SEC Company Response from LEE ENTERPRISES, Inc (LEE) (CIK 0000058361) (LEE) — Mar 14, 2016
LEE ENTERPRISES, Inc (LEE) (CIK 0000058361)
Date: March 14, 2016 · CIK: 0000058361 · Accession: 0000058361-16-000043
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-06227
Referenced dates: March 1, 2016
Letter
Securities and Exchange Commission Form 10-K for the year ended September 27, 2015 From DEF14A filed January 8, 2016 Form 8-K filed December 11, 2015 File No. 001-06227
Dear Ms. Raminpour:
Set forth below is the response of Lee Enterprises, Incorporated (“Lee” or the “Company”) to the comments of the staff (“Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (the “Commission”) contained in the letter addressed to Ronald A. Mayo, Chief Financial Officer of the Company dated March 1, 2016, relating to the Company’s Form 10-K for the Fiscal Year Ended September 27, 2015, Form DEF14A filed January 8, 2016, and Form 8-K filed December 11, 2015. For convenience of reference, the text of the comments in the Staff’s letter have been reproduced in italicized type.
Form 10-K for the Fiscal Year Ended September 27, 2015
Management's Discussion and Analysis of Financial Condition and Results of Operations, page 22
Comment 1:
We note from pages 22 and 39 that your presentation of the non-GAAP measures EBITDA and Adjusted EBITDA are reconciled ultimately to operating income (loss) rather than net income. Please revise to reconcile the non-GAAP measures EBITDA and Adjusted EBITDA to net income which represents the most comparable GAAP measure. Refer to the guidance outlined in Question 103.02 of the Compliance and Disclosure Interpretations issued by the Division of Corporation Finance regarding Non-GAAP Financial Measures. The selected Lee Legacy and Pulitzer only financial information on pages 41 and 42 should be similarly revised as well as your earnings releases on Form 8-K.
Response:
We believe our current presentation provides information necessary to reconcile these non-GAAP measures ultimately to net income, if desired. However, we do understand the SEC’s views on the most directly comparable GAAP measure of EBITDA and Adjusted EBITDA and will comply with your requested
modifications in future filings. Additionally, in future filings we will no longer use EBITDA as we have defined it as a non-GAAP measure and as such we would expect to remove EBITDA from the schedules on pages 39, 41, and 42 and include only a reconciliation of Adjusted EBITDA to net income.
Below is a draft of the presentation we will include in the Selected Financial Information schedules (see our response to comment 6 in which we address your comment on the revised titles we will use going forward) in future flings on Form 10-K, Form 10-Q and earnings releases on Form 8-K to reconcile all of our non-GAAP financial measures to net income (loss):
Consolidated
2016 Q1
2015 Q1
LTM Dec 2015
Advertising and marketing services
105,637
115,830
412,099
443,247
401,906
Subscription
50,430
50,399
194,474
176,826
194,505
Other
12,338
10,981
41,970
40,804
43,327
Total operating revenue
168,405
177,210
648,543
660,877
639,738
Compensation
58,665
61,937
239,028
243,054
235,756
Newsprint and ink
6,685
8,846
30,263
37,994
28,102
Other operating expenses
58,869
60,237
229,165
223,509
227,796
Depreciation and amortization
10,943
11,496
45,563
48,511
45,009
Loss (gain) on sales of assets, net
(971
)
(257
)
(1,338
)
(608
)
Impairment of intangible and other assets
—
—
—
2,980
—
Workforce adjustments
3,304
1,265
3,698
Total operating expenses
134,795
142,470
547,429
555,975
539,753
Equity in earnings of TNI and MNI
2,799
2,757
8,254
8,297
8,296
Operating Income
36,409
37,497
109,368
113,199
108,281
Nonoperating expenses, net
17,754
20,992
71,456
99,238
68,218
Income tax expense
7,147
6,498
13,594
6,290
14,243
Net income
11,508
10,007
24,318
7,671
25,820
Adjusted to exclude:
Nonoperating expenses, net
17,754
20,992
71,456
99,238
68,218
Income tax expense
7,147
6,498
13,594
6,290
14,243
Depreciation and amortization
10,943
11,496
45,563
48,511
45,009
Loss (gain) on sale of assets, net
(971
)
(257
)
(1,338
)
(608
)
Impairment of goodwill and other assets
—
—
—
2,980
—
Equity in earnings of TNI and MNI
(2,799
)
(2,757
)
(8,254
)
(8,297
)
(8,296
)
Operating cash flow
43,582
45,979
146,783
155,055
144,386
Adjusted to exclude:
Workforce adjustments
3,304
1,265
3,698
Stock Compensation
1,971
1,481
2,098
Add:
Ownership share of TNI and MNI EBITDA (50%)
3,809
3,757
11,246
11,236
11,298
Adjusted EBITDA
48,565
50,390
163,304
169,037
161,480
Adjusted to exclude:
Ownership share of TNI and MNI EBITDA (50%)
(3,809
)
(3,757
)
(11,246
)
(11,236
)
(11,298
)
Add (deduct):
Distributions from TNI and MNI
3,229
2,944
10,975
9,996
11,260
Capital expenditures
(1,470
)
(3,547
)
(9,707
)
(11,824
)
(7,630
)
Pension contributions
(744
)
—
(3,577
)
(1,522
)
(4,321
)
Cash income tax refunds (payments)
(4
)
(485
)
6,022
(470
)
Unlevered free cash flow
45,782
46,026
149,264
160,473
149,021
Add (deduct):
Interest income
Interest expense to be settled in cash
(17,142
)
(18,790
)
(72,409
)
(77,330
)
(70,761
)
Debt financing and administrative costs paid
(44
)
(17
)
(733
)
(31,587
)
(760
)
Free cash flow
28,672
27,297
76,459
51,941
77,835
We report separate financial information for Lee Legacy and Pulitzer to comply with a reporting covenant in our debt agreements. All of our debt is an obligation of the Company (i.e. not subsidiary debt), however due to separate collateral packages this level of information is helpful to lenders to understand the performance of each collateral package. The focus of our lenders relates to an Adjusted EBITDA measure for Lee Legacy and Pulitzer and as such we do not prepare complete financial statements for these entities. As a result it would not be possible to reconcile Adjusted EBITDA for Lee Legacy and Pulitzer to net income of the respective entity. The key financial information that we do not prepare at the Lee Legacy and Pulitzer level relates to nonoperating expense and income tax expense, both of which are not included in operating income. As such, we believe our reconciliation of Adjusted EBITDA for Lee Legacy and Pulitzer to operating income is sufficient and provides transparent disclosure to the key users of our financial statements.
Comment 2:
Additionally, please be advised that EBITDA is defined as “earnings before interest, taxes, depreciation and amortization." Measures that are calculated differently should not be characterized as EBITDA and their titles should be distinguished from EBITDA. Please revise your non-GAAP measure presentation accordingly. Refer to the guidance outlined in Question 103.01 of the Compliance and Disclosure Interpretations issued by the Division of Corporation Finance regarding Non-GAAP Financial Measures.
Response:
As stated in our response to comment 1 above, going forward we will no longer present EBITDA, as we have defined it, and as such will not reconcile EBITDA to net income. As noted in our response to comment 1, we will provide a reconciliation of Adjusted EBITDA to net income in future filings.
Comment 3:
Reference is made to your disclosures contained in the first paragraph under the heading NON-GAAP FINANCIAL MEASURES on page 22 in which you state the reasons you believe the presentation of non-GAAP measures are useful to investors and others in generic terms. We do not consider your current disclosures to fully comply with the requirements of Item 10(e)(1)(i) of Regulation S-K as the disclosures should be specific to each non-GAAP financial measure. Please revise to provide the disclosures required by Item 10(e)(1)(i)(C)-(D) of Regulation S-K for each of your non-GAAP financial measures. Please provide us with your revised disclosures as part of your response.
Response:
We appreciate your comment and will expand our disclosures on non-GAAP financial measures in future filings to address each measure individually. Below is a draft of the expanded disclosure we will include in future filings:
“We use non-GAAP financial performance measures for purposes of evaluating our performance. Therefore, we believe that each of the non-GAAP measures 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 providing a focus on the underlying ongoing operating performance of our businesses. The non-GAAP financial measures we use are as follows:
Adjusted EBITDA is a non-GAAP financial performance measure that enhances investors’ overall understanding of the financial performance of the Company. It is defined as net income (loss), plus nonoperating expenses, income tax expense (benefit), depreciation, amortization, loss (gain) on sale of assets, impairment charges, workforce adjustment costs, 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 view of the overall operation of the Company.
They are defined as income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per common share adjusted to exclude both unusual matters and those of a substantially non-recurring nature.
Cash Costs is a non-GAAP financial performance measure of operating expenses that are settled in cash and is useful to investors in understanding the management of the Company’s cost structure. It is defined as compensation, newsprint and ink, other operating expenses and certain unusual matters, such as workforce adjustment costs. Depreciation, amortization, impairment charges, other non-cash operating expenses and other unusual matters are excluded. Cash Costs are also presented excluding workforce adjustments.
Operating Cash Flow is a non-GAAP financial performance measure that we believe offers a useful view of operating results of the Company excluding its equity method investments. It is defined as net income (loss), plus nonoperating expenses, income tax expense (benefit), depreciation, amortization, loss (gain) on sale of assets and impairment charges minus equity in earnings of TNI and MNI and curtailment gains. Operating cash flow margin is defined as operating cash flow divided by operating revenue.
Unlevered Free Cash Flow and Free Cash Flow are non-GAAP liquidity measures that provide a useful view into the Company’s operating performance including all sources and uses of cash. These measures are used by stockholders, analysts and lenders in the valuation of the Company. Unlevered Free Cash Flow is defined as net income (loss), plus nonoperating expenses, income tax expense (benefit), depreciation, amortization, loss (gain) on sale of assets, impairment charges, stock compensation, distributions from TNI and MNI and cash income tax refunds, minus equity in earnings of TNI and MNI, curtailment gains, cash income taxes, pension contributions and capital expenditures. Changes in working capital, asset sales, minority interest and discontinued operations are excluded. Free Cash Flow also includes financial income, interest expense and debt financing and reorganization costs.”
Comment 4:
Reference is made to Unlevered Free Cash Flow and Free Cash Flow. From page 13, it appears unlevered free cash flow represents a non-GAAP liquidity measure. In this regard, please tell us why operating income is considered the most directly comparable financial measure for reconciliation purposes. Additionally, please be advised that Item 10(e)(1)(ii)(A) of Regulation S-K prohibits "excluding charges or liabilities that required, or will require, cash settlement, or would have required cash settlement absent an ability to settle in another manner, from non-GAAP liquidity measures.” It appears from your reconciliation on page 39 that certain amounts requiring cash settlement have been included in the measures. Please advise or revise your disclosures and reconciliations accordingly.
Response:
As discussed in response to comment 1, in future filings the Company will reconcile all non-GAAP financial measures to net income, including unlevered free cash flow and free cash flow. Net income is the appropriate GAAP measure for our non-GAAP reconciliations for the following reasons:
1.
The table is require by our debt agreements and it also reconciles all non-GAAP financial measures to net income.
2.
It enhances the financial statement users understanding of the metrics used in managing the Company.
3.
Reconciling to net income allows financial statement users to reconcile non-GAAP liquidity measures to a statement of cash flows GAAP measure, if that is desired, as net income is the starting point in the statement of cash flows.
4.
Reconciling to net income allows us to separately disclose in one summary table the key items of free cash flow that are useful to stockholders, analysts and investors, such as pension contributions, cash income taxes and capital expenditures.
Unlevered free cash flow and free cash flow are non-GAAP liquidity measures that are used by stockholders, analysts and lenders in the valuation of the Company. Item 10(e)(1)(ii)(A) of Regulation S-K lists criteria for non-GAAP liquidity measures, and our current reporting complies with those standards. The adjustments for pension contributions, cash tax payments, etc. are to ensure the outflows and inflows from all sources are included in our definition of those terms to be in compliance with the regulation.
For example, as shown in our response to comment 1 above, we begin our reconciliation with net income and then remove income tax expense. Had we not adjusted for cash income tax payments, our definition of unlevered free cash flow would have excluded charges that required cash settlement and therefore been in violation with the regulation.
Critical Accounting Policies, page 23
Comment 5:
Reference is made to your Goodwill and Other Intangible Assets critical accounting policy. You disclose that during fiscal 2015 you performed additional quantitative analysis regarding the carrying value of your goodwill and concluded the implied fair value of goodwill was in excess of its carrying value; thus, no impairment was recorded. Please tell us whether you were at risk of failing step one of the impairment test. If so, please consider disclosing the percentage by which fair value exceeded carrying value as of the most recent test. We note that you used a combination of an income and market approach in determining fair value of your business. Rather than simply describing the approaches, please provide the key assumptions used and how such key assumptions were determined. Please consider a discussion of the degree of uncertainty associated with the key assumptions and should be specific to the extent possible. We may have further comment.
Response:
Under ASC 350-20-35, an entity must evaluate on a periodic basis any potential impairment of goodwill using a two-step goodwill impairment test. As noted in the Company’s Form 10-K for the year ended September 27, 2015, Lee has one reporting unit. As of June 28, 2015, Lee reported a stockholders’ deficit of $163.3 million and as such had a negative carrying value for its single repor
Show Raw Text
CORRESP 1 filename1.htm CORRESP Ron Mayo Vice President, Chief Financial Officer and Treasurer (563) 383-2557 ron.mayo@lee.net March 11, 2016 Ms. Melissa Raminpour Branch Chief Securities and Exchange Commission Re: Lee Enterprises, Incorporated Form 10-K for the year ended September 27, 2015 From DEF14A filed January 8, 2016 Form 8-K filed December 11, 2015 File No. 001-06227 Dear Ms. Raminpour: Set forth below is the response of Lee Enterprises, Incorporated (“Lee” or the “Company”) to the comments of the staff (“Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (the “Commission”) contained in the letter addressed to Ronald A. Mayo, Chief Financial Officer of the Company dated March 1, 2016, relating to the Company’s Form 10-K for the Fiscal Year Ended September 27, 2015, Form DEF14A filed January 8, 2016, and Form 8-K filed December 11, 2015. For convenience of reference, the text of the comments in the Staff’s letter have been reproduced in italicized type. Form 10-K for the Fiscal Year Ended September 27, 2015 Management's Discussion and Analysis of Financial Condition and Results of Operations, page 22 Comment 1: We note from pages 22 and 39 that your presentation of the non-GAAP measures EBITDA and Adjusted EBITDA are reconciled ultimately to operating income (loss) rather than net income. Please revise to reconcile the non-GAAP measures EBITDA and Adjusted EBITDA to net income which represents the most comparable GAAP measure. Refer to the guidance outlined in Question 103.02 of the Compliance and Disclosure Interpretations issued by the Division of Corporation Finance regarding Non-GAAP Financial Measures. The selected Lee Legacy and Pulitzer only financial information on pages 41 and 42 should be similarly revised as well as your earnings releases on Form 8-K. Response: We believe our current presentation provides information necessary to reconcile these non-GAAP measures ultimately to net income, if desired. However, we do understand the SEC’s views on the most directly comparable GAAP measure of EBITDA and Adjusted EBITDA and will comply with your requested modifications in future filings. Additionally, in future filings we will no longer use EBITDA as we have defined it as a non-GAAP measure and as such we would expect to remove EBITDA from the schedules on pages 39, 41, and 42 and include only a reconciliation of Adjusted EBITDA to net income. Below is a draft of the presentation we will include in the Selected Financial Information schedules (see our response to comment 6 in which we address your comment on the revised titles we will use going forward) in future flings on Form 10-K, Form 10-Q and earnings releases on Form 8-K to reconcile all of our non-GAAP financial measures to net income (loss): Consolidated 2016 Q1 2015 Q1 2015 2014 LTM Dec 2015 Advertising and marketing services 105,637 115,830 412,099 443,247 401,906 Subscription 50,430 50,399 194,474 176,826 194,505 Other 12,338 10,981 41,970 40,804 43,327 Total operating revenue 168,405 177,210 648,543 660,877 639,738 Compensation 58,665 61,937 239,028 243,054 235,756 Newsprint and ink 6,685 8,846 30,263 37,994 28,102 Other operating expenses 58,869 60,237 229,165 223,509 227,796 Depreciation and amortization 10,943 11,496 45,563 48,511 45,009 Loss (gain) on sales of assets, net (971 ) (257 ) 106 (1,338 ) (608 ) Impairment of intangible and other assets — — — 2,980 — Workforce adjustments 604 211 3,304 1,265 3,698 Total operating expenses 134,795 142,470 547,429 555,975 539,753 Equity in earnings of TNI and MNI 2,799 2,757 8,254 8,297 8,296 Operating Income 36,409 37,497 109,368 113,199 108,281 Nonoperating expenses, net 17,754 20,992 71,456 99,238 68,218 Income tax expense 7,147 6,498 13,594 6,290 14,243 Net income 11,508 10,007 24,318 7,671 25,820 Adjusted to exclude: Nonoperating expenses, net 17,754 20,992 71,456 99,238 68,218 Income tax expense 7,147 6,498 13,594 6,290 14,243 Depreciation and amortization 10,943 11,496 45,563 48,511 45,009 Loss (gain) on sale of assets, net (971 ) (257 ) 106 (1,338 ) (608 ) Impairment of goodwill and other assets — — — 2,980 — Equity in earnings of TNI and MNI (2,799 ) (2,757 ) (8,254 ) (8,297 ) (8,296 ) Operating cash flow 43,582 45,979 146,783 155,055 144,386 Adjusted to exclude: Workforce adjustments 604 211 3,304 1,265 3,698 Stock Compensation 570 443 1,971 1,481 2,098 Add: Ownership share of TNI and MNI EBITDA (50%) 3,809 3,757 11,246 11,236 11,298 Adjusted EBITDA 48,565 50,390 163,304 169,037 161,480 Adjusted to exclude: Ownership share of TNI and MNI EBITDA (50%) (3,809 ) (3,757 ) (11,246 ) (11,236 ) (11,298 ) Add (deduct): Distributions from TNI and MNI 3,229 2,944 10,975 9,996 11,260 Capital expenditures (1,470 ) (3,547 ) (9,707 ) (11,824 ) (7,630 ) Pension contributions (744 ) — (3,577 ) (1,522 ) (4,321 ) Cash income tax refunds (payments) 11 (4 ) (485 ) 6,022 (470 ) Unlevered free cash flow 45,782 46,026 149,264 160,473 149,021 Add (deduct): Interest income 76 78 337 385 335 Interest expense to be settled in cash (17,142 ) (18,790 ) (72,409 ) (77,330 ) (70,761 ) Debt financing and administrative costs paid (44 ) (17 ) (733 ) (31,587 ) (760 ) Free cash flow 28,672 27,297 76,459 51,941 77,835 We report separate financial information for Lee Legacy and Pulitzer to comply with a reporting covenant in our debt agreements. All of our debt is an obligation of the Company (i.e. not subsidiary debt), however due to separate collateral packages this level of information is helpful to lenders to understand the performance of each collateral package. The focus of our lenders relates to an Adjusted EBITDA measure for Lee Legacy and Pulitzer and as such we do not prepare complete financial statements for these entities. As a result it would not be possible to reconcile Adjusted EBITDA for Lee Legacy and Pulitzer to net income of the respective entity. The key financial information that we do not prepare at the Lee Legacy and Pulitzer level relates to nonoperating expense and income tax expense, both of which are not included in operating income. As such, we believe our reconciliation of Adjusted EBITDA for Lee Legacy and Pulitzer to operating income is sufficient and provides transparent disclosure to the key users of our financial statements. Comment 2: Additionally, please be advised that EBITDA is defined as “earnings before interest, taxes, depreciation and amortization." Measures that are calculated differently should not be characterized as EBITDA and their titles should be distinguished from EBITDA. Please revise your non-GAAP measure presentation accordingly. Refer to the guidance outlined in Question 103.01 of the Compliance and Disclosure Interpretations issued by the Division of Corporation Finance regarding Non-GAAP Financial Measures. Response: As stated in our response to comment 1 above, going forward we will no longer present EBITDA, as we have defined it, and as such will not reconcile EBITDA to net income. As noted in our response to comment 1, we will provide a reconciliation of Adjusted EBITDA to net income in future filings. Comment 3: Reference is made to your disclosures contained in the first paragraph under the heading NON-GAAP FINANCIAL MEASURES on page 22 in which you state the reasons you believe the presentation of non-GAAP measures are useful to investors and others in generic terms. We do not consider your current disclosures to fully comply with the requirements of Item 10(e)(1)(i) of Regulation S-K as the disclosures should be specific to each non-GAAP financial measure. Please revise to provide the disclosures required by Item 10(e)(1)(i)(C)-(D) of Regulation S-K for each of your non-GAAP financial measures. Please provide us with your revised disclosures as part of your response. Response: We appreciate your comment and will expand our disclosures on non-GAAP financial measures in future filings to address each measure individually. Below is a draft of the expanded disclosure we will include in future filings: “We use non-GAAP financial performance measures for purposes of evaluating our performance. Therefore, we believe that each of the non-GAAP measures 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 providing a focus on the underlying ongoing operating performance of our businesses. The non-GAAP financial measures we use are as follows: Adjusted EBITDA is a non-GAAP financial performance measure that enhances investors’ overall understanding of the financial performance of the Company. It is defined as net income (loss), plus nonoperating expenses, income tax expense (benefit), depreciation, amortization, loss (gain) on sale of assets, impairment charges, workforce adjustment costs, 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 view of the overall operation of the Company. They are defined as income (loss) attributable to Lee Enterprises, Incorporated and earnings (loss) per common share adjusted to exclude both unusual matters and those of a substantially non-recurring nature. Cash Costs is a non-GAAP financial performance measure of operating expenses that are settled in cash and is useful to investors in understanding the management of the Company’s cost structure. It is defined as compensation, newsprint and ink, other operating expenses and certain unusual matters, such as workforce adjustment costs. Depreciation, amortization, impairment charges, other non-cash operating expenses and other unusual matters are excluded. Cash Costs are also presented excluding workforce adjustments. Operating Cash Flow is a non-GAAP financial performance measure that we believe offers a useful view of operating results of the Company excluding its equity method investments. It is defined as net income (loss), plus nonoperating expenses, income tax expense (benefit), depreciation, amortization, loss (gain) on sale of assets and impairment charges minus equity in earnings of TNI and MNI and curtailment gains. Operating cash flow margin is defined as operating cash flow divided by operating revenue. Unlevered Free Cash Flow and Free Cash Flow are non-GAAP liquidity measures that provide a useful view into the Company’s operating performance including all sources and uses of cash. These measures are used by stockholders, analysts and lenders in the valuation of the Company. Unlevered Free Cash Flow is defined as net income (loss), plus nonoperating expenses, income tax expense (benefit), depreciation, amortization, loss (gain) on sale of assets, impairment charges, stock compensation, distributions from TNI and MNI and cash income tax refunds, minus equity in earnings of TNI and MNI, curtailment gains, cash income taxes, pension contributions and capital expenditures. Changes in working capital, asset sales, minority interest and discontinued operations are excluded. Free Cash Flow also includes financial income, interest expense and debt financing and reorganization costs.” Comment 4: Reference is made to Unlevered Free Cash Flow and Free Cash Flow. From page 13, it appears unlevered free cash flow represents a non-GAAP liquidity measure. In this regard, please tell us why operating income is considered the most directly comparable financial measure for reconciliation purposes. Additionally, please be advised that Item 10(e)(1)(ii)(A) of Regulation S-K prohibits "excluding charges or liabilities that required, or will require, cash settlement, or would have required cash settlement absent an ability to settle in another manner, from non-GAAP liquidity measures.” It appears from your reconciliation on page 39 that certain amounts requiring cash settlement have been included in the measures. Please advise or revise your disclosures and reconciliations accordingly. Response: As discussed in response to comment 1, in future filings the Company will reconcile all non-GAAP financial measures to net income, including unlevered free cash flow and free cash flow. Net income is the appropriate GAAP measure for our non-GAAP reconciliations for the following reasons: 1. The table is require by our debt agreements and it also reconciles all non-GAAP financial measures to net income. 2. It enhances the financial statement users understanding of the metrics used in managing the Company. 3. Reconciling to net income allows financial statement users to reconcile non-GAAP liquidity measures to a statement of cash flows GAAP measure, if that is desired, as net income is the starting point in the statement of cash flows. 4. Reconciling to net income allows us to separately disclose in one summary table the key items of free cash flow that are useful to stockholders, analysts and investors, such as pension contributions, cash income taxes and capital expenditures. Unlevered free cash flow and free cash flow are non-GAAP liquidity measures that are used by stockholders, analysts and lenders in the valuation of the Company. Item 10(e)(1)(ii)(A) of Regulation S-K lists criteria for non-GAAP liquidity measures, and our current reporting complies with those standards. The adjustments for pension contributions, cash tax payments, etc. are to ensure the outflows and inflows from all sources are included in our definition of those terms to be in compliance with the regulation. For example, as shown in our response to comment 1 above, we begin our reconciliation with net income and then remove income tax expense. Had we not adjusted for cash income tax payments, our definition of unlevered free cash flow would have excluded charges that required cash settlement and therefore been in violation with the regulation. Critical Accounting Policies, page 23 Comment 5: Reference is made to your Goodwill and Other Intangible Assets critical accounting policy. You disclose that during fiscal 2015 you performed additional quantitative analysis regarding the carrying value of your goodwill and concluded the implied fair value of goodwill was in excess of its carrying value; thus, no impairment was recorded. Please tell us whether you were at risk of failing step one of the impairment test. If so, please consider disclosing the percentage by which fair value exceeded carrying value as of the most recent test. We note that you used a combination of an income and market approach in determining fair value of your business. Rather than simply describing the approaches, please provide the key assumptions used and how such key assumptions were determined. Please consider a discussion of the degree of uncertainty associated with the key assumptions and should be specific to the extent possible. We may have further comment. Response: Under ASC 350-20-35, an entity must evaluate on a periodic basis any potential impairment of goodwill using a two-step goodwill impairment test. As noted in the Company’s Form 10-K for the year ended September 27, 2015, Lee has one reporting unit. As of June 28, 2015, Lee reported a stockholders’ deficit of $163.3 million and as such had a negative carrying value for its single repor