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Table of Contents
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 March 26, 2023
OR
o 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)
Delaware42-0823980
(State or other jurisdiction of Company or organization)(I.R.S. Employer Identification No.)
4600 E. 53rd Street, Davenport, Iowa 52807
(Address of principal executive offices)
(563) 383-2100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $.01 per share
LEE
The Nasdaq Global Select Market
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 o
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 such files.    Yes x No o
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
o
Accelerated filer
x
Non-accelerated filer
o
Smaller reporting company
x
Emerging growth company
o
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. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o  No x
As of April 30, 2023, 6,039,856 shares of Common Stock of the Registrant were outstanding.


Table of Contents
PAGE



PART I
FINANCIAL INFORMATION
Item 1.    Financial Statements
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars)March 26,
2023
September 25,
2022
ASSETS
Current assets:
Cash and cash equivalents19,030 16,185 
Accounts receivable and contract assets, net67,587 69,522 
Inventories10,347 8,265 
Prepaid and other current assets13,811 15,151 
Total current assets110,775 109,123 
Investments:
Associated companies28,610 27,378 
Other5,813 5,971 
Total investments34,423 33,349 
Property and equipment:
Land and improvements13,945 14,505 
Buildings and improvements92,304 95,111 
Equipment216,003 215,731 
Construction in process2,696 1,449 
324,948 326,796 
Less accumulated depreciation256,571 253,083 
Property and equipment, net68,377 73,713 
Operating lease right-of-use assets46,529 47,490 
Goodwill329,504 329,504 
Other intangible assets, net111,743 121,373 
Pension plan assets, net154 528 
Medical plan assets, net19,430 19,066 
Other12,158 9,896 
Total assets733,093 744,042 
The accompanying Notes are an integral part of the Consolidated Financial Statements.
1


(Unaudited)
(Thousands of Dollars and Shares, Except Per Share Data)March 26,
2023
September 25,
2022
LIABILITIES AND EQUITY
Current liabilities:
Current portion of lease liabilities8,173 7,859 
Accounts payable40,251 28,608 
Compensation and other accrued liabilities35,322 44,740 
Unearned revenue47,538 49,929 
Total current liabilities131,284 131,136 
Long-term debt, net of current maturities459,994 462,554 
Operating lease liabilities42,852 46,003 
Pension obligations706 966 
Postretirement and postemployment benefit obligations9,365 9,221 
Deferred income taxes42,351 42,719 
Income taxes payable8,531 8,292 
Withdrawal liabilities and other25,057 25,914 
Total liabilities720,140 726,805 
Equity:
Stockholders' equity:
Serial convertible preferred stock, no par value; authorized 500 shares; none issued
  
Common Stock, $0.01 par value; authorized 12,000 shares; issued and outstanding:
60 60 
March 26, 2023; 6,040 shares; $0.01 par value
September 25, 2022; 5,979 shares; $0.01 par value
Class B Common Stock, $2 par value; authorized 3,000 shares; none issued
  
Additional paid-in capital259,964 259,521 
Accumulated deficit(266,015)(261,229)
Accumulated other comprehensive income16,373 16,653 
Total stockholders' equity10,382 15,005 
Non-controlling interests2,571 2,232 
Total equity12,953 17,237 
Total liabilities and equity733,093 744,042 
The accompanying Notes are an integral part of the Consolidated Financial Statements.
2


LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three months endedSix months ended
(Thousands of Dollars, Except Per Common Share Data)March 26,
2023
March 27,
2022
March 26,
2023
March 27,
2022
Operating revenue:
Advertising and marketing services77,700 87,633 167,285 186,387 
Subscription78,582 87,348 158,281 174,867 
Other14,405 15,033 30,252 31,042 
Total operating revenue170,687 190,014 355,818 392,296 
Operating expenses:  
Compensation68,831 83,513 144,277 168,207 
Newsprint and ink6,466 7,068 13,898 14,712 
Other operating expenses82,569 84,679 169,343 170,661 
Depreciation and amortization7,733 8,951 15,619 18,627 
Assets gain on sales, impairments and other, net(792)(152)(3,355)(12,426)
Restructuring costs and other3,694 10,590 4,340 13,790 
Total operating expenses168,501 194,649 344,122 373,571 
Equity in earnings of associated companies672 1,407 2,340 3,161 
Operating income (loss)2,858 (3,228)14,036 21,886 
Non-operating (expense) income:  
Interest expense(10,501)(10,523)(20,909)(21,186)
Curtailment gain   1,027 
Pension withdrawal cost (2,335) (2,335)
Pension and OPEB related benefit (cost) and other, net206 6,248 1,700 9,320 
Total non-operating expense, net(10,295)(6,610)(19,209)(13,174)
(Loss) income before income taxes(7,437)(9,838)(5,173)8,712 
Income tax (benefit) expense(2,071)(3,144)(1,631)2,207 
Net (loss) income(5,366)(6,694)(3,542)6,505 
Net income attributable to non-controlling interests(519)(582)(1,244)(1,123)
(Loss) income attributable to Lee Enterprises, Incorporated(5,885)(7,276)(4,786)5,382 
Other comprehensive loss, net of income taxes(140)(1,167)(280)(7,279)
Comprehensive loss attributable to Lee Enterprises, Incorporated(6,025)(8,443)(5,066)(1,897)
Earnings per common share:
Basic:(1.01)(1.26)(0.82)0.94
Diluted:(1.01)(1.26)(0.82)0.92
The accompanying Notes are an integral part of the Consolidated Financial Statements.
3



CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
(Thousands of Dollars)Accumulated
Deficit
Common StockAdditional
paid-in capital
Accumulated
Other
Comprehensive
Loss
Total
September 26, 2022(261,229)60 259,521 16,653 15,005 
Shares issued (redeemed)— — (383)— (383)
Income attributable to Lee Enterprises, Incorporated1,099 — — — 1,099 
Stock compensation— — 349 — 349 
Other comprehensive loss— — — (200)(200)
Deferred income taxes, net— — — 60 60 
December 25, 2022(260,130)60 259,487 16,513 15,930 
Shares issued (redeemed)— — (97)— (97)
Loss attributable to Lee Enterprises, Incorporated(5,885)— — (5,885)
Stock compensation— — 574 — 574 
Other comprehensive loss— — (200)(200)
Deferred income taxes, net— — 60 60 
March 26, 2023(266,015)60 259,964 16,373 10,382 

4


(Thousands of Dollars)Accumulated
Deficit
Common StockAdditional
paid-in capital
Accumulated
Other
Comprehensive
Loss
Total
September 27, 2021(259,212)59 258,063 42,187 41,097 
Shares issued (redeemed)— 1 (386)— (385)
Income attributable to Lee Enterprises, Incorporated12,658 — — — 12,658 
Stock compensation— — 186 — 186 
Other comprehensive loss— — — (8,174)(8,174)
Deferred income taxes, net— — — 2,062 2,062 
December 26, 2021(246,554)60 257,863 36,075 47,444 
Shares issued (redeemed)— — (3)— (3)
Loss attributable to Lee Enterprises, Incorporated(7,276)— — — (7,276)
Stock compensation— — 663 — 663 
Other comprehensive loss— — — (1,667)(1,667)
Deferred income taxes, net— — — 500 500 
March 27, 2022(253,830)60 258,523 34,908 39,661 
The accompanying Notes are an integral part of the Consolidated Financial Statements.
5


LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
(Thousands of Dollars)March 26,
2023
March 27,
2022
Cash provided by (required for) operating activities:
Net (loss) income(3,542)6,505 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization15,619 18,627 
Curtailment gain (1,027)
Pension withdrawal cost 2,335 
Stock compensation expense922 699 
Assets (gain) loss on sales, impairments and other, net(3,355)(12,426)
Gain on sale of investment(1,408) 
Deferred income taxes(368)664 
Return of letters of credit collateral778 151 
Other, net(895)(1,011)
Changes in operating assets and liabilities:
Decrease (increase) in receivables and contract assets1,720 (3,060)
Decrease in inventories and other(1,921)(1,033)
(Decrease) increase in accounts payable and other accrued liabilities(4,977)5,694 
Decrease in pension and other postretirement and postemployment benefit obligations(37)(9,388)
Change in income taxes payable239 (3,686)
Other(2,128)(3,650)
Net cash provided by (required for) operating activities647 (606)
Cash provided by investing activities:
Purchases of property and equipment(2,279)(4,570)
Proceeds from sales of assets5,309 14,744 
Distributions less than earnings of TNI and MNI374 (102)
Other, net1,619 (192)
Net cash provided by investing activities5,023 9,880 
Cash required for financing activities:
Payments on long-term debt(2,560)(20,062)
Common stock transactions, net(265)11 
Net cash required for financing activities(2,825)(20,051)
Net increase (decrease) in cash and cash equivalents2,845 (10,777)
Cash and cash equivalents:
Beginning of period16,185 26,112 
End of period19,030 15,335 
The accompanying Notes are an integral part of the Consolidated Financial Statements.
6



LEE ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
References to “we”, “our”, “us” and the like throughout this document refer to Lee Enterprises, Incorporated (the “Company”). References to “2023”, “2022" and the like refer to the fiscal years ended the last Sunday in September.
1    BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 its subsidiaries (the “Company”) as of March 26, 2023, 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 2022 Annual Report on Form 10-K.
The Company's fiscal year ends on the last Sunday in September. Fiscal year 2023 ends on September 24, 2023, and fiscal year 2022 ended September 25, 2022. Fiscal year 2023 and 2022 are 52-week years with 13 weeks in each quarter. Because of seasonal and other factors, the results of operations for the three and six months ended March 26, 2023, are not necessarily indicative of the results to be expected for the full year.
The Consolidated Financial Statements include our accounts and those of our wholly owned subsidiaries, as well as our 82.5% interest in INN Partners, L.C. (“BLOX Digital" , formerly "TownNews”).
Our 50% interest in TNI Partners ("TNI") and our 50% interest in Madison Newspapers, Inc. ("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.
2    REVENUE
The following table presents our revenue disaggregated by source:
Three months endedSix months ended
(Thousands of Dollars)March 26,
2023
March 27,
2022
March 26,
2023
March 27,
2022
Operating revenue:
Print advertising revenue31,450 44,248 73,286 100,218 
Digital advertising revenue46,250 43,385 93,999 86,169 
Advertising and marketing services revenue77,700 87,633 167,285 186,387 
Print subscription revenue64,586 77,255 131,956 156,883 
Digital subscription revenue13,996 10,093 26,325 17,984 
Subscription revenue78,582 87,348 158,281 174,867 
Print other revenue9,649 10,374 20,769 21,759 
Digital other revenue4,756 4,659 9,483 9,283 
Other revenue14,405 15,033 30,252 31,042 
Total operating revenue170,687 190,014 355,818 392,296 
7


Recognition principles: Revenue is recognized when a performance obligation is satisfied by the transfer of control of the contracted goods or services to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services.
Arrangements with multiple performance obligations: We have various advertising and subscription agreements which include both print and digital performance obligations. Revenue from sales agreements that contain multiple performance obligations are allocated to each obligation based on the relative standalone selling price. We determine standalone selling prices based on observable prices charged to customers.
Contract Assets and Liabilities: The Company’s primary source of contract liabilities is unearned revenue from subscriptions paid in advance of the service provided. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next twelve months in accordance with the terms of the subscriptions and other contracts with customers. Revenue recognized in the six months ended March 26, 2023, that was included in the contract liability as of September 25, 2022, was $41.2 million.
Accounts receivable, excluding allowance for credit losses were $72.7 million and $74.8 million as of March 26, 2023, and September 25, 2022, respectively. Allowance for credit losses was $5.1 million and $5.2 million as of March 26, 2023, and September 25, 2022, respectively.
Sales commissions are expensed as incurred as the associated contractual periods are one year or less. These costs are recorded within compensation. Most 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 Gannets Co. Inc.'s subsidiary Citizen Publishing Company (“Citizen”), 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:
Three months endedSix months ended
(Thousands of Dollars)March 26,
2023
March 27,
2022
March 26,
2023
March 27,
2022
Operating revenue8,169 8,594 16,710 17,575 
Operating expenses6,889 6,409 13,364 12,873 
Operating income1,280 2,185 3,346 4,702 
Net Income1,137 1,093 3,666 2,351 
Equity in earnings of TNI569 1,093 1,833 2,351 
TNI makes periodic distributions of its earnings and for the three months ended March 26, 2023, and March 27, 2022, we received $1.4 million in distributions in both periods. In the six months ended March 26, 2023 and March 27, 2022, we received $2.3 million in distributions in both periods.
8


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 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:
Three months endedSix months ended
(Thousands of Dollars)March 26,
2023
March 27,
2022
March 26,
2023
March 27,
2022
Operating revenue10,603 11,561 22,507 23,756 
Operating expenses, excluding restructuring costs, depreciation and amortization(1)
8,681 9,344 18,026 18,720 
Restructuring costs101  127  
Depreciation and amortization135 170 273 340 
Operating income1,686 2,047 4,081 4,696 
Net income207 627 1,014 1,620 
Equity in earnings of MNI104 314 507 810 
(1) Amounts were reclassed to align with current year presentation
MNI makes periodic distributions of its earnings and in the three months ended March 26, 2023 and March 27, 2022, we received $0.1 million and $0.5 million in distributions, respectively. In the six months ended March 26, 2023 and March 27, 2022 we received distributions of $0.4 million and $0.8 million, respectively.
4    GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and identified intangible assets consist of the following:
(Thousands of Dollars)March 26,
2023
September 25,
2022
Goodwill, beginning of period329,504 330,204 
Impairment (700)
Goodwill, end of period329,504 329,504 
Non-amortized intangible assets:
Mastheads26,346 26,346 
Amortizable intangible assets:
Customer and newspaper subscriber lists322,310 323,568 
Less accumulated amortization(236,913)(228,541)
85,397 95,027 
Total intangibles, net441,247 450,877 
The weighted average amortization period for amortizable assets is 11.95 years.
5    DEBT
The Company has debt consisting of a single 25-year term loan with BH Finance LLC, with an aggregate principal balance of $460.0 million at a 9% annual fixed rate and maturing on March 16, 2045
9


(referred to herein as “Credit Agreement” and “Term Loan”). On March 26, 2023, the fair value is $462.4 million. This represents a level 2 fair value measurement.
During the six months ended March 26, 2023, we made principal debt payments of $2.6 million. Future payments are contingent on the Company's ability to generate future excess cash flow, as defined in the Credit Agreement. As of March 26, 2023, there was no excess cash flow payment due.
6    PENSION, POSTRETIREMENT AND POSTEMPLOYMENT DEFINED BENEFIT PLANS
We have a defined benefit pension plan that covers certain employees, including plans established under collective bargaining agreements. Additionally, we provide retiree medical and life insurance benefits under postretirement plans at several of our operating locations. Through March 26, 2023, our liability and related expense for benefits under the plans are recorded over the service period of employees based upon annual actuarial calculations.
The net periodic pension and postretirement cost (benefit) components for our plans are as follows:
PENSION PLANSThree months ended Six months ended
(Thousands of Dollars)March 26,
2023
March 27,
2022
March 26,
2023
March 27,
2022
Service cost for benefits earned during the period5 287 10 743 
Interest cost on projected benefit obligation2,592 2,001 5,184 3,938 
Expected return on plan assets(2,548)(4,535)(5,096)(9,071)
Amortization of net (gain) loss2 (687)4 (1,946)
Amortization of prior service benefit213 212 426 212 
Curtailment gain   (1,027)
Pension cost (benefit)264 (2,722)528 (7,151)
POSTRETIREMENT MEDICAL PLANSThree months ended Six months ended
(Thousands of Dollars)March 26,
2023
March 27,
2022
March 26,
2023
March 27,
2022
Service cost for benefits earned during the period17 27 34 54 
Interest cost on projected benefit obligation149 85 298 170 
Expected return on plan assets(295)(263)(590)(526)
Amortization of net gain(254)(249)(508)(498)
Amortization of prior service benefit(162)(162)(324)(324)
Postretirement medical benefit(545)(562)(1,090)(1,124)
In the six months ended March 26, 2023 and March 27, 2022, we made no contributions to our pension plans. We have no required contributions to our pension plans for 2023.
Multiemployer Pension Plans
In prior periods, the Company effectuated withdrawals from several multiemployer plans. As of March 26, 2023, and September 25, 2022, we had $23.4 million and $25.0 million of accrued withdrawal liabilities. The liabilities reflect the estimated value of payments to the fund, payable over 20 years.
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7    INCOME TAXES
We recorded an income tax benefit of $2.1 million related to loss before taxes of $7.4 million for the three months ended March 26, 2023, and an income tax benefit of $1.6 million related to a loss before income taxes of $5.2 million for the six months ended March 26, 2023. We recorded an income tax benefit of $3.1 million related to income before taxes of $9.8 million for the three months ended March 27, 2022 and income tax expense of $2.2 million related to income before income taxes of $8.7 million for the six months ended March 27, 2022. The effective income tax rate for the three and six months ended March 26, 2023, were 27.8% and 31.5%, respectively. The effective income tax rate for the three and six months ended March 27, 2022, were 32.0% and 25.3%, respectively.
The primary differences between these rates and the U.S. federal statutory rate of 21% are because of state taxes, non-deductible expenses, adjustments to reserves for uncertain tax positions, including any related interest, and mark-to-market adjustments to value stock warrants.
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 or material state income tax examinations in progress. Our income tax returns have generally been audited or closed to audit through 2015.
8    EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per common share:
Three months ended Six months ended
(Thousands of Dollars and Shares, Except Per Share Data)March 26,
2023
March 27,
2022
March 26,
2023
March 27,
2022
(Loss) income attributable to Lee Enterprises, Incorporated:(5,885)(7,276)(4,786)5,382 
Weighted average common shares5,996 5,955 6,018 5,919 
Less weighted average restricted Common Stock(173)(178)(172)(167)
Basic average common shares5,823 5,777 5,846 5,752 
Dilutive stock options and restricted Common Stock   107 
Diluted average common shares5,823 5,777 5,846 5,859 
Earnings per common share:    
Basic(1.01)(1.26)(0.82)0.94 
Diluted(1.01)(1.26)(0.82)0.92 
For the three months ended March 26, 2023 and March 27, 2022, 68,186 and 600,000 shares, respectively, were not considered in the computation of diluted earnings per common share because their inclusion would result in an anti-dilutive effect on per share amounts. For the six months ended March 26, 2023 and March 27, 2022, 68,186 and 600,000 shares, respectively, were not considered in the computation of diluted earnings per common share because their inclusion would result in an anti-dilutive effect on per share amounts.
9    COMMITMENTS AND CONTINGENT LIABILITIES
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.
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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion includes comments and analysis relating to our results of operations and financial condition as of and for the three months ended March 26, 2023. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, included herein, and our 2022 Annual Report on Form 10-K. Statements that are not historical are forward-looking and involve risks and uncertainties. See "Forward-Looking Statements" at the end of this section for further information.
EXECUTIVE OVERVIEW
Lee Enterprises, Incorporated is a leading provider of high quality, trusted, local news and information in the markets we serve with rapidly growing digital subscription and advertising platforms.
We operate 77 principally mid-sized local media operations.
We reach nearly 70% of all adults in our larger markets through a combination of our print and digital content offerings.
Our web and mobile sites are the number one digital source of local news in most of our markets, reaching almost 38 million monthly unique visitors in 2023 with 356 million page views and 76 million visits.
We have approximately one million paid subscribers to our print and digital products. Digital-only subscribers totaled approximately 596,000 a 21.0% increase over the prior year.
Our products include daily newspapers, websites and mobile applications, mobile news and advertising, video products, a digital marketing agency, digital services including web hosting and content management, niche publications and community newspapers. Our local media operations range from large daily newspapers and their associated digital products, such as the St. Louis Post-Dispatch and the Buffalo News, to non-daily newspapers with news websites and digital platforms serving smaller communities.
We also operate Amplified Digital®, a full-service digital marketing agency offering omnichannel marketing solutions, audience targeted display, social audience targeting, social media management, email marketing, banners, video streaming and much more. Amplified Digital® serves more than 4,500 customers in 49 states.
We also operate BLOX Digital which provides state-of-the-art web hosting, content management services and video management services to nearly 2,200 other media organizations including broadcast.
STRATEGY
We are a major subscription and advertising platform, a trusted local news provider and innovative, digitally-focused marketing solutions company. Our focus is on the local market - including local news and information, local advertising and marketing services to top local accounts, and digital services to local content curators. To align with the core strength of our Company, our post-pandemic operating strategy is locally focused around three pillars:
Grow digital audiences by transforming the way we present local news and information
Expand our digital subscription base and revenue through audience growth and continued conversion of our massive digital audiences.
Diversify and expand offerings for advertisers by launching a portfolio of video advertising initiatives and e-commerce sales strategies through Amplified Digital® that will enable advertisers to leverage our vast data-rich digital audiences and reach consumers in new ways.
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RESULTS OF OPERATIONS
Three Months Ended March 26, 2023
Operating results are summarized below.
(Thousands of Dollars, Except Per Common Share Data)20232022Percent Change
Operating revenue:
Print advertising revenue31,450 44,248 (28.9)%
Digital advertising revenue46,250 43,385 6.6 %
Advertising and marketing services revenue77,700 87,633 (11.3)%
Print subscription revenue64,586 77,255 (16.4)%
Digital subscription revenue13,996 10,093 38.7 %
Subscription revenue78,582 87,348 (10.0)%
Print other revenue9,649 10,374 (7.0)%
Digital other revenue4,756 4,659 2.1 %
Other revenue14,405 15,033 (4.2)%
Total operating revenue170,687 190,014 (10.2)%
Operating expenses:
Compensation68,831 83,513 (17.6)%
Newsprint and ink6,466 7,068 (8.5)%
Other operating expenses82,569 84,679 (2.5)%
Depreciation and amortization7,733 8,951 (13.6)%
Assets gain on sales, impairments and other, net(792)(152)421.1 %
Restructuring costs and other3,694 10,590 (65.1)%
Total operating expenses168,501 194,649 (13.4)%
Equity in earnings of associated companies672 1,407 (52.2)%
Operating income (loss)2,858 (3,228)(188.5)%
Non-operating income (expense):
Interest expense(10,501)(10,523)(0.2)%
Pension withdrawal cost— (2,335)(100.0)%
Pension and OPEB related benefit (cost) and other, net206 6,248 (96.7)%
Total non-operating expense, net(10,295)(6,610)55.7 %
(Loss) income before income taxes(7,437)(9,838)(24.4)%
Income tax (benefit) expense(2,071)(3,144)(34.1)%
Net Loss(5,366)(6,694)(19.8)%
Earnings (loss) per common share:
Basic(1.01)(1.26)19.8 %
Diluted(1.01)(1.26)19.8 %
References to the “2023 Quarter” refer to the three months ended March 26, 2023. Similarly, references to the “2022 Quarter” refer to the three months ended March 27, 2022.
Operating Revenue
Total operating revenue was $170.7 million in the 2023 Quarter, down $19.3 million, or 10.2%, compared to the prior year.
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Advertising and marketing services revenue totaled $77.7 million in the 2023 Quarter, down 11.3% compared to the 2022 Quarter. Advertising revenue, print and digital, was adversely affected by a wide spread pull back in advertising spending. Print advertising revenues were $31.5 million in the 2023 Quarter, down 28.9% compared to the 2022 Quarter due to the soft advertising environment and a continued secular declines in demand for print advertising. Digital advertising and marketing services totaled $46.3 million in the 2023 Quarter, up 6.6% compared to the 2022 Quarter. These gains resulted from an increase in Amplified Digital® revenue. Digital advertising and marketing services represented 59.5% of the 2023 Quarter total advertising and marketing services revenue, compared to 49.5% in the same period last year.
Subscription revenue totaled $78.6 million in the 2023 Quarter, down 10.0% compared to the 2022 Quarter. Decline in full access volume, consistent with historical and industry trends was partially offset by selective price increases on our full access subscriptions, growth in digital-only subscribers and price increases on digital subscriptions. Digital-only subscribers grew 21.0% since the 2023 Quarter and now total 596,000, and revenue from digital-only subscribers totaled $14.0 million, up 38.7% compared to the 2022 Quarter.
Other revenue, which primarily consists of commercial printing revenue and digital services from BLOX Digital, decreased $0.6 million, or 4.2%, in the 2023 Quarter compared to the 2022 Quarter. Digital services revenue totaled $4.8 million in the 2023 Quarter, a 2.1% increase compared to the 2022 Quarter. Commercial printing revenue totaled $4.8 million in the 2023 Quarter, a 7.4% decrease compared to the 2022 Quarter, primarily driven by reduction in print volumes from our partners.
Total digital revenue including digital advertising revenue, digital subscription revenue and digital services revenue totaled $65.0 million in the 2023 Quarter, an increase of 11.8% over the 2022 Quarter, and represented 38.1% of our total operating revenue in the 2023 Quarter.
Equity in earnings of TNI and MNI decreased 0.7 in the 2023 Quarter.
Operating Expenses
Total operating expenses were $168.5 million in the 2023 Quarter, a 13.4% decrease compared to the 2022 Quarter. Cash Costs, a non-GAAP financial measure used to summarize certain operating expense (see reconciliation of non-GAAP financial measures below), were down 9.9% in the 2023 Quarter.
Compensation expense decreased $14.7 million in the 2023 Quarter, or 17.6%, compared to the 2022 Quarter from reductions in headcount due to continued business transformation efforts, partially offset by investments in digital talent.
Newsprint and ink costs decreased $0.6 in the 2023 Quarter, or 8.5%, compared to the 2022 Quarter. The decrease is attributable to declines in newsprint volumes offset by higher newsprint prices. See Item 3, “Commodities”, included herein, for further discussion and analysis of the impact of newsprint on our business.
Other operating expenses decreased $2.1 in the 2023 Quarter, or 2.5%, compared to the 2022 Quarter. Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation and amortization, or restructuring costs and assets loss on sales, impairments, and other, net. The largest components are costs associated with printing and distribution of our printed products, digital costs of goods sold and facility expenses. The decrease is attributable to lower delivery and other print-related costs due to lower volumes of our print editions partially offset by investments to fund our digital growth strategy.
Restructuring costs and other totaled $3.7 million and $10.6 million in the 2023 Quarter and 2022 Quarter, respectively. Restructuring costs and other include severance costs, litigation expenses, restructuring expenses, and advisor expenses. Restructuring costs in the 2023 Quarter are predominately severance related to our ongoing business transformation, while restructuring costs In the 2022 quarter also include costs associated with the unsolicited offer in November 2021.
Depreciation and amortization expense decreased $1.2 million, or 13.6%, in the 2023 Quarter. The decrease in both is attributable to assets becoming fully depreciated or amortized.
Assets gain on sales, impairments and other, was a net gain of $0.8 million in the 2023 Quarter compared to a net gain of $0.2 million in the 2022 Quarter. Assets gain on sales, impairments and other in the 2023 Quarter and in the 2022 Quarter were the result of the disposition of non-core assets, including real estate.
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The factors noted above resulted in an operating income of $2.9 million in the 2023 Quarter compared to an operating loss of $3.2 million in the 2022 Quarter.
Non-operating Income and Expense
Interest expense was flat at $10.5 million in the 2023 Quarter, compared to the same period last year. Our weighted average cost of debt was 9.0% at the end of the 2023 Quarter and 2022 Quarter.
Other non-operating income and expense consists of benefits associated with our pension and other postretirement plans and the fair value adjustment of our Warrants. We recorded $0.3 million periodic pension and other postretirement benefits in the 2023 Quarter compared to $3.6 million in the 2022 Quarter.
We recognized pension withdrawal costs in the 2022 Quarter of $2.3 million, in connection with the withdrawal from a pension plan that covered certain employees. This withdrawal liability will be paid in equal quarterly installments over the next 20 years.
Income Tax Expense (Benefit)
We recorded an income tax benefit of $2.1 million, or 27.8% of pretax loss in the 2023 Quarter. In the 2022 Quarter, we recognized an income tax benefit of $3.1 million, or 32.0% of pretax loss.
Net Income (Loss) and Earnings (Losses) Per Share
Net loss was $5.4 million and diluted losses per share were $1.01 for the 2023 Quarter compared to net loss of $6.7 million and diluted losses per share of $1.26 for the 2022 Quarter. The change reflects the various items discussed above.
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Six Months Ended March 26, 2023
Operating results, as reported in the Consolidated Financial Statements, are summarized below.
(Thousands of Dollars, Except Per Common Share Data)March 26, 2023March 27, 2022Percent Change
Operating revenue:
Print advertising revenue73,286 100,218 (26.9)%
Digital advertising revenue93,999 86,169 9.1 %
Advertising and marketing services revenue167,285 186,387 (10.2)%
Print subscription revenue131,956 156,883 (15.9)%
Digital subscription revenue26,325 17,984 46.4 %
Subscription revenue158,281 174,867 (9.5)%
Print other revenue20,769 21,759 (4.5)%
Digital other revenue9,483 9,283 2.2 %
Other revenue30,252 31,042 (2.5)%
Total operating revenue355,818 392,296 (9.3)%
Operating expenses:
Compensation144,277 168,207 (14.2)%
Newsprint and ink13,898 14,712 (5.5)%
Other operating expenses169,343 170,661 (0.8)%
Depreciation and amortization15,619 18,627 (16.1)%
Assets gain on sales, impairments and other(3,355)(12,426)(73.0)%
Restructuring costs and other4,340 13,790 (68.5)%
Total operating expenses344,122 373,571 (7.9)%
Equity in earnings of associated companies2,340 3,161 (26.0)%
Operating income14,036 21,886 (35.9)%
Non-operating income (expense):
Interest expense(20,909)(21,186)(1.3)%
Curtailment gain— 1,027 (100.0)%
Pension withdrawal cost— (2,335)(100.0)%
Pension and OPEB related benefit (cost) and other, net1,700 9,320 (81.8)%
Total non-operating expense, net(19,209)(13,174)45.8 %
(Loss) income before income taxes(5,173)8,712 (159.4)%
Income tax (benefit) expense(1,631)2,207 (173.9)%
Net (loss) income(3,542)6,505 (154.5)%
Earnings (loss) per common share:
Basic(0.82)0.94(187.1)%
Diluted(0.82)0.92(189.0)%
References to the “2023 Period” refer to the six months ended March 26, 2023. Similarly, references to the “2022 Period” refer to the six months ended March 27, 2022.
Operating Revenue
Total operating revenue was $355.8 million in the 2023 Period, down $36.5 million, or 9.3%, compared to the 2022 Period.
16


Advertising and marketing services revenue totaled $167.3 million in the 2023 Period, down 10.2% compared to the prior year. Advertising revenue, print and digital, was adversely affected by a wide spread pull back in advertising spending. Print advertising revenues were $73.3 million in the 2023 Period, down 26.9% compared to the prior year due to the soft advertising environment and a continued secular decline in demand for print advertising. Digital advertising and marketing services totaled $94.0 million in the 2023 Period, up 9.1% compared to the prior year. These gains resulted from an 83.1% increase in Amplified Digital® revenue and an increase in advertising on our owned and operated sites. Digital advertising and marketing services represented 56.2% of the 2022 Period total advertising and marketing services revenue, compared to 46.2% in the same period last year.
Subscription revenue totaled $158.3 million in the 2023 Period, down 9.5% compared to the 2022 Period. The decline in full access volume, consistent with historical and industry trends were partially offset by growth in digital only subscribers and selective price increases on our full access subscriptions. Digital only subscribers grew 16.8% since the 2022 Period and now total 596,000.
Other revenue, which primarily consists of commercial printing revenue and digital services from BLOX Digital, decreased $0.8 million, or 2.5%, in the 2023 Period compared to the 2022 Period. Digital services revenue totaled $9.5 million in the 2023 Period, a 6.8% increase compared to the 2022 Period. Commercial printing revenue totaled $10.2 million in the 2023 Period, a 5.9% decrease compared to the 2022 Period primarily driven by reduction in print volumes from our partners.
Total digital revenue including digital advertising revenue, digital subscription revenue and digital services revenue totaled $129.8 million in the 2023 Period, an increase of 14.4% over the 2022 Period, and represented 36.5% of our total operating revenue in the 2023 Period.
Equity in earnings of TNI and MNI decreased $0.8 million in the 2023 Period.
Operating Expenses
Total operating expenses were $344.1 million in the 2023 Period, a 7.9% decrease compared to the 2022 Period. Cash Costs, a non-GAAP financial measure (see reconciliation of non-GAAP financial measures below), were $327.5 million, a 7.4% decrease compared to the 2022 Period.
Compensation expense decreased $23.9 million in the 2023 Period, or 14.2%, compared to the 2022 Period attributable to reductions in FTE's due to continued business transformation efforts partially offset by investments in digital talent and increasing average compensation levels.
Newsprint and ink costs decreased $0.8 million in the 2023 Period, or 5.5%, compared to the 2022 Period. The decrease is attributable to declines in newsprint volumes offset by higher newsprint prices. See Item 3, “Commodities”, included herein, for further discussion and analysis of the impact of newsprint on our business.
Other operating expenses decreased $1.3 million in the 2023 Period, or 0.8%, compared to the 2022 Period. Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation and amortization, or restructuring costs and assets loss on sales, impairments and other, net. The largest components are costs associated with printing and distribution of our printed products, digital cost of goods sold and facility expenses. The decrease is attributable to lower delivery and other print-related costs due to lower volumes of our print editions increases partially offset by increases to digital costs of goods sold from Amplified Digital® growth, higher input costs due to inflation and investments to fund our digital growth strategy.
Restructuring costs and other totaled $4.3 million and $13.8 million in the 2023 Period and 2022 Period, respectively. Restructuring costs and other include severance costs, litigation costs, restructuring expenses, and advisor expenses in the 2022 Period associated with an unsolicited takeover offer received in November 2021. Restructuring costs in the 2023 Period are predominately severance related to our ongoing business transformation.
Depreciation and amortization expense decreased $3.0 million, or 16.1%, in the 2023 Period. The decrease in both is attributable to assets becoming fully depreciated or amortized.
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Assets (gain) loss on sales, impairments and other, was a net gain of $3.4 million in the 2023 Period compared to a net gain of $12.4 million in the 2022 Period. The gains and losses in the 2023 Period and 2022 Period were the result of the disposition of non-core assets, including real estate.
The factors noted above resulted in operating income of $14.0 million in the 2023 Period compared to $21.9 million in the 2022 Period.
Non-operating Income and Expense
Interest expense decreased $0.3 million, or 1.3%, to $20.9 million in the 2023 Period, compared to the same period last year. The decrease was due to a lower outstanding balance on our Term Loan. Our weighted average cost of debt was 9.0% at the end of the 2023 Period and 2022 Period.
Other non-operating income and expense consists of benefits associated with our pension and other postretirement plans and the fair value adjustment of our Warrants. We recorded $0.6 million periodic pension and other postretirement benefits in the 2022 Period compared to $8.0 million in the 2022 Period. We recorded non-operating income of $0.1 million in the 2022 Period related to changes in the value of the Warrants.
We recognized a non-cash curtailment gain of $1.0 million in the 2022 Period as a result of freezing certain pension plans.
We recognized pension withdrawal costs in the 2022 Period of $2.3 million in connection with the withdrawal from a pension plan that covered certain employees. This withdrawal liability will be paid in equal quarterly installments over the next 20 years.
Income Tax Expense (Benefit)
We recorded an income tax benefit of $1.6 million, or 31.5% of pretax loss, in the 2023 Period. In the 2022 Period, we recognized an income tax expense of $2.2 million or 25.3% of pretax income.
Net Income (Loss) and Earnings (Losses) Per Share
Net loss was $3.5 million and diluted losses per share were $0.82 for the 2023 Period, compared to net income of $6.5 million and diluted earnings per share of $0.92 for the 2022 Period. The change reflects the various items discussed above.
NON-GAAP FINANCIAL MEASURES
We use non-GAAP financial performance measures to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures should not be considered in isolation or as a substitute for the relevant GAAP measures and should be read in conjunction with information presented on a GAAP basis.
In this report, we present Adjusted EBITDA and Cash Costs which are non-GAAP financial performance measures that exclude from our reported GAAP results the impact of certain items consisting primarily of restructuring charges and non-cash charges. We believe such expenses, charges and gains are not indicative of normal, ongoing operations, and their inclusion in results makes for more difficult comparisons between years and with peer group companies. In the future, however, we are likely to incur expenses, charges and gains similar to the items for which the applicable GAAP financial measures have been adjusted and to report non-GAAP financial measures excluding such items. Accordingly, exclusion of those or similar items in our non-GAAP presentations should not be interpreted as implying the items are non-recurring, infrequent, or unusual.
We define our non-GAAP measures, which may not be comparable to similarly titled measures reported by other companies, as follows:
Adjusted EBITDA is a non-GAAP financial performance measure that enhances financial statement users' overall understanding of the operating performance of the Company. The measure isolates unusual, infrequent, or non-cash transactions from the operating performance of the business. This allows users to easily compare operating performance among various fiscal periods and how management measures the performance of the business. This measure also provides users with a benchmark that can be used when forecasting future operating performance of the Company that excludes unusual, nonrecurring or one-time transactions. Adjusted EBITDA is also a component of the calculation used by stockholders and analysts to determine the value of our
18


business when using the market approach, which applies a market multiple to financial metrics. It is also a measure used to calculate the leverage ratio of the Company, which is a key financial ratio monitored and used by the Company and its investors. Adjusted EBITDA is defined as net income (loss), plus non-operating expenses, income tax expense, depreciation and amortization, assets loss (gain) on sales, impairments and other, restructuring costs and other, stock compensation and our 50% share of EBITDA from TNI and MNI, minus equity in earnings of TNI and MNI.
Cash Costs represent a non-GAAP financial performance measure of operating expenses which are measured on an accrual basis and settled in cash. This measure is useful to investors in understanding the components of the Company’s cash-settled operating costs. Generally, the Company provides forward-looking guidance of Cash Costs, which can be used by financial statement users to assess the Company's ability to manage and control its operating cost structure. Cash Costs are defined as compensation, newsprint and ink and other operating expenses. Depreciation and amortization, assets loss (gain) on sales, impairments and other, other non-cash operating expenses and other expenses are excluded. Cash Costs also exclude restructuring costs and other, which are typically settled in cash.
Adjusted EBITDA and Cash Costs are reconciled to net income (loss) and operating expenses, below, the closest comparable numbers under GAAP.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(UNAUDITED)
The table below reconciles the non-GAAP financial performance measure of Adjusted EBITDA to net income, the most directly comparable GAAP measure:
Three months ended Six months ended
(Thousands of Dollars)March 26, 2023March 27, 2022March 26, 2023March 27, 2022
Net (loss) income(5,366)(6,694)(3,542)6,505 
Adjusted to exclude
Income tax (benefit) expense(2,071)(3,144)(1,631)2,207 
Non-operating expenses, net10,295 6,610 19,209 13,174 
Equity in earnings of TNI and MNI(672)(1,407)(2,340)(3,161)
Depreciation and amortization7,733 8,951 15,619 18,627 
Restructuring costs and other3,694 10,590 4,340 13,790 
Assets gain on sales, impairments and other, net(792)(152)(3,355)(12,426)
Stock compensation573 512 922 699 
Add:
Ownership share of TNI and MNI EBITDA (50%)930 1,657 2,722 3,596 
Adjusted EBITDA14,324 16,923 31,944 43,011 
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The table below reconciles the non-GAAP financial performance measure of Cash Costs to Operating expenses, the most directly comparable GAAP measure:
Three months endedSix months ended
(Thousands of Dollars)March 26, 2023March 27, 2022March 26, 2023March 27, 2022
Operating expenses168,501 194,649 344,122 373,571 
Adjustments
Depreciation and amortization7,733 8,951 15,619 18,627 
Assets gain on sales, impairments and other, net(792)(152)(3,355)(12,426)
Restructuring costs and other3,694 10,590 4,340 13,790 
Cash Costs157,866 175,260 327,518 353,580 
LIQUIDITY AND CAPITAL RESOURCES
Our operations have historically generated strong positive cash flow and are expected to provide sufficient liquidity, together with cash on hand, to meet our requirements, primarily operating expenses, interest expense and capital expenditures. A summary of our cash flows is included in the narrative below.
Operating Activities
Cash provided by operating activities totaled $0.6 million in 2023 compared to cash required for operating activities of $0.6 million in 2022, an increase of $1.3 million. The increase was driven by an increase in working capital of $8.0 million primarily related to favorable changes to receivables and income taxes, partially offset by a decrease in operating results of $6.8 million, (defined as net income (loss) adjusted for non-working capital items).
Investing Activities
Cash provided by investing activities totaled $5.0 million in the 2023 Period compared to cash provided by investing activities of $9.9 million in the 2022 Period. 2023 and 2022 included $5.1 million and $14.7 million, respectively, in proceeds from the sale of assets as the Company divested non-core real estate.
We anticipate that funds necessary for capital expenditures, which are expected to total up to $10.0 million in 2023, and other requirements, will be available from internally generated funds.
Financing Activities
Cash required for financing activities totaled $2.8 million in the 2023 Period compared to $20.1 million in the 2022 Period. Debt reduction accounted for nearly all the usage of funds in both periods.
Additional Information on Liquidity
Our liquidity, consisting of cash on the balance sheet, totaled $19.0 million on March 26, 2023. This liquidity amount excludes any future cash flows from operations. 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.
CHANGES IN LAWS AND REGULATIONS
Wage Laws
The United States and various state and local governments are considering increasing their respective minimum wage rates. Most of our employees are paid more than the current United States or state minimum wage rates. However, until changes to such rates are enacted, the impact of the changes cannot be determined.
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FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This report contains information that may be deemed forward-looking that is based largely on our current expectations, and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and other uncertainties, which in some instances are beyond our control, are:
The overall impact the COVID-19 pandemic has on the Company's revenues and costs;
The long-term or permanent changes the COVID-19 pandemic may have on the publishing industry, which may result in permanent revenue reductions and other risks and uncertainties;
We may be required to indemnify the previous owners of the BH Media or Buffalo News for unknown legal and other matters that may arise;
Our ability to manage declining print revenue and circulation subscribers;
The impact and duration of adverse conditions in certain aspects of the economy affecting our business;
Changes in advertising and subscription demand;
Changes in technology that impact our ability to deliver digital advertising;
Potential changes in newsprint, other commodities and energy costs;
Interest rates;
Labor costs;
Significant cyber security breaches or failure of our information technology systems;
Our ability to achieve planned expense reductions and realize the expected benefit of our acquisitions;
Our ability to maintain employee and customer relationships;
Our ability to manage increased capital costs;
Our ability to maintain our listing status on NASDAQ;
Competition; and
Other risks detailed from time to time in our publicly filed documents.
Any statements that are not statements of historical fact (including statements containing the words “may”, “will”, “would”, “could”, “believes”, “expects”, “anticipates”, “intends”, “plans”, “projects”, “considers” and similar expressions) generally should be considered forward-looking statements. Statements regarding our plans, strategies, prospects and expectations regarding our business and industry, including statements regarding the impacts that the COVID-19 pandemic and our responses thereto may have on our future operations, are forward-looking statements. They reflect our expectations, are not guarantees of performance and speak only as of the date the statement is made. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this report. We do not undertake to publicly update or revise our forward-looking statements, except as required by law.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk stemming from changes in interest rates and commodity prices. Changes in these factors could cause fluctuations in earnings and cash flows. In the normal course of business, exposure to certain of these market risks is managed as described below.
INTEREST RATES ON DEBT
Our debt structure, which is entirely fixed rate, eliminates the potential impact of an increase in interest rates. We have no interest rate hedging in place.
COMMODITIES

Newsprint prices remained steady in the quarter from the increases in prices implemented throughout 2022, but price reductions effective in Q3 of 2023 have been announced. Despite reduced consumption, the newsprint supply chain continues to be challenged due to significant capacity reductions taken in the last two years including paper machine permanent shutdowns, conversion to paper grades other than newsprint, and recovering demand, domestically and exports, for newsprint.

Our long-term supply strategy continues to align the Company with those cost-effective suppliers most likely to continue producing and supplying newsprint to the North American market and geographically aligned with our
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print locations. Where possible the Company will align supply with the lowest cost material, but may be restricted due to shipping expenses and paper production availability.

A $10 per tonne price increase on 27.7-pound newsprint would result in an annualized reduction in income before taxes of approximately $0.3 million based on current and anticipated consumption trends in 2023, excluding consumption of TNI and MNI and the impact of LIFO accounting.
Our fixed rate debt consists of $460.0 million principal amount of the Term Loan recorded at carrying value.
Item 4.    Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of September 25, 2022, under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation the Company has concluded that, because the material weaknesses in the Company's internal control that existed as of September 25, 2022 have not been remediated by the end of the period covered by this report, our disclosure controls and procedures were not effective.
The material weaknesses identified by the Company are described below:
Management did not maintain appropriately designed information technology general controls in the areas of user access for certain of its information systems that are relevant to the preparation of the Company’s consolidated financial statements and system of internal control over financial reporting.
Management did not maintain appropriately designed controls over data provided by third-party service organizations for which a System and Organization Controls (SOC) 1 Type 2 report is not available. Specifically, management did not design and implement controls over the validation of the completeness and accuracy of information received from these service organizations and correspondingly relied upon by the Company in the preparation of the Company’s consolidated financial statements.
Management did not maintain appropriately designed controls to validate the accuracy of the tax basis associated with certain deferred tax assets and liabilities, which resulted in an immaterial error correction associated with the Company's previously issued consolidated financial statements.
Remediation Plans and Actions
Management is committed to remediating the material weaknesses that have been identified and maintaining an effective system of disclosure controls and procedures. These remediation efforts, summarized below, are intended to both address the identified material weaknesses and to enhance our overall financial control environment. In this regard, our initiatives include:
Establishing a project team to review, evaluate, and remediate material weaknesses in internal controls over financial reporting. The Company's recently expanded Corporate Compliance function will lead management's efforts related to effective control design, documentation, and implementation, as well as remediate ineffective controls.
Undergoing a complete user access review related to our information technology systems to refine user roles and establish appropriate user access to various systems that the Company relies upon in its internal controls over financial reporting, which includes enhancing user access provisioning and monitoring controls to enforce appropriate system access and segregation of duties.
Providing training to relevant personnel reinforcing existing Company policies regarding user access and the steps and procedures required to perform the required reviews of access to Company systems.
Enhancing the design of internal controls around evaluating data provided by third-party service organizations for which a SOC 1, Type 2 is not available to validate completeness and accuracy.
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Enhancing the design of internal controls to validate the accuracy of the tax basis for deferred tax assets and liabilities, including enhancing our record retention policy to include retaining documentation for complex tax items for as long as such tax items impact our consolidated financial statements.
The material weaknesses will be considered remediated when management concludes that, through testing, the applicable remedial controls are designed and implemented effectively.
PART II
OTHER INFORMATION
Item 1.    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.
Item 1.A Risk Factors
Except as otherwise described herein, there have been no material changes in the risk factors previously disclosed in “Part I, Item 1A. Risk Factors” of our 2022 Form 10-K.
In addition, the Company may, from time to time, evaluate and pursue other opportunities for growth, including through strategic investments, joint ventures, and other acquisitions. These strategic initiatives involve various inherent risks, including, without limitation, general business risk, integration and synergy risk, market acceptance risk and risks associated with the potential distraction of management. Such transactions and initiatives may not ultimately create value for us or our stockholders and may harm our reputation and materially adversely affect our business, financial condition, and results of operations.
Item 6.    Exhibits
Exhibits marked with an asterisk (*) are incorporated by reference to documents previously filed by us with the SEC, as indicated. Exhibits marked with a plus (+) are management contracts or compensatory plan contracts or arrangements filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K. All other documents listed are filed with this Quarterly Report on Form 10-Q.
NumberDescription
31.1Attached
31.2Attached
32.1Attached
32.2Attached
101.INSInline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)Attached
101.SCHInline XBRL Taxonomy Extension Schema DocumentAttached
101.CALInline XBRL Taxonomy Extension Calculation Linkbase DocumentAttached
101.DEFInline XBRL Taxonomy Extension Definition Linkbase DocumentAttached
101.LABInline XBRL Taxonomy Extension Label Linkbase DocumentAttached
101.PREInline XBRL Taxonomy Extension Presentation Linkbase DocumentAttached
104Cover Page Interactive Data File (formatted as Inline XBRL and embedded within the Inline XBRL document)Attached
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
LEE ENTERPRISES, INCORPORATED
/s/ Timothy R. Millage
May 4, 2023
Timothy R. Millage
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
24
Document

Exhibit 31.1
CERTIFICATION
I, Kevin D. Mowbray, certify that:
1I have reviewed this Quarterly report on Form 10-Q ("Quarterly Report") of Lee Enterprises, Incorporated ("Registrant");
2Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3Based on my knowledge, the Consolidated Financial Statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report;
4The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this Quarterly Report based on such evaluation; and
d)disclosed in this Quarterly Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an Annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
5The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the Audit Committee of Registrant's Board of Directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
Date: May 4, 2023
/s/ Kevin D. Mowbray
Kevin D. Mowbray
President and Chief Executive Officer

Document

Exhibit 31.2
CERTIFICATION
I, Timothy R. Millage, certify that:
1I have reviewed this Quarterly report on Form 10-Q ("Quarterly Report") of Lee Enterprises, Incorporated ("Registrant");
2Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;
3Based on my knowledge, the Consolidated Financial Statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report;
4The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;
b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this Quarterly Report based on such evaluation; and
d)disclosed in this Quarterly Report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter (the Registrant's fourth fiscal quarter in the case of an Annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and
5The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the Audit Committee of Registrant's Board of Directors (or persons performing the equivalent functions):
a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and
b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting.
Date: May 4, 2023
/s/ Timothy R. Millage
Timothy R. Millage
Vice President, Chief Financial Officer and Treasurer