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Item 7. Management’s Discussion and Analysis

2023-12-08 compared with 2023-02-27 · 106 added, 141 removed, 220 unchanged (53% of the section changed)

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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 2022, 2021, and 2020, we recognized impairment charges of $13,503,000, $787,000, and $972,000, respectively.

Only one of our mastheads has a fair value that has headroom under 20% over their carrying value and could experience immaterial impairment in the future if we do not achieve our revenue projections.

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.

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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 $190,000 of impairment on intangible assets subject to amortization.

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.

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All of these estimates are subject to uncertainty as future results may or may not be achieved.

The royalty rates utilized range from 0% to 1.5%, a 50 basis point decrease in royalty rates would result in an additional $6,992,000 of impairment.

The Company’s discount rate utilized in the analysis has ranged from 9.50% to 11.50% in different years depending on market conditions.

Increasing the discount rate by 100 basis points would result in an additional $257,000 of impairment.

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.

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.

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.

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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 change in discount rates would result in an increase to pension and postretirement and postemployment benefits liabilities of $12,100,000.

A 50 basis point change in expected rate of return of assets results would result in an increase to pension and postretirement and postemployment benefits expense of $1,137,000.

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.

We are subject to income taxes in the U.S.

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We record interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Business Combinations

Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date, with respect to tangible and intangible assets acquired and liabilities assumed.

We use our best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets.

The Company prepares its initial estimates of the fair values of intangible assets utilizing the multi-period excess earnings method for customer-related intangible assets and the relief from royalty method for indefinite lived

masthead assets.

Examples of critical estimates in valuing certain of the intangible assets and goodwill we have acquired include but are not limited to:

• future expected cash flows from subscription, advertising and commercial print relationships and related assumptions about future revenue growth and customer retention;

• discount rates;

• royalty rates used to value acquired mastheads.

Additional information regarding our accounting for business combinations can be found in Note 1 - Significant Accounting Policies in the Consolidated Financial Statements.

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.

CERTAIN MATTERS AFFECTING CURRENT AND FUTURE OPERATING RESULTS

The following items affect period-over-period comparisons from 2022 to 2020 and will continue to affect period-over-period comparisons for future results.

Acquisitions and Divestitures

• In March 2020, we completed the acquisition of BH Media and Buffalo News for a purchase price of $140,000,000.

The acquisition was funded by a 25-year term loan with BH Finance, in an aggregate principal amount of $576,000,000 at a 9% annual rate (referred to herein as "Credit Agreement" and "Term Loan"), as part of a broader comprehensive refinancing of all of our then outstanding debt.

• In the 13 weeks ended March 2020, we disposed of substantially all of the assets of certain of our smaller properties, including four daily newspapers and related print and digital publications, for an aggregate sales price of $3,950,000.

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

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Interest expense (41,471) (41,770) (0.7) % (44,773) (6.7) %

Debt financing and administrative costs — — NM (11,966) NM

Curtailment gain — 1,027 (100.0) % 23,830 NM

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Total non-operating expense, net (40,251) (24,056) 67.3 % (24,509) (1.8) %

Income before income taxes 795 32,047 (97.5) % 2,843 NM

Income tax (benefit) expense 698 7,255 (90.4) % 2,973 NM

Net Income (loss) 97 24,792 (99.6) % (130) NM

(Loss) income before income taxes (3,082) 795 (487.7) % 32,047 NM

Income tax (benefit) expense (349) 698 (150.0) % 7,255 (90.4) %

Net (loss) income (2,733) 97 (2917.4) % 24,792 NM

Earnings (loss) per common share:

Basic (0.35) 3.98 NM (0.35) NM

Diluted (0.35) 3.90 NM (0.35) NM

Basic (0.90) (0.35) 156.5 % 3.98 NM

Diluted (0.90) (0.35) 156.5 % 3.90 NM

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

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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 $366.4 million in 2022, down 0.8% compared to 2021.

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.

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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 2022, we had 532,000 digital-only subscribers compared to 402,000 in 2021.

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 $17.9 million in 2022, a 5.4% decrease compared to 2021.

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 $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.

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 was $794.6 million in 2021, up $176.6 million, or 28.6%, compared to 2020.

Total operating revenue from the Transactions totaled $403.6 million and $203.0 million, in 2021 and 2020, respectively.

Total operating revenue on a pro forma basis was down 3.3% compared to 2020.

Advertising and marketing services revenue totaled $369.3 million in 2021, up 27.5% compared to 2020.

Advertising and marketing services revenue from the Transactions totaled $170.7 million and $82.3 million, in 2021 and 2020, respectively.

Total Advertising and marketing services revenue on a pro forma basis was down 6.0%.

Print advertising revenues were $227.9 million in 2021, down 12.9% compared to 2020 on a pro forma basis.

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.

Print advertising revenue from the Transactions totaled $195.7 million and $81.3 million, in 2021 and 2020, respectively.

Digital advertising and marketing services totaled $141.4 million in 2021, up 32.8% compared to 2020.

Digital advertising and marketing services represented 38.3% of 2021 total advertising and marketing services revenue compared to 36.8% in 2020.

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 $357.7 million in 2021, or up 33.3%, compared to 2020.

Subscription revenue from the Transactions totaled $203.1 million and $106.5 million, in 2021 and 2020, respectively.

Subscription revenue on a pro forma basis was up 0.5%.

The growth in subscription revenue is due to 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.

The increases were partially offset by a decline in full access volume,

consistent with historical and industry trends.

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.

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, commercial printing revenue and until March 16, 2020, revenue from the Management Agreement, totaled $67.6 million, a 12.6% increase compared to 2020.

Other revenue from the Transactions totaled $49.4 million and $16.3 million in 2021 and 2020, respectively.

On a pro forma basis, other revenue was down 13.5% primarily caused by the end of the Management Agreement in 2020, which generated $5.4 million prior to the Transactions in 2020.

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 $25.1 million in 2021, a 6.4% decrease on a pro forma basis.

Revenue at BLOX Digital, including intercompany revenue, totaled $27.2 million, an increase of 8.6%, 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 $188.6 million in 2021, and represented 23.7% of our total operating revenue in 2021, compared to 23.4% in 2020.

Commercial printing revenue totaled $21.5 million in 2022, a 14.4% decline from 2021.

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 $761.8 million, a 2.3% increase compared to 2021.

Cash Costs were $692.8 million, a 1.0% increase compared to 2021.

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 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 declines in newsprint volumes.

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 increased $19.3 million in 2022, or a 5.9% increase compared to 2021.

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 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.

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 2022 include severance costs, litigation expenses, restructuring expenses, and advisor expenses associated with the unsolicited offer in November 2021.

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.

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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 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 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 $12.3 million in 2022 and a net loss of $7.2 million in 2021.

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.

Total operating expenses from the Transactions totaled $347.8 million and $193.8 million in 2021 and 2020, respectively.

Cash Costs were $692.8 million, a 1.0% increase compared to 2021.

Cash Costs from the Transactions totaled $353.8

million and $176.8 million, in 2021 and 2020, respectively.

Cash Costs on a pro forma basis were down 2.7% compared to 2020.

Compensation expense increased $87.9 million in 2021, or a 36.2% increase compared to 2020.

Compensation expense from the Transactions totaled $165.4 million and $86.1 million in 2021 and 2020, respectively.

Compensation was up 0.1% on a pro forma basis.

The modest increase was due to a one time furlough and compensation reductions for all employees in 2020 in response to COVID-19 of approximately $10 million, investments in digital talent made throughout 2021, and the lack of incentive compensation in 2020.

These increases were partially offset by a reduction in FTEs due to business transformation initiatives.

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.

Newsprint and ink costs from the Transactions totaled $19.7 million and $10.6 million, in 2021 and 2020, respectively.

On a pro forma basis newsprint and ink expense decreased 19.8%.

This decrease was attributable to declines in newsprint volume and outsourcing of our printing.

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.

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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 cost of goods sold and facility expenses.

Other operating expenses from the Transactions totaled $188.3 million and $79.9 million in 2021 and 2020, respectively.

On a pro forma basis, other operating expenses were down 3.5%.

The decrease is attributable to lower delivery and other print-related costs due to lower volumes of our print editions, partially offset by increases in investments to fund our digital growth strategy.

The largest components are costs associated

with printing and distribution of our printed products, digital investments, digital cost of goods sold and facility expenses.

Restructuring costs and other totaled $22.7 million and $7.2 million in 2022 and 2021, respectively.

In 2020, restructuring costs and other include an estimate of costs related to withdrawals from certain of our multiemployer pension plans totaling $4.4 million.

The remaining restructuring costs in 2021 and 2020 are predominately severance.

Depreciation expense increased $2.6 million, or 16.9%, in 2021.

Amortization expense increased $4.1 million, or 19.8%, in 2021.

Increases in both are due to the acquired assets from the Transactions.

Assets loss (gain) on sales, impairments and other was a net expense of $8.2 million in 2021 compared to a net gain of $5.4 million in 2020.

Impairment in 2021 and 2020 totaled $1.0 million and $1.0 million, respectively.

Assets losses and gains are part the Company's ongoing real estate and non-core asset monetization.

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 decreased $0.8 million in 2022, or 11.8%, compared to 2021.

Equity in earnings of TNI and MNI increased $3.0 million in 2021 compared to 2020.

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

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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 post-employment 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 post-retirement 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.

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.

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 an additional 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 connect 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 $85,622,000 of the Plan's liabilities in exchange for $81,377,000 of Plan assets.

The non-cash settlement gain of $4,245,000 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.

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Our weighted average cost of debt, excluding amortization of debt financing cost, was 9.0% in 2022 and 2021.

We recognized no debt financing and administrative costs in 2021 compared to $12.0 million in 2020.

Expenses in the prior year are due to writing off unamortized financing costs paid in conjunction with a prior refinancing.

Included in other non-operating income and expense is income related to our defined benefit pension plans and other post-employment benefit plans, which totaled $33.3 million and $3.8 million in 2021 and 2020, respectively.

We recognized a non-cash curtailment gain of $23.8 million and a reduction in our benefit obligation in 2021 by eliminating post-retirement medical coverage for certain employees.

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.

As more fully discussed in Note 7 of the Notes to the Consolidated Financial Statements, included herein, we recorded a liability for the Warrants, issued in connection with the Warrant Agreement.

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.

We re-measured the liability to fair value each reporting period, with changes reported in other non-operating income (expenses).

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INCOME TAX EXPENSES

In 2022, we recorded income tax expense of $698,000, or 87.8% of pretax income and in 2021, we recorded an income tax expense of $7,255,000, or 22.6% of pretax income.

In 2020, we recorded an income tax expense of $2,973,000, or 104.6% of pre-tax income.

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 income was $0.1 million in 2022 compared to net income of $24.8 million in 2021.

The decrease in net income is predominately due to cycling one-time non-cash benefits in 2021.

In 2020, net loss was $0.1 million.

Diluted loss per share was $0.35 per share in 2022 compared to diluted earnings per share of $3.90 per share in 2021.

In 2020, losses per share were $0.35 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

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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.

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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.

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.

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(Thousands of Dollars) 2023 2022 2021

Net Income (loss) 97 24,792 (130)

Net (loss) income (2,733) 97 24,792

Adjusted to exclude

Income tax expense 698 7,255 2,973

Income tax (benefit) expense (349) 698 7,255

Non-operating expenses, net 40,251 24,056 24,509

Equity in earnings of TNI and MNI (6,527) (5,657) (6,412)

Assets loss (gain) on sales, impairments and other 9,716 8,214 (5,403)

Assets loss (gain) on sales, impairments and other, net 1,882 9,716 8,214

Depreciation and amortization 30,621 36,544 42,841

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Depreciation and amortization 30,621 36,544 42,841

Assets loss (gain) on sales, impairments and other, net 9,716 8,214 (5,403)

Assets (gain) loss on sales, impairments and other, net 1,882 9,716 8,214

Restructuring costs and other 12,673 22,720 7,182

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LIQUIDITY AND CAPITAL RESOURCES

Our operations have historically generated strong 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.

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 provided by operating activities totaled $3,429,000 in 2022 compared to $50,078,000 in 2021, a decrease of $46,649,000.

The decrease was primarily driven by a decrease in operating results of $25,412,000 (defined as net income (loss) adjusted for non-working capital items) and a decrease in cash from working capital of $21,237,000, 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.

Cash provided by operating activities totaled $50,078,000 in 2021 compared to $49,869,000 in 2020, an increase of $209,000.

The increase was primarily driven by an increase in operating results of $48,590,000 (defined as net income (loss) adjusted for non-working capital items) offset by a decrease in cash from working capital of $48,381,000, 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.

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 required for investing activities totaled $6,337,000 in 2022 and $2,278,000 in 2021.

Capital spending totaled $7,536,000 and $7,479,000 in 2022 and 2021, respectively.

Proceeds from sales of assets totaled $14,835,000 and $4,616,000 in 2022 and 2021, respectively.

Cash required for investing activities totaled $2,278,000 in 2021 and $118,176,000 in 2020.

2020 included $130,985,000 in spending related to the Transactions.

Capital spending totaled $7,479,000 and $8,096,000 in 2021 and 2020, respectively.

Proceeds from sales of assets totaled $4,616,000 and $21,710,000 in 2021 and 2020, respectively.

We anticipate that funds necessary for capital expenditures, which are expected to be $12,000,000 in 2023, and other requirements, will be available from internally generated funds.

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 $19,693,000 in 2022 and $55,421,000 in 2021, while cash provided by financing activities totaled $93,395,000 in 2020.

Debt reduction accounted for the majority of the usage of funds in 2022 and 2020, while proceeds from the Transactions accounted for the funds provided in the 2020 period.

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.

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There are no other scheduled mandatory principal payments required under the Credit Agreement.

Our liquidity, consisting of cash on the balance sheet, totals $16.2 million at September 25, 2022.

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.

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1,425,754 58,467 146,506 140,202 1,080,579

(1) Maturities of long-term debt are limited to mandatory payments.

(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.

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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 FASB ASC Topic 740, Income Taxes .

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.

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See Note 12 of the Notes to the Consolidated Financial Statements, included herein.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this Item is included herein under the caption “Consolidated Financial Statements”.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis