Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[X]

 ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended September 24, 2017

27, 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

Delaware42-0823980

(State of incorporation)

(I.R.S. Employer Identification No.)

201 N. Harrison

4600 E 53rd Street, Suite 600, Davenport, Iowa 52801

52807

(Address of principal executive offices)

(563) 383-2100

Registrant's telephone number, including area code

Title of Each ClassName of Each Exchange On Which Registered

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange On Which Registered

Common Stock - $0.01 par value

LEE

New York Stock Exchange

Preferred Share Purchase RightsNew York Stock Exchange

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ]☐ No [X]

☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ]☐ No [X]

☒

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

☐

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or such shorter period that the Registrant was required to submit and post such files)submit). Yes [X]☒ No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (S 229.405 of this Chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer," "accelerated filer," "smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]☐ Accelerated filer [X]☐ Non-accelerated filer (Do not check if a smaller reporting company) [ ]☒ Smaller Reporting Company [ ]☒ Emerging growth company [ ]

☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ]☐ No [X]

State☒

As of March 31, 2020, the aggregate market value of the voting and non-votingRegistrant's common equitystock held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant's most recently completed second fiscal quarter. Basedregistrant was $52,359,374based on the closing sale price of the Registrant's Common Stockas reported on the New York Stock Exchange on March 31, 2017, such aggregate market value is approximately $136,159,000. For purposes of the foregoing calculation only, as required, the Registrant has included in the shares owned by affiliates the beneficial ownership of Common Stock of officers and directors of the Registrant and members of their families, and such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.

Indicate the number of shares outstanding of each of the Registrant's classes of common stock, asExchange. As of November 30, 2017. 2020, 58,353,084 shares of Common Stock $0.01 par value 56,707,972 shares.
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Lee Enterprises, Incorporated Definitive Proxy Statement to be filed in January 20182021 are incorporated by reference in Part III of this Form 10-K. Except as expressly incorporated by reference, the Registrant's Definitive Proxy Statement shall not be deemed to be a part of this report.



TABLE OF CONTENTS

PAGE

Forward-Looking Statements

Part I

1

Part I

Item 1

Business

1

Item 1
Business
1

Item 1A

Risk Factors

119

Item 1B

Unresolved Staff Comments

1714

Item 2

Properties

1714

Item 3

Legal Proceedings

1814

Item 4

Mine Safety Disclosures

1814

Part II

Item 5

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

1814

Item 6

Selected Financial Data

2016

Item 7

Management's Discussion and Analysis of Financial Condition and Results of OperationOperationss

2117

Item 7A

Quantitative and Qualitative Disclosures about Market Risk

3625

Item 8

Financial Statements and Supplementary Data

3725

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

3725

Item 9A

Controls and Procedures

3726

Item 9B

Other Information

4028

Part III

Item 10

Directors, Executive Officers and Corporate Governance

4028

Item 11

Executive Compensation

4028

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

4028

Item 13

Certain Relationships and Related Transactions, and Director Independence

4028

Item 14

Principal Accounting Fees and Services

4028

Part IV

Item 15

Exhibits and Financial Statement Schedules

4129

Consolidated Financial Statements

4230

Signatures

7864

Exhibit Index

7962



References to “we”, “our”, “us” and the like throughout this document refer to Lee Enterprises, Incorporated and subsidiaries (the "Company"). ReferencesReferences to "2017""2020", "2016""2019", "2015" and"2018" and the like refer to the fiscal years ended the last Sunday in September.

 
FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This annual report ("Annual Report") contains information that may be deemed forward-looking that is based largely on our current expectations, and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and other uncertainties, which in some instances are beyond our control, are:

•Our ability to generate cash flows and maintain liquidity sufficient to service our debt;
•Our ability to comply with the financial covenants in our credit facilities;
•Our ability to refinance our debt as it comes due;
•Our ability to manage declining print revenue;
•That the warrants issued in our refinancing will not be exercised;
•The impact and duration of adverse conditions in certain aspects of the economy affecting our business;
•Change in advertising and subscription demand;
•Changes in technology that impact our ability to deliver digital advertising;
•Potential changes in newsprint, other commodities and energy costs;
•Interest rates;
•Labor costs;
•Legislative and regulatory rulings;
•Our ability to achieve planned expense reductions;
•Our ability to maintain employee and customer relationships;
•Our ability to manage increased capital costs;
•Our ability to maintain our listing status on the NYSE;
•Competition; and
•Other risks detailed from time to time in our publicly filed documents, including this Annual Report and
particularly in "Risk Factors", Part I, Item 1A herein.

Any statements that are not statements of historical fact (including statements containing the words “may”, “will”, “would”, “could”, “believes”, “expects”, “anticipates”, “intends”, “plans”, “projects”, “considers” and similar expressions) generally should be considered forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this Annual Report. We do not undertake to publicly update or revise our forward-looking statements, except as required by law.

PART I

ITEM 1. BUSINESS

Lee Enterprises, Incorporated ("Company", "we" or "our") is a leadingtrusted local news provider and an innovative, digitally focused marketing solutions company operating in 77 mid-sized markets across 26 states.

On March 16, 2020, we completed the acquisition ofBH Media Group, Inc. (BH Media) and The Buffalo News, Inc. (Buffalo News), adding 31 local media operations and nearly doubling our audience size and total operating revenue.

Our products include high quality, trusted local newsdaily, weekly and information,monthly newspapers and a major platform for advertising in the markets we serve. We are located primarily in the Midwest, Mountain Westniche publications. All of our products offer print and West regions of the United States,digital editions, and our 50 markets (including TNI Partners ("TNI")content and Madison Newspapers, Inc. ("MNI")), across 22 states are principally mid-sized or small. Our printed newspapers reach more than 800,000 households daily and more than 1.2 million on Sunday, with estimated readership totaling three million. Our webadvertising is available in real time through our websites and mobile sites are the number one digital source ofapps. Our local news in most of our markets, reaching more than 25 million unique visitors each month.


Our products include:

47media operations range from large daily and 34 Sunday newspapers; all with related digital operations; and
Nearly 300 weekly newspapers and classifiedthe associated digital products, such as the St. Louis Post-Dispatch and niche publications, mostThe Buffalo News, to non-daily newspapers with related digital operations.

We also operate TownNews.com, through our 82.5% owned subsidiary INN Partners, L.C. ("TownNews.com"). TownNews.com provides digital infrastructurenews websites and digital publishingplatforms serving smaller communities.

Our services for nearly 1,600 daily and weekly newspapersinclude a full service digital marketing agency in Amplified Digital Agency ("Amplified") as well as universities, television stations, niche publications,one of the largest web-hosting and Lee Enterprises properties.


Our markets have established retail bases. Most are regional shopping hubs, and we are locatedcontent management services providers in four state capitals. Six ofNorth America through our top ten markets, by revenue, include major universities, and seven are home to major corporate headquarters. We believe that operatingmajority-owned subsidiary, TownNews.

As the dominateleading provider of local news, information and a major source of advertising in theseour markets - combined withwe aim to grow our abilitybusiness through three main categories: subscriptions to distribute our content across print and digital platforms - enables useditions, advertising and marketing services to better execute our strategy.


local retail accounts, and digital services to a diverse set of customers.

•

We are committed to a business strategy that drives audience growth and engagement by delivering valuable, intensely local, original news and information to consumers.

•

Local, controllable retail accounts - those in which our local sales teams have direct contact with the advertising decision makers - are the core of our business. 47% of our advertising revenue is from local retail accounts, and trends in this category have historically been better than our total advertising trends.

•

TownNews represents a powerful opportunity for us to drive additional digital revenue by providing state-of-the-art web hosting and content management services. More than 2,000 customers rely on TownNews for their web, over-the-top display ("OTT"), mobile, video and social media products. Revenue at TownNews on a stand-alone basis grew at compound annual growth rate ("CAGR") of 10.8% over the last nine years.

Our local media operations generate revenue primarily through print and digital advertising and marketing services, subscriptions to our publications and digital services, primarily through TownNews.com.TownNews. Our operations also provide commercial printing and distribution of third party publications and marketing services.


publications.

Advertising and marketing servicesMarketing Services -Approximately 58% of our 2017 revenue was derived from advertising and marketing services. We provide advertising and marketing solutions using a multi-platform sales approach that maximizes audience reach for our customers by offering multiple print and digital advertising platforms and products including: print and digital display advertising, desktop, mobile, tablet and other specialty print products.


The following broadly define major categories of In 2020, advertising and marketing services revenue:
Retail of $289.7 million comprised 47% of total operating revenue, down from 52% in the prior year.

Local retail advertising is print or digital revenue earned from salestop local accounts and small to medium businesses (SMBs) in our markets and takes the form of display advertising in the publication, or fromdaily and non-daily publications, preprinted advertising inserted in the publication, from local, regional and national businesses with local retail operations.


display advertising delivered on our owned and operated websites.

Classified advertising is revenue from the saleincludes major categories of advertising space, or from separate publications, consisting primarily of advertising categories, such as employment, automotive, real estate, legal notices,automotive, obituaries and other merchandise. Classified publications offer advertisers a cost-effective, local advertising vehiclelegal notices. Advertising for classifieds is published in both the print and can be particularly effective in larger markets with higher media fragmentation.

digital editions of our products and is also posted on our websites and mobile applications.

National advertising is revenue earned from the sale of print or digital display advertising space, or from preprinted advertising inserted in the publication, from national accounts that do not have a local retailer representing the account in the market.

Digital advertising consists of display, banner, behavioral targeting, search, rich media, directories, classified or other advertising on websites or mobile applications that are integrated with our print

Niche publications or on third party websites accessed through the extended audience network. Digital advertising is reported in combination with print advertising in the retail, classified and national categories.


Niche publicationsare specialty publications, such as lifestyle, business, health or home improvement publications that contain advertising.

Marketing services is comprised ofrepresents a complete suite of customservices including web development, social media management, PPC, targeting and videos, events, contests and digital promotions offered in our local markets through Amplified.

Our sales force uses a multi-platform sales approach that maximizes audience reach for our advertisers by tailoring advertising and marketing services that include: Search Engine Optimization, Search Engine Management, webpackages based on the size and mobile production, social media services and reputation monitoring and management. Our marketing services also include media buying in audience extension networks (outsidescale of thosethe advertiser. Through Amplified we create sophisticated digital campaigns on our owned and operated sites and on third party inventory that give advertisers the ability to target their message. We partner with Google to provide key metrics and analytics to measure campaign effectiveness. 

Our advertising revenues are subject to seasonality due primarily to fluctuations in advertising spend. Advertising revenue is typically highest in our first quarter due to holiday and seasonal advertising and lowest in the second quarter following the holiday season. The volume of advertising sales in any period is also impacted by the Company)other external factors such as Centro DSP, Google Ad Exchangecompetitors' pricing, advertisers' decisions to increase or decrease their advertising expenditures in response to anticipated consumer demand, and Facebook.general economic conditions.


The advertising environment is influenced by the state

Subscription Revenue - In 2020, subscription revenue of the overall economy, including consumer confidence, retail sales, unemployment rates, inflation, energy prices and consumer interest rates. Our enterprises are primarily located in midsize and small markets. Historically our markets have been more stable than major metropolitan markets because our focus is on local, rather than national, advertising. More than eighty percent$265.9 million comprised 43% of our advertisingtotal operating revenue, is derivedup from local and regional businesses. We believe that local advertising tends to be less sensitive to economic cycles than national advertising because local businesses generally have fewer effective advertising channels through which they may reach their customers.


Subscription - Approximately 34% of our 2017 revenue was derived from subscriptions to our printed and digital products.37% in the prior year. Subscription revenue is earned primarily from our full access subscription model, which provideswhereby subscribers receive complete access to our content in all platforms, including print and digital, access toand from digital-only subscriptions. We also generate revenue from the sale of single copy editions.

We reach 72.5% of all adults in our larger markets through a combination of our print and digital content offerings.

•Our printed newspapers, including acquisitions, reach almost 1.2 million households daily and more than 1.5 million on Sunday, and more than 265,000 users access our digital e-edition. 

•

Our web and mobile sites are the number one digital source of local news in most of our markets, reaching more than 43 million unique visitors, at year end, with 286 million page views. 

•

As of September 27, 2020, we have 244,000 digital-only subscribers, a 63.1% increase over 2019. 

Digital Services Revenue – In 2020, digital services revenue of $20,432,000 comprised 3.3% of our total operating revenue, down from 4% in the prior year. Almost all of our digital services revenue is from TownNews. TownNews, operated through our 82.5% owned subsidiary INN Partners, L.C., is a leading local news, informationprovider of integrated digital publishing and advertising content management solutions, and offers a state-of-the-art platform for one price. Digital only options are also available to subscribers.


creating, distributing and monetizing multimedia content.

•

TownNews is the engine that powers our digital products. In addition to us, TownNews services nearly 2,000 daily customers, including legacy media publications, universities, television stations and niche publications.

•

Including revenue generated from our markets, total revenue at TownNews grew almost 10.7% in 2020 and totaled $25.0 million.

•

With strong product offerings, investments in video and streaming technology and a diversifying customer base into broadcast, TownNews is positioned to continue to be a key component to our growth strategy.

Other Revenue - Other revenue, excluding digital services revenue, is comprised mainly of commercial printing and delivery of third party products and until March 16, 2020 revenue from our Management Agreement with BH Media. In 2020, other revenue excluding digital service of $20,432,000, comprised 6.8% of our total operating revenue, down from 11.2% in the prior year.

Our operating costs are primarily compensation, newsprint, delivery and delivery.digital costs. Over the past several years we have adjusted our business model to create operational efficiencies and significantly reduce our cost structure.



We have centralized or regionalized most back office functions including the design of our newspapers. The centralized design centers have enabled us to more cost effectively design and layout the newspaper. The centralized design centers - combined with a common content management system across all of our daily newspaper markets - has created additional operating efficiencies and cost savings. We have templated designs for our printed and digital editions, and we have created a national news desk that shares high quality content across all of our markets, including national news, regional news and other special sections content. We believe we will continue to create additional operational efficiencies and continue to transform our business model.

Several of our businesses operate in geographic groups of publications, or “clusters,” which provide operational efficiencies, extend sales penetration and provide broader audiences for advertisers through consolidation of sales forces and back office management of operations such as: finance, human resources, subscription management, and the production of the publications.advertisers. A table under the caption “Daily Newspapers and Markets” in Item 1, included herein, identifies those groups of our newspapers operating in clusters.

We do not face significant daily print competition; however, our newspapers, classified and specialty publications, and digital products do

Our local media operations compete with other forms of traditional media including: newspapers having national or regional distribution, magazines, radio, cable and satellite television, outdoor media, other classified and specialty publications, direct mail, directories, and national, regional and local advertising websites and content providers. Competitiondigital companies for advertising is based on audience size and composition, subscription levels, readership demographics, distribution and display mechanisms, price and advertiser results. We believe we capture a substantial share of the total advertising dollars spent in each of our markets. We also compete for circulation and readership againstmarketing spend as well as other news and information outlets.


outlets for subscription spend. While very few of our local media operations have similar daily print competitors that are published in the same city, our local media operations compete with the following types of businesses:

•

Other media including magazines, radio, television, outdoor/billboard advertising, other classified and specialty publications, other print publications both free and paid, direct mail, directories, and national, regional and local advertising websites and content providers. 

The number of competitors in any given market varies, however all of the forms of competition noted above exist to some degree in all of our markets, including those listed in the table under the caption “Daily Newspapers and Markets” in Item 1, included herein.


markets.

Lee Enterprises, Incorporated was founded in 1890, incorporated in 1950, and listed on the New York Stock Exchange ("NYSE") in 1978.


We experienced significant net losses in 2008, 2009, 2011, 2012 and 2013 primarily due to non-cash charges for impairment of intangible and other assets and reorganization costs, and as a result, we have negative equity of $91.2 million. Our ability to operate as a going concern is dependent on our ability to repay, refinance or amend our debt agreements as they become due, and remain in compliance with debt covenants.

We are in compliance with our debt covenants at as of September 24, 2017.27, 2020. The information included herein should be evaluated in that context. See Item 1A, “Risk Factors”, and Notes 35 and 46 of the Notes to Consolidated Financial Statements, included herein, for additional information.


STRATEGIC INITIATIVES

We are a trusted, local, news provider and an innovative, digitally focused marketing solutions company. Our focus is on the local market - including local news and information, local advertising and marketing services to top local accounts and SMBs, and digital services to local content curators. To align with the core strength of our company, our post-pandemic operating strategy is locally focused around three pillars.

To align with customer expectations, we will transform the way we present local news and information and provide perspective, both in digital and print. We seek to maintain our position as the leading provider of news and information by providing best-in-class digital experiences to improve consumer engagement and grow our audiences. We aim to achieve this by delivering relevant, useful, and engaging content to the consumer using a multi-media approach with a heavy emphases on video and audio.

Multimedia consumption across the United State is growing. According to eMarketer, the number of podcast listeners is expected to increase by 21% over the next two years, and the time adults spend consuming digital media is expected to grow and remain over two hours a day the next two years. We look to create new content and video channels by growing our multimedia capabilities leveraging the high quality, trusted, engaging content we produce locally in order to tap into these growing market segments.

We believe that our proprietary local content displayed in best-in-class multimedia platforms combined with new and engaging content and video channels will grow our audiences and our audience monetization capabilities.

2

We will transform our print-centric audience model to a robust digital subscription model.We reach 72.5% of all adults in our larger markets through a combination of our print and digital product offerings, and all categories consume both our print and digital content. Subscribers to our printed editions have been declining while our digital audiences have been growing at an accelerated pace. In 2020, we reached 43 million unique visitors across all of our digital platforms, with 286 million page views, an increase of 16.7 million and 6.2%, respectively. Our digital audiences are comprised of full access subscribers, digital-only subscribers and non-subscribers who access our sites subject to our paywalls. More than 60% of our full access subscribers have activated their digital access and digital-only subscribers increased 63.1% in 2020, reaching 244,000 digital-only subscribers.

According to the Alliance for Audited Media, from 2021 - 2025 digital-only subscription models are expected to grow 35.5% on a compound annual growth rate. Our acquisition and retention tactics are focused on several strategic initiatives:


Comprehensive Local News That Drives Frequency And Engagement

We drive frequency and engagement with our products by delivering valuable, intensely local, original news and information that in many cases, we believe, our audiences cannot otherwise readily obtain. Our large and talented news and editorial staff provide constant, real-time local news with significant breadth, depth and reliability. Our full access platform provides our subscribers with breaking news throughout the day ongrowing our digital platforms as well as in depth daily printsubscription base.

In 2021, we expect to use data and digital newsanalytics combined with metering technology to drive our acquisition and information.


We believe the strength of our local brands is the result of the quality and size of our news gathering staff.retention tactics. This allows us to providemaximize meter stop rates and paid subscription conversion rates in order to driver consumers down the most comprehensive coverage of local news in our markets. In most of our markets, weconversion funnel. Our primary acquisition tactics include sophisticated data-mining techniques leveraging both online and offline consumer behaviors to target full access and digital-only subscription offers. These targeted offers are the leading source of printpresented to consumers via integrated marketing campaigns including email, on-site messaging, direct mail, social media and digital newsother sales channels designed to maximize exposure and information. As the consumption of news on digital devices has expanded, we have moved quickly to develop applications that address audience and digital advertising demands for mobile and tablet advertising platforms. As new digital technologies emerge,increase response rate.

Using these techniques, we expect digital-only subscribers to move rapidly to make our content available through them and monetize the audience accessing our content.


We are focused on continually improving the functionality and design of all our news platforms, providing greater depth of coverage and increasing reader engagement. We are providing our journalists with tools to give them real-time

information about audience engagement on our digital platforms. This helps inform their decisions on both presentation and coverage.

We believe our journalists are at the forefront of gathering and producing news and information about their local community. We seekcontinue to grow our digital audience by engaging our readers with news and information that we believe stirs public awareness, advances ideas, inspires vision, creates debate and provokes action. Through our news leadership we strive to contribute to community betterment, promote education, foster commerce and help improve the quality of life in our markets.

Accelerate And Expand Digital Revenue Growth

Our digital businesses have experienced rapid growth since 2010. Digital advertising grew8.0% and reached 28.0% of total advertising and marketing services revenue for the year ending September 24, 2017. We are growing digital revenue by offering an expansive array of digital products including video: behavioral targeting, audience retargeting, banner ads, social networking, and digital couponing.

We provide digital marketing services to small and midsized businesses ("SMBs"), including search engine marketing ("SEM"), social media, audience extension, business profiles, and website hosting and design. Amplified Local ("Amplified Local"), our marketing business aimed at the smaller SMBs, offers small business solutions including: search engine optimization (“SEO”), local online marketing, social media marketing, video advertising and web site design. Amplified Local seeks to help small businesses maximize the return on marketing dollars by increasing audience reach, expanding brands, and enhancing their web presence. We believe that these innovative solutions will continue to drive meaningful new opportunities for us to grow our digital marketing revenue. We also continue to expand our array of digital products to address advertisers evolving needs, react to competition while seeking to increase our share of advertising and marketing services spending from existing customers .

Digital national revenue grew 6.0% in 2017, driven by our sweeps program and improved inventory management and pricing. Mobile advertising increased 2.0%, and digital retail advertising, which representssubstantially, reaching more than 60% of total digital advertising, increased 9.4% in 2017.

500,000 digital-only subscribers by 2025.

We believe TownNews.com represents a powerful opportunitywill diversify and transform the services and products we offer advertisers, especially for us to drive additional digital revenue. In 2017, digital services revenue, which is primarily TownNews.com, totaled more than $14 million. Since 2011, the compounded annual growth rate of TownNews.com revenue has been 9%.


We are a member of the Local Media Consortium (the “Consortium”). The Consortium partners with companies like Google, Yahoo!top local accounts and other technology companies and service providers to increase the potential share of new revenue and audience-building programs available to consortium members, as well as improve the quality of information and advertising services available from, Consortium members. The Consortium currently includes more than 1,600 local newspapers and hundreds of local broadcast outlets in the United States.

In 2017, no single advertiser accounted for more than 3% of advertising revenue and our top 10 advertisers represented 9.4% of advertising revenue.

Our local sales forces are one of our core strengths and are larger than any local competitor, and we believe they are the most highly trained and proficient sales force in our markets. We have strong relationships with businesses in our markets and offer a wide array of products to deliver the advertisers' message. Eighty percent of our advertising revenue now comes from local and regional businesses, and our sales executives pitch the power of our audiences directly to these local decision makers.

To address the evolving needs of local advertisers we changed the way we sell local advertising to maximize our opportunities with small and medium-sized businesses.SMB's. Local, controllable advertisingretail accounts - those in which our local sales teamsteam have direct contact with the advertising decision makers - are the core of our business. To address the needsThis revenue category represents 47% of advertising and marketing services revenue and is comprised of top local accounts and SMBs. Our historical financial results for this revenue category are better serve these local advertisersthan our overall results. We believe we developed the Edison Project, which is directly aimed at these local advertisers.

With Edison,can improve financial performance in this revenue category as we completely restructuredhave unmatched audience reach in our local sales teams and simplified advertising packages, providing advertisers with an expanded robust digital presence, increased frequency in print products, and longer advertising commitments.


Our Big Pitch initiative targets larger, local accounts such as a large local hardware store or regional hospital group. We pair creative advertising campaigns with our broad suite of products, both digital and print. Because of the success of this program we've added creative resources and accelerated the number of pitches developed and made, providing greater creativity, faster speed to market, and more pitches closed.

In fiscal year 2017, we introduced Digital Connect, a digital services package aimed at growing digital revenue from local businesses. Digital Connect provides local businesses a turn-key package for expanding their digital presencemarkets through enhanced search engine management. Digital Connect has been the fastest growing digital category this fiscal year 2017 and is expected to be a significant contributor to our digital revenue growth in 2018.

Grow Audience Revenue And Engagement

Based on independent audience research conducted on our behalf, for the period January 2016 to January 2017, we reached 74% of all adults over the course of a seven-day period in 11 selected markets, which include most of our largest strategic business units. Forty six percent of the adults in these markets read our newspapers in print, with 19% being both newspaper readers and visitors to our digital platforms. Another 16% were digital users exclusively. The remaining 12%primarily used our newspapers to obtain advertising and other information.

As media access and delivery vehicles continue to evolve, our audiences are evolving and increasingly moving from one delivery platform to another throughout the day and accessing our content in print, on desktops and laptops, and on mobile devices. We seek to grow our audience and engagement on whatever platform they choose by, among other things, continually improving content and presentation to maximize the unique and evolving capabilities of each platform. We have a large and growing digital audience for our products. Unique visitors to our digital sites averaged 25.3 million per month in 2017, while page views totaled 244.2 million per month in 2017.

To serve our readers across all delivery platforms, we implemented a full access subscription model, which is now in place in substantially all of our markets. Full access provides subscribers complete access to our print and digital products available in their market for a single subscription rate. We also sell digital only subscriptions.

Transforming Our Business And Managing Our Costs

We are transforming our business model and reducing our costs to maintain our margins and operating cash flows. product offerings.

•

Our local sales forces are larger than any local competitor, and we believe they are the most highly trained and proficient sales force in our markets. 

•

We have strong relationships with businesses in our markets and offer a wide array of products to deliver our advertisers' message.

•

Our sales executives pitch the power of our audiences directly to local decision makers. 

We have consolidated or regionalized many common functions; consolidated or selectively outsourced printinga world-class sales force, managed and ad production; discontinued unprofitable publications; reduced newsprint volume significantly;supported centrally to ensure the highest digital talent is recruited, developed and continually seekretained to improvemeet our clients' needs. Amplified is the efficiencies and reduce costsbackbone of our operation with additional consolidation and outsourcing. We have reduced personnel while protecting our strengths in news, sales and digital products. In 2017, on a same property basis we reduced cash costs(1) excluding workforce adjustments 7.7%. We continue to implement cost efficiencies while investing in revenue drivers.


Generate Strong Adjusted EBITDA(1) With A Commitment To Reduce Our Debt

Throughout the last economic downturn and ongoing recovery - at a time of unprecedented transition for our industry - we have posted strong adjusted EBITDA and consistent margins. We anticipate modest capital expenditures and pension contributions, and we expect to continue to significantly reduce our debt each year.

The principal amount of debt was reduced by $68.8 million in 2017 and totaled $548.4 million as of September 24, 2017. Since 2005, we have reduced debt by more than $1 billion and we expect to continue to significantly reduce our debt in 2018. As a result of our debt reductions, interest expense was reduced by $6.7 million in 2017 compared to 2016, providing additional free cash flow for debt service and other corporate uses such as the June 30, 2017 acquisition of the Dispatch-Argus serving Moline and Rock Island, IL ("Dispatch-Argus") for $7.2 million.

(1)     See "Non-GAAP Financial Measures: in Item 7, included herein, for additional information.


PULITZER
In 2005, we acquired Pulitzer Inc. (“Pulitzer”). We currently publish 9 daily newspapers that were acquired from Pulitzer and more than 60 weekly newspapers and specialty publications. Pulitzer also includes our 50% interest in TNI, as discussed more fully below.

Pulitzer newspapers largest operations include Bloomington, IL and St. Louis, Missouri, where its subsidiary, St. Louis Post-Dispatch LLC (“PD LLC”), publishes the St. Louis Post-Dispatch, our only major daily newspaper which serves the greater St. Louis metropolitan area. St. Louis newspaper operations also include a variety of specialty publications,force and supports its related digital products as well as the Suburban Journals of Greater St. Louis, a group of weekly newspapersour local operators by providing lead generation developing highly sophisticated proposals and niche publications that focus on separate communities within the metropolitan area.
The 2005 acquisition was financed primarily with debt. The second lien term loan lenders have a first lien on Pulitzer assets. Excess cash flow from Pulitzer, as defined in the Second Lien Loan Agreement, and cash flow from Pulitzer asset sales are used to pay down the second lien term loan at par. On August 28, 2016 we sold substantiallyprovides all of the assets ofessential digital marketing services including web development, social media management, email marketing, fulfillment and search that most sophisticated advertisers are looking for. Amplified also provides our Provo, Utah newspaper operations, a former Pulitzer newspaper, and proceeds from the sale were used to pay down the second lien term loan.

TNI Partners
In conjunctionadvertisers with the Pulitzer acquisitionbest data and metrics in order for them to maximize their advertising ROI. Amplified is a powerful organization that will help us improve our advertising revenue trends in 2021 and beyond.

TownNews represents a powerful opportunity for us to drive additional digital revenue. In 2020, revenue at TownNews totaled more than $25,000,000 and since 2011 the compounded annual growth rate of TownNews revenue has been 10.8%. Through continuous investment in product development and gaining essential technology, like world-class video and streaming technology, TownNews is the leading CMS provider in the publishing CMS segment and is growing its market share in the broadcast CMS segment. In 2021, we obtained a 50% interest in TNI, the Tucson, Arizona newspaper partnership. TNI, acting as agent for our subsidiary, Star Publishing Company (“Star Publishing”) and Citizen Publishing Company (“Citizen”), the owner of the remaining 50%, a subsidiary of Gannett Co., Inc., (“Gannett”). TNI was responsible for printing, delivery, advertising and subscription activities of the Arizona Daily Star and theTucson Citizen. In May 2009, Citizen discontinued print publication of the Tucson Citizen and in 2014 stopped publishing its digital product.


TNI collects all receipts and income and pays substantially all operating expenses incident to the partnership's operations and publication of the newspaper and other media. Under the amended and restated operating agreement between Star Publishing and Citizen, the Arizona Daily Star remains the separate property of Star Publishing. Results of TNI are accounted for using the equity method. Income or loss of TNI (before income taxes) is allocated equally to Star Publishing and Citizen. TNI makes weekly distributions to Star Publishing and Citizen of all available cash.
The TNI agency agreement (“Agency Agreement”), has governed the operation since 1940. The Agency Agreement expires in 2040, but contains an option, which may be exercised by either party, to renew the agreement for successive periods of 25 years each. Star Publishing and Citizen also have a reciprocal right of first refusal to acquire the 50% interest in TNI owned by Citizen and Star Publishing, respectively, under certain circumstances. Both the Company and Citizen incur certain administrative costs and capital expenditures that are reported by their individual companies.
MADISON NEWSPAPERS
We own 50% of the capital stock of MNI and 8.7% of the common stock of The Capital Times Company (“TCT”). TCT owns 50% of the capital stock of MNI. MNI publishes daily and Sunday newspapers, and other publications in Madison, Wisconsin, and other Wisconsin locations, and supports their related digital products. MNI conducts business under the trade name Capital Newspapers. We have a contract to furnish the editorial and news content for the Wisconsin State Journal, which is published by MNI, and periodically provide other services to MNI for a fee. Results of MNI are accounted for using the equity method. Net income or loss of MNI (after income taxes) is allocated equally to the Company and TCT. MNI makes quarterly dividend payments to the Company and TCT.
AUDIENCES
Based on independent research,believe we estimate that, in an average week, our newspapers and digital products reach approximately 74% of adultscan grow revenue at TownNews through modest market share gains in our larger markets. Wecore markets and also measure use ofthrough improving the product mix increasing our daily newspapers for advertising, sports scoresaverage revenue per customer. Additionally in 2021, we will explore market segments adjacent to our core in order to diversify our customer base and entertainment listings ("print users").
accelerate both revenue and profitability growth.


Audience reach is summarized as follows:
 All Adults 
(Percent, Past Seven Days)2017
2016
2015
2014
2013
      
Print only27.1
26.8
31.3
33.1
36.9
Print and digital19.0
19.3
19.3
20.0
17.8
Digital only15.5
16.6
12.5
12.1
10.5
Total readership61.6
62.7
63.1
65.2
65.2
Print users12.4
11.6
12.8
13.0
13.9
Total reach74.0
74.3
75.9
78.2
79.1
    



Total print reach58.5
57.7
63.4
66.1
68.6
Total digital reach34.5
35.9
31.8
32.1
28.3

 Age 18-29 
(Percent, Past Seven Days)2017
2016
2015
2014
2013
      
Print only14.8
15.3
19.5
20.3
30.7
Print and digital15.5
16.2
20.2
18.3
15.6
Digital only19.6
23.4
12.7
15.3
10.5
Total readership49.9
54.9
52.4
53.9
56.8
Print users13.9
11.2
19.5
19.5
22.0
Total reach63.8
66.1
71.9
73.4
78.8
    



Total print reach44.2
42.7
59.2
58.1
68.3
Total digital reach35.1
39.6
32.9
33.6
26.1
Source:Lee Enterprises Audience Report, Thoroughbred Research. January 2013-2017.
Markets:11 largest markets in 2013-2017.
Margin of Error:Total sample +/- 0.9%, Total digital sample +/- 1.1%
After advertising, subscriptions and single copy sales are our largest source of revenue. For the 13 weeks ended September 2017, our daily circulation units, which include TNI and MNI, as measured by the Alliance for Audited Media ("AAM") were 0.8 million and Sunday circulation units were 1.2 million.
Growth in audiences can, over time, also positively impact advertising revenue. Our strategies to grow audiences include continuous improvement of content and promotional efforts to expand our audience. Content can include focus on local news, features, scope of coverage, accuracy, presentation, writing style, tone and type style. Promotional efforts include advertising, contests and other initiatives to increase awareness of our products. Customer service can also influence print subscriptions. The continued improvement of mobile and tablet applications has positively impacted our digital audiences.
We have historically experienced higher retention of customers using credit cards or automatic bank account withdrawals, ("EZ pay") as the form of subscription payment. Accordingly we focus our enterprises on increasing the number of EZ pay subscribers. Other initiatives vary from location to location and are determined principally by our centralized consumer sales and marketing group in collaboration with local management. Competition for subscriptions is generally based on the content, journalistic quality and price of the publication.
Audience competition exists in all markets, from unpaid print and digital products, but is most significant in markets with competing local daily newspapers. These markets tend to be near major metropolitan areas, where the size of the population may be sufficient to support more than one daily newspaper.

Our subscription sales channels continue to evolve through an emphasis on targeted telemarketing, direct mail and email to acquire new subscribers and retain current subscribers.

DAILY NEWSPAPERS AND MARKETS

The Company, TNI and MNI publish the following daily newspapers and maintain the following primary digital sites:

    

Average Units (1)

 

2020 Monthly Average ('000s) (6)

 

Newspaper

Primary Website

Location

 

Daily (2)

  

Sunday

   

Unique Visitors

  

Page Views

 
                    

St. Louis Post-Dispatch

stltoday.com

St. Louis, MO

  93,341   340,613    5,964   54,563 

Buffalo News

buffalonews.com

Buffalo, NY

  184,862   221,944    2,210   10,154 

Arizona Daily Star (4)

azstarnet.com

Tucson, AZ

  45,834   87,926    1,977   18,593 

Omaha World Herald

omaha.com

Omaha, NE

  77,025   87,641    2,824   25,283 

Richmond Times-Dispatch

richmond.com

Richmond, VA

  64,934   73,942    2,968   18,510 

Capital Newspapers (3)

                   

Wisconsin State Journal

madison.com

Madison, WI

  52,148   59,467    2,668   17,370 

Daily Citizen

wiscnews.com/bdc

Beaver Dam, WI

  3,749        154   803 

Portage Daily Register

wiscnews.com/pdr

Portage, WI

  2,064        54   280 

Baraboo News Republic

wiscnews.com/bnr

Baraboo, WI

  2,983        48   252 

The Times

nwitimes.com

Munster, Valparaiso, and Crown Point, IN

  40,230   52,777    2,114   28,612 

Tulsa World

tulsaworld.com

Tulsa, OK

  37,820   45,123    2,668   19,214 

Quad Cities Group

                   

Quad-City Times

qctimes.com

Davenport, IA

  17,447   27,415    870   7,242 

Dispatch-Argus

qconline.com

Moline, IL

  52,500   16,945    440   4,005 

Muscatine Journal

muscatinejournal.com

Muscatine, IA

  1,998        93   691 

Lincoln Group

                   

Lincoln Journal Star

journalstar.com

Lincoln, NE

  37,807   42,419    2,229   19,708 

Columbus Telegram (5)

columbustelegram.com

Columbus, NE

  3,772        97   657 

Fremont Tribune (5)

fremonttribune.com

Fremont, NE

  2,998        91   547 

Beatrice Daily Sun (5)

beatricedailysun.com

Beatrice, NE

  2,360        50   309 

Central Illinois Newspaper Group

                  

The Pantagraph

pantagraph.com

Bloomington, IL

  17,365   19,962    510   10,169 

Herald & Review

herald-review.com

Decatur, IL

  11,440   16,493    635   5,778 

Journal Gazette & Times-Courier

jg-tc.com

Mattoon/Charleston, IL

  5,719        215   1,895 

Roanoke Times

roanoke.com

Roanoke, VA

  29,484   31,638    1,219   7,670 

Racine/Kenosha Group

                  

Kenosha News

kenoshanews.com

Kenosha, WI

  13,816   15,567    742   3,975 

The Journal Times

journaltimes.com

Racine, WI

  13,713   14,926    689   7,779 

Winston Salem Journal

journalnow.com

Winston-Salem, NC

  25,994   29,305    623   4,182 

The Press of Atlantic City

pressofatlanticcity.com

Atlantic City, NJ

  24,253   27,979    1,412   12,192 

Greensboro News-Record

greensboro.com

Greensboro, NC

  22,802   27,857    1,129   5,918 

NC Community Group

                   

Statesville Record & Landmark

statesville.com

Statesville, NC

  5,016   12,040    338   2,468 

Hickory Daily Record

hickoryrecord.com

Hickory, NC

  7,669   8,981    517   3,773 

The News Herald

morganton.com

Morganton, NC

  4,084   4,387    276   2,009 

The McDowell News

mcdowellnews.com

Marion, NC

  2,288   2,436    154   1,126 
                    

   
Average Units (1)
  
NewspaperPrimary WebsiteLocation
  Daily (2) 

 Sunday
 
       
St. Louis Post-Dispatch (3)
stltoday.comSt. Louis, MO101,336
 368,569
 
Arizona Daily Star (5) (3)
azstarnet.comTucson, AZ49,915
 100,886
 
Capital Newspapers (4)
      
Wisconsin State Journalmadison.comMadison, WI57,833
 74,190
 
Daily Citizenwiscnews.com/bdcBeaver Dam, WI5,458
 —
 
Portage Daily Registerwiscnews.com/pdrPortage, WI2,775
 —
 
Baraboo News Republicwiscnews.com/bnrBaraboo, WI2,449
 —
 
The Timesnwitimes.comMunster, Valparaiso, and Crown Point, IN58,081
 68,087
 
Quad Cities Group      
Quad-City Timesqctimes.comDavenport & Muscatine, IA34,180
 34,141
 
Dispatch-Argusqconline.comMoline, IL23,887
 26,360
 
Central Illinois Newspaper Group      
The Pantagraph (3)
pantagraph.comBloomington, IL24,807
 27,458
 
Herald & Reviewherald-review.comDecatur & Mattoon/Charleston, IL25,845
 22,038
 
Lincoln Group      
Lincoln Journal Starjournalstar.comLincoln, NE40,011
 46,838
 
Columbus Telegramcolumbustelegram.comColumbus, NE4,037
(6) 
—
 
Fremont Tribunefremonttribune.comFremont, NE3,111
(6) 
—
 
Beatrice Daily Sunbeatricedailysun.comBeatrice, NE3,184
(6) 
—
 
River Valley Newspaper Group      
La Crosse Tribunelacrossetribune.comLa Crosse, WI18,782
 23,583
 
Winona Daily Newswinonadailynews.comWinona, MN5,583
 6,241
 
The Chippewa Heraldchippewa.comChippewa Falls, WI2,959
(6) 
—
 
The Courierwcfcourier.comWaterloo and Cedar Falls, IA32,463
 29,646
 
Billings Gazettebillingsgazette.comBillings, MT24,781
 27,672
 
Sioux City Journalsiouxcityjournal.comSioux City, IA20,917
 23,052
 
The Bismarck Tribunebismarcktribune.comBismarck, ND18,854
 22,683
 
The Post-Starpoststar.comGlens Falls, NY16,818
 21,121
 
Missoula Group      
Missoulianmissoulian.comMissoula, MT15,474
 19,004

Ravalli Republicravallinews.comHamilton, MT1,933
(6) 
1,860
(6) 
Helena/Butte Group      
Independent Recordhelenair.comHelena, MT10,306
 10,928
 
The Montana Standardmtstandard.comButte, MT8,416
 8,569
 
Rapid City Journalrapidcityjournal.comRapid City, SD15,608
 19,322
 
The Journal Timesjournaltimes.comRacine, WI16,518
 18,927
 
The Southern Illinoisanthesouthern.comCarbondale, IL12,029
 18,378
 
Mid-Valley News Group      
Albany Democrat-Heralddemocratherald.comAlbany, OR8,380
 8,776
 
Corvallis Gazette-Timesgazettetimes.comCorvallis, OR6,936
 7,187
 
Casper Star-Tribunetrib.comCasper, WY15,101
 15,493
 

    

Average Units (1)

  

2020 Monthly Average ('000s) (6)

 

Newspaper

Primary Website

Location

 

Daily (2)

  

Sunday

  

Unique Visitors

  

Page Views

 
                   

Lynchburg Group

                  

Lynchburg News & Advance

newsadvance.com

Lynchburg, VA

  11,766   13,723   530   3,683 

Danville Register & Bee

godanriver.com

Danville, VA

  5,513   6,753   249   1,725 

Martinsville Bulletin

martinsvillebulletin.com

Martinsville, VA

  6,295   7,036   284   1,970 

Fredericksburg Group

                  

Freelance-Star

fredericksburg.com

Fredericksburg, VA

  18,458   21,076   879   6,738 

Culpeper Star-Exponent

starexponent.com

Culpeper, VA

  2,730   2,788   130   997 

Casper Star-Tribune

trib.com

Casper, WY

  22,678   23,495   621   4,015 

Billings Gazette (5)

billingsgazette.com

Billings, MT

  22,557   22,689   1,407   11,575 

The Bismarck Tribune

bismarcktribune.com

Bismarck, ND

  20,788   22,127   612   6,147 

The Courier

wcfcourier.com

Waterloo and Cedar Falls, IA

  17,215   21,218   668   6,225 

Alabama Group

                  

Dothan Eagle

dothaneagle.com

Dothan, AL

  11,623   12,399   486   3,109 

Opelika Auburn News

oanow.com

Opelika, AL

  6,794   6,909   284   1,818 

River Valley Newspaper Group

                 

La Crosse Tribune

lacrossetribune.com

La Crosse, WI

  13,378   15,661   590   6,904 

Winona Daily News

winonadailynews.com

Winona, MN

  3,173   3,280   194   1,544 

The Chippewa Herald (5)

chippewa.com

Chippewa Falls, WI

  1,409       164   915 

Helena/Butte Group

                  

Independent Record (5)

helenair.com

Helena, MT

  9,009   10,448   475   4,486 

Montana Standard (5)

mtstandard.com

Butte, MT

  7,568   8,320   316   3,050 

Missoula Group

                  

Missoulian (5)

missoulian.com

Missoula, MT

  13,858   15,749   746   5,890 

Ravalli Republic (5)

ravallinews.com

Hamilton, MT

  1,955   1,414   64   303 

Waco Tribune-Herald

wacotrib.com

Waco, TX

  13,868   16,292   659   4,248 

The Post-Star

poststar.com

Glens Falls, NY

  14,317   16,027   719   6,566 

Sioux City Journal (5)

siouxcityjournal.com

Sioux City, IA

  23,328   15,544   612   4,363 

Rapid City Journal (5)

rapidcityjournal.com

Rapid City, SD

  13,649       839   5,976 

Charlottesville Group

                  

Charlottesville Daily Progress

dailyprogress.com

Charlottesville, VA

  11,414   12,574   549   3,000 

The News Virginian

newsvirginian.com

Waynesboro, VA

  2,765   2,834   133   727 

Mid-Valley News Group

                  

Albany Democrat-Herald

democratherald.com

Albany, OR

  7,760   7,647   301   2,234 

Corvallis Gazette-Times

gazettetimes.com

Corvallis, OR

  7,250   6,994   315   2,339 

Bristol Herald Courier

heraldcourier.com

Bristol,VA

  11,618   12,506   527   2,702 
                   

5
 
Average Units (1)
  
NewspaperPrimary WebsiteLocation
  Daily (2)

 Sunday
 
       
Magic Valley Group      
The Times-Newsmagicvalley.comTwin Falls, ID14,455
 12,797
 
Elko Daily Free Presselkodaily.comElko, NV3,218
 —
 
Globe Gazetteglobegazette.comMason City, IA9,668
 11,995
 
Santa Maria Times (3)
santamariatimes.comSanta Maria, CA7,784
 11,971
 
The Daily Newstdn.comLongview, WA13,498
 11,194
 
Napa Valley Register (3)
napavalleyregister.comNapa, CA8,519
 8,881
 
Arizona Daily Sun (3)
azdailysun.comFlagstaff, AZ6,411
(6) 
7,687
 
The Citizenauburnpub.comAuburn, NY5,620
 7,148
 
The Times and Democratthetandd.comOrangeburg, SC6,460
 6,995
 
The Sentinelcumberlink.comCarlisle, PA6,780
(6) 
—
 
The World (3)
theworldlink.comCoos Bay, OR4,473
 —
 
The Sentinel (3)
hanfordsentinel.comHanford, CA4,575
 —
 
The Ledger Independentmaysville-online.comMaysville, KY3,773
 —
 
Daily Journal (3)
dailyjournalonline.comPark Hills, MO3,654
(6) 
—
 
   787,655
 1,129,677
 

    

Average Units (1)

  

2020 Monthly Average ('000s) (6)

 

Newspaper

Primary Website

Location

 

Daily (2)

  

Sunday

  

Unique Visitors

  

Page Views

 
                   

The Southern Illinoisan

thesouthern.com

Carbondale, IL

  7,932   11,449   467   2,560 

Grand Island Independent

theindependent.com

Grand Island, NE

  10,943   11,145   346   2,863 

Florence Morning News

scnow.com

Florence, SC

  9,581   11,165   385   2,846 

The Daily News (5)

tdn.com

Longview, WA

  13,196   10,084   305   2,187 

Magic Valley Group

                  

The Times-News

magicvalley.com

Twin Falls, ID

  10,522   9,846   524   3,923 

Elko Daily Free Press (5)

elkodaily.com

Elko, NV

  3,270       138   1,342 

Bryan-College Station Eagle

theeagle.com

Bryan, TX

  9,068   9,378   534   2,798 

The Citizen (5)

auburnpub.com

Auburn, NY

  5,750   9,292   398   3,350 

Napa Valley Register

napavalleyregister.com

Napa, CA

  8,724   8,500   630   4,315 

Globe Gazette

globegazette.com

Mason City, IA

  7,419   8,350   353   3,542 

Arizona Daily Sun (5)

azdailysun.com

Flagstaff, AZ

  6,907   6,910   352   1,829 

Scottsbluff Star-Herald

starherald.com

Scottsbluff, NE

  6,302   6,362   247   1,484 

Kearney Hub

kearneyhub.com

Kearney, NE

  5,628   5,761   305   2,175 

The Daily Nonpareil

nonpareilonline.com

Council Bluffs, IA

  5,344   5,573   276   1,558 

The Times and Democrat (5)

thetandd.com

Orangeburg, SC

  6,513   5,570   412   2,632 

North Platte Telegraph

nptelegraph.com

North Platte, NE

  4,823   4,804   157   832 

The Sentinel (5)

cumberlink.com

Carlisle, PA

  6,258       366   2,227 

Daily Journal (5)

dailyjournalonline.com

Park Hills, MO

  2,928       244   1,761 

York News-Times (5)

yorknewstimes.com

York, NE

  2,298       68   276 
                   
     1,343,657   1,694,475   56,140   447,505 

(1)

Source: AAM: September 2017March 2020 Quarterly Executive Summary Data Report, unless otherwise noted. More recent data is not available.

(2)

(2)

Not all newspapers are published Monday through SaturdaySaturday.

(3)Owned by Pulitzer, Inc.
(4)

(3)

Owned by MNI.

(5)

(4)

Owned by Star Publishing and published through TNI.

(6)

(5)

Source: Company statistics.

(6)

 Excludes Agri-Media sites

NEWSPRINT

The raw material of newspapers, and our other print publications, is newsprint. We purchase newsprint from U.S. and Canadian producers. We believe we will continue to receive a supply of newsprint adequate for our needs and consider our relationships with newsprint producers to be good. Newsprint purchase prices can be volatile and fluctuate based upon factors that include foreign currency exchange rates, tariffs and both foreign and domestic production capacity and consumption. Price fluctuations can effectaffect our results of operations. We have not entered into derivative contracts for newsprint. For the quantitative impacts of these fluctuations, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk”, included herein.


EXECUTIVE TEAM

The following table lists our current executive team members:

NameAge

Service

Service
With The
Company

Named

Named
To Current
Position
Current Position
     

With The

To Current

Mary E. Junck

Name

70June 1999

Age

February 2016Executive Chairman

Company

Position

Current Position

     
Kevin D. Mowbray55September 1986February 2016President and Chief Executive Officer
   

Kevin D. Mowbray

58

September 1986

February 2016

President and Chief Executive Officer

Joseph J. Battistoni37March 2014November 2019Vice President - Local Advertising

Nathan E. Bekke

4851

January 1992

February 2015

Vice President - Consumer Sales and Marketing and OVP

Ray G. Farris

  64 
Paul M. Farrell

October 2006

62

December 2018

October 2013October 2015

Vice President - SalesAdvertising and OVP

Suzanna M. Frank

  50 
Robert P. Fleck

December 2003

55

March 2008

May 2016May 2016

Vice President - Sales and MarketingAudience

Astrid J. Garcia

  
Suzanna M. Frank47December 2003March 2008Vice President - Audience
70 
Astrid J. Garcia67

December 2006

December 2013

Vice President - Human Resources and Legal

James A. Green

  54 
James A. Green51

March 2013

March 2013

Vice President - Digital

John M. Humenik

  57 
Michael R. Gulledge

December 1998

57

February 2015

October 1982October 2015

Vice President - Advertising Sales LeadershipNews

Timothy R. Millage

  
John M. Humenik54December 1998February 2015Vice President - News
39 

March 2010

August 2018

Ronald A. Mayo56May 2015June 2015

Vice President - Chief Financial Officer and Treasurer

Douglas L. Ranes

  70 

February 2005

November 2019

Vice President - Production Operations

Michele Fennelly White

5558

June 1994

June 2011

Vice President - Information Technology and Chief Information Officer

Mary E. Junck was elected Executive Chairman in February 2016. From 2002 - February 2106 she served as President and Chief Executive Officer. She was elected to the Board of Directors of the Company in 1999.

Kevin D. Mowbray was elected President and Chief Executive Officer in February 2016. From April 2015 - February 2016 he was Executive Vice President and Chief Operating Officer. From May 2013 to April 2015 he served as Vice President and Chief Operating Officer. From 2004 to May 2013 he served as a Vice President - Publishing and was Publisher of the St. Louis Post-Dispatch from 2006 until May 2013. He was elected to the Board of Directors of the Company in February 2016.

Joseph J. Battistoni was appointed Vice President - Local Advertising in November 2019. From February 2018 to November 2019, he served as General Manager and Vice President - Sales and Marketing for The Times Media Company. From October 2015 to February 2018, he served as Vice President of Sales and Marketing. From March 2014 to October 2015, he served as Digital Advertising Director. 

Nathan E. Bekke was appointed Vice President - Consumer Sales and Marketing in February 2015. From 2003 to February 2015, he served as Publisher of the Casper Star-Tribune.

Paul M. Farrell

Ray G. Farris was appointed Vice President - Group Publisher in December 2018. From May 2013 to December 2018, he served as President and Publisher of the St. Louis Post-Dispatch. From August 2010 to May 2013, he served as General Manager and Vice President of Sales in October 2015.of the St. Louis Post-Dispatch. From October 20132006 to October 2015,August 2010, he served as Vice President - Digital Sales. From September 2012 to October 2013, he served as Publisherof Classified Advertising of the Connecticut Media Group of Hearst Media Services.St. Louis Post-Dispatch.

Suzanna M. Frank was appointed Vice President - Research and Metrics in November 2018. From May 2007March 2008 to August 2012, heNovember 2018 she served as Vice President - Sales and Marketing of the Company.


Robert P. Fleck was appointed Vice President - Sales and Marketing in May 2016 and named Publisher of the LaCrosse Tribune in 2017. Prior to joining the Company, he was with The Tribune Company. His 24-year career with Tribune included Executive Vice President of Tribune Publishing Company; General Manager and Senior Vice President for TRIBUNE365; and Senior Vice President of the Chicago Tribune Media Group.

Suzanna M. Frank was appointed Vice President - Audience in March 2008.Audience. From 2003 to March 2008 she served as Director of Research and Marketing of the Company.

Astrid J. Garcia was appointed Vice President - Human Resources and Legal in December 2013. From 2006 to November 2013 she served as Vice President of Human Resources, Labor Relations and Operations of the St. Louis Post-Dispatch.


James A. Green was appointed Vice President - Digital in March 2013. From June 2011 to March 2013, he served as Executive Vice President and General Manager of Travidia, Inc., a developer of newspaper digital shopping media and marketing programs. From 2004 to June 2011 he served as Chief Marketing Officer of Travidia, Inc.


Michael R. Gulledge was elected Vice President - Sales and Marketing in September 2012 and named Publisher of the Billings Gazette in 2000. From 2005 to September 2012 he served as a Vice President - Publishing.

John M. Humenik was appointed Vice President - News in February 2015. He iswas also president and publisher of the Wisconsin State Journal and president of Madison Newspapers Inc., a position he has held since 2013. He was publisher and editor of the Arizona Daily Star from 2005 to 2010 and additionally served as president of Tucson Newspapers Inc. until 2013.


Ronald A. Mayo

Timothy R. Millage was elected Vice President, Chief Financial Officer and Treasurer in June 2015. PriorAugust 2018. From 2012 to joining the Company,2018 he was Chief Financial Officer of Halifax Media Group from July 2014 to January 2015 and previously served as Vice President and Chief Financial Officer of MediaNews Group, Inc., for 12 years.


the corporate controller.

Michele Fennelly White was appointed Vice President - Information Technology and Chief Information Officer in June 2011. From 1999 to June 2011, she served as Director of Technical Support.

Ms. Junck

Douglas L. Ranes was appointed Vice President - Production Operations in November 2019. From June 2014 to November 2019, he served as Director of Production. From February 2005 to June 2012 he serve as Director of Operations for The North County Times and The Northwest Indiana Times.

Messrs. Mowbray, Farrell, Green, Gulledge,Bekke, Farris, Garcia, and MayoMillage have been designated by the Board of Directors as executive officers for US Securities and Exchange Commission ("SEC") reporting purposes.

7

EMPLOYEES
 

EMPLOYEES

At September 24, 201727, 2020, we had approximately 3,5555,613 employees, including approximately 9271,089 part-time employees, exclusive of TNI and MNI. Full-time equivalent employees in 20172020 totaled approximately 3,626.5,224. We consider our relationships with our employees to be good.

Bargaining units represent 344,254, or 69%, of the total employees of the The St. Louis Post-Dispatch, which has six contracts with bargaining units with expiration dates from February 2021 through September 2018.

March 2022.

Bargaining units represent 389, or 75%, of the total employees of the Buffalo News, which has twelve contracts with bargaining units with expiration dates from December 2020 through June 2022.

Bargaining units represent 132, or 49%, of the total employees of the Omaha World-Herald, which had four contracts with bargaining units with expiration dates January 2021 through May 2022 and one in negotiation.

Approximately 34173 employees in threeeight additional locations are represented by collective bargaining units.

CORPORATE GOVERNANCE AND PUBLIC INFORMATION

We have a long history of sound corporate governance practices. Our Board of Directors has a lead independent director, and has had one for many years. Currently, six of nine members of our Board of Directors has affirmatively determined that seven of its ten members are independent, as areincluding all members of the Board's Audit, Executive Compensation and Nominating and Corporate Governance committees. The Audit Committee approves all services to be provided by our independent registered public accounting firm and its affiliates.

At www.lee.net, one may access a wide variety of information, including news releases, SEC filings, financial statistics, annual reports, investor presentations, governance documents, newspaper profiles and digital links. We make available via our website all filings made by the Company under the Securities Exchange Act of 1934 (the "Exchange Act"), including Forms 10-K, 10-Q and 8-K, and related amendments, as soon as reasonably practicable after they are filed with, or furnished to, the SEC. All such filings are available free of charge. The content of any website referred to in this Annual Report is not incorporated by reference unless expressly noted.

8
 
ITEM 1A. RISK FACTORS
Risk exists

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This annual report ("Annual Report") contains information that may be deemed forward-looking that is based largely on our past results may not be indicative of future results. In addition, a number of other factors (those identified elsewhere in this document) maycurrent expectations, and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expectations. Potential investors should carefully consider the followingthose anticipated. Among such risks, trends and other informationuncertainties, which in some instances are beyond our control, are:

•Revenues may continue to diminish or declines in revenue could accelerate as a result of the COVID-19 pandemic;
•Revenues may continue to be diminished longer than anticipated as a result of the COVID-19 pandemic;
•The COVID-19 pandemic may result in material long-term changes to the publishing industry which may result in permanent revenue reductions for the Company and other risks and uncertainties;
•We may experience increased costs, inefficiencies and other disruptions as a result of the COVID-19 pandemic;
•We may be required to indemnify the previous owners of the BH Media Newspaper Business or the Buffalo News for unknown legal and other matters that may arise;

•

Our ability to manage declining print revenue;

•

That the warrants issued in our 2014 refinancing will not be exercised;

•

The impact and duration of adverse conditions in certain aspects of the economy affecting our business;

•

Change in advertising and subscription demand;

•

Changes in technology that impact our ability to deliver digital advertising;

•

Potential changes in newsprint, other commodities and energy costs;

•

Interest rates;

•

Labor costs;

•Significant cyber security breaches or failure of our information technology systems;

•

Our ability to achieve planned expense reductions and realize the expected benefit of our acquisitions;

•

Our ability to maintain employee and customer relationships;

•

Our ability to manage increased capital costs;

•

Our ability to maintain our listing status on the NYSE;

•

Competition; and

•

Other risks detailed from time to time in our publicly filed documents, including this Annual Report and particularly in "Risk Factors", Part I, Item 1A herein.

Any statements that are not statements of historical fact (including statements containing the words “may”, “will”, “would”, “could”, “believes”, “expects”, “anticipates”, “intends”, “plans”, “projects”, “considers” and similar expressions) generally should be considered forward-looking statements. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this Annual ReportReport. We do not undertake to publicly update or revise our forward-looking statements, except as required by law.

ITEM 1A. RISK FACTORS

The risks described below could materially and adversely affect our business, financial condition and results of operations. We could also be affected by additional risks that apply to all companies operating in evaluatingthe U.S., as well as other risks that are not presently known to us or that we currently consider to be immaterial. These Risk Factors should be carefully reviewed in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and our common stock. See also, “Forward-Looking Statements”, included herein.


ECONOMIC CONDITIONS
Financial Statements and Supplementary Data in Item 8 of this Report. For ease of review, the risk factors generally have been grouped into categories, but many of the risks described in a given category relate to multiple categories. 

Risks Related to General Economic Factors

The Company has incurred a material drop in advertising revenues as COVID-19 continues.

Certain aspects of our operating results have experienced lower revenue and profitability over the last several years and these trends are expected to continue in the future. However, the COVID-19 pandemic and government restrictions caused significant and immediate declines in demand for certain of our products and services, and ultimately in advertising revenue.

Our operations rely onadvertising revenues may decline due to weakness in the localbrick and mortar retail sector.

A significant portion of our revenue is derived from advertising. The demand for advertising is sensitive to the overall level of economic strength, both in the markets in which we operate and nationally. Also, the decline in the financial or economic conditions of our advertisers could alter discretionary spending by advertisers. Certain segments of the economy have been challenged in recent years, particularly in the brick and mortar retail sector, and total advertising revenues have declined as a result. Advertising revenues may worsen if advertisers reduce their budgets, shift their spending priorities, are forced to consolidate or cease operations.

Our ability to generate revenue is highly sensitive to the strength of the economies in which we serve,operate and the demographics of the local communities that we serve.

Our advertising and marketing services revenues and subscription revenues depend upon a number of factors, including, among others, the size and demographic characteristics of the local population and the local economic conditions in general and the economic condition of the retail segments of the communities that our publications serve. In the case of an economic downturn in a market, our publications, revenues, and profitability in that market could be adversely affected. Our advertising and marketing services revenues could also be affected by negative trends in the general economy that affect consumer spending. The advertisers in our newspapers and other publications and related websites are primarily retail businesses that can be significantly affected by regional or national economic downturns and other developments. Declines in the U.S. economy could also susceptible tosignificantly affect key advertising revenue categories, such as help wanted, real estate, and automotive.

9

Uncertainty and adverse changes in the general economic downturns,conditions of markets in which have hadwe participate may negatively affect our business. 

Current and could continue to have a material and adverse impact on our operating results

future economic conditions are inherently uncertain. It is difficult to estimate the level of economic growth or contraction as current and future conditions infor the economy have an inherent degreeas a whole, and even more difficult to estimate growth or contraction in various parts, sectors and regions of uncertainty.the economy, including the markets our publications serve. Adverse changes may occur to our business as a result of weak global economic conditions, declining oil prices, wavering consumer confidence, unemployment, declines in stock markets, contraction of credit availability, changes in interest rates, declines in real estate values, natural disasters, or other factors affecting economic conditions in general. These changes may negatively affect the sales of our products, increase exposure to losses from bad debts, increase the cost and decrease the availability of financing, or increase costs associated with publishing and distributing our publications.

OPERATING REVENUE

The collectability of accounts receivable under adverse economic conditions could deteriorate to a greater extent than provided for in our financial statements and in our projections of future results. 

Adverse economic conditions in the U.S. may increase our exposure to losses resulting from financial distress, insolvency and the potential bankruptcy of our advertising and marketing services customers. We recorded write-offs of accounts receivable relating to recent bankruptcies of national retailers, including Sears, among others. Our accounts receivable is stated at net estimated realizable value, and our allowance for doubtful accounts has been determined based on several factors, including receivable agings, significant individual credit risk accounts and historical experience. If such collectability estimates prove inaccurate, adjustments to future operating results could occur. 

The value of our intangible assets may become impaired, depending upon future operating results. 

At September 27, 2020 the carrying value of our goodwill was $328,445,000, the carrying value of mastheads was $40,459,000, and the carrying value of our amortizable intangible assets was $142,147,000. The indefinite-lived assets (goodwill and mastheads) are subject to annual impairment testing and more frequent testing upon the occurrence of certain events or significant changes in our circumstances that indicate all or a portion of their carrying values may no longer be recoverable, in which case a non-cash charge to earnings may be necessary in the relevant period. We may subsequently experience market pressures which could cause future cash flows to decline below our current expectations, or volatile equity markets could negatively impact market factors used in the impairment analysis, including earnings multiples, discount rates, and long-term growth rates. Any future evaluations requiring an asset impairment charge for goodwill or other intangible assets would adversely affect future reported results of operations and stockholders’ equity.

We performed assessments for possible impairment of the carrying value of goodwill and indefinite-lived intangibles in connection with the BH Media acquisition and as of September 27, 2020. Management assumptions used to calculate fair value of the reporting units involves forward looking financial information and subjectivity. Changes in key assumptions impacting the analyses could have resulted in the recognition of additional impairment. For further information on goodwill and intangible assets, see Note 5 — Goodwill and other intangible assets

A decrease in our Common Stock price may limit the ability to trade our Common Stock or for the Company to raise equity capital.

Our Common Stock currently trades on the New York Stock Exchange (“NYSE”), and the continued listing of our Common Stock on the NYSE is subject to our compliance with a number of listing standards, including minimum share price requirements. If we fall out of compliance with NYSE’s listing standards and fail to regain compliance within the applicable cure periods, our Common Stock may be delisted from the NYSE. Failure to maintain our NYSE listing could negatively impact us and our stockholders by reducing the willingness of investors to hold our Common Stock because of the resulting decreased price, liquidity and trading of our Common Stock.

Risk Related to Competition from Digital Media

Our operating revenue may be materially adversely affected if we do not successfully respond to the shift in newspaper readership and advertising expenditures away from traditional print media


A significant portion of our revenue is derived from advertising. The demand for advertising is sensitive to the overall level of economic strength, both locally and nationally. Our revenues are sensitive to economic trends and uncertainties as well as discretionary spending by advertisers and subscribers. Changes in advertising and circulation revenue could have a material effect on our results of operations.

Operating revenue in most print categories has decreased since 2007 and may decrease further in the future. Such decreases may not be offset by growth in advertising in other categories, such astowards digital revenue which has been rising since 2010. Historically, newspaper publishing has been viewed as a cost-effective method of delivering various forms of advertising. There can be no guarantee that this historical perception will guide future decisions on the part of advertisers. Web sites and applications for mobile devices distributing news and other content continue to gain popularity. As a result, audience attention and advertising spending are shifting and may continue to shift from traditional print media to digital media including those owned by the Company. As media audiences increasingly move to consume news and information digitally, we expect that advertisers will allocate greater portions of their future budgets to digital media advertising, which can offer more measurable returns than traditional print media. If our efforts to adapt to evolving technological developments in the media industry are unsuccessful, or if we fail to correctly anticipate shifts in audience demand and digital media trends, weSignificant capital investments may be unable to provide the services, media and content that audiences and potential audiences in our markets prefer and we may be unable to provide the returns on ad spending that our advertisers seek. This increased competition and shift to the digital consumption of news and information has had, and may continue to have, an adverse effect on our business and financial results. Significant capital investment may be requiredneeded to respond to this shift.The digital media industry has greater competitive challenges than print because barriers to entry can be low and geographic locationshift.

Currently, our primary source of revenue is less relevant.


Technological developments also pose additional challenges that could adversely affect our revenue and competitive position. New delivery platforms may lead to pricing restrictions and the loss of a direct relationship with consumers. We may also be adversely affected if the use of technology developed to block the display of advertising on websites and other digital platforms proliferates.

The rates we charge for advertising are, in part, related to the size of the audience of our publications and digital products. There is significant competition for readers and viewers from other media. Our business may be adversely affected to the extent individuals decide to obtain news, entertainment, classified listings and local shopping information from digital or other media, to the exclusion of our outlets for such information.

Retail Advertising

Many advertisers, including major retail store chains, automobile dealers, banks and telecommunications companies, have experienced significant merger and acquisition activity over the last several years, and some have gone out of business or closed stores. Changes in the economy and consumer shopping habits, in particular, in the brick and mortar retail sector along with the increasing use of online consumer shopping, has driven a change in advertising spending and retailers approach to advertising and marketing their goods and services.


Classified Advertising

Classified print and digital advertisingservices, which accounts for employment, automotive and real estate have been significantly reduced by changing trends in how our audiences access and use our products and the increase in digital/classified advertising competitors.

Subscription Revenue

Advertising and subscription revenue is affected by readership47% of our print publicationsrevenue. Subscription revenue accounts for 43% of our revenue. The media publishing industry has experienced rapid evolution in consumer demands and digital products. Although our combined print and digital audience is relatively stable, print subscription volumesexpectations due to advances in technology, which have been decliningled to a proliferation of delivery methods for several years, reflecting general trends in the newspaper industry, including consumer migration toward digital media platforms for accessing news and information. The Companynumber of consumers who access online services through devices other than personal computers, such as tablets and mobile devices, has increased its subscription ratedramatically in recent years and the possibility exists that future subscription price increases maylikely will continue to increase. The media publishing industry also continues to be difficult to realize or maintainaffected by demographic shifts, with older generations preferring more traditional print newspaper delivery and as a result subscription sales may decline, and price decreases may be necessary to retain or grow subscription volume. We believe we are maintaining our share of audience in our local marketsyounger generations consuming news through digital audience growth and strong print newspaper readership.

As audience attention increasingly migrate tomedia. Also, the revenues generated by media publishing companies have been affected significantly by the shift in advertising expenditures towards digital media, print circulation of our newspapers may be adversely affected, which may decrease subscription revenue and accelerate declines in print advertising. We face increasing competition from digital news sources which can impact subscription revenue and audience growth. This competition has increased as a result of the continued development of new digital media technologies. To maintain our subscription base, we may be required to incur additional costs that we may not be able to recover through subscription and advertising revenue. We may not be able to achieve a profitable balance between subscription levels and advertising revenue. In addition, if we are not successful in growing our digital businesses, including digital subscription revenue, to offset declines in revenue from our print products, our business, financial condition and prospects will be adversely affected.

Our ability to retain a subscriber base with all access pricing depends on market acceptance, consumer habits, cost, an adequate digital infrastructure, terms of delivery platforms and other factors. The metered paywall model and/or subscription price increases may result in fewer page views or unique visitors to our digital platforms if viewers are unwilling to pay to gain access to our digital content after reaching the maximum number of free articles in a month. Stagnation, or a decline in digital traffic levels, will adversely affect our advertiser base, advertising rates and result in a decline in digital revenue.

See "Audiences” in Item 1, included herein, for additional information on the risks associated with subscription revenue.

If we are not successful in growing our digital business, our business, financial condition, results of operations and prospects could be adversely affected

media.

The future revenue performance of our digital business depends to a significant degree upon the growth development and management of our subscriber and advertising audiences. The growth of our digital business over the long term depends on various factors, including, among other things, the ability to:


Continue to increase digital audiences;

Attract advertisers to our digital platforms;

Tailor our products to efficiently and effectively deliver content and advertising on mobile devices;

Maintain or increase the advertising rates on our digital platforms;

•Continue to increase digital audiences;
•Attract advertisers to our digital platforms;
•Tailor our products to efficiently and effectively deliver content and advertising on mobile devices;
•Maintain or increase the advertising rates on our digital platforms;

•

Exploit new and existing technologies to distinguish our products and services from those of competitors and develop new content, products and services;

•

Invest funds and resources in digital opportunities;

•

Partner with, or use services from, providers that can assist us in effectively growing our digital business; and

•

Create digital content and platforms that attract and engage audiences in our markets.

If we are unable to grow our digital audience, distinguish our products and services from those of our competitors andor develop compelling new content, products and services;


Invest fundsservices that engage users across multiple platforms, then our business, financial condition, and resources in digital opportunities;

Partner with, or use services from, providers that can assist us in effectively growing our digital business; and


Create digital content and platforms that attracts and engages audiences in our markets.

We expect that our digital business will continue to increase as a percentageresults of our total revenue. In 2017, total digital revenue (including revenue from advertising and marketing services and digital services, mainly TownNews.com) comprised 18.7% of total revenue, as compared to 16.4% in 2016. As our digital business becomes a greater portion of our overall business, we will face a number of increased risks from managing our digital operations including, but not limited,may be adversely affected. Responding to the following:

Continuing training ofchanges described above may require us to make significant capital investments and incur significant research and development costs related to building, maintaining, and evolving our sales force to more effectively sell digital only advertising, combined digitaltechnology infrastructure, and print advertising packages versus our historical print advertising business;

Attracting and retaining employees with skill sets and the knowledge base needed to successfully operate our digital business; and

Managing the transition to a digital business from a historically print-focused business, including reducing the physical printing and distribution infrastructure cost associated with the print business.

We rely on revenue from printing and distribution of third-party publications and digital services that may be subject to many of the same business and industry risks facing us

We generate a portion of our revenue from printing and distributing third-party publications, and our relationships with these third parties are generally pursuant to short-term contracts. Typically, these third parties are operating in the same industry and a similar geographical location as us. In addition, digital services revenue is derived primarily from third-party businesses in the same industry as us. As a result, revenue from these third parties is subject to the same macroeconomic and industry trends affecting our operations. If their businesses are adversely affected by these trends, our associated revenue would be adversely affected.

OPERATING EXPENSES
We may not be able to reduce future expenses to offset potential revenue declines
We reduced cash costs(1) of our operations (compensation, newsprint and ink, other operating expenses and workforce adjustments) significantly since 2011. Such expense reductions are not expected to impact our ability to deliver advertising, news or other content to our customers. As a resultmake the level of the significant cost reductions to date, future cost reductionsinvestments required may not be as significant. Compensation and newspaper distribution account for 63% of our cash costs excluding workforce adjustments.
Newsprint comprises approximately 6% of our cash costs excluding workforce adjustments. limited.

See “Newsprint”“Audiences” in Item 1, and “Commodities” in Item 7A, included herein, for additional information on the risks associated with changes in newsprint costs.


The technological developmentsabout our print and changes we need to makedigital audiences.

10

Risks Related to our Acquisitions of BH Media and Buffalo News

On March 16, 2020, the Company completed the purchase of certain assets and the assumption of certain liabilities of the newspaper and related community publications business successful, may require significantof BH Media and the purchase of all of the issued and outstanding capital investments. stock of Buffalo News (collectively, the “Transactions”).  Under the terms of the Asset and Stock Purchase Agreement, dated January 29, 2020, with Berkshire Hathaway, Inc. (“Berkshire”), and BH Media (the “Purchase Agreement”), the aggregate purchase price for the Transactions was $140 million, which excluded $12 million in cash at closing of the Transactions.  BH Finance, LLC (“BH Finance”), an affiliate of Berkshire, financed the Purchase Agreement through the Credit Agreement, dated January 29, 2020 (the “Credit Agreement”).

The Company borrowed $576 million from BH Finance under the Credit Agreement in order to finance the Transactions and refinance its outstanding indebtedness.

We may be limitednot achieve the intended benefits of the BH Media acquisition.

We completed the BH Media acquisition in our ability to invest fundsMarch 2020, and resources in digital products, services or opportunities, and we may incur costs of research and development in building and maintaining the necessary and continually evolving technology infrastructure. As a result, our digital business could suffer if we are unable to make these investments.


(1) See Non-GAAP Financial Measures: in Item 7, included herein, for additional information.

We may incur additional non-cash impairment charges

We have significant amounts of goodwill and identified intangible assets. Since 2007 we have recorded impairment charges totaling almost $1.3 billion to reflect the reduced value of these assets. Should general economic, market or business conditions decline, and cause a negative impact on our stock price or projected future cash flows, we may need to record additional impairment charges in the future. Such charges would not impact our cash flows or debt covenant compliance. See “Critical Accounting Policies” in Item 7, included herein, for additional information on the risks associated with such assets.


Sustained increases in costs of employee health and welfare benefits may reduce our profitability

In recent years, we experienced significant increases in the cost of employee medical benefits because of economic factors beyond our control, including increases in health care costs. At least some of these factors may continue to put upward pressure on the cost of providing medical benefits. Although we have actively sought to control increases in these costs, there can be no assurance that we will succeedbe able to realize the expected benefits of the transaction.

There are many challenges associated with integrating a material acquisition, such as our acquisition of BH Media and Buffalo News, including the integration of executive and other employee teams with historically different cultures and priorities; the coordination of personnel located across multiple geographic locations; retaining key management and other employees; consolidating corporate and administrative infrastructures and eliminating duplicative operations; the diversion of management’s attention from ongoing business concerns; retaining existing business and operational relationships, including customers, suppliers and other counterparties, and attracting new business and operational relationships; unanticipated issues in limitingintegrating information technology, communications and other systems; as well as unforeseen expenses associated with the acquisition. These and other challenges could result in unanticipated operational challenges and the failure to realize anticipated synergies in the expected timeframe or at all.

If we fail to realize anticipated synergies in the amount and within the timeframe expected, our actual financial condition and results of operations may differ materially from the illustrative financial information disclosed in connection with the acquisition, which was based on various assumptions and estimates that may prove to be incorrect. Such illustrative financial information did not constitute management’s projections of future financial performance or results of operations; however, any material variance from such illustrative financial information could result in negative investor reactions that materially and adversely affect the market price of our Common Stock.

Our actual financial condition and results of operations may differ materially even if synergies are realized, due to macroeconomic factors or a variety of other risks to our business that are independent of the acquisition.

Our future results will suffer if we do not effectively manage our expanded operations.

With completion of the BH Media acquisition, the size of our business has increased significantly. Our continued success depends, in part, upon our ability to manage this expanded business, which poses substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. We cannot assure you that we will be successful or that we will realize the expected operating efficiencies, cost increases,savings, and continued upward pressure couldother benefits from the combination that we currently anticipate.

The Company may not have the ability to generate cash flows and maintain liquidity sufficient to service its debt.

In March 2020, pursuant to the BH Media acquisition, the Company entered into a twenty-five (25) year, senior-secured term loan facility with BH Finance in an aggregate principal amount of $576 million. The term loan facility matures on March 16, 2045 and bears interest at the rate of 9% per annum. Accordingly, we are required to dedicate a substantial portion of our cash flow from operations to fund interest payments. In addition, we are required to repay our credit facility from time to time with (i) the proceeds of asset sales and casualty and condemnation events and (ii) 100% percent of our excess cash flow (defined as any unrestricted cash in excess of $20 million, measured on a quarterly basis). Our debt service obligations reduce the profitabilityamount of cash flow available to fund our working capital, capital expenditures, investments and potential distributions to stockholders. Moreover, there can be no assurance that we will be able to generate sufficient cash flow to satisfy our debt service obligations. Our ability to satisfy our debt service obligations depends on our ability to generate cash flow from operations, which is subject to a variety of risks, including general economic conditions and the strength of our businesses.competitors, which are outside our control.

While we may be able to refinance our indebtedness prior to maturity on more favorable terms, there can be no assurance that we will be able to do so. Our ability to achieve more favorable terms would likely require us to substantially reduce our total outstanding indebtedness relative to current levels. Our ability to prepay our existing indebtedness is highly dependent on both the strength of our cash flow from operations as well as our ability to generate significant proceeds from sales of real estate, the timing and amount of which is highly uncertain. In addition, any refinancing would depend upon the condition of the finance and credit markets.

The terms of our indebtedness impose significant operating and financial restrictions on us. Our credit facility requires us to comply with numerous affirmative and negative covenants, including restrictions limiting our ability to, among other things, incur additional indebtedness, make investments and acquisitions, pay certain dividends, sell assets, merge, incur certain liens, enter into agreements with its affiliates, make capital expenditures, change our business, engage in sale/leaseback transactions, and modify our organizational documents. For these and other reasons generally affecting the ability to pay dividends, our stockholders will not receive dividends so long as the Credit Agreement is outstanding.  Stockholders also should be aware that they have no contractual or other legal right to dividends that have not been declared.

A failure to satisfy our debt service obligations, a breach of a covenant in our credit facility, or a material breach of a representation or warranty in our credit facility, among other events specified in the credit facility, could give rise to a default, which could give rise to the right of our lenders to declare our indebtedness, together with accrued interest and other fees, to be immediately due and payable. An acceleration of our indebtedness would have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price. 

11

Risks Related to Cybersecurity

Our business, operating results and reputation may be negatively impacted, and we may be subject to legal and regulatory claims if there is a loss, destruction, disclosure, misappropriation or alteration of or unauthorized access to data owned or maintained by us, or if we are the subject of a significant data breach or cyberattack. 

We rely on our information technology and communications systems to manage our business data, including communications, news and advertising content, digital products, order entry, fulfillment and other business processes. These technologies and systems also help us manage many of our internal controls over financial reporting, disclosure controls and procedures and financial systems. Attempts to compromise information technology and communications systems occur regularly across many industries and sectors, and we may be vulnerable to security breaches resulting from accidental events (such as human error) or deliberate attacks. Moreover, the techniques used to attempt attacks and the perpetrators of such attacks are constantly expanding. We face threats both from use of malicious code (such as malware, viruses and ransomware), employee theft or misuse, advanced persistent threats, and phishing and denial-of-service attacks. The Company has complied with all applicable legal requirements relating to this activity. As cyberattacks become increasingly sophisticated, and as tools and resources become more readily available to malicious third parties, the Company will incur increased costs to secure its technology environment and there can be no guarantee that the Company’s and our third-party vendors’ actions, security measures and controls designed to prevent, detect or respond to security breaches, to limit access to data, to prevent destruction, alteration, or exfiltration of data, or to limit the negative impact from such attacks, can provide absolute security against compromise. As a result, our business data, communications, news and advertising content, digital products, order entry, fulfillment and other business processes may be lost, destroyed, disclosed, misappropriated, altered or accessed without consent and various controls, automated procedures and financial systems could be compromised.

A significant security breach or other successful attack could result in significant remediation costs, including repairing system damage, engaging third-party experts, deploying additional personnel or vendor support, training employees, and compensation or incentives offered to third parties whose data has been compromised. These incidents may also lead to lost revenues resulting from a loss in competitive advantage due to the unauthorized disclosure, alteration, destruction or use of business data, the failure to retain or attract customers, the disruption of critical business processes or systems, and the diversion of management’s attention and resources. Moreover, such incidents may result in adverse media coverage, which may harm our reputation. These incidents may also lead to legal claims or proceedings, including regulatory investigations and actions and private lawsuits, and related legal fees, as well as potential settlements, judgments and fines. We maintain insurance, but the coverage and limits of our insurance policies may not be adequate to reimburse us for losses caused by security breaches.

Our possession and use of personal information and the use of payment cards by our customers present risks and expenses that could harm our business. Unauthorized access to or disclosure or manipulation of such data, whether through breach of our network security or otherwise, could expose us to liabilities and costly litigation and damage our reputation.

Our online systems store and process confidential subscriber and other sensitive data, such as names, email addresses, addresses, and other personal information. Therefore, maintaining our network security is critical. Additionally, we depend on the security of our third-party service providers. Unauthorized use of or inappropriate access to our, or our third-party service providers’ networks, computer systems and services could potentially jeopardize the security of confidential information, including payment card (credit or debit) information, of our customers. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we or our third-party service providers may be unable to anticipate these techniques or to implement adequate preventative measures. Non-technical means, for example, actions by an employee, can also result in a data breach. A party that is able to circumvent our security measures could misappropriate our proprietary information or the information of our customers or users, cause interruption in our operations, or damage our computers or those of our customers or users. As a result of any such breaches, customers or users may assert claims of liability against us and these activities may subject us to legal claims, adversely impact our reputation, and interfere with our ability to provide our products and services, all of which may have an adverse effect on our business, financial condition and results of operations. The coverage and limits of our insurance policies may not be adequate to reimburse us for losses caused by security breaches.

A significant number of our customers authorize us to bill their payment card accounts directly for all amounts charged by us. These customers provide payment card information and other personally identifiable information which, depending on the particular payment plan, may be maintained to facilitate future payment card transactions. Under payment card rules and our contracts with our card processors, if there is a breach of payment card information that we store, we could be liable to the banks that issue the payment cards for their related expenses and penalties. In addition, if we fail to follow payment card industry data security standards, even if there is no compromise of customer information, we could incur significant fines or lose our ability to give our customers the option of using payment cards. If we were unable to accept payment cards, our business would be seriously harmed.

There can be no assurance that any security measures we, or our third-party service providers, take will be effective in preventing a data breach. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. If an actual or perceived breach of our security occurs, the perception of the effectiveness of our security measures could be harmed and we could lose customers or users. Failure to protect confidential customer data or to provide customers with adequate notice of our privacy policies could also subject us to liabilities imposed by United States federal and state regulatory agencies or courts. We could also be subject to evolving state laws that impose data breach notification requirements, specific data security obligations, or other consumer privacy-related requirements. Our failure to comply with any of these laws or regulations may have an adverse effect on our business, financial condition and results of operations.

Risks Related to Catastrophic Events

Natural disasters, extreme weather conditions, public health emergencies or other catastrophic events could negatively affect our business, financial condition, and results of operations.

Natural disasters and extreme weather conditions, such as hurricanes, derecho windstorms, floods, earthquakes, wildfires; acts of terrorism or violence, including active shooter situations; and public health issues, including pandemics and quarantines, could negatively affect our operations and financial performance. Such events could result in physical damage to our properties, disruptions to our IT systems, the temporary or long-term disruption in the supply of products from our suppliers, and delays in the delivery of goods to our printing facilities. Public health issues, whether occurring in the U.S. or Canada, could disrupt our operations, disrupt the operations of suppliers, or have an adverse impact on consumer spending and confidence levels.

12

The COVID-19 pandemic is affecting our business, financial condition and results of operations in many respects.

The continuing impacts of the COVID-19 pandemic are highly unpredictable and volatile. The COVID-19 pandemic has resulted in widespread and continuing impacts on the United States economy and on our employees, customers, suppliers and other people and entities with which we do business. There is considerable uncertainty regarding the extent to which COVID-19 will continue to spread and the extent and duration of measures to try to contain the virus, such as travel bans and restrictions, quarantines, the use of social distancing, masks and other safety measures, shelter-in-place orders and business and government shutdowns and vaccines. We are taking precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring some employees to work remotely.

Other factors and uncertainties include:

•

the severity and duration of the pandemic, including whether there are future waves caused by additional periods of increases or spikes in the number of COVID-19 cases;

•

the long-term impact of the pandemic on our business, including customer behaviors;

•

general economic uncertainty, unemployment rates, and recessionary pressures;

•

unknown consequences on our business performance and initiatives stemming from the substantial investment of time and other resources to the pandemic response; and

•

the pace of recovery when the pandemic subsides.

Persistence of COVID-19

The persistence of the COVID-19 pandemic may have a material impact on our digital and print advertising and subscriptions for an unknown length of time.

We expect the COVID-19 pandemic to continue to have a significant negative impact in the near term. The long-term impact will depend on the length, severity and reoccurrence of the pandemic, as well as changes in consumer behavior. The COVID-19 pandemic may accelerate, hasten or worsen the other Risk Factors described in this Item 1A.

Competition

We compete with a large number of companies in the local media industry, including digital media businesses and, if we are unable to compete effectively, our advertising and subscription revenues may decline.

We compete for audiences and advertising revenue with newspapers and other media such as the internet, magazines, broadcast, cable and satellite television, radio, direct mail, outdoor billboards and yellow pages. As the use of the internet and mobile devices has increased, we have lost some classified advertising and subscribers to online advertising businesses and our free Internet sites that contain abbreviated versions of our publications. Some of our current and potential competitors have greater financial and other resources than we do. If we fail to compete effectively with competing newspapers and other media, our results of operations may be materially adversely affected.

Pension Liabilities

Sustained increases in funding requirements of our pension and postretirement obligations may reduce the cash available for our business


business.

Pension liabilities, net of plan assets, totaled $43.5$71.5 million at September 24, 2017. The Company expects27, 2020, an increase of $24.5 million from September 29, 2019 primarily due to makethe acquisition of Buffalo News which included additional pension contributions of $4.9 million in 2018. At September 24, 2017 the assets of one of our postretirement medical plans exceeded plan liabilities by $11.0 million.


plans.

Our pension and postretirement plans invest in a variety of equity and debt securities. Future volatility and disruption in the securities markets could cause declines in the asset values of our pension and postretirement plans. In addition, a decrease in the discount rates or changes to mortality estimates and other assumptions used to determine the liability could increase the benefit obligation of the plans. Unfavorable changes to the plan assets and/or the benefit obligations could increase the level of required contributions above what is currently estimated, which could reduce the cash available for our business and debt service. Legislation passed in 2012, 2014 and 2015

Over the last several years, federal legislation has provided for pension funding relief, temporarily reduced funding requirements forreducing our pension contributions. Even with funding relief, we expect to have to make additional contributions to our plans but those payments will eventually need to be restored unless discount rates and/or plan assets increase.


in the future.

We expect to be subject to withdrawal liability in connection with one multiemployer pension plan and may be subject to additional withdrawal liabilities in connection with other multiemployer pension plans, which may reduce the cash available for our business


Pursuantbusiness. 

We contributed to our collective bargaining obligations, we contribute to threevarious multiemployer defined benefit pension plans on behalf of certain of our employees. Based on the most recent communications from the plans’ administrators, two of these plans are currently in “critical” status, as that term is used in relation to such plansduring 2020 under the Pension Protection Actterms of 2006.collective-bargaining agreements (“CBAs”). For plans that are in critical status, benefit reductions may apply and/apply/or we could be required to make additional contributions.


One of

In 2019, we effectuated a total withdrawal from our enterprise's bargaining units withdrew from representation,CWA/ITU multiemployer pension plan and as a result we are subject to a claim from the multiemployer pension plan for a withdrawal liability. The amount of such liability will be dependent on actions taken, or not taken, by the pension plan, as well as the future investment performance and funding status of the pension plan. The withdrawal liability is expected to be funded over a 20 year20-year period.


If,

In 2019, we were to withdraw from one ofreceived the remaining plans or trigger afinal assessment for the partial withdrawal due to declines in contribution base units, and the plan had unfunded vested benefits at the time ofliability associated with our withdrawal or partial withdrawal, we could incur a significant planGCIU plan. The withdrawal liability which could reduce the cash available for our business.


CAPITAL
We may have insufficient earnings or liquidity to meet our future debt obligations
We have $548.4 million of debt outstanding as of September 24, 2017, as discussed more fully below (and certain capitalized terms used below defined) in Item 7,"Liquidity" and Note 4 of the Notes to Consolidated Financial Statements, included herein. Since February 2009, we have satisfied substantially all principal and interest payments due under our debt facilities with our cash flows and asset sales.
As of September 24, 2017, our debt consists of the following:

$400,000,000 aggregate principal amount of 9.5% Senior Secured Notes (the “Notes”) due March 2022, pursuant to an Indenture dated as of March 31, 2014 (the “Indenture”), of which $385,000,000 is currently outstanding as of September 24, 2017;

•
$250,000,000 first lien term loan (the "1st Lien Term Loan") due March 2019 and $40,000,000 revolving facility (the "Revolving Facility") under a First Lien Credit Agreement dated as of March 31, 2014 (together, the “1st Lien Credit Facility”), of which $45,145,000 is outstanding at September 24, 2017; and

•
$150,000,000 12.0% second lien term loan under a Second Lien Loan Agreement dated as of March 31, 2014 (the “2nd Lien Term Loan”) due December 2022, of which $118,240,000 is outstanding at September 24, 2017.

The ability to make payments on our indebtedness will depend on our ability to generate cash flows from operations in the future. Cash generated from future asset sales could serve as an additional source of debt repayment. Our ability, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.

At September 24, 2017, after consideration of letters of credit, we have approximately $33,818,000 available for future use under our Revolving Facility. Including cash, our liquidity at September 24, 2017 totals $44,439,000. This liquidity amount excludes any future cash flows. Our adjusted EBITDAhas been strong and has exceeded $144 million in each year from 2011 through 2017, but there can be no assurance that such results will continue. We expect all interest and principal payments due in the next twelve months will be satisfied by our cash flows and certain asset sales, which will allow us to maintain an adequate level of liquidity.

At September 24, 2017, the principal amount of our outstanding debt totals $548,385,000. At September 24, 2017 and September 25, 2016 our debt, net of cash, is 3.7 times and 3.9 times our adjusted EBITDA, respectively.

Final maturities of our debt are March 2019 through December 2022. As a result, we believe refinancing risk has been substantially reduced for the next several years.

There are numerous potential consequences under the Notes, 1st Lien Credit Facility, 2nd Lien Term Loan, if an event of default, as defined, occurs and is not remedied. Many of those consequences are beyond our control. The occurrence of one or more events of default would give rise to the right of the applicable lenders to exercise their remedies under the Notes, 1st Lien Credit Facility, 2nd Lien Term Loan, respectively, including, without limitation, the right to accelerate the repayment of all outstanding debt and take actions authorized in such circumstances under applicable collateral security documents.

Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and to refinance or amend our debt agreements as they become due, if necessary. The Notes, 1st Lien Credit Facility and 2nd Lien Term Loan have only limited affirmative covenants with which we are required to maintain compliance. We are in compliance with our debt covenants at September 24, 2017.

The Notes, 1st Lien Credit Facility and 2nd Lien Term Loan each contain restrictive covenants that limit our ability to grow our business or return capital to our stockholders

The Notes, 1st Lien Credit Facility and 2nd Lien Term Loan each contain various restrictions, covenants and representations and warranties. If we fail to comply with any of these covenants or breach these representations or warranties in any material respect, such noncompliance would constitute a default, and the lenders could elect to declare all amounts outstanding under the agreements related theretoexpected to be immediately due and payable and enforce their respective interests against collateral pledged under such agreements.

The covenants and restrictions generally limit or restrict our ability to, among other things:

•incur or guarantee additional debt;
•make certain investments, loans or acquisitions;
•transfer or sell assets; and
•make certain restricted payments, including repurchases of outstanding common stock and dividends.

The restrictions described above may interfere with our ability to obtain new or additional financing or engage in other business activities, which may significantly limit or harm our results of operations, financial condition and liquidity.


A decrease in our stock price may limit the ability to trade our stock or for the Company to raise equity capital

Under the NYSE listing standards, if our common stock fails to maintain an adequate per share price and our total market capitalization falls below $50.0 million, our common stock could be removed from the NYSE and traded in thefunded over the counter market. In July 2011, the NYSE notified us that our common stock did not meet the NYSE continued listing standards due to the failure to maintain an adequate share price. Under the NYSE rules, our common stock was allowed to continue to be listed during a cure20-year period. In February 2012, after completing our debt refinancing, the NYSE notified us that we were again in compliance with the minimum closing price standard. In January 2013, the NYSE notified us that we had returned to full compliance with all continued listing standards. However, there can be no assurance that we will continue to be able to meet these listing standards, and the removal of our common stock from the NYSE could adversely affect our ability to raise equity capital.

13
 
OTHER

Cybersecurity risks could harm our ability to operate effectively and our reputation

In the 13-weeks ended September 24, 2017, 19.2% of our revenue was obtained from digital sources, including advertising and one of our businesses, TownNews.com, that provides digital infrastructure and digital publishing services for us and other companies.

We use technology in substantially all aspects of our business operations. Such uses give rise to cybersecurity risks, including the misappropriation of personally identifiable information that we store and manage and disabling or taking over of our websites. We have preventive systems and processes in place to protect against the risk of cyber incidents. However, the techniques used to obtain unauthorized access and to disable systems and websites change frequently and may be difficult to detect for long periods of time. There can be no assurance that we, or the security systems we implement, will protect against all of these rapidly changing risks. Prolonged system outages or a cyber incident that goes undetected could reduce our print and/or digital revenue, increase our operating costs, disrupt our operations, harm our reputation, lead to legal exposure to customers and employees as well as subject us to liability under laws and regulations that protect our customers and employees personal data. We maintain insurance coverage against certain of such risks, but cannot guarantee that such coverage will be applicable or sufficient with respect to any given incident.

We may not be able to protect our intellectual property rights, which may adversely affect our business

Our business depends on our intellectual property, including our valuable brands and content. We believe our proprietary trademarks and other intellectual property rights are important to our continued success and our competitive position.

Unauthorized parties may attempt to copy or otherwise obtain and use our content or infringe upon, dilute, reproduce, misappropriate or otherwise violate our intellectual property. There can be no assurance that the steps we have taken to protect our proprietary rights will be successful in any given case.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

 
None.

ITEM 2. PROPERTIES

Our executive offices are located in leased facilities at 201 North Harrison4600 E. 53rd Street, Suite 600, Davenport, Iowa. The initial lease term expires April 30, 2019.


August 1, 2029.

All of our principal printing facilities are owned, except for leased land for the Helena, Montana plant and acquired properties from BH Media. Additionally, property is leased for Madison, Wisconsin (which is owned by MNI), and Tucson, Arizona (which is jointly owned by Star Publishing and Citizen), St. Louis (as described below) and leased land for the Helena, Montana plant.. All facilities are well maintained, in good condition, suitable for existing office and publishing operations, as applicable, and adequately equipped. With the exception of St. Louis, none of our facilities is individually significant to our business.



Information related to St. Louis facilities at September 24, 2017is as follows:
(Square Feet)Owned
Leased
   
PD LLC649,000
1,700
Suburban Journals9,000
4,300

More than 40% 58% of our daily newspapers, as well as many of our nearly 300268 other publications, are printed at either another one of our print locations or outsourced to a third party, to enhance operating efficiency. We are continuing to evaluate additional insourcing and outsourcing opportunities in order to more effectively manage our operating and capital costs.

costs and monetize real estate.

Our newspapers and other publications have formal or informal backup arrangements for printing in the event of a disruption in production capability. 


ITEM 3. LEGAL PROCEEDINGS

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


ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY,

RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock is listed on the NYSE. In March 2011, in accordance with sunset provisions established in 1986, we effected conversion of all outstanding shares of Class B Common Stock to Common Stock. The table below includes the high and low prices of Common Stock for each calendar quarter during the past three years and the closing price at the end of each quarter.

 Quarter Ended 
(Dollars)December
 March
 June
 September
        
2017       
High3.76
 3.30
 3.10
 2.40
Low2.40
 2.40
 1.75
 1.80
Closing2.90
 2.60
 1.90
 2.20
        
2016       
High2.54
 2.20
 2.43
 3.92
Low1.43
 1.15
 1.69
 1.74
Closing1.68
 1.80
 1.91
 3.75
        
2015       
High3.93
 3.73
 3.55
 3.40
Low3.07
 2.74
 2.78
 1.36
Closing3.68
 3.17
 3.33
 2.08
At

              

Quarter Ended

 

(Dollars)

 

December

  

March

  

June

  

September

 
                 

2020

                
High  2.12   3.09   1.44   1.06 
Low  1.20   0.85   0.71   0.76 
Closing  1.39   1.13   0.97   0.82 
                 

2019

                

High

  3.05   3.68   3.49   2.33 

Low

  1.84   2.02   2.12   1.77 

Closing

  2.13   3.30   2.24   2.01 
                 

2018

                

High

  2.50   2.70   3.30   3.30 

Low

  2.15   1.95   2.00   2.60 

Closing

  2.35   1.95   2.85   2.65 

At September 24, 201727, 2020, wewe had 6,0955,639 registered holders of record of our Common Stock.


Our debt agreements generally limitCredit Agreement restricts us from paying dividends on our abilityCommon Stock. This restriction does not apply to pay dividends and repurchase Common Stock unless in each case no default has occurred and we have satisfied certain financial measurements.issued with the Company's Equity Interests or from the proceeds of a sale of the Company's Equity Interest. See Note 46 of the Notes to Consolidated Financial Statements, included herein. 


PERFORMANCE PRESENTATION

The following graph compares the percentage change in the cumulative total return of the Company, the Standard & Poor's ("S&P") 500 Stock Index, and a peer group index, in each case for the five years ended ended September 30, 201727, 2020 (with September 30, 201227, 2015 as the measurement point). Total return is measured by dividing (a) the sum of (i) the cumulative amount of dividends declared for the measurement period, assuming dividend reinvestment and (ii) the difference between the issuer's share price at the end and the beginning of the measurement period, by (b) the share price at the beginning of the measurement period.

peerchart.jpg


Copyright© 20172020 Standard & Poor's, a division of S&P Global. All rights reserved.

The value of $100 invested on September 30, 2012 in27, 2015 in stock of the Company, the Peer Group Index and in the S&P 500 Stock Index, including reinvestment of dividends, is summarized in the table below.

 September 30 
(Dollars)2012
 2013
 2014
 2015
 2016
 2017
            
Lee Enterprises, Incorporated100.00
 178.38
 228.38
 140.54
 253.38
 148.65
Peer Group Index100.00
 131.94
 127.30
 120.95
 129.33
 200.09
S&P 500 Stock Index100.00
 119.34
 142.89
 142.02
 163.93
 194.44
The

                  

September 27

 

(Dollars)

 

2016

  

2017

  

2018

  

2019

  

2020

 
                     
Lee Enterprises, Incorporated 180.29  105.77  127.40  98.08  40.33 
Peer Group Index 115.89  155.02  182.29  193.37  249.98 
S&P 500 Stock Index 115.43  136.91  161.43  168.30  193.80 

The S&P 500 Stock Index includes 500 U.S. companies in the industrial, transportation, utilities and financial sectors and is weighted by market capitalization. The New Peer Group Index is comprised of threesix U.S. publicly traded companies with significant newspaper publishing operations (excluding the Company) and is weighted by market capitalization. The Peer Group Index includes A.H. Belo Corp., The McClatchy Company andGannett Co. Inc, The New York Times Company.Company and Tribune Publishing Co.


ITEM 6. SELECTED FINANCIAL DATA

Selected financial data is as follows:

(Thousands of Dollars and Shares, Except Per Common Share Data)2017
 2016
 2015
 2014
 2013
    
  
  
  
OPERATING RESULTS (1)
   
  
  
  
          
Operating revenue566,943
 614,364
 648,543
 660,877
 677,774
Operating expenses, excluding depreciation, amortization, and impairment of intangible and other assets441,873
 476,413
 501,760
 505,822
 517,047
Depreciation and amortization41,282
 43,441
 45,563
 48,511
 55,527
Loss (gain) on sales of assets, net(3,667) (3,139) 106
 (1,338) 110
Impairment of intangible and other assets (1)
2,517
 2,185
 —
 2,980
 171,094
Equity in earnings of associated companies7,609
 8,533
 8,254
 8,297
 8,685
Operating income (loss)92,547
 103,997
 109,368
 113,199
 (57,319)
Interest expense(57,573) (64,233) (72,409) (79,724) (89,447)
Debt financing and administration costs(4,818) (5,947) (5,433) (22,927) (646)
Gain on insurance settlement—
 30,646
 —
 —
 —
Other, net10,060
 (6,268) 6,386
 3,413
 8,189
          
Income (loss) from continuing operations28,605
 36,019
 24,318
 7,671
 (76,478)
Discontinued operations, net of income taxes—
 —
 —
 —
 (1,246)
Net income (loss)28,605
 36,019
 24,318
 7,671
 (77,724)
          
Income (loss) attributable to Lee Enterprises, Incorporated27,481
 34,961
 23,316
 6,795
 (78,317)
          
Income (loss) from continuing operations attributable to Lee Enterprises, Incorporated27,481
 34,961
 23,316
 6,795
 (77,071)
       
       
          
Basic:         
Continuing operations0.51
 0.66
 0.44
 0.13
 (1.49)
Discontinued operations—
 —
 —
 —
 (0.02)
 0.51
 0.66
 0.44
 0.13
 (1.51)
   
Diluted:         
Continuing operations0.50
 0.64
 0.43
 0.13
 (1.49)
Discontinued operations—
 —
 —
 —
 (0.02)
 0.50
 0.64
 0.43
 0.13
 (1.51)
   
Weighted average common shares:         
Basic53,990
 53,198
 52,640
 52,273
 51,833
Diluted55,392
 54,224
 53,931
 53,736
 51,833
   
       
          
Total assets620,850
 662,855
 747,825
 811,275
 827,705
Debt, including current maturities (2)
548,385
 617,167
 725,872
 804,750
 847,500
Debt, net of cash and restricted cash (2)
537,764
 600,183
 714,738
 787,605
 829,938
Stockholders' deficit(92,235) (128,485) (159,393) (178,253) (170,350)

(Thousands of Dollars and Shares, Except Per Share Data)

 

2020

  

2019

  

2018

  

2017

  

2016

 
                     

OPERATING RESULTS

                    

Operating revenue

  618,004   509,854   543,955   566,943   614,364 

Cash Costs (1) (3)

  526,648   398,815   423,766   437,767   477,857 

Depreciation and amortization

  36,133   29,332   31,766   41,282   43,441 

Assets loss (gain) on sales, impairments and other

  (5,403)  2,464   6,429   (1,150)  (954)

Restructuring costs and other

  13,751   11,635   5,550   7,523   1,825 

Equity in earnings of associated companies

  3,403   7,121   9,249   7,609   8,533 

Operating income (3)

  50,278   74,729   85,693   89,130   100,728 

Interest expense

  (47,743)  (47,488)  (52,842)  (57,573)  (64,233)

Debt financing and administration costs

  (11,966)  (7,214)  (5,311)  (4,818)  (5,947)

Gain on insurance settlement

  —   —   —   —   30,646 
Other, net (3)  12,274   3,813   3,280   13,477   (9,537)
                     

Net income

  (1,261)  15,909   47,048   28,605   36,019 
                     

Income attributable to Lee Enterprises, Incorporated

  (3,106)  14,268   45,766   27,481   34,961 
                     

Earnings per common share:

                    
Basic  (0.05)  0.26   0.84   0.51   0.66 
Diluted  (0.05)  0.25   0.82   0.50   0.64 
                     

Weighted average common shares:

                    

Basic

  56,569   55,565   54,702   53,990   53,198 

Diluted

  56,936   56,884   55,948   55,392   54,224 
                     
Adjusted EBITDA (1)  97,171   121,488   131,929   141,191   153,787 

Total assets

  864,057   555,202   575,411   620,850   662,855 
Debt, including current maturities (2)  538,290   443,627   484,859   548,385   617,167 

Debt, net of cash and restricted cash (2)

  504,557   434,982   479,479   537,764   600,183 

Stockholders' deficit

  (31,564)  (38,484)  (37,354)  (92,235)  (128,485)

(1)

 Cash costs and Adjusted EBITDA are non GAAP financial measures. See Item 7.

(2)

(1)The Company recorded pretax, non-cash impairment charges to reduce the carrying value of assets as follows:
(Thousands of Dollars)2017
 2016
 2015
 2014
 2013
          
Continuing operations:         
Goodwill—
 —
 —
 —
 —
Non-amortized intangible assets2,035
 818
 —
 1,936
 1,567
Amortizable intangible assets—
 —
 —
 —
 169,041
Property, equipment and other assets482
 1,367
 —
 1,044
 486
 2,517
 2,185
 —
 2,980
 171,094
(2)

Principal amount of debt, excluding fair value adjustments.debt. See Note 46 of the Notes to Consolidated Financial Statements, included herein.

 

(3)

 In 2019 we reclassified all components of pension expense, except services costs, from compensation to other non-operating income. See Note 1 of the Consolidated Financial Statements, included herein.


 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion includes comments and analysis relating to our results of operations and financial condition as of September 24, 201727, 2020 and for 2017, 20162019 and 2015. This2018. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, included herein.

NON-GAAP FINANCIAL MEASURES

We use non-GAAP financial performance measures for purposes of evaluating our performance and liquidity. We believe that each ofto supplement the non-GAAP measuresfinancial information presented provides useful information to investors by allowing them to view our businesses through the eyes of our management and Board of Directors, facilitating comparison of results across historical periods, and providingon a focus on the underlying ongoing operating performance and liquidity of our businesses. TheGAAP basis. These non-GAAP financial measures should not be considered in isolation or as a substitute for the relevant GAAP measures and should be read in conjunction with information presented on a GAAP basis.

In this report, we usepresent Adjusted EBITDA, cash costs and margin, which are non-GAAP financial performance measures that exclude from our reported GAAP results the impact of certain items consisting primarily of restructuring charges and non-cash charges. We believe such expenses, charges, and gains are not indicative of normal, ongoing operations, and their inclusion in results makes for more difficult comparisons between years and with peer group companies. In the future, however, we are likely to incur expenses, charges, and gains similar to the items for which the applicable GAAP financial measures have been adjusted and to report non-GAAP financial measures excluding such items. Accordingly, exclusion of those or similar items in our non-GAAP presentations should not be interpreted as implying the items are non-recurring, infrequent, or unusual.

We define our non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, as follows:


Adjusted EBITDA is a non-GAAP financial performance measure that enhances a financial statement user'susers overall understanding of the operating performance of the Company. The measure isolates unusual, infrequent or non-cash transactions from the continuing operating performance of the business. This allows users to easily compare operating performance among various fiscal periods and understand how management measures the performance of the business. This measure also provides users with a benchmark that can be used when forecasting future operating performance of the Company that excludes unusual, nonrecurring or one time transactions. Adjusted EBITDA is also a component of the calculation used by stockholders and analysts to determine the value of our business when using the market approach, which applies a market multiple to financial metrics. It is also a measure used to calculate the leverage ratio of the Company, which is a key financial ratio monitored and used by the Company and its investors. Adjusted EBITDA is defined as net income (loss), plus nonoperatingnon-operating expenses, (income), net, income tax expense (benefit), depreciation and amortization, assets loss (gain) on sale of assets, impairment charges, workforce adjustmentsales, impairments and other, restructuring costs and other, stock compensation and our 50% share of EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI and curtailment gains.


Adjusted Income (Loss) and Adjusted Earnings (Loss) Per Common Share are non-GAAP financial performance measures that we believe offer a useful metric to evaluate overall performance of the Company by providing financial statement users the operating performance of the Company on a per share basis excluding the impact of changes in the warrant valuation as well as unusual and infrequent transactions. It is defined as income (loss) attributable to Lee Enterprises, Incorporated and diluted earnings (loss) per common share adjusted to exclude the impact of the warrant valuation and the insurance settlement.

Cash Costs isrepresent a non-GAAP financial performance measure of operating expenses thatwhich are measured on an accrual basis and settled in cash andcash. This measure is useful to investors in understanding the components of the Company’s cashcash-settled operating costs. Generally, the Company provides forward-looking guidance of Cash Costs which can be used by financial statement users to assess the Company's ability to manage and control its operating cost structure. Cash Costs isare defined as compensation, newsprint and ink and other operating expensesexpenses. Depreciation and workforce adjustmentsamortization, assets loss (gain) on sales, impairments and other. Depreciation, amortization, impairment charges,other, other non-cash operating expenses and other expenses are excluded. Cash Costs are also presented excluding workforce adjustments,exclude restructuring costs and other, which are paidtypically settled in cash.



We

Total Operating Revenue Less Cash Costs, or “margin”, represents a non-GAAP financial performance measure of revenue less total cash costs, also present revenue and certain operating expense trends on a Same Property basis which excludes results from the acquisition of the Dispatch-Argus and a small weekly publication acquired in 2017 as well as the operating results of the Daily Herald in Provo, UT, which was sold in August 2016. Same Property results arenon-GAAP financial measure. This measure is useful to investors in understanding the revenue and operating expense trends excluding the impactprofitability of changes due to operations no longer owned by the Company or operations that were recently acquired.


after direct cash costs related to the production and delivery of products are paid. Margin is also useful in developing opinions and expectations about the Company’s ability to manage and control its operating cost structure in relation to its peers.

A table reconciling adjustedAdjusted EBITDA to net income, (loss), the most directly comparable measure under GAAP, is set forth below under the caption "Reconciliation of Non-GAAP Financial Measures".


Reconciliations of adjusted income (loss) and adjusted earnings per diluted common share to income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per diluted common share, respectively, the most directly comparable measures under GAAP, are set forth in Item 7, included herein, under the caption “Overall Results”.

The subtotals of operating expenses representing cash costs and total operating revenue less cash costs can be found in tables in Item 7, included herein, under the captions “2017 vs. 2016” and “2016 vs. 2015”caption “Continuing Operations”.


RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(UNAUDITED)


The table below reconciles the non-GAAP financial performance measure of adjustedAdjusted EBITDA to net income, the most directly comparable GAAP measure:

(Thousands of Dollars)

 

2020

  

2019

  

2018

 
             

Net Income

  (1,261)  15,909   47,048 

Adjusted to exclude

            

Income tax expense (benefit)

  4,104   7,931   (16,228)

Non-operating expenses, net

  47,435   50,889   54,873 

Equity in earnings of TNI and MNI

  (3,403)  (7,121)  (9,249)

Assets (gain) loss on sales, impairments and other

  (5,403)  2,464   6,429 

Depreciation and amortization

  36,133   29,332   31,766 

Restructuring costs and other

  13,751   11,635   5,550 
Stock compensation  1,051   1,638   1,857 

Add:

            
Ownership share of TNI and MNI EBITDA (50%)  4,764   8,811   9,883 

Adjusted EBITDA

  97,171   121,488   131,929 

17
(Thousands of Dollars)2017
2016
2015
    
Net Income28,605
36,019
24,318
Adjusted to exclude   
Income tax expense11,611
22,176
13,594
Non-operating expenses, net52,331
45,802
71,456
Equity in earnings of TNI and MNI(7,609)(8,533)(8,254)
Loss (gain) on sale of assets, net(3,667)(3,139)106
Impairment of intangible and other assets2,517
2,185
—
Depreciation and amortization41,282
43,441
45,563
Workforce adjustments and other7,523
1,825
3,304
Stock compensation2,088
2,306
1,971
Add:   
Ownership share of TNI and MNI EBITDA (50%)9,927
11,705
11,246
Adjusted EBITDA144,608
153,787
163,304
 

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of operations and financial condition are based upon our Consolidated Financial Statements, which have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP").

The preparation of these financial statements in conformity with generally accepted accounting principles requires usmanagement to make estimates and judgmentsassumptions about future events that affect the amounts reported amounts of assets, liabilities, revenuein the financial statements and expenses, and related disclosure of contingent assets and liabilities.accompanying notes. Actual results could differ significantly from those estimates. We evaluatebelieve the following discussion addresses our estimates on an on-going basis.


We base our estimates on historical experience and on various other assumptionsmost critical accounting policies, which are those that are believedimportant to be reasonable under the circumstances, thepresentation of our financial condition and results of which form the basis for making judgments about the carrying values of assetsoperations and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Additional information follows with regard to certain of therequire management's most critical of our accounting policies.

subjective and complex judgments.

Intangible Assets, Other Than Goodwill

In assessing the recoverability of non-amortized

Local mastheads (e.g., publishing periodical titles and web site domain names) are not subject to amortization. Non-amortized intangible assets weare tested for impairment annually assess qualitative factors affecting


our business to determine if the probability of a goodwill impairment is more likely than not. Our assessment includes reviewing internal and external factors affecting our business, such as revenue projections and other industry or market considerations. This assessment is made as ofon the first day of ourthe fourth fiscal quarter of each year.

We analyze non-amortized intangible assets for impairmentor more frequently if impairment indicators are present. Such indicators of impairment include, but are not limited to,events or changes in business climate and operating or cash flow losses related to such assets.

Should we determine that a non-amortized intangiblecircumstances suggest the asset might be impaired.

The quantitative impairment is more likely than not, we make a determinationtest consists of the individual asset's fair value. Fair value is determined using the relief from royalty method, which estimates fair value based upon appropriate royalties of future revenue discounted to their present value. The impairment amount, if any, is calculated based on the excess of the carrying amount overcomparing the fair value of such asset.


We review our amortizable intangible assets for impairment when indicators of impairment are present. We assess recoverability of these assets by comparing the estimated undiscounted cash flows associatedeach masthead or domain name with the asset group with theirits carrying amount. The impairment amount, if any, is calculated based on the excess of the carrying amount overWe use a relief from royalty approach which utilizes a discounted cash flow model to determine the fair value of those asset groups.

The required valuation methodologyeach masthead, domain name, or trade name. Management's judgments and estimates of future operating results in determining the intangibles fair values are consistently applied to each underlying financial information that are used to determinebusiness in determining the fair value require significant judgmentsof each intangible asset. In 2020, we recognized impairment charges of $972,000. No impairment was recorded in 2019 or 2018. Of our various mastheads, several have fair values that have little headroom over their carrying value and could experience impairment in the future if we do not achieve our revenue projections.

Our amortizable intangible assets consist mainly of customer relationships including subscriber lists and advertiser relationships. These asset values are amortized systematically over their estimated useful lives. Intangible assets subject to amortization are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be made by us and represent a Level 3 fair value measurement. These judgments include, but arerecoverable. The carrying amount of each asset group is not limited to, long term projections of future financial performance andrecoverable if it exceeds the selection of appropriate discount rates used to determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

We also periodically evaluate our determinationsum of the useful lives of amortizable intangible assets. Any resulting changes inundiscounted cash flows expected to result from the useful livesuse of such asset group. There were no indicators of impairment on intangible assets will not impact our cash flows. However, a decreasesubject to amortization in the useful lives of such intangible assets would increase future amortization expense and decrease future reported operating results and earnings per common share.

In 2017 and 2016, due to continuing revenue declines, we recorded non-cash charges to reduce the carrying value of non-amortized intangible assets. We also recorded pretax, non-cash charges to reduce the carrying value of property, equipment and other assets in 2017 and 2016. We recorded deferred income tax benefits related to these charges.
A summary of impairment charges is included in the table below:
(Thousands of Dollars)2017
 2016
 2015
      
Continuing operations:     
Non-amortized intangible assets2,035
 818
 —
Property, equipment and other assets482
 1,367
 —
 2,517
 2,185
 —

2020, 2019 or 2018.

Future decreases in our market value, or significant differences in revenue, expenses or cash flows from estimates used to determine fair value, could result in additional impairment charges in the future.


Pension, Postretirement and Postemployment Benefit Plans

We, evaluatealong with our liabilitysubsidiaries, have various defined benefit retirement plans, postretirement plans and postemployment plans, under which substantially all of the benefits have been frozen in previous years.

We account for our pension, postretirement and postemployment benefit plans based upon computations made by consulting actuaries, incorporating estimates and actuarial assumptions of future plan service costs, future interest costs on projected benefit obligations, rates of compensation increases, whenin accordance with the applicable employee turnover rates, anticipated mortality rates, expected investment returns on plan assets, asset allocation assumptions of plan assets, and other factors. If we used different estimates and assumptions regarding these plans,accounting guidance, which requires us to include the funded status of our pension plans in our balance sheets and to recognize, as a component of other comprehensive income (loss), the plans could vary significantly, resultinggains or losses that arise during the period but are not recognized in recognitionpension expense. The service cost component of different amountsnet period benefit cost is reported on the Consolidated Statements of Income and Comprehensive Income and included in Compensation while all other components are included in other non-operating income/expense.

The determination of pension and postretirement plan obligations and expense over future periods.

Increases in market interestis based on a number of actuarial assumptions. Two critical assumptions are the discount rates which may impactapplied to pension and postretirement plan assumptions, generally result in lower service costs forobligations and the expected long-term rate of return on plan assets.

The discount rate assumption is based on investment yields available at year-end on corporate bonds rated AA and above with a maturity to match the expected benefit payment stream. To determine the expected long-term rate of return on pension plan assets, we consider the current employees, higher interest expense and lower liabilities. Actualexpected asset allocations, as well as historical and expected returns on various categories of plan assets, thatinput from the actuaries and investment consultants and long- term inflation assumptions. We used an assumption of 6.0% for 2020 for our expected return on pension plan assets and a 4.5% for 2020 for our postretirement and postemployment benefits.

The following table illustrates the sensitivity to a 50 basis point change in:

  

Effect on 2020 Pension

  

Effect on September 27, 2020

 
  

Expense

  

Liability

 

Pension discount rate(1)

 $—  $24,734,000 

Postretirement and postemployment benefits discount rate(1)

 $—  $3,800,000 

Pension expected rate of return on assets

 $1,142,000  $— 

Postretirement and postemployment benefits expected rate of return on assets

 $126,000  $— 

(1)

Legacy Lee, defined as "the operating assets and results of operations of the Company prior to the Closing Date of BH Media and Buffalo News" Pension and Other Postretirement Plans have been frozen as of September 29, 2019.

18

Income Taxes

We are lower than


the plan assumptions will generally result in decreases in a plan's funded status and may necessitate additional contributions.

Income Taxes
Deferredsubject to income taxes in the U.S. and record our tax provision for the anticipated tax consequences in our reported results of operations. Tax laws are providedcomplex and subject to different interpretations by the taxpayer and respective government taxing authorities. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against our net deferred tax assets, if any.

Our current and deferred income tax provisions are calculated based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. These estimates are reviewed and adjusted, if needed, throughout the year. Adjustments between our estimates and the actual results of filed returns are recorded when identified.

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using the asset and liability method, whereby deferredcurrently enacted tax rates. Deferred income tax assets are recognized for deductible temporary differences and loss carryforwards and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax basis. We currently have recordedDeferred income tax assets are reduced by a valuation allowances that we will maintain until,allowance when, in our opinion, it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Our income tax expense recorded in the future may be increased or decreased to the extent our valuation allowances change. An increase in the valuation allowance could result in additional income tax expense, while a decrease in the valuation allowance could result in a reduction to income tax expense, in such period and could have a significant impact on our future earnings.


We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits as a component of income tax expense. Changes in accounting

Business Combinations

Accounting for uncertain tax positions can result in additional variability in our effective income tax rate.


Our current and deferred income tax provisions are calculated based onbusiness combinations requires us to make significant estimates and assumptions, that could differ fromespecially at the actual results reflected in income tax returns filed during the subsequent year. These estimates are reviewedacquisition date, with respect to tangible and adjusted, if needed, throughout the year. Adjustments betweenintangible assets acquired and liabilities assumed. We use our best estimates and the actual results of filed returns are recorded when identified.
We file income tax returns with the Internal Revenue Service (“IRS”) and various state tax jurisdictions. From timeassumptions to time, we are subject to routine audits by those agencies, and those audits may result in proposed adjustments. We have considered the alternative interpretations that may be assumed by the various taxing agencies, believe our positions taken regarding our filings are valid, and that adequate tax liabilities have been recorded to resolve such matters. However, the actual outcome cannot be determined with certainty and the difference could be material, either positively or negatively,accurately assign fair value to the Consolidated Statements of Incometangible and Comprehensive Income inintangible assets acquired and liabilities assumed at the periods in which such matters are ultimately determined. See "Changes in Laws and Regulations."
Revenue Recognition
Advertising revenue is recorded when advertisements are placed in the publication or on the related digital platform. Subscription revenue is recorded over the print or digital subscription termacquisition date as well as the product is delivered or made available or as newspapers are individually sold. Other revenue is recognized when the related product or service has been delivered. Unearned revenue arises in the ordinary courseuseful lives of business from advance subscription payments for print or digital products or advance payments for advertising.
Uninsured Risks
We are self-insured for health care, workers compensation and certain long-term disability costs of our employees, subject to stop loss insurance, which limits exposure to large claims. We accrue our estimated health care costs in the period in which such costs are incurred, including an estimate of incurred but not reported claims. Other risks are insured and carry deductible losses of varying amounts.
Our accrued reserves for health care and workers compensation claims are based uponthose acquired intangible assets. The Company prepared its initial estimates of the remaining liabilityfair values of intangible assets utilizing the multi-period excess earnings method for retained losses made by consulting actuaries. The amountcustomer-related intangible assets and the relief from royalty method for indefinite lived masthead assets. Examples of workers compensation reserve has been determined based upon historical patternscritical estimates in valuing certain of incurredthe intangible assets and paid loss development factors from the insurance industry.

An increasing frequency of large claims, deteriorationgoodwill we have acquired include but are not limited to:

•

future expected cash flows from subscription, advertising and commercial print relationships and related assumptions about future revenue growth and customer retention;

•

discount rates; and

•

royalty rates used to value acquired mastheads.

Additional information regarding our accounting for business combinations can be found in overall claim experience or changes in federal or state laws affecting our liability for such claims could increase the volatility of expenses for such self-insured risks.



Note 1.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS


In March 2017, the Financial Accounting Standards Board ("FASB") issued a new standard to improve the presentation of pension and postretirement benefit expense. The new standard requires that the service cost component of pension and postretirement benefits expense is recognized as compensation expense, while the remaining components of the expense are presented outside of operating income. The current presentation includes all components of the expense as Compensation in our Consolidated Statements of Income and Comprehensive Income. The adoption of the new standard is required in 2019. Based on 2017 results, the adoption of this standard will reduce operating income by $6,574,000, which includes the impact of a $3,741,000 curtailment gain, however net income will remain unchanged.


In August 2016, the Financial Accounting Standards Board ("FASB") issued a new standard to conform the presentation in the statement of cash flows for certain transactions, including cash distributions from equity method investments, among others. The adoption of the new standard is required in 2019. The adoption of this standard may reclassify certain cash receipts within the Consolidated Statements of Cash Flows.

In MarchJune 2016, the FASB issued a new standard to replace the incurred loss impairment methodology under current GAAP with a methodology that makes improvementsreflects expected credit losses and requires consideration of a wider array of reasonable and supportable information to the accountinginform and develop credit loss estimates. We will be required to use a forward-looking expected credit loss model for employee share-based payments.both accounts receivables and other financial instruments. The new standard simplifies severalwill be adopted beginning September 28, 2020 using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align our credit loss methodology with the new standard. We are still evaluating the impact of this standard.

CERTAIN MATTERS AFFECTING CURRENT AND FUTURE OPERATING RESULTS

The following items affect period-over-period comparisons from 2020 to 2019 and will continue to affect period-over-period comparisons for future results.

Acquisitions and Divestitures

•

In March 2020, we completed the acquisition of BH Media and Buffalo News for a purchase price of $140,000,000. The acquisition was funded by a 25-year Term Loan with BH Finance, in an aggregate principal amount of $576,000,000 at a 9% annual rate (referred to herein as "Credit Agreement" and "Term Loan"), as part of a broader comprehensive refinancing of all of our then outstanding debt.

•

In the 13 weeks ended March 2020, we disposed of substantially all of the assets of certain of our smaller properties, including four daily newspapers and related print and digital publications, for an aggregate sales price of $3,950,000.

Impacts of COVID-19

With the outbreak of COVID-19 and the declaration of a pandemic by the World Health Organization on March 11, 2020, governments implemented a combination of shelter-in-place orders and other recommendations severely limiting or restricting economic activity in our local markets. Certain aspects of our operating results have experienced lower revenue and profitability over the accountinglast several years and these trends are expected to continue in the future; however, the pandemic and government restrictions caused significant and immediate declines in demand for employee share-based payment transactions, includingcertain of our products and services, and ultimately in advertising revenue.

The COVID-19 pandemic has had and the accounting for income taxesCompany expects that it will continue to have a significant negative impact, in the near term, on the Company's business and statutory tax withholding requirements,operating results. The long-term impact of the COVID-19 pandemic will depend on the length, severity and recurrence of the pandemic, the availability of antiviral medications and vaccinations, the duration and extent of government actions designed to combat the pandemic, as well as classificationchanges in consumer behavior, all of which are highly uncertain. Despite the statementsignificant negative impacts on our operating results, we have operated uninterrupted in providing local news, information and advertising in our print and digital editions.

19

In combination with our acquisition integration, ongoing business transformation and addressing the continued effects of cash flows.COVID-19 on our operating results, we continued to implement measures to solidify our relationship with our local advertisers, reduce our cost structure and preserve liquidity, and as a result expect to achieve $100 million in cost reductions from December 2019 through September 2021. These reductions will be achieved by centralizing certain business functions and systems and reducing duplicate cost structures across the combined organization. The adoptionCompany believes these initiatives will allow us to meet our commitments; however, they may not be sufficient to fully offset the negative impact of the new standard is required in 2018. We do not believe the impact from the adoption of this standard to have a material impactCOVID-19 pandemic on the Consolidated Financial Statements.


In February 2016, the FASB issued a new standard for the accounting treatmentCompany's business and results of leases. The new standard is based on the principle that entities should recognize assets and liabilities arising from leases. The new standard does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Leases are classified as finance or operating. The new standards primary change is the requirement for entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term on operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting under the new standard is largely unchanged from the previous accounting standard. In addition, the new standard expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which includes a number of practical expedients.

We currently anticipate adopting the new lease standard in the first quarter of fiscal year 2020. To date we have made progress in our assessment of the new lease standard. We are currently evaluating the provisions of the updated guidance and assessing the impact on our Consolidated Financial Statements.

In May 2014, the FASB issued new accounting requirements for the recognition of revenue from contracts with customers. The new requirements include additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In April and May 2016, the FASB also issued clarifying updates to the new standard specifically to address certain core principles including the identification of performance obligations, licensing guidance, the assessment of the collectability criterion, the presentation of taxes collected from customers, noncash considerations, contract modifications, and completed contracts at transition. The adoption of these requirements is required in 2019.

We currently anticipate adopting the new revenue recognition standard using the modified retrospective approach in the fiscal year beginning October 1, 2018. This approach consists of recognizing the cumulative effect of initially applying the standard as an adjustment to opening retained earnings.

During 2017, we established a project team to identify potential differences that would result from the application of this standard. We are in the process of reviewing our customer contracts, identifying contractual provisions that may result in a change in the timing or the amount of revenue recognized and assessing the enhanced disclosure requirements of the new guidance. Based on our evaluation, we expect to adopt the requirements of the new standard in the first quarter of 2019 and anticipate using the modified retrospective transition method.


operations.

CONTINUING OPERATIONS


2017 vs. 2016

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

(Thousands of Dollars and Shares, Except Per Share Data)2017
 2016
 Percent Change
Same Property
       
Advertising and marketing services revenue:      
Retail212,737
 238,641
 (10.9)(10.0)
Classified88,429
 101,077
 (12.5)(12.2)
National20,049
 22,114
 (9.3)(8.6)
Niche publications and other10,145
 11,631
 (12.8)(13.9)
Total advertising and marketing services revenue331,360
 373,463
 (11.3)(10.6)
Subscription191,922
 194,002
 (1.1)(0.6)
Digital services14,008
 14,240
 (1.6)(1.3)
Commercial printing9,742
 12,269
 (20.6)(20.0)
Other19,911
 20,390
 (2.3)(2.3)
Total operating revenue566,943
 614,364
 (7.7)(7.1)
Compensation209,692
 229,752
 (8.7)(8.4)
Newsprint and ink24,904
 26,110
 (4.6)(4.7)
Other operating expenses199,754
 218,726
 (8.7)(7.4)
Workforce adjustments and other7,523
 1,825
 NM
NM
Cash costs441,873
 476,413
 (7.3)(6.5)
 125,070
 137,951
 (9.3)(9.4)
Depreciation16,026
 17,291
 (7.3) 
Amortization25,256
 26,150
 (3.4) 
Gain on sales of assets, net(3,667) (3,139) 16.8
 
Impairment of intangible and other assets2,517
 2,185
 15.2
 
Equity in earnings of associated companies7,609
 8,533
 (10.8) 
Operating income92,547
 103,997
 (11.0) 
Non-operating expense, net(52,331) (45,802) 14.3
 
Income before income taxes40,216
 58,195
 (30.9) 
Income tax expense11,611
 22,176
 (47.6) 
Net income28,605
 36,019
 (20.6) 
Net income attributable to non-controlling interests(1,124) (1,058) 6.2
 
Income attributable to Lee Enterprises, Incorporated27,481
 34,961
 (21.4) 
Other comprehensive income (loss), net6,710
 (6,503) NM
 
Comprehensive income (loss) attributable to Lee Enterprises, Incorporated34,191
 28,458
 20.1
 
       
Earnings per common share:      
Basic0.51
 0.66
 (22.7) 
Diluted0.50
 0.64
 (21.9) 

All

(Thousands of Dollars and Shares, Except Per Share Data)

 

2020

  

2019

  

Percent Change

  

2018

  

Percent Change

 
Advertising and marketing services revenue  289,655   265,933   8.9   303,446   (12.4)
Subscription  265,939   186,691   42.4   195,108   (4.3)
Other  62,410   57,230   9.1   45,401   26.1 
Total operating revenue  618,004   509,854   21.2   543,955   (6.3)

Operating expenses:

                    
Compensation  243,023   182,869   32.9   199,164   (8.2)
Newsprint and ink  24,243   22,237   9.0   24,949   (10.9)

Other operating expenses

  259,382   193,709   33.9   199,653   (3.0)
Cash costs  526,648   398,815   32.1   423,766   (5.9)
Total operating revenue less cash costs  91,356   111,039   (17.7)  120,189   (7.6)
Depreciation and amortization  36,133   29,332   23.2   31,766   (7.7)
Assets (gain) loss on sales, impairments and other  (5,403)  2,464   NM   6,429   (61.7)
Restructuring costs and other  13,751   11,635   18.2   5,550   NM 
Operating expenses  571,129   442,246   29.1   467,511   (5.4)
Equity in earnings of associated companies  3,403   7,121   (52.2)  9,249   (23.0)
Operating income  50,278   74,729   (32.7)  85,693   (12.8)

Non-operating income (expense):

                    
Interest expense  (47,743)  (47,488)  0.5   (52,842)  (10.1)
Debt financing and administrative cost  (11,966)  (7,214)  65.9   (5,311)  35.8 
Other, net  12,274   3,813   NM   3,280   16.3 
Non-operating expenses, net  (47,435)  (50,889)  (6.8)  (54,873)  (7.3)
Income before income taxes  2,843   23,840   (88.1)  30,820   (22.6)
Income tax (benefit) expense  4,104   7,931   (48.3)  (16,228)  NM 
Net (loss) income  (1,261)  15,909   NM   47,048   (66.2)

Net income attributable to non-controlling interests

  (1,845)  (1,641)  12.4   (1,282)  28.0 
(Loss) income attributable to Lee Enterprises, Incorporated  (3,106)  14,268   NM   45,766   (68.8)
Other comprehensive income (loss), net of income taxes  9,064   (17,368)  NM   4,322   NM 
Comprehensive income (loss) attributable to Lee Enterprises, Incorporated  5,958   (3,100)  NM   50,088   NM 
                     

Earnings per common share:

                    
Basic  (0.05)  0.26   NM   0.84   (69.3)
Diluted  (0.05)  0.25   NM   0.82   (69.5)

Due to our fiscal calendar, 2020 and 2019 were each comprised of the52 weeks, while 2018 was comprised of 53 weeks. Additionally, we acquired or disposed of certain properties in each of 2020, 2019 and 2018.

OPERATING REVENUE

Revenue Comparison 2020-2019

Total operating revenue andtotaled $618,004,000 in 2020, up $108,150,000, or 21.2%, compared to 2019. Total operating expense trends discussed below are on a Same Property basis, unless otherwise noted,revenue increased primarily due to reflect the impactacquired revenue of the acquisitions of the Dispatch-Argus and a small weekly publication in 2017 as well as the sale of the Daily Herald in Provo, UT in 2016.


$203,039,000.

Advertising and Marketing Services Revenue


In 2017,marketing services revenue was $289,655,000 in 2020, up 8.9% compared to the prior year, including $82,246,000 from acquired Advertising and marketing services revenue. Local and national retail Advertising revenue was $211,701,000, up 6,677,000 from 2019. The increase is due to $56,863,000 of acquired local and national revenue. Classifieds revenue was $75,754,000, up $14,845,000 from 2019. The increase is due to acquired classified revenue of $25,267,000. Digital advertising and marketing services totaled $106,491,000 in 2020 and represented 36.8% of 2020 total advertising and marketing services revenue, decreased $39,062,000, or 10.6%, compared to 2016. Retailpartially offsetting print declines. The increase in all categories of advertising decreased 10.0%. The decrease in retail advertising revenue is due towere partially offset by the continued softnessdownward trend in print advertising demand resultingand the impacts of COVID-19.

Subscription revenue totaled $265,939,000 in reduced advertising volume2020, or up 42.4%, the increase is due to acquired revenue of $104,499,000, offset by lower paid print circulation units, consistent with industry trends and timing of price increases. As of September 2020, we now have 244,000 digital-only subscribers, in which 92,000 were acquired as part of the Transactions.

20

Other revenue, which primarily consist of digital services from TownNews, commercial printing revenue and until March 16, 2020, revenue from the Management Agreement, totaled $62,410,000, a 9.1% increase compared to 2019. Other revenue in 2020 included $16,270,000 of acquired revenue, primarily from large retail,commercial printing. Investments in video and streaming technology expanded product offerings that helped gain market share in publishing and broadcast, and increased revenue.

On a stand-alone basis, revenue at TownNews totaled $25,048,000, an increase of 10.7%. Investments in video and streaming technology increased product offerings that helped gain market share in publishing and broadcast.

Total digital revenue including digital advertising revenue, digital subscription revenue and digital services revenue totaled $164,259,000 in 2020, an increase of 13.6% over 2019, and represented 26.6% of our total operating revenue in 2020. The increase was due to acquired digital revenue of $21,927,000.

Equity in earnings of TNI and MNI decreased $3,718,000 in 2020.

Revenue Comparison 2019-2018

Total operating revenue was $509,854,000 in 2019 or down 6.3%, attributed to continued softness in the demand for print advertising, increases in digital revenue especially TownNews helped offset the declines.

Advertising and marketing services revenue was $265,933,000 in 2019, down 12.4%. The decline is due to reduced print advertising demand, specifically among national retailers, big box stores and classifieds.classifieds consistent with general trends adversely affecting the publishing industry. Digital retail advertising on a stand-alone basis increased 9.4%, partially offsetting print declines.


Classified revenue decreased $12,157,000, or 12.2%, in 2017 as we continue to experience a reduction in print advertising from automotive, employment and real estate in most of our markets which combined, declined 18.3%. While other classified revenue, which includes obituaries and legal notices, declined $1,435,000, or 3.5%, in 2017. Digital classified revenue on a stand-alone basis increased 5.8%.

National advertising decreased $1,869,000, or 8.6%. Digital national advertising on a stand-alone basis increased 6.0%.

Niche publications and other decreased $1,610,000, or 13.9%, in 2017. Declines were primarily due to elimination of products that do not meet our profit margin standards.

On a stand-alone basis, digital advertising included in advertising marketing services revenue increased 8.0% to $91,947,000,totaled $100,007,000 in 2017, representing 28.0%2019 and represented 37.6% of 2019 total advertising and marketing services revenue. revenue, partially offsetting print declines.

Subscription revenue totaled $186,691,000 in 2019, or down 4.3% 2019. The decrease is attributed to volume declines in full access subscriptions reflecting general industry trends, partially offset by strategic pricing initiatives due to our premium content and a 79.1% increase in digital-only subscribers. As of September 2019, we had 91,000 digital only subscribers.

Other revenue increased $11,829,000, or 26.1%, in 2019. Management agreement revenue totaled $12,589,000 in 2019 compared to $1,331,000 in 2018 due to a full year under the agreement with BHMG (as defined above). Digital services revenue, which is predominately TownNews, increased 20.3%, in 2019 due to product expansion and market share gains. The increases were partially offset by revenue declines in commercial printing and third party delivery due to a reduction in print volume.

On a stand-alone basis, revenue at TownNews totaled $22,627,000, an increase of 20.1%, excluding the 53rd week of operations in 2018. Investments in video and streaming technology increased product offerings that helped gain market share in publishing and broadcast. Excluding intercompany activity, revenue at TownNews increased 24% in 2019.

Total digital revenue including TownNews.comdigital advertising revenue, digital subscription revenue and all other digital businessservices revenue totaled $105,954,000$144,646,000 in 2017,2019, an increase of 6.7%4.0% over 2016. TownNews.com generates the majority of its revenue from content management services at our properties as well as 1,600 other newspapers2018, and other media operations. Print advertising, including preprints and print marketing services revenue, decreased 16.2%.


Subscription and Other Revenue

Subscription revenue decreased $1,083,000, or 0.6%, in 2017. Selective price increases mostly offset paid subscription revenue declines from reduced volume.

Our average daily newspaper circulation, including TNI, MNI and digital subscribers, totaled 0.8 million in 2017. Sunday circulation totaled 1.2 million.

Digital services revenue decreased $189,000, or 1.3%, due to a decrease in online surveys revenue, offset by revenue growth at TownNews.com. Commercial printing revenue decreased $2,420,000, or 20.0%, in 2017 Period due to decreased volume from severalrepresented 28.4% of our existing customers.

In 2017, our mobile, tablet, desktop and app sites, includingtotal operating revenue in 2019.

Equity in earnings of TNI and MNI attracted an average of 25.4 million unique visitors per month, with 227.2 million monthly page views,decreased $2,128,000 in 2019.

OPERATING EXPENSES

Operating Expense Comparison 2020-2019

Total operating expenses were $571,128,000, a 5.7%29.1% increase compared to 2016. Increased audience engagement is driving2019, which included $193,805,000 in operating expenses from acquisitions. Cash costs were $526,647,000 a higher number pages viewed per user session in 2017. Research in our larger markets indicates we are maintaining our share32.1% increase compared to 2019, which included $176,763,000 of audience in our markets through the combination of digital audience growth and strong print newspaper readership.


Operating Expenses

Operating expenses on a GAAP basis decreased 7.1% in 2017. Excluding workforce adjustments, cash costs decreased $36,004,000 or, 7.7%, in 2017.

acquired Cash Costs. 

Compensation expense decreased $19,064,000,increased $60,154,000 in 2020, or 8.4%,a 32.9% increase compared to 2019. This increase was attributable to $86,121,000 of acquired compensation expense, partially offset by expense and FTE reductions tied to business transformation projects. In response to the COVID-19 outbreak, we issued furloughs or compensation reductions for all employees resulting in 2017, driven by a decline of 8.5%temporary $10,000,000 reduction in average full time equivalent employees and lower self-insured medical costs.


operating expenses.

Newsprint and ink costs decreased $1,226,000,increased $2,006,000 in 2020, or 4.7%, in 2017, as a result9% increase compared to 2019. This increase is attributable to acquired newsprint and ink expenses of a 12.2% reduction$10,643,000, offset by declines in newsprint volume partially offset by higher prices.and prices and outsourcing of our printing. See Item 7A, “Commodities”, included herein, for further discussion and analysis of the impact of newsprint on our business.


Other operating expenses decreased $15,714,000,increased $65,672,000 in 2020, or 7.4%, in 2017.a 33.9% increase compared to 2019. Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation and amortization, or workforce adjustmentsrestructuring costs and other. The largest components are costs associated with printing and distribution of theseour printed products, digital cost of goods sold and facility expenses. The increase is attributable to $79,948,000 of acquired other operating expenses and increases in digital investments, partially offset by lower delivery and other print-related costs due to lower volumes of our print editions.

Restructuring costs and other totaled $13,751,000 and $11,635,000 in 2020 and 2019, respectively. In 2020 and 2019, restructuring costs and other include delivery, postage, outsourcedan estimate of costs related to withdrawals from certain of our multiemployer pension plans totaling $4,400,000 and $3,836,010, respectively. The remaining restructuring costs in 2020 and 2019 are predominately severance.

Depreciation expense increased $2,890,000, or 23.1%, in 2020. Amortization expense increased $3,911,000, or 23.2%, in 2020.

Assets loss (gain) on sales, impairments and other was a net gain of $5,403,000 in 2020 compared to net expense of $2,464,000 in 2019. 

The factors noted above resulted in operating income of $50,278,000 in 2020 compared to $74,729,000 in 2019.

21

Operating Expense Comparison 2019-2018

Operating expenses decreased $25,265,000, or 5.4%, in 2019 due to business transformation projects, outsourcing of certain production operations and reductions in legacy print expenses. The 53rd week of operations added $6,875,000 of operating expenses in 2018. Cash costs decreased 5.9% compared to 2018.

Compensation expense was down $16,295,000, or 8.2%, due to a 10.9% reduction in FTE's with compensation increases offsetting the declines in headcount. Business transformation projects and outsourcing helped drive efficiencies and reduced headcount and compensation expense.

Newsprint and ink costs were down $2,712,000, or 10.9%, attributed to a same property basis decrease of 8.9%, due to a 12.3% reduction in newsprint volume from print volume declines partially offset by higher average prices. Average newsprint prices increased the first half of 2019 and declined the second half end the year with prices ending 2019 at their lowest levels. See Item 7A, "Commodities", included herein, for further discussion and analysis of the impact of newsprint on our business.

Other operating expenses were down $5,944,000, or 3.0%, due to a same property basis decrease of 3.7%. The largest components are costs associated with printing and distribution of our printed products, digital cost of goods sold and facility expenses. Cost reductions were primarily related to lower subscriber delivery cost from lowand other print-related costs due to lower volumes of our print distribution volumeseditions, offset in part by costs associated with growing digital revenue.

Restructuring costs and a decreaseother totaled $11,635,000 and $5,550,000 in postage2019 and 2018, respectively. In 2019, restructuring costs as a result of a reduction in direct mail advertising volumes.


Workforce adjustment anand other costs totaled $7,523,000 and $1,825,000 in 2017 and 2016, respectively. The 2017 includes a $2,600,000 expense to recordinclude an estimate of a partial withdrawal liabilitycosts related to withdrawals from one of ourcertain multiemployer pension plans.


Results of Operations

On a GAAP basis, depreciationplans totaling $3,386,010. The remaining restructuring costs in 2019 and 2018 are predominately severance.

Depreciation expense decreased $1,265,000,$2,049,000, or 7.3%, and amortization14.1% in 2019. Amortization expense decreased $894,000,$385,000, or 3.4%2.2%, in 2017. Sales of operating assets2019.

Assets loss (gain) on sales, impairments and other was a net totaled $3,667,000expense of $2,464,000 in 20172019 compared to $6,429,000 in 2018. We recognized a $2,464,000 loss on sale of assets in 2019 compared to an $8,193,000 loss in 2018. We recorded $267,000 of non-cash impairment charges in 2018, and included a $3,741,000also in 2018, we recognized curtailment gaingains of $2,031,000 from the elimination of an unfunded employee benefit plan. Sales of operating assets in 2016 resulted in a net gain of $3,139,000, including the gain on the sale of the Provo Daily Herald.


In 2017, we recorded $2,517,000 of non-cash impairment charges compared to $2,185,000 in 2016.

Equity in earnings of TNI and MNI decreased $924,000 in 2017.

The factors noted above resulted in operating income of $92,547,000$74,729,000 in 20172019 compared to $103,997,000$85,693,000 in 2016.


Nonoperating2018.

NON-OPERATING INCOME AND EXPENSES

Non-operating Income and Expenses


Expense Comparison 2020-2019

Interest expense decreased $6,660,000,increased $255,000, or 10.4%0.5%, to $57,573,000$47,743,000 in 20172020 due to loweradditional debt balances.related to the 2020 acquisition. Our weighted average cost of debt, excluding amortization of debt financing cost, increasedwas 9.0% in 2020 and 10% in 2019. The reduction of the weighted average cost of debt is due to 9.9% in 2017 compared to 9.7% in 2016, as the majority of our debt repayments in 2017 were made on the 1st Lien Term Loan, our lowest cost debt.


In 2016, we recognized a $30,646,000 gain on an insurance settlement. The settlement represents our share of a subrogation recovery arising from the settlement of claims for damages suffered as a result of a 2009 loss at one of our production facilities.

2020 Refinancing. We recognized $4,818,000$11,966,000 of debt financing and administrative costs in 20172020 compared to $5,947,000$7,214,000 in 20162019. The majority of costs represent accelerated amortization of refinancing costs paid in 2014.

Included in other non-operating income and expense is income related to our 2014 refinancing, the majority ofdefined benefit pension plans and other post-employment benefit plans, which was amortization. Wetotaled $3,830,000 and $2,847,000 in 2020 and 2019, respectively.

Other non-operating income/expense also recognizedincludes a $1,250,000$7,600,000 realized gain on extinguishmentthe sale of debt in 2016.


a private equity investment and a fair value adjustment related to the Warrants. As more fully discussed in Note 46 of the Notes to the Consolidated Financial Statements, included herein, we recorded a liability for the Warrants, issued in connection with the Warrant Agreement. We remeasurere-measure the liability to fair value each reporting period, with changes reported in other non-operating income (expenses). Due to the fluctuation in the price of our Common Stock and changes in interest rates, the estimated fair value of the warrant liability can change each period. We recorded non-operating income of $10,181,000$832,000 and $612,000 in 20172020 and non-operating expenses2019 respectively, due to the change in fair value of $7,519,000,the Warrants.

Non-operating Income and Expense Comparison 2019-2018

Interest expense decreased $5,354,000, or 10.1%, to $47,488,000 in 2016.


Overall Results

2019 due to lower debt balances. Our weighted average cost of debt, excluding amortization of debt financing cost, was 10% in 2019 and 2018. 

We recognized income tax expense$7,214,000 of $11,611,000, resultingdebt financing and administrative costs in an effective tax rate of 28.9% in 20172019 compared to 38.1%$5,311,000 in 2016.2018. The impactmajority of costs represent amortization of refinancing costs paid in 2014, as well as an adjustment of $1,309,000 as discussed in Note 6 of the mark-to-market adjustment forNotes to the Consolidated Financial Statements, included herein.

Included in other non-operating income and expense is income related to our warrants has no related tax expense or benefit. Seedefined benefit pension plans and other post-retirement benefit plans, which totaled $2,847,000 and $2,830,000 in 2019 and 2018, respectively.

As more fully discussed in Note 106 of the Notes to the Consolidated Financial Statements, included herein, we recorded a liability for a discussion of the differences betweenWarrants, issued in connection with the expected federal income tax rateWarrant Agreement. We re-measure the liability to the actual tax rates.



As a result of the factors noted above, income attributable to Lee Enterprises, Incorporated totaled $27,481,000 in 2017 compared to $34,961,000 in 2016. We recorded earnings per diluted common share of $0.50 in 2017 and $0.64 in 2016. Excluding the warrants fair value adjustment and the gain on insurance settlement, as detailed in the table below, diluted earnings per common share, as adjusted, were $0.31 in 2017, compared to $0.42 in 2016. Per share amounts may not add due to rounding.
 2017 2016 
(Thousands of Dollars, Except Per Share Data)Amount
Per Share
Amount
Per Share
   
Income attributable to Lee Enterprises, Incorporated, as reported27,481
0.50
34,961
0.64
Adjustments:    
Warrants fair value adjustment(10,181) 7,519
 
Gain on insurance settlement—
 (30,646) 
 (10,181) (23,127) 
Income tax effect of adjustments, net—
 10,726
 
 (10,181)(0.18)(12,401)(0.23)
Income attributable to Lee Enterprises, Incorporated, as adjusted17,300
0.31
22,560
0.42

2016 vs. 2015

Operating results, aseach reporting period, with changes reported in the Consolidated Financial Statements, are summarized below:
(Thousands of Dollars and Shares, Except Per Share Data)2016
 2015
 Percent Change
      
Advertising and marketing services revenue:     
Retail238,641
 262,079
 (8.9)
Classified101,077
 116,480
 (13.2)
National22,114
 22,422
 (1.4)
Niche publications and other11,631
 11,118
 4.6
Total advertising and marketing services revenue373,463
 412,099
 (9.4)
Subscription194,002
 194,474
 (0.2)
Digital services14,240
 12,522
 13.7
Commercial printing12,269
 11,875
 3.3
Other20,390
 17,573
 16.0
Total operating revenue614,364
 648,543
 (5.3)
Compensation229,752
 239,028
 (3.9)
Newsprint and ink26,110
 30,263
 (13.7)
Other operating expenses218,726
 229,165
 (4.6)
Workforce adjustments1,825
 3,304
 (44.8)
Cash costs476,413
 501,760
 (5.1)
 137,951
 146,783
 (6.0)
Depreciation17,291
 18,418
 (6.1)
Amortization26,150
 27,145
 (3.7)
Loss (gain) on sales of assets, net(3,139) 106
 NM
Impairment of intangible and other assets2,185
 —
 NM
Equity in earnings of associated companies8,533
 8,254
 3.4
Operating income103,997
 109,368
 (4.9)
Non-operating expense, net(45,802) (71,456) (35.9)
Income from continuing operations before income taxes58,195
 37,912
 53.5
Income tax expense22,176
 13,594
 63.1
Net income36,019
 24,318
 48.1
Net income attributable to non-controlling interests(1,058) (1,002) 5.6
Income attributable to Lee Enterprises, Incorporated34,961
 23,316
 49.9
Other comprehensive loss, net(6,503) (6,445) 0.9
Comprehensive income attributable to Lee Enterprises, Incorporated28,458
 16,871
 68.7
      
Earnings per common share:     
Basic0.66
 0.44
 50.0
Diluted0.64
 0.43
 48.8

Advertising and Marketing Services Revenue

In 2016 advertising and marketing services revenue decreased $38,636,000, or 9.4%, compared to 2015. Retail advertising decreased 8.9%. The decrease in retail advertising revenue is due to reduced print advertising volume primarily from large retail, big box stores and classifieds. Digital retail advertising on a stand-alone basis increased 8.9%, partially offsetting print declines.

Classified revenue decreased $15,403,000, or 13.2% in 2016 as we continued to experience a reduction in print advertising from automotive, employment and real estate in most of our markets. Digital classified revenue on a stand-alone basis decreased 4.3%.

National advertising decreased $308,000 or 1.4%other non-operating income (expenses). Digital national advertising on a stand-alone basis increased 20.4% due to improved management of available ad positions offered on the national advertising exchanges and improved pricing. Revenue in niche publications and other increased $513,000, or 4.6%.

On a stand-alone basis, digital advertising included in advertising and marketing services revenue increased 5.6%, to $86,279,000 in 2016, representing 23.1% of total advertising and marketing services revenue. Mobile advertising revenue, which is included in digital advertising, increased 19.6% in 2016. Total digital revenue, including TownNews.com and all other digital business totaled $100,519,000 in 2016, an increase of 6.6% from a year ago. TownNews.com generates the majority of its revenue from content management services at our properties as well as 1,600 other newspapers and other media operations. Print advertising, including preprints and print marketing services revenue decreased 13.1%.

Subscription and Other Revenue

Subscription revenue decreased $472,000, or 0.2% in 2016. Subscription revenue was virtually flat as price increases and the addition of premium content days with higher single day pricing almost completely offset revenue declines from print subscription unit losses.

Our average daily newspaper circulation, including TNI, MNI and digital subscribers, totaled 0.9 million in 2017. Sunday circulation totaled 1.3 million.

Digital services revenue increased $1,718,000, or 13.7%, in 2016, largely due to TownNews.com. Commercial printing revenue increased $394,000, or 3.3%in 2016, due to new customers offset by decreased volume for existing customers at several of our large markets. Other revenue increased $2,817,000, or 16.0% in 2016, due to an increase in revenue for delivery of third party newspapers.

Our mobile, tablet, desktop and app sites, including TNI and MNI, attracted an average of 26.0 million unique visitors per month, with 218.8 million page views. Research in our larger markets indicates we are maintaining our share of audience in our markets through the combination of digital audience growth and strong print newspaper readership.

Operating Expenses

Operating expenses decreased 5.2% in 2016. Excluding workforce adjustments, cash costs decreased $23,868,000, or 4.8% in 2016.

Compensation expense decreased $9,276,000, or 3.9%, in 2016, driven by a decline of 7.9% in average full-time equivalent employees. Costs associated with our self-insured medical plan increased $4.0 million in 2016 due to higher claims costs compared to 2015, offsetting some of the costs due to the reduction in full-time equivalent employees.

Newsprint and ink costs decreased $4,153,000, or 13.7%, in 2016, primarily as a result of reduction in newsprint volume of10.7%. See Item 7A, “Commodities”, included herein, for further discussion and analysis of the impact of newsprint on our business.

Other operating expenses decreased $10,439,000, or 4.6%, in 2016. Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation, amortization, or workforce adjustments and other. The largest components of these costs included delivery, postage, outsourced printing, digital cost of good sold, facility expenses among others. Cost reduction were primarily related to lower subscriber delivery cost from declines in print volumes and a decrease in postage costs, as a result to a reduction in direct mail advertising volumes.

Workforce adjustment costs totaled $1,825,000 and $3,304,000 in 2016 and 2015, respectively.

Results of Operations

Depreciation expense decreased $1,127,000, or 6.1%, and amortization expense decreased $995,000, or 3.7%, in 2016. Sales of operating assets including the sale of the Provo Daily Herald in August 2016, resulted in a net gain of $3,139,000 in 2016 compared to a net loss of $106,000 in 2015.

In 2016, we recorded $2,185,000 of non-cash impairment charges.


Equity in earnings in associated companies decreased $279,000 in 2016.

The factors noted above resulted in operating income of $103,997,000 in 2016 compared to $109,368,000 in 2015

Nonoperating Income and Expenses

Interest expense decreased $8,176,000, or 11.3%, to $64,233,000 in 2016 due to lower debt balances.

In 2016, we recognized a $30,646,000 gain on an insurance settlement. The settlement represents our share of a subrogation recovery arising from the settlement of claims for damages suffered as a result of a 2009 loss at one of our production facilities.

We recognized $5,947,000 of debt financing and administrative costs in 2016 compared to $5,433,000 in 2015, related to our 2014 refinancing. We also recognized $1,250,000 gain on extinguishment of debt in 2016.

Due to the fluctuation in the price of our Common Stock, weand changes in interest rates, the estimated fair value of the warrant liability can change each period. We recorded non-operating expenses of $7,519,000 in 2016 and non-operating income of $6,568,000$612,000 in 2015 related2019 and non-operating expense of $226,000, in 2018, due to the change in fair value of the warrants.
Warrants.


Overall Results

INCOME TAX EXPENSES

On December 22, 2017, comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (2017 Tax Act) was signed into law. Among other provisions, the 2017 Tax Act reduces the federal statutory corporate income tax rate from 35% to 21%. The reduction of the corporate tax rate caused us to re-measure our deferred tax assets and liabilities to the lower federal base rate of 21%. We recognizedreported a discrete adjustment from revaluing our deferred tax assets and liabilities resulting in a net decrease in income tax expense at 38.1% of $24,872,000 for the 53 weeks ended September 30, 2018.

In 2020, we recorded income beforetax expense of $4,103,000, or 144.3% of pretax income taxesand in 2016 and 35.9% in 2015.2019, we recorded an income tax expense of $7,931,000, or 33.3% of pretax income. In 2018, we recorded an income tax benefit of $16,228,000, or 52.7% of pre-tax income. Excluding the impact from the 2017 Tax Act, the effective income tax rate for 2018 was 28.0%. See Note 1012 of the Notes to the Consolidated Financial Statements, included herein, for a discussion of the difference between the expected federal income tax rate and the actual tax rates.


As a result of the factors noted above, income attributable to Lee Enterprises, Incorporated totaled $34,961,000

NET INCOME AND EARNINGS PER SHARE

Net loss was $1.3 million in 20162020 compared to $23,316,000net income of $15.9 million in 2015. We recorded2019. The decrease in net income is predominately due to a reduction in operating income. In 2018, net income was $47.1 million. Net income in 2018 was also impacted by the 2017 Tax Act.

Diluted loss per share was $0.05 per share in 2020 compared to Diluted earnings per diluted common share of $0.64$0.25 per share in 2016 and $0.43 in 2015. Excluding the warrants fair value adjustment and the gain on the insurance settlement, as detailed in the table below,2019. In 2018, diluted earnings per common share as adjusted, were $0.42 in 2016, compared to $0.31 in 2015. Per share amounts may not add due to rounding.

 2016 2015 
(Thousands of Dollars, Except Per Share Data)Amount
Per Share
Amount
Per Share
   
Income attributable to Lee Enterprises, Incorporated, as reported34,961
0.64
23,316
0.43
Adjustments:    
Warrants fair value adjustment7,519
 (6,568) 
Gain on insurance settlement(30,646) —
 
 (23,127) (6,568) 
Income tax effect of adjustments, net10,726
   
 (12,401)(0.23)(6,568)(0.12)
Income attributable to Lee Enterprises, Incorporated, as adjusted22,560
0.42
16,748
0.31



$0.82 per share. 

LIQUIDITY AND CAPITAL RESOURCES

Our operations have historically generated strong positive cash flow are expected to provide sufficient liquidity, together with cash on hand, to meet our requirements, primarily operating expenses, interest expense and capital expenditures. A summary of our cash flows is included in the narrative below.

Operating Activities

Cash provided by operating activities totaled $72,281,000$49,869,000 in 20172020 compared to $79,190,000$57,676,000 in 20162019 due to a declinenet loss of $1,261,000 in2020 compared net income to $28,605,000of $15,909,000 in 2017 from $36,019,000 in 2016. 2019. The decline in net income is primarily the result of continued softening of the print advertising environment partially offset by lower operating expenses and a decline in pension contributions.


environment.

Cash provided by operating activities totaled $79,190,000$57,676,000 in 20162019 compared to$74,476,000 $59,296,000 in 2015. The increase in cash flows in 2016 is2018 due to an increasea decline in net income to $15,909,000 in 2019 from $22,176,000 in 2018, after adjusting for the 2018 Tax Act impact of $36,019,000$24,872,000. The decline in 2016 from $24,318,000 in 2015 as well as changes in operating assets and liabilities.


net income is primarily a result of the continued softening of the print advertising environment. 

Pension liabilities, net of plan assets, totaled $43.5 million$71,509,000 as of September 24, 2017.27, 2020. Contributions to pension plans totaled $6,131,000 in 2020. Contributions to pension plans are expected to total $4,940,000$3,190,000 in 2018.


2021.

Investing Activities

Cash required for investing activities totaled $9,455,000$118,176,000 in 2017 2020 and cash provided by investing activities$10,933,000 in 2019. Capital spending totaled $34,508,000$8,096,000 and $5,901,000 in 2016. The change in cash flows from investing activities is primarily related to a $30,646,000 insurance settlement in 2016.2020 and 2019, respectively. Proceeds from sales of assets totaled $2,582,000$21,710,000 and $9,878,000$1,501,000 in 20172020 and 2016,2019, respectively. 2020 and 2019 included $130,985,000 and 6,543,000, respectively, and in 2017, $7,450,000 was used spending related to acquire businesses. Capital spending totaled $4,078,000 and $7,091,000 in 2017 and 2016, respectively.


acquisitions.

Cash provided by investing activities totaled $34,508,000 in 2016 and cash required for investing activities totaled $208,000$10,933,000 in 2015. The change2019 and $72,000 in cash flows from investing activities is mainly due to a $30,646,000 insurance settlement2018. Capital spending totaled $5,901,000 and $6,025,000 in 2016.2019 and 2018, respectively. Proceeds from sales of assets totaled $9,878,000$1,501,000 in 20162019 and $8,871,000$6,623,000 in 2015,2018, respectively. Capital spending totaled $7,091,000 and $9,707,000 in 2016 and 2015, respectively.

We anticipate that funds necessary for capital expenditures, which are expected to total up to $10,000,000be $9,600,000 in 2018,2021, and other requirements, will be available from internally generated funds, or available under our Revolving Facility.

funds.

Financing Activities

Cash required for financing activities totaled $69,189,000$43,478,000 in 2017, $107,848,0002019 and $64,465,000 in 2016 and $79,838,0002018, while cash provided by financing activities totaled $93,395,000 in 2015.2020. Debt reduction accounted for the majority of the usage of funds in all years.


2019 and 2018, while proceeds from the 2020 Refinancing accounted for the funds provided in the 2020 period.

Debt is summarized as follows:

          

Interest Rates (%)

 
  

September 27

  

September 29

  

September 27

 

(Thousands of Dollars)

 

2020

  

2019

  

2020

 
             

Term Loan

  538,290   —   9.00 

Revolving Facility

  —   —   — 
1st Lien Term Loan  —   —   — 

Notes

  —   363,420   — 

2nd Lien Term Loan

  —   80,207   — 
   538,290   443,627     

Unamortized debt issue costs

  —   (11,282)    

Less current maturities of long-term debt

  13,733   2,954     

Total long-term debt

  524,557   429,391     

23
   
Interest Rates (%)
(Thousands of Dollars)September 24
2017
September 25
2016
September 24
2017
    
Revolving Facility—
—
6.7
1st Lien Term Loan45,145
101,304
7.5
Notes385,000
385,000
9.5
2nd Lien Term Loan
118,240
130,863
12.0
 548,385
617,167
 
Less current maturities of long-term debt30,182
25,070
 
Total long-term debt496,379
565,826
 

At September 24, 2017,27, 2020, our weighted average cost of debt, excluding amortization of debt financing costs, is 9.9%9.0%.


At September 24, 2017, aggregate minimum

Excluding payments required maturities of debt excluding amounts required to be paid from the Company's future excess cash flow computations total $30,182,000 in 2018, $20,145,000 in 2019, zero in 2020, zero in 2021, $385,000,000 in 2022 and $113,058,000 thereafter.



In addition to mandatory paydowns, the 1st and 2nd lien term loans require excess cash flow payments based on calculations(as defined in the credit agreements. See Note 4Credit Agreement), the only required principal payments include payments from net cash proceeds from asset sales (as defined in the Credit Agreement) and payments upon certain instances of change in control. Current maturities of long-term debt shown above are from excess cash flows. There are no other scheduled mandatory principal payments required under the Credit Agreement.

Liquidity

Pursuant to the terms of the Notes toCredit Agreement, our new debt does not include a revolver.

Our liquidity, consisting of cash on the Consolidated Financial Statements.


Liquidity
At balance sheet, totals $33,733,000 at September 24, 2017, after consideration of letters of credit, we have approximately $33,818,000 available for future use under our Revolving Facility. Including cash, our liquidity at September 24, 2017 totals $44,439,000.27, 2020. This liquidity amount excludes any future cash flows. Including current maturities of long-term debt of $13,733,000, our liquidity, consisting of cash on the balance sheet is $20,000,000. We expect all interest and principal payments due in the next twelve months will be satisfied by existing cash and our cash flows, which will allow us to maintain an adequate level of liquidity.

The Warrants, as defined in Note 6, if and when exercised, would provide additional liquidity in an amount up to $25,140,000.


$25,140,000, which is not considered in the calculation of Excess Cash Flow.

At September 24, 2017,27, 2020, the principal amount of our outstanding debt totals $548,385,000.$538,290,000. For the last twelve months ending September 24, 2017,27, 2020, the principal amount of our debt, net of cash, is 3.7 timesis 4.15 times our adjusted EBITDA, compared to a ratio of 3.9 times at September 25, 2016.


Pro-forma Adjusted EBITDA. 

The 20142020 Refinancing as defined in Note 6 significantly extended our debt maturity profile with final maturity of the majority of our debt in 2022. As a result, refinancing risk has been substantially reduced for the next several years.


There are numerous potential consequences under the Notes, 1st Lien Credit Facility, 2nd Lien Term Loan, if an event of default, as defined, occurs and is not remedied. Many of those consequences are beyond our control. The occurrence of one or more events of default would give rise to the right of the applicable lender(s) to exercise their remedies under the Notes, 1st Lien Credit Facility, 2nd Lien Term Loan, respectively, including, without limitation, the right to accelerate all outstanding debt and take actions authorized in such circumstances under applicable collateral security documents.

Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and repay, refinance or amend our debt agreements as they become due, or earlier if liquidity is available. The Notes, 1st Lien Credit Facility and 2nd Lien Term Loan have only limited affirmative covenants with which we are required to maintain compliance. We are in compliance with our debt covenants at September 24, 2017.

2045.

In February 20172020 our filing of a replacement Form S-3 registration statement ("Shelf") with the SEC was declared effective and expires February 2020, maintaining an effective shelf is required under our credit agreements.2023. The Shelf registration gives us the flexibility to issue and publicly distribute various types of securities, including preferred stock, common stock, warrants, secured or unsecured debt securities, purchase contracts and units consisting of any combination of such securities, from time to time, in one or more offerings, up to an aggregate amount of $750,000,000. SEC issuer eligibility rules require us to have a public float of at least $75,000,000 in order to use the Shelf. SubjectAs of September 27, 2020, we are not in a position to maintenance of the minimum level of equity market float and the conditions ofuse our existing debt agreements, the Shelf may enable us to sell securities quickly and efficiently when market conditions are favorable or financing needs arise. Under our existing debt agreements, net proceeds from the sale of any securities may be used generally to reduce debt.


Shelf.

Other Matters

Cash and cash equivalents decreased $6,363,000increased $25,088,000 in 2017,2020, increased $5,850,000$3,265,000 in 20162019 and decreased $5,570,000$5,241,000 in 2015.    

2018.

SEASONALITY

Our largest source of publishing revenue, retail advertising, is seasonal and tends to fluctuate with retail sales in markets served. Historically, retail advertising is higher in the December and June quarters. Advertising and marketing services revenue is lowest in the March quarter.

Quarterly results of operations are summarized in Note 1619 of the Notes to Consolidated Financial Statements, included herein.


INFLATION

Price increases (or decreases) for our products are implemented when deemed appropriate by us. We continuously evaluate price increases, productivity improvements, sourcing efficiencies and other cost reductions to mitigate the impact of inflation.

24

CHANGES IN LAWS AND REGULATIONS
 
Energy Costs
Energy costs can be volatile, and may increase in the future as a result of carbon emissions and other regulations being developed by the United States Environmental Protection Agency.

Health Care Costs
The Affordable Care Act was enacted into law in 2010.

We expect the requirements under the Affordable Care Act will continue to evolve. Our future health care costs are expected to increase based on analysis published by the United States Department of Health and Human Services, input from independent advisors and our understanding of the current provisions of the Affordable Care Act, such as:
•Certain preventive services provided without additional charge to employees;
•Automatic enrollment of new employees;
•Higher maximum age for dependent coverage;
•Elimination of lifetime benefit caps; and
•Free choice vouchers for certain lower income employees.

We do not expect the Affordable Care Act will have a significant impact on our postretirement medical benefit obligation liability.

Pension Plans

In 2012, the Surface Transportation Extension Act of 2012 (“STEA”) was signed into law. STEA provides for changes in the determination of discount rates that result in a near-term reduction in minimum funding requirements for our defined benefit pension plans. STEA will also result in an increase in future premiums to be paid to the Pension Benefit Guarantee Corporation ("PBGC").

In 2014, the Highway and Transportation Funding Act ("HATFA") was signed into law. HATFA generally extends the relief offered under STEA and further increases premiums to be paid to the PBGC.

Income Taxes

Certain states in which we operate periodically consider changes to their corporate income tax rates. Until such changes are enacted, the impact of such changes cannot be determined.

Wage Laws

The United States and various state and local governments are considering increasing their respective minimum wage rates. Most of our employees earn an amount in excess of the current United States or state minimum wage rates. However, until changes to such rates are enacted, the impact of the changes cannot be determined.


CONTRACTUAL OBLIGATIONS

The following table summarizes our significant contractual obligations at September 24, 201727, 2020:

(Thousands of Dollars)
Payments (or Commitments) Due (Years)
 
Nature of ObligationTotal
 
Less
Than 1

 1-3
 3-5
 
More
Than 5

          
Debt (Principal Amount) (1)
548,385
 30,182
 20,145
 385,000
 113,058
Interest expense (2)(3)
233,396
 52,840
 151,577
 27,283
 1,696
Operating lease obligations10,304
 2,976
 2,607
 1,223
 3,498
Capital expenditure commitments503
 503
 —
 —
 —
 792,588
 86,501
 174,329
 413,506
 118,252

(Thousands of Dollars)

 

Payments (or Commitments) Due (Years)

 
      

Less

          

More

 

Nature of Obligation

 

Total

  

Than 1

   1-3   3-5  

Than 5

 
                     

Debt (Principal Amount) (1)

  538,290   13,733   —   —   524,557 

Interest expense (2)(3)

  1,204,013   47,365   141,630   141,630   873,387 

Operating lease obligations

  99,444   14,436   23,316   20,302   41,390 
Capital expenditure commitments  2,050   2,050   —   —   — 
   1,843,797   77,584   164,946   161,932   1,439,334 

(1)

Maturities of long-term debt are limited to mandatory payments and, accordingly, exclude excess cash flow, asset sale and other payments under the 1st Lien Credit Facility, Notes and the 2nd Lien Term Loan. While excess cash flow payments are based on actual performance, we expect to make voluntary and excess cash flow payments on the 1st and 2nd lien term loans currently outstanding, in the next five years.payments. See Note 56 of the Notes to the Consolidated Financial Statements, included herein.

(2)

(2)

Interest expense includes an estimate of interest expense for the Notes, 1st Lien Credit Facility, and 2nd Lien Term LoanNote, until their maturitiesits maturity in March 2022, March 2019, and December 2022, respectively.2045. Interest expense under the NotesTerm Note is estimated using the 9.5%9.0% contractual rate applied to the outstanding balance as reduced by future contractual maturities of such debt. Interest expense under the 1st Lien Term Loan is estimated based on the one month LIBOR at September 24, 2017 of 1.24% as increased by our applicable margin of 6.25% applied to the outstanding balance, as reduced by future contractual maturities of such debt. Interest expense under the Revolving Facility is estimated based on the one month LIBOR at September 24, 2017 of 1.24% as increased by our applicable margin of 5.5% applied to the outstanding balance, as reduced by future contractual maturities of such debt. Interest expense under the 2nd Lien Term Loan is estimated using the 12.0% contractual rate applied to the outstanding balance during each period. Changes in interest rates in excess of current LIBOR levels, use of borrowing rates not based on LIBOR, use of interest rate hedging instruments, and/or principal payments in excess of contractual maturities or based on other requirements of the Notes, 1st Lien Credit Facility or 2nd Lien Term Loan could significantly change this estimate. See Note 56 of the Notes to Consolidated Financial Statements, included herein.

(3)

(3)

Interest expense excludes non-cash present value adjustments and amortization of debt financing costs previously paid. See Note 56 of the Notes to Consolidated Financial Statements, included herein.

The table above excludes future cash requirements for pension, postretirement and postemployment obligations. The periods in which these obligations will be settled in cash are not readily determinable and are subject to numerous future events and assumptions. See Notes 57 and 68 of the Notes to the Consolidated Financial Statements, included herein.


The contractual obligations above exclude unrecognized tax benefits to be recorded in accordance with FASB ASC Topic 740, Income Taxes. We are unable to reasonably estimate the ultimate amount or timing of cash settlements with the respective taxing authorities for such matters. A substantial amount of our deferred income tax liabilities will not result in future cash payments. See Note 1012 of the Notes to the Consolidated Financial Statements, included herein.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

INTEREST RATES ON DEBT

Our debt structure which is predominantlyentirely fixed rate significantly reducesas of September 27, 2020.

COMMODITIES 

Newsprint prices continued to decline across the potential financialfiscal year due to declining structural demand trends and the COVID-19 impact of future increases in interest rates. At September 24, 2017, 8.2% of the principal amount ofon our debt is subject to floating interest rates. Our primary exposure is to LIBOR. A 100 basis point increase to LIBOR would, in excess of LIBOR minimums discussed more fully below, decrease income before income taxes on an annualized basis by approximately $451,000 based on$45,145,000 of floating rate debt outstanding at September 24, 2017.


Our debt under the 1st Lien Term Loan is subject to minimum LIBOR interest rate levels of 1.0%. Current LIBOR rates are in excess of the minimumindustry and any future increases in LIBOR will affect our interest rates.

We regularly evaluate alternatives to hedge our interest rate risk, but have no hedging instruments in place.


COMMODITIES

Continuous declining demand for newsprint from printed publishing causedadvertising. North American newsprint producersproducer's efforts to permanently removereduce production capacity approaching 1 million metric tonnes per year,to prevent price erosion have not kept up with the declining demand trends. Favorable exchange rates between the U.S. dollar and the Canadian dollar has shifted the majority of newsprint production to Canadian locations leaving only three producers located in the second half of 2017 leading to tightening supply and price increases. Similar production capacity reductions have also taken place outside of North America. Currently, total U.S. based production capacity can only supply approximately one third of the current U.S. based newsprint demand with Canadian producers suppling the balance.

In addition to the capacity reductions one U.S. based newsprint and specialty high bright groundwood producer has filed an uncoated groundwood paper anti-dumping complaint requesting countervailing duty rates be applied to Canadian producers' imports into the U.S. The trade case has been reviewed by the U.S. International Trade Commission and has now moved to Department of Commerce to determine if antidumping and countervailing duties should be applied to sales by Canadian newsprint and uncoated groundwood producers to U.S. customers. A decision, which may or may not include tariffs, is scheduled to be made before mid-year 2018.

Capacity closures and a slightly weakening U.S. dollar have led to several price increases announcements with implementation across the December Quarter 2017 and into the beginning of 2018. Continued downward demand trends could stabilize upward price pressure on newsprint. However, the final decision on the anti-dumping and countervailing duty case has the potential to further increase prices, even with declining newsprint demand trends.

Our long term supply strategy continues to align and concentrate the Company purchases with those cost effective suppliers most likely to continue producing and supplying newsprint to the North American market and geographically alignedmarket. Where possible the Company will align supply with our print locations.


the lowest cost material. 

A $10 per tonne price increase for 3027.7 pound newsprint would result in an annualized reduction in income before taxes of approximately $365,000$518,000 based on anticipated consumption in 2018,2021, excluding consumption of TNI and MNI and the impact of LIFO accounting. Such prices may also decrease. We manage significant newsprint inventories, which will temporarily mitigate the impact of any future price increases or decreases.


SENSITIVITY TO CHANGES IN VALUE

At September 24, 2017, the fair value of floating rate debt, which consists primarily of our 1st Lien Term Loan, is $45,145,000, based on an average of private market price quotations.

Our fixed rate debt consists of $385,000,000$538,290,000 principal amount of the Notes and $118,240,000 principal amount under the 2nd Lien Term Loan.Loan recorded at carrying value. At September 24, 2017,27, 2020, based on an average of private market price quotations, the fair values were $397,513,000 and $121,787,000 for the Notes and 2nd Lien Term Loan, respectively.value is approximately equal to carrying value.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

Information with respect to this Item is included in our Proxy Statement to be filed in January 2017,2021, which is incorporated herein by reference, under the caption “Relationship with Independent Registered Public Accounting Firm”.


25

ITEM9A.CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES


Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules13a-15(e) and 15d-15(e) under the Exchange Act, as of September 24, 2017,27, 2020, the end of the period covered by this Annual Report (the “Evaluation Date”“Evaluation Date”). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including our consolidated subsidiaries, required to be disclosed in our SEC reports (i)is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii)is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.


MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING


The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule13a-15(f) of the Exchange Act. Any internal control system, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.


Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we assessed the effectiveness of our internal control over financial reporting as of the Evaluation Date, using the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that our internal control over financial reporting is effective as of the Evaluation Date.


During 2020, the Company completed the acquisitions of the assets of BH Media Group, Inc. and the stock of The Buffalo News, Inc.. Management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as of September 27, 2020, BH Media Group, Inc. and The Buffalo News, Inc.'s internal control over financial reporting associated with 38.4% of total assets and 32.5% of total revenues included in the consolidated financial statements of the Company as of and for the year ended September 27, 2020.

Our independent registered public accounting firm, KPMGLLP, has issued a report on the Company's internal control over financial reporting. KPMG’sKPMG’s report on the audit of internal control over financial reporting appears in this Annual Report.


CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING


There

On March 16, 2020, we concluded the Transactions. The internal controls related to the acquired businesses have not been considered in our assessment over internal control over financial reporting. Other than the Transactions, there have been no changes in our internal control over financial reporting that occurred during the 1352 weeks ended September 24, 201727, 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The

To the Stockholders and Board of Directors and Stockholders


Lee Enterprises, Incorporated:

Opinion on Internal Control Over Financial Reporting

We have audited Lee Enterprises, Incorporated and subsidiaries’subsidiaries' (the Company) internal control over financial reporting as of September 24, 2017,27, 2020, based on criteria established inInternal Control -– Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 27, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 27, 2020 and September 29, 2019, the related consolidated statements of income (loss) and comprehensive income (loss), stockholders’ equity (deficit), and cash flows for the 52-week period ended September 27, 2020, the 52-week period ended September 29, 2019, and the 53-week period ended September 30, 2018, and the related notes (collectively, the consolidated financial statements), and our report dated December 11, 2020, expressed an unqualified opinion on those consolidated financial statements.

The Company acquired certain assets and assumed certain liabilities of the BH Media Group, Inc. and the stock of The Buffalo News, Inc. during the 52-week period ended September 27, 2020, and management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as of September 27, 2020, BH Media Group, Inc. and The Buffalo News, Inc.'s internal control over financial reporting associated with 38.4% of total assets and 32.5% of total revenues included in the consolidated financial statements of the Company as of and for the 52-week period ended September 27, 2020.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.


We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.


Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


In our opinion, Lee Enterprises, Incorporated and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 24, 2017, based on criteria establish in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Lee Enterprises, Incorporated and subsidiaries as of September 24, 2017 and September 25, 2016, and the related consolidated statements of income and comprehensive income, stockholders’ equity (deficit), and cash flows for each of the 52-week periods ended September 24, 2017, September 25, 2016, and September 27, 2015, and our report dated December 8, 2017 expressed an unqualified opinion on those consolidated financial statements.



/s/ KPMG LLP

Chicago, Illinois

December 11, 2020


Chicago, Illinois
December 8, 2017



ITEM 9B. OTHER INFORMATION

None.

PART III

 
None.

PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information with respect to this Item, except for certain information related to our executive officers included under the caption “Executive Team” in Part I of this Annual Report, is included in our Proxy Statement to be filed inin January 2018,2021, which is incorporated herein by reference, under the captions “Proposal 1 - Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance”. Our executive officers are those elected officers whose names and certain information are set forth under the caption “Executive Team” in Part 1 of this Annual Report.

We have a Code of Business Conduct and Ethics ("Code") that applies to all of our employees, including our principal executive officer, and principal financial and accounting officer. The Code is monitored by the Audit Committee of our Board of Directors and is annually affirmed by our directors and executive officers. We maintain a corporate governance page on our website which includes the Code. The corporate governance page can be found at www.lee.net by clicking on “Governance” under the "About" tab. A copy of the Code will also be provided without charge to any stockholder who requests it. Any future amendment to, or waiver granted by us from, a provision of the Code will be posted on our website.

 

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to this Item is included in our Proxy Statement to be filed inin January 2018,2021, which is incorporated herein by reference, under the captions, “Compensation of Non-Employee Directors”, “Executive Compensation” and “Compensation Discussion and Analysis”; provided, however, that the subsection entitled “Executive Compensation - Executive Compensation Committee Report” shall not be deemed to be incorporated by reference.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

AND RELATED STOCKHOLDER MATTERS

Information with respect to this Item is included in our Proxy Statement to be filed inin January 2018,2021, which is incorporated herein by reference, under the captions “Voting Securities and Principal Holders Thereof” and “Equity Compensation Plan Information”.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

AND DIRECTOR INDEPENDENCE

Information with respect to this Item is included in our Proxy Statement to be filedfiled in January 2018,2021, which is incorporated herein by reference, under the caption “Directors' Meetings and Committees of the Board of Directors”.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information with respect to this Item is included in our Proxy Statement to be filed in January 2018,2021, which is incorporated herein by reference, under the caption “Relationship with Independent Registered Public Accounting Firm”.

28
 

PART IV

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report:

FINANCIAL STATEMENTS

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) - Years52 weeks ended September 24, 201727, 2020, 52 weeks ended September 25, 201629, 2019 and 53 weeks ended September 28, 2015

30, 2018

Consolidated Balance Sheets - September 24, 201727, 2020 and September 25, 2016

29, 2019

Consolidated Statements of Stockholders' Equity (Deficit) - Years52 weeks ended September 24, 201727, 2020, 52 weeks ended September 25, 201629, 2019 and 53 weeks ended September 28, 2015

30, 2018

Consolidated Statements of Cash Flows - Years52 weeks ended September 24, 201727, 2020, 52 weeks ended September 25, 201629, 2019 and 53 weeks ended September 28, 2015

30, 2018

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

FINANCIAL STATEMENT SCHEDULES

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

EXHIBITS

See Exhibit Index, included herein.


CONSOLIDATED FINANCIAL STATEMENTS

PAGE

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

4331

Consolidated Balance Sheets

4432

Consolidated Statements of Stockholders' Equity (Deficit) (Deficit)

4634

Consolidated Statements of Cash Flows

4735

Notes to Consolidated Financial Statements

4836

Report of Independent Registered Public Accounting Firm

61

77















 


CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(Thousands of Dollars, Except Per Common Share Data)

 

2020

  

2019

  

2018

 
             

Operating revenue:

            
Advertising and marketing services  289,655   265,933   303,446 
Subscription  265,939   186,691   195,108 
Other  62,410   57,230   45,401 

Total operating revenue

  618,004   509,854   543,955 

Operating expenses:

            
Compensation  243,023   182,869   199,164 
Newsprint and ink  24,243   22,237   24,949 
Other operating expenses  259,382   193,709   199,653 
Depreciation and amortization  36,133   29,332   31,766 
Assets loss (gain) on sales, impairments and other  (5,403)  2,464   6,429 
Restructuring costs and other  13,751   11,635   5,550 

Total operating expenses

  571,129   442,246   467,511 
Equity in earnings of associated companies  3,403   7,121   9,249 

Operating income

  50,278   74,729   85,693 

Non-operating income (expense):

            
Interest expense  (47,743)  (47,488)  (52,842)
Debt financing and administrative costs  (11,966)  (7,214)  (5,311)
Other, net  12,274   3,813   3,280 

Total non-operating expense, net

  (47,435)  (50,889)  (54,873)

Income before income taxes

  2,843   23,840   30,820 
Income tax expense (benefit)  4,104   7,931   (16,228)

Net income (loss)

  (1,261)  15,909   47,048 
Net income attributable to non-controlling interests  (1,845)  (1,641)  (1,282)

Income (loss) attributable to Lee Enterprises, Incorporated

  (3,106)  14,268   45,766 
Other comprehensive income (loss), net of income taxes  9,064   (17,368)  4,322 

Comprehensive (loss) income attributable to Lee Enterprises, Incorporated

  5,958   (3,100)  50,088 
             

Earnings per common share:

            
Basic:  (0.05)  0.26   0.84 
Diluted:  (0.05)  0.25   0.82 
(Thousands of Dollars, Except Per Common Share Data)2017
 2016
 2015
 

    
Operating revenue:     
Advertising and marketing services331,360
 373,463
 412,099
Subscription191,922
 194,002
 194,474
Other43,661
 46,899
 41,970
Total operating revenue566,943
 614,364
 648,543
Operating expenses:     
Compensation209,692
 229,752
 239,028
Newsprint and ink24,904
 26,110
 30,263
Other operating expenses199,754
 218,726
 229,165
Depreciation16,026
 17,291
 18,418
Amortization of intangible assets25,256
 26,150
 27,145
Impairment of intangible and other assets2,517
 2,185
 —
Loss (gain) on sales of assets and other, net(3,667) (3,139) 106
Workforce adjustments and other7,523
 1,825
 3,304
Total operating expenses482,005
 518,900
 547,429
Equity in earnings of associated companies7,609
 8,533
 8,254
Operating income92,547
 103,997
 109,368
Non-operating income (expense):     
Gain on insurance settlement—
 30,646
 —
Interest expense(57,573) (64,233) (72,409)
Debt financing and administrative costs(4,818) (5,947) (5,433)
Other, net10,060
 (6,268) 6,386
Total non-operating expense, net(52,331) (45,802) (71,456)
Income before income taxes40,216
 58,195
 37,912
Income tax expense11,611
 22,176
 13,594
Net income28,605
 36,019
 24,318
Net income attributable to non-controlling interests(1,124) (1,058) (1,002)
Income attributable to Lee Enterprises, Incorporated27,481
 34,961
 23,316
Other comprehensive income (loss), net of income taxes6,710
 (6,503) (6,445)
Comprehensive income attributable to Lee Enterprises, Incorporated34,191
 28,458
 16,871
      
Earnings per common share:     
Basic:0.51
 0.66
 0.44
Diluted:0.50
 0.64
 0.43

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



CONSOLIDATED BALANCE SHEETS

  

September 27

  

September 29

 

(Thousands of Dollars)

 

2020

  

2019

 
         

ASSETS

        
         

Current assets:

        
Cash and cash equivalents  33,733   8,645 
Accounts receivable, less allowance for doubtful accounts: 2020 $13,431; 2019 $6,434  52,598   42,536 
Inventories  7,534   3,769 
Prepaids and other  14,888   5,353 

Total current assets

  108,753   60,303 

Investments:

        
Associated companies  27,624   28,742 
Other  6,255   10,684 

Total investments

  33,879   39,426 

Property and equipment:

        
Land and improvements  18,711   16,979 
Buildings and improvements  128,475   148,514 
Equipment  245,117   237,289 
Construction in process  2,323   1,980 
   394,626   404,762 
Less accumulated depreciation  289,017   322,723 

Property and equipment, net

  105,609   82,039 
Operating lease right-of-use assets  70,933   0 
Goodwill  328,445   250,309 
Other intangible assets, net  182,680   107,393 
Pension plan assets, net  4,147   0 
Medical plan assets, net  15,912   14,338 
Other  13,699   1,394 

Total assets

  864,057   555,202 
(Thousands of Dollars)September 24
2017
 September 25
2016
    
ASSETS   
    
Current assets:   
Cash and cash equivalents10,621
 16,984
Accounts receivable, less allowance for doubtful accounts:   
2017 $4,796; 2016 $4,32749,469
 51,334
Inventories3,616
 4,252
Other4,132
 4,683
Total current assets67,838
 77,253
Investments:   
Associated companies29,181
 29,716
Other9,949
 9,488
Total investments39,130
 39,204
Property and equipment:   
Land and improvements20,424
 21,028
Buildings and improvements172,138
 174,164
Equipment278,880
 279,770
Construction in process752
 823
 472,194
 475,785
Less accumulated depreciation357,998
 347,223
Property and equipment, net114,196
 128,562
Goodwill246,426
 243,729
Other intangible assets, net136,302
 158,354
Medical plan assets, net15,392
 14,063
Other1,566
 1,690
    
    
    
    
    
    
Total assets620,850
 662,855

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



  

September 27

  

September 29

 

(Thousands of Dollars and Shares, Except Per Share Data)

 

2020

  

2019

 
         

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

        
         

Current liabilities:

        
Current portion of lease liabilities  8,577   0 
Current maturities of long-term debt  13,733   2,954 
Accounts payable  17,163   16,750 
Compensation and other accrued liabilities  44,278   17,711 
Accrued interest  0   1,903 
Unearned revenue  60,271   21,720 

Total current liabilities

  144,022   61,038 
Long-term debt, net of current maturities  524,557   429,391 
Operating lease liabilities  62,374   0 
Pension obligations  75,656   47,037 
Postretirement and postemployment benefit obligations  39,543   2,550 
Deferred income taxes  15,208   29,806 
Income taxes payable  18,048   8,742 
Warrants and other  14,282   13,469 

Total liabilities

  893,690   592,033 

(Deficit) equity:

        

Stockholders' equity (deficit):

        
Serial convertible preferred stock, no par value; authorized 500 shares; none issued  0   0 
Common Stock, authorized 120,000 shares; issued and outstanding:  584   577 

September 27, 2020; 58,353 shares; $0.01 par value

        

September 29, 2019; 57,646 shares; $0.01 par value

        
Class B Common Stock, $2 par value; authorized 30,000 shares; none issued  0   0 
Additional paid-in capital  256,431   255,476 
Accumulated deficit  (268,529)  (265,423)
Accumulated other comprehensive loss  (20,050)  (29,114)

Total stockholders' deficit

  (31,564)  (38,484)
Non-controlling interests  1,931   1,653 

Total deficit

  (29,633)  (36,831)

Total liabilities and deficit

  864,057   555,202 
(Thousands of Dollars and Shares, Except Per Share Data)September 24
2017
 September 25
2016
    
LIABILITIES AND STOCKHOLDERS' EQUITY   
    
Current liabilities:   
Current maturities of long-term debt30,182
 25,070
Accounts payable17,027
 18,143
Compensation and other accrued liabilities22,423
 23,884
Accrued interest1,512
 2,895
Income taxes payable183
 665
Unearned revenue26,881
 28,361
Total current liabilities98,208
 99,018
Long-term debt, net of current maturities496,379
 565,826
Pension obligations43,537
 55,148
Postretirement and postemployment benefit obligations5,004
 10,717
Deferred income taxes53,397
 38,308
Income taxes payable5,497
 5,016
Warrants and other10,041
 16,363
Total liabilities712,063
 790,396
Equity (deficit):   
Stockholders' equity (deficit):   
Serial convertible preferred stock, no par value; authorized 500 shares; none issued—
 —
Common Stock, authorized 120,000 shares; issued and outstanding:567
 558
September 24, 2017; 56,712 shares; $0.01 par value   
September 25, 2016; 55,771 shares; $0.01 par value   
Class B Common Stock, $2 par value; authorized 30,000 shares; none issued—
 —
Additional paid-in capital251,790
 249,740
Accumulated deficit(328,524) (356,005)
Accumulated other comprehensive loss(16,068) (22,778)
  Total stockholders' deficit(92,235) (128,485)
  Non-controlling interests1,022
 944
Total deficit(91,213) (127,541)
Total liabilities and deficit620,850
 662,855

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


 


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

  

Amount

  

Shares

 

(Thousands of Dollars and Shares)

 

2020

  

2019

  

2018

  

2020

  

2019

  

2018

 
                         

Common Stock:

                        
Balance, beginning of year  577   572   567   57,646   57,141   56,712 
Shares issued  7   5   5   707   505   429 

Balance, end of year

  584   577   572   58,353   57,646   57,141 

Additional paid-in capital:

                        
Balance, beginning of year  255,476   253,511   251,790             
Stock compensation  1,042   2,040   2,039             
Shares issued (redeemed)  (87)  (75)  (318)            

Balance, end of year

  256,431   255,476   253,511             
Accumulated deficit:                        
Balance, beginning of year  (265,423)  (279,691)  (328,524)            
Net income (loss)  (1,261)  15,909   47,048             
Net income attributable to non-controlling interests  (1,845)  (1,641)  (1,282)            
Cumulative effect of accounting change  0   0   3,067             
Balance, end of year  (268,529)  (265,423)  (279,691)            

Accumulated other comprehensive income (loss):

                        
Balance, beginning of year  (29,114)  (11,746)  (16,068)            
Change in pension and postretirement benefits  11,464   (24,667)  10,477             
Deferred income taxes, net  (2,400)  7,299   (3,088)            
Cumulative effect of accounting change  0   0   (3,067)            

Balance, end of year

  (20,050)  (29,114)  (11,746)            

Total stockholders' deficit

  (31,564)  (38,484)  (37,354)  58,353   57,646   57,141 
 Amount Shares
(Thousands of Dollars and Shares)2017
 2016
 2015
 2017
 2016
 2015
          
Common Stock:           
Balance, beginning of year558
 547
 537
 55,771
 54,679
 53,747
Shares issued9
 11
 10
 941
 1,092
 932
Balance, end of year567
 558
 547
 56,712
 55,771
 54,679
Additional paid-in capital:           
Balance, beginning of year249,740
 247,302
 245,323
      
    Stock compensation2,088
 2,306
 1,971
      
Shares issued (redeemed)(38) 132
 8
      
Balance, end of year251,790
 249,740
 247,302
      
Accumulated deficit:           
Balance, beginning of year(356,005) (390,966) (414,282)      
Net income28,605
 36,019
 24,318
      
Net income attributable to non-controlling interests(1,124) (1,058) (1,002)      
Balance, end of year(328,524) (356,005) (390,966)      
Accumulated other comprehensive income (loss):           
Balance, beginning of year(22,778) (16,276) (9,831)      
Change in pension and postretirement benefits11,439
 (11,001) (10,973)      
Deferred income taxes, net(4,729) 4,499
 4,528
      
Balance, end of year(16,068) (22,778) (16,276)      
Total stockholders' deficit(92,235) (128,485) (159,393) 56,712
 55,771
 54,679

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


CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)2017
 2016
 2015
      
Cash provided by operating activities:     
Net income28,605
 36,019
 24,318
Adjustments to reconcile income to net cash provided by operating activities:     
Depreciation and amortization41,282
 43,441
 45,563
Net (gain) loss on sales of assets(3,667) (3,139) 106
Insurance settlement—
 (30,646) —
Impairment of intangible and other assets2,517
 2,185
 —
Distributions greater than earnings of MNI546
 3,777
 2,084
Stock compensation expense2,088
 2,306
 1,971
Deferred income tax expense10,360
 20,669
 12,764
Debt financing and administrative costs4,818
 5,947
 5,433
Gain on extinguishment of debt—
 (1,250) —
Pension contributions—
 (4,604) (3,577)
Changes in operating assets and liabilities:     
Decrease in receivables2,854
 6,933
 3,444
Decrease in inventories and other687
 617
 3,122
Decrease in accounts payable, compensation and other accrued liabilities and unearned revenue(6,393) (8,327) (9,587)
Decrease in pension, postretirement and postemployment benefit obligations(3,473) (4,757) (3,627)
Change in income taxes receivable or payable(1) 1,238
 (34)
Other, net(7,942) 8,781
 (7,504)
Net cash provided by operating activities72,281
 79,190
 74,476
Cash provided by (required for) investing activities:     
Purchases of property and equipment(4,078) (7,091) (9,707)
Decrease in restricted cash—
 —
 441
Insurance settlement—
 30,646
 —
Proceeds from sales of assets2,582
 9,878
 8,871
Acquisitions(7,450) —
 —
Distributions greater (less) than earnings of TNI(11) 1,575
 637
Other, net(498) (500) (450)
Net cash provided by (required for) investing activities(9,455) 34,508
 (208)
Cash provided by (required for) financing activities:     
Proceeds from long-term debt5,000
 5,000
 5,000
Payments on long-term debt(73,782) (112,455) (83,878)
Debt financing and administrative costs paid(373) (422) (733)
Common stock transactions, net(34) 29
 (227)
Net cash required for financing activities(69,189) (107,848) (79,838)
Net increase (decrease) in cash and cash equivalents(6,363) 5,850
 (5,570)
Cash and cash equivalents:     
Beginning of year16,984
 11,134
 16,704
End of year10,621
 16,984
 11,134

   

(Thousands of Dollars)

 

2020

  

2019

  

2018

 
             

Cash provided by operating activities:

            

Net (loss) income

  (1,261)  15,909   47,048 

Adjustments to reconcile income to net cash provided by operating activities:

            
Depreciation and amortization  36,133   29,332   31,766 
Stock compensation expense  1,294   1,638   1,857 
Asset (gain) loss on sales, impairments and other, net  (5,403)  2,464   6,429 
Distributions greater (less) than earnings of MNI  1,402   465   (1,229)
Deferred income taxes  (3,560)  (2,003)  (17,378)
Debt financing and administrative costs  11,966   7,214   5,311 
Pension contributions  6,215   (650)  (4,990)
Payments to collateralize letters of credit  (11,502)  0   0 
Other, net  (1,083)  (497)  478 

Changes in operating assets and liabilities:

            
Decrease in receivables and contract sales  26,908   1,697   4,418 
Decrease (increase) in inventories and other  2,724   2,759   (1,926)
Decrease in accounts payable and other accrued liabilities  (8,341)  (3,676)  (8,587)

(Decrease) increase in pension, postretirement and postemployment benefit obligations

  (15,380)  1,900   (2,482)
Change in income taxes payable  7,123   1,495   687 
Other, including warrants  2,634   (371)  (342)

Net cash provided by operating activities

  49,869   57,676   59,296 

Cash provided by (required for) investing activities:

            
Purchases of property and equipment  (8,096)  (5,901)  (6,025)
Proceeds from sales of assets  21,710   1,502   6,623 
Acquisitions, net of cash acquired  (130,985)  (6,543)  0 
Distributions greater (less) than earnings of TNI  (329)  9   1,194 
Other, net  (476)  0   (1,864)

Net cash required for investing activities

  (118,176)  (10,933)  (72)

Cash provided by (required for) financing activities:

            
Proceeds from long-term debt  576,000   600   10,000 
Payments on long-term debt  (443,627)  (41,832)  (73,526)
Principal payments on long-term borrowings  (37,710)      
Debt financing and administrative costs paid  (684)  (1,773)  (437)
Purchases of common stock transactions  (584)  (473)  (502)

Net cash provided (required) for financing activities

  93,395   (43,478)  (64,465)

Net increase (decrease) in cash and cash equivalents

  25,088   3,265   (5,241)

Cash and cash equivalents:

            

Beginning of year

  8,645   5,380   10,621 

End of year

  33,733   8,645   5,380 

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


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

References to "we", "our", "us" and the like throughout the Consolidated Financial Statements refer to Lee Enterprises, Incorporated and subsidiaries (the "Company"). References to "2017""2020", "2016""2019", "2015""2018" and the like refer to the fiscal years ended the last Sunday in September.

Fiscal years 2020 and 2019 include 52 weeks and 2018 includes 53 weeks of operations.

Lee Enterprises, Incorporated is a leading provider of high quality, trusted, local news and information, and a major platform for advertising in the markets we serve. We are located primarily in the Midwest, Mountain West and West regions of the United States, and our 50 marketsoperate 77 principally mid-sized local media operations (including TNI Partners ("TNI") and Madison Newspapers, Inc. ("MNI")), across 22 states are principally mid-sized or small. We currently operate in a single operating segment.


26 states.

1.     SIGNIFICANT ACCOUNTING POLICIES


Basis of Presentation

The Consolidated Financial Statements include our accounts and those of our subsidiaries, all of which are wholly-owned, except for our 50% interest in TNI, 50% interest in MNI and 82.5% interest in TownNews.com.TownNews. TNI and MNI are accounted for under the equity method. Results of TownNews.comTownNews are consolidated.


In August 2014, February 2018, the Financial Accounting Standards Board ("FASB"(“FASB”) issued new guidance to allow a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from what is commonly referred to as the Tax Cuts and Jobs Act (the "2017 Tax Act"). In the first quarter of fiscal year 2018, we re-measured our deferred taxes related to unrealized gains on our investment balances using the reduced tax rate. As required by GAAP, we recognized the net tax benefit in the provision for income taxes in our consolidated income statements, and we reclassified a $3,067,000 net tax benefit from AOCI to retained earnings in our consolidated balance sheets. Adoption of the standard had no impact to our consolidated income statements or cash flows statements.

In March 2016, the FASB issued a new going concern standard.standard that makes improvements to the accounting for employee share-based payments. The new standard provides guidance on how management evaluatessimplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes and disclosesstatutory tax withholding requirements, as well as classification in the Company's ability to continue as a going concern for a look-forward periodstatement of one year from the financial statement issuance date.cash flows. We adopted the newthis standard in 2017, as required. The2018 and the impact from the adoption of this standard did not have a material impact on the Consolidated Financial Statements.

In May 2014, the FASB issued ASU No.2014-09 "Revenue from Contracts with Customers" and in 2015,2016, and 2017 the FASB issued several clarifying updates to this new standard (ASU No.2015-14,2016-08,2016-10,2016-11,2016-12,2016-20 and 2017-05), which collectively comprises ASC Topic 606 "Revenue from Contracts with Customers". Topic 606 supersedes the revenue recognition requirements in Topic 605 "Revenue Recognition" and is effective fiscal years beginning after December 15, 2017. Topic 606 provides a five-step model in determining when and how revenue is recognized and requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The new standard was adopted in 2019 using the modified retrospective method and did not result in a material change to our Consolidated Financial Statements, taken as a whole.


Statements.

Fiscal Year

All of our enterprises use period accounting with the fiscal year ending on the last Sunday in September.


Subsequent Events

We have evaluated subsequent events through December 8, 2017. 11, 2020. No events have occurred subsequent to September 24, 201727, 2020 that require disclosure or recognition in these financial statements except as included herein.


other than those mentioned in Note 8 and Note 9.

Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying

values of assets and liabilities thatthat are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Principles of Consolidation

All significant intercompany transactions and balances have been eliminated.


Investments in TNI and MNI are accounted for using the equity method and are reported at cost, plus our share of undistributed earnings since acquisition less, for TNI, amortization of, and reductions in the value of, intangible assets.

Cash and Cash Equivalents

We consider all highly liquid debt instruments purchased with an original maturity of three months or less at date of acquisition to be cash equivalents.

Outstanding checks in excess of funds on deposit are included in accounts payable and are classified as financing activities in the Consolidated Statements of Cash Flows.


Accounts Receivable

We evaluate our allowance for doubtful accounts receivable based on historical credit experience, payment trends and other economic factors. Delinquency is determined based on timing of payments in relation to billing dates. Accounts considered to be uncollectible are written off.

36

Inventories
 

Inventories

Newsprint inventories and other inventories are priced at the lower of cost or market, with cost being determined by the first-in, first-out (FIFO) or last-in, first-out (LIFO) methods. Newsprintnet realizable value. LIFO newsprint inventories at September 24, 201727, 2020 and September 25, 2016 29, 2019 are less than replacement cost by $1,608,000942,000 and $1,900,000$1,661,000, respectively.

The components of newsprint inventory by cost method are as follows:

(Thousands of Dollars)September 24 2017
 September 25 2016
    
FIFO method962
 1,064
LIFO method1,167
 1,627
 2,129
 2,691
Other inventories consisting of ink, plates and film are priced at the lower of cost or market, with cost being determined by the FIFO method.

(Thousands of Dollars)

 

September 27, 2020

  

September 29, 2019

 
         
Newsprint - FIFO method 564  1,498 
Newsprint - LIFO method 1,222  1,296 
Other inventory - FIFO method 2,794  975 
Specific identification 2,954  0 
   7,534   3,769 

Other Investments

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

Property and Equipment

Property and equipment are carried at cost. Equipment and all other assets, except for printing presses and preprint insertion equipment, iswhich were previously depreciated primarily by declining-balance methods. The straight-line method is used for all other assets.methods, are depreciated by straight line. This change in accounting policy will be applied prospectively and effect on previous years are not material. The estimated useful lives are as follows:

 

Years

  

Buildings and improvements

54 - 5440

Printing presses and insertion equipment

35 - 28

Other

3 - 17
We capitalize interest

Additionally, we acquired leasehold improvements as a componentpart of the cost of constructing major facilities. At September 24, 2017andSeptember 25, 2016, capitalized interest was not significant.


Transactions with useful lives between 3 -9 years.

We recognize the fair value of a liability for a legal obligation to perform an asset retirement activity when such activity is a condition of a future event and the fair value of the liability can be estimated.

The cost of asset retirements and related accruals was not material in 2020,2019 or 2018.

Goodwill and Other Intangible Assets

Intangible assets include covenants not to compete, consulting agreements, customer lists, newspaper subscriber lists and mastheads. IntangibleLegacy Lee intangible assets subject to amortization are being amortized using the straight-line method as follows:

and intangible assets acquired in the Transactions are being amortized in an accelarated manner consistent with the expected economic benefit.

 

Years

  

Customer lists

1510 - 23

Newspaper subscriber lists

1710 - 33

In January 2017, the Financial Accounting Standards Board ("FASB") issued a new standard simplifying the assessment of

We review goodwill for impairment. The new standard maintainsimpairment on an annual basis by performing a qualitative and quantitative assessment but eliminates Step 2 of the quantitative assessment. The new standard also requires companiesCompanies with reporting units with zero or negative carrying value are required to disclose the amount of goodwill for those reporting units.

The Company adopted the standard during Q2 2017.  Lee EnterprisesCompany's goodwill is all attributable to a single reporting unit entity with negative carrying value,value. In 2020 and as such all of the Company’s goodwill is attributed to the single reporting unit.  In 2017,2019, the Company applied provisionshad $328,445,000 and $250,309,000 of goodwill in the new standard to its annual impairment assessment.Consolidated Balance Sheets, respectively. The annual assessment has historically been and will continue to beis made on the first day of our fourth fiscal quarter, or more frequently if impairment triggers are noted.

In 2016, the Company assessed the recoverability of goodwill and other non-amortized intangible assets, using qualitative factors affecting our business to determine if the probability of a goodwill impairment was more likely than not. Our assessment included reviewing internal and external factors affecting our business, such as cash flow projections, stock price and other industry or market considerations. In 2015, the Company performed its assessment using the quantitative assessment prescribed by accounting standards in effect prior to the adoption of the new standard.

We analyze goodwill and other non-amortized intangible assetsreview non-amortizing intangibles for impairment more frequently if impairment indicators are present. Such indicators of impairment include, but are not limited to, changes in business climate and operating or cash flow losses related to such assets.


Should we determine that a goodwill impairment is more likely than not, we make a determination of the fair value of our business. Fair value is determined using a combination ofon an income approach and a market approach weighted equally.

annual basis. Should we determine that a non-amortized intangible asset impairment is more likely than not, we make a determination of the individual asset's fair value. Fair value is determined using the relief from royalty method, which estimates fair value based upon appropriate royalties of future revenue discounted to their present value. The impairment amount, if any, is calculated based on the excess of the carrying amount over the fair value of such asset.

We analyze goodwill and other non-amortized intangible assets for impairment more frequently if impairment indicators are present. Such indicators of impairment include, but are not limited to, changes in business climate and operating or cash flow losses related to such assets.

We review our amortizable intangible assets for impairment when indicators of impairment are present. We assess recoverability of these assets by comparing the estimated undiscounted cash flows associated with the asset group with their carrying amount. The impairment amount, if any, is calculated based on the excess of the carrying amount over the fair value of those asset groups.


The required valuation methodology and underlying financial information that are used to determine fair value require significant judgments to be made by us and represent a Level 3 fair value measurement. These judgments include, but are not limited to, long term projections of future financial performance and the selection of appropriate discount rates used to determine the present value of future cash flows. Changes in such estimates or the application of alternative assumptions could produce significantly different results.

37
 

We also periodically evaluate the useful lives of amortizable intangible assets. Any resulting changes in the useful lives of such intangible assets will not impact our cash flows. However, a decrease in the useful lives of such intangible assets would increase future amortization expense and decrease future reported operating results and earnings per common share.

Future decreases in our market value, or significant differences in revenue, expenses or cash flows from estimates used to determine fair value, could result in impairment charges in the future. See Note 3.


5.

Business Combinations

The Company accounts for acquisitions in accordance with the provisions of Accounting Standards Codification 805 "Business Combinations" ("ASC 805"), which provides guidance for recognition and measurement of identifiable assets and goodwill acquired, liabilities assumed, and any non-controlling interest in the acquiree at fair value. In a business combination, the assets acquired, liabilities assumed and non-controlling interest in the acquiree are recorded as of the date of acquisition at their respective fair values with limited exceptions. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs are expensed as incurred. The operating results of the acquired business are reflected in the Company's Consolidated Financial Statements from the date of acquisition.

Non-controlling Interest

Non-controlling interest in earnings of TownNews.comTownNews is recognized in the Consolidated Financial Statements.

Revenue Recognition

On October 1, 2018, we adopted ASC 606 Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of that date. Results for reporting periods beginning after October 1, 2018 are presented under the new guidance while prior period amounts are not adjusted and continue to be reported in accordance with legacy accounting under the old guidance. We did not record any adjustments to beginning retained earnings at October 1, 2018 as a result of adopting the new guidance.

Recognition principles: Revenue is recognized when a performance obligation is satisfied by the transfer of control of the contracted goods or services to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services.

Advertising and marketing services revenue:Advertising and marketing services revenue includes amounts charged to customers for retail, national, or classified advertising space purchased in our newspapers, advertisements placed on our digital platforms, and other print advertising products such as preprint inserts and direct mail. Advertising and marketing services revenue also include amounts charged to customers for digital marketing services which include: audience extension, Search Engine Optimization ("SEO"), Search Engine Marketing ("SEM"), web and mobile production, social media services and reputation monitoring and management. The following define the timing of revenue recognition for each general revenue category:

•

Print advertising revenue is recognized at the point in time the associated publication has been delivered.

•

Digital advertising revenue is recognized at the point in time that impressions are delivered.

•

Digital marketing services revenue is recognized over the period of time which the service is performed.

Advertising and marketing services contract transaction prices consist of fixed consideration. We recognize revenue when control of the related performance obligation transfers to the customer.

Payments for advertising revenue is recordeddue upon completion of our performance obligations at previously agreed upon rates. In instances where the timing of revenue recognition differs from the timing of invoicing, such timing differences are not large. As a result, we have determined that our contracts do not include a significant financing component.

Subscription revenue: Subscription revenue includes revenue for content delivered to consumers via print and digital products purchased by readers or distributors. Single copy revenue is also included in subscription revenue. Subscription revenue from single-copy and home delivery subscriptions is recognized at the point in time the publications are delivered. Digital subscription revenue is recognized over time as performance obligations are met via on-demand availability of online content made available to customers throughout the contract term. Payments for subscription revenue is typically collected in advance, are for contract periods of one year or less and result in an unearned revenue liability that is reduced when advertisementsrevenue is recognized.

Other revenue: Other revenue primarily consists of digital services, expired Management Agreement revenue in 2020, commercial printing and delivery of third party products. Management Agreement revenue consists of fixed and variable fees collected from our Management Agreement. Fixed fee revenue from the Management Agreement is recognized over time and paid quarterly and variable fees are placedpaid annually. Variable fees are recognized when the fees are deemed earned and it is probable that a significant reversal in the publication or onamount of cumulative revenue recognized will not occur when the related digital platform. Subscription revenueuncertainty associated with the variable consideration is recorded over the print or digital subscription term or as newspapers are individually sold. Othersubsequently resolved. Commercial printing and delivery revenue is recognized when the related product or service has been delivered. Unearnedis delivered to the customer.

Digital services revenues, which are primarily delivered through TownNews, are primarily comprised of contractual agreements to provide webhosting and content management services. As such, digital services revenue arisesis recognized over the contract period. Prices for digital services are agreed upon in advance of the ordinary coursecontract beginning and are typically billed in arrears on a monthly basis, with the exception of businessimplementation fees which are recognized as deferred revenue and amortized over the contract period.

Arrangements with multiple performance obligations: We have various advertising and subscription agreements which include both print and digital performance obligations. Revenue from advance subscription payments for print or digital products or advance payments for advertising.sales agreements that contain multiple performance obligations are allocated to each obligation based on the relative standalone selling price. We determine standalone selling prices based on observable prices charged to customers. See Note 3.

38
 

Advertising Costs

A substantial amount of our advertising and promotion consists of advertising placed in our own publications and digital platforms, using available space. The incremental cost of such advertising is not significant and is not measured separately by us. External advertising costs are not significant and are expensed as incurred.

Restructuring Costs and Other

We incur severance related costs on an ongoing basis in response to overall industry trends. We accrue for severance related items generally as part of planned business transformation efforts when the impacted employees can be identified and the amounts are estimable.  We did not have a significant severance liability as of September 27, 2020 or September 29, 2019.

Other costs included in Restructuring Costs and Other include estimated impacts of withdrawals from our multiemployer plans.  Multiemployer plans are discussed in Note 9.

Pension, Postretirement and Postemployment Benefit Plans

We evaluate our liabilities for pension, postretirement and postemployment benefit plans based upon computations made by consulting actuaries, incorporating estimates and actuarial assumptions of future plan service costs, future interest costs on projected benefit obligations, rates of compensation increases, when applicable, employee turnover rates, anticipated mortality rates, expected investment returns on plan assets, asset allocation assumptions of plan assets and other factors.

We use a fiscal year end measurement date for all our pension and postretirement obligations in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 715,Retirement Plans.


We use the alternative spot rate approach which utilizes a full yield curve to estimate the interest cost component of benefit cost by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

Income Taxes

Deferred income taxes are provided using the asset and liability method, whereby deferred income tax assets are recognized for deductible temporary differences and loss carryforwards and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences which are the difference between the reported amounts of assets and liabilities and their tax basis. Deferred income tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits as a component of income tax expense.


Fair Value of Financial Instruments

We utilize FASB ASC Topic 820,Fair Value Measurements and Disclosures, to measure and report fair value. FASB ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FASB ASC Topic 820 establishes a three-levelthree-level hierarchy of fair value measurements based on whether the inputs to those measurements are observable or unobservable, which consists of the following levels:

Level 1 - Quoted prices for identical instruments in active markets.

Level 2- Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

Level 3- Valuations derived from valuation techniques in which one or more significant inputs are unobservable.


Investments measured at net asset value, as a practical expedient for fair value, are excluded from the fair value hierarchy.

Valuation methodologies used for pension and postretirement assets measured at fair value are as follows:

Cash and cash equivalents consist of short term deposits valued based on quoted prices in active markets. Such investments are classified as Level 1.

Treasury Inflation-Protected Securities ("TIPS")consist of low yield mutual funds and are valued by quoted market prices. Such investments are classified as Level 1.



Equity securities are valued based on the closing market price in an active market and are classified as Level 1. Certain investments in commingled funds are valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices. Such investments are classified as Level 2.


Debt securities consist of government securities that are valued based upon quoted market prices in an active market. Such investments are classified as Level 1. Corporate bonds that are valued based on quoted market prices in an inactive market. Such investmentsmarket are classified as Level 2. Certain investments in commingled funds are valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices. Such investments are excluded from the fair value hierarchy.


Hedge funds consist of a long/short equity fundfunds and a diversified fund of funds. These funds are valued at the net asset value of units held at the end of the period based upon the value of the underlying investments, which is determined using multiple approaches including by quoted market prices and by private market quotations. Such investments are excluded from the fair value hierarchy.

39
 

Stock Compensation and Warrants

We have several active stock-based compensation plans. We account for grants under those plans under the fair value expense recognition provisions of FASB ASC Topic 718,Compensation-Stock Compensation. We determine the fair value of stock options using the Black-Scholes option pricing formula. Key inputs to this formula include expected term, expected volatility and the risk-free interest rate.

The expected term represents the period that our stock-based awards are expected to be outstanding, and is determined based on historical experience of similar awards, giving consideration to contractual terms of the awards, vesting schedules and expectations of future employee behavior. The volatility factor is calculated using historical market data for our Common Stock. The time frame used is equal to the expected term. We base the risk-free interest rate on the yield to maturity at the time of the stock option grant on zero-couponzero-coupon U.S. government bonds having a remaining term equal to the option's expected term. When estimating forfeitures, we consider voluntary termination behavior as well as actual option forfeitures.

We amortize as compensation expense the value of stock options and restricted Common Stock using the straight-line method over the vesting or restriction period, which is generally one to four years.


We also have 6,000,000 warrants outstanding to purchase shares of our Common Stock. Warrants are recorded at fair value determined using the Black-Scholes option pricing formula. See Notes 4, 86,10 and 11.

13.

Uninsured Risks

We are self-insured for health care, workers compensation and certain long-term disability costs of our employees, subject to stop loss insurance, which limits our losses in the event of large claims. We accrue our estimated health care costs in the period in which such costs are incurred, including an estimate of incurred but not reported claims. Other risks are insured and carry deductible losses of varying amounts. Letters of credit and performance bonds totaling $4,790,000$3,905,000 at September 24, 201727, 2020 are outstanding in support of our insurance program.


Our accrued reserves for health care and workers compensation claims are based upon estimates of the remaining liability for retained losses made by consulting actuaries. The amount of workers compensation reserve has been determined based upon historical patterns of incurred and paid loss development factors from the insurance industry.

Recently Issued Accounting Standards - Standards Adopted in 2020

As discussed below, the Company elected to change its method of accounting for leases as of September 30, 2019 due to the adoption of Accounting Standard Update (ASU) No.2016-02, Leases, and related updates, which established Accounting Standard Codification Topic 842, Leases. The new standard is based on the principle that entities should recognize assets and liabilities arising from leases. The new standard's primary change is the requirement for entities to recognize a lease liability for payments and a right-of-use ("ROU") asset representing the right to use the leased asset during the term on most operating lease arrangements. We adopted the standard effective September 30, 2019, the first day of fiscal year 2020.

We elected the package of practical expedients which permits the Company to not reassess under the new standard the prior conclusions about lease identification, lease classification, or initial direct costs. In addition, we did reassess whether existing land easements which were previously not accounted for as leases are or contain leases under the new guidance. We have elected to combine non-lease and lease components when accounting for leases. The Company has made a policy election to exclude short-term leases, those with an original term of less than twelve months, from recognition and measurement under ASC 842. As such, we have not recognized an ROU asset or lease liability for these leases. Additional information and disclosures required by this new standard are contained in Note 18.

We adopted ASC 842 using the modified retrospective method as of the adoption date. As a result of electing the modified retrospective approach, we have not restated prior year financial statements to conform to the new guidance. Our operating lease portfolio primarily includes real estate, office equipment, and vehicles.

As a result of adoption of ASC 842, we recorded operating lease right-of-use assets of $10,709,000, current portion of lease liability of $2,281,000, and operating lease liabilities of $8,353,000.

Recently Issued Accounting Standards - Standards Not Yet Adopted

In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a wider array of reasonable and supportable information to inform and develop credit loss estimates. We will be required to use a forward-looking expected credit loss model for both accounts receivables and other financial instruments. The new standard will be adopted beginning September 28, 2020 using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align our credit loss methodology with the new standard. We are still evaluating this standard and its impact.

In August 2018, FASB issued a new standard to amend disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The new standard will be adopted beginning September 28, 2020 using a retrospective approach. The Company is still determining the impacts to our financial statement disclosures.

40

2     ACQUISITIONS

On March 16, 2020, the Company completed the Asset and Stock Purchase Agreement dated as of January 29, 2020 with Berkshire Hathaway Inc., a Delaware corporation (“Berkshire”) and BH Media Group, Inc., a Delaware corporation (“BH Media”) (“Purchase Agreement”). As part of the Purchase Agreement, the Company agreed to purchase certain assets and assume certain liabilities of BH Media's newspapers and related publications business ("BH Media Newspaper Business"), excluding real estate and fixtures such as production equipment, and all of the issued and outstanding capital stock of The Buffalo News, Inc., a Delaware corporation ("Buffalo News") for a combined purchase price of $140,000,000 (collectively, the "Transactions"). BH Media includes 30 daily newspapers and digital operations, in addition to 49 paid weekly newspapers with websites and 32 other print products. Buffalo News is a provider of local print and digital news to the Buffalo, NY area. The rationale for the acquisition was primarily the attractive nature of the various publications, businesses, and digital platforms as well as the revenue growth and operating expense synergy opportunities.

The Transactions were funded pursuant to a Credit Agreement dated as of January 29, 2020 between the Company and BH Finance LLC, a Delaware limited liability company affiliated with Berkshire (the "Credit Agreement"), as described further in Note 6.

Between July 2, 2018 and March 16, 2020, the Company managed the BH Media Newspaper Business pursuant to a Management Agreement between BH Media and the Company dated June 26, 2018 ("the Management Agreement"). In connection with the Transactions, the Management Agreement terminated on March 16, 2020. As part of the settlement of the preexisting relationship, the Company received $5,425,000 at closing. This amount represents $1,245,000 in fixed fees pro-rated under the contract and $4,180,000 in variable fees based upon the pro-rated annual target. The amount we received settled our existing contract asset balance, which totaled $3,589,000 as of December 29, 2019, and the remaining amount was reflected in Other Revenue for the 13 weeks ended March 29, 2020. The amount of variable fees was estimated based on BH Media financial performance through March 16, 2020. Actual financial performance through March 16, 2020 did not vary materially from the estimated amount. As such, the Company did not recognize a gain or loss as a result of the settlement of this preexisting relationship.

In connection with the Transactions, the Company entered into a lease agreement between BH Media, as Landlord, and the Company, as Tenant, providing for  the leasing of 68 properties and related fixtures (including production equipment) used in the BH Media Newspaper Business (the "BH Lease"). The Lease was signed and commenced on March 16, 2020. The BH Lease requires the Company to pay annual rent of $8,000,000, payable in equal payments, as well as all operating costs relating to the properties (including maintenance, repairs, property taxes and insurance). Rent payments will be subject to a Rent Credit (as defined in the Lease) equal to 8.00% of the net consideration for any leased real estate sold by BH Media during the term of the Lease. In connection with the BH Lease, the Company recognized $56,226,000 and $56,226,000 in ROU assets and lease liabilities, respectively, as of March 16, 2020. 

The allocation of the purchase price is preliminary. The valuation of property and equipment, intangibles, deferred income taxes, and residual goodwill is not complete, pending the completion of the final valuation reports. These amounts are subject to adjustment as additional information is obtained within the measurement period (not to exceed 12 months from the acquisition date). As part of the Transactions, the Company also entered into the Credit Agreement and the BH Lease, as described above. The Company concluded that these agreements were not separate from the Transactions and evaluated these agreements for off-market terms and no such terms were identified. As such, the consideration for the acquisitions was limited to cash consideration, as shown below. 

The following table summarizes the preliminary determination of fair values of the assets and liabilities for the Transactions.

(in Thousands)

 Estimated fair value as previously reported (a)  Measurement period adjustments  Fair value as adjusted 

Cash and cash equivalents

  22,293   —   22,293 

Current assets

  52,559   (886)  51,673 

Other assets

  12,167   3,543   15,710 

Property and equipment

  42,952   33   42,985 

Operating lease assets

  7,445   101   7,546 

Advertiser relationships

  38,780   (10,820)  27,960 

Subscriber relationships

  36,060   (7,860)  28,200 

Commercial print relationships

  17,130   2,450   19,580 

Mastheads

  21,680   (1,290)  20,390 

Goodwill

  63,559   14,577   78,136 

Total assets

  314,625   (152)  314,473 

Current liabilities assumed

  (73,451)  1,074   (72,377

)

Operating lease liabilities

  (6.625)  (921)  (7,546

)

Other liabilities assumed

  (2,246)  —   (2,246

)

Pension obligations

  (43,503)  —   (43,503

)

Postemployment benefit obligations

  (36,800)  —   (36,800

)

Total liabilities

  (162,625)  152   (162,473

)

Net assets

  152,000   —   152,000 

Less: acquired cash

  (22,293)  —   (22,293

)

Total consideration less acquired cash

  129,707   —   129,707 

(a) As previously reported in the Company's Quarterly Report on Form 10-Q for the period ended March 29,2020.

For the 52 weeks ended September 27, 2020, the revenue and net income included in the Consolidated Income Statement related to the acquirees were $200,751,000 and $13,166,000, respectively. Acquired net income includes interest expense, net of taxes, of $4,744,000 for the 52 weeks ended September 27, 2020, respectively, which is associated with the cost of financing the acquisitions.

The Company had various measurement period adjustments due to additional knowledge gained since March 29, 2020. The significant adjustments included $10,820,000 decrease to Advertiser relationships and $7,860,000 decrease to Subscriber relationships due to updates in assumptions related to the forecast and attrition rates, both were offset by increases to Goodwill. The change in other assets related to a $1,800,000 reclassification from current assets that was identified during management's review.

2
41

Pro Forma Information (Unaudited)

The following table sets forth unaudited pro forma results of operations assuming the Transactions, along with the credit arrangements necessary to finance the Transactions, occurred on October 1, 2018, the first day of fiscal year 2019.

  

Unaudited

 
  

September 27,

      

September 29,

 

(Thousands of Dollars, Except Per Share Data)

 

2020

      

2019

 

Total revenues

  821,793       973,143 

Income attributable to Lee Enterprises, Incorporated

  17,632

 

      20,715 

Earnings per share - diluted

  0.31

 

      0.36 

This pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments. This pro forma information is not necessarily indicative of what our results would have been had we operated the businesses since the beginning of the periods presented. The pro forma adjustments reflect the income statement effects of depreciation expense and amortization of intangibles related to the fair value adjustments of the assets acquired, acquisition-related costs, incremental interest expense related to the financing of the Transactions and 2020 Refinancing, the BH Lease entered into as part of the Transactions, the elimination of certain intercompany activity and the related tax effects of the adjustments.

The only material, nonrecurring adjustments made relate to the write-off of previously unamortized debt-issuance costs as of October 1, 2018 which resulted in a $7,693,000 decrease to net income for the 52 weeks ended September 29, 2019 and a $8,973,000 increase to net income for the 52 weeks ended September 27, 2020.  No other periods were affected by the adjustments.

3     REVENUE

The following table presents our revenue disaggregated by source:

(Thousands of Dollars)

 

September 27, 2020

  

September 29, 2019

  

September 30, 2018

 
             
Advertising and marketing services revenue  289,655   265,933   303,446 
Subscription Revenue  265,939   186,691   195,108 
TownNews and other digital services revenue  20,478   19,637   16,328 
Other revenue  41,932   37,593   29,073 

Total operating revenue

  618,004   509,854   543,955 

Recognition principles: Revenue is recognized when a performance obligation is satisfied by the transfer of control of the contracted goods or services to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services.

Arrangements with multiple performance obligations: We have various advertising and subscription agreements which include both print and digital performance obligations. Revenue from sales agreements that contain multiple performance obligations are allocated to each obligation based on the relative standalone selling price. We determine standalone selling prices based on observable prices charged to customers.

Contract Assets and Liabilities: The Company’s primary source of unearned revenue is from subscriptions paid in advance of the service provided. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next twelve months in accordance with the terms of the subscriptions and other contracts with customers. The unearned revenue balances described herein are the Company's only contract liability. Unearned revenue was $60,271,000 as of September 27, 2020 and $21,720,000 as of September 29, 2019. Revenue recognized in the 52 weeks ended September 27, 2020 that was included in the contract liability as of September 29, 2019 was$21,549,000.

Contract asset balances relate to our Management Agreement revenue was $1,107,000 as of September 29, 2019 and consisted solely of the variable portion of the contract. As a result of the Transactions, we had no contract balances as of September 27, 2020. In conjunction with the execution of the Purchase Agreement, the previously recorded contract asset balance was collected on March 16, 2020. Accounts receivable, excluding allowance for doubtful accounts and contract assets, was $66,029,000 and $47,863,000 as of September 27, 2020 and September 29, 2019 respectively. Allowance for doubtful accounts was $13,431,000 and $6,434,000 as of September 27, 2020 and September 29, 2019, respectively.

Practical expedients:Sales commissions are expensed as incurred as the associated contractual periods are one year or less. These costs are recorded within compensation. The vast majority of our contracts have original expected lengths of one year or less and revenue is earned at a rate and amount that corresponds directly with the value to the customer.

42

4     INVESTMENTS IN ASSOCIATED COMPANIES


TNI Partners

In Tucson, Arizona, TNI, acting as agent for our subsidiary, Star Publishing Company (“Star Publishing”) and Citizen Publishing Company (“Citizen”), a subsidiary of Gannett Co. Inc., is responsible for printing, delivery, advertising and subscription activities of the Arizona Daily Star, as well as the related digital platforms and specialty publications. TNI collects all receipts and income and pays substantially all operating expenses incident to the partnership's operations and publication of the newspaper and other media.


Income or loss of TNI is allocated equally to Star Publishing and Citizen.

Summarized financial information of TNI is as follows:

(Thousands of Dollars)September 24
2017
 September 25
2016
    
ASSETS   
    
Current assets4,457
 5,107
Investments and other assets12
 12
Total assets4,469
 5,119
    
LIABILITIES AND MEMBERS' EQUITY   
    
Current liabilities5,485
 6,484
Members' equity(1,016) (1,365)
Total liabilities and members' equity4,469
 5,119

  

September 27

  

September 29

 

(Thousands of Dollars)

 

2020

  

2019

 
         

ASSETS

        
Current assets  2,643   3,484 
Investments and other assets  998   1,350 

Total assets

  3,641   4,834 
         

LIABILITIES AND MEMBERS' EQUITY

        
Total liabilities  4,663   5,924 
Members' equity  (1,022)  (1,090)

Total liabilities and members' equity

  3,641   4,834 

Summarized results of TNI are as follows:

(Thousands of Dollars)2017
 2016
 2015
      
Operating revenue48,297
 52,761
 55,926
Operating expenses38,150
 41,804
 45,413
Net income10,147
 10,957
 10,513
      
Company's 50% share5,073
 5,478
 5,256
Less amortization of intangible assets418
 418
 418
Equity in earnings of TNI4,655
 5,060
 4,838

(Thousands of Dollars)

 

2020

  

2019

  

2018

 
             
Operating revenue  37,101   43,532   47,165 
Operating expenses  29,673   34,224   37,090 

Net income

  7,428   9,308   10,075 
             
Company's 50% share  3,714   4,654   5,038 
Less amortization of intangible assets  209   418   418 

Equity in earnings of TNI

  3,505   4,236   4,620 

TNI makes weekly distributions of its earnings. We received $4,644,000, $6,636,000$3,176,000, $4,245,000  and $5,475,000$5,814,000  in distributions in 2017, 20162020, 2019 and 2015,2018, respectively.

At September 24, 201727, 2020, the carrying value of the Company's 50% investment in TNI is $15,943,000.$15,069,000. The difference between our carrying value and our 50% share of the members' equity of TNI relates principally to goodwill of $12,366,000 and other identified intangible assets of $4,136,000,$3,090,000, certain of which are being amortized over their estimated useful lives through 2020. See Note 3.

5.

Madison Newspapers, Inc.

We have a 50% ownership interest in MNI, which publishes daily and Sunday newspapers, and other publications in Madison, Wisconsin, and other Wisconsin locations, and operates their related digital sites. Net income or loss of MNI (after income taxes) is allocated equally to us and The Capital Times Company (“TCT”). MNI conducts its business under the trade name Capital Newspapers.



Summarized financial information of MNI is as follows:

  

September 27

  

September 29

 

(Thousands of Dollars)

 

2020

  

2019

 
         

ASSETS

        
Current assets  10,113   8,796 
Investments and other assets  29,952   31,134 

Total assets

  40,065   39,930 
         

LIABILITIES AND MEMBERS' EQUITY

        
Current liabilities  8,540   5,912 
Other liabilities  5,862   6,064 
Stockholders' equity  25,663   27,954 

Total liabilities and stockholders' equity

  40,065   39,930 

43
(Thousands of Dollars)September 24,
2017
 September 25
2016
    
ASSETS   
    
Current assets11,297
 12,320
Investments and other assets32,530
 33,364
Total assets43,827
 45,684
    
LIABILITIES AND MEMBERS' EQUITY   
    
Current liabilities7,852
 8,391
Other liabilities9,500
 9,500
Stockholders' equity26,475
 27,793
Total liabilities and stockholders' equity43,827
 45,684

Summarized results of MNI are as follows:

(Thousands of Dollars)2017
 2016
 2015
      
Operating revenue61,396
 65,172
 67,264
Operating expenses, excluding workforce adjustments, depreciation and amortization51,392
 52,646
 54,795
Workforce adjustments296
 39
 459
Depreciation and amortization1,295
 1,684
 1,630
Operating income8,413
 10,803
 10,380
Net income5,908
 6,947
 6,832
Equity in earnings of MNI2,954
 3,473
 3,416

(Thousands of Dollars)

 

2020

  

2019

  

2018

 
             
Operating revenue  48,056   56,790   59,670 
Operating expenses, excluding restructuring costs, depreciation and amortization  46,845   48,121   49,598 
Restructuring costs  274   355   383 
Depreciation and amortization  697   1,018   1,149 

Operating income

  240   7,296   8,540 
Net income  (204)  5,770   9,257 

Equity in earnings of MNI

  (102)  2,885   4,629 

MNI makes quarterly distributions of its earnings. We received $3,500,000, $7,250,000$1,300,000, $3,350,000  and $7,050,0003,400,000  in distributions in 2017, 20162020, 2019 and 2015,2018, respectively.


We provide editorial services to MNI. Editorial service fees are included in other revenue in the Consolidated Statements of Income and Comprehensive Income and totaled $7,021,000, $7,099,000$6,152,000, $6,636,000 and $7,242,000,$6,718,000, in 2017, 20162020,2019 and 2015,2018, respectively.


At September 24, 201727, 2020, the carrying value of the Company's 50% investment in MNI is $13,238,000.

$12,600,000.

 
3

5    GOODWILL AND OTHER INTANGIBLE ASSETS

Changes in the carrying amount of goodwill related to continuing operations are as follows:

(Thousands of Dollars)2017
 2016
    
Goodwill, gross amount1,532,458
 1,532,458
Accumulated impairment losses(1,288,729) (1,288,729)
Goodwill, beginning of year243,729
 243,729
Goodwill acquired in business combinations2,697
 —
Goodwill, end of year246,426
 243,729


(Thousands of Dollars)

 

2020

  

2019

 
         

Goodwill, gross amount

  1,539,038   1,534,905 
Accumulated impairment losses  (1,288,729)  (1,288,729)

Goodwill, beginning of year

  250,309   246,176 

Goodwill acquired in business combinations

  78,136   4,133 

Goodwill, end of year

  328,445   250,309 

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

(Thousands of Dollars)September 24
2017
 September 25
2016
    
Non-amortized intangible assets:   
Mastheads22,035
 23,644
Amortizable intangible assets:   
Customer and newspaper subscriber lists691,994
 687,182
Less accumulated amortization577,727
 552,472
 114,267
 134,710
Non-compete and consulting agreements28,524
 28,524
Less accumulated amortization28,524
 28,524
 —
 —
 136,302
 158,354

  

September 27

  

September 29

 

(Thousands of Dollars)

 

2020

  

2019

 
         

Non-amortized intangible assets:

        
Mastheads 40,459  21,883 

Amortizable intangible assets:

        
Customer and newspaper subscriber lists 774,604  697,145 
Less accumulated amortization 632,457  611,786 
   142,147   85,359 
Non-compete and consulting agreements 28,656  28,675 
Less accumulated amortization 28,582  28,524 
   74   151 
   182,680   107,393 

In January 2017, the FASB issued a new standard simplifying the assessment of a goodwill impairment. The new standard maintains a qualitative and quantitative assessment but eliminates the Step 2 of the quantitative assessment. The new standard also changes the way a goodwill impairment is calculated. For companies that have reporting units with zero or negative carrying value, the new standard requires disclosure of the amount of goodwill for those reporting units. The Company has elected to early adopt this standard for its 2017 goodwill impairment test.


The Company is a single reporting unit entity with negative carrying value, and as such all

All of the Company’s goodwill is attributed to the single reporting unit.  During Q2 2017, the Company adopted ASU 2017-04.unit with negative carrying value. The Company performed its annual assessment on the first day of our fourth fiscal quarter, and determined the fair value of our single reporting unit was significantly in excess of carrying value and as such, there was no impairment in 2017.


2020 and 2019.

In 2016, we performed a qualitative analysis to test our goodwill for impairment and concluded that the likelihood of an impairment was less than 50%. In 2015, we performed additional quantitative analysis of the carrying value of our goodwill and concluded the implied fair value of goodwill was significantly in excess of its carrying value. As a result no goodwill impairment was recorded.


In 2017 and 2016,2020, due to continuing revenue declines, cost of debt, and debt to equity weighting, we recorded non-cash charges to reduce the carrying value of non-amortized intangible assets. We also recorded pretax charges to reduce the carrying value of other assets in 20172018.No such charges occurred in 2019. Such charges are recorded in assets loss (gain) on sales, impairments and 2016 in Impairment of intangible and other assets in the Consolidated Statements of Income and Comprehensive Income (Loss). We recorded deferred income tax benefits related to these charges.

44

A summary of the pretax impairment charges is included in the table below:

(Thousands of Dollars)2017
 2016
 2015
      
Continuing operations:     
Non-amortized intangible assets2,035
 818
 —
Property, equipment and other assets482
 1,367
 —
 2,517
 2,185
 —

In June 2017, we purchased the

(Thousands of Dollars)

 

2020

  

2019

  

2018

 
             

Continuing operations:

            

Non-amortized intangible assets

  972   0   0 

Property, equipment and other assets

  0   0   267 
   972   0   267 

The Company recognized $27,960,000 of advertiser relationships, $28,200,000 of subscriber relationships, $19,580,000 of commercial print relationships and $20,390,000 of indefinite-lived masthead assets as part of the Dispatch-Argus serving Moline and Rock Island, IL, (the "Dispatch-Argus"), for $7,150,000 plus an adjustment for working capital. The Dispatch-Argus is a media company with print and digital publishing operations. We financed the transaction with available cash on hand.

The purchase price, based on management's preliminary estimates, was allocated to the tangible assets and identified intangible assets acquired and liabilities assumed based on their estimated fair values. As of the acquisition date, the purchase price assigned to the acquired assets and assumed liabilities were as follows: current assets $989,000, property, plant, and equipment of $100,000, intangible assets of $5,199,000, goodwill of $2,445,000, and current liabilities of $1,056,000.


Transactions.

Annual amortization of intangible assets for the years ending September 2018 2021 to September 2022 2025 is estimated to be $16,653,000, $15,972,000, $15,206,000, $14,042,000,$22,617,000, $20,451,000, $19,654,000, $17,920,000, and $11,863,000,$12,897,000, respectively. The weighted average amortization period for those amortizable assets acquired as part of the Transactions is 10.5 years.

The Company recognized $78,136,000 of Goodwill as part of the Transactions. The value of the acquired Goodwill is primarily related to an assembled workforce and expected synergies from combining operations. For tax, purposes, the amount of Goodwill that is expected to be deductible is $41,734,000. Refer to Note 2 for more information regarding preliminary purchasing accounting for the Transactions.


4

6     DEBT


On March 31, 2014, we16, 2020 concurrent with closing the Transactions, the Company completed a comprehensive refinancing of ourits debt (the"2014(the "2020 Refinancing"). The 2020 Refinancing consists of a 25-year term loan with BH Finance LLC ("BH Finance"), which included the following:


$400,000,000an affiliate of Berkshire, in an aggregate principal amount of 9.5% Senior Secured Notes (the “Notes”), pursuant$576,000,000 at a 9% annual rate (referred to an Indenture datedherein as "Credit Agreement" and "Term Loan"). The proceeds of March 31, 2014 (the “Indenture”).
the Term Loan were used, along with cash on hand, to refinance the Company's $431,502,000 in existing debt as well as to fund the acquisition of BH Media Newspaper Business assets and the stock of the Buffalo News for $140,000,000 in cash. With the closing of this transaction, BH Finance became Lee's sole lender. Proceeds of the Term Loan were used to finance the Transactions and refinance all of the Company's outstanding debt at par, including:

•

To redeem the 9.5% senior secured notes ("Notes") pursuant to an indenture dated as of March 31, 2014 (the "Indenture"); and

•
$250,000,000 first

•

To repay the 12.0% second lien term loan (the "1stpursuant to a Second Lien Term Loan") and $40,000,000 revolving facility (the "Revolving Facility") under a First Lien Credit Agreement dated as of March 31, 2014, (together the “1st Lien Credit Facility”).


•
$150,000,000 second lien term loan under a Second Lien Loan Agreement dated as of March 31, 2014amended (the “2nd"2nd Lien Term Loan”Loan").


 There was 0 gain or loss recognized upon extinguishment of the Indenture, 1st and 2nd Lien Term Loan. 

As a result of the 2020 Refinancing, the Indenture, First Lien Credit Agreement dated as of March 31, 2014 (the "1st Lien Credit Facility") and 2nd Lien Loan Agreement were terminated. The Credit Agreement documents the primary terms of the Term Loan. The Term Loan matures on March 15, 2045.

Debt is summarized as follows:

   
Interest Rates (%)
(Thousands of Dollars)September 24
2017
September 26
2016
September 24
2017
    
Revolving Facility—
—
6.74
1st Lien Term Loan
45,145
101,304
7.49
Notes385,000
385,000
9.50
2nd Lien Term Loan
118,240
130,863
12.00
 548,385
617,167
 
Unamortized debt issue costs(21,824)(26,271) 
Less current maturities of long-term debt30,182
25,070
 
Total long-term debt496,379
565,826
 

          

Interest Rates (%)

 
  

September 27

  

September 29

  

September 27

 

(Thousands of Dollars)

 

2020

  

2019

  

2020

 
             
Term Loan  538,290   0   9.00 

Revolving Facility

  0   0   0 

1st Lien Term Loan

  0   0   0 

Notes

  0   363,420   0 

2nd Lien Term Loan

  0   80,207   0 
   538,290   443,627    
Unamortized debt issue costs  0   (11,282)    

Less current maturities of long-term debt

  13,733   2,954     

Total long-term debt

  524,557   429,391     

As part of our refinancing, we incurred approximately $417,000 in debt financing costs, which are reflected in Debt financing and administrative costs. On March 16, 2020, we recognized $9,583,000 in Debt financing and administrative costs related to previously unamortized debt issuance costs related to the extinguished debt.

Our weighted average cost of debt excluding amortization ofat September 27, 2020, is 9.0%.

At September 27, 2020, debt financing costs at was reduced $37,710,000 from the 2020 Refinancing, mainly due from Excess Cash Flow, as defined in the Credit Agreement. In addition, $1,000,000 from asset sales was used to pay debt through September 24, 2017,27, 2020. Excess Cash Flow in the fourth quarter totaled $13,733,000 and was paid in the 13-weeks ended December 27, 2020. This is 9.9%.


At September 24, 2017, aggregate minimum requiredshown as the Current maturities of debt excluding amounts requiredlong-term debt. Future payments are contingent on the Company's ability to be paid fromgenerate future excess cash flow computations total $30,182,000 in 2018, $20,145,000 in 2019, zero in 2020, zero in 2021, $385,000,000 in 2022 and $113,058,000 thereafter.Excess Cash Flow.

45

Notes

The Notes are senior secured obligations of

Interest

Interest on the Company and mature on March 15, 2022. At September 24, 2017, the principal balance of the Notes totaled $385,000,000.


Interest

The Notes require payment ofTerm Loan bears interest semiannually on March 15 and September 15 of each year, at a fixed annual rate of 9.5%.  

Redemption

We may redeem some, or all, of9.0%, payable monthly, and matures in March 2045.

Principal Payments

Voluntary pre-payments under the principal amount of the Notes at any time. Prior to March 15, 2018, we may redeem the NotesCredit Agreement are not subject to a make whole provision forcall premiums and are payable at par.

Excluding the interest through March 15, 2018. On or after March 15, 2018, we may redeem the Notes as follows:

Period BeginningPercentage of Principal Amount
March 15, 2018104.75
March 15, 2019102.38
March 15, 2020100.00

If we sell certain of our assets or experience specific kinds of changes of control, we must, subject to certain exceptions, offer to purchase the Notes at 101% of theExcess Cash Flow payments described below, there are no scheduled mandatory principal amount. Any redemption of the Notes must also satisfy any accrued and unpaid interest thereon.

We may repurchase Notes in the open market at any time. In the 52 weeks ended September 25, 2016, we purchased $15,000,000 principal amount of Notes in privately negotiated transactions which resulted in a gain on extinguishment of debt totaling $1,250,000. The gain is recorded in Other, net in the Consolidated Statements of Income and Comprehensive Income.

Covenants and Other Matters

The Indenture and the 1st Lien Credit Facility contains restrictive covenants as discussed more fully below. However, certain of these covenants will cease to apply if the Notes are rated investment grade by either Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Group and there is no default or event of default under the Indenture.

1st Lien Credit Facility

The 1st Lien Credit Facility consists of the $250,000,000 1st Lien Term Loan that matures in March 2019 and the $40,000,000 Revolving Facility that matures in December 2018. The 1st Lien Credit Facility documents the primary terms of the 1st Lien Term Loan and the Revolving Facility. The Revolving Facility may be used for working capital and general corporate purposes (including letters of credit). At September 24, 2017, after consideration of letters of credit, we have approximately $33,818,000 available for future use under the Revolving Facility.

Interest

Interest on the 1st Lien Term Loan, which has a principal balance of $45,145,000 at September 24, 2017, accrues, at our option, at either (A) LIBOR plus 6.25% (with a LIBOR floor of 1.0%) or (B) 5.25% plus the higher of (i) the prime rate at the time, (ii) the federal funds rate plus 0.5%, or (iii) one month LIBOR plus 1.0% (with a floor of 2.0%). Interest is payable quarterly.

The 1st Lien Term Loan was funded with an original issue discount of 2.0%, or $5,000,000, which is being amortized as debt financing and administration costs over the life of the 1st Lien Term Loan.

Interest on the Revolving Facility, which has a principal balance of zero at September 24, 2017, accrues, at our option, at either (A) LIBOR plus 5.5%, or (B) 4.5% plus the higher of (i) the prime rate at the time, (ii) the federal funds rate plus 0.5%, or (iii) one month LIBOR plus 1.0%.

Principal Payments

Quarterly principal payments of $6,250,000 are required under the 1st Lien Term Loan, with additional payments required to be made based on 90% of excess cash flow of Lee Legacy ("Lee Legacy Excess Cash Flow"), as defined, or from proceeds of asset sales from our subsidiaries other than Pulitzer Inc. ("Pulitzer") and its subsidiaries (collectively, the "Pulitzer Subsidiaries") which are not reinvested. For excess cash flow calculation purposes Lee Legacy constitutes the business of the Company, including MNI, but excluding Pulitzer and TNI. We may voluntarily prepay principal amounts outstanding or reduce commitments under the 1st Lien Credit Facility at any time without premium or penalty, upon proper notice and subject to certain limitations as to minimum amounts of prepayments.

Quarterly, theAgreement. The Company is required to prepare a Lee Legacy Excess Cash Flow calculation, which is generally determinedmake mandatory pre-payments of the Term Loan as follows:

•

The Company must prepay the Term Loan in an aggregate amount equal to 100% of any Net Cash Proceeds received by the Company or any Subsidiary from a sale, transfer, license, or other disposition of any property of the Company or any subsidiary in excess of $500,000 in any ninety (90) day period.

•

Beginning on June 28, 2020, the Company is required to prepay the Term Loan with excess cash flow, defined as cash on the balance sheet at quarter end in excess of $20,000,000 ("Excess Cash Flow"). Excess Cash Flow is used to prepay the Term Loan, at par, and is due within 50-days of quarter end.

•

If there is a Change of Control (as defined in the Credit Agreement), BH Finance has the option to require the Company to prepay the Term Loan in cash equal to 105% of the unpaid principal balance, plus accrued and unpaid interest.

The Company may, upon notice to BH Finance, at any time or from time to time, voluntarily prepay the cash earningsTerm Loan in whole or in part, at par, provided that any voluntary prepayment of our subsidiaries other than the Pulitzer Subsidiaries and includes adjustments for changes in working capital, capital spending, pension contributions, debtTerm Loan shall be accompanied by payment of all accrued interest on the amount of principal payments and income tax payments or refunds. Any excess cash flow as calculated is required to be paidprepaid to the 1st Lien lenders 45 days after the enddate of the quarter.Lee Legacy Excess Cash Flow for the 13 weeks ended September 24, 2017 and payable in the 13 weeks ended December 24, 2017 was zero.


2017 principal payments made for the year under the 1st Lien Term Loan are summarized as follows:
 13 Weeks Ended
(Thousands of Dollars)December 25
2016
March 26
2017
June 25
2017
September 24
2017
     
Mandatory6,250
6,250
6,250
6,250
Voluntary11,000
7,500
5,000
6,000
Excess cash flow payment70
—
—
1,589
 17,320
13,750
11,250
13,839

prepayment.

Covenants and Other Matters


The 1st Lien Credit Facility requires that we comply withAgreement contains certain customary representations and warranties, certain affirmative and negative covenants customary for financingand certain conditions. Certain existing and future direct and indirect material domestic subsidiaries of this nature, including a maximum total leverage ratio, which is only applicable to the Revolving Facility. 


Company are guarantors of the Company's obligations under the Credit Agreement.

The 1st Lien Credit FacilityAgreement restricts us from paying dividends on our Common Stock. This restriction no longer applies if Lee Legacy leverage is below 3.25x before and after such payments.does not apply to dividends issued with the Company's Equity Interests or from the proceeds of a sale of the Company's Equity Interests. Further, the 1st Lien Credit FacilityAgreement restricts or limits, among other things, subject to certain exceptions, the ability of the Company and its subsidiaries to: (i) incur additional indebtedness, (ii) make certain investments, (iii) enter into mergers, acquisitions and asset sales, (iii)(iv) incur or create liens and (iv)(v) enter into transactions with certain affiliates. The 1st Lien Credit FacilityAgreement contains various representations and warranties by the Company and may be terminated upon the occurrence of certain events of default.default, including non-payment. The 1st Lien Credit FacilityAgreement also contains cross-default provisions tied to other agreements with BH Finance entered into by the termsCompany and its subsidiaries in connection with the 2020 Refinancing.

Security

The Term Loan is fully and unconditionally guaranteed on a joint and several first-priority basis by the Company's material domestic subsidiaries (the "Subsidiary Guarantors", but excluding MNI and TNI,), pursuant to a Guarantee and Collateral agreement dated as of eachMarch 16, 2020 (the "Guarantee and Collateral Agreement"). The Term Loan and the subsidiary guarantees are secured, subject to certain exceptions, priorities and limitations, by perfected security interests in substantially all property and assets, including certain real estate, of the IndentureCompany and 2nd Lien Term Loan.


2nd Lien Term Loan

The 2nd LienSubsidiary Guarantors.

Also, the Term Loan which has a balanceis secured, subject to certain exceptions, priorities and limitations in the various agreements, by first-priority security interests in the capital stock of, $118,240,000 at September 24, 2017, bears interest at a fixed annual rate of 12.0%, payable quarterly, and matures in December 2022.


Principal Payments

There are no scheduled mandatory amortization payments required underother equity interests owned by, the 2nd Lien Term Loan.

Quarterly, we are required to prepare a calculation of excess cash flow of the Pulitzer Subsidiaries ("Pulitzer Excess Cash Flow"). Pulitzer Excess Cash Flow is generally determined as the cash earnings of the Pulitzer Subsidiaries including adjustments for changes in working capital, capital spending, pension contributions, debt principal payments and income tax payments. Pulitzer Excess Cash Flow also includes a deduction for interest costs incurred under the 2nd Lien Term Loan.

Prior to March 31, 2017, we were required to offer the Pulitzer Excess Cash Flow to the 2nd Lien Lenders to prepay the 2nd Lien Term Loan at par, which payment the 2nd Lien Lenders could accept or reject. After March 31, 2017, the 2nd Lien Lenders can not reject, and Pulitzer Excess Cash Flow is used to prepay the 2nd Lien Term Loan, at par. Pulitzer Excess Cash Flow payments are required to be paid 45 days after the end of the quarter.


Pulitzer Excess Cash FlowCompany and the related payments onSubsidiary Guarantors (excluding the 2nd Lien Term Loan for the previous four quarters are as follows:
For the Period Ending
(Thousands of Dollars)
Pulitzer Excess Cash Flow
Payment Date
Payment Amount
(not rejected)

    
September 25, 2016—
Q1 2017—
December 25, 2016930
Q2 2017174
March 26, 20174,488
Q3 20174,488
June 25, 20175,549
Q4 20175,549

For the 13 weeks ended September 24, 2017, Pulitzer Excess Cash Flow totaled $5,182,000,capital stock of MNI and was paid in November 2017, at par.

Subject to certain other conditions in the 2nd Lien Term Loan, the balance of the 2nd Lien Term Loan will be repaid at par from proceeds from asset sales by the Pulitzer Subsidiaries that are not reinvested. For the 52 weeks ended September 24, 2017 and September 25, 2016, we repaid $2,412,000 and $8,119,000, respectively, on the 2nd Lien Term Loan, at par, with net proceeds from the sale of Pulitzer assets.

Voluntary payments under the 2nd Lien Term Loan are subject to call premiums as follows:
Period BeginningPercentage of Principal Amount
March 31, 2017106
March 31, 2018103
March 31, 2019100

Covenants and Other Matters

The 2nd Lien Term Loan requires that we comply with certain affirmative and negative covenants customary for financing of this nature, including the negative covenants under the 1st Lien Credit Facility discussed above. The 2nd Lien Term Loan contains various representations and warranties and may be terminated upon occurrence of certain events of default. The 2nd Lien Term Loan also contains cross-default provisions tied to the terms of the Indenture and 1st Lien Credit Facility.

TNI).

Warrants

In connection with the 2ndLien Term Loan, we entered into a Warrant Agreement dated as of March 31, 2014 (the “Warrant Agreement”(the "Warrant Agreement"). Under the Warrant Agreement, certain affiliates or designees of the 2nd Lien Lenders received on March 31, 2014 their pro rata share of warrants to purchase, in cash, an initial aggregate of 6,000,000 shares of Common Stock, subject to adjustment pursuant to anti-dilution provisions (the “Warrants”"Warrants"). The Warrants represent, when fully exercised, approximately 10.1% of shares of Common Stock outstanding at March 30, 2014 on a fully diluted basis. The exercise price of the Warrants is $4.19 per share.


The Warrant Agreement contains a cash settlement provision in the event of a change of control prior to March 31, 2018 as well as other provisions requiring the Warrants to be measured at fair value and included in warrants and other liabilities in our Consolidated Balance Sheets. We remeasurere-measure the fair value of the liability each reporting period, with changes reported in other, net non-operating income (expense). The initial fair value of the Warrants was $16,930,000. See Note 8 and Note 11.13.

In connection with the issuance of the Warrants, we entered into a Registration Rights Agreement dated as of March 31,14, 2014 (the “Registration(the "Registration Rights Agreement”Agreement"). The Registration Rights Agreement requires, among other matters, that we use our commercially reasonable efforts to maintain the effectiveness for certain specified periods of a shelf registration statementstatements related to the shares of Common Stock to be issuedissues upon exercise of the Warrants.


Security

The Notes and the 1st Lien Credit Facility are fully and unconditionally guaranteed on a joint and several first-priority basis by each of the Company's material domestic subsidiaries, excluding MNI, the Pulitzer Subsidiaries and TNI (the

"Lee Legacy Assignors"), pursuant to a first lien guarantee and collateral agreement dated as of March 31, 2014 (the "1st Lien Guarantee and Collateral Agreement").

The Notes, the 1st Lien Credit Facility and the subsidiary guarantees are secured, subject to certain exceptions, priorities and limitations, by perfected security interests in all property and assets, including certain real estate, of the Lee Legacy Assignors, other than the capital stock of MNI and any property and assets of MNI (the “Lee Legacy Collateral”), on a first-priority basis, equally and ratably with all of the Lee Legacy Assignors' existing and future obligations. The Lee Legacy Collateral includes, among other things, equipment, inventory, accounts receivables, depository accounts, intellectual property and certain of their other tangible and intangible assets.

Also, the Notes and the 1st Lien Credit Facility are secured, subject to certain exceptions, priorities and limitations in the various agreements, by first-priority security interests in the capital stock of, and other equity interests owned by, the Lee Legacy Assignors (excluding the capital stock of MNI). The Notes and 1st Lien Credit Facility are subject to a Pari Passu Intercreditor Agreement dated March 31, 2014.

The Notes, the 1st Lien Credit Facility and the subsidiary guarantees are also secured, subject to permitted liens, by a second-priority security interest in the property and assets of the Pulitzer Subsidiaries that become subsidiary guarantors (the "Pulitzer Assignors") other than assets of or used in the operations or business of TNI (collectively, the “Pulitzer Collateral”). In June 2015 the Pulitzer Assignors became a party to the 1st Lien Guarantee and Collateral Agreement on a second lien basis.

Also, the Notes and the 1st Lien Credit Facility are secured, subject to certain exceptions, priorities, and limitations in the various agreements, by second-priority security interests in the capital stock of, and other equity interests in, the Pulitzer Assignors and Star Publishing’s interest in TNI.

The 2nd Lien Term Loan is fully and unconditionally guaranteed on a joint and several first-priority basis by the Pulitzer Assignors, pursuant to a Second Lien Guarantee and Collateral Agreement dated as of March 31, 2014 (the “2nd Lien Guarantee and Collateral Agreement”) among the Pulitzer Assignors and the 2nd Lien collateral agent.

Under the 2nd Lien Guarantee and Collateral Agreement, the Pulitzer Assignors have granted (i) first-priority security interests, subject to certain priorities and limitations in the various agreements, in the Pulitzer Collateral and (ii) have granted first-priority lien mortgages or deeds of trust covering certain real estate, as collateral for the payment and performance of their obligations under the 2nd Lien Term Loan.

Also, under the 2nd Lien Guarantee and Collateral Agreement, the Lee Legacy Assignors have granted (i) second-priority security interests, subject to certain priorities and limitations in the various agreements, in the Lee Legacy Collateral, and (ii) have granted second-priority lien mortgages or deeds of trust covering certain real estate, as collateral for the payment and performance of their obligations under the 2nd Lien Term Loan. Assets of, or used in the operations or business of, MNI are excluded.

The rights of each of the collateral agents with respect to the Lee Legacy Collateral and the Pulitzer Collateral are subject to customary intercreditor and intercompany agreements.

Other


In connection with the 2014 Refinancing, we capitalized $37,819,000 of debt financing costs. Amortization of debt financing costs totaled $4,447,000, $5,541,000 $11,282,000, $5,773,100 and $4,693,000$4,769,000 in 2017, 20162020,2019 and 2015,2018, respectively. AmortizationIn connection with the Transactions, we accelerated recognition of such costs is estimated to total $4,109,000 in 2018, $3,962,000 in 2019, $4,025,000 in 2020, $4,200,000 in 2021 and $4,390,000 in 2022. At September 24, 2017, we have $21,824,000 ofthe unamortized debt financing costs of $9,583,000 in 2020.

46

During the 52 weeks ended September 29, 2019, we identified an adjustment of $1,309,000 related to debt financing costs that should have been recorded in prior periods. The impact of recording this out of period adjustment was an increase to Debt financing and administrative costs of $1,309,000 in the Consolidated Statements of Operations and Comprehensive Income for the 52 weeks ended September 29, 2019 and an increase to debt of $1,309,000 on the Consolidated Balance Sheet. We do not believe the impact of the adjustment is material to our consolidated financial statements for any previously issued financial statements taken as a reductionwhole, or to our net income for the 52 weeks ended September 29, 2019. Further, the impact of Long-term debt inthe corrections was not material to any of our Consolidated Balance Sheets.


In April 2015,Sheets nor our Consolidated Statements of Cash Flows.

Liquidity

Pursuant to the FASB issuedterms of the Credit Agreement, our new debt does not include a new standard for the presentationrevolver.

Our liquidity, consisting of debt issuance costs. The new standard streamlinedcash on the balance sheet, presentation of debt related valuations. Debt issuance costs were previously recognized as deferred charges and presented as an asset while debt discounts and premiums are treated as adjustments to the related debt. Under the new standard, debt issuance costs are now recognized as reductions to the related debt. The adoption of this standard reclassified certain amounts within our Consolidated Balance Sheets. We adopted the new standard in 2017, as required, and adopted this standard retrospectively. As a result, we have reclassified $26,271,000 of Other long-term assets to a reduction of long-term debt, net of current maturities in the totals $33,733,000 at September 25, 2016 Consolidated Balance Sheet.


Liquidity
At September 24, 2017, after consideration of letters of credit, we have approximately $33,818,000 available for future use under our Revolving Facility. Including cash, our liquidity at September 24, 2017 totals $44,439,000. 27, 2020. This liquidity amount excludes any future cash flows. We expect all interest and principal payments due in the next twelve months will be satisfied by existing cash and our cash flows, which will allow us to maintain an adequate level of liquidity. The Warrants as defined above, if and when exercised, would provide additional liquidity in an amount up to $25,140,000, subject to a reduction for any amountswhich is not considered in the Company may elect to use to repay our 1st Lien Term Loan and/or the Notes.

Final maturitiescalculation of our debt range from December 2018 through December 2022.

Excess Cash Flow.

There are numerous potential consequences under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan if an event of default, as defined, occurs and is not remedied. Many of those consequences are beyond our control. The occurrence of one or more events of default would give rise to the right of the applicable lender(s)BH Finance to exercise their remedies under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan, respectively,Agreement including, without limitation, the right to accelerate all outstanding debt and take actions authorized in such circumstances under applicable collateral security documents.


Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and to repay, refinance or amend our debt agreements as they become due. The Notes, 1st Lien Credit Facility and 2nd Lien Term Loan haveAgreement (as defined above) has only limited affirmative covenants with which we are required to maintain compliance.compliance and there are no leverage or financial performance covenants. We are in compliance with our debt covenants at September 24, 2017.27, 2020.


5

7     PENSION PLANS

We have several non-contributory defined benefit pension plans that together cover selected employees. Benefits under the plans were generally based on salary and years of service. Effective in 2012 for Legacy Lee (as defined above), substantially all benefits are frozen and only a small amount of additional benefits are being accrued. Our liability and related expense for benefits under the plans are recorded over the service period of employees based upon annual actuarial calculations. Plan funding strategies are influenced by government regulations. Plan assets consist primarily of domestic and foreign corporate equity securities, government and corporate bonds, hedge fund investments, and cash.


In connection with the Transactions, we acquired four additional defined pension plans related to Buffalo News. The addition of these four plans significantly increased our benefit obligation in 2020.

The net periodic cost (benefit) components of our pension plans are as follows:

(Thousands of Dollars)2017
 2016
 2015
      
Service cost for benefits earned during the year84
 197
 232
Interest cost on projected benefit obligation5,394
 6,061
 8,122
Expected return on plan assets(7,878) (8,698) (9,863)
Amortization of net loss2,947
 2,397
 1,682
Amortization of prior service benefit(136) (136) (136)
Net periodic pension cost (benefit)411
 (179) 37
Net periodic pension benefit of $56,000 is allocated to TNI in 2017, 2016 and 2015.

(Thousands of Dollars)

 

2020

  

2019

  

2018

 
             
Service cost for benefits earned during the year  1,361   36   48 
Interest cost on projected benefit obligation  7,577   6,563   5,754 
Expected return on plan assets  (12,986)  (8,073)  (7,933)
Amortization of net loss  3,166   1,135   2,025 
Amortization of prior service benefit  (6)  (100)  (136)

Net periodic pension cost (benefit)

  (888)  (439)  (242)

Changes in benefit obligations and plan assets are as follows:

(Thousands of Dollars)

 

2020

  

2019

 
         
Benefit obligation, beginning of year  192,369   176,531 
Business combination  195,834   0 

Service cost

  1,361   36 

Interest cost

  7,577   6,563 
Actuarial loss (gain)  20,525   20,687 
Benefits paid  (16,246)  (11,448)
Administrative expenses paid  (39)  0 

Benefit obligation, end of year

  401,381   192,369 
Fair value of plan assets, beginning of year:  146,999   151,255 
Business combination  152,331   0 
Actual return on plan assets  44,933   8,705 

Benefits paid

  (16,246)  (11,448)
Administrative expenses paid  (2,794)  (2,163)
Employer contributions  6,131   650 

Fair value of plan assets, end of year

  331,354   146,999 

Funded status

  (70,027)  (45,370)

47
(Thousands of Dollars)2017
 2016
    
Benefit obligation, beginning of year202,158
 193,751
Service cost84
 197
Interest cost5,394
 6,061
Actuarial loss (gain)(4,241) 13,630
Benefits paid(11,750) (11,481)
Benefit obligation, end of year191,645
 202,158
Fair value of plan assets, beginning of year:149,131
 143,288
Actual return on plan assets14,721
 14,819
Benefits paid(11,750) (11,481)
Administrative expenses paid(2,340) (2,099)
Employer contributions—
 4,604
Fair value of plan assets, end of year149,762
 149,131
Funded status (41,883) (53,027)

Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:

(Thousands of Dollars)September 24
2017
 September 25
2016
    
Pension obligations(41,883) (53,027)
Accumulated other comprehensive loss (before income taxes)(43,307) (54,862)

  

September 27

  

September 29

 

(Thousands of Dollars)

 

2020

  

2019

 
         

Pension obligations

  (70,027)  (45,370)
Accumulated other comprehensive loss (before income taxes)  (41,344)  (53,066)

Amounts recognized in accumulated other comprehensive income (loss) are as follows:

(Thousands of Dollars)September 24
2017
 September 25
2016
    
Unrecognized net actuarial loss(43,550) (55,241)
Unrecognized prior service benefit243
 379
 (43,307) (54,862)

  

September 27

  

September 29

 

(Thousands of Dollars)

 

2020

  

2019

 
         
Unrecognized net actuarial loss (41,344) (53,072)
Unrecognized prior service benefit 0  6 
   (41,344)  (53,066)

We expect to recognize $2,025,000 and $137,000$4,018,000 of unrecognized net actuarial loss, and unrecognized prior service benefit, respectively, in net periodic pension cost in 2018.

2021.

The accumulated benefit obligation for the plans total $191,645,000$401,381,000 at September 24, 201727, 2020and $202,158,000$192,369,000 at September 25, 201629, 2019. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets are $191,645,000, $191,645,000$401,381,000, $401,381,000 and $149,762,000,$331,354,000, respectively, at September 24, 201727, 2020.


Assumptions

Weighted-average assumptions used to determine benefit obligations are as follows:

(Percent)September 24
2017		 September 25
2016
    
Discount rate3.7 3.5

  

September 27

  

September 29

 

(Percent)

 

2020

  

2019

 
         
Discount rate 2.8  3.1 

Weighted-average assumptions used to determine net periodic benefit cost are as follows:

(Percent)2017
 2016
 2015
      
Discount rate3.5
 4.2
 4.2
Expected long-term return on plan assets5.5
 6.3
 6.8

(Percent)

 

2020

  

2019

  

2018

 
             
Discount rate - service cost 3.3  4.2  3.7 
Discount rate - interest cost 2.6  3.9  3.1 
Expected long-term return on plan assets 6.0  5.5  5.5 

For 2018,2020, the expected long-term return on plan assets is 5.5%6.0%. The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns, current market conditions and composition of plan assets.


Plan Assets

The primary objective of our investment strategy is to satisfy our pension obligations at a reasonable cost. Assets are actively invested to balance real growth of capital through appreciation, reinvestment of dividend and interest income, and safety of invested funds. 

Our investment policy outlines the governance structure for decision making, sets investment objectives and restrictions and establishes criteria for selecting and evaluating investment managers. The use of derivatives is prohibited, except on a case-by-case basis where the manager has a proven capability, and only to hedge quantifiable risks such as exposure to foreign currencies. An investment committee, consisting of certain of our executives and supported by independent consultants, is responsible for monitoring compliance with the investment policy. Assets are periodically redistributed to maintain the appropriate policy allocation.

The weighted-average asset allocation of our pension assets is as follows:

(Percent)

 

Policy Allocation

   

Actual Allocation

 
  

September 27

  

September 27

  

September 29

 

Asset Class

 

2020

  

2020

  

2019

 
             
Equity securities 50  48  49 
Debt securities 35  33  34 
TIPS 5  5  5 
Hedge fund investments 10  10  10 
Cash and cash equivalents 0  4  2 

Plan assets include no Company securities. Assets include cash and cash equivalents and receivables from time to time due to the need to reallocate assets within policy guidelines. Buffalo News assets are excluded from the table above as we are still converting their asset allocation from their previous policy to align with Legacy Lee. Buffalo news asset allocation consists of 92% equity securities, 2% debt securities, and 6% of cash and equivalents. As of September 27, 2020 Buffalo News had no policy for asset allocation.

48

Fair Value Measurements

The fair value hierarchy of pension assets at September 27, 2020 is as follows:

(Thousands of Dollars)

 

NAV

  

Level 1

  

Level 2

  

Level 3

 
                 
Cash and cash equivalents 0  17,287  0  0 
Domestic equity securities 5,500  151,584  60,333  0 
International equity securities 0  6,893  7,396  0 
Emerging equity securities 0  7,225  0  0 
TIPS 0  6,967  0  0 
Debt securities 0  22,253  32,167  0 
Hedge fund investments 15,977  0  0  0 

The fair value hierarchy of pension assets at September 29, 2019 is as follows:

(Thousands of Dollars)

 

NAV

  

Level 1

  

Level 2

  

Level 3

 
                 

Cash and cash equivalents

  0   2,970   0   0 

Domestic equity securities

  9,524   8,971   40,593   0 

International equity securities

  0   6,525   7,283   0 

TIPS

  0   6,918   0   0 

Debt securities

  0   26,392   24,190   0 

Hedge fund investments

  15,733   0   0   0 

There were no purchases, sales or transfers of assets classified as Level 3 in 2020 or 2019. Pension assets included in the fair value hierarchy at net asset value, or "NAV", include three investments:

•

U.S. small cap value equity common/collective fund for which fund prices are not publicly available. The balance of this investment is $5,500,000 and $9,524,000 as of September 27, 2020 and September 29, 2019, respectively. We can redeem this fund on a monthly basis.

•

Global equity long/short common/collective hedge fund-of-funds for which fund prices are established on a monthly basis. The balance of this investment is $7,096,000 and $7,923,000 as of September 27, 2020 and September 29, 2019, respectively. We can redeem up to 90% of our investment in this fund within 90-120 days of notice with the remaining distributed following completion of the audit of the Fund's financial statements for the year.

•

Global equity long/short common/collective hedge fund-of-funds for which fund prices are established on a monthly basis. The balance of this investment is $8,881,000 and $7,810,000 as of September 27, 2020 and September 29, 2019, respectively. We can redeem up to 50% of our investment in this fund twice per year.

Cash Flows

Based on our forecast at September 27, 2020, we expect to make contributions of $3,190,000 to our pension trust in 2021.

We anticipate future benefit payments to be paid from the pension trust as follows:

(Thousands of Dollars)

   
    

2021

 22,881 

2022

 22,385 

2023

 22,548 

2024

 22,630 

2025

 22,511 
2026-2030 109,885 

Other Plans

We are obligated under an unfunded plan to provide fixed retirement payments to certain former employees. The plan is frozen and no additional benefits are being accrued. The accrued liability under the plan is $1,483,000 and $1,667,000 at September 27, 2020 and September 29, 2019, respectively.

49

8     POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS

We provide retiree medical and life insurance benefits under postretirement plans at several of our operating locations. The level and adjustment of participant contributions vary depending on the specific plan. In addition, St. Louis Post Dispatch LLC provides postemployment disability benefits to certain employee groups prior to retirement. Our liability and related expense for benefits under the postretirement plans are recorded over the service period of active employees based upon annual actuarial calculations. We accrue postemployment disability benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid.

The net periodic postretirement benefit cost (benefit) components for our postretirement plans are as follows:

(Thousands of Dollars)

 

2020

  

2019

  

2018

 
             
Service cost for benefits earned during the year  500   0   0 
Interest cost on projected benefit obligation  869   412   365 
Expected return on plan assets  (1,060)  (1,082)  (1,080)
Amortization of net actuarial gain  (743)  (976)  (984)
Amortization of prior service benefit  (647)  (723)  (785)
Curtailment gains  0   0   (2,031)

Net periodic postretirement benefit

  (1,081)  (2,369)  (4,515)

In March 2017, we notified certain participants in one of our postemployment medical plans of changes to their plan, which included notice that the plan will terminate on December 31, 2017. These changes resulted in a non-cash curtailment gain of $2,031,000 in 2018. The curtailment gain is recorded in assets loss (gain) on sales, impairments and other in the Consolidated Statements of Income and Comprehensive Income. These charges also reduced the postemployment benefit obligation by $7,036,000 and reduced accumulated other comprehensive loss by $106,000 in 2018.

Changes in benefit obligations and plan assets are as follows:

(Thousands of Dollars)

 

2020

  

2019

 
         
Benefit obligation, beginning of year  11,752   11,756 
Business combination  36,800   0 
Service cost  500   0 
Interest cost  869   412 
Actuarial loss (gain)  (982)  1,033 
Benefits paid, net of premiums received  (1,374)  (1,507)
Medicare Part D subsidies  72   58 

Benefit obligation, end of year

  47,637   11,752 
Fair value of plan assets, beginning of year  24,135   24,647 
Business combination  0   0 
Actual return on plan assets  1,594   2,097 
Employer contributions  646   222 
Benefits paid, net of premiums and Medicare Part D subsidies received  (1,077)  (1,449)
Benefits paid for active employees  (438)  (1,382)
One time asset transfer  846    

Fair value of plan assets at measurement date

  25,706   24,135 

Funded status

  (21,931)  12,383 

Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:

  

September 27

  

September 29

 

(Thousands of Dollars)

 

2020

  

2019

 
         

Non-current assets

  15,241   12,383 

Postretirement benefit obligations

  (37,172)  0 

Accumulated other comprehensive income (before income tax benefit)

  14,269   14,818 

50

Amounts recognized in accumulated other comprehensive income are as follows:

  

September 27

  

September 29

 

(Thousands of Dollars)

 

2020

  

2019

 
         
Unrecognized net actuarial gain 4,826  4,970 
Unrecognized prior service benefit 9,443  9,848 
   14,269   14,818 

We expect to recognize $687,000 and $647,000 of unrecognized net actuarial gain and unrecognized prior service benefit, respectively, in net periodic postretirement benefit in 2021.

Assumptions

Weighted-average assumptions used to determine postretirement benefit obligations are as follows:

  

September 27

  

September 29

 

(Percent)

 

2020

  

2019

 
         
Discount rate 2.7  2.8 
Expected long-term return on plan assets 4.5  4.5 

The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns, current market conditions and composition of plan assets.

Weighted-average assumptions used to determine net periodic benefit cost are as follows:

(Percent)

 

2020

  

2019

  

2018

 
             
Discount rate - service cost 3.4  4.0  3.4 
Discount rate - interest cost 2.8  3.7  2.8 
Expected long-term return on plan assets 4.5  4.5  4.5 

For 2020, the expected long-term return on plan assets is 4.5%. The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns, current market conditions and composition of plan assets.

Assumed health care cost trend rates are as follows:

  

September 27

  

September 29

 

(Percent)

 

2020

  

2019

 
         
Health care cost trend rates 6.4  8.5 
Rate to which the cost trend rate is assumed to decline (the “Ultimate Trend Rate”) 4.5  4.5 
Year in which the rate reaches the Ultimate Trend Rate 2030  2027 

Administrative costs related to indemnity plans are assumed to increase at the health care cost trend rates noted above.

Assumed health care cost trend rates have an effect on the amounts reported for the postretirement plans. A one percentage point change in assumed health care cost trend rates would have the following annualized effects on reported amounts for 2020:

  

One Percentage Point

 

(Thousands of Dollars)

 

Increase

  

Decrease

 
         

Effect on net periodic postretirement benefit

  454   (344)
Effect on postretirement benefit obligation  6,524   (5,216)

Plan Assets

Assets of the retiree medical plan are invested in a master trust. The master trust also pays benefits of active employee medical plans for the same union employees. The fair value of master trust assets allocated to the active employee medical plans at September 27, 2020 and September 29, 2019 is $671,000 and $1,955,000, respectively, which are included within the tables below.

The primary objective of our investment strategy is to satisfy our postretirement obligations at a reasonable cost. Assets are actively invested to balance real growth of capital through appreciation and reinvestment of dividend and interest income and safety of invested funds. Pension assets included below include assets of plans described below under the heading Other Plans.

Our investment policy outlines the governance structure for decision making, sets investment objectives and restrictions, and establishes criteria for selecting and evaluating investment managers. The use of derivatives is strictly prohibited, except on a case-by-case basis where the manager has a proven capability, and only to hedge quantifiable risks such as exposure to foreign currencies. An investment committee, consisting of certain of our executives and supported by independent consultants, is responsible for monitoring compliance with the investment policy. Assets are periodically redistributed to maintain the appropriate policy allocation.

51

The weighted-average asset allocation of our pensionpostretirement assets is as follows:

(Percent)Policy Allocation
Actual Allocation
Asset ClassSeptember 24, 2017
September 24
2017		September 25
2016
    
Equity securities50
5050
Debt securities35
3333
TIPS5
44
Hedge fund investments10
1211
Cash and cash equivalents—
12

(Percent)

 

Policy Allocation

  

Actual Allocation

 
      

September 27

  

September 29

 

Asset Class

 

September 27 2020

  

2020

  

2019

 
             
Equity securities 20  20  18 
Debt securities 70  70  68 
Hedge fund investment 10  10  14 
Cash and cash equivalents 0  0  0 

Plan assets include no Company securities. Assets include cash and cash equivalents and receivables from time to time due to the need to reallocate assets within policy guidelines.

Fair Value Measurements

The fair value hierarchy of pensionpostretirement assets at September 24, 201727, 2020 is as follows:

(Thousands of Dollars)NAV
Level 1
Level 2
Level 3
     
Cash and cash equivalents—
1,882
—
—
Domestic equity securities—
10,484
49,483
—
International equity securities—
7,290
8,047
—
TIPS—
6,553
—
—
Debt securities14,711
26,015
8,266
—
Hedge fund investments19,067
—
—
—


(Thousands of Dollars)

 

NAV

  

Level 1

  

Level 2

  

Level 3

 
                 
Cash and cash equivalents 0  59  0  0 
Domestic equity securities 590  2,868  0  0 
Emerging equity securities 0  539  0  0 
International equity securities 0  579  759  0 
Debt securities 0  18,229  0  0 
Hedge fund investment 2,754  0  0  0 

The fair value hierarchy of pensionpostretirement assets at September 25, 201629, 2019 is as follows:

(Thousands of Dollars)NAV
Level 1
Level 2
Level 3
     
Cash and cash equivalents—
2,757
—
—
Domestic equity securities—
9,669
49,809
—
International equity securities—
6,773
7,755
—
TIPS—
6,883
—
—
Debt securities14,558
25,612
9,648
—
Hedge fund investments17,531
—
—
—

(Thousands of Dollars)

 

NAV

  

Level 1

  

Level 2

  

Level 3

 
                 

Cash and cash equivalents

  0   0   0   0 

Domestic equity securities

  778   2,640   0   0 

International equity securities

  0   628   750   0 

Debt securities

  0   17,707   0   0 

Hedge fund investment

  3,587   0   0   0 

There were no0 purchases, sales or transfers of assets classified as Level 3 in 20172020 or 2016.


2019. Postretirement assets included in the fair value hierarchy at net asset value, or "NAV", include two investments:

•

U.S. small cap value equity common/collective fund for which fund prices are not publicly available. The balance of this investment is $590,000 and $778,000 as of 9/27/2020 and 9/29/2019, respectively. We can redeem this fund on a monthly basis.

•

Global equity long/short common/collective hedge fund-of-funds for which fund prices are established on a monthly basis. The balance of this investment is $2,754,000 and $3,587,000 as of 9/27/2020 and 9/29/2019, respectively. We can redeem up to 90% of our investment in this fund within 90-120 days of notice with the remaining distributed following completion of the audit of the Fund's financial statements for the year.

Cash Flows

Based on our forecast at September 24, 2017, we expect to make contributions of $4,940,000 to our pension trust in 2018.


We anticipate future benefit payments to be paid from the pension trust as follows:
(Thousands of Dollars) 
  
201812,500
201911,873
202011,809
202111,782
202211,748
2023-202758,047
Other Plans
We are obligated under an unfunded plan to provide fixed retirement payments to certain former employees. The plan is frozen and no additional benefits are being accrued. The accrued liability under the plan is $1,766,000 and $2,232,000 at September 24, 2017and September 25, 2016, respectively, of which $113,000 is included in compensation and other accrued liabilities in the Consolidated Balance Sheet at September 24, 2017 and September 25, 2016, respectively.

6     POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
We provide retiree medical and life insurance benefits under postretirement plans at several of our operating locations. The level and adjustment of participant contributions vary depending on the specific plan. In addition, St. Louis Post Dispatch LLC provides postemployment disability benefits to certain employee groups prior to retirement. Our liability and related expense for benefits under the postretirement plans are recorded over the service period of active employees based upon annual actuarial calculations. We accrue postemployment disability benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid.


The net periodic postretirement benefit cost (benefit) components for our postretirement plans are as follows:
(Thousands of Dollars)2017
 2016
 2015
      
Service cost for benefits earned during the year13
 63
 76
Interest cost on projected benefit obligation412
 623
 922
Expected return on plan assets(1,056) (1,322) (1,445)
Amortization of net actuarial gain(987) (1,093) (1,386)
Amortization of prior service benefit(1,459) (1,459) (1,459)
Curtailment gains(3,741) —
 —
Net periodic postretirement benefit(6,818) (3,188) (3,292)
In March 2017, we notified certain participants in one of our post employment medical plans of changes to their plan, which included notice that the plan will terminate on December 31, 2017. These changes resulted in a non-cash curtailment gain of $3,741,000, which is recorded in gain on sales of assets and other, net in the Consolidated Statements of income and Comprehensive Income. These changes also reduced the postemployment benefit obligation by $5,112,000 and reduced accumulated other comprehensive loss by $1,417,000.

Changes in benefit obligations and plan assets are as follows:
(Thousands of Dollars)2017
 2016
    
Benefit obligation, beginning of year22,511
 23,812
Service cost13
 63
Interest cost412
 623
Actuarial loss (gain)(627) (773)
Benefits paid, net of premiums received(1,527) (1,434)
Curtailment(5,112) —
Medicare Part D subsidies(3) 220
Benefit obligation, end of year15,667
 22,511
Fair value of plan assets, beginning of year24,123
 30,123
Actual return on plan assets2,112
 1,085
Employer contributions755
 563
Benefits paid, net of premiums and Medicare Part D subsidies received(1,530) (1,213)
Benefits paid for active employees(834) (1,510)
Allocation to active medical plans—
 (4,925)
Fair value of plan assets at measurement date24,626
 24,123
Funded status8,959
 1,612
The accumulated benefit obligation for plans with benefit obligations in excess of plan assets included in the table above was $2,061,000 at September 24, 2017. These plans are unfunded.

Disaggregated amounts recognized in the Consolidated Balance Sheets are as follows:
(Thousands of Dollars)September 24
2017
 September 25
2016
    
Non-current assets11,020
 9,138
Postretirement benefit obligations(2,061) (7,527)
Accumulated other comprehensive income (before income tax benefit)18,782
 19,026

Amounts recognized in accumulated other comprehensive income are as follows:
(Thousands of Dollars)September 24
2017
 September 25
2016
    
Unrecognized net actuarial gain12,304
 11,089
Unrecognized prior service benefit6,478
 7,937
 18,782
 19,026
We expect to recognize $985,000 and $785,000 of unrecognized net actuarial gain and unrecognized prior service benefit, respectively, in net periodic postretirement benefit in 2018.

Assumptions
Weighted-average assumptions used to determine post retirement benefit obligations are as follows:
(Percent)September 24
2017		 September 25
2016
    
Discount rate3.4 3.1
Expected long-term return on plan assets4.5 4.5

The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns, current market conditions and composition of plan assets.

Weighted-average assumptions used to determine net periodic benefit cost are as follows:
(Percent)2017
 2016
 2015
      
Discount rate3.1
 3.7
 3.7
Expected long-term return on plan assets4.5
 4.5
 4.5
For 2018, the expected long-term return on plan assets is 4.5%. The assumptions related to the expected long-term return on plan assets are developed through an analysis of historical market returns, current market conditions and composition of plan assets.

Assumed health care cost trend rates are as follows:
(Percent)September 24
2017		 September 25
2016
    
Health care cost trend rates9.7 9.0
Rate to which the cost trend rate is assumed to decline (the “Ultimate Trend Rate”)4.5 4.5
Year in which the rate reaches the Ultimate Trend Rate2026 2025
Administrative costs related to indemnity plans are assumed to increase at the health care cost trend rates noted above.
Assumed health care cost trend rates have an effect on the amounts reported for the postretirement plans. A one percentage point change in assumed health care cost trend rates would have the following annualized effects on reported amounts for 2017:
 One Percentage Point 
(Thousands of Dollars)Increase
 Decrease
    
Effect on net periodic postretirement benefit19
 (17)
Effect on postretirement benefit obligation578
 (526)

Plan Assets
Assets of the retiree medical plan are invested in a master trust. The master trust also pays benefits of active employee medical plans for the same union employees. In 2016, it was determined that the assets of the retiree medical plan should be allocated among all plans that it funds and as a result, we allocated $4,925,000 of the retiree medical plan assets to the active medical plans during the year. The fair value of master trust assets allocated to the active employee medical plans at September 25, 2017 is $4,372,000, which are included within the tables below.

The primary objective of our investment strategy is to satisfy our postretirement obligations at a reasonable cost. Assets are actively invested to balance real growth of capital through appreciation and reinvestment of dividend and interest income and safety of invested funds.
Our investment policy outlines the governance structure for decision making, sets investment objectives and restrictions, and establishes criteria for selecting and evaluating investment managers. The use of derivatives is strictly prohibited, except on a case-by-case basis where the manager has a proven capability, and only to hedge quantifiable risks such as exposure to foreign currencies. An investment committee, consisting of certain of our executives and supported by independent consultants, is responsible for monitoring compliance with the investment policy. Assets are periodically redistributed to maintain the appropriate policy allocation.

The weighted-average asset allocation of our postretirement assets is as follows:
(Percent)Policy Allocation
Actual Allocation
Asset ClassSeptember 24 2017
September 24
2017		September 25
2016
    
Equity securities20
2122
Debt securities70
6765
Hedge fund investment10
1211
Cash and cash equivalents—
—2
Plan assets include no Company securities. Assets include cash and cash equivalents and receivables from time to time due to the need to reallocate assets within policy guidelines.

Fair Value Measurements
The fair value hierarchy of postretirement assets at September 24, 2017 is as follows:
(Thousands of Dollars)NAV
Level 1
Level 2
Level 3
     
Cash and cash equivalents—
—
—
—
Domestic equity securities—
3,479
741
—
International equity securities—
800
1,051
—
Debt securities—
19,548
—
—
Hedge fund investment3,343
—
—
—

The fair value hierarchy of postretirement assets at September 25, 2016 is as follows:
(Thousands of Dollars)NAV
Level 1
Level 2
Level 3
     
Cash and cash equivalents—
518
—
—
Domestic equity securities—
3,342
1,572
—
International equity securities—
695
898
—
Debt securities—
18,840
—
—
Hedge fund investment3,182
—
—
—
There were no purchases, sales or transfers of assets classified as Level 3 in 2017 or 2016.

Cash Flows
Based on our forecast at September 24, 201727, 2020, we do not expect to contribute to our postretirement plans in 2018.

2021.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Modernization Act”) introduced a prescription drug benefit under Medicare (“Medicare Part D”) and a federal subsidy to sponsors of retiree health care benefit plans (“Subsidy”) that provide a benefit at least actuarially equivalent (as that term is defined in the Modernization Act) to Medicare Part D. We concluded we qualify for the Subsidy under the Modernization Act since the prescription drug benefits provided under our postretirement health care plans generally require lower premiums from covered retirees and have lower deductibles than the benefits provided in Medicare Part D and, accordingly, are actuarially equivalent to or better than, the benefits provided under the Modernization Act.


We anticipate future benefit payments to be paid either with future contributions to the plan or directly from plan assets, as follows:

       

Less

     
       

Medicare

     
   

Gross

  

Part D

  

Net

 

(Thousands of Dollars)

  

Payments

  

Subsidy

  

Payments

 
              

2021

   2,339   (57)  2,282 

2022

   2,332   (54)  2,278 

2023

   2,328   (51)  2,277 

2024

   2,304   (48)  2,256 

2025

   2,269   (44)  2,225 
2026-2030   10,908   (166)  10,742 

52
(Thousands of Dollars)
Gross
Payments

 
Less
Medicare
Part D
Subsidy

 
Net
Payments

      
20183,474
 (167) 3,307
20191,393
 (168) 1,225
20201,372
 (168) 1,204
20211,340
 (166) 1,174
20221,298
 (162) 1,136
2023-20275,582
 (695) 4,887
 

Postemployment Plan

Our postemployment benefit obligation, representingwhich represents certain disability benefits, is $2,943,000$2,371,000 at September 24, 201727, 2020 and $3,190,000$2,550,000 at September 25, 2016.

29, 2019.

Subsequent Events (Unaudited)

In October, 2020, we eliminated retiree medical benefits to certain employees. The elimination of postretirement medical coverage resulted in non-cash curtailment gains of $23,800,000, which will be recognized in the 13-weeks ended December 27, 2020. Curtailment gains were calculated by revaluation of plan liabilities after consideration of other plan changes.

 
7

9    OTHER RETIREMENT PLANS

Substantially all of our employees are eligible to participate in a qualified defined contribution retirement plan. We also have a non-qualified plan for employees whose incomes exceed qualified plan limits.


Retirement and compensation plan costs, including costs related to stock based compensation and the defined contribution retirement plan, charged to continuing operations are $4,396,000$4,141,000 in 2017, $4,616,0002020, $3,849,000 in 20162019 and $4,125,000$4,430,000 in 2015.


2018.

Multiemployer Pension Plans


We contributecontributed to threefive multiemployer defined benefit pension plans under the terms of collective-bargaining agreements ("CBAs"). The risks of participating in these multiemployer plans are different from our company-sponsored plans in the following aspects:


We do not manage the plan investments or any other aspect of plan administration;

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and

If we choose to stop participating in one or more multiemployer plans, we may be required to fund over time an amount based on the unfunded status of the plan at the time of withdrawal, referred to as "withdrawal liability".

•

We do not manage the plan investments or any other aspect of plan administration;

•

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;

•

If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and

•

If we choose to stop participating in one or more multiemployer plans, we may be required to fund over time an amount based on the unfunded status of the plan at the time of withdrawal, referred to as "withdrawal liability".

Information related to these plans is outlined in the table below:

(Thousands of Dollars)

Zone Status September 30

 

Funding Improvement Plan/Rehabilitation Plan Status

  

Contributions

     
                  

Expiration Dates of

Pension Plan

2020

2019

 

Status

  

2020

  

2019

  

2018

  

Surcharge Imposed

 

CBAs

                   

GCIU- Employer Retirement Fund

Red

Red

 

Implemented

  87  98  107  

No

 

3/24/2022

                   
                   

District No. 9, International Association of Machinists and Aerospace Workers Pension Trust

Green

Green

 N/A  31  30  29  N/A 

2/28/2021

                   
                   
CWA/ITU negotiated Pension PlanRedN/A N/A  456  —  —  No 6/10/2022
                  1/13/2022
                   
IAM National Pension FundGreenN/A N/A  86  —  —  N/A 4/18/2021
                  12/19/2020
                   
Operating Engineers Central Pension Fund of the International Union of Operating Engineers and Participating EmployersGreenN/A N/A  52  —  —  N/A 12/16/2020

53
(Thousands of Dollars)Zone Status September 30Funding Improvement Plan/Rehabilitation Plan StatusContributions   
Pension Plan20172016Status2017
2016
2015
Surcharge ImposedExpiration Dates of CBAs
         
GCIU- Employer Retirement Fund
91-6024903/001
RedRedImplemented123
138
145
No1/13/2018
        
CWA/ITU Negotiated Pension Plan
13-6212879/001
RedRedImplemented101
108
122
No5/12/2019
       12/31/2017
       4/1/2018
District No. 9, International Association of Machinists and Aerospace Workers Pension Trust
43-0736847/001

GreenGreenN/A31
31
34
N/A8/01/2019

Multiemployer

The Company has effectuated withdrawals from several multiemployer plans. We record estimates of withdrawal liabilities as of the time the contracts excluding multiemployer plan benefits are ratified. As of September 27, 2020 and September 29, 2019, we had $11,473,000 and $7,359,000 withdrawal liabilities recorded in Other Liabilities in our Consolidated Balance Sheets. The liabilities reflect the estimated net present value of payments to the fund, payable over 20-years.

Several multiemployer plans have CBA's that expire in red zone status are generally less well funded than plans in green zone status.


Onethe next twelve months. It is reasonably possible that if the Company is unable to renegotiate these agreements employees could go on strike which could disrupt the normal operations of our enterprise's bargaining units withdrew from representation, and as a resultthe Company.

Subsequent Events (unaudited)

In October 2020, we are subject to a claim from the multiemployer pension plan foreffectuated a withdrawal liability. The amount and timingfrom a multiemployer plan at our Buffalo subsidiary. We estimate a withdrawal liability of such liability$12,300,000 that will be dependent on actions taken, or not taken, byrecorded in the Company and the pension plan, as well as the future investment performance and funding status of the pension plan. In 2017, we accrued a liability of $2,600,000 related to this withdrawal. The withdrawal liability determined to be due under this plan will be funded over a period of 20 years.13-weeks ended December 27, 2020.


8

10     COMMON STOCK AND CLASS B COMMON STOCK AND PREFERRED SHARE PURCHASE RIGHTS

Common Stock


The par value of our Common Stock was changed from $2.00 per share to $0.01 per share effective January 30, 2012. Holders of our previous 2nd lien agreement shared in the issuance of 6,743,640 shares of our Common Stock, an amount equal to 13% of outstanding shares on a pro forma basis as of January 30, 2012.


In connection with the currently outstanding previous 2nd Lien Term Loan, we entered into the Warrant Agreement. Under the Warrant Agreement, certain affiliates or designees of the 2nd Lien Lenders received on March 31,2014 their pro rata share of Warrants to purchase, in cash, 6,000,000 shares of Common Stock, subject to adjustment pursuant to anti-dilution provisions. The Warrants represent, when fully exercised, approximately 10.1% of shares of Common Stock outstanding at March 30, 2014 on a fully diluted basis. The exercise price of the Warrants is $4.19 per share.


The Warrant Agreement contains a cash settlement provision in the event of a change of control prior to March 31, 2018, as well as other provisions requiring the Warrants be measured at fair value and classified as warrants and other liabilities in our Consolidated Balance Sheets. We remeasurere-measure the liability to fair value each reporting period, with changes reported in other non-operating income (expense). The initial fair value of the Warrants was $16,930,000. At September 24, 2017, 27, 2020, the fair value of the Warrants is $1,580,000.


$363,000.

In connection with the issuance of the Warrants, we entered into the Registration Rights Agreement. The Registration Rights Agreement requires, among other matters, that we use our commercially reasonable efforts to file and maintain the effectiveness for certain specified periods of a shelf registration statement covering the shares of Common Stock upon exercise of the Warrants.



Class B Common Stock


In 1986,one share of Class B Common Stock was issued as a dividend for each share of Common Stock held by stockholders of record at the time. The transfer of Class B Common Stock was restricted. As originally anticipated, the number of outstanding Class B shares decreased over time through trading and reached the sunset level of 5,600,000 shares in March 2011. In March 2011, in accordance with the sunset provisions established in 1986, we effected conversion of all outstanding shares of Class B Common Stock to Common Stock. As a result, all stockholders have one vote per share on all future matters. Class B shares formerly had ten votes per share.

 
Preferred Share Purchase Rights

In 1998, the Board of Directors adopted a Shareholder Rights Plan (the “Rights Plan”). Under the Rights Plan, the Board of Directors declared a dividend of one Preferred Share Purchase Right (“Right”) for each outstanding share of our Common Stock and Class B Common Stock (collectively “Common Shares”). Rights are attached to, and automatically trade with, our Common Shares. In 2008, the Board of Directors approved an amendment to the Rights Plan. The amendment increased the beneficial ownership threshold to 25% from 20% for stockholders purchasing Common Stock for passive investment only and decreased the threshold to 15% for all other investors. In addition, the amendment extended the expiration of the Rights Plan to May 31, 2018 from May 31, 2008.
Rights become exercisable only in the event that any person or group of affiliated persons other than a passive investor becomes a holder of 15% or more of our outstanding Common Shares, or commences a tender or exchange offer which, if consummated, would result in that person or group of affiliated persons owning at least 15% of our outstanding Common Shares. Once the Rights become exercisable, they entitle all other stockholders to purchase, by payment of a $150 exercise price, one one-thousandth of a share of Series A Participating Preferred Stock, subject to adjustment, with a value of twice the exercise price. In addition, at any time after a 15% position is acquired and prior to the acquisition of a 50% position, the Board of Directors may require, in whole or in part, each outstanding Right (other than Rights held by the acquiring person or group of affiliated persons) to be exchanged for one share of Common Stock or one one-thousandth of a share of Series A Preferred Stock. The Rights may be redeemed at a price of $0.001 per Right at any time prior to their expiration.

9

11    STOCK OWNERSHIP PLANS

Total non-cash stock compensation expense is$2,088,000, $2,306,000 $1,042,000, $1,638,000 and $1,971,000,$1,857,000, in 2017, 20162020,2019 and 2015, respectively.


2018, respectively.

At September 24, 201727, 2020, we have reserved 3,589,4484,232,000 shares of Common Stock for issuance to employees under an incentive and nonstatutory stock option and restricted stock plan approved by stockholders of which 2,318,2983,804,000 shares are available for granting of non-qualified stock options or issuance of restricted Common Stock.


Stock Options

Options are granted at a price equal to the fair market value on the date of the grant and are exercisable, upon vesting, over a ten-yearten-year period.

A summary of stock option activity is as follows:

(Thousands of Shares)

 

2020

  

2019

  

2018

 
             
Under option, beginning of year  809   1,100   1,271 
Exercised  0   (93)  (131)
Canceled  (396)  (198)  (40)

Under option, end of year

  413   809   1,100 
Exercisable, end of year  413   809   1,100 

54
(Thousands of Shares)2017
 2016
 2015
      
Under option, beginning of year1,698
 1,871
 2,333
Exercised(339) (74) (289)
Canceled(88) (99) (173)
Under option, end of year1,271
 1,698
 1,871
Exercisable, end of year1,271
 1,692
 1,840


Weighted average prices of stock options are as follows:

(Dollars)2017
 2016
 2015
      
Exercised1.53
 1.17
 1.27
Cancelled14.02
 8.78
 5.02
Under option, end of year1.86
 2.42
 2.71

(Dollars)

 

2020

  

2019

  

2018

 
             
Exercised 0  2.06  1.42 
Cancelled 2.53  2.08  2.49 
Under option, end of year 1.14  1.82  1.88 

A summary of stock options outstanding at September 24, 201727, 2020 is as follows:

(Dollars)Options Outstanding  Options Exercisable 
Range of
Exercise
Prices
Number
Outstanding (Thousands)

Weighted Average
Remaining Contractual
Life (Years)
 
Weighted
Average
Exercise Price

 
Number
Exercisable  (Thousands)

 
Weighted
Average
Exercise Price

         
1 - 2569
4.7 1.14
 569
 1.14
2 - 3702
2.8 2.44
 702
 2.44
 1,271
3.6 1.86
 1,271
 1.86

(Dollars)

  

Options Outstanding

  

Options Exercisable

 

Range of

  

Number Outstanding (Thousands)

  

Weighted Average Remaining Contractual Life (Years)

  

Weighted Average Exercise Price

  

Number Exercisable (Thousands)

  

Weighted Average Exercise Price

 
                 
1 - 2  412  1.7  1.14  412  1.14 
2 - 3  0  —  0  0  0 
   412  1.7  1.14  412  1.14 

There is no0 unrecognized compensation expense for unvested stock options at September 24, 201727, 2020.


The stock options outstanding have 0 aggregate intrinsic value of stock options outstanding at September 24, 2017 is $631,000.


27, 2020.

Restricted Common Stock

A summary of restricted Common Stock activity follows:

(Thousands of Shares)2017
 2016
 2015
      
Outstanding, beginning of year2,462
 1,546
 1,291
Granted837
 1,018
 786
Vested(751) (63) (500)
Forfeited(70) (39) (31)
Outstanding, end of year2,478
 2,462
 1,546

(Thousands of Shares)

 

2020

  

2019

  

2018

 
             
Outstanding, beginning of year  1,477   2,059   2,478 
Granted  720   788   587 
Vested  (605)  (1,337)  (936)
Forfeited  (42)  (33)  (70)

Outstanding, end of year

  1,550   1,477   2,059 

Weighted average grant date fair values of restricted Common Stock are as follows:

(Dollars)2017
 2016
 2015
      
Outstanding, beginning of year2.74
 3.62
 2.72
Granted3.34
 1.49
 3.62
Vested3.59
 3.39
 1.31
Forfeited2.98
 3.31
 3.62
Outstanding, end of year2.69
 2.74
 3.62

(Dollars)

 

2020

  

2019

  

2018

 
             
Outstanding, beginning of year 2.49  2.31  2.69 
Granted 1.62  2.18  2.33 
Vested 2.34  2.03  3.31 
Forfeited 2.44  2.13  2.85 
Outstanding, end of year 2.15  2.49  2.31 

Total unrecognized compensation expense for unvested restricted Common Stock at September 24, 201727, 2020 is $2,788,000,$1,241,000, which will be recognized over a weighted average period of 1.3 years.


In December 2017, 2020, we issued 375,000expect to issue shares of restricted 600,000 restricted Common Stock to employees. The grant date fair value was $2.30 per share. All restrictions with respect to these shares lapse in December 2021 with respect to these shares.


2023.

Stock Purchase Plans

We have 270,000 shares of Common Stock available for issuance pursuant to our Employee Stock Purchase Plan. We also have 8,700 shares of Common Stock available for issuance under our Supplemental Employee Stock Purchase Plan. There has been no activity under these plans in 2017, 20162020,2019 or 2015.2018.

55

10

12    INCOME TAXES

Income tax expense (benefit) consists of the following:

(Thousands of Dollars)2017
 2016
 2015
      
Current:     
Federal394
 1,241
 720
State819
 379
 (92)
Deferred10,398
 20,556
 12,966
 11,611
 22,176
 13,594

(Thousands of Dollars)

 

2020

  

2019

  

2018

 
             

Current:

            
Federal 8,779  8,763  275 
State (11) 1,171  875 
Deferred (4,665) (2,003) (17,378)
   4,104   7,931   (16,228)

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

(Percent of Income (Loss) Before Income Taxes)2017
 2016
 2015
      
Computed “expected” income tax expense (benefit)35.0
 35.0
 35.0
State income tax expense (benefit), net of federal tax impact2.3
 3.8
 (7.1)
Net income of associated companies taxed at dividend rates(3.7) (2.6) (5.2)
Resolution of tax matters2.2
 3.2
 0.5
Non-deductible expenses1.5
 1.0
 2.8
Valuation allowance2.6
 (7.7) 15.9
Warrant valuation(10.2) 5.0
 (6.1)
Other(0.8) 0.4
 0.1
 28.9
 38.1
 35.9


(Percent of Income (Loss) Before Income Taxes)

 

2020

  

2019

  

2018

 
             
Computed “expected” income tax expense (benefit) 21.0  21.0  24.7 
State income tax expense, net of federal tax impact 21.7  1.3  2.6 
Net income of associated companies taxed at dividend rates (18.3) (3.9) (5.1)
Resolution of tax matters (30.5) 1.7  (8.4)
Remeasurement due to rate changes 24.0  0  0 
Non-deductible expenses 19.4  3.4  2.9 
Valuation allowance 110.0  10.8  9.9 
Warrant valuation (7.3) (0.6) 0.2 
Revaluation of deferred income taxes due to law charges 0  0  (79.1)
Other 4.4  (0.4) (0.4)
   144.4   33.3   (52.7)

Net deferred income tax liabilities consist of the following components:

(Thousands of Dollars)September 24
2017
 September 25
2016
    
Deferred income tax liabilities:   
Property and equipment(28,422) (33,549)
Identified intangible assets(35,790) (43,745)
Long-term debt(16,993) (16,158)
 (81,205) (93,452)
Deferred income tax assets: 
  
Investments2,520
 12,138
Accrued compensation4,622
 6,391
Allowance for doubtful accounts and losses on loans1,487
 1,273
Pension and postretirement benefits4,593
 6,505
Net operating loss carryforwards37,997
 52,604
Accrued expenses601
 577
Other5,023
 3,634
 56,843
 83,122
Valuation allowance(29,035) (27,978)
Net deferred income tax liabilities(53,397) (38,308)

  

September 27

  

September 29

 

(Thousands of Dollars)

 

2020

  

2019

 
         

Deferred income tax liabilities:

        
Property and equipment  (18,646)  (14,424)
Identified intangible assets  (16,765)  (15,358)
ASC 842 - Leases DTL  (18,669)  0 
Investments  (6,154)  (3,164)
   (60,234)  (32,946)

Deferred income tax assets:

        
Allowance for doubtful accounts  1,733   1,279 
Pension and postretirement benefits  7,075   2,048 
Long-term debt  350   (9,219)
Interest deduction limitation  5,383   4,255 
Operating loss carryforwards  28,240   41,610 
ASC 842 - Leases DTA  18,675   0 
Accrued compensation  13,142   1,810 
Accrued expenses  1,673   426 
Other  430   844 
   76,701   43,053 
Valuation allowance  (31,675)  (39,913)

Net deferred income tax liabilities

  (15,208)  (29,806)

All deferred taxes are categorized as non-current.

56
 

A reconciliation of 20172020 and 20162019 changes in gross unrecognized tax benefits is as follows:

(Thousands of Dollars)2017
 2016
    
Balance, beginning of year12,531
 11,799
Increases (decreases) in tax positions for prior years36
 46
Increases in tax positions for the current year2,150
 1,600
Lapse in statute of limitations(802) (914)
Balance, end of year13,915
 12,531

(Thousands of Dollars)

 

2020

  

2019

 
         
Balance, beginning of year  18,252   16,104 
Increases (decreases) in tax positions for prior years  (331)  33 
Increases in tax positions for the current year  9,825   2,472 
Lapse in statute of limitations  (738)  (357)

Balance, end of year

  27,008   18,252 

Approximately $9,010,000$10,319,000 and $8,025,000$10,665,000 of the gross unrecognized tax benefit balances for 20172020 and 20162019, respectively, relate to state net operating losses which are netted against deferred taxes on our balance sheet. The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $9,045,000$12,518,000 at September 24, 201727, 2020. We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest related to unrecognized tax benefits was, net of tax, $367,000$1,000,000 at September 24, 201727, 2020and$317,000 $848,000 at September 25, 2016.29, 2019. There were no amounts provided for penalties at September 24, 201727, 2020orSeptember 25, 2016.


29, 2019.

At September 27, 2020, we had a deferred tax asset of $5,383,000 related to disallowed interest expense.

No significant income tax audits are currently in progress and the Company has not received any notices of intent to audit. Certain of the Company's state income tax returns for the year ended September 30, 2012 29, 2014 are open for examination. The Federal and remaining state returns are open beginning with the September 29, 2014 28, 2015 year.

At September 24, 201727, 2020, we have state tax benefits of approximately $57,856,000$46,066,000 in net operating loss ("NOL") carryforwards that expire between 20182021 and 2037.2040. These NOL carryforwards result in a deferred income tax asset of $37,607,000$36,392,000 at September 24, 2017,27, 2020, a portion of which is offset by a valuation allowance.


We reported a Federal NOL of approximately $58,601,000 as of year-end September 25, 2016. We expect to report taxable income in 2017 which will further reduce the Federal NOL to $17,850,000 resulting in a deferred income tax asset balance of $6,247,000 as of September 24, 2017. A valuation allowance is not required for the Federal NOL in the current year based on our projection of future earnings during the carryforward period.

11

13    FAIR VALUE OF FINANCIAL INSTRUMENTS


The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate value.


The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of those instruments. Investments totaling $6,068,000,$4,226,000, including our 17%16.7% ownership of the non-voting common stock and 0.7% of the voting common stock of TCT, which represents 8.7% of total TCT stock, and a private equity investment, are carried at cost. As of September 25, 2017, 27, 2020, the approximate fair value of the private equity investment is $9,205,000,$702,000 which is a level 3 fair value measurement.


The fair value of

At September 27, 2020 we had no floating rate debt, which consists of our 1st Lien Term Loan, is $45,145,000, based on an average of private market price quotations.debt. Our fixed rate debt consists of $385,000,000$538,290,000 principal amount of the Notes and, $118,240,000 principal amount under the 2nd Lien Term Loan.Note. At September 24, 2017, 27, 2020, based on an average of private market price quotations, the fair values were $397,513,000 and $121,787,000 for the Notes and 2nd Lien Term Loan, respectively. These representvalue approximates carrying value. This represents a Level 2 fair value measurements.


measurement.

As discussed more fully in Notes 46 and 8, 10,we recorded a liability for the Warrants issued in connection with the Warrant Agreement. The liability was initially measured at its fair value and we will remeasurere-measure the liability to fair value each reporting period, with changes reported in other non-operating income (expense). The initial fair value of the Warrants was $16,930,000.$16,930,000. The fair value of the Warrants at September 24, 2017, September 25, 2016 and September 27, 2015 are $1,580,000, $11,760,0002020, September 29, 2019 and $4,240,000,September 30, 2018 is $363,000, $1,195,000 and $1,807,000, respectively. In other, net non-operating income (expense) in the Consolidated Statements of Income and Comprehensive Income, we recognized income of $10,181,000$832,000 in 2017,2020, income of $612,000 in 2019 and expense of $7,519,000$226,000 in 2016 and income of $6,568,000 in 2015,2018, for adjustments in the fair value of the Warrants.


The following assumptions were used to estimate the fair value of the Warrants:

  

2020

  

2019

  

2018

 
             

Volatility (Percent)

  84   48   31 

Risk-free interest rate (Percent)

  0.12   1.58   2.91 

Expected term (Years)

  1.5   2.5   3.5 

Estimated fair value (Dollars)

  0.06   0.20   0.3 

57
 2017
 2016
 2015
      
Volatility (Percent)
37
 63
 61
Risk-free interest rate (Percent)
1.81
 1.25
 1.75
Expected term (Years)
4.5
 5.5
 6.5
Estimated fair value (Dollars)
0.26
 1.96
 0.71

12

14    EARNINGS PER COMMON SHARE


The following table sets forth the computation of basic and diluted earnings (loss) per common share:

(Thousands of Dollars and Shares, Except Per Common Share Data)2017
 2016
 2015
      
Income attributable to Lee Enterprises, Incorporated:27,481
 34,961
 23,316
      
Weighted average Common Stock56,481
 55,493
 54,430
Less non-vested restricted Common Stock(2,491) (2,295) (1,790)
Basic average Common Stock53,990
 53,198
 52,640
Dilutive stock options and restricted Common Stock1,402
 1,026
 1,291
Diluted average Common Stock55,392
 54,224
 53,931
Earnings per common share:     
Basic:0.51
 0.66
 0.44
Diluted0.50
 0.64
 0.43

(Thousands of Dollars and Shares, Except Per Common Share Data)

 

2020

  

2019

  

2018

 
             

Income attributable to Lee Enterprises, Incorporated:

  (3,106)  14,268   45,766 
             
Weighted average Common Stock  58,105   57,648   57,009 
Less non-vested restricted Common Stock  (1,536)  (2,083)  (2,307)

Basic average Common Stock

  56,569   55,565   54,702 
Dilutive stock options and restricted Common Stock  367   1,319   1,246 

Diluted average Common Stock

  56,936   56,884   55,948 

Earnings per common share:

            
Basic:  (0.05)  0.26   0.84 
Diluted  (0.05)  0.25   0.82 

For 2017, 2016 and 2015,2020 we had 7,206,000, 7,577,0006,000,000 weighted average shares not considered in the computation of diluted earnings per share because the Company recorded net losses. For 2019 and 6,620,0002018, we had 6,384,000 and 7,206,000 weighted average shares, respectively, not considered in the computation of diluted earnings per common share because the exercise prices of the related stock options and Warrants were in excess of the fair market value of our Common Stock.


13

15    ALLOWANCE FOR DOUBTFUL ACCOUNTS

Valuation and qualifying account information related to the allowance for doubtful accounts receivable related to continuing operations is as follows:

(Thousands of Dollars)2017
 2016
 2015
      
Balance, beginning of year4,327
 4,194
 4,526
Additions charged to expense1,696
 1,195
 1,307
Deductions from reserves(1,227) (1,062) (1,639)
Balance, end of year4,796
 4,327
 4,194

(Thousands of Dollars)

 

2020

  

2019

  

2018

 
             
Balance, beginning of year  6,434   4,806   4,796 
Additions charged to expense  8,607   2,751   1,952 
Deductions from reserves  (1,610)  (1,123)  (1,942)

Balance, end of year

  13,431   6,434   4,806 

 
14

16    OTHER INFORMATION

Compensation and other accrued liabilities consist of the following:

(Thousands of Dollars)September 24
2017
 September 25
2016
    
Compensation12,088
 12,290
Retirement plans3,374
 4,135
Other6,961
 7,459
 22,423
 23,884

  

September 27

  

September 29

 

(Thousands of Dollars)

 

2020

  

2019

 
         
Compensation 16,915  9,170 
Retirement plans 2,317  2,637 
Other 25,046  5,904 
   44,278   17,711 

Supplemental cash flow information includes the following cash payments:

(Thousands of Dollars)2017
 2016
 2015
      
Interest58,844
 65,410
 72,937
Debt financing and reorganization costs373
 422
 733
Income tax payments, net1,214
 269
 485

(Thousands of Dollars)

 

2020

  

2019

  

2018

 
             
Interest 49,518  47,555  52,180 
Debt financing and reorganization costs 707  1,773  437 
Income tax payments, net 446  8,439  464 

Accumulated other comprehensive income (loss), net of deferred income taxes at September 24, 201727, 2020 and September 25, 2016,29, 2019, is related to pension and postretirement benefits.

58

15

17    COMMITMENTS AND CONTINGENT LIABILITIES

Operating Leases
We have operating lease commitments for certain of our office, production and distribution facilities. Management expects that in the normal course of business, existing leases will be renewed or replaced. Minimum lease payments during the five years ending September 2022 and thereafter are $2,976,000, $1,581,000, $1,026,000, $784,000, $439,000 and $3,498,000, respectively. In 2017, 2016, and 2015 total operating lease expense is $3,866,000, $3,792,000 and $3,415,000, respectively.

Capital Expenditures

At September 24, 2017, 27, 2020, we had construction and equipment purchase commitments totaling approximately $503,000.

$2,050,000.

Income Taxes

Commitments exclude unrecognized tax benefits to be recorded in accordance with FASB ASC Topic 740,Income Taxes. We are unable to reasonably estimate the ultimate amount or timing of cash settlements with the respective taxing authorities for such matters. See Note 10.

12.

We file income tax returns with the Internal Revenue Service ("IRS") and various state tax jurisdictions. From time to time, we are subject to routine audits by those agencies, and those audits may result in proposed adjustments. We have considered the alternative interpretations that may be assumed by the various taxing agencies, believe our


positions taken regarding our filings are valid, and that adequate tax liabilities have been recorded to resolve such matters. However, the actual outcome cannot be determined with certainty and the difference could be material, either positively or negatively, to the Consolidated Statements of Income and Comprehensive Income (Loss) in the periods in which such matters are ultimately determined. We do not believe the final resolution of such matters will be material to our consolidated financial position or cash flows.

We have various income tax examinations ongoing and at various stages of completion, but generally our income tax returns have been audited or closed to audit through 2011.

2014.

Legal Proceedings

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


Multiemployer Pension Plans


One of our enterprise's bargaining units withdrew

We have effectuated withdrawals from representation,various multiemployer plans, and as a result, we are subject to a claim from the multiemployer pension plan for a withdrawal liability. The amount and timing of such liability will be dependent on actions taken, or not taken, by the Company and the pension plan, as well as the future investment performance and funding status of the pension plan. In 2017, we accrued a liability of $2,600,000 related to this withdrawal. TheAny withdrawal liabilityliabilities determined to be due under this plan will beare funded over a period of 20 years.

Restructuring Costs and Other

We have recognized $13,751,000 of expense related to restructuring costs and other. This amount consists of an estimated withdrawal impact of $4,400,000, severance expense of $6,272,000, transition costs related to the Transactions of $1,807,000, and other of $1,272,808. We did not have a significant restructuring liability as of September 27, 2020 or September 29, 2019.

18    LEASES

We lease certain real estate, vehicles, and equipment. Our leases have a remaining lease terms of 1 to 40 years, some of which may include options to extend the leases, and some of which may include options to terminate the leases. The exercise of lease renewal options is at our sole discretion. The depreciable lives of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

As of September 27, 2020, our Consolidated balance sheets include $70,933,000 of operating lease right-to-use assets, $8,577,000 of short-term operating lease liabilities included in Other current liabilities, and $62,374,000 of long-term operating lease liabilities.

Total lease expense consists of the following:

(Thousands of Dollars)

September 27, 2020

Operating lease costs

10,148

Variable lease costs

1,911

Short-term lease costs

426

Total Operating Lease Expense

12,485

Supplemental cash flow information related to our operating leases was as follows:

(Thousands of Dollars)

September 27, 2020

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash outflow from operating leases

10,003
Right-of-use assets obtained in exchange for operating lease liabilities1,630


59

As of September 27, 2020, maturities of lease liabilities were as follows:

     

(Thousands of Dollars)

 

September 27, 2020

 

2021

  14,438 

2022

  12,103 

2023

  11,213 

2024

  10,538 

2025

  9,763 

Thereafter

  41,390 

Total lease payments

  99,445 

Less: interest

  (28,494) 

Present value of lease liabilities

  70,951 

As of the year ended September 29, 2019, minimum lease payments during the five years ending September 2024 and thereafter were $3,403,000, $2,290,000, $2,238,000, $1,637,000, $1,367,000, and $4,991,000, respectively.

Our lease contracts are discounted using the incremental borrowing rate for the Company. We determined the incremental borrowing rate based on a senior secured collateral adjusted yield curve for the Company. This yield curve reflects the estimated rate that would have been paid by the Company to borrow on a collateralized basis over a similar term in a similar economic environment. This rate was reassessed as part of the Transactions and was utilized to re-measure the assumed lease liabilities as well as the BH Lease as of March 16, 2020. We will assess this rate annually to determine whether it needs to be updated. The weighted average revolving lease terms and discount rates for all of our operating leases were as follows.

September 27, 2020

Weighted average remaining lease term (years)

8.64

Weighted Average discount rate

8.24%

16

19    QUARTERLY FINANCIAL DATA (UNAUDITED)

Per share amounts may not add due to rounding.

  

Quarter Ended

 

(Thousands of Dollars, Except Per Common Share Data)

 

December

  

March

  

June

  

September

 
                 

2020

                
                 
Operating revenue  122,343   121,367   182,528   191,766 
                 
Net income (loss)  5,717   (4,990)  (727)  (1,261)
                 
Income (loss) attributable to Lee Enterprises, Incorporated  5,320   (5,367)  (1,275)  (1,784)
                 

Earnings (loss) per common share:

                
Basic  0.09   (0.09)  (0.02)  (0.03)
Diluted  0.09   (0.09)  (0.02)  (0.03)
                 

2019

                
                 

Operating revenue

  136,201   122,704   127,284   123,665 
                 

Net income (loss)

  10,719   (2,327)  6,172   1,345 
                 

Income (loss) attributable to Lee Enterprises, Incorporated

  10,361   (2,678)  5,766   819 
                 

Earnings (loss) per common share:

                

Basic

  0.19   (0.05)  0.10   0.01 

Diluted

  0.18   (0.05)  0.10   0.01 

60
 Quarter Ended 
(Thousands of Dollars, Except Per Common Share Data)December
 March
 June
 September
        
2017       
        
Operating revenue153,989
 133,387
 139,355
 140,212
        
Net income12,440
 6,377
 6,287
 3,501
        
Income attributable to Lee Enterprises, Incorporated12,173
 6,128
 5,995
 3,185
        
Earnings per common share:       
Basic0.23
 0.11
 0.11
 0.06
Diluted0.22
 0.11
 0.11
 0.06
        
2016       
        
Operating revenue168,405
 146,835
 150,946
 148,178
        
Net income11,508
 19,483
 4,367
 661
        
Income attributable to Lee Enterprises, Incorporated11,237
 19,228
 4,092
 404
        
Earnings (loss) per common share:       
Basic0.21
 0.36
 0.08
 0.01
    Diluted0.21
 0.36
 0.08
 0.01
 
Results of operations for the September quarter of 2017 include pre-tax non-cash impairment charges of $2,517,000.


Report of Independent Registered Public Accounting Firm
The

To the Stockholders and Board of Directors and Stockholders

Lee Enterprises, Incorporated:


Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Lee Enterprises, Incorporated and subsidiaries (the Company) as of September 24, 201727, 2020 and September 25, 2016, and29, 2019, the related consolidated statements of income (loss) and comprehensive income (loss), stockholders’ equity (deficit), and cash flows for eachthe 52-week period ended September 27, 2020, the 52-week period ended September 29, 2019, and the 53-week period ended September 30, 2018 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 27, 2020 and September 29, 2019, and the results of its operations and its cash flows for the 52-week periodsperiod ended September 24, 2017,27, 2020, the 52-week period ended September 25, 2016,29, 2019, and the 53-week period ended September 30, 2018, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 27, 2015. 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated December 11, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has elected to change its method of accounting for leases as of September 30, 2019 due to the adoption of Accounting Standard Update (ASU) No. 2016-02, Leases, and related updates, which established Accounting Standard Codification Topic 842, Leases.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.


We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lee Enterprises, Incorporated and subsidiaries as of September 24, 2017 and September 25, 2016, and the results of their operations and their cash flows for each of the 52-week periods ended September 24, 2017, September 25, 2016, and September 27, 2015, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Lee Enterprises, Incorporated and subsidiaries’ internal control over financial reporting as of September 24, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated December 8, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.




/s/ KPMG LLP


We have served as the Company's auditor since 2008.

Chicago, Illinois

December 8, 201711, 2020

61


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on the 8th day of December 2017.

LEE ENTERPRISES, INCORPORATED
/s/ Kevin D. Mowbray/s/ Ronald A. Mayo
Kevin D. MowbrayRonald A. Mayo
President and Chief Executive OfficerVice President, Chief Financial Officer and Treasurer
(Principal Executive Officer)(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in their respective capacities on the 8th day of December 2017.
Signature
/s/ Richard R. ColeDirector
Richard R. Cole
/s/ Nancy S. DonovanDirector
Nancy S. Donovan
/s/ Leonard J. ElmoreDirector
Leonard J. Elmore
/s/ Mary E. JunckExecutive Chairman and Director
Mary E. Junck
/s/ Brent MagidDirector
Brent Magid
/s/ William E. MayerDirector
William E. Mayer
/s/ Herbert W. Moloney IIIDirector
Herbert W. Moloney III
/s/ Kevin D. MowbrayPresident and Chief Executive Officer, and Director
Kevin D. Mowbray
/s/ Gregory P. SchermerDirector
Gregory P. Schermer
/s/ Ronald A. MayoVice President, Chief Financial Officer and Treasurer
Ronald A. Mayo


EXHIBIT INDEX

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

Number

Description

NumberDescription

3.1 *

Amended and Restated Certificate of Incorporation of Lee Enterprises, Incorporated effective as of January 30, 2012 (Exhibit 3.1 to Form 8-K filed on February 3, 2012)

3.2 *

Second Amended and Restated By-Laws of Lee Enterprises, Incorporated effective as of February 22, 2017June 26, 2019 (Exhibit 3.1 to Form 8-K filed FebruaryJune 27, 2017)2019)

4.1 *

The descriptionForm of the Lee Enterprises, Incorporated’s (the “Company”) preferred stock purchase rights contained in its report on Form 8-K, filed on May 7, 1998, and related Rights Agreement, dated asIndenture of May 7, 1998 (“Rights Agreement”), between the Company and The First Chicago Trust Company of New York (“First Chicago”), as amended by Amendment No. 1 to the Rights Agreement dated January 1, 2008 between the Company and Wells Fargo Bank, N.A. (as successor rights agent to First Chicago) contained in the Company's report on Form 8-K filed on January 11, 2008 as Exhibit 4.2, and the related form of Certificate of Designation of the Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B and the Summary of Rights as Exhibit C, included as Exhibit 1.1 to the Company's registration statement on Form 8-A filed on May 26, 1998 (File No. 1-6227), as supplemented by Form 8-A/A, Amendment No. 1, filed on January 11, 2008.

4.2 *
Indenture dated as of March 31, 2014 among Lee Enterprises, Incorporated certain subsidiaries from time to time parties thereto, U.S. Bank National Association, as Trustee, and Deutsche Bank Trust Company Americas, as Collateral Agent (Exhibit 4.14.3 to Form 8-KS-3 Registration Statement filed on April 4, 2014)February 10, 2020)

4.3

4.2 *

Warrant Agreement dated as of March 31, 2014 between Lee Enterprises, Incorporated and Equiniti Trust Company (formerly Wells Fargo Bank, National AssociationAssociation) (Exhibit 4.2 to Form 8-K filed on April 4, 2014)

4.4

4.3 *

Registration Rights Agreement dated as of March 31, 2014 among Lee Enterprises, Incorporated, Mudrick Capital Management, LP, Hawkeye Capital Management, LLC, Cohanzick Management, LLC, Aristeia Capital, L.L.C., CVC Credit Partners, LLC, Franklin Mutual Advisors, LLC and Wingspan Master Fund, LP (Exhibit 4.3 to Form 8-K filed on April 4, 2014)

10.1 *

Asset and Stock Purchase Agreement dated March 21, 2014January 29, 2020 by and among Lee Enterprises, Incorporated, certain subsidiaries party thereto from time to time, U.S. Bank National Association, as Trustee,Berkshire Hathaway Inc. and Deutsche Bank Trust Company Americas, as Collateral Agent, involving a $400,000,000 aggregate principal amount of 9.5% Senior Secured Notes, pursuant to an Indenture dated as of March 31, 2014BH Media Group, Inc. (Exhibit 10.1 to Form 8-K filed on March 27, 2014)January 29, 2020)

10.2 *

Joinder Agreement dated as of June 25, 2015, made by each Subsidiary Guarantor a party thereto in favor of U.S. Bank National Association, as Trustee and Deutsche Bank Trust Company Americas, as collateral agent (Exhibit 10.1 to Form 8-K filed on July 1, 2015)

10.3 *
First Lien Credit Agreement dated as of March 31, 2014 amongJanuary 29, 2020 by and between Lee Enterprises, Incorporated the Lenders from time to time parties thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and JPMorgan SecuritiesBH Finance LLC and Deutsche Bank Securities Inc., as Joint Lead Arrangers and as Joint Bookrunners (Exhibit 10.1 to Form 8-K filed on April 4, 2014)
10.4 *
Second Lien Loan Agreement dated as of March 31, 2014 among Lee Enterprises, Incorporated, the Lenders from time to time parties thereto, Wilmington Trust, National Association, as Administrative Agent and Collateral Agent, and JPMorgan Securities LLC and Deutsche Bank Securities Inc., as Joint Lead Arrangers and as Joint Bookrunners (Exhibit 10.2 to Form 8-K filed on April 4, 2014)January 29, 2020)

10.5

10.3 *

SecurityForm of Lease Agreement dated as of March 31, 2014 amongby and between Lee Enterprises, Incorporated the Subsidiary Guarantors and Deutsche Bank Trust Company Americas, as Collateral AgentBH Media Group, Inc. (Exhibit 10.3 to Form 8-K filed on April 4, 2014)January 29, 2020)

10.6

10.4 *

Pari Passu Intercreditor Agreement dated as of March 31, 2014 among Lee Enterprises, Incorporated, the other Grantors from time to time parties thereto, JPMorgan Chase Bank, N.A., U.S. Bank National Association and Deutsche Bank Trust Company Americas (Exhibit 10.4 to Form 8-K filed on April 4, 2014)




NumberDescription
10.7 *
Joinder Agreement dated as of June 25, 2015, made by each Subsidiary Guarantor a party thereto in favor of JPMorgan Chase Bank, N.A., as collateral agent for the benefit of the Secured Creditors referred to in the First Lien Guarantee and Collateral Agreement dated as of March 31, 2014 referred to therein (Exhibit 10.2 to Form 8-K filed on July 1, 2015)
10.8 *
Pulitzer Pari Passu Intercreditor Agreement dated as of June 25, 2015 among Lee Enterprises, Incorporated, the other Grantors party thereto, JPMorgan Chase Bank, N.A., U.S. Bank National Association and Deutsche Bank Trust Company Americas (Exhibit 10.3 to Form 8-K filed on July 1, 2015)
10.9 *
Junior Intercreditor Agreement dated as of March 31, 2014 among Lee Enterprises, Incorporated, the other Grantors from time to time parties thereto, JPMorgan Chase Bank, N.A., U.S. Bank National Association, Deutsche Bank Trust Company Americas and Wilmington Trust, National Association (Exhibit 10.5 to Form 8-K filed on April 4, 2014)
10.10 *
Pulitzer Junior Intercreditor Agreement dated as of June 25, 2015 among Lee Enterprises, Incorporated, the other Grantors party hereto, JPMorgan Chase Bank, N.A., U.S. Bank National Association, Deutsche Bank Trust Company Americas and Wilmington Trust, National Association (Exhibit 10.4 to Form 8-K filed on July 1, 2015)
10.11 *
First Lien Guarantee and Collateral Agreement dated as of March 31, 2014 among Lee Enterprises, Incorporated, the Subsidiary Guarantors and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent (Exhibit 10.6 to Form 8-K filed on April 4, 2014)
10.12 *
Intercompany Subordination Agreement dated as of March 31, 2014 among Lee Enterprises, Incorporated, the Subsidiary Guarantors, Pulitzer, Pulitzer Subsidiaries and JPMorgan Chase Bank, N.A. (Exhibit 10.7 to Form 8-K filed on April 4, 2014)
10.13*
Second Lien Guarantee and Collateral Agreement dated as of March 31, 2014 among Lee Enterprises, Incorporated, the Subsidiary Guarantors, Pulitzer, Pulitzer Subsidiaries and Wilmington Trust, National Association, as Administrative Agent and Collateral Agent (Exhibit 10.8 to Form 8-K filed on April 4, 2014)
10.14 *
Second Amendment to Intercreditor Agreement dated as of March 31, 2014 among Lee Enterprises, Incorporated, The Bank of New York Mellon Trust Company, N.A., Wilmington Trust, National Association, Pulitzer and the Pulitzer Subsidiaries (Exhibit 10.9 to Form 8-K filed on April 4, 2014)
10.15 *
Intercompany Subordination Agreement dated as of March 31, 2014 among Lee Enterprises, Incorporated, the Subsidiary Guarantors, Pulitzer, Pulitzer Subsidiaries and Wilmington Trust, National Association (Exhibit 10.10 to Form 8-K filed on April 4, 2014)
10.16 *
Operating Agreement of St. Louis Post-Dispatch LLC, dated as of May 1, 2000, as amended by Amendment No. 1 to Operating Agreement of St. Louis Post-Dispatch LLC, dated as of June 1, 2001 (Exhibit 10.5 to Form 10-Q for the Fiscal Quarter Ended June 30, 2005)

 
10.17*

10.5 *

Amendment Number Two to Operating Agreement of St. Louis Post-Dispatch LLC, effective February 18, 2009, between Pulitzer Inc. and Pulitzer Technologies, Inc. (Exhibit 10.13 to Form 10-Q for the Fiscal Quarter Ended March 29, 2009)

10.18*

10.6 *

Amended and Restated Joint Operating Agreement, dated December 22, 1988, between Star Publishing Company and Citizen Publishing Company (Exhibit 10.2 to Form 10-Q for the Fiscal Quarter Ended June 30, 2005)

10.19*

10.7 *

Amended and Restated Partnership Agreement, dated as of November 30, 2009, between Star Publishing Company and Citizen Publishing Company (Exhibit 10.2 to Form 10-Q for the Fiscal Quarter Ended December 27, 2009)

10.20*

10.8 *

Amended and Restated Management Agreement, dated as of November 30, 2009, between Star Publishing Company and Citizen Publishing Company (Exhibit 10.1 to Form 10-Q for the Fiscal Quarter Ended December 27, 2009)

10.21*

10.9 *

License Agreement (Star), as amended and restated November 30, 2009, between Star Publishing Company and TNI Partners (Exhibit 10.3 to Form 10-Q for the Fiscal Quarter Ended December 27, 2009)

  
10.22*10.10 *
License Agreement (Citizen), as amended and restated November 30, 2009, between Citizen Publishing Company and TNI Partners (Exhibit 10.4 to Form 10-Q for the Fiscal Quarter Ended December 27, 2009)
  
10.2310.11 *
Lease Agreement between Ryan Companies US, Inc. and Lee Enterprises, Incorporated dated May 2003 (Exhibit 10.7 to Form 10-K for the Fiscal Year Ended September 30, 2003)

NumberDescription
10.24 *
License Agreement, dated as of May 1, 2000, by and between Pulitzer Inc. and St. Louis Post-Dispatch LLC (Exhibit 10.7 to Form 10-Q for the Fiscal Quarter Ended June 30, 2005)


Number

Description

10.25*10.12 *
Non-Confidentiality Agreement, dated as of May 1, 2000 (Exhibit 10.10 to Form 10-Q for the Fiscal Quarter Ended June 30, 2005)
  
10.26 +*

10.13.1+ *

Form of Director Compensation Agreement of Lee Enterprises, Incorporated for non-employee director deferred compensation (Exhibit 10.7 to Form 10-K for the Fiscal Year Ended September 30, 2004)

10.27.1 +*
Amended and Restated Lee Enterprises, Incorporated 19902020 Long-Term Incentive Plan (effective October 1, 1999, as amended effective February 17, 2016)19, 2020) (Exhibit 10.14.2 to Registration Statement on Form 8-KS-8 (Reference No. 333-237605) filed on February 23, 2016)April 8, 2020)

10.27.2 +*

10.13.2+*

Form of Restricted Stock Agreement related to Lee Enterprises, Incorporated 19902020 Long-Term Incentive Plan (Effective October 1, 1999, as amended effective February 17, 2016)19, 2020) (Exhibit 10.2 to Form 8-K filed on February 23, 2016)

10.27.3 +*

10.13.3+ *

Form of Incentive Stock Option Agreement related to Lee Enterprises, Incorporated 19902020 Long-Term Incentive Plan (Effective October 1, 1999, as amended effective February 17, 2016)19, 2020) (Exhibit 10.3 to Form 8-K filed on February 23, 2016)

10.27.4 +*

10.13.4+ *

Form of Non-Qualified Stock Option Agreement related to Lee Enterprises, Incorporated 19902020 Long-Term Incentive Plan (Effective October 1, 1999, as amended effective February 17, 2016)19, 2020) (Exhibit 10.4 to Form 8-K filed on February 23, 2016)

10.28

10.14 +*

Amended and Restated Lee Enterprises, Incorporated 1996 Stock Plan for Non-Employee Directors Effective February 22, 2017 (Appendix A to Schedule 14A Definitive Proxy Statement for 2017)
10.29 +*
Lee Enterprises, Incorporated Supplementary Benefit Plan, Amended and Restated as of January 1, 2008 (Exhibit 10.25 to Form 10-K for the Fiscal Year Ended September 28, 2008)

10.30 +*

10.15+ *

Lee Enterprises, Incorporated Outside Directors Deferral Plan, Amended and Restated as of January 1, 2008 (Exhibit 10.26 to Form 10-K for the Fiscal Year Ended September 28, 2008)

10.31.1 +*

10.16.1+*

Form of Amended and Restated Employment Agreement between Lee Enterprises, Incorporated and its Executive Chairman (Exhibit 10.31.1 to Form 10-K for the Fiscal Year Ended September 25, 2016)
10.31.2 +*
Form of Amended and Restated Employment Agreement between Lee Enterprises, Incorporated and its President and Chief Executive Officer (Exhibit 10.31.2 to Form 10-K for the Fiscal Year Ended September 25, 2016)30, 2018)

10.31.3 +*

10.16.2+*

Form of Employment Agreement between Lee Enterprises, Incorporated and Certain of its Senior Executive Officers (Exhibit 10.31.3 to Form 10-K for the Fiscal Year Ended September 25, 2016)30, 2018)

10.32 +

10.17+*

Form of Indemnification Agreement for Lee Enterprises, Incorporated Directors and Executive Officers Group (Exhibit 10.32 to Form 10-K for the Fiscal Year Ended September 30, 2018)

10.33 +*

10.18+*

Lee Enterprises, Incorporated Amended and Restated Incentive Compensation Program (Effective February 22, 2017) (Appendix B to Schedule 14A Definitive Proxy Statement for 2017)

21

Subsidiaries and associated companies

  
21

23

Subsidiaries and associated companies
23

Consent of KPMG LLP, Independent Registered Public Accounting Firm

  

24

Power of Attorney

31.1

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

31.2

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

32

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

101.INSInline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on the 11th day of December 2020.

LEE ENTERPRISES, INCORPORATED

/s/ Kevin D. Mowbray

/s/ Timothy R. Millage

Kevin D. Mowbray

Timothy R. Millage

President and Chief Executive Officer

Vice President, Chief Financial Officer and Treasurer

(Principal Executive Officer)

(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in their respective capacities on the 11th day of December 2020.

Signature

/s/ Richard R. Cole

Director

Richard R. Cole

/s/ Steven C. Fletcher

Director

Steven C. Fletcher

/s/ Margaret R. Liberman

Director

Margaret R. Liberman

/s/ Mary E. JunckDirector
Mary E. Junck

/s/ Brent M. Magid

Director

Brent Magid

/s/ William E. Mayer

Director

William E. Mayer

/s/ Herbert W. Moloney III

Director

Herbert W. Moloney III

/s/ David T. Pearson

Director

David T. Pearson

/s/ Kevin D. Mowbray

President and Chief Executive Officer, and Director

Kevin D. Mowbray

/s/ Gregory P. Schermer

Director

Gregory P. Schermer

/s/ Timothy R. Millage

Vice President, Chief Financial Officer and Treasurer

Timothy R. Millage

81
64