Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes comments and analysis relating to our results of operations and financial condition as of and for the 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.
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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.
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OPERATIONS
Operating results, as reported in the Consolidated Financial Statements, are summarized below:
(Thousands of Dollars, Except Per Common Share Data) 2023 2022 Percent Change 2021 Percent Change
Operating revenue:
Print advertising revenue 125,804 184,963 (32.0) % 227,892 (18.8) %
Digital advertising revenue 193,173 181,465 6.5 % 141,391 28.3 %
Advertising and marketing services revenue 318,977 366,428 (12.9) % 369,283 (0.8) %
Print subscription revenue 252,591 313,504 (19.4) % 329,484 (4.9) %
Digital subscription revenue 60,700 40,120 51.3 % 28,229 42.1 %
Subscription revenue 313,291 353,624 (11.4) % 357,713 (1.1) %
Print other revenue 39,508 42,962 (8.0) % 48,656 (11.7) %
Digital other revenue 19,362 17,955 7.8 % 18,997 (5.5) %
Other revenue 58,870 60,917 (3.4) % 67,653 (10.0) %
Total operating revenue 691,138 780,969 (11.5) % 794,649 (1.7) %
Operating expenses:
Compensation 266,907 317,789 (16.0) % 330,896 (4.0) %
Newsprint and ink 25,346 30,101 (15.8) % 29,775 1.1 %
Other operating expenses 323,067 344,905 (6.3) % 325,597 5.9 %
Depreciation and amortization 30,621 36,544 (16.2) % 42,841 (14.7) %
Assets loss (gain) on sales, impairments and other 1,882 9,716 (80.6) % 8,214 NM
Restructuring costs and other 12,673 22,720 (44.2) % 7,182 216.3 %
Total operating expenses 660,496 761,775 (13.3) % 744,505 2.3 %
Equity in earnings of associated companies 6,527 5,657 15.4 % 6,412 (11.8) %
Operating income 37,169 24,851 49.6 % 56,556 (56.1) %
Non-operating income (expense):
Interest expense (41,471) (41,770) (0.7) % (44,773) (6.7) %
Curtailment gain — 1,027 (100.0) % 23,830 NM
Pension withdrawal cost (1,200) (2,335) (48.6) % (12,862) NM
Pension and OPEB related benefit (cost) and other, net 2,420 19,022 (87.3) % 9,296 104.6 %
Total non-operating expense, net (40,251) (24,056) 67.3 % (24,509) (1.8) %
(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 (0.90) (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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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.
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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
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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.
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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
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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:
(Thousands of Dollars) 2023 2022 2021
Net (loss) income (2,733) 97 24,792
Adjusted to exclude
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, net 1,882 9,716 8,214
Depreciation and amortization 30,621 36,544 42,841
Restructuring costs and other 12,673 22,720 7,182
Stock compensation 1,806 1,337 854
Add:
Ownership share of TNI and MNI EBITDA (50%) 7,604 6,541 7,317
Adjusted EBITDA 85,228 96,052 116,552
The table below reconciles the non-GAAP financial performance measure of Cash Costs to Operating expenses, the most directly comparable GAAP measure:
(Thousands of Dollars) 2023 2022 2021
Operating expenses 660,496 761,775 744,505
Adjustments
Depreciation and amortization 30,621 36,544 42,841
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
Cash Costs 615,320 692,795 686,268
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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.
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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:
(Thousands of Dollars) Payments (or Commitments) Due (Years)
Nature of Obligation Total Less
Than 1 1-3 3-5 More
Than 5
Debt (Principal Amount) (1)
455,741 — — — 455,741
Interest expense (2)
881,859 41,017 123,050 123,050 594,742
Operating lease obligations 57,142 12,179 20,329 14,025 10,609
Withdrawal liabilities 27,305 1,564 3,127 3,127 19,487
Capital expenditure commitments 3,707 3,707 — — —
1,425,754 58,467 146,506 140,202 1,080,579
(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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this Item is included herein under the caption “Consolidated Financial Statements”.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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