Lee Enterprises(LEE) - 2019 Q4 - Annual Report

Part I Business Overview Lee Enterprises, Incorporated is a leading local news and information provider operating 50 media businesses across 20 states, strategically focused on digital growth, local retail, and financial efficiency Company Overview Lee Enterprises, Incorporated is a leading local news and information provider operating 50 local media businesses across 20 states, including TNI Partners and Madison Newspapers, Inc - The company's products include print and digital daily, weekly, monthly, and niche publications, providing real-time content and advertising via websites and mobile applications[10] - The company offers marketing services through its digital marketing agency, Amplified Agency, and provides web hosting and content management services for itself and 2,000 other content producers via its subsidiary, TownNews[10] Revenue Streams The company's revenue is primarily derived from print and digital advertising, digital marketing services, publication subscriptions, and digital services - The company's revenue primarily stems from print and digital advertising, digital marketing services, publication subscriptions, and digital services (mainly through TownNews)[12] 2019 Fiscal Year Revenue Composition | Revenue Category | 2019 Revenue Share | | :------------------- | :------------- | | Advertising and Marketing Services | 52% | | Subscription Revenue | 37% | | Digital Services Revenue | 4% | | Other Revenue | 7% | - Advertising and marketing services revenue includes local retail, classified, national, and niche publication advertising, along with digital marketing services provided by Amplified Agency[13][14][15][16] - Subscription revenue primarily originates from the News+ membership platform, offering access to print and digital content, as well as single-copy sales[19] - Digital services revenue is mainly from TownNews, which saw its total revenue grow by nearly 20% to $22.6 million in 2019[21][23] - Other revenue primarily comprises management agreements with BH Media Group, Inc., commercial printing, and third-party publication distribution[22] Strategic Initiatives The company's strategic initiatives focus on delivering valuable local news, achieving digital revenue dominance, accelerating local retail performance, and generating strong adjusted EBITDA through cost and debt reduction - The company is committed to providing valuable, highly localized, and original news and information to drive audience frequency and engagement, leveraging centralized resources to enhance content quality and efficiency[28][29][30] - The company aims to become a digital revenue-led enterprise, with digital revenue growing 4.0% to $144.6 million in 2019, accounting for 28.4% of total operating revenue, driven by digital audience growth, increased rates, a 79.1% rise in digital subscribers, and rapid growth in TownNews[31] - The company grows digital revenue by offering digital products such as video, behavioral targeting, and social networking, as well as digital marketing services through Amplified Agency[32] - TownNews generated nearly $23 million in revenue in 2019, with a compound annual growth rate of 10.9% since 2011, expanding its products and customer base through acquisitions of video management and streaming solutions and a WordPress content management system[36][37][38] - The company is dedicated to accelerating local retail performance, a category accounting for over 50% of advertising revenue, driving growth through a well-trained sales force, strong client relationships, and the success of Amplified Agency, which saw its revenue grow 29% in 2019[39][40] - The company generates strong adjusted EBITDA by continuously focusing on revenue growth and rationalizing its traditional cost base, with cash costs decreasing 5.9% on a same-store basis in 2019[41] - The company expects to continue using most available cash flow to reduce debt, with debt principal decreasing by $41.2 million in 2019, bringing the total debt balance to $443.6 million[42][43] Key Partnerships and Subsidiaries The company holds significant interests in TNI Partners and Madison Newspapers, Inc., and acquired Pulitzer Inc. in 2005 - The company acquired Pulitzer Inc. in 2005, which now publishes 9 daily newspapers and over 60 weekly and specialty publications, including the St. Louis Post-Dispatch[45][46] - The company holds a 50% interest in TNI Partners, which manages the printing, distribution, advertising, and subscription activities for the Arizona Daily Star, accounted for using the equity method[48][49] - The company owns a 50% equity interest in Madison Newspapers, Inc. (MNI), which publishes daily and Sunday newspapers in Madison, Wisconsin, accounted for using the equity method[51] Daily Newspapers and Markets This section provides key circulation and digital audience metrics for the company's major daily newspapers and digital websites in 2019 2019 Key Daily Newspaper and Digital Website Data | Newspaper | Location | 2019 Average Daily Circulation | 2019 Average Sunday Circulation | 2019 Average Monthly Unique Visitors (Thousands) | 2019 Average Monthly Page Views (Thousands) | | :------------------- | :------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | St. Louis Post-Dispatch | St. Louis, MO | 84,657 | 336,636 | 6,234 | 66,170 | | Arizona Daily Star | Tucson, AZ | 40,593 | 83,454 | 1,603 | 13,310 | | Wisconsin State Journal | Madison, WI | 51,401 | 60,789 | 2,147 | 13,127 | | The Times | Munster, Valparaiso, and Crown Point, IN | 40,328 | 52,276 | 1,772 | 30,054 | | Quad-City Times | Davenport, IA | 26,836 | 28,372 | 782 | 6,837 | | Dispatch-Argus | Moline, IL | 50,145 | 17,939 | 357 | 3,353 | | Lincoln Journal Star | Lincoln, NE | 34,462 | 40,930 | 1,872 | 21,995 | | The Pantagraph | Bloomington, IL | 17,848 | 21,336 | 624 | 8,270 | | Herald & Review | Decatur, IL | 11,787 | 18,033 | 518 | 4,751 | | The Journal Times | Racine, WI | 14,163 | 15,482 | 512 | 6,594 | | Kenosha News | Kenosha, WI | 14,165 | 16,486 | 204 | 1,984 | | Billings Gazette | Billings, MT | 21,847 | 23,123 | 1,232 | 11,257 | | The Courier | Waterloo and Cedar Falls, IA | 29,016 | 22,443 | 595 | 5,799 | | La Crosse Tribune | La Crosse, WI | 13,737 | 16,144 | 569 | 6,874 | | The Bismarck Tribune | Bismarck, ND | 17,177 | 18,627 | 552 | 6,271 | | Missoulian | Missoula, MT | 13,979 | 16,195 | 650 | 4,765 | | Sioux City Journal | Sioux City, IA | 16,871 | 17,427 | 550 | 4,010 | | Casper Star-Tribune | Casper, WY | 16,575 | 17,011 | 519 | 3,562 | | Rapid City Journal | Rapid City, SD | 13,817 | 16,853 | 533 | 4,757 | | The Post-Star | Glens Falls, NY | 13,721 | 15,733 | 663 | 7,703 | | Albany Democrat Herald | Albany, OR | 7,743 | 8,020 | 224 | 2,079 | | Corvallis Gazette Times | Corvallis, OR | 7,170 | 7,174 | 244 | 1,993 | | The Southern Illinoisan | Carbondale, IL | 8,654 | 13,719 | 400 | 2,404 | | The Times-News | Twin Falls, ID | 17,492 | 10,978 | 364 | 2,820 | | The Daily News | Longview, WA | 13,587 | 10,608 | 257 | 1,944 | | Globe Gazette | Mason City, IA | 7,267 | 8,521 | 317 | 4,531 | | Napa Valley Register | Napa, CA | 7,965 | 7,903 | 428 | 3,634 | | Arizona Daily Sun | Flagstaff, AZ | 7,011 | 7,072 | 329 | 1,868 | | The Times and Democrat | Orangeburg, SC | 6,084 | 6,218 | 328 | 2,751 | | The Citizen | Auburn, NY | 5,210 | 5,867 | 298 | 2,925 | | Santa Maria Times | Santa Maria, CA | 5,206 | 4,460 | 388 | 2,569 | | The Sentinel | Carlisle, PA | 6,086 | — | 264 | 1,968 | | The World | Coos Bay, OR | 3,705 | — | 120 | 705 | | Daily Journal | Park Hills, MO | 2,803 | — | 226 | 1,901 | | The Sentinel | Hanford, CA | 2,651 | — | 169 | 970 | | Total | | 706,084 | 969,609 | 29,239 | 286,560 | Newsprint Newsprint, a key raw material for the company's print publications, is subject to price fluctuations influenced by various market factors - Newsprint is a raw material for the company's print publications, primarily sourced from U.S. and Canadian producers[54] - Newsprint purchase prices are highly volatile, influenced by foreign exchange rates, tariffs, domestic and international production capacity, and consumption, with price fluctuations potentially impacting operating results[54] Executive Team This section lists the key members of the company's executive team, including their age, tenure, and current positions Executive Team Members | Name | Age | Date Joined Company | Date Assumed Current Position | Current Position | | :------------------- | :--- | :------------------- | :------------------- | :------------------- | | Kevin D. Mowbray | 57 | September 1986 | February 2016 | President and Chief Executive Officer | | Joseph J. Battistoni | 36 | March 2014 | November 2019 | Vice President, Local Advertising | | Nathan E. Bekke | 50 | January 1992 | February 2015 | Vice President, Consumer Sales and Marketing | | Ray G. Farris | 63 | October 2006 | December 2018 | Vice President, Group Publisher | | Suzanna M. Frank | 49 | December 2003 | March 2008 | Vice President, Audience | | Astrid J. Garcia | 69 | December 2006 | December 2013 | Vice President, Human Resources and Legal | | James A. Green | 53 | - | March 2013 | Vice President, Digital | | John M. Humenik | 56 | December 1998 | February 2015 | Vice President, News | | Timothy R. Millage | 38 | March 2010 | August 2018 | Vice President, Chief Financial Officer and Treasurer | | Douglas L. Ranes | 69 | February 2005 | November 2019 | Vice President, Production Operations | | Michele Fennelly White | 57 | June 1994 | June 2011 | Vice President, Information Technology and Chief Information Officer | Employees As of September 29, 2019, the company employed approximately 2,954 individuals, with a significant portion of St. Louis Post-Dispatch employees represented by unions - As of September 29, 2019, the company had approximately 2,954 employees, including about 622 part-time employees, excluding TNI and MNI[64] - Approximately 69% of St. Louis Post-Dispatch employees (283 individuals) are represented by unions, with contracts expiring between March 2020 and September 2021[64] Corporate Governance and Public Information The company maintains robust corporate governance practices with a strong independent board and provides extensive public information on its website - The company maintains sound corporate governance practices, with a lead independent director on its board and 7 out of 10 members identified as independent[66] - In 2019, the company enhanced its corporate governance by adopting a majority vote standard for director elections, allowing proxy access, extending the shareholder proposal submission period, and nominating three new independent directors[67] - The company provides press releases, SEC filings, financial statistics, annual reports, investor presentations, and governance documents on its website, www.lee.net[68](index=68&type=chunk) Forward-Looking Statements This annual report contains forward-looking statements based on current expectations, subject to risks and uncertainties that could cause actual results to differ materially - This annual report contains forward-looking statements based on current expectations, subject to specific risks, trends, and uncertainties that could cause actual results to differ materially from those anticipated[69] - The company does not undertake to publicly update or revise forward-looking statements, except as required by law[70] Risk Factors The company faces significant risks including declining advertising revenue, challenges in digital transformation, substantial debt, liquidity constraints, LIBOR transition, intense competition, data security threats, increasing pension obligations, and newsprint price volatility - Advertising revenue may decline due to weakness in brick-and-mortar retail, and advertisers may cut budgets or shift spending priorities[73] - Failure to successfully navigate the shift of newspaper readership and advertising spending from traditional print to digital media could materially adversely affect the company's operating revenue and may require significant capital investment[74][75] - The company faces significant financial risk from $443.6 million in total consolidated debt, increasing its vulnerability to adverse economic and industry conditions[77][79] - As of September 29, 2019, the company's total liquidity was $26.289 million, with net debt at 3.6 times adjusted EBITDA, posing a risk of insufficient future debt service or refinancing capacity[80][81] - Debt agreements contain restrictive covenants that may limit the company's ability to grow its business or return capital to shareholders, including restrictions on incurring additional debt, making investments, transferring assets, and paying dividends[85][86] - The anticipated discontinuation and transition away from LIBOR interest rates may impact the company[87] - The company faces intense competition in the local media industry, and failure to compete effectively could lead to decreased advertising and subscription revenue[88] - As digital revenue increases, the company will face more digital media operating risks, such as impaired advertising rates, reduced traffic, technological issues, and loss of distribution control[89][90] - Data security breaches or information technology system failures could negatively impact the company's business, reputation, and operating results, leading to data loss, resource expenditure, legal liability, and loss of customer trust[91][92] - Net pension liabilities increased by $20.3 million to $47.0 million in 2019, and continued increases in future pension and postretirement benefit obligations could reduce cash available for business operations[98][99] - The company may face additional withdrawal liabilities from multi-employer pension plans, having fully withdrawn from the CWA/ITU plan in 2019 and incurring withdrawal liability as a result[101][102] - Approximately 11.0% of employees are union members, and labor disputes could impair the company's ability to produce and deliver newspapers[104] - Sustained increases in newsprint prices could impact the company's profitability[105] Unresolved Staff Comments There are no unresolved staff comments in this report - No unresolved staff comments[108] Properties The company's administrative offices are leased in Davenport, Iowa, while most major printing facilities are owned and well-maintained, with over 67% of publications printed in-house or outsourced for efficiency - The company's administrative offices are located in leased facilities in Davenport, Iowa, with a lease term extending to August 1, 2029[110] - All major printing facilities are owned, except for leased land at the Helena, Montana plant, and leased properties in Madison, Wisconsin, and Tucson, Arizona[111] - Over 67% of daily and other publications are printed at owned facilities or outsourced to third-party printers to enhance operational efficiency[112] Legal Proceedings The company is involved in various legal proceedings arising in the normal course of business, which management believes will not materially adversely affect its consolidated financial statements - The company is involved in various legal proceedings arising in the normal course of business, with insurance coverage potentially mitigating some losses[115] - Management believes the disposition of these legal proceedings will not materially adversely affect the consolidated financial statements[115] Mine Safety Disclosures This item is not applicable to the company - Not applicable[117] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is listed on the NYSE, with 5,777 registered holders as of September 29, 2019, and its debt agreements generally restrict dividend payments and stock repurchases, leading to underperformance against peer and S&P 500 indices over five years - The company's common stock is listed on the New York Stock Exchange[119] Common Stock Quarterly Prices (2017-2019) | Quarter End | 2019 High | 2019 Low | 2019 Close | 2018 High | 2018 Low | 2018 Close | 2017 High | 2017 Low | 2017 Close | | :----------- | :--------- | :--------- | :----------- | :--------- | :--------- | :----------- | :--------- | :--------- | :----------- | | December | 3.05 | 1.84 | 2.13 | 2.50 | 2.15 | 2.35 | 3.76 | 2.40 | 2.90 | | March | 3.68 | 2.02 | 3.30 | 2.70 | 1.95 | 1.95 | 3.30 | 2.40 | 2.60 | | June | 3.49 | 2.12 | 2.24 | 3.30 | 2.00 | 2.85 | 3.10 | 1.75 | 1.90 | | September | 2.33 | 1.77 | 2.01 | 3.30 | 2.60 | 2.65 | 2.40 | 1.80 | 2.20 | - As of September 29, 2019, the company had 5,777 registered holders of common stock[120] - The company's debt agreements generally restrict its ability to pay dividends and repurchase common stock[121] Five-Year Cumulative Total Return ($100 Invested on September 30, 2014) | Metric | 2015 | 2016 | 2017 | 2018 | 2019 | | :------------------- | :----- | :----- | :----- | :----- | :----- | | Lee Enterprises, Incorporated | 61.54 | 110.95 | 65.09 | 78.40 | 60.36 | | Peer Group Index | 94.68 | 98.78 | 116.93 | 137.73 | 148.49 | | S&P 500 Stock Index | 99.39 | 114.72 | 136.07 | 160.44 | 167.27 | Selected Financial Data The company's selected financial data shows a 6.3% decrease in 2019 operating revenue to $509.8 million, a significant 66.2% drop in net income to $15.9 million, continuous cash cost reduction to $398.8 million, and a total debt of $443.6 million, alongside a slight increase in stockholder deficit Selected Financial Data (Fiscal Years 2015-2019) | Metric (Thousands of Dollars, except per share data) | 2019 | 2018 | 2017 | 2016 | 2015 | | :----------------------------------- | :----- | :----- | :----- | :----- | :----- | | Operating Results | | | | | | | Operating Revenue | 509,854 | 543,955 | 566,943 | 614,364 | 648,543 | | Cash Costs (1) (3) | 398,815 | 423,766 | 437,767 | 477,857 | 501,629 | | Depreciation and Amortization | 29,332 | 31,766 | 41,282 | 43,441 | 45,563 | | Loss (Gain) on Asset Sales, Impairment and Other | 2,464 | 6,429 | (1,150) | (954) | 106 | | Restructuring Costs and Other | 11,635 | 5,550 | 7,523 | 1,825 | 3,304 | | Equity in Earnings of Associated Companies | 7,121 | 9,249 | 7,609 | 8,533 | 8,254 | | Operating Income (3) | 74,729 | 85,693 | 89,130 | 100,728 | 106,195 | | Interest Expense | (47,488) | (52,842) | (57,573) | (64,233) | (72,409) | | Debt Financing and Management Costs | (7,214) | (5,311) | (4,818) | (5,947) | (5,433) | | Insurance Settlement Gain | — | — | — | 30,646 | — | | Other, Net (3) | 3,813 | 3,280 | 13,477 | (9,537) | 3,213 | | Net Income | 15,909 | 47,048 | 28,605 | 36,019 | 24,318 | | Income Attributable to Lee Enterprises, Incorporated | 14,268 | 45,766 | 27,481 | 34,961 | 23,316 | | Earnings per Common Share: | | | | | | | Basic | 0.26 | 0.84 | 0.51 | 0.66 | 0.44 | | Diluted | 0.25 | 0.82 | 0.50 | 0.64 | 0.43 | | Weighted Average Common Shares: | | | | | | | Basic | 55,565 | 54,702 | 53,990 | 53,198 | 52,640 | | Diluted | 56,884 | 55,948 | 55,392 | 54,224 | 53,931 | | Total Assets | 555,202 | 575,411 | 620,850 | 662,855 | 747,825 | | Debt, including current portion (2) | 443,627 | 484,859 | 548,385 | 617,167 | 725,872 | | Debt, net of cash and restricted cash (2) | 434,982 | 479,479 | 537,764 | 600,183 | 714,738 | | Stockholders' Deficit | (38,484) | (37,354) | (92,235) | (128,485) | (159,393) | Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion of the company's operating results and financial condition for fiscal years 2019, 2018, and 2017, including non-GAAP financial measures, critical accounting policies, and the impact of new accounting standards, alongside an analysis of revenue, expenses, non-operating items, taxes, liquidity, and contractual obligations Non-GAAP Financial Measures The company utilizes non-GAAP financial measures such as Adjusted EBITDA, Adjusted Income (Loss), Adjusted Earnings (Loss) per Common Share, and Cash Costs to supplement GAAP information and provide a clearer understanding of operational performance and cash-settled expenses - The company uses non-GAAP financial measures such as Adjusted EBITDA, Adjusted Income (Loss), Adjusted Earnings (Loss) per Common Share, and Cash Costs to supplement GAAP financial information[133] - Adjusted EBITDA aims to isolate unusual, infrequent, or non-cash transactions to better understand the company's operating performance and serves as a key metric for measuring business performance and leverage[134] - Adjusted Income (Loss) and Adjusted Earnings (Loss) per Common Share provide useful metrics for evaluating the company's overall performance by excluding the impact of warrant valuations and the 2017 Tax Act[135] - Cash Costs represent operating expenses measured on an accrual basis and settled in cash, helping investors understand the components of the company's cash-settled operating costs[136] - Total operating revenue less cash costs (i.e., "margin") measures the company's profitability after paying direct cash costs[137] Reconciliation of Adjusted EBITDA to Net Income (Fiscal Years 2017-2019) | (Thousands of Dollars) | 2019 | 2018 | 2017 | | :----------------------------------- | :----- | :----- | :----- | | Net Income | 15,909 | 47,048 | 28,605 | | Adjustments: | | | | | Income tax expense (benefit) | 7,931 | (16,228) | 11,611 | | Non-operating expense, net | 50,889 | 54,873 | 48,914 | | Equity in earnings of TNI and MNI | (7,121) | (9,249) | (7,609) | | Loss (gain) on asset sales, impairment and other | 2,464 | 6,429 | (1,150) | | Depreciation and amortization | 29,332 | 31,766 | 41,282 | | Restructuring costs and other | 11,635 | 5,550 | 7,523 | | Equity compensation | 1,638 | 1,857 | 2,088 | | Add: | | | | | Ownership share of TNI and MNI EBITDA (50%) | 8,811 | 9,883 | 9,927 | | Adjusted EBITDA | 121,488 | 131,929 | 141,191 | Critical Accounting Policies Critical accounting policies involve management's estimates and assumptions for future events, particularly concerning impairment testing for intangible assets, and actuarial assumptions for pension and postretirement benefits, which could lead to significant differences from actual results - Critical accounting policies involve management's estimates and assumptions about future events, which may lead to significant differences between actual and estimated results[141] - Non-amortizing intangible assets, such as local newspaper mastheads and website domain names, are tested annually for impairment using a discounted cash flow model (relief-from-royalty method) to determine fair value[143][144] - Amortizing intangible assets, such as customer relationships and subscriber lists, are tested for recoverability when impairment indicators arise, with no impairment indicators identified in 2019, 2018, or 2017[145] - Pension and postretirement benefit plan obligations and expenses are based on actuarial assumptions, with key assumptions including the discount rate and the expected long-term rate of return on plan assets[150][151] Pension and Postretirement Benefit Plan Sensitivity Analysis (50 Basis Point Change) | Metric | Impact on 2019 Pension Expense | Impact on September 29, 2019 Obligation | | :----------------------------------- | :------------------- | :------------------- | | Pension discount rate | $— | $11,200,000 | | Postretirement and postemployment benefit discount rate | $— | $500,000 | | Pension plan assets expected return rate | $710,000 | $— | | Postretirement and postemployment benefit plan assets expected return rate | $118,000 | $— | - The determination of income tax provisions, deferred tax assets and liabilities, and valuation allowances requires significant management judgment and is based on estimates and assumptions that may differ from actual results[154][156] Impact of Recently Issued Accounting Standards The company will adopt new lease accounting standards in fiscal year 2020, expecting to recognize $9.6 million to $12.6 million in lease liabilities and right-of-use assets without significant impact on the income statement or cash flows, and is currently evaluating the impact of new expected credit loss models - The company will adopt new lease accounting standards in fiscal year 2020 (September 30, 2019), expecting to recognize $9.6 million to $12.6 million in lease liabilities and right-of-use assets, but anticipates no material impact on the consolidated statements of income or cash flows[158][159] - The company will adopt new expected credit loss models beginning September 29, 2020, and is currently evaluating their impact on the consolidated financial statements[160] Continuing Operations In 2019, total operating revenue decreased by 6.3% due to weak print advertising and reduced subscriptions, partially offset by digital growth, while operating expenses declined due to business transformation and efficiency improvements Summary of Continuing Operations Results (Fiscal Years 2017-2019) | (Thousands of Dollars, except per share data) | 2019 | 2018 | Percent Change | 2017 | Percent Change | | :----------------------------------- | :----- | :----- | :--------- | :----- | :--------- | | Advertising and marketing services revenue | 265,933 | 303,446 | (12.4) | 331,360 | (8.4) | | Subscription revenue | 186,691 | 195,108 | (4.3) | 191,922 | 1.7 | | Other revenue | 57,230 | 45,401 | 26.1 | 43,661 | 4.0 | | Total operating revenue | 509,854 | 543,955 | (6.3) | 566,943 | (4.1) | | Operating expenses: | | | | | | | Compensation | 182,869 | 199,164 | (8.2) | 213,109 | (6.5) | | Newsprint and ink | 22,237 | 24,949 | (10.9) | 24,904 | 0.2 | | Other operating expenses | 193,709 | 199,653 | (3.0) | 199,754 | (0.1) | | Cash costs | 398,815 | 423,766 | (5.9) | 437,767 | (3.2) | | Total operating revenue less cash costs | 111,039 | 120,189 | (7.6) | 129,176 | (7.0) | | Depreciation and amortization | 29,332 | 31,766 | (7.7) | 41,282 | (23.1) | | Loss (gain) on asset sales, impairment and other | 2,464 | 6,429 | (61.7) | (1,150) | NM | | Restructuring costs and other | 11,635 | 5,550 | NM | 7,523 | (26.2) | | Operating expenses | 442,246 | 467,511 | (5.4) | 485,422 | (3.7) | | Equity in earnings of associated companies | 7,121 | 9,249 | (23.0) | 7,609 | 21.6 | | Operating income | 74,729 | 85,693 | (12.8) | 89,130 | (3.9) | | Non-operating income (expense): | | | | | | | Interest expense | (47,488) | (52,842) | (10.1) | (57,573) | (8.2) | | Debt financing and management costs | (7,214) | (5,311) | 35.8 | (4,818) | 10.2 | | Other, net | 3,813 | 3,280 | 16.3 | 13,477 | (75.7) | | Non-operating expense, net | (50,889) | (54,873) | (7.3) | (48,914) | 12.2) | | Income before income taxes | 23,840 | 30,820 | (22.6) | 40,216 | (23.4) | | Income tax expense (benefit) | 7,931 | (16,228) | NM | 11,611 | NM | | Net income | 15,909 | 47,048 | (66.2) | 28,605 | 64.5) | | Net income attributable to noncontrolling interests | (1,641) | (1,282) | 28.0 | (1,124) | 14.1 | | Income attributable to Lee Enterprises, Incorporated | 14,268 | 45,766 | (68.8) | 27,481 | 66.5) | | Other comprehensive (loss) income, net of income taxes | (17,368) | 4,322 | NM | 6,710 | (35.6) | | Comprehensive (loss) income attributable to Lee Enterprises, Incorporated | (3,100) | 50,088 | NM | 34,191 | 46.5) | | Earnings per common share: | | | | | | | Basic | 0.26 | 0.84 | (69.3) | 0.51 | 64.7 | | Diluted | 0.25 | 0.82 | (69.5) | 0.50 | 64.0 | - Total operating revenue for fiscal year 2019 was $509.8 million, a 6.3% decrease year-over-year, primarily due to continued weakness in print advertising demand and reduced print subscriptions, partially offset by digital revenue growth[165] - Advertising and marketing services revenue decreased by 12.4% in 2019, mainly due to the ongoing decline in print advertising demand, with digital advertising and marketing services revenue reaching $100.07 million, representing 37.6% of total advertising revenue[166] - Subscription revenue decreased by 4.3% in 2019, primarily due to a decline in all-access subscriptions, partially offset by strategic pricing initiatives and a 79.1% increase in digital subscribers[167] - Other revenue increased by 26.1% in 2019, primarily driven by increased revenue from the management agreement with BHMG and a 20.3% growth in TownNews digital services revenue[168] - Total digital revenue (including digital advertising, digital subscriptions, and digital services) was $144.6 million in 2019, a 4.0% increase year-over-year, accounting for 28.4% of total operating revenue[170] - Operating expenses decreased by 5.4% in 2019, primarily due to business transformation initiatives, outsourcing of some production operations, and reduced traditional print expenses, with same-store cash costs declining 5.9%[178] - Compensation expense decreased by 8.2% in 2019, primarily due to a 10.9% reduction in full-time employees[179] - Newsprint and ink costs decreased by 10.9% in 2019, mainly due to a 12.3% reduction in newsprint usage from lower print volumes, partially offset by an increase in average prices[180] - Restructuring costs and other expenses were $11.635 million in 2019, including an estimated $3.836 million related to multi-employer pension plan withdrawals[182] - The company anticipates cash costs to decrease by 5.5% to 6.5% in 2020, primarily due to measures taken in 2019, additional business transformation initiatives, lower print production and distribution costs, and declining newsprint prices[184] Non-Operating Income and Expenses Non-operating income and expenses in 2019 were influenced by a 10.1% decrease in interest expense due to reduced debt, increased debt financing and management costs, and fair value adjustments for warrants - Interest expense decreased by 10.1% to $47.488 million in 2019, primarily due to a reduction in debt balance[194] - Debt financing and management costs were $7.214 million in 2019, an increase from 2018, primarily including amortization of 2014 refinancing costs and $1.309 million in adjustments[194] - Other non-operating income and expenses include income related to defined benefit pension plans and other postretirement benefit plans, as well as fair value adjustments for warrants[195][196] - In 2019, $0.612 million in non-operating income was recorded due to changes in warrant fair value, compared to $0.226 million in non-operating expense in 2018[196] Income Tax Expenses The 2017 Tax Act significantly reduced the federal corporate income tax rate, leading to a $24.872 million net decrease in income tax expense in 2018, while 2019 saw an income tax expense of $7.931 million with an effective tax rate of 33.3% - The 2017 Tax Act reduced the federal statutory corporate income tax rate from 35% to 21%, leading the company to remeasure deferred tax assets and liabilities, resulting in a net decrease of $24.872 million in income tax expense in 2018[201] - Income tax expense was $7.931 million in 2019, with an effective tax rate of 33.3%; income tax benefit was $16.228 million in 2018, with an effective tax rate of -52.7% (28.0% excluding the 2017 Tax Act impact)[202] Net Income and Earnings Per Share This section provides adjustments to reported net income and earnings per share, primarily for warrant fair value changes and the 2017 Tax Act impact Net Income and Earnings Per Share Adjustments (Fiscal Years 2017-2019) | (Thousands of Dollars, except per share data) | 2019 Amount | 2019 Per Share | 2018 Amount | 2018 Per Share | 2017 Amount | 2017 Per Share | | :----------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Reported income attributable to Lee Enterprises, Incorporated | 14,268 | 0.25 | 45,766 | 0.82 | 27,481 | 0.50 | | Adjustments: | | | | | | | | Warrant fair value adjustment | (612) | 0.01 | 226 | — | (10,181) | (0.19) | | Adjusted income before income taxes | 13,656 | 0.24 | 45,992 | 0.82 | 17,300 | 0.31 | | 2017 Tax Act income tax impact | — | — | (24,872) | (0.44) | — | — | | Adjusted income attributable to Lee Enterprises, Incorporated | 13,656 | 0.24 | 21,120 | 0.38 | 17,300 | 0.31 | Liquidity and Capital Resources The company's liquidity and capital resources in 2019 were characterized by cash provided by operating activities of $57.676 million, cash used in investing activities of $10.933 million, and cash used in financing activities of $43.478 million for debt repayment, with total liquidity of $26.289 million and compliance with all debt covenants - Cash provided by operating activities was $57.676 million in 2019, a decrease from $59.296 million in 2018, primarily due to lower net income[206] - Cash used in investing activities was $10.933 million in 2019, primarily comprising $5.901 million in capital expenditures and $6.543 million in acquisition expenditures[210] - Cash used in financing activities was $43.478 million in 2019, primarily for debt repayment[214] Debt Summary (September 29, 2019) | (Thousands of Dollars) | September 29, 2019 | September 30, 2018 | Interest Rate as of September 29, 2019 (%) | | :------------------- | :------------- | :------------- | :------------------- | | Revolving credit | — | — | 6.1 | | First lien term loan | — | 6,303 | 8.3 | | Notes | 363,420 | 385,000 | 9.5 | | Second lien term loan | 80,207 | 93,556 | 12.0 | | Total | 443,627 | 484,859 | | | Unamortized debt issuance costs | (11,282) | (17,055) | | | Less: Current portion of long-term debt | 2,954 | 7,027 | | | Total long-term debt | 429,391 | 460,777 | | - As of September 29, 2019, the company's weighted average cost of debt (excluding amortization of debt financing costs) was 10.0%[214] - As of September 29, 2019, the company's total liquidity was $26.289 million, including cash and approximately $17.644 million available under its revolving credit facility[217] - The company expects all interest and principal payments for the next 12 months to be met by cash flow and plans to amend and extend its revolving credit facility before its expiration[216][217] - The exercise of warrants could provide up to $25.14 million in additional liquidity[217] - The company was in compliance with all debt covenants as of September 29, 2019[220] Seasonality The company's largest publication revenue source, retail advertising, exhibits seasonality, typically peaking in the December and June quarters and lowest in the March quarter - The company's largest publication revenue source, retail advertising, is seasonal, typically fluctuating with market retail sales, being higher in the December and June quarters and lowest in the March quarter[224] Inflation The company mitigates the impact of inflation by evaluating price increases, productivity improvements, purchasing efficiencies, and other cost reduction measures - The company mitigates the impact of inflation by evaluating price increases, productivity improvements, purchasing efficiencies, and other cost reduction measures[225] Contractual Obligations This section summarizes the company's significant contractual obligations as of September 29, 2019, including debt principal, interest expense, operating lease obligations, and capital expenditure commitments Summary of Significant Contractual Obligations (September 29, 2019) | Nature of Obligation | Total (Thousands of Dollars) | Less than 1 Year (Thousands of Dollars) | 1-3 Years (Thousands of Dollars) | 3-5 Years (Thousands of Dollars) | More than 5 Years (Thousands of Dollars) | | :------------------- | :------------- | :------------- | :------------- | :------------- | :------------- | | Debt (Principal) | 443,627 | 2,954 | 440,673 | — | — | | Interest Expense | 111,093 | 43,840 | 67,253 | — | — | | Operating Lease Obligations | 15,925 | 3,402 | 4,528 | 3,003 | 4,992 | | Capital Expenditure Commitments | 1,642 | 1,642 | — | — | — | | Total | 572,287 | 51,838 | 512,454 | 3,003 | 4,992 | - This table does not include future cash requirements for pension, postretirement, and postemployment obligations, nor unrecognized tax benefits[227][228] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate and commodity price changes, with its debt entirely fixed-rate and newsprint prices declining due to oversupply and reduced demand, potentially impacting future earnings - As of September 29, 2019, the company's debt structure was entirely fixed-rate, with no hedging instruments employed[230] - Newsprint prices peaked in the second half of 2018 and continued to decline in 2019, primarily due to oversupply and decreased demand[231] - For every $10 per metric ton increase in newsprint prices, pre-tax income is projected to decrease by approximately $0.213 million in 2020[233] - As of September 29, 2019, the fair value of the company's fixed-rate debt (notes and second lien term loan) was close to its carrying value[234] Financial Statements and Supplementary Data This item refers to the "Consolidated Financial Statements" section within the report - This information is included in the "Consolidated Financial Statements" section of the report[236] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure This information is incorporated by reference from the company's proxy statement to be filed in January 2020 - This information is included in the company's proxy statement to be filed in January 2020 and is incorporated by reference into this report[238] Controls and Procedures Management assessed the effectiveness of disclosure controls and procedures as of September 29, 2019, concluding they were effective, and KPMG LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting - As of September 29, 2019, the company's disclosure controls and procedures were assessed as effective[240] - Management believes the company's internal control over financial reporting was effective as of September 29, 2019[242] - Independent registered public accounting firm KPMG LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[243][245] - No significant changes in internal control over financial reporting occurred during the reporting period[244] Part III Directors, Executive Officers and Corporate Governance This information, except for executive officer details disclosed in Part I, is incorporated by reference from the company's January 2020 proxy statement, and the company maintains a Code of Business Conduct and Ethics overseen by the Audit Committee - This information, except for executive officer details disclosed in Part I "Executive Team", is incorporated by reference from the company's proxy statement to be filed in January 2020[254] - The company maintains a Code of Business Conduct and Ethics applicable to all employees, including the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, overseen by the Audit Committee[255] Executive Compensation This information is incorporated by reference from the "Non-Employee Director Compensation," "Executive Compensation," and "Compensation Discussion and Analysis" sections of the company's January 2020 proxy statement - This information is incorporated by reference from the "Non-Employee Director Compensation," "Executive Compensation," and "Compensation Discussion and Analysis" sections of the company's proxy statement to be filed in January 2020[257] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This information is incorporated by reference from the "Voting Securities and Principal Holders" and "Equity Compensation Plan Information" sections of the company's January 2020 proxy statement - This information is incorporated by reference from the "Voting Securities and Principal Holders" and "Equity Compensation Plan Information" sections of the company's proxy statement to be filed in January 2020[258] Certain Relationships and Related Transactions, and Director Independence This information is incorporated by reference from the "Board Meetings and Board Committees" section of the company's January 2020 proxy statement - This information is incorporated by reference from the "Board Meetings and Board Committees" section of the company's proxy statement to be filed in January 2020[260] Principal Accounting Fees and Services This information is incorporated by reference from the "Relationship with Independent Registered Public Accounting Firm" section of the company's January 2020 proxy statement - This information is incorporated by reference from the "Relationship with Independent Registered Public Accounting Firm" section of the company's proxy statement to be filed in January 2020[262] Part IV Exhibits and Financial Statement Schedules This item lists the documents filed as part of the annual report, including consolidated financial statements, financial statement schedules, and an exhibit index - This item lists documents filed as part of the annual report, including Consolidated Statements of Income and Comprehensive Income (Loss), Consolidated Balance Sheets, Consolidated Statements of Stockholders' Equity (Deficit), Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements[265] - All financial statement schedules have been omitted as they are not applicable or the information is included in the Notes to Consolidated Financial Statements[266] - The Exhibit Index contains all referenced exhibits[267] Consolidated Financial Statements The consolidated financial statements encompass the company and its subsidiaries, with TNI and MNI accounted for by the equity method and TownNews consolidated, covering income, comprehensive income, balance sheets, equity, and cash flows for fiscal years 2019, 2018, and 2017, along with detailed disclosures on accounting policies, revenue, investments, debt, pension plans, and unaudited quarterly data Consolidated Statements of Income and Comprehensive Income (Loss) This statement presents the company's consolidated income and comprehensive income (loss) for fiscal years 2019, 2018, and 2017, detailing operating and non-operating revenues and expenses, net income, and earnings per share Consolidated Statements of Income and Comprehensive Income (Loss) (Fiscal Years 2017-2019) | (Thousands of Dollars, except per share data) | 2019 | 2018 | 2017 | | :----------------------------------- | :----- | :----- | :----- | | Operating revenue: | | | | | Advertising and marketing services | 265,933 | 303,446 | 331,360 | | Subscription | 186,691 | 195,108 | 191,922 | | Other | 57,230 | 45,401 | 43,661 | | Total operating revenue | 509,854 | 543,955 | 566,943 | | Operating expenses: | | | | | Compensation | 182,869 | 199,164 | 213,109 | | Newsprint and ink | 22,237 | 24,949 | 24,904 | | Other operating expenses | 193,709 | 199,653 | 199,754 | | Depreciation and amortization | 29,332 | 31,766 | 41,282 | | Loss (gain) on asset sales, impairment and other | 2,464 | 6,429 | (1,150) | | Restructuring costs and other | 11,635 | 5,550 | 7,523 | | Total operating expenses | 442,246 | 467,511 | 485,422 | | Equity in earnings of associated companies | 7,121 | 9,249 | 7,609 | | Operating income | 74,729 | 85,693 | 89,130 | | Non-operating income (expense): | | | | | Interest expense | (47,488) | (52,842) | (57,573) | | Debt financing and management costs | (7,214) | (5,311) | (4,818) | | Other, net | 3,813 | 3,280 | 13,477 | | Total non-operating expense, net | (50,889) | (54,873) | (48,914) | | Income before income taxes | 23,840 | 30,820 | 40,216 | | Income tax expense (benefit) | 7,931 | (16,228) | 11,611 | | Net income | 15,909 | 47,048 | 28,605 | | Net income attributable to noncontrolling interests | (1,641) | (1,282) | (1,124) | | Income attributable to Lee Enterprises, Incorporated | 14,268 | 45,766 | 27,481 | | Other comprehensive income (loss), net of income taxes | (17,368) | 4,322 | 6,710 | | Comprehensive income (loss) attributable to Lee Enterprises, Incorporated | (3,100) | 50,088 | 34,191 | | Earnings per common share: | | | | | Basic: | 0.26 | 0.84 | 0.51 | | Diluted: | 0.25 | 0.82 | 0.50 | Consolidated Balance Sheets This statement presents the company's consolidated financial position as of September 29, 2019, and September 30, 2018, detailing assets, liabilities, and stockholders' equity (deficit) Consolidated Balance Sheets (September 29, 2019 and September 30, 2018) | (Thousands of Dollars) | September 29, 2019 | September 30, 2018 | | :----------------------------------- | :------------- | :------------- | | Assets | | | | Current assets: | | | | Cash and cash equivalents | 8,645 | 5,380 | | Accounts receivable, net of allowance for doubtful accounts | 42,536 | 43,711 | | Inventories | 3,769 | 5,684 | | Prepaid expenses and other | 5,353 | 4,567 | | Total current assets | 60,303 | 59,342 | | Investments: | | | | Associated companies | 28,742 | 29,216 | | Other | 10,684 | 10,958 | | Total investments | 39,426 | 40,174 | | Property and equipment: | | | | Land and improvements | 16,979 | 17,432 | | Buildings and improvements | 148,514 | 150,376 | | Equipment | 237,289 | 276,332 | | Construction in progress | 1,980 | 1,710 | | | 404,762 | 445,850 | | Less: Accumulated depreciation | 322,723 | 353,522 | | Property and equipment, net | 82,039 | 92,328 | | Goodwill | 250,309 | 246,176 | | Other intangible assets, net | 107,393 | 119,819 | | Medical plan assets, net | 14,338 | 16,157 | | Other | 1,394 | 1,415 | | Total assets | 555,202 | 575,411 | | Liabilities and Stockholders' Equity | | | | Current liabilities: | | | | Current portion of long-term debt | 2,954 | 7,027 | | Accounts payable | 16,750 | 12,747 | | Compensation and other accrued liabilities | 17,711 | 19,641 | | Accrued interest | 1,903 | 2,031 | | Unearned revenue | 21,720 | 23,895 | | Total current liabilities | 61,038 | 65,341 | | Long-term debt, less current portion | 429,391 | 460,777 | | Pension obligations | 47,037 | 26,745 | | Postretirement and postemployment benefit obligations | 2,550 | 2,580 | | Deferred income taxes | 29,806 | 39,108 | | Income taxes payable | 8,742 | 6,559 | | Warrants and other | 13,469 | 10,561 | | Total liabilities | 592,033 | 611,671 | | Equity (Deficit): | | | | Stockholders' equity (deficit): | | | | Common stock, $0.01 par value | 577 | 572 | | Additional paid-in capital | 255,476 | 253,511 | | Accumulated deficit | (265,423) | (279,691) | | Accumulated other comprehensive loss | (29,114) | (11,746) | | Total stockholders' deficit | (38,484) | (37,354) | | Noncontrolling interests | 1,653 | 1,094 | | Total deficit | (36,831) | (36,260) | | Total liabilities and deficit | 555,202 | 575,411 | Consolidated Statements of Stockholders' Equity (Deficit) This statement details the changes in the company's consolidated stockholders' equity (deficit) for fiscal years 2017, 2018, and 2019, including common stock, additional paid-in capital, accumulated deficit, and accumulated other comprehensive loss Consolidated Statements of Stockholders' Equity (Deficit) (Fiscal Years 2017-2019) | (Thousands of Dollars and Shares) | 2019 Amount | 2018 Amount | 2017 Amount | 2019 Shares | 2018 Shares | 2017 Shares | | :----------------------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Common stock: | | | | | | | | Balance at beginning of year | 572 | 567 | 558 | 57,141 | 56,712 | 55,771 | | Shares issued | 5 | 5 | 9 | 505 | 429 | 941 | | Balance at end of year | 577 | 572 | 567 | 57,646 | 57,141 | 56,712 | | Additional paid-in capital: | | | | | | | | Balance at beginning of year | 253,511 | 251,790 | 249,740 | | | | | Equity compensation | 2,040 | 2,039 | 2,088 | | | | | Shares issued (redeemed) | (75) | (318) | (38) | | | | | Balance at end of year | 255,476 | 253,511 | 251,790 | | | | | Accumulated deficit: | | | | | | | | Balance at beginning of year | (279,691) | (328,524) | (356,005) | | | | | Net income | 15,909 | 47,048 | 28,605 | | | | | Net income attributable to noncontrolling interests | (1,641) | (1,282) | (1,124) | | | | | Cumulative effect of accounting change | — | 3,067 | — | | | | | Balance at end of year | (265,423) | (279,691) | (328,524) | | | | | Accumulated other comprehensive income (loss): | | | | | | | | Balance at beginning of year | (11,746) | (16,068) | (22,778) | | | | | Pension and postretirement benefit changes | (24,667) | 10,477 | 11,439 | | | | | Deferred income taxes, net | 7,299 | (3,088) | (4,729) | | | | | Cumulative effect of accounting change | — | (3,067) | — | | | | | Balance at end of year | (29,114) | (11,746) | (16,068) | | | | | Total stockholders' deficit | (38,484) | (37,354) | (92,235) | 57,646 | 57,141 | 56,712 | Consolidated Statements of Cash Flows This statement presents the company's consolidated cash flows from operating, investing, and financing activities for fiscal years 2017, 2018, and 2019, detailing the sources and uses of cash Consolidated Statements of Cash Flows (Fiscal Years 2017-2019) | (Thousands of Dollars) | 2019 | 2018 | 2017 | | :----------------------------------- | :----- | :----- | :----- | | Cash flows from operating activities: | | | | | Net income | 15,909 | 47,048 | 28,605 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | Depreciation and amortization | 29,332 | 31,766 | 41,282 | | Non-operating loss | 7,213 | 3,547 | 3,594 | | Equity compensation expense | 1,638 | 1,857 | 2,088 | | MNI distributions in excess of (less than) earnings | 465 | (1,229) | 546 | | Deferred income taxes | (2,003) | (17,378) | 10,360 | | Pension contributions | (650) | (4,990) | — | | Other, net | 1,968 | 6,907 | (967) | | Changes in operating assets and liabilities: | | | | | Decrease in accounts receivable and contract sales | 1,697 | 4,418 | 2,854 | | Decrease (increase) in inventories and other | 2,759 | (1,926) | 687 | | Decrease in accounts payable and other accrued liabilities | (3,676) | (8,587) | (6,393) | | Increase (decrease) in pension, postretirement and postemployment benefit obligations | 1,900 | (2,482) | (3,473) | | Change in income taxes payable | 1,495 | 687 | (1) | | Other, including warrants | (371) | (342) | (6,901) | | Net cash provided by operating activities | 57,676 | 59,296 | 72,281 | | Cash flows from investing activities: | | | | | Purchases of property and equipment | (5,901) | (6,025) | (4,078) | | Proceeds from asset sales | 1,502 | 6,623 | 2,582 | | Acquisitions | (6,543) | — | (7,450) | | TNI distributions in excess of (less than) earnings | 9 | 1,194 | (11) | | Other, net | — | (1,864) | (498) | | Net cash used in investing activities | (10,933) | (72) | (9,455) | | Cash flows from financing activities: | | | | | Proceeds from long-term debt | 600 | 10,000 | 5,000 | | Payments of long-term debt | (41,832) | (73,526) | (73,782) | | Payments of debt financing and management costs | (1,773) | (437) | (373) | | Common stock transactions, net | (473) | (502) | (34) | | Net cash used in financing activities | (43,478) | (64,465) | (69,189) | | Net increase (decrease) in cash and cash equivalents | 3,265 | (5,241) | (6,363) | | Cash and cash equivalents: | | | | | Beginning of year | 5,380 | 10,621 | 16,984 | | End of year | 8,645 | 5,380 | 10,621 | Notes to Consolidated Financial Statements These notes provide detailed disclosures supporting the consolidated financial statements, covering significant accounting policies, revenue recognition, investments, goodwill, debt, pension plans, equity, income taxes, fair value of financial instruments, earnings per share, allowance for doubtful accounts, other information, commitments, contingent liabilities, and unaudited quarterly data 1. Significant Accounting Policies This note details the basis of presentation for the company's consolidated financial statements, including consolidation principles, accounting estimates, cash and cash equivalents, accounts receivable, inventories, other investments, property and equipment, goodwill and other intangible assets, noncontrolling interests, revenue recognition, advertising costs, restructuring costs, pension and postretirement benefit plans, income taxes, fair value of financial instruments, equity compensation, warrants, and uninsured risks, along with recently issued accounting standards - The company's consolidated financial statements include its own accounts and those of its subsidiaries, with TNI and MNI accounted for using the equity method, while TownNews is consolidated[283] - In the first quarter of fiscal year 2018, the company remeasured deferred taxes and reclassified a net tax benefit of $3.067 million from accumulated other comprehensive income to retained earnings to reflect the impact of the 2017 Tax Act[284] - The company adopted new accounting standards for employee share-based payments in 2018, which did not have a material impact on the consolidated financial statements[285] - The company adopted new revenue recognition standards (ASC Topic 606) on October 1, 2018, using the modified retrospective method, with no adjustment to opening retained earnings and no material impact on the consolidated financial statements[305][333] - Revenue is recognized when performance obligations are satisfied; advertising and marketing services revenue is recognized at the point of delivery, subscription revenue upon publication delivery or online content availability, and other revenue (e.g., digital services and management agreement revenue) based on the contract period or service delivery[306][307][309][310][311] - Goodwill and non-amortizing intangible assets are tested annually for impairment, while amortizing intangible assets are tested when impairment indicators arise[296][298][300] - Pension and postretirement benefit plan obligations and expenses are based on actuarial assumptions, including the discount rate and the expected long-term rate of return on plan assets[316][317] - The company will adopt new lease accounting standards in fiscal year 2020 (September 30, 2019), expecting to recognize $9.6 million to $12.6 million in lease liabilities and right-of-use assets, but anticipates no material impact on the consolidated statements of income or cash flows[334][335] - The company will adopt new expected credit loss models beginning September 29, 2020, and is currently evaluating their impact on the consolidated financial statements[336] 2. Revenue The company adopted new revenue recognition standards on October 1, 2018, with no adjustment to opening retained earnings, and reported total operating revenue of $509.8 million in fiscal year 2019, primarily from advertising, subscriptions, and digital services - The company adopted new revenue recognition standards on October 1, 2018, with no adjustment to opening retained earnings[337] Revenue Stream Breakdown (Fiscal Years 2017-2019) | (Thousands of Dollars) | September 29, 2019 | September 30, 2018 | September 24, 2017 | | :----------------------------------- | :------------- | :------------- | :------------- | | Advertising and marketing services revenue | 265,933 | 303,446 | 331,360 | | Subscription revenue | 186,691 | 195,108 | 191,922 | | TownNews and other digital services revenue | 19,637 | 16,328 | 14,008 | | Other revenue | 37,593 | 29,073 | 29,653 | | Total operating revenue | 509,854 | 543,955 | 566,943 | - The company's primary unearned revenue stems from prepaid subscriptions, totaling $21.72 million as of September 29, 2019, expected to be recognized within the next 12 months[340] - Contract assets are primarily related to the variable portion of management agreements, totaling $1.107 million as of September 29, 2019[341] 3. Investments in Associated Companies The company accounts for its investments in TNI Partners and Madison Newspapers, Inc. (MNI) using the equity method, with TNI responsible for the Arizona Daily Star and MNI publishing newspapers in Wisconsin, and the company also provides editorial services to MNI - The company holds a 50% interest in TNI Partners, which manages the printing, distribution, advertising, and subscription activities for the Arizona Daily Star, accounted for using the equity method[343] Summary of TNI Partners Financial Information (Fiscal Years 2017-2019) | (Thousands of Dollars) | 2019 | 2018 | 2017 | | :------------------- | :----- | :----- | :----- | | Operating revenue | 43,532 | 47,165 | 48,297 | | Operating expenses | 34,224 | 37,090 | 38,150 | | Net income | 9,308 | 10,075 | 10,147 | | Company's 50% share | 4,654 | 5,038 | 5,073 | | Less: Amortization of intangible assets