LEE ENTERPRISES, Inc - Quarter Report: 2019 June (Form 10-Q)

 

 

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

SECURITIES EXCHANGE ACT OF 1934

 

For The Quarterly Period Ended June 30, 2019

 

OR

 

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

SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-6227

LEE ENTERPRISES, INCORPORATED

 

(Exact name of Registrant as specified in its Charter)

 

Delaware	42-0823980
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

 201 N. Harrison Street, Suite 600, Davenport, Iowa 52801

(Address of principal executive offices)

  

(563) 383-2100

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	LEE	New York Stock Exchange

 

 

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

Yes [X]     No [  ]

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files. 

 Yes [X]     No [  ]

 

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

 

	Large accelerated filer	[  ]	Accelerated filer	[X]
	Non-accelerated filer	[  ]	Smaller reporting company	[  ]
			Emerging growth company	[  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ]     No [X]

 

As of July 31, 2019 57,823,272 shares of Common Stock of the Registrant were outstanding.

 

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Table Of Contents				PAGE
FORWARD LOOKING STATEMENTS				1
PART I	FINANCIAL INFORMATION			2
	Item 1.	Financial Statements (Unaudited)		2
		Consolidated Balance Sheets - June 30, 2019 and September 30, 2018		2
		Consolidated Statements of Operations and Comprehensive Income - 13 weeks and 39 weeks ended June 30, 2019 and June 24, 2018		4
		Consolidated Statements of Stockholder's Equity - 13 weeks and 39 weeks ended June 30, 2019 and June 24, 2018		5
		Consolidated Statements of Cash Flows - 39 weeks ended June 30, 2019 and June 24, 2018		6
		Notes to Consolidated Financial Statements		7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		32
	Item 4.	Controls and Procedures		32
PART II	OTHER INFORMATION			33
	Item 1.	Legal Proceedings		33
	Item 6.	Exhibits		33
SIGNATURES				33

 

 

 

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(Thousands of Dollars)		June 30, 2019				September 30, 2018
ASSETS
Current assets:
Cash and cash equivalents			13,516				5,380
Accounts receivable and contract assets, net			47,772				43,711
Inventories			3,258				5,684
Other			6,706				4,567
Total current assets			71,252				59,342
Investments:
Associated companies			28,926				29,216
Other			10,905				10,958
Total investments			39,831				40,174
Property and equipment:
Land and improvements			16,947				17,432
Buildings and improvements			149,494				150,376
Equipment			271,121				276,332
Construction in process			2,771				1,710
			440,333				445,850
Less accumulated depreciation			354,784				353,522
Property and equipment, net			85,549				92,328
Goodwill			249,727				246,176
Other intangible assets, net			110,806				119,819
Medical plan assets, net			15,766				16,157
Other			1,470				1,415
Total assets			574,401				575,411

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(Thousands of Dollars and Shares, Except Per Share Data)		June 30, 2019				September 30, 2018
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt			3,931				7,027
Accounts payable			13,747				12,747
Compensation and other accrued liabilities			17,492				19,641
Accrued interest			11,010				2,031
Unearned revenue			22,970				23,895
Total current liabilities			69,150				65,341
Long-term debt, net of current maturities			442,026				460,777
Pension obligations			24,951				26,745
Postretirement and postemployment benefit obligations			2,526				2,580
Deferred income taxes			39,238				39,108
Income taxes payable			7,430				6,559
Warrants and other			10,620				10,561
Total liabilities			595,941				611,671
Equity (deficit):
Stockholders' equity (deficit):
Serial convertible preferred stock, no par value; authorized 500 shares; none issued			—				—
Common Stock, $0.01 par value; authorized 120,000 shares; issued and outstanding:			578				572
June 30, 2019: 58,823 shares;
September 30, 2018: 57,141 shares
Class B Common Stock, $2 par value; authorized 30,000 shares; none issued			—				—
Additional paid-in capital			254,727				253,511
Accumulated deficit			(266,242	)			(279,691	)
Accumulated other comprehensive loss			(12,112	)			(11,746	)
Total stockholders' deficit			(23,049	)			(37,354	)
Non-controlling interests			1,509				1,094
Total deficit			(21,540	)			(36,260	)
Total liabilities and deficit			574,401				575,411

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		13 Weeks Ended								39 Weeks Ended
(Thousands of Dollars, Except Per Common Share Data)		June 30, 2019				June 24, 2018				June 30, 2019				June 24, 2018
Operating revenue:
Advertising and marketing services			65,754				73,538				204,651				229,751
Subscription			46,620				48,165				137,965				142,405
Other			14,910				10,915				43,573				32,052
Total operating revenue			127,284				132,618				386,189				404,208
Operating expenses:
Compensation			45,373				48,570				140,197				149,551
Newsprint and ink			5,230				6,442				17,394				17,920
Other operating expenses			48,157				49,159				145,915				148,830
Depreciation and amortization			7,347				7,904				22,263				23,973
Assets loss (gain) on sales, impairments and other, net			(195	)			101				(212	)			(1,197	)
Restructuring costs and other			2,792				1,865				5,612				4,150
Total operating expenses			108,704				114,041				331,169				343,227
Equity in earnings of associated companies			1,451				1,578				5,298				5,569
Operating income			20,031				20,155				60,318				66,550
Non-operating income (expense):
Interest expense			(11,860	)			(12,913	)			(36,256	)			(39,837	)
Debt financing and administrative costs			(4,196	)			(1,747	)			(6,053	)			(4,061	)
Other, net			3,702				1,227				2,730				3,168
Total non-operating expense, net			(12,354	)			(13,433	)			(39,579	)			(40,730	)
Income before income taxes			7,677				6,722				20,739				25,820
Income tax expense (benefit)			1,505				1,972				6,175				(16,791	)
Net income			6,172				4,750				14,564				42,611
Net income attributable to non-controlling interests			(406	)			(292	)			(1,115	)			(911	)
Income attributable to Lee Enterprises, Incorporated			5,766				4,458				13,449				41,700
Other comprehensive income (loss), net of income taxes			(122	)			27				(365	)			18
Comprehensive income attributable to Lee Enterprises, Incorporated			5,644				4,485				13,084				41,718
Earnings per common share:
Basic:			0.10				0.08				0.24				0.76
Diluted:			0.10				0.08				0.24				0.75

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(Thousands of Dollars)		Accumulated Deficit				Common Stock				Additional paid-in capital				Accumulated Other Comprehensive Loss				Total
October 1, 2018			(279,691	)			572				253,511				(11,746	)			(37,354	)
Shares issued (redeemed)			—				5				(453	)			—				(448	)
Income attributable to Lee Enterprises, Incorporated			10,361				—				—				—				10,361
Stock compensation			—				—				385				—				385
Other comprehensive loss			—				—				—				(163	)			(163	)
Deferred income taxes, net			—				—				—				41				41
December 30, 2018			(269,330	)			577				253,443				(11,868	)			(27,178	)
Shares issued (redeemed)			—				—				317				—				317
Loss attributable to Lee Enterprises, Incorporated			(2,678	)			—				—				—				(2,678	)
Stock compensation			—				—				425				—				425
Other comprehensive loss			—				—				—				(163	)			(163	)
Deferred income taxes, net			—				—				—				41				41
March 31, 2019			(272,008	)			577				254,185				(11,990	)			(29,236	)
Shares issued (redeemed)			—				1				221				—				222
Income attributable to Lee Enterprises, Incorporated			5,766				—				—				—				5,766
Stock compensation			—				—				321				—				321
Other comprehensive loss			—				—				—				(163	)			(163	)
Deferred income taxes, net			—				—				—				41				41
June 30, 2019			(266,242	)			578				254,727				(12,112	)			(23,049	)

(Thousands of Dollars)		Accumulated Deficit				Common Stock				Additional paid-in capital				Accumulated Other Comprehensive Loss				Total
September 25, 2017			(328,524	)			567				251,790				(16,068	)			(92,235	)
Shares issued (redeemed)			—				4				(465	)			—				(461	)
Income attributable to Lee Enterprises, Incorporated			35,003				—				—				—				35,003
Stock compensation			—				—				519				—				519
Other comprehensive income			—				—				—				36				36
Deferred income taxes, net			—				—				—				(9	)			(9	)
December 24, 2017			(293,521	)			571				251,844				(16,041	)			(57,147	)
Shares issued (redeemed)			—				(1	)			19				—				18
Income attributable to Lee Enterprises, Incorporated			2,239				—				—				—				2,239
Stock compensation			—				—				439				—				439
Other comprehensive loss			—				—				—				(71	)			(71	)
Deferred income taxes, net			—				—				—				35				35
March 25, 2018			(291,282	)			570				252,302				(16,077	)			(54,487	)
Shares issued (redeemed)			—				1				88				—				89
Income attributable to Lee Enterprises, Incorporated			4,458				—				—				—				4,458
Stock compensation			—				—				573				—				573
Other comprehensive income			—				—				—				36				36
Deferred income taxes, net			—				—				—				(9	)			(9	)
June 24, 2018			(286,824	)			571				252,963				(16,050	)			(49,340	)

 

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		39 Weeks Ended
(Thousands of Dollars)		June 30, 2019				June 24, 2018
Cash provided by (required for) operating activities:
Net income			14,564				42,611
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			22,263				23,973
Curtailment gains			—				(2,031	)
Stock compensation expense			1,131				1,441
Distributions greater than earnings of MNI			648				477
Deferred income taxes			253				(17,834	)
Debt financing and administrative costs			6,053				4,060
Pension contributions			(650	)			(780	)
Other, net			(745	)			162
Changes in operating assets and liabilities:
Decrease in receivables and contract assets			(3,435	)			3,509
Decrease (increase) in inventories and other			2,383				(2,584	)
Decrease in accounts payable and other accrued liabilities			2,666				5,983
Decrease in pension and other postretirement and postemployment benefit obligations			(782	)			(1,590	)
Change in income taxes payable			(419	)			614
Other, including warrants			(144	)			(978	)
Net cash provided by operating activities			43,786				57,033
Cash provided by (required for) investing activities:
Purchases of property and equipment			(3,753	)			(4,281	)
Proceeds from sales of assets			1,477				3,117
Acquisitions			(5,274	)			(1,738	)
Distributions greater (less) than earnings of TNI			(358	)			829
Other, net			(3	)			(3	)
Net cash required for investing activities			(7,911	)			(2,076	)
Cash required for financing activities:
Payments on long-term debt			(26,301	)			(48,573	)
Debt financing and administrative costs paid			(1,149	)			(432	)
Common stock transactions, net			(289	)			(544	)
Net cash required for financing activities			(27,739	)			(49,549	)
Net increase in cash and cash equivalents			8,136				5,408
Cash and cash equivalents:
Beginning of period			5,380				10,621
End of period			13,516				16,029

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1	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited, interim, Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports. 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 June 30, 2019 and our results of operations and cash flows for the periods presented. The Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's 2018 Annual Report on Form 10-K.

 

Because of seasonal and other factors, the results of operations for the 13 weeks and 39 weeks ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.

 

References to “we”, “our”, “us” and the like throughout the Consolidated Financial Statements refer to the Company. References to “2019”, “2018” and the like refer to the fiscal years ended the last Sunday in September.

 

The Consolidated Financial Statements include our accounts and those of our subsidiaries, all of which are wholly-owned, except for our 82.5% interest in INN Partners, L.C. ("TownNews.com"), 50% interest in TNI Partners (“TNI”) and 50% interest in Madison Newspapers, Inc. (“MNI”).

 

Investments in TNI and MNI are accounted for using the equity method and are reported at cost, plus our share of undistributed earnings since acquisition less, for TNI, amortization of intangible assets.

 

On June 26, 2018, we entered into an agreement with BH Media Group, Inc. ("BH Media") to manage Berkshire Hathaway's newspaper and digital operations in 30 markets (the "Management Agreement"). The Company operates BH Media consistent with how it manages its own newspaper and digital operations. Among other decisions, Berkshire Hathaway is responsible for approving operating and capital budgets. The Management Agreement extends for a term of five years and may be extended thereafter for successive one-year terms on such terms as may be mutually agreed to by the Company and Berkshire Hathaway. The Company is paid a fixed annual fee of $5 million, payable quarterly in arrears, and a variable fee based on the financial performance of BH Media. The variable fees are payable annually in arrears. As of June 30, 2019, the end of the first year of the management agreement, we earned fees of $11,320,000.  

 

Use of Estimates

 

The preparation of the Consolidated Financial Statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates and judgments on an ongoing basis.

 

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

New accounting pronouncements

 

Between 2014 and 2017, the FASB issued several new standards related to revenue recognition ("the New Revenue Standard"). The New Revenue Standard supersedes existing revenue recognition requirements and is effective in fiscal years beginning after December 15, 2017. The New Revenue Standard provides a five-step model in determining when and how revenue is recognized and requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The New Revenue Standard also requires new disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

 

 

We adopted the New Revenue Standard on October 1, 2018, using the modified retrospective method applied to those contracts which were not completed as of that date. We completed our assessment and did not identify any significant changes to our revenue recognition policies. We identified similar performance obligations under the New Revenue Standard as compared with the deliverables and separate units of accounting previously identified under existing guidance. As a result, the timing and amount of our revenue recognition were not impacted and we did not make any adjustments under the modified retrospective adoption method.

 

We have also assessed the new accounting principles related to the deferral and amortization of contract acquisition costs and due to the short-term nature of such costs, we will utilize the practical expedient to continue to expense these costs as incurred.

 

See Note 2 for more information on our revenues and the application of the New Revenue Standard.

 

In August 2016, the FASB issued a new standard to conform the presentation in the statement of cash flows for certain transactions, including cash distributions from equity method investments, among others. There was no change to the Consolidated Statements of Cash Flows as a result of the adoption of this standard for the quarter ended December 30, 2018. Specifically, distributions received from equity method investees continue to be presented on the Consolidated Statements of Cash Flows utilizing the cumulative earnings approach.

 

In March 2017, the FASB issued a new standard to improve the presentation of pension and postretirement benefit expense. As a result of the new standard the service cost component of pension and postretirement benefits expense is recognized as compensation expense, while the remaining components of the expense (benefit) are presented as non-operating income in other, net. This new standard was adopted for the quarter ended December 30, 2018 and has been retrospectively applied to the Consolidated Statements of Operations and Comprehensive Income for all comparative periods presented. We recorded benefits of $712,000 and $2,135,000 in other, net in non-operating income (expense) for the 13 and the 39 weeks ended June 30, 2019, respectively. We reclassified benefits of $708,000 and $2,123,000 from compensation to other, net in non-operating income (expense) for the 13 weeks and the 39 weeks ended June 24, 2018, respectively.

 

In February 2018, the FASB issued new guidance to allow a reclassification from accumulated other comprehensive loss (“AOCL”) to retained earnings for stranded tax effects resulting from what is commonly referred to as the Tax Cuts and Jobs Act (the "2017 Tax Act"). In the first quarter of fiscal year 2018, we remeasured our deferred taxes related to unrealized gains on our investment balances using the reduced tax rate. As required by GAAP, we recognized the net tax benefit in the provision for income taxes in our consolidated operations statements, and we reclassified a $3,067,000 net tax benefit from AOCL to retained earnings in our Consolidated Balance Sheets. Adoption of the standard had no impact to our Consolidated Statements of Operations and Comprehensive Income or Cash Flows.

 

In February 2016, the FASB issued a new standard for the accounting treatment of leases. The new standard is based on the principle that entities should recognize assets and liabilities arising from leases. The new standard does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Leases are classified as finance or operating. The new standard's primary change is the requirement for entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term on most operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. In addition, the new standard expands the disclosure requirements of lease arrangements. Lessees have the option to use a modified retrospective transition approach, which includes a number of practical expedients.

 

In July 2018, the FASB issued a new standard which provides for an optional transition method that allows issuers to initially apply the new lease standard to all leases that exist as of the adoption date, with the cumulative effect of initially applying the new lease standard recognized as an adjustment to retained earnings as of the adoption date. We intend to adopt the optional transition method on September 30, 2019, the first calendar day of fiscal year 2020.

 

To date we have made progress in our assessment of the new lease standard. Specifically, we have identified the population of leases and key financial metrics associated with each lease for scoping purposes. Additionally, we have selected a software solution that is compatible with our current financial reporting and control environment. Implementation of the software solution and reporting capabilities will occur during the fourth quarter of fiscal year 2019.

 

Based on our progress to date, we anticipate adopting the standard will have a material impact on our Consolidated Balance Sheets as a result of the recognition of the corresponding lease assets and liabilities. However, we do not believe the adoption will have a material impact on our Consolidated Statements of Income or Consolidated Statements of Cash Flows.

 

 

 

2

REVENUE

 

On October 1, 2018, we adopted the New Revenue Standard, using the modified retrospective method applied to those contracts which were not completed as of that date. Results for reporting periods beginning after October 1, 2018 are presented under the new guidance while prior period amounts are not adjusted and continue to be reported in accordance with legacy accounting under the old guidance. We did not record any adjustments to beginning retained earnings at October 1, 2018 as a result of adopting the new guidance.

 

The following table presents our revenue disaggregated by source:

 

 

Recognition principles: Revenue is recognized when a performance obligation is satisfied by the transfer of control of the contracted goods or services to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services.

 

Advertising and marketing services revenue: Advertising and marketing services revenue include amounts charged to customers for retail or classified advertising space purchased in our newspapers, retail or classified advertisements placed on our digital platforms, and other print advertising products such as preprint inserts and direct mail. Advertising and marketing services revenue also include amounts charged to customers for digital marketing services which include: audience extension, Search Engine Optimization ("SEO"), Search Engine Marketing ("SEM"), web and mobile production, social media services and reputation monitoring and management. The following define the timing of revenue recognition for each general revenue category:

 

•

Print advertising revenue is recognized at the point in time the associated publication has been delivered.

 

•

Digital advertising revenue is recognized at the point in time that impressions are delivered.

 

•

Digital marketing services revenue is recognized over the period of time which the service is performed.

 

Advertising and marketing services contract transaction prices consist of fixed consideration. We recognize revenue when control of the related performance obligation transfers to the customer.

 

Payments for advertising revenue is due upon completion of our performance obligations at previously agreed upon rates. In instances where the timing of revenue recognition differs from the timing of invoicing, such timing differences are not large. As a result, we have determined that our contracts do not include a significant financing component.

 

Subscription revenue: Subscription revenue includes revenue for content delivered to consumers via print and digital products purchased by readers or distributors. Single copy revenue is also included in subscription revenue. Subscription revenue from single-copy and home delivery subscriptions is recognized at the point in time the publications are delivered. Digital subscription revenue is recognized over time as performance obligations are met via on-demand availability of online content made available to customers throughout the contract term. Payments for subscription revenue is typically collected in advance, are for contract periods of one year or less and result in an unearned revenue liability that is reduced when revenue is recognized.

 

 

Other revenue: Other revenue primarily consists of digital services, Management Agreement revenue, commercial printing and delivery of third party products. Digital services revenues, which are primarily delivered through TownNews, are primarily comprised of contractual agreements to provide webhosting and content management services. As such, digital services revenue is recognized over the contract period. Prices for digital services are agreed upon in advance of the contract beginning and are typically billed in arrears on a monthly basis, with the exception of implementation fees which are recognized as deferred revenue and amortized over the contract period. Management Agreement revenue consists of fixed and variable fees collected from our Management Agreement. Fixed fee revenue from the Management Agreement is recognized over time and paid quarterly and variable fees are paid annually. Variable fees are recognized when the fees are deemed earned and it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Commercial printing and delivery revenue is recognized when the product is delivered to the customer.

 

Arrangements with multiple performance obligations: We have various advertising and subscription agreements which include both print and digital performance obligations. Revenue from sales agreements that contain multiple performance obligations are allocated to each obligation based on the relative standalone selling price. We determine standalone selling prices based on observable prices charged to customers.

 

Contract Assets and Liabilities: The Company’s primary source of unearned revenue is from subscriptions paid in advance of the service provided. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next twelve months in accordance with the terms of the subscriptions and other contracts with customers. The unearned revenue balances described herein are the Company's only contract liability. Unearned revenue was $22,970,000 as of June 30, 2019 and $23,895,000 as of September 30, 2018. Revenue recognized in the 13 weeks and the 39 weeks ended June 30, 2019 that was included in the contract liability as of September 30, 2018 was $2,262,000 and $22,475,000, respectively.

 

Contract asset balances relate to our Management Agreement revenue and were $5,506,000 as of June 30, 2019 and $0 as of September 30, 2018 and consisted solely of the variable portion of the contract. The contract asset balance recorded as of June 30, 2019 reflects the final approved Management Agreement variable fee for the contract year ended June 30, 2019. The entire balance was collected in July 2019. These contract asset balances are included in accounts receivable and contract assets, net. There are no other contract assets recorded. Accounts receivable, excluding allowance for doubtful accounts and contract assets, was $47,909,000 and $48,517,000 as of June 30, 2019 and September 30, 2018, respectively. Allowance for doubtful accounts was $5,643,000 and $4,806,000 as of June 30, 2019 and September 30, 2018, respectively.

 

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

 

 

3	INVESTMENTS IN ASSOCIATED COMPANIES

 

TNI Partners

 

In Tucson, Arizona, TNI, acting as agent for our subsidiary, Star Publishing Company (“Star Publishing”), and Citizen Publishing Company (“Citizen”), a subsidiary of Gannett Co. Inc., is responsible for printing, delivery, advertising, and subscription activities of the Arizona Daily Star as well as the related digital platforms and specialty publications. TNI collects all receipts and income and pays substantially all operating expenses incident to the partnership's operations and publication of the newspaper and other media.

 

Income or loss of TNI (before income taxes) is allocated equally to Star Publishing and Citizen.

 

 

Summarized results of TNI are as follows:

 

 

TNI makes weekly distributions of its earnings and for the 13 weeks ended June 30, 2019 and June 24, 2018, we received $731,000 and $1,177,000 in distributions, respectively. In the 39 weeks ended June 30, 2019 and June 24, 2018, we received $3,238,000 and $4,375,000 in distributions, respectively.

 

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:

 

 

MNI makes quarterly distributions of its earnings and in the 13 weeks ended June 30, 2019 and June 24, 2018, we received dividends of $850,000 and $500,000, respectively. In the 39 weeks ended June 30, 2019 and June 24, 2018, we received dividends of $2,350,000 and $2,500,000 respectively.

 

 

4	GOODWILL AND OTHER INTANGIBLE ASSETS

 

Changes in the carrying amount of goodwill are as follows:

 

 

 

 

Identified intangible assets consist of the following:

 

 

In January 2019, we purchased the businesses of Kenosha News and Lake Geneva Regional News. In February 2019, TownNews purchased the content management system ("CMS") business from GTxcel. Both transactions were funded with cash on the balance sheet. As part of initial estimates $3,551,000 was recorded in goodwill and $3,650,000 was recorded in other intangible assets, net. The $3,650,000 of other intangible assets, net relate to acquired customer lists, which will be amortized over a 10 year period. These initial estimates will be reviewed in subsequent quarters as more information becomes available.

 

Annual amortization of intangible assets for the years ending June 2020 to June 2024 is estimated to be $16,060,000, $15,634,000, $12,744,000, $12,263,000 and $11,237,000, respectively.

 

 

5

DEBT

 

On March 31, 2014, we completed a comprehensive refinancing of our debt (the "2014 Refinancing"), which included the following:

 

•

$400,000,000 aggregate principal amount of 9.5% Senior Secured Notes (the “Notes”), pursuant to an Indenture dated as of March 31, 2014 (the “Indenture”).

 

•

$250,000,000 first lien term loan (the "1st Lien Term Loan") and $40,000,000 revolving facility (the "Revolving Facility") under a First Lien Credit Agreement dated as of March 31, 2014 (together the “1st Lien Credit Facility”).

 

•

$150,000,000 second lien term loan under a Second Lien Loan Agreement dated as of March 31, 2014 (the “2nd Lien Term Loan”).

 

In November 2018, we repaid, in full, the remaining balance of the 1^st Lien Term Loan.

 

In December 2018, we amended our 1^st Lien Credit Facility to amend and extend our Revolving Facility (the "Amendment"). The Amendment, among other changes, extends the maturity of the revolving loan commitments of the 1^st Lien Lenders for twelve months and reduces the revolver loan commitments from $40,000,000 to $27,200,000 with a further 15% reduction to the revolving loan commitments of the 1^st Lien Term Lenders effective as of July 31, 2019.

 

 

Debt is summarized as follows:

 

 

Our weighted average cost of debt, excluding amortization of debt financing costs at June 30, 2019, is 10.0%.

 

At June 30, 2019, aggregate minimum required maturities of debt excluding amounts required to be paid from future excess cash flow computations total $3,931,000 for the remainder of 2019, $0 in 2020, $0 in 2021, $374,420,000 in 2022 and $80,207,000 in 2023.

 

Notes

 

The Notes are senior secured obligations of the Company and mature on March 15, 2022. At June 30, 2019, the principal balance of the Notes totaled $374,420,000.

 

Interest

 

The Notes require payment of interest semiannually on March 15 and September 15 of each year, at a fixed annual rate of 9.5%.

 

Redemption

 

We may redeem some, or all, of the principal amount of the Notes at any time as follows:

 

 

 

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 at 101% of the principal amount. Any redemption of the Notes must also satisfy any accrued and unpaid interest thereon.

 

We may repurchase Notes in the open market at any time. In the 13 and 39 weeks ended June 30, 2019 we purchased $10,580,000 principal amount of Notes in privately negotiated transactions.  The transactions resulted in a loss on extinguishment of debt totaling $238,000 in the 13 and 39 weeks ended June 30, 2019 which is recorded in Other, net in the Consolidated Statements of Income and Comprehensive Income.

 

Covenants and Other Matters

 

The Indenture and the 1^st Lien Credit Facility contain restrictive covenants as discussed more fully below. However, certain of these covenants will cease to apply if the Notes are rated investment grade by either Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Group and there is no default or event of default under the Indenture.

 

1^st Lien Credit Facility

 

The 1^st Lien Term Loan was paid in full in November 2018 and has no outstanding balance as of June 30, 2019.

 

The 1^st Lien Credit Facility consists of the $27,200,000 Revolving Facility that matures on December 28, 2019. The 1^st Lien Credit Facility documents the primary terms of the 1^st Lien Term Loan and the Revolving Facility. The Revolving Facility may be used for working capital and general corporate purposes (including letters of credit). At June 30, 2019, after consideration of letters of credit, we have approximately $21,685,000 available for future use under the Revolving Facility.  On July 31, 2019, the availability under our Revolving Facility steps down to $23,120,000.

 

 

Interest

 

Interest on the Revolving Facility, which is undrawn at June 30, 2019, accrues, at our option, at either (A) LIBOR plus 5.5%, or (B) 4.5% plus the higher of (i) the prime rate at the time, (ii) the federal funds rate plus 0.5%, or (iii) one month LIBOR plus 1.0%.

 

Covenants and Other Matters

 

The 1^st Lien Credit Facility requires that we comply with certain affirmative and negative covenants customary for financing of this nature, including a maximum total leverage ratio.

 

The 1^st Lien Credit Facility restricts us from paying dividends on our Common Stock. This restriction no longer applies if Lee Legacy Leverage is below 3.25x before and after such payments. Lee Legacy Leverage as defined is 4.47x at June 30, 2019. Further, the 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 1^st Lien Credit Facility contains various representations and warranties and may be terminated upon occurrence of certain events of default. The 1^st Lien Credit Facility also contains cross-default provisions tied to the terms of each of the Indenture and 2^nd Lien Term Loan.

 

2^nd Lien Term Loan

 

The 2^nd Lien Term Loan, which has a balance of $84,138,000 at June 30, 2019, bears interest at a fixed annual rate of 12.0%, payable quarterly, and matures in December 2022.

 

Principal Payments

 

Excluding excess cash flow payments, there are no scheduled mandatory amortization payments required under the 2^nd Lien Term Loan.

 

Quarterly, we are required to prepare a calculation of excess cash flow of the Pulitzer Subsidiaries ("Pulitzer Excess Cash Flow"). Pulitzer Excess Cash Flow is generally determined as the cash earnings of the Pulitzer Subsidiaries including adjustments for changes in working capital, capital spending, pension contributions, debt principal payments and income tax payments. Pulitzer Excess Cash Flow also includes a deduction for interest costs incurred under the 2^nd Lien Term Loan.

 

Pulitzer Excess Cash Flow is used to prepay the 2nd Lien Term Loan, at par, and is required to be paid 45 days after the end of the quarter.

 

Payments will also be made on the 2^nd Lien Term Loan, at par, with proceeds from asset sales by the Pulitzer Subsidiaries that are not reinvested subject to certain other conditions.

 

During the 13 and 39 weeks ended June 30, 2019, payments on the 2^nd Lien Term Loan totaled $7,318,000 and $9,418,000, respectively. For the 13 weeks ended June 30, 2019, Pulitzer Excess Cash Flow totaled $3,931,000, which will be used to make a payment on the 2^nd Lien Term Loan in August 2019, at par.

 

Beginning June 30, 2019, voluntary payments under the 2^nd Lien Term Loan are no longer subject to call premiums and are payable at par. The Indenture includes certain restrictions on voluntary payments on the 2^nd Lien Term Loan.

 

Covenants and Other Matters

 

The 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 1^st Lien Credit Facility discussed above. The 2^nd Lien Term Loan contains various representations and warranties and may be terminated upon occurrence of certain events of default. The 2^nd Lien Term Loan also contains cross-default provisions tied to the terms of the Indenture and 1^st Lien Credit Facility.

 

 

In connection with the 2^nd Lien Term Loan, we entered into a Warrant Agreement dated as of March 31, 2014 (the “Warrant Agreement”). Under the Warrant Agreement, certain affiliates or designees of the 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 10.4% of shares of Common Stock outstanding at March 30, 2014 on a fully diluted basis. The exercise price of the Warrants is $4.19 per share.

 

The Warrant Agreement contains provisions requiring the Warrants to be measured at fair value and included in other liabilities in our Consolidated Balance Sheets. We re-measure the fair value of the liability each reporting period, with changes reported in other, net non-operating income (expense). The initial fair value of the Warrants was $16,930,000. See Note 10.

 

In connection with the issuance of the Warrants, we entered into a Registration Rights Agreement dated as of March 31, 2014 (the “Registration Rights Agreement”). The Registration Rights Agreement requires, among other matters, that we use our commercially reasonable efforts to maintain the effectiveness for certain specified periods of a shelf registration statement related to the shares of Common Stock to be issued upon exercise of the Warrants.

 

Security

 

The Notes and the 1^st Lien Credit Facility are fully and unconditionally guaranteed on a joint and several first-priority basis by each of the Company's material domestic subsidiaries, excluding MNI, the Pulitzer Subsidiaries and TNI (the "Lee Legacy Assignors"), pursuant to a first lien guarantee and collateral agreement dated as of March 31, 2014 (the "1^st Lien Guarantee and Collateral Agreement").

 

The Notes, the 1^st Lien Credit Facility and the subsidiary guarantees are secured, subject to certain exceptions, priorities and limitations, by perfected security interests in all property and assets, including certain real estate, of the Lee Legacy Assignors, other than the capital stock of MNI and any property and assets of MNI (the “Lee Legacy Collateral”), on a first-priority basis, equally and ratably with all of the Lee Legacy Assignors' existing and future obligations. The Lee Legacy Collateral includes, among other things, equipment, inventory, accounts receivables, depository accounts, intellectual property and certain of their other tangible and intangible assets.

 

Also, the Notes and the 1^st Lien Credit Facility are secured, subject to certain exceptions, priorities and limitations in the various agreements, by first-priority security interests in the capital stock of, and other equity interests owned by, the Lee Legacy Assignors (excluding the capital stock of MNI). The Notes and 1^st Lien Credit Facility are subject to a Pari Passu Intercreditor Agreement dated March 31, 2014.

 

The Notes, the 1^st Lien Credit Facility and the subsidiary guarantees are also secured, subject to permitted liens, by a second-priority security interest in the property and assets of the Pulitzer Subsidiaries that become subsidiary guarantors (the "Pulitzer Assignors") other than assets of or used in the operations or business of TNI (collectively, the “Pulitzer Collateral”). In June 2015 the Pulitzer Assignors became a party to the 1^st Lien Guarantee and Collateral Agreement on a second lien basis.

 

Also, the Notes and the 1^st Lien Credit Facility are secured, subject to certain exceptions, priorities, and limitations in the various agreements, by second-priority security interests in the capital stock of, and other equity interests in, the Pulitzer Assignors and Star Publishing’s interest in TNI.

 

The 2^nd Lien Term Loan is fully and unconditionally guaranteed on a joint and several first-priority basis by the Pulitzer Assignors, 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 Pulitzer Assignors and the 2^nd Lien collateral agent.

 

Under the 2^nd Lien Guarantee and Collateral Agreement, the Pulitzer Assignors have granted (i) first-priority security interests, subject to certain priorities and limitations in the various agreements, in the Pulitzer Collateral and (ii) have granted first-priority 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 Term Loan.

 

Also, under the 2^nd Lien Guarantee and Collateral Agreement, the Lee Legacy Assignors have granted (i) second-priority security interests, subject to certain priorities and limitations in the various agreements, in the Lee Legacy Collateral, and (ii) have granted second-priority 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 Term Loan. Assets of, or used in the operations or business of, MNI are excluded.

 

The rights of each of the collateral agents with respect to the Lee Legacy Collateral and the Pulitzer Collateral are subject to customary intercreditor and intercompany agreements.

 

 

Other

 

In connection with the 2014 Refinancing, we capitalized $37,819,000 of debt financing costs. Amortization of debt financing costs totaled $2,928,000 in the 39 weeks ended June 30, 2019. Amortization of such costs is estimated to total $1,029,000 for the remainder of 2019, $4,205,000 in 2020, $4,388,000 in 2021, $2,747,000 in 2022, and $232,000 in 2023. At June 30, 2019, we have $12,601,000 of unamortized debt financing costs recorded as a reduction of Long-term debt in our Consolidated Balance Sheets.

 

During the 13 and 39 weeks ended June 30, 2019, we identified an adjustment of $1,309,000 and $1,145,000, respectively, related to debt financing costs that should have been recorded in prior periods. The impact of recording this out of period adjustment was an increase to Debt financing and administrative costs of $1,309,000 and $1,145,000 in the Consolidated Statements of Operations and Comprehensive Income for the 13 and 39 weeks ended June 30, 2019 and an increase to debt of $1,309,000 on the Consolidated Balance Sheet. We do not believe the impact of the adjustment is material to our consolidated financial statements for any previously issued financial statements taken as a whole, or to our expected net income for the 52 weeks ended September 29, 2019. Further, the impact of the corrections was not material to any of our Consolidated Balance Sheets nor our Consolidated Statements of Cash Flows.

 

Liquidity

 

At June 30, 2019, after consideration of letters of credit, we have approximately $21,685,000 available for future use under our Revolving Facility, which expires on December 28, 2019. Including cash, our liquidity at June 30, 2019 totals $35,201,000. 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 existing cash and 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 subject to a reduction for any amounts the Company may elect to use to repay our 1^st Lien Term Loan and/or the Notes.

 

Excluding our Revolving Facility, which is undrawn as of June 2019, final maturities of our debt range from March 2022 through December 2022.

 

There are numerous potential consequences under the Notes, 1^st Lien Credit Facility and 2^nd Lien Term Loan, if an event of default, as defined, occurs and is not remedied. Many of those consequences are beyond our control. The occurrence of one or more events of default would give rise to the right of the applicable lender(s) to exercise their remedies under the Notes, 1^st Lien Credit Facility and 2^nd Lien Term Loan, 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 repay, refinance or amend our debt agreements as they become due. The Notes, 1^st Lien Credit Facility and 2^nd Lien Term Loan have only limited affirmative covenants with which we are required to maintain compliance. We are in compliance with our debt covenants at June 30, 2019.

 

 

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. Effective in 2012, substantially all benefits are frozen and only a small amount of additional benefits are being accrued. Our liability and related expense for benefits under the plans are recorded over the service period of employees based upon annual actuarial calculations. Plan funding strategies are influenced by government regulations. Plan assets consist primarily of domestic and foreign corporate equity securities, government and corporate bonds, hedge fund investments and cash.

 

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, St. Louis Post-Dispatch LLC, provides postemployment disability benefits to certain employee groups prior to retirement. Our liability and related expense for benefits under the postretirement plans are recorded over the service period of active employees based upon annual actuarial calculations. We accrue postemployment disability benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid.

 

We use a fiscal year end measurement date for all of our pension and postretirement medical plan obligations.

 

 

The net periodic postretirement cost (benefit) components for our postretirement plans are as follows:

 

 

 

 

At the beginning of fiscal year 2019, we adopted the new accounting standard to improve the presentation of pension and postretirement benefit expenses. As a result, the service cost for benefits earned during the period continue to be included as compensation in the Consolidated Statement of Income and Comprehensive income, while the other components of the pension benefit are recorded as non-operating income in other, net. Prior period amounts have been reclassified to conform to current period presentation.

 

In the 39 weeks ended June 30, 2019 we contributed $650,000 to our pension plans. Based on our forecast at June 30, 2019, we do not expect to make contributions to our pension trust during the remainder of fiscal 2019.

 

In March 2017, we notified certain participants in one of our post employment medical plans of changes to their plan and in December 2017 the plan was terminated. These changes resulted in a non-cash curtailment gain of $2,031,000 in the 39 weeks ended June 24, 2018. Curtailment gains are recorded in loss (gain) on sales of assets and other, net in the Consolidated Statements of Operations and Comprehensive income.

 

 

 

7	INCOME TAXES

 

We recorded income tax expense of $1,505,000 related to income before taxes of $7,677,000 for the 13 weeks ended June 30, 2019, and income tax expenses of $6,175,000 related to income before taxes of $20,739,000 for the 39 weeks ended June 30, 2019. We recorded income tax expense of $1,972,000 related to income of $6,722,000 for the 13 weeks ended June 24, 2018. Including the transitional impact of revaluing tax assets and liabilities, we recorded income tax benefit of $16,791,000 related to income of $25,820,000 for the 39 weeks ended June 24, 2018.

 

 

The effective income tax rate for the 13 and 39 weeks ended June 30, 2019 was 19.6% and 29.8%, respectively. The effective income tax rate for the 13 and 39 weeks ended June 24, 2018 was 29.3% and negative 65.0%, respectively.

 

The primary differences between these rates and the U.S. federal statutory rate of 21% are due to the effect of state taxes, non-deductible expenses, adjustments to reserves for uncertain tax positions, including any related interest, mark-to-market adjustments to value the Warrants, and the transitional impact of revaluing tax assets and liabilities. 

 

We file a consolidated federal tax return, as well as combined and separate tax returns in approximately 27 state and local jurisdictions. We do not currently have any federal tax examinations in progress. California is the only state with an income tax examination currently in progress. Our income tax returns have generally been audited or closed to audit through 2014. See Note 11 for a discussion of our tax audits.

 

At September 30, 2018, we had approximately $63,048,000 of state net operating loss tax benefits. The Company consumed its federal net operating losses in the year ended September 30, 2018.

 

 

8

EARNINGS PER COMMON SHARE

 

The following table sets forth the computation of basic and diluted earnings per common share:

 

 

For the 13 and 39 weeks ended June 30, 2019, 6,000,000, weighted average shares, were not considered in the computation of diluted earnings per common share because the exercise prices of the related Warrants were in excess of the fair market value of our Common Stock. For the 13 and 39 weeks ended June 24, 2018, 6,484,300 and 6,701,300, weighted average shares, respectively, were not considered in the computation of diluted earnings per common share because the exercise prices of the related stock options and Warrants were in excess of the fair market value of our Common Stock.

 

 

 

9	STOCK OWNERSHIP PLANS

 

A summary of stock option activity during the 39 weeks ended June 30, 2019 follows:

 

 

Restricted Common Stock

 

The table below summarizes restricted Common Stock activity during the 39 weeks ended June 30, 2019:

 

 

Total unrecognized compensation expense for unvested restricted Common Stock at June 30, 2019 is $2,258,011, which will be recognized over a weighted average period of 1.4 years.

 

 

10	FAIR VALUE MEASUREMENTS

 

We utilize FASB ASC Topic 820, Fair Value Measurements and Disclosures, to measure and report fair value. FASB ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. 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.

 

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 $6,068,000, including our 17% ownership of the nonvoting common stock of TCT and a private equity investment, are carried at cost. As of June 30, 2019, based on the most recent data available, the approximate fair value of the private equity investment is $10,201,717 which is a level 3 fair value measurement. Fair value of the remaining investments approximates book value.

 

 

Our fixed rate debt consists of $374,420,000 principal amount of the Notes and $84,138,000 principal amount under the 2^nd Lien Term Loan. At June 30, 2019, based on private market price quotations, the fair values were $381,440,375 and $83,927,867 for the Notes and 2^nd Lien Term Loan, respectively. These represent level 2 fair value measurements.

 

As discussed more fully in Note 5, we recorded a liability for the Warrants issued in connection with the Warrant Agreement. The liability was initially measured at its fair value and we remeasure the liability to fair value each reporting period, with changes reported in other non-operating income (expense). The initial fair value of the Warrants was $16,930,000. The fair value of Warrants at June 2019 and March 2019 are $1,417,000 and $4,479,000, respectively. Fair value is determined using the Black-Scholes option pricing model. These represent level 2 fair value measurements.

 

 

11	COMMITMENTS AND CONTINGENT LIABILITIES

 

Income Taxes

 

Commitments exclude unrecognized tax benefits to be recorded in accordance with FASB ASC Topic 740, Income Taxes. We are unable to reasonably estimate the ultimate amount or timing of cash settlements with the respective taxing authorities for such matters. See Note 7.

 

We file income tax returns with the Internal Revenue Service ("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 and at various stages of completion, but generally our income tax returns have been audited or closed to audit through 2014.

 

Legal Proceedings

 

We are involved in a variety of legal actions that arise in the normal course of business. Insurance coverage mitigates potential loss for certain of these matters. While we are unable to predict the ultimate outcome of these 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.

 

Multiemployer Pension Plans

 

The Company contributes to three multiemployer pension plans. In June 2017, a union contract covering certain of our employees under a multiemployer pension plan expired resulting in a partial withdrawal from one of the multiemployer plans. In 2017, the Company recorded an estimate of the partial withdrawal liability totaling $2,600,000. Once the multiemployer pension plan's administrators finalize the partial withdrawal liability, it will be paid in equal installments over a twenty year period.

 

In the second quarter of 2019, we recorded an estimated partial liability for the CWA/ITU multi-employer plan, in the amount of $500,000, which is included in restructuring costs and other.

 

 

 

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