10-K 1 jmg-20151231x10k.htm JMG 12-31-2015 10-K 10-K
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015     OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-36879
JOURNAL MEDIA GROUP, INC.
(Exact name of registrant as specified in its charter)
Wisconsin
(State or other jurisdiction of
incorporation or organization)
 
47-1939596
(IRS Employer
Identification Number)
 
 
 
333 West State Street
Milwaukee, Wisconsin
(Address of principal executive offices)
 
53203
(Zip Code)
Registrant’s telephone number, including area code: (414) 224-2000
Title of each class
Securities registered pursuant to Section 12(b) of the Act:
 
Name of each exchange on which registered
New York Stock Exchange
Common Stock, $0.01 par value
 
 
 
 
 
Securities registered pursuant to Section 12(g) of the Act:
 
 
Not applicable
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes o No þ
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 þ No o
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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company “in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
 
Accelerated filer o
 
Non-accelerated filer þ
(do not check if a smaller reporting company)
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant on June 30, 2015 was approximately $195,823,654.
As of March 23, 2016, there were 24,407,533 shares of the registrant’s Common Stock, $0.01 par value per share, outstanding.
 



JOURNAL MEDIA GROUP, INC.
INDEX TO FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2015
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15. Exhibits and Financial Statement Schedules
 
 
 
 
SIGNATURES
 

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Forward-Looking Statements

We make certain statements in this Annual Report on Form 10-K that are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements relate to our outlook or expectations for earnings, revenues, results of operations, financing plans, expenses, competitive position or other future financial or business performance, strategies or expectations or the impact of legal or regulatory matters on our business, results of operations or financial condition. Specifically, forward-looking statements may include:

statements relating to our plans, intentions, expectations, objectives or goals, including certain matters relating to the proposed merger with Gannett Co., Inc. (“Gannett”) and certain matters relating to the benefits of the newspaper mergers (as defined below);

statements relating to our future performance, business prospects, revenue, income and financial condition and competitive position following the newspaper mergers, and any underlying assumptions relating to those statements; and

statements preceded by, followed by or that include the words “anticipate,” “approximate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “target,” “will” or similar expressions.

These statements reflect our judgment based upon currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statements. You should evaluate our forward-looking statements, which are as of the date of this filing, with the understanding of their inherent uncertainty. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of the statement.

With respect to these forward-looking statements, we have made assumptions regarding, among other things, customer growth and retention, pricing, operating costs, technology and the economic and regulatory environment.

Future performance cannot be ensured. Actual results may differ materially from those expressed in, or implied by, the forward-looking statements. Some of the factors that could cause our actual results to differ include those described in Item 1A “Risk Factors” on this Annual Report on Form 10-K, as such may be amended or supplemented in Part II, Item 1A of our subsequently filed Quarterly Reports on Form 10-Q, as well as, among others, the following:

uncertainties as to the expected closing date of the proposed merger with Gannett;
potential disruption from the proposed merger with Gannett making it more difficult to maintain business and operational relationships;
the risk that unexpected costs will be incurred in connection with the proposed merger with Gannett;
the risk of litigation and other legal proceedings related to the proposed merger with Gannett;
changes in economic, business or political conditions, licensing requirements or tax matters in connection with the proposed merger with Gannett;
risks related to the timing (including possible delays) of the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in connection with the proposed merger with Gannett;
the possibility that the proposed merger with Gannett does not close, including, but not limited to, due to the failure to satisfy the closing conditions;
the risk that the merger agreement with Gannett may be terminated in certain circumstances that require us to pay Gannett a termination fee of $9 million;
competition in the markets we serve;
the possibility that expected synergies and value creation from the newspaper mergers will not be realized, or will not be realized in the expected time period;
the possibility that the newspaper businesses of Journal Communications, Inc. (“Journal”) and The E.W. Scripps Company (“Scripps”) will not be integrated successfully;

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inability to retain and attract qualified personnel;
disruption from the newspaper mergers making it more difficult to maintain business and operational relationships;
the risk that unexpected costs will be incurred;
our expectations regarding the period during which we qualify as an "emerging growth company" under the Jumpstart our Business Startups Act; and
changes in economic, business or political conditions, or licensing requirements or tax matters.

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PART I
ITEM 1.
BUSINESS

Background

Journal Media Group, Inc. (the "Company" or "Journal Media Group") was incorporated in Wisconsin on July 25, 2014. From our incorporation until the consummation of the newspaper mergers on April 1, 2015, Scripps and Journal each owned 50% of our common stock. On April 1, 2015, we became a holding company owning various subsidiaries that own and operate the former newspaper publishing businesses of Scripps and Journal. In this Annual Report on Form 10-K, we refer to the newspapers published by subsidiaries of Scripps as the “Scripps Newspapers” and to the newspapers published by subsidiaries of Journal as the "Journal Newspapers" or "JRN Newspapers."

Since our inception, and until April 1, 2015, our activities were limited to our organization, the preparation of our registration statement on Form S-4 and other matters related to the transactions (as defined below). Throughout 2014 and the first quarter of 2015, we conducted no business operations nor owned or leased any real estate or other property. Accordingly, our only assets prior to the consummation of the newspaper mergers on April 1, 2015 arose from the issuance of two shares of our common stock, one to Scripps and one to Journal, upon our inception. We did not have any costs or liabilities arising out of our operations prior to the consummation of the newspaper mergers on April 1, 2015. As a result, the financial statements and related disclosures (including Management’s Discussion and Analysis of Financial Condition and Results of Operations) included in this Annual Report on Form 10-K for periods prior to April 1, 2015 are those of our predecessor, Scripps Newspapers.

On July 30, 2014, we entered into a master transaction agreement with Scripps, Journal, Scripps Media, Inc., Desk Spinco, Inc. ("Scripps Spinco"), Scripps NP Operating, LLC (f/k/a Desk NP Operating, LLC), Desk BC Merger, LLC, Boat Spinco, Inc., ("Journal Spinco"), Desk NP Merger Co., and Boat NP Merger Co.

Pursuant to the master transaction agreement, Scripps and Journal, through a series of transactions, (i) separated Journal’s newspaper business pursuant to a spin-off of Journal Spinco to the shareholders of Journal (the "Journal newspaper spin-off"), (ii) separated Scripps’ newspaper business pursuant to a spin-off of Scripps Spinco to the shareholders of Scripps ( the "Scripps newspaper spin-off" and together with the Journal newspaper spin-off, the "spin-offs"), (iii) combined these two spun-off newspaper businesses through two mergers, resulting in each of them becoming a wholly owned subsidiary of Journal Media Group (the "newspaper mergers"), and (iv) then merged Journal with and into a wholly owned subsidiary of Scripps (we sometimes refer to the spin-offs, mergers and other transactions contemplated by the master transaction agreement, taken as a whole, as the "transactions"). Upon consummation on April 1, 2015, the transactions resulted in two separate public companies: one, Journal Media Group, continuing the combined newspaper businesses of Journal and Scripps; and the other, Scripps, continuing the combined broadcast businesses of Journal and Scripps. In connection with the transactions, each share of Journal class A common stock and Journal class B common stock outstanding on the share exchange record date received 0.5176 Scripps class A common shares and 0.1950 shares of Journal Media Group common stock, and each Scripps class A common share and common voting share outstanding received 0.2500 shares of Journal Media Group common stock. Immediately following completion of the transactions on April 1, 2015, holders of Journal’s common stock owned approximately 41% of the common shares of Journal Media Group and approximately 31% of the common shares of Scripps, in the form of Scripps class A common shares, with the remaining common shares of each entity owned by the Scripps shareholders. Pursuant to the master transaction agreement, prior to the completion of the transactions, Journal contributed to Journal Spinco $10.0 million in cash and Scripps distributed a special cash dividend in the aggregate amount of $60.0 million to the holders of its common shares (and certain common share equivalents in the form of restricted share units held by Scripps employees). Scripps class A shares issued in the broadcast merger to Journal shareholders did not participate in the Scripps special cash dividend.

At the effective time of the newspaper mergers on April 1, 2015, the shares of our common stock owned by Scripps and Journal were returned to us, and the outstanding shares of Scripps Spinco and Journal Spinco common stock were converted into shares of our common stock. Following the conversion on April 1, 2015, we became a stand-alone, publicly traded company, owned initially by Scripps and Journal shareholders, and neither Scripps nor Journal have any ownership interest in us.

In this Annual Report on Form 10-K, unless the context requires otherwise, references to "we," "us" and "our" with respect to periods before the April 1, 2015 consummation of the newspaper mergers refer to the business and operations of the Scripps Newspapers, as our predecessor, and references to the "Company," "Journal Media Group," “JMG,” "we," "us" and "our" with respect to periods after the consummation of the newspaper mergers refer to Journal Media Group and its consolidated subsidiaries.
On October 7, 2015, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Gannett and Jupiter Merger Sub, Inc., a wholly owned subsidiary of Gannett (“Merger Sub”). The Merger Agreement provides that, subject to the satisfaction

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or waiver of specified conditions, Merger Sub will merge with and into us and we will become a wholly owned subsidiary of Gannett (the “merger”). If the merger is completed, our shareholders will receive $12.00 in cash, without interest and less any applicable withholding taxes, for each share of our common stock owned. This transaction was unanimously approved by the boards of directors of both companies and was also approved by our shareholders (Gannett’s shareholders are not required to vote on this transaction). The closing of the merger remains subject to customary closing conditions, including antitrust regulatory clearance. We and Gannett are continuing to work through the review process with the U.S. Department of Justice and look forward to closing the transaction on a timely basis.
More information regarding us is available at our website at www.journalmediagroup.com. We are not including information contained on our website as part of, or incorporating it by reference into, this Annual Report on Form 10-K. Copies of all of our filings filed or furnished with the Securities and Exchange Commission (the "SEC") pursuant to Section 13(a) of the Exchange Act are available free of charge on this website as soon as reasonably practicable after we electronically file the material with, or furnish it to, the SEC. Our website also includes copies of the charters for our Compensation, Nominating and Corporate Governance and Audit Committees, our Corporate Governance Guidelines, our Code of Conduct and Ethics for Employees, our Code of Conduct and Ethics for Financial Executives, our Code of Conduct and Ethics for Members of the Board of Directors, and our Director Independence Standards. All of these documents are also available to shareholders in print upon request or by request via e-mail to investors@jmg.com.
Overview

We are a media enterprise with interests in newspapers and local digital media sites. With the ultimate goal of informing, engaging, and empowering readers in the communities we serve, we provide news, information and value to customers, employees and advertisers. We serve audiences and businesses through a portfolio of print and digital media brands, including 17 daily newspapers in 14 markets across the United States, and operate an expanding collection of local digital journalism and information businesses.

We distribute content primarily through four platforms — print, web, smartphones and tablets, with the objective to develop content and applications designed to deliver engaging content and enhance the user experience on each of these platforms. We expect that our ability to serve our communities by providing content across digital platforms will allow us to expand audiences beyond traditional print boundaries.

The newspapers that we publish have an excellent reputation for journalistic quality and content, key to retaining readership. The Milwaukee Journal Sentinel has been awarded the Pulitzer Prize — U.S. journalism’s highest honor — three times in recent years, and has been a Pulitzer finalist six additional times. Many of the other newspapers we publish were recognized in 2015 by regional and national journalism organizations for high-quality reporting across multiple platforms. This quality journalism enhances our impact and engagement in our local communities as we build out news reports in all formats that readers will turn to and trust.

Our digital sites offer comprehensive local news, information and user-generated content. We intend to enhance our digital offerings, using features such as streaming video and audio, to deliver news and information. Many of the journalists who work for us produce videos for consumption through digital sites and use an array of social media sites, such as Facebook, YouTube and Twitter, to communicate with and build audiences. The newspapers we publish have embraced mobile technology by offering products on apps available on Apple, Android, and Kindle Fire platforms, as well as providing mobile optimized sites accessible by all smartphones and tablets.

Over the years, the newspapers we publish have supplemented daily editions with an array of niche products, including direct mail advertising, total market coverage publications, zoned editions, specialty publications and event-based publications. These product offerings allow existing advertisers to reach their target audiences in multiple ways and to attract new clients, particularly small- and mid-sized advertisers.


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The daily circulation, which includes print and E-edition, for the newspaper markets and audiences that we serve is as follows:
(in thousands)
 
2015 (1)
 
2014(2)
 
2013(2)
 
2012(2)
 
2011(2)
Abilene (TX) Reporter-News
 
16

 
18

 
21

 
22

 
24

Anderson (SC) Independent-Mail
 
17

 
19

 
21

 
22

 
23

Corpus Christi (TX) Caller-Times
 
36

 
35

 
39

 
42

 
43

Evansville (IN) Courier & Press
 
37

 
41

 
43

 
47

 
52

Henderson (KY) Gleaner
 
6

 
7

 
8

 
9

 
10

Kitsap (WA) Sun
 
16

 
18

 
19

 
20

 
21

Knoxville (TN) News Sentinel
 
65

 
71

 
73

 
80

 
92

Memphis (TN) Commercial Appeal
 
69

 
85

 
88

 
96

 
109

Milwaukee (WI) Journal Sentinel
 
148

 
182

 
194

 
207

 
189

Naples (FL) Daily News
 
60

 
51

 
58

 
59

 
54

Redding (CA) Record-Searchlight
 
17

 
18

 
19

 
20

 
21

San Angelo (TX) Standard-Times
 
14

 
16

 
17

 
18

 
18

Treasure Coast (FL) News/Press/Tribune (3)
 
58

 
59

 
67

 
69

 
76

Ventura County (CA) Star
 
46

 
46

 
49

 
54

 
62

Wichita Falls (TX) Times Record News
 
17

 
18

 
19

 
22

 
22

Total Daily Circulation
 
622

 
684

 
735

 
787

 
816


Circulation information for the Sunday edition of those newspapers is as follows:
(in thousands)
 
2015 (1)
 
2014(2)
 
2013(2)
 
2012(2)
 
2011(2)
Abilene (TX) Reporter-News
 
19

 
23

 
25

 
28

 
31

Anderson (SC) Independent-Mail
 
23

 
27

 
27

 
28

 
30

Corpus Christi (TX) Caller-Times
 
47

 
46

 
51

 
55

 
58

Evansville (IN) Courier & Press
 
53

 
57

 
61

 
68

 
73

Henderson (KY) Gleaner
 
8

 
8

 
9

 
10

 
11

Kitsap (WA) Sun
 
19

 
20

 
21

 
23

 
23

Knoxville (TN) News Sentinel
 
86

 
96

 
100

 
108

 
121

Memphis (TN) Commercial Appeal
 
105

 
120

 
124

 
131

 
147

Milwaukee (WI) Journal Sentinel
 
246

 
294

 
319

 
338

 
326

Naples (FL) Daily News
 
55

 
59

 
70

 
71

 
65

Redding (CA) Record-Searchlight
 
20

 
21

 
21

 
23

 
24

San Angelo (TX) Standard-Times
 
16

 
18

 
20

 
22

 
22

Treasure Coast (FL) News/Press/Tribune (3)
 
74

 
75

 
84

 
88

 
94

Ventura County (CA) Star
 
59

 
59

 
64

 
74

 
81

Wichita Falls (TX) Times Record News
 
19

 
20

 
22

 
25

 
25

Total Sunday Circulation
 
849

 
943

 
1,018

 
1,092

 
1,131


(1) 
Based on Alliance for Audited Media (“AAM”) statements for the three-month period ended December 31, 2015.
(2) 
Based on AAM statements for the six-month periods ended September 30, except figures for the Naples Daily News and the Treasure Coast News/Press/Tribune, which are from the Statements for the 12-month periods ended September 30.
(3) 
Represents the combined daily and Sunday circulation of The Stuart News, the Indian River Press Journal and The St. Lucie News Tribune.

Revenues Sources

Our newspapers derive revenue by selling marketing and advertising services to businesses in our markets and news and information content to subscribers.

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Advertising

We believe that compelling news and information content and a diverse portfolio of product offerings on multiple platforms are critical components to garnering the most profitable share of local advertising dollars in our markets.

Our range of products and audience reach gives us the ability to deliver specific audiences desired by advertisers. While many advertisers want the broad reach of daily newspapers, others want to target their message by demography, geography, buying habits or consumer behavior. Where we can, we use our newspaper network to build partnerships with national advertisers. We also design programs on the local level for local merchants — customizing print and digital products into tailored messages to meet our local market objectives. We sell advertising based upon audience size, demographics, price and effectiveness. Advertising rates and revenues vary among our newspapers, depending on circulation, type of advertising, local market conditions and competition. Each of these newspapers operate in a highly competitive local media marketplace, where advertisers and media consumers can choose from a wide range of alternatives, including other news publications, radio, broadcast and cable television, magazines, websites, other digital platforms, outdoor advertising, directories and direct mail products.

Print advertising

Print advertising is the largest component of our operating revenues. Print advertising includes Run-of-Press (“ROP”) advertising, preprinted inserts, advertising in niche publications, and direct mail. Advertisements throughout a newspaper include retail, which consists of local and national advertising, and classified advertising. Local advertising refers to any advertising purchased by in-market advertisers that is not included in the newspapers' classified section. National advertising includes advertising purchased by businesses outside local markets. National advertisers typically procure advertising from numerous newspapers using advertising agency buying services. Classified advertising includes all auto, real estate and employment advertising and other ads listed in sequence by the nature of the ads. Preprinted inserts are stand-alone, multi-page circulars inserted into and distributed with daily newspapers, niche publications and shared mail products.

Digital advertising and marketing services

We sell advertising across all of our digital platforms. Digital advertising includes fixed duration campaigns whereby a banner, text or other advertisement appears for a specified period of time for a fee; impression-based campaigns where the fee is based upon the number of times the advertisement appears in webpages viewed by a user; and click-through campaigns where the fee is based upon the number of users who click on an advertisement and are directed to the advertiser’s website. We are developing local sponsorship programs that feature elements of fixed-duration and impression-based campaigns. These may include print elements (such as run-of-press or inserts) as part of the creative package designed to reach the reader/viewer/customer. We utilize a variety of audience-extension programs to enhance the reach of our websites and garner a larger share of local advertising dollars that are spent online.

We are a member of a newspaper consortium that partners with Yahoo! in an advertising and content sharing arrangement that increases access to local web-focused advertising dollars. We intend to have similar arrangements with other digital marketing services. We offer local advertising customers additional marketing services, such as managing search engine marketing campaigns.

Circulation (Subscriptions)

We deliver news and other content on four platforms — print, web, smartphones and tablets — and meter access to content delivered on our digital platforms. We introduced bundled subscription offerings for print and digital products in all of our markets by the end of 2013.

As we implemented metered access to our digital content in 2012 and 2013, we significantly increased subscription prices to many of our subscribers. Going forward we expect to manage price increases in an effort to obtain the highest yield from our subscriber base. Many customers are price-sensitive, particularly when we have reduced content they consider valuable. In an effort to minimize customer churn and maximize profitability, we have and will continue to use analysis of customer price sensitivity to drive price increases on targeted subscribers and limit the price increases on other subscribers.

We have also implemented marketing strategies to gain new customers, primarily through digital channels with special offers designed to obtain subscribers, particularly digital customers. We have also run a number of in-paper advertisements encouraging subscribers to register their account on-line, which allows us to monetize their online activity with certain advertisers who target specific customers based on demographics, which drives higher advertising rates.


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Finally, we have implemented membership programs for customers allowing them to receive special offers not available to non-subscribers. Examples include discounts on certain products, specialized content and other exclusive offers.

Our print products are delivered directly to subscribers (home delivery) or purchased from a retail store or vending machine (single copy). Home delivery copies account for the majority of our total daily subscription revenues.

Daily and Sunday circulation has declined during the past five years, due in part to readers who consume more news and information online. Some of the declines were due to a deliberate decision to eliminate distribution to outlying areas. More recently we have implemented marketing and pricing strategies intended to stabilize home delivery subscription revenues.

Industry and Competition

Newspaper publishing was the first segment of the consumer media industry. Metropolitan and community publications often represent the primary medium for news and local advertising due to their historic importance to the communities they serve.

In recent years, newspaper industry fundamentals have declined as a result of secular industry change. Retail and classified ROP advertising have decreased from historic levels due in part to department store consolidation, weakened employment, automotive and real estate economics and a migration of advertising to the Internet and other advertising forms. Circulation declines and online competition have also negatively impacted newspaper industry revenues. Additionally, the housing market downturn, while now showing signs of recovery, has adversely impacted the newspaper industry, including real estate classified advertising as well as the home improvement, furniture and financial services advertising categories.

Advertising revenue is the largest component of a newspaper’s total revenue and it is affected by cyclical changes in national and regional economic conditions, as well as secular changes in the newspaper industry. Classified advertising is generally the most sensitive to economic cycles and secular changes in the newspaper business because it is driven primarily by the demand for employment, real estate transactions and automotive sales, as well as the migration of advertising to the Internet and other advertising forms. Newspaper advertising revenue is seasonal and we tend to see increased revenue due to increased advertising activity during certain holidays.

We believe newspapers and their online and niche products continue to be one of the most effective mediums for retail and classified advertising because they allow advertisers to promote the price and selection of goods more timely than most broadcast media, and to maximize household reach within a local retail trading area. Notwithstanding the advertising advantages newspapers offer, newspapers have many competitors for advertising dollars and subscription revenue. These competitors include local, regional and national newspapers, shoppers, magazines, broadcast and cable television, radio, direct mail, Yellow Pages, the Internet, mobile devices and other media. Competition for newspaper advertising revenue is based largely upon advertiser results, advertising rates, readership, demographics and circulation levels, while competition for subscription revenue is based largely upon the content of the newspaper, its price, editorial quality and customer service.

Newsprint

The basic raw material of newspapers is newsprint. We have been able to receive an adequate supply of newsprint for our needs. Newsprint is a basic commodity and its price is sensitive to changes in the balance of worldwide supply and demand. Mill closures and industry consolidation have decreased overall newsprint production capacity and could lead to future price increases.

Employees

As of December 31, 2015, we had approximately 2,800 full-time equivalent employees. Various labor unions represented approximately 800 of these employees. We have not experienced any work stoppages at current operations since 1985.

Properties

Our corporate headquarters are located in Milwaukee, Wisconsin and we operate in 14 markets in the United States. We believe all properties we own are well maintained, are in good condition and suitable for our contemplated operations. There are no material encumbrances on any of these properties. We own substantially all of the facilities and equipment used in our operations.


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Quantitative and Qualitative Disclosures About Market Risk
Price fluctuations for newsprint may have a significant effect on our results of operations. We have not entered into derivative instruments to manage our exposure to newsprint price risk.

ITEM 1A.
RISK FACTORS

You should consider carefully the risks described below, together with all of the other information included or incorporated by reference in this Annual Report on Form 10-K, in evaluating our company and our common stock. If any of the risks described below actually occurs, it could have a material adverse effect on our business, financial results, financial condition and/or stock price.

Risk Factors Relating to Our Business

We have a limited history operating as a stand-alone, publicly traded company, and limited combined financial statements, on which you can evaluate our performance.

We have operated as a combined business and as a stand-alone, publicly traded company since April 1, 2015. Accordingly, we have a limited operating history and limited financial statements as an independent, stand-alone company upon which you can evaluate us. We may not be able to grow or integrate our business as planned and may not be profitable.

Certain historical financial information contained in this Annual Report on Form 10-K is not indicative of our future results as a stand-alone, publicly traded company.

The financial statements and related disclosures (including Management’s Discussion and Analysis of Financial Condition and Results of Operations) included in this Annual Report on Form 10-K for periods prior to April 1, 2015 are those of our predecessor, Scripps Newspapers, and the historical carve-out financial statements of Scripps Newspapers were created from Scripps’ financial information. Accordingly, the historical carve-out financial information for Scripps Newspapers included in this Annual Report on Form 10-K does not reflect the Journal newspaper business and, thereby, does not reflect what our financial position, results of operations and cash flows would have been had those businesses been operated as a combined business and a stand-alone, publicly traded company during the periods before April 1, 2015. Nor is such information indicative of what our results of operations, financial position and cash flows may be in the future. This is primarily a result of the following factors:

the historical Journal newspaper business financial statements are not included in this Annual Report on Form 10-K and pursuant to Securities and Exchange Commission guidance are not required to be so included;

the historical carve-out financial statements of Scripps Newspapers do not reflect certain changes that occurred in our funding and operations as a result of the separation of Scripps Spinco and Journal Spinco from Scripps and Journal, respectively, on April 1, 2015;

our financial information prior to April 1, 2015 reflects estimated allocations for services historically provided by Scripps to Scripps Spinco, and these allocations are different from the costs we incur for these services following April 1, 2015; and

the historical financial information prior to April 1, 2015 does not reflect certain increased or duplicative costs we incurred in becoming a stand-alone, publicly traded company as of April 1, 2015, such as costs attributable to transition service agreements we have with Scripps, or changes in historical cost structure due to our differing personnel needs, financing activities and operations.

For these or other reasons, our future financial performance will be different from the performance implied by the historical carve-out information of Scripps Newspapers to April 1, 2015 presented in this Annual Report on Form 10-K.

For additional information about the past financial performance of Scripps Newspapers, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the historical carve-out financial statements and the accompanying notes of Scripps Newspapers included elsewhere in this Annual Report on Form 10-K.


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The integration of the newspaper businesses of Journal and Scripps is time consuming, may distract our management from operations, and is expensive, all of which could have a material adverse effect on our operating results.

If we are not successful in integrating the newspaper operations of Scripps and Journal, or if the integration is more difficult or costly than anticipated, we may experience disruptions to our operations. A difficult or unsuccessful integration of these businesses would likely have a material adverse effect on our results of operations.

Some of the risks that may affect our ability to integrate or realize any anticipated benefits include those associated with:

adverse effects on employees and business relationships with customers and suppliers;

difficulties in conforming standards, processes, procedures and controls of the businesses;

difficulties in transferring processes and know-how;

difficulties in the assimilation of acquired operations, technologies or products; and

diversion of management’s attention from business concerns.

We may not realize the benefits expected by combining the newspaper businesses of Scripps and Journal into a new publicly traded company and may experience increased costs that could decrease overall profitability.

Before the April 1, 2015 newspaper mergers, our business was part of two separate public companies. Following the consummation of the newspaper mergers, we may experience difficulties in integrating the two businesses into one company, and the newspaper mergers may result in increased costs and inefficiencies in our business operations and management. Integration of our businesses may cost significantly more or take longer than anticipated, which could decrease profitability or otherwise impact expected cost-savings. In addition, prior to the newspaper mergers our businesses took advantage of the economies of scale of Scripps and Journal. As a separate, stand­alone, publicly traded company, we may be unable to obtain goods, services and technology at prices or on terms as favorable as those obtained prior to the newspaper mergers, which could decrease overall profitability. Furthermore, we may not be successful in transitioning from the services and systems provided by Scripps and Journal and may incur substantially higher costs for implementation than currently anticipated. Failure on our part to realize the anticipated benefits of the newspaper mergers, including, without limitation, the anticipated cost-savings resulting from operating synergies and growth opportunities from combining the businesses, could have a material adverse effect on our profitability.

Restrictions on our operations, and our obligations to indemnify Scripps and its shareholders in connection with the tax-free treatment of the spin-offs and newspaper mergers, could materially and adversely affect us.

Certain tax-related restrictions and indemnities set forth in the tax matters agreements agreed to by Scripps, Journal and us in order to maintain the tax-free treatment of the spin-offs and newspaper mergers limit our discretion in the operation of our business and could adversely affect us. Under these provisions, we:

have generally undertaken to maintain the current newspaper business of Scripps and Journal as an active business for a period of two years following the completion of the newspaper mergers;

are generally restricted, for a period of two years following the newspaper mergers, from (i) reacquiring our stock, (ii) issuing stock to any person other than as compensation for services, (iii) making changes in equity structure, (iv) liquidating, merging or consolidating certain of our subsidiaries, (v) transferring certain material assets except in the ordinary course of business, and (vi) entering into negotiations with respect to, or consenting to, certain acquisitions of our stock;

are generally restricted from taking any other action (including an action that would be inconsistent with the representations relied upon by Scripps and Journal described above) that could jeopardize the tax-free status of the spin-offs; and

have generally agreed to indemnify Scripps and Journal for taxes and related losses incurred as a result of the spin-offs (other than the spin-off of Journal Spinco, which was taxable to Journal) failing to qualify as tax-free transactions provided such taxes and related losses are attributable to any act, failure to act or omission by us or our subsidiaries, including our failure to comply with applicable representations, undertakings and restrictions placed on our actions under the tax matters agreements.

11



These prohibitions could discourage, delay or prevent equity financings, acquisitions, investments, strategic alliances, mergers and other transactions, possibly resulting in a material adverse effect on our business. In addition, any indemnity obligations to Scripps or Journal could have a material adverse effect on our financial position and liquidity.

Our credit facility subjects us to various restrictions that could limit operating flexibility.

Our credit facility contains certain covenants and other restrictions that, among other things, requires us to maintain certain financial ratios and restricts our ability to pay dividends, repurchase shares, incur additional indebtedness, make dispositions and create liens. These restrictions and covenants may limit our ability to respond to market conditions, provide for capital investment needs or take advantage of business opportunities by limiting the amount of additional borrowings we may incur.

We may be required to satisfy certain indemnification obligations to our former parent companies or may not be able to collect on indemnification rights from our former parent companies.

Under the terms of the master transaction agreement, Scripps (as successor to Journal) will indemnify us, and we will indemnify Scripps (as successor to Journal), for all damages, liabilities and expenses resulting from a breach by the applicable party of the covenants contained in the master transaction agreement that continue in effect after the April 1, 2015 closing. Scripps (as successor to Journal) will indemnify us for all damages, liabilities and expenses incurred by us relating to the entities, assets and liabilities retained by Scripps or Journal, and we will indemnify Scripps (as successor to Journal) for all damages, liabilities and expenses incurred by us relating to our entities, assets and liabilities.

In addition, Scripps will indemnify us, and we will indemnify Scripps, for all damages, liabilities and expenses resulting from a breach by the other of any of the representations, warranties or covenants contained in the tax matters agreements. We will also indemnify Scripps for all damages, liabilities and expenses arising out of any tax imposed with respect to the Scripps Spinco spin-off if such tax is attributable to any act, any failure to act or any omission by us or any of our subsidiaries. Scripps will indemnify us for all damages, liabilities and expenses relating to pre-closing taxes or taxes imposed on us or our subsidiaries because Scripps Spinco or Journal Spinco was part of the consolidated return of Scripps or Journal, and we will indemnify Scripps for all damages, liabilities and expenses relating to post-closing taxes of ours or our subsidiaries.

The indemnification obligations described above could be significant, although we do not presently believe there are any indemnification obligations for which we will be liable or for which we will seek payment from Scripps. Our ability to satisfy any such indemnities depends upon our future financial performance. Similarly, the ability of Scripps to satisfy any such obligations to us depends on its future financial performance. We cannot assure you that we will have the ability to satisfy any substantial obligations to Scripps or that Scripps (including Scripps as successor to Journal) will have the ability to satisfy any substantial indemnity obligations to us.

Decreases in advertising spending, resulting from economic downturn, war, terrorism, advertiser consolidation or other factors, could adversely affect our financial condition and results of operations.

Approximately 60% of our revenue in 2015 was generated from the sale of local, regional and national advertising appearing in newspapers and shoppers. Advertisers generally reduce their advertising spending during economic downturns and some advertisers may go out of business or declare bankruptcy. The merger or consolidation of advertisers, such as in the banking and airline industries, also generally leads to a reduced amount of collective advertising spending. A recession or economic downturn, as well as a consolidation of advertisers in the future could have an adverse effect on our financial condition and results of operations. Terrorist attacks or other wars involving the United States or any other local or national crisis could also adversely affect our financial condition and results of operations.

Additionally, some of our printed publications generate, and in the future are expected to generate, a large percentage of their advertising revenue from a limited number of sources, including the automotive industry. As a result, even in the absence of a recession or economic downturn, adverse changes specifically affecting these advertising sources could significantly reduce advertising revenue and have a material adverse effect on our financial condition and results of operations.

In addition, advertising revenue and subscription revenue depend upon a variety of other factors specific to the communities that we serve. Changes in those factors could negatively affect those revenues. These factors include, among others, the size and demographic characteristics of the local population, the concentration of retail stores and local economic conditions in general. If the population demographics, prevailing retail environment or local economic conditions of a community to be served by us were to change adversely, revenue could decline and our financial condition and results of operations could be adversely affected.

12



We operate in highly competitive markets, and during a time of rapid competitive changes, we may lose market share and advertising revenue to competing publications, or other competitors, as well as through consolidation of competitors or changes in advertisers' buying strategies.

Our businesses operate in highly competitive markets. Our newspapers, shoppers and Internet sites compete for audiences and advertising revenue with other newspapers, television and radio stations, shoppers and Internet sites as well as with other media such as magazines, outdoor advertising, direct mail and the evolving mobile and digital advertising space. Some of our potential competitors have greater financial, marketing and programming resources than we have or, even if smaller in size or in terms of financial resources, a greater ability to create digital niche products and communities and may respond faster or more aggressively to changing competitive dynamics. This competition has intensified as a result of digital media technologies.

In newspapers and shoppers, our revenue primarily consists of advertising revenue and subscription revenue. Competition for advertising expenditures and subscription revenue comes from local, regional and national newspapers, shoppers, magazines, broadcast and cable television, radio, direct mail, Yellow Pages, digital Internet and mobile products and other media. Competition for newspaper advertising revenue is based largely upon advertiser results, advertising rates, readership, demographics and circulation levels, while competition for subscription revenue is based largely upon the content of the newspaper, its price, editorial quality and customer service. Our local and regional competitors in community publications are typically unique to each market, but we have many competitors for advertising revenue that are larger and have greater financial and distribution resources than us. Subscription revenue and our ability to achieve price increases for our print products are affected by competition from other publications and other forms of media available in our various markets, declining consumer spending on discretionary items like newspapers, decreasing amounts of free time, and declining frequency of regular newspaper buying among young people. We may incur increasing costs competing for advertising expenditures and paid print and digital subscriptions. If we are not able to compete effectively for advertising expenditures and paid print and digital subscriptions, our revenue may decline and our financial condition and results of operations may be adversely affected.

The print newspaper business is in secular decline. Our profitability may be adversely affected if we are not successful in creating other revenue opportunities or in aligning costs with declining revenues.

In recent years, the advertising industry generally has experienced a secular shift toward digital advertising and away from other traditional media. In addition, our historical newspaper circulation has declined, reflecting general trends in the newspaper industry, including consumer migration toward the Internet and other media for news and information. We face, and in the future expect to continue to face, increasing competition from other digital sources for both advertising and subscription revenues. This competition has intensified as a result of the continued development of digital media technologies. Distribution of news, entertainment and other information over the Internet, as well as through smartphones, tablets and other devices, continues to increase in popularity. These technological developments are increasing the number of media choices available to advertisers and audiences. As media audiences fragment, we expect advertisers to continue to allocate larger portions of their advertising budgets to digital media.

In response to the ongoing secular changes, we must continually monitor and align cost structure to declining revenues. The alignment of our costs includes measures such as reduction in force initiatives, standardization and centralization of systems and processes, outsourcing of certain financial processes and the implementation of new software for circulation, advertising and editorial systems.

If we are not successful in creating other revenue opportunities, developing digital media or aligning costs with declining revenues, our profitability could be adversely affected.

We expect a significant portion of operating cost to come from newsprint, so an increase in price or reduction in supplies may adversely affect our operating results.

Newsprint is a significant portion of our operating costs. The price of newsprint has historically been volatile, and increases in the price of newsprint could materially reduce our operating results. In addition, the continued reduction in the capacity of newsprint producers increases the risk that supplies of newsprint could be limited in the future. Our publishing business may suffer if there is a significant increase in the cost of newsprint or a reduction in the availability of newsprint.

Changes relating to consumer information collection and use could adversely affect our ability to collect and use data, which could harm our business.

Public concern over methods of information gathering has led to the enactment of legislation in most jurisdictions that restricts the collection and use of consumer information. Our publishing business relies in part on telemarketing sales, which are affected

13


by “do not call” legislation at both the federal and state levels. We also engage in e-mail marketing and the collection and use of consumer information in connection with our publishing businesses and our growing digital efforts. Further legislation, government regulations, industry regulations, the issuance of judicial interpretations or a change in customs relating to the collection, management, aggregation and use of consumer information could materially increase the cost of collecting that data, or limit our ability to provide information to our customers or otherwise utilize telemarketing or e-mail marketing or distribute our digital products across multiple platforms, and could adversely affect our results of operations.

Decreases in circulation may adversely affect subscription revenues, and circulation decreases may accelerate as we offer expanded digital content and digital subscriptions.

Advertising and subscription revenues are affected by the number of subscribers and single copy purchasers, readership levels and overall audience reach. The newspaper industry as a whole is experiencing difficulty maintaining paid print circulation and related revenues. This is due to, among other factors, increased competition from new media products and sources other than traditional newspapers (often free to consumers), and shifting preferences among some consumers to receive all or a portion of their news other than from a newspaper. In addition, our planned expanded digital content and new digital subscriptions could negatively impact print circulation volumes if readers cancel subscriptions.

A prolonged decrease in circulation could have a material effect on our revenues, particularly if we are not able to otherwise grow readership levels and overall audience reach. To maintain our circulation base, we may incur additional costs, and we may not be able to recover these costs through subscription and advertising revenues.

Changes in the legal and regulatory environment could increase our operating costs or result in litigation.
The conduct of our business is subject to various laws and regulations administered by federal, state and local government agencies. These laws and regulations, as well as judicial and administrative interpretations of these laws and regulations, may change, sometimes dramatically, as a result of political, economic or social events. Such regulatory environment changes may include changes in employment laws, environmental laws, occupational health and safety laws, accounting standards and taxation requirements. Changes in laws, regulations or governmental policy and the related interpretations may alter the environment in which we do business, and therefore, may impact our results or increase our costs or liabilities.
If we are unable to respond to changes in technology and evolving industry standards and trends, our publishing operations may not be able to effectively compete.

The publishing industry is being challenged by the preferences of today’s “on demand” culture, particularly among younger segments of the population. Some consumers prefer to receive all or a portion of their news in new media formats and from sources other than traditional newspapers. Information delivery and programming alternatives such as the Internet, various mobile devices, electronic readers, cable, direct satellite-to-home services, pay-per-view and home video and entertainment systems have fractionalized newspaper readership. New digital subscription offerings may not attract readers in sufficient numbers to generate significant revenues or offset losses in paid print subscription revenues. The shift in consumer behaviors has the potential to introduce new market competitors or change the means by which traditional newspaper advertisers can most efficiently and effectively reach their target audiences. We may not have the resources to acquire new technologies or to introduce new products or services that could compete with these evolving technologies.

We face cybersecurity and similar risks, which could result in the disclosure of confidential information, disruption of our operations, damage to our brands and reputation, legal exposure and financial losses.

Security breaches, computer malware or other “cyber attacks” could harm our business by disrupting our delivery of services, jeopardizing our confidential information and that of our vendors and clients, and damaging our reputation. Our operations routinely involve receiving, storing, processing and transmitting sensitive information. Although we monitor our security measures regularly and believe we are not in a key target industry, any unauthorized intrusion, malicious software infiltration, theft of data, network disruption, denial of service, or similar act by any party could disrupt the integrity, continuity, and security of our systems or the systems of our clients or vendors. These events could create financial liability, regulatory sanction, or a loss of confidence in our ability to protect information, and adversely affect our revenue by causing the loss of current or potential clients.

Risk Factors Relating to Ownership of Our Common Stock

The market price and trading volume of our common stock may be volatile.


14


The market price and trading volume of our common stock could fluctuate significantly for many reasons, including, without limitation:

as a result of the risk factors listed in this Annual Report on Form 10-K;

actual or anticipated fluctuations in our operating results;

for reasons unrelated to our specific performance, such as reports by industry analysts, investor perceptions, or negative announcements by our customers or competitors regarding their own performance; and

general economic and industry conditions.

Certain provisions of our articles of incorporation and bylaws, and provisions of Wisconsin law, could delay or prevent a change of control that you may favor.

Provisions of our articles of incorporation and bylaws may discourage, delay or prevent a merger or other change of control that shareholders may consider favorable or may impede the ability of the holders of our common stock to change our board or management. The provisions of our articles of incorporation and bylaws, among other things:

prohibit shareholder action except at an annual or special meeting, thus not allowing our shareholders to act by written consent;

regulate how shareholders may present proposals or nominate directors for election at annual meetings of shareholders by requiring advance notice of such proposals or nominations;

regulate how special meetings of shareholders may be called; and

authorize our board of directors to issue preferred stock in one or more series, without shareholder approval. Under this authority, our board of directors could adopt a rights plan which could ensure continuity of management by rendering it more difficult for a potential acquirer to obtain control of us.

Our indemnification obligations under the tax matters agreement entered into in connection with the newspaper mergers could prevent a change in control.

An acquisition of our stock or further issuance of our stock could cause Scripps or the shareholders of Scripps or Journal to recognize a taxable gain or income on the spin-off of Scripps Spinco. Under the tax matters agreement we are required to indemnify Scripps or the shareholders of Scripps or Journal, as the case may be, for the resulting tax, and this indemnity obligation might discourage, delay or prevent a change of control that you may consider favorable.

Our ability to pay dividends or repurchase shares is limited by our financial results and our credit facility.

Our credit facility limits our ability to declare and pay dividends or make other distributions on our shares of common stock and limits dividends and share repurchases from borrowed funds to no more than $10 million in any fiscal year. The dividend amounts and share repurchases, if any, will be determined by our board of directors, which will consider a number of factors, including our financial condition, capital requirements, funds generated from operations, future business prospects and applicable contractual restrictions.

Our accounting and other management systems and resources may not be adequate to meet our reporting obligations as a public company.

We are responsible for ensuring that all aspects of our business comply with Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), which requires an annual management assessment of the effectiveness of our internal control over financial reporting. Although our management has experience with these reporting and related obligations, ensuring compliance with respect to our business may place significant demands on management, administrative and operational resources, including accounting systems and resources.

Under the Sarbanes-Oxley Act, we are required to maintain effective disclosure controls and procedures and internal controls over financial reporting. To comply with these requirements, we may need to upgrade our systems; implement additional financial and management controls, reporting systems and procedures; and hire additional accounting and finance staff. We expect to incur

15


additional annual expenses for the purpose of addressing these requirements, and those expenses may be significant. If we are unable to upgrade financial and management controls, reporting systems, information technology systems and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including the exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a non-binding advisory vote on executive compensation. We cannot predict if investors will find our common stock less attractive because we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We will remain an emerging growth company for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, or (c) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Risks Relating to the Proposed Merger with Gannett

On October 7, 2015, we entered into the Merger Agreement with Gannett and Merger Sub. The Merger Agreement provides that, subject to the satisfaction or waiver of specified conditions, Merger Sub will merge with and into us and we will become a wholly owned subsidiary of Gannett. If the merger is completed, our shareholders will receive $12.00 in cash, without interest and less any applicable withholding taxes, for each share of our common stock owned.

Completion of the merger is subject to the satisfaction of certain customary closing conditions. The following risk factors relate to risks posed to our shareholders from the proposed merger.

The merger is subject to conditions, including certain conditions that may not be satisfied or completed on a timely basis, if at all.

Completion of the merger is subject to closing conditions that make the completion and timing of the merger uncertain. The conditions include, among others, the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); the absence of any law or governmental order enacted or issued prohibiting the merger; since October 7, 2015, there not having occurred any event, occurrence or development that is continuing and that, individually or in the aggregate, has had or would reasonably be expected to have a Company material adverse effect; and the non-modification or withdrawal of the tax opinion delivered by Foley & Lardner LLP to Scripps on October 7, 2015 (relating to the continued tax-free nature of the April 1, 2015 transactions between Scripps and Journal Communications, Inc.) and no change in law or facts having occurred since October 7, 2015 that would make such tax opinion no longer reasonably acceptable to Gannett as of the closing date of the merger.

Although we and Gannett have agreed in the Merger Agreement to use our respective reasonable best efforts to obtain the requisite approvals and consents, there can be no assurance that these approvals and consents will be obtained, and these approvals and consents may be obtained later than anticipated. If permitted under applicable law, either of we or Gannett may waive a condition for its own benefit and consummate the merger even though one or more of these conditions has not been satisfied. Any determination whether to waive any condition will be made by us or Gannett at the time of such waiver based on the facts and circumstances as they exist at that time.

The Merger Agreement contains provisions that restrict our ability to pursue alternatives to the merger and, in specified circumstances, could require us to pay to Gannett a termination fee.


16


Under the Merger Agreement, we are restricted, subject to certain exceptions, from (i) encouraging, soliciting, requesting, initiating or negotiating, or furnishing nonpublic information with regard to, any proposal or offer for a competing acquisition proposal from any person and (ii) withdrawing or modifying our board of directors’ recommendation in favor of the merger or approving or recommending any competing acquisition proposal. We may terminate the Merger Agreement and enter into an agreement with respect to a superior proposal only if specified conditions have been satisfied, including a determination by our board of directors (after having received the advice of a nationally recognized financial advisor and outside legal counsel) that such proposal is more favorable from a financial point of view to our shareholders than the merger. A termination in this instance would result in us being required to pay Gannett a termination fee of $9.0 million. These provisions could discourage a third party that may have an interest in acquiring us from considering or proposing a competing acquisition proposal with us, even if such third party were prepared to pay consideration with a higher value than the value of the merger consideration.

Failure to complete the merger may negatively impact our share price and our future business and financial results.

The Merger Agreement provides that either us or Gannett may terminate the Merger Agreement if the merger is not consummated on or before April 7, 2016, subject to an automatic extension for up to 60 days in order to satisfy the regulatory closing conditions. In addition, the Merger Agreement contains certain termination rights for both us and Gannett including, among others, by us, in the event our board of directors determines to enter into a definitive agreement with respect to a superior proposal. Upon termination of the Merger Agreement under specific circumstances, we will be required to pay Gannett a termination fee of $9.0 million.
If the merger is not completed on a timely basis, our ongoing business may be adversely affected. If the merger is not completed at all, we will be subject to a number of risks, including the following:

being required to pay costs and expenses relating to the merger, such as legal and accounting fees and, if applicable, termination fees, whether or not the merger is completed; and

loss of time and resources committed by our management to matters relating to the merger that could have been devoted to pursuing other beneficial opportunities.

If the merger is not completed, the price of our common stock may decline to the extent that the current market price reflects a market assumption that the merger will be completed, or to the extent there is a market perception that the merger was not consummated due to an adverse change in our business.

We will incur significant costs in connection with the merger.

We expect to pay significant transaction costs in connection with the merger. These costs include investment banking, legal fees and expenses, SEC and HSR Act filing fees, printing expenses, mailing expenses and other related charges. We estimate our aggregate transaction costs will be approximately $8 million to $10 million. A portion of the transaction costs will be incurred regardless of whether the merger is consummated.

While the merger is pending, we are subject to business uncertainties and contractual restrictions under the Merger Agreement that could have an adverse effect on our business.

Prior to the merger, current and prospective employees may experience uncertainty about their future roles and choose to pursue other opportunities, which could have an adverse effect on us. In addition, uncertainty about the effect of the merger on our business relationships may also have an adverse effect on us. These uncertainties could impair our ability to retain and motivate key personnel prior to completion of the merger and could cause third parties who deal with us to seek to change existing business relationships with us. In addition, the Merger Agreement restricts us, without Gannett’s consent and subject to certain exceptions, from making certain acquisitions and taking other specified actions until the merger closes or the Merger Agreement terminates. These restrictions may prevent us from pursuing otherwise attractive business opportunities that may arise prior to completion of the merger or termination of the Merger Agreement, and from making other changes to our business.

Pending litigation against us and Gannett could result in an injunction preventing completion of the merger, the rescission of the merger in the event it is completed and/or the payment of damages in the event the merger is completed.

In connection with the merger, purported shareholders of ours filed two class action lawsuits (which have been consolidated into a single lawsuit) against us, the members of our board of directors, Gannett and the other parties to the Merger Agreement. Among other remedies, the plaintiffs seek to enjoin the merger. As discussed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2016, we entered into a memorandum of understanding with the plaintiffs regarding the settlement of all claims that were or could have been brought in connection with the merger. Pursuant to the terms of the memorandum of understanding, the consolidated lawsuit is currently stayed pending finalization of proposed settlement

17


documentation, confirmatory discovery and a decision by the relevant court regarding approval of the proposed settlement. There can be no assurance that the parties to the memorandum of understanding will ultimately enter into a settlement agreement or that the court will approve the settlement even if the parties were to enter into a settlement agreement.

One of the conditions to the closing of the merger is that no law or judgment, injunction, ruling, order or decree issued by any court of competent jurisdiction shall be in effect that makes the merger illegal or otherwise prohibits the consummation of the merger. If for any reason the consolidated lawsuit is not settled, the litigation may recommence and the plaintiffs may be successful in obtaining an injunction prohibiting us or Gannett from consummating the merger on the agreed-upon terms. In that event, the injunction may prevent the merger from being completed within the expected timeframe, or at all. Furthermore, if the proposed settlement is not approved and the defendants are not able to resolve the consolidated lawsuit, the consolidated lawsuit could result in substantial costs to us, including any costs associated with the indemnification of directors.

ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.

ITEM 2.
PROPERTIES

We operate in 14 markets in the United States. We believe all properties we own are well maintained, are in good condition and suitable for our operations. There are no material encumbrances on any of these properties. We own substantially all of the facilities and equipment used in our operations.

ITEM 3.
LEGAL PROCEEDINGS

See Note 16 – Commitments and Contingencies of this Annual Report on Form 10-K for information on legal proceedings.

ITEM 4.
MINE SAFETY DISCLOSURES
None.


18


PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

We are authorized to issue 100 million shares of common stock and 10 million shares of preferred stock and each share of our common stock is entitled to one vote. Our common stock has traded on the New York Stock Exchange (the “NYSE”), under the symbol "JMG," since we began operations as a separate company on April 1, 2015. The following table sets forth, for the periods indicated, the high and low sale prices per share of our common stock as reported on the NYSE.

 
 
High
 
Low
Second quarter
 
$
10.79

 
$
7.60

Third quarter
 
$
8.82

 
$
5.99

Fourth quarter
 
$
12.45

 
$
7.34


As of March 23, 2016, there were approximately 1,693 registered holders of our common stock. We have no outstanding shares of preferred stock.

Dividends

We currently intend to distribute a portion of our free cash flow to our common shareholders, through a quarterly dividend, subject to satisfactory financial performance, approval of our board of directors and dividend restrictions in our credit agreement (for additional information, see Note 11 - Long-Term Debt). Our board of directors’ determination regarding dividends will depend on a variety of factors, including earnings, free cash flow generated from operations or other sources, liquidity position and potential alternative uses of cash, as well as economic conditions and expected future financial results. The Merger Agreement with Gannett, effective October 7, 2015, limits our quarterly dividends to $0.06 per share.

Since we began operations as a separate company on April 1, 2015, we paid cash dividends of $0.04 per share on June 5, 2015 and cash dividends of $0.06 per share on September 4, 2015, December 4, 2015 and March 1, 2016.
Securities Authorized For Issuance Under Equity Compensation Plans
See Part III, Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters," of this Annual Report on Form 10-K for certain information regarding our equity compensation plans.
Purchases of Equity Securities
On August 13, 2015, our board of directors authorized a share repurchase program of up to $25 million of our outstanding common stock over 36 months. Under the program, share repurchases may be made at our discretion, from time to time, in the open market and/or in private transactions. Share purchases by us will depend on market conditions, share price, trading volume and other factors. The Merger Agreement with Gannett precludes us from repurchasing shares.
Stock Performance Information

The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference into such a filings.

The following graph compares, on a cumulative basis, changes in the total return on our common stock with the total return on the Standard & Poor’s 500 Stock Index and the total return on a peer group comprised of six corporations that concentrate on newspaper publishing in local markets. Our peer group is comprised of A.H. Belo Corp., Gannett Co. Inc., Lee Enterprises Inc., McClatchy Co., New Media Investment Group, Inc., and Tribune Publishing Co. This graph assumes the investment of $100.00 on April 1, 2015, the first day our common stock traded publicly, and the reinvestment of any dividends since that date.


19



 
 
4/1/15
6/30/15
9/30/15
12/31/15
 
 
 
 
 
 
Journal Media Group, Inc.
 
100.00
94.68
86.46
139.26
S&P 500
 
100.00
100.28
93.82
100.43
Peer Group
 
100.00
78.35
71.66
82.29


20


ITEM 6.
SELECTED FINANCIAL DATA
The selected statement of operations data for 2015, 2014 and 2013, and the selected balance sheet data at December 31, 2015 and 2014 are derived from, and are qualified by reference to, the audited consolidated and combined financial statements included elsewhere in this Annual Report on Form 10-K. The selected statement of operations data for 2012 and 2011, and the selected balance sheet data at December 31, 2013, 2012, and 2011, are derived from the audited combined financial statements of Scripps Newspapers (the predecessor of Journal Media Group) and not included herein. Periods beginning April 1, 2015 are of the consolidated Company. You should read this information in conjunction with the other financial information and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated and combined financial statements, including the notes thereto, included in this Annual Report on Form 10-K. See also "Index to Consolidated and Combined Financial Statements."
 
 
For the years ended December 31,
 
 
2015
 
2014
 
2013
 
2012
 
2011
Statement of Operations Data
 
(dollars and shares in thousands, except for per share amounts)
Revenue
 
$
441,006

 
$
370,332

 
$
384,199

 
$
399,123

 
$
414,744

Operating costs and expenses
 
(431,687
)
 
(394,420
)
 
(402,805
)
 
(410,488
)
 
(439,903
)
Total other income and (expense)
 
(569
)
 
(1,469
)
 
(293
)
 
(341
)
 
940

Income (loss) before income taxes
 
8,750

 
(25,557
)
 
(18,899
)
 
(11,706
)
 
(24,219
)
Provision (benefit) for income taxes
 
5,721

 
413

 
(2,070
)
 
332

 
653

Net income (loss)
 
3,029

 
(25,970
)
 
(16,829
)
 
(12,038
)
 
(24,872
)
Net income (loss) attributable to noncontrolling interests
 
(98
)
 
(204
)
 
(126
)
 
(53
)
 
90

Net income (loss) attributable to Journal Media Group
 
$
3,127

 
$
(25,766
)
 
$
(16,703
)
 
$
(11,985
)
 
$
(24,962
)
 
 
 
 
 
 
 
 
 
 
 
Diluted weighted average shares outstanding
 
21,949

 
14,450

 
14,450

 
14,450

 
14,450

Diluted net income (loss) per share
 
$
0.12

 
$
(1.78
)
 
$
(1.16
)
 
$
(0.83
)
 
$
(1.73
)
Cash dividends declared
 
$
0.16

 
$

 
$

 
$

 
$

Other Financial Data
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
$
21,134

 
$
16,890

 
$
17,240

 
$
18,896

 
$
21,886

Capital expenditures
 
$
4,273

 
$
2,708

 
$
3,615

 
$
2,962

 
$
1,832

Cash Flow Data
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in):
 
 
 
 
 
 
 
 
 
 
Operating activities
 
$
24,707

 
$
(1,901
)
 
$
(1,845
)
 
$
5,501

 
$
4,635

Investing activities
 
$
7,805

 
$
(1,564
)
 
$
(3,308
)
 
$
(3,141
)
 
$
(1,201
)
Financing activities
 
$
(3,476
)
 
$
3,465

 
$
5,153

 
$
(2,360
)
 
$
(3,434
)
Balance Sheet Data
 
 
 
 
 
 
 
 
 
 

Total assets
 
$
359,456

 
$
234,646

 
$
256,281

 
$
271,578

 
$
290,931

Total debt
 
$

 
$

 
$

 
$

 
$

Total equity
 
$
249,699

 
$
169,247

 
$
187,844

 
$
195,781

 
$
213,180

2015 - A $265 non-cash charge was recorded for land and a building based on an accepted offer to sell the property.
2014 - A $500 non-cash charge was recorded to reduce the carrying value of real property at three of our locations.
2011 - A $9,000 non-cash charge was recorded to reduce the carrying value of long-lived assets at four of our newspapers.

21


ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Background

Journal Media Group was incorporated in Wisconsin on July 25, 2014. From our incorporation until the consummation of the newspaper mergers and separation on April 1, 2015, Scripps and Journal each owned 50% of our common stock. As of April 1, 2015, we own and operate the former newspaper publishing businesses of Scripps and Journal. In this Annual Report on Form 10-K, we refer to the newspapers published by subsidiaries of Scripps as the “Scripps Newspapers” and to the newspapers published by subsidiaries of Journal as the “Journal Newspapers" or "JRN Newspapers,” and we also sometimes refer to the April 1, 2015 newspaper mergers that created Journal Media Group as the "separation."

Since our inception, and until April 1, 2015, our activities were limited to our organization, the preparation of our registration statement on Form S-4 and other matters related to the transactions. Throughout 2014 and the first quarter of 2015, we conducted no business operations or owned or leased any real estate or other property. Accordingly, our only assets prior to the consummation of the newspaper mergers and separation on April 1, 2015 arose from the issuance at inception of two shares of our common stock, one to Scripps and one to Journal. We did not have any costs or liabilities arising out of our operations prior to the consummation of the newspaper mergers and separation on April 1, 2015. As a result, the financial statements and related disclosures (including Management’s Discussion and Analysis of Financial Condition and Results of Operations) included in this Annual Report on Form 10-K for periods prior to April 1, 2015 are those of our predecessor, Scripps Newspapers. All financial statements and related disclosures for the period April 1, 2015 to December 31, 2015 consist of financial condition and results of operations of Journal Media Group.

Scripps Newspapers combined financial statements, for periods prior to April 1, 2015, have been “carved-out” from the consolidated financial statements of Scripps and reflect assumptions and allocations made by Scripps. Scripps Newspapers carve-out financial statements include all revenues, costs, assets and liabilities that are directly attributable to the business. In addition, certain expenses reflected in Scripps Newspapers carve-out financial statements are an allocation of corporate expenses from Scripps. Such expenses include, but are not limited to, centralized support functions including finance, legal, information technology, human resources, and insurance as well as stock-based compensation. These expenses have been allocated to Scripps Newspapers on the basis of direct usage when identifiable and allocated based upon on a number of utilization measures including headcount, square footage, and proportionate effort. Where determinations based on utilization are impracticable, Scripps used other methods and criteria that are believed to be reasonable estimates of costs attributable to the companies, such as revenues.

The actual costs that may have been incurred if Scripps Newspapers had been a stand-alone company would depend on a number of factors, including the chosen organizational structure and strategic decisions made as to information technology and infrastructure requirements. As such, Scripps Newspapers combined financial statements do not necessarily reflect what the financial condition and results of operations would have been had Scripps Newspapers operated as a stand-alone company during the periods or at the date presented.

Newspaper Mergers

On July 30, 2014, Scripps and Journal entered into the master transaction agreement with Scripps Media, Inc., Desk Spinco, Inc., Scripps NP Operating, LLC (f/k/a Desk NP Operating, LLC), Desk BC Merger, LLC, Boat Spinco, Inc., Journal Media Group
(f/k/a Boat NP Newco, Inc.), Desk NP Merger Co., and Boat NP Merger Co.

Following certain internal contributions and distributions by Scripps and Journal, Scripps spun-off Scripps Spinco to its shareholders and Journal spun-off Journal Spinco to its shareholders on April 1, 2015. Pursuant to the master transaction agreement, the shares of Scripps Spinco and Journal Spinco were not distributed to Scripps shareholders or Journal shareholders, but were held by the exchange agent for the benefit of Scripps and Journal shareholders until those shares were exchanged for shares of common stock of Journal Media Group in connection with the newspaper mergers on April 1, 2015. In the Scripps newspaper merger, each share of common stock of Scripps Spinco was automatically converted into 0.2500 shares of common stock of Journal Media Group. In the Journal newspaper merger, each share of Journal Spinco common stock was converted into 0.1950 shares of common stock of Journal Media Group.

Each share of Journal Media Group stock was issued in accordance with, and subject to the rights and obligations set forth in the articles of incorporation of Journal Media Group.


22


Upon completion of the newspaper mergers and separation on April 1, 2015, Journal Media Group's common stock was listed for trading on the NYSE under ticker symbol "JMG." The former Scripps shareholders held approximately 59% and the former Journal shareholders held approximately 41% of the outstanding common stock of Journal Media Group, calculated on a fully-diluted basis, immediately following the newspaper mergers and separation on April 1, 2015.

Overview of Journal Media Group

Following completion of the transactions and separation on April 1, 2015, Journal Media Group is a media enterprise with interests in newspapers and local digital media sites. With the ultimate goal of informing, engaging, and empowering readers in the communities we serve, we provide news, information and value to customers, employees and advertisers. We serve audiences and businesses through a portfolio of print and digital media brands, including 17 daily newspapers in 14 markets across the United States, and operate an expanding collection of local digital journalism and information businesses.

We have a bundled-subscription model in all of our newspaper markets. Under the bundled model, subscribers receive access to all newspaper content on all platforms. Only limited digital content is available to non-subscribers after free article thresholds are met. We also offer digital-only subscriptions.

We expect to face continued challenges from declines in demand for our printed products. We expect print subscriptions will continue to face pressure as readers find alternative sources to obtain news and information content, including on mobile and other digital platforms. This expected decline in circulation may impact revenue as subscription price increases are unlikely to offset declining subscription volumes and advertising revenue may decline as fewer newspaper inserts are delivered with the printed newspaper. In an effort to minimize customer churn and maximize profitability, we have and will continue to use analysis of customer price sensitivity.

In addition, advertising revenue is expected to face continued challenges as advertisers become more targeted with their spending on marketing, either narrowing their geographic distribution to focus on certain areas or shifting their spending to digital media. We will continue to engage our advertisers to determine their needs and leverage our expertise in the markets in which we operate to maximize our share of advertising revenue and look at opportunities to create new products and services and efficient marketplaces connecting advertisers with current and prospective customers.

A portion of our revenue is based on commercial printing and the delivery of other publications, which have experienced the same challenges that our newspapers experience. As our commercial customers reduce page counts and experience declines in circulation, our revenue may also decline. We expect to continue exploring new commercial print and delivery opportunities as our potential customers explore ways to defer capital expenditures for print facilities and explore other cost reduction strategies.

Following the April 1, 2015 separation, we started operating on a number of different front-end / business systems. We expect that, over time, we will be able to standardize many of these systems (advertising, circulation, editorial, etc.) and harmonize related business processes. Support and other system functions can also be centralized and managed with fewer employees and other related costs. We can also continue to explore changes to our products, such as reduced page size and other efficiencies such as combining sections to drive newsprint and production savings.

Basis of Presentation

The accompanying combined financial information for periods prior to April 1, 2015 are those of our predecessor, Scripps Newspapers. The accompanying financial information for the period April 1, 2015 to December 31, 2015 consist of the financial condition and results of operations of Journal Media Group.

Journal Media Group operations consist of daily and community newspapers in 14 markets across the United States. The newspapers earn revenue primarily from the sale of advertising to local and national advertisers and newspaper subscription fees. The newspapers operate in small and mid-size markets, focusing on news coverage within their local markets. Advertising and subscription revenues provide substantially all of the operating revenues for each newspaper market, and employee, newspaper distribution and newsprint costs are the primary expenses at each newspaper. The daily newspapers published by Journal Media Group are the Milwaukee (WI) Journal Sentinel, the Abilene (TX) Reporter-News, the Anderson (SC) Independent-Mail, the Corpus Christi (TX) Caller-Times, the Evansville (IN) Courier & Press, the Henderson (KY) Gleaner, the Kitsap (WA) Sun, the Knoxville (TN) News Sentinel, the Memphis (TN) Commercial Appeal, the Naples (FL) Daily News, the Redding (CA) Record-Searchlight, the San Angelo (TX) Standard-Times, the Treasure Coast (FL) News/Press/Tribune, the Ventura County (CA) Star and the Wichita Falls (TX) Times Record News. The business also includes a 40% ownership in the Albuquerque Publishing Company, which publishes the Albuquerque Journal (NM).

23



Historically, separate financial statements have not been prepared for Scripps Newspapers. These combined financial statements reflect the historical financial position, results of operations, changes in parent company equity and cash flows of Scripps Newspapers for the periods presented prior to April 1, 2015, as Scripps Newspapers was historically managed within Scripps (the "Parent"). The combined financial statements have been prepared on a “carve-out” basis and are derived from the consolidated financial statements and accounting records of Scripps. The combined financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"). Management believes that assumptions and methodologies underlying the allocation of general corporate expenses are reasonable (see Note 15 to the consolidated and combined financial statements). However, such expenses may not be indicative of the actual level of expense that would have been incurred had Scripps Newspapers operated as a separate stand-alone entity, and, accordingly, may not necessarily reflect Scripps Newspapers' combined financial position, results of operations and cash flows had Scripps Newspapers operated as a stand-alone entity during the periods presented prior to April 1, 2015.

Results of operations are not necessarily indicative of the results that may be expected for future interim periods or for the full year.

Results of Operations

2015 Compared to 2014

The following table summarizes our results of operations for the years ended December 31, 2015 and 2014:
 
 
2015
 
2014
 

 
 
(dollars in millions)
 
% Change
Operating revenue:
 
 
 
 
 
 
Advertising and marketing services
 
$
258.8

 
$
228.0

 
13.5
 %
Subscriptions
 
150.4

 
121.6

 
23.7
 %
Other
 
31.8

 
20.7

 
53.4
 %
Total revenue
 
441.0

 
370.3

 
19.1
 %
Operating costs and expenses:
 
 
 
 
 
 
Costs of sales (exclusive of items shown below)
 
231.9

 
204.9

 
13.2
 %
Selling, general and administrative (exclusive of items shown below)
 
176.8

 
165.8

 
6.6
 %
Defined pension and benefit plan expense
 
1.9

 
6.8

 
(72.0
)%
Depreciation and amortization
 
21.1

 
16.9

 
25.1
 %
Total operating costs and expenses
 
431.7

 
394.4

 
9.4
 %
Operating income (loss)
 
9.3

 
(24.1
)
 
F
Other expense, net
 
(0.6
)
 
(1.5
)
 
61.3
 %
Income (loss) before income taxes
 
8.7

 
(25.6
)
 
F
Provision (benefit) for income taxes
 
5.7

 
0.4

 
U
Net income (loss)
 
3.0

 
(26.0
)
 
F
Net loss attributable to noncontrolling interests
 
(0.1
)
 
(0.2
)
 
52.0
 %
Net income (loss) attributable to Journal Media Group
 
$
3.1

 
$
(25.8
)
 
F
F - Greater than 100% favorable variance
U - Greater than 100% unfavorable variance

Revenue

Our revenue for the year ended December 31, 2015 was $441.0 million, an increase of $70.7 million, or 19.1%, compared to $370.3 million for the year ended December 31, 2014. The increase in revenue of $70.7 million includes revenue from our Journal Newspapers acquisition of $100.5 million, which is comprised of $53.1 million from advertising and marketing services, $33.6 million from subscription revenue, and $13.8 million from other revenue. The increase from the Journal Newspapers acquisition was partially offset by declines of $22.3 million in our advertising and marketing services and a $4.8 million decline in our

24


subscription revenue. The decline in our advertising and marketing revenue was primarily driven by a decrease in our local retail and preprint categories due to secular pressures and changes in the demand for print advertising. The continued shift in consumer preferences from print to digital platforms for news consumption coupled with our subscribers’ response to price increases also led to a decline in our subscription volumes, which has been partially offset by price increases.

Subscriptions include fees paid by readers for access to content in print and digital formats. We offer bundled subscriptions where our subscribers receive access to all of our newspaper content on all platforms. Only limited digital content is available to non-subscribers after free article thresholds are met. We also offer digital-only subscriptions. As of December 31, 2015, we had approximately 50,000 digital-only subscribers across all of our markets.

Cost of Sales

Our cost of sales for the year ended December 31, 2015 was $231.9 million, an increase of $27.0 million, or 13.2%, compared to $204.9 million for the year ended December 31, 2014. The increase was primarily driven by $58.4 million of additional expenses for Journal Newspapers, partially offset by a $14.5 million decline in employee expenses, a $6.0 million decline in newsprint expenses and other cost savings.

Selling, General and Administrative
Our selling and administrative expenses for the year ended December 31, 2015 was $176.8 million, an increase of $11.0 million, or 6.6%, compared to $165.8 million for the year ended December 31, 2014. The increase was primarily driven by $5.5 million of additional expenses for Journal Newspapers and $8.1 million of transition and integration costs, partially offset by cost savings initiatives.

For periods prior to April 1, 2015, the consolidated and combined financial statements include expense allocations from the Parent of Scripps Newspapers for certain corporate support services, which are recorded within selling, general and administrative expense in the Consolidated and Combined Statements of Operations. Management believes that the basis used for the allocations is reasonable and reflects the portion of such costs attributed to Scripps Newspapers operations; however, the amounts may not be representative of the costs necessary to operate as a separate stand-alone company. Management is unable to determine what such costs would have been had Scripps Newspapers been independent.

The corporate allocation included costs related to support Scripps Newspapers received from its Parent for certain corporate activities including: (i) executive management, (ii) corporate development, (iii) corporate relations, (iv) legal, (v) human resources, (vi) internal audit, (vii) financial reporting, (viii) tax, (ix) treasury, (x) centralized accounting, and (xi) other Parent corporate and infrastructure costs. For these services, actual costs incurred by the Parent were allocated to Scripps Newspapers based upon on a number of utilization measures including headcount, square footage, and proportionate effort. Where determinations based on utilization were impracticable, Scripps Newspapers used other methods and criteria that are believed to be reasonable estimates of costs attributable to the Scripps Newspapers, such as net sales.

Defined Pension and Benefit Plan Expense

Defined pension and benefit plan expense of $1.9 million in 2015 decreased by $4.9 million from $6.8 million in 2014 principally due to Scripps assuming defined pension plan obligations as of April 1, 2015.

Depreciation and Amortization

Depreciation and amortization expense of $21.1 million in 2015 increased by $4.2 million from $16.9 million in 2014 principally due to the acquisition of Journal Newspapers.

Other Expense, Net

Other expense, net was $0.6 million and $1.5 million for the years ended December 31, 2015 and 2014, respectively. The 2015 expense includes partnership losses related to our investment in Albuquerque Publishing Company ("APC") and the 2014 expense includes losses on the disposal of property, plant and equipment.

Income Taxes

Our effective tax rate for the years ended December 31, 2015 and 2014 was 65.4% and (1.6)%, respectively. Our higher effective tax rate for the year ended December 31, 2015 is attributable primarily to the Scripps Newspaper loss in the first quarter of 2015

25


(which is a non-deductible permanent difference because, for tax purposes, the loss will be claimed by Scripps and not Journal Media Group) and state income taxes. The effective tax rate for the year ended December 31, 2014 was attributable to the full valuation allowance recorded by Scripps Newspapers.

Net Income (Loss)

Our net income for the year ended December 31, 2015 was $3.0 million, an improvement of $29.0 million compared to a net loss of $26.0 million for the year ended December 31, 2014. The improvement was due to the factors noted above.

Income (loss) per Share

Basic and diluted net income (loss) per share were $0.12 and $(1.78) in the years ended December 31, 2015 and 2014, respectively.

EBITDA

EBITDA for the year ended December 31, 2015 was $30.4 million, an improvement of $37.6 million compared to $(7.2) million for the year ended December 31, 2014. We define EBITDA as net earnings (loss) excluding earnings from discontinued operations, net, provision (benefit) for income taxes, total other (income) expense, net, depreciation and amortization. Management primarily uses EBITDA, among other things, to evaluate our operating performance compared to our operating plans and/or prior years and to value prospective acquisitions. We believe the presentation of this measure is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by management, helps to improve their ability to understand our operating performance and makes it easier to compare our results with other companies that have different financing and capital structures or tax rates. EBITDA is also a primary measure used externally by our investors and our peers in our industry for purposes of valuation and comparing our operating performance to other companies in the industry. EBITDA is not a measure of performance calculated in accordance with GAAP. EBITDA should not be considered in isolation of, or as a substitute for, net income as an indicator of operating performance. EBITDA, as we calculate it, may not be comparable to EBITDA measures reported by other companies.

The following table presents a reconciliation of our consolidated net income (loss) to EBITDA for the years ended December 31, 2015 and 2014:
 
 
2015
 
2014
 
 
(dollars in millions)
Net income (loss) (1)
 
$
3.0

 
$
(26.0
)
Provision for income taxes
 
5.7

 
0.4

Other expense, net
 
0.6

 
1.5

Depreciation and amortization
 
21.1

 
16.9

EBITDA
 
$
30.4

 
$
(7.2
)

(1) Included in net income for the year ended December 31, 2015 are transition and integration costs of $8.1 million, workforce reduction charges of $2.5 million and impairment charges of $0.3 million. Included in the net loss for the year ended December 31, 2014 are workforce reduction charges of $2.3 million and impairment charges of $0.5 million.

The increase in EBITDA is consistent with the increase in operating earnings for the reasons described above.


26


2014 Compared to 2013

The following table summarizes our results of operations for the years ended December 31, 2014 and 2013:

 
 
2014
 
2013
 
 
 
 
(dollars in millions)
 
% Change
Operating revenue:
 
 
 
 
 
 
Advertising and marketing services
 
$
228.0

 
$
245.3

 
(7.1
)%
Subscriptions
 
121.6

 
117.5

 
3.5
 %
Other
 
20.7

 
21.4

 
(3.1
)%
Total revenue
 
370.3

 
384.2

 
(3.6
)%
Operating costs and expenses:
 
 
 
 
 
 
Costs of sales (exclusive of items shown below)
 
204.9

 
213.5

 
(4.0
)%
Selling, general and administrative (exclusive of items shown below)
 
165.8

 
167.8

 
(1.2
)%
Defined pension and benefit plan expense
 
6.8

 
4.3

 
58.5
 %
Depreciation and amortization
 
16.9

 
17.2

 
(2.0
)%
Total operating costs and expenses
 
394.4

 
402.8

 
(2.1
)%
Operating income (loss)
 
(24.1
)
 
(18.6
)
 
(29.5
)%
Other expense, net
 
(1.5
)
 
(0.3
)
 
U
Income (loss) before income taxes
 
(25.6
)
 
(18.9
)
 
(35.2
)%
Provision (benefit) for income taxes
 
0.4

 
(2.1
)
 
U
Net income (loss)
 
(26.0
)
 
(16.8
)
 
(54.3
)%
Net loss attributable to noncontrolling interests
 
(0.2
)
 
(0.1
)
 
(61.9
)%
Net loss attributable to Parent
 
$
(25.8
)
 
$
(16.7
)
 
(54.3
)%
F - Greater than 100% favorable variance
U - Greater than 100% unfavorable variance
Revenue

Advertising and marketing services revenue decreased by $17.3 million, or 7.1%, for the year ended December 31, 2014 compared to the year ended December 31, 2013 as a result of continued secular changes in the demand for print advertising.

Subscriptions include fees paid by readers for access to content in print and digital formats. We offer bundled subscriptions where our subscribers receive access to all of our newspaper content on all platforms. Only limited digital content is available to non-subscribers. We also offer digital-only subscriptions. As of December 31, 2014, we had approximately 34,000 digital-only subscribers across all of our markets. Subscription revenue increased by $4.1 million, or 3.5%, in the year ended December 31, 2014 compared to the year ended December 31, 2013, driven by the roll-out of our bundled subscription model, increases in single-copy prices and digital-only subscriptions.

Other revenues, including commercial printing and distribution services, decreased by $0.7 million, or 3.1%, for the year ended December 31, 2014 compared to the year ended December 31, 2013 as a result of a decrease in distribution services.

Cost of Sales

Our cost of sales for the year ended December 31, 2014 was $204.9 million, a decrease of $8.6 million, or 4.0%, compared to $213.5 million for the year ended December 31, 2013 as a result of declines in employee costs, newsprint, and other variable production and distribution costs.


27


Selling, General and Administrative
Our selling and administrative expenses for the year ended December 31, 2014 was $165.8 million, a decrease of $2.0 million, or 1.2%, compared to $167.8 million for the year ended December 31, 2013 as a result of declines in employee costs and other variable production and distribution costs.

Other Expense, Net

Other expense, net was $1.5 million and $0.3 million for the years ended December 31, 2014 and 2013, respectively. The increase was due to losses on the disposal of property, plant and equipment.

Income Taxes

Our effective tax rate for the years ended December 31, 2014 and 2013 was (1.6)% and 11.0%, respectively. The effective tax rate for the year ended December 31, 2014 was attributable to the full valuation allowance recorded by Scripps Newspapers.

Net Loss

Our net loss for the year ended December 31, 2014 was $26.0 million, a decline of $9.2 million compared to a net loss of $16.8 million for the year ended December 31, 2013. The decline was due to a decrease in revenue for the reasons described above.

Loss per Share

Basic and diluted net loss per share were $1.78 and $1.16 in the years ended December 31, 2014 and 2013, respectively.

EBITDA

EBITDA for the year ended December 31, 2014 was $(7.2) million, a decline of $5.8 million compared to $(1.4) million for the year ended December 31, 2013.

The following table presents a reconciliation of our consolidated net earnings to EBITDA for the years ended December 31, 2014 and 2013:
 
 
2014
 
2013
 
 
(dollars in millions)
Net loss (1)
 
$
(26.0
)
 
$
(16.8
)
Provision (benefit) for income taxes
 
0.4

 
(2.1
)
Other expense, net
 
1.5

 
0.3

Depreciation and amortization
 
16.9

 
17.2

EBITDA
 
$
(7.2
)
 
$
(1.4
)

(1) Included in net loss for the year ended December 31, 2014 are workforce reduction charges of $2.3 million and impairment charges of $0.5 million. Included in net loss for the year ended December 31, 2013 are workforce reduction charges of $1.3 million.

The decrease in EBITDA is consistent with the decrease in operating earnings for the reasons described above.


Liquidity and Capital Resources

Prior to April 1, 2015, Scripps Newspapers participated in its Parent's controlled disbursement system, pursuant to which the bank sent daily notifications of checks presented for payment and transferred funds from other sources to cover the checks. Scripps Newspapers cash balance held by its Parent was reduced as checks were issued. Accordingly, none of the Parent's cash and cash equivalents has been assigned to Scripps Newspapers in the combined financial statements. Further, outstanding checks issued by the Parent were not recorded as a liability when the check was signed, as the obligation became tied to the central cash management arrangement.

28


Beginning April 1, 2015, our capital structure and sources of liquidity were significantly different from Scripps Newspapers historical capital structure. If our cash flows from operating activities are lower than expected, we may need to borrow under our line of credit, incur debt or issue additional equity. Although we have a credit facility to finance our operations, our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including (i) our credit rating or absence of a credit rating, (ii) the liquidity of the overall capital markets and (iii) the current state of the economy. We expect our future cash needs will be for working capital, capital expenditures, dividends, contractual commitments and strategic investments.

On April 1, 2015, we entered into a five-year credit agreement maturing on April 1, 2020. The credit agreement provides for a revolving credit facility with total aggregate commitments of $50 million. As of December 31, 2015, there were no borrowings outstanding. For additional information, see Note 11 - Long-Term Debt.
We expect that cash provided by operating activities and the available capacity under our line of credit will provide sufficient funds to operate our business and meet our other liquidity needs for at least the next twelve months.

Workforce Reductions

We expect that our liability for workforce reduction costs of $1.5 million as of December 31, 2015 will be paid by the first half of 2016. The activity associated with our liability for workforce reduction costs during the years ended December 31, 2015 and 2014 was as follows (in millions):

As of December 31, 2013
$
1.8

Charge for separation benefits
2.3

Payments for separation benefits
(2.6
)
As of December 31, 2014
1.5

Charge for separation benefits
2.5

Acquisition of JRN Newspapers
1.7

Payments for separation benefits
(4.3
)
As of December 31, 2015
$
1.5


Dividends Declared

During 2015, the Board of Directors declared cash dividends of $0.16 per share using $4.0 million of cash. On February 8, 2016, the Company announced a first quarter 2016 cash dividend of $0.06 per share of Journal Media Group Common Stock. The dividend was paid on March 1, 2016 to shareholders of record as of the close of business on February 19, 2016 using $1.5 million of cash.

Share Repurchase Program

On August 13, 2015, the Board of Directors authorized a share repurchase program of up to $25 million of our outstanding common stock over 36 months. Under the program, share repurchases may be made at the discretion of the Company, from time to time, in the open market and/or in private transactions. Share purchases by the Company will depend on market conditions, share price, trading volume and other factors. The Merger Agreement with Gannett precludes us from repurchasing shares.

Cash Flows

Operating Activities

2015 to 2014

Cash provided by operating activities was $24.7 million in the year ended December 31, 2015 compared to cash used in operating activities of $1.9 million in the year ended December 31, 2014. The increase was primarily due to cash provided by improved operating results, and $2.0 million that we owe to Scripps as of December 31, 2015 for payroll processing and other payments made on our behalf, which was subsequently paid in the first quarter of 2016.


29


2014 to 2013
The $0.1 million increase in cash used in operating activities was attributable to an increase in our pretax loss, offset by changes in working capital and our withdrawal from one of the multi-employer pension plans. Changes in working capital increased $2.6 million compared to prior year, primarily as a result of an increase in collections of accounts receivable year over year, partially offset by a decrease in accounts payable due to timing of payments. In 2014, we recorded a $4.1 million liability related to the withdrawal from one of the multi-employer pension plans which was not settled during the year.

Investing Activities

2015 to 2014

Cash provided by investing activities was $7.8 million in the year ended December 31, 2015 compared to cash used in investing activities of $1.6 million in the year ended December 31, 2014, primarily driven by $10.5 million in cash contributed by Journal as part of the Journal Newspapers acquisition, partially offset by capital expenditures and a $0.5 million capital contribution to our APC partnership. Capital expenditures were $4.3 million in the year ended December 31, 2015 compared to $2.7 million in the year ended December 31, 2014. Our capital expenditures in the year ended December 31, 2015 were primarily for information technology and production equipment.

2014 to 2013

In 2014 and 2013 we used $1.6 million and $3.3 million, respectively, in cash for investing activities.

Financing Activities

2015 to 2014

Cash used in financing activities was $3.5 million in the year ended December 31, 2015 compared to cash provided by financing activities of $3.5 million in the year ended December 31, 2014. Financing activities for the year ended December 31, 2015 included dividend payments totaling $4.0 million and $0.6 million in financing costs related to the credit facility entered into on April 1, 2015. We have not drawn on our credit facility.

2014 to 2013

Cash provided by financing activities was $3.5 million and $5.2 million in 2014 and 2013, respectively. Our Parent provided cash as needed to fund our operating activities and retained any excess cash flow.


30


Contractual Obligations
A summary of contractual cash commitments as of December 31, 2015 is as follows:
 
 
Payments due by Period
 
 
 
 
Less than 1
 
1-3
 
3-5
 
More than
 
 
Total
 
year
 
years
 
years
 
5 years
 
 
(dollars in millions)
Employee compensation and benefits:
 
 
 
 
 
 
 
 
 
 
Deferred compensation and other post-employment benefits
 
$
8.5

 
$
1.1

 
$
2.0

 
$
1.8

 
$
3.6

Operating leases:
 
 
 
 
 
 
 
 
 
 
Noncancellable
 
2.8

 
1.7

 
1.1

 

 

Pension obligations:
 
 
 
 
 
 
 
 
 
 
SERP funding
 
3.6

 
0.4

 
0.7

 
0.7

 
1.8

Other commitments:
 
 
 
 
 
 
 
 
 
 
Other purchase and service commitments
 
12.9

 
6.4

 
5.0

 
1.5

 

Total contractual cash obligations
 
$
27.8

 
$
9.6

 
$
8.8

 
$
4.0

 
$
5.4


Deferred compensation and other post employment benefits — We have deferred compensation agreements in effect with certain prior and current employees. Other post employment benefits includes obligations under our Journal Media Group postretirement plan ("JMG OPEB"). Unfunded JMG OPEB plan obligations are expected to be funded directly from Company assets through 2025. While benefit payments under these benefit plans are expected to continue beyond 2025, we believe that an estimate beyond this period is unreasonable and consequently, such payments beyond 2025 have been excluded in their entirety from the table above.
Operating Leases — We obtain certain office and warehouse space under multi-year lease agreements. Leases for office and warehouse space are generally not cancellable prior to their expiration.
Leases for operating and office equipment are generally cancellable by either party with 30 to 90 days notice. However, such contracts are expected to remain in force throughout the terms of the leases. The amounts included in the table above represent the amounts due under the agreements assuming the agreements are not canceled prior to their expiration.
It is expected that the operating leases will be renewed or replaced with similar agreements upon their expiration.
SERP Funding — We sponsor a non-qualified Supplemental Executive Retirement Plan ("JMG SERP"), which covers certain executive employees. Payments for the JMG SERP plan have been estimated over a 10-year period. Accordingly, amounts in the "over 5 years" column include estimated payments for the periods of 2021-2025. While benefit payments under these plans are expected to continue beyond 2025, we do not believe it is practicable to estimate payments beyond this period.
Purchase Commitments — We obtain certain other services under multi-year agreements. These agreements are generally not cancellable prior to expiration of the service agreement. It is expected that such agreements will be renewed or replaced with similar agreements upon their expiration.

We may also enter into contracts with certain vendors and suppliers, including most of our newsprint vendors. These contracts typically do not require the purchase of fixed or minimum quantities and generally may be terminated at any time without penalty. Included in the table of contractual obligations are purchase orders placed as of December 31, 2015. Purchase orders placed with vendors, including those with whom we maintain contractual relationships, are generally cancellable prior to shipment. While these vendor agreements do not require the purchase of a minimum quantity of goods or services, and generally the orders can be canceled prior to shipment, we expect expenditures for goods and services in future periods will approximate those in prior years.


31


Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires us to make a variety of decisions that affect reported amounts and related disclosures, including the selection of appropriate accounting principles and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgment based on our understanding and analysis of the relevant circumstances, including its historical experience, actuarial studies and other assumptions. We are committed to incorporating accounting principles, assumptions and estimates that promote the representational faithfulness, verifiability, neutrality and transparency of the accounting information included in the consolidated and combined financial statements.

The Notes to the Consolidated and Combined Financial Statements describes the significant accounting policies that have been selected for use in the preparation of our financial statements and related disclosures. We believe the following to be the most critical accounting policies, estimates and assumptions affecting its reported amounts and related disclosures.

Goodwill and Long-Lived Assets — Goodwill for each reporting unit must be tested for impairment on an annual basis or when events occur or circumstances change that would indicate the fair value of a reporting unit is below its carrying value. At December 31, 2015, we had $9.2 million of goodwill, all related to our JRN Newspapers reporting unit. JRN Newspapers is the only reporting unit for goodwill impairment testing purposes. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill for the reporting unit is less than its carrying value.

For our annual impairment testing, we have utilized the Step 1, quantitative approach for performing our annual goodwill test. Under that approach, we determine the fair value of our reporting unit generally using market data, comparable merger and acquisition values and discounted cash flow analyses. The use of a discounted cash flow analysis requires significant judgment to estimate the future cash flows derived from the asset or business and the period of time over which those cash flows will occur and to determine an appropriate discount rate. While we believe the estimates and judgments used in determining the fair values were appropriate, different assumptions with respect to future cash flows, long-term growth rates and discount rates could produce a different estimate of fair value. The estimate of fair value assumes certain growth of our businesses, which if not achieved could impact the fair value and possibly result in an impairment of the goodwill. Our annual impairment testing for goodwill indicated that the fair value of the JRN Newspapers reporting unit exceeded the carrying value by over 10%.

Long-lived assets (primarily property, plant and equipment and amortizable intangible assets) must be tested for impairment whenever events occur or circumstances change that indicate that the carrying value of an asset or asset group may not be recoverable. A long-lived asset group is determined not to be recoverable if the estimated future undiscounted cash flows of the asset group are less than the carrying value of the asset group.
Estimating undiscounted cash flows requires significant judgments and estimates. We continually monitor the estimated cash flows of our newspaper properties and may incur impairment charges if future cash flows are less than current estimates.

Income Taxes — The accounting for uncertain tax positions and the application of income tax law is inherently complex. As such, we are required to make many assumptions and judgments regarding our income tax positions and the likelihood of whether such tax positions would be sustained if challenged. Interpretations and guidance surrounding income tax laws and regulations change over time. As such, changes in our assumptions and judgments can materially affect amounts recognized in the consolidated and combined financial statements.

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. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable losses and projections for future taxable loss over the periods in which the net deferred tax assets are deductible in certain jurisdictions, management believes it is more likely that we will not realize the benefit of most of its net deferred tax assets. As of December 31, 2015 and 2014, in jurisdictions in which there is a net deferred tax asset, we have established a full valuation allowance.

We are required to assess the likelihood that our deferred tax assets, which include net operating loss carryforwards and temporary differences that are expected to be deductible in future years, will be recoverable from the carryback to prior years, carryforward to future years or through other prudent and feasible tax planning strategies. If recovery is not likely, we have to provide a valuation allowance based on our estimates of future taxable income in the various taxing jurisdictions, and the amount of deferred taxes that are ultimately realizable. The provision for current and deferred taxes involves evaluations and judgments of uncertainties in the interpretation of complex tax regulations by various taxing authorities. Actual results could differ from our estimates and if we determine that the deferred tax asset we would realize would be greater or less than the net amount recorded, an adjustment would be made to the tax provision in that period.

32



Pension and other Post Retirement Benefit Plans
The measurement of our defined benefit obligation and related expense is dependent on a variety of estimates, including: discount rates; expected long-term rate of return on plan assets (prior to April 1, 2015); and employee turnover, mortality and retirement ages. We review these assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when appropriate. In accordance with accounting principles, we record the effects of these modifications currently or amortize them over future periods. We consider the most critical of our pension estimates to be the discount rate and the expected long-term rate of return on plan assets.
The assumptions used in accounting for our defined benefit plans for 2015 and 2014 are as follows:
 
 
2015
 
2014
Discount rate for expense
 
3.25% - 4.20%
 
5.08
%
Discount rate for obligations
 
3.25% - 4.20%
 
4.23
%
Long-term rate of return on plan assets
 
N/A
 
5.25
%

The discount rate used to determine our future pension obligations is based upon a dedicated bond portfolio approach that includes securities rated Aa or better with maturities matching our expected benefit payments from the plans. The rate is determined each year at the plan measurement date and affects the succeeding year’s pension cost. Discount rates can change from year to year based on economic conditions that impact corporate bond yields. A decrease in the discount rate increases pension obligations and pension expense.

The methodology for selecting the year-end 2015 weighted-average discount rate for the Company’s domestic postretirement plans was to match the plans’ yearly projected cash flows for benefits and service costs to those of hypothetical bond portfolios using bonds with an AA average rating in the Aon Hewitt universe as of the measurement date. The Company uses the calendar year end as the measurement date for its plans.

For 2016, the actuarial calculations assume a pre-65 health care cost trend rate of 8.5% and a post-65 health care cost trend rate of 8.7%, both decreasing gradually to 5.00% in 2038 and thereafter. As of 2015 year end, a one-percentage-point increase in the health care cost trend rate for future years would increase the accumulated postretirement benefit obligation by approximately$44. Conversely, a one-percentage-point decrease in the health care cost trend rate for future years would decrease the accumulated postretirement benefit obligation by $43. As of 2015 year end, a one-percentage-point increase in the OPEB discount rate would decrease the projected benefit obligation by approximately $487. A one-percentage-point decrease in the OPEB discount rate for future years would increase the projected benefit obligation by $546.

As of 2015 year end, a one-percentage-point increase in the SERP discount rate would decrease the projected benefit obligation by approximately $390. A one-percentage-point decrease in the SERP discount rate for future years would increase the projected benefit obligation by $458.

Business Combinations We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from customer relationships, trade names and developed technology and discount rates. Management's estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.

Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed.

Recently Issued Accounting Standards

A summary of the recently issued accounting standards are described in Note 3 - Recently-Issued Accounting Standards of this Form 10-K.


33


ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Price fluctuations for newsprint may have a significant effect on our results of operations. We have not entered into derivative instruments to manage our exposure to newsprint price risk.


34


ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

JOURNAL MEDIA GROUP, INC.
Consolidated and Combined Balance Sheets
(in thousands, except share and per share amounts)
 
 
December 31, 2015
 
December 31, 2014
 
 
 
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
29,036

 
$

Accounts receivable (less allowance of $847 and $746, respectively)
 
51,136

 
36,958

Inventories
 
6,764

 
6,184

Prepaid expenses and other current assets
 
6,021

 
1,937

Total current assets
 
92,957

 
45,079

Property, plant and equipment (less accumulated depreciation of $268,513 and $256,603, respectively)
 
242,341

 
185,548

Goodwill
 
9,157

 

Other intangible assets, net
 
11,021

 
2,001

Other assets
 
3,980

 
2,018

Total assets
 
$
359,456

 
$
234,646

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
14,893

 
$
10,573

Accrued compensation and benefits
 
21,364

 
12,404

Deferred revenue
 
33,443

 
21,136

Other current liabilities
 
6,675

 
4,097

Total current liabilities
 
76,375

 
48,210

Accrued employee compensation and benefits
 
2,047

 
4,201

Accrued pension and retirement benefits
 
11,605

 
5,318

Deferred income taxes
 
16,953

 

Multi-employer plan withdrawal liability
 

 
4,100

Other long-term liabilities
 
2,777

 
3,570

Commitments and contingencies (Note 16)
 

 

Equity:
 
 
 
 
Stockholders' equity:
 
 
 
 
Common stock - $0.01 par value, authorized 100,000,000 shares; issued and outstanding: 24,407,533 shares at December 31, 2015
 
244

 

Preferred stock - $0.01 par value, authorized 10,000,000 shares; issued and outstanding: 0 shares at December 31, 2015
 

 

Additional paid-in capital
 
247,014

 

Parent company equity
 

 
169,575

Accumulated other comprehensive loss
 
(2,587
)
 
(2,782
)
Retained earnings
 
2,672

 

Total stockholders' equity
 
247,343

 
166,793

Noncontrolling interests
 
2,356

 
2,454

Total equity
 
249,699

 
169,247

Total liabilities and equity
 
$
359,456

 
$
234,646

See notes to consolidated and combined financial statements.

35


JOURNAL MEDIA GROUP, INC.
Consolidated and Combined Statements of Operations
(in thousands, except per share amounts)
 
 
For the years ended December 31,
 
 
2015
 
2014
 
2013
Operating revenue:
 
 
 
 
 
 
Advertising and marketing services
 
$
258,827

 
$
228,036

 
$
245,334

Subscriptions
 
150,388

 
121,565

 
117,463

Other
 
31,791

 
20,731

 
21,402

Total revenue
 
441,006

 
370,332

 
384,199

Operating costs and expenses:
 
 
 
 
 
 
Costs of sales (exclusive of items shown below)
 
231,874

 
204,915

 
213,488

Selling, general and administrative (exclusive of items shown below)
 
176,783

 
165,842

 
167,803

Defined pension and benefit plan expense
 
1,896

 
6,773

 
4,274

Depreciation and amortization
 
21,134

 
16,890

 
17,240

Total operating costs and expenses
 
431,687

 
394,420

 
402,805

Operating income (loss)
 
9,319

 
(24,088
)
 
(18,606
)
Other expense, net
 
(569
)
 
(1,469
)
 
(293
)
Income (loss) before income taxes
 
8,750

 
(25,557
)
 
(18,899
)
Provision (benefit) for income taxes
 
5,721

 
413

 
(2,070
)
Net income (loss)
 
3,029

 
(25,970
)
 
(16,829
)
Net loss attributable to noncontrolling interests
 
(98
)
 
(204
)
 
(126
)
Net income (loss) attributable to Journal Media Group
 
$
3,127

 
$
(25,766
)
 
$
(16,703
)
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
Basic
 
$
0.12

 
$
(1.78
)
 
$
(1.16
)
Diluted
 
$
0.12

 
$
(1.78
)
 
$
(1.16
)
 
 
 
 
 
 
 
Dividends declared per share
 
$
0.16

 
$

 
$

See notes to consolidated and combined financial statements.

36


JOURNAL MEDIA GROUP, INC.
Consolidated and Combined Statements of Comprehensive Income (Loss)
(in thousands)
 
 
For the years ended December 31,
 
 
2015
 
2014
 
2013
 
 
 
 
 
 
 
Net income (loss)
 
$
3,029

 
$
(25,970
)
 
$
(16,829
)
Changes in defined benefit pension and benefit plans, net of tax of $521, $0 and $2,211
 
886

 
(13,474
)
 
3,589

Immaterial prior period change in defined benefit pension plan for an unconsolidated company, net of tax of $451
 
(691
)
 

 

Other
 

 
(240
)
 
150

Total comprehensive income (loss) prior to noncontrolling interest
 
3,224

 
(39,684
)
 
(13,090
)
Less comprehensive loss attributable to noncontrolling interest
 
(98
)
 
(204
)
 
(126
)
Total comprehensive income (loss) attributable to Journal Media Group
 
$
3,322

 
$
(39,480
)
 
$
(12,964
)
See notes to consolidated and combined financial statements.

37


JOURNAL MEDIA GROUP, INC.
Consolidated and Combined Statements of Equity
(in thousands)
 
 
Common Stock
 
Additional Paid-in Capital
 
Parent Company Equity
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings
 
Non-controlling
Interests
 
Total
Equity
 
 
Shares
 
Amount
 
 
 
 
 
 
As of December 31, 2014
 

 
$

 
$

 
$
169,575

 
$
(2,782
)
 
$

 
$
2,454

 
$
169,247

Net earnings (loss)
 

 

 

 
(3,542
)
 

 
6,669

 
(98
)
 
3,029

Immaterial prior period change in defined benefit pension plan for an unconsolidated company, net of tax
 

 

 

 

 
(691
)
 

 

 
(691
)
Changes in defined benefit pension and benefit plans, net of tax
 

 

 

 

 
886

 

 

 
886

Dividends paid to shareholders
 

 

 

 

 

 
(3,997
)
 

 
(3,997
)
Conversion of Parent equity
 

 

 
31,609

 
(31,609
)
 

 

 

 

Transfers to Parent, net
 

 

 

 
(7,262
)
 

 

 

 
(7,262
)
Distribution of JMG stock to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
JRN shareholders
 
9,928

 
99

 
87,263

 

 

 

 

 
87,362

Scripps shareholders
 
14,450

 
145

 
127,017

 
(127,162
)
 

 

 

 

Shares issued under equity incentive plan
 
30

 

 
272

 

 

 

 

 
272

Stock-based compensation
 

 

 
853

 

 

 

 

 
853

As of December 31, 2015
 
24,408

 
$
244

 
$
247,014

 
$

 
$
(2,587
)
 
$
2,672

 
$
2,356

 
$
249,699



38


JOURNAL MEDIA GROUP, INC.
Consolidated and Combined Statements of Equity
(in thousands)
 
 
Parent Company Equity
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interests
 
Total
Equity
 
 
 
 
 
 
 
 
 
As of December 31, 2012
 
$
209,931

 
$
(16,934
)
 
$
2,784

 
$
195,781

Net loss
 
(16,703
)
 

 
(126
)
 
(16,829
)
Changes in defined benefit pension plans
 

 
3,589

 

 
3,589

Transfers from Parent, net
 
5,153

 

 

 
5,153

Other
 

 
150

 

 
150

As of December 31, 2013
 
198,381

 
(13,195
)
 
2,658

 
187,844

Net loss
 
(25,766
)
 

 
(204
)
 
(25,970
)
Changes in defined benefit pension plans
 

 
(13,474
)
 

 
(13,474
)
Transfer of Knoxville and Memphis defined benefit pension plans (Note 14)
 
(6,505
)
 
24,127

 

 
17,622

Transfers from Parent, net
 
3,465

 

 

 
3,465

Other
 

 
(240
)
 

 
(240
)
As of December 31, 2014
 
$
169,575

 
$
(2,782
)
 
$
2,454

 
$
169,247

See notes to consolidated and combined financial statements.


39


JOURNAL MEDIA GROUP, INC.
Consolidated and Combined Statements of Cash Flows
(in thousands)

 
For the years ended December 31,

 
2015

2014

2013
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
Net income (loss)
 
$
3,029

 
$
(25,970
)
 
$
(16,829
)
Adjustments for non-cash items:
 
 
 
 
 
 
Depreciation and amortization
 
21,134

 
16,890

 
17,240

Provision for doubtful accounts
 
1,117

 
632

 
877

Deferred income taxes
 
3,029

 

 
(2,479
)
Amortization of deferred financing costs
 
84

 

 

Non-cash stock-based compensation
 
1,125

 
1,426

 
1,368

Net (gain) loss from disposal of assets
 
(768
)
 
612

 
(130
)
Impairment of long-lived assets
 
265

 

 

Multi-employer plan withdrawal accrual
 

 
4,100

 

Net changes in operating assets and liabilities:
 
 
 
 
 
 
Receivables
 
(2,936
)
 
4,988

 
99

Inventories
 
1,492

 
358

 
(106
)
Accounts payable
 
696

 
2,223

 
1,011

Payable to Scripps
 
1,986

 

 

Other assets and liabilities
 
(5,546
)
 
(7,160
)
 
(2,896
)
Net cash provided by (used in) operating activities
 
24,707

 
(1,901
)
 
(1,845
)
 
 
 
 
 
 
 
Cash flows from investing activities: