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Note 7 - Acquisitions

6 Months Ended

Mar. 28, 2021

Business Combination Disclosure [Text Block]

7	ACQUISITIONS

On March 16, 2020, the Company completed the Asset and Stock Purchase Agreement dated as of January 29, 2020 with Berkshire Hathaway Inc., a Delaware corporation (“Berkshire”) and BH Media Group, Inc., a Delaware corporation (“BHMG”) (“Purchase Agreement”). As part of the Purchase Agreement, the Company purchased certain assets and assumed certain liabilities of BHMG’s newspapers and related community publications business (“BH Media Newspaper Business”), excluding real estate and fixtures such as production equipment, and all of the issued and outstanding capital stock of The Buffalo News, Inc., a Delaware corporation (“Buffalo News”) for a combined purchase price of $140,000,000 (collectively, the “Transactions”). BHMG includes 30 daily newspapers and digital operations, in addition to 49 paid weekly newspapers with websites and 32 other print products. Buffalo News is a provider of local print and digital news to the Buffalo, NY area. The rationale for the acquisition was primarily the attractive nature of the various publications, businesses, and digital platforms as well as the revenue growth and operating expense synergy opportunities.

The allocation of the purchase price is final. As part of the Transactions, the Company also entered into the Credit Agreement and the BH Lease, as described below. The Company concluded that these agreements were not separate from the Transactions and evaluated these agreements for off-market terms and no such terms were identified. As such, the consideration for the acquisitions was limited to cash consideration, as shown below. The accounting for the Credit Agreement is described in Note 5 and the BH Lease in the following paragraph:

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

The following table summarizes the final determination of fair values of the assets and liabilities for the Transactions.

(in Thousands)	Estimated fair value as previously reported (a)		Measurement period adjustments		Fair value as adjusted
Cash and Cash equivalents	22,293		—		22,293
Current assets	52,559		(855	)	51,704
Other assets	12,167		4,343		16,510
Property and equipment	42,952		33		42,985
Operating lease assets	7,445		101		7,546
Advertiser relationships	38,780		(11,160	)	27,620
Subscriber relationships	36,060		(8,210	)	27,850
Commercial print relationships	17,130		2,430		19,560
Mastheads	21,680		(1,290	)	20,390
Goodwill	63,559		16,337		79,896
Total assets	314,625		1,729		316,354
Current liabilities assumed	(73,451	)	1,074		(72,377	)
Operating lease liabilities	(6,625	)	(921	)	(7,546	)
Other liabilities assumed	(2,246	)	(1,882)		(4,128	)
Pension obligations	(43,503	)	—		(43,503	)
Postemployment benefit obligations	(36,800	)	—		(36,800	)
Total liabilities	(162,625	)	(1,729)		(164,354	)
Net assets	152,000		—		152,000
Less: acquired cash	(22,293	)	—		(22,293	)
Total consideration less acquired cash	129,707		—		129,707

^(a) As previously reported in the Company's Quarterly Report on Form 10-Q for the period ended March 29,2020.

The Company recorded several adjustments in the 13-week period ended March 28, 2021 related to IRS penalties of $634,000, FIN 48 of $138,000, and decreasing customer relationships for $710,000 resulting from changes in the valuation.

For the 13 weeks ended March 28, 2021, the revenue and net loss included in the Consolidated Income Statement related to the acquirees was $97,770,000 and $7,181,000, respectively. For the 26 weeks ended March 28, 2021, the revenue and net income in the Consolidated Income Statement related to the acquirees was $206,831,000 and $15,951,000, respectively.

Pro Forma Information

The following table sets forth unaudited pro forma results of operations assuming the Transactions, along with the credit arrangements necessary to finance the Transactions, occurred on September 30, 2019, the first day of fiscal year 2020.

Unaudited

13 Weeks Ended

26 Weeks Ended

March 29,

(Thousands of Dollars, Except Per Share Data)

2020

Total revenues

207,329

442,025

Income (loss) attributable to Lee Enterprises, Incorporated

4,053

20,608

Earnings per share - diluted

0.70

3.60

Prior period results have been adjusted to reflect the one-for-ten reverse stock split in March 2021. See Note 1 for details.

This pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments. This pro forma information is not necessarily indicative of what our results would have been had we operated the businesses since the beginning of the periods presented. The pro forma adjustments reflect the income statement effects of depreciation expense and amortization of intangibles related to the fair value adjustments of the assets acquired, acquisition-related costs, incremental interest expense related to the financing of the Transactions and 2020 Refinancing, the BH Lease entered into as part of the Transactions, the elimination of certain intercompany activity and the related tax effects of the adjustments.

The only material, nonrecurring adjustment made relates to the write-off of previously unamortized debt-issuance costs as of October 1, 2019 which resulted in an $8,002,000 increase to net income for the 13 weeks ended March 29, 2020 and a $8,900,000 increase to net income for the 26 weeks ended March 29, 2020.