NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share data)
(1) Description of Business, Basis of Presentation and Summary of Significant Accounting Policies
(a) Description of Business
New Media Investment Group Inc. (“New Media,” “Company,” “us,” “our,” or “we”), was formed as a Delaware corporation on June 18, 2013. New Media was capitalized and issued
1,000
common shares to Newcastle Investment Corp. (“Newcastle”). Newcastle owned approximately
84.6%
of New Media until February 13, 2014, upon which date Newcastle distributed the shares that it held in New Media to its shareholders on a prorata basis.
The Company is a leading U.S. publisher of local newspapers and related publications that are generally the leading source of local news and print advertising in their markets. As of
December 25, 2016
, the Company owned and operated
631
publications located in
36
states. The majority of the Company’s paid daily newspapers have been published for more than
100
years and are typically the only paid daily newspapers of general circulation in their respective nonmetropolitan markets. The Company’s publications generally face limited competition as a result of operating in small and midsized markets that can typically support only one newspaper. The Company has strategically clustered its publications in geographically diverse, nonmetropolitan markets in the Midwest and Eastern United States, which limits its exposure to economic conditions in any single market or region.
For our small to medium size business (“SMB”) category, we focus on leveraging our strong local media brands, our in-market sales force and our high consumer penetration rates with a variety of products and services that we believe will help SMBs expand their marketing advertising and other lead generation platforms. Central to this business strategy is our wholly owned subsidiary Propel Business Services.
As of
December 25, 2016
, the Company’s operating segments (Eastern US Publishing, Central US Publishing, Western US Publishing, and BridgeTower) are aggregated into
one
reportable business segment.
(b) Basis of Presentation
The consolidated financial statements include the accounts of New Media and its subsidiaries. All significant intercompany accounts and transactions have been eliminated.
(c) Newspaper Industry
The newspaper industry and the Company have experienced declining revenue and profitability over the past several years. As a result, the Company has implemented, and continues to implement, plans to reduce costs and preserve cash flow. This includes cost reduction programs and the sale of non-core assets. The Company believes these initiatives along with cash provided by operating activities will provide it with the financial resources necessary to invest in the business and provide sufficient cash flow to enable the Company to meet its commitments.
(d) Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“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.
Examples of significant estimates include pension and postretirement benefit obligation assumptions, income taxes, allowance for doubtful accounts, self-insurance liabilities, goodwill impairment analysis, stock-based compensation, and valuation of property, plant and equipment and intangible assets. Actual results could differ from those estimates.
(e) Fiscal Year
The Company’s fiscal year is a 52 or 53-week operating period ending on the last Sunday of the calendar year. The Company’s
2016
,
2015
and
2014
fiscal years ended on
December 25,
December 27,
and
December 28,
respectively, and encompassed
52
-week periods. The fiscal years consisted of four thirteen-week fiscal quarters. The first month of each quarter contains five weeks of results and the second and third months of each fiscal quarter contain four weeks of results. Accordingly, net sales are typically higher in the first month of any given quarter.
(f) Accounts Receivable
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. The Company’s allowance for doubtful accounts is based upon several factors including the length of time the receivables are past due, historical payment trends and current economic factors. The Company generally does not require collateral.
(g) Inventory
Inventory consists principally of newsprint, which is valued at the lower of cost or market. Cost is determined using the first-in, first-out (“FIFO”) method. In
2015
and
2016
, the Company purchased approximately
93%
and
90%
of its newsprint from one vendor, respectively.
(h) Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Routine maintenance and repairs are expensed as incurred.
Depreciation is calculated under the straight-line method over the estimated useful lives, principally
3
to
40
years for buildings and improvements,
1
to
20
years for machinery and equipment, and
1
to
10
years for furniture, fixtures and computer software. Leasehold improvements are amortized under the straight-line method over the shorter of the lease term or estimated useful life of the asset.
(i) Business Combinations
The Company accounts for acquisitions in accordance with the provisions of Accounting Standards Codification ("ASC") 805 "
Business Combinations
" ("ASC 805"), which provides guidance for recognition and measurement of identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree at fair value. In a business combination, the assets acquired, liabilities assumed and noncontrolling interest in the acquiree are recorded as of the date of acquisition at their respective fair values with limited exceptions. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs are expensed as incurred. The operating results of the acquired business are reflected in the Company’s consolidated financial statements after the date of the acquisition.
(j) Goodwill, Intangible, and Long-Lived Assets
Intangible assets consist of noncompete agreements, advertiser, subscriber and customer relationships, mastheads, trade names and publication rights. Goodwill is not amortized pursuant to ASC Topic 350 “
Intangibles – Goodwill and Other
” (“ASC 350”). Mastheads are not amortized because it has been determined that the useful lives of such mastheads are indefinite.
In accordance with ASC 350, goodwill and intangible assets with indefinite lives are tested for impairment annually or when events indicate that an impairment could exist which may include an economic downturn in a market, a change in the assessment of future operations or a decline in the Company’s stock price. The Company performs an annual impairment assessment on the last day of its fiscal second quarter. As required by ASC 350, the Company performs its impairment analysis on each of its reporting units. The Company has the option to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company elects to perform a qualitative assessment and concludes it is not more likely than not that the fair value of the reporting unit is less than its carrying value, no further assessment of that reporting unit’s goodwill is necessary; otherwise goodwill must be tested for impairment using a two-step process. The reporting units have discrete financial information which are regularly reviewed by management. The fair value of the applicable reporting unit is compared to its carrying value. Calculating the fair value of a reporting unit requires significant estimates and assumptions by the Company. The Company estimates fair value by applying third-party market value indicators to projected cash flows and/or projected earnings before interest, taxes, depreciation, and amortization. In applying this methodology, the Company relies on a number of factors, including current operating results and cash flows, expected future operating results and cash flows, future business plans, and market data. If the carrying value of the reporting unit exceeds the estimate of fair value, the Company calculates the impairment as the excess of the carrying value of goodwill over its implied fair value.
Refer to Note 6 “Goodwill and Intangible Assets” for additional information on the impairment testing of goodwill and indefinite lived intangible assets.
The Company accounts for long-lived assets in accordance with the provisions of ASC Topic 360, “
Property, Plant and Equipment
” (“ASC 360”). The Company assesses the recoverability of its long-lived assets, including property, plant and equipment and definite lived intangible assets, whenever events or changes in business circumstances indicate the carrying
amount of the assets, or related group of assets, may not be fully recoverable. Impairment indicators include significant under performance relative to historical or projected future operating losses, significant changes in the manner of use of the acquired assets or the strategy for the Company’s overall business, and significant negative industry or economic trends. The assessment of recoverability is based on management’s estimates by comparing the sum of the estimated undiscounted cash flows generated by the underlying asset, or other appropriate grouping of assets, to its carrying value to determine whether an impairment existed at its lowest level of identifiable cash flows. If the carrying amount of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment is recognized to the extent the carrying value of such asset exceeds its fair value.
(k) Equity Investments
New Media uses the equity method of accounting for investments in which the Company exercises significant influence. The Company's share of net earnings or losses from equity method investments is included in Other Expense in the Consolidated Statements of Operations and Comprehensive Income (Loss). The Company accounts for non-marketable investments over which the Company does not have the ability to exercise significant influence under the cost method of accounting. The Company periodically evaluates the carrying value of its investments.
(l) Revenue Recognition
Advertising revenue is recognized upon publication of the advertisement. Circulation revenue from subscribers is billed to customers at the beginning of the subscription period and is recognized on a straight-line basis over the term of the related subscription. Circulation revenue from single-copy income is recognized based on date of publication, net of provisions for related returns. Revenue for commercial printing is recognized upon delivery.
(m) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company has determined that it is more likely than not that its existing deferred tax assets will not be realized, and accordingly has provided a full valuation allowance. Any changes in the scheduled reversals of deferred taxes may require an additional valuation allowance against the remaining deferred tax assets. Any increase or decrease in the valuation allowance could result in an increase or decrease in income tax expense in the period of adjustment.
The Company accounts for uncertain tax positions under the provisions of ASC 740 "
Income Taxes
". The Company does not anticipate significant increases or decreases in our uncertain tax positions within the next twelve months. The Company recognizes penalties and interest relating to uncertain tax positions in tax expense.
(n) Fair Value of Financial Instruments
The carrying value of the Company’s cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the short maturity of these instruments. An estimate of the fair value of the Company’s debt is disclosed in Note 9 “Indebtedness”.
(o) Cash Equivalents
Cash equivalents represent highly liquid certificates of deposit which have original maturities of three months or less.
(p) Deferred Financing Costs
Deferred financing costs consist of costs incurred in connection with debt financings and are recorded as a contra-liability in long-term debt. Such costs are amortized on a straight-line basis and represent a component of interest expense, which approximates the effective interest method, over the estimated remaining term of the related debt.
(q) Advertising Costs
Advertising costs are expensed in the period incurred. The Company incurred total advertising expenses for the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
of
$14,607
,
$11,567
and
$5,179
, respectively.
(r) Earnings (loss) per share
Basic earnings (loss) per share is computed as net income (loss) available to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur from common shares issued through common stock equivalents.
(s) Stock-based Employee Compensation
ASC Topic 718, “
Compensation – Stock Compensation
” requires that all share-based payments to employees and the board of directors, including grants of stock options and restricted stock, be recognized in the consolidated financial statements over the service period (generally the vesting period) based on fair values measured on grant dates.
(t) Pension and Postretirement Liabilities
ASC Topic 715, “
Compensation – Retirement Benefits
” requires recognition of an asset or liability in the consolidated balance sheet reflecting the funded status of pension and other postretirement benefit plans such as retiree health and life, with current-year changes in the funded status recognized in accumulated other comprehensive (loss) income. For the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
, a total of
$(819)
,
$1,311
and
$(4,927)
, net of taxes of
$0
,
$0
and
$0
after valuation allowance, respectively, was recognized in other comprehensive income (loss) income (see Note 13 “Pension and Postretirement Benefits”).
(u) Self-Insurance Liability Accruals
The Company maintains self-insured medical and workers’ compensation programs. The Company purchases stop loss coverage from third parties which limits our exposure to large claims. The Company records a liability for healthcare and workers’ compensation costs during the period in which they occur as well as an estimate of incurred but not reported claims.
(v) Reclassifications
Certain amounts in the prior periods consolidated financial statements have been reclassified to conform to the current year presentation.
(w) Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (Topic 606). ASU No. 2014-09 will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers - Principal versus Agent Considerations” (Topic 606), which clarifies the implementation guidance on principal versus agent considerations. During 2016, the Company established a project team to identify potential differences that would result from the application of this standard. The team is in the process of reviewing customer contracts, identifying contractual provisions that may result in a change in the timing or the amount of revenue recognized and assessing the enhanced disclosure requirements of the new guidance. Based on the evaluation, the Company expects to adopt the requirements of the new standard in the first quarter of 2018 and anticipates using the modified retrospective transition method.
In April 2015, the FASB issued ASU No. 2015-03, “Interest-Imputation of Interest” (Topic 835), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance of debt issuance costs are not affected by the amendments in this update. The standard is effective for the Company beginning in the first quarter of 2016 and requires the Company to apply the new guidance on a retrospective basis on adoption. In August 2015, the FASB issued ASU No. 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements”, which addresses the presentation of debt issuance costs related to line-of-credit arrangements. As a result of these amendments, the Company’s deferred financing costs of
$3,143
were reclassified from long-term assets to long-term debt as of December 27, 2015, on the Company’s consolidated balance sheet.
In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory” (Topic 330), which simplifies the measurement of inventory by requiring certain inventory to be measured at the “lower of cost and net realizable value” and options that currently exist for “market value” will be eliminated. The ASU defines net realizable value as the “estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and
transportation.” The standard will be effective for the Company beginning in the first quarter of 2017. Entities should adopt the guidance prospectively, and early adoption is permitted. The amendments in ASU No. 2015-11 are not expected to have a material impact on the financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842), which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases with terms greater than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The provisions of ASU 2016-02 are effective for fiscal years beginning after December 15, 2018 and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. The Company is currently evaluating the impact this accounting standard will have on the Company’s consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation” (Topic 718), which addresses several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The provisions are effective for fiscal years beginning after December 15, 2016, and there are various adoptions methods. Given the Company’s current tax position and relatively small stock compensation program, the new standard is not expected to have a significant impact.
In November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash” (Topic 230), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. The provisions of ASU 2016-18 are effective for fiscal years beginning after December 15, 2017 and should be applied using a retrospective transition method. Early adoption is permitted. The Company is currently evaluating the impact this accounting standard will have on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations - Clarifying the Definition of a Business” (Topic 805), which clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 with early adoption permitted for transactions that occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. The standard must be applied prospectively. The Company is currently evaluating the impact this accounting standard will have on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04 “Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment” (Topic 350), which simplifies subsequent goodwill measurement by eliminating Step 2 from the goodwill impairment test. Under this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The new standard is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019 with early adoption permitted for annual goodwill impairment tests performed after January 1, 2017. The standard must be applied prospectively. The Company is currently evaluating the impact this accounting standard will have on the Company’s consolidated financial statements.
All other issued and not yet effective accounting standards are not relevant to the Company.
(2) Acquisitions and Dispositions
Acquisitions
2016 Acquisitions
The Company acquired substantially all the assets and assumed substantially all the liabilities of certain businesses on December 31, 2015, January 12, 2016, March 18, 2016, April 22, 2016, April 29, 2016, June 29, 2016, August 1, 2016, September 30, 2016, and November 30, 2016 (“2016 Acquisitions”), which included
68
business publications,
seven
daily newspapers,
seven
weekly publications,
eleven
shoppers, and digital platforms for an aggregate purchase price of
$136,042
, 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 cash flows combined with cost saving and revenue-generating opportunities available.
The Company accounted for the 2016 Acquisitions under the acquisition method of accounting. The net assets, including goodwill, have been recorded in the consolidated balance sheet at their fair values in accordance with ASC 805. The fair value
determination of certain assets acquired and certain liabilities assumed are preliminary based upon all information available to us at the present time and are subject to working capital and other adjustments. The value assigned to property, plant and equipment, intangible assets, liabilities and goodwill is preliminary and subject to 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 following table summarizes the preliminary fair values of the assets and liabilities:
|
|
|
|
|
|
|
Current assets
|
20,787
|
|
|
Other assets
|
4,195
|
|
|
Property, plant and equipment
|
36,105
|
|
|
Noncompete agreements
|
886
|
|
|
Advertiser relationships
|
32,312
|
|
|
Subscriber relationships
|
13,696
|
|
|
Customer relationships
|
5,113
|
|
|
Software
|
5,783
|
|
|
Trade names
|
2,448
|
|
|
Mastheads
|
9,217
|
|
|
Goodwill
|
56,914
|
|
|
Total assets
|
187,456
|
|
|
Current liabilities
|
26,530
|
|
|
Pension obligations
|
16,299
|
|
|
Other long-term liabilities
|
8,585
|
|
|
Total liabilities
|
51,414
|
|
|
Net assets
|
136,042
|
|
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 obligation assumed for the defined benefit pension plan was measured in accordance with ASC 715-20, “Compensation-Retirement Benefits”.
The Company recorded approximately
$1,861
of selling, general and administrative expense for acquisition-related costs for the 2016 Other Acquisitions during the year ended
December 25, 2016
.
In a 2016 stock acquisition, the Company acquired goodwill with a tax cost basis of
$50,325
and a net tax basis of
$10,746
. As a result, for tax purposes, the amount of goodwill related to the 2016 Acquisitions that is expected to be deductible is
$43,269
.
Stephens Media, LLC
On March 18, 2015, a wholly owned subsidiary of the Company completed its acquisition of the assets of Stephens Media, LLC (“Stephens Media”) for an aggregate purchase price of
$110,767
, including working capital. The Stephens Media acquisition was financed with cash on hand. The purchase price was allocated to the fair value of the net assets acquired and any excess value over the tangible and identifiable intangible assets was recorded as goodwill. The acquisition includes
nine
daily newspapers,
thirty-five
weekly publications and
fifteen
shoppers serving communities throughout the United States with a combined average daily circulation of approximately
221
and
244
on Sunday. The acquisition was completed because of the attractive nature of the newspaper assets and cash flows as well as the cost saving opportunities. The purchase price reflects a working capital adjustment of
$312
paid in July 2015.
The Company accounted for the material business combination of Stephens Media under the acquisition method of accounting. The net assets, including goodwill, have been recorded in the consolidated balance sheet at their fair values in accordance with ASC 805.
The following table summarizes the fair values of Stephens Media assets and liabilities:
|
|
|
|
|
|
|
|
Current assets
|
$
|
16,187
|
|
|
Property, plant and equipment
|
55,453
|
|
|
Licensing agreements
|
18,150
|
|
|
Advertiser relationships
|
8,090
|
|
|
Subscriber relationships
|
3,070
|
|
|
Customer relationships
|
610
|
|
|
Mastheads
|
8,890
|
|
|
Goodwill
|
9,525
|
|
|
Total assets
|
119,975
|
|
|
Current liabilities
|
9,208
|
|
|
Total liabilities
|
9,208
|
|
|
Net assets
|
$
|
110,767
|
|
The Company obtained a third party independent valuation to assist in the determination of the fair values of certain assets acquired and liabilities assumed. The property, plant and equipment valuation includes an analysis of recent comparable sales and offerings of land parcels in each of the subject’s markets. The estimated fair value is supported by the consideration paid and was determined using standard generally accepted appraisal practices and valuation procedures. The valuation firm used the three basic approaches to value: the cost approach (used for equipment where an active secondary market is not available and building improvements), 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). These approaches used are based on the cost to reproduce assets, market exchanges for comparable assets and the capitalization of income. Useful lives range from
1
to
15
for personal property and
9
to
29 years
for real property.
The valuation utilized a relief from royalty method, an income approach, to determine the fair value of mastheads. Key assumptions utilized in this valuation include revenue projections, a royalty rate of
2.0%
, a long-term growth rate of
0.0%
, a tax rate of
40.0%
and a discount rate of
22.0%
. The following intangible assets were valued using the income approach, specifically the excess earnings method: subscriber relationships, advertiser relationships and customer relationships. In determining the fair value of these intangible assets, the excess earnings approach values the intangible asset at the present value of the incremental after-tax cash flows attributable only to the asset after deducting contributory asset charges. The incremental after-tax cash flows attributable to the subject intangible asset are then discounted to their present value. A static pool approach using historical attrition rates was used to estimate attrition rates of
5.0%
to
10.0%
for advertiser relationships, subscriber relationships and customer relationships. The long term growth rate was estimated to be
0.0%
and the discount rate was estimated at
23.0%
. The licensing agreement asset was valued using a discounted cash flow analysis, an income approach. In determining the fair value of this intangible asset, the discounted cash flow approach values the intangible asset at the present value of the incremental after-tax cash flows attributable to the asset. The terms of the licensing agreement provide for a
$2,500
annual payment. A discount rate of
10.0%
and income tax rate of
40.0%
were used in the discounted cash flow calculation. Amortizable lives range from
14
to
16 years
for subscriber relationships, advertiser relationships and customer relationships, while mastheads are considered a non-amortizable intangible asset and the licensing agreement is amortized over the remaining contract life of approximately
25
years.
Trade accounts receivable, having an estimated fair value of
$13,177
, were included in the acquired assets. The gross contractual amount of these receivables was
$14,398
and the contractual cash flows not expected to be collected were estimated at
$1,221
as of the acquisition date.
For tax purposes, the amount of goodwill that is expected to be deductible is
$3,082
, after the allocation of goodwill to the Review-Journal (as defined below).
Halifax Media Group
On January 9, 2015, the Company completed its acquisition of substantially all of the assets from Halifax Media Group for an aggregate purchase price of
$285,369
, including working capital and net of assumed debt. Of the purchase price,
$17,000
was held in an escrow account, to be available for application against indemnification and certain other obligations of the sellers arising during the first twelve months following the closing, with the remainder not so applied or subject to claims being delivered to the sellers. Subsequently, the escrow has been released. The acquisition includes
twenty-four
daily publications,
thirteen
weekly publications, and
five
shoppers serving areas of Alabama, Florida, Louisiana, Massachusetts, North Carolina, and South Carolina with a daily circulation of approximately
635
and
752
on Sunday. The acquisition was completed because
of the attractive nature of the newspaper assets and cash flows as well as the cost saving opportunities. The purchase price reflects a working capital adjustment of
$750
received in August 2015.
In conjunction with the acquisition on January 9, 2015, the New Media Credit Agreement (as defined below) was amended to provide for the 2015 Incremental Term Loan (as defined below) under the Incremental Facility (as defined below) in an aggregate principal amount of
$102,000
, the 2015 Incremental Revolver (as defined below) under the Incremental Facility (as defined below) in an aggregate principal amount of
$50,000
and to make certain amendments to the Revolving Credit Facility (as defined below). In addition, the New Media Borrower (as defined below) was required to pay an upfront fee of
1.00%
of the aggregate amount of the 2015 Incremental Term Loan and 2015 Incremental Revolver as of the effective date of the amendment. The remaining amount of the purchase price was funded by cash on hand. On January 20, 2015, the Company repaid the outstanding loans under the 2015 Incremental Revolver and the 2015 Incremental Revolver commitments were terminated.
The Company accounted for the material business combination of Halifax Media Group under the acquisition method of accounting. The net assets, including goodwill, have been recorded in the consolidated balance sheet at their fair values in accordance with ASC 805.
The following table summarizes the fair values of Halifax Media Group assets and liabilities:
|
|
|
|
|
|
|
|
Current assets
|
$
|
42,114
|
|
|
Property, plant and equipment
|
95,369
|
|
|
Advertiser relationships
|
74,300
|
|
|
Subscriber relationships
|
36,200
|
|
|
Customer relationships
|
11,800
|
|
|
Mastheads
|
32,900
|
|
|
Goodwill
|
31,744
|
|
|
Total assets
|
324,427
|
|
|
Liabilities
|
39,058
|
|
|
Debt assumed
|
18,000
|
|
|
Total liabilities
|
57,058
|
|
|
Net assets
|
$
|
267,369
|
|
The Company obtained a third party independent valuation to assist in the determination of the fair values of certain assets acquired and liabilities assumed. The property, plant and equipment valuation included an analysis of recent comparable sales and offerings of land parcels in each of the subject’s markets. The estimated fair value is supported by the consideration paid and was determined using standard generally accepted appraisal practices and valuation procedures. The valuation firm used three basic approaches to value: the cost approach (used for equipment where an active secondary market is not available and building improvements), 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 approaches used are based on the cost to reproduce assets, market exchanges for comparable assets and the capitalization of income. Useful lives range from
1
to
17 years
for personal property and
8
to
22 years
for real property.
The valuation utilized a relief from royalty method, an income approach, to determine the fair value of mastheads. Key assumptions utilized in this valuation include revenue projections, a royalty rate of
2.0%
, long-term growth rate of
0.0%
, tax rate of
40.0%
and discount rate of
16.0%
. The Company valued the following intangible assets using the income approach, specifically the excess earnings method: subscriber relationships, advertiser relationships and customer relationships. In determining the fair value of these intangible assets, the excess earnings approach will value the intangible asset at the present value of the incremental after-tax cash flows attributable only to the asset after deducting contributory asset charges. The incremental after-tax cash flows attributable to the subject intangible asset are then discounted to their present value. A static pool approach using historical attrition rates was used to estimate attrition rates of
5.0%
to
10.0%
for advertiser relationships, subscriber relationships and customer relationships. The long-term growth rate was estimated to be
0.0%
and the discount rate was estimated at
16.5%
. Amortizable lives range from
14
to
17 years
for subscriber relationships, advertiser relationships and customer relationships, while mastheads are considered a non-amortizable intangible asset.
Trade accounts receivable, having an estimated fair value of
$34,255
, were included in the acquired assets. The gross contractual amount of these receivables was
$36,266
and the contractual cash flows not expected to be collected were estimated at
$2,011
as of the acquisition date.
For tax purposes, the amount of goodwill that is expected to be deductible is
$31,744
.
2015 Other Acquisitions
The Company acquired substantially all the assets, properties and business of publishing/operating certain newspapers on June 15, 2015 and September 23, 2015 (“2015 Other Acquisitions”), which included
two
daily newspapers,
twenty-eight
weekly publications, and
two
shoppers serving Central Ohio and Southern Michigan for an aggregate purchase price, including working capital, of
$52,021
. The acquisition completed on June 15, 2015 was financed with
$25,000
of additional term debt under the New Media Credit Agreement and the remaining amount from cash on hand. The acquisition completed on September 23, 2015 was financed from cash on hand. The rationale for the acquisitions was primarily due to the attractive nature of the newspaper assets and cash flows combined with cost saving opportunities available by clustering with the Company’s nearby newspapers.
The Company accounted for these transactions under the acquisition method of accounting. The net assets, including goodwill, have been recorded in the consolidated balance sheet at their fair values in accordance with ASC 805.
The following table summarizes the fair values of the assets and liabilities:
|
|
|
|
|
|
|
|
Current assets
|
$
|
20,863
|
|
|
Property, plant and equipment
|
40,006
|
|
|
Noncompete agreements
|
3
|
|
|
Advertiser relationships
|
554
|
|
|
Subscriber relationships
|
1,159
|
|
|
Customer relationships
|
37
|
|
|
Mastheads
|
3,991
|
|
|
Goodwill
|
2,193
|
|
|
Total assets
|
68,806
|
|
|
Liabilities
|
16,785
|
|
|
Total liabilities
|
16,785
|
|
|
Net assets
|
$
|
52,021
|
|
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. The three basic approaches were used to estimate the fair values: the cost approach (used for equipment where an active secondary market is not available and building improvements), the direct sales comparison (market) approach (used for land and equipment where an active secondary market is available) and the income approach (used for subscriber relationships, advertiser relationships, customer relationships and mastheads).
For tax purposes, the amount of goodwill that is expected to be deductible is
$2,193
.
Dispositions
On December 10, 2015, the Company completed its sale of the
Las Vegas Review-Journal
and related publications (“Review-Journal”) (initially acquired in the Stephens Media acquisition) which are located in Las Vegas, Nevada, for an aggregate sale price of
$140,000
plus working capital adjustment of
$1,000
. As a result, a pre-tax gain of
$57,072
, net of selling expenses, is included in (gain) loss on sale or disposal of assets on the consolidated statement of operations and comprehensive income (loss) for this period, since the disposition did not qualify for treatment as a discontinued operation under ASU No. 2014-08.
The carrying amount of assets and liabilities included as part of the disposal group were:
|
|
|
|
|
|
|
|
Current assets
|
$
|
13,372
|
|
|
Property, plant and equipment
|
39,783
|
|
|
Intangible assets
|
31,180
|
|
|
Goodwill
|
6,385
|
|
|
Total assets
|
90,720
|
|
|
Current liabilities
|
6,846
|
|
|
Total liabilities
|
6,846
|
|
|
Net assets
|
$
|
83,874
|
|
The Company entered into a Management and Advisory Agreement with DB Nevada Holdings, Inc. in conjunction with the sale of the Review-Journal on December 10, 2015. Under the terms of the agreement, the Company is authorized to manage and conduct business and oversee the assets and operations. The Company analyzed the terms of the agreement based on the guidance in ASU No. 2015-02 and concluded that the fees received from the Review-Journal do not represent a variable interest. On February 23, 2016, the Company received notification of termination of the Management and Advisory Agreement, which subsequently terminated on May 23, 2016.
Pro-Forma Results
The unaudited pro-forma condensed consolidated statement of operations information for 2015, set forth below, presents the results of operations as if the consolidation of the newspapers from Halifax Media Group and Stephens Media had occurred on December 29, 2014. The pro-forma information excludes results of operations of the Review-Journal, as well as the gain on sale of assets. The results of operations of the 2016 Acquisitions and 2015 Other Acquisitions are not material to the Company’s results of operations and have been excluded from the pro-forma results.
These amounts are not necessarily indicative of future results or actual results that would have been achieved had the acquisitions occurred as of the beginning of such period. There are no pro-forma adjustments needed for the year ended December 25, 2016.
|
|
|
|
|
|
|
|
|
Year Ended
December 27, 2015
|
|
Revenues
|
$
|
1,147,711
|
|
|
Income from continuing operations
|
$
|
18,747
|
|
|
Income from continuing operations per common share:
|
|
|
Basic
|
$
|
0.42
|
|
|
Diluted
|
$
|
0.42
|
|
(3) Share-Based Compensation
The Company recognized compensation cost, net of estimated forfeitures, for share-based payments of
$2,442
,
$1,319
, and
$59
for the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
, respectively. The total compensation cost not yet recognized related to non-vested awards as of
December 25, 2016
was
$4,027
, which is expected to be recognized over a weighted average period of
1.71 years
through September 2018.
Restricted Share Grants (“RSGs”)
On February 3, 2014, the Board of Directors of New Media adopted the New Media Investment Group Inc. Nonqualified Stock Option and Incentive Award Plan (the “Incentive Plan”) that authorized up to
15,000,000
shares that can be granted under the Incentive Plan. On the same date, the New Media Board adopted a form of the New Media Investment Group Inc. Non-Officer Director Restricted Stock Grant Agreement (the “Form Grant Agreement”) to govern the terms of awards of restricted stock (“New Media Restricted Stock”) granted under the Incentive Plan to directors who are not officers or employees of New Media (the “Non-Officer Directors”). On February 24, 2015, the New Media Board adopted a form of the New Media Investment Group Inc. Employee Restricted Stock Grant Agreement (the “Form Employee Grant Agreement”) to govern the terms of awards of New Media Restricted Stock granted under the Incentive Plan to employees of New Media and its subsidiaries (the “Employees”). Both the Form Grant Agreement and the Form Employee Grant Agreement provide for the grant of New Media Restricted Stock that vests in equal annual installments on each of the first, second and third anniversaries of the grant date, subject to continued service, and immediate vesting in full upon death or disability. If service terminates for any other reason, all unvested shares of New Media Restricted Stock will be forfeited. During the period prior to the lapse and removal of the vesting restrictions, a grantee of a restricted stock grant (“RSG”) will have all the rights of a stockholder, including without limitation, the right to vote and the right to receive all dividends or other distributions. Any dividends or other distributions that are declared with respect to the shares of New Media Restricted Stock will be paid at the time such shares vest. The value of the RSGs on the date of issuance is recognized as selling, general and administrative expense over the vesting period with an increase to additional paid-in-capital.
On March 14, 2014, a grant of restricted shares totaling
15,870
shares was made to the Company’s Non-Officer Directors, of which
5,280
and
5,289
vested on March 14, 2016 and March 14, 2015, respectively. During the year ended December 27, 2015, grants of restricted shares totaling
234,267
shares were made to the Company’s Employees, of which
78,023
vested during the year ended December 25, 2016. During the three months ended March 27, 2016, a grant of restricted shares totaling
175,650
shares was made to the Company’s Employees. During the three months ended June 26, 2016, a grant of restricted shares totaling
10,864
shares was made to the Company’s Employees and
7,313
restricted shares were forfeited. During the three months ended September 25, 2016, a grant of restricted shares totaling
2,018
shares was made to the
Company’s Employees and
12,376
restricted shares were forfeited. During the three months ended December 25, 2016, a grant of restricted shares totaling
5,205
shares was made to the Company’s Employees.
As of
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
, there were
335,593
,
244,848
, and
15,870
RSGs, respectively, issued and outstanding with a weighted average grant date fair value of
$18.18
,
$21.67
, and
$14.18
, respectively. As of
December 25, 2016
, the aggregate intrinsic value of unvested RSGs was
$5,356
.
RSG activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
Year Ended
December 28, 2014
|
|
|
Number
of RSGs
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Number
of RSGs
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Number
of RSGs
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Unvested at beginning of year
|
244,848
|
|
|
$
|
21.67
|
|
|
15,870
|
|
|
$
|
14.18
|
|
|
—
|
|
|
$
|
—
|
|
|
Granted
|
193,737
|
|
|
15.31
|
|
|
234,267
|
|
|
22.01
|
|
|
15,870
|
|
|
14.18
|
|
|
Vested
|
(83,303
|
)
|
|
21.51
|
|
|
(5,289
|
)
|
|
14.18
|
|
|
—
|
|
|
—
|
|
|
Forfeited
|
(19,689
|
)
|
|
$
|
19.22
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
Unvested at end of year
|
335,593
|
|
|
$
|
18.18
|
|
|
244,848
|
|
|
$
|
21.67
|
|
|
15,870
|
|
|
$
|
14.18
|
|
(4) Restructuring
Over the past several years, and in furtherance of the Company’s cost reduction and cash preservation plans outlined in Note 1 “Description of Business, Basis of Presentation and Summary of Significant Accounting Policies”, the Company has engaged in a series of individual restructuring programs, designed primarily to right size the Company’s employee base, consolidate facilities and improve operations, including those of recently acquired entities. These initiatives impact all of the Company’s geographic regions and are often influenced by the terms of union contracts within the region. All costs related to these programs, which primarily reflect severance expense, are accrued at the time of announcement or over the remaining service period.
Information related to restructuring program activity for the years ended
December 25, 2016
and
December 27, 2015
is outlined below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and
Related Costs
|
|
Other
Costs
(1)
|
|
Total
|
|
Balance at December 28, 2014
|
$
|
1,679
|
|
|
$
|
—
|
|
|
$
|
1,679
|
|
|
Restructuring provision included in Integration and Reorganization
|
7,750
|
|
|
797
|
|
|
8,547
|
|
|
Reversal of prior accruals included in Integration and Reorganization
|
(495
|
)
|
|
—
|
|
|
(495
|
)
|
|
Restructuring accrual transferred with disposition of the Review-Journal
|
(416
|
)
|
|
—
|
|
|
(416
|
)
|
|
Other restructuring expenses
|
—
|
|
|
(175
|
)
|
|
(175
|
)
|
|
Cash payments
|
(6,319
|
)
|
|
(300
|
)
|
|
(6,619
|
)
|
|
Balance at December 27, 2015
|
$
|
2,199
|
|
|
$
|
322
|
|
|
$
|
2,521
|
|
|
Restructuring provision included in Integration and Reorganization
|
6,782
|
|
|
1,570
|
|
|
8,352
|
|
|
Restructuring accrual assumed from acquisition
|
52
|
|
|
43
|
|
|
95
|
|
|
Cash payments
|
(7,855
|
)
|
|
(1,579
|
)
|
|
(9,434
|
)
|
|
Balance at December 25, 2016
|
$
|
1,178
|
|
|
$
|
356
|
|
|
$
|
1,534
|
|
|
|
|
|
(1)
|
Other costs primarily included costs to consolidate operations.
|
The restructuring reserve balance is expected to be paid out over the next twelve months.
The following table summarizes the costs incurred and cash paid in connection with these restructuring programs for the years ended
December 25, 2016
and
December 27, 2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
Severance and related costs
|
$
|
6,782
|
|
|
$
|
7,750
|
|
|
Reversal of prior accruals
|
—
|
|
|
(495
|
)
|
|
Severance and other costs assumed from acquisition
|
95
|
|
|
—
|
|
|
Other costs
|
1,570
|
|
|
797
|
|
|
Cash payments
|
(9,434
|
)
|
|
(6,619
|
)
|
(5) Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
Land
|
$
|
40,264
|
|
|
$
|
39,452
|
|
|
Buildings and improvements
|
189,714
|
|
|
169,688
|
|
|
Machinery and equipment
|
250,846
|
|
|
234,440
|
|
|
Furniture, fixtures, and computer software
|
30,059
|
|
|
23,946
|
|
|
Construction in progress
|
1,275
|
|
|
2,336
|
|
|
|
512,158
|
|
|
469,862
|
|
|
Less: accumulated depreciation
|
(130,839
|
)
|
|
(85,038
|
)
|
|
Total
|
$
|
381,319
|
|
|
$
|
384,824
|
|
Depreciation expense for the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
was
$47,176
,
$51,460
, and
$34,785
, respectively.
(6) Goodwill and Intangible Assets
Goodwill and intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
|
Gross
carrying
amount
|
|
Accumulated
amortization
|
|
Net
carrying
amount
|
|
Amortized intangible assets:
|
|
|
|
|
Advertiser relationships
|
174,918
|
|
|
24,618
|
|
|
150,300
|
|
|
Customer relationships
|
24,938
|
|
|
3,153
|
|
|
21,785
|
|
|
Subscriber relationships
|
90,944
|
|
|
13,911
|
|
|
77,033
|
|
|
Other intangible assets
|
9,589
|
|
|
1,950
|
|
|
7,639
|
|
|
Total
|
$
|
300,389
|
|
|
$
|
43,632
|
|
|
$
|
256,757
|
|
|
Nonamortized intangible assets:
|
|
|
|
|
|
|
Goodwill
|
$
|
227,954
|
|
|
|
|
|
|
Mastheads
|
94,720
|
|
|
|
|
|
|
Total
|
$
|
322,674
|
|
|
|
|
|
|
|
December 27, 2015
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Amortized intangible assets:
|
|
|
|
|
Advertiser relationships
|
$
|
143,002
|
|
|
$
|
13,453
|
|
|
$
|
129,549
|
|
|
Customer relationships
|
19,829
|
|
|
1,667
|
|
|
18,162
|
|
|
Subscriber relationships
|
77,385
|
|
|
7,897
|
|
|
69,488
|
|
|
Other intangible assets
|
473
|
|
|
105
|
|
|
368
|
|
|
Total
|
$
|
240,689
|
|
|
$
|
23,122
|
|
|
$
|
217,567
|
|
|
Nonamortized intangible assets:
|
|
|
|
|
|
|
Goodwill
|
$
|
171,119
|
|
|
|
|
|
|
Mastheads
|
86,008
|
|
|
|
|
|
|
Total
|
$
|
257,127
|
|
|
|
|
|
As of
December 25, 2016
, the weighted average amortization periods for amortizable intangible assets are
15.2 years
for advertiser relationships,
15.2 years
for customer relationships,
14.6 years
for subscriber relationships, and
5.0 years
for other intangible assets. The weighted average amortization period in total for all amortizable intangible assets is
14.7 years
.
Amortization expense for the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
was
$20,598
,
$16,292
, and
$6,665
, respectively. Estimated future amortization expense as of
December 25, 2016
, is as follows:
|
|
|
|
|
|
|
|
For the following fiscal years:
|
|
|
2017
|
22,360
|
|
|
2018
|
22,355
|
|
|
2019
|
20,697
|
|
|
2020
|
20,069
|
|
|
2021
|
20,069
|
|
|
Thereafter
|
151,207
|
|
|
Total
|
$
|
256,757
|
|
The changes in the carrying amount of goodwill for the years ended
December 25, 2016
and
December 27, 2015
are as follows:
|
|
|
|
|
|
|
|
Balance at December 28, 2014
|
$
|
134,042
|
|
|
Goodwill acquired in business combinations
|
43,462
|
|
|
Goodwill from divestitures
|
(6,385
|
)
|
|
Balance at December 27, 2015
|
171,119
|
|
|
Goodwill acquired in business combinations
|
56,914
|
|
|
Goodwill from divestitures
|
(79
|
)
|
|
Balance at December 25, 2016
|
$
|
227,954
|
|
The Company’s annual impairment assessment is made on the last day of its fiscal second quarter.
As part of the annual impairment assessments as of June 29, 2014, the fair values of the Company’s reporting units for goodwill impairment testing, which included Large Daily Newspapers, Metro Newspapers, Small Community Newspapers, Local Media Newspapers, and Ventures, and newspaper mastheads, were estimated. As a result of the annual assessment’s Step 1 analysis that was performed,
no
impairment of goodwill was identified.
As part of the annual impairment assessments as of June 28, 2015, the fair values of the Company’s reporting units for goodwill impairment testing, which included Large Daily Newspapers, Metro Newspapers, Small Community Newspapers, Local Media Newspapers, and Ventures, and newspaper mastheads, were estimated. The Company performed a qualitative assessment for the Recent Acquisitions reporting unit and concluded that it was not more likely than not that the goodwill and indefinite-lived intangibles were impaired. As a result, no quantitative analysis was performed for the Recent Acquisitions. The total Company’s estimate of reporting unit fair value was reconciled to its then market capitalization (based upon the stock market price and fair value of debt) plus an estimated control premium.
During the fourth quarter of 2015, the Company reorganized its management structure to align with the geography of the market served. As a result, the composition of the Company's reporting units changed and the fair value of goodwill was allocated to each of the new reporting units based on a relative fair value allocation approach: Western US Publishing, Central US Publishing and Eastern US Publishing. Due to the change in the composition of the reporting units, the Company performed a goodwill impairment test before and after the reorganization. The Company also assessed its mastheads for impairment as a result of the reorganization.
In the analysis performed before the reorganization and because of the recent revaluation of assets related to fresh start accounting, there was a relatively small amount of excess fair value for certain reporting units. Specifically, the fair value of the Large Daily Newspapers, Small Community Newspapers and Ventures reporting units exceeded carrying value by less than
10%
. Considering a relatively low headroom for the historical reporting units and declining same store revenue and profitability in the newspaper industry over the past several years, there was a risk for impairment in the event of decline in general economic, market or business conditions or any significant unfavorable changes in the forecasted cash flows, weighted-average cost of capital and/or market transaction multiples. As a result of reduced royalty rates and a decline in revenues, an impairment charge of
$4,800
was recognized for mastheads within the Company’s Large Daily, Small Community and Metro reporting units. 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 considers appropriate. Revenue projections reflected slight declines in early years, and revenues were expected to moderate to a terminal growth rate of
1%
. Discount rates ranged from
14.0%
to
15.0%
, royalty rates ranged from
1.25%
to
1.75%
, and the effective tax rate was
40.0%
.
The fair values of the Company’s reporting units for goodwill impairment testing and 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 revenue and EBITDA, the weighted average cost of capital and the terminal growth rate. The Company determined that the future cash flow and industry multiple analyses provided the best estimate of the fair value of its reporting units. Similar methodology and assumptions were utilized for the post-reorganization impairment assessment. In the resulting Step 1 analysis that was performed post-reorganization, fair values of the reporting units were determined to be greater than the carrying values of the reporting units. Additionally, the estimated fair value exceeded carrying value for all mastheads. The total Company’s estimate of reporting unit fair value was reconciled to its then market capitalization (based upon the stock market price and fair value of debt) plus an estimated control premium.
As part of the annual impairment assessments, as of June 26, 2016, the fair values of the Company’s reporting units for goodwill impairment testing, which include Eastern US Publishing, Central US Publishing, and Western US Publishing, and
indefinite-lived intangible assets, 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 revenue and 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. As a result of the annual assessment’s Step 1 analysis that was performed, no impairment of goodwill was identified. The Company uses a “relief from royalty” approach which utilizes a discounted cash flow model to determine the fair value of each masthead. Additionally, the estimated fair value exceeded carrying value for all mastheads. The Company performed a qualitative assessment for the recently-acquired BridgeTower reporting unit and masthead and concluded that it is not more likely than not that the goodwill and indefinite-lived intangible assets are impaired. When we evaluate the potential for impairment using a qualitative assessment, we consider factors including, but not limited to, macroeconomic conditions, industry conditions, the competitive environment, changes in the market for our products and services, regulatory and political developments, entity specific factors, such as strategy and changes in key personnel, and overall financial performance. As a result, no quantitative impairment testing was performed for this reporting unit. The total Company’s estimate of reporting unit fair value was reconciled to its then market capitalization (based upon the stock market price and fair value of debt) plus an estimated control premium.
As of September 25, 2016 and December 25, 2016, a review of impairment indicators was performed by the Company noting that its financial results and forecast had not changed materially since the June 26, 2016 annual impairment test, and it was determined that no indicators of impairment were present.
(7) Accrued Expenses
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
Accrued payroll and related liabilities
|
$
|
14,228
|
|
|
$
|
13,068
|
|
|
Accrued bonus
|
11,806
|
|
|
10,768
|
|
|
Accrued insurance
|
9,579
|
|
|
9,596
|
|
|
Accrued legal and professional fees
|
2,476
|
|
|
2,743
|
|
|
Accrued interest expense
|
6,366
|
|
|
6,552
|
|
|
Accrued taxes
|
3,504
|
|
|
5,503
|
|
|
Accrued restructuring
|
1,534
|
|
|
2,521
|
|
|
Accrued management and incentive fees
|
9,299
|
|
|
22,353
|
|
|
Accrued other
|
24,573
|
|
|
27,069
|
|
|
|
$
|
83,365
|
|
|
$
|
100,173
|
|
(8) Lease Commitments
The future minimum lease payments related to the Company’s non-cancelable operating lease commitments as of
December 25, 2016
are as follows:
|
|
|
|
|
|
|
|
For the following fiscal years:
|
|
|
2017
|
$
|
20,037
|
|
|
2018
|
17,907
|
|
|
2019
|
15,589
|
|
|
2020
|
14,308
|
|
|
2021
|
11,835
|
|
|
Thereafter
|
91,965
|
|
|
Total minimum lease payments
|
$
|
171,641
|
|
Rental expense under operating leases for the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
was
$24,855
,
$22,425
, and
$7,432
, respectively.
In addition to minimum lease payments, certain leases require payment of the excess of various percentages of gross revenue or net operating income over the minimum rental payments. The leases generally require the payment of taxes assessed against the leased property and the cost of insurance and maintenance. The majority of lease terms range from
1
to
10
years, and typically, the leases contain renewal options. Certain leases include minimum scheduled increases in rental payments at
various times during the term of the lease. These scheduled rent increases are recognized on a straight-line basis over the term of the lease, resulting in an accrual, which is included in accrued expenses and other long-term liabilities, for the amount by which the cumulative straight-line rent exceeds the contractual cash rent.
(9) Indebtedness
GateHouse Credit Facilities—terminated June 4, 2014
The Revolving Credit, Term Loan and Security Agreement (the “First Lien Credit Facility”) dated November 26, 2013 by and among GateHouse Media, LLC formerly known as GateHouse Media, Inc. (“GateHouse” or “Predecessor”), GateHouse Media Intermediate Holdco, LLC formerly known as GateHouse Media Intermediate Holdco, Inc. (“GMIH”), certain wholly-owned subsidiaries of GMIH, all of which are wholly owned subsidiaries of New Media (collectively with GMIH and GateHouse, the “Loan Parties”), PNC Bank, National Association, as the administrative agent, Crystal Financial LLC, as term loan B agent, and each of the lenders party thereto provided for (i) a term loan A in the aggregate principal amount of
$25,000
, (ii) a term loan B in the aggregate principal amount of
$50,000
, (iii) and a revolving credit facility in an aggregate principal amount of up to
$40,000
.
The Term Loan and Security Agreement (the “Second Lien Credit Facility” and together with the First Lien Credit Facility, the “GateHouse Credit Facilities”) dated November 26, 2013 by and among the Loan Parties, Mutual Quest Fund and each of the lenders party thereto provided for a term loan in an aggregate principal amount of
$50,000
. The GateHouse Credit Facilities were secured by a first and second priority security interest in substantially all the assets of the Loan Parties.
The GateHouse Credit Facilities imposed upon GateHouse certain financial and operating covenants, including, among others, requirements that GateHouse satisfy certain financial tests, including a minimum fixed charge coverage ratio of not less than
1.0
to 1.0, a maximum leverage ratio of not greater than
3.25
to 1.0, a minimum EBITDA and a limitation on capital expenditures, and restrictions on GateHouse’s ability to incur additional debt, incur liens and encumbrances, consolidate, amalgamate or merge with any other person, pay dividends, dispose of assets, make certain restricted payments, engage in transactions with affiliates, materially alter the business it conducts and take certain other corporate actions.
The GateHouse Credit Facilities were paid in full on June 4, 2014.
Local Media Credit Facility—terminated June 4, 2014
Certain subsidiaries of Local Media Group Holdings LLC (“Local Media Parent”) (together, the “Borrowers”) and Local Media Parent entered into a Credit Agreement, dated as of September 3, 2013, with a syndicate of financial institutions with Credit Suisse AG, Cayman Islands Branch, as administrative agent (the “Local Media Credit Facility”).
The Local Media Credit Facility provided for: (a) a
$33,000
term loan facility; and (b) a
$10,000
revolving credit facility, with a
$3,000
sub-facility for letters of credit and a
$4,000
sub-facility for swing loans. The Borrowers used the proceeds of the Local Media Credit Facility to (a) fund a portion of the acquisition of Dow Jones Local Media Group, Inc., a Delaware corporation (the “Local Media Acquisition”), (b) provide for working capital and other general corporate purposes of the Borrowers and (c) fund certain fees, costs and expenses associated with the transactions contemplated by the Local Media Credit Facility and consummation of the Local Media Acquisition. The Local Media Credit Facility was secured by a first priority security interest in substantially all assets of the Borrowers and Local Media Parent. In addition, the loans and other obligations of the Borrowers under the Local Media Credit Facility were guaranteed by Local Media Group Holdings LLC.
The Local Media Credit Facility contained financial covenants that required Local Media Parent and the Borrowers to maintain (a) a leverage ratio of not more than
2.5
to 1.0 and a Fixed Charge Coverage Ratio (as defined in the Local Media Credit Facility) of at least
2.0
to 1.0, each measured at the end of each fiscal quarter for the four-quarter period then ended. The Local Media Credit Facility contained affirmative and negative covenants applicable to Local Media and the Borrowers customarily found in loan agreements for similar transactions, including, but not limited to, restrictions on their ability to incur indebtedness, create liens on assets, engage in certain lines of business, engage in mergers or consolidations, dispose of assets, make investments or acquisitions, engage in transactions with affiliates, pay dividends or make other restricted payments. The Local Media Credit Facility contained customary events of default, including, but not limited to, defaults based on a failure to pay principal, interest, fees or other obligations, subject to specified grace periods (other than with respect to principal); any material inaccuracy of representation or warranty; breach of covenants; default in other material indebtedness; a Change of Control (as defined in the Local Media Credit Facility); bankruptcy and insolvency events; material judgments; certain ERISA events; and impairment of collateral. The Local Media Credit Facility was amended on October 17, 2013 and on February 28, 2014. The October 17, 2013 amendment corrected a typographical mistake. The February 28, 2014 amendment provided that among other things, sales of real property collateral and reinvestment of the proceeds from such sales could only be made with
the consent of the Administrative Agent, modified the properties included in the real property collateral, and set forth in detail the documentary post-closing requirements with respect to the real property collateral.
The Local Media Credit Facility was paid in full on June 4, 2014.
New Media Credit Agreement
On June 4, 2014, New Media Holdings II LLC (the “New Media Borrower”), a wholly owned subsidiary of New Media, entered into a credit agreement (the “New Media Credit Agreement”) among the New Media Borrower, New Media Holdings I LLC (“Holdings I”), the lenders party thereto, RBS Citizens, N.A. and Credit Suisse Securities (USA) LLC as joint lead arrangers and joint bookrunners, Credit Suisse AG, Cayman Islands Branch as syndication agent and Citizens Bank of Pennsylvania as administration agent which provides for (i) a
$200,000
senior secured term facility (the “Term Loan Facility” and any loan thereunder, including as part of the Incremental Facility, “Term Loans”) and (ii) a
$25,000
senior secured revolving credit facility, with a
$5,000
sub-facility for letters of credit and a
$5,000
sub-facility for swing loans, (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Senior Secured Credit Facilities”). In addition, the New Media Borrower may request one or more new commitments for term loans or revolving loans from time to time up to an aggregate total of
$75,000
(the “Incremental Facility”) subject to certain conditions. On June 4, 2014, the New Media Borrower borrowed
$200,000
under the Term Loan Facility (the “Initial Term Loans”). The Term Loans mature on
June 4, 2020
and the maturity date for the Revolving Credit Facility is
June 4, 2019
. The New Media Credit Agreement was amended on July 17, 2014 to cure an omission. On September 3, 2014, the New Media Credit Agreement was amended to provide for the 2014 Incremental Term Loan (as defined below). On November 20, 2014, the New Media Credit Agreement was amended to increase the amount of the Incremental Facility that may be requested after the date of the amendment from
$75,000
to
$225,000
. On January 9, 2015, the New Media Credit Agreement was amended to provide for the 2015 Incremental Term Loan (as defined below) and the 2015 Incremental Revolver (as defined below). On February 13, 2015, the New Media Credit Agreement was amended (the “Fourth Amendment”) to provide for the replacement of the existing term loans under the Term Loan Facility (including the 2014 Incremental Term Loan and the 2015 Incremental Term Loan) with a new class of replacement term loans (the “Replacement Term Loans”) on the same terms as the existing term loans except that the Replacement Term Loans are subject to a
1.00%
prepayment premium for any prepayments made in connection with certain repricing transactions effected within six months of the date of the amendment. This amendment was considered a modification, and the related
$104
of fees were expensed during the first quarter. On March 6, 2015, the New Media Credit Agreement was amended to provide for
$15,000
in additional revolving commitments under the Incremental Facility. In connection with this transaction, the Company incurred approximately
$237
of fees and expenses which were capitalized as deferred financing costs. On May 29, 2015, the New Media Credit Agreement was amended to provide for the May 2015 Incremental Term Loan (as defined below). As of
December 25, 2016
,
$0
was drawn under the Revolving Credit Facility.
The proceeds of the Initial Term Loans, which included a
$6,725
original issue discount, were used to repay in full all amounts outstanding under the GateHouse Credit Facilities and the Local Media Credit Facility and to pay fees associated with the financing, with the balance going to the Company for general corporate purposes.
Borrowings under the Term Loan Facility bear interest, at the New Media Borrower’s option, at a rate equal to either (i) the Eurodollar Rate (as defined in the New Media Credit Agreement), plus an applicable margin equal to
6.25%
per annum (subject to a Eurodollar Rate floor of
1.00%
) or (ii) the Base Rate (as defined in the New Media Credit Agreement), plus an applicable margin equal to
5.25%
per annum (subject to a Base Rate floor of
2.00%
). The New Media Borrower currently uses the Eurodollar Rate option.
Borrowings under the Revolving Credit Facility bear interest, at the New Media Borrower’s option, at a rate equal to either (i) the Eurodollar Rate, plus an applicable margin equal to
5.25%
per annum or (ii) the 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
December 25, 2016
the New Media Credit Agreement had a weighted average interest rate of
7.19%
.
The Senior Secured Credit Facilities are unconditionally guaranteed by Holdings I and certain subsidiaries of the New Media Borrower (collectively, the “Guarantors”) and is required to be guaranteed by all future material wholly-owned domestic subsidiaries, subject to certain exceptions. All obligations under the New Media Credit Agreement are secured, subject to certain exceptions, by substantially all of the New Media Borrower’s assets and the assets of the Guarantors, including (a) a pledge of
100%
of the equity interests of the New Media Borrower and the Guarantors (other than Holdings I), (b) a mortgage lien on the New Media Borrower’s material real property and that of the Guarantors and (c) all proceeds of the foregoing.
Repayments made under the Term Loans are equal to
1.0%
annually of the original principal amount in equal
quarterly
installments for the life of the Term Loans, with the remainder due at maturity. The New Media Borrower is permitted to make
voluntary prepayments at any time without premium or penalty. The New Media Borrower is required to repay borrowings under the Senior Secured Credit Facilities (without payment of a premium) with (i) net cash proceeds of certain debt obligations (except as otherwise permitted under the New Media Credit Agreement), (ii) net cash proceeds from non-ordinary course asset sales (subject to reinvestment rights and other exceptions), and (iii) commencing with the Company’s fiscal year started December 30, 2013,
100%
of Excess Cash Flow (as defined in the New Media Credit Agreement), subject to step-downs to
50%
,
25%
and
0%
of Excess Cash Flow based on achievement of a total leverage ratio of less than or equal to
3.00
to 1.00 but greater than
2.75
to 1.00; less than or equal to
2.75
to 1.00 but greater than
2.50
to 1.00; and less than or equal to
2.50
to 1.00, respectively.
The New Media Credit Agreement contains customary representations and warranties and customary 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, and dividends and other distributions. 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. The New Media Credit Agreement contains customary events of default. The foregoing descriptions of the Senior Secured Credit Facilities are qualified in their entirety by reference to the Senior Secured Credit Facilities.
In connection with the June 4, 2014 transaction, one lender under the New Media Credit Agreement was also a lender under the GateHouse Credit Facilities. This portion of the transaction was accounted for as a modification under ASC Subtopic 470-50, “
Debt Modifications and Extinguishments
” (“ASC Subtopic 470-50”), as the difference between the present value of the cash flows under the New Media Credit Agreement and the present value of the cash flows under the GateHouse Credit Facilities was less than
10%
. The unamortized deferred financing costs and original issuance discount balances as of the refinance date pertaining to this lender’s portion of the GateHouse Credit Facilities will be amortized over the terms of the new facility. The remaining portion of the GateHouse Credit Facilities and the Local Media Credit Facility debt refinancing constituted an extinguishment of debt under ASC Subtopic 470-50, and was accounted for accordingly. In connection with this 2014 transaction, the Company incurred approximately
$10,202
of fees and expenses, of which
$6,725
was recognized as original issue discount and
$1,700
were capitalized as deferred financing costs. These amounts will be amortized over the term of the new Senior Secured Credit Facilities. Additionally, the Company recorded a loss on early extinguishment of debt of
$9,047
associated with this transaction, which consisted of the write-off of unamortized deferred financing costs and other expenses not eligible for capitalization under ASC Subtopic 470-50.
On September 3, 2014, the New Media Credit Agreement was amended to provide for additional term loans under the Incremental Facility in an aggregate principal amount of
$25,000
(such term loans, the “2014 Incremental Term Loan,” and such amendment, the “2014 Incremental Amendment”) in connection with the acquisition of the assets of The Providence Journal. The 2014 Incremental Term Loan is on terms identical to the term loans that were extended pursuant to the New Media Credit Agreement and will mature on June 4, 2020. In addition, the New Media Borrower was required to pay an upfront fee of
2.00%
and an underwriter fee of
1.50%
of the aggregate amount of the 2014 Incremental Term Loan as of the effective date of the 2014 Incremental Amendment. This amendment was considered a modification and the related
$595
of fees were expensed. On January 9, 2015, the New Media Credit Agreement was amended (such amendment, the “2015 Incremental Amendment”) to provide for
$102,000
in additional term loans (the “2015 Incremental Term Loan”) and
$50,000
in additional revolving commitments (the “2015 Incremental Revolver”) under the Incremental Facility and to make certain amendments to the Revolving Credit Facility in connection with the Halifax Media acquisition. The 2015 Incremental Term Loan is on terms identical to the term loans that were extended pursuant to the New Media Credit Agreement and will mature on June 4, 2020. In addition, the New Media Borrower was required to pay an upfront fee of
1.00%
and an underwriter fee of
2.25%
of the aggregate amount of the 2015 Incremental Term Loan and the 2015 Incremental Revolver as of the effective date of the 2015 Incremental Amendment. On January 20, 2015, the outstanding loans under the 2015 Incremental Revolver were repaid with the proceeds of a common stock offering by New Media and the 2015 Incremental Revolver commitments were terminated. This amendment was treated as new debt for new lenders and as a modification for existing lenders. In connection with this transaction, the Company incurred approximately
$5,379
of fees and expenses. The lender fees for the 2015 Incremental Term Loan increased the original issue discount by
$3,315
. Third party expenses of
$110
were allocated to new lenders, capitalized as deferred financing costs, and will be amortized over the remaining term of the loan. Third party expenses of
$185
were allocated to existing lenders and were expensed during the first quarter. Lender fees and third party expenses of
$1,769
were allocated to the 2015 Incremental Revolver, capitalized, and written off to amortization of deferred financing costs after the balance of the 2015 Incremental Revolver was repaid. On May 29, 2015, the New Media Credit Agreement was amended (such amendment, the “May 2015 Incremental Amendment”) to provide for
$25,000
in additional term loans (the “May 2015 Incremental Term Loan”) under the Incremental Facility. The May 2015 Incremental Term Loan is on terms identical to the Replacement Term Loans and will mature on June 4, 2020. In addition, the New Media Borrower was required to pay an upfront fee of
1.00%
and an underwriter fee of
2.25%
of the aggregate amount of the May 2015 Incremental Term Loan as of the effective date of the May 2015 Incremental Amendment. In connection with this transaction, the Company incurred
approximately
$878
of fees and expenses. This amendment was considered a modification and the related
$65
of third-party fees were expensed during the second quarter. The lender fees for the May 2015 Incremental Term Loan increased the original issue discount by
$813
.
As of
December 25, 2016
, the Company is in compliance with all of the covenants and obligations under the New Media Credit Agreement.
Advantage Credit Agreements
In connection with the purchase of the assets of Halifax Media, which closed on January 9, 2015, CA Daytona Holdings, Inc. (the “Florida Advantage Borrower”) and CA Alabama Holdings, Inc. (the “Alabama Advantage Borrower”, and, collectively with the Florida Advantage Borrower, the “Advantage Borrowers”), each subsidiaries of the Company, agreed to assume all of the obligations of Halifax Media and its affiliates required to be performed after the closing date in respect of each of (i) that certain Consolidated Amended and Restated Credit Agreement dated January 6, 2012 among Halifax Media Acquisition LLC, Advantage Capital Community Development Fund XXVIII, L.L.C., and Florida Community Development Fund II, L.L.C., as amended pursuant to that certain First Amendment to Consolidated Amended and Restated Credit Agreement dated June 27, 2012 and that certain Second Amendment to Consolidated Amended and Restated Credit Agreement, dated June 18, 2013, and all rights and obligations thereunder and related thereto (the “Halifax Florida Credit Agreement”), and (ii) that certain Credit Agreement dated June 18, 2013 between Halifax Alabama, LLC and Southeast Community Development Fund V, L.L.C. (the “Halifax Alabama Credit Agreement” and, together with the Halifax Florida Credit Agreement, the “Advantage Credit Agreements”), respectively. In consideration therefore, the amount of cash payable by the Company to Halifax Media on the closing date was reduced by approximately
$18,000
, representing the aggregate principal amount outstanding plus the aggregate amount of accrued interest through the closing date under the Advantage Credit Agreements (the debt under the Halifax Florida Credit Agreement, the “Advantage Florida Debt”; the debt under the Halifax Alabama Credit Agreement, the “Advantage Alabama Debt”; and the Advantage Florida Debt and the Advantage Alabama Debt, collectively, the “Advantage Debt”). On May 5, 2015, the Halifax Alabama Credit Agreement was amended to cure an omission.
The Advantage Florida Debt is in the principal amount of
$10,000
and bears interest at the rate of
5.25%
per annum, payable quarterly in arrears, maturing on December 31, 2016. The Advantage Alabama Debt is in the principal amount of
$8,000
and bears interest at the rate of LIBOR plus
6.25%
per annum (with a minimum of
1%
LIBOR) payable quarterly in arrears, maturing on March 31, 2019. The Advantage Debt is secured by a perfected second priority security interest in all the assets of the Advantage Borrowers and certain other subsidiaries of the Company, subject to the limitation that the maximum amount of secured obligations is
$15,000
. The Advantage Credit Facilities are unconditionally guaranteed by Holdings I and certain subsidiaries of the New Media Borrowers and are required to be guaranteed by all future material wholly-owned domestic subsidiaries, subject to certain exceptions. The Advantage Debt is subordinated to the New Media Credit Agreement pursuant to an intercreditor agreement.
The Advantage Credit Agreements contain covenants substantially consistent with those contained in the New Media Credit Agreement in addition to those required for compliance with the New Markets Tax Credit program. The Advantage Borrowers are permitted to make voluntary prepayments at any time without premium or penalty. The Advantage Borrowers are required to repay borrowings under the Advantage Credit Agreements (without payment of a premium) with (i) net cash proceeds of certain debt obligations (except as otherwise permitted under the Advantage Credit Agreements) and (ii) net cash proceeds from non-ordinary course asset sales (subject to reinvestment rights and other exceptions).
The Advantage Credit Agreements contain customary representations and warranties and customary affirmative and negative covenants applicable to the Advantage Borrowers and certain of the Company's subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions. The Advantage Credit Agreements contain a financial covenant that requires Holdings I, the New Media Borrower and the New Media Borrower’s subsidiaries to maintain a maximum total leverage ratio of
3.75
to 1.00. The Advantage Credit Agreements contain customary events of default.
As of
December 25, 2016
, the Company is in compliance with all of the covenants and obligations under the Advantage Credit Agreements.
Fair Value
The fair value of long-term debt under the Senior Secured Credit Facilities and the Advantage Credit Agreements was estimated at
$362,794
as of
December 25, 2016
, 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 risk with similar terms and average maturities. Accordingly, the Company’s long-term debt under the Senior Secured Credit Facilities is classified within Level 3 of the fair value hierarchy.
Payment Schedule
As of
December 25, 2016
, scheduled principal payments of outstanding debt are as follows:
|
|
|
|
|
|
|
|
2017
|
14,387
|
|
|
2018
|
2,632
|
|
|
2019
|
11,509
|
|
|
2020
|
334,266
|
|
|
|
$
|
362,794
|
|
|
Less:
|
|
|
Short-term debt
|
14,387
|
|
|
Remaining original issue discount
|
7,260
|
|
|
Deferred financing costs
|
2,287
|
|
|
Long-term debt
|
$
|
338,860
|
|
(10) Income Taxes
Income tax expense (benefit) on income (loss) from continuing operations for the periods shown below consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
Deferred
|
|
Total
|
|
Year Ended December 25, 2016:
|
|
|
|
|
|
|
U.S. Federal
|
$
|
—
|
|
|
$
|
(2,913
|
)
|
|
$
|
(2,913
|
)
|
|
State and local
|
543
|
|
|
51
|
|
|
594
|
|
|
|
$
|
543
|
|
|
$
|
(2,862
|
)
|
|
$
|
(2,319
|
)
|
|
Year Ended December 27, 2015:
|
|
|
|
|
|
|
U.S. Federal
|
$
|
857
|
|
|
$
|
933
|
|
|
$
|
1,790
|
|
|
State and local
|
1,380
|
|
|
234
|
|
|
1,614
|
|
|
|
$
|
2,237
|
|
|
1,167
|
|
|
$
|
3,404
|
|
|
Year Ended December 28, 2014:
|
|
|
|
|
|
|
U.S. Federal
|
$
|
—
|
|
|
$
|
2,256
|
|
|
$
|
2,256
|
|
|
State and local
|
(108
|
)
|
|
565
|
|
|
457
|
|
|
|
$
|
(108
|
)
|
|
2,821
|
|
|
$
|
2,713
|
|
Income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of
34%
to income (loss) from continuing operations before income taxes as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
Year Ended
December 28,
2014
|
|
|
Computed “expected” tax expense (benefit)
|
$
|
9,969
|
|
|
$
|
24,307
|
|
|
$
|
(167
|
)
|
|
|
Increase (decrease) in income tax benefit resulting from:
|
|
|
|
|
|
|
|
State and local income taxes, net of federal benefit
|
873
|
|
|
902
|
|
|
371
|
|
|
|
Net nondeductible meals, entertainment, and other expenses
|
796
|
|
|
890
|
|
|
490
|
|
|
|
Tax attribute reduction
|
—
|
|
|
—
|
|
|
25,367
|
|
|
|
Change in valuation allowance
|
(13,922
|
)
|
|
(23,952
|
)
|
|
(23,241
|
)
|
|
|
Increase (decrease) to provision for unrecognized tax benefits
|
—
|
|
|
249
|
|
|
(69
|
)
|
|
|
Alternative minimum tax
|
—
|
|
|
920
|
|
|
—
|
|
|
|
Other
|
(35
|
)
|
|
88
|
|
|
(38
|
)
|
|
|
|
$
|
(2,319
|
)
|
|
$
|
3,404
|
|
|
$
|
2,713
|
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets as of
December 25, 2016
and
December 27, 2015
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
Non-current deferred tax assets/(liabilities):
|
|
|
|
|
Accounts receivable
|
$
|
1,560
|
|
|
$
|
1,459
|
|
|
Accrued expenses
|
10,945
|
|
|
7,981
|
|
|
Inventory capitalization
|
1,508
|
|
|
1,251
|
|
|
Alternative minimum tax credit
|
818
|
|
|
920
|
|
|
Pension and other postretirement benefit obligation
|
4,635
|
|
|
4,495
|
|
|
Definite and indefinite lived intangible assets
|
19,266
|
|
|
51,428
|
|
|
Net operating losses
|
79,991
|
|
|
70,645
|
|
|
Fixed assets
|
(28,550
|
)
|
|
(29,403
|
)
|
|
Gross non-current deferred tax assets/liabilities
|
90,173
|
|
|
108,776
|
|
|
Less valuation allowance
|
(97,959
|
)
|
|
(112,764
|
)
|
|
Net deferred tax liabilities
|
$
|
(7,786
|
)
|
|
$
|
(3,988
|
)
|
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
As a result of the restructuring in 2013, we recognized cancellation of indebtedness income, which is not subject to tax provided we reduce certain tax attributes. The final determination of the reduction in tax attributes was made in 2014. At that time, final calculations were made as to the manner in which we would reduce our tax attributes. For the year ended
December 28, 2014
, the valuation allowance decrease was primarily attributable to finalization of tax attribute reduction adjustments from the cancellation of indebtedness. During the year ended
December 28, 2014
, the valuation allowance decreased by
$24,834
of which
$26,762
was a benefit to earnings and
$1,928
was recorded as an increase to accumulated other comprehensive income. During the year ended
December 27, 2015
, the valuation allowance decreased by
$27,172
of which
$26,660
was a benefit to earnings and
$512
was recorded as an increase to accumulated other comprehensive income. During the year ended
December 25, 2016
, the valuation allowance decreased by
$14,805
of which
$15,126
was a benefit to earnings and
$321
was recorded as a decrease to accumulated other comprehensive income.
At
December 25, 2016
, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately
$205,356
after tax attribute reductions, which are available to offset future taxable income, if any. State net operating loss carryforwards may differ significantly from Federal net operating loss carryforwards due to state tax attribute reduction requirements that differ from Federal tax law. These federal and state net operating loss carryforwards begin to expire on various dates from 2019 through 2035. The majority of the operating losses are subject to the limitations of Internal Revenue Code (the “Code”) Section 382. This section provides limitations on the availability of net operating losses to offset current taxable income if significant ownership changes have occurred for Federal tax purposes.
A reconciliation of the beginning and ending amount of uncertain tax positions for the years ended
December 25, 2016
,
December 27, 2015
and
December 28, 2014
are as follows:
|
|
|
|
|
|
|
|
Balance as of December 29, 2013
|
$
|
1,109
|
|
|
Decreases based on tax positions prior to 2014 and tax attribute reductions
|
(69
|
)
|
|
Uncertain tax positions as of December 28, 2014
|
$
|
1,040
|
|
|
Increases based on tax positions in 2015 and tax attribute reductions
|
249
|
|
|
Uncertain tax positions as of December 27, 2015
|
$
|
1,289
|
|
|
Decreases based on tax positions prior to 2015
|
(113
|
)
|
|
Uncertain tax positions as of December 25, 2016
|
$
|
1,176
|
|
At
December 25, 2016
, the Company had uncertain tax positions of
$1,176
which, if recognized, would impact the effective tax rate. The Company did not record significant amounts of interest and penalties related to uncertain tax positions for the year ended
December 25, 2016
. The Company does not anticipate significant increases or decreases in our uncertain tax positions within the next twelve months. The Company recognizes penalties and interest relating to uncertain tax positions in the provision for income taxes. At
December 25, 2016
and
December 27, 2015
, the accrual for uncertain tax positions, included
$175
and
$229
of interest and penalties, respectively.
The Company recorded an income tax benefit of
$6,184
during 2016 related to its acquisition of certain legal entities during the year. In accordance with ASC 805, the Company released a portion of its valuation allowance, since it is able to utilize deferred tax assets against the deferred tax liabilities reflected in purchase accounting for the acquired entities.
The Company files a U.S. federal consolidated income tax return for which the statute of limitations remains open for the 2013 tax year and beyond. U.S. state jurisdictions have statute of limitations generally ranging from
3
to
6 years
. The Company’s 2013 short tax year Federal returns are under examination by the Internal Revenue Service. We do not anticipate any material adjustments related to this examination.
(11) Equity
Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
Year Ended
December 28, 2014
|
|
Numerator for earnings per share calculation:
|
|
|
|
|
|
|
Net income (loss)
|
$
|
31,641
|
|
|
$
|
67,614
|
|
|
$
|
(3,205
|
)
|
|
Denominator for earnings per share calculation:
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
45,234,369
|
|
|
44,039,415
|
|
|
31,969,599
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Stock Options and Restricted Stock Grants
|
82,538
|
|
|
169,699
|
|
|
—
|
|
|
Diluted weighted average shares outstanding
|
45,316,907
|
|
|
44,209,114
|
|
|
31,969,599
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share
|
$
|
0.70
|
|
|
$
|
1.54
|
|
|
$
|
(0.10
|
)
|
|
Diluted net income (loss) per share
|
$
|
0.70
|
|
|
$
|
1.53
|
|
|
$
|
(0.10
|
)
|
For the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
,
1,362,479
,
1,362,479
, and
1,362,479
common stock warrants,
0
,
0
, and
15,870
RSGs, and
1,450,000
,
0
, and
745,062
stock options, respectively, were excluded from the computation of diluted income (loss) per share because their effect would have been antidilutive.
Equity
On November 26, 2013, certain individuals received
10
-year warrants, collectively representing the right to acquire, in the aggregate, equity equal to
5%
of the issued and outstanding shares of New Media (the “New Media Warrants”) (subject to dilution), with the strike price per share of
$46.35
calculated based on an initial equity value of New Media prior to the Local Media contribution of
$1,200
. New Media Warrants do not have the benefit of antidilution protections, other than customary protections including for stock splits and stock dividends.
In September 2014, the Company issued
7,450,625
shares of its common stock in a public offering at a price to the public of
$16.25
per share for net proceeds of approximately
$115,058
. Certain principals of Fortress and certain of the Company’s officers and directors participated in this offering and purchased an aggregate of
224,038
shares at a price of
$16.25
per share.
For the purpose of compensating the Manager (as defined below) for its successful efforts in raising capital for the Company, in connection with this offering, the Company granted options to the Manager to purchase
745,062
shares of the Company’s common stock at a price of
$16.25
, which had an aggregate fair value of approximately
$2,963
as of the grant date. The assumptions used in the Black-Scholes model to value the options were: a
2.8%
risk-free rate, a
6.6%
dividend yield,
31.8%
volatility and an expected life of
10
years. The options granted to the Manager were fully vested on the date of grant, and one-thirtieth of the options become exercisable on the first day of each of the following thirty calendar months, or earlier upon the occurrence of certain events, such as a change in control of the Company or the termination of the Management Agreement (as defined below). The options expire
ten
years from the date of issuance. The fair value of the options issued as compensation to the Manager was recorded as an increase in equity with an offsetting reduction of capital. As a result of the 2014 return of capital, the exercise price decreased to
$15.71
.
In January 2015, the Company issued
7,000,000
shares of its common stock in a public offering at a price to the public of
$21.70
per share for net proceeds of approximately
$150,129
. Certain principals of Fortress and certain of the Company’s officers and directors participated in this offering and purchased an aggregate of
104,400
shares at a price of
$21.70
per share.
For the purpose of compensating the Manager for its successful efforts in raising capital for the Company, in connection with this offering, the Company granted options to the Manager to purchase
700,000
shares of the Company’s common stock at a price of
$21.70
, which had an aggregate fair value of approximately
$4,144
as of the grant date. The assumptions used in the Black-Scholes model to value the options were: a
2.0%
risk-free rate, a
3.4%
dividend yield,
36.8%
volatility and an expected life of
10
years. The fair value of the options issued as compensation to the Manager was recorded as an increase in equity with an offsetting reduction in capital.
In March 2015, the Company issued
9,735
shares of its common stock to its Non-Officer Directors (as defined below) to settle a liability of
$225
for 2014 services.
In March 2016, the Company issued
13,992
shares of its common stock to its Non-Officer Directors to settle a liability of
$225
for 2015 services.
During the fourth quarter of 2016, the Company issued
8,625,000
shares of its common stock in a public offering at a price to the public of $
16.00
per share for net proceeds of approximately
$134,929
. Certain of the Company’s officers and directors participated in this offering and purchased an aggregate of
20,000
shares at a price of
$16.00
per share. For the purpose of compensating the Manager for its successful efforts in raising capital for the Company, in connection with this offering, the Company granted options to the Manager to purchase
862,500
shares of the Company’s common stock at a price of
$16.00
, which had an aggregate fair value of approximately
$2,288
as of the grant date. The assumptions used in the Black-Scholes model to value the options were: a
2.2%
risk-free rate, a
8.3%
dividend yield,
36.1%
volatility and an expected life of
10
years.
The following table includes additional information regarding the Manager stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
|
Weighted-Average Grant Date Fair Value
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value ($000)
|
|
Outstanding at December 28, 2014
|
745,062
|
|
|
$
|
3.98
|
|
|
$
|
15.71
|
|
|
|
|
|
|
Granted
|
700,000
|
|
|
$
|
5.92
|
|
|
$
|
21.70
|
|
|
|
|
|
|
Outstanding at December 27, 2015
|
1,445,062
|
|
|
$
|
4.92
|
|
|
$
|
18.61
|
|
|
8.9
|
|
$
|
2,995
|
|
|
Granted
|
862,500
|
|
|
$
|
2.65
|
|
|
$
|
16.00
|
|
|
|
|
|
|
Outstanding at December 25, 2016
|
2,307,562
|
|
|
$
|
4.07
|
|
|
$
|
17.64
|
|
|
8.7
|
|
$
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 25, 2016
|
1,235,972
|
|
|
|
|
$
|
18.32
|
|
|
7.9
|
|
$
|
168
|
|
Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (loss) by component for the years ended
December 27, 2015
and
December 25, 2016
are outlined below.
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
Balance at December 28, 2014
|
$
|
(4,469
|
)
|
|
Other comprehensive income before reclassifications
|
1,227
|
|
|
Amounts reclassified from accumulated other comprehensive loss
(1)
|
84
|
|
|
Net current period other comprehensive income, net of taxes
|
1,311
|
|
|
Balance at December 27, 2015
|
$
|
(3,158
|
)
|
|
Other comprehensive income before reclassifications
|
(816
|
)
|
|
Amounts reclassified from accumulated other comprehensive loss
(1)
|
(3
|
)
|
|
Net current period other comprehensive income, net of taxes
|
(819
|
)
|
|
Balance at December 25, 2016
|
$
|
(3,977
|
)
|
|
|
|
|
(1)
|
This accumulated other comprehensive income (loss) component is included in the computation of net periodic benefit cost. See Note 13 “Pension and Postretirement Benefits”.
|
The following table presents reclassifications out of accumulated other comprehensive income (loss) for the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts Reclassified from Accumulated Other
Comprehensive Loss
|
|
Affected Line Item in the
Consolidated Statements of
Operations and
Comprehensive Loss
|
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
Year Ended
December 28, 2014
|
|
|
Amortization of unrecognized loss
|
$
|
(3
|
)
|
|
$
|
84
|
|
|
$
|
—
|
|
|
(1)
|
|
Amounts reclassified from accumulated other comprehensive loss
|
(3
|
)
|
|
84
|
|
|
—
|
|
|
Income before income taxes
|
|
Income tax benefit
|
—
|
|
|
—
|
|
|
—
|
|
|
Income tax (benefit) expense
|
|
Amounts reclassified from accumulated other comprehensive loss, net of taxes
|
$
|
(3
|
)
|
|
$
|
84
|
|
|
$
|
—
|
|
|
Net income
|
|
|
|
|
(1)
|
This accumulated other comprehensive income (loss) component is included in the computation of net periodic benefit cost and recognized in income (loss) before income taxes. See Note 13 “Pension and Postretirement Benefits”.
|
Dividends
On July 31, 2014, the Company announced a second quarter 2014 cash dividend of
$0.27
per share of common stock, par value
$0.01
per share (“New Media Common Stock” or our “Common Stock”). The dividend was paid on
August 21, 2014
to shareholders of record as of the close of business on
August 12, 2014
.
On October 30, 2014, the Company announced a third quarter 2014 cash dividend of
$0.27
per share of Common Stock, par value
$0.01
per share. The dividend was paid on
November 20, 2014
, to shareholders of record as of the close of business on
November 12, 2014
.
On February 26, 2015, the Company announced a fourth quarter 2014 cash dividend of
$0.30
per share of Common Stock, par value
$0.01
per share. The dividend was paid on
March 19, 2015
, to shareholders of record as of the close of business on
March 11, 2015
.
On April 30, 2015, the Company announced a first quarter 2015 cash dividend of
$0.33
per share of Common Stock, par value
$0.01
per share. The dividend was paid on
May 21, 2015
, to shareholders of record as of the close of business on
May 13, 2015
.
On July 30, 2015, the Company announced a second quarter 2015 cash dividend of
$0.33
per share of Common Stock, par value
$0.01
per share. The dividend was paid on
August 20, 2015
, to shareholders of record as of the close of business on
August 12, 2015
.
On October 29, 2015, the Company announced a third quarter 2015 cash dividend of
$0.33
per share of Common Stock, par value
$0.01
per share. The dividend was paid on
November 19, 2015
, to shareholders of record as of the close of business on
November 12, 2015
.
On February 25, 2016, the Company announced a fourth quarter 2015 cash dividend of
$0.33
per share Common Stock, par value
$0.01
per share. The dividend was paid on
March 17, 2016
, to shareholders of record as of the close of business on
March 9, 2016
.
On April 28, 2016, the Company announced a first quarter 2016 cash dividend of
$0.33
per share of Common Stock, par value
$0.01
per share. The dividend was paid on
May 19, 2016
, to shareholders of record as of the close of business on
May 11, 2016
.
On July 28, 2016, the Company announced a second quarter 2016 cash dividend of
$0.33
per share of Common Stock, par value
$0.01
per share. The dividend was paid on
August 18, 2016
, to shareholders of record as of the close of business on
August 10, 2016
.
On October 27, 2016, the Company announced a third quarter 2016 cash dividend of
$0.35
per share of Common Stock, par value
$0.01
per share. The dividend was paid on
November 17, 2016
, to shareholders of record as of the close of business on
November 9, 2016
.
(12) Employee Benefit Plans
For the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
, the Company maintained the New Media Investment Group Inc. Retirement Savings Plan, which was previously known as the GateHouse Media, Inc. Retirement Savings Plan, (the “New Media 401(k) Plan”), which is intended to be a qualified defined contribution plan with a cash or deferred arrangement under Section 401(k) of the Code. The Company became the plan sponsor of the New Media 401(k) Plan effective January 1, 2014. In general, eligible employees of the Company and participating affiliates who satisfy minimum age and service requirements are eligible to participate. Eligible employees can contribute amounts up to
100%
of their eligible compensation to the New Media 401(k) Plan, subject to IRS limitations. The New Media 401(k) Plan also provides for discretionary matching and nonelective contributions that can be made in separate amounts among different allocation groups. For the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
, the Company’s matching contributions to the New Media 401(k) Plan were
$2,959
,
$2,527
, and
$1,212
, respectively. The Company did not make nonelective contributions for the reported years.
The Company maintains
three
nonqualified deferred compensation plans, as described below, for certain of its employees.
The Company maintains the GateHouse Media, Inc. Publishers’ Deferred Compensation Plan (“Publishers' Plan”), a nonqualified deferred compensation plan for the benefit of certain designated publishers of the Company’s newspapers. Under the Publishers' Plan, the Company credits an amount to a bookkeeping account established for each participating publisher pursuant to a pre-determined formula, which is based upon the gross operating profits of each such publisher’s newspaper. The bookkeeping account is credited with earnings and losses based upon the investment choices selected by the participant. The amounts credited to the bookkeeping account on behalf of each participating publisher vest on an installment basis over a period of
15
years. A participating publisher forfeits all amounts under the Publishers' Plan in the event that the publisher’s employment with the Company is terminated for “cause”, as defined in the Publishers' Plan. Amounts credited to a participating publisher’s bookkeeping account are distributable upon termination of the publisher’s employment with the Company and will be made in a lump sum or installments as elected by the publisher. The Publishers' Plan was frozen effective as of December 31, 2006, and all accrued benefits of participants under the terms of the Publishers' Plan became
100%
vested. The Company recorded
$0
,
$0
, and
$0
of compensation expense related to the Publishers' Plan for the years ended
December 25, 2016
, and
December 27, 2015
, and
December 28, 2014
, respectively.
The Company maintains the GateHouse Media, Inc. Executive Benefit Plan (“Executive Benefit Plan”), a nonqualified deferred compensation plan for the benefit of certain key employees of the Company. Under the Executive Benefit Plan, the Company credits an amount, determined at the Company’s sole discretion, to a bookkeeping account established for each participating key employee. The bookkeeping account is credited with earnings and losses based upon the investment choices selected by the participant. The amounts credited to the bookkeeping account on behalf of each participating key employee vest on an installment basis over a period of
5
years. A participating key employee forfeits all amounts under the Executive Benefit Plan in the event that the key employee’s employment with the Company is terminated for “cause”, as defined in the Executive Benefit Plan. Amounts credited to a participating key employee’s bookkeeping account are distributable upon termination of the key employee’s employment with the Company, and will be made in a lump sum or installments as elected by the key employee. The Executive Benefit Plan was frozen effective as of December 31, 2006, and all accrued benefits of participants under the terms of the Executive Benefit Plan became
100%
vested. The Company recorded
$0
,
$0
, and
$0
of compensation expense related to the Executive Benefit Plan for the ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
, respectively.
The Company maintains the GateHouse Media, Inc. Executive Deferral Plan (“Executive Deferral Plan”), a nonqualified deferred compensation plan for the benefit of certain key employees of the Company. Under the Executive Deferral Plan, eligible key employees may elect to defer a portion of their compensation for payment at a later date. Currently, the Executive Deferral Plan allows a participating key employee to defer up to
100%
of his or her annual compensation until termination of employment or such earlier period as elected by the participating key employee. Amounts deferred are credited to a bookkeeping account established by the Company for this purpose. The bookkeeping account is credited with earnings and losses based upon the investment choices selected by the participant. Amounts deferred under the Executive Deferral Plan are fully vested and non-forfeitable. The amounts in the bookkeeping account are payable to the key employee at the time and in the manner elected by the key employee.
(13) Pension and Postretirement Benefits
As a result of the Enterprise News Media, LLC (in 2005), Copley Press, Inc. (in 2007), and Times Publishing Company acquisitions (in 2016), the Company maintains
two
pension and several postretirement medical and life insurance plans which cover certain employees. The Company uses the accrued benefit actuarial method and best estimate assumptions to determine pension costs, liabilities and other pension information for defined benefit plans.
The Enterprise News Media, LLC pension plan was amended to freeze all future benefit accruals as of December 31, 2008, except for a select group of union employees whose benefits were frozen during 2009. Also, during 2008, the medical and life insurance benefits were frozen, and the plan was amended to limit future benefits to a select group of active employees under the Enterprise News Media, LLC postretirement medical and life insurance plan. Benefits under the postretirement medical and life insurance plan assumed with the Copley Press, Inc. acquisition are only available to Brush-Moore employees hired before January 1, 1976. The Times Publishing Company pension plan was frozen prior to the acquisition.
The following table provides a reconciliation of benefit obligations, plan assets and funded status, along with the related amounts in the consolidated balance sheets of the Company’s pension and postretirement medical and life insurance plans as of
December 25, 2016
and
December 27, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of period
|
$
|
26,161
|
|
|
$
|
28,297
|
|
|
$
|
5,630
|
|
|
$
|
6,547
|
|
|
Benefit obligation assumed during the period
|
52,312
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Service cost
|
300
|
|
|
300
|
|
|
14
|
|
|
19
|
|
|
Interest cost
|
3,255
|
|
|
1,149
|
|
|
213
|
|
|
223
|
|
|
Actuarial loss (gain)
|
1,267
|
|
|
(1,949
|
)
|
|
(555
|
)
|
|
(922
|
)
|
|
Benefits and expenses paid
|
(4,972
|
)
|
|
(1,636
|
)
|
|
(306
|
)
|
|
(247
|
)
|
|
Participant contributions
|
—
|
|
|
—
|
|
|
33
|
|
|
24
|
|
|
Employer implicit subsidy fulfilled
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
(14
|
)
|
|
Projected benefit obligation at end of period
|
$
|
78,323
|
|
|
$
|
26,161
|
|
|
$
|
5,010
|
|
|
$
|
5,630
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of period
|
$
|
20,560
|
|
|
$
|
21,304
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Fair value of plan assets assumed during the period
|
36,012
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Actual return on plan assets
|
4,069
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
Employer contributions
|
1,597
|
|
|
900
|
|
|
—
|
|
|
—
|
|
|
Benefits paid
|
(4,666
|
)
|
|
(1,471
|
)
|
|
—
|
|
|
—
|
|
|
Expenses paid
|
(306
|
)
|
|
(165
|
)
|
|
—
|
|
|
—
|
|
|
Fair value of plan assets at end of period
|
$
|
57,266
|
|
|
$
|
20,560
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Reconciliation of funded status:
|
|
|
|
|
|
|
|
|
Benefit obligation at end of period
|
$
|
(78,323
|
)
|
|
$
|
(26,161
|
)
|
|
$
|
(5,010
|
)
|
|
$
|
(5,630
|
)
|
|
Fair value of assets at end of period
|
57,266
|
|
|
20,560
|
|
|
—
|
|
|
—
|
|
|
Funded status
|
(21,057
|
)
|
|
(5,601
|
)
|
|
(5,010
|
)
|
|
(5,630
|
)
|
|
Unrecognized actuarial loss (gain)
|
4,803
|
|
|
3,526
|
|
|
(826
|
)
|
|
(368
|
)
|
|
Net accrued benefit cost
|
$
|
(16,254
|
)
|
|
$
|
(2,075
|
)
|
|
$
|
(5,836
|
)
|
|
$
|
(5,998
|
)
|
|
Balance sheet presentation:
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
358
|
|
|
$
|
417
|
|
|
Pension and other postretirement benefit obligations
|
21,057
|
|
|
5,601
|
|
|
4,652
|
|
|
5,213
|
|
|
Accumulated other comprehensive (loss) income
|
(4,803
|
)
|
|
(3,526
|
)
|
|
826
|
|
|
368
|
|
|
Net accrued benefit cost
|
$
|
16,254
|
|
|
$
|
2,075
|
|
|
$
|
5,836
|
|
|
$
|
5,998
|
|
|
Comparison of obligations to plan assets:
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
$
|
78,323
|
|
|
$
|
26,161
|
|
|
$
|
5,010
|
|
|
$
|
5,630
|
|
|
Accumulated benefit obligation
|
78,323
|
|
|
26,161
|
|
|
5,010
|
|
|
5,630
|
|
|
Fair value of plan assets
|
57,266
|
|
|
20,560
|
|
|
—
|
|
|
—
|
|
The following table provides the components of net periodic benefit cost and other changes in plan assets recognized in other comprehensive (loss) income of the Company’s pension and postretirement medical and life insurance plans for the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
Year
Ended
December 28,
2014
|
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
Year
Ended
December 28,
2014
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
300
|
|
|
$
|
300
|
|
|
$
|
300
|
|
|
|
$
|
14
|
|
|
$
|
19
|
|
|
$
|
21
|
|
|
Interest cost
|
3,255
|
|
|
1,149
|
|
|
1,191
|
|
|
|
213
|
|
|
223
|
|
|
245
|
|
|
Expected return on plan assets
|
(4,174
|
)
|
|
(1,636
|
)
|
|
(1,624
|
)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of unrecognized loss
|
94
|
|
|
84
|
|
|
—
|
|
|
|
(97
|
)
|
|
—
|
|
|
—
|
|
|
Net periodic benefit cost
|
$
|
(525
|
)
|
|
$
|
(103
|
)
|
|
$
|
(133
|
)
|
|
|
$
|
130
|
|
|
$
|
242
|
|
|
$
|
266
|
|
|
Other changes in plan assets and benefit obligations recognized in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
$
|
1,371
|
|
|
$
|
(305
|
)
|
|
$
|
4,549
|
|
|
|
$
|
(555
|
)
|
|
$
|
(922
|
)
|
|
$
|
378
|
|
|
Amortization of net actuarial (loss) gain
|
(94
|
)
|
|
(84
|
)
|
|
—
|
|
|
|
97
|
|
|
—
|
|
|
—
|
|
|
Total recognized in other comprehensive income (loss)
|
$
|
1,277
|
|
|
$
|
(389
|
)
|
|
$
|
4,549
|
|
|
|
$
|
(458
|
)
|
|
$
|
(922
|
)
|
|
$
|
378
|
|
The following assumptions were used in connection with the Company’s actuarial valuation of its defined benefit pension and postretirement plans obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
|
|
December 25, 2016
|
|
December 27, 2015
|
|
December 25, 2016
|
|
December 27, 2015
|
|
Weighted average discount rate
|
4.1
|
%
|
|
4.7
|
%
|
|
3.9
|
%
|
|
4.3
|
%
|
|
Rate of increase in future compensation levels
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Expected return on assets
|
7.6
|
%
|
|
7.75
|
%
|
|
—
|
|
|
—
|
|
|
Current year medical trend
|
—
|
|
|
—
|
|
|
6.9
|
%
|
|
7.2
|
%
|
|
Ultimate year medical trend
|
—
|
|
|
—
|
|
|
4.5
|
%
|
|
4.5
|
%
|
|
Year of ultimate trend
|
—
|
|
|
—
|
|
|
2025
|
|
|
2026
|
|
The following assumptions were used to calculate the net periodic benefit cost for the Company’s defined benefit pension and postretirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
Year
Ended
December 28,
2014
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
Year
Ended
December 28,
2014
|
|
Weighted average discount rate
|
3.9
|
%
|
|
4.2
|
%
|
|
5.0
|
%
|
|
4.3
|
%
|
|
3.8
|
%
|
|
4.5
|
%
|
|
Rate of increase in future compensation levels
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Expected return on assets
|
7.6
|
%
|
|
7.75
|
%
|
|
8.0
|
%
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Current year medical trend
|
—
|
|
|
—
|
|
|
—
|
|
|
7.2
|
%
|
|
7.3
|
%
|
|
7.8
|
%
|
|
Ultimate year medical trend
|
—
|
|
|
—
|
|
|
—
|
|
|
4.5
|
%
|
|
4.8
|
%
|
|
4.8
|
%
|
|
Year of ultimate trend
|
—
|
|
|
—
|
|
|
—
|
|
|
2026
|
|
|
2025
|
|
|
2025
|
|
To determine the expected long-term rate of return on pension plan assets, the Company considers the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets, input from the actuaries and investment consultants, and long-term inflation assumptions. The expected allocation of pension plan assets is based on a diversified portfolio consisting of domestic and international equity securities and fixed income securities. This expected return is then applied to the fair value of plan assets. The Company amortizes experience gains and losses, including
the effects of changes in actuarial assumptions and plan provisions over a period equal to the average future service of plan participants or over the average remaining life expectancy of inactive participants.
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
2016
|
|
2015
|
|
Effect of 1% increase in health care cost trend rates
|
|
|
|
|
Accumulated postretirement benefit obligation
|
$
|
5,366
|
|
|
$
|
6,084
|
|
|
Dollar change
|
$
|
356
|
|
|
$
|
454
|
|
|
Percent change
|
7.1
|
%
|
|
8.1
|
%
|
|
Effect of 1% decrease in health care cost trend rates
|
|
|
|
|
Accumulated postretirement benefit obligation
|
$
|
4,708
|
|
|
$
|
5,249
|
|
|
Dollar change
|
$
|
(302
|
)
|
|
$
|
(381
|
)
|
|
Percent change
|
(6.0
|
)%
|
|
(6.8
|
)%
|
Fair Value of the majority of plan assets is measured on a recurring basis using quoted market prices in active markets for identical assets, Level 1 input. The pension plan’s assets by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 25, 2016
|
|
Year Ended
December 27, 2015
|
|
|
Dollar
|
|
Percent
|
|
Dollar
|
|
Percent
|
|
Equity mutual funds
|
$
|
35,319
|
|
|
62
|
%
|
|
$
|
14,138
|
|
|
69
|
%
|
|
Fixed income mutual funds
|
14,449
|
|
|
25
|
%
|
|
5,215
|
|
|
25
|
%
|
|
Cash and cash equivalents
|
824
|
|
|
1
|
%
|
|
789
|
|
|
4
|
%
|
|
Other
|
6,674
|
|
|
12
|
%
|
|
418
|
|
|
2
|
%
|
|
Total
|
$
|
57,266
|
|
|
100
|
%
|
|
$
|
20,560
|
|
|
100
|
%
|
The plan fiduciaries of the pension plan set investment policies and strategies for the pension trusts. Objectives include preserving the funded status of the plan and balancing risk against return.
The general target allocation for the George W. Prescott Publishing Company LLC Pension Plan is
70%
in equity funds and
30%
in fixed income funds for the plan’s investments. To accomplish this goal, each plan’s assets are actively managed by outside investment managers with the objective of optimizing long-term return while maintaining a high standard of portfolio quality and proper diversification. The Company monitors the maturities of fixed income securities so that there is sufficient liquidity to meet current benefit payment obligations. The George W. Prescott Publishing Company LLC Pension Plan had an accumulated benefit obligation of
$26,888
and
$26,161
and a plan asset fair value of
$20,326
and
$20,560
at
December 25, 2016
and
December 27, 2015
, respectively.
The general target allocation for the Times Publishing Company Pension Plan is
52%
in equity funds,
26%
in fixed income securities,
20%
in alternative securities and
2%
in cash or money market funds. The Times Publishing Company Pension Plan, assumed in 2016, had an accumulated benefit obligation of
$51,435
and an asset fair value of
$36,940
at
December 25, 2016
.
The following benefit payments, which reflect expected future services, as appropriate, are expected to be paid as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
Postretirement
|
|
2017
|
$
|
4,619
|
|
|
$
|
365
|
|
|
2018
|
4,653
|
|
|
382
|
|
|
2019
|
4,686
|
|
|
364
|
|
|
2020
|
4,713
|
|
|
356
|
|
|
2021
|
4,718
|
|
|
361
|
|
|
2022-2026
|
23,697
|
|
|
1,618
|
|
|
Employer contribution expected to be paid during the year ending December 31, 2017
|
$
|
1,834
|
|
|
$
|
365
|
|
The postretirement plans are not funded.
The aggregate amount of net actuarial loss related to the Company’s pension and postretirement plans recognized in other comprehensive (loss) income as of
December 25, 2016
was
$3,977
of which
$35
is expected to be amortized in
2017
.
Multiemployer Plans
The Company is a participant in
three
multi-employer pension plans covering certain employees with Collective Bargaining Agreements (“CBAs”) in Ohio, Massachusetts and Illinois. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:
|
|
|
|
•
|
The Company plays no part in the management of plan investments or any other aspect of plan administration.
|
|
|
|
|
•
|
Assets contributed to the multi-employer plan by one employer may be used to provide benefits to employees of other participating employers.
|
|
|
|
|
•
|
If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
|
|
|
|
|
•
|
If the Company chooses to stop participating in some of its multi-employer plans, the Company may be required to pay those plans an amount based on the unfunded status of the plan, referred to as withdrawal liability.
|
The Company’s participation in these plans for the year ended
December 25, 2016
, is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employee Identification Number (EIN) and the three-digit plan number. Unless otherwise noted, the two most recent Pension Protection Act (PPA) zone statuses available are for the plans for the years ended
2016
and
2015
, respectively. The zone status is based on information that the company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than
65%
funded; plans in the orange zone are both a) less than
80%
funded and b) have an accumulated/expected funding deficiency in any of the next six plan years, net of any amortization extensions; plans in the yellow zone meet either one of the criteria mentioned in the orange zone; and plans in the green zone are at least
80%
funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject.
The Company makes all required contributions to these plans as determined under the respective CBAs. For each of the plans listed below, the Company’s contribution represented less than
5%
of total contributions to the plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EIN Number/
|
|
Zone
Status
|
|
FIP/RP
Status
Pending/
|
|
Contributions
(in thousands)
|
|
Surcharge
|
|
Expiration
|
|
Pension Plan Name
|
Plan Number
|
|
2016
|
|
2015
|
|
Implemented
|
|
2016
|
|
2015
|
|
2014
|
|
Imposed
|
|
Dates of CBAs
|
|
CWA/ITU Negotiated Pension Plan
|
13-6212879/001
|
|
Critical and Declining
|
|
Critical
|
|
Implemented
|
|
$
|
11
|
|
|
$
|
12
|
|
|
$
|
13
|
|
|
No
|
|
May 4, 2017
|
|
GCIU—Employer Retirement Benefit Plan
(1)
|
91-6024903/001
|
|
Critical and Declining
|
|
Critical
|
|
Implemented
|
|
89
|
|
|
99
|
|
|
102
|
|
|
No
|
|
Under negotiation
|
|
The Newspaper Guild International Pension Plan
(1)
|
52-1082662/001
|
|
Critical and Declining
|
|
Critical
|
|
Implemented
|
|
40
|
|
|
38
|
|
|
39
|
|
|
No
|
|
July 1, 2018 and November 14, 2018
|
|
Total
|
|
|
|
|
|
|
|
|
$
|
140
|
|
|
$
|
149
|
|
|
$
|
154
|
|
|
|
|
|
|
|
|
|
(1)
|
This plan has elected to utilize special amortization provisions provided under the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010.
|
The Company assumed
two
multi-employer plan withdrawal liabilities in one of the 2016 Acquisitions. The liability at the acquisition date was estimated to be approximately
$1,240
, excluding interest. The penalties are payable over
twenty years
. The balance as of
December 25, 2016
is approximately
$1,194
.
(14) Fair Value Measurement
The Company measures and records in the accompanying consolidated financial statements certain assets and liabilities at fair value on a recurring basis. ASC 820 establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs).
These inputs are prioritized as follows:
|
|
|
|
•
|
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities;
|
|
|
|
|
•
|
Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs; and
|
|
|
|
|
•
|
Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants price the asset or liability.
|
The valuation techniques that may be used to measure fair value are as follows:
|
|
|
|
•
|
Market approach—Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;
|
|
|
|
|
•
|
Income approach—Uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts;
|
|
|
|
|
•
|
Cost approach—Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
|
The following table provides information for the Company’s major categories of financial assets and liabilities measured or disclosed at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total Fair Value
Measurements
|
|
As of December 25, 2016
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
172,246
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
172,246
|
|
|
Restricted cash
|
3,406
|
|
|
—
|
|
|
—
|
|
|
3,406
|
|
|
As of December 27, 2015
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
146,638
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
146,638
|
|
|
Restricted cash
|
6,967
|
|
|
—
|
|
|
—
|
|
|
6,967
|
|
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).
For the acquisitions during the years ended December 25, 2016 and December 27, 2015, the Company consolidated the assets and liabilities under the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded at their fair value. Property, plant and equipment was valued using Level 2 inputs, and intangible assets were valued using Level 3 inputs. Refer to Note 2 “Acquisitions and Dispositions” for discussion of the valuation techniques, significant inputs, assumptions utilized, and the fair value recognized.
During the quarter ended
December 27, 2015
, certain mastheads were written down to their implied fair value using Level 3 inputs. The valuation techniques and significant inputs and assumptions utilized to measure fair value are discussed in Note 6 “Goodwill and Intangible Assets”.
Refer to Note 9 “Indebtedness” for the discussion on the fair value of the Company’s total long-term debt.
Refer to Note 13 “Pension and Postretirement Benefits” for the discussion on the fair value of the Company’s pension plan assets.
(15) Commitments and Contingencies
The Company is and may become involved from time to time in legal proceedings in the ordinary course of its business, including but not limited to with respect to such matters as libel, invasion of privacy, intellectual property infringement, wrongful termination actions and complaints alleging employment discrimination, and regulatory investigations and inquiries. In addition, the Company is involved from time to time in governmental and administrative proceedings concerning employment, labor, environmental and other claims. Insurance coverage mitigates potential loss for certain of these matters. Historically, such claims and proceedings have not had a material adverse effect on the Company’s consolidated results of operations or financial position. Although the Company is unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, the Company does not expect its current and any threatened legal proceedings to have a material adverse effect on the Company’s business, financial position or consolidated
results of operations. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on the Company’s financial results.
Restricted cash at
December 25, 2016
and
December 27, 2015
, in the aggregate amount of
$3,406
and
$6,967
, respectively, is used as cash collateral for certain business operations and in 2015 was used to collateralize standby letters of credit in the name of the Company’s insurers in accordance with certain insurance policies.
(16) Related-Party Transactions
As of December 29, 2013, Newcastle (an affiliate of FIG LLC (“Fortress” or "Manager")) beneficially owned approximately
84.6%
of our outstanding common stock. On February 13, 2014, Newcastle completed the spin-off of the Company. On February 14, 2014 New Media became a separate, publicly traded company trading on the NYSE under the ticker symbol “NEWM”. As a result of the spin-off and listing, the fees included in the Management Agreement with the Manager became effective. As of
December 25, 2016
, Fortress and its affiliates owned approximately
1.3%
of the Company’s outstanding stock and approximately
39.5%
of the Company’s outstanding warrants. The Company’s Manager (or its affiliates) hold
2,307,562
stock options of the Company’s stock as of
December 25, 2016
. During the years ended
December 25, 2016
,
December 27, 2015
and
December 28, 2014
, Fortress and its affiliates were paid
$913
,
$879
and
$368
in dividends, respectively.
In addition, the Company’s Chairman, Wesley Edens, is also the Co-Chairman of the board of directors of FIG LLC. The Company does not pay Mr. Edens a salary or any other form of compensation.
Our Chief Operating Officer owns an interest in a company from which we recognized revenue of
$636
,
$508
and
$404
during the years ended
December 25, 2016
,
December 27, 2015
and
December 28, 2014
, respectively, for commercial printing services and managed information technology services which is included in commercial printing and other on the consolidated statement of operations and comprehensive income (loss).
Our Chief Executive Officer and Chief Financial Officer are employees of Fortress and their salaries are paid by Fortress.
Management Agreement
On November 26, 2013, we entered into a Management Agreement with our Manager. Our Management Agreement requires our Manager to manage our business affairs subject to the supervision of our Board of Directors. On March 6, 2015, the Company’s independent directors on the Board approved an amendment to the Management Agreement.
The Management Agreement had an initial
three
-year term and will be automatically renewed for
one
-year terms thereafter unless terminated either by us or the Manager. From the commencement date of "regular way" trading of the Company's Common Stock on a major U.S. national securities exchange (the "Listing"), the Manager is (a) entitled to receive from us a management fee, (b) eligible to receive incentive compensation that is based on our performance and (c) eligible to receive options to purchase New Media Common Stock upon the successful completion of an offering of shares of our 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 11 “Equity”. In addition, we are obligated to reimburse certain expenses incurred by the Manager. The Manager is also entitled to receive a termination fee from us under certain circumstances.
The Company recognized
$9,756
,
$9,438
, and
$5,618
for management fees and
$9,621
,
$30,306
, and
$112
for incentive compensation within selling, general and administrative expense, and
$7,169
,
$9,903
, and
$4,358
in management fees and
$25,262
,
$8,862
, and
$0
for incentive compensation paid to Fortress during the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
, respectively. In addition, the Company recognized expense reimbursed amounts of approximately
$1,763
,
$1,041
, and
$0
for the years ended
December 25, 2016
,
December 27, 2015
, and
December 28, 2014
, respectively. The company had an outstanding liability for all management agreement related fees of
$10,080
and
$23,393
as
December 25, 2016
and
December 27, 2015
, respectively.
GateHouse Management and Advisory Agreement
On November 26, 2013, New Media entered into the GateHouse Management and Advisory Agreement (the “GateHouse Management Agreement”) with GateHouse, pursuant to which New Media managed the assets and the day-to-day operations of GateHouse. New Media was responsible for, among other things (i) the purchase and sale of GateHouse’s investments (ii) the financing of GateHouse’s investments and (iii) investment advisory services. Such services may have been performed by the Manager.
The GateHouse Management Agreement had an initial
three
-year term and was to be automatically renewed for
one
-year terms thereafter unless terminated by New Media or Gate House. The GateHouse Management Agreement would have automatically terminated if the Management Agreement between New Media and the Manager was terminated.
Commencing from the Listing, New Media was (a) entitled to receive a management fee equal to
1.50%
per annum of GateHouse’s Total Equity (as defined in the GateHouse Management Agreement) and (b) eligible to receive incentive compensation that is based on GateHouse’s performance. In addition, GateHouse was obligated to reimburse certain expenses incurred by New Media in connection with the performance of its duties under the agreement. These fees eliminate in consolidation.
The GateHouse Management Agreement was terminated effective June 4, 2014.
Local Media Management and Advisory Agreement
On August 27, 2013, GateHouse entered into a management and advisory agreement (the "Local Media Management Agreement") with Local Media Parent, which was substantially assigned to Local Media, to manage the operations of Local Media. Local Media Parent was a subsidiary of Newcastle (an affiliate of Fortress) prior to November 26, 2013.
While the agreement was in effect, GateHouse received an annual management fee of
$1,100
, subject to adjustments (up to a maximum annual management fee of
$1,200
), and an annual incentive compensation fee based on exceeding EBITDA targets of Local Media. These fees eliminate in consolidation.
The Local Media Management Agreement was terminated effective June 4, 2014.
Holdings I Management Agreement
On June 4, 2014, we entered into a management agreement with Holdings I (as amended and restated, the “Holdings I Management Agreement”). The Holdings I Management Agreement requires we manage the business affairs of Holdings I subject to the supervision of the Board of Directors of Holdings I.
The Holdings I Management Agreement has an initial
three
-year term and will be automatically renewed for
one
-year terms thereafter unless terminated by the Holdings I. We are (a) entitled to receive from the Holdings I a management fee and (b) eligible to receive incentive compensation that is based on the performance of Holdings I. In addition, Holdings I is obligated to reimburse certain expenses incurred by us. We are also entitled to receive a termination fee from Holdings I under certain circumstances. These fees eliminate in consolidation.
Registration Rights Agreement with Omega
The Company entered into a registration rights agreement (the “Omega Registration Rights Agreement”) with Omega Advisors, Inc. and its affiliates (collectively, “Omega”). Under the terms of the Omega Registration Rights Agreement, upon request by Omega, the Company is required to use commercially reasonable efforts to file a resale shelf registration statement providing for the registration and sale on a continuous or delayed basis by Omega of its New Media Common Stock acquired pursuant to the Plan (the “Registrable Securities”) (the “Shelf Registration”), subject to customary exceptions and limitations. Omega is entitled to initiate up to three offerings or sales with respect to some or all of the Registrable Securities pursuant to the Shelf Registration.
Omega may only exercise its right to request Shelf Registrations if the Registrable Securities to be sold pursuant to such Shelf Registration are at least
3%
of the then-outstanding New Media Common Stock.
(17) Quarterly Results (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 27
|
|
Quarter Ended June 26
|
|
Quarter Ended September 25
|
|
Quarter Ended December 25
|
|
Year Ended December 25, 2016
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
300,104
|
|
|
$
|
314,830
|
|
|
$
|
306,838
|
|
|
$
|
333,584
|
|
|
Operating income
|
7,030
|
|
|
16,745
|
|
|
10,628
|
|
|
26,968
|
|
|
(Loss) income before income taxes
|
(160
|
)
|
|
9,312
|
|
|
3,299
|
|
|
16,871
|
|
|
Net income
|
4,967
|
|
|
9,383
|
|
|
2,795
|
|
|
14,496
|
|
|
Basic income per share
|
$
|
0.11
|
|
|
$
|
0.21
|
|
|
$
|
0.06
|
|
|
$
|
0.31
|
|
|
Diluted income per share
|
$
|
0.11
|
|
|
$
|
0.21
|
|
|
$
|
0.06
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 29
|
|
Quarter Ended June 28
|
|
Quarter Ended September 27
|
|
Quarter Ended December 27
|
|
Year Ended December 27, 2015
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
250,617
|
|
|
$
|
299,493
|
|
|
$
|
312,056
|
|
|
$
|
333,649
|
|
|
Gain on sale of assets
|
—
|
|
|
—
|
|
|
—
|
|
|
(57,072
|
)
|
|
Mastheads impairment
|
—
|
|
|
—
|
|
|
—
|
|
|
4,800
|
|
|
Operating income
|
2,601
|
|
|
19,498
|
|
|
14,648
|
|
|
66,678
|
|
|
(Loss) income before income taxes
|
(6,392
|
)
|
|
11,894
|
|
|
6,819
|
|
|
58,697
|
|
|
Net (loss) income
|
(6,066
|
)
|
|
11,195
|
|
|
6,109
|
|
|
56,376
|
|
|
Basic (loss) income per share
|
$
|
(0.14
|
)
|
|
$
|
0.25
|
|
|
$
|
0.14
|
|
|
$
|
1.27
|
|
|
Diluted (loss) income per share
|
$
|
(0.14
|
)
|
|
$
|
0.25
|
|
|
$
|
0.14
|
|
|
$
|
1.26
|
|
(18) Subsequent Events
Acquisitions
On January 31, 2017, the Company completed the acquisition of substantially all of the assets of the Wooster Republican Printing Company ("WRPC") for
$21,200
in cash, plus working capital. We funded the acquisition with cash on hand. The publishing division of WRPC is comprised of
five
daily and
eighteen
weekly publications across northeastern Ohio with an average daily circulation of over
69
.
Dispositions
On January 31, 2017, the Company announced the sale of the Medford, Oregon
Mail Tribune
and related assets for an aggregate sale price of
$15,000
, plus working capital. This sale is expected to close in the first quarter of 2017.
Debt
On December 30, 2016, the Company paid the outstanding balance under the Advantage Florida Debt in the amount of
$10,000
with cash on hand.
Dividends
On
February 21, 2017
, the Company announced a fourth quarter 2016 cash dividend of
$0.35
per share of New Media Common Stock. The dividend will be paid on
March 16, 2017
, to shareholders of record as of the close of business on
March 8, 2017
.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of
December 25, 2016
, our disclosure controls and procedures were effective.
Changes in Internal Controls Over Financial Reporting
Except for the changes noted below, there have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fourth quarter of the fiscal year covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
The Company is currently engaged in refining the internal controls and processes relating to the 2016 Acquisitions with the Company’s internal controls and processes. The operating results of the 2016 Acquisitions since the acquisition dates are included in the Company’s consolidated financial statements as of and for the year ended
December 25, 2016
and constituted
approximately $184.9 million of combined total assets as of
December 25, 2016
, and approximately $113.2 million of combined total revenue for the year then ended. Internal control over financial reporting of the 2016 Acquisitions has been excluded from the Company’s annual assessment of the effectiveness of the Company’s internal control over financial reporting in accordance with the general guidance issued by the Securities and Exchange Commission (the "SEC") that an assessment of a recent business combination may be omitted from management’s report on internal control over financial reporting in the year of acquisition.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control system was designed under the supervision of our Chief Executive Officer and our Chief Financial Officer and with the participation of management in order to provide reasonable assurance regarding the reliability of our financial reporting and our preparation of financial statements for external purposes in accordance with GAAP.
All internal control systems, no matter how well designed and tested, have inherent limitations, including, among other things, the possibility of human error, circumvention or disregard. Therefore, even those systems of internal control that have been determined to be effective can provide only reasonable assurance that the objectives of the control system are met and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision of our Chief Executive Officer and our Chief Financial Officer and with the participation of management, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control—Integrated Framework” (the “COSO” criteria) issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
As noted above, the Company has excluded from its assessment the internal control over financial reporting of recently acquired businesses in accordance with the general guidance issued by the Securities and Exchange Commission that an assessment of a recent business combination may be omitted from management’s report on internal control over financial reporting in the year of acquisition.
Based on an assessment of such criteria, management concluded that, as of
December 25, 2016
, we maintained effective internal control over financial reporting based on the COSO criteria.
The effectiveness of our internal control over financial reporting as of
December 25, 2016
, has been audited by Ernst & Young LLP, an independent registered public accounting firm. Ernst & Young LLP’s attestation report is included below.