LEE ENTERPRISES, Inc 10-Q

Item 1. Financial Statements LEE ENTERPRISES, INCORPORATED CONSOLIDATED BALANCE SHEETS (Unaudited) (Thousands of Dollars) December 29, 2024 September 29, 2024 ASSETS Current assets: Cash and cash equivalents 6,122 9,598 Accounts receivable, net 59,539 60,648 Inventories 6,231 5,643 Prepaid and other current assets 20,409 21,884 Total current assets 92,301 97,773 Investments: Associated companies 27,713 27,941 Other 6,090 6,042 Total investments 33,803 33,983 Property and equipment: Land and improvements 6,377 6,420 Buildings and improvements 69,821 70,152 Equipment 191,923 196,312 Construction in process 7,165 5,625 275,286 278,509 Less accumulated depreciation 232,454 234,137 Property and equipment, net 42,832 44,372 Operating lease right-of-use assets 31,886 34,882 Goodwill 323,858 328,040 Other intangible assets, net 66,600 70,075 Pension plan assets, net 4,962 4,663 Medical plan assets, net 23,729 23,300 Other 12,997 12,083 Total assets 632,968 649,171 The accompanying Notes are an integral part of the Consolidated Financial Statements. 2 Table of Contents (Unaudited) (Thousands of Dollars and Shares, Except Per Share Data) December 29, 2024 September 29, 2024 LIABILITIES AND EQUITY Current liabilities: Current portion of lease liabilities 7,818 8,139 Current maturities of long-term debt — — Accounts payable 44,795 36,290 Compensation and other accrued liabilities 36,088 39,170 Unearned revenue 30,285 31,755 Total current liabilities 118,986 115,354 Long-term debt, net of current maturities 445,943 445,943 Operating lease liabilities 26,962 29,769 Pension obligations 552 561 Postretirement and postemployment benefit obligations 7,516 7,520 Deferred income taxes 28,236 28,403 Income taxes payable 3,509 3,456 Withdrawal liabilities and other 25,441 25,499 Total liabilities 657,145 656,505 Commitments and Contingent Liabilities (Note 9) 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: 62 62 December 29, 2024; 6,190 shares; $ 0.01 par value September 29, 2024; 6,190 shares; $ 0.01 par value Class B Common Stock, $ 2 par value; authorized 3,000 shares; none issued — — Additional paid-in capital 262,569 262,470 Accumulated deficit ( 309,089 ) ( 292,341 ) Accumulated other comprehensive income 19,805 19,920 Total Lee Enterprises, Inc. Stockholders' deficit ( 26,653 ) ( 9,889 ) Non-controlling interests 2,476 2,555 Total deficit ( 24,177 ) ( 7,334 ) Total liabilities and deficit 632,968 649,171 The accompanying Notes are an integral part of the Consolidated Financial Statements. 3 Table of Contents LEE ENTERPRISES, INCORPORATED CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME (Unaudited) Three months ended (Thousands of Dollars, Except Per Common Share Data) December 29, 2024 December 24, 2023 Operating revenue: Advertising and marketing services 66,590 70,887 Subscription 64,997 71,339 Other 12,975 13,452 Total operating revenue 144,562 155,678 Operating expenses: Compensation 60,254 59,676 Newsprint and ink 3,616 4,843 Other operating expenses 74,680 74,776 Depreciation and amortization 6,265 7,295 Assets gain on sales, impairments and other, net ( 929 ) ( 1,469 ) Restructuring costs and other 5,150 4,265 Total operating expenses 149,036 149,386 Equity in earnings of associated companies 1,122 1,541 Operating (loss) income ( 3,352 ) 7,833 Non-operating (expense) income: Interest expense ( 10,282 ) ( 10,131 ) Pension and OPEB related benefit and other, net 653 186 Curtailment/Settlement gains — 3,593 Total non-operating expense, net ( 9,629 ) ( 6,352 ) (Loss) income before income taxes ( 12,981 ) 1,481 Income tax expense 3,243 248 Net (loss) income ( 16,224 ) 1,233 Net income attributable to non-controlling interests ( 524 ) ( 545 ) (Loss) income attributable to Lee Enterprises, Incorporated ( 16,748 ) 688 Other comprehensive loss, net of income taxes ( 115 ) ( 2,314 ) Comprehensive loss attributable to Lee Enterprises, Incorporated ( 16,863 ) ( 1,626 ) (Loss) earnings per common share: Basic: ( 2.80 ) 0.12 Diluted: ( 2.80 ) 0.12 The accompanying Notes are an integral part of the Consolidated Financial Statements. 4 Table of Contents CONSOLIDATED STATEMENTS OF DEFICIT (Unaudited) (Thousands of Dollars) Accumulated Deficit Common Stock Additional paid-in capital Accumulated Other Comprehensive Income Non-Controlling Interests: Total September 30, 2024 ( 292,341 ) 62 262,470 19,920 2,555 ( 7,334 ) Shares redeemed — — ( 331 ) — — ( 331 ) Loss attributable to Lee Enterprises, Incorporated ( 16,748 ) — — — 524 ( 16,224 ) Stock compensation — — 430 — — 430 Other comprehensive loss — — — ( 151 ) — ( 151 ) Deferred income taxes, net — — — 36 — 36 Distributions to minority owners — — — — ( 603 ) ( 603 ) December 29, 2024 ( 309,089 ) 62 262,569 19,805 2,476 ( 24,177 ) (Thousands of Dollars) Accumulated Deficit Common Stock Additional paid-in capital Accumulated Other Comprehensive Income Non-Controlling Interests: Total September 25, 2023 ( 266,496 ) 61 260,832 26,843 2,466 23,706 Shares redeemed — — ( 96 ) — — ( 96 ) Income attributable to Lee Enterprises, Incorporated 688 — — — 545 1,233 Stock compensation — — 214 — — 214 Other comprehensive loss — — — ( 2,286 ) — ( 2,286 ) Deferred income taxes, net — — — ( 28 ) — ( 28 ) Distributions to minority owners — — — — ( 553 ) ( 553 ) December 24, 2023 ( 265,808 ) 61 260,950 24,529 2,458 22,190 The accompanying Notes are an integral part of the Consolidated Financial Statements. 5 Table of Contents LEE ENTERPRISES, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended (Thousands of Dollars) December 29, 2024 December 24, 2023 Cash provided by (required for) operating activities: Net (loss) income ( 16,224 ) 1,233 Adjustments to reconcile net loss to net cash (required for) provided by operating activities: Depreciation and amortization 6,265 7,295 Bad debt expense 3,474 3,724 Curtailment/Settlement gain — ( 3,593 ) Stock compensation expense 430 214 Assets gain on sales, impairments and other, net ( 929 ) ( 1,469 ) Earnings, net of distributions, deemed returns on investment of TNI and MNI 228 ( 59 ) Deferred income taxes ( 131 ) ( 645 ) Other, net ( 603 ) ( 550 ) Changes in operating assets and liabilities: Increase in receivables ( 2,682 ) ( 3,040 ) Increase in inventories and other ( 406 ) ( 66 ) (Decrease) increase in accounts payable and other accrued liabilities 4,197 64 Decrease in pension and other postretirement and postemployment benefit obligations ( 893 ) ( 418 ) Change in income taxes payable 52 ( 2,105 ) Other ( 115 ) ( 505 ) Net cash (required for) provided by operating activities ( 7,337 ) 80 Cash provided by investing activities: Purchases of property and equipment ( 1,553 ) ( 1,030 ) Proceeds from sales of assets 5,414 3,145 Other, net — ( 20 ) Net cash provided by investing activities 3,861 2,095 Cash required for financing activities: Principal payments on long-term debt — ( 1,580 ) Common stock transactions, net — 221 Net cash required for financing activities — ( 1,359 ) Net (decrease) increase in cash and cash equivalents ( 3,476 ) 816 Cash and cash equivalents: Beginning of period 9,598 14,548 End of period 6,122 15,364 The accompanying Notes are an integral part of the Consolidated Financial Statements. 6 Table of Contents LEE ENTERPRISES, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 December 29, 2024, 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 2024 Annual Report on Form 10-K. The Company's fiscal year ends on the last Sunday in September. Fiscal year 2025 ends September 28, 2025, and fiscal year 2024 ended September 29, 2024. Fiscal year 2025 includes 52 weeks of operations and 2024 included 53 weeks of operations. Because of seasonal and other factors, the results of operations for the three months ended December 29, 2024, 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 (Thousands of Dollars) December 29, 2024 December 24, 2023 Operating revenue: Print advertising revenue 19,861 24,435 Digital advertising and marketing services revenue 46,729 46,452 Advertising and marketing services revenue 66,590 70,887 Print subscription revenue 43,432 51,872 Digital subscription revenue 21,565 19,467 Subscription revenue 64,997 71,339 Print other revenue 7,888 8,492 Digital other revenue 5,087 4,960 Other revenue 12,975 13,452 Total operating revenue 144,562 155,678 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. Contract 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 7 Table of Contents of the subscriptions and other contracts with customers. Revenue recognized in the three months ended December 29, 2024, that was included in the contract liability as of September 29, 2024, was $ 19.4 million. Accounts receivable, excluding allowance for credit losses was $ 65.4 million and $ 67.2 million as of December 29, 2024, and September 29, 2024 , respectively. Allowance for credit losses was $ 5.9 million and $ 6.5 million as of December 29, 2024, and September 29, 2024 , respectively. Valuation and qualifying account information related to the allowance for credit losses related to continuing operations is as follows: (Thousands of Dollars) December 29, 2024 September 29, 2024 Balance, beginning of year 6,514 5,260 Additions charged to expense 3,474 13,633 Deductions from reserves ( 4,123 ) ( 12,379 ) Balance, end of year 5,865 6,514 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 Gannett 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 (Thousands of Dollars) December 29, 2024 December 24, 2023 Operating revenue 6,533 6,991 Operating expenses 5,206 4,681 Operating income 1,327 2,310 Net income 1,250 1,155 Equity in earnings of TNI 625 578 TNI makes periodic distributions of its earnings and for the three months ended December 29, 2024, and December 24, 2023, we received $ 0.5 million and $ 1.2 million in distributions, respectively. 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 their related digital 8 Table of Contents 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 (Thousands of Dollars) December 29, 2024 December 24, 2023 Operating revenue 9,759 10,602 Operating expenses, excluding restructuring costs, depreciation and amortization 7,455 7,810 Restructuring costs — 61 Depreciation and amortization 90 120 Operating income 2,214 2,611 Net income 994 772 Equity in earnings of MNI 497 386 MNI makes periodic distributions of its earnings and in the three months ended December 29, 2024 and December 24, 2023, we received $ 0.9 million and $ 0.4 million in distributions, respectively. 4 GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and identified intangible assets consist of the following: (Thousands of Dollars) December 29, 2024 September 29, 2024 Goodwill, beginning of period 328,040 329,504 Allocated to sold operations ( 4,182 ) ( 1,464 ) Goodwill, end of period 323,858 328,040 Non-amortized intangible assets: Mastheads 10,917 10,917 Amortizable intangible assets: Customer and newspaper subscriber lists 262,146 262,242 Less accumulated amortization ( 206,463 ) ( 203,084 ) 55,683 59,158 Total intangibles, net 390,458 398,115 The weighted average amortization period for amortizable assets is approximately ten years . During the three months ended December 29, 2024, the Company sold certain non-core operations. Goodwill was allocated to these operations, which totaled $ 4.2 million. 5 DEBT The Company has debt consisting of a single 25-year term loan with BH Finance LLC, with an aggregate principal balance of $ 445.9 million at a 9 % annual fixed rate and maturing on March 16, 2045 (referred to herein as “Credit Agreement” and “Term Loan”). On December 29, 2024, the fair value was $ 383.3 million, representing a Level 2 fair value measurement, which are fair values estimated using significant other observable inputs for similar instruments. 9 Table of Contents During the three months ended December 29, 2024, we made no principal debt payments. Future payments are contingent on the Company's ability to generate future excess cash flow, as defined in the Credit Agreement. As of December 29, 2024, $ — million was recognized as current maturities of long-term debt in the Consolidated Balance Sheets due to non-core asset monetization. 6 PENSION, POSTRETIREMENT AND POSTEMPLOYMENT DEFINED BENEFIT PLANS We have one 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 December 29, 2024, 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 (Thousands of Dollars) December 29, 2024 December 24, 2023 Service cost for benefits earned during the period 1 1 Interest cost on projected benefit obligation 2,034 2,515 Expected return on plan assets ( 2,319 ) ( 2,453 ) Amortization of net (gain) loss — ( 2 ) Amortization of prior service benefit 212 212 Settlement gain — ( 2,409 ) Net periodic pension (benefit) cost ( 72 ) ( 2,136 ) POSTRETIREMENT MEDICAL PLANS Three months ended (Thousands of Dollars) December 29, 2024 December 24, 2023 Service cost for benefits earned during the period 1 13 Interest cost on projected benefit obligation 108 149 Expected return on plan assets ( 410 ) ( 320 ) Amortization of net gain ( 292 ) ( 308 ) Amortization of prior service benefit ( 71 ) ( 94 ) Curtailment gain — ( 1,184 ) Net periodic postretirement benefit ( 664 ) ( 1,744 ) In the three months ended December 29, 2024 and December 24, 2023, we made no contributions to our pension plans. W e have no required contributions to our pension plans for 2025. Multiemployer Pension Plans In prior periods, the Company effectuated withdrawals from several multiemployer plans. As of December 29, 2024 and September 29, 2024, we had $ 23.3 million and $ 23.6 million of accrued withdrawal liabilities. The liabilities reflect the estimated value of payments to the fund, payable over 20 -years. 7 INCOME TAXES We recorded an income tax expense of $ 3.2 million related to loss before taxes of $ 13.0 million for the three months ended December 29, 2024. We recorded an income tax expense of $ 0.2 million related to income before taxes of $ 1.5 million for the three months ended December 24, 2023. The effective 10 Table of Contents income tax rate for the three months ended December 29, 2024, was 25.0 %. The effective income tax rate for the three months ended December 24, 2023, was 16.7 %. The primary differences between these rates and the U.S. federal statutory rate of 21% are because of state taxes, non-deductible expenses, changes in valuation allowance, 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 30 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 2016. 8 (LOSS) EARNINGS PER COMMON SHARE The following table sets forth the computation of basic and diluted (loss) earnings per common share: Three months ended (Thousands of Dollars and Shares, Except Per Share Data) December 29, 2024 December 24, 2023 (Loss) income attributable to Lee Enterprises, Incorporated: ( 16,748 ) 688 Weighted average common shares 6,192 6,080 Less weighted average restricted Common Stock ( 204 ) ( 170 ) Basic average common shares 5,988 5,910 Dilutive restricted Common Stock — 26 Diluted average common shares 5,988 5,936 (Loss) earnings per common share: Basic ( 2.80 ) 0.12 Diluted ( 2.80 ) 0.12 For the three months ended December 29, 2024 and December 24, 2023 we had no and 128,019 weighted average shares, respectively, not considered in the computation of diluted earnings per share because the Company recorded net losses. Rights Agreement On March 28, 2024, our Board of Directors adopted a stockholder rights plan (the “Rights Agreement”). Pursuant to the Rights Agreement, on March 28, 2024, our Board of Directors declared a dividend of one preferred share purchase right (a “Right”), payable on April 8, 2024, for each share of our Common Stock outstanding to the stockholders of record on that date. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series C Participating Convertible Preferred Stock, without par value (the “Preferred Shares”), of the Company at a price of $ 90.00 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment. The Rights will initially trade with our Common Stock and will generally become exercisable only if any person or group, other than certain exempt persons, acquires beneficial ownership of 15 % or more of our Common Stock outstanding. In the event the Rights become exercisable, each holder of a Right, other than the triggering person(s), will be entitled to purchase additional shares of our Common Stock at a 50 % discount or the Company may exchange each Right held by such holders for one share of our Common Stock. The Rights Agreement will continue in effect until March 27, 2025, or unless earlier redeemed or terminated by the Company, as provided in the Rights Agreement. The Rights have no voting or dividend privileges, and, unless and until they become exercisable, have no dilutive effect on the earnings of the Company. The Rights Agreement applies equally to all current and future stockholders and is not intended to deter offers or preclude our Board of Directors from considering acquisition proposals that are fair and 11 Table of Contents otherwise in the best interest of our stockholders. However, the overall effect of the Rights Agreement may render it more difficult or discourage a merger, tender offer, or other business combination involving us that is not supported by our Board of Directors. 9 COMMITMENTS AND CONTINGENT LIABILITIES Legal Proceedings We are involved in a variety of legal actions that arise in the normal course of business. Insurance coverage mitigates potential loss for certain of these matters. While we are unable to predict the ultimate outcome of these legal actions except for the case described below, which amounts are recognized in "Prepaids and Other" and "Compensation and other accrued liabilities" on the Consolidated Balance Sheets, 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. The Company was named as a defendant by a group of Plaintiffs acting on behalf of a proposed class of digital subscribers in a lawsuit in 2022. The lawsuit alleged that the Company violated the Video Privacy Protection Act (“VPPA”) by using pixels to track subscribers’ video viewing activity on Company websites and sharing it with Meta without consent. The Company has agreed to a preliminary settlement with the Plaintiffs for $ 9.5 million, subject to required court approval. The entire settlement amount will be paid by the Company’s insurance carriers. The settlement liability and insurance receivable are recorded within “Compensation and other accrued liabilities” and “Prepaids and other” on the Consolidated Balance Sheets as of December 29, 2024 and September 29, 2024, respectively. 12 Table of Contents