LEE ENTERPRISES, Inc: Form 10-K for the period ended Sep 24, 2023

Lee Enterprises, Incorporated, together with its subsidiaries (“Lee”, “the Company”, “we”, “our” or “us”), is a digital-first subscription business providing local markets with valuable, high quality, trusted, intensely local news, information, advertising and marketing services. We inform consumers in 75 mid-sized local communities in 26 states with a rapidly growing digital subscription platform including 721,000 digital subscribers. Our core strategy aims to grow audiences and engagement through creating, collecting, and distributing trusted local news and information, continuous improvements to subscriber experience, and offering a full suite of omni-channel advertising and marketing to more than 30,000 local advertisers.

Our product portfolio includes digital subscription platforms, daily, weekly and monthly newspapers and niche products, all delivering original local news and information as well as national and international news. Our products offer digital and print editions, and our content and advertising is available in real time through our websites and mobile apps. We operate in predominately mid-sized communities with products ranging from large daily newspapers and 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 have made investments in talent and technology to improve user experience, content, data visualization and marketing to align with the shift in spending habits by both consumers and advertisers toward digital products. In 2023, total digital revenues, which include digital advertising and marketing services revenues, digital-only subscription revenues, and digital services revenues, were $273.2 million, or 39.5% of our total revenues.

We aim to grow our business through three main categories: subscriptions to our product offerings, advertising and marketing solutions to local advertisers, and digital services to a diverse set of customers. Execution of this strategy is expected to transform Lee into a growing and sustainable local media organization.

• Our digital subscription platforms are the fastest growing digital subscription platforms in local media. At the end of 2023, we had 721,000 subscribers to our digital platforms, up 35.6% over 2022. Revenue from digital-only subscribers totaled more than $60 million in 2023, up 51% over 2022.
• Amplified Digital® ("Amplified"), our digital marketing services agency, offers a full suite of digital marketing solutions to local advertisers. Revenue at Amplified totaled more than $91.2 million in 2023 up 20% over 2022.
• BLOX Digital (formerly known as TownNews), our software as a service (SaaS) content platform, is one of the largest web-hosting and content management SaaS providers in North America. BLOX Digital represents a powerful opportunity to drive additional digital revenue by providing state-of-the-art web hosting and content management services to more than 2,000 customers who rely on BLOX Digital for their web, over-the-top display, mobile, video and social media products. Revenue at BLOX Digital, including intercompany revenue, totaled $35 million in 2023, and has achieved a compound annual growth rate of 11.0% over the last ten years.

We generate revenue primarily through advertising and marketing services, subscriptions to our digital and print products, and digital services, primarily through our majority-owned subsidiary, BLOX Digital.

On March 16, 2020, we completed the acquisition of BH Media Group, Inc. ("BH Media") and The Buffalo News, Inc. ("Buffalo News"), adding 31 local media operations and nearly doubling our audience size and total operating revenue. See Note 1 — Significant Accounting Policies, in the Consolidated Financial Statements for more information on the acquisition.

Advertising and Marketing Services - In 2023, advertising and marketing services revenue of $319.0 million comprised 46.2% of total operating revenue. Advertising and marketing services are primarily sold to local, regional, and nationwide businesses. There are four categories of advertising revenue:

• Advertising on our owned and operated digital products;
• Digital marketing services through Amplified, including targeted display, video, OTT, custom content, web development, social media management, search, events, email marketing and other tactics;
• Display advertising in daily and non-daily print publications; and
• Preprinted advertising inserted in our daily and non-daily print publications.

Digital advertising and marketing services remain a key strategic priority for us in 2024. Our advertising teams deploy an omni-channel sales approach that leverages our owned and operated products with Amplified to offer a full suite of digital advertising and marketing services. Through our nationally scaled sales force, proprietary ad tech, and sophisticated reporting and analytics, we believe we are well positioned to solve advertising solutions for our advertisers. Through our AI-driven media planning process, we present our advertisers with targeted, integrated solutions that help them reach their intended audiences.

Advertising and marketing services revenues are subject to moderate seasonality primarily due to fluctuations in advertising volumes tied to holidays and seasonal advertising. Our advertising and marketing services revenues are typically highest during the first quarter due to holiday and seasonal advertising and lowest in the second quarter following the holiday season.

Subscription Revenue - In 2023, subscription revenue of $313.3 million comprised 45.3% of our total operating revenue. Subscription revenue is earned primarily from selling subscriptions to our content through our full access subscriptions, digital-only subscriptions and single copy sales.

Our full access subscriptions include access to all of our content on multiple platforms; including our print products delivered or made available to consumers, websites, smartphone and tablet applications, and e-editions with pricing varying significantly by market and by frequency. Consistent with general publishing industry trends, print subscription volumes declined in 2023.

We experienced rapid growth of our digital-only subscriptions. Digital-only subscriptions include access to our content on our digital platforms. At the end of the fiscal year, we had over 721,000 digital-only subscribers, up 35.6% compared to 2022, with revenue totaling $60 million, or up 51% compared to 2022. Growing our digital-only subscribers and digital-only revenue remains a top strategic priority in 2024. Our primary digital-only subscriber acquisition tactics include:

• Investing in relevant, trusted, and intensely local news and information that connects and engages our local communities;
• Brand marketing campaigns to raise awareness to the desirability of our content;
• Continuously improving our subscriber experience; and
• Converting our significant organic traffic through on-platform promotion, paywalls, and dynamic meters.

A variety of pricing strategies are also used, including discounted introductory periods and sales, to encourage trial and habituation before transitioning to the full price rate.

Digital Services Revenue – In 2023, digital services revenue of $19.4 million comprised 2.8% of our total operating revenue. In 2023, almost all of our digital services revenue is from BLOX Digital. BLOX Digital, operated through our 82.5% owned subsidiary INN Partners, L.C., is one of the largest web-hosting and content management SaaS providers in North America and offers state-of-the-art integrated digital publishing and content management solutions for creating, distributing, and monetizing multimedia content.

• BLOX Digital is the engine that powers our digital products. In addition, BLOX Digital services nearly 2,000 daily customers, including legacy media publications, universities, television stations and niche publications.
• Including intercompany revenue generated from our markets, revenue at BLOX Digital grew 13.2% in 2023 and totaled $35 million.
• With strong product offerings, investments in video and streaming technology and diversifying the customer base into broadcast, BLOX Digital is positioned to continue to be a key component of our growth strategy.

Other Revenue - In 2023, Other Revenue of $58.9 million comprised 8.5% of total operating revenue. Excluding digital services revenue, other revenue is comprised mainly of commercial printing and delivery of third-party products. In 2023, other revenue excluding digital services of $19.4 million, comprised 5.7% of our total operating revenue, compared to $18.0 million and 5.5% in 2022.

We compete with other media and digital companies for advertising and marketing spend. Our print and digital products competed with other forms of media including national media providers and amateur content creators, as well as other news and information outlets for subscription spend. The market for local digital marketing solutions is highly competitive and evolving allowing opportunities for new competitors to enter the market.

Amplified competes with other digital marketing solutions agencies as well as other media companies which have a similar strategy for digital marketing solutions. While some of our competitors enjoy competitive advantages such as greater name recognition, longer histories as well as greater financial resources, we believe we compete favorably and our product capabilities meet customer requirements due to our data-driven, omni-channel sales approach, our experienced digital sales force and our overall customer satisfaction.

The number of competitors in any given market varies; however all of the forms of competition noted above exist to some degree in all of our markets.

STRATEGIC INITIATIVES

We are committed to a strategy that transforms Lee into a sustainable and growing digital business. Aligning with that commitment, our Three Pillar Digital Growth Strategy is focused on the following:

Expand digital audiences by transforming the presentation of local news and information. We seek to maintain our dominant market position as the leading provider of news and information by providing best-in-class digital experiences to improve consumer engagement and grow our audiences. We aim to achieve this by delivering relevant, useful, and engaging content to the consumer using a multi-media approach, including video and audio.

In 2024, we plan to continuously improve the user experience with our digital products through targeted investments in top talent aimed at improving the mobile version of our digital products and leveraging the information we have to improve subscriber retention. Providing our local consumers with more and more high quality, trusted, engaging content is important to growing our digital audiences and driving subscription conversions.

We believe that our proprietary local content displayed in best-in-class multimedia platforms combined with new and engaging content and video channels will grow our audiences and increase our audience monetization capabilities.

Expand digital subscription base and revenue. We are the fastest growing local media digital subscription business. Digital-only subscriber growth continued at a rapid pace in 2023, offsetting the declines in our traditional full access (print and digital) subscribers. Our digital audiences are comprised of full access subscribers, digital-only subscribers and non-subscribers who access our sites subject to our paywalls. More than 53% of our full access subscribers have activated their digital access, and digital-only subscribers increased 35.6% in 2023, reaching over 721,000 digital-only subscribers.

Our acquisition and retention tactics are focused on growing our digital subscription base by using data and analytics to direct our huge addressable market of 31 million unique visitors toward obtaining a digital subscription.

Using these techniques, we expect digital-only subscribers to continue to grow substantially, reaching more than 1.2 million digital-only subscribers by 2028.

We believe our digital transformation will have a favorable impact on the environment. A key component of our digital growth strategy is to accelerate the pace of digital subscriber growth. Growing our digital revenue streams as the print revenues mature will have a favorable impact on the environment as our production hubs will consume less energy, we will consume less newsprint, and there will be less environmental impact from our distribution channels that largely operate on fossil-fuel powered transportation.

Diversify and expand offerings for local advertisers. According to eMarketer, local advertising spending is expected to reach nearly $150 billion in 2024. Our vast array of rapidly growing digital products, our large, digitally-adept salesforce and Amplified, our full service digital agency, create a powerful opportunity to gain scale both in and outside of our local markets.

• Our local sales forces are larger than any local competitor, and we believe they are the most highly trained and proficient sales force in our markets.
• We have strong relationships with businesses in our markets and offer a wide array of products to deliver our advertisers' message.

Through Amplified we create sophisticated digital campaigns on our owned and operated sites and on third-party sites that give advertisers the ability to target their message to reach their desired audiences. Our sales force deploys an omni-channel sales approach that leverages the auction-based ad buying that is widely adopted by all major digital advertising channels, and tailors advertising and marketing solutions based on the size, scale, and needs of the advertiser. We collaborate with Google and other ad tech companies to provide key metrics and analytics to measure campaign effectiveness.

BLOX Digitals represents a powerful opportunity for us to drive additional digital revenue through their SaaS content platform. In 2023, revenue at BLOX Digital, including intracompany revenue, totaled $35 million and since 2013 the compounded annual growth rate of BLOX Digital revenue has been 11.0%. Through continuous investment in product development and gaining essential technology, like world-class video and streaming technology, BLOX Digital is the leading CMS provider in the publishing CMS segment and is growing its market share in the broadcast CMS segment. In 2024, we believe we can grow revenue at BLOX Digital through modest market share gains in our core markets, increasing our average revenue per customer.

DAILY NEWSPAPERS AND MARKETS

The Company, including our investments in TNI Partners ("TNI") in Tucson, AZ and Madison Newspapers, Inc. ("MNI") in Madison, WI, publish the following daily newspapers and maintain the following primary digital sites:

4

5

(1) Source: AAM: September 2023 Quarterly Executive Summary Data Report, unaudited

(2) Source: AAM: March 2023 Quarterly Executive Summary Data Report, unaudited More recent data is not available

(3) Not all newspapers are published Monday through Saturday or have a Sunday edition

(4) Owned by MNI

(5) Owned by Star Publishing and published through TNI

(6) Source: Company statistics.

(7) Excludes Agri-Media sites

NEWSPRINT

The raw material of newspapers, and our other print publications, is newsprint. We purchase newsprint from U.S. and Canadian producers. We believe we will continue to receive a supply of newsprint adequate for our needs and consider our relationships with newsprint producers to be good. Newsprint purchase prices can be volatile and fluctuate based upon factors that include foreign currency exchange rates, tariffs and both foreign and domestic production capacity and consumption. Price fluctuations can affect our results of operations. We have not entered into derivative contracts for newsprint. For the quantitative impacts of these fluctuations, see Item 7A, “Quantitative and Qualitative Disclosures about Market Risk”, included herein.

EMPLOYEES AND HUMAN CAPITAL RESOURCES

We believe the foundation of our business is the people and employees who support our business strategy. A major focus in 2023 was investing in top digital talent to carry out our Three Pillar Digital Growth Strategy and position us to achieve our long-term growth targets

At September 24, 2023, we had 3,342 employees, including 510 part-time employees, exclusive of TNI and MNI. Full-time equivalent employees in 2023 totaled approximately 3,171 of which 527 are represented by unions. We consider our relationships with our employees to be good. We are committed to creating an equitable and inclusive workplace that also reflects the diversity of our local readers and communities in which we serve.

We continue to demonstrate our commitment to diversity, equity and inclusion by assessing our hiring practices, extending our hiring reach, providing skill-building opportunities on diverse storytelling, and developing business strategies that include historically marginalized communities. These efforts and initiatives will help us reach our goal of a more diverse workforce at all levels of our company.

CORPORATE GOVERNANCE AND PUBLIC INFORMATION

We have a long history of sound corporate governance practices. Currently, our Board of Directors has affirmatively determined that eight of its nine members are independent, including all members of the Board's Audit, Executive Compensation, and Nominating and Corporate Governance committees. The Audit Committee approves all services to be provided by our independent registered public accounting firm and its affiliates.

At www.lee.net (http://www.lee.net), one may access a wide variety of information, including news releases, SEC filings, financial statistics, annual reports, investor presentations, governance documents, newspaper profiles and digital links. We make available via our website all filings made by the Company under the Securities Exchange Act of 1934 ("Exchange Act"), including Forms 10-K, 10-Q and 8-K, and related amendments, as soon as reasonably practicable after they are filed with, or furnished to, the SEC. All such filings are available free of charge. The content of any website referred to in this Annual Report on Form 10-K ("Annual Report") is not incorporated by reference unless expressly noted.

FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This Annual 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:

• We may be required to indemnify the previous owners of the BH Media Newspaper Business or Buffalo News for unknown legal and other matters that may arise;
• Our ability to manage declining print revenue;
• The impact and duration of adverse conditions in certain aspects of the economy affecting our business;
• Change 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 the Nasdaq Global Select Market ("NASDAQ");
• Competition; and
• Other risks detailed from time to time in our publicly filed documents, including this Annual Report and particularly in "Risk Factors", Part I, Item 1A herein.

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. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this Annual Report. We do not undertake to publicly update or revise our forward-looking statements, except as required by law.

The risks described below could materially and adversely affect our business, financial condition and results of operations. We could also be affected by additional risks that apply to all companies operating in the U.S., as well as other risks that are not presently known to us or that we currently consider to be immaterial. These Risk Factors should be carefully reviewed in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and our Financial Statements and Supplementary Data in Item 8 of this Report. For ease of review, the risk factors generally have been grouped into categories, but many of the risks described in a given category relate to multiple categories.

Risks Related to our Business and Operations

Our advertising revenues may decline due to weakness in the retail sector.

A significant portion of our revenue is derived from advertising and a decline in the financial or economic conditions of our advertisers could alter discretionary spending by those advertisers. Our publications' and websites' advertisers are primarily retail businesses, which have been challenged in recent years by increased competition from online retailers. This trend has reduced and may continue to reduce advertising revenue from the brick-and-mortar retail sector. Specifically, advertising revenues may worsen if advertisers reduce their budgets, shift their spending priorities, are forced to consolidate, or cease operations.

Our ability to generate revenue is highly sensitive to the strength of the economies in which we operate and the demographics of the local communities that we serve.

Our advertising and marketing services revenues and subscription revenues depend upon a number of factors, including the size and demographic characteristics of the local population; the general local economic conditions; and the economic condition of the retail segments in the communities that our publications serve. In the case of an economic downturn in a market, our publications, revenues, and profitability in that market could be adversely affected. Our advertising and marketing services revenues could also be affected by negative trends in the general economy that affect consumer spending. The advertisers in our newspapers, other publications, and related websites are primarily retail businesses that can be significantly affected by regional or national economic downturns and other developments. Declines in the U.S. economy could also significantly affect key advertising revenue categories, such as help wanted, real estate, and automotive.

Uncertainty and adverse changes in the general economic conditions of markets in which we participate and increases in costs of raw materials, energy, labor and other factors may negatively affect our business.

Our business and the companies with which we do business are subject risks and uncertainties caused by factors beyond our control. Such factors include economic pressures related to high inflation, rising interest rates, economic weakness or recession, as well as geopolitical and public health events such as the wars in Ukraine and Israel, pandemics, and workforce expectations.

In the past, these and other similar conditions and events have resulted in, and could lead to a tightening of credit and capital markets, lower levels of liquidity, lower consumer and business spending, unemployment, declines in real estate values, increases in employee-related costs, and other adverse economic conditions. These changes may negatively affect the sales of our products, increase exposure to losses from bad debts, increase the cost and decrease the availability of financing, or increase costs associated with publishing and distributing our publications. In addition, printing and distribution costs, including the costs of paper and ink, are a significant expense for the Company. We expect increases in these costs in the near-term from various factors, including increases in the cost of raw materials, energy, labor, transportation, and distribution, due to inflation and other adverse factors on the economy.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately or timely report our financial results. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm the business and trading price of our common stock.

As a public company, we are required to maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, Section 404 of the Sarbanes-Oxley Act requires us to perform system and process evaluations and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting. Compliance with Section 404 may require us to incur substantial accounting expenses and expend significant management efforts. Our testing has revealed and in the future may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. In the event we identify significant deficiencies or material weaknesses in our internal controls that we cannot remediate in a timely manner, the market price of our stock could decline if investors and others lose confidence in the reliability of our financial statements and we could be subject to sanctions or investigations by the SEC, NASDAQ, or other applicable regulatory authorities.

We have identified a material weakness in our internal control over financial reporting, which could result in loss of investor confidence in the Company and a negative impact on the value of our common stock.

Management assessed the effectiveness of our internal control over financial reporting as of September 24, 2023, and concluded we did not maintain effective internal control over financial reporting. Management did not design and implement controls to assess the reliability of certain internally generated information, or evaluate information received from certain third-party service providers, that are relevant to certain revenue recognized in the Company’s consolidated financial statements. For additional information, see Item 9A, "Controls and Procedures," below.

Until remediated, the material weakness could adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner, which could negatively affect investor confidence in the Company and, in turn, the value of our common stock. While certain actions have been taken and planned to remediate and address the material weaknesses and enhance our internal control over financial reporting, we cannot be certain such remedial measures will be successful or otherwise sufficient to address the material weakness. In addition, if we are unable to remediate the material weakness, are otherwise unable to maintain effective internal control over financial reporting, or additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods could be adversely affected, which, in addition to loss of investor confidence and a negative affect on the value of our common stock, could subject the Company to sanctions or investigations by the SEC, NASDAQ, or other regulatory authorities requiring additional financial and management resources to address.

The collectability of accounts receivable under adverse economic conditions could deteriorate to a greater extent than provided for in our financial statements and in our projections of future results.

Adverse economic conditions in the U.S. may increase our exposure to losses resulting from financial distress, insolvency, and the potential bankruptcy of our advertising and marketing services customers. Our accounts receivable is stated at net estimated realizable value, and our allowance for credit losses has been determined based on several factors, including receivable agings, significant individual credit risk accounts, and historical experience. If such collectability estimates prove inaccurate, adjustments to future operating results could occur.

The value of our intangible assets may become further impaired, depending upon future operating results.

At September 24, 2023, the carrying value of our goodwill was $329.5 million, the carrying value of mastheads was $18.7 million, and the carrying value of our amortizable intangible assets was $76.3 million. The indefinite-lived assets (goodwill and mastheads) are subject to annual impairment testing and more frequent testing upon the occurrence of certain events or significant changes in our circumstances that indicate all or a portion of their carrying values may no longer be recoverable, in which case a non-cash charge to earnings may be necessary in the relevant period. We may subsequently experience market pressures which could cause future cash flows to decline below our current expectations, or volatile equity markets could negatively impact market factors used in the impairment analysis, including earnings multiples, discount rates, and long-term growth rates. Any future evaluations requiring an asset impairment charge for goodwill or other intangible assets would adversely affect future reported results of operations and stockholders’ equity.

For further information on goodwill and intangible assets, see Note 4 — Goodwill and other intangible assets.

Attracting and retaining highly qualified personnel is difficult and costly, but the failure to do so Could negatively affect our operations.

Our businesses depend on the efforts, abilities, and talents of our executive team and other highly qualified employees who possess substantial business, information technology, and operational knowledge. The market for such personnel, including technology-related, product and software development, data science, and digital marketing and sales roles is very competitive, and we cannot ensure success in retaining these employees or hiring and training replacement employees in a timely and cost-effective manner, particularly as we continue to focus on our digital products and services. These risks have been exacerbated by recent labor constraints, a trend of increasing employee turnover, and inflationary pressures on employee wages and benefits.

Natural disasters, extreme weather conditions, public health emergencies or other catastrophic events could negatively affect our business, financial condition, and results of operations.

Natural disasters and extreme weather conditions, such as hurricanes, derecho windstorms, floods, earthquakes, wildfires; acts of terrorism or violence, including active-shooter situations; and public health issues, including pandemics and quarantines, could negatively affect our operations and financial performance. Such events could result in physical damage to our properties, disruptions to our IT systems, temporary or long-term disruption in the supply of products from our suppliers, and delays in the delivery of goods to our printing facilities. Public health issues, whether occurring in the U.S. or Canada, could disrupt our operations, the operations of suppliers, or have an adverse impact on consumer spending and confidence levels.

Risk Related to Competition from Digital Media

Our operating revenue may be materially adversely affected if we do not successfully respond to the shift in newspaper readership and advertising expenditures away from traditional print media and towards digital media. Significant capital investments may be needed to respond to this shift.

Currently, a primary source of revenue is from advertising and marketing services, which accounts for 46% of our revenue. Subscription revenue accounts for 45% of our revenue. The media publishing industry has experienced rapid evolution in consumer demands and expectations due to advances in technology, which have led to a proliferation of delivery methods for news and information. The number of consumers who access online services through devices other than personal computers, such as tablets and mobile devices, has increased dramatically in recent years and likely will continue to increase. The media publishing industry also continues to be affected by demographic shifts, with older generations preferring more traditional print newspaper delivery and younger generations consuming news through digital media. Also, the revenues generated by media publishing companies have been affected significantly by the shift in advertising expenditures towards digital media.

The future revenue performance of our digital business depends to a significant degree upon the growth, development, and management of our subscriber and advertising audiences. The growth of our digital business over the long term depends on various factors, including, among other things, the ability to:

• Continue to increase digital audiences;
• Attract advertisers to our digital platforms;
• Tailor our products to efficiently and effectively deliver content and advertising on mobile devices;
• Maintain or increase the advertising rates on our digital platforms;
• Exploit new and existing technologies to distinguish our products and services from those of competitors and develop new content, products and services;
• Invest funds and resources in digital opportunities;
• Partner with, or use services from, providers that can assist us in effectively growing our digital business; and
• Create digital content and platforms that attract and engage audiences in our markets.

If we are unable to grow our digital audience, distinguish our products and services from those of our competitors or develop compelling new products and services that engage users across multiple platforms, then our business, financial condition, and results of operations may be adversely affected. Responding to the changes described above may require us to make significant capital investments and incur significant research and development costs related to building, maintaining, and evolving our technology infrastructure, and our ability to make the level of investments required may be limited.

See “Audiences” in Item 1, included herein, for additional information on about our print and digital audiences.

We compete with a large number of companies in the local media industry, including digital media businesses and, if we are unable to compete effectively, our advertising and subscription revenues may decline.

We compete for audiences and advertising revenue with newspapers and other media such as web-based digital platforms (e.g., Alphabet, Amazon, Meta, TikTok etc.), magazines, broadcast, cable and satellite television, radio, direct mail, and billboards. As the use of the internet and mobile devices has increased, we have lost some classified advertising and subscribers to online advertising businesses and free Internet sites that contain abbreviated versions of our publications. Some of our current and potential competitors have greater financial and other resources than we do. If we fail to compete effectively with competing newspapers and other media, our results of operations may be materially adversely affected.

Risks Related to Our Indebtedness

Our Indebtedness could materially and adversely affect our business or financial condition.

Our current indebtedness, and any future debt incurred, could have significant consequences on our future operations, including making it more difficult to satisfy our debt obligations and meet our operational goals. Our entire outstanding indebtedness is encompassed in a 25-year term loan ("Term Loan") with BH Finance LLC, a Nebraska limited liability company affiliated with Berkshire Hathaway, Inc. ("BH Finance"), which was part of a broader comprehensive refinancing of all of our then-outstanding debt, including a Credit Agreement, dated January 29, 2020 (collectively, the "2020 Refinancing").

At its inception, the aggregate principal amount and applicable interest rate of the Term Loan was $576.0 million and 9% annual rate, respectively, the proceeds of which were used to refinance our then-outstanding debt and fund the acquisition of BH Media and Buffalo News. The Term Loan is collateralized by all Company assets. Currently, the Term Note has an aggregate principal outstanding amount of $455.7 million. Our ability to make scheduled payments depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, competitive, legislative, regulatory, and other factors beyond our control. We may be unable to maintain a level of cash flow sufficient to permit us to pay the principal and interest on our debt.

If our cash flow and capital resources are insufficient to fund our debt obligations, we could face liquidity issues and be forced to reduce or delay investments, acquisitions, and capital expenditures or sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot assure investors we would be able to take any of these alternative actions, such actions would be permitted under the terms of the Credit Agreement, and, even if successful,, that such actions would permit us to meet our scheduled debt service obligations

In addition, the 2020 Refinancing terms impose operating and financial restrictions, including restrictions on incurring additional indebtedness, creating certain liens, making certain investments or acquisitions, issuing dividends, repurchasing shares of Company stock, and engaging in other capital transactions. A failure to satisfy out debt service obligations on the Term Loan could give rise to default. Moreover, these restrictions limit our flexibility in planning for or reacting to changes in our business, the economy, in general, and the economies in which we operate, which, in turn increases our vulnerability to adverse financial consequences related to such changes.

A failure to satisfy our debt service obligations on the Term Loan could give rise to default and, in turn, the right of our lender to accelerate our indebtedness, making all principal and interest becoming due and payable.

Certain actions, including our ability to incur additional indebtedness, require the consent of our lenders and note holders which, if not provided, would limit our ability to take advantage of future opportunities.

The terms of the 2020 Refinancing, limit our ability to take certain actions without requisite lender approval and modification of the loan agreements. These limitations include restrictions on incurring additional indebtedness, creating certain liens, making certain investments or acquisitions, issuing dividends, repurchasing shares of Company stock, and engaging in other capital transactions. While we have an established relationship with BH Finance, whose priorities and interests are familiar to us, there is no assurance BH Finance will approve or consent to our activities, even if the activities are in the best interests of our stockholders. If we are unable to secure the required consent of BH Finance, our ability to take advantage of future opportunities, including acquisition or financing opportunities, could be restricted.

Risks Related to Cybersecurity

Our business, operating results, and reputation may be negatively impacted, and we may be subject to legal and regulatory claims if there is a loss, destruction, disclosure, misappropriation, or alteration of or unauthorized access to data owned or maintained by us, or if we are the subject of a significant data breach or cyberattack.

We rely on our information technology and communications systems to manage our business data, including communications, news and advertising content, digital products, order entry, fulfillment and other business processes. These technologies and systems also help us manage many of our internal controls over financial reporting, disclosure controls and procedures and financial systems. Attempts to compromise information technology and communications systems occur regularly across many industries and sectors, and we may be vulnerable to security breaches resulting from accidental events (such as human error) or deliberate attacks. Moreover, the techniques used to attempt attacks and the perpetrators of such attacks are constantly expanding. We face threats both from use of malicious code (such as malware, viruses and ransomware), employee theft or misuse, advanced persistent threats, and phishing and denial-of-service attacks. The Company has complied with all applicable legal requirements relating to this activity. As cyberattacks become increasingly sophisticated, and as tools and resources become more readily available to malicious third parties, the Company will incur increased costs to secure its technology environment and there can be no guarantee that the Company’s and our third-party vendors’ actions, security measures and controls designed to prevent, detect or respond to security breaches, to limit access to data, to prevent destruction, alteration, or exfiltration of data, or to limit the negative impact from such attacks, can provide absolute security against compromise. As a result, our business data, communications, news and advertising content, digital products, order entry, fulfillment and other business processes may be lost, destroyed, disclosed, misappropriated, altered or accessed without consent and various controls, automated procedures and financial systems could be compromised.

A significant security breach or other successful attack could result in significant remediation costs, including repairing system damage, engaging third-party experts, deploying additional personnel or vendor support, training employees, and compensation or incentives offered to third parties whose data has been compromised. These incidents may also lead to lost revenues resulting from a loss in competitive advantage due to the unauthorized disclosure, alteration, destruction or use of business data, the failure to retain or attract customers, the disruption of critical business processes or systems, and the diversion of management’s attention and resources. Moreover, such incidents may result in adverse media coverage, which may harm our reputation. These incidents may also lead to legal claims or proceedings, including regulatory investigations and actions and private lawsuits, and related legal fees, as well as potential settlements, judgments and fines. We maintain insurance, but the coverage and limits of our insurance policies may not be adequate to reimburse us for losses caused by security breaches.

Our possession and use of personal information and the use of payment cards by our customers present risks and expenses that could harm our business. Unauthorized access to or disclosure or manipulation of such data, whether through breach of our network security or otherwise, could expose us to liabilities and costly litigation and damage our reputation.

Our online systems store and process confidential subscriber and other sensitive data, such as names, email addresses, addresses, and other personal information. Therefore, maintaining our network security is critical. Additionally, we depend on the security of our third-party service providers. Unauthorized use of or inappropriate access to our, or our third-party service providers’ networks, computer systems and services could potentially jeopardize the security of confidential information, including payment card (credit or debit) information, of our customers. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we or our third-party service providers may be unable to anticipate these techniques or to implement adequate preventative measures. A party that is able to circumvent our security measures could misappropriate our proprietary information or the information of our customers or users, cause interruption in our operations, or damage our computers or those of our customers or users. As a result of any such breaches, customers or users may assert claims of liability against us and these activities may subject us to legal claims, adversely impact our reputation, and interfere with our ability to provide our products and services, all of which may have an adverse effect on our business, financial condition and results of operations. The coverage and limits of our insurance policies may not be adequate to reimburse us for losses caused by security breaches.

A significant number of our customers authorize us to bill their payment card accounts directly for all amounts charged by us. These customers provide payment card information and other personally identifiable information which, depending on the particular payment plan, may be maintained to facilitate future payment card transactions. Under payment card rules and our contracts with our card processors, if there is a breach of payment card information that we store, we could be liable to the banks that issue the payment cards for their related expenses and penalties. In addition, if we fail to follow payment card industry data security standards, even if there is no compromise of customer information, we could incur significant fines or lose our ability to give our customers the option of using payment cards. If we were unable to accept payment cards, our business would be seriously harmed.

There can be no assurance that any security measures we, or our third-party service providers, take will be effective in preventing a data breach. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. If an actual or perceived breach of our security occurs, the perception of the effectiveness of our security measures could be harmed and we could lose customers or users. Failure to protect confidential customer data or to provide customers with adequate notice of our privacy policies could also subject us to liabilities imposed by United States federal and state regulatory agencies or courts. We could also be subject to evolving state laws that impose data breach notification requirements, specific data security obligations, or other consumer privacy-related requirements. Our failure to comply with any of these laws or regulations may have an adverse effect on our business, financial condition and results of operations.

Risks Related to Pension Liabilities

Sustained increases in funding requirements of our pension and postretirement obligations may reduce the cash available for our business.

Pension plans were in a net overfunded position of $10.3 million at September 24, 2023 compared to an underfunded position of $0.4 million at September 25, 2022.

Our pension and postretirement plans invest in a variety of equity and debt securities. Future volatility and disruption in the securities markets could cause declines in the asset values of our pension and postretirement plans. In addition, a decrease in the discount rates or changes to mortality estimates and other assumptions used to determine the liability could increase the benefit obligation of the plans. Unfavorable changes to the plan assets and/or the benefit obligations could increase the level of required contributions above what is currently estimated, which could reduce the cash available for our business and debt service.

We expect to be subject to additional withdrawal liabilities in connection with multiemployer pension plans, which may reduce the cash available for our business.

We contributed to various multiemployer defined benefit pension plans during 2023 under the terms of collective-bargaining agreements (“CBAs”). For plans that are in critical status, benefit reductions may apply or we could be required to make additional contributions.

Our executive offices are located in leased facilities at 4600 E. 53rd Street, Davenport, Iowa. The initial lease term expires August 1, 2029.

We have 19 print sites which print most of our dailies with the exception of 10 that are printed at third-party printers.

Our newspapers and other publications have formal or informal backup arrangements for printing in the event of a disruption in production capability.

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.

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 year ended September 24, 2023, and for fiscal years 2022 and 2021. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, included herein.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe the following discussion addresses our most critical accounting policies, which are those that are important to the presentation of our financial condition and results of operations and require management's most subjective and complex judgments.

Intangible Assets, Other Than Goodwill

Local mastheads (e.g., publishing periodical titles, web site domain names, and trade names) are not subject to amortization. Non-amortized intangible assets are tested for impairment annually on the first day of the fourth fiscal quarter or more frequently if events or changes in circumstances suggest the asset might be impaired.

The quantitative impairment test consists of comparing the fair value of each masthead or domain name with its carrying amount. We use a relief from royalty approach which utilizes a discounted cash flow model to determine the fair value of each masthead, domain name, or trade name. Management's judgments and estimates of future operating results in determining the intangibles fair values are consistently applied to each underlying business in determining the fair value of each intangible asset. In 2023, 2022, and 2021, we recognized impairment charges of $7.7 million, $14.2 million, and $0.8 million, respectively. Only one of our mastheads has a fair value that is 20% over its carrying value, therefore our mastheads could experience impairment in the future if we do not achieve our revenue projections. As of September 24, 2023 the masthead carrying value is $18.7 million.

Our amortizable intangible assets consist mainly of customer relationships including subscriber lists and advertiser relationships. These asset values are amortized systematically over their estimated useful lives. Intangible assets subject to amortization are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The carrying amount of each asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of such asset group. In 2021, we recognized $0.2 million of impairment on intangible assets subject to amortization. There were no indicators of impairment on intangible assets subject to amortization in 2023 or 2022.

Our quantitative impairment analysis includes several inputs that are considered estimates, these include royalty rates, discount rates, five-year revenue forecast, and long term growth rates. All of these estimates are subject to uncertainty as future results may or may not be achieved. In 2023, the royalty rates utilized range from 0% to 1.0%; a 50-basis point decrease in royalty rates would result in an additional $9.3 million of impairment. The Company’s discount rate utilized in the analysis has ranged from 10.5% in 2021 to 13.0% 2023, depending on market conditions. Increasing the discount rate by 100 basis points would result in an additional $1.2 million of impairment. The Company has had various revenue forecasts utilized in the analysis over different years.

Future decreases in our market value, or significant differences in revenue, expenses or cash flows from estimates used to determine fair value, could result in additional masthead impairment charges in the future.

For information related to the Company's Goodwill impairment analysis, refer to Note 4 to the Consolidated Financial Statements.

Pension, Postretirement and Postemployment Benefit Plans

We, along with our subsidiaries, have various defined benefit retirement plans, postretirement plans and postemployment plans, under which substantially all of the benefits have been frozen in previous years.

We account for our pension, postretirement and postemployment plans in accordance with the applicable accounting guidance, which requires us to include the funded status of our pension plans in our balance sheets and to recognize, as a component of other comprehensive income (loss), the gains or losses that arise during the period but are not recognized in pension expense. The service cost component of net period benefit cost is reported on the Consolidated Statements of Income and Comprehensive Income and included in Compensation while all other components are included in other non-operating income/expense.

The determination of pension and postretirement plan obligations and expense is based on a number of actuarial assumptions. Two critical assumptions are the discount rates applied to pension and postretirement plan obligations and the expected long-term rate of return on plan assets.

The discount rate assumption is based on investment yields available at year-end on corporate bonds rated AA and above with a maturity to match the expected benefit payment stream. To determine the expected long-term rate of return of assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets, input from the actuaries and investment consultants and long- term inflation assumptions. In 2023, we used an expected return of assets assumption of 5.0% for both our pension plan assets and our postretirement and postemployment benefit plan assets.

A 50-basis point decrease in discount rates would result in an increase to pension and postretirement and postemployment benefits liabilities of $10.6 million. A 50-basis point decrease in expected rate of return of assets results would result in an increase to pension and postretirement and postemployment benefits expense of $1.1 million.

Income Taxes

We are subject to income taxes in the U.S. and record our tax provision for the anticipated tax consequences in our reported results of operations. Tax laws are complex and subject to different interpretations by the taxpayer and respective government taxing authorities. Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against our net deferred tax assets, if any.

Our current and deferred income tax provisions are calculated based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. These estimates are reviewed and adjusted, if needed, throughout the year. Adjustments between our estimates and the actual results of filed returns are recorded when identified.

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using currently enacted tax rates. Deferred income tax assets are recognized for deductible temporary differences and loss carryforwards and deferred income tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax basis. Deferred income tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest and penalties related to unrecognized tax benefits as a component of income tax expense.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 1 to the Consolidated Financial Statements for a description of new accounting standards issued and/or adopted in the year ended September 24, 2023.

OPERATIONS

Operating results, as reported in the Consolidated Financial Statements, are summarized below:

We acquired or disposed of certain properties in each of 2023, 2022 and 2021.

OPERATING REVENUE

Revenue Comparison 2023-2022

Total operating revenue totaled $691.1 million in 2023, down $89.8 million, or 11.5%, compared to 2022.

Advertising and marketing services revenue totaled $319.0 million in 2023, down $47.5 million, or 12.9% compared to 2022.

Print advertising revenues were $125.8 million in 2023, down $59.2 million, or 32.0% compared to 2022. The decline is due to the secular downward trend in print advertising.

Digital advertising and marketing services revenue totaled $193.2 million in 2023, up 6.5% compared to 2022. Digital advertising and marketing services revenue represented 60.6% of 2023 total advertising and marketing services revenue compared to 49.5% in 2022. The increase in digital advertising is due to growth at Amplified, our full service digital marketing service. Revenue at Amplified increased 20.3% in 2023 totaling $91.2 million.

Subscription revenue totaled $313.3 million in 2023, or down 11.4%, compared to 2022. The change in subscription revenue is due to decline in full access volume, consistent with historical and industry trends. The decrease was partially offset by growth in selective price increases on our full access subscriptions and in digital-only subscribers and digital-only revenue which were up 35.6% and 51.0%, respectively. As of September 2023, we had over 721,000 digital-only subscribers compared to 532,000 in 2022.

Other revenue, which primarily consist of digital services revenue from BLOX Digital and commercial printing revenue totaled $58.9 million, a 3.4% decrease compared to 2022. Digital services revenue totaled $19.4 million in 2023, a 7.8% increase compared to 2022. Commercial printing revenue totaled $20.1 million in 2023, a 6.2% decline from 2022.

Revenue at BLOX Digital, including intercompany revenue, totaled $35.0 million, an increase of 13.2%, due to increased market share and increases in average revenue per user due to additional value-added service offerings.

Total digital revenue including digital advertising revenue, digital-only subscription revenue and digital services revenue totaled $273.2 million in 2023, a 14.1% increase over 2022, and represented 39.5% of our total operating revenue in 2023, compared to 30.7% in 2022.

Revenue Comparison 2022-2021

Total operating revenue totaled $781.0 million in 2022, down $13.7 million, or 1.7%, compared to 2021. Advertising and marketing services revenue totaled $366.4 million in 2022, down 0.8% compared to 2021. Print advertising revenues were $185.0 million in 2022, down $42.9 million, or 18.8% compared to 2021. The decline is due to the secular downward trend in print advertising.

Digital advertising and marketing services revenue totaled $181.5 million in 2022, up 28.3% compared to 2021. Digital advertising and marketing services revenue represented 49.5% of 2022 total advertising and marketing services revenue compared to 38.3% in 2021. The increase in digital advertising is due to growth at Amplified, our full service digital marketing service. Revenue at Amplified increased 82.9% in 2022 totaling $75.8 million.

Subscription revenue totaled $353.6 million in 2022, or down 1.1%, compared to 2021. The change in subscription revenue is due to decline in full access volume, consistent with historical and industry trends. The decrease was partially offset by growth in selective price increases on our full access subscriptions and in digital-only subscribers and digital-only revenue which were up 65% and 26%, respectively. As of September 2022, we had 532,000 digital-only subscribers compared to 402,000 in 2021.

Other revenue, which primarily consist of digital services revenue from BLOX Digital and commercial printing revenue totaled $60.9 million, a 10.0% decrease compared to 2021. Digital services revenue totaled $17.9 million in 2022, a 5.4% decrease compared to 2021. Commercial printing revenue totaled $21.5 million in 2022, a 14.4% decline from 2021.

Revenue at BLOX Digital, including intercompany revenue, totaled $30,906,000, an increase of 13.6%, due to increased market share and increases in average revenue per user due to additional value-added service offerings.

Total digital revenue including digital advertising revenue, digital-only subscription revenue and digital services revenue totaled $239.5 million in 2022, a 27.0% increase over 2021, and represented 30.7% of our total operating revenue in 2022, compared to 23.7% in 2021.

OPERATING EXPENSES

Operating Expense Comparison 2023-2022

Total operating expenses were $660.5 million, a 13.3% decrease compared to 2022. Cash Costs (a non-GAAP financial measure discussed below) were $615.3 million, a 11.2% decrease compared to 2022.

Compensation expense decreased $50.9 million in 2023, or a 16.0% decrease compared to 2022. The decrease is attributable to reductions in full time employees ("FTEs") due to continued business transformation efforts, partially offset by investments in digital talent.

Newsprint and ink costs decreased $4.8 million in 2023, or a 15.8% decrease compared to 2022. This decrease was attributable to declines in newsprint volumes partially offset by higher newsprint prices. See Item 7A, “Commodities”, included herein, for further discussion and analysis of the impact of newsprint on our business.

Other operating expenses decreased $21.8 million in 2023, or a 6.3% decrease compared to 2022. Other operating expenses include all operating costs not considered to be compensation, newsprint and ink, depreciation and amortization, or restructuring costs and other. The largest components are costs associated with printing and distribution of our printed products, digital investments, digital cost of goods sold and facility expenses. The decrease is attributable to other print-related costs due to lower volumes of our print products partially offset by increases in investments to fund our digital growth strategy.

Restructuring costs and other totaled $12.7 million and $22.7 million in 2023 and 2022, respectively. Restructuring costs and other in 2023 are predominately severance. Restructuring costs and other in 2022 include severance costs, litigation expenses, restructuring expenses, and advisor expenses associated with the unsolicited offer in November 2021.

Depreciation expense decreased $2.8 million, or 19.2%, in 2023. Amortization expense decreased $3.2 million, or 14.3%, in 2023.

Assets loss (gain) on sales, impairments and other was a net loss of $1.9 million in 2023 compared to a net loss of $9.7 million in 2022. Impairment losses in 2023 totaled $7.7 million for mastheads. Impairment losses in 2022 totaled $13.5 million for mastheads, $7.8 million for leases, and $0.7 million for the disposal of a non-core business, respectively. Assets loss (gain) on sales are part the Company's ongoing real estate and non-core asset monetization. They totaled a net gain of $6.0 million in 2023 and a net gain of $12.3 million in 2022.

Operating Expense Comparison 2022-2021

Total operating expenses were $761.8 million, a 2.3% increase compared to 2021. Cash Costs were $692.8 million, a 1.0% increase compared to 2021.

Compensation expense decreased $13.1 million in 2022, or a 4.0% decrease compared to 2021. The decrease is attributable to reductions in FTEs due to continued business transformation efforts, partially offset by investments in digital talent.

Newsprint and ink costs increased $0.3 million in 2022, or a 1.1% increase compared to 2021. This increase was attributable to higher newsprint prices offset by a decline in newsprint volumes. See Item 7A, “Commodities”, included herein, for further discussion and analysis of the impact of newsprint on our business.

Other operating expenses increased $19.3 million in 2022, or a 5.9% increase compared to 2021. Other operating expenses include all operating costs not considered to be compensation, newsprint and ink, depreciation and amortization, or restructuring costs and other. The largest components are costs associated with printing and distribution of our printed products, digital investments, digital cost of goods sold and facility expenses. The increase is attributable to increases in investments to fund our digital growth strategy partially offset by lower delivery and other print-related costs due to lower volumes of our print products.

Restructuring costs and other totaled $22.7 million and $7.2 million in 2022 and 2021, respectively. Restructuring costs and other in 2022 include severance costs, litigation expenses, restructuring expenses, and advisor expenses associated with the unsolicited offer in November 2021. Restructuring costs and other in 2021 are predominately severance.

Depreciation expense decreased $3.6 million, or 20.1%, in 2022. Amortization expense decreased $2.7 million, or 10.8%, in 2022.

Assets loss (gain) on sales, impairments and other was a net loss of $9.7 million in 2022 compared to a net loss of $8.2 million in 2021. Impairment losses in 2022 totaled $13.5 million for mastheads, $7.8 million for leases, and $0.7 million for the disposal of a non-core business, respectively. Impairment losses in 2021 totaled $1.0 million for mastheads. Assets loss (gain) on sales are part the Company's ongoing real estate and non-core asset monetization. They totaled a net gain of $12.3 million in 2022 and a net loss of $7.2 million in 2021.

Equity In Equity Investments

Equity in earnings of TNI and MNI increased $0.9 million in 2023, or 15.4%, compared to 2022. Equity in earnings of TNI and MNI decreased $0.8 million in 2022 compared to 2021.

NON-OPERATING INCOME AND EXPENSES

Non-operating Income and Expense Comparison 2023-2022

Interest expense decreased $0.3 million, or 0.7%, to $41.5 million in 2023 due to lower debt balances. Our weighted average cost of debt, excluding amortization of debt financing cost, was 9.0% in 2023 and 2022.

Included in other non-operating income and expense is income related to our defined benefit pension plans and other postemployment benefit plans, which totaled $1.2 million and $20.5 million in 2023 and 2022, respectively. We recognized pension withdrawal costs in 2023 and 2021 of $1.2 million and $12.9 million, respectively, in connection with the withdrawal from pension plans that covered certain employees. No withdrawal costs were recognized in 2022. The withdrawal liabilities will be paid over the next 20 years.

As more fully discussed in Note 5 of the Notes to the Consolidated Financial Statements, included herein, we recorded a liability for the Warrants, issued in connection with the Warrant Agreement in previous years. We re-measured the liability to fair value each reporting period, with changes reported in other non-operating income (expenses). Due to the fluctuation in the price of our Common Stock and changes in interest rates, the estimated fair value of the warrant liability can change each period. We recorded non-operating income of $0.1 million and $0.3 million in 2022 and 2021 respectively, due to the change in fair value of the Warrants.

Non-operating Income and Expense Comparison 2022-2021

Interest expense decreased $3.0 million, or 6.7%, to $41.8 million in 2022 due to lower debt balances. Our weighted average cost of debt, excluding amortization of debt financing cost, was 9.0% in 2022 and 2021.

Included in other non-operating income and expense is income related to our defined benefit pension plans and other postemployment benefit plans, which totaled $20.5 million and $33.3 million in 2022 and 2021, respectively. We recognized a non-cash curtailment gain of $23.8 million and a reduction in our benefit obligation in 2021 by eliminating postretirement medical coverage for certain employees. We recognized pension withdrawal costs in 2021 of $12.9 million in connection with the withdrawal from pension plans that covered certain employees. The withdrawal liabilities will be paid over the next 20 years.

During 2022 we notified certain participants in our defined benefit plans of changes to be made to the plans. The Company froze future benefits for four of the defined benefit plans. The freeze of future benefits resulted in a non-cash curtailment gain of $1.0 million related to the four plans. In connection with the freeze, the Company provided certain plan enhancements that resulted in an increase to our net pension liability and a decrease to Accumulated Other Comprehensive income of $6.1 million. Additionally, the Company merged the six frozen plans into one defined benefit plan effective in the second quarter of fiscal 2022.

During September of 2022, the Company, as sponsor of the Lee Enterprises Incorporated Pension Plan (the "Plan") executed an agreement pursuant to which the Plan used a portion of its assets to purchase annuities from an insurance company (the "Insurer") and thereby assumed $85.6 million of the Plan's liabilities in exchange for $81.4 million of Plan assets. The non-cash settlement gain of $4.2 million is recorded in Pension and OPEB related benefit (cost) and other, net.

As more fully discussed in Note 5 of the Notes to the Consolidated Financial Statements, included herein, we recorded a liability for the Warrants, issued in connection with the Warrant Agreement in previous years. We re-measured the liability to fair value each reporting period, with changes reported in other non-operating income (expenses). Due to the fluctuation in the price of our Common Stock and changes in interest rates, the estimated fair value of the warrant liability can change each period. We recorded non-operating income of $0.1 million and $0.3 million in 2022 and 2021 respectively, due to the change in fair value of the Warrants.

INCOME TAX EXPENSES

In 2023, we recorded income tax benefit of $0.3 million, or 11.3% of pretax loss and in 2022, we recorded an income tax expense of $0.7 million, or 87.8% of pretax income. In 2021, we recorded an income tax expense of $7.3 million, or 22.6% of pre-tax income. See Note 12 of the Notes to the Consolidated Financial Statements, included herein, for a discussion of the difference between the expected federal income tax rate and the actual tax rates.

NET INCOME AND EARNINGS PER SHARE

Net loss was $2.7 million in 2023 compared to net income of $0.1 million in 2022. In 2021, net income was $24.8 million.

Losses per share was $0.90 per share in 2023 compared to losses per share of $0.35 per share in 2022. In 2021, diluted earnings per share were $3.90 per share.

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 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. Cash Costs can be used by financial statement users to assess the Company's ability to manage and control its operating 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, restructuring costs and other non-cash operating expenses and other non-operating expenses are excluded.

Tables reconciling Adjusted EBITDA to net income and Cash Costs to operating expenses, the most directly comparable measure under GAAP, are set forth below under the caption "Reconciliation of Non-GAAP Financial Measures".

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:

The table below reconciles the non-GAAP financial performance measure of Cash Costs to Operating expenses, the most directly comparable GAAP measure:

24

LIQUIDITY AND CAPITAL RESOURCES

Our operations have historically generated positive cash flow, and are expected to continue providing sufficient liquidity, together with cash on hand, to meet our future cash requirements, which primarily relate to operating expenses, interest expense and capital expenditures. A summary of our cash flows is included in the narrative below.

Operating Activities

Cash required for operating activities totaled $2.5 million in 2023 compared to cash provided by operating activities of $3.4 million in 2022, a decrease of $6.0 million. The decrease was primarily driven by a decrease in operating results of $18.2 million (defined as net income (loss) adjusted for non-working capital items) and partially offset by an increase in cash from working capital of $12.3 million, primarily related to favorable changes in accounts receivable and inventories, offset by unfavorable changes in unearned revenue, accrued interest, and pension and postretirement obligations.

Cash provided by operating activities totaled $3.4 million in 2022 compared to $50.1 million in 2021, a decrease of $46.6 million. The decrease was primarily driven by a decrease in operating results of $25.4 million (defined as net income (loss) adjusted for non-working capital items) and a decrease in cash from working capital of $21.2 million, primarily related to unfavorable changes in accounts receivable and income taxes payable, partially offset by favorable changes in accounts payable and pension and postretirement obligations.

Investing Activities

Cash provided by investing activities totaled $8.0 million in 2023 and $6.3 million in 2022. Capital spending totaled $5.1 million and $7.5 million in 2023 and 2022, respectively. Proceeds from sales of assets totaled $12.0 million and $14.8 million in 2023 and 2022, respectively.

Cash provided by investing activities totaled $6.3 million in 2022 and cash required for investing activities totaled $2.3 million in 2021. Capital spending totaled $7.5 million in 2022 and 2021, respectively. Proceeds from sales of assets totaled $14.8 million and $4.6 million in 2022 and 2021, respectively.

We anticipate that funds necessary for capital expenditures, which are expected to be $10.0 million in 2024, and other requirements, will be available from internally generated funds.

Financing Activities

Cash required for financing activities totaled $7.1 million in 2023 and $19.7 million in 2022 and $55.4 million in 2021. Debt reduction accounted for the majority of the usage of funds in 2023, 2022 and 2021, respectively.

Excluding payments required from the Company's future excess cash flow (as defined in Note 5), the only required principal payments include payments from net cash proceeds from asset sales (as defined in the Credit Agreement) and payments upon certain instances of change in control. Current maturities of long-term debt are from excess cash flows. There are no other scheduled mandatory principal payments required under the Credit Agreement.

Liquidity

Our liquidity, consisting of cash on the balance sheet, totaled $14.5 million at September 24, 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.

At September 24, 2023, the principal amount of our outstanding debt totals $455.7 million.

The 2020 Refinancing as defined in Note 5, significantly extended our debt maturity profile with final maturity of our debt in 2045.

SEASONALITY

Our largest source of advertising and marketing services revenue, retail advertising, is seasonal and tends to fluctuate with retail sales in markets served. Historically, retail advertising is higher in the December and June quarters. Advertising and marketing services revenue is lowest in the March quarter.

INFLATION

Price increases (or decreases) for our products are implemented when deemed appropriate by us. We continuously evaluate price increases, productivity improvements, sourcing efficiencies and other cost reductions to mitigate the impact of inflation.

CONTRACTUAL OBLIGATIONS

The following table summarizes our significant contractual obligations at September 24, 2023:

(1) Maturities of long-term debt are presented based on mandatory payments. See Note 5 of the Notes to the Consolidated Financial Statements, included herein.

(2) Interest expense includes an estimate of interest expense for the Term Note, until its maturity in March 2045. Interest expense under the Term Note is estimated using the 9.0% contractual rate applied to the outstanding balance as reduced by future contractual maturities of such debt. See Note 5 of the Notes to Consolidated Financial Statements, included herein.

The table above excludes future cash requirements for pension, postretirement and postemployment obligations. The periods in which these obligations will be settled in cash are not readily determinable and are subject to numerous future events and assumptions. See Notes 7 and 8 of the Notes to the Consolidated Financial Statements, included herein.

The contractual obligations above exclude unrecognized tax benefits to be recorded in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("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. A substantial amount of our deferred income tax liabilities will not result in future cash payments. See Note 12 of the Notes to the Consolidated Financial Statements, included herein.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we concluded an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our Company’s reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation the Company identified a material weakness in its internal control over financial reporting. Due to the material weakness, our principal executive officer and our principal financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective.

In light of the material weakness described below, management performed additional analysis and monitoring procedures around third-party data to ensure that our interim and annual consolidated financial statements were prepared in accordance with U.S. GAAP. Accordingly, management believes that the consolidated financial statements included in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations, and cash flows as of and for the periods presented, in accordance with U.S. GAAP.

Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of the Exchange Act. Any internal control system, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of our senior management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of the September 24, 2023 (the "Evaluation Date"), using the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that our internal control over financial reporting was not effective as of the Evaluation Date due to a material weakness in the Company's internal control over financial reporting described below. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness identified by the Company is as follows:

• Management did not design and implement controls to assess the reliability of certain internally generated information, or evaluate information received from certain third-party service providers, that are relevant to certain revenue recognized in the Company's Consolidated Financial Statements.

Management previously reported this material weakness in Item 9A of our Annual Report on Form 10-K for the fiscal year ended September 25, 2022. The description of the material weakness has been updated to reflect information learned during the remediation process executed in fiscal 2023.

BDO USA, P.C., our independent registered public accounting firm, has issued a report on our internal control over financial reporting as of September 24, 2023, which is included herein. As a result of the material weakness described above, such report includes an adverse audit report on the effectiveness of internal control over financial reporting as of September 24, 2023.

Remediation Plans and Actions

Management is committed to remediating the material weakness that has been identified and maintaining an effective system of disclosure controls and procedures. During fiscal 2023, management executed certain actions steps to remediate the material weakness, including:

• Established a project team to review, evaluate and remediate the material weakness in internal controls over financial reporting. The Company's recently expanded Corporate Compliance function is leading management's efforts related to effective control design, documentation and implementation, as well as remediate ineffective controls.
• Enhanced the design of internal controls around evaluating data provided by third-parties, which included the initial implementation of a new revenue IT system.

Management will continue to execute the remediation steps outlined above until the material weakness is remediated. The material weakness will not be considered remediated until the remediated and/or newly implemented internal controls operate for a sufficient period of time and management has concluded, through testing, that these internal controls are operating effectively. We are working to have the material weakness remediated as soon as possible.

Remediation of Previously Reported Material Weaknesses

As previously reported in Item 9A of our Annual Report on Form 10-K for the fiscal year ended September 25, 2022, management had concluded we had material weaknesses in internal control over financial reporting, specific to a) the Company's information technology general controls and b) controls to validate the accuracy of the tax basis associated with certain deferred tax assets and liabilities. To address the material weaknesses, during the fiscal year ended September 24, 2023 we (a) established a project team to review, evaluate, and remediate material weaknesses in internal controls over financial reporting including expanding our Corporate Compliance function, (b) underwent a complete user access review related to our information technology systems, (c) conducted additional training to relevant personnel, (d) enhanced existing internal control design, and (e) enhanced our record retention policy specifically around complex tax items.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Other than as described above, there have been no changes in our internal control over financial reporting that occurred during the 13 weeks ended September 24, 2023 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

Lee Enterprises, Incorporated

Davenport, Iowa

Opinion on Internal Control over Financial Reporting

We have audited Lee Enterprises, Incorporated’s (the “Company”) internal control over financial reporting as of September 24, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of September 24, 2023, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the Company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of September 24, 2023 and September 25, 2022, the related consolidated statements of income (loss) and comprehensive income (loss), stockholders’ equity (deficit), and cash flows for the fiscal years ended September 24, 2023 and September 25, 2022, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated December 8, 2023, expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness was identified regarding the following:

a. Management did not design and implement controls to assess the reliability of certain internally generated information, or evaluate information received from certain third-party service providers, that are relevant to certain revenue recognized in the Company’s consolidated financial statements.

This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements, and this report does not affect our report dated December 8, 2023, on those consolidated financial statements.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, P.C.

Chicago, Illinois

December 8, 2023