References to “we”, “our”, “us” and the like throughout this document refer to Lee Enterprises, Incorporated (the “Company”). References to “2022”“2023”, “2021"“2022" and the like refer to the fiscal years ended the last Sunday in September.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This report contains information that may be deemed forward-looking that is based largely on our current expectations, and is subject to certain risks, trends and uncertainties that could cause actual results to differ materially from those anticipated. Among such risks, trends and other uncertainties, which in some instances are beyond our control, are:

	•	The overall impact the COVID-19 pandemic has on the Company's revenues and costs;
	•	The long-term or permanent changes the COVID-19 pandemic may have on the publishing industry, which may result in permanent revenue reductions and other risks and uncertainties;
	•	We may be required to indemnify the previous owners of the BH Media or Buffalo News for unknown legal and other matters that may arise;
	•	Our ability to manage declining print revenue and circulation subscribers;
	•	The impact and duration of adverse conditions in certain aspects of the economy affecting our business;
	•	Changes in advertising and subscription demand;
	•	Changes in technology that impact our ability to deliver digital advertising;
	•	Potential changes in newsprint, other commodities and energy costs;
	•	Interest rates;
	•	Labor costs;
	•	Significant cyber security breaches or failure of our information technology systems;
	•	Our ability to achieve planned expense reductions and realize the expected benefit of our acquisitions;
	•	Our ability to maintain employee and customer relationships;
	•	Our ability to manage increased capital costs;
	•	Our ability to maintain our listing status on NASDAQ;
	•	Competition; and
	•	Other risks detailed from time to time in our publicly filed documents.

Any statements that are not statements of historical fact (including statements containing the words “may”, “will”, “would”, “could”, “believes”, “expects”, “anticipates”, “intends”, “plans”, “projects”, “considers” and similar expressions) generally should be considered forward-looking statements. Statements regarding our plans, strategies, prospects and expectations regarding our business and industry, including statements regarding the impacts that the COVID-19 pandemic and our responses thereto may have on our future operations, are forward-looking statements. They reflect our expectations, are not guarantees of performance and speak only as of the date the statement is made. Readers are cautioned not to place undue reliance on such forward-looking statements, which are made as of the date of this report. We do not undertake to publicly update or revise our forward-looking statements, except as required by law.

PART I

FINANCIAL INFORMATION

Item 1.       Financial Statements

LEE ENTERPRISES, INCORPORATED

CONSOLIDATED BALANCE SHEETS

The accompanying Notes are an integral part of the Consolidated Financial Statements.

The accompanying Notes are an integral part of the Consolidated Financial Statements.

LEE ENTERPRISES, INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

The accompanying Notes are an integral part of the Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(Unaudited)

The accompanying Notes are an integral part of the Consolidated Financial Statements.

LEE ENTERPRISES, INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying Notes are an integral part of the Consolidated Financial Statements.

LEE ENTERPRISES, INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited, interim, Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports. In the opinion of management, these financial statements contain all adjustments (consisting of only normal recurring items) necessary to present fairly the financial position of Lee Enterprises, Incorporated and its subsidiaries (the “Company”) as of June 26, 2022, 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 2021 Annual Report on Form 10-K.

The Company's fiscal year ends on the last Sunday in September. Fiscal year 2022 ends on September 25, 2022, and fiscal year 2021 ended September 26, 2021. Fiscal year 2022 and 2021 are 52-week years with 13 weeks in each quarter. Because of seasonal and other factors, the results of operations for the three and nine months ended June 26, 2022, 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. (“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.

On March 16, 2020, the Company completed the acquisition of BH Media Group, Inc. and The Buffalo News, Inc. for a combined purchase price of $140,000,000 (collectively, the "Transactions").

2

REVENUE

The following table presents our revenue disaggregated by source:

		Three months Ended								Nine months Ended
		June 26,				June 27,				June 26,				June 27,
(Thousands of Dollars)		2022				2021				2022				2021
Operating revenue:
Print			44,814				54,632				145,032				174,933
Digital			46,187				36,490				132,356				104,393
Advertising and marketing services revenue			91,001				91,122				277,388				279,326
Print			78,079				81,483				234,962				249,332
Digital			10,969				7,309				28,953				20,573
Subscription revenue			89,048				88,792				263,915				269,905
Print			10,671				11,880				32,430				37,177
Digital			4,317				4,696				13,600				14,328
Other revenue			14,988				16,576				46,030				51,505
Total operating revenue			195,037				196,490				587,333				600,736

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.

Total Digital Revenue in the prior year was reclassified to conform to the current year presentation. Total Digital Revenue is defined as digital advertising and marketing services revenue including revenue from our wholly owned digital marketing agency Amplified Digital TM("Amplified"), digital-only subscription revenue and digital services revenue.

Arrangements with multiple performance obligations: We have various advertising and subscription agreements which include both print and digital performance obligations. Revenue from sales agreements that contain multiple performance obligations are allocated to each obligation based on the relative standalone selling price. We determine standalone selling prices based on observable prices charged to customers.

Contract Assets and Liabilities: The Company’s primary source of contract liabilities is unearned revenue from subscriptions paid in advance of the service provided. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next twelve months in accordance with the terms of the subscriptions and other contracts with customers. Revenue recognized in the nine months ended June 26,2022, that was included in the contract liability as of September 26, 2021, was $52,718,000.

---

Accounts receivable, excluding allowance for credit losses was $82,369,000 and $71,644,000 as of June 26, 2022, and September 26, 2021, respectively. Allowance for credit losses was $7,458,000 and $6,574,000 as of June 26, 2022, and September 26, 2021, respectively.

Sales commissions are expensed as incurred as the associated contractual periods are one year or less. These costs are recorded within compensation. Most of our contracts have original expected lengths of one year or less and revenue is earned at a rate and amount that corresponds directly with the value to the customer.

3	INVESTMENTS IN ASSOCIATED COMPANIES

TNI Partners

In Tucson, Arizona, TNI, acting as agent for our subsidiary, Star Publishing Company (“Star Publishing”), and Gannets Co. Inc.'s subsidiary Citizen Publishing Company (“Citizen”), is responsible for printing, delivery, advertising, and subscription activities of the Arizona Daily Star as well as the related digital platforms and specialty publications. TNI collects all receipts and income and pays substantially all operating expenses incident to the partnership's operations and publication of the newspaper and other media.

Income or loss of TNI (before income taxes) is allocated equally to Star Publishing and Citizen.

Summarized results of TNI are as follows:

		Three months ended								Nine months ended
		June 26,				June 27,				June 26,				June 27,
(Thousands of Dollars)		2022				2021				2022				2021
Operating revenue			8,229				8,389				25,805				26,548
Operating expenses			6,492				6,077				19,365				19,506
Operating income			1,737				2,312				6,440				7,042
Company's 50% share of operating income			869				1,156				3,220				3,521
Equity in earnings of TNI			869				1,156				3,220				3,521

TNI makes periodic distributions of its earnings and for the three months ended June 26,2022, and June 27,2021, we received $676,000 and $544,000 in distributions, respectively. In the nine months ended June 26,2022, and June 27,2021, we received $2,935,000 and $3,161,000 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 platforms. Net income or loss of MNI (after income taxes) is allocated equally to us and The Capital Times Company (“TCT”). MNI conducts its business under the trade name Capital Newspapers.

Summarized results of MNI are as follows:

		Three months ended								Nine months ended
		June 26,				June 27,				June 26,				June 27,
(Thousands of Dollars)		2022				2021				2022				2021
Operating revenue			11,921				11,479				35,677				34,425
Operating expenses, excluding restructuring costs, depreciation and amortization			9,682				8,657				28,402				29,324
Restructuring costs			122				0				122				106
Depreciation and amortization			167				188				507				480
Operating income			1,950				2,634				6,646				4,515
Net income			362				1,066				1,982				2,762
Equity in earnings of MNI			181				533				991				1,381

MNI makes periodic distributions of its earnings and in the three months ended June 26,2022 and June 27,2021, we received $200,000 and $750,000, respectively. In the nine months ended June 26, 2022, and June 27,2021, we received dividends of $1,000,000 and $1,900,000, respectively.

---

4	GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and identified intangible assets consist of the following:

		June 26,				September 26,
(Thousands of Dollars)		2022				2021
Goodwill, beginning of period			330,204				330,204
Impairment			(700	)			0
Goodwill, end of period			329,504				330,204
Non-amortized intangible assets:
Mastheads			39,849				39,672
Amortizable intangible assets:
Customer and newspaper subscriber lists			574,558				774,242
Less accumulated amortization			(474,176	)			(657,243	)
			100,382				116,999
Total intangibles, net			469,735				486,875

The weighted average amortization period for amortizable assets is 12.7 years. 

5

DEBT

The Company has debt consisting of a single 25-year term loan with BH Finance LLC, with an aggregate principal balance of $462,554,000 at a 9% annual rate and maturing on March 16, 2045 (referred to herein as “Credit Agreement” and “Term Loan”). OnJune 26,2022, based on market quotations, the fair value approximates carrying value. This represents a level 2 fair value measurement.

During the three months ended June 26,2022, we made 0 principal debt payments. During the nine months ended June 26, 2022, we made principal debt payments of $20,062,000.For the nine months ended, payments consisted of $10,450,000 from the sale of non-core assets, $6,112,000 from September 26, 2021 excess cash flow, and $3,500,000 in voluntary prepayments. Future payments are contingent on the Company's ability to generate future excess cash flow, as defined in the Credit Agreement. As of June 26,2022, there was no excess cash flow payment due.

Warrants

We entered into a Warrant Agreement dated March 31, 2014 (the “Warrant Agreement”). Under the Warrant Agreement, certain warrant holders received warrants to purchase, in cash, an initial aggregate of 600,000 shares of Common Stock, subject to adjustment pursuant to anti-dilution provisions and at an exercise price of $41.90 per share (the “Warrants”). The Warrants expired on March 31, 2022.

The Warrant Agreement required the Warrants to be measured at fair value and included in warrants and other liabilities in our Consolidated Balance Sheets. The initial fair value of the Warrants was $16,930,000. We re-measure the fair value of the liability each reporting period using the Black-Scholes option pricing model. The change in fair value of $71,000 for the nine months ended June 26, 2022 is reported as income in other, net non-operating income (expense). 

In connection with the issuance of the Warrants, we entered into a Registration Rights Agreement dated March 31,2014 (the “Registration Rights Agreement”). The Registration Rights Agreement required, among other matters, that we use our commercially reasonable efforts to maintain the effectiveness for certain specified periods of a shelf registration statement related to the shares of Common Stock to be issued upon exercise of the Warrants.

6	PENSION, POSTRETIREMENT AND POSTEMPLOYMENT DEFINED BENEFIT PLANS

We have several defined benefit pension plans that together cover certain employees, including plans established under collective bargaining agreements. As of September 26, 2021 two of seven plans had benefits under the plan frozen and no new participants are permitted. Additionally, we provide retiree medical and life insurance benefits under postretirement plans at several of our operating locations. Through June 26, 2022, our liability and related expense for benefits under the plans are recorded over the service period of employees based upon annual actuarial calculations.

During the quarter ended December 26, 2021, we notified participants in four of 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 $1,027,000 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 $6,507,000. Additionally, the Company merged the six frozen plans into one defined benefit plan effective in the second quarter of fiscal 2022.

During the quarter ended December 27, 2020, we notified certain participants in one of our post-employment benefit plans of changes to be made to the plans, including elimination of coverage for certain participants. The changes resulted in a non-cash curtailment gain of $23,830,000 and a reduction in our benefit obligation by $23,830,000. This is recorded within Curtailment gain and Postretirement and postemployment benefit obligations. 

---

The net periodic pension and postretirement cost (benefit) components for our plans are as follows:

PENSION PLANS		Three months ended								Nine months ended
		June 26,				June 27,				June 26,				June 27,
(Thousands of Dollars)		2022				2021				2022				2021
Service cost for benefits earned during the period			287				633				1,030				1,899
Interest cost on projected benefit obligation			2,001				1,787				5,939				5,361
Expected return on plan assets			(4,535	)			(4,672	)			(13,606	)			(14,016	)
Amortization of net loss			(687	)			1,004				(2,633	)			3,013
Amortization of prior service benefit			212				0				424				(1	)
Curtailment gain			0				0				(1,027	)			0
Pension benefit			(2,722	)			(1,248	)			(9,873	)			(3,744	)

POSTRETIREMENT MEDICAL PLANS		Three months ended								Nine months ended
		June 26,				June 27,				June 26,				June 27,
(Thousands of Dollars)		2022				2021				2022				2021
Service cost for benefits earned during the period			27				240				81				690
Interest cost on projected benefit obligation			85				239				255				601
Expected return on plan assets			(263	)			(252	)			(789	)			(756	)
Amortization of net gain			(249	)			(172	)			(747	)			(516	)
Amortization of prior service benefit			(162	)			(162	)			(486	)			(485	)
Curtailment gain			0				0				0				(23,830	)
Postretirement medical benefit			(562	)			(107	)			(1,686	)			(24,296	)

In the nine months ended June 26,2022, we had 0 required contributions to our pension plans. In the nine months ended June 27,2021, we contributed $965,000 to our pension plans. We have no required contributions to our pension plans for 2022 and therefore do not expect to make contributions to our pension trust during the remainder of fiscal 2022.

Multiemployer Pension Plans

In prior periods, the Company effectuated withdrawals from several multiemployer plans. We recorded estimates of withdrawal liabilities as of the time the contracts agreeing to withdraw from those plans are ratified. As of June 26,2022, and September 26, 2021, we had $24,337,020 and $23,471,000 withdrawal liabilities recorded in Other Liabilities in our Consolidated Balance Sheets. 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 $156,000 related to income before taxes of $352,000 for the three months ended June 26,2022, and income tax expense of $2,363,000 related to income before taxes of $9,064,000 for the nine months ended June 26,2022. We recorded an income tax expense of $1,366,000 related to income before taxes of $5,103,000 for the three months ended June 27,2021, and income tax expense of $7,106,000 related to income before taxes of $26,638,000 for the nine months ended June 27,2021. The effective income tax rates for the three and nine months ended June 26,2022, were 44.3% and 26.1%, respectively. The effective income tax rate for the three and nine months ended June 27,2021, were 26.8% and 26.7%, respectively.

The primary differences between these rates and the U.S. federal statutory rate of 21% are because of state taxes, non-deductible expenses, adjustments to reserves for uncertain tax positions, including any related interest, and mark-to-market adjustments to value stock warrants.

We file a consolidated federal tax return, as well as combined and separate tax returns in approximately 27 state and local jurisdictions.  We do not currently have any federal or material state income tax examinations in progress. Our income tax returns have generally been audited or closed to audit through 2014.

---

8	EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per common share:

		Three months ended								Nine months ended
		June 26,				June 27,				June 26,				June 27,
(Thousands of Dollars and Shares, Except Per Share Data)		2022				2021				2022				2021
(Loss) income attributable to Lee Enterprises, Incorporated:			(269	)			3,227				5,113				17,995
Weighted average common shares			5,965				5,881				5,935				5,867
Less weighted average restricted Common Stock			(170	)			(156	)			(168	)			(155	)
Basic average common shares			5,795				5,725				5,767				5,712
Dilutive stock options and restricted Common Stock			0				123				93				102
Diluted average common shares			5,795				5,848				5,860				5,814
Earnings per common share:
Basic			(0.05	)			0.56				0.89				3.15
Diluted			(0.05	)			0.55				0.87				3.10

For the three months ended June 26, 2022 no shares were considered in the computation of diluted earnings per common share because the Company recorded net losses. For the nine months endedJune 26,2022, 74,804 shares were not considered in the computation of diluted earnings per common share because their inclusion would result in an anti-dilutive effect on per share amounts. For the three and nine months ended June 27, 2021, 600,000 anti-dilutive shares were excluded.

Rights Agreement

On November 24, 2021, our Board of Directors adopted a stockholder rights plan (the “Rights Agreement”). Pursuant to the Rights Agreement, on November 24, 2021, our Board of Directors declared a dividend of 1 preferred share purchase right (a “Right”), payable on December 6, 2021, 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-thousandth of a share of Series B Participating Convertible Preferred Stock, without par value (the “Preferred Shares”), of the Company at a price of $120.00 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 10% (or 20% in the case of certain passive investors) 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 November 23, 2022, 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 0 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 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, 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.

Item 2.       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 three and nine months ended June 26, 2022. This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes thereto, included herein, and our 2021 Annual Report on Form 10-K.

EXECUTIVE OVERVIEW

Lee Enterprises, Incorporated is a leading provider of high quality, trusted, local news and information in the markets we serve with rapidly growing digital subscription and advertising platforms.

We operate 77 principally mid-sized local media operations.

We reach nearly 70% of all adults in our larger markets through a combination of our print and digital content offerings.

	•	Our web and mobile sites are the number one digital source of local news in most of our markets, reaching almost 43 million monthly unique visitors in 2022 with 349 million page views and 80 million visits.
	•	We have approximately one million paid subscribers to our print and digital products. Digital-only subscribers totaled approximately 501,000, a 48.6% increase over the prior year.

Our products include daily newspapers, websites and mobile applications, mobile news and advertising, video products, a digital marketing agency, digital services including web hosting and content management, niche publications and community newspapers. Our local media operations range from large daily newspapers and their associated digital products, such as the St. Louis Post-Dispatch and the Buffalo News, to non-daily newspapers with news websites and digital platforms serving smaller communities.

We also operate Amplified Digital, a full service digital marketing agency offering omnichannel marketing solutions, audience targeted display, social audience targeting, social media management, email marketing, banners, video streaming and much more. Amplified Digital serves more than 4,500 customers in 49 states.

We also operate TownNews which provides state-of-the-art web hosting, content management services and video management services to nearly 2,200 other media organizations including broadcast.   

STRATEGY

We are a major subscription and advertising platform, a trusted local news provider and innovative, digitally-focused marketing solutions company. Our focus is on the local market - including local news and information, local advertising and marketing services to top local accounts, and digital services to local content curators. To align with the core strength of our Company, our post-pandemic operating strategy is locally focused around three pillars:

	•	Grow digital audiences by transforming the way we present local news and information
	•	Expand our digital subscription base and revenue through audience growth and continued conversion of our massive digital audiences.
	•	Diversify and expand offerings for advertisers by launching a portfolio of video advertising initiatives and e-commerce sales strategies through Amplified Digital that will enable advertisers to leverage our vast data-rich digital audiences and reach consumers in new ways.

THREE MONTHS ENDEDJune 26, 2022

Operating results are summarized below.

---

			June 26,				June 27,				Percent
(Thousands of Dollars, Except Per Share Data)		2022				2021				Change
Operating revenue:
Print			44,814				54,632				(18.0	)
Digital			46,187				36,490				26.6
Advertising and marketing services revenue			91,001				91,122				(0.1	)
Print			78,079				81,483				(4.2	)
Digital			10,969				7,309				50.1
Subscription revenue			89,048				88,792				0.3
Print			10,671				11,880				(10.2	)
Digital			4,317				4,696				(8.1	)
Other revenue			14,988				16,576				(9.6	)
Total operating revenue			195,037				196,490				(0.7	)
Operating expenses:
Compensation			78,126				82,731				(5.6	)
Newsprint and ink			7,542				7,051				7.0
Other operating expenses			88,004				82,117				7.2
Depreciation and amortization			8,818				10,836				(18.6	)
Assets loss on sales, impairments and other, net			1,086				242				NM
Restructuring costs and other			6,072				1,419				NM
Operating expenses			189,648				184,396				2.8
Equity in earnings of associated companies			1,050				1,689				(37.8	)
Operating income			6,439				13,783				(53.3	)
Non-operating income (expense):
Interest expense			(10,292	)			(11,010	)			(6.5	)
Other, net			4,205				2,330				80.5
Non-operating expenses, net			(6,087	)			(8,680	)			(29.9	)
Income before income taxes			352				5,103				(93.1	)
Income tax expense			156				1,366				(88.6	)
Net income			196				3,737				(94.8	)
Earnings per common share:
Basic			(0.05	)			0.56				NM
Diluted			(0.05	)			0.55				NM

References to the “2022 Quarter” refer to the three months ended June 26, 2022. Similarly, references to the “2021 Quarter” refer to the three months ended June 27, 2021. 

Operating Revenue

Total operating revenue was $195,037,000 in the 2022 Quarter, down $1,453,000, or 0.7%, compared to the prior year.

Advertising and marketing services revenue totaled $91,001,000 in the 2022 Quarter, down 0.1% compared to the 2021 Quarter. Print advertising revenues were $44,814,000 in the 2022 Quarter, down 18% compared to the 2021 Quarter due to continued secular declines in demand for print advertising. Digital advertising and marketing services totaled $46,187,000 in the 2022 Quarter, up 26.6% compared to the 2021 Quarter. These gains resulted from an increase in Amplified Digital revenue and an increase in digital advertising on our owned and operated sites. Digital advertising and marketing services represented 50.8% of the 2022 Quarter total advertising and marketing services revenue, compared to 40.1% in the same period last year.

Subscription revenue totaled $89,048,000 in the 2022 Quarter, up 0.3% compared to the 2021 Quarter. Selective increases on our full access subscriptions, growth in digital-only subscribers and price increases on digital subscriptions, were partially offset by a decline in full access volume, consistent with historical and industry trends. Digital-only subscribers grew 48.6% since the 2021 Quarter and now total 501,000.

Other revenue, which primarily consists of commercial printing revenue and digital services from TownNews, decreased $1,588,000, or 9.6%, in the 2022 Quarter compared to the 2021 Quarter. Digital services revenue totaled $4,317,000 in the 2022 Quarter, an 8.1% decrease compared to the 2021 Quarter. Commercial printing revenue totaled $5,341,000 in the 2022 Quarter, a 15.7% decrease compared to the 2021 Quarter, primarily driven by reduction in print volumes from our partners.

Total digital revenue including digital advertising revenue, digital subscription revenue and digital services revenue totaled $61,473,000 in the 2022 Quarter, an increase of 26.8% over the 2021 Quarter, and represented 31.5% of our total operating revenue in the 2022 Quarter.

Equity in earnings of TNI and MNI decreased $639,000 in the 2022 Quarter.

Operating Expenses

Total operating expenses were $189,648,000 in the 2022 Quarter, a 2.8% increase compared to the 2021 Quarter. Cash Costs a non-GAAP financial measure used to summarize certain operating expense (see reconciliation of Non-GAAP financial measures below) were up 1.0% in the 2022 Quarter. 

Compensation expense decreased $4,605,000 in the 2022 Quarter, or 5.6%, compared to the 2021 Quarter from reductions in full time employees ("FTEs") due to continued business transformation efforts, partially offset by investments in digital talent.

Newsprint and ink costs increased $491,000 in the 2022 Quarter, or 7.0%, compared to the 2021 Quarter. The increase is attributable to higher newsprint prices offset by declines in newsprint volumes. See Item 3, “Commodities”, included herein, for further discussion and analysis of the impact of newsprint on our business.

Other operating expenses increased $5,887,000 in the 2022 Quarter, or 7.2%, compared to the 2021 Quarter. Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation and amortization, or restructuring costs and assets loss on sales, impairments, and other, net. The largest components are costs associated with printing and distribution of our printed products, 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 editions.

Restructuring costs and other totaled $6,072,000 and $1,419,000 in the 2022 Quarter and 2021 Quarter, respectively. Restructuring costs and other include severance costs, litigation expenses, restructuring expenses, and advisor expenses in the 2022 quarter associated with the unsolicited offer in November 2021. Restructuring costs in the 2021 Quarter are predominately severance related to our ongoing business transformation.

Depreciation and amortization expense decreased $2,018,000, or 18.6%, in the 2022 Quarter. The decrease in both is attributable to assets becoming fully depreciated or amortized.

Assets loss on sales, impairments and other, was a net loss of $1,086,000 in the 2022 Quarter compared to a net loss of $242,000 in the 2021 Quarter. The gains and losses and impairments in the 2022 Quarter and in the 2021 Quarter were the result of the disposition of non-core assets, including real estate.

The factors noted above resulted in an operating income of $6,439,000 in the 2022 Quarter compared to operating income of $13,783,000 in the 2021 Quarter.

Non-operating Income and Expense

Interest expense decreased $718,000, or 6.5%, to $10,292,000 in the 2022 Quarter, compared to the same period last year. The decrease was due to a lower outstanding balance on our Term Loan. Our weighted average cost of debt was 9.0% at the end of the 2022 Quarter and 2021 Quarter.

Other non-operating income and expense consists of benefits associated with our pension and other postretirement plans and the fair value adjustment of our Warrants. We recorded $3,598,000 periodic pension and other postretirement benefits in the 2022 Quarter compared to $2,228,000 in the 2021 Quarter. We recorded non-operating income of $0 in the 2022 Quarter and non-operating expense of $237,000 in the 2021 Quarter, related to the changes in the value of the Warrants.

Income Tax Expense

We recorded an income tax expense of $156,000, or 44.3% of pretax income in the 2022 Quarter. In the 2021 Quarter, we recognized an income tax expense of $1,366,000, or 26.8% of pretax loss.

Net Income and Earnings (losses) Per Share

Net income was $196,000 and diluted losses per share were $0.05 for the 2022 Quarter compared to net income of $3,737,000 and diluted earnings per share of $0.55 for the 2021 Quarter. The change reflects the various items discussed above.

NINE MONTHS ENDEDJune 26, 2022

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

---

		June 26,				June 27,				Percent
(Thousands of Dollars, Except Per Share Data)		2022				2021				Change
Operating revenue:
Print			145,032				174,933				(17.1	)
Digital			132,356				104,393				26.8
Advertising and marketing services revenue			277,388				279,326				(0.7	)
Print			234,962				249,332				(5.8	)
Digital			28,953				20,573				40.7
Subscription revenue			263,915				269,905				(2.2	)
Print			32,430				37,177				(12.8	)
Digital			13,600				14,328				(5.1	)
Other revenue			46,030				51,505				(10.6	)
Total operating revenue			587,333				600,736				(2.2	)
Operating expenses:
Compensation			246,333				250,048				(1.5	)
Newsprint and ink			22,254				22,222				0.1
Other operating expenses			258,665				243,749				6.1
Depreciation and amortization			27,445				33,794				(18.8	)
Assets (gain) loss on sales, impairments and other, net			(11,340	)			6,938				NM
Restructuring costs and other			19,862				5,880				NM
Operating expenses			563,219				562,631				0.1
Equity in earnings of associated companies			4,211				4,902				(14.1	)
Operating income			28,325				43,007				(34.1	)
Non-operating income (expense):
Interest expense			(31,478	)			(34,129	)			(7.8	)
Curtailment gain			1,027				23,830				(95.7	)
Pension withdrawal cost			(2,335	)			(12,310	)			(81.0	)
Other, net			13,525				6,240				NM
Non-operating expenses, net			(19,261	)			(16,369	)			17.6
Income before income taxes			9,064				26,638				(66.0	)
Income tax expense			2,363				7,106				(66.7	)
Net income			6,701				19,532				(65.7	)
Earnings per common share:
Basic			0.89				3.15				(71.8	)
Diluted			0.87				3.10				(71.8	)

References to the “2022 Period” refer to the nine months ended June 26, 2022. Similarly, references to the “2021 Period” refer to the nine months ended June 27, 2021. 

Operating Revenue

Total operating revenue was $587,333,000 in the 2022 Period, down $13,403,000, or 2.2%, compared to the 2021 Period.

Advertising and marketing services revenue totaled $277,388,000 in the 2022 Period, down 0.7% compared to the prior year. Print advertising revenues were $145,032,000 in the 2022 Period, down 17.1% compared to the prior year due to continued secular declines in demand for print advertising. Digital advertising and marketing services totaled $132,356,000 in the 2022 Period, up 26.8% compared to the prior year. These gains resulted from an 83.1% increase in Amplified Digital revenue and an increase in advertising on our owned and operated sites. Digital advertising and marketing services represented 47.7% of the 2022 Period total advertising and marketing services revenue, compared to 37.4% in the same period last year.

Subscription revenue totaled $263,915,000 in the 2022 Period, down 2.2% compared to the 2021 Period. The decline in full access volume, consistent with historical and industry trends were partially offset by growth in digital only subscribers and selective price increases on our full access subscriptions. Digital only subscribers grew 48.6% since the 2021 Period and now total 501,000.

Other revenue, which primarily consists of commercial printing revenue and digital services from TownNews, decreased $5,475,000, or 10.6%, in the 2022 Period compared to the 2021 Period. Digital services revenue totaled $13,600,000 in the 2022 Period, a 5.3% decrease compared to the 2021 Period. Commercial printing revenue totaled $16,195,000 in the 2022 Period, a 9.3% decrease compared to the 2021 Period primarily driven by reduction in print volumes from our partners.

Total digital revenue including digital advertising revenue, digital subscription revenue and digital services revenue totaled $174,909,000 in the 2022 Period, an increase of 25.5% over the 2021 Period, and represented 29.8% of our total operating revenue in the 2022 Period.

Equity in earnings of TNI and MNI decreased $691,000 in the 2022 Period.

Operating Expenses

Total operating expenses were $563,219,000 in the 2022 Period, a 0.1% increase compared to the 2021 Period. Cash Costs, a Non-GAAP financial measure (see reconciliation of Non-GAAP financial measures below), were $527,252,000, a 2.2% increase compared to the 2021 Period.

Compensation expense decreased $3,715,000 in the 2022 Period, or 1.5%, compared to the 2021 Period due to reductions in FTE's due to continued business transformation efforts partially offset by investments in digital talent and increasing average compensation levels due to investments in digital talent.

Newsprint and ink costs increased $32,000 in the 2022 Period, or 0.1%, compared to the 2021 Period. The increase is attributable to higher newsprint prices offset by declines in newsprint volumes. See Item 3, “Commodities”, included herein, for further discussion and analysis of the impact of newsprint on our business.

Other operating expenses increased $14,916,000 in the 2022 Period, or 6.1%, compared to the 2021 Period. Other operating expenses include all operating costs not considered to be compensation, newsprint, depreciation and amortization, or restructuring costs and asset loss on sales, impairments and other, net. The largest components are costs associated with printing and distribution of our printed products, digital cost of goods sold and facility expenses. The increase is attributable to increases in digital costs of goods sold from Amplified Digital growth, higher input costs due to inflation and investments to fund our digital growth strategy partially offset by lower delivery and other print-related costs due to lower volumes of our print editions.

Restructuring costs and other totaled $19,862,000 and $5,880,000 in the 2022 Period and 2021 Period, respectively. Restructuring costs and other include severance costs, litigation costs, restructuring expenses, and advisor expenses in the 2022 Period associated with an unsolicited takeover offer received in November 2021. Restructuring costs in the 2021 Period are predominately severance related to our ongoing business transformation.

Depreciation and amortization expense decreased $6,349,000, or 18.8%, in the 2022 Period. The decrease in both is attributable to assets becoming fully depreciated or amortized.

Assets (gain) loss on sales, impairments and other, was a net gain of $11,340,000 in the 2022 Period compared to a net loss of $6,938,000 in the 2021 Period. The gains and losses in the 2022 Period and 2021 Period were the result of the disposition of non-core assets, including real estate.

The factors noted above resulted in operating income of $28,325,000 in the 2022 Period compared to $43,007,000 in the 2021 Period.

Non-operating Income and Expense

Interest expense decreased $2,651,000, or 7.8%, to $31,478,000 in the 2022 Period, compared to the same period last year. The decrease was due to a lower outstanding balance on our Term Loan. Our weighted average cost of debt was 9.0% at the end of the 2022 Period and 2021 Period.

Other non-operating income and expense consists of benefits associated with our pension and other postretirement plans and the fair value adjustment of our Warrants. We recorded $11,643,000 periodic pension and other postretirement benefits in the 2022 Period compared to $6,799,000 in the 2021 Period. We recorded non-operating income of $71,000 in the 2022 Period and non-operating expense of $954,000 in the 2021 Period, related to changes in the value of the Warrants.

We recognized a non-cash curtailment gain of $1,027,000 in the 2022 Period as a result of freezing certain pension plans. We recognized a non-cash curtailment gain of $23,830,000 and a reduction in our benefit obligation in the 2021 Period by eliminating post-retirement medical coverage for certain employees.

We recognized pension withdrawal costs in the 2022 and 2021 Period of $2,335,000 and $12,310,000, respectively in connection with the withdrawal from a pension plan that covered certain employees. These withdrawal liabilities will be paid in equal quarterly installments over the next 20 years.

Income Tax Expense

We recorded an income tax expense of $2,363,000, or 26.1% of pretax income, in the 2022 Period. In the 2021 Period, we recognized an income tax expense of $7,106,000 or 26.7% of pretax income.

Net Income and Earnings Per Share

Net income was $6,701,000 and diluted earnings per share were $0.87 for the 2022 Period, compared to net income of $19,532,000 and diluted earnings per share of $3.10 for the 2021 Period. The change reflects the various items discussed above.

NON-GAAP FINANCIAL MEASURES

LIQUIDITY AND CAPITAL RESOURCES 

Our operations have historically generated strong positive cash flow and are expected to provide sufficient liquidity, together with cash on hand, to meet our requirements, primarily 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 $716,000 in 2022 compared to cash provided by operating activities of $42,771,000 in 2021, a decrease of $42,055,000.  The decrease was driven by a decrease in operating results of $23,400,000 (defined as net income (loss) adjusted for non-working capital items) and an increase in working capital of $18,654,000, primarily related to unfavorable changes in inventory, postretirement liabilities, income taxes payable and warrants, and accounts receivable.

Investing Activities

Cash provided by investing activities totaled $8,515,000 in the 2022 Period compared to cash required for investing activities of $2,465,000 in the 2021 Period. 2022 included $14,824,000 in proceeds from the sale of assets as the Company divested non-core real estate.

We anticipate that funds necessary for capital expenditures, which are expected to total up to $10,000,000 in 2022, and other requirements, will be available from internally generated funds.

Financing Activities

Cash required for financing activities totaled $19,682,000 in the 2022 Period compared to $52,969,000 in the 2021 Period. Debt reduction accounted for nearly all the usage of funds in the 2022 and 2021 Periods.

Additional Information on Liquidity

Our liquidity, consisting of cash on the balance sheet, totaled $15,661,000 on June 26, 2022. 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.

In February 2020, our filing of a replacement Form S-3 registration statement ("Shelf") with the SEC was declared effective and expires February 2023. The Shelf registration gives us the flexibility to issue and publicly distribute various types of securities, including preferred stock, common stock, warrants, secured or unsecured debt securities, purchase contracts and units consisting of any combination of such securities, from time to time, in one or more offerings, up to an aggregate amount of $750,000,000. SEC issuer eligibility rules require us to have a public float of at least $75,000,000 to use the Shelf.

CHANGES IN LAWS AND REGULATIONS

Wage Laws

The United States and various state and local governments are considering increasing their respective minimum wage rates. Most of our employees are paid more than the current United States or state minimum wage rates. However, until changes to such rates are enacted, the impact of the changes cannot be determined. Among other provisions, the CARES Act allows the Company to defer payments of the employer’s share of social security taxes which shall be paid between December 31, 2021, and December 31, 2022. The CARES Act also provides for an Employee Retention Credit which can be applied to the employer’s share of payroll taxes. The Company has elected to defer the employer’s share of social security tax payments and is currently determining the applicability of the Employee Retention Credit.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk