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EX-32.2 - EX-32.2 - MCCLATCHY COmni-20160925ex322e053fb.htm
EX-32.1 - EX-32.1 - MCCLATCHY COmni-20160925ex3216e3715.htm
EX-31.2 - EX-31.2 - MCCLATCHY COmni-20160925ex312b9c757.htm
EX-31.1 - EX-31.1 - MCCLATCHY COmni-20160925ex311f31607.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended:  September 25, 2016

 

or

 

                  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission file number: 1-9824

 

G:\SHARED\CONTROL\Financial Reporting\2016\Q1 2016 10Q\Working Copy\Vertical_White (1).JPG

 

The McClatchy Company

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

52-2080478

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

2100 “Q” Street, Sacramento, CA

 

95816

(Address of principal executive offices)

 

(Zip Code)

 

 

 

 

 

 

916-321-1844

 

 

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes ☒  No ◻

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes ☒  No ◻

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

 

Large accelerated filer ◻

Accelerated filer ☒

 

 

Non-accelerated filer (Do not check if smaller reporting company) ◻

Smaller reporting company ◻

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b of the Exchange Act).

 

Yes ◻  No ☒

 

As of October 28, 2016, the registrant had shares of common stock as listed below outstanding:

 

 

 

Class A Common Stock

5,131,894

Class B Common Stock

2,443,191

 

 

 


 

 


 

PART I – FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS.

 

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; amounts in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Quarters Ended

 

Nine Months Ended

 

 

 

September 25,

 

September 27,

 

September 25,

 

September 27,

 

 

    

2016

    

2015

 

2016

 

2015

 

REVENUES — NET:

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising

 

$

133,212

 

$

149,860

 

$

410,368

 

$

459,627

 

Audience

 

 

91,022

 

 

89,310

 

 

272,163

 

 

273,361

 

Other

 

 

10,467

 

 

12,041

 

 

32,383

 

 

37,761

 

 

 

 

234,701

 

 

251,211

 

 

714,914

 

 

770,749

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

 

95,045

 

 

95,015

 

 

296,056

 

 

302,778

 

Newsprint, supplements and printing expenses

 

 

19,320

 

 

22,583

 

 

57,917

 

 

71,882

 

Depreciation and amortization

 

 

20,559

 

 

27,295

 

 

69,551

 

 

75,892

 

Other operating expenses

 

 

97,912

 

 

97,929

 

 

298,265

 

 

301,503

 

Goodwill impairment and other asset write-downs (see Notes 1 and 2)

 

 

330

 

 

 —

 

 

330

 

 

300,429

 

 

 

 

233,166

 

 

242,822

 

 

722,119

 

 

1,052,484

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING INCOME (LOSS)

 

 

1,535

 

 

8,389

 

 

(7,205)

 

 

(281,735)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NON-OPERATING (EXPENSE) INCOME:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(20,953)

 

 

(21,230)

 

 

(62,423)

 

 

(65,740)

 

Interest income

 

 

110

 

 

64

 

 

318

 

 

197

 

Equity income in unconsolidated companies, net

 

 

3,632

 

 

5,158

 

 

9,745

 

 

13,701

 

Gains related to equity investments

 

 

 —

 

 

 —

 

 

 —

 

 

8,093

 

Gain (loss) on extinguishment of debt, net

 

 

 —

 

 

1,632

 

 

1,535

 

 

749

 

Other — net

 

 

(13)

 

 

(44)

 

 

20

 

 

(292)

 

 

 

 

(17,224)

 

 

(14,420)

 

 

(50,805)

 

 

(43,292)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(15,689)

 

 

(6,031)

 

 

(58,010)

 

 

(325,027)

 

Income tax benefit

 

 

(5,885)

 

 

(4,882)

 

 

(20,731)

 

 

(16,035)

 

NET LOSS

 

$

(9,804)

 

$

(1,149)

 

$

(37,279)

 

$

(308,992)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.30)

 

$

(0.15)

 

$

(4.77)

 

$

(35.40)

 

Diluted

 

$

(1.30)

 

$

(0.15)

 

$

(4.77)

 

$

(35.40)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

7,614

 

 

8,717

 

 

7,809

 

 

8,728

 

Diluted

 

 

7,614

 

 

8,717

 

 

7,809

 

 

8,728

 

See notes to the condensed consolidated financial statements.

 

 

1


 

 

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; amounts in thousands) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Quarters Ended

 

Nine Months Ended

 

 

 

September 25,

 

September 27,

 

September 25,

 

September 27,

 

 

    

2016

    

2015

 

2016

 

2015

 

NET LOSS

 

$

(9,804)

 

$

(1,149)

 

$

(37,279)

 

$

(308,992)

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension and post retirement plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in pension and post-retirement benefit plans, net of taxes of $(1,535), $(1,921), $(4,604) and $(5,763) 

 

 

2,303

 

 

2,881

 

 

6,907

 

 

8,645

 

Investment in unconsolidated companies:

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of taxes of $547, $128, $625 and $382

 

 

(819)

 

 

(192)

 

 

(937)

 

 

(572)

 

Other comprehensive income

 

 

1,484

 

 

2,689

 

 

5,970

 

 

8,073

 

Comprehensive income (loss)

 

$

(8,320)

 

$

1,540

 

$

(31,309)

 

$

(300,919)

 

 

See notes to the condensed consolidated financial statements.

 

 

2


 

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; amounts in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

    

September 25,

    

December 27,

 

 

 

2016

 

2015

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,179

 

$

9,332

 

Trade receivables (net of allowances of $3,544 in 2016 and $4,451 in 2015)

 

 

96,694

 

 

138,153

 

Other receivables

 

 

12,338

 

 

16,367

 

Newsprint, ink and other inventories

 

 

14,474

 

 

16,659

 

Assets held for sale

 

 

13,184

 

 

5,357

 

Other current assets

 

 

15,375

 

 

19,194

 

 

 

 

175,244

 

 

205,062

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

305,676

 

 

364,219

 

Intangible assets:

 

 

 

 

 

 

 

Identifiable intangibles — net

 

 

312,659

 

 

348,651

 

Goodwill

 

 

705,174

 

 

705,174

 

 

 

 

1,017,833

 

 

1,053,825

 

Investments and other assets:

 

 

 

 

 

 

 

Investments in unconsolidated companies

 

 

244,908

 

 

233,538

 

Deferred income taxes

 

 

30,676

 

 

1,312

 

Other assets

 

 

65,263

 

 

65,078

 

 

 

 

340,847

 

 

299,928

 

 

 

$

1,839,600

 

$

1,923,034

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

34,327

 

$

 —

 

Accounts payable

 

 

32,701

 

 

41,751

 

Accrued pension liabilities

 

 

8,450

 

 

8,450

 

Accrued compensation

 

 

26,752

 

 

29,410

 

Income taxes payable

 

 

3,311

 

 

687

 

Unearned revenue

 

 

63,728

 

 

60,811

 

Accrued interest

 

 

16,734

 

 

9,423

 

Other accrued liabilities

 

 

23,932

 

 

15,195

 

 

 

 

209,935

 

 

165,727

 

Non-current liabilities:

 

 

 

 

 

 

 

Long-term debt

 

 

843,415

 

 

905,425

 

Pension and postretirement obligations

 

 

526,914

 

 

581,852

 

Financing obligations

 

 

53,502

 

 

32,398

 

Other long-term obligations

 

 

50,350

 

 

44,869

 

 

 

 

1,474,181

 

 

1,564,544

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock $.01 par value:

 

 

 

 

 

 

 

Class A (authorized 200,000,000 shares, issued 5,948,624 in 2016 and 5,878,253 in 2015)

 

 

59

 

 

59

 

Class B (authorized 60,000,000 shares, issued 2,443,191 in 2016 and 2015)

 

 

24

 

 

24

 

Additional paid-in-capital

 

 

2,222,335

 

 

2,220,230

 

Accumulated deficit

 

 

(1,640,825)

 

 

(1,603,546)

 

Treasury stock at cost, 848,230 shares in 2016 and 165,217 shares in 2015

 

 

(10,271)

 

 

(2,196)

 

Accumulated other comprehensive loss

 

 

(415,838)

 

 

(421,808)

 

 

 

 

155,484

 

 

192,763

 

 

 

$

1,839,600

 

$

1,923,034

 

 

See notes to the condensed consolidated financial statements.

3


 

 

THE MCCLATCHY COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(Unaudited; amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 25,

 

September 27,

 

 

    

2016

    

2015

    

CASH FLOWS FROM OPERATING ACTIVITIES:

    

 

 

    

 

 

 

Net loss

 

$

(37,279)

 

$

(308,992)

 

 

 

 

 

 

 

 

 

Reconciliation to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

69,551

 

 

75,892

 

Gains on disposal of equipment

 

 

(684)

 

 

(83)

 

Retirement benefit expense

 

 

11,082

 

 

7,478

 

Stock-based compensation expense

 

 

2,105

 

 

2,750

 

Equity income in unconsolidated companies

 

 

(9,745)

 

 

(13,701)

 

Gains related to equity investments

 

 

 —

 

 

(8,093)

 

Distributions of income from equity investments

 

 

 —

 

 

7,500

 

Gain on extinguishment of debt, net

 

 

(1,535)

 

 

(749)

 

Goodwill impairment and other asset write-downs

 

 

330

 

 

300,429

 

Other

 

 

(4,723)

 

 

(4,389)

 

Changes in certain assets and liabilities:

 

 

 

 

 

 

 

Trade receivables

 

 

41,459

 

 

31,672

 

Inventories

 

 

2,185

 

 

646

 

Other assets

 

 

2,671

 

 

(1,693)

 

Accounts payable

 

 

(9,050)

 

 

(10,897)

 

Accrued compensation

 

 

(2,658)

 

 

(1,996)

 

Income taxes

 

 

(25,728)

 

 

(211,623)

 

Accrued interest

 

 

7,311

 

 

7,155

 

Other liabilities

 

 

15,961

 

 

(189)

 

Net cash provided by (used in) operating activities

 

 

61,253

 

 

(128,883)

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(10,541)

 

 

(10,766)

 

Proceeds from sale of property, plant and equipment and other

 

 

3,067

 

 

224

 

Distributions from equity investments

 

 

 —

 

 

7,460

 

Contributions to equity investments

 

 

(2,917)

 

 

(1,250)

 

Proceeds from sale of equity investments

 

 

 —

 

 

633

 

Net cash used in investing activities

 

 

(10,391)

 

 

(3,699)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Repurchase of public notes

 

 

(28,804)

 

 

(64,281)

 

Purchase of treasury shares

 

 

(8,075)

 

 

(2,761)

 

Other

 

 

(136)

 

 

(1,627)

 

Net cash used in financing activities

 

 

(37,015)

 

 

(68,669)

 

Increase (decrease) in cash and cash equivalents

 

 

13,847

 

 

(201,251)

 

Cash and cash equivalents at beginning of period

 

 

9,332

 

 

220,861

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD 

 

$

23,179

 

$

19,610

 

 

See notes to the condensed consolidated financial statements

4


 

 

THE MCCLATCHY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
(UNAUDITED)

 

1.  SIGNIFICANT ACCOUNTING POLICIES

 

Business and Basis of Accounting

 

The McClatchy Company (the “Company,” “we,” “us” or “our”) is a 21st century news and information publisher of well-respected publications such as the Miami HeraldThe Kansas City StarThe Sacramento BeeThe Charlotte Observer,  The (Raleigh) News and Observer, and the (Fort Worth) Star-Telegram. We operate 29 media companies in 28 U.S. markets in 14 states, providing each of our communities with high-quality news and advertising services in a wide array of digital and print formats. We are headquartered in Sacramento, California, and our Class A Common Stock is listed on the New York Stock Exchange under the symbol MNI.

 

We also own 15.0% of CareerBuilder LLC (“CareerBuilder”), which operates the nation’s largest online jobs website, CareerBuilder.com, as well as certain other digital investments. In September 2016, TEGNA Inc., a majority holder of CareerBuilder, announced that it and other owners, including us, would evaluate strategic alternatives for CareerBuilder. No specific timeline was announced for this process.

 

Preparation of the financial statements in conformity with accounting principles generally accepted in the United States and pursuant to the rules and regulation of the Securities and Exchange Commission requires management to make estimates and assumptions that affect the reported amounts of 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 materially from those estimates. The condensed consolidated financial statements include the Company and our subsidiaries. Intercompany items and transactions are eliminated. 

 

In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, that are necessary to present fairly our financial position, results of operations, and cash flows for the interim periods presented.  The financial statements contained in this report are not necessarily indicative of the results to be expected for the full year.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 27, 2015 (“Form 10-K”). Each of the fiscal periods included herein comprise 13 weeks for the third-quarter periods and 39 weeks for the nine-month periods.

 

Reverse Stock Split

 

Following our May 2016 annual meeting of shareholders, our Board of Directors approved a one-for-ten (1:10) reverse stock split of our issued and outstanding Class A and Class B common stock, which became effective June 7, 2016. As a result, every ten shares of our common stock outstanding were combined into one share of our common stock. The ratio was the same for the Class A common stock and the Class B common stock and each shareholder held the same percentage of Class A and Class B common stock outstanding immediately following the reverse stock split as the shareholder held immediately prior to the reverse stock split. No fractional shares were issued in connection with the reverse stock split. The par value and authorized number of shares of the Class A and Class B common stock were not adjusted as a result of the reverse stock split. All issued and outstanding Class A and Class B common stock and per share amounts contained within our condensed consolidated financial statements and footnotes have been retroactively adjusted to reflect this reverse stock split for all periods presented.

 

All restricted stock unit awards and stock appreciation right awards outstanding immediately prior to the reverse stock split were adjusted by dividing the number of shares of common stock into which the restricted stock units and stock appreciation rights are exercisable by ten and multiplying the exercise price by ten, all in accordance with the terms of the agreements governing such awards. All restricted stock units and stock appreciation rights activity contained within our condensed consolidated financial statement footnotes have been retroactively adjusted to reflect this reverse stock split for all periods presented.

5


 

 

Fair Value of Financial Instruments

 

We account for certain assets and liabilities at fair value.  The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.  These levels are:

 

Level 1 – Unadjusted quoted prices available in active markets for identical investments as of the reporting date.

 

Level 2 – Observable inputs to the valuation methodology are other than Level 1 inputs and are either directly or indirectly observable as of the reporting date and fair value can be determined through the use of models or other valuation methodologies.

 

Level 3 – Inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability, and the reporting entity makes estimates and assumptions related to the pricing of the asset or liability including assumptions regarding risk.

 

Our policy is to recognize significant transfers between levels at the actual date of the event or circumstance that caused the transfer. 

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

 

Cash and cash equivalents, accounts receivable and accounts payable.  As of September 25, 2016, and December 27, 2015, the carrying amount of these items approximates fair value because of the short maturity of these financial instruments.

 

Long-term debt.  The fair value of our long-term debt is determined using quoted market prices and other inputs that were derived from available market information, including the current market activity of our publicly-traded notes and bank debt, trends in investor demand for debt and market values of comparable publicly-traded debt. These are considered to be Level 2 inputs under the fair value measurements and disclosure guidance, and may not be representative of actual value. At September 25, 2016 and December 27, 2015, the estimated fair value of long-term debt was $821.4 million and $729.8 million, respectively. At September 25, 2016, and December 27, 2015, the carrying value of our long-term debt, including the current portion of long-term debt, was $877.7 million and $905.4 million, respectively.

 

Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). Our non-financial assets that may be measured at fair value on a nonrecurring basis are assets held for sale, goodwill, intangible assets not subject to amortization and equity method investments. All of these are measured using Level 3 inputs. We utilize valuation techniques that seek to maximize the use of observable inputs and minimize the use of unobservable inputs. The significant unobservable inputs include our expected cash flows and discount rates that we estimate market participants would seek for bearing the risk associated with such assets.

 

Property, Plant and Equipment

 

During the quarter and nine months ended September 25, 2016, we incurred $0.3 million and $6.9 million in accelerated depreciation related to production equipment no longer needed as a result of outsourcing our printing process at certain of our media companies and replacing an old printing press at one of our media companies. During the quarter and nine months ended September 27, 2015, we incurred $4.9 million and $6.7 million in accelerated depreciation primarily related to production equipment associated with outsourcing our printing process at a few of our media companies.

 

6


 

Depreciation expense with respect to property, plant and equipment is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended

 

Nine Months Ended

 

 

    

September 25,

    

September 27,

 

September 25,

 

September 27,

 

(in thousands)

 

2016

 

2015

 

2016

 

2015

 

Depreciation expense

 

$

8,561

 

$

15,224

 

$

33,559

 

$

39,606

 

 

Assets Held for Sale

 

Assets held for sale includes land and buildings at two of our media companies that we began to actively market for sale during the nine months ended September 25, 2016, and a parking structure at another media company that we began to actively market for sale during 2015. In connection with the classification to assets held for sale, the carrying value of the land and building of one of the media companies was reduced to their estimated fair value less selling costs, as determined based on the current market conditions and the selling price. As a result, a write-down of $0.3 million was recorded in the quarter and nine months ended September 25, 2016, and is included in goodwill impairment and other asset write-downs on the condensed consolidated statements of operations.

 

Intangible Assets and Goodwill

 

We test for impairment of goodwill annually, at year‑end, or whenever events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The required two‑step approach uses accounting judgments and estimates of future operating results. Changes in estimates or the application of alternative assumptions could produce significantly different results. Impairment testing is done at a reporting unit level. We perform this testing on operating segments, which are also considered our reporting units. An impairment loss generally is recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The fair value of our reporting units is determined using a combination of a discounted cash flow model and market based approaches. The estimates and judgments that most significantly affect the fair value calculation are assumptions related to revenue growth, newsprint prices, compensation levels, discount rate, and for the market based approach, private and public market trading multiples for newspaper assets. We consider current market capitalization, based upon the recent stock market prices, plus an estimated control premium in determining the reasonableness of the aggregate fair value of the reporting units. We had no impairment of goodwill during the quarter or nine months ended September 25, 2016. During the quarter ended June 28, 2015, we performed interim tests of impairment of goodwill due to the continuing challenging business conditions and the resulting weakness in our stock price. As a result, we recorded an impairment charge related to goodwill of $290.9 million in the nine months ended September 27, 2015, which was recorded in the goodwill impairment and other asset write-downs line item on our condensed consolidated statements of operations.

 

Newspaper mastheads (newspaper titles and website domain names) are not subject to amortization and are tested for impairment annually, at year‑end, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of each newspaper masthead with its carrying amount. We use a relief-from-royalty approach that utilizes the discounted cash flow model discussed above, to determine the fair value of each newspaper masthead. We had no impairment of newspaper mastheads during the quarter and nine months ended September 25, 2016.  During the quarter ended June 28, 2015, we performed interim tests of impairment of intangible newspaper mastheads due to the continuing challenging business conditions and the resulting weakness in our stock price. As a result, we recorded an intangible newspaper masthead impairment charge of $9.5 million in the nine months ended September 27, 2015, which was recorded in the goodwill impairment and other asset write-downs line item on our condensed consolidated statements of operations.

 

Long‑lived assets such as intangible assets (primarily advertiser and subscriber lists) are amortized and tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The carrying amount of each asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of such asset group. We had no impairment of long‑lived assets subject to amortization during the quarter and nine months ended September 25, 2016, or September 27, 2015.

 

7


 

Segment Reporting

 

We operate 29 media companies, providing each of our communities with high-quality news and advertising services in a wide array of digital and print formats. We have two operating segments that we aggregate into a single reportable segment because each has similar economic characteristics, products, customers and distribution methods. Our operating segments are based on how our chief executive officer, who is also our Chief Operating Decision Maker (“CODM”), makes decisions about allocating resources and assessing performance. The CODM is provided discrete financial information for the two operating segments. Each operating segment consists of a group of media companies and both operating segments report to the same segment manager. One of our operating segments (“Western Segment”) consists of our media operations in California, the Northwest, and the Midwest, while the other operating segment (“Eastern Segment”) consists primarily of media operations in the Southeast and Florida.

 

Accumulated Other Comprehensive Loss

 

Our accumulated other comprehensive loss (“AOCL”) and reclassifications from AOCL, net of tax, consisted of the following: 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Other

    

 

 

 

 

 

Minimum

 

Comprehensive

 

 

 

 

 

 

Pension and

 

Loss

 

 

 

 

 

 

Post-

 

Related to

 

 

 

 

 

 

Retirement

 

Equity

 

 

 

 

(in thousands)

 

Liability

 

Investments

 

Total

 

Balance at December 27, 2015

 

$

(411,956)

 

$

(9,852)

 

$

(421,808)

 

Other comprehensive income (loss) before reclassifications

 

 

 —

 

 

(937)

 

 

(937)

 

Amounts reclassified from AOCL

 

 

6,907

 

 

 

 

6,907

 

Other comprehensive income (loss)

 

 

6,907

 

 

(937)

 

 

5,970

 

Balance at September 25, 2016

 

$

(405,049)

 

$

(10,789)

 

$

(415,838)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount Reclassified from AOCL

 

 

 

 

Quarters Ended

 

Nine Months Ended

 

 

(in thousands)

 

September 25,

 

September 27,

 

September 25,

 

September 27,

 

Affected Line in the Condensed

AOCL Component

 

2016

 

2015

 

2016

 

2015

 

Consolidated Statements of Operations

Minimum pension and post-retirement liability

 

$

3,838

 

$

4,802

 

$

11,511

 

$

14,408

 

Compensation

 

 

 

(1,535)

 

 

(1,921)

 

 

(4,604)

 

 

(5,763)

 

Benefit for income taxes

 

 

$

2,303

 

$

2,881

 

$

6,907

 

$

8,645

 

Net of tax

 

Income Taxes

 

We account for income taxes using the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.

 

We recognize accrued interest related to unrecognized tax benefits in interest expense. Accrued penalties are recognized as a component of income tax expense.

 

Earnings Per Share (EPS)

 

As discussed previously, all share amounts have been restated to reflect the reverse stock split that became effective on June 7, 2016, and applied retrospectively. Basic EPS excludes dilution from common stock equivalents and reflects income divided by the weighted average number of common shares outstanding for the period.  Diluted EPS is based upon the weighted average number of outstanding shares of common stock and dilutive common stock equivalents in the period.  Common stock equivalents arise from dilutive stock appreciation rights, restricted stock units, and restricted stock and are computed using the treasury stock method.  Anti-dilutive common stock equivalents are excluded from diluted

8


 

EPS.  The weighted average anti-dilutive common stock equivalents that could potentially dilute basic EPS in the future, but were not included in the weighted average share calculation, consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended

 

Nine Months Ended

 

 

 

September 25,

 

September 27,

 

September 25,

 

September 27,

 

(shares in thousands)

 

2016

 

2015

 

2016

 

2015

 

Anti-dilutive common stock equivalents

 

305

 

524

 

284

 

544

 

 

Cash Flow Information

 

Cash paid for interest and income taxes and other non-cash activities consisted of the following:

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

September 25,

 

September 27,

(in thousands)

 

2016

 

2015

Interest paid (net of amount capitalized)

    

$

47,349

    

$

53,241

Income taxes paid (net of refunds)

 

 

762

 

 

197,718

 

 

 

 

 

 

 

Other non-cash financing activities:

 

 

 

 

 

 

Increase of financing obligation for contribution of real property to pension plan

 

$

47,130

 

 

 

Reduction of pension obligation for contribution of real property to pension plan

 

 

(47,130)

 

 

 

Reduction of financing obligation for sale of Charlotte property by pension plan

 

 

(25,060)

 

 

 

Reduction of property, plant and equipment, net for sale of Charlotte property by pension plan

 

 

(26,171)

 

 

 

 

The income tax payments in the nine months ended September 27, 2015, were primarily related to the net taxes paid for a gain on the sale of a previous owned equity investment in the fourth quarter of 2014, offset by tax losses on bond repurchases in the fourth quarter of 2014. While the transactions occurred in the fourth quarter of 2014, the actual tax payments were made in the first quarter of 2015.

 

Other non-cash financing activities relate to the contribution of real property to the Pension Plan and to the sale of one of the properties by the Pension Plan. See Note 5 for further discussion.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This new revenue recognition model provides a five-step analysis in determining when and how revenue is recognized. The new model will require revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. In 2016, the FASB issued additional updates: ASU No. 2016-08, 2016-10, 2016-11 and 2016-12. These updates provide further guidance and clarification on specific items within the previously issued update. We are currently in the process of evaluating the impact of the adoption on our condensed consolidated financial statements. ASU 2014-09, as well as the additional FASB updates noted above, is effective for us for annual and interim periods beginning on or after December 15, 2017, and early adoption is permitted for interim or annual reporting periods beginning after December 15, 2016. We do not plan to early adopt this guidance. We are currently in the process of evaluating the impact of the adoption on our condensed consolidated financial statements.

 

In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnotes disclosures in certain circumstances. It is effective for us for annual and interim periods beginning on or after December 15, 2016, with early adoption permitted. We do not believe the adoption of this guidance will have an impact on our condensed consolidated financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, “Simplifying the Measurement of Inventory.” ASU 2015-11 simplifies the measurement of inventory by requiring certain inventory to be measured at the “lower of cost and net realizable value”

9


 

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.” It is effective for us for interim and annual reporting periods beginning after December 15, 2016. The standard should be applied prospectively with early adoption permitted. We are currently in the process of evaluating the impact of the adoption on our condensed consolidated financial statements.

 

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for us for interim and annual reporting periods beginning after December 15, 2017. We do not believe the adoption of this guidance will have an impact on our condensed consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Accounting Standards Codification 842 (“ASC 842”)) and it replaces the existing guidance in ASC 840, “Leases.” ASC 842 requires lessees to recognize most leases on their balance sheets as lease liabilities with corresponding right-of-use assets. The new lease standard does not substantially change lessor accounting. It is effective for us for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. We are currently in the process of evaluating the impact of the adoption on our condensed consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected credit losses during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. It is effective for us for interim and annual reporting periods beginning after December 15, 2019, and early adoption is permitted for interim or annual reporting periods beginning after December 15, 2018. We are currently in the process of evaluating the impact of the adoption on our condensed consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” ASU 2016-15 addresses eight specific cash flow issues and is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. It is effective for us for interim and annual reporting periods beginning after December 15, 2017, and early adoption is permitted. We are currently in the process of evaluating the impact of the adoption on our condensed consolidated financial statements.

 

Recently Adopted Accounting Pronouncements

 

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810); Amendments to the Consolidated Analysis,” which changed the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. This guidance was effective for us at the beginning of 2016. The adoption of this guidance did not have an impact on our condensed consolidated financial statements.

 

In April 2015, the FASB issued ASU No. 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement." ASU 2015-05 provided guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for service contracts. This guidance was effective for us at the beginning of 2016. The adoption of this guidance did not have an impact on our condensed consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-07, “Investments-Equity Method and Joint Ventures (Topic 323).” ASU 2016-07 eliminates the requirement that when an existing cost method investment qualifies for use of the equity method, an investor must restate its historical financial statements, as if the equity method had been used during all previous periods.

10


 

Under the new guidance, at the point an investment qualifies for the equity method, any unrealized gain or loss in accumulated other comprehensive income (loss) will be recognized through earnings. ASU 2016-07 is effective for us for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. We early adopted this standard and it did not have an impact on our condensed consolidated financial statements.  

 

In March 2016, the FASB issued ASU No. 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements of Employee Share-Based Payment Accounting.” ASU 2016-09 makes several modifications to Topic 718 related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies. This guidance also clarifies the statement of cash flows presentation of certain components of share-based awards. ASU 2016-09 is effective for us for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. We early adopted this standard as of the beginning of fiscal year 2016. While certain amendments of this standard were not applicable to us or were applied prospectively, certain other amendments were applied retrospectively as required by the standard. The adoption of this standard did not have an impact on any periods presented in our condensed consolidated financial statements.

 

2.  INTANGIBLE ASSETS AND GOODWILL

 

Intangible assets subject to amortization (primarily advertiser lists, subscriber lists and developed technology), mastheads and goodwill consisted of the following: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 27,

 

Amortization

 

September 25,

 

(in thousands)

    

2015

 

Expense

 

2016

 

Intangible assets subject to amortization

 

$

833,254

 

$

 —

 

$

833,254

 

Accumulated amortization

 

 

(663,735)

 

 

(35,992)

 

 

(699,727)

 

 

 

 

169,519

 

 

(35,992)

 

 

133,527

 

Mastheads

 

 

179,132

 

 

 —

 

 

179,132

 

Goodwill

 

 

705,174

 

 

 —

 

 

705,174

 

Total

 

$

1,053,825

 

$

(35,992)

 

$

1,017,833

 

 

Amortization expense with respect to intangible assets is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarters Ended

 

Nine Months Ended

 

 

    

September 25,

    

September 27,

 

September 25,

 

September 27,

 

(in thousands)

 

2016

 

2015

 

2016

 

2015

 

Amortization expense

 

 $

11,998

 

 $

12,071

 

 $

35,992

 

 $

36,286

 

 

The estimated amortization expense for the remainder of fiscal year 2016 and the five succeeding fiscal years is as follows: 

 

 

 

 

 

 

 

Amortization

 

 

Expense

Year

 

(in thousands)

2016 (Remainder)

 

 $

11,994

2017

 

 

48,907

2018

 

 

47,275

2019

 

 

23,769

2020

 

 

418

2021

 

 

296

 

 

11


 

3.  INVESTMENTS IN UNCONSOLIDATED COMPANIES

 

The carrying value of investments in unconsolidated companies consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

% Ownership

    

September 25,

    

December 27,

 

Company

    

Interest

    

2016

    

2015

 

CareerBuilder, LLC

 

15.0

 

$

240,248

 

$

230,170

 

Other

 

Various

 

 

4,660

 

 

3,368

 

 

 

 

 

$

244,908

 

$

233,538

 

 

In September 2016, TEGNA Inc., a majority holder of CareerBuilder, announced that it and other owners, including us, would evaluate strategic alternatives for CareerBuilder. No specific timeline was announced for this process.

 

During the nine months ended September 25, 2016, our proportionate share of net income from certain investments listed in the table above was greater than 20% of our condensed consolidated net loss before taxes. Summarized condensed financial information, as provided to us by these certain investees, is as follows:

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

September 25,

 

September 27,

(in thousands)

    

2016

    

2015

Net revenues

    

$

523,823

    

$

526,729

Gross profit

 

 

494,632

 

 

490,140

Operating income

 

 

78,077

 

 

100,495

Net income

 

 

77,599

 

 

97,887

 

On February 23, 2016, we, along with Gannett Co. Inc. and Tribune Publishing Co. (now “tronc, Inc.”) (the “Selling Partners”) sold all of the assets in HomeFinder LLC (“HomeFinder”) to Placester Inc. (“Placester”) in exchange for a small stock ownership in Placester and a 3-year affiliate agreement with Placester to continue to allow the Selling Partners to sell Placester and HomeFinder’s products and services. As a result of this transaction, during the quarter ended March 27, 2016, we wrote off our HomeFinder investment of $0.9 million, which is recorded in equity income in unconsolidated companies, net, on our condensed consolidated statements of operations.

 

 

4.  LONG-TERM DEBT

 

Our long-term debt consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Face Value at

 

Carrying Value

 

 

 

September 25,

 

September 25,

 

December 27,

 

(in thousands)

 

2016

 

2016

 

2015

 

Notes:

    

 

    

    

 

    

    

 

    

 

9.00% senior secured notes due in 2022

 

$

506,415

 

$

497,898

 

$

506,571

 

5.750% notes due in 2017

 

 

34,645

 

 

34,327

 

 

54,551

 

7.150% debentures due in 2027

 

 

89,188

 

 

84,763

 

 

84,469

 

6.875% debentures due in 2029

 

 

276,230

 

 

260,754

 

 

259,834

 

Long-term debt

 

$

906,478

 

$

877,742

 

$

905,425

 

Less current portion

 

 

34,645

 

 

34,327

 

 

 —

 

Total long-term debt, net of current

 

$

871,833

 

$

843,415

 

$

905,425

 

 

Our outstanding notes are stated net of unamortized debt issuance costs and unamortized discounts, if applicable, totaling $28.7 million and $31.9 million as of September 25, 2016, and December 27, 2015, respectively.

 

During the quarter ended September 25, 2016, we classified our 5.75% notes due on September 1, 2017, to current portion of long-term debt on the condensed consolidated balance sheet. In October 2016, we repurchased a total $17.8 million of the 5.75% notes through a privately negotiated transaction and we expect to record a loss on extinguishment of debt of approximately $0.4 million during the quarter ended December 25, 2016.

 

12


 

Debt Repurchases and Gain on Extinguishment of Debt

 

During the nine months ended September 25, 2016, we repurchased a total of $30.8 million of notes through privately negotiated transactions as follows:

 

 

 

 

 

 

(in thousands)