NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Consolidated Financial Statements included herein are unaudited. 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 subsidiaries (the “Company”) as of
March 30, 2014
and their 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 2013 Annual Report on Form 10-K.
Because of seasonal and other factors, the results of operations for the 13 weeks and 26 weeks ended
March 30, 2014
are not necessarily indicative of the results to be expected for the full year.
Certain amounts as previously reported have been reclassified to conform with the current period presentation. See Note 2.
References to “we”, “our”, “us” and the like throughout the Consolidated Financial Statements refer to the Company. References to “2014”, “2013” 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
50%
interest in TNI Partners (“TNI”),
50%
interest in Madison Newspapers, Inc. (“MNI”), and
82.5%
interest in INN Partners, L.C.
On December 12, 2011, the Company and certain of its subsidiaries filed voluntary, prepackaged petitions in the U.S. Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") for relief under Chapter 11 of the U.S. Bankruptcy Code (the "U.S. Bankruptcy Code") (collectively, the "Chapter 11 Proceedings"). Our interests in TNI and MNI were not included in the filings. During the Chapter 11 Proceedings, we, and certain of our subsidiaries, continued to operate as "debtors in possession" under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the U.S. Bankruptcy Code. In general, as debtors-in-possession, we were authorized under the U.S. Bankruptcy Code to continue to operate as an ongoing business, but were not to engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court.
On January 23, 2012, the Bankruptcy Court approved our Second Amended Joint Prepackaged Plan of Reorganization (the "Plan") under the U.S. Bankruptcy Code and on January 30, 2012 (the "Effective Date") the Company emerged from the Chapter 11 Proceedings. On the Effective Date, the Plan became effective and the transactions contemplated by the Plan were consummated. Implementation of the Plan resulted primarily in a comprehensive refinancing of our debt. The Chapter 11 Proceedings did not adversely affect employees, vendors, contractors, customers or any aspect of Company operations. Stockholders retained their interest in the Company, subject to modest dilution. As a result, “fresh start” accounting was not utilized.
In May 2013, we refinanced a portion of our debt, extending the maturity to April 2017. On March 31, 2014, we refinanced all of our remaining debt, extending the related maturity dates to March 2019, March 2022 or December 2022. See Notes 5 and 12.
2
DISCONTINUED OPERATIONS
In March 2013, we sold
The Garden Island
newspaper and digital operations in Lihue, HI for
$2,000,000
in cash, plus an adjustment for working capital. The transaction resulted in a loss of
$2,170,000
, after income taxes, and was recorded in discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) in the 13 weeks ended March 31, 2013. Operating results of
The Garden Island
have been classified as discontinued operations for all periods presented.
Assets and liabilities of the
The Garden Island
at February 28, 2013 are summarized as follows
:
|
|
|
|
|
|
(Thousands of Dollars)
|
February 28
2013
|
|
|
|
|
|
Current assets
|
433
|
|
|
Property and equipment, net
|
770
|
|
|
Goodwill
|
500
|
|
|
Other intangible assets, net
|
4,025
|
|
|
Current liabilities
|
(271
|
)
|
|
Assets, net
|
5,457
|
|
In October 2012, we sold the
North County Times
in Escondido, CA for
$11,950,000
in cash, plus an adjustment for working capital. The transaction resulted in a gain of
$1,167,000
, after income taxes, and was recorded in discontinued operations in the Consolidated Statements of Operations and Comprehensive Income (Loss) in the 13 weeks ended December 30, 2012. Operating results of the
North County Times
have been classified as discontinued operations for all periods presented.
Assets and liabilities of the
North County Times
at September 30, 2012 are summarized as follows
:
|
|
|
|
|
|
(Thousands of Dollars)
|
September 30
2012
|
|
|
|
|
|
Current assets
|
2,093
|
|
|
Property and equipment, net
|
5,158
|
|
|
Goodwill
|
3,042
|
|
|
Other intangible assets, net
|
1,920
|
|
|
Current liabilities
|
(1,714
|
)
|
|
Assets, net
|
10,499
|
|
Results of discontinued operations consist of the following:
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
|
|
(Thousands of Dollars)
|
March 31
2013
|
|
March 31
2013
|
|
|
|
|
|
|
Operating revenue
|
517
|
|
1,321
|
|
|
Costs and expenses
|
(698
|
)
|
(1,697
|
)
|
|
Gain on sale of the
North County Times
|
—
|
|
1,800
|
|
|
Loss on sale of
The Garden Island
|
(3,340
|
)
|
(3,340
|
)
|
|
Gain from discontinued operations, before income taxes
|
(3,521
|
)
|
(1,916
|
)
|
|
Income tax expense
|
(1,228
|
)
|
(669
|
)
|
|
Net loss
|
(2,293
|
)
|
(1,247
|
)
|
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 newspapers 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
|
|
26 Weeks Ended
|
|
27 Weeks Ended
|
|
|
(Thousands of Dollars)
|
March 30
2014
|
|
March 31
2013
|
|
March 30
2014
|
|
March 31
2013
|
|
|
|
|
|
|
|
|
Operating revenue
|
15,065
|
|
15,922
|
|
31,137
|
|
33,466
|
|
|
Operating expenses, excluding workforce adjustments, depreciation and amortization
|
12,297
|
|
13,114
|
|
24,667
|
|
26,751
|
|
|
Workforce adjustments
|
—
|
|
—
|
|
(87
|
)
|
—
|
|
|
Operating income
|
2,768
|
|
2,808
|
|
6,557
|
|
6,715
|
|
|
Company's 50% share of operating income
|
1,384
|
|
1,404
|
|
3,279
|
|
3,358
|
|
|
Less amortization of intangible assets
|
104
|
|
181
|
|
209
|
|
361
|
|
|
Equity in earnings of TNI
|
1,280
|
|
1,223
|
|
3,070
|
|
2,997
|
|
Star Publishing's 50% share of TNI depreciation and certain general and administrative expenses (income) associated with its share of the operation and administration of TNI are reported as operating expenses (benefit) in our Consolidated Statements of Operations and Comprehensive Income (Loss). These amoun
ts totaled $
(41,000)
and $
(108,000)
in the 13 weeks ended
March 30, 2014
and March 31, 2013, respectively, $
(34,000)
in the 26 weeks ended
March 30, 2014
, and $
(276,000)
in the 27 weeks ended March 31, 2013.
Annual amortization of intangible assets is estimated to be
$418,000
in each of the 52 week periods ending March 2015, March 2016, March 2017, the 53 week period ending March 2018 and in the 52 week period ending March 2019.
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
|
|
26 Weeks Ended
|
|
|
(Thousands of Dollars)
|
March 30
2014
|
|
March 31
2013
|
|
March 30
2014
|
|
March 31
2013
|
|
|
|
|
|
|
|
|
Operating revenue
|
16,119
|
|
15,474
|
|
33,432
|
|
34,038
|
|
|
Operating expenses, excluding workforce adjustments, depreciation and amortization
|
14,597
|
|
13,628
|
|
27,856
|
|
27,677
|
|
|
Workforce adjustments
|
229
|
|
(11
|
)
|
229
|
|
(11
|
)
|
|
Depreciation and amortization
|
398
|
|
381
|
|
794
|
|
764
|
|
|
Operating income
|
895
|
|
1,476
|
|
4,553
|
|
5,608
|
|
|
Net income
|
625
|
|
952
|
|
2,885
|
|
3,495
|
|
|
Equity in earnings of MNI
|
313
|
|
510
|
|
1,442
|
|
1,781
|
|
|
|
4
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
Changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
26 Weeks Ended
|
|
|
(Thousands of Dollars)
|
March 30
2014
|
|
|
|
|
|
Goodwill, gross amount
|
1,532,458
|
|
|
Accumulated impairment losses
|
(1,288,729
|
)
|
|
Goodwill, beginning of period
|
243,729
|
|
|
Goodwill, end of period
|
243,729
|
|
Identified intangible assets consist of the following:
|
|
|
|
|
|
|
|
(Thousands of Dollars)
|
March 30
2014
|
|
September 29
2013
|
|
|
|
|
|
|
Nonamortized intangible assets:
|
|
|
|
Mastheads
|
27,038
|
|
27,038
|
|
|
Amortizable intangible assets:
|
|
|
|
Customer and newspaper subscriber lists
|
686,732
|
|
686,732
|
|
|
Less accumulated amortization
|
485,397
|
|
471,589
|
|
|
|
201,335
|
|
215,143
|
|
|
Noncompete and consulting agreements
|
28,524
|
|
28,524
|
|
|
Less accumulated amortization
|
28,522
|
|
28,521
|
|
|
|
2
|
|
3
|
|
|
|
228,375
|
|
242,184
|
|
Annual amortization of intangible assets for the 52 week periods ending March 2015, March 2016, March 2017, the 53 week period ending March 2018 and the 52 week period ending March 2019, is estimated to be
$27,543,000
,
$26,625,000
,
$25,428,000
,
$20,788,000
and
$16,546,000
, respectively.
As discussed more fully below (and certain capitalized terms used below defined), in January 2012, in conjunction with the effectiveness of the Plan, we refinanced all of our debt. The Plan refinanced our then-existing credit agreement and extended the April 2012 maturity in a structure of first and second lien debt with the existing lenders ("Lenders"). We also amended the Pulitzer Notes, and extended the April 2012 maturity with the existing Noteholders. In May 2013, we again refinanced the remaining balance of the Pulitzer Notes. On March 31, 2014, subsequent to the end of the quarter, we refinanced all of our other debt. The following description of the 1
st
Lien Agreement and the 2
nd
Lien Agreement is related to such debt as it existed at the end of the quarter, prior to the refinancing.
1
st
Lien Agreement
In January 2012, we entered into a credit agreement (the “1
st
Lien Agreement”) with a syndicate of lenders (the “1
st
Lien Lenders”). The 1
st
Lien Agreement consists of a term loan of
$689,510,000
, and a new
$40,000,000
revolving credit facility under which we have not drawn. The revolving credit facility also supports issuance of letters of credit.
Interest Payments
Debt under the 1
st
Lien Agreement bears interest, at our option, at either a base rate or an adjusted Eurodollar rate (“LIBOR”), plus an applicable margin. The base rate for the facility is the greater of (a) the prime lending rate of Deutsche Bank Trust Company Americas at such time; (b)
0.5%
in excess of the overnight federal funds rate at such time; or (c) 30 day LIBOR plus
1.0%
. LIBOR loans are subject to a minimum rate of
1.25%
. The
applicable margin for term loan base rate loans is
5.25%
, and
6.25%
for LIBOR loans. The applicable margin for revolving credit facility base rate loans is
4.5%
, and is
5.5%
for LIBOR loans. At
March 30, 2014
, all borrowing under the 1
st
Lien Agreement is based on LIBOR at a total rate of
7.5%
.
Principal Payments
At
March 30, 2014
, the balance outstanding under the term loan is
$593,000,000
. We may voluntarily prepay principal amounts outstanding or reduce commitments under the 1
st
Lien Agreement at any time, in whole or in part, without premium or penalty, upon proper notice and subject to certain limitations as to minimum amounts of prepayments.
We are required to repay principal amounts, on a quarterly basis until maturity, under the 1
st
Lien Agreement. Principal payments are required quarterly beginning in June 2012, and total
$12,750,000
in 2014,
$13,500,000
in 2015 and
$3,375,000
in 2016, prior to the final maturity.
In addition to the scheduled payments, we are required to make mandatory prepayments under the 1
st
Lien Agreement under certain other conditions, such as from the net proceeds from asset sales. The 1
st
Lien Agreement also requires us to accelerate future payments in the amount of our quarterly excess cash flow, as defined. The acceleration of such payments due to future asset sales or excess cash flow does not change the due dates of other 1
st
Lien Agreement payments prior to the December 2015 maturity.
2014 payments made, or required to be made for the remainder of the year, under the 1
st
Lien Agreement, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
13 Weeks Ending
|
|
(Thousands of Dollars)
|
December 29
2013
|
|
March 30
2014
|
|
June 29
2014
|
|
September 28
2014
|
|
|
|
|
|
|
Mandatory
|
3,000
|
|
3,000
|
|
3,375
|
|
3,375
|
|
Voluntary
|
3,350
|
|
5,500
|
|
—
|
|
—
|
|
Asset sales
|
150
|
|
—
|
|
—
|
|
—
|
|
Excess cash flow
|
—
|
|
1,500
|
|
—
|
|
—
|
|
|
6,500
|
|
10,000
|
|
3,375
|
|
3,375
|
|
2013 payments made under the 1
st
Lien Agreement are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
(Thousands of Dollars)
|
December 30
2012
|
|
March 31
2013
|
|
June 30
2013
|
|
September 29
2013
|
|
|
|
|
|
|
Mandatory
|
2,500
|
|
2,500
|
|
3,000
|
|
3,000
|
|
Voluntary
|
9,750
|
|
15,350
|
|
2,260
|
|
6,000
|
|
Asset sales
|
7,750
|
|
—
|
|
240
|
|
—
|
|
Excess cash flow
|
—
|
|
—
|
|
—
|
|
—
|
|
|
20,000
|
|
17,850
|
|
5,500
|
|
9,000
|
|
Security
The 1
st
Lien Agreement is fully and unconditionally guaranteed on a joint and several basis by all of our existing and future, direct and indirect subsidiaries in which we hold a direct or indirect interest of more than 50% (the “Credit Parties”); provided however, that our wholly-owned subsidiary Pulitzer Inc. (“Pulitzer”) and its subsidiaries are not Credit Parties. The 1
st
Lien Agreement is secured by first priority security interests in the stock and other equity interests owned by the Credit Parties in their respective subsidiaries.
The Credit Parties have also granted a first priority security interest on substantially all of their tangible and intangible assets, and granted mortgages covering certain real estate, as collateral for the payment and performance of their obligations under the 1
st
Lien Agreement. Assets of Pulitzer and its subsidiaries, TNI and our ownership interest in, and assets of, MNI are excluded.
The revolving credit facility has a super-priority security interest over all of the collateral securing the term loan under the 1
st
Lien Agreement, superior to that of the term loan lenders.
Covenants and Other Matters
The 1
st
Lien Agreement contains customary affirmative and negative covenants for financing of its type. Due to the refinancing on March 31, 2014, compliance with such covenants was not required for the 13 weeks ended March 30, 2014.
2
nd
Lien Agreement
In January 2012, we entered into a second lien term loan (the “2
nd
Lien Agreement”) with a syndicate of lenders (the “2
nd
Lien Lenders”). The 2
nd
Lien Agreement consists of a term loan of
$175,000,000
.
The 2
nd
Lien Agreement bears interest at
15.0%
per annum, payable quarterly.
Principal Payments and Redemption
The 2
nd
Lien Agreement requires no principal amortization, except in March 2017 if required for income tax purposes.
From January 30, 2013 until January 30, 2014, the 2
nd
Lien Agreement could have been redeemed at
102%
of the principal amount, at
101%
thereafter until January 30, 2015 and at
100%
thereafter until the April 2017 final maturity. Terms of the 1
st
Lien Agreement also restrict principal payments under the 2
nd
Lien Agreement.
Security
The 2
nd
Lien Agreement is fully and unconditionally guaranteed on a joint and several basis by the Credit Parties and by Pulitzer and its subsidiaries, other than TNI (collectively, the "2
nd
Lien Credit Parties"). The 2
nd
Lien Agreement is secured by second priority security interests in the stock and other equity interests owned by the 2
nd
Lien Credit Parties.
The 2
nd
Lien Credit Parties have also granted a second priority security interest on substantially all of their tangible and intangible assets, and granted second lien mortgages or deeds of trust covering certain real estate, as collateral for the payment and performance of their obligations under the 2
nd
Lien Agreement. Assets of TNI and our ownership interest in, and assets of, MNI are excluded. However, assets of Pulitzer and its subsidiaries, excluding TNI, become subject to a first priority security interest of the 2
nd
Lien Lenders upon repayment in full of the Pulitzer Notes and any successor debt.
The 2
nd
Lien Lenders were granted a second priority security interest in our ownership interest in TNI under the New Pulitzer Notes, as discussed more fully below.
Covenants and Other Matters
The 2
nd
Lien Agreement has no affirmative financial covenants. Restrictions on capital expenditures, permitted investments, indebtedness and other provisions are similar to, but generally less restrictive than, those provisions under the 1st Lien Agreement.
2
nd
Lien Lenders shared in the issuance of
6,743,640
shares of our Common Stock valued at
$9,576,000
based on the closing stock price of
$1.42
on the date of issuance, an amount equal to
13%
of outstanding shares on a pro forma basis as of January 30, 2012. 2
nd
Lien Lenders also received
$8,750,000
in the form of non-cash fees, which were added to and included in the principal amount of the second lien term loan.
Debt Refinancing as of March 31, 2014 - Subsequent Event
On March 31, 2014, we completed a comprehensive refinancing of our debt, which includes the following:
|
|
•
|
$400,000,000 aggregate principal amount of 9.5% Senior Secured Notes due 2022 (the “Notes”), pursuant to an Indenture dated as of March 31, 2014 (the “Indenture”) among the Company, certain subsidiaries party thereto from time to time (the “Subsidiary Guarantors”), U.S. Bank National Association, as Trustee, and Deutsche Bank Trust Company Americas, as Collateral Agent;
|
|
|
•
|
$250,000,000 first lien term loan and $40,000,000 revolving facility under a First Lien Credit Agreement dated as of March 31, 2014 (the “New 1
st
Lien Credit Facility”) among the Company, the lenders party thereto from time to time (the “New 1
st
Lien Lenders”), and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent; and
|
|
|
•
|
$150,000,000 second lien term loan under a Second Lien Loan Agreement dated as of March 31, 2014 (the “New 2
nd
Lien Term Loan”) among the Company, the lenders party thereto from time to time (the “New 2
nd
Lien Lenders”), and Wilmington Trust, National Association, as Administrative Agent and Collateral Agent.
|
The Notes, New 1
st
Lien Credit Facility and New 2
nd
Lien Term Loan enabled us to repay in full all amounts outstanding under, including accrued interest, and terminate, on March 31, 2014: (i) the remaining principal balance of $593,000,000 under the 1
st
Lien Agreement, and related subsidiary guaranty, security and pledge agreements, intercompany subordination and intercreditor agreements; and (ii) the remaining principal balance of $175,000,000 under the 2
nd
Lien Agreement, and related subsidiary guaranty, security and pledge agreements and intercreditor agreement. We also used the proceeds of the refinancing to pay fees and expenses related to the refinancing.
Notes
The Notes are senior secured obligations of the Company and mature on March 15, 2022. The Notes require payment of interest semiannually on March 15 and September 15 of each year, at an annual rate of 9.5%. Interest on the Notes accrues from March 31, 2014 and the first interest payment date is due September 15, 2014. The Notes were sold pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended.
We may redeem some or all of the Notes at any time on or after March 15, 2018 at the redemption prices described in the Indenture. We may also redeem up to 35% of the Notes prior to March 15, 2017 using the proceeds of certain future equity offerings. The Notes have customary call protection provisions, as set forth in the Indenture. If we sell certain of our assets or experience specific kinds of changes of control, we must, subject to certain exceptions, offer to purchase the Notes.
The Notes are unconditionally guaranteed on a senior secured basis by each of our material domestic subsidiaries in which the Company holds a direct or indirect interest of more than 50% and which guaranty indebtedness for borrowed money, including the New 1
st
Lien Credit Facility. As of March 31, 2014, material domestic subsidiaries of the Company that are excluded from such subsidiary guarantee obligations under the Notes are (a) MNI, (b) except as noted below, Pulitzer and its subsidiaries (collectively, the “Pulitzer Subsidiaries”), and (c) TNI.
At such time as the New Pulitzer Notes, as discussed more fully below, are satisfied, including any successor debt (the “Pulitzer Debt Satisfaction Date”), the Notes will also be guaranteed by Pulitzer and each Pulitzer Subsidiary that guarantees the indebtedness under the New 1
st
Lien Credit Facility or other borrowings incurred by the Company or any subsidiary guarantor.
The Notes and the subsidiary guarantees are secured, subject to certain exceptions, priorities and limitations in the various agreements, by a lien on all property and assets of the Company and each subsidiary guarantor, other than any property and assets of MNI, Pulitzer, each Pulitzer Subsidiary and TNI (the “Lee Legacy Collateral”), on a first-priority basis, equally and ratably with all of the Company’s and the subsidiary guarantors’ existing and future obligations under the New 1
st
Lien Credit Facility, pursuant to a Security Agreement dated as of March 31, 2014 (the “Notes Security Agreement”) among the Company and the subsidiary guarantors (collectively, the “Notes Assignors”) and Deutsche Bank Trust Company Americas.
Certain of the Notes Assignors, separately, will grant first lien mortgages or deeds of trust, covering their material real estate and improvements for the benefit of the holders of the Notes.
Also, the Notes are secured, subject to certain exceptions, priorities and limitations in the various agreements, by first priority security interests in the stock and other equity interests owned by the Notes Assignors pursuant to the Notes Security Agreement.
Prior to the Pulitzer Debt Satisfaction Date, none of the property and assets of Pulitzer and the Pulitzer Subsidiaries (collectively, the “Pulitzer Collateral”) will be pledged to secure the Notes or the subsidiary guarantees. After the Pulitzer Debt Satisfaction Date, the Notes and the subsidiary guarantees will be secured, subject to permitted liens, by a lien on the Pulitzer Collateral owned by each of the Pulitzer Subsidiaries that become subsidiary guarantors on a second-priority basis, equally and ratably with all of the Company’s and the subsidiary guarantors’ existing and future obligations under the New 1
st
Lien Credit Facility and certain other indebtedness for borrowed money incurred by the Company or any subsidiary guarantor.
The Indenture contains certain of the restrictive covenants in the New 1
st
Lien Credit Facility described below and limitations on our use of the Pulitzer Subsidiaries’ cash flows. However, many of these covenants will cease to apply if the Notes are rated investment grade from either Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Group and there is no default or event of default under the Indenture.
The rights of the Notes Assignors with respect to the Lee Legacy Collateral are subject to:
|
|
•
|
A Pari Passu Intercreditor Agreement dated as of March 31, 2014 (the “Pari Passu Intercreditor Agreement”) among the Company, the other Grantors party thereto, JPMorgan Chase Bank, N.A., U.S. Bank National Association and Deutsche Bank Trust Company Americas; and
|
|
|
•
|
A Junior Intercreditor Agreement dated as of March 31, 2014 (the “Junior Intercreditor Agreement”) among the Company, the other Grantors party hereto, JPMorgan Chase Bank, N.A., U.S. Bank National Association, Deutsche Bank Trust Company Americas and Wilmington Trust, National Association.
|
New 1
st
Lien Credit Facility
The New 1
st
Lien Credit Facility consists of a $250,000,000 term loan facility (the “Term Loan”) and a $40,000,000 revolving credit facility (the “Revolving Facility”). The New 1
st
Lien Credit Facility documents the primary terms of both the Revolving Facility and the Term Loan. The Revolving Facility, which was not drawn on the Closing Date, may be used for working capital and general corporate purposes (including letters of credit).
The Term Loan has an original issue discount of 2.0%. Interest on the Term Loan accrues at either (at our option) LIBOR plus 6.25% (with a LIBOR floor of 1.0%) or at a base rate equal to highest of (i) the prime rate at the time, (ii) the federal funds rate plus 0.5%, and (iii) one month LIBOR plus 1.0%, plus 5.25% (with a base rate floor of 2.0%), and is payable quarterly, beginning in June 2014. Quarterly principal payments of $6,250,000 are required, with other payments made either voluntarily, based on excess cash flow or proceeds from asset sales. The Term Loan matures in March 2019. Concurrently with the issuance of the Term Loan, we also entered into the Revolving Facility that matures in December 2018. Interest on the Revolving Facility, when used, accrues at either (at our option) LIBOR plus 5.5%, or at a base rate equal to highest of (i) the prime rate at the time, (ii) the federal funds rate plus 0.5%, and (iii) one month LIBOR plus 1.0%, plus 4.5%. The Company may voluntarily prepay principal amounts outstanding or reduce commitments under the New 1
st
Lien Credit Facility at any time without premium or penalty, upon proper notice and subject to certain limitations as to minimum amounts of prepayments.
The New 1
st
Lien Credit Facility requires that we comply with certain affirmative and negative covenants customary for financing of this nature, including maintenance of a maximum total leverage ratio, which only applies to the Revolving Facility. The New 1
st
Lien Credit Facility restricts us from paying dividends on our Common Stock, and generally restricts us from repurchasing Common Stock, unless in each case no default shall have occurred and we have satisfied certain financial measurements. Further, the New 1
st
Lien Credit Facility restricts or limits, among other things, subject to certain exceptions, the ability of the Company and its subsidiaries to: (i) incur indebtedness, (ii) enter into mergers, acquisitions and asset sales, (iii) incur or create liens and (iv) enter into transactions with certain affiliates. The New 1
st
Lien Credit Facility contains various representations and warranties and may be terminated upon occurrence of certain events of default. The New 1
st
Lien Credit Facility also contains cross-default provisions tied to the terms of each of the Indenture, New 2
nd
Lien Term Loan and New Pulitzer Notes.
The New 1
st
Lien Credit Facility is secured, subject to certain priorities and limitations in the various agreements, by perfected security interests in substantially all the assets of the Company and guaranteed by the Subsidiary Guarantors (together with the Company, the “1
st
Lien Assignors”), pursuant to a First Lien Guarantee and
Collateral Agreement dated as of March 31, 2014 (the “1
st
Lien Guarantee and Collateral Agreement”) among the Company, the Subsidiary Guarantors and JPMorgan Chase Bank, N.A., on a first-priority basis, equally and ratably with all of the Company’s and the Subsidiary Guarantors’ existing and future obligations under the Notes. The 1
st
Lien Assignors’ pledged assets include, among other things, equipment, inventory, accounts receivables, depository accounts, intellectual property and certain of their other tangible and intangible assets (excluding the assets of Pulitzer, the Pulitzer Subsidiaries, TNI and MNI).
Under the New 1
st
Lien Credit Facility, certain of the 1
st
Lien Assignors, separately, will grant first lien mortgages or deeds of trust, covering certain real estate and improvements, to the 1
st
Lien Lenders (excluding the real estate of Pulitzer, Pulitzer Subsidiaries, TNI and MNI).
Also, the New 1
st
Lien Credit Facility is secured by a pledge of interests in all of the stock and other equity interests owned by the 1
st
Lien Assignors (excluding the capital stock and equity interests of or held by Pulitzer and the Pulitzer Subsidiaries, as well as the capital stock and equity interest of MNI and TNI, respectively).
The rights of the 1
st
Lien Assignors with respect to the Lee Legacy Collateral are subject to:
|
|
•
|
The Pari Passu Intercreditor Agreement;
|
|
|
•
|
The Junior Intercreditor Agreement; and
|
|
|
•
|
An Intercompany Subordination Agreement dated as of March 31, 2014 (the “1
st
Lien Intercompany Subordination Agreement”) among the Company, Subsidiary Guarantors, Pulitzer, Pulitzer Subsidiaries and JPMorgan Chase Bank, N.A.
|
New 2
nd
Lien Term Loan
The $150,000,000 New 2
nd
Lien Term Loan, bears interest at 12.0%, payable quarterly, and matures on December 15, 2022. There are no scheduled mandatory amortization payments required.
Under the New 2
nd
Lien Term Loan, cash flows of Pulitzer and the Pulitzer Subsidiaries must be used, (i) first, to reduce the outstanding amount of the New Pulitzer Notes to zero and (ii) second, (a) at any time after the Pulitzer Debt Satisfaction Date but prior to March 31, 2017, to make an offer to the New 2
nd
Lien Lenders (which offer the New 2
nd
Lien Lenders may accept or reject), to pay amounts under the New 2
nd
Lien Term Loan at par and (b) at any time after the Pulitzer Debt Satisfaction Date and on or after March 31, 2017, to pay amounts under the New 2
nd
Lien Term Loan at par. After the Pulitzer Debt Satisfaction Date, subject to certain conditions in the New 2
nd
Lien Term Loan, the balance of the New 2
nd
Lien Term Loan can, or will be, reduced at par from proceeds from asset sales by Pulitzer or the Pulitzer Subsidiaries. Voluntary payments under the New 2
nd
Lien Term Loan otherwise will be subject to call premiums that step down to zero over a five-year period.
The New 2
nd
Lien Term Loan is fully and unconditionally guaranteed on a joint and several basis by the Company, Subsidiary Guarantors, Pulitzer and the Pulitzer Subsidiaries (collectively, the “2
nd
Lien Assignors”), other than MNI and TNI, pursuant to a Second Lien Guarantee and Collateral Agreement dated as of March 31, 2014 (the “2
nd
Lien Guarantee and Collateral Agreement”) among the 2
nd
Lien Assignors and Wilmington Trust, National Association.
Under the 2
nd
Lien Guarantee and Collateral Agreement, the 2
nd
Lien Assignors have granted (i) second priority security interests, subject to certain priorities and limitations in the various agreements, on substantially all of their tangible and intangible assets, including the stock and other equity interests owned by the 2
nd
Lien Assignors, and (ii) will grant second lien mortgages or deeds of trust covering certain real estate, as collateral for the payment and performance of their obligations under the New 2
nd
Lien Term Loan. Assets of, or used in the operations or business of, TNI and our ownership interest in, and assets of, MNI are excluded.
Assets of Pulitzer and the Pulitzer Subsidiaries, excluding assets of or assets used in the operations or business of, TNI, will become subject to (i) a first priority security interest in favor of the New 2
nd
Lien Lenders; and (ii) a second priority security interest in favor of the secured parties under the New 1
st
Lien Credit Facility, as applicable, upon the Pulitzer Debt Satisfaction Date.
The New 2
nd
Lien Term Loan requires that we comply with certain affirmative and negative covenants customary for financing of this nature, including the negative covenants under the New 1
st
Lien Credit Facility described above. The New 2
nd
Lien Term Loan contains various representations and warranties and may be terminated upon occurrence of certain events of default. The New 2
nd
Lien Term Loan also contains cross-default provisions tied to the terms of the Indenture, New 1
st
Lien Loan Credit Facility and the New Pulitzer Notes.
The 2
nd
Lien Guarantee and Collateral Agreement is subject to:
|
|
•
|
The Junior Intercreditor Agreement;
|
|
|
•
|
An Intercreditor Agreement dated as of January 30, 2012 among The Bank of New York Mellon Trust Company, N.A., Wilmington Trust, National Association, Pulitzer and the Pulitzer Subsidiaries, as amended by the First Amendment to Intercreditor Agreement dated May 1, 2013, and as further amended by the Second Amendment to Intercreditor Agreement dated as of March 31, 2014 (the “Second Amendment to Pulitzer Intercreditor Agreement”); and
|
|
|
•
|
An Intercompany Subordination Agreement dated as of March 31, 2014 (the “Pulitzer Intercompany Subordination Agreement”) among the Company, the Subsidiary Guarantors, Pulitzer, Pulitzer Subsidiaries and Wilmington Trust, National Association.
|
In connection with the New 2
nd
Lien Term Loan, we entered into a Warrant Agreement dated as of March 31, 2014 (the “Warrant Agreement”) between the Company and Wells Fargo Bank, National Association. Under the Warrant Agreement, certain affiliates or designees of the New 2
nd
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 10.1% 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.
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 file and maintain the effectiveness for certain specified periods of a shelf registration statement covering the shares of Common Stock upon exercise of the Warrants.
We incurred approximately $32,000,000 of fees and expenses related to the refinancing, including a $1,750,000 premium (1% of the principal amount) related to the redemption of the 2
nd
Lien Agreement and $5,000,000 original issue discount on the New 1
st
Lien Credit Facility. In addition, at March 30, 2014 we have
$10,549,000
of unamortized present value adjustments related to the 1
st
Lien Agreement and 2
nd
Lien Agreement. Certain of the unamortized present value adjustments, the new fees and expenses and a portion of the value of the Warrants will be charged to expense in the 13 weeks ending June 29, 2014 while the remainder of such costs will be capitalized and amortized into interest expense over the lives of the respective agreements.
New Pulitzer Notes
In conjunction with its formation in 2000, St. Louis Post-Dispatch LLC ("PD LLC") borrowed
$306,000,000
(the “Pulitzer Notes”) from a group of institutional lenders (the “Noteholders”). The Pulitzer Notes were guaranteed by Pulitzer pursuant to a Guaranty Agreement with the Noteholders. The aggregate principal amount of the Pulitzer Notes was payable in April 2009.
In February 2009, the Pulitzer Notes and the Guaranty Agreement were amended (the “Notes Amendment”). Under the Notes Amendment, PD LLC repaid
$120,000,000
of the principal amount of the debt obligation. The remaining debt balance of
$186,000,000
was refinanced by the Noteholders until April 2012.
In January 2012, in connection with the Plan, we entered into an amended Note Agreement and Guaranty Agreement, which amended the Pulitzer Notes and extended the maturity with the Noteholders. After consideration of unscheduled principal payments totaling
$15,145,000
(
$10,145,000
in December 2011 and
$5,000,000
in January 2012), offset by
$3,500,000
of non-cash fees paid to the Noteholders in the form of additional Pulitzer Notes debt, the amended Pulitzer Notes had a balance of
$126,355,000
in January 2012.
The Pulitzer Notes carried an interest rate at
10.55%
, which increased
0.75%
to
11.3%
in January 2013 and was to increase in January of each year thereafter. Due to the increasing interest rate, interest on the Pulitzer Notes was charged to expense using a calculated effective interest rate during the period.
In May 2013, we refinanced the
$94,000,000
remaining balance of the Pulitzer Notes (the
“
New Pulitzer Notes
”
) with BH Finance LLC ("Berkshire") a subsidiary of Berkshire Hathaway Inc. The New Pulitzer Notes bear interest at a fixed rate of
9.0%
, payable quarterly. Pulitzer is a co-borrower under the the New Pulitzer Notes, which eliminates the former Guaranty Agreement made by Pulitzer under the Pulitzer Notes.
Principal Payments
At
March 30, 2014
, the balance of the New Pulitzer Notes is
$45,000,000
. We may voluntarily prepay principal amounts outstanding under the New Pulitzer Notes at any time, in whole or in part, without premium or penalty (except as noted below), upon proper notice, and subject to certain limitations as to minimum amounts of prepayments. The New Pulitzer Notes provide for mandatory scheduled prepayments totaling
$6,400,000
annually, beginning in 2014.
In addition to the scheduled payments, we are required to make mandatory prepayments under the New Pulitzer Notes under certain other conditions, such as from the net proceeds from asset sales. The New Pulitzer Notes also require us to accelerate future payments in the amount of our quarterly excess cash flow, as defined. The acceleration of such payments due to future asset sales or excess cash flow does not change the due dates of other New Pulitzer Notes payments prior to the final maturity in April 2017.
The New Pulitzer Notes are subject to a 5% redemption premium if 100% of the remaining balance of the New Pulitzer Notes is again refinanced by lenders, the majority of which are not holders of the New Pulitzer Notes at the time of such refinancing. This redemption premium is not otherwise applicable to any of the types of payments noted above.
2014 payments made, or required to be made for the remainder of the year, under the New Pulitzer Notes are summarized below.
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
13 Weeks Ending
|
|
(Thousands of Dollars)
|
December 29
2013
|
|
March 30
2014
|
|
June 29
2014
|
|
September 28
2014
|
|
|
|
|
|
|
Mandatory
|
6,400
|
|
—
|
|
—
|
|
—
|
|
Voluntary
|
1,600
|
|
10,000
|
|
—
|
|
—
|
|
Asset sales
|
—
|
|
—
|
|
—
|
|
—
|
|
Excess cash flow
|
—
|
|
—
|
|
—
|
|
—
|
|
|
8,000
|
|
10,000
|
|
—
|
|
—
|
|
2013 payments made under the New Pulitzer Notes or Pulitzer Notes are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
(Thousands of Dollars)
|
December 30
2012
|
|
March 31
2013
|
|
June 30
2013
|
|
September 29
2013
|
|
|
|
|
|
|
Mandatory
|
3,800
|
|
2,600
|
|
—
|
|
—
|
|
Voluntary
|
—
|
|
1,500
|
|
14,000
|
|
17,000
|
|
Asset sales
|
5,200
|
|
1,900
|
|
—
|
|
—
|
|
Excess cash flow
|
—
|
|
—
|
|
—
|
|
—
|
|
|
9,000
|
|
6,000
|
|
14,000
|
|
17,000
|
|
Security
Obligations under the New Pulitzer Notes are fully and unconditionally guaranteed on a joint and several basis by Pulitzer's existing and future subsidiaries other than PD LLC and TNI. The New Pulitzer Notes are also
secured by first priority security interests in the stock and other equity interests owned by Pulitzer's subsidiaries including the 50% ownership interest in TNI. Also, Pulitzer, certain of its subsidiaries and PD LLC granted a first priority security interest on substantially all of its tangible and intangible assets, excluding the assets of Star Publishing leased to, or used in the operations or business of, TNI and granted deeds of trust covering certain real estate in the St. Louis area, as collateral for the payment and performance of their obligations under the New Pulitzer Notes.
Covenants and Other Matters
The New Pulitzer Notes contain certain covenants and conditions including the maintenance, by Pulitzer, of minimum trailing 12 month EBITDA (minimum of
$24,700,000
beginning
March 30, 2014
), as defined in the New Pulitzer Notes agreement, and limitations on capital expenditures and the incurrence of other debt. Our actual trailing 12 month EBITDA at
March 30, 2014
is
$45,250,000
. The determination of this amount is not the same as the comparable amount under the 1
st
Lien Agreement.
Further, the New Pulitzer Notes have limitations or restrictions on distributions, loans, advances, investments, acquisitions, dispositions and mergers. Such covenants require that substantially all future cash flows of Pulitzer are required to be directed first toward repayment of the New Pulitzer Notes, interest due under the 2
nd
Lien Agreement, or accumulation of cash collateral and that cash flows of Pulitzer are largely segregated from those of the Credit Parties.
Intercreditor Agreements
The 1
st
Lien Agreement, 2
nd
Lien Agreement and New Pulitzer Notes contain cross-default provisions tied to each of the various agreements. Intercreditor agreements and an intercompany subordination agreement are also in effect.
Other
Cash payments to the Lenders, Noteholders and legal and professional fees related to the Plan totaled
$38,628,000
, of which
$6,273,000
was paid in 2011, and the remainder of which was paid in 2012.
$720,000
of such costs were charged to expense in 2011. In addition, previously capitalized financing costs of
$4,514,000
at September 25, 2011 were charged to expense in 2012 as debt financing costs prior to consummation of the Plan, with the remainder classified as reorganization costs in the Consolidated Statements of Operations and Comprehensive Income (Loss) upon consummation of the Plan.
Debt under the Plan was considered compromised. As a result, the 1
st
Lien Agreement, 2
nd
Lien Agreement and Pulitzer Notes were recorded at their respective present values, which resulted in a discount to the stated principal amount totaling
$23,709,000
. We used the effective rates of the respective debt agreements to discount the debt to its present value. In determining the effective rates, we considered all cash outflows of the respective debt agreements including: mandatory principal payments, interest payments, fees paid to lenders in connection with the refinancing as well as, in the case of the 2
nd
Lien Agreement, Common Stock issued. The present value is being amortized as a non-cash component of interest expense over the terms of the related debt.
The refinancing of the Pulitzer Notes with the New Pulitzer Notes resulted in the acceleration of
$1,565,000
of the present value adjustment discussed above, which was partially offset by eliminating deferred interest expense of
$1,189,000
, and the net amount of which was recognized in the 13 weeks ended June 30, 2013. Expenses related to the issuance of the New Pulitzer Notes are capitalized as debt issuance costs and will be amortized until April 2017.
Amortization of the present value adjustment and other costs totaled
$6,681,000
in 2013. Amortization of such costs is estimated to total
$4,779,000
in 2014,
$4,742,000
in 2015,
$2,297,000
in 2016 and
$1,125,000
in 2017 before accounting for the New 2
nd
Lien Agreement.
As a result of the Plan, we recognized
$37,765,000
of reorganization costs in the 2012 Consolidated Statements of Operations and Comprehensive Income (Loss). The components of reorganization costs are summarized as follows:
|
|
|
|
|
(Thousands of Dollars)
|
|
|
|
|
|
Fees paid in cash to lenders, attorneys and others
|
|
38,628
|
|
Unamortized loan fees from previous debt agreements
|
|
1,740
|
|
Fair value of stock granted to 2
nd
Lien Lenders
|
|
9,576
|
|
Noncash fees paid in the form of additional debt
|
|
12,250
|
|
Present value adjustment
|
|
(23,709
|
)
|
|
|
38,485
|
|
Charged to expense in 2012
|
|
37,765
|
|
Charged to expense in 2011 as other non-operating expense
|
|
720
|
|
Debt is summarized as follows:
|
|
|
|
|
|
|
|
|
|
Interest Rates
(%)
|
(Thousands of Dollars)
|
March 30
2014
|
|
September 29
2013
|
|
March 30
2014
|
|
|
|
|
Revolving credit facility
|
—
|
|
—
|
|
6.75
|
1
st
Lien Agreement
|
593,000
|
|
609,500
|
|
7.50
|
2
nd
Lien Agreement
|
175,000
|
|
175,000
|
|
15.00
|
New Pulitzer Notes
|
45,000
|
|
63,000
|
|
9.00
|
Pulitzer Notes
|
—
|
|
—
|
|
|
Unamortized present value adjustment
|
(10,549
|
)
|
(12,942
|
)
|
|
|
802,451
|
|
834,558
|
|
|
Less current maturities of long-term debt
|
15,900
|
|
19,150
|
|
|
Current amount of present value adjustment
|
(4,788
|
)
|
(4,779
|
)
|
|
Total long-term debt
|
791,339
|
|
820,187
|
|
|
Liquidity
At
March 30, 2014
, after consideration of letters of credit, we have approximately
$29,942,000
available for future use under our revolving credit facility. Including cash, our liquidity at
March 30, 2014
totals
$44,821,000
. This liquidity amount excludes any future cash flows. We expect all interest and principal payments due in the next twelve months will be satisfied by our cash flows, which will allow us to maintain an adequate level of liquidity. The Warrants, if and when exercised, would provide additional liquidity in an amount up to $25,140,000.
At March 31, 2014, subsequent to the refinancing, the principal amount of our outstanding debt totals
$845,000,000
.
The comprehensive refinancing of our debt on March 31, 2014 significantly enhances our debt maturity profile. Final maturities of our debt have been extended to dates extending from March 2019 through December 2022. As a result, refinancing risk has been substantially reduced for the next several years.
There are numerous potential consequences under the Notes, New 1
st
Lien Credit Facility, New 2
nd
Lien Term Loan, and the New Pulitzer Notes, if an event of default, as defined, occurs and is not remedied. Many of those consequences are beyond our control. The occurrence of one or more events of default would give rise to the right of the applicable lender(s) to exercise their remedies under the Notes, New 1
st
Lien Credit Facility, New 2
nd
Lien Term Loan, and the New Pulitzer Notes, respectively, including, without limitation, the right to accelerate all outstanding debt and take actions authorized in such circumstances under applicable collateral security documents.
Our ability to operate as a going concern is dependent on our ability to remain in compliance with debt covenants and to refinance or amend our debt agreements as they become due, or earlier if available liquidity is consumed. We are in compliance with our debt covenants at
March 30, 2014
. The Notes, New 1
st
Lien Credit Facility and New 2
nd
Lien Term Loan have only limited affirmative covenants with which we are required to maintain compliance.
|
|
6
|
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. All benefits are frozen and no additional benefits are being accrued. Our liability and related expense for benefits under the plans are recorded over the service period of active employees based upon annual actuarial calculations. Plan funding strategies are influenced by government regulations and income tax laws. Plan assets consist primarily of domestic and foreign corporate equity securities, government and corporate bonds, hedge fund investments and cash.
In addition, 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, PD 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. Plan assets may also be used to fund medical costs of certain active employees.
We use a fiscal year end measurement date for all of our pension and postretirement medical plan obligations.
The net periodic cost (benefit) components of our pension and postretirement medical plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
PENSION PLANS
|
13 Weeks Ended
|
|
26 Weeks Ended
|
|
|
(Thousands of Dollars)
|
March 30
2014
|
|
March 31
2013
|
|
March 30
2014
|
|
March 31
2013
|
|
|
|
|
|
|
|
|
Service cost for benefits earned during the period
|
39
|
|
54
|
|
78
|
|
108
|
|
|
Interest cost on projected benefit obligation
|
1,999
|
|
1,882
|
|
3,998
|
|
3,764
|
|
|
Expected return on plan assets
|
(2,483
|
)
|
(2,459
|
)
|
(4,966
|
)
|
(4,918
|
)
|
|
Amortization of net loss
|
106
|
|
572
|
|
212
|
|
1,144
|
|
|
Amortization of prior service benefit
|
(34
|
)
|
(34
|
)
|
(68
|
)
|
(68
|
)
|
|
|
(373
|
)
|
15
|
|
(746
|
)
|
30
|
|
|
|
|
|
|
|
|
POSTRETIREMENT MEDICAL PLANS
|
13 Weeks Ended
|
|
26 Weeks Ended
|
|
|
(Thousands of Dollars)
|
March 30
2014
|
|
March 31
2013
|
|
March 30
2014
|
|
March 31
2013
|
|
|
|
|
|
|
|
|
Service cost for benefits earned during the period
|
149
|
|
182
|
|
298
|
|
364
|
|
|
Interest cost on projected benefit obligation
|
228
|
|
281
|
|
456
|
|
562
|
|
|
Expected return on plan assets
|
(371
|
)
|
(368
|
)
|
(742
|
)
|
(736
|
)
|
|
Amortization of net gain
|
(455
|
)
|
(331
|
)
|
(910
|
)
|
(662
|
)
|
|
Amortization of prior service benefit
|
(365
|
)
|
(365
|
)
|
(730
|
)
|
(730
|
)
|
|
|
(814
|
)
|
(601
|
)
|
(1,628
|
)
|
(1,202
|
)
|
Amortization of net gains (losses) and prior service benefits are recorded as Compensation in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Based on our forecast at March 30, 2014, we expect to contribute
$700,000
to our pension plans for the remainder of 2014. Based on our forecast at March 30, 2014, we do not expect to contribute to our postretirement plans for the remainder of 2014.
The provision for income taxes includes deferred taxes and is based upon estimated annual effective tax rates in the tax jurisdictions in which we operate. Such annualization of effective tax rates can cause distortion in quarterly tax rates.
Income tax expense related to continuing operations differs from the amounts computed by applying the U.S. federal income tax rate to income before income taxes. The reasons for these differences are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
|
|
(Percent of Income Before Income Taxes)
|
March 30
2014
|
|
March 31
2013
|
|
March 30
2014
|
|
March 31
2013
|
|
|
|
|
|
|
|
|
Computed “expected” income tax expense
|
35.0
|
|
(35.0
|
)
|
35.0
|
|
35.0
|
|
|
State income taxes, net of federal tax effect
|
3.4
|
|
(3.4
|
)
|
3.4
|
|
3.4
|
|
|
Dividends received deductions and credits
|
(6.8
|
)
|
5.0
|
|
(3.2
|
)
|
(5.2
|
)
|
|
Valuation allowance
|
(70.2
|
)
|
—
|
|
(5.6
|
)
|
5.9
|
|
|
Domestic production reduction
|
—
|
|
14.5
|
|
—
|
|
3.4
|
|
|
Resolution of tax matters
|
11.7
|
|
1.9
|
|
3.3
|
|
2.0
|
|
|
Deferred income tax rate adjustments
|
71.0
|
|
—
|
|
4.9
|
|
—
|
|
|
Other
|
2.6
|
|
(1.5
|
)
|
1.3
|
|
1.7
|
|
|
|
46.7
|
|
(18.5
|
)
|
39.1
|
|
46.2
|
|
In connection with the refinancing of debt under the Chapter 11 Proceedings, we realized substantial cancellation of debt income (“CODI”) for income tax purposes. However, this income was not immediately taxable for U.S. income tax purposes because the CODI resulted from our reorganization under the U.S. Bankruptcy Code. For U.S. income tax reporting purposes, we are required to reduce certain tax attributes, including any net operating loss carryforwards, capital losses, tax credit carryforwards, and the tax basis in other assets in a total amount equal to the tax gain on the extinguishment of debt. As a result, in February 2012 we began recognizing additional interest expense deductions for income tax purposes. The reduction in the basis of certain assets also resulted in reduced depreciation and amortization expense for income tax purposes, beginning in 2013.
|
|
8
|
EARNINGS PER COMMON SHARE
|
The following table sets forth the computation of basic and diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
26 Weeks Ended
|
|
|
(Thousands of Dollars and Shares, Except Per Share Data)
|
March 30
2014
|
|
March 31
2013
|
|
March 30
2014
|
|
March 31
2013
|
|
|
|
|
|
|
|
|
Income (loss) attributable to Lee Enterprises, Incorporated:
|
|
|
|
|
|
Continuing operations
|
1,486
|
|
(3,702
|
)
|
13,378
|
|
9,822
|
|
|
Discontinued operations
|
—
|
|
(2,293
|
)
|
—
|
|
(1,247
|
)
|
|
|
1,486
|
|
(5,995
|
)
|
13,378
|
|
8,575
|
|
|
Weighted average common shares
|
53,519
|
|
52,296
|
|
53,199
|
|
52,295
|
|
|
Less weighted average restricted Common Stock
|
1,296
|
|
500
|
|
1,048
|
|
500
|
|
|
Basic average common shares
|
52,223
|
|
51,796
|
|
52,151
|
|
51,795
|
|
|
Dilutive stock options and restricted Common Stock
|
1,575
|
|
—
|
|
1,390
|
|
71
|
|
|
Diluted average common shares
|
53,798
|
|
51,796
|
|
53,541
|
|
51,866
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
Continuing operations
|
0.03
|
|
(0.07
|
)
|
0.26
|
|
0.19
|
|
|
Discontinued operations
|
—
|
|
(0.04
|
)
|
—
|
|
(0.02
|
)
|
|
|
0.03
|
|
(0.12
|
)
|
0.26
|
|
0.17
|
|
|
Diluted:
|
|
|
|
|
|
Continuing operations
|
0.03
|
|
(0.07
|
)
|
0.25
|
|
0.19
|
|
|
Discontinued operations
|
—
|
|
(0.04
|
)
|
—
|
|
(0.02
|
)
|
|
|
0.03
|
|
(0.12
|
)
|
0.25
|
|
0.17
|
|
For the 13 weeks and 26 weeks ended
March 30, 2014
, we had
98,000
and
100,000
weighted average shares, respectively, not considered in the computation of diluted earnings per common share because the stock option exercise price was in excess of the fair market value of our Common Stock. No stock options were considered in the computation of loss per common share in the 13 weeks ended March 31, 2013. For the 26 weeks ended March 31, 2013, we had
2,985,000
weighted average shares not considered in the computation of diluted earnings per common share because the stock option exercise price was in excess of the fair market value of our Common Stock.
A summary of stock option activity during the 26 weeks ended
March 30, 2014
follows:
|
|
|
|
|
|
|
|
|
|
|
(Thousands of Dollars and Shares, Except Per Share Data)
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
Outstanding, September 29, 2013
|
2,769
|
|
2.94
|
|
|
|
|
Granted
|
15
|
|
2.99
|
|
|
|
|
Exercised
|
(273
|
)
|
2.11
|
|
|
|
|
Cancelled
|
(73
|
)
|
10.46
|
|
|
|
|
Outstanding, March 30, 2014
|
2,438
|
|
2.81
|
|
7.1
|
6,434
|
|
|
|
|
|
|
|
|
Exercisable, March 30, 2014
|
1,496
|
|
3.82
|
|
6.4
|
3,351
|
|
Total unrecognized compensation expense for unvested stock options as of
March 30, 2014
is
$559,000
, which will be recognized over a weighted average period of
1.2
years.
Restricted Common Stock
The table summarizes restricted Common Stock activity during the 26 weeks ended March 30, 2014.
|
|
|
|
|
|
|
|
(Thousands of Shares, Except Per Share Data)
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
|
|
|
|
Outstanding, September 29, 2013
|
500
|
|
1.31
|
|
|
Granted
|
801
|
|
3.61
|
|
|
Cancelled
|
(11
|
)
|
3.61
|
|
|
Outstanding, March 30, 2014
|
1,290
|
|
2.72
|
|
Total unrecognized compensation expense for unvested restricted Common Stock at March 30, 2014 is
$2,805,000
, which will be recognized over a weighted average period of
2.2
years.
|
|
10
|
FAIR VALUE MEASUREMENTS
|
Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") Topic 820 establishes a three-level hierarchy of fair value measurements based on whether the inputs to those measurements are observable or unobservable which consists of the following levels:
Level 1
- Quoted prices for identical instruments in active markets;
Level 2
- Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
Level 3
- Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate value. The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of those instruments.
Investments totaling
$8,774,000
, including our 17% ownership of the nonvoting common stock of TCT, are carried at cost. The fair value of floating rate debt, which consists of our 1
st
Lien Agreement, is
$593,000,000
, the amount at which it was redeemed when refinanced on March 31, 2014. Our fixed rate debt at March 30, 2014 consists of the
$175,000,000
principal amount under the 2
nd
Lien Agreement and
$45,000,000
principal amount of New Pulitzer Notes, as discussed more fully in Note 5, which are not traded on an active market and are held by a small group of investors and Berkshire, respectively. At March 30, 2014, we estimate the fair value of debt under the 2
nd
Lien Agreement to be approximately
$176,750,000
, the amount at which it was redeemed when refinanced on March 31, 2014. We are unable, as of March 30, 2014, to determine the fair value of the New Pulitzer Notes. The value, if determined, may be more or less than the carrying amount.
|
|
11
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
Redemption of PD LLC Minority Interest
In February 2009, in conjunction with the Notes Amendment, PD LLC redeemed the
5%
interest in PD LLC and STL Distribution Services LLC ("DS LLC") owned by The Herald Publishing Company, LLC ("Herald") pursuant to a Redemption Agreement and adopted conforming amendments to the Operating Agreement. As a result, the value of Herald's former interest (the “Herald Value”) was to be settled, based on a calculation of
10%
of the fair market value of PD LLC and DS LLC at the time of settlement, less the balance, as adjusted, of the Pulitzer Notes or the equivalent successor debt, if any. We recorded a liability of
$2,300,000
in 2009 as an estimate of the amount of the Herald Value to be disbursed.
In 2011, we reduced the liability related to the Herald Value to
$300,000
based on the current estimate of fair value.
In October 2013, we issued
100,000
shares of Common Stock in full satisfaction of the Herald Value. Such shares had a fair value of
$298,000
on the date of issuance.
The redemption of Herald's interest in PD LLC and DS LLC may generate significant tax benefits to us as a consequence of the resulting increase in the tax basis of the assets owned by PD LLC and DS LLC and the related depreciation and amortization deductions. The increase in basis to be amortized for income tax purposes over a 15 year period beginning in February 2009 is approximately
$258,000,000
.
Income Taxes
We file income tax returns with the IRS and various state tax jurisdictions. From time to time, we are subject to routine audits by those agencies and those audits may result in proposed adjustments. We have considered the alternative interpretations that may be assumed by the various taxing agencies, believe our positions taken regarding our filings are valid, and that adequate tax liabilities have been recorded to resolve such matters. However, the actual outcome cannot be determined with certainty and the difference could be material, either positively or negatively, to the Consolidated Statements of Operations and Comprehensive Income (Loss) in the periods in which such matters are ultimately determined. We do not believe the final resolution of such matters will be material to our consolidated financial position or cash flows.
We have various income tax examinations ongoing which are at different stages of completion, but generally our income tax returns have been audited or closed to audit through 2009.
Legal Proceedings
In 2008, a group of newspaper carriers filed suit against us in the United States District Court for the Southern District of California, claiming to be our employees and not independent contractors. The plaintiffs seek relief related to alleged violations of various employment-based statutes, and request punitive damages and attorneys' fees. In 2010, the trial court granted the plaintiffs' petition for class certification. We filed an interlocutory appeal which was denied. After concluding discovery, a motion to decertify the class was filed, which was granted as to plaintiffs' minimum wage, overtime, unreimbursed meal, and unreimbursed rest period claims. The Company denies the allegations of employee status, consistent with our past practices and industry standards, and will continue to vigorously contest the remaining claims in the action, which are not covered by insurance. At this time we are unable to predict whether the ultimate economic outcome, if any, could have a material adverse effect on our Consolidated Financial Statements, taken as a whole.
We are involved in a variety of other legal actions that arise in the normal course of business. Insurance coverage mitigates potential loss for certain of these other matters. While we are unable to predict the ultimate outcome of these other legal actions, it is our opinion that the disposition of these matters will not have a material adverse effect on our Consolidated Financial Statements, taken as a whole.
Under the Plan, the par value of our Common Stock was changed from
$2.00
per share to
$0.01
per share effective January 30, 2012. 2
nd
Lien Lenders shared in the issuance of
6,743,640
shares of our Common Stock, an amount equal to
13%
of outstanding shares on a pro forma basis as of January 30, 2012.
In connection with the New 2nd Lien Term Loan, we entered into the Warrant Agreement. Under the Warrant Agreement, certain affiliates or designees of the New 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 represent, when fully exercised, approximately 10.1% 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.
In connection with the issuance of the Warrants, we entered into the Registration Rights Agreement. The Registration Rights Agreement requires, among other matters, that we use our commercially reasonable efforts to file and maintain the effectiveness for certain specified periods of a shelf registration statement covering the shares of Common Stock upon exercise of the Warrants.
13 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 2013, the Financial Accounting Standards Board issued an amendment to an existing accounting standard, which requires an entity to provide information about the amounts reclassified out of Accumulated Other Comprehensive Income ("AOCI") by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. This guidance does not change the current requirements for reporting net income or other comprehensive income in the financial statements and is effective beginning in 2014. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.