Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion includes comments and analysis relating to our results of operations and financial condition as of and for the 13 weeks ended December 29, 2019. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, included herein, and our 2019 Annual Report on Form 10-K.
NON-GAAP FINANCIAL MEASURES
We use non-GAAP financial performance measures to supplement the financial information presented on a GAAP 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 present Adjusted EBITDA, adjusted income (loss), adjusted earnings (loss) per common share (EPS), and cash costs, 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 financial statement users overall understanding of the operating performance of the Company. The measure isolates unusual, infrequent or non-cash transactions from the operating performance of the business. This allows users to easily compare operating performance among various fiscal periods and how management measures the performance of the business. This measure also provides users with a benchmark that can be used when forecasting future operating performance of the Company that excludes unusual, nonrecurring or one time transactions. Adjusted EBITDA is also a component of the calculation used by stockholders and analysts to determine the value of our business when using the market approach, which applies a market multiple to financial metrics. It is also a measure used to calculate the leverage ratio of the Company, which is a key financial ratio monitored and used by the Company and its investors. Adjusted EBITDA is defined as net income (loss), plus non-operating expenses, income tax expense, depreciation and amortization, assets loss (gain) on sales, impairments and other, restructuring costs and other, stock compensation and our 50% share of EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI.
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 excluding the impact of changes in the warrant valuation, which are non-cash 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.
Cash Costs represent a non-GAAP financial performance measure of operating expenses which are measured on an accrual basis and settled in cash. This measure is useful to investors in understanding the components of the Company’s cash-settled operating costs. 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 are defined as compensation, newsprint and ink and other operating expenses. Depreciation and amortization, assets loss (gain) on sales, impairments and other, other non-cash operating expenses and other expenses are excluded. Cash Costs also exclude restructuring costs and other, which are typically settled in cash.
Total Operating Revenue Less Cash Costs, or “margin”, represents a non-GAAP financial performance measure of revenue less total cash costs, also a non-GAAP financial measure. This measure is useful to investors in understanding the profitability of the Company after direct cash costs related to the production and delivery of products are paid. Margin is also useful in developing opinions and expectations about the Company’s ability to manage and control its operating cost structure in relation to its peers.
A table reconciling Adjusted EBITDA to net income, the most directly comparable measure under GAAP, is set forth below under the caption "Reconciliation of Non-GAAP Financial Measures". Reconciliations of adjusted income (loss) and adjusted earnings (loss) per diluted common share to income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per diluted common share, respectively, the most directly comparable measures under GAAP, are set forth included herein, under the caption “Net Income and Earnings Per Share”.
The subtotals of operating expenses representing cash costs and total operating revenue less cash costs can be found in tables included herein, under the caption “Continuing Operations”.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
The table below reconciles the non-GAAP financial performance measure of adjusted EBITDA to net income, the most directly comparable GAAP measure:
|
|
13 Weeks Ended
|
|
|
52 Weeks Ended
|
|
|
|
December 29,
|
|
|
December 30,
|
|
|
December 29,
|
|
(Thousands of Dollars)
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
5,717
|
|
|
|
10,719
|
|
|
|
10,907
|
|
Adjusted to exclude
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
1,871
|
|
|
|
4,513
|
|
|
|
5,289
|
|
Non-operating expenses, net
|
|
|
10,718
|
|
|
|
12,487
|
|
|
|
49,120
|
|
Equity in earnings of TNI and MNI
|
|
|
(1,569
|
)
|
|
|
(2,129
|
)
|
|
|
(6,561
|
)
|
Loss (gain) on sale of assets and other, net
|
|
|
814
|
|
|
|
(100
|
)
|
|
|
3,378
|
|
Depreciation and amortization
|
|
|
6,719
|
|
|
|
7,529
|
|
|
|
28,522
|
|
Restructuring costs and other
|
|
|
1,632
|
|
|
|
62
|
|
|
|
13,205
|
|
Stock compensation
|
|
|
302
|
|
|
|
463
|
|
|
|
1,477
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership share of TNI and MNI EBITDA (50%)
|
|
|
1,918
|
|
|
|
2,601
|
|
|
|
8,128
|
|
Adjusted EBITDA
|
|
|
28,122
|
|
|
|
36,145
|
|
|
|
113,465
|
|
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 2016, the FASB issued a new standard for the accounting treatment of leases, known as Accounting Standards 842 ("AS 842"). 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 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 AS 842. As such, we have not recognized a right-of-use (“ROU”) asset or lease liability for these leases. Additional information and disclosures required by this new standard are contained in Note 6.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies include the following:
|
•
|
Intangible assets, other than goodwill;
|
|
•
|
Pension, postretirement and postemployment benefit plans; and
|
Additional information regarding these critical accounting policies can be found under the caption “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Annual Report on Form 10-K.
EXECUTIVE OVERVIEW
Lee Enterprises, Incorporated is a leading provider of high quality, trusted, local news and information, and a major platform for advertising in the markets we serve. We operate 49 principally mid-sized local media operations and manage 30 additional local media operations through an agreement with BHMG (the "Management Agreement").
We reach 77% of all adults in our larger markets through a combination of our print and digital content offerings.
|
•
|
Our web and mobile sites are the number one digital source of local news in most of our markets, reaching more than 28.0 million unique visitors each month with a monthly average of 266 million page views. Page views per visit, one metric we use to monitor engagement, increased 4.4%
|
|
•
|
Our printed newspapers reach approximately 0.7 million households daily and approximately 1.0 million on Sunday, with estimated readership totaling three million. Digital only subscribers totaled approximately 105,000, an 84.8% increase over the prior year.
|
Our products include daily newspapers, websites and mobile applications, mobile news and advertising, video products, a digital marketing agency, digital services including web hosting and content management, niche publications and community newspapers. Our local media operations range from large daily newspapers and their associated digital products, such as the St. Louis Post-Dispatch, to non-daily newspapers with news websites and digital platforms serving smaller communities.
We also operate TownNews, through our 82.5% owned subsidiary INN Partners, L.C. ("TownNews"). TownNews provides state-of-the-art web hosting, content management services and video management services to nearly 2,000 other media organizations including broadcast.
In June 2018, we entered into the Management Agreement to manage Berkshire Hathaway's newspaper and digital operations in 30 markets. The Company operates BHMG consistent with how it manages its own newspaper and digital operations. Among other decisions, Berkshire Hathaway is responsible for approving operating and capital budgets. The Management Agreement extends for a term of five years and may be extended thereafter for successive one-year terms on such terms as may be mutually agreed to by the Company and Berkshire Hathaway. The Management Agreement provides for the Company to be paid a fixed annual fee of $5 million, payable quarterly in arrears, and a variable fee based on the financial performance of BHMG. The variable fees are payable annually in arrears.
On January 29, 2020, we entered into a definitive agreement with BHMG and Berkshire Hathaway to acquire BHMG publications and The Buffalo News for $140,000,000 in cash. BH Finance, LLC is providing approximately $576,000,000 in long-term financing to Lee at a 9% annual rate. The proceeds from the Debt Refinancing will be used to pay for the acquisition, refinance Lee’s $433,394,000 of existing debt, and provide enough cash on Lee’s balance sheet to allow for the termination of Lee’s revolving credit facility. Subsequent to the deal closing, BH Finance will be Lee’s sole lender and the Management Agreement will terminate.
Serving communities in 10 states, BHMG owns the print and digital operations of 30 daily newspapers, as well as more than 49 paid weekly publications with digital sites and 32 other print products. BHMG had 2019 revenues of $373,400,000. Lee has managed BHMG’s publications since July 2018 under the Management Agreement. The transaction also includes The Buffalo News, Western New York’s premier news source, which is separately owned by Berkshire Hathaway. BHMG’s real estate (including permanently attached equipment) and cash are excluded from the acquisition.
The addition of Berkshire Hathaway’s robust portfolio of high-quality local publications will add significant size and scale to Lee’s operations, bringing its portfolio of daily newspapers to 80 from 49 and nearly doubling its audience size. The transaction is expected to drive an 87% increase in revenue, a 40% increase in adjusted EBITDA and immediately reduce leverage before synergies. Based on Lee’s work managing BHMG publications over the last 18 months, Lee expects $20,000,000 to $25,000,000 of anticipated annual revenue and cost synergies.
The approximately $576,000,000 in long-term financing from BH Finance will have an interest rate of 9% annually with a 25-year maturity and no performance covenants. The financing requires no fees, will result in approximately $5,000,000 of interest rate savings on Lee's refinanced debt annually, and will eliminate Lee’s existing $23,000,000 revolving credit facility. With a stronger growth profile and a more flexible balance sheet, Lee will be able to de-lever more quickly over the long term. Lee will continue to prioritize deleveraging, including strategically monetizing noncore assets.
The acquisition is expected to be immediately accretive to earnings and the deal valuation is approximately 3.3x adjusted EBITDA, before any cost and revenue synergies. Lee has identified approximately $20,000,000 to $25,000,000 of highly achievable annual synergies, including revenue synergies from the management of digital advertising and subscriber programs, and cost synergies, primarily from the reduction of administrative expenses. Lee expects to achieve the full synergy run-rate within 24 months of closing, which is expected in mid-March 2020, subject to customary regulatory approvals.
As part of the agreement, Lee will enter into a 10-year lease for BHMG’s real estate. The initial lease payment is $8,000,000 annually, payable in monthly installments, with Lee assuming responsibility for the maintenance and expense associated with the BHMG property. Lease payments can be reduced to the extent BHMG real estate is monetized.
IMPAIRMENT OF GOODWILL AND OTHER ASSETS
We have significant amounts of goodwill and identified intangible assets. Since 2007 we have recorded impairment charges totaling almost $1.3 billion to reduce the value of certain of these assets. Future decreases in our market value, or significant differences in revenue, expenses or cash flows from estimates used to determine fair value, could result in additional impairment charges in the future.
DEBT AND LIQUIDITY
We have a substantial amount of debt, as discussed more fully in Note 5 of the Notes to Consolidated Financial Statements, included herein. Since February 2009, we have satisfied all interest payments and substantially all principal payments due under our debt facilities with our cash flows and asset sales.
As of December 29, 2019, the terms and outstanding balances from our 2014 Refinancing consist of the following:
|
•
|
$400,000,000 aggregate principal amount of 9.5% Senior Secured Notes (the “Notes”), pursuant to an Indenture dated as of March 31, 2014 (the “Indenture”), of which $356,141,000 is outstanding at December 29, 2019;
|
|
•
|
$250,000,000 first lien term loan (the "1st Lien Term Loan") and $40,000,000 revolving facility (the "Revolving Facility") under a First Lien Credit Agreement dated as of March 31, 2014 (together, the “1st Lien Credit Facility”), of which $0 is outstanding at December 29, 2019; and
|
|
•
|
$150,000,000 second lien term loan under a Second Lien Loan Agreement dated as of March 31, 2014 (the “ 2nd Lien Term Loan”), of which $77,253,000 is outstanding at December 29, 2019.
|
In November 2018, we repaid, in full, the remaining balance of the 1st Lien Term Loan.
In November 2019, we amended our 1st Lien Credit Facility to amend and extend our $23,120,000 Revolving Facility (the "Amendment") through December 28, 2020. Our Revolving Facility was undrawn at the time of the amendment.
We may repurchase Notes in the open market at any time. In the 13 weeks ended December 29, 2019 we purchased $7,279,000 principal amount of Notes in privately negotiated transactions. The transactions resulted in a gain on extinguishment of debt totaling $25,000 in the 13 weeks ended December 29, 2019 which is recorded in Other, net in the Consolidated Statements of Income and Comprehensive Income.
Our ability to make payments on our indebtedness will depend on our ability to generate future cash flows from operations. Cash generated from future asset sales could serve as an additional source of repayment. This ability, to a certain extent, is subject to general economic, financial, competitive, business, legislative, regulatory and other factors that are beyond our control.
At December 29, 2019, after consideration of letters of credit, we have approximately $17,644,000 available for future use under our Revolving Facility, which expires December 28, 2020. Including cash, our liquidity at December 29, 2019 totals $22,112,000. This liquidity amount excludes any future cash flows. Our adjusted EBITDA has been strong for the last seven years and totaled $113,465,000 for the trailing twelve months ended December 29, 2019, but there can be no assurance that such performance will continue. We expect all interest and principal payments due in the next twelve months will be satisfied by our cash flows from operations and certain asset sales, which will allow us to maintain an adequate level of liquidity.
Pursuant to the terms of the financing agreement with BH Finance, our new debt will not include a revolver. Our current Revolving Facility will be terminated upon closing of the Debt Refinancing. The Debt Refinancing covenants provide for increased cash on hand which will satisfy our liquidity needs in lieu of a revolver.
At December 29, 2019, the principal amount of our outstanding debt totaled $433,394,000. The December 29, 2019 principal amount of our debt, net of cash, is 3.8 times our trailing twelve months adjusted EBITDA.
Excluding our Revolving Facility, which is undrawn as of December 29, 2019, final maturities of our debt range from March 2022 through December 2022. Our Revolving Facility expires December 28, 2020.
There are numerous potential consequences under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan, if an event of default, as defined, occurs and is not remedied. Many of those consequences are beyond our control. The occurrence of one or more events of default would give rise to the right of the applicable lender(s) to exercise their remedies under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan, respectively, including, without limitation, the right to accelerate all outstanding debt and take actions authorized in such circumstances under applicable collateral security documents.
Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and to repay, refinance or amend our debt agreements as they become due, if necessary. The Notes, 1st Lien Credit Facility and 2nd Lien Term Loan have only limited affirmative covenants with which we are required to maintain compliance. We are in compliance with our debt covenants at December 29, 2019.
13 WEEKS ENDED December 29, 2019
Continuing Operations
Operating results, as reported in the Consolidated Financial Statements, are summarized below.
|
|
|
December 29,
|
|
|
|
December 30,
|
|
|
|
Percent
|
|
(Thousands of Dollars, Except Per Share Data)
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Advertising and marketing services revenue
|
|
|
65,727
|
|
|
|
75,962
|
|
|
|
(13.5
|
)
|
Subscription
|
|
|
41,694
|
|
|
|
46,268
|
|
|
|
(9.9
|
)
|
Other
|
|
|
14,922
|
|
|
|
13,971
|
|
|
|
6.8
|
|
Total operating revenue
|
|
|
122,343
|
|
|
|
136,201
|
|
|
|
(10.2
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
43,243
|
|
|
|
47,038
|
|
|
|
(8.1
|
)
|
Newsprint and ink
|
|
|
4,736
|
|
|
|
6,339
|
|
|
|
(25.3
|
)
|
Other operating expenses
|
|
|
48,462
|
|
|
|
49,743
|
|
|
|
(2.6
|
)
|
Cash costs
|
|
|
96,441
|
|
|
|
103,120
|
|
|
|
(6.5
|
)
|
Total operating revenue less cash costs
|
|
|
25,902
|
|
|
|
33,081
|
|
|
|
(21.7
|
)
|
Depreciation and amortization
|
|
|
6,719
|
|
|
|
7,529
|
|
|
|
(10.8
|
)
|
Assets loss (gain) on sales, impairments and other, net
|
|
|
814
|
|
|
|
(100
|
)
|
|
|
NM
|
|
Restructuring costs and other
|
|
|
1,632
|
|
|
|
62
|
|
|
|
NM
|
|
Operating expenses
|
|
|
105,606
|
|
|
|
110,611
|
|
|
|
(4.5
|
)
|
Equity in earnings of associated companies
|
|
|
1,569
|
|
|
|
2,129
|
|
|
|
(26.3
|
)
|
Operating income
|
|
|
18,306
|
|
|
|
27,719
|
|
|
|
(34.0
|
)
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(11,115
|
)
|
|
|
(12,256
|
)
|
|
|
(9.3
|
)
|
Debt financing and administrative cost
|
|
|
(1,196
|
)
|
|
|
(896
|
)
|
|
|
33.5
|
|
Other, net
|
|
|
1,593
|
|
|
|
665
|
|
|
|
NM
|
|
Non-operating expenses, net
|
|
|
(10,718
|
)
|
|
|
(12,487
|
)
|
|
|
(14.2
|
)
|
Income (loss) before income taxes
|
|
|
7,588
|
|
|
|
15,232
|
|
|
|
(50.2
|
)
|
Income tax expense
|
|
|
1,871
|
|
|
|
4,513
|
|
|
|
(58.5
|
)
|
Net income
|
|
|
5,717
|
|
|
|
10,719
|
|
|
|
(46.7
|
)
|
Net income attributable to non-controlling interests
|
|
|
(397
|
)
|
|
|
(358
|
)
|
|
|
10.9
|
|
Income attributable to Lee Enterprises, Incorporated
|
|
|
5,320
|
|
|
|
10,361
|
|
|
|
(48.7
|
)
|
Other comprehensive income (loss), net of income taxes
|
|
|
317
|
|
|
|
(122
|
)
|
|
|
NM
|
|
Comprehensive income attributable to Lee Enterprises, Incorporated
|
|
|
5,637
|
|
|
|
10,239
|
|
|
|
(44.9
|
)
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.09
|
|
|
|
0.19
|
|
|
|
(49.2
|
)
|
Diluted
|
|
|
0.09
|
|
|
|
0.18
|
|
|
|
(48.8
|
)
|
To facilitate a comparison of our results to prior periods, certain revenue and expense trends, as described below, are presented on a same property basis and exclude the impact of acquisitions and dispositions in the computation of the trends.
References to the "2020 Quarter" refer to the 13 weeks ended December 29, 2019. Similarly, references to the "2019 Quarter" refer to the 13 weeks ended December 30, 2018.
Operating Revenue
Total operating revenue totaled $122,343,000 in the 2020 Quarter, down $13,858,000, or 10.2%, attributed to a decline in same property operating revenue of 12.5% due to continued softness in the demand for print advertising, reductions in print subscription volumes reflecting general industry trends. Increases in digital revenue, especially from TownNews and revenue from acquisitions, helped offset the declines.
Advertising and marketing services revenue was $65,727,000 in the 2020 Quarter, down 13.5% due to a strong 2019 Quarter as well as continued decline in print advertising demand, specifically among national retailers, big box stores and classifieds. Digital advertising and marketing services totaled $25,941,000 in the 2020 Quarter and represented 39.5% of the 2020 Quarter total advertising and marketing services revenue, partially offsetting print declines. Digital advertising revenue trends were adversely affected by a strong 2019 Quarter due to non-recurring political revenue.
Subscription revenue totaled $41,694,000 in the 2020 Quarter, or down 9.9%. The decrease is attributed to lower paid circulation units, consistent with industry trends and timing of price increases, partially offset by an 84.8% increase in digital only subscribers. As of December 2019, we now have 105,000 digital only subscribers.
Other revenue increased $951,000, or 6.8%, in the 2020 Quarter. Management Agreement revenue totaled $3,978,000 in the 2020 Quarter compared to $2,600,000 in the 2019 Quarter. The increase is attributed to solid performance by BHMG. Digital services revenue, which is predominately TownNews, increased 11.6% in 2020 quarter 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 $6,181,000 an increase of 17.8%. 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 20.1% in the 2020 Quarter.
Total digital revenue including digital advertising revenue, digital subscription revenue and digital services revenue totaled $37,167,000 in the 2020 Quarter, an increase of 1.7% over the 2019 Quarter, and represented 30.4% of our total operating revenue in the 2020 Quarter.
Equity in earnings of TNI and MNI decreased $560,000 in the 2020 Quarter.
Operating Expenses
Operating expenses decreased $5,005,000, or 4.5%, in the 2020 Quarter due to business transformation projects, outsourcing of certain production operations and reductions in legacy print expenses. Cash costs on a same property basis decreased 9.3% compared to 2019.
Compensation expense was down $3,795,000, or 8.1%, due to a 9.8% reduction in FTEs 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 decreased $1,603,000, or 25.3%, due to a 27.3% reduction in newsprint volume from print price and volume declines. See Item 3, "Commodities:, included herein, for further discussion and analysis of the impact of newsprint on our business.
Other operating expenses were down $1,281,000, or 2.6%. Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation and amortization, or restructuring costs and other. The largest components 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 delivery and other print-related costs due to lower volumes of our print editions, offset in part by higher costs associated with growing digital revenue.
Restructuring costs and other totaled $1,632,000 and $62,000 in the 2020 Quarter and 2019 Quarter, respectively. Restructuring costs in 2020 and 2019 are predominately severance.
Depreciation expense decreased $596,000, or 18.7%, and amortization expense decreased $214,000, or 4.9%, in the 2020 Quarter.
Assets loss (gain) on sales, impairments and other, was a net expense of $814,000 in the 2020 Quarter compared to a net gain of $100,000 in the 2019 Quarter.
The factors noted above resulted in operating income of $18,306,000 in the 2020 Quarter compared to $27,719,000 in the 2019 Quarter.
Nonoperating Income and Expense
Interest expense decreased $1,141,000, or 9.3%, to $11,115,000 in the 2020 Quarter due to lower debt balances. Our weighted average cost of debt, excluding amortization of debt financing costs, was 9.9% at the end of the 2020 and 2019 Quarters.
We recognized $1,196,000 of debt financing and administrative costs in the 2020 Quarter compared to $896,000 in the 2019 Quarter. The increase in the 2020 Quarter is primarily driven by an increase in current year debt repurchases.
Other non-operating income and expense consists of benefits associated with our pension and other postretirement plans and the fair value adjustment of our Warrants. We recorded $475,000 of other periodic pension benefits in the 2020 Quarter and $712,000 in the 2019 Quarter. We recorded non-operating income of $1,017,000 in the 2020 Quarter and $80,000 in the 2019 Quarter, related to the changes in the value of the Warrants.
Overall Results
We recorded an income tax expense of $1,871,000, or 24.6%, of pretax income in the 2020 Quarter. In the 2018 Quarter, we recognized an income tax expense of $4,513,000, or 29.6%, of pretax income.
NET INCOME AND EARNINGS PER SHARE
The following table summarizes the impact from the fair value adjustments of our Warrants on income attributable to Lee Enterprises, Incorporated and earnings per diluted common share. Per share amounts may not add due to rounding.
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13 Weeks Ended
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December 29,
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December 30,
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2019
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2018
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(Thousands of Dollars, Except Per Share Data)
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Amount
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Per Share
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Amount
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Per Share
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Income attributable to Lee Enterprises, Incorporated, as reported
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5,320
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0.09
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10,361
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0.18
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Adjustments:
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Warrants fair value adjustment
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(1,017
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(0.02
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(80
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—
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Income attributable to Lee Enterprises, Incorporated, as adjusted
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4,303
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0.07
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10,281
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0.18
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LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Cash provided by operating activities was $10,361,000 in the 2020 Quarter compared to $19,407,000 in the 2019 Quarter. Net income for the 2020 Quarter totaled $5,717,000 compared to $10,719,000 in the 2019 Quarter. The decrease in cash provided by operating activities in the 2020 Quarter is mainly attributed to year over year changes in operating income.
Investing Activities
Cash required for investing activities totaled $3,740,000 in the 2020 Quarter compared to $1,395,000 in the 2019 Quarter. Capital spending totaled $2,458,000 in the 2020 Quarter compared to $1,002,000 in the 2019 Quarter. We spent $1,121,000 on acquisitions in the 2020 Quarter.
We anticipate that funds necessary for capital expenditures, which are expected to be $7,800,000 in 2020, and other requirements, will be available from internally generated funds or available under our Revolving Facility. After the Berkshire refinancing, these obligations will be funded with cash on the balance sheet.
Financing Activities
Cash required for financing activities totaled $10,798,000 in the 2020 Quarter and $7,483,000 in the 2019 Quarter. Debt reduction accounted for the majority of the usage of funds in both the 2020 Quarter and the 2019 Quarter.
Liquidity
At December 29, 2019, after consideration of letters of credit, we have approximately $17,644,000 available for future use under our Revolving Facility. Including cash and availability under our Revolving Facility, our liquidity at December 29, 2019 totals $22,112,000. This liquidity amount excludes any future cash flows. We expect all interest and principal payments due in the next twelve months will be satisfied by our cash flows, which will allow us to maintain an adequate level of liquidity. The Warrants, if and when exercised, would provide additional liquidity in an amount up to $25,140,000. On July 31, 2019, our liquidity was reduced by $4.1 million due to a reduction in availability under our Revolving Facility.
Pursuant to the terms of the financing agreement with BH Finance, our new debt will not include a revolver. Our current Revolving Facility will be terminated upon close of the Debt Refinancing. The Debt Refinancing covenants provide for increased cash on hand which will satisfy our liquidity needs in lieu of a revolver.
At December 29, 2019, the principal amount of our outstanding debt totals $433,394,000.
There are numerous potential consequences under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan, if an event of default, as defined, occurs and is not remedied. Many of those consequences are beyond our control. The occurrence of one or more events of default would give rise to the right of the applicable lender(s) to exercise their remedies under the Notes, 1st Lien Credit Facility and 2nd Lien Term Loan, respectively, including, without limitation, the right to accelerate all outstanding debt and take actions authorized in such circumstances under applicable collateral security documents.
Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and repay, refinance or amend our debt agreements as they become due, if available liquidity is consumed. The Notes, 1st Lien Credit Facility and 2nd Lien Term Loan have only limited affirmative covenants with which we are required to maintain compliance. We are in compliance with our debt covenants at December 29, 2019.
CHANGES IN LAWS AND REGULATIONS
Pension Plans
In 2012, the Surface Transportation Extension Act of 2012 (“STEA”) was signed into law. STEA provides for changes in the determination of discount rates that result in a near-term reduction in minimum funding requirements for our defined benefit pension plans. STEA will also result in an increase in future premiums to be paid to the Pension Benefit Guarantee Corporation ("PBGC").
In 2014, the Highway and Transportation Funding Act ("HATFA") was signed into law. HATFA generally extends the relief offered under STEA and further increases premiums to be paid to the PBGC.
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.
INFLATION
Price increases (or decreases) for our products or services are implemented when deemed appropriate by us. We continuously evaluate price increases, productivity improvements, sourcing efficiencies and other cost reductions to mitigate the impact of inflation.