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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 September 29, 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 October 28, 2019, 60,481,117 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 2 to the unaudited condensed consolidated financial statements, “Acquisitions” and in Management’s Discussion and Analysis of Financial Condition and results of Operations, 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 remaining 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, 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


CAUTIONARY NOTE REGARDING FORWARD LOOKING INFORMATION



3



 
 
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.
 
 
 
 


4




Item 1.
Financial Statements
NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
 
September 29, 2019
 
December 30, 2018
 
 
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
28,641

 
$
48,651

Restricted cash
3,128

 
4,119

Accounts receivable, net of allowance for doubtful accounts of $8,270 and
$8,042 at September 29, 2019 and December 30, 2018, respectively
143,311

 
174,274

Inventory
21,070

 
25,022

Prepaid expenses
25,221

 
23,935

Other current assets
21,467

 
21,608

Total current assets
242,838


297,609

Property, plant, and equipment, net of accumulated depreciation of $256,531
and $219,256 at September 29, 2019 and December 30, 2018, respectively
314,133

 
339,608

Operating lease right-of-use assets, net
109,152

 

Goodwill
328,488

 
310,737

Intangible assets, net of accumulated amortization of $128,386 and $101,543
at September 29, 2019 and December 30, 2018, respectively
465,063

 
486,054

Other assets
12,079

 
9,856

Total assets
$
1,471,753


$
1,443,864

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Current portion of long-term debt
$
4,395

 
$
12,395

Current portion of operating lease liabilities
15,132

 

Accounts payable
20,667

 
16,612

Accrued expenses
105,537

 
113,650

Deferred revenue
117,837

 
105,187

Total current liabilities
263,568


247,844

Long-term liabilities:
 
 
 
Long-term debt
433,718

 
428,180

Long-term operating lease liabilities
101,710

 

Deferred income taxes
12,197

 
8,282

Pension and other postretirement benefit obligations
23,303

 
24,326

Other long-term liabilities
11,206

 
16,462

Total liabilities
845,702


725,094

Redeemable noncontrolling interests
593

 
1,547

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value, 2,000,000,000 shares authorized;
60,807,859 shares issued and 60,481,117 shares outstanding at September 29, 2019;
60,508,249 shares issued and 60,306,286 shares outstanding at December 30, 2018
608

 
605

Additional paid-in capital
655,282

 
721,605

Accumulated other comprehensive loss
(6,971
)
 
(6,881
)
(Accumulated deficit) retained earnings
(20,872
)
 
3,767

Treasury stock, at cost, 326,742 and 201,963 shares at September 29, 2019
and December 30, 2018, respectively
(2,589
)
 
(1,873
)
Total stockholders equity
625,458


717,223

Total liabilities, redeemable noncontrolling interests and stockholders’ equity
$
1,471,753


$
1,443,864

See accompanying notes to unaudited condensed consolidated financial statements.

5



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 29, 2019
 
September 30, 2018
 
September 29, 2019
 
September 30, 2018
Revenues:
 
 
 
 
 
 
 
Advertising
$
167,437

 
$
176,461

 
$
530,899

 
$
527,329

Circulation
146,254

 
145,934

 
449,269

 
420,461

Commercial printing and other
62,958

 
58,024

 
188,468

 
162,196

Total revenues
376,649

 
380,419

 
1,168,636

 
1,109,986

Operating costs and expenses:
 
 
 
 
 
 
 
Operating costs
218,369

 
220,771

 
681,271

 
634,935

Selling, general, and administrative
120,797

 
121,280

 
379,208

 
365,638

Depreciation and amortization
24,482

 
25,094

 
68,733

 
64,276

Acquisition costs
12,181

 
591

 
15,318

 
1,888

Integration and reorganization costs
2,160

 
9,064

 
9,502

 
13,243

Impairment of long-lived assets

 
1,121

 
2,469

 
1,121

Net loss (gain) on sale or disposal of assets
602

 
(72
)
 
3,339

 
(4,051
)
Operating (loss) income
(1,942
)
 
2,570

 
8,796

 
32,936

Interest expense
10,030

 
9,115

 
30,376

 
26,466

Other income
(230
)
 
(433
)
 
(801
)
 
(1,290
)
(Loss) income before income taxes
(11,742
)
 
(6,112
)
 
(20,779
)
 
7,760

Income tax expense (benefit)
7,226

 
(239
)
 
4,929

 
2,591

Net (loss) income
(18,968
)
 
(5,873
)
 
(25,708
)
 
5,169

Net (loss) income attributable to redeemable
noncontrolling interests
(505
)
 
232

 
(954
)
 
232

Net (loss) income attributable to New Media
$
(18,463
)
 
$
(6,105
)
 
$
(24,754
)
 
$
4,937

(Loss) income per share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net (loss) income attributable to New Media
$
(0.31
)
 
$
(0.10
)
 
$
(0.41
)
 
$
0.09

Diluted:
 
 
 
 
 
 
 
Net (loss) income attributable to New Media
$
(0.31
)
 
$
(0.10
)
 
$
(0.41
)
 
$
0.09

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.38

 
$
0.37

 
$
1.14

 
$
1.11

 
 
 
 
 
 
 
 
Comprehensive (loss) income
$
(19,001
)
 
$
(5,940
)
 
$
(25,798
)
 
$
4,967

Comprehensive (loss) income attributable to redeemable
noncontrolling interests
(506
)
 
232

 
(954
)
 
232

Comprehensive (loss) income attributable to
New Media
$
(18,495
)
 
$
(6,172
)
 
$
(24,844
)
 
$
4,735

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
 
(Accumulated deficit) retained earnings
 
Treasury stock
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Three months ended September 29, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2019
60,806,451

 
$
608

 
$
677,574

 
$
(6,938
)
 
$
(2,409
)
 
324,777

 
$
(2,573
)
 
$
666,262

Net loss attributable to New Media

 

 

 

 
(18,463
)
 

 

 
(18,463
)
Net actuarial loss and prior service cost, net of income taxes of $0

 

 

 
(30
)
 

 

 

 
(30
)
Foreign currency translation adjustment

 

 

 
(3
)
 

 

 

 
(3
)
Restricted share grants
1,408

 

 

 

 

 

 

 

Non-cash compensation expense

 

 
691

 

 

 

 

 
691

Restricted share forfeiture

 

 

 

 

 
366

 

 

Purchase of treasury stock

 

 

 

 

 
1,599

 
(16
)
 
(16
)
Common stock cash dividend

 

 
(22,983
)
 

 

 

 

 
(22,983
)
Balance at September 29, 2019
60,807,859

 
$
608

 
$
655,282

 
$
(6,971
)
 
$
(20,872
)
 
326,742

 
$
(2,589
)
 
$
625,458

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 29, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 30, 2018
60,508,249

 
$
605

 
$
721,605

 
$
(6,881
)
 
$
3,767

 
201,963

 
$
(1,873
)
 
$
717,223

Net loss attributable to New Media

 

 

 

 
(24,754
)
 

 

 
(24,754
)
Net actuarial loss and prior service cost, net of income taxes of $0

 

 

 
(90
)
 

 

 

 
(90
)
Restricted share grants
299,610

 
3

 
(3
)
 

 

 

 

 

Non-cash compensation expense

 

 
2,534

 

 

 

 

 
2,534

Impact of adoption of ASC 842 - Leases

 

 

 

 
115

 

 

 
115

Restricted share forfeiture

 

 

 

 

 
70,459

 

 

Purchase of treasury stock

 

 

 

 

 
54,320

 
(716
)
 
(716
)
Common stock cash dividend

 

 
(68,854
)
 

 

 

 

 
(68,854
)
Balance at September 29, 2019
60,807,859

 
$
608

 
$
655,282

 
$
(6,971
)
 
$
(20,872
)
 
326,742

 
$
(2,589
)
 
$
625,458

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.



7




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 September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at July 1, 2018
60,486,837

 
$
605

 
$
758,466

 
$
(5,596
)
 
$
3,644

 
193,834

 
$
(1,834
)
 
$
755,285

Net loss attributable to New Media

 

 

 

 
(6,105
)
 

 

 
(6,105
)
Net actuarial loss and prior service cost, net of income taxes of $0

 

 

 
(67
)
 

 

 

 
(67
)
Restricted share grants
11,614

 

 

 

 

 

 

 

Non-cash compensation expense

 

 
667

 

 

 

 

 
667

Restricted share forfeiture

 

 

 

 

 
5,715

 

 

Purchase of treasury stock

 

 

 

 

 
1,862

 
(31
)
 
(31
)
Common stock cash dividend

 

 
(20,252
)
 

 
(2,048
)
 

 

 
(22,300
)
Balance at September 30, 2018
60,498,451

 
$
605

 
$
738,881

 
$
(5,663
)
 
$
(4,509
)
 
201,411

 
$
(1,865
)
 
$
727,449

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
53,367,853

 
$
534

 
$
683,168

 
$
(5,461
)
 
$
(2,767
)
 
140,972

 
$
(1,081
)
 
$
674,393

Net income attributable to New Media

 

 

 

 
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.

8



NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Nine months ended
 
September 29, 2019
 
September 30, 2018
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(25,708
)
 
$
5,169

Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
 
 
 
Depreciation and amortization
68,733

 
64,276

Non-cash compensation expense
2,534

 
2,499

Non-cash interest expense
1,034

 
1,594

Deferred income taxes
3,915

 
1,848

Net loss (gain) on sale or disposal of assets
3,339

 
(4,051
)
Impairment of long-lived assets
2,469

 
1,121

Pension and other postretirement benefit obligations
(1,116
)
 
(2,161
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
35,641

 
16,961

Inventory
5,610

 
(6,967
)
Prepaid expenses
(395
)
 
(4
)
Other assets
(109,523
)
 
4,416

Accounts payable
2,415

 
(4,500
)
Accrued expenses
9,746

 
(5,300
)
Deferred revenue
3,599

 
(4,372
)
Other long-term liabilities
96,237

 
1,454

Net cash provided by operating activities
98,530


71,983

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(49,666
)
 
(155,166
)
Purchases of property, plant, and equipment
(7,281
)
 
(8,029
)
Proceeds from sale of real estate and other assets, and insurance proceeds
10,314

 
13,175

Net cash used in investing activities
(46,633
)

(150,020
)
Cash flows from financing activities:
 
 
 
Borrowings under revolving credit facility
136,400

 

Repayments under revolving credit facility
(128,400
)
 

Borrowings under term loans

 
49,750

Repayments under term loans
(11,296
)
 
(3,093
)
Payment of debt issuance costs

 
(500
)
Payment of offering costs

 
(369
)
Issuance of common stock, net of underwriters' discount

 
111,099

Purchase of treasury stock
(716
)
 
(784
)
Payment of dividends
(68,886
)
 
(64,420
)
Net cash (used in) provided by financing activities
(72,898
)

91,683

Net (decrease) increase in cash, cash equivalents and restricted cash
(21,001
)
 
13,646

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

 
46,162

Cash, cash equivalents and restricted cash at end of period
$
31,769

 
$
59,808

 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.

9


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.
Reclassifications
Certain prior period amounts in the condensed consolidated financial statements have been reclassified to conform to the current year presentation.
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

10



Agreement and Plan of Merger with Gannett
On August 5, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire Gannett Co., Inc. (“Gannett”) in a cash and stock transaction for $12.06 per share of Gannett common stock, or approximately $1,400,000 at the date of the announcement (the “Merger”). Each share of Gannett common stock will be exchanged for $6.25 per share in cash and 0.5427 shares of the Company’s common stock.
Subject to the terms, carve-outs and conditions of the Merger Agreement, at the effective time of the Merger, Gannett shareholders will own approximately 49.5% of the Company’s common stock on a fully-diluted basis based on the number of the Company’s shares then outstanding. The Company expects that the cash portion of the purchase price will be financed with new debt and cash on hand. As further discussed below, the Company has a commitment for Merger financing.
Gannett is an innovative, digitally focused media and marketing solutions company committed to fostering the communities in their network and helping them build relationships with their local businesses. Gannett owns ReachLocal, Inc., a digital marketing solutions company, the USA TODAY NETWORK (made up of USA TODAY and 109 local media organizations in 34 states in the U.S. and Guam, including digital sites and affiliates), and Newsquest (a wholly-owned subsidiary operating in the United Kingdom with more than 150 local media brands).
Consummation of the Merger Agreement is subject to certain closing conditions, including approval by Gannett’s and the Company’s stockholders (in the case of the Company’s stockholder approval, disregarding any shares held by certain affiliates of Fortress). The completion of the Merger was conditioned upon expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), relating to the consummation of the Merger, and obtaining the necessary clearance from the European Commission. The applicable waiting period under the HSR Act expired on September 25, 2019, and the European Commission announced regulatory clearance on October 23, 2019. The Merger Agreement does not contain a financing condition. The Merger is expected to close before December 31, 2019, although there can be no assurance that the Merger will occur by that date. Either party may terminate the Merger Agreement if the Merger is not consummated within six months of the execution of the Merger Agreement.
The Company expensed approximately $12,048 and $14,413 of incremental costs related to the Merger during the three and nine months ended September 29, 2019, respectively, and these expenses are included in acquisition costs.
Financing Commitment
On August 5, 2019, in connection with entering into the Merger Agreement, the Company has entered into a commitment letter (the "Commitment Letter") with Apollo Capital Management, L.P. (“Apollo”) to provide a $1,792,000 first lien term loan facility (the "Acquisition Credit Facility") to fund the cash portion of the Merger consideration, refinance the existing indebtedness of both the Company and Gannett, pay fees and expenses in connection with the Merger, and to the extent of any remaining proceeds, finance ongoing working capital and other general corporate needs. The Acquisition Credit Facility will bear a fixed interest rate of 11.5%, subject to a one-year step-up to a fixed rate of 12% in the event that the closing of the Merger occurs more than six months following the date of the Commitment Letter. The Acquisition Credit Facility will have a five-year term and will be freely pre-payable without penalty. Under the terms of the Commitment Letter and its accompanying Fee Letter, the Company will pay fees of 6.5% of the principal amount of the financing at closing.
The Acquisition Credit Facility is subject to negotiation of a mutually acceptable credit or loan agreement and other mutually acceptable definitive documentation, which will include certain representations and warranties, affirmative and negative covenants, financial covenants, events of default and collateral and guarantee agreements that are customarily required for similar financings. Additionally, Apollo’s obligation to provide the financing is subject to the satisfaction of specified conditions, including that the combined Company must have at least $40,000 of unrestricted cash at closing, and the accuracy of specified representations. The documentation governing the Acquisition Credit Facility has not been finalized and, accordingly, the actual terms may differ from the description in the foregoing summary of the Commitment Letter.
Amended Management Agreement
On August 5, 2019, in connection with the execution of the Merger Agreement, the Company and the Manager entered into the Amended and Restated Management and Advisory Agreement (the "Amended Management Agreement"). Effective upon the consummation of the Merger, the Amended Management Agreement will replace the existing Amended and Restated Management and Advisory Agreement, dated as of February 14, 2014, between the Company and the Manager. The Amended Management Agreement (i) establishes a termination date for the Manager’s services of December 31, 2021, in lieu of annual renewals of the term; (ii) reduces the “incentive fee” payable under the Amended Management Agreement for the remainder of the term; (iii) reduces by 50% the number of options that would otherwise be issuable in connection with the issuance of shares as consideration for the Merger, and imposes a premium on the exercise price; (iv) eliminates the Manager’s right to receive

11



options in connection with future equity raises by the Company; and (v) eliminates certain payments otherwise due at or after the end of the term of the prior management agreement.
In connection with entering into the Amended Management Agreement and the occurrence of the consummation of the Merger, the Company will issue to the Manager 4,205,607 shares of Company Common Stock and grant to the Manager options to acquire 3,163,265 shares of Company Common Stock. The Manager is restricted from selling the issued shares until the expiration of the Amended Management Agreement, or otherwise upon a change in control and certain other extraordinary events. The options will have an exercise price of $15.50 and become exercisable upon the first trading day immediately following the first 20 consecutive trading day period in which the closing price of the Company Common Stock (on its principal U.S. national securities exchange) is at or above $20 per share (subject to adjustment), and also upon a change in control and certain other extraordinary events.
Upon expiration of the term of the Amended Management Agreement, the Manager will cease providing external management services to the Company, and the Manager will no longer be the employer of the person serving in the role of Chief Executive Officer of the combined company.
2019 Acquisitions
The Company acquired substantially all the assets, properties and business of certain publications and businesses on July 2, 2019, July 1, 2019, 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 11 daily newspapers, 11 weekly publications, nine shoppers, a remnant advertising agency, five events production businesses, and a business community and networking platform, for an aggregate purchase price of $45,913, 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 July 2, 2019 acquisition, the Company acquired a 57.9% equity interest in the acquiree, and the minority equity owners retained a 42.1% 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:

12



Current assets
$
9,529

Other assets
950

Property, plant and equipment
20,492

Noncompete agreements
280

Advertiser relationships
2,357

Subscriber relationships
1,457

Customer relationships
1,323

Software
140

Trade names
299

Mastheads
2,896

Goodwill
18,644

Total assets
58,367

Current liabilities assumed
11,991

Other long-term liabilities assumed
463

Total liabilities
12,454

Net assets
$
45,913


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 $171 and $936 of incremental costs related to the 2019 Acquisitions during the three and nine months ended September 29, 2019, respectively, and these expenses are included in acquisition costs.
For tax purposes, the amount of goodwill that is expected to be deductible is $15,037.
2018 Acquisitions
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.

13



During the nine months ended September 29, 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 $691, $667, $2,534 and $2,499 during the three and nine months ended September 29, 2019 and September 30, 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 September 29, 2019 was $4,919, which is expected to be recognized over a weighted average period of 1.99 years through July 2022. As of September 29, 2019, the aggregate intrinsic value of unvested RSGs was $3,985.
RSG activity during the nine months ended September 29, 2019 was as follows:
 
Number of RSGs
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 30, 2018
384,471

 
$
16.11

Granted
299,610

 
13.64

Vested
(167,393
)
 
15.95

Forfeited
(70,459
)
 
15.26

Unvested at September 29, 2019
446,229

 
$
14.65


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 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 nine months ended September 29, 2019 was 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
8,221

 
1,281

 
9,502

Cash payments
(8,403
)
 
(1,097
)
 
(9,500
)
Balance at September 29, 2019
$
2,372

 
$
530

 
$
2,902

 
(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

14



During the nine months ended September 29, 2019, the Company ceased operations of three print publications and twelve 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 $4,802 during the nine months ended September 29, 2019.
During the 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.
(5) Goodwill and Intangible Assets
Goodwill and intangible assets consisted of the following:
 
September 29, 2019
 
Gross carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
Amortized intangible assets:
 
 
 
 
 
Advertiser relationships
$
260,979

 
$
66,882

 
$
194,097

Customer relationships
45,774

 
12,082

 
33,692

Subscriber relationships
154,901

 
40,171

 
114,730

Other intangible assets
14,122

 
9,251

 
4,871

Total
$
475,776


$
128,386


$
347,390

Nonamortized intangible assets:
 
 
 
Goodwill
$
328,488

 
Mastheads
117,673

 
Total
$
446,161

 
 
 
 
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 September 29, 2019, the weighted average amortization periods for amortizable intangible assets are 14.4 years for advertiser relationships, 12.2 years for customer relationships, 13.5 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 13.6 years.
Amortization expense for the three and nine months ended September 29, 2019 and September 30, 2018 was $8,976, $9,520, $27,324 and $24,852, respectively. Estimated future amortization expense as of September 29, 2019, is as follows:

15



For the following fiscal years:
 
2019 (three months remaining)
$
8,939

2020
35,685

2021
35,496

2022
34,509

2023
34,126

Thereafter
198,635

Total
$
347,390


The changes in the carrying amount of goodwill for the period from December 30, 2018 to September 29, 2019 were as follows:
Balance at December 30, 2018, net of accumulated impairments of $25,641
$
310,737

Goodwill acquired in business combinations
18,644

Measurement period adjustments
(851
)
Goodwill of disposed publication
(42
)
Balance at September 29, 2019, net of accumulated impairments of $25,641
$
328,488


The Company’s annual impairment assessment is made on the last day of its fiscal second quarter.
The carrying values 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%.
As of September 29, 2019, 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.

16



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.
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 September 29, 2019, the Company has an additional obligation of approximately $6,053 for future payments related to operating leases that have not yet commenced.
Total lease expense consists of the following:
 
Three months ended
 
Nine months ended
 
September 29, 2019
 
September 29, 2019
Operating lease expense related to right-of-use assets
$
7,000

 
$
19,904

Other operating lease expense
1,392

 
5,623

Sublease income
(551
)
 
(1,717
)
Total lease expense
$
7,841

 
$
23,810


Supplemental information related to leases was as follows:
 
Three months ended
 
Nine months ended
 
September 29, 2019
 
September 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows for operating leases
$
6,699

 
$
18,899

Right-of-use assets obtained in exchange for lease obligations:
 
 
 
Operating leases
$
3,659

 
$
121,154


Supplemental balance sheet information related to leases was as follows:
 
September 29, 2019
Operating leases:
 
Operating lease right-of-use assets, net
$
109,152

Current portion of operating lease liabilities
$
15,132

Long-term operating lease liabilities
101,710

Total operating lease liabilities
$
116,842

 
 
Weighted-average remaining lease term
8.6 years

Weighted-average discount rate
10.54
%

As of September 29, 2019, maturities of lease liabilities were as follows:

17



2019 (three months remaining)
$
6,840

2020
25,899

2021
24,179

2022
20,836

2023
17,150

Thereafter
87,513

Total lease payments
182,417

Less: interest
(65,575
)
Present value of lease liabilities
$
116,842


(7) Indebtedness
New Media Credit Agreement
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 September 29, 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 September 29, 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 September 29, 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

18



1.00. As of September 29, 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, LLC. 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 September 29, 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.
Payment Schedule
As of September 29, 2019, scheduled principal payments of outstanding debt are as follows:
 
2019 (three months remaining)
$
1,099

2020
4,395

2021
12,395

2022
424,072

 
441,961

Less:
 
Current
4,395

Unamortized original issue discount
1,457

Deferred financing costs
2,391

Long-term debt
$
433,718


(8) Related Party Transactions
As of September 29, 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 September 29, 2019. During the three and nine months ended September 29, 2019 and September 30, 2018, Fortress and its affiliates were paid $244, $238, $733 and $728 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