Item 1. Financial Statements
Item 1. Financial Statements
LEE ENTERPRISES, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Thousands of Dollars) June 25,
2023 September 25,
2022
ASSETS
Current assets:
Cash and cash equivalents 16,955 16,185
Accounts receivable, net 69,182 69,522
Inventories 7,933 8,265
Prepaid and other current assets 15,098 15,151
Total current assets 109,168 109,123
Investments:
Associated companies 29,654 27,378
Other 5,791 5,971
Total investments 35,445 33,349
Property and equipment:
Land and improvements 13,098 14,505
Buildings and improvements 89,246 95,111
Equipment 216,872 215,731
Construction in process 2,570 1,449
321,786 326,796
Less accumulated depreciation 255,693 253,083
Property and equipment, net 66,093 73,713
Operating lease right-of-use assets 43,543 47,490
Goodwill 329,504 329,504
Other intangible assets, net 107,111 121,373
Pension plan assets, net 105 528
Medical plan assets, net 19,593 19,066
Other 12,262 9,896
Total assets 722,824 744,042
The accompanying Notes are an integral part of the Consolidated Financial Statements.
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(Unaudited)
(Thousands of Dollars and Shares, Except Per Share Data) June 25,
2023 September 25,
2022
LIABILITIES AND EQUITY
Current liabilities:
Current portion of lease liabilities 7,971 7,859
Current maturities of long-term debt 2,013 —
Accounts payable 38,466 28,608
Compensation and other accrued liabilities 32,332 44,740
Unearned revenue 43,875 49,929
Total current liabilities 124,657 131,136
Long-term debt, net of current maturities 457,981 462,554
Operating lease liabilities 39,421 46,003
Pension obligations 711 966
Postretirement and postemployment benefit obligations 9,465 9,221
Deferred income taxes 42,259 42,719
Income taxes payable 8,650 8,292
Withdrawal liabilities and other 25,081 25,914
Total liabilities 708,225 726,805
Equity:
Stockholders' equity:
Serial convertible preferred stock, no par value; authorized 500 shares; none issued
— —
Common Stock, $ 0.01 par value; authorized 12,000 shares; issued and outstanding:
61 60
June 25, 2023; 6,072 shares; $0.01 par value
September 25, 2022; 5,979 shares; $0.01 par value
Class B Common Stock, $ 2 par value; authorized 3,000 shares; none issued
— —
Additional paid-in capital 260,425 259,521
Accumulated deficit ( 264,512 ) ( 261,229 )
Accumulated other comprehensive income 16,233 16,653
Total stockholders' equity 12,207 15,005
Non-controlling interests 2,392 2,232
Total equity 14,599 17,237
Total liabilities and equity 722,824 744,042
The accompanying Notes are an integral part of the Consolidated Financial Statements.
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LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three months ended Nine months ended
(Thousands of Dollars, Except Per Common Share Data) June 25,
2023 June 26,
2022 June 25,
2023 June 26,
2022
Operating revenue:
Advertising and marketing services 79,120 91,001 246,406 277,388
Subscription 77,557 89,048 235,838 263,915
Other 14,633 14,988 44,885 46,030
Total operating revenue 171,310 195,037 527,129 587,333
Operating expenses:
Compensation 63,582 78,126 207,859 246,333
Newsprint and ink 6,346 7,542 20,244 22,254
Other operating expenses 80,010 88,004 249,353 258,665
Depreciation and amortization 7,478 8,818 23,097 27,445
Assets (gain) loss on sales, impairments and other, net ( 900 ) 1,086 ( 4,255 ) ( 11,340 )
Restructuring costs and other 3,780 6,072 8,120 19,862
Total operating expenses 160,296 189,648 504,418 563,219
Equity in earnings of associated companies 1,194 1,050 3,534 4,211
Operating income 12,208 6,439 26,245 28,325
Non-operating (expense) income:
Interest expense ( 10,235 ) ( 10,292 ) ( 31,144 ) ( 31,478 )
Curtailment gain — — — 1,027
Pension withdrawal cost — — — ( 2,335 )
Pension and OPEB related benefit and other, net 555 4,205 2,255 13,525
Total non-operating expense, net ( 9,680 ) ( 6,087 ) ( 28,889 ) ( 19,261 )
Income (loss) before income taxes 2,528 352 ( 2,644 ) 9,064
Income tax expense (benefit) 394 156 ( 1,237 ) 2,363
Net income (loss) 2,134 196 ( 1,407 ) 6,701
Net income attributable to non-controlling interests ( 631 ) ( 465 ) ( 1,876 ) ( 1,588 )
(Loss) income attributable to Lee Enterprises, Incorporated 1,503 ( 269 ) ( 3,283 ) 5,113
Other comprehensive loss, net of income taxes ( 140 ) ( 1,167 ) ( 420 ) ( 8,446 )
Comprehensive income (loss) attributable to Lee Enterprises, Incorporated 1,363 ( 1,436 ) ( 3,703 ) ( 3,333 )
Earnings (loss) per common share:
Basic: 0.26 ( 0.05 ) ( 0.56 ) 0.89
Diluted: 0.25 ( 0.05 ) ( 0.56 ) 0.87
The accompanying Notes are an integral part of the Consolidated Financial Statements.
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
(Thousands of Dollars) Accumulated
Deficit Common Stock Additional
paid-in capital Accumulated
Other
Comprehensive
Loss Total
September 26, 2022 ( 261,229 ) 60 259,521 16,653 15,005
Shares issued (redeemed) — — ( 383 ) — ( 383 )
Income attributable to Lee Enterprises, Incorporated 1,099 — — — 1,099
Stock compensation — — 349 — 349
Other comprehensive loss — — — ( 200 ) ( 200 )
Deferred income taxes, net — — — 60 60
December 25, 2022 ( 260,130 ) 60 259,487 16,513 15,930
Shares issued (redeemed) — — ( 97 ) — ( 97 )
Loss attributable to Lee Enterprises, Incorporated ( 5,885 ) — — ( 5,885 )
Stock compensation — — 574 — 574
Other comprehensive loss — — ( 200 ) ( 200 )
Deferred income taxes, net — — 60 60
March 26, 2023 ( 266,015 ) 60 259,964 16,373 10,382
Shares issued (redeemed) — 1 — — 1
Income attributable to Lee Enterprises, Incorporated 1,503 — — — 1,503
Stock compensation — — 461 — 461
Other comprehensive loss — — — ( 200 ) ( 200 )
Deferred income taxes, net — — — 60 60
June 25, 2023 ( 264,512 ) 61 260,425 16,233 12,207
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
(Thousands of Dollars) Accumulated
Deficit Common Stock Additional
paid-in capital Accumulated
Other
Comprehensive
Loss Total
September 27, 2021 ( 259,212 ) 59 258,063 42,187 41,097
Shares issued (redeemed) — 1 ( 386 ) — ( 385 )
Income attributable to Lee Enterprises, Incorporated 12,658 — — — 12,658
Stock compensation — — 186 — 186
Other comprehensive loss — — — ( 8,174 ) ( 8,174 )
Deferred income taxes, net — — — 2,062 2,062
December 26, 2021 ( 246,554 ) 60 257,863 36,075 47,444
Shares issued (redeemed) — — ( 3 ) — ( 3 )
Loss attributable to Lee Enterprises, Incorporated ( 7,276 ) — — — ( 7,276 )
Stock compensation — — 663 — 663
Other comprehensive loss — — — ( 1,667 ) ( 1,667 )
Deferred income taxes, net — — — 500 500
March 27, 2022 ( 253,830 ) 60 258,523 34,908 39,661
Shares issued (redeemed) — — 371 — 371
Income attributable to Lee Enterprises, Incorporated ( 269 ) — — — ( 269 )
Stock compensation — — 327 — 327
Other comprehensive income — — — ( 1,667 ) ( 1,667 )
Deferred income taxes, net — — — 500 500
June 26, 2022 ( 254,099 ) 60 259,221 33,741 38,923
The accompanying Notes are an integral part of the Consolidated Financial Statements.
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LEE ENTERPRISES, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
(Thousands of Dollars) June 25,
2023 June 26,
2022
Cash provided by (required for) operating activities:
Net (loss) income ( 1,407 ) 6,701
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 23,097 27,445
Curtailment gain — ( 1,027 )
Pension withdrawal cost — 2,335
Stock compensation expense 1,384 1,026
Assets (gain) loss on sales, impairments and other, net ( 4,255 ) ( 11,340 )
Gain on sale of investment ( 1,736 ) —
Deferred income taxes ( 460 ) 62
Return of letters of credit collateral 778 2,451
Other, net ( 1,705 ) ( 1,492 )
Changes in operating assets and liabilities:
Decrease (increase) in receivables 124 ( 8,004 )
Decrease in inventories and other ( 348 ) ( 2,369 )
(Decrease) increase in accounts payable and other accrued liabilities ( 14,435 ) 1,775
Decrease in pension and other postretirement and postemployment benefit obligations ( 186 ) ( 13,910 )
Change in income taxes payable 358 ( 2,986 )
Other, net ( 2,693 ) 49
Net cash (required for) provided by operating activities ( 1,484 ) 716
Cash provided by investing activities:
Purchases of property and equipment ( 3,791 ) ( 5,738 )
Proceeds from sales of assets 7,231 14,824
Distributions less than earnings of TNI and MNI ( 234 ) ( 276 )
Other, net 1,873 ( 295 )
Net cash provided by investing activities 5,079 8,515
Cash required for financing activities:
Payments on long-term debt ( 2,560 ) ( 20,062 )
Common stock transactions, net ( 265 ) 380
Net cash required for financing activities ( 2,825 ) ( 19,682 )
Net increase (decrease) in cash and cash equivalents 770 ( 10,451 )
Cash and cash equivalents:
Beginning of period 16,185 26,112
End of period 16,955 15,661
The accompanying Notes are an integral part of the Consolidated Financial Statements.
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LEE ENTERPRISES, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
References to “we”, “our”, “us” and the like throughout this document refer to Lee Enterprises, Incorporated (the “Company”). References to “2023”, “2022" and the like refer to the fiscal years ended the last Sunday in September.
1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports. In the opinion of management, these financial statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Lee Enterprises, Incorporated and its subsidiaries (the “Company”) as of June 25, 2023, and our results of operations and cash flows for the periods presented. The Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's 2022 Annual Report on Form 10-K.
The Company's fiscal year ends on the last Sunday in September. Fiscal year 2023 ends on September 24, 2023, and fiscal year 2022 ended September 25, 2022. Fiscal year 2023 and 2022 are 52-week years with 13 weeks in each quarter. Because of seasonal and other factors, the results of operations for the three and nine months ended June 25, 2023, are not necessarily indicative of the results to be expected for the full year.
The Consolidated Financial Statements include our accounts and those of our wholly owned subsidiaries, as well as our 82.5 % interest in INN Partners, L.C. (“BLOX Digital", formerly "TownNews”).
Our 50 % interest in TNI Partners ("TNI") and our 50 % interest in Madison Newspapers, Inc. ("MNI") are accounted for using the equity method and are reported at cost, plus our share of undistributed earnings since acquisition less, for TNI, amortization of intangible assets.
2 REVENUE
The following table presents our revenue disaggregated by source:
Three months ended Nine months ended
(Thousands of Dollars) June 25,
2023 June 26,
2022 June 25,
2023 June 26,
2022
Operating revenue:
Print advertising revenue 29,216 44,814 102,503 145,032
Digital advertising revenue 49,904 46,187 143,903 132,356
Advertising and marketing services revenue 79,120 91,001 246,406 277,388
Print subscription revenue 61,842 78,079 193,799 234,962
Digital subscription revenue 15,715 10,969 42,039 28,953
Subscription revenue 77,557 89,048 235,838 263,915
Print other revenue 9,773 10,671 30,542 32,430
Digital other revenue 4,860 4,317 14,343 13,600
Other revenue 14,633 14,988 44,885 46,030
Total operating revenue 171,310 195,037 527,129 587,333
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Recognition principles: Revenue is recognized when a performance obligation is satisfied by the transfer of control of the contracted goods or services to our customers, in an amount that reflects the consideration we expect to receive in exchange for those goods or services.
Arrangements with multiple performance obligations: We have various advertising and subscription agreements which include both print and digital performance obligations. Revenue from sales agreements that contain multiple performance obligations are allocated to each obligation based on the relative standalone selling price. We determine standalone selling prices based on observable prices charged to customers.
Contract Assets and Liabilities: The Company’s primary source of contract liabilities is unearned revenue from subscriptions paid in advance of the service provided. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next twelve months in accordance with the terms of the subscriptions and other contracts with customers. Revenue recognized in the nine months ended June 25, 2023, that was included in the contract liability as of September 25, 2022, was $ 45.5 million.
Accounts receivable, excluding allowance for credit losses were $ 74.2 million and $ 74.8 million as of June 25, 2023, and September 25, 2022 , respectively. Allowance for credit losses was $ 5.0 million and $ 5.2 million as of June 25, 2023, and September 25, 2022 , respectively.
Sales commissions are expensed as incurred as the associated contractual periods are one year or less. These costs are recorded within compensation. Most of our contracts have original expected lengths of one year or less and revenue is earned at a rate and amount that corresponds directly with the value to the customer.
3 INVESTMENTS IN ASSOCIATED COMPANIES
TNI Partners
In Tucson, Arizona, TNI, acting as agent for our subsidiary, Star Publishing Company (“Star Publishing”), and Gannets Co. Inc.'s subsidiary Citizen Publishing Company (“Citizen”), is responsible for printing, delivery, advertising, and subscription activities of the Arizona Daily Star as well as the related digital platforms and specialty publications. TNI collects all receipts and income and pays substantially all operating expenses incident to the partnership's operations and publication of the newspaper and other media.
Income or loss of TNI (before income taxes) is allocated equally to Star Publishing and Citizen.
Summarized results of TNI are as follows:
Three months ended Nine months ended
(Thousands of Dollars) June 25,
2023 June 26,
2022 June 25,
2023 June 26,
2022
Operating revenue 7,244 8,229 23,954 25,805
Operating expenses 5,677 6,492 19,041 19,365
Operating income 1,567 1,737 4,913 6,440
Net Income 1,581 1,737 5,247 6,440
Equity in earnings of TNI 791 869 2,624 3,220
TNI makes periodic distributions of its earnings and for the three months ended June 25, 2023, and June 26, 2022, we received $ 0.4 million and $ 0.7 million in distributions, respectively. In the nine months ended June 25, 2023 and June 26, 2022, we received $ 2.8 million and $ 2.9 million in distributions, respectively.
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Madison Newspapers, Inc.
We have a 50 % ownership interest in MNI, which publishes daily and Sunday newspapers, and other publications in Madison, Wisconsin, and other Wisconsin locations, and operates related digital platforms. Net income or loss of MNI (after income taxes) is allocated equally to us and The Capital Times Company (“TCT”). MNI conducts its business under the trade name Capital Newspapers.
Summarized results of MNI are as follows:
Three months ended Nine months ended
(Thousands of Dollars) June 25,
2023 June 26,
2022 June 25,
2023 June 26,
2022
Operating revenue 10,963 11,921 33,470 35,677
Operating expenses, excluding restructuring costs, depreciation and amortization (1)
8,470 9,682 26,496 28,402
Restructuring costs 10 122 137 122
Depreciation and amortization 129 167 402 507
Operating income 2,354 1,950 6,435 6,646
Net income 807 362 1,821 1,982
Equity in earnings of MNI 404 181 911 991
(1) Amounts were reclassed to align with current year presentation
MNI makes periodic distributions of its earnings and in the three months ended June 25, 2023 and June 26, 2022, we received $ 0.2 million in distributions for both periods. In the nine months ended June 25, 2023 and June 26, 2022 we received distributions of $ 0.5 million and $ 1.0 million, respectively.
4 GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and identified intangible assets consist of the following:
(Thousands of Dollars) June 25,
2023 September 25,
2022
Goodwill, beginning of period 329,504 330,204
Impairment — ( 700 )
Goodwill, end of period 329,504 329,504
Non-amortized intangible assets:
Mastheads 26,346 26,346
Amortizable intangible assets:
Customer and newspaper subscriber lists 321,804 323,568
Less accumulated amortization ( 241,039 ) ( 228,541 )
80,765 95,027
Total intangibles, net 436,615 450,877
The weighted average amortization period for amortizable assets is 11.70 years.
5 DEBT
The Company has debt consisting of a single 25 -year term loan with BH Finance LLC, with an aggregate principal balance of $ 460.0 million at a 9 % annual fixed rate and maturing on March 16, 2045
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(referred to herein as “Credit Agreement” and “Term Loan”). On June 25, 2023, the fair value is $ 462.4 million. This represents a level 2 fair value measurement.
During the nine months ended June 25, 2023, we made principal debt payments of $ 2.6 million. Future payments are contingent on the Company's ability to generate future excess cash flow, as defined in the Credit Agreement. Subsequent to June 25, 2023, the Company will make a $ 2.0 million payment related to net proceeds received from the sale of non-core assets as required by our Credit Agreement.
6 PENSION, POSTRETIREMENT AND POSTEMPLOYMENT DEFINED BENEFIT PLANS
We have a defined benefit pension plan that covers certain employees, including plans established under collective bargaining agreements. Additionally, we provide retiree medical and life insurance benefits under postretirement plans at several of our operating locations. Through June 25, 2023, our liability and related expense for benefits under the plans are recorded over the service period of employees based upon annual actuarial calculations.
The net periodic pension and postretirement cost (benefit) components for our plans are as follows:
PENSION PLANS Three months ended Nine months ended
(Thousands of Dollars) June 25,
2023 June 26,
2022 June 25,
2023 June 26,
2022
Service cost for benefits earned during the period 5 287 15 1,030
Interest cost on projected benefit obligation 2,592 2,001 7,776 5,939
Expected return on plan assets ( 2,548 ) ( 4,535 ) ( 7,644 ) ( 13,606 )
Amortization of net (gain) loss 2 ( 687 ) 6 ( 2,633 )
Amortization of prior service benefit 213 212 639 424
Curtailment gain — — ( 1,027 )
Pension cost (benefit) 264 ( 2,722 ) 792 ( 9,873 )
POSTRETIREMENT MEDICAL PLANS Three months ended Nine months ended
(Thousands of Dollars) June 25,
2023 June 26,
2022 June 25,
2023 June 26,
2022
Service cost for benefits earned during the period 17 27 51 81
Interest cost on projected benefit obligation 149 85 447 255
Expected return on plan assets ( 295 ) ( 263 ) ( 885 ) ( 789 )
Amortization of net gain ( 254 ) ( 249 ) ( 762 ) ( 747 )
Amortization of prior service benefit ( 162 ) ( 162 ) ( 486 ) ( 486 )
Postretirement medical benefit ( 545 ) ( 562 ) ( 1,635 ) ( 1,686 )
In the nine months ended June 25, 2023 and June 26, 2022, we made no contributions to our pension plans. W e have no required contributions to our pension plans for 2023.
Multiemployer Pension Plans
In prior periods, the Company effectuated withdrawals from several multiemployer plans. As of June 25, 2023, and September 25, 2022, we had $ 23.1 million and $ 25.0 million of accrued withdrawal liabilities. The liabilities reflect the estimated value of payments to the fund, payable over 20 years.
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7 INCOME TAXES
We recorded an income tax expense of $ 0.4 million related to income before taxes of $ 2.5 million for the three months ended June 25, 2023, and an income tax benefit of $ 1.2 million related to a loss before income taxes of $ 2.6 million for the nine months ended June 25, 2023. We recorded an income tax expense of $ 0.2 million related to income before taxes of $ 0.4 million for the three months ended June 26, 2022 and income tax expense of $ 2.4 million related to income before income taxes of $ 9.1 million for the nine months ended June 26, 2022. The effective income tax rate for the three and nine months ended June 25, 2023, were 15.6 % and 46.8 %, respectively. The effective income tax rate for the three and nine months ended June 26, 2022, were 44.3 % and 26.1 %, respectively.
The primary differences between these rates and the U.S. federal statutory rate of 21% are because of state taxes, non-deductible expenses and adjustments to reserves for uncertain tax positions, including any related interest.
We file a consolidated federal tax return, as well as combined and separate tax returns in approximately 27 state and local jurisdictions. We do not currently have any federal or material state income tax examinations in progress. Our income tax returns have generally been audited or closed to audit through 2015.
8 EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings per common share:
Three months ended Nine months ended
(Thousands of Dollars and Shares, Except Per Share Data) June 25,
2023 June 26,
2022 June 25,
2023 June 26,
2022
Income (loss) attributable to Lee Enterprises, Incorporated: 1,503 ( 269 ) ( 3,283 ) 5,113
Weighted average common shares 6,051 5,965 6,045 5,935
Less weighted average restricted Common Stock ( 173 ) ( 170 ) ( 172 ) ( 168 )
Basic average common shares 5,878 5,795 5,873 5,767
Dilutive stock options and restricted Common Stock 30 — — 93
Diluted average common shares 5,908 5,795 5,873 5,860
Earnings per common share:
Basic 0.26 ( 0.05 ) ( 0.56 ) 0.89
Diluted 0.25 ( 0.05 ) ( 0.56 ) 0.87
For the three months ended June 25, 2023, 136,853 shares were excluded in the computation of diluted earnings per common share because their inclusion would result in an anti-dilutive effect on per share amounts. For the three months ended June 26, 2022, no shares were considered in the computation of diluted earnings per common share because the Company recorded net losses. For the nine months ended June 25, 2023, no shares were considered in the computation of diluted earnings per common share because the Company recorded net losses. For the nine months ended June 25, 2022, 74,804 shares were excluded in the computation of diluted earnings per common share because their inclusion would result in an anti-dilutive effect on per share amounts.
9 COMMITMENTS AND CONTINGENT LIABILITIES
Legal Proceedings
We are involved in a variety of legal actions that arise in the normal course of business. Insurance coverage mitigates potential loss for certain of these matters. While we are unable to predict the
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ultimate outcome of these legal actions, it is our opinion that the disposition of these matters will not have a material adverse effect on our Consolidated Financial Statements, taken as a whole.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.