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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________________________________________
FORM 10-Q
________________________________________________________________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number:001-36097
 ________________________________________________________________
New Media Investment Group Inc.
(Exact name of registrant as specified in its charter)
 ________________________________________________________________
Delaware
 
38-3910250
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
1345 Avenue of the Americas 45th floor,
New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
Telephone: (212) 479-3160
(Registrant’s telephone number, including area code)
 __________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
¨
 
Emerging growth company
¨
 
 
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
¨
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

As of October 29, 2018, 60,297,040 shares of the registrant’s common stock were outstanding.
 



CAUTIONARY NOTE REGARDING FORWARD LOOKING INFORMATION

Certain statements in this report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views regarding, among other things, our future growth, results of operations, performance and business prospects and opportunities, as well as other statements that are other than historical fact. Words such as “anticipate(s),” “expect(s)”, “intend(s)”, “plan(s)”, “target(s)”, “project(s)”, “believe(s)”, “will”, “aim”, “would”, “seek(s)”, “estimate(s)” and similar expressions are intended to identify such forward-looking statements.
Forward-looking statements are based on management’s current expectations and beliefs and are subject to a number of known and unknown risks, uncertainties and other factors that could lead to actual results materially different from those described in the forward-looking statements. We can give no assurance that our expectations will be attained. Our actual results, liquidity and financial condition may differ from the anticipated results, liquidity and financial condition indicated in these forward-looking statements. These forward looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause our actual results to differ, possibly materially from expectations or estimates reflected in such forward-looking statements, including, among others:
general economic and market conditions;
economic conditions in the Northeast, Southeast and Midwest regions of the United States;
the growing shift within the publishing industry from traditional print media to digital forms of publication;
declining advertising revenue and circulation subscribers;
our ability to grow our digital marketing and business services initiatives, and grow our digital audience and advertiser base;
our ability to grow our business organically:
our ability to acquire local media print assets at attractive valuations;
the risk that we may not realize the anticipated benefits of our recent or potential future acquisitions;
the availability and cost of capital for future investments;
our indebtedness may restrict our operations and / or require us to dedicate a portion of cash flow from operations to the payment of principal and interest;
our ability to pay dividends consistent with prior practice or at all;
our ability to reduce costs and expenses;
our ability to realize the benefits of the Management Agreement (as defined below);
the impact of any material transactions with the Manager (as defined below) or one of its affiliates, including the impact of any actual, potential or perceived conflicts of interest;
effects of the completed merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.;
the competitive environment in which we operate; and
our ability to recruit and retain key personnel.
Additional risk factors that could cause actual results to differ materially from our expectations include, but are not limited to, the risks identified by us under the heading “Risk Factors” in Part II, Item 1A of this report. Such forward-looking statements speak only as of the date on which they are made. Except to the extent required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.




2



 
 
Page
 
 
 
PART I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


3




Item 1.
Financial Statements
NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
 
September 30, 2018
 
December 31, 2017
 
 
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
56,691

 
$
43,056

Restricted cash
3,117

 
3,106

Accounts receivable, net of allowance for doubtful accounts of $7,242 and
$5,998 at September 30, 2018 and December 31, 2017, respectively
149,874

 
151,692

Inventory
27,478

 
18,654

Prepaid expenses
25,915

 
23,378

Other current assets
18,709

 
23,311

Total current assets
281,784


263,197

Property, plant, and equipment, net of accumulated depreciation of $209,120
and $171,395 at September 30, 2018 and December 31, 2017, respectively
343,281

 
373,123

Goodwill
300,909

 
236,555

Intangible assets, net of accumulated amortization of $92,437 and $67,588
at September 30, 2018 and December 31, 2017, respectively
466,740

 
403,493

Other assets
8,886

 
7,178

Total assets
$
1,401,600


$
1,283,546

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Current portion of long-term debt
$
11,093

 
$
2,716

Accounts payable
13,152

 
15,750

Accrued expenses
97,728

 
97,027

Deferred revenue
103,449

 
88,164

Total current liabilities
225,422


203,657

Long-term liabilities:
 
 
 
Long-term debt
396,569

 
357,195

Deferred income taxes
9,928

 
8,080

Pension and other postretirement benefit obligations
23,557

 
25,462

Other long-term liabilities
16,290

 
14,759

Total liabilities
671,766


609,153

Redeemable noncontrolling interest
2,385

 

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value, 2,000,000,000 shares authorized;
60,498,451 shares issued and 60,297,040 shares outstanding at
September 30, 2018; 53,367,853 shares issued and 53,226,881
shares outstanding at December 31, 2017
605

 
534

Additional paid-in capital
738,881

 
683,168

Accumulated other comprehensive loss
(5,663
)
 
(5,461
)
Accumulated deficit
(4,509
)
 
(2,767
)
Treasury stock, at cost, 201,411 and 140,972 shares at September 30, 2018
and December 31, 2017, respectively
(1,865
)
 
(1,081
)
Total stockholders' equity
727,449


674,393

Total liabilities, redeemable noncontrolling interest and
    stockholders’ equity
$
1,401,600


$
1,283,546

See accompanying notes to unaudited condensed consolidated financial statements.

4



NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
(In thousands, except per share data)
 
Three months ended
 
Nine months ended
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
Revenues:
 
 
 
 
 
 
 
Advertising
$
176,461

 
$
159,481

 
$
527,329

 
$
482,427

Circulation
145,934

 
112,792

 
420,461

 
334,160

Commercial printing and other
58,024

 
44,903

 
162,196

 
130,986

Total revenues
380,419

 
317,176

 
1,109,986

 
947,573

Operating costs and expenses:
 
 
 
 
 
 
 
Operating costs
220,771

 
177,724

 
634,935

 
532,535

Selling, general, and administrative
121,871

 
106,967

 
367,526

 
319,831

Depreciation and amortization
25,094

 
18,257

 
64,276

 
54,621

Integration and reorganization costs
9,064

 
2,210

 
13,243

 
6,817

Impairment of long-lived assets
1,121

 

 
1,121

 
6,485

Goodwill and mastheads impairment

 

 

 
27,448

Net (gain) loss on sale or disposal of assets
(72
)
 
686

 
(4,051
)
 
(1,860
)
Operating income
2,570

 
11,332

 
32,936

 
1,696

Interest expense
9,115

 
7,848

 
26,466

 
22,283

Loss on early extinguishment of debt

 
4,767

 

 
4,767

Other income
(433
)
 
(246
)
 
(1,290
)
 
(568
)
(Loss) income before income taxes
(6,112
)
 
(1,037
)
 
7,760

 
(24,786
)
Income tax (benefit) expense
(239
)
 
934

 
2,591

 
2,557

Net (loss) income
(5,873
)
 
(1,971
)
 
5,169

 
(27,343
)
Net income attributable to redeemable
    noncontrolling interest
232

 

 
232

 

Net (loss) income attributable to New Media
$
(6,105
)
 
$
(1,971
)
 
$
4,937

 
$
(27,343
)
(Loss) income per share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net (loss) income attributable to New Media
$
(0.10
)
 
$
(0.04
)
 
$
0.09

 
$
(0.52
)
Diluted:
 
 
 
 
 
 
 
Net (loss) income attributable to New Media
$
(0.10
)
 
$
(0.04
)
 
$
0.09

 
$
(0.52
)
 
 
 
 
 
 
 
 
Dividends declared per share
$
0.37

 
$
0.35

 
$
1.11

 
$
1.05

 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(5,940
)
 
$
(1,944
)
 
$
4,967

 
$
(27,260
)
Comprehensive income attributable to redeemable
    noncontrolling interest
232

 

 
232

 

Comprehensive (loss) income attributable to
    New Media
$
(6,172
)
 
$
(1,944
)
 
$
4,735

 
$
(27,260
)
See accompanying notes to unaudited condensed consolidated financial statements.


5



NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share data)
 
Common stock
 
Additional
paid-in capital
 
Accumulated 
other
comprehensive
loss
 
Accumulated deficit
 
Treasury stock
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Balance at December 31, 2017
53,367,853

 
$
534

 
$
683,168

 
$
(5,461
)
 
$
(2,767
)
 
140,972

 
$
(1,081
)
 
$
674,393

Net income

 

 

 

 
4,937

 

 

 
4,937

Net actuarial loss and prior service cost, net of income taxes of $0

 

 

 
(202
)
 

 

 

 
(202
)
Restricted share grants
230,598

 
2

 
223

 

 

 

 

 
225

Non-cash compensation expense

 

 
2,499

 

 

 

 

 
2,499

Issuance of common stock, net of underwriters' discount and offering costs
6,900,000

 
69

 
110,650

 

 

 

 

 
110,719

Restricted share forfeiture

 

 

 

 

 
14,754

 

 

Purchase of treasury stock

 

 

 

 

 
45,685

 
(784
)
 
(784
)
Common stock cash dividend

 

 
(57,659
)
 

 
(6,679
)
 

 

 
(64,338
)
Balance at September 30, 2018
60,498,451

 
$
605

 
$
738,881

 
$
(5,663
)
 
$
(4,509
)
 
201,411

 
$
(1,865
)
 
$
727,449

See accompanying notes to unaudited condensed consolidated financial statements.

6



NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Nine months ended
 
September 30, 2018
 
September 24, 2017
Cash flows from operating activities:
 
 
 
Net income (loss)
$
5,169

 
$
(27,343
)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
 
 
 
Depreciation and amortization
64,276

 
54,621

Non-cash compensation expense
2,499

 
2,364

Non-cash interest expense
1,594

 
1,710

Deferred income taxes
1,848

 
1,987

Net gain on sale or disposal of assets
(4,051
)
 
(1,860
)
Non-cash charge to investments

 
250

Non-cash loss on early extinguishment of debt

 
2,344

Impairment of long-lived assets
1,121

 
6,485

Goodwill and mastheads impairment

 
27,448

Pension and other postretirement benefit obligations
(2,161
)
 
(1,803
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
16,961

 
16,806

Inventory
(6,967
)
 
373

Prepaid expenses
(4
)
 
(2,666
)
Other assets
4,416

 
(1,479
)
Accounts payable
(4,500
)
 
5,382

Accrued expenses
(5,300
)
 
(2,989
)
Deferred revenue
(4,372
)
 
(2,318
)
Other long-term liabilities
1,454

 
1,456

Net cash provided by operating activities
71,983


80,768

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(155,166
)
 
(41,700
)
Purchases of property, plant, and equipment
(8,029
)
 
(7,206
)
Proceeds from sale of publications, real estate and other assets
13,175

 
14,669

Net cash used in investing activities
(150,020
)

(34,237
)
Cash flows from financing activities:
 
 
 
Borrowings under term loans
49,750

 
20,000

Payment of debt issuance costs
(500
)
 
(3,470
)
Repayments under term loans
(3,093
)
 
(12,632
)
Payment of offering costs
(369
)
 
(431
)
Issuance of common stock, net of underwriters' discount
111,099

 

Purchase of treasury stock
(784
)
 
(656
)
Repurchase of common stock

 
(5,001
)
Payment of dividends
(64,420
)
 
(56,046
)
Net cash provided by (used in) financing activities
91,683


(58,236
)
Net increase (decrease) in cash, cash equivalents and
restricted cash
13,646

 
(11,705
)
Cash, cash equivalents and restricted cash at beginning of period
46,162

 
175,652

Cash, cash equivalents and restricted cash at end of period
$
59,808

 
$
163,947

 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.

7


NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)


(1) Unaudited Financial Statements
The accompanying unaudited condensed consolidated financial statements of New Media Investment Group Inc. and its subsidiaries (together, the “Company” or “New Media”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and applicable provisions of Regulation S-X, each as promulgated by the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in comprehensive annual financial statements presented in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations.
Management believes that the accompanying condensed consolidated financial statements contain all adjustments (which include normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the Company’s consolidated financial condition, results of operations, changes in stockholders' equity and cash flows for the periods presented. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Through July 1, 2018, the Company’s reporting units (Eastern US Publishing ("East"), Central US Publishing ("Central"), Western US Publishing ("West"), Recent Acquisitions and BridgeTower) were aggregated into one reportable business segment. On July 2, 2018, the reporting units were changed to Newspapers and BridgeTower. The reporting units will continue to be aggregated into one reportable business segment. Refer to Note 5 for further discussion.
The newspaper industry and the Company have experienced declining revenue and profitability over the past several years. As a result, the Company has implemented, and continues to implement, plans to reduce costs and preserve cash flow. This includes cost-reduction programs and the sale of non-core assets. The Company believes these initiatives along with cash provided by operating activities will provide it with the financial resources necessary to invest in the business and provide sufficient cash flow to enable the Company to meet its commitments. However, the Company recognized impairments of both goodwill and mastheads during the second quarter of 2017. Refer to Note 5 for further discussion.
Reclassifications
Certain amounts in the prior period's condensed consolidated financial statements have been reclassified to conform to the current year presentation.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC Topic 606"). ASC Topic 606 replaces all current U.S. GAAP guidance for revenue recognition and eliminates industry-specific guidance. The new standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers - Principal versus Agent Considerations” (ASU 2016-08), which amends ASC Topic 606 and clarifies the implementation guidance on principal versus agent considerations. The Company adopted ASC Topic 606 on January 1, 2018 using the modified retrospective approach. Refer to Note 10 for the discussion of the impact of the adoption of the new standard.
In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), “Leases (Topic 842)", which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a

8



right-of-use asset on the balance sheet for all leases with terms greater than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The Company intends to adopt the standard on December 31, 2018. The Company expects to report comparative periods presented under current GAAP and does not expect to restate prior periods as a result of the adoption of ASU 2016-02. The Company continues to evaluate the effect that ASU 2016-02 will have on the consolidated financial statements, but it expects the ASU will have a material effect on the Consolidated Balance Sheets due to the recognition of most of its operating leases as both right-of-use assets and lease liabilities.
In November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash” (Topic 230), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. The Company adopted this standard on January 1, 2018 using a retrospective transition method. The impact of the new standard is that the Company’s consolidated statements of cash flows now present the change in a combined amount for both restricted and unrestricted cash and cash equivalents for all periods presented.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations - Clarifying the Definition of a Business” (Topic 805), which clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted this standard on January 1, 2018 and is applying the standard prospectively to determine whether certain future transactions should be accounted for as acquisitions of assets or businesses.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (Topic 715), which provides guidance that requires an employer to report the service cost component separate from the other components of net benefit pension costs. The employer is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside the subtotal of income from operations, if one is presented. If a separate line item is not used, the line item used in the income statement must be disclosed. The Company adopted the standard on January 1, 2018 using a retrospective transition method. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“AOCI”)". This ASU provides entities the option to reclassify tax effects to retained earnings from AOCI which are impacted by the Tax Cuts and Jobs Act (“TCJA”). The ASU is effective for fiscal years beginning after December 15, 2018 but early adoption is permitted. The Company has a full valuation allowance for all tax benefits related to AOCI and therefore there are no tax effects to be reclassified to retained earnings for the year ended December 31, 2017.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820)". This ASU: (i) adds incremental requirements for entities to disclose (a) the amount of total gains or losses for the period recognized in other comprehensive income that is attributable to fair value changes in assets and liabilities held as of the balance sheet date and categorized within Level 3 of the fair value hierarchy, (b) the range and weighted average used to develop significant unobservable inputs and (c) how the weighted average was calculated for fair value measurements categorized within Level 3 of the fair value hierarchy and (ii) eliminates disclosure requirements for (a) transfers between Level 1 and Level 2 and (b) valuation processes for Level 3 fair value measurements. ASU No. 2018-13 is effective for the Company in the first quarter of 2020. The adoption of ASU No. 2018-13 is not expected to have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, "Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)". This ASU modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans by removing disclosures that are no longer considered cost beneficial, clarifying the specific requirements of disclosures and adding disclosure requirements identified as relevant. The guidance will be effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the requirements of this update and has not yet determined its impact on the Company’s financial statements.
All other issued and not yet effective accounting standards are not relevant to the Company.
(2) Acquisitions and Dispositions

9



2018 Acquisitions
The Company acquired substantially all the assets, properties and business of certain publications and businesses on August 15, 2018, July 2, 2018, June 18, 2018, June 4, 2018, May 11, 2018, May 1, 2018, April 2, 2018, March 31, 2018, March 6, 2018, February 28, 2018, February 23, 2018, and February 7, 2018 (“2018 Acquisitions”), which included seven daily newspapers, 16 weekly publications, one shopper, a print facility, an events production business, cloud services and digital platforms, and domains, for an aggregate purchase price of $158,977, including estimated working capital. The acquisitions were financed from cash on hand. The rationale for the acquisitions was primarily due to the attractive nature, as applicable, of the newspaper assets and digital platforms, and their estimated cash flows combined with the cost-saving and revenue-generating opportunities available.
In the August 15, 2018 acquisition, the Company acquired an 80% equity interest in the acquiree, and the minority equity owners retained a 20% interest, which has been classified as noncontrolling interest in the accompanying financial statements. Noncontrolling interests with embedded redemption features, such as put rights, that are not solely within the control of the Company are considered redeemable noncontrolling interests and are presented outside of stockholders’ equity on the Company's Unaudited Condensed Consolidated Balance Sheets.
The Company accounted for the 2018 Acquisitions using the acquisition method of accounting for those acquisitions determined to meet the definition of a business. The net assets, including goodwill, have been recorded in the consolidated balance sheet at their fair values in accordance with Accounting Standards Codification ("ASC") 805, “Business Combinations” (“ASC 805”). The fair value determination of the assets acquired and liabilities assumed are preliminary based upon all information currently available to the Company and are subject to working capital and other adjustments and the completion of valuations to determine the fair market value of the tangible and intangible assets. The final calculation of working capital and other adjustments and determination of fair values for tangible and intangible assets may result in different allocations among the various asset classes from those set forth below and any such differences could be material.
The 2018 Acquisitions that were determined to be asset acquisitions were measured at the fair value of the consideration transferred on the acquisition date. Intangible assets acquired in an asset acquisition have been recognized in accordance with ASC 350 “Intangibles - Goodwill and Other”. Goodwill is not recognized in an asset acquisition.
The following table summarizes the preliminary determination of fair values of the assets and liabilities:
Current assets
$
21,789

Other assets
447

Property, plant and equipment
9,649

Advertiser relationships
34,875

Subscriber relationships
33,855

Customer relationships
8,573

Mastheads
11,708

Goodwill
63,905

Total assets
184,801

Current liabilities assumed
23,579

Long-term liabilities assumed
92

Redeemable noncontrolling interest
2,153

Net assets
$
158,977


The Company obtained third party independent valuations or performed similar calculations internally to assist in the determination of the fair values of certain assets acquired and liabilities assumed. Three basic approaches were used to determine value: the cost approach (used for equipment where an active secondary market is not available, building improvements, and software), the direct sales comparison (market) approach (used for land and equipment where an active secondary market is available) and the income approach (used for intangible assets).
The weighted average amortization periods for recently acquired amortizable intangible assets are equal to or similar to the periods presented in Note 5.

10



The Company recorded approximately $68 and $344 of selling, general and administrative expenses for acquisition-related costs for the 2018 Acquisitions during the three and nine months ended September 30, 2018, respectively.
For tax purposes, the amount of goodwill that is expected to be deductible is $61,700, excluding goodwill attributable to a 20% noncontrolling interest.
2017 Acquisitions
The Company acquired substantially all the assets, properties and business of certain publications and businesses on November 6, 2017, October 30, 2017, October 2, 2017, July 6, 2017, June 30, 2017, February 10, 2017, and January 31, 2017 (“2017 Acquisitions”), which included four business publications, 22 daily newspapers, 34 weekly publications, 24 shoppers, two customer relationship management solutions providers, a social media app and an event production business for an aggregate purchase price of $165,053, including working capital. The acquisitions were financed from cash on hand. The rationale for the acquisitions was primarily due to the attractive nature, as applicable, of the newspaper assets and event production business, and cash flows combined with cost-saving and revenue-generating opportunities available.
The Company accounted for the 2017 Acquisitions using the acquisition method of accounting. The net assets, including goodwill, have been recorded in the consolidated balance sheet at their fair values in accordance with ASC 805. The fair value determination of the assets acquired and liabilities assumed are preliminary based upon all information available to the Company at the present time and are subject to working capital and other adjustments and subject to the completion of valuations to determine the fair market value of these tangible and intangible assets. The final calculation of working capital and other adjustments and determination of fair values for tangible and intangible assets may result in different allocations among the various asset classes from those set forth below and any such differences could be material.
The following table summarizes the fair values of the assets and liabilities:
Current assets
$
20,870

Other assets
108

Property, plant and equipment
49,883

Noncompete agreements
532

Advertiser relationships
34,077

Subscriber relationships
26,926

Customer relationships
5,638

Software
704

Mastheads
9,902

Goodwill
37,652

Total assets
186,292

Current liabilities
21,100

Other long-term liabilities
139

Total liabilities
21,239

Net assets
$
165,053


The weighted average amortization periods for recently acquired amortizable intangible assets are equal to or similar to the periods presented in Note 5.
The Company recorded approximately $978 of selling, general and administrative expenses for acquisition-related costs for the 2017 Acquisitions.
For tax purposes, the amount of goodwill that is expected to be deductible is $37,652.
Dispositions
On May 11, 2018, the Company completed its sale of certain publications and related assets in Alaska for approximately $2,369, including working capital. As a result, a nominal pre-tax gain, net of selling expenses, is included in net gain on sale or

11



disposal of assets on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income during the nine months ended September 30, 2018.
On February 27, 2018, the Company sold a parcel of land and building located in Framingham, Massachusetts for a sale price of $9,264, and recognized a pre-tax gain of approximately $3,337, net of selling expenses, which is included in net gain on sale or disposal of assets on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income during the nine months ended September 30, 2018.
On June 2, 2017, the Company completed its sale of the Mail Tribune, located in Medford, Oregon, for approximately $14,700, including working capital.  As a result, a pre-tax gain of approximately $5,400, net of selling expenses, is included in net gain on sale or disposal of assets on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income during the nine months ended September 24, 2017 since the disposition did not qualify for treatment as a discontinued operation.
(3) Share-Based Compensation
The Company recognized compensation cost for share-based payments of $667, $769, $2,499, and $2,364 during the three and nine months ended September 30, 2018 and September 24, 2017, respectively. The total compensation cost not yet recognized related to non-vested Restricted Stock Grants (“RSGs”) pursuant to the Company’s Nonqualified Stock Option and Incentive Award Plan as of September 30, 2018 was $4,558, which is expected to be recognized over a weighted average period of 2.00 years through July 2021. As of September 30, 2018, the aggregate intrinsic value of unvested RSGs was $5,908.
RSG activity during the nine months ended September 30, 2018 was as follows:
 
Number of RSGs
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2017
342,264

 
$
16.86

Granted
217,590

 
16.49

Vested
(168,530
)
 
18.05

Forfeited
(14,754
)
 
16.55

Unvested at September 30, 2018
376,570

 
$
16.13


Under FASB ASC Topic 718, “Compensation – Stock Compensation”, the Company elected to recognize share-based compensation expense for the number of awards that are ultimately expected to vest. The Company’s estimated forfeitures are based on historical forfeiture rates. Estimated forfeitures are reassessed periodically, and the estimate may change based on new facts and circumstances.
(4) Restructuring
Over the past several years, in furtherance of the Company’s cost-reduction and cash-preservation plans outlined in Note 1, the Company has engaged in a series of individual restructuring programs, designed primarily to right-size the Company’s employee base, consolidate facilities and improve operations, including those of recently acquired entities. These initiatives impact all of the Company’s geographic regions and are often influenced by the terms of union contracts within the region. All costs related to these programs, which primarily include severance expense, are accrued at the time of the program announcement or over the remaining service period.
Severance-related expenses
Accrued restructuring costs are included in accrued expenses on the Unaudited Condensed Consolidated Balance Sheets. The activity in accrued restructuring costs for the nine months ended September 30, 2018 is as follows:

12



 
Severance and
Related Costs
 
Other
Costs (1)
 
Total
Balance at December 31, 2017
$
717

 
$
366

 
$
1,083

Restructuring provision included in Integration and Reorganization
10,981

 
2,262

 
13,243

Cash payments
(5,021
)
 
(2,213
)
 
(7,234
)
Balance at September 30, 2018
$
6,677

 
$
415

 
$
7,092

 
(1) 
Other costs primarily include costs to consolidate operations.
The accrued restructuring reserve balance is expected to be paid out over the next twelve months.
The following table summarizes the costs incurred and cash paid in connection with these restructuring programs for the three and nine months ended September 30, 2018 and September 24, 2017.
 
 
Three months ended
 
Nine months ended
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
Severance and related costs
$
8,533

 
$
1,947

 
$
10,981

 
$
6,029

Other costs
531

 
263

 
2,262

 
788

Cash payments
(3,161
)
 
(2,465
)
 
(7,234
)
 
(6,649
)

Facility consolidation charges and accelerated depreciation
During the three and nine months ended September 30, 2018, the Company ceased operations of seven print publications and six printing operations as part of the ongoing cost reduction programs. As a result, the Company recognized an impairment charge related to retired equipment of $503 and intangibles of $618 and accelerated depreciation of $3,601 during the nine months ended September 30, 2018.
During the nine months ended September 24, 2017, the Company ceased printing operations at 12 facilities as part of the ongoing cost reduction programs.  As a result, the Company recognized an impairment charge related to retired equipment of $6,485 and accelerated depreciation of $2,429 during the nine months ended September 24, 2017.

13



(5) Goodwill and Intangible Assets
Goodwill and intangible assets consisted of the following:
 
September 30, 2018
 
Gross carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
Amortized intangible assets:
 
 
 
 
 
Advertiser relationships
$
243,622

 
$
49,124

 
$
194,498

Customer relationships
39,140

 
7,716

 
31,424

Subscriber relationships
151,663

 
28,650

 
123,013

Other intangible assets
10,866

 
6,947

 
3,919

Total
$
445,291


$
92,437


$
352,854

Nonamortized intangible assets:
 
 
 
Goodwill
$
300,909

 
Mastheads
113,886

 
Total
$
414,795

 
 
 
 
December 31, 2017
 
Gross carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
Amortized intangible assets:
 
 
 
 
 
Advertiser relationships
$
208,995

 
$
37,046

 
$
171,949

Customer relationships
30,576

 
5,094

 
25,482

Subscriber relationships
117,870

 
20,814

 
97,056

Other intangible assets
10,866

 
4,634

 
6,232

Total
$
368,307


$
67,588


$
300,719

Nonamortized intangible assets:
 
 
 
Goodwill
$
236,555

 
Mastheads
102,774

 
Total
$
339,329

 

As of September 30, 2018, the weighted average amortization periods for amortizable intangible assets are 14.5 years for advertiser relationships, 12.9 years for customer relationships, 13.4 years for subscriber relationships and 4.7 years for other intangible assets. The weighted average amortization period in total for all amortizable intangible assets is 13.8 years.
Amortization expense for the three and nine months ended September 30, 2018 and September 24, 2017 was $9,520, $5,672, $24,852, and $16,896, respectively. Estimated future amortization expense as of September 30, 2018, is as follows:
For the following fiscal years:
 
2018 (three months remaining)
$
8,992

2019
34,263

2020
33,208

2021
33,029

2022
32,369

Thereafter
210,993

Total
$
352,854



14



The changes in the carrying amount of goodwill for the period from December 31, 2017 to September 30, 2018 are as follows:
Balance at December 31, 2017, net of accumulated impairments of $25,641
$
236,555

Goodwill acquired in business combinations
63,905

Measurement period adjustments
449

Balance at September 30, 2018, net of accumulated impairments of $25,641
$
300,909


The Company’s annual impairment assessment is made on the last day of its fiscal second quarter.
The carrying value of goodwill and indefinite-lived intangible assets are evaluated for possible impairment on an annual basis or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or indefinite-lived intangible asset below its carrying value. The Company adopted ASU No. 2017-04 in the second quarter of 2017 and performed a quantitative goodwill impairment test to identify the existence of impairment, if any, and the amount of impairment loss. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
The Company performed its 2017 annual assessment for possible impairment of the carrying value of goodwill and indefinite-lived intangible assets as of June 25, 2017. As a result of this assessment, the Company recorded a goodwill impairment totaling $25,641 in two of its former reporting units, Central and West. This impairment was primarily attributable to continuing economic pressures in the newspaper industry and a decline in the Company’s stock price, and represented a full impairment of the goodwill then recorded in the former West reporting unit and a partial impairment of the goodwill recorded in the former Central reporting unit. In addition, the Company recorded a partial impairment of the carrying value of mastheads, totaling $1,807, in the former West reporting unit in the same period.
The Company performed its 2018 annual assessment for possible impairment of the carrying value of goodwill and indefinite-lived intangibles as of July 1, 2018. The fair value of four of the Company's former reporting units, including East, West, Central and BridgeTower, which include newspaper mastheads, were estimated using the expected present value of future cash flows, recent industry multiples and using estimates, judgments and assumptions that management believes were appropriate in the circumstances. The estimates and judgments used in the assessment included multiples for EBITDA, the weighted average cost of capital and the terminal growth rate. The Company determined that the future cash flow and industry multiple analysis provided the best estimate of the fair value of its reporting units.  Key assumptions in the impairment analysis include revenue and EBITDA projections, discount rates, long-term growth rates and the effective tax rate that the Company determined to be appropriate. Revenue projections reflected slight declines in the current and next year, and revenues are expected to moderate to a terminal growth rate of 1%. Discount rates ranged from 16% to 17%. The effective tax rate was 27%. The fair value of the former West reporting unit was less than its carrying value, however, all goodwill was previously written off in 2017. The fair value of the former Central reporting unit exceeded the carrying value by approximately 10%. The Company performed a qualitative assessment for the Recent Acquisitions reporting unit and concluded that it is not more likely than not that the goodwill and indefinite-lived intangible assets are impaired. As a result, no quantitative impairment testing was performed for the Recent Acquisitions.
The total Company’s estimate of reporting unit fair values was reconciled to its then market capitalization (based upon the stock market price and fair value of debt) plus an estimated control premium.
The Company used a “relief from royalty” approach, a discounted cash flow model, to determine the fair value of each reporting units' mastheads.  The estimated fair value equaled or exceeded carrying value for mastheads. The fair value of mastheads exceeded carrying value by less than 10% in the former West reporting unit. Key assumptions within the masthead analysis included revenue projections, discount rates, royalty rates, long-term growth rates and the effective tax rate that the Company determined to be appropriate. Revenue projections reflected declines in the current and next year, and revenues are expected to moderate to a terminal growth rate of 1%. Discount rates ranged from 16% to 17%, and royalty rates ranged from 1.25% to 1.75%. The effective tax rate was 27%.
The Company considered the impairment of goodwill in the former West to be a potential indicator of impairment under ASC 360. The Company determined that the long-lived asset groups were the same as its reporting units. The Company performed an analysis of its undiscounted cash flows in the former West reporting unit to determine if there was an impairment

15



of long-lived assets. The sum of undiscounted cash flows over the primary asset’s weighted-average remaining useful life exceeded the groups’ carrying value, so no impairment was recorded.
As of July 2, 2018, the Company reorganized its reporting units to align with its new management structure. The East, Central, West and Recent Acquisitions reporting units were consolidated into one reporting unit called Newspapers. BridgeTower remained a separate reporting unit. Due to the change in the composition of the reporting units, the Company performed an additional impairment test for goodwill and mastheads after the reorganization. Similar methodologies and assumptions were utilized for the post-reorganization impairment assessment, as described above. Fair values of the reporting units were determined to be greater than the carrying value of the reporting units, and the estimated fair value exceeded carrying value for all mastheads.
As of September 30, 2018, the Company performed a review of potential impairment indicators noting that its financial results and forecast have not changed materially since the annual impairment assessment, and it was determined that no indicators of impairment were present.
The newspaper industry and the Company have experienced declining same store revenue and profitability over the past several years. Should general economic, market or business conditions decline and have a negative impact on estimates of future cash flow and market transaction multiples, the Company may be required to record impairment charges in the future.
(6) Indebtedness
New Media Credit Agreement
On June 4, 2014, New Media Holdings II LLC (the “New Media Borrower”), a wholly owned subsidiary of New Media, entered into a credit agreement (the “New Media Credit Agreement”) among the New Media Borrower, New Media Holdings I LLC (“Holdings I”), the lenders party thereto, RBS Citizens, N.A. and Credit Suisse Securities (USA) LLC as joint lead arrangers and joint bookrunners, Credit Suisse AG, Cayman Islands Branch as syndication agent and Citizens Bank of Pennsylvania as administration agent which provided for (i) a $200,000 senior secured term facility (the “Term Loan Facility” and any loan thereunder, including as part of the Incremental Facility, “Term Loans”), (ii) a $25,000 senior secured revolving credit facility, with a $5,000 sub-facility for letters of credit and a $5,000 sub-facility for swing loans, (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Senior Secured Credit Facilities”) and (iii) the ability for the New Media Borrower to request one or more new commitments for term loans or revolving loans from time to time up to an aggregate total of $75,000 (the “Incremental Facility”) subject to certain conditions. On June 4, 2014, the New Media Borrower borrowed $200,000 under the Term Loan Facility (the “Initial Term Loans”). As of September 30, 2018, $0 was drawn under the Revolving Credit Facility. The Term Loans mature on July 14, 2022 and the maturity date for the Revolving Credit Facility is July 14, 2021. The New Media Credit Agreement was amended:
on September 3, 2014, to provide for additional term loans under the Incremental Facility in an aggregate principal amount of $25,000 (the “2014 Incremental Term Loan”);
on November 20, 2014, to increase the amount of the Incremental Facility that may be requested after the date of the amendment from $75,000 to $225,000;
on January 9, 2015, to provide for $102,000 in additional term loans (the “2015 Incremental Term Loan”) and $50,000 in additional revolving commitments (the “2015 Incremental Revolver”) under the Incremental Facility and to make certain amendments to the Revolving Credit Facility in connection with the purchase of the assets of Halifax Media;
on February 13, 2015, to provide for the replacement of the existing term loans under the Term Loan Facility (including the 2014 Incremental Term Loan and the 2015 Incremental Term Loan) with a new class of replacement term loans;
on March 6, 2015, to provide for $15,000 in additional revolving commitments under the Incremental Facility;
on May 29, 2015, to provide for $25,000 in additional term loans under the Incremental Facility;
on July 14, 2017, to (i) extend the maturity date of the outstanding term loans under the Term Loan Facility to July 14, 2022, (ii) extend the maturity date of the Revolving Credit Facility to July 14, 2021, (iii) provide for $20,000 in additional term loans (the “2017 Incremental Term Loan”) under the Incremental Facility and (iv) increase the amount of the Incremental Facility that may be requested on or after the date of the amendment (inclusive of the 2017 Incremental Term Loan) to $100,000; and

16



on February 16, 2018, to provide for $50,000 in additional term loans under the Term Loan Facility.
In connection with the February 16, 2018 amendment, the Company incurred approximately $592 of fees and expenses, of which $500 were capitalized in deferred financing costs and will be amortized over the term of the Term Loan Facility. The related third party fees of $92 were expensed during the quarter as this amendment was determined to be a debt modification for accounting purposes. In addition, the Company recognized $250 of original issue discount, which will also be amortized over the term of the Term Loan Facility. 
In connection with the July 14, 2017 amendment, the Company incurred approximately $6,605 of fees and expenses. There was one lender who had a significant change in the terms of the Term Loan Facility; the difference between the present value of the cash flows after this amendment and the present value of the cash flows before this amendment was more than 10%.  This portion of the transaction was accounted for as an early extinguishment of debt. Deferred fees and expenses of $1,009 previously allocated to that lender were written off to loss on early extinguishment of debt.  Additionally, the current fees of $2,423 attributed to this lender were expensed to loss on early extinguishment of debt.  The third party expenses of $121 apportioned to the lender were capitalized.  Finally, $1,335 fees and expenses allocated to lenders that exited the facility were written off to loss on early extinguishment of debt.  The remainder of this amendment was treated as a debt modification for accounting purposes.  The consent fees of $3,020 for the lenders other than the one mentioned above were capitalized and will be amortized over the term of the Term Loan Facility.  The third party fees of $606 related to these lenders were expensed. Additionally, the fees and expenses allocated to the Revolving Credit Facility of $435 were capitalized as this component of the amendment was accounted for as a debt modification.
Borrowings under the Term Loan Facility bear interest, at the New Media Borrower’s option, at a rate equal to either (i) an adjusted Eurodollar rate, plus an applicable margin equal to 6.25% per annum (subject to a floor of 1.00%) or (ii) an adjusted base rate, plus an applicable margin equal to 5.25% per annum (subject to a floor of 2.00%). The New Media Borrower currently uses the Eurodollar rate option.
Borrowings under the Revolving Credit Facility bear interest, at the New Media Borrower’s option, at a rate equal to either (i) an adjusted Eurodollar rate, plus an applicable margin equal to 5.25% per annum or (ii) an adjusted base rate, plus an applicable margin equal to 4.25% per annum, with a step down based on achievement of a certain total leverage ratio. The New Media Borrower currently uses the Eurodollar rate option.
As of September 30, 2018, the New Media Credit Agreement had a weighted average interest rate of 8.49%.
The Senior Secured Credit Facilities are unconditionally guaranteed by Holdings I and certain subsidiaries of the New Media Borrower (collectively, the “Guarantors”) and are required to be guaranteed by all future material wholly-owned domestic subsidiaries, subject to certain exceptions. All obligations under the New Media Credit Agreement are secured, subject to certain exceptions, by substantially all of the New Media Borrower’s assets and the assets of the Guarantors.
Repayments made under the Term Loans are equal to 1.0% annually of the original principal amount in equal quarterly installments for the life of the Term Loans, with the remainder due at maturity. The New Media Borrower is permitted to make voluntary prepayments at any time without premium or penalty, except in the case of prepayments made in connection with certain repricing transactions with respect to the Term Loans effected within six months of February 16, 2018, to which a 1.00% prepayment premium applies.
The New Media Credit Agreement contains customary representations and warranties and affirmative covenants and negative covenants applicable to Holdings I, the New Media Borrower and the New Media Borrower's subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, dividends and other distributions, and events of default. The New Media Credit Agreement contains a financial covenant that requires Holdings I, the New Media Borrower and the New Media Borrower’s subsidiaries to maintain a maximum total leverage ratio of 3.25 to 1.00.
As of September 30, 2018, the Company is in compliance with all of the covenants and obligations under the New Media Credit Agreement.
Advantage Credit Agreements
In connection with the purchase of the assets of Halifax Media, which was completed on January 9, 2015, certain subsidiaries of the Company (the “Advantage Borrowers”) agreed to assume all of the obligations of Halifax Media and its

17



affiliates in respect of each of (i) that certain Consolidated Amended and Restated Credit Agreement dated January 6, 2012 among Halifax Media Acquisition LLC, Advantage Capital Community Development Fund XXVIII, L.L.C., and Florida Community Development Fund II, L.L.C. (as amended, the “Halifax Florida Credit Agreement”) and (ii) that certain Credit Agreement dated June 18, 2013 between Halifax Alabama, LLC and Southeast Community Development Fund V, L.L.C. (the “Halifax Alabama Credit Agreement” and, together with the Halifax Florida Credit Agreement, the “Advantage Credit Agreements”), respectively (the debt under the Halifax Florida Credit Agreement, the “Advantage Florida Debt”; the debt under the Halifax Alabama Credit Agreement, the “Advantage Alabama Debt”). The $10,000 outstanding balance under the Halifax Florida Credit Agreement was fully repaid on December 31, 2016.
As of January 9, 2015, the Halifax Alabama Credit Agreement had a principal amount of $8,000 and bore interest at the rate of LIBOR plus 6.25% per annum (with a minimum of 1% LIBOR) payable quarterly in arrears. On May 15, 2018, the Halifax Alabama Credit Agreement was amended to reduce the interest rate to 2% per annum. In addition, a 2% prepayment premium will be charged if the balance is paid before December 28, 2018 unless the Advantage Borrowers elect to escrow the remaining principal amount. Subsequent to December 28, 2018, the principal may be repaid without a premium or penalty. The Advantage Alabama Debt matures on March 31, 2019. The Advantage Alabama Debt is secured by a perfected second priority security interest in all the assets of the Advantage Borrowers and certain other subsidiaries of the Company, subject to the limitation that the maximum amount of secured obligations is $15,000. The Advantage Alabama Debt is unconditionally guaranteed by Holdings I and certain subsidiaries of the New Media Borrowers and is required to be guaranteed by all future material wholly-owned domestic subsidiaries, subject to certain exceptions. The Advantage Alabama Debt is subordinated to the Senior Secured Credit Facilities pursuant to an intercreditor agreement.
The Halifax Alabama Credit Agreement contains covenants substantially consistent with those contained in the New Media Credit Agreement in addition to those required for compliance with the New Markets Tax Credit program. The Advantage Borrowers are subject to customary mandatory prepayment events including from proceeds from asset sales and certain debt obligations.
The Halifax Alabama Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Advantage Borrowers and certain of the Company's subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions. The Halifax Alabama Credit Agreement contains a financial covenant that requires Holdings I, the New Media Borrower and the New Media Borrower’s subsidiaries to maintain a maximum total leverage ratio of 3.75 to 1.00. The Halifax Alabama Credit Agreement contains customary events of default.
As of September 30, 2018, the Company is in compliance with all of the covenants and obligations under the Halifax Alabama Credit Agreement.
Fair Value
The fair value of long-term debt under the Senior Secured Credit Facilities and the Advantage Alabama Debt was estimated at $415,257 as of September 30, 2018, based on discounted future contractual cash flows and a market interest rate adjusted for necessary risks, including the Company’s own credit risk as there are no rates currently observable in publicly traded debt markets of similar risk, terms and average maturities. Accordingly, the Company’s long-term debt under the Senior Secured Credit Facilities is classified within Level 3 of the fair value hierarchy.

18



Payment Schedule
As of September 30, 2018, scheduled principal payments of outstanding debt are as follows:
 
2018 (three months remaining)
$

2019
12,124

2020
4,124

2021
4,124

2022
394,885

 
415,257

Less: Current portion of long-term debt
11,093

Remaining original issue discount
3,342

Deferred financing costs, net
4,253

Long-term debt
$
396,569


(7) Related Party Transactions
As of September 30, 2018, the Company's manager, FIG LLC (the “Manager”), which is an affiliate of Fortress Investment Group LLC ("Fortress"), and its affiliates owned approximately 1.1% of the Company’s outstanding stock and approximately 39.5% of the Company’s outstanding warrants, and held options to purchase 2,904,811 shares of the Company’s common stock. During the three and nine months ended September 30, 2018 and September 24, 2017, Fortress and its affiliates were paid $238, $239, $728, and $716 in dividends, respectively.
In addition, the Company’s Chairman, Wesley Edens, is also a member of the board of directors of the Manager and a Principal, the Co-Chief Executive Officer and a member of the board of directors of Fortress. The Company does not pay Mr. Edens a salary or any other form of compensation.
On February 28, 2018, the Company acquired substantially all of the assets, consisting primarily of publications and related websites, of Holden Landmark Corporation ("Holden"), a Massachusetts corporation owned by the Company’s Chief Operating Officer, for $1,307. Prior to the acquisition, the Company recognized revenue from Holden of $0, $140, $77, and $452 during the three and nine months ended September 30, 2018 and September 24, 2017, respectively, which is included in commercial printing and other on the Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.
The Company’s Chief Executive Officer and Chief Financial Officer are employees of Fortress (or one of its affiliates), and their salaries are paid by Fortress (or one of its affiliates).
Management Agreement
On November 26, 2013, the Company entered into a management agreement with the Manager (as amended and restated, the “Management Agreement”). The Management Agreement requires the Manager to manage the Company’s business affairs subject to the supervision of the Company’s board of directors (the “Board of Directors” or "Board"). On March 6, 2015, the Company’s independent directors of the Board approved an amendment to the Management Agreement.
The Management Agreement had an initial three-year term and will be automatically renewed for one-year terms thereafter unless terminated either by the Company or the Manager. The Manager is (a) entitled to receive from the Company a management fee, (b) eligible to receive incentive compensation that is based on the Company’s performance and (c) eligible to receive options to purchase New Media Common Stock upon the successful completion of an offering of shares of the Company’s Common Stock or any shares of preferred stock with an exercise price equal to the price per share paid by the public or other ultimate purchaser in the offering, see Note 9. In addition, the Company is obligated to reimburse certain expenses incurred by the Manager. The Manager is also entitled to receive a termination fee from the Company under certain circumstances.

19



The following provides the management and incentive fees recognized and paid to the Manager for the three and nine months ended September 30, 2018 and September 24, 2017:
 
Three months ended
 
Nine months ended
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
Management fee expense
$
2,783

 
$
2,652

 
$
7,890

 
$
7,970

Incentive fee expense

 
1,414

 
5,755

 
3,280

Management fees paid
2,783

 
4,191

 
9,619

 
10,471

Incentive fees paid
4,802

 
1,866

 
14,129

 
7,781

Reimbursement for expenses
833

 
300

 
1,892

 
1,192


The Company had an outstanding liability for all management agreement related fees of $1,915 and $2,680 at September 30, 2018 and December 31, 2017, respectively, included in accrued expenses.
Registration Rights Agreement with Omega
The Company entered into a registration rights agreement (the “Omega Registration Rights Agreement”) with Omega Advisors, Inc. and its affiliates (collectively, “Omega”). Under the terms of the Omega Registration Rights Agreement, upon request by Omega the Company is required to use commercially reasonable efforts to file a resale shelf registration statement providing for the registration and sale on a continuous or delayed basis by Omega of its New Media Common Stock acquired in connection with the restructuring of GateHouse (the “Registrable Securities”) (the “Shelf Registration”), subject to customary exceptions and limitations. Omega is entitled to initiate up to three offerings or sales with respect to some or all of the Registrable Securities pursuant to the Shelf Registration.
Omega may only exercise its right to request Shelf Registrations if Registrable Securities to be sold pursuant to such Shelf Registration are at least 3% of the then-outstanding New Media Common Stock.
(8) Income Taxes
Income tax expense includes Federal and state income taxes and interest and penalties on uncertain tax positions. Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a full valuation allowance since the Company believes it is more likely than not that a tax benefit will not be realized.
The Company recorded an income tax benefit of $239 and income tax expense of $934, $2,591 and $2,557 for the three and nine months ended September 30, 2018 and September 24, 2017, respectively. The Company's estimated effective tax rate was 33% for the nine months ended September 30, 2018. The tax effects resulting from utilizing the annual effective tax rate for the nine months ended September 24, 2017 was determined to not be an effective method to determine the tax expense for that period. Therefore, the Company calculated its tax provision based upon year-to-date results.
The Company performs a quarterly assessment of its deferred tax assets and liabilities. ASC Topic 740, “Income Taxes” (“ASC 740”) limits the ability to use future taxable income to support the realization of deferred tax assets when a company has experienced a history of losses even if future taxable income were supported by detailed forecasts and projections.
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are projected to become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. During the nine months ended September 30, 2018, the Company recorded a net decrease to the valuation allowance of $181, which was a benefit to earnings. All of this amount was recognized through the Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.
The realization of the remaining deferred tax assets is primarily dependent on their scheduled reversals. Any changes to deferred taxes may require an additional valuation allowance. Any increase or decrease in the valuation allowance could result in an increase or decrease in income tax expense in the period of adjustment.

20



The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating (loss) income for the year, projections of the proportion of income or loss, permanent and temporary differences, and an assessment of the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired, or as additional information is obtained.
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The Company recorded a tax benefit of $4,200 during the year ended December 31, 2017 which was primarily attributable to a re-measurement of deferred tax assets and deferred tax liabilities. The tax benefit was also attributable to a valuation allowance release of $800 related to an alternative minimum tax credit that is refundable in 2021 or earlier. As of December 31, 2017, the Company made a reasonable estimate of the effects on the change in deferred tax balances under the TCJA. These amounts are provisional and subject to change through the fourth quarter of 2018 under SAB 118 ( Income Tax Accounting Implications of the Tax Cuts and Jobs Act) as the determination of the impact of the income tax effects may require additional analysis and further interpretation of the TCJA from yet to be issued FASB guidance, U.S. Treasury regulations or state legislation.
In addition, the TCJA imposes a new limit on interest expense deductions with respect to any debt outstanding on January 1, 2018. The Company has evaluated the effect of this rule and do not expect that the Company will be limited in its ability to claim interest expense deductions at this time although limitations may apply after 2021.
For the nine months ended September 30, 2018, the difference between the expected tax charge at a statutory rate of 21%, or $1,630, and the recorded tax expense of $2,591 is primarily due to deferred tax liabilities attributable to indefinite lived intangible assets which exceed the projected 2018 tax loss, state taxes and other charges.
The Company and its subsidiaries file a U.S. federal consolidated income tax return. The U.S. federal and state statute of limitations generally remains open for the 2015 tax year and beyond.
(9) Equity
(Loss) Income Per Share
The following table sets forth the computation of basic and diluted (loss) income per share (“EPS”):
 
Three months ended
 
Nine months ended
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
Numerator for (loss) income per share calculation:
 
 
 
 
 
 
 
Net (loss) income attributable to New Media
$
(6,105
)
 
$
(1,971
)
 
$
4,937

 
$
(27,343
)
Denominator for (loss) income per share calculation:
 
 
 
 
 
 
 
Basic weighted average shares outstanding
59,919,246

 
52,868,745

 
57,377,682

 
53,058,341

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock Options and Restricted Stock

 

 
447,628

 

Diluted weighted average shares outstanding
59,919,246

 
52,868,745

 
57,825,310

 
53,058,341


The Company excluded the following securities from the computation of diluted income per share because their effect would have been antidilutive:
 
Three months ended
 
Nine months ended
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
Stock warrants
1,362,479

 
1,362,479

 
1,362,479

 
1,362,479

Stock options
2,904,811

 
2,307,562

 
700,000

 
2,307,562

Restricted stock grants
376,570

 
349,781

 

 
349,781



21



Equity
On May 17, 2017, the Board of Directors authorized the repurchase of up to $100,000 of the Company's common stock ("Share Repurchase Program") over the next 12 months. On May 1, 2018, the Board of Directors authorized an extension of the Share Repurchase Program through May 18, 2019. Under the Share Repurchase Program, the Company may purchase its shares from time to time in the open market or in privately negotiated transactions. During the three months ended June 25, 2017, the Company repurchased 391,120 shares at a weighted average price of $12.77 per share for a total cost, including transaction costs, of $5,001. The shares were subsequently retired. The cost paid to acquire the shares in excess of par was recorded in additional paid-in capital in the consolidated balance sheet.
Pursuant to the anti-dilution provisions of the Incentive Plan, the exercise price on the 652,311 remaining options granted to the Manager in 2014 were equitably adjusted during the three months ended April 1, 2018 from $14.37 to $12.95 as a result of return of capital distributions.
Pursuant to the anti-dilution provisions of the Incentive Plan, the exercise price on the 700,000 options granted to the Manager in 2015 were equitably adjusted during the three months ended April 1, 2018 from $20.36 to $18.94 as a result of return of capital distributions.
Pursuant to the anti-dilution provisions of the Incentive Plan, the exercise price on the 862,500 options granted to the Manager in 2016 were equitably adjusted during the three months ended April 1, 2018 from $16.00 to $13.24 as a result of return of capital distributions.
During the three months ended June 25, 2017, the Company issued 16,605 shares of its common stock to its Non-Officer Directors to settle a liability of $225 for 2016 services.
During the three months ended April 1, 2018, the Company issued 13,008 shares of its common stock to its Non-Officer Directors to settle a liability of $225 for 2017 services.
During April 2018, the Company completed the sale of 6,900,000 shares of the Company's common stock, including 25,000 shares of the Company's common stock sold to an officer of the Company. The estimated net proceeds of the sale were approximately $110,650. For the purpose of compensating the Manager for its successful efforts in raising capital for the Company, in connection with this offering, the Company granted options to the Manager to purchase 690,000 shares of the Company’s common stock at a price of $16.45, which had an aggregate fair value of approximately $1,408 as of the grant date. The assumptions used in an option valuation model to value the options were: a 2.8% risk-free rate, a 8.0% dividend yield, 28.1% volatility and an expected life of 10 years.
The following table includes additional information regarding the Manager stock options:
 
Number of Options
 
Weighted-Average Grant Date Fair Value
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Term (Years)
 
Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2017
2,214,811

 
$
4.08

 
$
16.90

 
7.7
 
$
2,245

Granted
690,000

 
$
2.04

 
$
16.45

 
 
 
 
Outstanding at September 30, 2018
2,904,811

 
$
3.59

 
$
15.31

 
7.5
 
$
3,900

 
 
 
 
 
 
 
 
 
 
Exercisable at September 30, 2018
2,096,061

 
 
 
$
15.23

 
6.9
 
$
3,328



22



Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss by component for the nine months ended September 30, 2018 and September 24, 2017 are outlined below.
 
Net actuarial loss
and prior service
cost (1)
For the nine months ended September 30, 2018:
 
Balance at December 31, 2017
$
(5,461
)
Amounts reclassified from accumulated other comprehensive loss
(202
)
Balance at September 30, 2018
$
(5,663
)
For the nine months ended September 24, 2017:
 
Balance at December 27, 2016
$
(3,977
)
Amounts reclassified from accumulated other comprehensive loss
83

Balance at September 24, 2017
$
(3,894
)
 
(1) 
This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost. See Note 11.
The following table presents reclassifications out of accumulated other comprehensive loss for the three and nine months ended September 30, 2018 and September 24, 2017.
 
Amounts Reclassified from
Accumulated Other Comprehensive Loss
 
Affected Line Item 
in the
Consolidated 
Statements of
Operations and 
Comprehensive
(Loss) Income
 
Three months ended
 
Nine months ended
 
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
 
Amortization of unrecognized (gain) loss
$
(67
)
 
$
27

 
$
(202
)
 
$
83

(1) 
 
Amounts reclassified from accumulated other comprehensive loss
(67
)
 
27

 
(202
)
 
83

  
Income (loss) before income taxes
Income tax expense

 

 

 

  
Income tax benefit
Amounts reclassified from accumulated other comprehensive loss, net of taxes
$
(67
)
 
$
27

 
$
(202
)
 
$
83

  
Net (loss) income
 
(1) 
This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost. See Note 11.
Dividends
During the nine months ended September 24, 2017, the Company paid dividends of $1.05 per share of Common Stock of New Media.
During the nine months ended September 30, 2018, the Company paid dividends of $1.11 per share of Common Stock of New Media.
(10) Revenues
Adoption of ASC Topic 606, "Revenue from Contracts with Customers"
On January 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are

23



presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the previously applicable accounting standards under ASC Topic 605.
The adoption of ASC Topic 606 resulted in no change to accumulated deficit as of January 1, 2018. Revenue and expenses related to certain license agreements and recognized during the three and nine months ended September 30, 2018 decreased by $1,514 and $4,401, respectively, as a result of applying ASC Topic 606.
Summary of Accounting Policies for Revenue Recognition
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Revenues are recognized as performance obligations that are satisfied either at a point in time, such as when an advertisement is published, or over time, such as customer subscriptions.
The Company’s Unaudited Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income presents revenues disaggregated by revenue type. Sales taxes and other usage-based taxes are excluded from revenues.
Advertising Revenues
The Company generates advertising revenues primarily by delivering advertising in local publications including newspapers and websites. Advertising revenues are categorized as local retail, local classified, online and national. Revenue is recognized upon publication of the advertisement.
Circulation Revenues
Circulation revenues are derived from print and digital subscriptions as well as single copy sales at retail stores, vending racks and boxes. Circulation revenues from subscribers are generally billed to customers at the beginning of the subscription period and are typically recognized on a straight-line basis over the terms of the related subscriptions. The term of customer subscriptions normally ranges from three to twelve months. Circulation revenues from single-copy income are recognized based on the date of publication, net of provisions for related returns.
Commercial Printing and Other Revenues
The Company provides commercial printing services to third parties as a means to generate incremental revenue and utilize excess printing capacity. These customers consist primarily of other publishers that do not have their own printing presses and do not compete with other GateHouse publications. The Company also prints other commercial materials, including flyers, business cards and invitations. Revenue is generally recognized upon delivery.
The Other Revenues category includes UpCurve, Inc. (“UpCurve”), formerly referred to as “Propel Business Services,” the Company's SMB solutions provider. UpCurve provides digital marketing and business services for small to medium sized businesses. Other Revenues also include GateHouse Live, the Company’s events business. A significant judgment management must make with respect to UpCurve revenue recognition is determining whether the Company is the principal or agent for certain licensing transactions. Under ASC Topic 606, the principal in the relationship is the entity that controls the specified goods or services. An entity may have control if (i) it is primarily responsible for fulfilling the promise to provide the good or service; (ii) it has inventory risk before or after the good or service has been transferred to the customer; or (iii) it has the discretion in establishing the price for the good or service. The Company has determined that UpCurve is the principal in the relationships for those transactions in which the goods or services are customized for the customer and reports the related revenues on a gross basis. The Company has determined that UpCurve is the agent in the relationships for those transactions in which the Company resells the goods or services with no customization and reports these revenues on a net basis.
As a result of the change from gross to net reporting for certain licensing transactions, the Company’s commercial printing and other revenues, and operating expenses were both approximately $1,514 and $4,401 lower in the three and nine months ended September 30, 2018, respectively, than the amounts that would have been reported under previously applicable accounting standards.
Arrangements with Multiple Performance Obligations
The Company’s contracts with customers may include multiple performance obligations such as bundled print and digital subscriptions. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers or using expected cost plus margin.

24



Contract Balances
The Company records deferred revenues when cash payments are received in advance of the Company’s performance. The most significant unsatisfied performance obligation is the delivery of publications to subscription customers. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next three to twelve months in accordance with the terms of the subscriptions. The increase in the deferred revenue balance for the nine months ended September 30, 2018 is primarily driven by acquisitions. For the nine month period ended September 30, 2018, the Company recognized approximately $79,000 of revenues that were included in the deferred revenue balance as of December 31, 2017.
The Company's payment terms vary by the type and location of the customer and the products or services offered. The period between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.
Accounts Receivable
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. The Company’s allowance for doubtful accounts is based upon several factors including the length of time the receivables are past due, historical payment trends and current economic factors. The Company recorded bad debt expense of $1,046, $1,242, $5,146 and $3,726 during the three and nine months ended September 30, 2018 and September 24, 2017, respectively. Impairment losses are recorded within the selling, general and administrative expenses in the Company’s Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.
Practical Expedients and Exemptions
The Company expenses sales commissions or other costs to obtain contracts when incurred because the amortization period is generally one year or less. These costs are recorded within selling, general and administrative expenses.
The Company does not disclose unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.
(11) Pension and Postretirement Benefits
As a result of the Enterprise News Media LLC (in 2005), Copley Press, Inc. (in 2007), and Times Publishing Company (in 2016) acquisitions, the Company maintains two pension and several postretirement medical and life insurance plans which cover certain employees. The Company uses the accrued benefit actuarial method and best estimate assumptions to determine pension costs, liabilities and other pension information for defined benefit plans. Amounts related to the postretirement benefit plans are immaterial.
The George W. Prescott Company pension plan, assumed in the Enterprise News Media, LLC acquisition, was amended to freeze all future benefit accruals by December 31, 2008, except for a select group of union employees whose benefits were frozen during 2009. The Times Publishing Company pension plan was frozen prior to the acquisition.
The following provides information on the pension plans for the three and nine months ended September 30, 2018 and September 24, 2017:
 
Three months ended
 
Nine months ended
 
September 30, 2018
 
September 24, 2017
 
September 30, 2018
 
September 24, 2017
Components of net periodic benefit costs:
 
 
 
 
 
 
 
Service cost
$
150

 
$
157

 
$
450

 
$
470

Interest cost
700

 
780

 
2,099

 
2,341

Expected return on plan assets
(1,062
)
 
(1,045
)
 
(3,186
)
 
(3,134
)
Amortization of unrecognized loss
67

 
43

 
202

 
131

     Net periodic credit cost
$
(145
)
 
$
(65
)
 
$
(435
)
 
$
(192
)

The service cost component of net periodic benefit cost is included within Operating Costs and the other components are included within Other Income in the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income. During the three and nine months ended September 30, 2018, the Company paid $902 and $1,349 into the pension

25



plans, respectively. The Company is expected to pay an additional $103 in employer contributions to the pension plans during the remainder of 2018.
(12) Fair Value Measurement
The Company measures and records in the accompanying condensed consolidated financial statements certain assets and liabilities at fair value on a recurring basis. ASC Topic 820 “Fair Value Measurements and Disclosures” establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs).
These inputs are prioritized as follows:
 
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs; and
Level 3: Unobservable inputs for which there is little or no market data and which require the Company to develop their own assumptions about how market participants price the asset or liability.
The valuation techniques that may be used to measure fair value are as follows:
 
Market approach – Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;
Income approach – Uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts;
Cost approach – Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
The following table provides information for the Company’s major categories of financial assets and liabilities measured or disclosed at fair value on a recurring basis:
 
Fair Value Measurements at Reporting Date Using
 
 
 
Quoted Prices in
Active Markets for
Identical Assets