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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________________________________________________
FORM 10-Q
________________________________________________________________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2018
OR 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number:001-36097
 ________________________________________________________________
New Media Investment Group Inc.
(Exact name of registrant as specified in its charter)
 ________________________________________________________________
Delaware
 
38-3910250
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
1345 Avenue of the Americas 45th floor,
New York, NY
 
10105
(Address of principal executive offices)
 
(Zip Code)
Telephone: (212) 479-3160
(Registrant’s telephone number, including area code)
 __________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
 
Accelerated filer
¨
 
Emerging growth company
¨
 
 
 
 
 
 
 
 
 
Non-accelerated filer
 
¨
 
Smaller reporting company
¨
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

As of July 31, 2018, 60,293,003 shares of the registrant’s common stock were outstanding.
 



CAUTIONARY NOTE REGARDING FORWARD LOOKING INFORMATION

Certain statements in this report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views regarding, among other things, our future growth, results of operations, performance and business prospects and opportunities, as well as other statements that are other than historical fact. Words such as “anticipate(s),” “expect(s)”, “intend(s)”, “plan(s)”, “target(s)”, “project(s)”, “believe(s)”, “will”, “aim”, “would”, “seek(s)”, “estimate(s)” and similar expressions are intended to identify such forward-looking statements.
Forward-looking statements are based on management’s current expectations and beliefs and are subject to a number of known and unknown risks, uncertainties and other factors that could lead to actual results materially different from those described in the forward-looking statements. We can give no assurance that our expectations will be attained. Our actual results, liquidity and financial condition may differ from the anticipated results, liquidity and financial condition indicated in these forward-looking statements. These forward looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause our actual results to differ, possibly materially from expectations or estimates reflected in such forward-looking statements, including, among others:
general economic and market conditions;
economic conditions in the Northeast, Southeast and Midwest regions of the United States;
declining advertising and circulation revenues;
our ability to grow our digital marketing and business services and digital audience and advertiser base;
the growing shift within the publishing industry from traditional print media to digital forms of publication;
our ability to grow our business organically through both our consumer and small to medium size business strategies:
our ability to acquire local media print assets at attractive valuations;
the risk that we may not realize the anticipated benefits of our recent or potential future acquisitions;
the availability and cost of capital for future investments;
our indebtedness may restrict our operations and / or require us to dedicate a portion of cash flow from operations to the payment of principal and interest;
our ability to pay dividends consistent with prior practice or at all;
our ability to reduce costs and expenses;
our ability to realize the benefits of the Management Agreement (as defined below);
the impact of any material transactions with the Manager (as defined below) or one of its affiliates, including the impact of any actual, potential or perceived conflicts of interest;
effects of the completed merger of Fortress Investment Group LLC with affiliates of SoftBank Group Corp.;
the competitive environment in which we operate; and
our ability to recruit and retain key personnel.
Additional risk factors that could cause actual results to differ materially from our expectations include, but are not limited to, the risks identified by us under the heading “Risk Factors” in Part II, Item 1A of this report. Such forward-looking statements speak only as of the date on which they are made. Except to the extent required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.




2



 
 
Page
 
 
 
PART I.
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 


3




Item 1.
Financial Statements
NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
 
July 1, 2018
 
December 31, 2017
 
 
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
73,755

 
$
43,056

Restricted cash
3,106

 
3,106

Accounts receivable, net of allowance for doubtful accounts of $7,217 and
$5,998 at July 1, 2018 and December 31, 2017, respectively
150,994

 
151,692

Inventory
24,853

 
18,654

Prepaid expenses
28,988

 
23,378

Other current assets
17,839

 
23,311

Total current assets
299,535


263,197

Property, plant, and equipment, net of accumulated depreciation of $193,736
and $171,395 at July 1, 2018 and December 31, 2017, respectively
356,287

 
373,123

Goodwill
288,432

 
236,555

Intangible assets, net of accumulated amortization of $82,899 and $67,588
at July 1, 2018 and December 31, 2017, respectively
476,913

 
403,493

Other assets
8,890

 
7,178

Total assets
$
1,430,057


$
1,283,546

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Current portion of long-term debt
$
12,124

 
$
2,716

Accounts payable
16,367

 
15,750

Accrued expenses
93,677

 
97,027

Deferred revenue
105,570

 
88,164

Total current liabilities
227,738


203,657

Long-term liabilities:
 
 
 
Long-term debt
396,053

 
357,195

Deferred income taxes
10,344

 
8,080

Pension and other postretirement benefit obligations
24,644

 
25,462

Other long-term liabilities
15,993

 
14,759

Total liabilities
674,772


609,153

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value, 2,000,000,000 shares authorized; 60,486,837
shares issued and 60,293,003 shares outstanding at July 1, 2018;
53,367,853 shares issued and 53,226,881 shares outstanding at
December 31, 2017
605

 
534

Additional paid-in capital
758,466

 
683,168

Accumulated other comprehensive loss
(5,596
)
 
(5,461
)
Retained earnings (accumulated deficit)
3,644

 
(2,767
)
Treasury stock, at cost, 193,834 and 140,972 shares at July 1, 2018 and
December 31, 2017, respectively
(1,834
)
 
(1,081
)
Total stockholders’ equity
755,285


674,393

Total liabilities and stockholders’ equity
$
1,430,057


$
1,283,546

See accompanying notes to unaudited condensed consolidated financial statements.

4



NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(In thousands, except per share data)
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
Revenues:
 
 
 
 
 
 
 
Advertising
$
187,609

 
$
167,381

 
$
350,868

 
$
322,946

Circulation
144,536

 
110,563

 
274,527

 
221,368

Commercial printing and other
56,657

 
44,929

 
104,172

 
86,083

Total revenues
388,802

 
322,873

 
729,567

 
630,397

Operating costs and expenses:
 
 
 
 
 
 
 
Operating costs
217,775

 
177,020

 
414,164

 
354,811

Selling, general, and administrative
126,837

 
106,661

 
245,656

 
212,863

Depreciation and amortization
19,935

 
18,760

 
39,182

 
36,364

Integration and reorganization costs
1,749

 
2,237

 
4,179

 
4,607

Impairment of long-lived assets

 

 

 
6,485

Goodwill and mastheads impairment

 
27,448

 

 
27,448

Net gain on sale or disposal of assets
(808
)
 
(2,634
)
 
(3,979
)
 
(2,546
)
Operating income (loss)
23,314

 
(6,619
)
 
30,365

 
(9,635
)
Interest expense
8,999

 
7,217

 
17,351

 
14,435

Other income
(337
)
 
(104
)
 
(857
)
 
(322
)
Income (loss) before income taxes
14,652

 
(13,732
)
 
13,871

 
(23,748
)
Income tax expense
2,946

 
7,955

 
2,830

 
1,624

Net income (loss)
$
11,706

 
$
(21,687
)
 
$
11,041

 
$
(25,372
)
Income (loss) per share:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Net income (loss)
$
0.20

 
$
(0.41
)
 
$
0.20

 
$
(0.48
)
Diluted:
 
 
 
 
 
 
 
Net income (loss)
$
0.20

 
$
(0.41
)
 
$
0.20

 
$
(0.48
)
Dividends declared per share
$
0.37

 
$
0.35

 
$
0.74

 
$
0.70

Comprehensive income (loss)
$
11,774

 
$
(21,659
)
 
$
11,176

 
$
(25,316
)
See accompanying notes to unaudited condensed consolidated financial statements.


5



NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In thousands, except share data)
 
Common stock
 
Additional
paid-in capital
 
Accumulated 
other
comprehensive
loss
 
Retained earnings (accumulated deficit)
 
Treasury stock
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
Balance at December 31, 2017
53,367,853

 
$
534

 
$
683,168

 
$
(5,461
)
 
$
(2,767
)
 
140,972

 
$
(1,081
)
 
$
674,393

Net income

 

 

 

 
11,041

 

 

 
11,041

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

 

 

 
(135
)
 

 

 

 
(135
)
Restricted share grants
218,984

 
2

 
223

 

 

 

 

 
225

Non-cash compensation expense

 

 
1,832

 

 

 

 

 
1,832

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

 
69

 
110,650

 

 

 

 

 
110,719

Restricted share forfeiture

 

 

 

 

 
9,039

 

 

Purchase of treasury stock

 

 

 

 

 
43,823

 
(753
)
 
(753
)
Common stock cash dividend

 

 
(37,407
)
 

 
(4,630
)
 

 

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

 
$
605

 
$
758,466

 
$
(5,596
)
 
$
3,644

 
193,834

 
$
(1,834
)
 
$
755,285

See accompanying notes to unaudited condensed consolidated financial statements.

6



NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Six months ended
 
July 1, 2018
 
June 25, 2017
Cash flows from operating activities:
 
 
 
Net income (loss)
$
11,041

 
$
(25,372
)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
 
 
 
Depreciation and amortization
39,182

 
36,364

Non-cash compensation expense
1,832

 
1,595

Non-cash interest expense
1,078

 
1,392

Deferred income taxes
2,264

 
1,091

Net gain on sale or disposal of assets
(3,979
)
 
(2,546
)
Non-cash charge to investments

 
250

Impairment of long-lived assets

 
6,485

Goodwill and mastheads impairment

 
27,448

Pension and other postretirement benefit obligations
(984
)
 
(877
)
Changes in assets and liabilities:
 
 
 
Accounts receivable, net
15,591

 
15,519

Inventory
(4,858
)
 
1,043

Prepaid expenses
(3,777
)
 
(4,012
)
Other assets
5,255

 
(1,865
)
Accounts payable
(806
)
 
6,001

Accrued expenses
(6,845
)
 
(13,619
)
Deferred revenue
1,452

 
(301
)
Other long-term liabilities
1,157

 
1,043

Net cash provided by operating activities
57,603


49,639

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(149,604
)
 
(22,060
)
Purchases of property, plant, and equipment
(5,041
)
 
(4,824
)
Proceeds from sale of real estate and other assets
12,585

 
14,663

Net cash used in investing activities
(142,060
)

(12,221
)
Cash flows from financing activities:
 
 
 
Borrowings under term loans
49,750

 

Payment of debt issuance costs
(500
)
 

Repayments under term loans
(2,062
)
 
(11,754
)
Payment of offering costs
(152
)
 
(431
)
Issuance of common stock, net of underwriters' discount
111,099

 

Purchase of treasury stock
(753
)
 
(627
)
Repurchase of common stock

 
(5,001
)
Payment of dividends
(42,226
)
 
(37,524
)
Net cash provided by (used in) financing activities
115,156


(55,337
)
Net increase (decrease) in cash and cash equivalents
30,699

 
(17,919
)
Cash, cash equivalents and restricted cash at beginning of period
46,162

 
175,652

Cash, cash equivalents and restricted cash at end of period
$
76,861

 
$
157,733

 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.

7


NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)


(1) Unaudited Financial Statements
The accompanying unaudited condensed consolidated financial statements of New Media Investment Group Inc. and its subsidiaries (together, the “Company” or “New Media”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and applicable provisions of Regulation S-X, each as promulgated by the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in comprehensive annual financial statements presented in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations.
Management believes that the accompanying condensed consolidated financial statements contain all adjustments (which include normal recurring adjustments) that, in the opinion of management, are necessary to present fairly the Company’s consolidated financial condition, results of operations, changes in stockholders' equity and cash flows for the periods presented. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
New Media was formed as a Delaware corporation on June 18, 2013. New Media was capitalized by and issued 1,000 common shares to Newcastle Investment Corp. (“Newcastle”). New Media had no operations until November 26, 2013, when it assumed control of GateHouse Media, Inc. ("GateHouse") and Local Media Group Holdings LLC.  GateHouse was determined to be the predecessor to New Media, as the operations of GateHouse comprise substantially all of the business operations of the combined companies. Newcastle owned approximately 84.6% of New Media until February 13, 2014, upon which date Newcastle distributed the shares that it held in New Media to its shareholders on a pro rata basis.
Through July 1, 2018, the Company’s operating segments (Eastern US Publishing ("East"), Central US Publishing ("Central"), Western US Publishing ("West"), Recent Acquisitions and BridgeTower) are aggregated into one reportable business segment. On July 2, 2018, the operating segments were changed to Newspapers and BridgeTower. The operating segments will continue to be aggregated into one reportable business segment. Refer to Note 5 for further discussion.
The newspaper industry and the Company have experienced declining revenue and profitability over the past several years. As a result, the Company has implemented, and continues to implement, plans to reduce costs and preserve cash flow. This includes cost-reduction programs and the sale of non-core assets. The Company believes these initiatives along with cash provided by operating activities will provide it with the financial resources necessary to invest in the business and provide sufficient cash flow to enable the Company to meet its commitments. However, the Company recognized impairments of both goodwill and mastheads during the second quarter of 2017. Refer to Note 5 for further discussion.
Reclassifications
Certain amounts in the prior period's condensed consolidated financial statements have been reclassified to conform to the current year presentation.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC Topic 606"). ASC Topic 606 replaces all current U.S. GAAP guidance for revenue recognition and eliminates industry-specific guidance. The new standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March 2016, the FASB issued ASU No. 2016-08, “Revenue from

8



Contracts with Customers - Principal versus Agent Considerations” (ASU 2016-08), which amends ASC Topic 606 and clarifies the implementation guidance on principal versus agent considerations. The Company adopted ASC Topic 606 on January 1, 2018 using the modified retrospective approach. Refer to Note 10 for the discussion of the impact of the adoption of the new standard.
In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), “Leases (Topic 842)", which revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset on the balance sheet for all leases with terms greater than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The provisions of ASU 2016-02 are to be applied using a modified retrospective approach and are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The Company intends to adopt the standard on December 31, 2018. The Company expects to report comparative periods presented under current GAAP and does not expect to restate prior periods as a result of the adoption of ASU 2016-02. The Company continues to evaluate the effect that ASU 2016-02 will have on the consolidated financial statements, but it expects the ASU will have a material effect on the Consolidated Balance Sheets due to the recognition of most of its operating leases as both right-of-use assets and lease liabilities.
In November 2016, the FASB issued ASU No. 2016-18, “Restricted Cash” (Topic 230), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. The Company adopted this standard on January 1, 2018 using a retrospective transition method. The impact of the new standard is that the Company’s consolidated statements of cash flows now present the change in a combined amount for both restricted and unrestricted cash and cash equivalents for all periods presented.
In January 2017, the FASB issued ASU No. 2017-01, “Business Combinations - Clarifying the Definition of a Business” (Topic 805), which clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The Company adopted this standard on January 1, 2018 and will apply the standard prospectively to determine whether certain future transactions should be accounted for as acquisitions of assets or businesses.
In March 2017, the FASB issued ASU No. 2017-07 “Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (Topic 715), which provides guidance that requires an employer to report the service cost component separate from the other components of net benefit pension costs. The employer is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside the subtotal of income from operations, if one is presented. If a separate line item is not used, the line item used in the income statement must be disclosed. The Company adopted the standard on January 1, 2018 using a retrospective transition method. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“AOCI”). This ASU provides entities the option to reclassify tax effects to retained earnings from AOCI which are impacted by the Tax Cuts and Jobs Act (“TCJA”). The ASU is effective for fiscal years beginning after December 15, 2018 but early adoption is permitted. The Company has a full valuation allowance for all tax benefits related to AOCI and therefore there are no tax effects to be reclassified to retained earnings for the year ended December 31, 2017.
All other issued and not yet effective accounting standards are not relevant to the Company.
(2) Acquisitions and Dispositions
2018 Acquisitions
The Company acquired substantially all the assets, properties and business of certain publications and businesses on June 18, 2018, June 4, 2018, May 11, 2018, May 1, 2018, April 2, 2018, March 31, 2018, March 6, 2018, February 28, 2018, February 23, 2018, and February 7, 2018 (“2018 Acquisitions”), which included seven daily newspapers, 16 weekly publications, one shopper, a print facility, cloud services and digital platforms, and domains, for an aggregate purchase price of $150,162, including estimated working capital. The acquisitions were financed from cash on hand. The rationale for the acquisitions was primarily due to the attractive nature, as applicable, of the newspaper assets and digital platforms, and their estimated cash flows combined with the cost-saving and revenue-generating opportunities available.

9



The Company accounted for the 2018 Acquisitions using the acquisition method of accounting for those acquisitions determined to meet the definition of a business. The net assets, including goodwill, have been recorded in the consolidated balance sheet at their fair values in accordance with Accounting Standards Codification ("ASC") 805, “Business Combinations” (“ASC 805”). The fair value determination of the assets acquired and liabilities assumed are preliminary based upon all information currently available to the Company and are subject to working capital and other adjustments and the completion of valuations to determine the fair market value of the tangible and intangible assets. The final calculation of working capital and other adjustments and determination of fair values for tangible and intangible assets may result in different allocations among the various asset classes from those set forth below and any such differences could be material.
The 2018 Acquisitions that were determined to be asset acquisitions were measured at the fair value of the consideration transferred on the acquisition date. Intangible assets acquired in an asset acquisition have been recognized in accordance with ASC 350 “Intangibles - Goodwill and Other”. Goodwill is not recognized in an asset acquisition.
The following table summarizes the preliminary determination of fair values of the assets and liabilities:
Current assets
$
18,805

Other assets
411

Property, plant and equipment
9,489

Advertiser relationships
34,874

Subscriber relationships
33,855

Customer relationships
8,573

Mastheads
11,708

Goodwill
51,426

Total assets
169,141

Current liabilities assumed
18,979

Net assets
$
150,162

The Company obtained third party independent valuations or performed similar calculations internally to assist in the determination of the fair values of certain assets acquired and liabilities assumed. Three basic approaches were used to determine value: the cost approach (used for equipment where an active secondary market is not available, building improvements, and software), the direct sales comparison (market) approach (used for land and equipment where an active secondary market is available) and the income approach (used for intangible assets).
The weighted average amortization periods for recently acquired amortizable intangible assets are equal to or similar to the periods presented in Note 5.
The Company recorded approximately $243 and $276 of selling, general and administrative expenses for acquisition-related costs for the 2018 Acquisitions during the three and six months ended July 1, 2018, respectively.
For tax purposes, the amount of goodwill that is expected to be deductible is $51,426.
2017 Acquisitions
The Company acquired substantially all the assets, properties and business of certain publications and businesses on November 6, 2017, October 30, 2017, October 2, 2017, July 6, 2017, June 30, 2017, February 10, 2017, and January 31, 2017 (“2017 Acquisitions”), which included four business publications, 22 daily newspapers, 34 weekly publications, 24 shoppers, two customer relationship management solutions providers, a social media app and an event production business for an aggregate purchase price of $165,053, including working capital. The acquisitions were financed from cash on hand. The rationale for the acquisitions was primarily due to the attractive nature, as applicable, of the newspaper assets and event production business, and cash flows combined with cost-saving and revenue-generating opportunities available.
The Company accounted for the 2017 Acquisitions using the acquisition method of accounting. The net assets, including goodwill, have been recorded in the consolidated balance sheet at their fair values in accordance with ASC 805. The fair value determination of the assets acquired and liabilities assumed are preliminary based upon all information available to the Company at the present time and are subject to working capital and other adjustments and subject to the completion of valuations to determine the fair market value of these tangible and intangible assets. The final calculation of working capital

10



and other adjustments and determination of fair values for tangible and intangible assets may result in different allocations among the various asset classes from those set forth below and any such differences could be material.
The following table summarizes the fair values of the assets and liabilities:
Current assets
$
20,870

Other assets
108

Property, plant and equipment
49,883

Noncompete agreements
532

Advertiser relationships
34,077

Subscriber relationships
26,926

Customer relationships
5,638

Software
704

Mastheads
9,902

Goodwill
37,652

Total assets
186,292

Current liabilities
21,100

Other long-term liabilities
139

Total liabilities
21,239

Net assets
$
165,053

The weighted average amortization periods for recently acquired amortizable intangible assets are equal to or similar to the periods presented in Note 5.
The Company recorded approximately $978 of selling, general and administrative expenses for acquisition-related costs for the 2017 Acquisitions.
For tax purposes, the amount of goodwill that is expected to be deductible is $37,652.
Dispositions
On May 11, 2018, the Company completed its sale of certain publications and related assets in Alaska for approximately $2,364, including estimated working capital. As a result, a nominal pre-tax gain, net of selling expenses, is included in net gain on sale or disposal of assets on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) during the three and six months ended July 1, 2018.
On February 27, 2018, the Company sold a parcel of land and building located in Framingham, Massachusetts for a sale price of $9,264, and recognized a pre-tax gain of approximately $3,337, net of selling expenses, which is included in net gain on sale or disposal of assets on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) during the six months ended July 1, 2018.
On June 2, 2017, the Company completed its sale of the Mail Tribune, located in Medford, Oregon, for approximately $14,700, including working capital.  As a result, a pre-tax gain of approximately $5,400, net of selling expenses, is included in net gain on sale or disposal of assets on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) during the three and six months ended June 25, 2017 since the disposition did not qualify for treatment as a discontinued operation.
(3) Share-Based Compensation
The Company recognized compensation cost for share-based payments of $669, $764, $1,832, and $1,595 during the three and six months ended July 1, 2018 and June 25, 2017, respectively. The total compensation cost not yet recognized related to non-vested Restricted Stock Grants (“RSGs”) pursuant to the Company’s Nonqualified Stock Option and Incentive Award

11



Plan as of July 1, 2018 was $5,075, which is expected to be recognized over a weighted average period of 2.15 years through May 2021. As of July 1, 2018, the aggregate intrinsic value of unvested RSGs was $6,965.
RSG activity during the six months ended July 1, 2018 was as follows:
 
Number of RSGs
 
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2017
342,264

 
$
16.86

Granted
205,976

 
16.37

Vested
(162,281
)
 
18.12

Forfeited
(9,039
)
 
16.87

Unvested at July 1, 2018
376,920

 
$
16.05

Under FASB ASC Topic 718, “Compensation – Stock Compensation”, the Company elected to recognize share-based compensation expense for the number of awards that are ultimately expected to vest. The Company’s estimated forfeitures are based on historical forfeiture rates. Estimated forfeitures are reassessed periodically, and the estimate may change based on new facts and circumstances.
(4) Restructuring
Over the past several years, in furtherance of the Company’s cost-reduction and cash-preservation plans outlined in Note 1, the Company has engaged in a series of individual restructuring programs, designed primarily to right-size the Company’s employee base, consolidate facilities and improve operations, including those of recently acquired entities. These initiatives impact all of the Company’s geographic regions and are often influenced by the terms of union contracts within the region. All costs related to these programs, which primarily include severance expense, are accrued at the time of the program announcement or over the remaining service period.
Severance-related expenses
Accrued restructuring costs are included in accrued expenses on the Unaudited Condensed Consolidated Balance Sheets. The activity in accrued restructuring costs for the six months ended July 1, 2018 is as follows:
 
Severance and
Related Costs
 
Other
Costs (1)
 
Total
Balance at December 31, 2017
$
717

 
$
366

 
$
1,083

Restructuring provision included in Integration and Reorganization
2,448

 
1,731

 
4,179

Cash payments
(2,421
)
 
(1,652
)
 
(4,073
)
Balance at July 1, 2018
$
744

 
$
445

 
$
1,189

 
(1) 
Other costs primarily include costs to consolidate operations.
The accrued restructuring reserve balance is expected to be paid out over the next twelve months.
The following table summarizes the costs incurred and cash paid in connection with these restructuring programs for the three and six months ended July 1, 2018 and June 25, 2017.
 
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
Severance and related costs
$
933

 
$
1,857

 
$
2,448

 
$
4,082

Other costs
816

 
380

 
1,731

 
525

Cash payments
(1,587
)
 
(2,070
)
 
(4,073
)
 
(4,184
)

12



Facility consolidation charges and accelerated depreciation
As part of the ongoing cost reduction programs, the Company is consolidating print facilities, and during the six months ended June 25, 2017, the Company ceased printing operations at 11 facilities.  As a result, the Company recognized an impairment charge related to retired equipment of $6,485 and accelerated depreciation of $1,216 during the six months ended June 25, 2017. The Company also began to accelerate depreciation of approximately $1,400 related to machinery and equipment in the third quarter of 2017. There were no such facility consolidations during the six months ended July 1, 2018.
(5) Goodwill and Intangible Assets
Goodwill and intangible assets consisted of the following:
 
July 1, 2018
 
Gross carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
Amortized intangible assets:
 
 
 
 
 
Advertiser relationships
$
243,850

 
$
44,763

 
$
199,087

Customer relationships
39,149

 
6,293

 
32,856

Subscriber relationships
151,724

 
25,667

 
126,057

Other intangible assets
10,866

 
6,176

 
4,690

Total
$
445,589


$
82,899


$
362,690

Nonamortized intangible assets:
 
 
 
Goodwill
$
288,432

 
Mastheads
114,223

 
Total
$
402,655

 
 
 
 
December 31, 2017
 
Gross carrying
amount
 
Accumulated
amortization
 
Net carrying
amount
Amortized intangible assets:
 
 
 
 
 
Advertiser relationships
$
208,995

 
$
37,046

 
$
171,949

Customer relationships
30,576

 
5,094

 
25,482

Subscriber relationships
117,870

 
20,814

 
97,056

Other intangible assets
10,866

 
4,634

 
6,232

Total
$
368,307


$
67,588


$
300,719

Nonamortized intangible assets:
 
 
 
Goodwill
$
236,555

 
Mastheads
102,774

 
Total
$
339,329

 
As of July 1, 2018, the weighted average amortization periods for amortizable intangible assets are 14.5 years for advertiser relationships, 12.7 years for customer relationships, 13.7 years for subscriber relationships and 4.7 years for other intangible assets. The weighted average amortization period in total for all amortizable intangible assets is 13.8 years.
Amortization expense for the three and six months ended July 1, 2018 and June 25, 2017 was $8,177, $5,630, $15,332, and $11,232, respectively. Estimated future amortization expense as of July 1, 2018, is as follows:

13



For the following fiscal years:
 
2018 (six months remaining)
$
18,435

2019
33,861

2020
32,806

2021
32,627

2022
31,137

Thereafter
213,824

Total
$
362,690

The changes in the carrying amount of goodwill for the period from December 31, 2017 to July 1, 2018 are as follows:
Balance at December 31, 2017, net of accumulated impairments of $25,641
$
236,555

Goodwill acquired in business combinations
51,426

Measurement period adjustments
451

Balance at July 1, 2018, net of accumulated impairments of $25,641
$
288,432

The Company’s annual impairment assessment is made on the last day of its fiscal second quarter.
The carrying value of goodwill and indefinite-lived intangible assets are evaluated for possible impairment on an annual basis or between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or indefinite-lived intangible asset below its carrying value. The Company adopted ASU No. 2017-04 in the second quarter of 2017 and performed a quantitative goodwill impairment test to identify the existence of impairment, if any, and the amount of impairment loss. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
The Company performed its 2017 annual assessment for possible impairment of the carrying value of goodwill and indefinite-lived intangible assets as of June 25, 2017. As a result of this assessment, the Company recorded a goodwill impairment totaling $25,641 in two of its reporting units, Central and West, during the three months ended June 25, 2017. This impairment was primarily attributable to continuing economic pressures in the newspaper industry and a decline in the Company’s stock price, and represented a full impairment of the goodwill then recorded in the West reporting unit and a partial impairment of the goodwill recorded in the Central reporting unit. In addition, the Company recorded a partial impairment of the carrying value of mastheads, totaling $1,807, in the West reporting unit in the same period.
As of September 24, 2017, December 31, 2017, and April 1, 2018, the Company performed a review of potential impairment indicators noting that its financial results and forecast have not changed materially since the annual impairment assessment, and it was determined that no indicators of impairment were present.
The Company performed its 2018 annual assessment for possible impairment of the carrying value of goodwill and indefinite-lived intangibles as of July 1, 2018. The fair value of four of the Company's reporting units, including East, West, Central and BridgeTower, which include newspaper mastheads, were estimated using the expected present value of future cash flows, recent industry multiples and using estimates, judgments and assumptions that management believes were appropriate in the circumstances. The estimates and judgments used in the assessment included multiples for EBITDA, the weighted average cost of capital and the terminal growth rate. The Company determined that the future cash flow and industry multiple analysis provided the best estimate of the fair value of its reporting units.  Key assumptions in the impairment analysis include revenue and EBITDA projections, discount rates, long-term growth rates and the effective tax rate that the Company determined to be appropriate. Revenue projections reflected slight declines in the current and next year, and revenues are expected to moderate to a terminal growth rate of 1%. Discount rates ranged from 16% to 17%. The effective tax rate was 27%. The fair value of the West reporting unit was less than its carrying value, however, all goodwill was previously written off in 2017. The fair value of the Central reporting unit exceeded the carrying value by approximately 10%. The Company performed a qualitative assessment for the Recent Acquisitions reporting unit and concluded that it is not more likely than not that the goodwill and indefinite-lived intangible assets are impaired. As a result, no quantitative impairment testing was performed for the Recent Acquisitions.

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The total Company’s estimate of reporting unit fair values was reconciled to its then market capitalization (based upon the stock market price and fair value of debt) plus an estimated control premium.
The Company uses a “relief from royalty” approach, a discounted cash flow model, to determine the fair value of each reporting units' mastheads.  The estimated fair value equaled or exceeded carrying value for mastheads. The fair value of mastheads exceeded carrying value by less than 10% in the West reporting unit. Key assumptions within the masthead analysis included revenue projections, discount rates, royalty rates, long-term growth rates and the effective tax rate that the Company determined to be appropriate. Revenue projections reflected declines in the current and next year, and revenues are expected to moderate to a terminal growth rate of 1%. Discount rates ranged from 16% to 17%, and royalty rates ranged from 1.25% to 1.75%. The effective tax rate was 27%.
The Company considered the impairment of goodwill in the West to be a potential indicator of impairment under ASC 360. The Company determined that the long-lived asset groups were the same as its reporting units. The Company performed an analysis of its undiscounted cash flows in the West reporting unit to determine if there was an impairment of long-lived assets. The sum of undiscounted cash flows over the primary asset’s weighted-average remaining useful life exceeded the groups’ carrying value, so no impairment was recorded.
As of July 2, 2018, the Company reorganized its reporting units to align with its new management structure. The East, Central, West and Recent Acquisitions operating segments were consolidated into one reporting unit called Newspapers. BridgeTower remains a separate reporting unit. Due to the change in the composition of the reporting units, the Company performed an additional impairment test for goodwill and mastheads after the reorganization. Similar methodologies and assumptions were utilized for the post-reorganization impairment assessment, as described above. Fair values of the reporting units were determined to be greater than the carrying value of the reporting units, and the estimated fair value exceeded carrying value for all mastheads.
The newspaper industry and the Company have experienced declining same store revenue and profitability over the past several years. Should general economic, market or business conditions decline, and have a negative impact on estimates of future cash flow and market transaction multiples, the Company may be required to record impairment charges in the future.
(6) Indebtedness
New Media Credit Agreement
On June 4, 2014, New Media Holdings II LLC (the “New Media Borrower”), a wholly owned subsidiary of New Media, entered into a credit agreement (the “New Media Credit Agreement”) among the New Media Borrower, New Media Holdings I LLC (“Holdings I”), the lenders party thereto, RBS Citizens, N.A. and Credit Suisse Securities (USA) LLC as joint lead arrangers and joint bookrunners, Credit Suisse AG, Cayman Islands Branch as syndication agent and Citizens Bank of Pennsylvania as administration agent which provided for (i) a $200,000 senior secured term facility (the “Term Loan Facility” and any loan thereunder, including as part of the Incremental Facility, “Term Loans”), (ii) a $25,000 senior secured revolving credit facility, with a $5,000 sub-facility for letters of credit and a $5,000 sub-facility for swing loans, (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Senior Secured Credit Facilities”) and (iii) the ability for the New Media Borrower to request one or more new commitments for term loans or revolving loans from time to time up to an aggregate total of $75,000 (the “Incremental Facility”) subject to certain conditions. On June 4, 2014, the New Media Borrower borrowed $200,000 under the Term Loan Facility (the “Initial Term Loans”). As of July 1, 2018, $0 was drawn under the Revolving Credit Facility. The Term Loans mature on July 14, 2022 and the maturity date for the Revolving Credit Facility is July 14, 2021. The New Media Credit Agreement was amended:
on September 3, 2014, to provide for additional term loans under the Incremental Facility in an aggregate principal amount of $25,000 (the “2014 Incremental Term Loan”);
on November 20, 2014, to increase the amount of the Incremental Facility that may be requested after the date of the amendment from $75,000 to $225,000;
on January 9, 2015, to provide for $102,000 in additional term loans (the “2015 Incremental Term Loan”) and $50,000 in additional revolving commitments (the “2015 Incremental Revolver”) under the Incremental Facility and to make certain amendments to the Revolving Credit Facility in connection with the purchase of the assets of Halifax Media;

15



on February 13, 2015, to provide for the replacement of the existing term loans under the Term Loan Facility (including the 2014 Incremental Term Loan and the 2015 Incremental Term Loan) with a new class of replacement term loans;
on March 6, 2015, to provide for $15,000 in additional revolving commitments under the Incremental Facility;
on May 29, 2015, to provide for $25,000 in additional term loans under the Incremental Facility;
on July 14, 2017, to (i) extend the maturity date of the outstanding term loans under the Term Loan Facility to July 14, 2022, (ii) extend the maturity date of the Revolving Credit Facility to July 14, 2021, (iii) provide for $20,000 in additional term loans (the “2017 Incremental Term Loan”) under the Incremental Facility and (iv) increase the amount of the Incremental Facility that may be requested on or after the date of the amendment (inclusive of the 2017 Incremental Term Loan) to $100,000; and
on February 16, 2018, to provide for (i) $50,000 in additional term loans under the Term Loan Facility and (ii) a 1.00% prepayment premium for any prepayments of the Term Loans made in connection with certain repricing transactions effected within six months of the date of the amendment.
In connection with the February 16, 2018 amendment, the Company incurred approximately $592 of fees and expenses, of which $500 were capitalized in deferred financing costs and will be amortized over the term of the Term Loan Facility. The related third party fees of $92 were expensed during the quarter as this amendment was determined to be a debt modification for accounting purposes. In addition, the Company recognized $250 of original issue discount, which will also be amortized over the term of the Term Loan Facility. 
In connection with the July 14, 2017 amendment, the Company incurred approximately $6,605 of fees and expenses. There was one lender who had a significant change in the terms of the Term Loan Facility; the difference between the present value of the cash flows after this amendment and the present value of the cash flows before this amendment was more than 10%.  This portion of the transaction was accounted for as an extinguishment under ASC Subtopic 470-50, “Debt Modifications and Extinguishments”. Deferred fees and expenses of $1,009 previously allocated to that lender were written off to loss on early extinguishment of debt.  Additionally, the current fees of $2,423 attributed to this lender were expensed to loss on early extinguishment of debt.  The third party expenses of $121 apportioned to the lender were capitalized.  In addition, $1,335 fees and expenses allocated to lenders that exited the facility were written off to loss on early extinguishment of debt.  The remainder of this amendment was treated as a debt modification for accounting purposes.  The consent fees of $3,020 for the lenders other than the one mentioned above were capitalized and will be amortized over the term of the Term Loan Facility.  The third party fees of $606 related to these lenders were expensed. Additionally, the fees and expenses allocated to the Revolving Credit Facility of $435 were capitalized as this component of the amendment was accounted for as a debt modification.
Borrowings under the Term Loan Facility bear interest, at the New Media Borrower’s option, at a rate equal to either (i) an adjusted Eurodollar rate, plus an applicable margin equal to 6.25% per annum (subject to a floor of 1.00%) or (ii) an adjusted base rate, plus an applicable margin equal to 5.25% per annum (subject to a floor of 2.00%). The New Media Borrower currently uses the Eurodollar rate option.
Borrowings under the Revolving Credit Facility bear interest, at the New Media Borrower’s option, at a rate equal to either (i) an adjusted Eurodollar rate, plus an applicable margin equal to 5.25% per annum or (ii) an adjusted base rate, plus an applicable margin equal to 4.25% per annum, with a step down based on achievement of a certain total leverage ratio. The New Media Borrower currently uses the Eurodollar rate option.
As of July 1, 2018, the New Media Credit Agreement had a weighted average interest rate of 8.34%.
The Senior Secured Credit Facilities are unconditionally guaranteed by Holdings I and certain subsidiaries of the New Media Borrower (collectively, the “Guarantors”) and are required to be guaranteed by all future material wholly-owned domestic subsidiaries, subject to certain exceptions. All obligations under the New Media Credit Agreement are secured, subject to certain exceptions, by substantially all of the New Media Borrower’s assets and the assets of the Guarantors.
Repayments made under the Term Loans are equal to 1.0% annually of the original principal amount in equal quarterly installments for the life of the Term Loans, with the remainder due at maturity. The New Media Borrower is permitted to make voluntary prepayments at any time without premium or penalty, except in the case of prepayments made in connection with certain repricing transactions with respect to the Term Loans effected within six months of February 16, 2018, to which a 1.00% prepayment premium applies.

16



The New Media Credit Agreement contains customary representations and warranties and affirmative covenants and negative covenants applicable to Holdings I, the New Media Borrower and the New Media Borrower's subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, dividends and other distributions, and events of default. The New Media Credit Agreement contains a financial covenant that requires Holdings I, the New Media Borrower and the New Media Borrower’s subsidiaries to maintain a maximum total leverage ratio of 3.25 to 1.00.
As of July 1, 2018, the Company is in compliance with all of the covenants and obligations under the New Media Credit Agreement.
Advantage Credit Agreements
In connection with the purchase of the assets of Halifax Media, which was completed on January 9, 2015, certain subsidiaries of the Company (the “Advantage Borrowers”) agreed to assume all of the obligations of Halifax Media and its affiliates in respect of each of (i) that certain Consolidated Amended and Restated Credit Agreement dated January 6, 2012 among Halifax Media Acquisition LLC, Advantage Capital Community Development Fund XXVIII, L.L.C., and Florida Community Development Fund II, L.L.C. (as amended, the “Halifax Florida Credit Agreement”) and (ii) that certain Credit Agreement dated June 18, 2013 between Halifax Alabama, LLC and Southeast Community Development Fund V, L.L.C. (the “Halifax Alabama Credit Agreement” and, together with the Halifax Florida Credit Agreement, the “Advantage Credit Agreements”), respectively (the debt under the Halifax Florida Credit Agreement, the “Advantage Florida Debt”; the debt under the Halifax Alabama Credit Agreement, the “Advantage Alabama Debt”). The $10,000 outstanding balance under the Halifax Florida Credit Agreement was fully repaid on December 31, 2016.
As of January 9, 2015, the Halifax Alabama Credit Agreement had a principal amount of $8,000 and bore interest at the rate of LIBOR plus 6.25% per annum (with a minimum of 1% LIBOR) payable quarterly in arrears. On May 15, 2018, the Halifax Alabama Credit Agreement was amended to reduce the interest rate to 2% per annum. In addition, a 2% prepayment premium will be charged if the balance is paid before December 28, 2018 unless the Advantage Borrowers elect to escrow the remaining principal amount. Subsequent to December 28, 2018, the principal may be repaid without a premium or penalty. The Advantage Alabama Debt matures on March 31, 2019. The Advantage Alabama Debt is secured by a perfected second priority security interest in all the assets of the Advantage Borrowers and certain other subsidiaries of the Company, subject to the limitation that the maximum amount of secured obligations is $15,000. The Advantage Alabama Debt is unconditionally guaranteed by Holdings I and certain subsidiaries of the New Media Borrowers and is required to be guaranteed by all future material wholly-owned domestic subsidiaries, subject to certain exceptions. The Advantage Alabama Debt is subordinated to the Senior Secured Credit Facilities pursuant to an intercreditor agreement.
The Halifax Alabama Credit Agreement contains covenants substantially consistent with those contained in the New Media Credit Agreement in addition to those required for compliance with the New Markets Tax Credit program. The Advantage Borrowers are subject to customary mandatory prepayment events including from proceeds from asset sales and certain debt obligations.
The Halifax Alabama Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Advantage Borrowers and certain of the Company's subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions. The Halifax Alabama Credit Agreement contains a financial covenant that requires Holdings I, the New Media Borrower and the New Media Borrower’s subsidiaries to maintain a maximum total leverage ratio of 3.75 to 1.00. The Halifax Alabama Credit Agreement contains customary events of default.
As of July 1, 2018, the Company is in compliance with all of the covenants and obligations under the Halifax Alabama Credit Agreement.
Fair Value
The fair value of long-term debt under the Senior Secured Credit Facilities and the Advantage Alabama Debt was estimated at $416,288 as of July 1, 2018, based on discounted future contractual cash flows and a market interest rate adjusted for necessary risks, including the Company’s own credit risk as there are no rates currently observable in publicly traded debt markets of similar risk, terms and average maturities. Accordingly, the Company’s long-term debt under the Senior Secured Credit Facilities is classified within Level 3 of the fair value hierarchy.

17



Payment Schedule
As of July 1, 2018, scheduled principal payments of outstanding debt are as follows:
 
2018 (six months remaining)
$
1,031

2019
12,124

2020
4,124

2021
4,124

2022
394,885

 
416,288

Less: Current portion of long-term debt
12,124

Remaining original issue discount
3,565

Deferred financing costs
4,546

Long-term debt
$
396,053

(7) Related Party Transactions
As of December 29, 2013, Newcastle (an affiliate of FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC ("Fortress")) beneficially owned approximately 84.6% of the Company’s outstanding common stock. On February 13, 2014, Newcastle completed the spin-off of the Company. On February 14, 2014, New Media became a separate, publicly traded company trading on the NYSE under the ticker symbol “NEWM”. As a result of the spin-off and listing, the fees included in the Management Agreement with the Company’s Manager became effective. As of July 1, 2018, Fortress and its affiliates owned approximately 1.1% of the Company’s outstanding stock and approximately 39.5% of the Company’s outstanding warrants. The Company’s Manager (or its affiliates) holds options to purchase 2,904,811 shares of the Company’s common stock as of July 1, 2018. During the three and six months ended July 1, 2018 and June 25, 2017, Fortress and its affiliates were paid $238, $239, $490, and $477 in dividends, respectively.
In addition, the Company’s Chairman, Wesley Edens, is also a member of the board of directors of FIG LLC and a Principal, the Co-Chief Executive Officer and a member of the board of directors of Fortress. The Company does not pay Mr. Edens a salary or any other form of compensation.
On February 28, 2018, the Company acquired substantially all of the assets, consisting primarily of publications and related websites, of Holden Landmark Corporation ("Holden"), a Massachusetts corporation owned by the Company’s Chief Operating Officer, for $1,225 plus working capital. The Company recognized revenue from Holden of $0, $172, $77, and $312 during the three and six months ended July 1, 2018 and June 25, 2017, respectively, which is included in commercial printing and other on the Unaudited Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.
The Company’s Chief Executive Officer and Chief Financial Officer are employees of Fortress, and their salaries are paid by Fortress.
Management Agreement
On November 26, 2013, the Company entered into a management agreement with the Manager (as amended and restated, the “Management Agreement”). The Management Agreement requires the Manager to manage the Company’s business affairs subject to the supervision of the Company’s board of directors (the “Board of Directors” or "Board"). On March 6, 2015, the Company’s independent directors on the Board approved an amendment to the Management Agreement.
The Management Agreement had an initial three-year term and will be automatically renewed for one-year terms thereafter unless terminated either by the Company or the Manager. The Manager is (a) entitled to receive from the Company a management fee, (b) eligible to receive incentive compensation that is based on the Company’s performance and (c) eligible to receive options to purchase New Media Common Stock upon the successful completion of an offering of shares of the Company’s Common Stock or any shares of preferred stock with an exercise price equal to the price per share paid by the public or other ultimate purchaser in the offering, see Note 9. In addition, the Company is obligated to reimburse certain expenses incurred by the Manager. The Manager is also entitled to receive a termination fee from the Company under certain circumstances.

18



The following provides the management and incentive fees recognized and paid to the Manager for the three and six months ended July 1, 2018 and June 25, 2017:
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
Management fee expense
$
2,740

 
$
2,422

 
$
5,107

 
$
5,318

Incentive fee expense
4,802

 
1,866

 
5,755

 
1,866

Management fees paid
4,179

 
1,930

 
6,836

 
6,280

Incentive fees paid
953

 

 
9,327

 
5,915

Reimbursement for expenses
615

 
342

 
1,059

 
892

The Company had an outstanding liability for all management agreement related fees of $5,885 and $2,680 at July 1, 2018 and December 31, 2017, respectively, included in accrued expenses.
Registration Rights Agreement with Omega
The Company entered into a registration rights agreement (the “Omega Registration Rights Agreement”) with Omega Advisors, Inc. and its affiliates (collectively, “Omega”). Under the terms of the Omega Registration Rights Agreement, upon request by Omega the Company is required to use commercially reasonable efforts to file a resale shelf registration statement providing for the registration and sale on a continuous or delayed basis by Omega of its New Media Common Stock acquired in connection with the restructuring of GateHouse (the “Registrable Securities”) (the “Shelf Registration”), subject to customary exceptions and limitations. Omega is entitled to initiate up to three offerings or sales with respect to some or all of the Registrable Securities pursuant to the Shelf Registration.
Omega may only exercise its right to request Shelf Registrations if Registrable Securities to be sold pursuant to such Shelf Registration are at least 3% of the then-outstanding New Media Common Stock.
(8) Income Taxes
Income tax expense includes Federal and state income taxes and interest and penalties on uncertain tax positions. Certain income and expenses are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are reported net of a full valuation allowance since the Company believes it is more likely than not that a tax benefit will not be realized.
The Company recorded income tax expense of $2,946, $7,955, $2,830 and $1,624 for the three and six months ended July 1, 2018 and June 25, 2017, respectively. The Company's estimated effective tax rate was 20% for the six months ended July 1, 2018. The tax effects resulting from utilizing the annual effective tax rate for the six months ended June 25, 2017 was determined to not be an effective method to determine the tax expense for that period. Therefore, the Company calculated its tax provision based upon year-to-date results.
The Company performs a quarterly assessment of its deferred tax assets and liabilities. ASC Topic 740, “Income Taxes” (“ASC 740”) limits the ability to use future taxable income to support the realization of deferred tax assets when a company has experienced a history of losses even if future taxable income were supported by detailed forecasts and projections.
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are projected to become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. During the six months ended July 1, 2018, the Company recorded a net decrease to the valuation allowance of $1,054, which was a benefit to earnings. All of this amount was recognized through the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
The realization of the remaining deferred tax assets is primarily dependent on their scheduled reversals. Any changes to deferred taxes may require an additional valuation allowance. Any increase or decrease in the valuation allowance could result in an increase or decrease in income tax expense in the period of adjustment.

19



The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income (loss) for the year, projections of the proportion of income or loss, permanent and temporary differences, and an assessment of the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired, or as additional information is obtained.
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The Company recorded a tax benefit of $4,200 during the year ended December 31, 2017 which was primarily attributable to a re-measurement of deferred tax assets and deferred tax liabilities. The tax benefit was also attributable to a valuation allowance release of $800 related to an alternative minimum tax credit that is refundable in 2021 or earlier. As of December 31, 2017, the Company made a reasonable estimate of the effects on the change in deferred tax balances under the TCJA. These amounts are provisional and subject to change as the determination of the impact of the income tax effects may require additional analysis and further interpretation of the TCJA from yet to be issued FASB guidance and U.S. Treasury regulations.
In addition, the TCJA imposes a new limit on interest expense deductions with respect to any debt outstanding on January 1, 2018. The Company has evaluated the effect of this rule and do not expect that the Company will be limited in its ability to claim interest expense deductions at this time although limitations may apply after 2021.
For the six months ended July 1, 2018, the difference between the expected tax charge at a statutory rate of 21% ($2,913) and the recorded tax expense of $2,830 is primarily attributable to the reduction of the federal valuation allowance offset by other charges.
The Company and its subsidiaries file a U.S. federal consolidated income tax return. The U.S. federal and state statute of limitations generally remains open for the 2014 tax year and beyond.
(9) Equity
Income (Loss) Per Share
The following table sets forth the computation of basic and diluted income (loss) per share (“EPS”):
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
Numerator for income (loss) per share calculation:
 
 
 
 
 
 
 
Net income (loss)
$
11,706

 
$
(21,687
)
 
$
11,041

 
$
(25,372
)
Denominator for income (loss) per share calculation:
 
 
 
 
 
 
 
Basic weighted average shares outstanding
59,279,159

 
53,119,530

 
56,106,899

 
53,153,138

Effect of dilutive securities:
 
 
 
 
 
 
 
Stock Options and Restricted Stock
440,851

 

 
379,575

 

Diluted weighted average shares outstanding
59,720,010

 
53,119,530

 
56,486,474

 
53,153,138

For the three months ended July 1, 2018 and June 25, 2017, the Company excluded 1,362,479 and 1,362,479 common stock warrants, 0 and 372,166 RSGs, and 700,000 and 2,307,562 stock options, respectively, from the computation of diluted income per share because their effect would have been antidilutive. For the six months ended July 1, 2018 and June 25, 2017, the Company excluded 1,362,479 and 1,362,479 common stock warrants, 0 and 372,166 RSGs, and 700,000 and 2,307,562 stock options, respectively, from the computation of diluted income per share because their effect would have been antidilutive.
Equity
On May 17, 2017, the Board of Directors authorized the repurchase of up to $100,000 of the Company's common stock ("Share Repurchase Program") over the next 12 months. On May 1, 2018, the Board of Directors authorized an extension of the Share Repurchase Program through May 18, 2019. Under the Share Repurchase Program, the Company may purchase its shares from time to time in the open market or in privately negotiated transactions. During the three months ended June 25, 2017, the Company repurchased 391,120 shares at a weighted average price of $12.77 per share for a total cost, including

20



transaction costs, of $5,001. The shares were subsequently retired. The cost paid to acquire the shares in excess of par was recorded in additional paid-in capital in the consolidated balance sheet.
Pursuant to the anti-dilution provisions of the Incentive Plan, the exercise price on the 652,311 remaining options granted to the Manager in 2014 were equitably adjusted during the three months ended April 1, 2018 from $14.37 to $12.95 as a result of the 2017 return of capital distributions.
Pursuant to the anti-dilution provisions of the Incentive Plan, the exercise price on the 700,000 options granted to the Manager in 2015 were equitably adjusted during the three months ended April 1, 2018 from $20.36 to $18.94 as a result of the 2017 return of capital distributions.
Pursuant to the anti-dilution provisions of the Incentive Plan, the exercise price on the 862,500 options granted to the Manager in 2016 were equitably adjusted during the three months ended April 1, 2018 from $16.00 to $13.24 as a result of the 2017 return of capital distributions.
During the three months ended June 25, 2017, the Company issued 16,605 shares of its common stock to its Non-Officer Directors to settle a liability of $225 for 2016 services.
During the three months ended April 1, 2018, the Company issued 13,008 shares of its common stock to its Non-Officer Directors to settle a liability of $225 for 2017 services.
During April 2018, the Company completed the sale of 6,900,000 shares of the Company's common stock, including 25,000 shares of the Company's common stock sold to an officer of the Company. The estimated net proceeds of the sale were approximately $110,650. For the purpose of compensating the Manager for its successful efforts in raising capital for the Company, in connection with this offering, the Company granted options to the Manager to purchase 690,000 shares of the Company’s common stock at a price of $16.45, which had an aggregate fair value of approximately $1,408 as of the grant date. The assumptions used in an option valuation model to value the options were: a 2.8% risk-free rate, a 8.0% dividend yield, 28.1% volatility and an expected life of 10 years.
The following table includes additional information regarding the Manager stock options:
 
Number of Options
 
Weighted-Average Grant Date Fair Value
 
Weighted-Average Exercise Price
 
Weighted-Average Remaining Contractual Term (Years)
 
Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2017
2,214,811

 
$
4.08

 
$
16.90

 
7.7
 
$
2,245

Granted
690,000

 
$
2.04

 
$
16.45

 
 
 
 
Outstanding at July 1, 2018
2,904,811

 
$
3.59

 
$
15.31

 
7.8
 
$
9,527

 
 
 
 
 
 
 
 
 
 
Exercisable at July 1, 2018
1,992,561

 
 
 
$
15.26

 
7.0
 
$
6,741

Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss by component for the six months ended July 1, 2018 and June 25, 2017 are outlined below.
 
Net actuarial loss
and prior service
cost (1)
For the six months ended July 1, 2018:
 
Balance at December 31, 2017
$
(5,461
)
Amounts reclassified from accumulated other comprehensive loss
(135
)
Balance at July 1, 2018
$
(5,596
)
For the six months ended June 25, 2017:
 
Balance at December 27, 2016
$
(3,977
)
Amounts reclassified from accumulated other comprehensive loss
56

Balance at June 25, 2017
$
(3,921
)

21



 
(1) 
This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost. See Note 11.
The following table presents reclassifications out of accumulated other comprehensive loss for the three and six months ended July 1, 2018 and June 25, 2017.
 
Amounts Reclassified from Accumulated Other Comprehensive Loss
 
Affected Line Item 
in the
Consolidated 
Statements of
Operations and 
Comprehensive
Income (Loss)
 
Three months ended
 
Six months ended
 
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
 
Amortization of unrecognized (gain) loss
$
(68
)
 
$
28

 
$
(135
)
 
$
56

(1) 
 
Amounts reclassified from accumulated other comprehensive loss
(68
)
 
28

 
(135
)
 
56

  
Income (loss) before income taxes
Income tax expense

 

 

 

  
Income tax benefit
Amounts reclassified from accumulated other comprehensive loss, net of taxes
$
(68
)
 
$
28

 
$
(135
)
 
$
56

  
Net income (loss)
 
(1) 
This accumulated other comprehensive loss component is included in the computation of net periodic benefit cost. See Note 11.
Dividends
During the six months ended June 25, 2017, the Company paid dividends of $0.70 per share of Common Stock of New Media.
During the six months ended July 1, 2018, the Company paid dividends of $0.74 per share of Common Stock of New Media.
(10) Revenues
Adoption of ASC Topic 606, "Revenue from Contracts with Customers"
On January 1, 2018, the Company adopted ASC Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the previously applicable accounting standards under ASC Topic 605.
The adoption of ASC Topic 606 resulted in no change to accumulated deficit as of January 1, 2018. Revenue and expenses related to certain license agreements and recognized during the three and six months ended July 1, 2018 decreased by $1,467 and $2,886, respectively, as a result of applying ASC Topic 606.
Summary of Accounting Policies for Revenue Recognition
Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Revenues are recognized as performance obligations that are satisfied either at a point in time, such as when an advertisement is published, or over time, such as customer subscriptions.
The Company’s Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) presents revenues disaggregated by revenue type. Sales taxes and other usage-based taxes are excluded from revenues.
Advertising Revenues

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The Company generates advertising revenues primarily by delivering advertising in local publications including newspapers and websites. Advertising revenues are categorized as local retail, local classified, online and national. Revenue is recognized upon publication of the advertisement.
Circulation Revenues
Circulation revenues are derived from print and digital subscriptions as well as single copy sales at retail stores, vending racks and boxes. Circulation revenues from subscribers are generally billed to customers at the beginning of the subscription period and are typically recognized on a straight-line basis over the terms of the related subscriptions. The term of customer subscriptions normally ranges from three to twelve months. Circulation revenues from single-copy income are recognized based on the date of publication, net of provisions for related returns.
Commercial Printing and Other Revenues
The Company provides commercial printing services to third parties as a means to generate incremental revenue and utilize excess printing capacity. These customers consist primarily of other publishers that do not have their own printing presses and do not compete with other GateHouse publications. The Company also prints other commercial materials, including flyers, business cards and invitations. Revenue is generally recognized upon delivery.
The Other Revenues category includes UpCurve, Inc. (“UpCurve”), formerly referred to as “Propel Business Services,” the Company's SMB solutions provider. UpCurve provides digital marketing and business services for small to medium sized businesses. Other Revenues also include GateHouse Live, the Company’s events business. A significant judgment management must make with respect to UpCurve revenue recognition is determining whether the Company is the principal or agent for certain licensing transactions. Under ASC Topic 606, the principal in the relationship is the entity that controls the specified goods or services. An entity may have control if (i) it is primarily responsible for fulfilling the promise to provide the good or service; (ii) it has inventory risk before or after the good or service has been transferred to the customer; or (iii) it has the discretion in establishing the price for the good or service. The Company has determined that UpCurve is the principal in the relationships for those transactions in which the goods or services are customized for the customer and reports the related revenues on a gross basis. The Company has determined that UpCurve is the agent in the relationships for those transactions in which the Company resells the goods or services with no customization and reports these revenues on a net basis.
As a result of the change from gross to net reporting for certain licensing transactions, the Company’s commercial printing and other revenues, and operating expenses were both approximately $1,467 and $2,886 lower in the three and six months ended July 1, 2018, respectively, than the amounts that would have been reported under previously applicable accounting standards.
Arrangements with Multiple Performance Obligations
The Company’s contracts with customers may include multiple performance obligations such as bundled print and digital subscriptions. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines standalone selling prices based on the prices charged to customers or using expected cost plus margin.
Contract Balances
The Company records deferred revenues when cash payments are received in advance of the Company’s performance. The most significant unsatisfied performance obligation is the delivery of publications to subscription customers. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next three to twelve months in accordance with the terms of the subscriptions. The increase in the deferred revenue balance for the six months ended July 1, 2018 is primarily driven by acquisitions. For the six month period ended July 1, 2018, the Company recognized approximately $69,000 of revenues that were included in the deferred revenue balance as of December 31, 2017.
The Company's payment terms vary by the type and location of the customer and the products or services offered. The period between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.
Accounts Receivable
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. The Company’s allowance for doubtful accounts is based upon several factors including the length of time the receivables are past due, historical payment trends and current economic factors. The Company recorded bad debt expense of $914, $778, $4,101 and $2,484 during the three and six months ended July 1, 2018 and June 25, 2017, respectively. Impairment losses are recorded

23



within the selling, general and administrative expenses in the Company’s Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.
Practical Expedients and Exemptions
The Company expenses sales commissions or other costs to obtain contracts when incurred because the amortization period is generally one year or less. These costs are recorded within selling, general and administrative expenses.
The Company does not disclose unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.
(11) Pension and Postretirement Benefits
As a result of the Enterprise News Media LLC (in 2005), Copley Press, Inc. (in 2007), and Times Publishing Company (in 2016) acquisitions, the Company maintains two pension and several postretirement medical and life insurance plans which cover certain employees. The Company uses the accrued benefit actuarial method and best estimate assumptions to determine pension costs, liabilities and other pension information for defined benefit plans. Amounts related to the postretirement benefit plans are immaterial.
The George W. Prescott Company pension plan, assumed in the Enterprise News Media, LLC acquisition, was amended to freeze all future benefit accruals by December 31, 2008, except for a select group of union employees whose benefits were frozen during 2009. During 2008, the medical and life insurance benefits were frozen, and the plan was amended to limit future benefits to a select group of active employees under the Enterprise News Media, LLC postretirement medical and life insurance plan. Benefits under the postretirement medical and life insurance plan assumed with the Copley Press, Inc. acquisition are only available to Brush-Moore employees hired before January 1, 1976. The Times Publishing Company pension plan was frozen prior to the acquisition.
The following provides information on the pension plans for the three and six months ended July 1, 2018 and June 25, 2017:
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
Components of net periodic benefit costs:
 
 
 
 
 
 
 
Service cost
$
150

 
$
157

 
$
300

 
$
314

Interest cost
700

 
780

 
1,400

 
1,560

Expected return on plan assets
(1,062
)
 
(1,045
)
 
(2,124
)
 
(2,090
)
Amortization of unrecognized loss
68

 
44

 
135

 
88

Total
$
(144
)
 
$
(64
)
 
$
(289
)
 
$
(128
)
For the three and six months ended July 1, 2018 and June 25, 2017, the Company recognized a total benefit of $144, $64, $289, and $128 in pension plans, respectively. The service cost component is included within Operating Costs and the other components of net benefit cost are included within Other Income in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss). During the three and six months ended July 1, 2018, the Company paid $340 and $447 into the pension plans, respectively. The Company is expected to pay an additional $1,398 in employer contributions to the pension plans during the remainder of 2018.
(12) Fair Value Measurement
The Company measures and records in the accompanying condensed consolidated financial statements certain assets and liabilities at fair value on a recurring basis. ASC Topic 820 “Fair Value Measurements and Disclosures” establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs).
These inputs are prioritized as follows:
 
Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities;

24



Level 2: Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities or market corroborated inputs; and
Level 3: Unobservable inputs for which there is little or no market data and which require the Company to develop their own assumptions about how market participants price the asset or liability.
The valuation techniques that may be used to measure fair value are as follows:
 
Market approach – Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;
Income approach – Uses valuation techniques to convert future amounts to a single present amount based on current market expectation about those future amounts;
Cost approach – Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
The following table provides information for the Company’s major categories of financial assets and liabilities measured or disclosed at fair value on a recurring basis:
 
Fair Value Measurements at Reporting Date Using
 
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total 
Fair Value
Measurements
As of July 1, 2018
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
73,755

 
$

 
$

 
$
73,755

Restricted cash
3,106

 

 

 
3,106

Total
$
76,861

 
$

 
$

 
$
76,861

As of December 31, 2017
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
43,056

 
$

 
$

 
$
43,056

Restricted cash
3,106

 

 

 
3,106

Total
$
46,162

 
$

 
$

 
$
46,162

Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).
For the 2018 acquisitions and 2017 acquisitions the Company recorded the assets and liabilities under the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded at their fair value. Property, plant and equipment was valued using Level 2 inputs, and intangible assets were valued using Level 3 inputs. Refer to Note 2 for discussion of the valuation techniques, significant inputs, assumptions utilized, and the fair value recognized.
During the quarter ended June 25, 2017, certain goodwill and mastheads were written down to their implied fair value using Level 3 inputs. The valuation techniques and significant inputs and assumptions utilized to measure fair value are discussed in Note 5.
Refer to Note 6 for the discussion on the fair value of the Company’s total long-term debt.
(13) Commitments and Contingencies
The Company is and may become involved from time to time in legal proceedings in the ordinary course of its business, including but not limited to with respect to such matters as libel, invasion of privacy, intellectual property infringement, wrongful termination actions and complaints alleging employment discrimination, and regulatory investigations and inquiries. In addition, the Company is involved from time to time in governmental and administrative proceedings concerning employment, labor, environmental and other claims. Insurance coverage mitigates potential loss for certain of these matters. Historically, such claims and proceedings have not had a material adverse effect on the Company’s condensed consolidated results of operations or financial position. Although the Company is unable to predict with certainty the eventual outcome of

25



any litigation, regulatory investigation or inquiry, in the opinion of management, the Company does not expect its current and any threatened legal proceedings to have a material adverse effect on the Company’s business, financial position or consolidated results of operations.  Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on the Company’s financial results.
Restricted cash of $3,106 at both July 1, 2018 and December 31, 2017 was held as cash collateral for certain business operations.
(14) Subsequent Events
Dividends
On August 2, 2018, the Company announced a second quarter 2018 cash dividend of $0.37 per share of Common Stock, par value $0.01 per share, of New Media. The dividend will be paid on August 21, 2018, to shareholders of record as of the close of business on August 13, 2018.

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of financial condition and results of operations is intended to help the reader understand the results of operations and financial condition of New Media Investment Group Inc. and its subsidiaries (“New Media”, “Company”, “we”, “us” or “our”). The following should be read in conjunction with the unaudited consolidated financial statements and notes thereto included herein, and with Part II, Item 1A, “Risk Factors.”
Overview
New Media supports small to mid-size communities by providing locally-focused print and digital content to its consumers and premier marketing and technology solutions for our small and medium businesses partners. We have a particular focus on owning and acquiring strong local media assets in small to mid-size markets. With our collection of assets, we focus on two large business categories: consumers and small to medium-sized businesses (“SMBs”).
Our portfolio of media assets today spans across 572 markets and 37 states. Our products include 691 community print publications, 572 websites and two yellow page directories. As of July 1, 2018, we reach over 23 million people per week and serve over 220,000 business customers.
We are focused on growing our consumer revenues primarily through our penetration into the local consumer market that values comprehensive local news and receives its news primarily from our products. We believe our rich local content, our strong media brands, and multiple platforms for delivering content will impact our reach to local consumers leading to growth in subscription income. We also believe our focus on smaller markets will allow us to be a leading provider of valuable, unique local news to consumers in those markets. We believe that one result of our local consumer penetration in these smaller markets will be transaction revenues as we link consumers with local businesses. For our SMB business category, we focus on leveraging our strong local media brands, our in-market sales force and our high consumer penetration rates with a variety of products and services that we believe will help SMBs expand their marketing, advertising and other digital lead generation platforms. We also believe our strong position in our local markets will allow us to develop other products that will be of value to our SMBs in helping them run and grow their businesses.
Our business strategy is to be the preeminent provider of local news, information, advertising, and digital and business services in the markets we operate in. We aim to grow our business organically through both our consumer and SMB strategies. We also plan to continue to pursue strategic acquisitions of high-quality local media and digital marketing assets at attractive valuation levels. Finally, we intend to distribute a portion of our free cash flow generated from operations or other sources as a dividend to stockholders through a quarterly dividend, subject to satisfactory financial performance, approval by our board of directors (the “Board of Directors” or "Board") and dividend restrictions in the New Media Credit Agreement (as defined below). The Board of Directors’ determinations regarding dividends will depend on a variety of factors, including the Company’s U.S. generally accepted accounting principles (“GAAP”) net income, free cash flow generated from operations or other sources, liquidity position and potential alternative uses of cash, such as acquisitions, as well as economic conditions and expected future financial results.

26



We believe that our focus on owning and operating leading local content oriented media properties in small to mid-size markets puts us in a position to better execute on our strategy. We believe that being the leading provider of local news and information in the markets in which we operate and distributing that content across multiple print and digital platforms, gives us an opportunity to grow our audiences and reach. Further, we believe our strong local media brands and our market presence gives us the opportunity to expand our advertising and lead generation products with local business customers.
For our SMB category, we focus on leveraging our strong local media brands, our in-market sales force and our high consumer penetration rates with a variety of technology oriented products and services that solve acute pain points for SMBs. Central to this business strategy is our wholly-owned subsidiary UpCurve, Inc. ("UpCurve"). UpCurve provides two broad categories of services: ThriveHive, previously known as Propel Marketing, which provides marketing services for every SMB regardless of size, and UpCurve Cloud which offers cloud-based products with expert migration, integration, and support. ThriveHive is designed to offer a complete set of turn-key digital marketing and business services to SMBs that provide transparent results to the business owners. In 2016, we acquired a turn-key proprietary software application that enables SMB owners to run their own digital and contact marketing campaigns.
We launched the UpCurve products in 2012 and have seen rapid growth since then. We believe UpCurve, combined with our strong local brands and in-market sales force, is positioned to continue to be a key component to our overall organic growth strategy. The opportunity UpCurve aims to seize upon is as follows:
There were approximately 29.6 million SMBs in the U.S. in 2014 according to the U.S. Small Business Administration. Of these, approximately 29.0 million had 20 employees or fewer.
Many of the owners and managers of these SMBs do not have the resources or expertise to navigate the fast evolving digital marketing and cloud based service sectors, but are increasingly aware of the need to embrace the digital disruption to their business model.
We believe our local media properties and local sales infrastructure are uniquely positioned to sell these digital marketing and business services to local business owners and give us distinct advantages, including:
our strong and trusted local brands, with 85% of our daily newspapers having published local content for more than 100 years;
our ability to market through our print and online properties, driving branding and traffic; and
our more than 1,350 local, direct, in-market sales professionals with long standing relationships with small businesses in the communities we serve.
Our core products include:
 
145 daily newspapers with total paid circulation of approximately 1.6 million;
340 weekly newspapers (published up to three times per week) with total paid circulation of approximately 297,000 and total free circulation of approximately 2.3 million;
136 “shoppers” (generally advertising-only publications) with total circulation of approximately 3.3 million;
572 locally-focused websites, which extend our businesses onto the internet and mobile devices with approximately 313 million page views per month;
two yellow page directories, with a distribution of approximately 290,000, that cover a population of approximately 419,000 people;
70 business publications; and
UpCurve Cloud and ThriveHive digital marketing.
In addition to our core products, we also opportunistically produce niche publications that address specific local market interests such as recreation, sports, healthcare and real estate.
GateHouse Live, our event business, was started in late 2015 to leverage our local brands to create events in the markets we serve.  In 2017, GateHouse Live produced over 250 annual events with a collective attendance over 300,000.  Among our core event offerings are a variety of themed expos focused on target audiences, including men, women, seniors and young families.  Other signature event series produced across many of our markets include one of the nation's largest high school

27



sports recognition events and the official community's choice awards for dozens of markets across the country.  GateHouse Live also offers white label event services for retailers and other media companies.
Our advertising revenue tends to follow a seasonal pattern, with higher advertising revenue in months containing significant events or holidays. Accordingly, our first quarter and our third quarter historically are our weakest revenue quarters of the year. Correspondingly, our second and fourth fiscal quarters historically are our strongest quarters. We expect that this seasonality will continue to affect our advertising revenue in future periods.
We have experienced ongoing declines in same store print advertising revenue streams and increased volatility of operating performance, despite our geographic diversity, well-balanced portfolio of products, broad customer base and reliance on smaller markets. We may experience additional declines and volatility in the future. These declines in print advertising revenue have come with the shift from traditional media to the internet for consumers and businesses. We believe our local advertising tends to be less sensitive to economic cycles than national advertising because local businesses generally have fewer advertising channels through which to reach their target audience. We are making investments in digital platforms, such as UpCurve, as well as online and mobile applications, to support our print publications in order to capture this shift as witnessed by our digital advertising and business services revenue growth, which more than doubled between 2013 and 2017.
Our operating costs consist primarily of labor, newsprint and delivery costs. Our selling, general and administrative expenses consist primarily of labor costs.
Compensation represents just under 50% of our expenses. Over the last few years, we have worked to drive efficiencies and centralization of work throughout our Company. Additionally, we have taken steps to cluster our operations thereby increasing the usage of facilities and equipment while increasing the productivity of our labor force. We expect to continue to employ these steps as part of our business strategy.
Through July 1, 2018, our operating segments (Eastern US Publishing, Central US Publishing, Western US Publishing, Recent Acquisitions and BridgeTower) are aggregated into one reportable business segment. On July 2, 2018, the operating segments were changed to Newspapers and BridgeTower. The operating segments will continue to be aggregated into one reportable business segment.
Acquisitions
During the six months ended July 1, 2018, we completed 11 acquisitions. We acquired substantially all the assets, properties, and business of certain publications/businesses, which included seven daily newspapers, 16 weekly newspapers, one shopper, a print facility, cloud services and digital platforms, and domains, for an aggregate purchase price of $150.2 million, including estimated working capital.
During 2017, we acquired substantially all the assets, properties, and business of certain publications/businesses, which included four business publications, 22 daily newspapers, 34 weekly publications, 24 shoppers, two customer relationship management solutions providers, a social media app and an event production business for an aggregate purchase price of $165.1 million, including working capital.
Management Agreement
On November 26, 2013, New Media entered into the management agreement (as amended and restated, the “Management Agreement”) with FIG LLC (the “Manager”), an affiliate of Fortress Investment Group LLC ("Fortress"), pursuant to which the Manager manages the operations of New Media. We pay the Manager an annual management fee equal to 1.5% of New Media’s Total Equity (as defined in the Management Agreement) and the Manager is eligible to receive incentive compensation.
On December 27, 2017, SoftBank Group Corp. (“SoftBank”) announced that it completed its previously announced acquisition of Fortress (the “SoftBank Merger”).
Long-Lived Asset Impairment
As part of the ongoing cost reduction programs, we are consolidating print facilities, and during the six months ended June 25, 2017, we ceased printing operations at 11 facilities.  As a result, we recognized an impairment charge related to retired equipment of $6.5 million and accelerated depreciation of $1.2 million during the six months ended June 25, 2017. We also

28



began to accelerate depreciation of approximately $1.4 million related to machinery and equipment in the third quarter of 2017. There were no such facility consolidations during the six months ended July 1, 2018.
Dispositions
On May 11, 2018, we completed the sale of certain publications and related assets in Alaska for approximately $2.4 million, including estimated working capital. As a result, a nominal pre-tax gain, net of selling expenses, is included in net gain on sale or disposal of assets on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) during the six months ended July 1, 2018.
On February 27, 2018, we sold a parcel of land and building located in Framingham, Massachusetts, for $9.3 million, and recognized a pre-tax gain of approximately $3.3 million, net of selling expenses, which is included in net gain on sale or disposal of assets on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) during the six months ended July 1, 2018.
On June 2, 2017, we completed the sale of the Mail Tribune, located in Medford, Oregon, for approximately $14.7 million, including working capital.  As a result, a pre-tax gain of approximately $5.4 million, net of selling expenses, is included in net gain on sale or disposal of assets on the Unaudited Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) during the three and six months ended June 25, 2017 since the disposition did not qualify for treatment as a discontinued operation.
Industry
The newspaper industry and the Company have experienced declining same store revenue and profitability over the past several years. As a result, we have implemented, and continue to implement, plans to reduce costs and preserve cash flow. We have also invested in potential growth opportunities, primarily in the digital and business services space. We believe the cost reductions and the new digital and business services initiatives will provide the appropriate capital structure and financial resources necessary to invest in the business and ensure our future success and provide sufficient cash flow to enable us to meet our commitments for the next year.
General economic conditions, including declines in consumer confidence, high unemployment levels in certain local markets, declines in real estate values in certain local markets, and other trends, have also impacted the markets in which we operate. Additionally, media companies continue to be impacted by the migration of consumers and businesses to an internet and mobile-based, digital medium. These conditions may continue to negatively impact print advertising and other revenue sources as well as increase operating costs in the future. We expect that we will have adequate capital resources and liquidity to meet our working capital needs, borrowing obligations and all required capital expenditures for at least the next twelve months.
We periodically perform testing for impairment of goodwill and newspaper mastheads in which the fair value of our reporting units for goodwill impairment testing and newspaper mastheads are estimated using the expected present value of future cash flows and recent industry transaction multiples, using estimates, judgments and assumptions that we believe are appropriate in the circumstances. Should general economic, market or business conditions decline, and have a negative impact on estimates of future cash flow and market transaction multiples, we may be required to record additional impairment charges in the future.
Critical Accounting Policy Disclosure
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make decisions based on estimates, assumptions and factors it considers relevant to the circumstances. Such decisions include the selection of applicable principles and the use of judgment in their application, the results of which could differ from those anticipated.
A summary of our significant accounting policies are described in Note 1, of our consolidated financial statements, "Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies", for the year ended December 31, 2017, included in our Annual Report on Form 10-K.
During the three months ended April 1, 2018, we changed several accounting policies in order to adopt recent accounting standards, including the Financial Accounting Standards Board Accounting Standards Update No. 2014-09, “Revenue from

29



Contracts with Customers”. There have been no other material changes in critical accounting policies in the current year from those described in our Annual Report on Form 10-K for the year ended December 31, 2017.

30



Results of Operations
The following table summarizes our results of operations for the three and six months ended July 1, 2018 and June 25, 2017:
NEW MEDIA INVESTMENT GROUP INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands)
 
Three months ended
 
Six months ended
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
Revenues:
 
 
 
 
 
 
 
Advertising
$
187,609

 
$
167,381

 
$
350,868

 
$
322,946

Circulation
144,536

 
110,563

 
274,527

 
221,368

Commercial printing and other
56,657

 
44,929

 
104,172

 
86,083

Total revenues
388,802

 
322,873

 
729,567

 
630,397

Operating costs and expenses:
 
 

 

 

Operating costs
217,775

 
177,020

 
414,164

 
354,811

Selling, general, and administrative
126,837

 
106,661

 
245,656

 
212,863

Depreciation and amortization
19,935

 
18,760

 
39,182

 
36,364

Integration and reorganization costs
1,749

 
2,237

 
4,179

 
4,607

Impairment of long-lived assets

 

 

 
6,485

Goodwill and mastheads impairment

 
27,448

 

 
27,448

Net gain on sale or disposal of assets
(808
)
 
(2,634
)
 
(3,979
)
 
(2,546
)
Operating income (loss)
23,314

 
(6,619
)
 
30,365

 
(9,635
)
Interest expense
8,999

 
7,217

 
17,351

 
14,435

Other income
(337
)
 
(104
)
 
(857
)
 
(322
)
Income (loss) before income taxes
14,652

 
(13,732
)
 
13,871

 
(23,748
)
Income tax expense
2,946

 
7,955

 
2,830

 
1,624

Net income (loss)
$
11,706

 
$
(21,687
)
 
$
11,041

 
$
(25,372
)
Three Months Ended July 1, 2018 Compared To Three Months Ended June 25, 2017
Revenue. Total revenue for the three months ended July 1, 2018 increased by $65.9 million, or 20.4%, to $388.8 million from $322.9 million for the three months ended June 25, 2017. The increase in total revenue was comprised of a $20.2 million, or 12.1%, increase in advertising revenue, a $33.9 million, or 30.7%, increase in circulation revenue, and a $11.8 million, or 26.1%, increase in commercial printing and other revenue.
Revenues increased primarily due to acquisitions. Advertising revenue was partially offset by declines driven by reductions in the local retail, classified, and preprint categories due to secular pressures and a continuing uncertain economic environment. These secular trends and economic conditions have also led to a decline in our print circulation volumes, which have been offset by price increases in select locations. The majority of the remaining increase in commercial printing and other revenue is due to digital marketing services, events revenue, and commercial print and distribution.
Operating Costs. Operating costs for the three months ended July 1, 2018 increased by $40.8 million, or 23.0%, to $217.8 million from $177.0 million for the three months ended June 25, 2017. The increase includes operating costs from acquisitions of $45.4 million and a $1.1 million increase in newsprint and ink, which was partially offset by an $7.1 million decrease in the costs related to the remaining operations. This decline in operating costs related to the remaining operations was primarily due to a decrease in compensation, hauling and delivery and internet expenses of $3.3 million, $2.2 million and $0.5 million, respectively. There were no other increases or decreases greater than $0.5 million.
Selling, General and Administrative. Selling, general and administrative expenses for the three months ended July 1, 2018 increased by $20.2 million, or 18.9%, to $126.8 million from $106.6 million for the three months ended June 25, 2017.

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The increase includes selling, general and administrative expenses from acquisitions of $25.0 million, a $3.7 million increase in outside services, and a $0.6 million increase in travel and entertainment, partially offset by a $9.1 million decrease in the costs related to the remaining operations. This decline in selling, general and administrative expenses related to the remaining operations was primarily due to a decrease in compensation and professional and consulting fees of $6.8 million and $1.2 million, respectively. There were no other increases or decreases greater than $0.5 million.
Integration and Reorganization Costs. During the three month periods ended July 1, 2018 and June 25, 2017, we recorded integration and reorganization costs of $1.7 million and $2.2 million, respectively, primarily resulting from severance costs related to acquisition-related synergies and the continued consolidation of our operations resulting from ongoing implementation of our plans to reduce costs and preserve cash flow.
Goodwill and Mastheads Impairment. During the three months ended June 25, 2017, we recorded a $27.4 million goodwill and mastheads impairment due to softening business conditions and the related impact on the fair value of our reporting units. No such charge was recorded during the three months ended July 1, 2018.
Income Tax Expense. During the three months ended July 1, 2018 and June 25, 2017, we recorded an income tax expense of $2.9 million and $8.0 million, respectively. The reduced income tax expense is primarily attributable to the 20% annualized effective tax rate for 2018, while the 2017 provision was determined based on year-to-date results because utilizing the effective tax rate for the three months ended June 25, 2017 was determined to not be an effective method to determine the tax expense for that period.
Net Income (Loss). Net income for the three months ended July 1, 2018 was $11.7 million, and net loss for the three months ended June 25, 2017 was $21.7 million. The difference is related to the factors noted above.
Six Months Ended July 1, 2018 Compared To Six Months Ended June 25, 2017
Revenue. Total revenue for the six months ended July 1, 2018 increased by $99.2 million, or 15.7%, to $729.6 million from $630.4 million for the six months ended June 25, 2017. The increase in total revenue was comprised of a $27.9 million, or 8.6%, increase in advertising revenue, a $53.2 million, or 24.0%, increase in circulation revenue, and a $18.1 million, or 21.0%, increase in commercial printing and other revenue.
Revenues increased primarily due to acquisitions. Advertising revenue was partially offset by declines driven by reductions in the local retail, classified, and preprint categories due to secular pressures and a continuing uncertain economic environment. These secular trends and economic conditions have also led to a decline in our print circulation volumes, which have been offset by price increases in select locations. The majority of the remaining increase in commercial printing and other revenue is due to digital marketing services, events revenue, and commercial print and distribution.
Operating Costs. Operating costs for the six months ended July 1, 2018 increased by $59.4 million, or 16.7%, to $414.2 million from $354.8 million for the six months ended June 25, 2017. The increase includes operating costs from acquisitions of $71.8 million, a $0.9 million increase in professional and consulting, a $0.9 million increase in outside publishing and a $0.5 million increase in advertising and promotion, which was partially offset by a $16.2 million decrease in the costs related to the remaining operations. This decline in operating costs related to the remaining operations was primarily due to a decrease in compensation, hauling and delivery, internet expenses and outside services of $7.9 million, $4.9 million, $0.9 million and $0.8 million, respectively. There were no other increases or decreases greater than $0.5 million.
Selling, General and Administrative. Selling, general and administrative expenses for the six months ended July 1, 2018 increased by $32.8 million, or 15.4%, to $245.7 million from $212.9 million for the six months ended June 25, 2017. The increase includes selling, general and administrative expenses from acquisitions of $42.6 million, a $3.7 million increase in outside services, $0.9 million increase in bad debt expense and a $0.8 million increase in travel and entertainment, which was partially offset by a $15.2 million decrease in the costs related to the remaining operations. This decline in selling, general and administrative expenses related to the remaining operations was primarily due to a decrease in compensation, professional and consulting fees, bank charges and building rental and maintenance of $10.0 million, $2.4 million, $0.8 million and $0.6 million, respectively. There were no other increases or decreases greater than $0.5 million.
Integration and Reorganization Costs. During the six month periods ended July 1, 2018 and June 25, 2017, we recorded integration and reorganization costs of $4.2 million and $4.6 million, respectively, primarily resulting from severance costs related to acquisition-related synergies and the continued consolidation of our operations resulting from ongoing implementation of our plans to reduce costs and preserve cash flow.

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Impairment of Long-lived Assets. During the six months ended June 25, 2017, we recorded a $6.5 million impairment of long-lived assets due to eleven printing facilities ceasing operations during the six months ended June 25, 2017, and additional shut downs expected in the third quarter of 2017. No such charge was recorded during the six months ended July 1, 2018.
Goodwill and Mastheads Impairment. During the six months ended June 25, 2017, we recorded a $27.4 million goodwill and mastheads impairment due to softening business conditions and the related impact on the fair value of our reporting units. No such charge was recorded during the six months ended July 1, 2018.
Income Tax Expense. During the six months ended July 1, 2018 and June 25, 2017, we recorded an income tax expense of $2.8 million and $1.6 million, respectively. The increase in income tax expense is primarily attributable to the 20% annualized effective tax rate for 2018, while the 2017 provision was determined based on year-to-date results because utilizing the effective tax rate for the six months ended June 25, 2017 was determined to not be an effective method to determine the tax expense for that period.
Net Income (Loss). Net income for the six months ended July 1, 2018 was $11.0 million and net loss for the six months ended June 25, 2017 was $25.4 million. The difference is related to the factors noted above.
Liquidity and Capital Resources
Our primary cash requirements are for working capital, debt obligations, capital expenditures and acquisitions. We have no material outstanding commitments for capital expenditures. We expect our 2018 capital expenditures to total between $14 million and $16 million. The 2018 capital expenditures will be primarily comprised of projects related to the consolidation of facilities and upgrades to improve operations. For more information on our long term debt and debt service obligations, see Note 6 to the unaudited condensed consolidated financial statements, “Indebtedness”. Our principal sources of funds have historically been, and are expected to continue to be, cash provided by operating activities.
We expect to fund our operations through cash provided by our subsidiaries’ operating activities, the incurrence of debt or the issuance of additional equity securities. We expect that we will have adequate capital resources and liquidity to meet our working capital needs, borrowing obligations and all required capital expenditures for at least the next twelve months.
Our leverage may adversely affect our business and financial performance and restricts our operating flexibility. The level of our indebtedness and our on-going cash flow requirements may expose us to a risk that a substantial decrease in operating cash flows due to, among other things, continued or additional adverse economic developments or adverse developments in our business, could make it difficult for us to meet the financial and operating covenants contained in our credit facilities. In addition, our leverage may limit cash flow available for general corporate purposes such as capital expenditures and our flexibility to react to competitive, technological and other changes in our industry and economic conditions generally.
Dividends
On August 2, 2018, we announced a second quarter 2018 cash dividend of $0.37 per share of Common Stock, par value $0.01 per share, of New Media. The dividend will be paid on August 21, 2018, to shareholders of record as of the close of business on August 13, 2018.
On May 3, 2018, we announced a first quarter 2018 cash dividend of $0.37 per share of Common Stock, par value $0.01 per share, of New Media. The dividend was paid on May 16, 2018, to shareholders of record as of the close of business on May 14, 2018.
On February 28, 2018, we announced a fourth quarter 2017 cash dividend of $0.37 per share of Common Stock, par value $0.01 per share, of New Media. The dividend was paid on March 22, 2018, to shareholders of record as of the close of business on March 14, 2018.
On October 26, 2017, we announced a third quarter 2017 cash dividend of $0.37 per share of Common Stock, par value $0.01 per share, of New Media. The dividend was paid on November 16, 2017, to shareholders of record as of the close of business on November 8, 2017.
On July 27, 2017, we announced a second quarter 2017 cash dividend of $0.35 per share of Common Stock, par value $0.01 per share, of New Media. The dividend was paid on August 17, 2017, to shareholders of record as of the close of business on August 9, 2017.

33



On April 27, 2017, we announced a first quarter 2017 cash dividend of $0.35 per share of Common Stock, par value $0.01 per share, of New Media. The dividend was paid on May 18, 2017, to shareholders of record as of the close of business on May 10, 2017.
On February 21, 2017, we announced a fourth quarter 2016 cash dividend of $0.35 per share of Common Stock, par value $0.01 per share, of New Media. The dividend was paid on March 16, 2017, to shareholders of record as of the close of business on March 8, 2017.
New Media Credit Agreement
On June 4, 2014, New Media Holdings II LLC (the “New Media Borrower”), a wholly owned subsidiary of New Media, entered into a credit agreement (the “New Media Credit Agreement”) among the New Media Borrower, New Media Holdings I LLC (“Holdings I”), the lenders party thereto, RBS Citizens, N.A. and Credit Suisse Securities (USA) LLC as joint lead arrangers and joint bookrunners, Credit Suisse AG, Cayman Islands Branch as syndication agent and Citizens Bank of Pennsylvania as administration agent which provided for (i) a $200 million senior secured term facility (the “Term Loan Facility” and any loan thereunder, including as part of the Incremental Facility, “Term Loans”), (ii) a $25 million senior secured revolving credit facility, with a $5 million sub-facility for letters of credit and a $5 million sub-facility for swing loans, (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Senior Secured Credit Facilities”) and (iii) the ability for the New Media Borrower to request one or more new commitments for term loans or revolving loans from time to time up to an aggregate total of $75 million (the “Incremental Facility”) subject to certain conditions. On June 4, 2014, the New Media Borrower borrowed $200 million under the Term Loan Facility (the “Initial Term Loans”). As of July 1, 2018, $0 was drawn under the Revolving Credit Facility. The Term Loans mature on July 14, 2022 and the maturity date for the Revolving Credit Facility is July 14, 2021. The New Media Credit Agreement was amended:
on September 3, 2014, to provide for additional term loans under the Incremental Facility in an aggregate principal amount of $25 million (the “2014 Incremental Term Loan”);
on November 20, 2014, to increase the amount of the Incremental Facility that may be requested after the date of the amendment from $75 million to $225 million;
on January 9, 2015, to provide for $102 million in additional term loans (the “2015 Incremental Term Loan”) and $50 million in additional revolving commitments (the “2015 Incremental Revolver”) under the Incremental Facility and to make certain amendments to the Revolving Credit Facility in connection with the purchase of the assets of Halifax Media;
on February 13, 2015, to provide for the replacement of the existing term loans under the Term Loan Facility (including the 2014 Incremental Term Loan and the 2015 Incremental Term Loan) with a new class of replacement term loans;
on March 6, 2015, to provide for $15 million in additional revolving commitments under the Incremental Facility;
on May 29, 2015, to provide for $25 million in additional term loans under the Incremental Facility;
on July 14, 2017, to (i) extend the maturity date of the outstanding term loans under the Term Loan Facility to July 14, 2022, (ii) provide for a 1.00% prepayment premium for any prepayments made in connection with certain repricing transactions effected within six months of the date of the amendment, (iii) extend the maturity date of the Revolving Credit Facility to July 14, 2021, (iv) provide for $20 million in additional term loans (the “2017 Incremental Term Loan”) under the Incremental Facility and (v) increase the amount of the Incremental Facility that may be requested on or after the date of the amendment (inclusive of the 2017 Incremental Term Loan) to $100 million; and
on February 16, 2018, to provide for (i) $50 million in additional term loans under the Term Loan Facility and (ii) a 1.00% prepayment premium for any prepayments of the Term Loans made in connection with certain repricing transactions effected within six months of the date of the amendment.
In connection with the February 16, 2018 amendment, the Company incurred approximately $0.6 million of fees and expenses, of which $0.5 million were capitalized in deferred financing costs and will be amortized over the term of the Term Loan Facility. The related third party fees of $0.1 million were expensed during the quarter as this amendment was determined to be a debt modification for accounting purposes. In addition, the Company recognized $0.3 million of original issue discount, which will also be amortized over the term of the Term Loan Facility.
In connection with the July 14, 2017 amendment, we incurred approximately $6.6 million of fees and expenses. There was one lender who had a significant change in the terms of the Term Loan Facility; the difference between the present value of

34



the cash flows after this amendment and the present value of the cash flows before this amendment was more than 10%.  This portion of the transaction was accounted for as an extinguishment under ASC Subtopic 470-50, “Debt Modifications and Extinguishments”. Deferred fees and expenses of $1.0 million previously allocated to that lender were written off to loss on early extinguishment of debt.  Additionally, the current fees of $2.4 million attributed to this lender were expensed to loss on early extinguishment of debt.  The third party expenses of $0.1 million apportioned to the lender were capitalized.  In addition, $1.3 million fees and expenses allocated to lenders that exited the facility were written off to loss on early extinguishment of debt.  The remainder of this amendment was treated as a debt modification for accounting purposes.  The consent fees of $3.0 million for the lenders other than the one mentioned above were capitalized and will be amortized over the term of the Term Loan Facility.  The third party fees of $0.6 million related to these lenders were expensed. Additionally, the fees and expenses allocated to the Revolving Credit Facility of $0.4 million were capitalized as this component of the amendment was accounted for as a debt modification.
The New Media Credit Agreement contains customary representations and warranties and affirmative covenants and negative covenants applicable to Holdings I, the New Media Borrower and the New Media Borrower’s subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions, and events of default. The New Media Credit Agreement contains a financial covenant that requires Holdings I, the New Media Borrower and the New Media Borrower’s subsidiaries to maintain a maximum total leverage ratio of 3.25 to 1.00.
As of July 1, 2018, we are in compliance with all of the covenants and obligations under the New Media Credit Agreement.
Refer to Note 6 to the unaudited condensed consolidated financial statements, “Indebtedness,” and to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, for further discussion of the New Media Credit Agreement.
Advantage Credit Agreements
In connection with the purchase of the assets of Halifax Media, which was completed on January 9, 2015, certain subsidiaries of the Company (the “Advantage Borrowers”) agreed to assume all of the obligations of Halifax Media and its affiliates in respect of each of (i) that certain Consolidated Amended and Restated Credit Agreement dated January 6, 2012 among Halifax Media Acquisition LLC, Advantage Capital Community Development Fund XXVIII, L.L.C., and Florida Community Development Fund II, L.L.C. (as amended, the “Halifax Florida Credit Agreement”) and (ii) that certain Credit Agreement dated June 18, 2013 between Halifax Alabama, LLC and Southeast Community Development Fund V, L.L.C. (the “Halifax Alabama Credit Agreement” and, together with the Halifax Florida Credit Agreement, the “Advantage Credit Agreements”), respectively (the debt under the Halifax Florida Credit Agreement, the “Advantage Florida Debt”; the debt under the Halifax Alabama Credit Agreement, the “Advantage Alabama Debt”). The $10 million outstanding balance under the Halifax Florida Credit Agreement was fully repaid on December 31, 2016.
As of January 9, 2015, the Halifax Alabama Credit Agreement had a principal amount of $8 million and bore interest at the rate of LIBOR plus 6.25% per annum (with a minimum of 1% LIBOR) payable quarterly in arrears. On May 15, 2018, the Halifax Alabama Credit Agreement was amended to reduce the interest rate to 2% per annum. In addition, a 2% prepayment premium will be charged if the balance is paid before December 28, 2018 unless the Advantage Borrowers elect to escrow the remaining principal amount. Subsequent to December 28, 2018, the principal may be repaid without a premium or penalty. The Advantage Alabama Debt matures on March 31, 2019. The Advantage Alabama Debt is secured by a perfected second priority security interest in all the assets of the Advantage Borrowers and certain other subsidiaries of the Company, subject to the limitation that the maximum amount of secured obligations is $15 million. The Advantage Alabama Debt is unconditionally guaranteed by Holdings I and certain subsidiaries of the New Media Borrowers and is required to be guaranteed by all future material wholly-owned domestic subsidiaries, subject to certain exceptions. The Advantage Alabama Debt is subordinated to the Senior Secured Credit Facilities pursuant to an intercreditor agreement.
The Halifax Alabama Credit Agreement contains covenants substantially consistent with those contained in the New Media Credit Agreement in addition to those required for compliance with the New Markets Tax Credit program. The Advantage Borrowers are subject to customary mandatory prepayment events including from proceeds from asset sales and certain debt obligations.
The Halifax Alabama Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants applicable to the Advantage Borrowers and certain of the Company subsidiaries, including, among other

35



things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, and dividends and other distributions. The Halifax Alabama Credit Agreement contains a financial covenant that requires Holdings I, the New Media Borrower and the New Media Borrower’s subsidiaries to maintain a maximum total leverage ratio of 3.75 to 1.00. The Halifax Alabama Credit Agreement contains customary events of default.
As of July 1, 2018, we are in compliance with all of the covenants and obligations under the Halifax Alabama Credit Agreement.
Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, for further discussion of the Advantage Credit Agreements.
Cash Flows
The following table summarizes our historical cash flows.
 
Six months ended July 1, 2018
 
Six months ended June 25, 2017
Cash provided by operating activities
$
57,603

 
$
49,639

Cash used in investing activities
(142,060
)
 
(12,221
)
Cash provided by (used in) financing activities
115,156

 
(55,337
)
Cash Flows from Operating Activities. Net cash provided by operating activities for the six months ended July 1, 2018 was $57.6 million, an increase of $8.0 million when compared to $49.6 million of cash provided by operating activities for the six months ended June 25, 2017. This $8.0 million increase was the result of an improvement in operating results of $36.4 million and an increase in cash provided by working capital of $3.4 million, which was partially offset by a decrease in adjustments for non-cash charges, including impairments, of $31.8 million.
The $3.4 million increase in cash provided by working capital for the six months ended July 1, 2018 when compared to the six months ended June 25, 2017, is primarily attributable to a decrease in other assets, an increase in accrued expenses and an increase in deferred revenue, which was partially offset by an increase in prepaid expenses and a decrease in accounts payable.
The $31.8 million decrease in adjustments to net income for non-cash charges, when compared to the six months ended June 25, 2017, primarily consisted of a $27.4 million decrease in goodwill and mastheads impairment, $6.5 million decrease in impairment of long-lived assets, a $1.4 million increase in net gain on sale or disposal of assets, a $0.3 million decrease in non-cash interest expense and a $0.1 million decrease in pension and other postretirement benefit obligations, which was partially offset by a $2.8 million increase in depreciation and amortization, a $1.2 million increase in deferred income taxes and a $0.2 million increase in non-cash compensation expense.
Cash Flows from Investing Activities. Net cash used in investing activities for the six months ended July 1, 2018 was $142.1 million. During the six months ended July 1, 2018, we used $149.6 million, net of cash acquired, for acquisitions and $5.0 million for capital expenditures, which was partially offset by $12.6 million we received from the sale of real estate and other assets.
Net cash used in investing activities for the six months ended June 25, 2017 was $12.2 million. During the six months ended June 25, 2017, we used $22.1 million, net of cash acquired, for acquisitions and $4.8 million for capital expenditures, which was partially offset by $14.7 million we received from the sale of real estate and other assets.
Cash Flows from Financing Activities. Net cash provided by financing activities for the six months ended July 1, 2018 was $115.2 million and was primarily comprised of the issuance of common stock, net of underwriters' discount and the payment of offering costs, of $110.9 million, borrowings under term loans of $49.8 million, partially offset by the payment of dividends of $42.2 million, repayments under term loans of $2.1 million, a $0.8 million purchase of treasury stock, and payment of debt issuance costs of $0.5 million.
Net cash used in financing activities for the six months ended June 25, 2017 was $55.3 million and was primarily due to the payment of dividends of $37.5 million, repayments under term loans of $11.8 million, $5.0 million in repurchases of

36



common stock under the Share Repurchase Program, a $0.6 million purchase of treasury stock, and $0.4 million payment of offering costs.
Changes in Financial Position
The discussion that follows highlights significant changes in our financial position and working capital from December 31, 2017 to July 1, 2018.
Inventory. Inventory increased $6.2 million from December 31, 2017 to July 1, 2018, which primarily relates to the increase in newsprint inventory due to price increases, driven largely by government tariffs, and the effect of 2018 acquisitions.
Prepaid Expenses. Prepaid expenses increased $5.6 million from December 31, 2017 to July 1, 2018, which primarily relates to the timing of payments and assets acquired in the six month period ending July 1, 2018.
Other Current Assets. Other current assets decreased $5.5 million from December 31, 2017 to July 1, 2018, primarily due to decreased collateral required by our insurers.
Property, Plant, and Equipment. Property, plant, and equipment decreased $16.8 million from December 31, 2017 to July 1, 2018, of which $23.9 million relates to depreciation and $7.1 million relates to assets sold, classified as held for sale, or disposed of during the first six months of 2018, which was partially offset by $9.0 million of assets acquired in 2018 and $5.0 million of capital expenditures.
Goodwill. Goodwill increased $51.9 million from December 31, 2017 to July 1, 2018, which is primarily due to assets acquired in 2018.
Intangible Assets. Intangible assets increased $73.4 million from December 31, 2017 to July 1, 2018, of which $89.0 million relates to assets acquired in 2018, which was partially offset by $15.3 million in amortization.
Other Assets. Other assets increased $1.7 million from December 31, 2017 to July 1, 2018, which is primarily due to acquisitions during the six months ended July 1, 2018.
Current Portion of Long-term Debt. Current portion of long-term debt increased $9.4 million from December 31, 2017 to July 1, 2018, due to the reclassification to current portion of long-term debt of $8.0 million of debt that was assumed in the Halifax acquisition in 2015 that is due on March 31, 2019, a $0.9 million reclassification from long-term debt and an increase in the current portion of long-term debt of $0.5 million related to the February 16, 2018 amendment to the New Media Credit Agreement.
Deferred Revenue. Deferred revenue increased $17.4 million from December 31, 2017 to July 1, 2018, primarily due to acquisitions during the six months ended July 1, 2018.
Long-term Debt. Long-term debt increased $38.9 million from December 31, 2017 to July 1, 2018, primarily due to borrowings under term loans of $49.2 million, net of original issue discount, and $1.1 million non-cash interest expense, which was partially offset by the reclassification of long-term debt to current portion of long-term debt of $8.9 million, and a $2.1 million repayment of term loans.
Deferred Income Taxes. Deferred income taxes increased $2.3 million from December 31, 2017 to July 1, 2018, which primarily relates to an increase in the deferred tax liability for indefinite-lived intangible assets.
Additional Paid-in Capital. Additional paid-in capital increased $75.3 million from December 31, 2017 to July 1, 2018, which resulted primarily from the issuance of common stock, net of underwriters' discount and offering costs, from the public offering of $110.7 million, non-cash compensation expense of $1.8 million, and restricted share grants of $0.2 million, which was partially offset by dividends of $37.4 million.
Retained Earnings (Accumulated Deficit). Retained earnings increased $6.4 million from December 31, 2017 to July 1, 2018, primarily due to net income of $11.0 million which was partially offset by dividends of $4.6 million.
Summary Disclosure About Contractual Obligations and Commercial Commitments

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Other than the amendment to the New Media Credit Agreement described below, there have been no significant changes to our contractual obligations previously reported in our Annual Report on Form 10-K for the year ended December 31, 2017.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements reasonably likely to have a current or future effect on our financial statements.
Contractual Commitments
On February 16, 2018, the New Media Credit Agreement was amended to, among other things, provide for (i) $50 million in additional term loans under the Term Loan Facility and (ii) a 1.00% prepayment premium for any prepayments of the Term Loans made in connection with certain repricing transactions effected within six months of the date of the amendment.
There were no other material changes made to our contractual commitments during the period from December 31, 2017 to July 1, 2018.
Non-GAAP Financial Measures
A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. We define and use Adjusted EBITDA, a non-GAAP financial measure, as set forth below.
Adjusted EBITDA
We define Adjusted EBITDA as follows:
Income (loss) from continuing operations before:
 
income tax expense (benefit);
interest/financing expense;
depreciation and amortization; and
non-cash impairments.
Management’s Use of Adjusted EBITDA
Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered in isolation or as an alternative to income from operations, net income (loss), cash flow from continuing operating activities or any other measure of performance or liquidity derived in accordance with GAAP. We believe this non-GAAP measure, as we have defined it, is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance.
Adjusted EBITDA provides us with a measure of financial performance, independent of items that are beyond the control of management in the short-term, such as depreciation and amortization, taxation, non-cash impairments and interest expense associated with our capital structure. This metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Adjusted EBITDA is one of the metrics we use to review the financial performance of our business on a monthly basis.
Limitations of Adjusted EBITDA
Adjusted EBITDA has limitations as an analytical tool. It should not be viewed in isolation or as a substitute for GAAP measures of earnings or cash flows. Material limitations in making the adjustments to our earnings to calculate Adjusted EBITDA and using this non-GAAP financial measure as compared to GAAP net income (loss), include: the cash portion of

38



interest/financing expense, income tax (benefit) provision and charges related to impairment of long-lived assets, which may significantly affect our financial results.
A reader of our financial statements may find this item important in evaluating our performance, results of operations and financial position. We use non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.
Adjusted EBITDA is not an alternative to net income, income from operations or cash flows provided by or used in operations as calculated and presented in accordance with GAAP. Readers of our financial statements should not rely on Adjusted EBITDA as a substitute for any such GAAP financial measure. We strongly urge readers of our financial statements to review the reconciliation of income (loss) from continuing operations to Adjusted EBITDA, along with our consolidated financial statements included elsewhere in this report. We also strongly urge readers of our financial statements to not rely on any single financial measure to evaluate our business. In addition, because Adjusted EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, the Adjusted EBITDA measure, as presented in this report, may differ from and may not be comparable to similarly titled measures used by other companies.
We use Adjusted EBITDA as a measure of our day-to-day operating performance, which is evidenced by the publishing and delivery of news and other media and excludes certain expenses that may not be indicative of our day-to-day business operating results. We consider the unrealized (gain) loss on derivative instruments and the (gain) loss on early extinguishment of debt to be financing related costs associated with interest expense or amortization of financing fees. Accordingly, we exclude financing related costs such as the early extinguishment of debt because they represent the write-off of deferred financing costs and we believe these non-cash write-offs are similar to interest expense and amortization of financing fees, which by definition are excluded from Adjusted EBITDA. Additionally, the non-cash gains (losses) on derivative contracts, which are related to interest rate swap agreements to manage interest rate risk, are financing costs associated with interest expense. Such charges are incidental to, but not reflective of, our day-to-day operating performance and it is appropriate to exclude charges related to financing activities such as the early extinguishment of debt and the unrealized (gain) loss on derivative instruments which, depending on the nature of the financing arrangement, would have otherwise been amortized over the period of the related agreement and does not require a current cash settlement. Such charges are incidental to, but not reflective of our day-to-day operating performance of the business that management can impact in the short term.
The table below shows the reconciliation of net income (loss) to Adjusted EBITDA for the periods presented:
 
Three months ended
 
Six months ended
 
 
July 1, 2018
 
June 25, 2017
 
July 1, 2018
 
June 25, 2017
 
 
(in thousands)
 
Net income (loss)
$
11,706

 
$
(21,687
)
 
$
11,041

 
$
(25,372
)
 
Income tax expense
2,946

 
7,955

 
2,830

 
1,624

  
Interest expense
8,999

 
7,217

 
17,351

 
14,435

  
Impairment of long-lived assets

 

 

 
6,485

 
Goodwill and mastheads impairment

 
27,448

 

 
27,448

 
Depreciation and amortization
19,935

 
18,760

 
39,182

 
36,364

  
Adjusted EBITDA from continuing operations
$
43,586

(a)  
$
39,693

(b)  
$
70,404

(c)  
$
60,984

(d)  
 
(a)
Adjusted EBITDA for the three months ended July 1, 2018 included net expenses of $5,165, related to transaction and project costs, non-cash compensation, and other expense of $4,224, integration and reorganization costs of $1,749, less an $808 gain on the sale or disposal of assets.
(b)
Adjusted EBITDA for the three months ended June 25, 2017 included net expenses of $3,583, related to transaction and project costs, non-cash compensation, and other expense of $3,980, integration and reorganization costs of $2,237 and an $2,634 gain on the sale or disposal of assets.
(c)
Adjusted EBITDA for the six months ended July 1, 2018 included net expenses of $10,874, related to transaction and project costs, non-cash compensation, and other expense of $10,674, integration and reorganization costs of $4,179 and a $3,979 gain on the sale or disposal of assets.

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(d)
Adjusted EBITDA for the six months ended June 25, 2017 included net expenses of $8,983, related to transaction and project costs, non-cash compensation, and other expense of $6,922, integration and reorganization costs of $4,607 and an $2,546 gain on the sale or disposal of assets.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk
During the six month period ended July 1, 2018, there were no material changes to the quantitative and qualitative disclosures about market risk that were presented in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2017.

Item 4.
Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Control
There has not been any change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter to which this Quarterly Report on Form 10-Q relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Part II. — OTHER INFORMATION
 
Item 1.
Legal Proceedings
There have been no material changes to the legal proceedings previously disclosed under “Legal Proceedings” included in our Annual Report on Form 10-K filed with the SEC on February 28, 2018.

Item 1A.
Risk Factors
You should carefully consider the following risks and other information in this Quarterly Report on Form 10-Q in evaluating us and our common stock. Any of the following risks could materially and adversely affect our results of operations or financial condition. The risk factors generally have been separated into the following groups: Risks Related to Our Business, Risks Related to Our Manager, and Risks Related to Our Common Stock.
Risks Related to Our Business
We depend to a great extent on the economies and the demographics of the local communities that we serve, and we are also susceptible to general economic downturns, which have had, and could continue to have, a material and adverse impact on our advertising and circulation revenues and on our profitability.
Our advertising revenues and, to a lesser extent, circulation revenues, depend upon a variety of factors specific to the communities that our publications serve. These factors include, among others, the size and demographic characteristics of the local population, local economic conditions in general and the economic condition of the retail segments of the communities that our publications serve. If the local economy, population or prevailing retail environment of a community we serve experiences a downturn, our publications, revenues and profitability in that market could be adversely affected. Our advertising revenues are also susceptible to negative trends in the general economy that affect consumer spending. The advertisers in our newspapers and other publications and related websites are primarily retail businesses that can be significantly affected by regional or national economic downturns and other developments. For example, many traditional retail companies continue to face greater competition from online retailers and face uncertainty in their businesses, which has reduced and may continue to reduce their advertising spending. Declines in the U.S. economy could also significantly affect key advertising revenue categories, such as help wanted, real estate and automotive.
Uncertainty and adverse changes in the general economic conditions of markets in which we participate may negatively affect our business.
Current and future conditions in the economy have an inherent degree of uncertainty. As a result, it is difficult to estimate the level of growth or contraction for the economy as a whole. It is even more difficult to estimate growth or contraction in various parts, sectors and regions of the economy, including the markets in which we participate. Adverse changes may occur as a result of weak global economic conditions, declining oil prices, wavering consumer confidence, unemployment, declines in stock markets, contraction of credit availability, declines in real estate values, natural disasters, or other factors affecting economic conditions in general. These changes may negatively affect the sales of our products, increase exposure to losses from bad debts, increase the cost and decrease the availability of financing, or increase costs associated with publishing and distributing our publications.
Our ability to generate revenues is correlated with the economic conditions of three geographic regions of the United States.
Our Company primarily generates revenue in three geographic regions: the Northeast, the Midwest, and the Southeast. During the six months ended July 1, 2018, approximately 31% of our total revenues were generated in four states in the Northeast: Massachusetts, Pennsylvania, New York, and Rhode Island. During the same period, approximately 23% of our total revenues were generated in three states in the Midwest: Ohio, Illinois, and Nebraska. Also during the same period, approximately 22% of our total revenues were generated in two states in the Southeast: Florida and North Carolina. As a result of this geographic concentration, our financial results, including advertising and circulation revenue, depend largely upon economic conditions in these principal market areas. Accordingly, adverse economic developments within these three regions in particular could significantly affect our consolidated operations and financial results.

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Our indebtedness and any future indebtedness may limit our financial and operating activities and our ability to incur additional debt to fund future needs or dividends.
As of July 1, 2018, New Media’s outstanding indebtedness consists primarily of the New Media Credit Agreement. The New Media Credit Agreement provided for (i) a $200 million senior secured term facility, (ii) a $25 million senior secured revolving credit facility, with a $5 million sub-facility for letters of credit and a $5 million sub-facility for swing loans and (iii) the ability for us to request one or more new commitments for term loans or revolving loans from time to time up to an aggregate total of $75 million (the "Incremental Facility"), subject to certain conditions. On September 3, 2014, the New Media Credit Agreement was amended to provide for additional term loans under the Incremental Facility in an aggregate principal amount of $25 million. On November 20, 2014, the New Media Credit Agreement was further amended to increase the amount available thereunder for incremental term loans from $75 million to $225 million in order to facilitate the financing of the acquisition of substantially all of the assets from Halifax Media Group LLC. On January 9, 2015, the New Media Credit Agreement was amended to provide for additional term loans and revolving commitments under the Incremental Facility in a combined aggregate principal amount of $152 million and to make certain amendments to the Revolving Credit Facility. On February 13, 2015, the New Media Credit Agreement was amended to, amongst other things, replace the existing term loans with a new class of replacement term loans with extended call protection. On March 6, 2015, the New Media Credit Agreement was amended to provide for $15 million in additional revolving commitments under the Incremental Facility. On May 29, 2015, the New Media Credit Agreement was amended to provide for $25 million in additional term loans under the Incremental Facility. On July 14, 2017, the New Media Credit Agreement was amended to, among other things, (i) extend the maturity date of the outstanding term loans to July 14, 2022 (the “Extended Term Loans”), (ii) provide for a 1.00% prepayment premium for any prepayments of the Extended Term Loans made in connection with certain repricing transactions effected within six months of the date of the amendment, (iii) extend the maturity date of the revolving credit facility to July 14, 2021, (iv) provide for additional dollar-denominated term loans in an aggregate principal amount of $20 million (the “2017 Incremental Term Loans”) on the same terms as the Extended Term Loans and (v) increase the amount of the Incremental Facility that may be requested on or after the date of the amendment (inclusive of the 2017 Incremental Term Loans) to $100 million. On February 16, 2018, the New Media Credit Agreement was amended to provide for additional dollar-denominated term loans in an aggregate principal amount of $50 million under the Incremental Facility and a 1.00% prepayment premium for any prepayments of the Extended Term Loans made in connection with certain repricing transactions effected within six months of the date of the amendment.
The Halifax Alabama Credit Agreement, which arose from debt obligations assumed by us in connection with our acquisition of substantially all of the assets from Halifax Media Group LLC on January 9, 2015, is comprised of debt in the principal amount of $8 million that bore interest at the rate of LIBOR plus 6.25% per annum (with a minimum of 1% LIBOR) payable quarterly in arrears. On May 15, 2018, the Halifax Alabama Credit Agreement was amended to reduce the interest rate to 2% per annum. In addition, a 2% prepayment premium will be charged if the balance is paid before December 28, 2018 unless the Advantage Borrowers elect to escrow the remaining principal amount. Subsequent to December 28, 2018, the principal may be repaid without a premium or penalty. The Advantage Alabama Debt matures on March 31, 2019. As of July 1, 2018, $8 million was outstanding under the Halifax Alabama Credit Agreement.
All of the above indebtedness and any future indebtedness we incur could:
 
require us to dedicate a portion of cash flow from operations to the payment of principal and interest on indebtedness, including indebtedness we may incur in the future, thereby reducing the funds available for other purposes, including dividends or other distributions;
subject us to increased sensitivity to increases in prevailing interest rates;
place us at a competitive disadvantage to competitors with relatively less debt in economic downturns, adverse industry conditions or catastrophic external events; or
reduce our flexibility in planning for or responding to changing business, industry and economic conditions.
In addition, our indebtedness could limit our ability to obtain additional financing on acceptable terms or at all to fund future acquisitions, working capital, capital expenditures, debt service requirements, general corporate and other purposes, which would have a material effect on our business and financial condition. Our liquidity needs could vary significantly and may be affected by general economic conditions, industry trends, performance and many other factors not within our control.
Each of the New Media Credit Agreement and Halifax Alabama Credit Agreement contains covenants that restrict our operations and may inhibit our ability to grow our business, increase revenues and pay dividends to our stockholders.

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The New Media Credit Agreement contains various restrictions, covenants and representations and warranties. If we fail to comply with any of these covenants or breach these representations or warranties in any material respect, such noncompliance would constitute a default under the New Media Credit Agreement (subject to applicable cure periods), and the lenders could elect to declare all amounts outstanding under the agreements related thereto to be immediately due and payable and enforce their respective interests against collateral pledged under such agreements.
The covenants and restrictions in the New Media Credit Agreement generally restrict our ability to, among other things:
 
incur or guarantee additional debt;
make certain investments, loans or acquisitions;
transfer or sell assets;
make distributions on capital stock or redeem or repurchase capital stock;
create or incur liens;
enter into transactions with affiliates;
consolidate, merge or sell all or substantially all of our assets; and
create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries.
The Halifax Alabama Credit Agreement contains covenants substantially consistent with those contained in the New Media Credit Agreement in addition to those required for compliance with the New Markets Tax Credit program.
The restrictions described above may interfere with our ability to obtain new or additional financing or may affect the manner in which we structure such new or additional financing or engage in other business activities, which may significantly limit or harm our results of operations, financial condition and liquidity. A default and any resulting acceleration of obligations under either the New Media Credit Agreement or Halifax Alabama Credit Agreement could also result in an event of default and declaration of acceleration under our other existing debt agreements. Such an acceleration of our debt would have a material adverse effect on our liquidity and our ability to continue as a going concern. A default under either the New Media Credit Agreement or Halifax Alabama Credit Agreement could also significantly limit our alternatives to refinance both the debt under which the default occurred and other indebtedness. This limitation may significantly restrict our financing options during times of either market distress or our financial distress, which are precisely the times when having financing options is most important.
We may not generate a sufficient amount of cash or generate sufficient funds from operations to fund our operations or repay our indebtedness.
Our ability to make payments on our indebtedness as required depends on our ability to generate cash flow from operations in the future. This ability, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.
If we do not generate sufficient cash flow from operations to satisfy our debt obligations, including interest payments and the payment of principal at maturity, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. We cannot provide assurance that any refinancing would be possible, that any assets could be sold, or, if sold, of the timeliness and amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then in effect. Furthermore, our ability to refinance would depend upon the condition of the finance and credit markets. Our inability to generate sufficient cash flow to satisfy our debt obligations, or to refinance our obligations on commercially reasonable terms or on a timely basis, would materially affect our business, financial condition and results of operations.
We may not be able to pay dividends in accordance with our announced intent or at all.
We have announced our intent to distribute a portion of our free cash flow generated from operations or other sources as a dividend to our stockholders, through a quarterly dividend, subject to satisfactory financial performance, approval by our Board of Directors and dividend restrictions in the New Media Credit Agreement. The Board of Directors’ determinations regarding dividends will depend on a variety of factors, including the Company’s GAAP net income, free cash flow generated from

43



operations or other sources, liquidity position and potential alternative uses of cash, such as acquisitions, as well as economic conditions and expected future financial results. Although we recently paid a first quarter 2018 cash dividend of $0.37 per share of Common Stock and have paid regularly quarterly dividends since the third quarter of 2014, there can be no guarantee that we will continue to pay dividends in the future or that this recent dividend is representative of the amount of any future dividends. Our ability to declare future dividends will depend on our future financial performance, which in turn depends on the successful implementation of our strategy and on financial, competitive, regulatory, technical and other factors, general economic conditions, demand and selling prices for our products and other factors specific to our industry or specific projects, many of which are beyond our control. Therefore, our ability to generate free cash flow depends on the performance of our operations and could be limited by decreases in our profitability or increases in costs, capital expenditures or debt servicing requirements.
We may acquire additional companies with declining cash flow as part of a strategy aimed at stabilizing cash flow through expense reduction and digital expansion. If our strategy is not successful, we may not be able to pay dividends.
We are also dependent on our subsidiaries being able to pay dividends. Our subsidiaries are subject to restrictions on the ability to pay dividends under the various instruments governing their indebtedness. If our subsidiaries incur additional debt or losses, such additional indebtedness or loss may further impair their ability to pay dividends or make other distributions to us. In addition, the ability of our subsidiaries to declare and pay dividends to us will also be dependent on their cash income and cash available and may be restricted under applicable law or regulation. Under Delaware law, approval of the board of directors is required to approve any dividend, which may only be paid out of surplus or net profit for the applicable fiscal year. As a result, we may not be able to pay dividends in accordance with our announced intent or at all.
We have invested in growing our digital business, including UpCurve and including through strategic acquisitions, but such investments may not be successful, which could adversely affect our results of operations.
We continue to evaluate our business and how we intend to grow our digital business. Internal resources and effort are put towards this business and acquisitions are sought to expand this business. In addition, key partnerships have been entered into to assist with our digital business, including UpCurve. We continue to believe that our digital businesses, including UpCurve, offer opportunities for revenue growth to support and, in some cases, offset the revenue trends we have seen in our print business. There can be no assurances that the partnerships we have entered into, the acquisitions we have completed or the internal strategy being employed will result in generating or increasing digital revenues in amounts necessary to stabilize or offset trends in print revenues. In addition, we have a limited history of operations in this area and there can be no assurances that past performance will be indicative of future performance or future trends or that the demand trends for online advertising and services experienced in recent periods will continue. If our digital strategy, including with regard to UpCurve, is not as successful as we anticipate, our financial condition, results of operations and ability to pay dividends could be adversely affected.

Acquisitions have formed a significant part of our growth strategy in the past and are expected to continue to do so. If we are unable to identify suitable acquisition candidates or successfully integrate the businesses we acquire, our growth strategy may not succeed. Acquisitions involve numerous risks, including risks related to integration, and these risks could adversely affect our business, financial condition and results of operations.
Our business strategy relies on acquisitions. We expect to derive a significant portion of our growth by acquiring businesses and integrating those businesses into our existing operations. We continue to seek acquisition opportunities, however we may not be successful in identifying acquisition opportunities, assessing the value, strengths and weaknesses of these opportunities or consummating acquisitions on acceptable terms. Furthermore, suitable acquisition opportunities may not even be made available or known to us. In addition, valuations of potential acquisitions may rise materially, making it economically unfeasible to complete identified acquisitions.
Additionally, our ability to realize the anticipated benefits of the synergies between New Media and our recent or potential future acquisitions of assets or companies will depend, in part, on our ability to appropriately integrate the business of New Media and the businesses of other such acquired companies. The process of acquiring assets or companies may disrupt our business and may not result in the full benefits expected. The risks associated with integrating the operations of New Media and recent and potential future acquisitions include, among others:
 
uncoordinated market functions;
unanticipated issues in integrating the operations and personnel of the acquired businesses;

44



the incurrence of indebtedness and the assumption of liabilities;
the incurrence of significant additional capital expenditures, transaction and operating expenses and non-recurring acquisition-related charges;
unanticipated adverse impact on our earnings from the amortization or write-off of acquired goodwill and other intangible assets;
cultural challenges associated with integrating acquired businesses with the operations of New Media;
not retaining key employees, vendors, service providers, readers and customers of the acquired businesses; and
the diversion of management’s attention from ongoing business concerns.
If we are unable to successfully implement our acquisition strategy or address the risks associated with integrating the operations of New Media and past acquisitions or potential future acquisitions, or if we encounter unforeseen expenses, difficulties, complications or delays frequently encountered in connection with the integration of acquired entities and the expansion of operations, our growth and ability to compete may be impaired, we may fail to achieve acquisition synergies and we may be required to focus resources on integration of operations rather than other profitable areas. Moreover, the success of any acquisition will depend upon our ability to effectively integrate the acquired assets or businesses. The acquired assets or businesses may not contribute to our revenues or earnings to any material extent, and cost savings and synergies we expect at the time of an acquisition may not be realized once the acquisition has been completed. Furthermore, if we incur indebtedness to finance an acquisition, the acquired business may not be able to generate sufficient cash flow to service that indebtedness. Unsuitable or unsuccessful acquisitions could adversely affect our business, financial condition, results of operations, cash flow and ability to pay dividends.
If we are unable to retain and grow our digital audience and advertiser base, our digital businesses will be adversely affected.
Given the ever-growing and rapidly changing number of digital media options available on the internet, we may not be able to increase our online traffic sufficiently and retain or grow a base of frequent visitors to our websites and applications on mobile devices.
We have experienced declines in advertising revenue due in part to advertisers’ shift from print to digital media, and we may not be able to create sufficient advertiser interest in our digital businesses to maintain or increase the advertising rates of the inventory on our websites. There can be no assurances that past performance will be indicative of future performance or future trends or that the demand trends for digital advertising and services experienced in recent periods will continue.
In addition, the ever-growing and rapidly changing number of digital media options available on the internet may lead to technologies and alternatives that we are not able to offer or about which we are not able to advise. Such circumstances could directly and adversely affect the availability, applicability, marketability and profitability of the suite of SMB services and the private ad exchange we offer as a significant part of our digital business. Specifically, news aggregation websites and customized news feeds (often free to users) may reduce our traffic levels by driving interaction away from our websites or our digital applications. If traffic levels stagnate or decline, we may not be able to create sufficient advertiser interest in our digital businesses or to maintain or increase the advertising rates of the inventory on our digital platforms. We may also be adversely affected if the use of technology developed to block the display of advertising on websites proliferates.
Technological developments and any changes we make to our business strategy may require significant capital investments. Such investments may be restricted by our current or future credit facilities.
If there is a significant increase in the price of newsprint or a reduction in the availability of newsprint, our results of operations and financial condition may suffer.
A basic raw material for our publications is newsprint. We generally maintain a 45 to 55-day inventory of newsprint. An inability to obtain an adequate supply of newsprint at a favorable price or at all in the future could have a material adverse effect on our ability to produce our publications. Historically, the price of newsprint has been volatile, reaching a high of approximately $823 per metric ton in 2008 and experiencing a low of almost $410 per metric ton in 2002. The average price of newsprint during 2017 was approximately $635 per metric ton. Recent and future consolidation of major newsprint suppliers may adversely affect price competition among suppliers. Tariffs, duties and other restrictions on non-U.S. suppliers of newsprint, including duties recently announced by the United States Department of Commerce, have and may in the future

45



increase the price of newsprint and/or limit the supply of available newsprint. Significant increases in newsprint costs for properties and periods not covered by our newsprint vendor agreement could have a material adverse effect on our financial condition and results of operations.
We have experienced declines in advertising revenue, and further declines, which could adversely affect our results of operations and financial condition, may occur.
Excluding acquisitions, we have experienced declines in advertising revenue, due in part to advertisers' shift from print to digital media. We continue to search for organic growth opportunities, including in our digital advertising business, and for ways to stabilize print revenue declines through new product launches and pricing. However, there can be no assurance that our advertising revenue will not continue to decline. In addition, the range of advertising choices across digital products and platforms and the large inventory of available digital advertising space have historically resulted in significantly lower rates for digital advertising than for print advertising. Consequently, our digital advertising revenue may not be able to replace print advertising revenue lost as a result of the shift to digital consumption. Further declines in advertising revenue could adversely affect our results of operations and financial condition.
We compete with a large number of companies in the local media industry; if we are unable to compete effectively, our advertising and circulation revenues may decline.
Our business is concentrated in newspapers and other print publications located primarily in small and midsize markets in the United States. Our revenues primarily consist of advertising and paid circulation. Competition for advertising revenues and paid circulation comes from direct mail, directories, radio, television, outdoor advertising, other newspaper publications, the internet and other media. For example, as the use of the internet and mobile devices has increased, we have lost some classified advertising and subscribers to online advertising businesses and our free internet sites that contain abbreviated versions of our publications. Competition for advertising revenues is based largely upon advertiser results, advertising rates, readership, demographics and circulation levels. Competition for circulation is based largely upon the content of the publication and its price and editorial quality. Our local and regional competitors vary from market to market, and many of our competitors for advertising revenues are larger and have greater financial and distribution resources than us. We may incur increased costs competing for advertising expenditures and paid circulation. We may also experience further declines of circulation or print advertising revenue due to alternative media, such as the internet. If we are not able to compete effectively for advertising expenditures and paid circulation, our revenues may decline.
We are undertaking strategic process upgrades that could have a material adverse financial impact if unsuccessful.
We are implementing strategic process upgrades of our business. Among other things we are implementing the standardization and centralization of systems and processes, the outsourcing of certain financial processes and the use of new software for our circulation, advertising and editorial systems. As a result of ongoing strategic evaluation and analysis, we have made and will continue to make changes that, if unsuccessful, could have a material adverse financial impact.
Our business is subject to seasonal and other fluctuations, which affects our revenues and operating results.
Our business is subject to seasonal fluctuations that we expect to continue to be reflected in our operating results in future periods. Our first fiscal quarter of the year tends to be our weakest quarter because advertising volume is at its lowest levels following the December holiday season. Correspondingly, our second and fourth fiscal quarters tend to be our strongest because they include heavy holiday and seasonal advertising. Other factors that affect our quarterly revenues and operating results may be beyond our control, including changes in the pricing policies of our competitors, the hiring and retention of key personnel, wage and cost pressures, distribution costs, changes in newsprint prices and general economic factors.
We could be adversely affected by declining circulation.
Overall daily newspaper circulation, including national and urban newspapers, has declined in recent years. For the year ended December 31, 2017, our circulation revenue increased by $52.8 million, or 12.5%, as compared to the year ended December 25, 2016, of which $49.4 million relates to acquisitions. There can be no assurance that our circulation revenue will not decline again in the future. We have been able to maintain annual circulation revenue from existing operations in recent years through, among other things, increases in per copy prices. However, there can be no assurance that we will be able to continue to increase prices to offset any declines in circulation. Further declines in circulation could impair our ability to maintain or increase our advertising prices, cause purchasers of advertising in our publications to reduce or discontinue those

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purchases and discourage potential new advertising customers, all of which could have a material adverse effect on our business, financial condition, results of operations, cash flows and ability to pay dividends.
The increasing popularity of digital media could also adversely affect circulation of our newspapers, which may decrease circulation revenue and cause more marked declines in print advertising. Further, readership demographics and habits may change over time. If we are not successful in offsetting such declines in revenues from our print products, our business, financial condition and prospects will be adversely affected.
The value of our intangible assets may become impaired, depending upon future operating results.
As of July 2, 2018, we reorganized our reporting units to align with our new management structure. The Eastern US Publishing, Central US Publishing ("Central") and Western US Publishing ("West") and Recent Acquisitions operating segments were consolidated into one reporting unit called Newspapers. BridgeTower remains a separate reporting unit. Due to the change in the composition of the reporting units, the Company performed an additional goodwill impairment test and assessment of mastheads for impairment after the reorganization. Fair values of the reporting units were determined to be greater than the carrying value of the reporting units. And, the estimated fair value exceeded carrying value for all mastheads, so there was no impairment.
At July 1, 2018 the carrying value of our goodwill is $288.4 million, mastheads is $114.2 million, and amortizable intangible assets is $362.7 million. The indefinite-lived assets are subject to annual impairment testing and more frequent testing upon the occurrence of certain events or significant changes in our circumstances that indicate all or a portion of their carrying values may no longer be recoverable, in which case a non-cash charge to earnings may be necessary in the relevant period. We may subsequently experience market pressures which could cause future cash flows to decline below our current expectations, or volatile equity markets could negatively impact market factors used in the impairment analysis, including earnings multiples, discount rates, and long-term growth rates. Any future evaluations requiring an asset impairment charge for goodwill or other intangible assets would adversely affect future reported results of operations and shareholders’ equity.
As a result of the annual impairment assessment, as of June 25, 2017, we recorded a goodwill impairment in two of our reporting units, Central and West, for a total of $25.6 million, representing a full impairment of the goodwill then recorded in the West reporting unit and a partial impairment of the goodwill in then recorded in the Central reporting unit. Additionally, the estimated fair value exceeded carrying value for mastheads except in the West reporting unit, for which we recognized an impairment charge of $1.8 million.
For further information on goodwill and intangible assets, see Note 5 to the consolidated financial statements, “Goodwill and Intangible Assets”.
We are subject to environmental and employee safety and health laws and regulations that could cause us to incur significant compliance expenditures and liabilities.
Our operations are subject to federal, state and local laws and regulations pertaining to the environment, storage tanks and the management and disposal of wastes at our facilities. Under various environmental laws, a current or previous owner or operator of real property may be liable for contamination resulting from the release or threatened release of hazardous or toxic substances or petroleum at that property. Such laws often impose liability on the owner or operator without regard to fault, and the costs of any required investigation or cleanup can be substantial. Although in connection with certain of our acquisitions we have rights to indemnification for certain environmental liabilities, these rights may not be sufficient to reimburse us for all losses that we might incur if a property acquired by us has environmental contamination. In addition, although in connection with certain of our acquisitions we have obtained insurance policies for coverage for certain potential environmental liabilities, these policies have express exclusions to coverage as well as express limits on amounts of coverage and length of term. Accordingly, these insurance policies may not be sufficient to provide coverage for us for all losses that we might incur if a property acquired by us has environmental contamination.
Our operations are also subject to various employee safety and health laws and regulations, including those pertaining to occupational injury and illness, employee exposure to hazardous materials and employee complaints. Environmental and employee safety and health laws tend to be complex, comprehensive and frequently changing. As a result, we may be involved from time to time in administrative and judicial proceedings and investigations related to environmental and employee safety and health issues. These proceedings and investigations could result in substantial costs to us, divert our management’s attention and adversely affect our ability to sell, lease or develop our real property. Furthermore, if it is determined that we are

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not in compliance with applicable laws and regulations, or if our properties are contaminated, it could result in significant liabilities, fines or the suspension or interruption of the operations of specific printing facilities.
Future events, such as changes in existing laws and regulations, new laws or regulations or the discovery of conditions not currently known to us, may give rise to additional compliance or remedial costs that could be material.
Sustained increases in costs of employee health and welfare benefits may reduce our profitability. Moreover, our pension plan obligations are currently underfunded, and we may have to make significant cash contributions to our plans, which could reduce the cash available for our business.
In recent years, we have experienced significant increases in the cost of employee medical benefits because of economic factors beyond our control, including increases in health care costs. At least some of these factors may continue to put upward pressure on the cost of providing medical benefits. Although we have actively sought to control increases in these costs, there can be no assurance that we will succeed in limiting cost increases, and continued upward pressure could reduce the profitability of our businesses.
Our pension and postretirement plans were underfunded by $25.2 million at July 1, 2018. Our pension plans invest in a variety of equity and debt securities. Future volatility and disruption in the stock markets could cause declines in the asset values of our pension plans. In addition, a decrease in the discount rate used to determine minimum funding requirements could result in increased future contributions. If either occurs, we may need to make additional pension contributions above what is currently estimated, which could reduce the cash available for our businesses.
We may not be able to protect intellectual property rights upon which our business relies and, if we lose intellectual property protection, our assets may lose value.
Our business depends on our intellectual property, including, but not limited to, our titles, mastheads, content and services, which we attempt to protect through patents, copyrights, trade laws and contractual restrictions, such as confidentiality agreements. We believe our proprietary and other intellectual property rights are important to our success and our competitive position.
Despite our efforts to protect our proprietary rights, unauthorized third parties may attempt to copy or otherwise obtain and use our content, services and other intellectual property, and we cannot be certain that the steps we have taken will prevent any misappropriation or confusion among consumers and merchants, or unauthorized use of these rights. If we are unable to procure, protect and enforce our intellectual property rights, we may not realize the full value of these assets, and our business may suffer. If we must litigate to enforce our intellectual property rights or determine the validity and scope of the proprietary rights of third parties, such litigation may be costly and divert the attention of our management from day-to-day operations.
We depend on key personnel and we may not be able to operate or grow our business effectively if we lose the services of any of our key personnel or are unable to attract qualified personnel in the future.
The success of our business is heavily dependent on our ability to retain our management and other key personnel and to attract and retain qualified personnel in the future. Competition for senior management personnel is intense, and we may not be able to retain our key personnel. Although we have entered into employment agreements with certain of our key personnel, these agreements do not ensure that our key personnel will continue in their present capacity with us for any particular period of time. We do not have key man insurance for any of our current management or other key personnel. The loss of any key personnel would require our remaining key personnel to divert immediate and substantial attention to seeking a replacement. An inability to find a suitable replacement for any departing executive officer on a timely basis could adversely affect our ability to operate or grow our business.
A shortage of skilled or experienced employees in the media industry, or our inability to retain such employees, could pose a risk to achieving improved productivity and reducing costs, which could adversely affect our profitability.
Production and distribution of our various publications requires skilled and experienced employees. A shortage of such employees, or our inability to retain such employees, could have an adverse impact on our productivity and costs, our ability to expand, develop and distribute new products and our entry into new markets. The cost of retaining or hiring such employees could exceed our expectations which could adversely affect our results of operations.

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A number of our employees are unionized, and our business and results of operations could be adversely affected if current or additional labor negotiations or contracts were to further restrict our ability to maximize the efficiency of our operations.
As of July 1, 2018, we employed 11,096 employees, of whom 1,325 (or approximately 12%) were represented by 39 unions. 80% of the unionized employees are in four states: Ohio, Rhode Island, Massachusetts and Illinois and represent 34%, 19%, 14% and 13% of all our union employees, respectively. In addition, in July 2018 the newsroom employees at one of our Florida newspapers elected to form a union.
Although our newspapers have not experienced a union strike in the recent past nor do we anticipate a union strike to occur, we cannot preclude the possibility that a strike may occur at one or more of our newspapers at some point in the future. We believe that, in the event of a newspaper strike, we would be able to continue to publish and deliver to subscribers, which is critical to retaining advertising and circulation revenues, although there can be no assurance of this. Further, settlement of actual or threatened labor disputes or an increase in the number of our employees covered by collective bargaining agreements can have unknown effects on our labor costs, productivity and flexibility.
The collectability of accounts receivable under adverse economic conditions could deteriorate to a greater extent than provided for in our financial statements and in our projections of future results.
Adverse economic conditions in the United States may increase our exposure to losses resulting from financial distress, insolvency and the potential bankruptcy of our advertising customers. Our accounts receivable are stated at net estimated realizable value, and our allowance for doubtful accounts has been determined based on several factors, including receivable agings, significant individual credit risk accounts and historical experience. If such collectability estimates prove inaccurate, adjustments to future operating results could occur.
Our potential inability to successfully execute cost control measures could result in greater than expected total operating costs.
We have implemented general cost control measures, and we expect to continue such cost control efforts in the future. If we do not achieve expected savings as a result of such measures or if our operating costs increase as a result of our growth strategy, our total operating costs may be greater than expected. In addition, reductions in staff and employee benefits could affect our ability to attract and retain key employees.
We rely on revenue from the printing of publications for third parties that may be subject to many of the same business and industry risks that we are.
In 2017, we generated approximately 6.4% of our revenue from printing third-party publications, and our relationships with these third parties are generally pursuant to short-term contracts. As a result, if the macroeconomic and industry trends described herein such as the sensitivity to perceived economic weakness of discretionary spending available to advertisers and subscribers, circulation declines, shifts in consumer habits and the increasing popularity of digital media affect those third parties, we may lose, in whole or in part, a substantial source of revenue.
A decision by any of the three largest national publications or the major local publications to cease publishing in those markets, or seek alternatives to their current business practice of partnering with us, could materially impact our profitability.
Our possession and use of personal information and the use of payment cards by our customers present risks and expenses that could harm our business. Unauthorized access to or disclosure or manipulation of such data, whether through breach of our network security or otherwise, could expose us to liabilities and costly litigation and damage our reputation.
Our online systems store and process confidential subscriber and other sensitive data, such as names, email addresses, addresses, and other personal information. Therefore, maintaining our network security is critical. Additionally, we depend on the security of our third-party service providers. Unauthorized use of or inappropriate access to our, or our third-party service providers’ networks, computer systems and services could potentially jeopardize the security of confidential information, including payment card (credit or debit) information, of our customers. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we or our third-party service providers may be unable to anticipate these techniques or to implement adequate preventative measures. Non-technical means, for example, actions by an employee, can also result in a data breach. A party that is able to circumvent our security measures could misappropriate our proprietary information or the information of our customers or users, cause interruption in our operations, or damage our computers or those of our customers or users. As a result of any such breaches, customers or users may assert claims of liability against us and these activities may subject us to legal claims, adversely impact our reputation, and interfere with our ability to provide our products and services, all of which

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may have an adverse effect on our business, financial condition and results of operations. The coverage and limits of our insurance policies may not be adequate to reimburse us for losses caused by security breaches.
A significant number of our customers authorize us to bill their payment card accounts directly for all amounts charged by us. These customers provide payment card information and other personally identifiable information which, depending on the particular payment plan, may be maintained to facilitate future payment card transactions. Under payment card rules and our contracts with our card processors, if there is a breach of payment card information that we store, we could be liable to the banks that issue the payment cards for their related expenses and penalties. In addition, if we fail to follow payment card industry data security standards, even if there is no compromise of customer information, we could incur significant fines or lose our ability to give our customers the option of using payment cards. If we were unable to accept payment cards, our business would be seriously harmed.
There can be no assurance that any security measures we, or our third-party service providers, take will be effective in preventing a data breach. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. If an actual or perceived breach of our security occurs, the perception of the effectiveness of our security measures could be harmed and we could lose customers or users. Failure to protect confidential customer data or to provide customers with adequate notice of our privacy policies could also subject us to liabilities imposed by United States federal and state regulatory agencies or courts. We could also be subject to evolving state laws that impose data breach notification requirements, specific data security obligations, or other consumer privacy-related requirements. Our failure to comply with any of these laws or regulations may have an adverse effect on our business, financial condition and results of operations.
Risks Related to Our Manager
We are dependent on our Manager and may not find a suitable replacement if our Manager terminates the Management Agreement and the inability of our Manager to retain or obtain key personnel could delay or hinder implementation of our investment strategies, which could impair our ability to make distributions and could reduce the value of your investment.
Some of our officers and other individuals who perform services for us are employees of our Manager. We are reliant on our Manager, which has significant discretion as to the implementation of our operating policies and strategies, to conduct our business. We are subject to the risk that our Manager will terminate the Management Agreement and that we will not be able to find a suitable replacement for our Manager in a timely manner, at a reasonable cost or at all. Furthermore, we are dependent on the services of certain key employees of our Manager whose compensation may be partially or entirely dependent upon the amount of incentive or management compensation earned by our Manager and whose continued service is not guaranteed, and the loss of such services could adversely affect our operations. If any of these people were to cease their affiliation with us or our Manager, either we or our Manager may be unable to find suitable replacements, and our operating results could suffer. We believe that our future success depends, in large part, upon our Manager’s ability to hire and retain highly skilled personnel. Competition for highly skilled personnel is intense, and our Manager may be unsuccessful in attracting and retaining such skilled personnel. If we lose or are unable to obtain the services of highly skilled personnel, our ability to implement our investment strategies could be delayed or hindered and this could materially adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders.
On December 27, 2017, SoftBank announced that it completed the SoftBank Merger. Fortress operates within SoftBank as an independent business headquartered in New York. There can be no assurance that the SoftBank Merger will not have an impact on us or our relationship with the Manager.
There are conflicts of interest in our relationship with our Manager.
Our Management Agreement with our Manager was not negotiated between unaffiliated parties, and its terms, including fees payable, although approved by the independent directors of both Newcastle (our parent prior to the spin-off of the Company) and New Media as fair, may not be as favorable to us as if they had been negotiated with an unaffiliated third party.
There are conflicts of interest inherent in our relationship with our Manager insofar as our Manager and its affiliates—including investment funds, private investment funds, or businesses managed by our Manager—invest in media assets and whose investment objectives overlap with our investment objectives. Certain investments appropriate for us may also be appropriate for one or more of these other investment vehicles. Certain members of our Board of Directors and employees of our Manager who may be officers also serve as officers and/or directors of these other entities. Although we have the same Manager, we may compete with entities affiliated with our Manager or Fortress for certain target assets. From time to time,

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affiliates of Fortress focus on investments in assets with a similar profile as our target assets that we may seek to acquire. These affiliates may have meaningful purchasing capacity, which may change over time depending upon a variety of factors, including, but not limited to, available equity capital and debt financing, market conditions and cash on hand. In addition, with respect to Fortress funds in the process of selling investments, our Manager may be incentivized to regard the sale of such assets to us positively, particularly if a sale to an unrelated third party would result in a loss of fees to our Manager.
Our Management Agreement with our Manager does not prevent our Manager or any of its affiliates, or any of their officers and employees, from engaging in other businesses or from rendering services of any kind to any other person or entity, including investment in, or advisory service to others investing in, any type of media or media related investment, including investments which meet our principal investment objectives. Our Manager may engage in additional investment opportunities related to media assets in the future, which may cause our Manager to compete with us for investments or result in a change in our current investment strategy. In addition, our certificate of incorporation provides that if Fortress or an affiliate or any of their officers, directors or employees acquire knowledge of a potential transaction or matter that may be a corporate opportunity, they have no duty, to the fullest extent permitted by law, to offer such corporate opportunity to us, our stockholders or our affiliates. In the event that any of our directors and officers who is also a director, officer or employee of Fortress or its affiliates acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as a director or officer of ours and such person acts in good faith, then to the fullest extent permitted by law such person is deemed to have fully satisfied such person’s fiduciary duties owed to us and is not liable to us if Fortress or its affiliates pursues or acquires the corporate opportunity or if such person did not present the corporate opportunity to us.
The ability of our Manager and its officers and employees to engage in other business activities, subject to the terms of our Management Agreement with our Manager, may reduce the amount of time our Manager, its officers or other employees spend managing us. In addition, we may engage in material transactions with our Manager or another entity managed by our Manager or one of its affiliates, which may present an actual, potential or perceived conflict of interest. It is possible that actual, potential or perceived conflicts could give rise to investor dissatisfaction, litigation or regulatory enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential, actual or perceived conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially adversely affect our business in a number of ways, including causing an inability to raise additional funds, a reluctance of counterparties to do business with us, a decrease in the prices of our equity securities and a resulting increased risk of litigation and regulatory enforcement actions.
The management compensation structure that we have agreed to with our Manager, as well as compensation arrangements that we may enter into with our Manager in the future (in connection with new lines of business or other activities), may incentivize our Manager to invest in high risk investments. In addition to its management fee, our Manager is currently entitled to receive incentive compensation. In evaluating investments and other management strategies, the opportunity to earn incentive compensation may lead our Manager to place undue emphasis on the maximization of such measures at the expense of other criteria, such as preservation of capital, in order to achieve higher incentive compensation. Investments with higher yield potential are generally riskier or more speculative than lower-yielding investments. Moreover, because our Manager receives compensation in the form of options in connection with the completion of our equity offerings, our Manager may be incentivized to cause us to issue additional stock, which could be dilutive to existing stockholders.
It would be difficult and costly to terminate our Management Agreement with our Manager.
It would be difficult and costly for us to terminate our Management Agreement with our Manager. After its initial three-year term, the Management Agreement is automatically renewed for one-year terms unless (i) a majority consisting of at least two-thirds of our independent directors, or a simple majority of the holders of outstanding shares of our common stock, reasonably agree that there has been unsatisfactory performance by our Manager that is materially detrimental to us or (ii) a simple majority of our independent directors agree that the management fee payable to our Manager is unfair, subject to our Manager’s right to prevent such a termination by agreeing to continue to provide the services under the Management Agreement at a fee that our independent directors have determined to be fair. If we elect not to renew the Management Agreement, our Manager will be provided not less than 60 days’ prior written notice. In the event we terminate the Management Agreement, our Manager will be paid a termination fee equal to the amount of the management fee earned by the Manager during the 12-month period immediately preceding such termination. In addition, following any termination of the Management Agreement, our Manager may require us to purchase its right to receive incentive compensation at a price determined as if our assets were sold for their then current fair market value or otherwise we may continue to pay the incentive

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compensation to our Manager. These provisions may increase the effective cost to us of terminating the Management Agreement, thereby adversely affecting our ability to terminate our Manager without cause.
Our Board of Directors does not approve each investment decision made by our Manager. In addition, we may change our investment strategy without a stockholder vote, which may result in our making investments that are different, riskier or less profitable than our current investments.
Our Manager has great latitude in determining the types and categories of assets it may decide are proper investments for us, including the latitude to invest in types and categories of assets that may differ from those in which we currently invest. Our board of directors periodically reviews our investment portfolio. However, our Board of Directors does not review or pre-approve each proposed investment or our related financing arrangements. In addition, in conducting periodic reviews, our Board of Directors relies primarily on information provided to them by our Manager. Furthermore, transactions entered into by our Manager may be difficult or impossible to unwind by the time they are reviewed by our Board of Directors even if the transactions contravene the terms of the Management Agreement. In addition, we may change our investment strategy, including our target asset classes, without a stockholder vote.
Our investment strategy may evolve in light of existing market conditions and investment opportunities, and this evolution may involve additional risks depending upon the nature of the assets in which we invest and our ability to finance such assets on a short- or long-term basis. Investment opportunities that present unattractive risk-return profiles relative to other available investment opportunities under particular market conditions may become relatively attractive under changed market conditions, and changes in market conditions may therefore result in changes in the investments we target. Decisions to make investments in new asset categories present risks that may be difficult for us to adequately assess and could therefore reduce our ability to pay dividends on our common stock or have adverse effects on our liquidity or financial condition. A change in our investment strategy may also increase our exposure to interest rate, real estate market or credit market fluctuations. In addition, a change in our investment strategy may increase the guarantee obligations we agree to incur or increase the number of transactions we enter into with affiliates. Our failure to accurately assess the risks inherent in new asset categories or the financing risks associated with such assets could adversely affect our results of operations and our financial condition.
Our Manager will not be liable to us for any acts or omissions performed in accordance with the Management Agreement, including with respect to the performance of our investments.
Pursuant to our Management Agreement, our Manager assumes no responsibility other than to render the services called for thereunder in good faith and shall not be responsible for any action of our Board of Directors in following or declining to follow its advice or recommendations. Our Manager, its members, managers, officers and employees will not be liable to us or any of our subsidiaries, to our Board of Directors, or our or any subsidiary’s stockholders or partners for any acts or omissions by our Manager, its members, managers, officers or employees, except by reason of acts constituting bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement. We shall, to the full extent lawful, reimburse, indemnify and hold our Manager, its members, managers, officers and employees, and each other person, if any, controlling our Manager, harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) in respect of or arising from any acts or omissions of an indemnified party made in good faith in the performance of our Manager’s duties under our Management Agreement and not constituting such indemnified party’s bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement.
Our Manager’s due diligence of investment opportunities or other transactions may not identify all pertinent risks, which could materially affect our business, financial condition, liquidity and results of operations.
Our Manager intends to conduct due diligence with respect to each investment opportunity or other transaction it pursues. It is possible, however, that our Manager’s due diligence processes will not uncover all relevant facts, particularly with respect to any assets we acquire from third parties. In these cases, our Manager may be given limited access to information about the investment and will rely on information provided by the target of the investment. In addition, if investment opportunities are scarce, the process for selecting bidders is competitive, or the timeframe in which we are required to complete diligence is short, our ability to conduct a due diligence investigation may be limited, and we would be required to make investment decisions based upon a less thorough diligence process than would otherwise be the case. Accordingly, investments and other transactions that initially appear to be viable may prove not to be over time, due to the limitations of the due diligence process or other factors.

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Because we are dependent upon our Manager and its affiliates to conduct our operations, any adverse changes in the financial health of our Manager or its affiliates or our relationship with them could hinder our Manager’s ability to successfully manage our operations.
We are dependent on our Manager and its affiliates to manage our operations and acquire and manage our investments. Under the direction of our Board of Directors, our Manager makes all decisions with respect to the management of our company. To conduct its operations, our Manager depends upon the fees and other compensation that it receives from us in connection with managing our company and from other entities and investors with respect to investment management services it provides. Any adverse changes in the financial condition of our Manager or its affiliates, or our relationship with our Manager, could hinder our Manager’s ability to successfully manage our operations, which would materially adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders. For example, adverse changes in the financial condition of our Manager could limit its ability to attract key personnel.
Risks Related to our Common Stock
There can be no assurance that the market for our stock will provide you with adequate liquidity.
The market price of our common stock may fluctuate widely, depending upon many factors, some of which may be beyond our control. These factors include, without limitation:
 
our business profile and market capitalization may not fit the investment objectives of any stockholder;
a shift in our investor base;
our quarterly or annual earnings, or those of other comparable companies;
actual or antic