LEE ENTERPRISES, INCORPORATED The following discussion includes comments and analysis relating to our results of operations and financial condition as of and for the 13 and 39 weeks endedJune 27, 2021 . This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, included herein, and our 2020 Annual Report on Form 10-K. NON-GAAP FINANCIAL MEASURES We use non-GAAP financial performance measures to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures should not be considered in isolation or as a substitute for the relevant GAAP measures and should be read in conjunction with information presented on a GAAP basis. In this report, we present Adjusted EBITDA, Cash Costs, and Total Operating Revenue Less Cash Costs which are non-GAAP financial performance measures that exclude from our reported GAAP results the impact of certain items consisting primarily of restructuring charges and non-cash charges. We believe such expenses, charges and gains are not indicative of normal, ongoing operations, and their inclusion in results makes for more difficult comparisons between years and with peer group companies. In the future, however, we are likely to incur expenses, charges and gains similar to the items for which the applicable GAAP financial measures have been adjusted and to report non-GAAP financial measures excluding such items. Accordingly, exclusion of those or similar items in our non-GAAP presentations should not be interpreted as implying the items are non-recurring, infrequent, or unusual.
We define our non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, as follows:
Adjusted EBITDA is a non-GAAP financial performance measure that enhances
financial statement users' overall understanding of the operating performance of
the Company. The measure isolates unusual, infrequent or non-cash transactions
from the operating performance of the business. This allows users to easily
compare operating performance among various fiscal periods and how management
measures the performance of the business. This measure also provides users with
a benchmark that can be used when forecasting future operating performance of
the Company that excludes unusual, nonrecurring or one time transactions.
Adjusted EBITDA is also a component of the calculation used by stockholders and
analysts to determine the value of our business when using the market approach,
which applies a market multiple to financial metrics. It is also a measure used
to calculate the leverage ratio of the Company, which is a key financial ratio
monitored and used by the Company and its investors. Adjusted EBITDA is defined
as net income (loss), plus non-operating expenses, income tax expense,
depreciation and amortization, assets loss (gain) on sales, impairments and
other, restructuring costs and other, stock compensation and our 50% share of
EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI.
Cash Costs represent a non-GAAP financial performance measure of operating
expenses which are measured on an accrual basis and settled in cash. This
measure is useful to investors in understanding the components of the Company's
cash-settled operating costs. Generally, the Company provides forward-looking
guidance of Cash Costs, which can be used by financial statement users to assess
the Company's ability to manage and control its operating cost structure. Cash
Costs are defined as compensation, newsprint and ink and other operating
expenses. Depreciation and amortization, assets loss (gain) on sales,
impairments and other, other non-cash operating expenses and other expenses are
excluded. Cash Costs also exclude restructuring costs and other, which are
typically settled in cash.
Total Operating Revenue Less Cash Costs, or "margin", represents a non-GAAP
financial performance measure of revenue less total Cash Costs, also a non-GAAP
financial measure. This measure is useful to investors in understanding the
profitability of the Company after direct Cash Costs related to the production
and delivery of products are paid. Margin is also useful in developing opinions
and expectations about the Company's ability to manage and control its operating
cost structure in relation to its peers.
The subtotals of operating expenses representing Cash Costs and Total Operating
Revenue Less Cash Costs can be found in tables included herein, under the
caption "Continuing Operations". Adjusted EBITDA is reconciled to net income,
below, its closest comparable number under GAAP.
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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
The table below reconciles the non-GAAP financial performance measure of Adjusted EBITDA to net income, the most directly comparable GAAP measure:
13 Weeks Ended 39 Weeks Ended
June 27, June 28, June 27, June 28,
(Thousands of Dollars) 2021 2020 2021 2020
Net income (loss) 3,737 (727 ) 19,532 2
Adjusted to exclude
Income tax expense (benefit) 1,366 368 7,106 (92 )
Non-operating expenses, net 8,680 12,108 16,369 43,933
Equity in earnings of TNI and MNI (1,689 ) (842 ) (4,902 ) (3,773 )
Loss (gain) on sale of assets and other, net 242 147 6,938 (5,153 )
Depreciation and amortization 10,836 11,201 33,794 25,196
Restructuring costs and other 1,419 2,865 5,880 6,422
Stock compensation 205 228 639 799
Add:
Ownership share of TNI and MNI EBITDA (50%) 1,923 955 5,421 4,464 Adjusted EBITDA 26,719 26,303 90,777 71,798 EXECUTIVE OVERVIEWLee Enterprises, Incorporated is a major subscription and advertising platform and a leading provider of high quality, trusted, local news and information in the markets we serve.
We operate 77 principally mid-sized local media operations.
We reach nearly 70% of all adults in our larger markets through a combination of our print and digital content offerings.
• Our web and mobile sites are the number one digital source of local news in
most of our markets, reaching more than 49 million unique visitors, in the
month of
• We have approximately one million paid subscribers to our print and digital
products, with estimated readership totaling three million. Digital only
subscribers totaled approximately 337,000, a 50.5% increase over the prior
year.
Our products include daily newspapers, websites and mobile applications, mobile
news and advertising, video products, a digital marketing agency, digital
services including web hosting and content management, niche publications and
community newspapers. Our local media operations range from large daily
newspapers and their associated digital products, such as the St. Louis
Post-Dispatch and the Buffalo News , to non-daily newspapers with news websites
and digital platforms serving smaller communities.
We also operate TownNews, through our 82.5% owned subsidiary INN Partners , L.C.
TownNews provides state-of-the-art web hosting, content management services and
video management services to nearly 2,200 other media organizations including
broadcast.
STRATEGY
We are a major subscription and advertising platform, a trusted local news
provider and innovative, digitally focused marketing solutions company. Our
focus is on the local market - including local news and information, local
advertising and marketing services to top local accounts and SMBs, and digital
services to local content curators. To align with the core strength of our
Company, our post-pandemic operating strategy is locally focused around three
pillars:
• Transform the presentation of local news and information by providing
best-in-class reader and user experiences with digital presentations that
emphasize video and other multimedia formats and rich, high-value content.
• Accelerate overall subscription growth by converting more of our vast
addressable market to subscribers leveraging cutting-edge data and technology
and expanded offerings for paid, niche, content on topics where we have
expertise and unique selling positions.
• Diversify and expand offerings for advertisers by launching a portfolio of
video advertising initiatives and e-commerce sales strategies through Lee's
in-house
our vast data-rich digital audiences and reach consumers in new ways.
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Purchase Agreement with Berkshire Hathaway
OnMarch 16, 2020 , the Company completed the Asset and Stock Purchase Agreement dated as ofJanuary 29, 2020 with Berkshire Hathaway Inc., aDelaware corporation ("Berkshire") andBH Media Group, Inc. , aDelaware 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 ofThe Buffalo News, Inc. , aDelaware corporation ("Buffalo News "), for a combined purchase price of$140,000,000 (collectively, the "Transactions"). The Transactions were financed pursuant to a credit agreement dated as ofJanuary 29, 2020 between the Company andBH Finance LLC , aDelaware limited liability company affiliated with Berkshire (the "Credit Agreement"). 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 theBuffalo, NY area. BetweenJuly 2, 2018 andMarch 16, 2020 , the Company managed the BH Media Newspaper Business pursuant to a Management Agreement between BHMG and the Company datedJune 26, 2018 (the "Management Agreement"). In connection with the Transactions, the Management Agreement terminated onMarch 16, 2020 . As part of the settlement of the preexisting relationship, the Company received$5,425,000 at closing. This amount represented$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 Company did not recognize a gain or loss as a result of the settlement of this preexisting relationship. In connection with the Transactions, the Company entered into a lease agreement between BHMG, 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 BH Lease was signed and commenced onMarch 16, 2020 . The BH 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 aRent Credit (as defined in the BH Lease) equal to 8.00% of the net consideration for any leased real estate sold by BHMG during the term of the BH Lease.
IMPAIRMENT OF GOODWILL AND OTHER ASSETS
We have significant amounts of goodwill and identified intangible assets. Since 2007 we have recorded impairment charges totaling almost$1.3 billion to reduce the value of certain of these assets. Future decreases in our market value, or significant differences in revenue, expenses or cash flows from estimates used to determine fair value, could result in additional impairment charges in the future.
CERTAIN MATTERS AFFECTING CURRENT AND FUTURE OPERATING RESULTS
The following items affect period-over-period comparisons from 2021 to 2020 and will continue to affect period-over-period comparisons for future results:
Acquisitions and Divestitures
• In
purchase price of
as part of a broader comprehensive refinancing of all of our then
outstanding debt, as well as cash on our balance sheet.
• In the 13 weeks ended
assets of certain of our smaller properties, including four daily newspapers
and related print and digital publications, for an aggregate sales price of
$3,950,000 . Impacts of COVID-19 The ongoing COVID-19 pandemic and related measures to contain its spread have resulted in significant volatility and economic uncertainty, which is expected to continue in the near term. The COVID-19 pandemic has had and the Company currently expects that it will continue to have a significant negative impact on the Company's business and operating results in the near term. While vaccines have become widely available inthe United States , the long-term impact of the COVID-19 pandemic remains uncertain and unpredictable as it will depend on the pace of vaccine distribution, government responses to future outbreaks, the spread of variants, as well as changes in consumer behavior, all of which are highly uncertain. Despite the significant negative impacts on our operating results, we have operated uninterrupted in providing local news, information and advertising in our print and digital editions. We have evaluated the current economic environment as ofJune 27, 2021 , and have concluded that there is no event or circumstance that has occurred to trigger an impairment assessment of our long-lived or indefinite-lived assets. 18
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Table of Contents 13 WEEKS ENDEDJune 27, 2021
Operating results, as reported in the Consolidated Financial Statements, are summarized below.
--------------------------------------------------------------------------------
June 27, June 28, Percent
(Thousands of Dollars, Except Per Share Data) 2021 2020 Change
Advertising and marketing services 91,122 77,754 17.2
Subscription 88,792 89,115 (0.4 )
Other 16,576 15,659 5.9
Total operating revenue 196,490 182,528 7.6
Operating expenses:
Compensation 82,731 72,396 14.3
Newsprint and ink 7,051 7,572 (6.9 )
Other operating expenses 82,117 77,440 6.0
Cash costs 171,899 157,408 9.2
Total operating revenue less cash costs 24,591 25,120 (2.1 )
Depreciation and amortization 10,836 11,201 (3.3 )
Assets loss (gain) on sales, impairments and 242 147 64.6
other, net
Restructuring costs and other 1,419 2,865 (50.5 )
Operating expenses 184,396 171,621 7.4
Equity in earnings of associated companies 1,689 842 NM
Operating income 13,783 11,749 17.3
Non-operating income (expense):
Interest expense (11,010 ) (13,135 ) (16.2 )
Other, net 2,330 1,027 NM
Non-operating expenses, net (8,680 ) (12,108 ) (28.3 )
Income (loss) before income taxes 5,103 (359 ) NM
Income tax expense (benefit) 1,366 368 NM
Net income (loss) 3,737 (727 ) NM
Net income attributable to non-controlling (510 ) (548 ) (6.9 )
interests
Income (loss) attributable to Lee Enterprises, 3,227 (1,275 ) NM
Incorporated
Other comprehensive income, net of income taxes 477 317 50.5
Comprehensive income (loss) attributable to Lee 3,704 (958 ) NM
Enterprises, Incorporated
Earnings per common share:
Basic 0.56 (0.23 ) NM
Diluted 0.55 (0.23 ) NM
References to the "2021 Quarter" refer to the 13 weeks ended June 27, 2021 .
Similarly, references to the "2020 Quarter" refer to the 13 weeks ended June 28,
2020 . Prior period results have been adjusted to reflect the one-for-ten reverse
stock split in March 2021 . See Note 1 to the financial statements for details.
Operating Revenue
Total operating revenue was
Advertising and marketing services revenue totaled$91,122,000 in the 2021 Quarter, up 17.2% compared to the prior year. The increase is due to rapid growth atAmplified Digital Agency ("Amplified") and stabilization of our legacy business as we emerge from the pandemic. Print advertising revenues were$55,401,000 in the 2021 Quarter, up 10.3% compared to the prior year. Digital advertising and marketing services totaled$35,719,000 in the 2021 Quarter, up 30.8% compared to the prior year. The majority of these gains come from an increase in Amplified revenue and an increase in advertising on our owned and operated sites. Digital advertising and marketing services represented 39.2% of the 2021 Quarter total advertising and marketing services revenue, compared to 35% in the same period last year. Subscription revenue totaled$88,792,000 in the 2021 Quarter, down 0.4% compared to the 2020 Quarter. The growth in digital only subscribers, digital only revenue, and selective price increases on our full access subscriptions, were partially offset by a decline in full access volume, consistent with historical and industry trends. Digital only subscribers grew 50.5% since the 2020 Quarter and now total 337,000. Other revenue, which primarily consists of digital services revenue from TownNews and commercial printing revenue, increased$917,000 , or 5.9%, in the 2021 Quarter compared to the 2020 Quarter. Digital services revenue totaled$4,713,000 in the 2021 Quarter, a 5.9% decrease compared to the 2020 Quarter. On a stand-alone basis, revenue at TownNews increased 8.7% compared to the prior year. Commercial printing revenue totaled$6,333,000 in the 2021 Quarter, a 16.8% increase compared to the 2020 Quarter primarily driven by new customers and improved spending post pandemic. Total digital revenue including digital advertising revenue, digital subscription revenue and digital services revenue totaled$65,627,000 in the 2021 Quarter, an increase of 48.3% over the 2020 Quarter, and represented 33.4% of our total operating revenue in the 2021 Quarter.
Equity in earnings of TNI and MNI increased
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Operating Expenses
Total operating expenses were $184,396,000 in the 2021 Quarter, a
7.4% increase compared to the 2020 Quarter. Operating expenses include
compensation expense, newsprint and ink, other operating expenses, depreciation,
amortization, restructuring and other expenses, assets loss (gain) on sales, and
impairments. Cash Costs were $171,899,000 , a 9.2% increase compared to the
2020 Quarter.
Compensation expense increased $10,335,000 in the 2021 Quarter, or 14.3%,
compared to the 2020 Quarter. The 2020 Quarter experienced a one-time furlough
and compensation reduction for all employees driving cost reductions in response
to COVID-19.
Newsprint and ink costs decreased
Other operating expenses increased$4,677,000 in the 2021 Quarter, or 6.0%, compared to the 2020 Quarter. Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation and amortization, or restructuring costs and other. The largest components are costs associated with printing and distribution of our printed products, digital cost of goods sold and facility expenses. The increase is attributable to increases in investments to fund our digital growth strategy partially offset by lower delivery and other print-related costs due to lower volumes of our print editions.
Restructuring costs and other totaled
Depreciation expense increased
Assets loss (gain) on sales, impairments and other, was a net loss of$242,000 in the 2021 Quarter compared to a net loss of$147,000 in the 2020 Quarter. The losses in the 2021 Quarter and in the 2020 Quarter were the result of the disposition of non-core assets, including real estate.
The factors noted above resulted in operating income of
Non-operating Income and Expense
Interest expense decreased $2,125,000 , or 16.2%, to $11,010,000 in the
2021 Quarter, compared to the same period last year. The decrease was due to a
lower outstanding balance on our Term Loan. Debt has been reduced by $90.8
million since our refinancing in March 2020 . Our weighted average cost of debt,
excluding amortization of debt financing costs, was 9.0% at the end of the 2021
Quarter.
Other non-operating income and expense consists of benefits associated with our
pension and other postretirement plans and the fair value adjustment of our
Warrants. We recorded $2,228,000 periodic pension and other postretirement
benefits in the 2021 Quarter and $1,370,000 in the 2020 Quarter. We recorded
non-operating expense of $237,000 in the 2021 Quarter and non-operating
expense of $271,000 in the 2020 Quarter, related to the changes in the value of
the Warrants.
Income Tax Expense
We recorded an income tax expense of $1,366,000 , or 26.8% of pretax income in
the 2021 Quarter. In the 2020 Quarter, we recognized an income tax expense of
$368,000 , or 102.5% of pretax income.
Net Income (Loss) and Earnings (Losses) Per Share
Net income was $3,737,000 and diluted earnings per share were $0.55 for
the 2021 Quarter compared to net loss of $727,000 and diluted losses per share
of $0.23 for the 2020 Quarter as adjusted for the reverse stock split, described
in Note 1 to the financial statements. The change reflects the various items
discussed above.
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Table of Contents 39 WEEKS ENDEDJune 27, 2021
Operating results, as reported in the Consolidated Financial Statements, are summarized below.
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June 27 ,June 28 ,
Percent
(Thousands of Dollars, Except Per Share Data) 2021 2020
Change
Advertising and marketing services 279,326 204,426 36.6 Subscription 269,905 178,234 51.4 Other 51,505 43,578 18.2 Total operating revenue 600,736 426,238 40.9 Operating expenses: Compensation 250,048 164,330 52.2 Newsprint and ink 22,222 16,629 33.6 Other operating expenses 243,749 178,744 36.4 Cash costs 516,019 359,703 43.5 Total operating revenue less cash costs 84,717 66,535 27.3 Depreciation and amortization 33,794 25,196 34.1 Assets loss (gain) on sales, impairments and other, net 6,938 (5,153 ) NM Restructuring costs and other 5,880 6,422 (8.4 ) Operating expenses 562,631 386,168 45.7 Equity in earnings of associated companies 4,902 3,773 29.9 Operating income 43,007 43,843 (1.9 ) Non-operating income (expense): Interest expense (34,129 ) (35,377 ) (3.5 ) Debt financing and administrative cost - (11,865 ) NM Curtailment Gain 23,830 - NM Pension withdrawal cost (12,310 ) - NM Other, net 6,240 3,309 88.6 Non-operating expenses, net (16,369 ) (43,933 ) (62.7 ) Income (loss) before income taxes 26,638 (90 ) NM Income tax expense (benefit) 7,106 (92 ) NM Net income 19,532 2 NM Net income attributable to non-controlling interests (1,537 ) (1,322 ) 16.3 Income (loss) attributable to Lee Enterprises, Incorporated 17,995 (1,320 ) NM Other comprehensive income, net of income taxes 2,097 950 NM Comprehensive income (loss) attributable to Lee Enterprises, Incorporated 20,092 (370 ) NM Earnings per common share: Basic 3.15 (0.23 ) NM Diluted 3.10 (0.23 ) NM References to the "2021 Period" refer to the 39 weeks endedJune 27, 2021 . Similarly, references to the "2020 Period" refer to the 39 weeks endedJune 28, 2020 . Prior period results have been adjusted to reflect the one-for-ten reverse stock split inMarch 2021 . See Note 1 to the financial statements for details. Included in the analysis below are impacts from the Transactions.. The impacts include the revenue and expenses generated from the acquisition in the current year fromSeptember 28, 2020 throughMarch 16, 2021 . Operating Revenue Total operating revenue was$600,736,000 in the 2021 Period, up$174,498,000 , or 40.9%, which included$207,936,000 in revenue from the Transactions. Total operating revenue on a pro forma basis was down 4.7% compared to the 2020 Period. Advertising and marketing services revenue totaled$279,326,000 in the 2021 Period, up 36.6% compared to the prior year with$87,274,000 attributable to acquisitions. Print advertising revenues were$177,212,000 in the 2021 Period, up$49,188,000 or 38.4% compared to the prior year, with$65,402,000 attributable to acquired print advertising revenue. Digital advertising and marketing services totaled$102,114,000 in the 2021 Period, up 33.7% compared to the prior year, with$21,854,000 attributable to acquired digital advertising and marketing services revenue. Digital advertising and marketing services represented 36.6% of the 2021 Period total advertising and marketing services revenue compared to 37.4% in the 2020 Period. On a pro forma basis, Advertising and marketing services revenue was down 9.3% in the 2021 Period. The decline is due to the secular downward trend in print advertising, partially offset by growth in digital marketing services revenue at Amplified. Subscription revenue totaled$269,905,000 in the 2021 Period, up 51.4% compared to the 2020 Period, including$102,601,000 of acquired subscription revenue. The acquired subscription revenue, growth in digital-only subscribers and digital-only revenue and selective price increases on our full access subscriptions, were partially offset by a decline in full access volume, consistent with historical and industry trends. Other revenue, which primarily consists of digital services revenue from TownNews and commercial printing revenue, increased$7,927,000 , or 18.2%, in the 2021 Period compared to the 2020 Period. Other revenue in the 2021 Period included$18,061,000 of acquired other revenue, primarily from commercial printing. Digital services revenue totaled$14,363,000 in the 2021 Period, a 1.2% decrease compared to the 2020 Period. Commercial printing revenue totaled$19,332,000 in the 2021 Period, a 104.9% increase compared to the 2020 Period, due to$11,060,000 of acquired commercial printing revenue. Prior to the termination of the Management Agreement in connection with the Transactions inMarch 2020 , we earned$5,814,000 in management agreement revenue. Total digital revenue including digital advertising revenue, digital subscription revenue and digital services revenue totaled$187,011,000 in the 2021 Period, an increase of 60.8% over the 2020 Period, and represented 31.1% of our total operating revenue in the 2021 Period.
Equity in earnings of TNI and MNI increased
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Operating Expenses
Total operating expenses were $562,631,000 , a 45.7% increase compared to the
2020 Period, which included $185,729,000 in acquired operating expenses.
Operating expenses include compensation expense, newsprint and ink, other
operating expenses, depreciation, amortization, restructuring and other
expenses, assets loss (gain) on sales, and impairments. Cash Costs were
$516,019,000 , a 43.5% increase compared to the 2020 Period, which included
$172,657,000 of acquired Cash Costs. Cash Costs on a pro forma basis were down
4.2% compared to the 2020 Period.
Compensation expense increased $85,718,000 in the 2021 Period, or 52.2%,
compared to the 2020 Period. This increase was primarily attributable to
$87,934,000 of acquired compensation expense, partially offset by a reduction in
FTEs on a proforma basis and one-time furlough and compensation reduction for
all employees driving cost reductions in response to COVID-19 in the 2020
Period.
Newsprint and ink costs increased $5,593,000 in the 2021 Period, or 33.6%,
compared to the 2020 Period. The increase is attributable to acquired newsprint
and ink expenses of $10,103,000 offset by declines in newsprint volumes and
prices. See Item 3, "Commodities", included herein, for further discussion and
analysis of the impact of newsprint on our business.
Other operating expenses increased $65,005,000 in the 2021 Period, or 36.4%,
compared to the 2020 Period. Other operating expenses include all operating
costs not considered to be compensation, newsprint, depreciation and
amortization, or restructuring costs and other. The largest components are costs
associated with printing and distribution of our printed products, digital cost
of goods sold and facility expenses. The increase is attributable to
$84,812,000 of acquired other operating expenses and increases in investments to
fund our digital growth strategy, partially offset by lower delivery and other
print-related costs due to lower volumes of our print editions.
Restructuring costs and other totaled
Depreciation expense increased$4,845,000 or 50.2%, and amortization expense increased$3,753,000 , or 24.1%, in the 2021 Period. Increases in both are due to the acquired assets fromBHMG and Buffalo News .
Assets loss (gain) on sales, impairments and other, was a net loss of
The factors noted above resulted in operating income of
Non-operating Income and Expense
Interest expense decreased $1,248,000 , or 3.5%, to $34,129,000 in the
2021 Period, compared to the same period last year due to lower debt balances
and a reduction in the weighted average interest rates on our debt during the
2021 period. Our weighted average cost of debt, excluding amortization of debt
financing costs, was 9.0% at the end of the 2021 Period.
We recognized no debt financing and administrative expense in the
2021 Period compared to $11,865,000 in the 2020 Period. Expenses in the prior
year are due to writing off unamortized financing costs paid in conjunction with
a prior refinancing.
Other non-operating income and expense consists of benefits associated with our
pension and other postretirement plans and the fair value adjustment of our
Warrants. We recorded $6,799,000 in periodic pension and other postretirement
benefits in the 2021 Period and $2,458,000 in the 2020 Period. We recorded
non-operating expense of $954,000 in the 2021 Period and non-operating income
of $765,000 in the 2020 Period, related to the changes in the value of the
Warrants.
We recognized a non-cash curtailment gain of $23,830,000 and a reduction in our
benefit obligation in the 2021 Period by eliminating post-retirement medical
coverage for certain employees.
We recognized pension withdrawal costs in the Period of
Income Tax Expense (Benefit)
We recorded an income tax expense of
Net Income and Earnings (Losses) Per Share
Net income was $19,532,000 and diluted earnings per share were $3.10 for
the 2021 Period compared to net income of $2,000 and diluted losses per share
of $0.23 for 2020 Period as adjusted for the reverse stock split, described in
Note 1 to the financial statements. The change reflects the various items
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Our operations have historically generated strong positive cash flow and are
expected to provide sufficient liquidity, together with cash on hand, to meet
our requirements, primarily operating expenses, interest expense and capital
expenditures. A summary of our cash flows is included in the narrative below.
Operating Activities
Cash provided by operating activities was $42,771,000 in the
2021 Period compared to $38,010,000 in the 2020 Period. Net income for the
2021 Period totaled $19,532,000 compared to $2,000 in the 2020 Period. The
increase in cash provided by operating activities in the 2021 Period is mainly
attributed to the acquired operations of BHMG and Buffalo News and growth in our
digital business.
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Investing Activities
Cash required by investing activities totaled $2,465,000 in the
2021 Period compared to cash required by investing activities of $121,137,000 in
the 2020 Period. Capital spending totaled $5,350,000 in the 2021 Period compared
to $7,297,000 in the 2020 Period. Cash proceeds from asset sales, mainly real
estate, totaled $3,095,000 in the 2021 Period compared to $17,649,000 in the
2020 Period. In the 2020 Period we spent $130,985,000 on the acquisitions,
substantially all of which was related to the Transactions.
Financing Activities
Cash required for financing activities totaled $52,969,000 in the 2021 Period
compared to cash provided by financing activities of $131,192,000 in the
2020 Period. Debt reduction accounted for nearly all of the usage of funds
in the 2021 Period and the 2020 Refinancing provided the majority of funds in
the 2020 Period.
Term Loan
In March 2020 , in connection with the Transactions, the Company completed a
comprehensive refinancing of its debt, which consists of a 25-year term loan
with BH Finance in an aggregate principal amount of $576,000,000 . The Term Loan,
which matures March 16, 2045 , bears interest at an annual rate of 9.0%.
Debt is summarized as follows:
June 27, September 27, Interest
(Thousands of Dollars) 2021 2020 Rates (%)
Term Loan 485,162 538,290 9.0
Less current maturities of long-term debt 1,070 13,733
Total long-term debt 484,092 524,557
Excluding payments required from the Company's future excess cash flow (as
defined in the Credit Agreement), the only required principal payments include
payments from net cash proceeds from asset sales (as defined in the Credit
Agreement) and payments upon certain instances of change in control. There are
no other scheduled mandatory principal payments required under the Credit
Agreement.
Excess cash flow for the 13 weeks ended
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. There are no financial performance covenants under our Credit Agreement.
In connection with closing of the transactions, we no longer have access to a Revolving Facility.
InFebruary 2020 , we filed a Form S-3 registration statement ("Shelf"), that gave us the flexibility to issue and publicly distribute various types of securities, including preferred stock, common stock, warrants, secured or unsecured debt securities, purchase contracts and units consisting of any combination of such securities, from time to time, in one or more offerings, up to an aggregate amount of$750,000,000 .SEC issuer eligibility rules require us to have a public float of at least$75,000,000 in order to use the Shelf. Subject to maintenance of the minimum equity market float and the conditions of our existing debt agreements, the Shelf may enable us to sell securities quickly and efficiently when market conditions are favorable or financing needs arise. Additional Information on Liquidity We continue to evaluate the effects of the COVID-19 pandemic on our results of operations and cash flows. To combat the negative impacts, we took significant and immediate action to manage cash flow by implementing various initiatives including reductions in force, compensation reductions, furloughs, and reductions in capital investments. While we currently forecast sufficient near-term liquidity, the ultimate impact of the COVID-19 pandemic could have a material impact on the Company's liquidity and its ability to meet its ongoing obligations.
CHANGES IN LAWS AND REGULATIONS
Wage Laws
The United States and various state and local governments are considering
increasing their respective minimum wage rates. Most of our employees earn an
amount in excess of the current United States or state minimum wage rates.
However, until changes to such rates are enacted, the impact of the changes
cannot be determined. Among other provisions, the CARES Act allows the Company
to defer payments of the employer's share of social security taxes which shall
be paid between December 31, 2021 and December 31, 2022 . The CARES Act also
provides for an Employee Retention Credit which can be applied to the employer's
share of payroll taxes. The Company has elected to defer the employer's share of
social security tax payments and is currently determining the applicability of
the Employee Retention Credit.
INFLATION
Price increases (or decreases) for our products or services are implemented when
deemed appropriate by us. We continuously evaluate price increases, productivity
improvements, sourcing efficiencies and other cost reductions to mitigate the
impact of inflation.
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