Company Quick10K Filing
Lee Enterprises
Price2.08 EPS0
Shares58 P/E8
MCap120 P/FCF3
Net Debt435 EBIT71
TEV555 TEV/EBIT8
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

LEE 10Q Quarterly Report

EX-31.1 ex_191117.htm
EX-31.2 ex_191118.htm
EX-32.1 ex_191119.htm
EX-32.2 ex_191120.htm

Lee Enterprises Earnings 2020-06-28

Balance SheetIncome StatementCash Flow
1.10.80.60.30.1-0.22012201420172020
Assets, Equity
0.20.10.10.0-0.0-0.12012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

SECURITIES EXCHANGE ACT OF 1934

 

For The Quarterly Period Ended June 28, 2020

 

OR

 

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

SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-6227

LEE ENTERPRISES, INCORPORATED

 

(Exact name of Registrant as specified in its Charter)

 

Delaware

42-0823980

(State or other jurisdiction of incorporation or organization)

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

 

 4600 E. 53rd Street, Davenport, Iowa 52807

(Address of principal executive offices)

  

(563) 383-2100

(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

Common Stock, par value $.01 per share

LEE

New York Stock Exchange

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒     No ☐

 

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. 

Yes ☒     No ☐

 

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

 

 

Large accelerated filer

Accelerated filer

 

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      No ☒

 

As of July 31, 2020, 58,358,584 shares of Common Stock of the Registrant were outstanding. 

 

 

 

 

 

 

Table Of Contents

 

PAGE

     

FORWARD LOOKING STATEMENTS

  1
       

PART I

FINANCIAL INFORMATION

  2
         
 

Item 1.

Financial Statements (Unaudited)

  2
         
   

Consolidated Balance Sheets - June 28, 2020 and September 29, 2019

  2
         
   

Consolidated Statements of Income and Comprehensive Income (Loss) - 13 and 39 weeks ended June 28, 2020 and June 30, 2019

  4
         
   

Consolidated Statements of Stockholder's Equity - 13 and 39 weeks ended June 28, 2020 and June 30, 2019

  5
         
   

Consolidated Statements of Cash Flows - 39 weeks ended June 28, 2020 and June 30, 2019

  6
         
   

Notes to Consolidated Financial Statements

  7
         
 

Item 2.

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

  18
         
 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

  26
         
 

Item 4.

Controls and Procedures

  26
         

PART II

OTHER INFORMATION

  27
         
 

Item 1.

Legal Proceedings

  27
         
  Item 1.A. Risk Factors   27
         
 

Item 6.

Exhibits

  27
         

SIGNATURES

  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.

 

FORWARD-LOOKING STATEMENTS

 

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.

 

 

 

 

 

PART I

FINANCIAL INFORMATION

 

Item 1.       Financial Statements

 

LEE ENTERPRISES, INCORPORATED

CONSOLIDATED BALANCE SHEETS

 

 

      (Unaudited)          
      June 28,       September 29,  

(Thousands of Dollars)

 

2020

   

2019

 
                 

ASSETS

               
                 

Current assets:

               
Cash and cash equivalents     56,710       8,645  
Accounts receivable and contract assets, net     55,540       42,536  
Inventories     8,305       3,769  
Prepaids and other     19,979       5,353  

Total current assets

    140,534       60,303  

Investments:

               
Associated companies     28,315       28,742  
Other     8,173       10,684  

Total investments

    36,488       39,426  

Property and equipment:

               
Land and improvements     19,106       16,979  
Buildings and improvements     128,469       148,514  
Equipment     246,623       237,289  
Construction in process     7,104       1,980  
      401,302       404,762  
Less accumulated depreciation     289,702       322,723  

Property and equipment, net

    111,600       82,039  
Operating lease right-of-use assets     70,626        
Goodwill     313,868       250,309  
Other intangible assets, net     206,245       107,393  
Medical plan assets, net     14,981       14,338  
Other     8,026       1,394  

Total assets

    902,368       555,202  

 

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  8,886    
Current maturities of long-term debt  36,710   2,954 
Accounts payable  19,446   16,750 
Compensation and other accrued liabilities  45,187   17,711 
Accrued interest     1,903 
Unearned revenue  59,285   21,720 

Total current liabilities

  169,514   61,038 
Long-term debt, net of current maturities  539,290   429,391 
Operating lease liabilities  62,585    
Pension obligations  87,649   47,037 
Postretirement and postemployment benefit obligations  39,796   2,550 
Deferred income taxes  10,061   29,806 
Income taxes payable  17,497   8,742 
Warrants and other  12,211   13,469 

Total liabilities

  938,603   592,033 

Equity (deficit):

        

Stockholders' equity (deficit):

        

Serial convertible preferred stock, no par value; authorized 500 shares; none issued

      
Common Stock, $0.01 par value; authorized 120,000 shares; issued and outstanding:  584   577 

June 28, 2020; 58,359 shares; $0.01 par value

        

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

        
Class B Common Stock, $2 par value; authorized 30,000 shares; none issued      
Additional paid-in capital  256,179   255,476 
Accumulated deficit  (266,744)  (265,423)
Accumulated other comprehensive loss  (28,164)  (29,114)

Total stockholders' deficit

  (38,145)  (38,484)
Non-controlling interests  1,910   1,653 

Total deficit

  (36,235)  (36,831)

Total liabilities and deficit

  902,368   555,202 

 

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

 77,754  65,754  204,426  204,651 

Subscription

 88,517  46,620  176,655  137,965 

Other

 16,257  14,910  45,157  43,573 

Total operating revenue

 182,528  127,284  426,238  386,189 

Operating expenses:

            

Compensation

 72,396  45,373  164,330  140,197 

Newsprint and ink

 7,572  5,230  16,629  17,394 

Other operating expenses

 77,440  48,157  178,744  145,915 

Depreciation and amortization

 11,201  7,347  25,196  22,263 

Assets loss (gain) on sales, impairments and other, net

 147  (195) (5,153) (212)

Restructuring costs and other

 2,865  2,792  6,422  5,612 

Total operating expenses

 171,621  108,704  386,168  331,169 

Equity in earnings of associated companies

 842  1,451  3,773  5,298 

Operating income

 11,749  20,031  43,843  60,318 

Non-operating income (expense):

            

Interest expense

 (13,135) (11,860) (35,377) (36,256)

Debt financing and administrative costs

   (4,196) (11,865) (6,053)

Other, net

 1,027  3,702  3,309  2,730 

Total non-operating expense, net

 (12,108) (12,354) (43,933) (39,579)

Income (loss) before income taxes

 (359) 7,677  (90) 20,739 

Income tax expense (benefit)

 368  1,505  (92) 6,175 

Net income (loss)

 (727) 6,172  2  14,564 

Net income attributable to non-controlling interests

 (548) (406) (1,322) (1,115)

Income (loss) attributable to Lee Enterprises, Incorporated

 (1,275) 5,766  (1,320) 13,449 

Other comprehensive income (loss), net of income taxes

 317  (122) 950  (365)

Comprehensive income (loss) attributable to Lee Enterprises, Incorporated

 (958) 5,644  (370) 13,084 

Earnings per common share:

            

Basic:

 (0.02) 0.10  (0.02) 0.24 

Diluted:

 (0.02) 0.10  (0.02) 0.24 

 

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

 (265,423) 577  255,476  (29,114) (38,484)

Shares issued (redeemed)

   4  (379)   (375)

Income attributable to Lee Enterprises, Incorporated

 5,320        5,320 

Stock compensation

     545    545 

Other comprehensive loss

       452  452 

Deferred income taxes, net

       (135) (135)

December 29, 2019

 (260,103) 581  255,642  (28,797) (32,677)
                
Shares issued (redeemed)     (199)   (199)

Loss attributable to Lee Enterprises, Incorporated

 (5,367)       (5,367)

Stock compensation

     269    269 

Other comprehensive loss

       451  451 
Deferred income taxes, net       (135) (135)

March 29, 2020

 (265,470) 581  255,712  (28,481) (37,658)
                
Shares issued (redeemed)   3  239    242 
Loss attributable to Lee Enterprises, Incorporated (1,275)       (1,275)
Stock compensation     228    228 
Other comprehensive loss       451  451 
Deferred income taxes, net       (134) (134)
June 28, 2020 (266,744) 584  256,179  (28,164) (38,145)

 


 

(Thousands of Dollars)

 

Accumulated Deficit

  

Common Stock

  

Additional paid-in capital

  

Accumulated Other Comprehensive Loss

  

Total

 
                

October 1, 2018

 (279,691) 572  253,511  (11,746) (37,354)

Shares issued (redeemed)

   5  (453)   (448)

Income attributable to Lee Enterprises, Incorporated

 10,361        10,361 

Stock compensation

     385    385 

Other comprehensive income

       (163) (163)

Deferred income taxes, net

       41  41 

December 30, 2018

 (269,330) 577  253,443  (11,868) (27,178)
                

Shares issued (redeemed)

     317    317 

Loss attributable to Lee Enterprises, Incorporated

 (2,678)       (2,678)

Stock compensation

     425    425 

Other comprehensive loss

       (163) (163)

Deferred income taxes, net

       41  41 

March 31, 2019

 (272,008) 577  254,185  (11,990) (29,236)
                
Shares issued (redeemed)   1  221    222 
Income attributable to Lee Enterprises, Incorporated 5,766        5,766 
Stock compensation     321    321 
Other comprehensive income       (163) (163)
Deferred income taxes, net       41  41 
June 30, 2019 (266,242) 578  254,727  (12,112) (23,049)

 


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

 

 

 

LEE ENTERPRISES, INCORPORATED

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

2

14,564

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

  

Depreciation and amortization

25,196

22,263

Stock compensation expense

1,042

1,131

Assets (gain) loss on sales, impairments and other, net(5,153)(212)

Distributions greater than earnings of MNI

1,031

648

Deferred income taxes

(8,377)

253

Debt financing and administrative costs

11,865

6,053

Pension contributions

(650)

Payments to collateralize letters of credit(6,105)

Other, net

(316)

(745)

Changes in operating assets and liabilities:

  

Decrease in receivables and contract assets

24,173

(3,435)

Decrease in inventories and other

855

2,383

Decrease in accounts payable and other accrued liabilities

(7,893)

2,666

Decrease in pension and other postretirement and postemployment benefit obligations

(3,947)

(782)

Change in income taxes payable

6,875

(419)

Other, including warrants

(1,238)

68

Net cash provided by operating activities

38,010

43,786

Cash required for investing activities:

  

Purchases of property and equipment

(7,297)

(3,753)

Proceeds from sales of assets

17,649

1,477

Acquisitions, net of cash acquired

(130,985)

(5,274)

Distributions greater (less) than earnings of TNI

(154)

(358)

Other, net

(350)

(3)

Net cash required for investing activities

(121,137)

(7,911)

Cash provided by (required for) financing activities:

  

Proceeds from long-term debt

576,000

Payments on long-term debt

(443,627)

(26,301)

Debt financing and administrative costs paid

(609)

(1,149)

Common stock transactions, net

(572)

(289)

Net cash provided by (required for) financing activities

131,192

(27,739)

Net increase (decrease) in cash and cash equivalents

48,065

8,136

Cash and cash equivalents:

  

Beginning of period

8,645

5,380

End of period

56,710

13,516

 

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

 

 

LEE ENTERPRISES, INCORPORATED

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 82.5% interest in INN Partners, L.C. (“TownNews.com”), 50% interest in TNI Partners (“TNI”) and 50% interest in Madison Newspapers, Inc. (“MNI”).

 

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 $2,865,000 and $6,422,000 in the 13 and 39 weeks ended June 28, 2020, respectively. Substantially all charges related to Restructuring and other were paid in the period incurred. The Company believes these initiatives will allow us to meet our commitments; however, they may not be sufficient to fully offset the negative impact of the COVID-19 pandemic on the Company’s business and results of operations.

 

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 $140,000,000 (collectively, the “Transactions”). BHMG includes 30 daily newspapers and digital operations, in addition to 49 paid weekly newspapers with websites and 32 other print products. Buffalo News is a provider of local print and digital news to the Buffalo, NY area. The rationale for the acquisition was primarily the attractive nature of the various publications, businesses, and digital platforms as well as the revenue growth and operating expense synergy opportunities.

 

The Transactions were funded pursuant to a Credit Agreement dated as of January 29, 2020 between the Company and BH Finance LLC, a Delaware limited liability company affiliated with Berkshire (the “Credit Agreement”), as described further in Note 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 $5,425,000 at closing. This amount represents $1,245,000 in fixed fees pro-rated under the contract and $4,180,000 in variable fees based upon the pro-rated annual target. The amount we received settled our existing contract assets balance, which totaled $3,589,000 as of December 29, 2019, and the remaining amount was reflected in Other Revenue for the 13 weeks ended March 29, 2020. The amount of variable fees was estimated based on expected BHMG financial performance through March 16, 2020. Actual financial performance through March 16, 2020 did not vary materially from the estimated amount. As such, the Company did not recognize a gain or loss as a result of the settlement of this preexisting relationship.

 

In connection with the Transactions, the Company also entered into a 10-year term lease with BHMG as described in Note 6.

 

7

 

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 $10,709,000, current portion of lease liabilities of $2,281,000, and long-term operating lease liabilities of $8,353,000

 

Recently Issued Accounting Standards - Standards Not Yet Adopted

 

In June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology 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.

 

8

 
 

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

 77,754  65,754  204,426  204,651 

Subscription revenue

 88,517  46,620  176,655  137,965 

TownNews and other digital services revenue

 5,608  5,087  16,123  14,507 

Other revenue

 10,649  9,823  29,034  29,066 

Total operating revenue

 182,528  127,284  426,238  386,189 

 

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 $59,285,000 as of  June 28, 2020 and $21,720,000 as of September 29, 2019. Revenue recognized in the 13 and 39 weeks ended June 28, 2020 that was included in the contract liability as of September 29, 2019 was $2,653,000 and $20,512,000.

 

Contract asset balances relate to our Management Agreement revenue and was $1,107,000 as of  September 29, 2019 and consisted solely of the variable consideration earned under the Management Agreement. As a result of the transactions, we had no contract asset balances as of June 28, 2020. In conjunction with the execution of the Purchase Agreement, the previously recorded contract asset balance was collected on March 16, 2020. Accounts receivable, excluding allowance for doubtful accounts and contract assets, was $65,298,000 and $47,863,000 as of  June 28, 2020 and September 29, 2019, respectively. Allowance for doubtful accounts was $9,758,000 and $6,434,000 as of June 28, 2020 and September 29, 2019, respectively.

 

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

 

 

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

 8,222  10,465  28,602  34,109 

Operating expenses

 6,645  8,363  22,576  26,291 

Operating income

 1,577  2,102  6,026  7,818 

Company's 50% share of operating income

 789  1,051  3,013  3,909 

Less amortization of intangible assets

   105  209  313 

Equity in earnings of TNI

 789  946  2,804  3,596 

 

TNI makes weekly distributions of its earnings and for the 13 weeks ended June 28, 2020 and June 30, 2019, we received $959,000 and $731,000 in distributions, respectively. In the 39 weeks ended June 28, 2020 and June 30, 2019, we received $2,650,000 and $3,328,000 in distributions, respectively.

 

9

 

Madison Newspapers, Inc.

 

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

 

Summarized 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

 10,875  13,709  37,125  41,627 

Operating expenses, excluding restructuring costs, depreciation and amortization

 10,542  12,132  34,222  36,338 

Restructuring costs

   67    134 

Depreciation and amortization

 172  280  514  839 

Operating income

 161  1,230  2,389  4,316 

Net income

 107  1,010  1,938  3,405 

Equity in earnings of MNI

 54  505  969  1,702 

 

MNI makes quarterly distributions of its earnings and in the 13 weeks ended June 28, 2020 and June 30, 2019, we received dividends of $0 and $850,000, respectively. In the 39 weeks ended June 28, 2020 and June 30, 2019, we received dividends of $1,000,000 and $2,350,000 respectively.

 

 

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

  1,539,038 

Accumulated impairment losses

  (1,288,729)
Goodwill, beginning of period  250,309 
Goodwill acquired in business combinations  63,559 

Goodwill, end of period

  313,868 

 

Identified intangible assets consist of the following:

 

 

June 28,

September 29,

(Thousands of Dollars)

2020

2019

   

Non-amortized intangible assets:

  

Mastheads

42,722

21,883

Amortizable intangible assets:

  

Customer and newspaper subscriber lists

790,278

697,145

Less accumulated amortization

626,848

611,786

 

163,430

85,359

Non-compete and consulting agreements

28,675

28,675

Less accumulated amortization

28,582

28,524

 

93

151

Other intangible assets, net

206,245

107,393

 

The Company recognized $38,780,000 of advertiser relationships, $36,060,000 of subscriber relationships, $17,130,000 of commercial print relationships and $21,680,000 of indefinite-lived masthead assets as part of the Transactions.

 

Annual amortization of intangible assets for the five years ending June 2021 to June 2025 is estimated to be $26,447,000, $23,578,000, $22,967,000, $21,888,000 and $17,397,000, respectively. The weighted average amortization period for those amortizable assets acquired as part of the Transactions is 9.2 years.

 

As of June 28, 2020, the weighted average amortization periods for amortizable intangible assets are 5.2 years for advertiser relationships, 4.7 years for customer relationships, 8.5 years for subscriber relationships. The weighted average amortization period in total for all amortizable intangible assets is 6.2 years.

 

The Company recognized $63,559,000 of Goodwill as part of the Transactions. The value of the acquired Goodwill is primarily related to an assembled workforce and expected synergies from combining operations. For tax purposes, the amount of Goodwill that is expected to be deductible is $28,118,000. Refer to Note 8 for more information regarding preliminary purchase accounting for the Transactions.

 

10

 
 
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 25-year term loan with BH Finance LLC (“BH Finance”), an affiliate of Berkshire, in an aggregate principal amount of $576,000,000 at a 9% annual rate (referred to herein as “Credit Agreement” and “Term Loan”). The proceeds of the Term Loan were used, along with cash on hand, to refinance the Company's $431,502,000 in existing debt as well as to fund the acquisition of the BH Media Newspaper Business assets and the stock of the Buffalo News for $140,000,000 in cash. With the closing of this deal, BH Finance became Lee's sole lender. Proceeds of the Term Loan were used to finance the Transactions and refinance all of the Company’s outstanding debt at par, including:

 

 

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

   
 To repay the 12.0% second lien term loan pursuant to a Second Lien Term Loan Agreement dated as of March 31, 2014, as amended (the “2nd Lien Term Loan”).

 

There was no gain or loss recognized upon extinguishment of the Indenture and the 2nd Lien Term Loan.

 

As a result of the 2020 Refinancing, the Indenture, First Lien Credit Agreement dated as of March 31, 2014 (the “1st Lien Credit Facility”) and 2nd Lien Loan Agreement were terminated, 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  576,000      9.0 

Revolving Facility

         

Notes

     363,420   9.5 

2nd Lien Term Loan

     80,207   12.0 
   576,000   443,627     

Unamortized debt issue costs

     (11,282)    

Less current maturities of long-term debt

  36,710   2,954     

Total long-term debt

  539,290   429,391     

 

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

 

Our weighted average cost of debt at June 28, 2020 is 9.0%.

 

For the 13-weeks ended June 28, 2020, excess cash flow totaled $36,710,000 and was used to pay debt in July 2020. This balance was recognized in Current maturities of long-term debt as of June 28, 2020. Future payments are contingent on the Company’s ability to generate future excess cash flow, as defined in the Credit Agreement.

 

Interest

 

Interest on the Term Loan bears interest at a fixed annual rate of 9.0%, payable monthly, and matures in March 2045.

 

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 100% of any Net Cash Proceeds received by the Company or any subsidiary from a sale, transfer, license, lease or other disposition of any property of the Company or any subsidiary in excess of $500,000 in any ninety (90) day period.

   
 Beginning on June 28, 2020, the Company is required to prepay the Term Loan with excess cash flow, defined as cash on the balance sheet in excess of $20,000,000 (“Excess Cash Flow”). Excess Cash Flow is used to prepay the Term Loan, at par, and is due within 50-days of quarter end. 
   
 If there is a Change of Control (as defined in the Credit Agreement), BH Finance has the option to require the Company to prepay the Term Loan in cash equal to 105% of the unpaid principal balance, plus accrued and unpaid interest.

 

The Company may, upon notice to BH Finance, at any time or from time to time, voluntarily prepay the 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.

 

11

 

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 $56,710,000 at June 28, 2020. This liquidity amount excludes any future cash flows. We expect all interest and principal payments due in the next twelve months will be satisfied by existing cash and our cash flows, which will allow us to maintain an adequate level of liquidity. The Warrants, as defined below, if and when exercised, would provide additional liquidity in an amount up to $25,140,000, which is not considered in the calculation of Excess Cash Flow.

 

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 6,000,000 shares of Common Stock, subject to adjustment pursuant to anti-dilution provisions (the “Warrants”). The Warrants represent, when fully exercised, approximately 10.4% of shares of Common Stock outstanding at March 30, 2014 on a fully diluted basis. The exercise price of the Warrants is $4.19 per share.

 

The Warrant Agreement contains 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 $16,930,000. See Note 12.

 

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.

 

12

 
 

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

 

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

  4,443   7,154 

Variable lease costs

  539   1,114 

Short-term lease costs

  146   465 

Total Operating Lease Expense

  5,128   8,733 

 

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

  4,498   7,764 

 

As of June 28, 2020, maturities of lease liabilities were as follows:

     
     
(Thousands of Dollars)  June 28, 2020 

2020 (three months remaining)

  3,872 

2021

  13,850 

2022

  11,623 

2023

  10,853 

2024

  10,319 

Thereafter

  50,718 

Total lease payments

  101,235 

Less: interest

  (29,764)

Present value of lease liabilities

  71,471 

 

As of the year ended September 29, 2019, minimum lease payments during the five years ending September 2024 and thereafter were $3,403,000, $2,290,000, $2,238,000, $1,637,000, $1,367,000 and $4,991,000, respectively.

 

Our lease contracts are discounted using the incremental borrowing rate for the Company. We determined the incremental borrowing rate based on a senior secured collateral adjusted yield curve for the Company. This yield curve reflects the estimated rate that would have been paid by the Company to borrow on a collateralized basis over a similar term in a similar economic environment. This rate was reassessed as part of the Transactions and was utilized to re-measure the assumed lease liabilities as well as the BH Lease as of March 16, 2020. We will assess this rate annually to determine whether it needs to be updated. The weighted average revolving lease terms and discount rates for all of our operating leases were as follows.

    
  

June 28, 2020

 

Weighted average remaining lease term (years)

  8.88 

Weighted Average discount rate

  8.26%

 

13

 
 

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 $43,503,000. The total pension benefit recognized for the period between March 16, 2020 and June 28, 2020 was $642,000.

 

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 eight collective bargaining units. The amount of premiums paid in five bargaining units are capped at specific dollar amounts per month. The amount of premiums paid in three bargaining units are uncapped. The plan groups consist of capped retirees, uncapped retirees, capped active employees, and uncapped active employees. New participants in the uncapped plans are eligible for Medicare supplemental medical insurance. The total postemployment benefit obligation recognized for these plans as of March 16, 2020, the initial measurement date, was $36,800,000. The total postemployment benefit cost recognized for the period between March 16, 2020 and June 28, 2020 was $590,000.

 

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

 626  9  737  27 

Interest cost on projected benefit obligation

 2,462  1,641  5,113  4,923 

Expected return on plan assets

 (4,356) (2,018) (8,628) (6,055)
Amortization of net loss 792  284  2,376  851