2017 | | :----------------------------------- | :----- | :----- | :----- | | **Cash flows from operating activities:** | | | | | Net income | 15,909 | 47,048 | 28,605 | | **Adjustments to reconcile net income to net cash provided by operating activities:** | | | | | Depreciation and amortization | 29,332 | 31,766 | 41,282 | | Non-operating loss | 7,213 | 3,547 | 3,594 | | Equity compensation expense | 1,638 | 1,857 | 2,088 | | MNI distributions in excess of (less than) earnings | 465 | (1,229) | 546 | | Deferred income taxes | (2,003) | (17,378) | 10,360 | | Pension contributions | (650) | (4,990) | — | | Other, net | 1,968 | 6,907 | (967) | | **Changes in operating assets and liabilities:** | | | | | Decrease in accounts receivable and contract sales | 1,697 | 4,418 | 2,854 | | Decrease (increase) in inventories and other | 2,759 | (1,926) | 687 | | Decrease in accounts payable and other accrued liabilities | (3,676) | (8,587) | (6,393) | | Increase (decrease) in pension, postretirement and postemployment benefit obligations | 1,900 | (2,482) | (3,473) | | Change in income taxes payable | 1,495 | 687 | (1) | | Other, including warrants | (371) | (342) | (6,901) | | **Net cash provided by operating activities** | **57,676** | **59,296** | **72,281** | | **Cash flows from investing activities:** | | | | | Purchases of property and equipment | (5,901) | (6,025) | (4,078) | | Proceeds from asset sales | 1,502 | 6,623 | 2,582 | | Acquisitions | (6,543) | — | (7,450) | | TNI distributions in excess of (less than) earnings | 9 | 1,194 | (11) | | Other, net | — | (1,864) | (498) | | **Net cash used in investing activities** | **(10,933)** | **(72)** | **(9,455)** | | **Cash flows from financing activities:** | | | | | Proceeds from long-term debt | 600 | 10,000 | 5,000 | | Payments of long-term debt | (41,832) | (73,526) | (73,782) | | Payments of debt financing and management costs | (1,773) | (437) | (373) | | Common stock transactions, net | (473) | (502) | (34) | | **Net cash used in financing activities** | **(43,478)** | **(64,465)** | **(69,189)** | | **Net increase (decrease) in cash and cash equivalents** | **3,265** | **(5,241)** | **(6,363)** | | **Cash and cash equivalents:** | | | | | Beginning of year | 5,380 | 10,621 | 16,984 | | End of year | 8,645 | 5,380 | 10,621 | [Notes to Consolidated Financial Statements](index=45&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures supporting the consolidated financial statements, covering significant accounting policies, revenue recognition, investments, goodwill, debt, pension plans, equity, income taxes, fair value of financial instruments, earnings per share, allowance for doubtful accounts, other information, commitments, contingent liabilities, and unaudited quarterly data [1. Significant Accounting Policies](index=45&type=section&id=1.%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note details the basis of presentation for the company's consolidated financial statements, including consolidation principles, accounting estimates, cash and cash equivalents, accounts receivable, inventories, other investments, property and equipment, goodwill and other intangible assets, noncontrolling interests, revenue recognition, advertising costs, restructuring costs, pension and postretirement benefit plans, income taxes, fair value of financial instruments, equity compensation, warrants, and uninsured risks, along with recently issued accounting standards - The company's consolidated financial statements include its own accounts and those of its subsidiaries, with TNI and MNI accounted for using the equity method, while TownNews is consolidated[283](index=283&type=chunk) - In the first quarter of fiscal year 2018, the company remeasured deferred taxes and reclassified a **net tax benefit of $3.067 million** from accumulated other comprehensive income to retained earnings to reflect the impact of the 2017 Tax Act[284](index=284&type=chunk) - The company adopted new accounting standards for employee share-based payments in 2018, which did not have a material impact on the consolidated financial statements[285](index=285&type=chunk) - The company adopted new revenue recognition standards (ASC Topic 606) on October 1, 2018, using the modified retrospective method, with no adjustment to opening retained earnings and no material impact on the consolidated financial statements[305](index=305&type=chunk)[333](index=333&type=chunk) - Revenue is recognized when performance obligations are satisfied; advertising and marketing services revenue is recognized at the point of delivery, subscription revenue upon publication delivery or online content availability, and other revenue (e.g., digital services and management agreement revenue) based on the contract period or service delivery[306](index=306&type=chunk)[307](index=307&type=chunk)[309](index=309&type=chunk)[310](index=310&type=chunk)[311](index=311&type=chunk) - Goodwill and non-amortizing intangible assets are tested annually for impairment, while amortizing intangible assets are tested when impairment indicators arise[296](index=296&type=chunk)[298](index=298&type=chunk)[300](index=300&type=chunk) - Pension and postretirement benefit plan obligations and expenses are based on actuarial assumptions, including the discount rate and the expected long-term rate of return on plan assets[316](index=316&type=chunk)[317](index=317&type=chunk) - The company will adopt new lease accounting standards in fiscal year 2020 (September 30, 2019), expecting to recognize **$9.6 million to $12.6 million in lease liabilities and right-of-use assets**, but anticipates no material impact on the consolidated statements of income or cash flows[334](index=334&type=chunk)[335](index=335&type=chunk) - The company will adopt new expected credit loss models beginning September 29, 2020, and is currently evaluating their impact on the consolidated financial statements[336](index=336&type=chunk) [2. Revenue](index=52&type=section&id=2%20REVENUE) The company adopted new revenue recognition standards on October 1, 2018, with no adjustment to opening retained earnings, and reported total operating revenue of $509.8 million in fiscal year 2019, primarily from advertising, subscriptions, and digital services - The company adopted new revenue recognition standards on October 1, 2018, with no adjustment to opening retained earnings[337](index=337&type=chunk) Revenue Stream Breakdown (Fiscal Years 2017-2019) | (Thousands of Dollars) | September 29, 2019 | September 30, 2018 | September 24, 2017 | | :----------------------------------- | :------------- | :------------- | :------------- | | Advertising and marketing services revenue | 265,933 | 303,446 | 331,360 | | Subscription revenue | 186,691 | 195,108 | 191,922 | | TownNews and other digital services revenue | 19,637 | 16,328 | 14,008 | | Other revenue | 37,593 | 29,073 | 29,653 | | **Total operating revenue** | **509,854** | **543,955** | **566,943** | - The company's primary unearned revenue stems from prepaid subscriptions, totaling **$21.72 million as of September 29, 2019**, expected to be recognized within the next 12 months[340](index=340&type=chunk) - Contract assets are primarily related to the variable portion of management agreements, totaling **$1.107 million as of September 29, 2019**[341](index=341&type=chunk) [3. Investments in Associated Companies](index=52&type=section&id=3%20INVESTMENTS%20IN%20ASSOCIATED%20COMPANIES) The company accounts for its investments in TNI Partners and Madison Newspapers, Inc. (MNI) using the equity method, with TNI responsible for the Arizona Daily Star and MNI publishing newspapers in Wisconsin, and the company also provides editorial services to MNI - The company holds a **50% interest in TNI Partners**, which manages the printing, distribution, advertising, and subscription activities for the Arizona Daily Star, accounted for using the equity method[343](index=343&type=chunk) Summary of TNI Partners Financial Information (Fiscal Years 2017-2019) | (Thousands of Dollars) | 2019 | 2018 | 2017 | | :------------------- | :----- | :----- | :----- | | Operating revenue | 43,532 | 47,165 | 48,297 | | Operating expenses | 34,224 | 37,090 | 38,150 | | Net income | 9,308 | 10,075 | 10,147 | | Company's 50% share | 4,654 | 5,038 | 5,073 | | Less: Amortization of intangible assets

Financial Data and Key Metrics Changes - Total digital revenue for fiscal year 2019 was $144.6 million, an increase of 4.3% on a same-property basis [6] - Adjusted EBITDA for the fourth quarter totaled $31.1 million, compared to $35.9 million in the prior quarter [10] - Cash costs on a same-property basis decreased by 8.1% in the fourth quarter, with compensation costs down 9.7% [11] - For fiscal year 2019, adjusted EBITDA totaled $121.5 million, and debt reduction amounted to $41.2 million [12] Business Line Data and Key Metrics Changes - Digital advertising represented 40% of total advertising in the fourth quarter, with local controllable retail accounts contributing over 50% of advertising revenue [6] - Revenue from Amplified Digital agency increased by 13.1% in the fourth quarter, with strong margins [7] - Digital-only subscriptions grew by 79.1% in 2019, adding 13,000 net new subscribers in the fourth quarter [8] - TownNews revenue increased by 10.7% in the fourth quarter, totaling $22.6 million for the fiscal year [9] Market Data and Key Metrics Changes - The company reached 75% to 80% of adults in local markets through print, digital, and mobile platforms [7] - Subscription revenue improved modestly in the fourth quarter, down 4.6% on a same-property basis [8] Company Strategy and Development Direction - The company is focused on digital transformation and reducing costs while maintaining strong performance [10] - Plans to monetize non-core assets, including excess real estate valued at $30.8 million, to reduce leverage [12] - The transition to the News+ membership program aims to stabilize the full access audience and stimulate digital-only subscription growth [8] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth despite industry challenges, highlighting the success of digital revenue growth [10] - The company is evaluating options for opportunistic refinancing to reduce capital costs [17] Other Important Information - The company became a taxpayer in 2019, paying $8.4 million in income taxes [13] - The company has extended its revolver maturity to December 2020 [15] Q&A Session Summary Question: What is the plan for extending the revolver maturing on December 28, 2019? - The revolver has been extended for an additional 12 months, maturing in December 2020 [15] Question: What involvement will Lee have in Facebook's recently announced Facebook Live News tab? - Lee is involved in the test in three markets, but it is too early to determine the outcome [16] Question: Will Lee be able to complete a debt refinancing deal by March 2022? - The company is exploring options for refinancing and aims to reduce leverage as quickly as possible [17] Question: Can you provide further details on the $6 million of restructuring costs in the quarter? - The majority of the restructuring costs were related to severance due to business transformation projects, with $3.8 million associated with withdrawals from multi-employer pension plans [19] Question: Can you comment on debt paydown and bond buybacks in the December quarter? - The company has reduced debt by $7 million in the first quarter and expects similar results historically [20]

[FORWARD-LOOKING STATEMENTS](index=4&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines forward-looking statements, emphasizing inherent risks and uncertainties that could cause actual results to differ materially from expectations - The report contains forward-looking statements based on current expectations, subject to risks, trends, and uncertainties that could cause actual results to differ materially[6](index=6&type=chunk) - Key risks include the ability to generate cash flows and maintain liquidity for debt service, compliance with financial covenants, debt refinancing, changes in advertising and subscription demand, technology impacts on digital advertising, commodity and energy costs, interest rates, labor costs, cybersecurity breaches, legislative/regulatory rulings, expense reduction achievement, employee/customer relationships, capital costs, NYSE listing status, and competition[8](index=8&type=chunk) [PART I FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This part presents the company's unaudited financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations and comprehensive income, statements of stockholders' equity, and statements of cash flows, along with detailed notes on accounting policies, revenue recognition, investments, goodwill, debt, pension plans, income taxes, earnings per share, stock ownership plans, fair value measurements, and contingent liabilities for the periods ended June 30, 2019 [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' deficit as of June 30, 2019, and September 30, 2018 Consolidated Balance Sheet Highlights (Thousands of Dollars) | Metric | June 30, 2019 | September 30, 2018 | Change | Change (%) | | :----------------------------------- | :------------ | :----------------- | :----- | :--------- | | Total current assets | 71,252 | 59,342 | 11,910 | 20.1% | | Total assets | 574,401 | 575,411 | (1,010) | (0.2%) | | Total current liabilities | 69,150 | 65,341 | 3,809 | 5.8% | | Long-term debt, net of current maturities | 442,026 | 460,777 | (18,751) | (4.1%) | | Total liabilities | 595,941 | 611,671 | (15,730) | (2.6%) | | Total stockholders' deficit | (23,049) | (37,354) | 14,305 | (38.3%) | | Total liabilities and deficit | 574,401 | 575,411 | (1,010) | (0.2%) | - Cash and cash equivalents increased significantly from **$5,380 thousand** at September 30, 2018, to **$13,516 thousand** at June 30, 2019[11](index=11&type=chunk) - Goodwill increased from **$246,176 thousand** to **$249,727 thousand**, while other intangible assets, net, decreased from **$119,819 thousand** to **$110,806 thousand**[11](index=11&type=chunk) [Consolidated Statements of Operations and Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) This section details the company's financial performance, including revenue, expenses, operating income, and net income for the 13 and 39 weeks ended June 30, 2019 Consolidated Statements of Operations and Comprehensive Income (Thousands of Dollars, Except Per Common Share Data) | Metric | 13 Weeks Ended June 30, 2019 | 13 Weeks Ended June 24, 2018 | Change (%) | 39 Weeks Ended June 30, 2019 | 39 Weeks Ended June 24, 2018 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Total operating revenue | 127,284 | 132,618 | (4.0%) | 386,189 | 404,208 | (4.5%) | | Total operating expenses | 108,704 | 114,041 | (4.7%) | 331,169 | 343,227 | (3.5%) | | Operating income | 20,031 | 20,155 | (0.6%) | 60,318 | 66,550 | (9.4%) | | Income before income taxes | 7,677 | 6,722 | 14.2% | 20,739 | 25,820 | (19.7%) | | Net income | 6,172 | 4,750 | 29.9% | 14,564 | 42,611 | (65.8%) | | Income attributable to Lee Enterprises, Incorporated | 5,766 | 4,458 | 29.3% | 13,449 | 41,700 | (67.7%) | | Basic EPS | 0.10 | 0.08 | 27.3% | 0.24 | 0.76 | (68.3%) | | Diluted EPS | 0.10 | 0.08 | 27.5% | 0.24 | 0.75 | (68.1%) | - Advertising and marketing services revenue decreased by **10.6%** for the 13 weeks and **10.9%** for the 39 weeks ended June 30, 2019, compared to the prior year periods[16](index=16&type=chunk) - Other revenue significantly increased by **36.6%** for the 13 weeks and **35.9%** for the 39 weeks ended June 30, 2019, primarily due to digital services and Management Agreement revenue[16](index=16&type=chunk) [Consolidated Statements of Stockholders' Equity (Deficit)](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) This section outlines changes in the company's stockholders' equity (deficit), reflecting the impact of net income and other comprehensive income for the period Changes in Stockholders' Equity (Deficit) (Thousands of Dollars) | Metric | October 1, 2018 | June 30, 2019 | Change | | :----------------------------------- | :-------------- | :------------ | :----- | | Accumulated Deficit | (279,691) | (266,242) | 13,449 | | Common Stock | 572 | 578 | 6 | | Additional paid-in capital | 253,511 | 254,727 | 1,216 | | Accumulated Other Comprehensive Loss | (11,746) | (12,112) | (366) | | Total Stockholders' Deficit | (37,354) | (23,049) | 14,305 | - The total stockholders' deficit improved from **$(37,354) thousand** at October 1, 2018, to **$(23,049) thousand** at June 30, 2019, primarily driven by income attributable to Lee Enterprises, Incorporated[18](index=18&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the 39 weeks ended June 30, 2019 Consolidated Statements of Cash Flows (Thousands of Dollars) | Metric | 39 Weeks Ended June 30, 2019 | 39 Weeks Ended June 24, 2018 | Change | | :----------------------------------- | :--------------------------- | :--------------------------- | :----- | | Net cash provided by operating activities | 43,786 | 57,033 | (13,247) | | Net cash required for investing activities | (7,911) | (2,076) | (5,835) | | Net cash required for financing activities | (27,739) | (49,549) | 21,810 | | Net increase in cash and cash equivalents | 8,136 | 5,408 | 2,728 | | Cash and cash equivalents, end of period | 13,516 | 16,029 | (2,513) | - Cash provided by operating activities decreased by **$13,247 thousand**, mainly due to lower net income and increased income tax payments[21](index=21&type=chunk)[221](index=221&type=chunk) - Cash required for investing activities increased significantly due to **$5,274 thousand** spent on acquisitions in the 2019 Period[21](index=21&type=chunk)[223](index=223&type=chunk) - Cash required for financing activities decreased by **$21,810 thousand**, primarily due to lower debt reduction payments compared to the prior year[21](index=21&type=chunk)[225](index=225&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies, significant estimates, and additional information supporting the consolidated financial statements [1. Basis of Presentation and Summary of Significant Accounting Policies](index=11&type=section&id=1.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes the basis of financial statement preparation and outlines key accounting policies, including revenue recognition and new lease standards - The unaudited interim financial statements include all adjustments (normal recurring items) necessary for fair presentation[25](index=25&type=chunk) - The Company adopted the New Revenue Standard (ASC 606) on October 1, 2018, using the modified retrospective method, with no significant impact on revenue recognition policies, timing, or amount[34](index=34&type=chunk) - The Company anticipates a material impact on its Consolidated Balance Sheets from the adoption of the new lease standard (ASC 842) in fiscal year 2020, due to the recognition of lease assets and liabilities, but no material impact on income or cash flows[42](index=42&type=chunk) - The Company manages Berkshire Hathaway's newspaper and digital operations in 30 markets, earning a fixed annual fee of **$5 million** and variable fees based on financial performance, totaling **$11,320,000** in fees as of June 30, 2019[28](index=28&type=chunk) [2. Revenue](index=13&type=section&id=2.%20Revenue) This note disaggregates revenue by source and explains the company's revenue recognition policies, including unearned revenue and contract assets Revenue Disaggregation by Source (Thousands of Dollars) | Revenue Source | 13 Weeks Ended June 30, 2019 | 13 Weeks Ended June 24, 2018 | Change (%) | 39 Weeks Ended June 30, 2019 | 39 Weeks Ended June 24, 2018 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Advertising and marketing services revenue | 65,754 | 73,538 | (10.6%) | 204,651 | 229,751 | (10.9%) | | Subscription Revenue | 46,620 | 48,165 | (3.2%) | 137,965 | 142,405 | (3.1%) | | TownNews and other digital services revenue | 5,087 | 3,826 | 33.0% | 14,507 | 11,302 | 28.4% | | Other revenue | 9,823 | 7,089 | 38.6% | 29,066 | 20,750 | 40.1% | | Total operating revenue | 127,284 | 132,618 | (4.0%) | 386,189 | 404,208 | (4.5%) | - Revenue is recognized when performance obligations are satisfied by transferring control of goods or services to customers[44](index=44&type=chunk) - Unearned revenue from subscriptions paid in advance was **$22,970,000** as of June 30, 2019, and **$23,895,000** as of September 30, 2018[50](index=50&type=chunk) - Contract asset balances related to the Management Agreement revenue were **$5,506,000** as of June 30, 2019, and **$0** as of September 30, 2018, reflecting the variable portion of the fee[51](index=51&type=chunk) [3. Investments in Associated Companies](index=14&type=section&id=3.%20Investments%20in%20Associated%20Companies) This note details the company's equity method investments in TNI Partners and Madison Newspapers, Inc., and their summarized financial results Summarized Results of TNI (Thousands of Dollars) | Metric | 13 Weeks Ended June 30, 2019 | 13 Weeks Ended June 24, 2018 | Change (%) | 39 Weeks Ended June 30, 2019 | 39 Weeks Ended June 24, 2018 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Operating revenue | 10,465 | 11,013 | (5.0%) | 34,109 | 36,094 | (5.5%) | | Operating income | 2,102 | 1,974 | 6.5% | 7,818 | 7,718 | 1.3% | | Company's 50% share of operating income | 1,051 | 987 | 6.5% | 3,909 | 3,860 | 1.3% | | Equity in earnings of TNI | 946 | 882 | 7.3% | 3,596 | 3,546 | 1.4% | Summarized Results of MNI (Thousands of Dollars) | Metric | 13 Weeks Ended June 30, 2019 | 13 Weeks Ended June 24, 2018 | Change (%) | 39 Weeks Ended June 30, 2019 | 39 Weeks Ended June 24, 2018 | Change (%) | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Operating revenue | 13,709 | 14,518 | (5.6%) | 41,627 | 44,421 | (6.3%) | | Operating income | 1,230 | 2,123 | (42.1%) | 4,316 | 6,311 | (31.6%) | | Net income | 1,010 | 1,391 | (27.4%) | 3,405 | 4,047 | (15.9%) | | Equity in earnings of MNI | 505 | 696 | (27.4%) | 1,702 | 2,023 | (15.9%) | - The Company holds an **82.5%** interest in TownNews.com, a **50%** interest in TNI Partners, and a **50%** interest in Madison Newspapers, Inc. (MNI), with TNI and MNI accounted for using the equity method[27](index=27&type=chunk) [4. Goodwill and Other Intangible Assets](index=15&type=section&id=4.%20Goodwill%20and%20Other%20Intangible%20Assets) This note provides details on the carrying amounts of goodwill and other intangible assets, including recent acquisitions and amortization schedules Goodwill Carrying Amount (Thousands of Dollars) | Metric | 39 Weeks Ended June 30, 2019 | | :----------------------------------- | :--------------------------- | | Goodwill, beginning of period | 246,176 | | Goodwill acquired in business combinations | 3,551 | | Goodwill, end of period | 249,727 | Identified Intangible Assets (Thousands of Dollars) | Metric | June 30, 2019 | September 30, 2018 | | :----------------------------------- | :------------ | :----------------- | | Nonamortized intangible assets: Mastheads | 21,883 | 21,883 | | Amortizable intangible assets, net | 88,923 | 97,936 | | Other intangible assets, net | 110,806 | 119,819 | - In January 2019, the Company acquired Kenosha News and Lake Geneva Regional News, and TownNews purchased GTxcel's CMS business, resulting in **$3,551,000** in goodwill and **$3,650,000** in other intangible assets (customer lists amortized over 10 years)[59](index=59&type=chunk) - Estimated annual amortization of intangible assets ranges from **$16,060,000** in 2020 to **$11,237,000** in 2024[60](index=60&type=chunk) [5. Debt](index=16&type=section&id=5.%20Debt) This note details the company's debt structure, including revolving facilities, term loans, and notes, along with compliance with debt covenants Debt Summary (Thousands of Dollars) | Debt Type | June 30, 2019 | September 30, 2018 | Interest Rates (%) | | :----------------------------------- | :------------ | :----------------- | :----------------- | | Revolving Facility | — | — | 6.1 | | 1 Lien Term Loan | — | 6,303 | 8.5 | | Notes | 374,420 | 385,000 | 9.5 | | 2nd Lien Term Loan | 84,138 | 93,556 | 12.0 | | Total long-term debt | 442,026 | 460,777 | | - The Company repaid the remaining balance of the **1st Lien Term Loan** in full in November 2018[61](index=61&type=chunk) - The Revolving Facility was amended in December 2018, extending maturity to December 28, 2019, and reducing commitments from **$40,000,000** to **$27,200,000**[62](index=62&type=chunk) - The Company repurchased **$10,580,000** principal amount of Notes in privately negotiated transactions during the 13 and 39 weeks ended June 30, 2019, resulting in a **$238,000** loss on extinguishment of debt[71](index=71&type=chunk) - At June 30, 2019, total liquidity was **$35,201,000**, including **$21,685,000** available under the Revolving Facility, which expires December 28, 2019[106](index=106&type=chunk) - The Company was in compliance with all debt covenants at June 30, 2019, and expects to satisfy all interest and principal payments due in the next twelve months through existing cash and cash flows[109](index=109&type=chunk)[106](index=106&type=chunk) [6. Pension, Postretirement and Postemployment Defined Benefit Plans](index=21&type=section&id=6.%20Pension,%20Postretirement%20and%20Postemployment%20Defined%20Benefit%20Plans) This note outlines the components of net periodic pension and postretirement costs and the impact of new accounting standards Net Periodic Pension Cost (Benefit) Components (Thousands of Dollars) | Metric | 13 Weeks Ended June 30, 2019 | 13 Weeks Ended June 24, 2018 | 39 Weeks Ended June 30, 2019 | 39 Weeks Ended June 24, 2018 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Pension benefit | (109) | (61) | (329) | (183) | | Postretirement medical benefit | (592) | (622) | (1,777) | (3,896) | - The Company adopted a new accounting standard for pension and postretirement benefit expenses, reclassifying non-service cost components to non-operating income in 'other, net'[113](index=113&type=chunk) - A non-cash curtailment gain of **$2,031,000** was recorded in the 39 weeks ended June 24, 2018, due to the termination of a post-employment medical plan[115](index=115&type=chunk) [7. Income Taxes](index=22&type=section&id=7.%20Income%20Taxes) This note details the company's income tax expense, effective tax rates, and the impact of state taxes and net operating losses Income Tax Expense and Effective Tax Rate | Metric | 13 Weeks Ended June 30, 2019 | 13 Weeks Ended June 24, 2018 | 39 Weeks Ended June 30, 2019 | 39 Weeks Ended June 24, 2018 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income tax expense (benefit) | 1,505 | 1,972 | 6,175 | (16,791) | | Effective income tax rate | 19.6% | 29.3% | 29.8% | (65.0%) | - The effective tax rates differ from the U.S. federal statutory rate of **21%** due to state taxes, non-deductible expenses, adjustments for uncertain tax positions, and mark-to-market adjustments for warrants[119](index=119&type=chunk) - The Company consumed its federal net operating losses in the year ended September 30, 2018, but had approximately **$63,048,000** of state net operating loss tax benefits at that date[121](index=121&type=chunk) [8. Earnings Per Common Share](index=23&type=section&id=8.%20Earnings%20Per%20Common%20Share) This note presents the calculation of basic and diluted earnings per common share, including the impact of warrants Earnings Per Common Share (Thousands of Dollars and Shares, Except Per Share Data) | Metric | 13 Weeks Ended June 30, 2019 | 13 Weeks Ended June 24, 2018 | 39 Weeks Ended June 30, 2019 | 39 Weeks Ended June 24, 2018 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Income attributable to Lee Enterprises, Incorporated | 5,766 | 4,458 | 13,449 | 41,700 | | Basic average common shares | 55,643 | 54,778 | 55,484 | 54,598 | | Diluted average common shares | 56,870 | 56,080 | 56,522 | 55,903 | | Basic EPS | 0.10 | 0.08 | 0.24 | 0.76 | | Diluted EPS | 0.10 | 0.08 | 0.24 | 0.75 | - **6,000,000** weighted average shares related to warrants were excluded from diluted EPS computation for the 13 and 39 weeks ended June 30, 2019, as their exercise prices exceeded the common stock's fair market value[122](index=122&type=chunk) [9. Stock Ownership Plans](index=24&type=section&id=9.%20Stock%20Ownership%20Plans) This note details activity related to stock options and restricted common stock, including outstanding shares and unrecognized compensation expense Stock Option Activity (Thousands of Shares, Except Per Share Data) | Metric | Shares | Weighted Average Exercise Price | | :----------------------------------- | :----- | :------------------------------ | | Outstanding, September 30, 2018 | 1,100 | 1.88 | | Exercised | (83) | 2.11 | | Cancelled | (58) | 2.01 | | Outstanding, June 30, 2019 | 959 | 1.86 | | Exercisable, June 30, 2019 | 959 | 1.86 | Restricted Common Stock Activity (Thousands of Shares, Except Per Share Data) | Metric | Shares | Weighted Average Grant Date Fair Value | | :----------------------------------- | :----- | :------------------------------------- | | Outstanding, September 30, 2018 | 2,059 | 2.31 | | Vested | (737) | 1.54 | | Granted | 788 | 2.18 | | Cancelled | (34) | 2.13 | | Outstanding, June 30, 2019 | 2,076 | 2.53 | - Total unrecognized compensation expense for unvested restricted Common Stock at June 30, 2019, was **$2,258,011**, to be recognized over a weighted average period of **1.4 years**[125](index=125&type=chunk) [10. Fair Value Measurements](index=24&type=section&id=10.%20Fair%20Value%20Measurements) This note provides fair value measurements for financial instruments, including notes, term loans, warrants, and investments - The fair value of the Notes was **$381,440,375** and the 2nd Lien Term Loan was **$83,927,867** at June 30, 2019, both classified as Level 2 fair value measurements[130](index=130&type=chunk) - The fair value of Warrants was **$1,417,000** at June 30, 2019, down from **$4,479,000** at March 31, 2019, determined using the Black-Scholes option pricing model (Level 2)[131](index=131&type=chunk) - Investments totaling **$6,068,000** are carried at cost, with a private equity investment having an approximate fair value of **$10,201,717** (Level 3)[129](index=129&type=chunk) [11. Commitments and Contingent Liabilities](index=25&type=section&id=11.%20Commitments%20and%20Contingent%20Liabilities) This note outlines the company's commitments and contingent liabilities, including routine legal actions and tax audits - The Company is subject to routine income tax audits, with California currently in progress, but believes adequate tax liabilities have been recorded[133](index=133&type=chunk)[134](index=134&type=chunk) - Legal actions arising in the normal course of business are not expected to have a material adverse effect on the consolidated financial statements[135](index=135&type=chunk) - An estimated partial withdrawal liability of **$500,000** for the CWA/ITU multi-employer plan was recorded in the second quarter of 2019, included in restructuring costs[137](index=137&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations for the 13 and 39 weeks ended June 30, 2019, discussing revenue and expense trends, non-GAAP measures, critical accounting policies, and liquidity. It highlights a decline in traditional advertising revenue offset by growth in digital services and management fees, alongside efforts to reduce operating costs and manage debt [Non-GAAP Financial Measures](index=26&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures, including Adjusted EBITDA and Cash Costs, used by management to assess performance - 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 the Company's 50% share of EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI and curtailment gains[141](index=141&type=chunk) - Cash Costs are defined as compensation, newsprint and ink, and other operating expenses, excluding non-cash items and restructuring costs[142](index=142&type=chunk) Adjusted EBITDA Reconciliation (Thousands of Dollars) | Metric | 13 Weeks Ended June 30, 2019 | 13 Weeks Ended June 24, 2018 | 39 Weeks Ended June 30, 2019 | 39 Weeks Ended June 24, 2018 | | :----------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Income | 6,172 | 4,750 | 14,564 | 42,611 | | Adjusted EBITDA | 30,651 | 31,061 | 90,378 | 96,781 | [Impact of Recently Issued Accounting Standards](index=27&type=section&id=IMPACT%20OF%20RECENTLY%20ISSUED%20ACCOUNTING%20STANDARDS) This section discusses the company's evaluation of new FASB standards regarding disclosure requirements for benefit plans and fair value measurements - The Company is evaluating the impact of new FASB standards on disclosure requirements for defined benefit pension/postretirement plans and fair value measurements[147](index=147&type=chunk)[148](index=148&type=chunk) [Critical Accounting Policies](index=27&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section identifies the company's critical accounting policies, including those for intangible assets, benefit plans, and income taxes - Critical accounting policies include intangible assets (other than goodwill), pension, postretirement and postemployment benefit plans, and income taxes[149](index=149&type=chunk) [Executive Overview](index=28&type=section&id=EXECUTIVE%20OVERVIEW) This section provides an overview of the company's operations, market reach, digital platform growth, and subsidiary activities - Lee Enterprises operates **50** local media operations and manages **30** additional operations for BH Media Group, reaching **79%** of adults in larger markets through print and digital content[150](index=150&type=chunk) - Digital platforms attract over **29.3 million** unique visitors monthly with **289.1 million** page views, and digital-only subscribers increased by **72.0%** to approximately **79,000**[155](index=155&type=chunk) - TownNews, an **82.5%** owned subsidiary, provides web hosting, content management, and video management services to nearly **2,000** media organizations[152](index=152&type=chunk) [Impairment of Goodwill and Other Assets](index=28&type=section&id=IMPAIRMENT%20OF%20GOODWILL%20AND%20OTHER%20ASSETS) This section discusses past impairment charges for goodwill and intangible assets, noting potential for future charges based on market conditions - The Company has recorded nearly **$1.3 billion** in impairment charges since 2007 for goodwill and identified intangible assets, with future decreases in market value or differences from estimates potentially leading to additional charges[154](index=154&type=chunk) [Debt and Liquidity](index=28&type=section&id=DEBT%20AND%20LIQUIDITY) This section details the company's outstanding debt, liquidity position, and compliance with debt covenants as of June 30, 2019 - Outstanding debt at June 30, 2019, totaled **$458,558,000**, consisting of **$374,420,000** in 9.5% Senior Secured Notes and **$84,138,000** in 12.0% Second Lien Term Loan[156](index=156&type=chunk)[162](index=162&type=chunk) - The Company's debt, net of cash, was **3.5 times** its trailing twelve months adjusted EBITDA at June 30, 2019[162](index=162&type=chunk) - Liquidity at June 30, 2019, was **$35,201,000**, including **$21,685,000** available under the Revolving Facility, which expires December 28, 2019[161](index=161&type=chunk) - The Company was in compliance with all debt covenants at June 30, 2019, and expects to meet all interest and principal payments in the next twelve months through cash flows and asset sales[164](index=164&type=chunk)[161](index=161&type=chunk) [13 Weeks Ended June 30, 2019](index=30&type=section&id=13%20Weeks%20Ended%20June%2030,%202019) This section analyzes the company's operating revenue, expenses, and overall financial results for the 13-week period ended June 30, 2019 [Operating Revenue](index=30&type=section&id=Operating%20Revenue%20(13%20Weeks)) This section details revenue trends for the 13-week period, highlighting changes in advertising, subscription, and other digital services revenue - Advertising and marketing services revenue decreased by **10.6%** (**$7,784,000**) due to softness in print advertising demand, while digital advertising increased **2.8%** to **$25,448,000**, representing **38.7%** of total advertising revenue[169](index=169&type=chunk)[170](index=170&type=chunk) - Subscription revenue decreased by **3.2%** (**$1,545,000**), with digital-only subscribers increasing **72.0%** to approximately **79,000**[171](index=171&type=chunk) - Other revenue increased by **36.6%**, driven by growth at TownNews and **$3,539,000** from the Management Agreement[172](index=172&type=chunk)[173](index=173&type=chunk) - Total revenue at TownNews increased **35.7%** due to a growing broadcast customer base, gaining print market share, and the GTxcel acquisition[175](index=175&type=chunk) [Operating Expenses](index=32&type=section&id=Operating%20Expenses%20(13%20Weeks)) This section analyzes the changes in operating expenses, including compensation, newsprint, and other costs for the 13-week period - Total operating expenses decreased by **4.7%**, with cash costs down **5.2%** compared to the prior year quarter[178](index=178&type=chunk) - Compensation expense decreased by **6.6%** (**$3,197,000**) due to an **8.0%** decline in average full-time equivalent employees[178](index=178&type=chunk) - Newsprint and ink costs decreased by **18.8%** (**$1,212,000**) due to lower prices and an **11.6%** decrease in volume[179](index=179&type=chunk) - Other operating expenses decreased by **2.0%** (**$1,002,000**), primarily from lower delivery and print-related costs, partially offset by higher digital revenue and outsourcing costs[180](index=180&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations%20(13%20Weeks)) This section summarizes the operating income and equity in earnings of associated companies for the 13-week period - Operating income was **$20,031,000**, a slight decrease of **0.6%** from **$20,155,000** in the prior year quarter[184](index=184&type=chunk) - Equity in earnings of associated companies (TNI and MNI) decreased by **$127,000**[184](index=184&type=chunk) [Nonoperating Income and Expense](index=32&type=section&id=Nonoperating%20Income%20and%20Expense%20(13%20Weeks)) This section details non-operating items such as interest expense, debt financing costs, and fair value adjustments for warrants - Interest expense decreased by **8.2%** (**$1,053,000**) to **$11,860,000** due to lower debt balances[186](index=186&type=chunk) - Debt financing and administrative costs increased to **$4,196,000** from **$1,747,000**, primarily due to write-offs from debt repurchases and a **$1,309,000** out-of-period adjustment[188](index=188&type=chunk) - Non-operating income of **$3,062,000** was recorded due to changes in the fair value of Warrants, compared to **$405,000** in the prior year[189](index=189&type=chunk) [Overall Results](index=33&type=section&id=Overall%20Results%20(13%20Weeks)) This section provides an overview of the company's income tax expense and its impact on overall financial performance for the 13-week period - Income tax expense was **$1,505,000** (**19.6%** of pretax income) for the 2019 Quarter, compared to **$1,972,000** (**29.3%**) in the 2018 Quarter[191](index=191&type=chunk) [Net Income and Earnings Per Share](index=33&type=section&id=Net%20Income%20and%20Earnings%20Per%20Share%20(13%20Weeks)) This section presents the reported and adjusted net income and earnings per share for the 13-week period, including warrant adjustments Adjusted Net Income and EPS (13 Weeks Ended) | Metric | June 30, 2019 (Amount) | June 30, 2019 (Per Share) | June 24, 2018 (Amount) | June 24, 2018 (Per Share) | | :----------------------------------- | :----------------------- | :------------------------ | :----------------------- | :------------------------ | | Income attributable to Lee Enterprises, Incorporated, as reported | 5,766 | 0.10 | 4,458 | 0.08 | | Warrants fair value adjustment | (3,062) | (0.05) | (405) | (0.01) | | Income attributable to Lee Enterprises, Incorporated, as adjusted | 2,704 | 0.05 | 4,053 | 0.07 | [39 Weeks Ended June 30, 2019](index=34&type=section&id=39%20Weeks%20Ended%20June%2030,%202019) This section analyzes the company's operating revenue, expenses, and overall financial results for the 39-week period ended June 30, 2019 [Operating Revenue](index=34&type=section&id=Operating%20Revenue%20(39%20Weeks)) This section details revenue trends for the 39-week period, highlighting changes in advertising, subscription, and other digital services revenue - Advertising and marketing services revenue decreased by **10.9%** (**$25,100,000**), primarily due to reduced print advertising volume[197](index=197&type=chunk) - Digital advertising increased **5.3%** to **$75,011,000**, representing **36.7%** of total advertising and marketing services revenue, with digital retail advertising up **6.2%**[198](index=198&type=chunk) - Subscription revenue decreased by **3.1%** (**$4,440,000**), partially offset by strategic pricing and premium content[199](index=199&type=chunk) - Other revenue increased by **35.9%**, driven by TownNews growth and **$9,989,000** from the Management Agreement (totaling **$11,320,000** for the year ended June 30, 2019)[200](index=200&type=chunk) - TownNews total revenue increased **30.6%**, and mobile, tablet, desktop, and app sites attracted a monthly average of **29.5 million** unique visitors with **292.1 million** page views, a **12.6%** increase[201](index=201&type=chunk) [Operating Expenses](index=36&type=section&id=Operating%20Expenses%20(39%20Weeks)) This section analyzes the changes in operating expenses, including compensation, newsprint, and restructuring costs for the 39-week period - Operating expenses decreased by **3.5%**, and cash costs decreased by **4.0%** (**5.2%** on a same-property basis)[203](index=203&type=chunk) - Compensation expense decreased by **6.3%** (**$9,354,000**) due to a **10.3%** decline in average full-time equivalent employees[203](index=203&type=chunk) - Newsprint and ink costs decreased by **2.9%** (**$526,000**) due to an **11.2%** reduction in volume, partially offset by higher prices[204](index=204&type=chunk) - Other operating expenses decreased by **2.0%** (**$2,915,000**), mainly from lower delivery and print-related costs, offset by higher digital revenue and outsourcing costs[205](index=205&type=chunk) - Restructuring costs totaled **$5,612,000**, up from **$4,150,000**, primarily related to severance and a multi-employer pension plan withdrawal liability[208](index=208&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations%20(39%20Weeks)) This section summarizes the operating income and equity in earnings of associated companies for the 39-week period - Operating income was **$60,318,000**, a decrease of **9.4%** from **$66,550,000** in the prior year period[210](index=210&type=chunk) - Equity in earnings of associated companies decreased by **$271,000**[210](index=210&type=chunk) [Nonoperating Income and Expense](index=36&type=section&id=Nonoperating%20Income%20and%20Expense%20(39%20Weeks)) This section details non-operating items such as interest expense, debt financing costs, and fair value adjustments for warrants - Interest expense decreased by **9.0%** (**$3,581,000**) to **$36,256,000** due to lower debt balances[212](index=212&type=chunk) - Debt financing and administrative costs increased to **$6,053,000** from **$4,061,000**, driven by write-offs from debt repurchases and a **$1,145,000** out-of-period adjustment[213](index=213&type=chunk) - Non-operating income of **$389,000** was recorded due to changes in the fair value of Warrants, compared to **$529,000** in the prior year[214](index=214&type=chunk) [Overall Results](index=37&type=section&id=Overall%20Results%20(39%20Weeks)) This section provides an overview of the company's income tax expense and its impact on overall financial performance for the 39-week period - Income tax expense was **$6,175,000** (**29.8%** of pretax income) for the 2019 Period, compared to a **$16,791,000** income tax benefit in the 2018 Period, which included a **$24,872,000** discrete adjustment from revaluing deferred tax assets due to the 2017 Tax Act[216](index=216&type=chunk)[217](index=217&type=chunk) [Net Income and Earnings Per Share](index=37&type=section&id=Net%20Income%20and%20Earnings%20Per%20Share%20(39%20Weeks)) This section presents the reported and adjusted net income and earnings per share for the 39-week period, including tax act adjustments Adjusted Net Income and EPS (39 Weeks Ended) | Metric | June 30, 2019 (Amount) | June 30, 2019 (Per Share) | June 24, 2018 (Amount) | June 24, 2018 (Per Share) | | :----------------------------------- | :----------------------- | :------------------------ | :----------------------- | :------------------------ | | Income attributable to Lee Enterprises, Incorporated, as reported | 13,449 | 0.24 | 41,700 | 0.75 | | Warrants fair value adjustment | (389) | (0.01) | (529) | — | | Income tax effect of 2017 Tax Act | — | | (24,872) | (0.45) | | Income attributable to Lee Enterprises, Incorporated, as adjusted | 13,060 | 0.22 | 16,299 | 0.29 | [Liquidity and Capital Resources](index=37&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's cash flows from operating, investing, and financing activities, along with its overall liquidity position [Operating Activities](index=37&type=section&id=Operating%20Activities) This section details cash flows generated from or used in the company's primary business operations - Cash provided by operating activities decreased to **$43,786,000** in the 2019 Period from **$57,033,000** in the 2018 Period, mainly due to lower net income and increased income tax payments[221](index=221&type=chunk) [Investing Activities](index=37&type=section&id=Investing%20Activities) This section outlines cash flows related to the acquisition and disposal of long-term assets and business combinations - Cash required for investing activities increased to **$7,911,000** in the 2019 Period from **$2,076,000** in the 2018 Period, primarily due to **$5,274,000** spent on acquisitions[223](index=223&type=chunk) - Capital expenditures are expected to total up to **$8,000,000** in 2019, funded by internally generated funds or the Revolving Facility[223](index=223&type=chunk) [Financing Activities](index=37&type=section&id=Financing%20Activities) This section describes cash flows from debt, equity, and other financing transactions impacting the company's capital structure - Cash required for financing activities decreased to **$27,739,000** in the 2019 Period from **$49,549,000** in the 2018 Period, mainly due to lower debt reduction[225](index=225&type=chunk) [Liquidity](index=38&type=section&id=Liquidity) This section assesses the company's ability to meet short-term obligations and fund operations, including available credit and debt compliance - Total liquidity at June 30, 2019, was **$35,201,000**, including **$21,685,000** available under the Revolving Facility (expiring December 28, 2019)[227](index=227&type=chunk)[228](index=228&type=chunk) - The Company's ability to operate as a going concern depends on compliance with debt covenants and the ability to repay, refinance, or amend debt agreements[230](index=230&type=chunk) - A shelf registration statement effective until February 2020 allows for the issuance of up to **$750,000,000** in various securities, subject to market conditions and debt agreements, with proceeds potentially used for debt reduction[231](index=231&type=chunk) [Changes in Laws and Regulations](index=38&type=section&id=CHANGES%20IN%20LAWS%20AND%20REGULATIONS) This section discusses the impact of recent legislative changes, including pension funding requirements and the 2017 Tax Act, on the company's financials - The Surface Transportation Extension Act of 2012 (STEA) and the Highway and Transportation Funding Act (HATFA) have reduced near-term minimum funding requirements for pension plans but increased future premiums to the PBGC[233](index=233&type=chunk)[234](index=234&type=chunk) - The 2017 Tax Act reduced the federal corporate income tax rate from **35%** to **21%**, leading to a **$24,872,000** net decrease in income tax expense in the 39 weeks ended June 24, 2018, due to revaluation of deferred tax assets and liabilities[236](index=236&type=chunk) [Wage Laws](index=39&type=section&id=Wage%20Laws) This section addresses potential impacts of future changes in minimum wage rates on the company's operating costs - Potential increases in minimum wage rates by federal, state, and local governments are being considered, but the impact cannot be determined until enacted[239](index=239&type=chunk) [Inflation](index=39&type=section&id=Inflation) This section outlines the company's strategies to mitigate the effects of inflation through cost management and pricing adjustments - The Company continuously evaluates price increases, productivity improvements, sourcing efficiencies, and other cost reductions to mitigate the impact of inflation[240](index=240&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the Company's exposure to market risks, specifically from changes in interest rates and commodity prices, and how these risks are managed. It notes that the Company's debt is entirely fixed-rate, eliminating interest rate risk, and discusses the impact of newsprint price fluctuations [Interest Rates on Debt](index=39&type=section&id=INTEREST%20RATES%20ON%20DEBT) This section clarifies that the company's fixed-rate debt structure eliminates exposure to interest rate fluctuations - The Company's debt structure is entirely fixed rate, eliminating exposure to interest rate increases, and there are no interest rate hedging instruments in place[242](index=242&type=chunk) [Commodities](index=39&type=section&id=COMMODITIES) This section discusses the impact of newsprint price changes on the company's costs and profitability - Newsprint prices decreased during the June 2019 Quarter due to declining domestic and export demand[243](index=243&type=chunk) - A **$10 per tonne** price increase for 30-pound newsprint would result in an estimated annualized reduction in income before taxes of approximately **$331,000**[244](index=244&type=chunk) [Sensitivity to Changes in Value](index=39&type=section&id=SENSITIVITY%20TO%20CHANGES%20IN%20VALUE) This section provides fair value details for the company's fixed-rate notes and term loan based on market quotations - The fair values of the fixed-rate Notes and 2nd Lien Term Loan at June 30, 2019, were **$381,440,375** and **$83,927,867**, respectively, based on private market price quotations[245](index=245&type=chunk) [Item 4. Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter ended June 30, 2019 [Evaluation of Disclosure Controls and Procedures](index=39&type=section&id=EVALUATION%20OF%20DISCLOSURE%20CONTROLS%20AND%20PROCEDURES) This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2019 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2019[246](index=246&type=chunk) [Changes in Internal Control Over Financial Reporting](index=39&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports no material changes in internal control over financial reporting during the quarter ended June 30, 2019 - There have been no material changes in internal control over financial reporting during the 13 weeks ended June 30, 2019[247](index=247&type=chunk) [PART II OTHER INFORMATION](index=40&type=section&id=PART%20II%20OTHER%20INFORMATION) This part includes information on legal proceedings, exhibits filed, and required signatures for the quarterly report [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the Company is involved in routine legal actions, but their disposition is not expected to have a material adverse effect on the consolidated financial statements - The Company is involved in various legal actions in the normal course of business, with insurance coverage mitigating potential losses[249](index=249&type=chunk) - The ultimate outcome of these legal actions is not expected to have a material adverse effect on the Consolidated Financial Statements[249](index=249&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, primarily consisting of certifications - Exhibits include Rule 13a-14(a)/15d-14(a) certifications (31.1, 31.2) and Section 1350 certification (32)[250](index=250&type=chunk) [SIGNATURES](index=40&type=section&id=SIGNATURES) This section contains the required signatures for the Quarterly Report on Form 10-Q, authorizing its filing - The report was duly signed on behalf of Lee Enterprises, Incorporated by Timothy R. Millage, Vice President, Chief Financial Officer and Treasurer, on August 9, 2019[252](index=252&type=chunk)[253](index=253&type=chunk)

Financial Data and Key Metrics Changes - Total revenue decreased by 4% in the third quarter, consistent with the previous quarter [7] - Adjusted EBITDA for the third quarter was $30.7 million, down 1.3% compared to the prior year, with total adjusted EBITDA over the last 12 months amounting to $125.5 million [20] - Cash costs on a same-property basis decreased by 7.6% in the third quarter and are expected to decline between 4.75% and 5.5% for fiscal year 2019 [19][20] Business Line Data and Key Metrics Changes - Total digital revenue, including digital advertising and services, increased by 6.9% to nearly $120 million over the last 12 months [9] - Programmatic revenue grew by 6.2% on a same-property basis, marking nearly a decade of quarter-over-quarter digital advertising revenue growth [9] - Revenue from the Amplified Digital Agency increased by 32% in the third quarter [11] - Subscription revenue was down 3.2% on a reported basis and 5.3% on a same-property basis [13] Market Data and Key Metrics Changes - Digital-only subscriptions increased by 72%, totaling 79,000, with expectations to nearly double in fiscal year 2019 [14] - Local controllable retail accounts represent 50% of advertising revenue, with Edison revenue up 13.3% and customer accounts increasing by almost 8% over Q2 [10] Company Strategy and Development Direction - The company is focused on driving digital growth by leveraging its position in midsize markets and maintaining industry-leading margins and strong cash flow [7] - The relaunch of the Edison sales approach aims to improve local retail revenue trends [10] - TownNews is positioned for substantial future revenue growth through market share expansion and diversification of the customer base [15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future performance despite industry challenges, highlighting strong execution on cost management and digital growth strategies [16][17] - The company anticipates improvements in subscription trends in the current quarter following the launch of the News+ membership model [13] Other Important Information - The company reduced debt by $17.9 million, with a leverage ratio net of cash standing at 3.5x [20] - The company has identified approximately $26 million of excess real estate for potential sale to reduce leverage [20] Q&A Session Summary Question: How does New Media's $1.8 billion, 11.5% coupon affect Lee's refinancing efforts? - Management indicated that there is no direct connection between the two situations, emphasizing Lee's strong financial metrics and position for opportunistic financing [24] Question: Did you repurchase the notes in the open market at a discount? - The notes repurchased were just below the current call price, indicating a discount to the call price but still above par [25] Question: At what date do you estimate that digital revenue will exceed print revenue? - Management did not provide specific guidance but emphasized a focus on driving digital transformation and monetizing large audiences [26] Question: What actions have been taken to buy back Lee stock since Board authorization? - To date, no shares have been repurchased, with management considering various factors including stock price and leverage ratio [27]

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) (State or other jurisdiction of incorporation or organization) Delaware 42-082398 ...

Lee Enterprises, Inc. (NASDAQ:LEE) Q2 2019 Earnings Conference Call May 10, 2019 10:00 AM ET Company Participants Jamie Seratt - Corporate Controller Kevin Mowbray - President, CEO & Director Timothy Millage - VP, CFO & Treasurer Conference Call Participants Andrew Gadlin - Odeon Capital Group Operator Good day, everyone, and welcome to the Lee Enterprises 2019 Second Quarter Webcast and Conference Call. The call is being recorded and will be available for replay beginning later this morning at lee.net. [Op ...