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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________________________________________
FORM 10-Q
________________________________________________________________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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,
New York
 
10105
(Address of principal executive offices)
 
(Zip Code)
Telephone: (212479-3160
(Registrant’s telephone number, including area code)
 _________________________________________________________________________________________________________
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class:
Trading Symbol
Name of each exchange on which registered:
Common stock, par value $0.01 per share
NEWM
New York Stock Exchange
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      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 (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).    Yes      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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
 
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  
As of August 5, 2019, 60,481,539 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, business prospects and opportunities, the proposed Merger described under the heading “Agreement and Plan of Merger with Gannett” in Note 15 to the unaudited condensed consolidated financial statements, “Subsequent Events”, the expected timetable of the Merger (as defined below), the benefits and synergies of the Merger and future opportunities for the combined company, 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:
risks and uncertainties relating to the Merger, including the Company's and Gannett's (as defined below) ability to consummate the Merger and to meet expectations regarding the timing and completion of the Merger; the satisfaction or waiver of the conditions to the completion of the Merger, including the receipt of the required approval of the Company’s (as defined below) stockholders and Gannett’s (as defined below) stockholders with respect to the Merger and the receipt of regulatory approvals required to consummate the Merger, in each case, on the terms expected or on the anticipated schedule; the risk that the parties may be unable to achieve the anticipated benefits of the Merger, including synergies and operating efficiencies, within the expected time-frames or at all; the risk that the committed financing necessary for the consummation of the Merger is unavailable at the closing, and that any replacement financing may not be available on similar terms, or at all; the risk that the businesses will not be integrated successfully or that integration may be more difficult, time-consuming or costly than expected; the risk that operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected following the Merger; and the retention of certain key employees;
general economic and market conditions;
economic conditions in the various 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;
the combined company's ability to grow its digital marketing and business services initiatives, and grow its 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;
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)
 
June 30, 2019
 
December 30, 2018
 
 
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
20,029

 
$
48,651

Restricted cash
3,155

 
4,119

Accounts receivable, net of allowance for doubtful accounts of $8,694 and
$8,042 at June 30, 2019 and December 30, 2018, respectively
150,675

 
174,274

Inventory
19,647

 
25,022

Prepaid expenses
30,506

 
23,935

Other current assets
20,733

 
21,608

Total current assets
244,745


297,609

Property, plant, and equipment, net of accumulated depreciation of $243,304
and $219,256 at June 30, 2019 and December 30, 2018, respectively
330,942

 
339,608

Operating lease right-of-use assets, net
109,521

 

Goodwill
317,151

 
310,737

Intangible assets, net of accumulated amortization of $119,561 and $101,543
at June 30, 2019 and December 30, 2018, respectively
474,900

 
486,054

Other assets
10,619

 
9,856

Total assets
$
1,487,878


$
1,443,864

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Current portion of long-term debt
$
3,296

 
$
12,395

Current portion of operating lease liabilities
14,492

 

Accounts payable
12,454

 
16,612

Accrued expenses
98,864

 
113,650

Deferred revenue
113,259

 
105,187

Total current liabilities
242,365


247,844

Long-term liabilities:
 
 
 
Long-term debt
434,672

 
428,180

Long-term operating lease liabilities
102,431

 

Deferred income taxes
6,486

 
8,282

Pension and other postretirement benefit obligations
23,747

 
24,326

Other long-term liabilities
10,817

 
16,462

Total liabilities
820,518


725,094

Redeemable noncontrolling interests
1,098

 
1,547

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value, 2,000,000,000 shares authorized;
60,806,451 shares issued and 60,481,674 shares outstanding at June 30, 2019;
60,508,249 shares issued and 60,306,286 shares outstanding at December 30, 2018
608

 
605

Additional paid-in capital
677,574

 
721,605

Accumulated other comprehensive loss
(6,938
)
 
(6,881
)
(Accumulated deficit) retained earnings
(2,409
)
 
3,767

Treasury stock, at cost, 324,777 and 201,963 shares at June 30, 2019
and December 30, 2018, respectively
(2,573
)
 
(1,873
)
Total stockholders equity
666,262


717,223

Total liabilities, redeemable noncontrolling interests and stockholders’ equity
$
1,487,878


$
1,443,864

See accompanying notes to unaudited condensed consolidated financial statements.

4



NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands, except per share data)
 
Three months ended
 
Six months ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
Revenues:
 
 
 
 
 
 
 
Advertising
$
184,767

 
$
187,609

 
$
363,462

 
$
350,868

Circulation
150,850

 
144,536

 
303,015

 
274,527

Commercial printing and other
68,770

 
56,657

 
125,510

 
104,172

Total revenues
404,387

 
388,802

 
791,987

 
729,567

Operating costs and expenses:
 
 
 
 
 
 
 
Operating costs
233,407

 
217,775

 
462,902

 
414,164

Selling, general, and administrative
130,040

 
126,837

 
261,548

 
245,656

Depreciation and amortization
23,328

 
19,935

 
44,251

 
39,182

Integration and reorganization costs
3,230

 
1,749

 
7,342

 
4,179

Impairment of long-lived assets
1,262

 

 
2,469

 

Net loss (gain) on sale or disposal of assets
947

 
(808
)
 
2,737

 
(3,979
)
Operating income
12,173

 
23,314

 
10,738

 
30,365

Interest expense
10,212

 
8,999

 
20,346

 
17,351

Other income
(311
)
 
(337
)
 
(571
)
 
(857
)
Income (loss) before income taxes
2,272

 
14,652

 
(9,037
)
 
13,871

Income tax (benefit) expense
(343
)
 
2,946

 
(2,297
)
 
2,830

Net income (loss)
2,615

 
11,706

 
(6,740
)
 
11,041

Net loss attributable to redeemable
    noncontrolling interests
(200
)
 

 
(449
)
 

Net income (loss) attributable to New Media
$
2,815

 
$
11,706

 
$
(6,291
)
 
$
11,041

Income (loss) per share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net income (loss) attributable to New Media
$
0.05

 
$
0.20

 
$
(0.10
)
 
$
0.20

Diluted:
 
 
 
 
 
 
 
Net income (loss) attributable to New Media
$
0.05

 
$
0.20

 
$
(0.10
)
 
$
0.20

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.38

 
$
0.37

 
$
0.76

 
$
0.74

 
 
 
 
 
 
 
 
Comprehensive income (loss)
$
2,588

 
$
11,638

 
$
(6,797
)
 
$
10,906

Comprehensive loss attributable to redeemable
   noncontrolling interests
(199
)
 

 
(448
)
 

Comprehensive income (loss) attributable to
   New Media
$
2,787

 
$
11,638

 
$
(6,349
)
 
$
10,906

See accompanying notes to unaudited condensed consolidated financial statements.


5



NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share data)
 
Common stock
 
Additional
paid-in capital
 
Accumulated 
other
comprehensive
loss
 
Retained earnings (accumulated deficit)
 
Treasury stock
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Three months ended June 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
60,806,451

 
$
608

 
$
699,787

 
$
(6,911
)
 
$
(5,224
)
 
276,590

 
$
(2,562
)
 
$
685,698

Net income

 

 

 

 
2,815

 

 

 
2,815

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

 

 

 
(30
)
 

 

 

 
(30
)
Foreign currency translation adjustment

 

 

 
3

 

 

 

 
3

Non-cash compensation expense

 

 
707

 

 

 

 

 
707

Restricted share forfeiture

 

 

 

 

 
47,232

 

 

Purchase of treasury stock

 

 

 

 

 
955

 
(11
)
 
(11
)
Common stock cash dividend

 

 
(22,920
)
 

 

 

 

 
(22,920
)
Balance at June 30, 2019
60,806,451

 
$
608

 
$
677,574

 
$
(6,938
)
 
$
(2,409
)
 
324,777

 
$
(2,573
)
 
$
666,262

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 30, 2018
60,508,249

 
$
605

 
$
721,605

 
$
(6,881
)
 
$
3,767

 
201,963

 
$
(1,873
)
 
$
717,223

Net loss

 

 

 

 
(6,291
)
 

 

 
(6,291
)
Net actuarial loss and prior service cost, net of income taxes of $0

 

 

 
(60
)
 

 

 

 
(60
)
Foreign currency translation adjustment

 

 

 
3

 

 

 

 
3

Restricted share grants
298,202

 
3

 
(3
)
 

 

 

 

 

Non-cash compensation expense

 

 
1,843

 

 

 

 

 
1,843

Impact of adoption of ASC 842 - Leases

 

 

 

 
115

 

 

 
115

Restricted share forfeiture

 

 

 

 

 
70,093

 

 

Purchase of treasury stock

 

 

 

 

 
52,721

 
(700
)
 
(700
)
Common stock cash dividend

 

 
(45,871
)
 

 

 

 

 
(45,871
)
Balance at June 30, 2019
60,806,451

 
$
608

 
$
677,574

 
$
(6,938
)
 
$
(2,409
)
 
324,777

 
$
(2,573
)
 
$
666,262

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.




6



NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share data)
 
Common stock
 
Additional
paid-in capital
 
Accumulated 
other
comprehensive
loss
 
Retained earnings (accumulated deficit)
 
Treasury stock
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Three months ended July 1, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at April 1, 2018
53,580,827

 
$
536

 
$
664,805

 
$
(5,528
)
 
$
(3,417
)
 
189,914

 
$
(1,816
)
 
$
654,580

Net income

 

 

 

 
11,706

 

 

 
11,706

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

 

 

 
(68
)
 

 

 

 
(68
)
Restricted share grants
6,010

 

 

 

 

 

 

 

Non-cash compensation expense

 

 
669

 

 

 

 

 
669

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

 
69

 
110,650

 

 

 

 

 
110,719

Restricted share forfeiture

 

 

 

 

 
2,823

 

 

Purchase of treasury stock

 

 

 

 

 
1,097

 
(18
)
 
(18
)
Common stock cash dividend

 

 
(17,658
)
 

 
(4,645
)
 

 

 
(22,303
)
Balance at July 1, 2018
60,486,837

 
$
605

 
$
758,466

 
$
(5,596
)
 
$
3,644

 
193,834

 
$
(1,834
)
 
$
755,285

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended July 1, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
53,367,853

 
$
534

 
$
683,168

 
$
(5,461
)
 
$
(2,767
)
 
140,972

 
$
(1,081
)
 
$
674,393

Net income

 

 

 

 
11,041

 

 

 
11,041

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

 

 

 
(135
)
 

 

 

 
(135
)
Restricted share grants
218,984

 
2

 
223

 

 

 

 

 
225

Non-cash compensation expense

 

 
1,832

 

 

 

 

 
1,832

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

 
69

 
110,650

 

 

 

 

 
110,719

Restricted share forfeiture

 

 

 

 

 
9,039

 

 

Purchase of treasury stock

 

 

 

 

 
43,823

 
(753
)
 
(753
)
Common stock cash dividend

 

 
(37,407
)
 

 
(4,630
)
 

 

 
(42,037
)
Balance at July 1, 2018
60,486,837

 
$
605

 
$
758,466

 
$
(5,596
)
 
$
3,644

 
193,834

 
$
(1,834
)
 
$
755,285

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.

7



NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Six months ended
 
June 30, 2019
 
July 1, 2018
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(6,740
)
 
$
11,041

Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
 
 
 
Depreciation and amortization
44,251

 
39,182

Non-cash compensation expense
1,843

 
1,832

Non-cash interest expense
689

 
1,078

Deferred income taxes
(1,796
)
 
2,264

Net loss (gain) on sale or disposal of assets
2,737

 
(3,979
)
Impairment of long-lived assets
2,469

 

Pension and other postretirement benefit obligations
(649
)
 
(984
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
26,707

 
15,591

Inventory
6,287

 
(4,858
)
Prepaid expenses
(6,035
)
 
(3,777
)
Other assets
(109,775
)
 
5,255

Accounts payable
(4,962
)
 
(806
)
Accrued expenses
3,328

 
(6,845
)
Deferred revenue
2,254

 
1,452

Other long-term liabilities
97,045

 
1,157

Net cash provided by operating activities
57,653


57,603

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(39,353
)
 
(149,604
)
Purchases of property, plant, and equipment
(4,934
)
 
(5,041
)
Proceeds from sale of real estate, other assets and insurance
7,107

 
12,585

Net cash used in investing activities
(37,180
)

(142,060
)
Cash flows from financing activities:
 
 
 
Payment of debt issuance costs

 
(500
)
Borrowings under term loans

 
49,750

Repayments under term loans
(11,296
)
 
(2,062
)
Borrowings under revolving credit facility
102,900

 

Repayments under revolving credit facility
(94,900
)
 

Payment of offering costs

 
(152
)
Issuance of common stock, net of underwriters' discount

 
111,099

Purchase of treasury stock
(700
)
 
(753
)
Payment of dividends
(46,066
)
 
(42,226
)
Net cash (used in) provided by financing activities
(50,062
)

115,156

Effect of exchange rate changes on cash and cash equivalents
3

 

Net (decrease) increase in cash, cash equivalents and
restricted cash
(29,586
)
 
30,699

Cash, cash equivalents and restricted cash at beginning of period
52,770

 
46,162

Cash, cash equivalents and restricted cash at end of period
$
23,184

 
$
76,861

 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.

8


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 United States 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 30, 2018, 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.
The Company’s reporting units (Newspapers and BridgeTower) are aggregated into one reportable business segment.
The newspaper industry and the Company have experienced declining same-store revenue and profitability over the past several years. As a result, the Company has implemented, and continues to implement, measures 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.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), “Leases (Topic 842)”, which revised the accounting related to lease accounting for both lessees and lessors. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset on the balance sheet for all leases with terms greater than twelve months. Leases are classified as either finance or operating, with classification affecting the classification of expense recognition in the income statement. As permitted under the transition guidance, we have carried forward the assessment of whether our contracts contain or are leases, classification of our leases and remaining lease terms. Refer to Note 6 for further discussion.
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.
All other issued and not yet effective accounting standards are not relevant to the Company.
(2) Acquisitions
2019 Acquisitions
The Company acquired substantially all the assets, properties and business of certain publications and businesses on June 21, 2019, June 14, 2019, May 31, 2019, February 11, 2019, February 2, 2019, January 31, 2019, and December 31, 2018 (“2019 Acquisitions”), which included 10 daily newspapers, 11 weekly publications, eight shoppers, a remnant advertising agency,

9



three events production businesses, and a business community and networking platform, for an aggregate purchase price of $35,723, 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 or event-related assets and digital platforms, and their estimated cash flows combined with the cost-saving and revenue-generating opportunities available.
In the June 21, 2019 acquisition, the Company acquired an 80% equity interest in the acquiree, and the minority equity owners retained a 20% interest, which have been classified as redeemable noncontrolling interests 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 2019 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 2019 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
$
6,684

Property, plant and equipment
20,062

Noncompete agreements
280

Advertiser relationships
2,540

Subscriber relationships
1,560

Customer relationships
1,380

Software
140

Trade names
299

Mastheads
2,860

Goodwill
7,308

Total assets
43,113

Current liabilities assumed
7,390

Total liabilities
7,390

Net assets
$
35,723


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.
The Company expensed approximately $765 of acquisition-related costs for the 2019 Acquisitions during the six months ended June 30, 2019, and these expenses are included in selling, general, and administrative expenses.
For tax purposes, the amount of goodwill that is expected to be deductible is $7,003.
2018 Acquisitions

10



The Company acquired substantially all the assets, properties and business of certain publications and businesses on November 16, 2018, November 14, 2018, October 1, 2018, 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 business publications, eight daily newspapers, 16 weekly publications, one shopper, a print facility, an events production business, cloud services and digital platforms and related domains, for an aggregate purchase price of $205,785, 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 have been classified as redeemable noncontrolling interests 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 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.
During the six months ended June 30, 2019, the Company recorded adjustments to the recorded fair values of the assets acquired and liabilities assumed in the 2018 acquisitions. The recorded amount of net assets acquired was increased by $65, while the recorded balances of property, plant and equipment, goodwill and current liabilities were decreased by $267, $847 and $1,179, respectively.
(3) Share-Based Compensation
The Company recognized compensation cost for share-based payments of $707, $669, $1,843 and $1,832 during the three and six months ended June 30, 2019 and July 1, 2018, 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 June 30, 2019 was $5,592, which is expected to be recognized over a weighted average period of 2.19 years through February 2022. As of June 30, 2019, the aggregate intrinsic value of unvested RSGs was $4,251.
RSG activity during the six months ended June 30, 2019 was as follows:
 
Number of RSGs
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 30, 2018
384,471

 
$
16.11

Granted
298,202

 
13.65

Vested
(162,309
)
 
15.90

Forfeited
(70,093
)
 
15.27

Unvested at June 30, 2019
450,271

 
$
14.69


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

11



employee base, consolidate facilities and improve operations, including those of recently acquired entities. These initiatives impact all of the Company’s operations and are often influenced by the terms of union contracts. 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 six months ended June 30, 2019 is as follows:
 
Severance and
Related Costs
 
Other
Costs (1)
 
Total
Balance at December 30, 2018
$
2,554

 
$
346

 
$
2,900

Restructuring provision included in Integration and Reorganization
6,293

 
1,049

 
7,342

Cash payments
(5,660
)
 
(801
)
 
(6,461
)
Balance at June 30, 2019
$
3,187

 
$
594

 
$
3,781

 
(1) 
Other costs primarily include costs to consolidate operations.
The majority of the accrued restructuring reserve balance is expected to be paid out over the next twelve months.
Facility consolidation charges and accelerated depreciation
During the six months ended June 30, 2019, the Company ceased operations of three print publications and nine print facilities as part of the ongoing cost reduction programs. As a result, the Company recognized an impairment charge related to retired equipment of $2,469, a loss on disposal of assets related to retired equipment of $168 and intangibles of $405, and accelerated depreciation of $2,636 during the six months ended June 30, 2019. There were no publication closures or facility consolidations during the six months ended July 1, 2018.

12



(5) Goodwill and Intangible Assets
Goodwill and intangible assets consisted of the following:
 
June 30, 2019
 
Gross carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
Amortized intangible assets:
 
 
 
 
 
Advertiser relationships
$
261,452

 
$
62,398

 
$
199,054

Customer relationships
45,860

 
10,936

 
34,924

Subscriber relationships
155,102

 
37,304

 
117,798

Other intangible assets
14,026

 
8,923

 
5,103

Total
$
476,440


$
119,561


$
356,879

Nonamortized intangible assets:
 
 
 
Goodwill
$
317,151

 
Mastheads
118,021

 
Total
$
435,172

 
 
 
 
December 30, 2018
 
Gross carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
Amortized intangible assets:
 
 
 
 
 
Advertiser relationships
$
260,142

 
$
53,477

 
$
206,665

Customer relationships
44,630

 
8,704

 
35,926

Subscriber relationships
153,923

 
31,560

 
122,363

Other intangible assets
13,046

 
7,802

 
5,244

Total
$
471,741


$
101,543


$
370,198

Nonamortized intangible assets:
 
 
 
Goodwill
$
310,737

 
Mastheads
115,856

 
Total
$
426,593

 

As of June 30, 2019, the weighted average amortization periods for amortizable intangible assets are 14.4 years for advertiser relationships, 12.3 years for customer relationships, 13.6 years for subscriber relationships and 5.2 years for other intangible assets. The weighted average amortization period in total for all amortizable intangible assets is 13.7 years.
Amortization expense for the three and six months ended June 30, 2019 and July 1, 2018 was $8,898, $8,177, $18,348 and $15,332, respectively. Estimated future amortization expense as of June 30, 2019, is as follows:
For the following fiscal years:
 
2019 (six months remaining)
$
17,968

2020
35,503

2021
35,313

2022
34,363

2023
34,069

Thereafter
199,663

Total
$
356,879



13



The changes in the carrying amount of goodwill for the period from December 30, 2018 to June 30, 2019 are as follows:
Balance at December 30, 2018, net of accumulated impairments of $25,641
$
310,737

Goodwill acquired in business combinations
7,308

Measurement period adjustments
(852
)
Goodwill of disposed publication
(42
)
Balance at June 30, 2019, net of accumulated impairments of $25,641
$
317,151


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. 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 2019 annual assessment for possible impairment of the carrying value of goodwill and indefinite-lived intangibles as of June 30, 2019. The fair value of the Company's reporting units, including Newspapers 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 0.5%. The discount rate was 17% and the effective tax rate was 27%. The fair value of the Newspaper reporting unit exceeded the carrying value by less than 10%.
The total Company’s estimate of reporting unit fair values was reconciled to its market capitalization (based upon the stock market price and fair value of debt) plus an estimated control premium.
The Company uses a “relief from royalty” approach, a discounted cash flow model, to determine the fair value of its indefinite-lived intangible assets.  The estimated fair value equaled or exceeded carrying value for mastheads. The fair value of mastheads exceeded carrying value by less than 10% for the central and east regions. 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 0.5% for Newspapers and 1% for BridgeTower. Discount rates ranged from 16.5% to 17%, royalty rates ranged from 1.5% to 1.75%, and the effective tax rate was 27%.
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) Leases
Adoption
Effective December 31, 2018, the Company adopted FASB ASU 2016-02, “Leases (Topic 842)” using the modified retrospective method at the adoption date. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard. This allowed us to carry-forward the historical lease classification. The Company elected to make the accounting policy election for short-term leases resulting in lease payments being recorded as an expense on a straight-line basis over the lease term. The Company also adopted this approach for individually insignificant operating leases. Also, the Company elected to not separate lease and non-lease components for leases. Adoption of this standard resulted in the recording of net operating lease right-of-use assets of $102,512 and corresponding operating lease liabilities of $109,230. The Company's financial position for reporting periods beginning on or after December 31, 2018 is presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.

14



A significant portion of our operating lease portfolio includes office space, distribution centers, press facilities, office equipment, and vehicles. The majority of our leases have remaining lease terms of 1 year to 10 years, some of which include options to extend the leases. As of June 30, 2019, the Company has an additional obligation of approximately $5,122 for future payments related to operating leases that have not yet commenced.
Total lease expense consists of the following:
 
Three months ended
 
Six months ended
 
June 30, 2019
 
June 30, 2019
Operating lease expense related to right-of-use assets
$
6,678

 
$
12,921

Other operating lease expense
1,827

 
4,213

Sublease income
(641
)
 
(1,165
)
Total lease expense
$
7,864

 
$
15,969


Supplemental information related to leases was as follows:
 
Three months ended
 
Six months ended
 
June 30, 2019
 
June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows for operating leases
$
6,311

 
$
12,200

Right-of-use assets obtained in exchange for lease obligations:
 
 
 
Operating leases
$
10,838

 
$
117,495


Supplemental balance sheet information related to leases was as follows:
 
June 30, 2019
Operating leases:
 
Operating lease right-of-use assets, net
$
109,521

Current portion of operating lease liabilities
$
14,492

Long-term operating lease liabilities
102,431

Total operating lease liabilities
$
116,923

 
 
Weighted-average remaining lease term
8.8 years

Weighted-average discount rate
10.58
%

As of June 30, 2019, maturities of lease liabilities were as follows:
2019 (six months remaining)
$
13,137

2020
24,867

2021
23,150

2022
19,921

2023
16,496

Thereafter
87,226

Total lease payments
184,797

Less: interest
(67,874
)
Present value of lease liabilities
$
116,923


(7) Indebtedness
New Media Credit Agreement

15



The Company, through its wholly-owned subsidiary New Media Holdings II LLC (the “New Media Borrower”) maintains secured credit facilities (the “Credit Facilities”) under an agreement (the “New Media Credit Agreement”) with a syndication of lenders, including a term loan facility and a revolving credit facility. The term loan facility expires on July 14, 2022, and the revolving credit facility expires on July 14, 2021. Maximum borrowings under the revolving credit facility, including letters of credit, total $40,000.
As of June 30, 2019, there were outstanding borrowings against the term loan facility and revolving credit facility totaling $433,961 and $8,000, respectively. As of December 30, 2018, there were outstanding borrowings against the term loan facility and revolving credit facility totaling $437,257 and $0, respectively. As of June 30, 2019, there were $495 letters of credit issued against the revolving credit facility and the Company had $31,505 of borrowing availability under the revolving credit facility.
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 (subject to a floor of 1.00%), plus an applicable margin equal to 6.25% per annum or (ii) an adjusted base rate (subject to a floor of 2.00%), plus an applicable margin equal to 5.25% per annum. 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 June 30, 2019, the New Media Credit Agreement had a weighted average interest rate of 8.56%.
The Credit Facilities are unconditionally guaranteed by New Media Holdings I LLC (“Holdings I”), a wholly-owned subsidiary of New Media and the parent of the New Media Borrower, as well as by 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 Credit Facilities 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% 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 November 28, 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 June 30, 2019, the Company is in compliance with all of the covenants and obligations under the New Media Credit Agreement.
Halifax Alabama Credit Agreement
In connection with the purchase of the assets of Halifax Media in 2015, the Company assumed obligations of Halifax Media including the amount owing ($8,000 at that time) under the credit agreement dated June 18, 2013 between Halifax Alabama, LLC and Southeast Community Development Fund V, L.L.C.. This debt bore interest at an annual rate of 2% and was repaid in full on April 1, 2019.
Fair Value
The fair value of long-term debt was estimated at $441,961 as of June 30, 2019, 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 Credit Facilities is classified within Level 3 of the fair value hierarchy.

16



Payment Schedule
As of June 30, 2019, scheduled principal payments of outstanding debt are as follows:
 
2019 (six months remaining)
$
1,099

2020
4,395

2021
12,395

2022
424,072

 
441,961

Less:
 
Current
3,296

Unamortized original issue discount
1,590

Deferred financing costs
2,403

Long-term debt
$
434,672


(8) Related Party Transactions
As of June 30, 2019, 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. The Manager and its affiliates hold 2,904,811 stock options of the Company’s common stock as of June 30, 2019. During the three and six months ended June 30, 2019 and July 1, 2018, Fortress and its affiliates were paid $244, $238, $488 and $490 in dividends, respectively.
The Company’s Chairman and Chief Executive Officer is an employee of Fortress (or one of its affiliates), and his salary is 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”). 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 10). 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.
Subsequent to June 30, 2019 and in connection with entering into a agreement and plan of merger, the Company and the Manager have amended the Management Agreement, effective as of the closing of the agreement. Refer to Note 15 for further information on the amended Management Agreement.
The following provides the management and incentive fees recognized and paid to the Manager for the three and six months ended June 30, 2019 and July 1, 2018:
 
Three months ended
 
Six months ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
Management fee expense
$
2,456

 
$
2,740

 
$
4,912

 
$
5,107

Incentive fee expense
1,413

 
4,802