Price | 2.08 | EPS | 0 | |
Shares | 58 | P/E | 8 | |
MCap | 120 | P/FCF | 3 | |
Net Debt | 435 | EBIT | 71 | |
TEV | 555 | TEV/EBIT | 8 | TTM 2019-09-29, in MM, except price, ratios |
10-Q | 2020-06-28 | Filed 2020-08-07 |
10-Q | 2020-03-29 | Filed 2020-06-22 |
10-Q | 2019-12-29 | Filed 2020-02-07 |
10-K | 2019-09-29 | Filed 2019-12-13 |
10-Q | 2019-06-30 | Filed 2019-08-09 |
10-Q | 2019-03-31 | Filed 2019-05-10 |
10-Q | 2018-12-30 | Filed 2019-02-08 |
10-K | 2018-09-30 | Filed 2018-12-14 |
10-Q | 2018-06-24 | Filed 2018-08-03 |
10-Q | 2018-03-25 | Filed 2018-05-04 |
10-Q | 2017-12-24 | Filed 2018-02-02 |
10-K | 2017-09-24 | Filed 2017-12-08 |
10-Q | 2017-06-25 | Filed 2017-08-04 |
10-Q | 2017-03-26 | Filed 2017-05-05 |
10-Q | 2016-12-25 | Filed 2017-02-03 |
10-K | 2016-09-25 | Filed 2016-12-09 |
10-Q | 2016-06-26 | Filed 2016-08-05 |
10-Q | 2016-03-27 | Filed 2016-05-06 |
10-Q | 2015-12-27 | Filed 2016-02-05 |
10-K | 2015-09-27 | Filed 2015-12-11 |
10-Q | 2015-06-28 | Filed 2015-08-07 |
10-Q | 2015-03-29 | Filed 2015-05-08 |
10-Q | 2014-12-28 | Filed 2015-02-06 |
10-K | 2014-09-28 | Filed 2014-12-12 |
10-Q | 2014-06-29 | Filed 2014-08-08 |
10-Q | 2014-03-30 | Filed 2014-05-09 |
10-Q | 2013-12-29 | Filed 2014-02-07 |
10-K | 2013-09-29 | Filed 2013-12-13 |
10-Q | 2013-06-30 | Filed 2013-08-09 |
10-Q | 2013-03-31 | Filed 2013-05-10 |
10-Q | 2012-12-30 | Filed 2013-02-08 |
10-K | 2012-09-30 | Filed 2012-12-14 |
10-Q | 2012-06-24 | Filed 2012-08-03 |
10-Q | 2012-03-25 | Filed 2012-05-04 |
10-Q | 2011-12-25 | Filed 2012-02-03 |
10-K | 2011-09-25 | Filed 2011-12-09 |
10-Q | 2011-06-26 | Filed 2011-08-05 |
10-Q | 2011-03-27 | Filed 2011-05-06 |
10-Q | 2010-12-26 | Filed 2011-02-04 |
10-K | 2010-09-26 | Filed 2010-12-10 |
10-Q | 2010-06-27 | Filed 2010-08-11 |
10-Q | 2010-03-28 | Filed 2010-05-12 |
10-Q | 2009-12-27 | Filed 2010-02-10 |
8-K | 2020-06-28 | Earnings, Exhibits |
8-K | 2020-06-18 | |
8-K | 2020-05-12 | |
8-K | 2020-05-08 | |
8-K | 2020-03-13 | |
8-K | 2020-02-19 | |
8-K | 2020-02-10 | |
8-K | 2020-02-07 | |
8-K | 2020-02-06 | |
8-K | 2020-01-29 | |
8-K | 2019-12-13 | |
8-K | 2019-12-12 | |
8-K | 2019-11-01 | |
8-K | 2019-10-31 | |
8-K | 2019-08-08 | |
8-K | 2019-06-26 | |
8-K | 2019-05-10 | |
8-K | 2019-05-10 | |
8-K | 2019-05-10 | |
8-K | 2019-02-20 | |
8-K | 2019-02-08 | |
8-K | 2019-02-07 | |
8-K | 2018-12-14 | |
8-K | 2018-12-14 | |
8-K | 2018-12-14 | |
8-K | 2018-12-06 | |
8-K | 2018-11-16 | |
8-K | 2018-08-06 | |
8-K | 2018-08-03 | |
8-K | 2018-08-03 | |
8-K | 2018-08-01 | |
8-K | 2018-06-26 | |
8-K | 2018-06-12 | |
8-K | 2018-05-04 | |
8-K | 2018-05-03 | |
8-K | 2018-04-26 | |
8-K | 2018-02-21 | |
8-K | 2018-02-01 | |
8-K | 2018-01-11 |
EX-31.1 | ex_191117.htm |
EX-31.2 | ex_191118.htm |
EX-32.1 | ex_191119.htm |
EX-32.2 | ex_191120.htm |
Balance Sheet | Income Statement | Cash Flow |
---|---|---|
Assets, Equity
|
Rev, G Profit, Net Income
|
Ops, Inv, Fin
|
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended
OR
SECURITIES EXCHANGE ACT OF 1934
Commission File Number
LEE ENTERPRISES, INCORPORATED
(Exact name of Registrant as specified in its Charter)
| |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| |
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.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files.
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 | ☐ | | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | | |
Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
As of July 31, 2020,
PAGE | ||||
1 | ||||
PART I | 2 | |||
Item 1. | 2 | |||
Consolidated Balance Sheets - June 28, 2020 and September 29, 2019 | 2 | |||
4 | ||||
5 | ||||
Consolidated Statements of Cash Flows - 39 weeks ended June 28, 2020 and June 30, 2019 | 6 | |||
7 | ||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||
Item 3. | 26 | |||
Item 4. | 26 | |||
PART II | 27 | |||
Item 1. | 27 | |||
Item 1.A. | Risk Factors | 27 | ||
Item 6. | 27 | |||
28 |
References to “we”, “our”, “us” and the like throughout this document refer to Lee Enterprises, Incorporated (the “Company”). References to “2020”, “2019” and the like refer to the fiscal years ended the last Sunday in September.
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This report contains information that may be deemed forward-looking that is based largely on our current expectations, and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and other uncertainties, which in some instances are beyond our control, are:
• | 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 generate cash flows and maintain liquidity sufficient to service our debt; | |
• | Our ability to manage declining print revenue and circulation subscribers; | |
• | 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; | |
• | Changes in advertising and subscription demand; | |
• | Changes in technology that impact our ability to deliver digital advertising; | |
• | Potential changes in newsprint, other commodities and energy costs; | |
• | Interest rates; | |
• | Labor costs; | |
• | Significant cyber security breaches 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. |
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. Statements regarding our plans, strategies, prospects and expectations regarding our business and industry, including statements regarding the impacts that the COVID-19 pandemic and our responses thereto may have on our future operations, are forward-looking statements. They reflect our expectations, are not guarantees of performance and speak only as of the date the statement is made. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this report. We do not undertake to publicly update or revise our forward-looking statements, except as required by law.
FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) | ||||||||
June 28, | September 29, | |||||||
(Thousands of Dollars) | 2020 | 2019 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | ||||||||
Accounts receivable and contract assets, net | ||||||||
Inventories | ||||||||
Prepaids and other | ||||||||
Total current assets | ||||||||
Investments: | ||||||||
Associated companies | ||||||||
Other | ||||||||
Total investments | ||||||||
Property and equipment: | ||||||||
Land and improvements | ||||||||
Buildings and improvements | ||||||||
Equipment | ||||||||
Construction in process | ||||||||
Less accumulated depreciation | ||||||||
Property and equipment, net | ||||||||
Operating lease right-of-use assets | ||||||||
Goodwill | ||||||||
Other intangible assets, net | ||||||||
Medical plan assets, net | ||||||||
Other | ||||||||
Total assets |
The accompanying Notes are an integral part of the Consolidated Financial Statements.
(Unaudited) | ||||||||
June 28, | September 29, | |||||||
(Thousands of Dollars and Shares, Except Per Share Data) | 2020 | 2019 | ||||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of lease liabilities | ||||||||
Current maturities of long-term debt | ||||||||
Accounts payable | ||||||||
Compensation and other accrued liabilities | ||||||||
Accrued interest | ||||||||
Unearned revenue | ||||||||
Total current liabilities | ||||||||
Long-term debt, net of current maturities | ||||||||
Operating lease liabilities | ||||||||
Pension obligations | ||||||||
Postretirement and postemployment benefit obligations | ||||||||
Deferred income taxes | ||||||||
Income taxes payable | ||||||||
Warrants and other | ||||||||
Total liabilities | ||||||||
Equity (deficit): | ||||||||
Stockholders' equity (deficit): | ||||||||
Serial convertible preferred stock, par value; authorized shares; issued | ||||||||
Common Stock, | par value; authorized shares; issued and outstanding:||||||||
June 28, 2020; shares; $0.01 par value | ||||||||
September 29, 2019; shares; $0.01 par value | ||||||||
Class B Common Stock, | par value; authorized shares; issued||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
Total stockholders' deficit | ( | ) | ( | ) | ||||
Non-controlling interests | ||||||||
Total deficit | ( | ) | ( | ) | ||||
Total liabilities and deficit |
The accompanying Notes are an integral part of the Consolidated Financial Statements.
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
13 Weeks Ended | 39 Weeks Ended | |||||||||||
June 28, | June 30, | June 28, | June 30, | |||||||||
(Thousands of Dollars, Except Per Common Share Data) | 2020 | 2019 | 2020 | 2019 | ||||||||
Operating revenue: | ||||||||||||
Advertising and marketing services | ||||||||||||
Subscription | ||||||||||||
Other | ||||||||||||
Total operating revenue | ||||||||||||
Operating expenses: | ||||||||||||
Compensation | ||||||||||||
Newsprint and ink | ||||||||||||
Other operating expenses | ||||||||||||
Depreciation and amortization | ||||||||||||
Assets loss (gain) on sales, impairments and other, net | ( | ) | ( | ) | ( | ) | ||||||
Restructuring costs and other | ||||||||||||
Total operating expenses | ||||||||||||
Equity in earnings of associated companies | ||||||||||||
Operating income | ||||||||||||
Non-operating income (expense): | ||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||
Debt financing and administrative costs | ( | ) | ( | ) | ( | ) | ||||||
Other, net | ||||||||||||
Total non-operating expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||
Income (loss) before income taxes | ( | ) | ( | ) | ||||||||
Income tax expense (benefit) | ( | ) | ||||||||||
Net income (loss) | ( | ) | ||||||||||
Net income attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||
Income (loss) attributable to Lee Enterprises, Incorporated | ( | ) | ( | ) | ||||||||
Other comprehensive income (loss), net of income taxes | ( | ) | ( | ) | ||||||||
Comprehensive income (loss) attributable to Lee Enterprises, Incorporated | ( | ) | ( | ) | ||||||||
Earnings per common share: | ||||||||||||
Basic: | ( | ) | ( | ) | ||||||||
Diluted: | ( | ) | ( | ) |
The accompanying Notes are an integral part of the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
(Thousands of Dollars) | Accumulated Deficit | Common Stock | Additional paid-in capital | Accumulated Other Comprehensive Loss | Total | ||||||||||
September 30, 2019 | ( | ) | ( | ) | ( | ) | |||||||||
Shares issued (redeemed) | ( | ) | ( | ) | |||||||||||
Income attributable to Lee Enterprises, Incorporated | |||||||||||||||
Stock compensation | |||||||||||||||
Other comprehensive loss | |||||||||||||||
Deferred income taxes, net | ( | ) | ( | ) | |||||||||||
December 29, 2019 | ( | ) | ( | ) | ( | ) | |||||||||
Shares issued (redeemed) | ( | ) | ( | ) | |||||||||||
Loss attributable to Lee Enterprises, Incorporated | ( | ) | ( | ) | |||||||||||
Stock compensation | |||||||||||||||
Other comprehensive loss | |||||||||||||||
Deferred income taxes, net | ( | ) | ( | ) | |||||||||||
March 29, 2020 | ( | ) | ( | ) | ( | ) | |||||||||
Shares issued (redeemed) | |||||||||||||||
Loss attributable to Lee Enterprises, Incorporated | ( | ) | ( | ) | |||||||||||
Stock compensation | |||||||||||||||
Other comprehensive loss | |||||||||||||||
Deferred income taxes, net | ( | ) | ( | ) | |||||||||||
June 28, 2020 | ( | ) | ( | ) | ( | ) |
(Thousands of Dollars) | Accumulated Deficit | Common Stock | Additional paid-in capital | Accumulated Other Comprehensive Loss | Total | ||||||||||
October 1, 2018 | ( | ) | ( | ) | ( | ) | |||||||||
Shares issued (redeemed) | ( | ) | ( | ) | |||||||||||
Income attributable to Lee Enterprises, Incorporated | |||||||||||||||
Stock compensation | |||||||||||||||
Other comprehensive income | ( | ) | ( | ) | |||||||||||
Deferred income taxes, net | |||||||||||||||
December 30, 2018 | ( | ) | ( | ) | ( | ) | |||||||||
Shares issued (redeemed) | |||||||||||||||
Loss attributable to Lee Enterprises, Incorporated | ( | ) | ( | ) | |||||||||||
Stock compensation | |||||||||||||||
Other comprehensive loss | ( | ) | ( | ) | |||||||||||
Deferred income taxes, net | |||||||||||||||
March 31, 2019 | ( | ) | ( | ) | ( | ) | |||||||||
Shares issued (redeemed) | |||||||||||||||
Income attributable to Lee Enterprises, Incorporated | |||||||||||||||
Stock compensation | |||||||||||||||
Other comprehensive income | ( | ) | ( | ) | |||||||||||
Deferred income taxes, net | |||||||||||||||
June 30, 2019 | ( | ) | ( | ) | ( | ) |
The accompanying Notes are an integral part of the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
39 Weeks Ended | ||
June 28, | June 30, | |
(Thousands of Dollars) | 2020 | 2019 |
Cash provided by operating activities: | ||
Net income | | |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | | |
Stock compensation expense | | |
Assets (gain) loss on sales, impairments and other, net | ||
Distributions greater than earnings of MNI | | |
Deferred income taxes |
|
|
Debt financing and administrative costs | | |
Pension contributions | — |
|
Payments to collateralize letters of credit | ||
Other, net |
|
|
Changes in operating assets and liabilities: | ||
Decrease in receivables and contract assets |
|
|
Decrease in inventories and other | | |
Decrease in accounts payable and other accrued liabilities |
|
|
Decrease in pension and other postretirement and postemployment benefit obligations |
|
|
Change in income taxes payable |
|
|
Other, including warrants |
|
|
Net cash provided by operating activities | | |
Cash required for investing activities: | ||
Purchases of property and equipment |
|
|
Proceeds from sales of assets | | |
Acquisitions, net of cash acquired |
|
|
Distributions greater (less) than earnings of TNI |
|
|
Other, net |
|
|
Net cash required for investing activities |
|
|
Cash provided by (required for) financing activities: | ||
Proceeds from long-term debt | | — |
Payments on long-term debt |
|
|
Debt financing and administrative costs paid |
|
|
Common stock transactions, net |
|
|
Net cash provided by (required for) financing activities |
|
|
Net increase (decrease) in cash and cash equivalents | | |
Cash and cash equivalents: | ||
Beginning of period | | |
End of period | | |
The accompanying Notes are an integral part of the Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation
The accompanying unaudited, interim, Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports. The Consolidated Financial Statements include the accounts of the March 16, 2020 Transactions, as defined and further described below, for approximately 15 weeks in the 39 weeks ended June 28, 2020. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, these financial statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Lee Enterprises, Incorporated and its subsidiaries (the “Company”) as of June 28, 2020 and our results of operations and cash flows for the periods presented. The Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's 2019 Annual Report on Form 10-K.
Because of seasonal and other factors, the results of operations for the 13 and 39 weeks ended June 28, 2020 are not necessarily indicative of the results to be expected for the full year.
References to “we”, “our”, “us” and the like throughout the Consolidated Financial Statements refer to the Company. References to “2020”, “2019” and the like refer to the fiscal years ended the last Sunday in September.
The Consolidated Financial Statements include our accounts and those of our subsidiaries, all of which are wholly-owned, except for our
Investments in TNI and MNI are accounted for using the equity method and are reported at cost, plus our share of undistributed earnings since acquisition less, for TNI, amortization of intangible assets.
COVID-19 Pandemic
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 operations have experienced lower revenue and profitability over the last 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 certain of our products and services, particularly in advertising revenue.
The COVID-19 pandemic has had, and the Company expects that it will continue to have, a significant negative near term impact on the Company’s business and 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 changes in consumer behavior, all of which are highly uncertain.
As a result, the Company has implemented, and continues to implement, measures to solidify our relationship with our local advertisers, reduce our cost structure and preserve liquidity. Restructuring costs and other, which were predominantly severance, totaled $
Purchase Agreement with Berkshire Hathaway
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 (“BHMG”) (the “Purchase Agreement”). As part of the Purchase Agreement, the Company purchased certain assets and assumed certain liabilities of BHMG’s newspapers and related community 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 $
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 5. Our Consolidated Financial Statements show the combined results of the Company for the period of March 16, 2020 through and as of June 28, 2020.
Between July 2, 2018 and March 16, 2020, the Company managed the BHMG newspaper business pursuant to a Management Agreement between BHMG 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 $
In connection with the Transactions, the Company also entered into a
Use of Estimates
The preparation of the Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates and judgments on an ongoing basis.
We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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 noncontrolling 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 the acquisition.
Recently Issued Accounting Standards - Standards Adopted in 2020
In February 2016, the FASB issued a new standard for the accounting treatment of leases, known as Accounting Standards Codification 842 (“ASC 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 (“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 6.
Effective September 30, 2019, the first day of fiscal year 2020, 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 the adoption of ASC 842, on September 30, 2019, we recorded operating lease right-of-use assets of $
Recently Issued Accounting Standards - Standards Not Yet Adopted
In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology 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 accumulated deficit as of the effective date to align our credit loss methodology with the new standard. We are currently evaluating the impact of this standard on our Consolidated Financial Statements.
2 | REVENUE |
The following table presents our revenue disaggregated by source:
13 Weeks Ended | 39 Weeks Ended | |||||||||||
June 28, | June 30, | June 28, | June 30, | |||||||||
(Thousands of Dollars) | 2020 | 2019 | 2020 | 2019 | ||||||||
Advertising and marketing services revenue | ||||||||||||
Subscription revenue | ||||||||||||
TownNews and other digital services revenue | ||||||||||||
Other revenue | ||||||||||||
Total operating revenue |
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 contract liabilities is unearned revenue 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 $
Contract asset balances relate to our Management Agreement revenue and was $
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.
3 | INVESTMENTS IN ASSOCIATED COMPANIES |
TNI Partners
In Tucson, Arizona, TNI, acting as agent for our subsidiary, Star Publishing Company (“Star Publishing”), and Citizen Publishing Company (“Citizen”), a subsidiary of Gannett Co. Inc., is responsible for printing, delivery, advertising, and subscription activities of the Arizona Daily Star as well as the related digital platforms and specialty publications. TNI collects all receipts and income and pays substantially all operating expenses incident to the partnership's operations and publication of the newspaper and other media.
Income or loss of TNI (before income taxes) is allocated equally to Star Publishing and Citizen.
Summarized results of TNI are as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||
June 28, | June 30, | June 28, | June 30, | |||||||||
(Thousands of Dollars) | 2020 | 2019 | 2020 | 2019 | ||||||||
Operating revenue | ||||||||||||
Operating expenses | ||||||||||||
Operating income | ||||||||||||
Company's share of operating income | ||||||||||||
Less amortization of intangible assets | ||||||||||||
Equity in earnings of TNI |
TNI makes weekly distributions of its earnings and for the 13 weeks ended June 28, 2020 and June 30, 2019, we received $
Madison Newspapers, Inc.
We have a
Summarized results of MNI are as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||||||
June 28, | June 30, | June 28, | June 30, | |||||||||
(Thousands of Dollars) | 2020 | 2019 | 2020 | 2019 | ||||||||
Operating revenue | ||||||||||||
Operating expenses, excluding restructuring costs, depreciation and amortization | ||||||||||||
Restructuring costs | ||||||||||||
Depreciation and amortization | ||||||||||||
Operating income | ||||||||||||
Net income | ||||||||||||
Equity in earnings of MNI |
MNI makes quarterly distributions of its earnings and in the 13 weeks ended June 28, 2020 and June 30, 2019, we received dividends of $
4 | GOODWILL AND OTHER INTANGIBLE ASSETS |
Changes in the carrying amount of goodwill are as follows:
June 28, | ||||
(Thousands of Dollars) | 2020 | |||
Goodwill, gross amount | ||||
Accumulated impairment losses | ( | ) | ||
Goodwill, beginning of period | ||||
Goodwill acquired in business combinations | ||||
Goodwill, end of period |
Identified intangible assets consist of the following:
June 28, | September 29, | |
(Thousands of Dollars) | 2020 | 2019 |
Non-amortized intangible assets: | ||
Mastheads | | |
Amortizable intangible assets: | ||
Customer and newspaper subscriber lists | | |
Less accumulated amortization | | |
| | |
Non-compete and consulting agreements | | |
Less accumulated amortization | | |
| | |
Other intangible assets, net | | |
The Company recognized $
Annual amortization of intangible assets for the five years ending June 2021 to June 2025 is estimated to be $
As of June 28, 2020, the weighted average amortization periods for amortizable intangible assets are
The Company recognized $
5 | DEBT |
On March 16, 2020 in connection with the closing of the Transactions, the Company completed a comprehensive refinancing of its debt (the “2020 Refinancing”). The 2020 Refinancing consists of a
• | To redeem the | |
• | To repay the |
There was
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, and BH Finance is the Company’s sole lender. The Credit Agreement documents the primary terms of the Term Loan. The Term Loan matures on March 16, 2045.
Debt is summarized as follows:
June 28, | September 29, | Interest | ||||||||||
(Thousands of Dollars) | 2020 | 2019 | Rates (%) | |||||||||
Term Loan | ||||||||||||
Revolving Facility | ||||||||||||
Notes | ||||||||||||
2nd Lien Term Loan | ||||||||||||
Unamortized debt issue costs | ( | ) | ||||||||||
Less current maturities of long-term debt | ||||||||||||
Total long-term debt |
As part of our refinancing, we incurred approximately $
Our weighted average cost of debt at June 28, 2020 is
For the 13-weeks ended June 28, 2020, excess cash flow totaled $
Interest
Interest on the Term Loan bears interest at a fixed annual rate of
Principal Payments
Voluntary payments under the Credit Agreement are not subject to call premiums and are payable at par.
Excluding the Excess Cash Flow payments described below, there are no scheduled mandatory principal payments required under the Credit Agreement. The Company is required to make mandatory pre-payments of the Term Loan as follows:
• | The Company must prepay the Term Loan in an aggregate amount equal to | |
• | 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 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 | |
• | 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 |
The Company may, upon notice to BH Finance, at any time or from time to time, voluntarily prepay the Term Loan in whole or in part, at par, provided that any voluntary prepayment of the Term Loan shall be accompanied by payment of all accrued interest on the amount of principal prepaid to the date of prepayment.
Covenants and Other Matters
The Credit Agreement contains certain customary representations and warranties, certain affirmative and negative covenants and certain conditions, including restrictions on incurring additional indebtedness, creating certain liens, making certain investments or acquisitions, issuing dividends, repurchasing shares of stock of the Company and certain other capital transactions. Certain existing and future direct and indirect material domestic subsidiaries of the Company are guarantors of the Company’s obligations under the Credit Agreement.
The Credit Agreement restricts us from paying dividends on our Common Stock. This restriction 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 Credit Agreement 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, (iv) incur or create liens and (v) enter into transactions with certain affiliates. The Credit Agreement contains various representation and warranties by the Company and may be terminated upon the occurrence of certain events of default, including non-payment. The Credit Agreement also contains cross-default provisions tied to other agreements with BH Finance entered into by the Company 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 (excluding MNI and TNI, the “Subsidiary Guarantors”), pursuant to a Guarantee and Collateral agreement dated as of March 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 Company and the Subsidiary Guarantors.
Also, the Term Loan is 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 Company and the Subsidiary Guarantors (excluding the capital stock of MNI and TNI).
Liquidity
Pursuant to the terms of the Credit Agreement, our new debt does not include a revolver.
Our liquidity, consisting of cash on the balance sheet, totals $
There are numerous potential consequences under the 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 BH Finance to exercise their remedies under the Credit 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 Credit Agreement (as defined above) has only limited affirmative covenants with which we are required to maintain compliance and there are no leverage or financial performance covenants. We are in compliance with our debt covenants at June 28, 2020.
Warrants
In connection with the 2nd Lien Term Loan, we entered into a Warrant Agreement dated as of March 31, 2014 (the “Warrant Agreement”). Under the Warrant Agreement, certain affiliates or designees of the 2nd Lien Lenders received on March 31, 2014 their pro rata share of warrants to purchase, in cash, an initial aggregate of
The Warrant Agreement contains provisions requiring the Warrants to be measured at fair value and included in warrants and other liabilities in our Consolidated Balance Sheets. We re-measure the fair value of the liability each reporting period, with changes reported in other, net non-operating income (expense). The initial fair value of the Warrants was $
In connection with the issuance of the Warrants, we entered into a Registration Rights Agreement dated as of March 31, 2014 (the “Registration Rights Agreement”). The Registration Rights Agreement requires, among other matters, that we use our commercially reasonable efforts to maintain the effectiveness for certain specified periods of a shelf registration statement related to the shares of Common Stock to be issued upon exercise of the Warrants.
6 | LEASES |
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
Total lease expense consists of the following:
13 Weeks Ended | 39 Weeks Ended | |||||||
(Thousands of Dollars) | June 28, 2020 | June 28, 2020 | ||||||
Operating lease costs | ||||||||
Variable lease costs | ||||||||
Short-term lease costs | ||||||||
Total Operating Lease Expense |
Supplemental cash flow information related to our operating leases was as follows:
13 Weeks Ended | 39 Weeks Ended | |||||||
(Thousands of Dollars) | June 28, 2020 | June 28, 2020 | ||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash outflow from operating leases |
As of June 28, 2020, maturities of lease liabilities were as follows:
(Thousands of Dollars) | June 28, 2020 | |||
2020 (three months remaining) | ||||
2021 | ||||
2022 | ||||
2023 | ||||
2024 | ||||
Thereafter | ||||
Total lease payments | ||||
Less: interest | ( | ) | ||
Present value of lease liabilities |
As of the year ended September 29, 2019, minimum lease payments during the five years ending September 2024 and thereafter were $
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.
June 28, 2020 | ||||
Weighted average remaining lease term (years) | ||||
Weighted Average discount rate | % |
7 | PENSION, POSTRETIREMENT AND POSTEMPLOYMENT DEFINED BENEFIT PLANS |
We have several noncontributory defined benefit pension plans that together cover selected employees. Benefits under the plans were generally based on salary and years of service. With the exception of defined benefit plans acquired in the Transactions, effective in 2012, substantially all benefits are frozen. 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.
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.
As part of the Transactions, the Company assumed several non-contributory defined benefit pension plans that together cover selected employees. Benefits under the plans are generally based on salary and years of service. The 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 corporate equity securities, government and corporate bonds, money markets and deposits with insurance companies. The amount of net pension obligations for those plans as of March 16, 2020, the initial measurement date, was $
Additionally, as part of the Transactions, the Company assumed certain unfunded postemployment benefit plans which provide coverage to retirees for portions of premiums associated with medical, dental, life, and vision insurance benefits in
We use a fiscal year end measurement date for all of our pension and postretirement medical plan obligations.
The net periodic pension and postretirement cost (benefit) components for our plans are as follows:
PENSION PLANS | 13 Weeks Ended | 39 Weeks Ended | ||||||||||
June 28, | June 30, | June 28, | June 30, | |||||||||
(Thousands of Dollars) | 2020 | 2019 | 2020 | 2019 | ||||||||
Service cost for benefits earned during the period | ||||||||||||
Interest cost on projected benefit obligation | ||||||||||||
Expected return on plan assets | ( | ) | ( | ) | ( | ) | ( | ) | ||||
Amortization of net loss |