10-K 1 d694452d10k.htm FORM 10-K Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the Fiscal Year Ended December 29, 2013

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,

New York, New York

 

10105

(Address of principal executive offices)   (Zip Code)

Telephone: (212) 479-3160

(Registrant’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Name of each exchange on which registered:

Common stock, par value $0.01 per share   New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

    Large accelerated filer    ¨

   Accelerated filer    ¨    Non-accelerated filer    x    Smaller reporting company    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the voting common equity held by non-affiliates on March 4, 2014 was $448,500,000. The Registrant was not a public company as of the last business day of its most recently completed second fiscal quarter and, therefore, cannot calculate the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such date.

As of March 4, 2014, 30,000,000 shares of the registrant’s common stock were outstanding.

 

 

 


Table of Contents

NEW MEDIA INVESTMENT GROUP INC.

FORM 10-K

FOR THE YEAR ENDED DECEMBER 29, 2013

TABLE OF CONTENTS

 

          Page  
   PART I   

Item 1

   Business      1   

Item 1A

   Risk Factors      41   

Item 1B

   Unresolved Staff Comments      55   

Item 2

   Properties      55   

Item 3

   Legal Proceedings      55   

Item 4

   Mine Safety Disclosures      56   
   PART II   

Item 5

  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     57   

Item 6

   Selected Financial Data      58   

Item 7

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      61   

Item 7A

   Quantitative and Qualitative Disclosures About Market Risk      84   

Item 8

   Financial Statements and Supplementary Data      86   

Item 9

   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure      142   

Item 9A

   Controls and Procedures      142   

Item 9B

   Other Information      142   
   PART III   

Item 10

   Directors, Executive Officers and Corporate Governance      143   

Item 11

   Executive Compensation      149   

Item 12

  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     164   

Item 13

   Certain Relationships and Related Transactions, and Director Independence      165   

Item 14

   Principal Accountant Fees and Services      167   
   PART IV   

Item 15

   Exhibits, Financial Statement Schedules      168   

 

i


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD LOOKING INFORMATION

Certain statements in this report on Form 10-K 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, market and political conditions;

 

   

the potential adverse effects of the Restructuring (as defined below);

 

   

the risk that we may not realize the anticipated benefits of the Local Media Acquisition (as defined below) or potential future acquisitions;

 

   

the availability and cost of capital for future investments;

 

   

our ability to pay dividends;

 

   

our ability to realize the benefits of the Management Agreement (as defined below);

 

   

the competitive environment in which we operate;

 

   

our ability to grow our digital business and digital audience and advertiser base;

 

   

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 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.

 

ii


Table of Contents

PART I

 

Item 1. Business

General Overview

New Media Investment Group Inc. (“New Media,” “Company,” “us,” or “we”), was formed as a Delaware corporation on June 18, 2013. Pursuant to the Restructuring (as defined below), Newcastle Investment Corp. (“Newcastle”) owned approximately 84.6% of New Media until February 13, 2014, upon which date Newcastle distributed the shares that it held in New Media to its shareholders on a prorata basis. New Media had no operations until November 26, 2013, when it assumed control of GateHouse Media, LLC (formerly known as GateHouse Media, Inc.) (“GateHouse” or “Predecessor”) and Local Media Group Holdings LLC (“Local Media Parent”). 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 entities. Both New Media and Newcastle are externally managed and advised by an affiliate of Fortress Investment Group LLC (“Fortress”).

New Media is a newly listed company that owns, operates and invests in high quality local media assets. 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 size businesses (“SMBs”).

Our portfolio of media assets today spans across 352 markets and 24 states. Our products include 421 community print publications, 350 websites, 333 mobile sites and six yellow page directories. We reach over 12 million people per week and serve over 130,000 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 their 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 into the local consumers leading to growth in subscription income. We also believe our local consumer penetration will lead to 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.

Our business strategy is to be the preeminent provider of local news, information, advertising and digital services in the markets we operate in today. We aim to grow our business organically through what we believe are both our consumer and SMB strategies. We also plan to pursue strategic acquisitions of high quality local media assets at attractive valuation levels. Finally, we intend to periodically distribute a substantial portion of our free cash flow as a dividend to stockholders, subject to satisfactory financial performance, approval by our board of directors (the “Board of Directors”) and dividend restrictions in both the GateHouse Credit Facilities (as defined below) and Local Media Credit Facility (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. The availability of free cash flow for the payment of dividends is also subject to restrictions in both the GateHouse and Local Media Credit Facilities.

We believe that our focus on owning and operating dominant local-content-oriented media properties in small to mid-size markets puts us in a position to better execute our strategy. We believe that being the dominant 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 in-market sales presence gives us the opportunity to expand our advertising and lead generation products with local business customers.

 

1


Table of Contents

Central to our business strategy is our digital marketing services business called Propel Marketing (“Propel”). We launched the business in 2012 and have seen rapid growth since then. We believe Propel and its digital marketing service products will be a key component to our overall organic growth strategy.

We believe that Propel will allow us to capitalize on the following opportunities in the marketplace:

There are approximately 27 million SMBs in the U.S. according to the 2011 U.S. Census data. Of these, approximately 26.7 million have 20 employees or less.

Many of the owners and managers of these SMBs do not have the bandwidth, expertise or resources to navigate the fast evolving digital marketing sector, but are increasingly aware of the need to establish and maintain a digital presence in order to stay connected with current and future customers.

Propel is designed to offer a complete set of turn-key digital marketing services to SMBs that provides transparent results to the business owners. Propel provides four broad categories of services: building businesses a presence, helping businesses to be located by consumers online, engaging with consumers, and growing their customer base.

We believe our local media properties are uniquely positioned to sell these digital marketing services to local business owners. Our strong and trusted local brands, combined with our in-market sales presence give us a distinct advantage to sell these services, which are new and can be complicated to local business owners.

Our core products include:

 

   

85 daily newspapers with total paid circulation of approximately 736,000;

 

   

240 weekly newspapers (published up to three times per week) with total paid circulation of approximately 300,000 and total free circulation of approximately 680,000;

 

   

96 “shoppers” (generally advertising-only publications) with total circulation of approximately 1.9 million;

 

   

350 locally focused websites and 333 mobile sites, which extend our businesses onto the internet and mobile devices with approximately 100 million page views per month;

 

   

six yellow page directories, with a distribution of approximately 432,000, that cover a population of approximately 1.1 million people; and

 

   

Propel digital marketing services.

Our print and online products focus on the local community from a content, advertising, and digital marketing perspective. As a result of our focus on small and midsize markets, we are usually the primary, and sometimes, the sole provider of comprehensive and in-depth local market news and information in the communities we serve. Our content is primarily devoted to topics that we believe are highly relevant and of interest to our audience such as local news and politics, community and regional events, youth sports, opinion and editorial pages, local schools, obituaries, weddings and police reports.

More than 84% of our daily newspapers have been published for more than 100 years and 100% have been published for more than 50 years. We believe that the longevity of our publications demonstrates the value and relevance of the local information that we provide and has created a strong foundation of reader loyalty and a highly recognized media brand name in each community we serve. As a result of these factors, we believe that our publications have high local audience penetration rates in our markets, thereby providing advertisers with strong local market reach.

We believe the large number of publications we have, our focus on smaller markets, and our geographic diversity also provide the following benefits to our strategy:

 

   

Diversified revenue streams, both in terms of customers and markets;

 

2


Table of Contents
   

Operational efficiencies realized from clustering of business assets;

 

   

Operational efficiencies realized from centralization of back office functions;

 

   

Ability to provide consistent management practices and ensure best practices; and

 

   

Less competition and high barriers to entry.

The newspaper industry has experienced declining revenue and profitability dating back to 2007 due to, among other things, advertisers’ shift from print to digital media and general market conditions. Our Predecessor was affected by this trend and has experienced a history of net operating losses. For the fiscal year ended December 30, 2012, our Predecessor experienced a net loss of $29.8 million.

Our revenues derived from our SMB category come from a variety of print and digital advertising products, digital service products we offer through our Propel business, and commercial printing services. Our consumer category revenue comes primarily from subscription income as consumers pay for our deep, rich local contents, both in print and online, however primarily print today.

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 over 50% of our operating expenses. Over the last few years, we have worked to drive efficiencies through centralization of back office functions, outsourcing and leveraging our scale to purchase more effectively. 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 and clustering strategy.

Local Media Acquisition

Newcastle acquired Local Media Group Inc. (formerly known as Dow Jones Local Media Group, Inc.) (“Local Media”) on September 3, 2013 from News Corp. Inc. and contributed to New Media 100% of the stock of Local Media Parent (which owns all of Local Media’s stock) on GateHouse’s emergence from bankruptcy on November 26, 2013 (the “Effective Date”) of the Plan (as defined below). Local Media is the publisher of locally-based print and online media. Local Media publishes eight daily community newspapers and seventeen weekly papers in seven states in the New England, Mid-Atlantic and Pacific Coast regions of the United States. Local Media also publishes associated internet sites, magazines and other news and advertising niche publications and offers commercial print and household distribution services. During the period ended December 29, 2013, the Local Media portfolio of products had a combined average circulation of 195,000 daily, as well as 180,734 average daily unique visitors to its local websites. Local Media has five print production facilities which are located in Hyannis, Massachusetts; Middletown, New York; Medford, Oregon; Portsmouth, New Hampshire; and Stockton, California.

In exchange for the contribution of Local Media, Newcastle received shares of common stock, par value $0.01 per share, of New Media (“New Media Common Stock” or our “Common Stock”), equal in value to the cost of the acquisition of Local Media by Newcastle (“Local Media Acquisition”). Local Media Parent is now a wholly owned subsidiary of New Media.

GateHouse manages the assets of Local Media pursuant to a management and advisory agreement. The agreement has a two-year term, with automatic renewal for successive two-year periods unless terminated. While the agreement is in effect, GateHouse will receive an annual management fee of $1.1 million, subject to adjustments (up to a maximum annual management fee of $1.2 million), and an annual incentive compensation fee based on exceeding EBITDA targets of Local Media.

On the Effective Date, New Media entered into a management agreement with FIG LLC (the “Manager”) (the “Management Agreement”) pursuant to which the Manager will manage the operations of New Media. The annual management fee will be 1.50% of New Media’s gross equity as set forth in the Management Agreement and the Manager is eligible to receive incentive compensation.

 

3


Table of Contents

Restructuring and Spin-off from Newcastle Investment Corp.

We acquired our operations as part of the restructuring (the “Restructuring”) of our Predecessor, GateHouse. On September 27, 2013 (the “Petition Date”), GateHouse commenced the Restructuring in which it sought confirmation of its bankruptcy plan sponsored by Newcastle, as the holder of the majority of the Outstanding Debt (as defined as follows). The Plan relates to the Restructuring of our Predecessor’s obligations under the amended and restated credit agreement by and among certain affiliates of GateHouse, the lenders from time to time thereto and Cortland Products Group, as administrative agent, dated February 27, 2007 (as amended, the “2007 Credit Facility”) and certain interest rate swaps (collectively, the “Outstanding Debt”). The Bankruptcy Court confirmed the reorganization plan (the “Plan”) on November 6, 2013 and GateHouse consequently emerged from Chapter 11 protection on November 26, 2013.

Pursuant to the Restructuring, Newcastle offered to purchase the Outstanding Debt in cash and at 40% of (i) $1,167 million of principal claims under the 2007 Credit Facility, plus (ii) accrued and unpaid interest at the applicable contract non-default rate with respect thereto, plus (iii) all amounts, excluding any default interest, arising from transactions in connection with interest rate swaps secured under the 2007 Credit Facility (the “Cash-Out Offer”) on the Effective Date. The holders of the Outstanding Debt had the option of receiving, in satisfaction of their Outstanding Debt, their pro rata share of the (i) Cash-Out Offer and/or (ii) New Media Common Stock and net proceeds, if any, of the GateHouse Credit Facilities. All pensions, trade and all other unsecured claims will be paid in the ordinary course.

On the Effective Date (i) GateHouse became our wholly-owned subsidiary as a result of (a) the cancellation and discharge of the currently outstanding equity interests in GateHouse (the holders of which received warrants issued by New Media) and (b) the issuance of equity interests in the reorganized GateHouse to New Media; (2) Local Media Parent, which was a wholly-owned subsidiary of Newcastle, following the Local Media Acquisition became a wholly-owned subsidiary of New Media as a result of Newcastle’s transfer of Local Media Parent to New Media; (3) New Media entered into the Management Agreement with our Manager, (4) New Media entered into the GateHouse Management and Advisory Agreement (the “GateHouse Management Agreement”) with GateHouse; and (5) all of GateHouse’s Outstanding Debt was cancelled and discharged and the holders of the Outstanding Debt received, at their option, their pro rata share of the (i) Cash-Out Offer and/or (ii) New Media Common Stock and the net proceeds of the GateHouse Credit Facilities. Pursuant to the Cash-Out Offer, Newcastle offered to buy the claims of the holders of the Outstanding Debt. As a result of these transactions, Newcastle owned 84.6% of New Media as of the Effective Date.

On September 27, 2013, Newcastle announced that its board of directors unanimously approved a plan to spin-off our Company. Newcastle’s board of directors made the determination to spin-off our assets because it believed that our value can be increased over time through a strategy aimed at acquiring local media assets and organically growing our digital marketing business. In order to effect the separation and spin-off of our Company, we filed a registration statement on Form S-1, as amended, which was declared effective by the Securities and Exchange Commission (the “SEC”) on January 30, 2014.

Each share of Newcastle common stock outstanding as of 5:00 PM, Eastern Time, on February 6, 2014, the Record Date, entitled the holder thereof to receive 0.07219481485 shares of our Common Stock (the “Distribution” or the “spin-off”). The spin-off was completed on February 13, 2014, the Distribution Date. Immediately thereafter, we became publicly traded company independent from Newcastle trading on the New York Stock Exchange under the ticker symbol “NEWM.”

 

4


Table of Contents

Corporate Entity Structure

The chart below sets forth our entity structure and that of our direct and indirect subsidiaries. This chart does not include all of our affiliates and subsidiaries and, in some cases, we have combined separate entities for presentation purposes.

 

LOGO

Industry Overview

We operate in what is sometimes referred to as the “hyper-local” or community news market and market within the media industry. Media companies that serve this segment provide highly focused local content and advertising that is generally unique to each market they serve and is not readily obtainable from other sources. Local publications include community newspapers, websites, shoppers, traders, real estate guides, special interest magazines and directories. Due to the unique local nature of their content and audience, community publications compete for advertising customers with other forms of traditional media, including direct mail, directories, radio, television, and outdoor advertising. They also compete with new local and national digital and social media businesses for advertising, digital services and customers. We believe that local print and online publications in smaller markets are the most effective medium for local retail advertising, which emphasizes the price of goods in an effort to move inventory on a regular basis, in contrast to radio, broadcast and cable, television, and the internet, which are generally used for image or branding advertising. In addition, we believe local print and online publications generally have the highest local audience penetration rates, which allows local advertisers to get their message to a large portion of the local audience. Finally, national digital competitors tend to have no local in-market sales presence which we believe gives the local community publications an advantage when selling these types of products and services.

Locally focused media in small and midsize communities is distinct from national and urban media delivered through outlets such as television, radio, metropolitan and national newspapers and the internet. Larger media outlets tend to offer broad based information to a geographically scattered audience, which tends to be more of a commodity. In contrast, locally focused media delivers a highly focused product that is often the only source of local news and information in the market it serves. Our segment of the media industry is also characterized by high barriers to entry, both economic and social. Small and midsize communities can generally only sustain one newspaper. Moreover, the brand value associated with long-term reader and advertiser loyalty, and the high start-up costs associated with developing and distributing content and selling advertisements, help to limit competition.

We also believe there is a growing need among small to mid-size businesses to be able to generate leads and interact with consumers across all the digital platforms, which takes many forms including websites, mobile sites,

 

5


Table of Contents

tablets and social media. These local business owners and managers lack the time, expertise and resources to capitalize on the potential of these new consumer-reaching channels. National competitors in this category do not generally have a local in-market presence. We believe this represents a substantial opportunity for our local media business.

Advertising Market

The primary sources of advertising revenue for local publications are small businesses, corporations, government agencies and individuals who reside in the market that a publication serves. By combining paid circulation publications with total market coverage publications such as shoppers and other specialty publications (tailored to the specific attributes of a local community), local publications are able to reach nearly 100% of the households in a distribution area. As macroeconomic conditions in advertising change due to increasing internet and mobile usage and the wide array of available information sources, we have seen advertisers shift their focus to incorporate a digital advertising and services component into their overall local marketing strategy. To that end, in addition to printed products, the majority of our local publications have an online presence that further leverages the local brand, ensures higher penetration into the market, and provides a digital alternative for local advertisers to reach consumers. We also have a strong digital marketing services business, Propel.

Digital Media

The time spent online and on mobile devices each day by media consumers continues to grow and newspaper web and mobile sites offer a wide variety of content providing comprehensive, in-depth and up to the minute coverage of news and current events. The ability to generate, publish and archive more news and information than most other sources has allowed newspapers to produce some of the most visited sites on the internet. Newspaper websites have proven to be some of the most visited websites by online media news consumers.

We believe that our local publications are well positioned to capitalize on their existing market presence and grow their total audience base by publishing proprietary local content digitally: via the internet, mobile websites and mobile applications. Local digital media include traditional classifieds, directories of business information, local advertising, databases, audience-contributed content and mobile applications. We believe this additional community-specific content will further extend and expand both the reach and the brand of our publications with readers and advertisers. We believe that building a strong local digital business extends the core audience of a local publication.

The opportunity created by the digital extension of the core audience makes local digital advertising an attractive complement for existing print advertisers, while opening up opportunities to attract new local advertisers that have not previously advertised with local publications. In addition, we believe that national advertisers have an interest in reaching buyers on a hyper-local level and, although they historically have not been significant advertisers in community publications, we believe the digital media offers them a powerful medium to reach local audiences. This opportunity is further enhanced by our behavioral targeting products, which allow advertisers to reach specific demographics of our audience and follow that audience across multiple websites, delivering advertisements across the platforms. Further, digital marketing services businesses are poised to benefit from the rise in internet marketing spend, with newspaper digital marketing services revenue growing 11% between 2011 and 2012, and 208% between 2005 and June 30, 2013, according to the 2013 IAB Internet Advertising Revenue Report.

We believe that a strong digital business will enhance our revenues. In addition, we believe that we have the expertise and sales resource to help other businesses maximize their digital opportunities. Accordingly, we have launched our digital marketing services business, Propel, designed to help SMBs utilize the digital space to generate leads, interact with consumers and grow their businesses. New Media’s digital revenue derived from

 

6


Table of Contents

advertising circulation and other revenue have grown since the launch of Propel in 2012. New Media’s digital revenue was $48.6 million for the year ended December 29, 2013, a 22.4% growth as compared with the same period in 2012, which had digital revenue of $39.7 million. Of this, $6.4 million, or 13.2% of digital revenue for the year ended December 29, 2013 was attributable to Propel. See “Risk Factors—Risks Related to Our Business—We have invested in growing our digital business, but such investments may not be successful, which could adversely affect our results of operations.”

We anticipate that the digital marketing services sector will continue to grow as SMBs move from print to digital marketing in connection with consumers spending more time online. According to the 2011 U.S. Census data, there are approximately 27 million SMBs in the US, 26.7 million of the SMBs have 20 employees or less, and these businesses are expected to spend $24 billion on digital marketing by 2015 (according to the 2011 U.S. SMB Spending Forecast by BIA/Kelsey). Owners of these businesses often lack the bandwidth to navigate the digital marketing sector. Recent studies done by Google Places For Businesses in 2012 and the Small Business Sentiment Survey by Yodle in 2013 indicate that although 89% of consumers expect all businesses to have a website and 97% of consumers search for local businesses online, 52% of SMBs do not have a website and 90% do not have a mobile website. Further, 60% of SMBs with websites were found to not have a phone number on their website according to the 2012 BIA Kelsey. Propel offers SMBs digital services, including website design, search engine optimization, mobile websites, social media, retargeting and other advertising services. Our Predecessor believed, and we too believe, that Propel is well positioned to assist SMBs in the digital space and expects Propel to contribute meaningfully to future revenue growth. Propel is also able to leverage the more than 1,000 New Media sales representatives within the local markets served.

Circulation

Overall daily newspaper print circulation, including national and urban newspapers, has been declining slowly over the past several years. Small and midsize local market newspapers have generally had smaller declines and more stability in their paid print circulation volumes due to the relevant and unique hyper-local news they produce. In addition, this unique and valuable hyper-local content along with multiple delivery platforms now available will allow smaller market newspapers to continue to raise prices, leading to stable circulation revenues. Data and technology now available to newspapers allow them to target pricing more at the household level rather than purely by market. This will lead to more effective pricing strategies and enhance stability for circulation revenues. According to the Newspaper Association of America, pay meters and pricing helped the newspaper industry grow circulation revenue by 5% from 2011 to 2012.

Our Strengths

High Quality Assets with Leading Local Businesses. Our publications benefit from a long history in the communities we serve as one of the leading, and often sole, providers of comprehensive and in-depth local content. This has resulted in brand recognition for our publications, reader loyalty and high local audience penetration rates, which are highly valued by local advertisers. We continue to build on long-standing relationships with local advertisers and our in-depth knowledge of the consumers in our local markets.

Large Locally Focused Sales Force. We have large and well known “in-market” local sales forces in the markets we serve, consisting of over 1,000 sales representatives, including 35 dedicated to Propel and 14 third party sales affiliations. Our sales forces are generally among the largest locally oriented media sales forces in their respective communities. We have long-standing relationships with many local businesses and have the ability to be face to face with most local businesses due to these unique characteristics we enjoy. We believe our strong brands combined with our “in-market” presence give us a distinct advantage in selling and growing in the digital services sector given the complex nature of these products. We also believe that these qualities provide leverage for our sales force to grow additional future revenue streams in our markets.

Ability to Acquire and Integrate New Assets. We have created a national platform for consolidating local media businesses and have demonstrated an ability to successfully identify, acquire and integrate local media

 

7


Table of Contents

asset acquisitions. We have acquired over $1.7 billion of assets since 2006. We have acquired both traditional newspaper and directory businesses. We have a very scalable infrastructure and platform to leverage for future acquisitions.

Scale Yields Operating Profit Margins and Allows Us to Realize Operating Synergies. We believe we can generate higher operating profit margins than our publications could achieve on a stand-alone basis by leveraging our operations and implementing revenue initiatives, especially digital initiatives, across a broader local footprint in a geographic cluster and by centralizing certain back office production, accounting, administrative and corporate operations. We also benefit from economies of scale in the purchase of insurance, newsprint and other large strategic supplies and equipment. Finally, we have the ability to further leverage our centralized services and buying power to reduce operating costs when making future strategic accretive acquisitions.

Local Business Profile Generates Significant Cash Flow. Our local business profile will allow us to generate significant recurring cash flow due to our diversified revenue base, high operating profit margins and our low capital expenditure and working capital requirements. As a result of the Restructuring, which extinguished GateHouse’s Outstanding Debt, our interest and debt servicing expenses are significantly lower than GateHouse’s interest and debt servicing expenses. As of the Effective Date, our debt structure consists of the GateHouse Credit Facilities and the Local Media Credit Facility. We currently estimate that we will have significant available cash flow totaling $50 to $70 million in 2014 which we believe will create stockholder value through our investments in organic growth, investments in accretive acquisitions and the return of cash to stockholders in the form of dividends, subject to approval by our Board of Directors. We further believe the strong cash flows generated and available to be invested will lead to consistent future dividend growth.

Experienced Management Team. Our senior management team is made up of executives who have an average of over 20 years of experience in the media industry, including strong traditional and digital media expertise. Our executive officers have broad industry experience with regard to both growing new digital business lines and identifying and integrating strategic acquisitions. Our management team also has key strengths in managing wide geographically disbursed teams, including the sales force, and identifying and centralizing duplicate functions across businesses leading to reduced core infrastructure costs.

Our Strategy

We intend to create stockholder value through a variety of factors including organic growth driven by our consumer and SMB strategies, pursuing attractive strategic acquisitions of high quality local media assets, and through the distribution of a substantial portion of our free cash flow as a dividend. However, there is no guarantee that we will be able to accomplish any of these strategic initiatives.

Our strategy will be to acquire and operate traditional local media businesses and transform them from print-centric operations to dynamic multi-media operations through our existing online advertising and digital marketing services businesses. We will also leverage our existing platform to operate these businesses more efficiently. We believe all of these initiatives will lead to revenue and cash flow growth for New Media and will enable us to pay dividends to our stockholders. We expect to distribute a substantial portion of our free cash flow as a dividend to stockholders, subject to satisfactory financial performance and approval by our Board of Directors. 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 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. The availability of free cash flow for the payment of dividends is also subject to restrictions in both the GateHouse Credit Facilities and Local Media Credit Facility. The key elements of our strategy include:

Maintain Our Leading Position in the Delivery of Proprietary Content in Our Communities. We seek to maintain our position as a leading provider of local content in the markets we serve and to leverage this position to strengthen our relationships with both readers and local businesses, thereby increasing penetration rates and

 

8


Table of Contents

market share. A critical aspect of this approach is to continue to provide local content that is not readily obtainable elsewhere and to be able to deliver that content to our customers across multiple print and digital platforms.

Grow Our New Digital Marketing Services Business. We plan to scale and expand our new recently created digital marketing services businesses, Propel. We believe Propel will allow us to sell digital marketing services to SMBs both in and outside existing New Media markets. The SMB demand for digital service solutions is great and represents a rapidly expanding opportunity. According to 2011 U.S. census data, there are approximately 27 million SMBs in the U.S. and, according to a 2011 U.S. SMB Spending forecast by BUIA/Kelsey, these businesses are expected to spend $24 billion on digital marketing by 2015. Owners of these businesses often lack the bandwidth to navigate the digital marketing sector, with 52% of SMBs not having a website and 90% not having mobile-friendly websites according to a Yodle Small Business Sentiment Survey in 2013.

Pursue Strategic Accretive Acquisitions. We intend to capitalize on the highly fragmented and distressed newspaper and directory industries which have greatly reduced valuation levels. We initially expect to focus our investments in the local newspaper and yellow page directory sectors, in small to mid-size markets. We believe we have a strong operational platform as well as a scalable digital marketing services business, Propel. This platform, along with deep industry specific knowledge and experience that our management team has can be leveraged to reduce costs, stabilize the core business and grow digital revenues at acquired properties. The size and fragmentation of the addressable newspaper and yellow page directory market place in the United States, the greatly reduced valuation levels that exist in these industries, and our deep experience make this an attractive place for our initial consolidation focus and capital allocation. Over the longer term we also believe there may be opportunity to diversify and acquire these types of assets internationally, as well as other traditional local media assets such as broadcast TV, out of home advertising (billboards) and radio, in the United States and internationally.

Stabilize Our Core Business Operations. We have four primary drivers in our strategic plans to stabilize our core business operations, including: (i) identifying permanent structural expense reductions in our traditional business cost infrastructure and re-deploying a portion of those costs toward future growth opportunities, primarily on the digital side of our business; (ii) accelerating the growth of both our digital audiences and revenues through improvements to current products, new product development, training, opportunistic changes in hiring to create an employee base with a more diversified skill set and sharing of best practices; (iii) accelerating our consumer revenue growth through subscription pricing increases, pay meters for digital content and growth in our overall subscriber base; and (iv) stabilizing our core print advertising revenues through improvements to pricing, packaging of products for customers that will produce the best results for them, and more technology and training for sales management and sales representatives.

The newspaper industry has experienced declining revenue and profitability over the past several years due to, among other things, advertisers’ shift from print to digital media following the consumer shift, and general market conditions. GateHouse, our Predecessor, was affected by this trend and experienced net losses of $160.8 million during the nine month period ended September 29, 2013 and $29.8 million during the fiscal year ended December 30, 2012. Total revenue decreased by 1.9% to $356.2 million for the nine months ended September 29, 2013 and 5.1% to $488.6 million for the year ended December 30, 2012. The Restructuring significantly reduced New Media’s interest expense. In addition, New Media intends to focus its business strategy on building its digital marketing business and growing its online advertising business, which we believe will offset many of the challenges experienced by GateHouse. With its new capital structure and digital focus, we believe that New Media will be able to create stockholder value given its strengths and strategy. However, there can be no assurance that we will be profitable. See “Risk Factors” under Item 1A of this Annual Report on Form 10-K.

 

9


Table of Contents

Challenges

We will likely face challenges commonly encountered by recently reorganized entities, including the risks that even under our new capital structure, we may not be profitable.

As a publisher of locally based print and online media, we face a number of additional challenges, including the risks that:

 

   

the growing shift within the publishing industry from traditional print media to digital forms of publication may compromise our ability to generate sufficient advertising revenues;

 

   

investments in growing our digital business may not be successful, which could adversely affect our results of operations; and

 

   

our advertising and circulation revenues may decline if we are unable to compete effectively with other companies in the local media industry.

For more information about New Media’s risks and challenges, see “Risk Factors” under Item 1A of this Annual Report on Form 10-K.

Products

Our product mix consists of four publication types: (i) daily newspapers, (ii) weekly newspapers, (iii) shoppers and (iv) niche publications. Most of these publications have a digital presence as discussed in the following table. Some of the key characteristics of each of these types of publications are also summarized in the table below.

 

    

Daily Newspapers

  

Weekly Newspapers

  

Shoppers

  

Niche Publications

Cost:

   Paid    Paid and free    Paid and free    Paid and free

Distribution:

   Distributed four to seven days per week    Distributed one to three days per week    Distributed weekly    Distributed weekly, monthly or on annual basis

Format:

   Printed on newsprint, folded    Printed on newsprint, folded    Printed on newsprint, folded or booklet    Printed on newsprint or glossy, folded, booklet, magazine or book

Content:

   50% editorial (local news and coverage of community events, some national headlines) and 50% ads (including classifieds)    50% editorial (local news and coverage of community events, some national headlines for smaller markets which cannot support a daily newspaper) and 50% ads (including classifieds)    Almost 100% ads, primarily classifieds, display and inserts    Niche content and targeted ads (e.g., Chamber of Commerce city guides, tourism guides and special interest publications such as, seniors, golf, real estate, calendars and directories)

Income:

   Revenue from advertisers, subscribers, rack/box sales    Paid: Revenue from advertising, subscribers, rack/box sales    Paid: Revenue from advertising, rack/box sales    Paid: Revenue from advertising, rack/box sales
      Free: Advertising revenue only, provide 100% market coverage.    Free: Advertising revenue only, provide 100% market coverage    Free: Advertising revenue only
Internet Availability:    Maintain locally oriented websites, mobile sites and mobile apps, for select locations    Major publications maintain locally oriented websites and mobile sites for select locations    Major publications maintain locally oriented websites    Selectively available online

 

10


Table of Contents

Overview of Operations

We operate in four publication groups: Small Community Newspapers, Metros, Large Daily Newspapers and Local Media. We also operate over 350 related websites and 333 mobile sites.

The following table sets forth information regarding our publications.

 

     Number of Publications      Circulation (1)  

Operating Group

   Dailies      Weeklies      Shoppers      Paid      Free      Total
Circulation
 

Small Community Newspapers

     58         103         69         290,514         1,150,795         1,441,309   

Metro Newspapers

     7         117         7         253,279         483,391         736,670   

Large Daily Newspapers

     12         3         12         255,299         550,491         805,790   

Local Media

     8         17         8         237,970         428,883         666,853   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     85         240         96         1,037,062         2,613,560         3,650,622   

 

(1) Circulation statistics are estimated by our management as of December 29, 2013.

Small Community Newspaper Group. Our Small Community Newspaper group encompasses publications typically located in communities that have a population less than 35,000 people, in the states of Illinois, Missouri, Kansas, Michigan, California, Minnesota, Arkansas, New York, Louisiana, Pennsylvania, West Virginia, Colorado, Nebraska, Oklahoma, North Dakota, Tennessee, and Iowa. There are a total of 58 daily newspapers, 103 weekly newspapers and 69 shoppers. In addition to a good geographic mix, we benefit from a diverse economic and employment base across this group.

From the western shore of Lake Michigan to the eastern shore of the Mississippi River and running over 400 miles north to south, Illinois is a picture of manufacturing, agricultural and recreational diversity. Coupled with major daily newspapers from our Large Daily Newspaper Group in Rockford, Peoria, and the state capital of Springfield, we are the largest publishing company in Illinois. Twenty paid daily newspapers, 30 paid weekly newspapers, and 20 shoppers provide coverage across the state which, is supported by four print production facilities.

La Junta in the southeastern part of the state represents the Colorado properties. Along with La Junta we also serve Bent County and Fowler and produce the weekly agricultural newspaper, The Ag Journal.

We are represented in California by two daily newspapers in Ridgecrest and Yreka, five paid weekly papers in Dunsmuir, Mt. Shasta, Weed, Gridley and Taft, and three shoppers in Gridley, Mt. Shasta, Ridgecrest and Yreka. These publications reach from northern California through the southern desert and China Lake naval base in Ridgecrest.

The greatest concentration of circulation and market presence in Missouri is in the northern part of the state where we operate seven daily newspapers, four weekly newspapers and five shoppers. We serve the 22,000 square mile area from Hannibal, on the state’s eastern border, to the western border and from Columbia in the south to the Iowa border in the north. Local employers include the University of Missouri and other colleges, local and federal governments, State Farm Insurance and 3M.

Our southern Missouri operations are clustered around Lake of the Ozarks and Joplin. Located midway between Kansas City and St. Louis and approximately 90 miles from Springfield, Missouri, our three daily newspapers, seven weekly newspapers and three shoppers that serve the Lake of the Ozarks area reach approximately 165,000 people.

Located in southwest Missouri and southeast Kansas is our Joplin cluster with three daily and four weekly newspapers and four shoppers, serving a population of approximately 170,000. There are several colleges and universities in the area, a National Guard Fort, several large medical centers and a diverse mix of retail businesses, including the 120-store Northpark Mall.

 

11


Table of Contents

This group also includes our Kansas City cluster with six publications (two daily and two weekly newspapers and two shoppers) located in the eastern Kansas cities of Leavenworth and Lansing and on the Missouri side, Independence and Blue Springs. The Leavenworth Times was one of our original daily newspapers and the balance of the cluster was acquired afterward. In addition, we secured the military publication, The Fort Leavenworth Lamp, in Fort Leavenworth. The Kansas City cluster is home to several prominent companies, including Hallmark, H&R Block, Interstate Bakeries, and the University of Kansas.

The Wichita cluster consists of three dailies, six weeklies and three shoppers in the towns of Andover, Augusta, El Dorado, Pratt, Wellington, Newton and McPherson near Wichita, Kansas. The clustering of the small dailies in this area allows the group to sell advertisers a package providing access to multiple communities. Major aircraft manufacturers Boeing, Bombardier, Cessna and Raytheon have facilities nearby and McConnell Air Force Base is a major component of the local economy.

We also have clusters in and around Grand Forks, North Dakota (home to the Grand Forks Air Force Base and the University of North Dakota) and near Mason City, Iowa, where Cargill, ConAgra, Kraft, Winnebago and Fort Dodge Animal Health, a division of Wyeth, each maintain significant operations.

We are represented in southwestern Minnesota through seven paid weekly newspapers and four shoppers. St. James, Redwood Falls, Sleepy Eye, Granite Falls, Cottonwood, Wabasso, and Montevideo are all communities with populations of 10,000 and under. These papers represent the primary local news and information source for these communities.

In Louisiana, we have an operating cluster in the southwestern part of the state, located between Lake Charles and Alexandria. This cluster consists of five publications located in the cities of Leesville, Sulpher, DeRidder and Vinton. Local employers include major manufacturers such as Alcoa, Firestone, International Paper and Proctor & Gamble.

Our Baton Rouge cluster consists of four weeklies and three shoppers in the southeastern Louisiana cities of Donaldsville, Gonzales, and Plaquemine. Numerous petrochemical companies such as BASF, Exxon Mobil and Dow Chemical, plus universities including Louisiana State, support the local economies.

In southwestern New York, our operations are centered around five publications based in Steuben County. In Corning, The Leader, a 6,624 circulation daily newspaper, dominates the eastern half of the county and shares its hometown namesake with Corning Incorporated. The Hornell Evening Tribune circulates daily throughout the western half of the county. Situated directly between these two dailies in the county seat of Bath is the 10,850 circulation Steuben Courier, a free-distribution weekly. The Pennysaver Plus, a standalone shopper, solidifies this flagship group.

We also have a strong presence in the print advertising markets in three other New York counties that surround Steuben. In Allegany County to the west, the Wellsville Daily Reporter and its shopper, the Pennysaver Plus, cover most households. In Livingston County to the north, the Pennysaver Plus and the Genesee Country Express complement one another with combined circulation of 32,412. In Yates County to the north and east, The Chronicle-Express and Chronicle Ad-Visor shopper distribute weekly to nearly 14,000 households centered around the county seat of Penn Yan.

In nearby Chemung County, the 17,771 circulation Horseheads Shopper anchors our presence in this area. The majority of the southwestern New York cluster parallels Interstate 86 across the central southern tier of New York State, which is benefiting from continued improvement and expansion under an omnibus federal highway appropriations bill. Moreover, the cluster has several colleges and universities nearby, including Cornell University, Ithaca College, Elmira College and Houghton College.

Our Honesdale cluster, approximately 30 miles from Scranton, Pennsylvania, consists of seven publications in the cities of Carbondale, Honesdale and Hawley, Pennsylvania, along with Liberty, New York, located just

 

12


Table of Contents

across the Delaware River to the east. The cluster was created from our daily and shopper operations in Honesdale and later supplemented by our acquisition of weeklies and shoppers in Carbondale and Liberty. Local employers include General Dynamics, Blue Cross/Blue Shield, Commonwealth Telephone and various colleges and universities, medical centers and governmental agencies.

Our Pennsylvania/West Virginia cluster includes dailies in Waynesboro, Pennsylvania, Keyser and Ripley, West Virginia. We also have two weeklies throughout the group and a commercial printing operation in Ravenswood, West Virginia.

We have a strong presence in southern Michigan where five of our dailies, Adrian, Coldwater, Holland, Hillsdale and Sturgis, along with two weeklies and seven shoppers blanket the southern tier of the state and into Indiana. The 12,301 circulation Holland Sentinel is the flagship publication of the group. This area has several large employers, including Delphi, ConAgra, Tecumseh Products, Kellogg, JCI, Herman Miller, Hayworth, Gentex, Jackson State Prison, and a number of colleges and universities.

The communities we serve in the Small Community Newspaper group are largely rural but also support educational institutions, government agencies (including prisons and military bases), tourism, veterinary medicine and ethanol and agricultural chemical manufacturing. The area also includes automotive (including recreational vehicles), boat, home construction products and furniture manufacturing businesses.

The following table sets forth information regarding the number of publications and production facilities in the Small Community Newspaper Group:

 

     Publications      Production
Facilities
 

State of Operations

   Dailies      Weeklies      Shoppers         

Illinois

     15         30         13         2   

Missouri

     12         15         12         5   

Kansas

     5         8         7         1   

Michigan

     8         2         10         4   

California

     2         5         3         1   

Minnesota

     1         8         6         0   

Arkansas

     3         11         0         2   

New York

     3         4         7         0   

Louisiana

     1         8         4         1   

Pennsylvania

     2         4         2         2   

West Virginia

     1         2         2         2   

Colorado

     1         3         0         1   

Nebraska

     0         2         1         0   

Oklahoma

     2         0         1         2   

North Dakota

     1         0         1         1   

Tennessee

     1         0         0         0   

Iowa

     0         1         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     58         103         69         24   

Metro Newspaper Group. Our Metro Newspaper Group includes publications that are typically within 50 miles of a metropolitan area with total population greater than 1.0 million people in the states of Massachusetts, New York, and Delaware. We are one of the largest community newspaper publishers in Massachusetts by number of daily publications and also publish a large concentration of weekly newspapers, serving 113 communities in markets across eastern Massachusetts. The three largest daily newspapers in this region are: The Patriot Ledger (founded in 1837 with circulation of 28,770), the Enterprise (founded in 1880 with circulation of 17,890) and the MetroWest Daily News (founded in 1897 with circulation of 14,127). We also have over 160 web sites, with more than 4.8 million average combined monthly unique visitors in Massachusetts.

 

13


Table of Contents

Many of the towns within our Massachusetts footprint were founded in the 1600s and our daily and weekly newspapers in the region have long been institutions within these communities. In fact, our Massachusetts publications have 30 daily and weekly newspapers that are over 100 years old. The Boston designated market areas (“DMA”) is the eighth largest market in the United States with 2.5 million households and 6.5 million people, and ranks first nationally in concentration of colleges and universities. Massachusetts has more than 1.0 million households in the region earning greater than $75,000, and a substantial homeownership rate. We reach 1.4 million readers in the eastern Massachusetts market. Eastern Massachusetts is also an employment center for technology, biotechnology, healthcare and higher education.

In New York we operate and own a combination of 16 publications in Suburban Rochester that span four counties and have a combined circulation of 123,180. This market has a tourism industry and is known for boutique wineries and recreational activities. The flagship of Messenger Post Media is the 7,665 circulation Daily Messenger in Canandaigua.

The Delaware cluster publishes six weekly newspapers, one shopper, and various specialty papers that cover most of the state of Delaware, and range from suburban Wilmington in the north to Georgetown, Delaware at the southern end of the state. The weekly Express shopper serves nearly all of lower Delaware and a good portion of the Eastern Shore of Maryland. Circulation for the cluster is primarily free, and totals approximately 95,161 weekly.

The following table sets forth information regarding the number of publications and production facilities in the Metro Newspaper Group:

 

     Publications      Production
Facilities
 

State of Operations

   Dailies      Weeklies      Shoppers         

Massachusetts

     6         100         2         2   

New York

     1         11         4         1   

Delaware

     0         6         1         1   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     7         117         7         4   

Large Daily Newspaper Group. Our Large Daily Newspaper Group includes publication clusters in communities that typically have more than 35,000 people and are greater than 50 miles from a major metropolitan area. These publications are in Illinois, New York, Ohio, and Connecticut with a total of 12 daily newspapers, 3 weekly newspapers and 12 shoppers. In addition to a good geographic mix, we benefit from a diverse economic and employment base across this group.

Approximately 85 miles to the west of Chicago, Illinois is the Rockford Register Star supported by its 37,158 daily paid circulation base and its total market coverage (“TMC”) product The Weekly, with six zoned editions. The Rockford Register Star operates successful web sites that have more than 909,000 average monthly unique visitors.

The Journal (Freeport, IL) Standard is published Tuesdays through Sundays. The newspaper’s coverage area includes Caroll, Jo Daviess, Ogle and Stephenson counties. The newspaper has a daily circulation of 6,441 and a Sunday circulation of 8,109. The Journal Standard also publishes a website journalstandard.com and receives a monthly average of 918,000 page views and monthly unique visitors over 193,000.

The Peoria Journal Star with its daily paid circulation of 58,218 is the dominant newspaper in Peoria, Tazewell and Woodford Counties and is also distributed in an additional 17 surrounding counties. There are two shoppers—JS Shopper and Pekin Extra—which have a combined weekly circulation of 95,896. The Peoria facility provides print services to our neighboring New Media publications and commercial printing for Lee Enterprises’ The Pantagraph. The market includes manufacturing facilities for Caterpillar and Komatsu, and higher education at Bradley University, Illinois Central College and Midstate College. Peoria has a large medical

 

14


Table of Contents

community including OSF Healthcare, Methodist Medical Center, Proctor Hospital, University Of Illinois College Of Medicine and St. Jude Children’s Hospital Midwest Affiliate. It has agricultural facilities Archer Daniels Midland, LG Seeds and the USDA Ag Lab. The Journal Star has pjstar.com and pjstar.mobi with combined monthly average of page views of over 1.1 million per month. The combined average monthly unique visitors are over 1.0 million.

The Springfield State Journal-Register with a daily paid circulation of 31,563 and a Sunday paid circulation of 52,911 covers the state capital of Illinois. The daily paid circulation includes a branded edition of 2,901 of the Lincoln Courier. The State Journal-Register also has successful web sites with monthly unique visitors of more than 1.4 million.

The Ohio cluster is anchored in Canton, Ohio and covers Stark and Tuscarawas Counties. It is comprised of three daily newspapers, one weekly publication and two shoppers. The Repository is a 52,473 daily newspaper that covers the entire area of Stark County. The Dover New Philadelphia Times Reporter is a 16,535 daily publication located 40 miles south of Canton in Tuscarawas County. The Massillon Independent is an 8,397 circulation daily that circulates in western Stark County. The Suburbanite is a 32,600 weekly publication that circulates in the affluent northern Stark County area. The Ohio facility also provides commercial print services to the Akron Beacon Journal. The Ohio cluster has very successful web sites with more than 1.4 million combined monthly unique visitors. Together the newspapers and web sites dominate their local markets.

The Central New York cluster is anchored by the Observer-Dispatch in Utica, New York which has circulation of 25,505 Daily and 34,877 Sunday subscribers. The Utica operations include one daily and two shoppers and one weekly newspaper in Hamilton. Utica also has web sites with combined monthly unique visitors of more than 619,000. Other dailies in this group are located in Herkimer and Little Falls. The Utica and Herkimer County operations take advantage of numerous synergies in printing, circulation, and advertising.

Our Norwich, Connecticut publication diversifies the Large Daily Newspapers as the eastern Connecticut economy differs from the nation and New England markedly. Primary economic drivers include casinos, military submarine manufacture and pharmaceutical research. Major industrial employers in the region include General Dynamics, Pfizer, Dow Chemical, Dominion Resources and the United States Navy.

The following table sets forth information regarding the number of publications and production facilities in the Large Daily Newspaper Group:

 

     Publications      Production
Facilities
 

State of Operations

   Dailies      Weeklies      Shoppers         

Illinois

     5         0         7         2   

New York

     3         2         2         0   

Ohio

     3         1         2         2   

Connecticut

     1         0         1         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     12         3         12         4   

Local Media Group. Local Media operates in five publication group clusters: the (1) New York/Pennsylvania Media Group, (2) Southeastern Massachusetts Media Group, (3) Seacoast Media Group (Coastal New Hampshire and Maine cluster), (4) San Joaquin Media Group (Stockton, California cluster) and (5) Southern Oregon Media Group.

New York/Pennsylvania Media Group. This cluster includes the Hudson Valley Media Group and the Pocono Mountains Media Group.

The Hudson Valley Media Group publishes one paid daily, two free weekly newspapers, and one shopper. The flagship publication of the Hudson Valley Media Group is the Times Herald-Record. The Times Herald-Record, with a daily circulation of 55,896, is the premier daily and Sunday local paper in Orange County, NY.

 

15


Table of Contents

The Pocono Mountains Media Group publishes one paid daily, one free weekly newspaper, and one shopper. The flagship publication of the Pocono Mountains Media Group is the Pocono Record. The Pocono Record, with a daily circulation of 15,572, is the premier daily and Sunday local paper in the Pocono Mountains area.

Southeastern Massachusetts Media Group. This cluster includes the Cape Cod Media Group, the Southcoast Media Group and the Nantucket Island Media Group.

The Cape Cod Media Group publishes one paid daily, one paid weekly newspaper and one shopper. The flagship publication of the Cape Cod Media Group is the Cape Cod Times. The Cape Cod Times, with a daily circulation of 36,323 is the premier daily and Sunday local paper on Cape Cod. The Barnstable Patriot, the paid weekly newspaper, has a weekly circulation of 2,294.

The Southcoast Media Group publishes one paid daily newspaper, four paid weekly newspapers, two shoppers and one free weekly newspaper. The flagship publication of the Southcoast Media Group is the Standard-Times. The Standard-Times, with a daily circulation of 21,807, is the premier daily and Sunday local paper in the New Bedford, MA area. The other paid weeklies, the Spectator, the Chronicle, the Middleboro Gazette and the Advocate, have weekly circulations of 3,522, 1,950, 3,443 and 706, respectively.

The Nantucket Island Media Group publishes The Inquirer and Mirror. With a weekly circulation of 7,039, it has the largest circulation of any island newspaper.

Seacoast Media Group. The Seacoast Media Group publishes one paid daily, one paid Sunday paper, two newspapers which are published three times a week and two paid weekly newspapers. The flagship publication of the Seacoast Media Group is the Portsmouth Herald. The Portsmouth Herald, with a daily circulation of 10,006, is the premier daily and Sunday local paper in coastal New Hampshire. Seacoast Sunday, the Sunday paper, has a Sunday circulation of 14,919. The Hampton Union and the Exeter News-Letter, the two newspapers published three times a week, have weekly circulations of 2,102 and 2,568, respectively. The two paid weekly newspapers, the York County Coast Star and the York Weekly, have weekly circulations of 2,415 and 1,577, respectively.

San Joaquin Media Group. The San Joaquin Media Group publishes one paid daily, one free weekly paper, and one shopper. The flagship publication of the San Joaquin Media Group is the Record. The Record, with a daily circulation of 32,846, is the premier daily and Sunday local paper in the Stockton, CA area.

Southern Oregon Media Group. The Southern Oregon Media Group publishes two paid daily papers and two shoppers. The flagship publication of the Southern Oregon Media Group is the Medford Mail Tribune. The Medford Mail Tribune, with a daily circulation of 21,778, is the premier daily and Sunday local paper in southern Oregon. The other paid daily paper, the Ashland Daily Tidings, has a daily circulation of 1,431.

The following table sets forth information regarding the number of publications and production facilities in the Local Media Group:

 

     Publications      Production
Facilities
 

State of Operations

   Dailies      Weeklies      Shoppers         

Massachusetts

     2         7         3         1   

New Hampshire

     1         4         0         1   

New York

     1         2         1         1   

Oregon

     2         0         2         1   

California

     1         1         1         1   

Pennsylvania

     1         1         1         0   

Maine

     0         2         0         0   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     8         17         8         5   

 

16


Table of Contents

Directories

The core of our directory portfolio is comprised of the three yellow page directories, which are located in and around the Sacramento, California area, primarily in Roseville, California. The three directories have an aggregate circulation of approximately 360,000 and service Roseville, Auburn/Grass Valley/Nevada City and Folsom/El Dorado/Placerville, reaching four counties within the Sacramento region.

Our SureWest Directories portfolio is highlighted by the Roseville directory. The Roseville directory is the incumbent (with a circulation of approximately 200,000) and has served the local Roseville community for over 100 years and has achieved more than 50% market share.

We also own three additional directories including two Michigan and Indiana phone guides servicing St. Joseph County, Michigan and LaGrange County, Indiana, and Branch County, Michigan and Steuben County, Indiana, respectively, and one yellow page directory based in Mt. Shasta, California.

Propel Marketing

Propel is our digital marketing services division with digital products designed for SMBs. We believe the digital services industry represents a large and expanding opportunity. Propel is a business we created to attack that opportunity.

There are approximately 27 million SMBs in the United States today and about 26.7 million have less than 20 employees. Although these businesses are increasingly beginning to recognize the need to establish and maintain a strategy for the digital space, most do not have the time, expertise or resources to handle this themselves.

Propel is a company that can become the outsourced digital marketing service department for those SMBs. Propel’s products help an SMB build a presence across digital platforms, help them get found by consumers, help them engage with and grow their customer base. We pull these products together for the SMB with a proprietary customer dashboard which integrates activity and results for all Propel products.

We also believe Propel gives us an opportunity to expand beyond our current geographic boundaries, as its product set could be of value to SMBs around the country.

Revenue

Our operations generate three primary types of revenue: (i) advertising, (ii) circulation (including home delivery subscriptions, single copy sales and digital subscriptions) and (iii) other (primarily commercial printing and digital marketing services). In 2013, these revenue streams accounted for approximately 63%, 29% and 8%, respectively, of our total revenue. The contribution of advertising, circulation and other revenue to our total revenue for New Media, known as the Successor Company for the two months ended December 29, 2013 and the Predecessor Company for the ten months ended November 6, 2013 and years ended December 30, 2012 and January 1, 2012 was as follows:

 

     Successor Company          Predecessor Company  
     Two Months Ended
December 29,

2013
         Ten Months Ended
November 6,

2013
     Year Ended
December 30,
2012
     Year Ended
January 1,
2012
 
(in thousands)                                

Revenue:

              

Advertising

   $ 63,340          $ 265,078       $ 330,881       $ 357,134   

Circulation

     29,525            118,810         131,576         131,879   

Commercial printing and other

     10,366            29,402         26,097         25,657   
  

 

 

       

 

 

    

 

 

    

 

 

 

Total revenue

   $ 103,231          $ 413,290       $ 488,554       $ 514,670   
  

 

 

       

 

 

    

 

 

    

 

 

 

 

17


Table of Contents

Advertising

Advertising revenue, which includes revenue generated from online and mobile products, is the largest component of our revenue, accounting for approximately 63%, 68% and 69% of our total revenue in 2013, 2012 and 2011, respectively. We categorize advertising as follows:

 

   

Local Retail—local retailers, local stores for national retailers, grocers, drug stores, department and furniture stores, local financial institutions, niche shops, restaurants and other consumer related businesses.

 

   

Local Classified—local legal, obituaries, employment, automotive, real estate and other advertising.

 

   

Online—banner, display, classified, behavioral targeting, audience extension, search and other advertising on websites or mobile devices.

 

   

National—national and major accounts such as wireless communications companies, airlines and hotels, generally placed with us through agencies.

We believe that our advertising revenue tends to be less volatile than the advertising revenue of large metropolitan and national print media because we rely primarily on local, rather than national advertising and our classified revenue, tends to be more local market oriented (job listing for example). We generally derive 95% or more of our advertising revenue from local advertising (local retail, local classified and online) and less than 5% from national advertising. We believe that local advertising tends to be less sensitive to economic cycles than national advertising because local businesses generally have fewer effective advertising channels through which they may reach their customers.

Our advertising rate structures vary among our publications and are a function of various factors, including local market conditions, competition, circulation, readership and demographics. Management works with local newspaper management to set advertising rates and a portion of our publishers’ incentive compensation is based upon growing advertising revenue. Our sales compensation program emphasizes digital and new business growth. We share advertising concepts throughout our network of publishers and advertising directors including periodic special section programs, enabling them to utilize advertising products and sales strategies that are successful in other markets we serve.

Substantially all of our advertising revenue is derived from a diverse group of local retailers and local classified advertisers, resulting in very limited customer concentration. No single advertiser accounted for more than 1% of our total revenue in 2013, 2012 or 2011 and our 20 largest advertisers account for less than 10% of total revenue.

Our advertising revenue tends to follow a seasonal pattern, with higher advertising revenue in months containing significant events or holidays. Accordingly, our first quarter, followed by our third quarter, historically are our weakest quarters of the year in terms of revenue. Correspondingly, our second fiscal quarter, and fourth fiscal quarter, historically are our strongest quarters. We expect that this seasonality will continue to affect our advertising revenue in future periods.

We have experienced declines in advertising revenue over the past few years, due primarily to the secular pressures on the business as consumers and advertisers shift time and spend from traditional media to the internet. We continue to search for organic growth opportunities, specifically with digital advertising and ways to stabilize print revenue declines through strengthening local news product, value based pricing and training of sales staff.

Circulation

Our circulation revenue is derived from home delivery sales to subscribers, single copy sales at retail stores and vending racks and boxes, and digital subscriptions. We own 85 paid daily publications that range in

 

18


Table of Contents

circulation from approximately 500 to 57,000 and 168 paid weekly publications that range in circulation from approximately 100 to 10,000. Circulation revenue accounted for approximately 29%, 27% and 26% of our total revenue in 2013, 2012 and 2011, respectively.

Subscriptions are typically sold for three to twelve-month terms and often include promotions to extend the average subscription period or convert someone to become a subscriber. We also provide bundled print and digital subscriptions and employ pay meters for our website content at most of our daily publications. We implement marketing programs to increase readership through subscription and single copy sales, including company-wide and local circulation contests, direct mail programs, door-to-door sales and strategic alliances with local schools in the form of “Newspapers in Education” programs. In addition, since the adoption of the Telemarketing Sales Rule by the Federal Trade Commission in 2003, which created a national “do not call” registry, we have increased our use of “EZ Pay” programs, kiosks, sampling programs, in-paper promotions and online promotions to increase our circulation.

We encourage subscriber use of EZ Pay, a monthly credit card charge or direct bank debit payment program, which has led to higher retention rates for subscribers. We also use an active stop-loss program for all expiring subscribers. Additionally, in order to improve our circulation revenue and circulation trends, we periodically review the need for quality enhancements, such as:

 

   

Increasing the amount of unique hyper-local content;

 

   

Increasing the use of color and color photographs;

 

   

Improving graphic design, including complete redesigns;

 

   

Developing creative and interactive promotional campaigns;

 

   

Improving customer service and company wide customer retention efforts; and

 

   

Better use of demographic data to specifically target pricing and customer acquisition opportunities.

We believe that our unique and valuable hyper-local content allows us to continue to produce products of great relevance to our local market audiences. This allows us to be able to periodically raise prices, both for home delivery and on a single copy basis, resulting in increased circulation revenues. We also believe this unique hyper-local content will allow us to find ways to grow circulation revenues from our wide array of digital products.

Other

We provide commercial printing services to third parties on a competitive bid basis 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 our publications. We also print other commercial materials, including flyers, business cards and invitations. Additionally, this category includes Propel which provides internet marketing solutions for SMBs. Other sources of revenue, including commercial printing and Propel, accounted for approximately 8%, 5% and 5% of our total revenue in 2013, 2012 and 2011, respectively.

Printing and Distribution

We own and operate 37 print facilities. Our print facilities produce 10 publications on average and are generally located within 60 miles of the communities served. By clustering our production resources or outsourcing where cost beneficial, we are able to reduce the operating costs of our publications while increasing the quality of our small and midsize market publications that would typically not otherwise have access to high quality production facilities. We also believe that we are able to reduce future capital expenditure needs by having fewer overall pressrooms and buildings. We believe our superior production quality is critical to maintaining and enhancing our position as the leading provider of local news coverage in the markets we serve. As other print media businesses look to reduce costs, we believe we have the opportunity to leverage our unutilized press time to grow our commercial print customer base and revenue.

 

19


Table of Contents

The distribution of our daily newspapers is typically outsourced to independent, locally based, third-party distributors that also distribute a majority of our weekly newspapers and non-newspaper publications. We continuously evaluate lower cost options for newspaper delivery. In addition, certain of our shopper and weekly publications are delivered via the U.S. Postal Service.

Availability of Raw Materials for Our Business—Newsprint

The basic raw material for our publications is newsprint. We generally maintain only a 45 to 55-day inventory of newsprint.

Historically, the market price of newsprint has been volatile, reaching a high of approximately $823 per metric ton in 2008 and a low of $410 per metric ton in 2002. However, from 2010 to 2013 there was much less volatility in newsprint pricing and our Predecessor benefited from negotiating a fixed annual price for a majority of its newsprint. The average market price of newsprint during 2013 was approximately $643 per metric ton.

In 2012 our Predecessor consumed approximately 41,400 metric tons of newsprint (inclusive of commercial printing) and the cost of our newsprint consumption totaled approximately $27.7 million. In contrast, in 2013, we consumed approximately 42,800 metric tons of newsprint (inclusive of commercial printing) and the cost of our newsprint consumption totaled approximately $27.5 million. Our newsprint expense typically averages less than 10% of total revenue, which we believe generally compares favorably to larger, metropolitan newspapers.

For our 2012 and 2013 purchases of newsprint our Predecessor negotiated a fixed price for approximately 75% and 95%, respectively, of our newsprint tons which allowed our Predecessor to eliminate some of the volatility of the market price.

Competition

Each of our publications competes for advertising revenue to varying degrees with traditional media outlets such as direct mail, yellow pages, radio, outdoor advertising, broadcast and cable television, magazines, local, regional and national newspapers, shoppers and other print and online media sources, including local blogs. We also increasingly compete with new digital and social media companies for advertising revenue. However, we believe that barriers to entry remain high in many of the markets we serve in terms of being the preeminent source for local news and information therein, because our markets are generally not large enough to support a second newspaper and because our local news gathering infrastructures, sales networks and relationships would be time consuming and costly to replicate. We also have highly recognized local brand names and long histories in the towns we serve.

We also provide our readers with community-specific content, which is generally not available from other media sources. We believe that our direct and focused coverage of the market and our cost effective advertising rates relative to more broadly circulated metropolitan newspapers allow us to tailor an approach for our advertisers. As a result, our publications generally capture a large share of local advertising in the markets they serve.

The level of competition and the primary competitors we face vary from market to market. Competition tends to be based on market penetration, demographic and quality factors, as opposed to price factors. The competitive environment in each of our operating regions is discussed in greater detail below.

Small Community Newspaper Group. The Small Community Newspaper Group operates in 164 markets and we believe our publications are the dominant print advertising media in the vast majority of these markets. There are radio stations in or within 20 miles of every market in which we operate, but we do not believe that any of these radio station operators pose a significant competitive threat to our publications. Yellow page advertising is prevalent in all of our markets with either a local phone book or a regional phone book. We believe that, in most cases, yellow page advertising is geared more towards the professional services advertisers such as

 

20


Table of Contents

attorneys and doctors and not the local retail advertisers, as is the focus with our non-directory publications. Lee Enterprises publishes the Southern Illinoisan in Carbondale, which is a regional newspaper that competes with our dailies in Marion, Benton, West Frankfort and DuQuoin. In all four of these cases, we believe our publications are the dominant local daily, but do compete on a regional basis with the larger dailies. We also compete with shoppers or weekly newspapers. This competition comes from small independent operators and is not significant. We have very little television competition in this group because of our geographic location in relation to major markets. There are no local television affiliates in our markets.

In the southern regions of this group we believe our publications are generally the dominant media. Our major competition comes from regional daily newspapers, specifically: The Advocate in Baton Rouge, Louisiana; The American Press in Lake Charles, Louisiana; The Joplin Globe; and the Wichita Eagle. We also face competition from numerous other daily and weekly papers, local radio stations, shopping guides, directories and niche publications.

In the Northeast market we believe our publications are generally the dominant media. The competition we face in this region are from major newspaper companies: daily newspapers owned by Gannett Company, Inc. (The Star-Gazette in Elmira, NY and the Chambersburg (PA) Public-Opinion); Times-Shamrock Company’s Scranton (PA) The Times-Tribune and Towanda Daily/Sunday Review; Community Newspaper Holdings, Inc.’s Sunbury Daily Item; and Ogden-Nutting’s Williamsport Sun-Gazette. We believe our publications tend to be the dominant local publication in those markets.

In our Great Lakes markets we believe our publications are generally the dominant media in those markets. Our only significant competition comes from regional television stations in Adrian, Michigan. We also face competition from dozens of other competitors such as other local daily and weekly papers and niche publications, as well as radio and television stations, directories, direct mail and non-local internet websites, but none of these have proven to be significant.

Metro Newspaper Group. In the Metro Newspaper Group, the Boston Globe and boston.com, a metropolitan daily and website, respectively, owned by John Henry, compete with us throughout eastern Massachusetts. In addition, we compete in Massachusetts with more than 30 other weekly or daily newspaper companies (that publish a combined total of approximately 16 dailies and 50 weeklies), three major radio station operators, five local network television broadcasters, one cable company and numerous niche publications for advertising revenues. We believe that our publications generally deliver the highest household coverage in their respective markets.

Large Daily Newspaper Group. In our Large Daily Newspaper Group we believe our publications are generally the dominant media in those markets. Daily newspapers owned by Gannett Company, Inc. (Daily Sentinel in Rome, NY and The Dispatch in Oneida, NY) compete within the New York market. We also face competition from other major newspaper companies in other regional markets such as Newhouse Newspaper’s Syracuse Post-Standard. Our competitors also include numerous other daily and weekly newspapers, local radio stations, shopping guides, directories and niche publications. We believe our publications, many of which have an extensive history in the relevant market, tend to be the dominant local publication.

Local Media. Local Media operates in 14 local markets across the United States. We believe our publications in these markets are generally the dominant media and that each have an audience far larger than the competitors. Daily newspapers owned by Gannett Company, Inc. (Poughkeepsie Journal in Poughkeepsie, NY) and 21st Century Media, Inc. (Daily Freeman in Kingston, NY), compete within the New York market. Our Cape Cod and New Bedford, Massachusetts newspapers experience competition similar to the Metro Newspaper Group. Their territories border with the Boston Globe and boston.com, a metropolitan daily and website, respectively, but they remain dominant in their markets.

We face competition from other newspaper companies that include daily and weekly newspapers, local websites, local radio stations, local television stations, shopping guides, directories and niche publications. None

 

21


Table of Contents

of our competitors have proven to be significant. Our publications and websites have a rich history in our markets which we believe uniquely positions them for unmatched reach and relevancy in their local audiences.

Employees

As of December 29, 2013, we had approximately 4,992 full time equivalent employees, consisting of hourly and salaried employees. We employ union personnel at a number of our core publications representing approximately 719 full-time equivalent employees. As of December 29, 2013, there were 27 collective bargaining agreements covering union personnel. Most of our unionized employees work under collective bargaining agreements that expire in 2014. We believe that relations with our employees are generally good and we have had no work stoppages at any of our publications.

Environmental Matters

We believe that we are in substantial compliance with all applicable laws and regulations for the protection of the environment and the health and safety of our employees based upon existing facts presently known to us. Compliance with federal, state, and local environmental laws and regulations relating to the discharge of substances into the environment, the disposal of hazardous wastes and other related activities has had, and will continue to have, an impact on our operations, but has, since the incorporation of our Predecessor in 1997, been accomplished without having a material adverse effect on its operations. While it is difficult to estimate the timing and ultimate costs to be incurred due to uncertainties about the status of laws, regulations and technology, based on information currently known to us and insurance procured with respect to certain environmental matters, we do not expect environmental costs or contingencies to be material or to have a material adverse effect on our financial performance. Our operations involve risks in these areas, however, and we cannot assure you that we will not incur material costs or liabilities in the future which could adversely affect us.

Corporate Governance and Public Information

The address of New Media’s website is http://www.newmediainv.com/. Stockholders can access a wide variety of information on New Media’s website, under the “Investor Relations” tab, including news releases, SEC filings, information New Media is required to post online pursuant to applicable SEC rules, newspaper profiles and online links. New Media makes available via its website all filings it makes under the Securities and Exchange Act of 1934, as amended, including Forms 10-K, 10-Q and 8-K, and related amendments, as soon as reasonably practicable after they are filed with, or furnished to, the SEC. All such filings are available free of charge. Neither the content of New Media’s corporate website nor any other website referred to in this report are incorporated by reference into this report unless expressly noted. The public may read and copy any information New Media files with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (http://www.sec.gov) where New Media’s filings filed with the SEC are available free of charge.

 

22


Table of Contents

List of New Media’s Dailies, Weeklies, Shoppers, Websites and Directories

As of December 29, 2013, New Media’s dailies, weeklies, shoppers, websites and directories were as listed below. GateHouse and Local Media maintain registered trademarks in many of the masthead names listed below. Maintaining such trademarks allows us to exclusively use the masthead name to the exclusion of third parties.

 

 

Small Community Newspaper Group

 

State

  

City

  

Masthead

  

Circulation Type

Illinois    Benton   

Benton Evening News

www.bentoneveningnews.com

   Daily
   Canton   

Daily Ledger

www.cantondailyledger.com

   Daily
   Carmi   

The Carmi Times

www.carmitimes.com

   Daily
   Du Quoin   

Du Quoin Evening Call

www.duquoin.com

   Daily
   El Dorado    El Dorado Daily Journal    Daily
   Galesburg   

The Register-Mail

www.galesburg.com

   Daily
   Harrisburg   

Harrisburg Daily Register

www.dailyregister.com

   Daily
   Kewanee   

Star-Courier

www.starcourier.com

   Daily
   Macomb   

McDonough County Voice

www.mcdonoughvoice.com

   Daily
   Marion   

The Daily Republican

www.dailyrepublicannews.com

   Daily
   Monmouth   

Daily Review Atlas

www.reviewatlas.com

   Daily
   Olney   

The Olney Daily Mail

www.olneydailymail.com

   Daily
   Pekin   

Pekin Daily Times

www.pekintimes.com

   Daily
   Pontiac   

Daily Leader

www.pontiacdailyleader.com

   Daily
   West Frankfort   

Daily American

www.dailyamericannews.com

   Daily
   Abingdon   

Abingdon Argus-Sentinel

www.eaglepublications.com

   Paid Weekly
   Aledo   

The Times Record

www.aledotimesrecord.com

   Paid Weekly
   Augusta   

Augusta Eagle-Scribe

www.eaglepublicatons.com

   Paid Weekly
   Cambridge   

Cambridge Chronicle

www.cambridgechron.com

   Paid Weekly
   Carmi    The Weekly Times    Paid Weekly
   Chester   

Randolph County Herald Tribune

www.randolphcountyheraldtribune.com

   Paid Weekly
   Christopher    The Progress    Paid Weekly
   Du Quoin    Du Quoin News    Paid Weekly

 

23


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Du Quoin    Ashley News    Paid Weekly
   Fairbury    The Blade    Paid Weekly
   Flora   

Clay County Advocate Press

www.advocatepress.com

   Paid Weekly
   Galva   

Galva News

www.galvanews.com

   Paid Weekly
   Geneseo   

The Geneseo Republic

www.geneseorepublic.com

   Paid Weekly
   Murphysboro   

Murphysboro American

www.murphysboroamerican.com

   Paid Weekly
   Newton   

Newton Press Mentor

www.pressmentor.com

   Paid Weekly
   Oquawka    Oquawka Current    Paid Weekly
   Orion   

Orion Gazette

www.oriongazette.com

   Paid Weekly
   Roseville   

Roseville Independent

www.eaglepublications.com

   Paid Weekly
   Shawneetown    Ridgway News    Paid Weekly
   Shawneetown    Gallatin Democrat    Paid Weekly
   Steelville    The Steelville Ledger    Paid Weekly
   Teutopolis   

Teutopolis Press-Deiterich Gazette

www.teutopolispress.com

   Paid Weekly
   West Frankfort   

SI Trader

www.sitraders.com

   Paid Weekly
   Chillicothe   

Chillicothe Times Bulletin

www.chillicothetimesbulletin.com

   Free Weekly
   East Peoria   

East Peoria Times-Courier

www.eastpeoriatimescourier.com

   Free Weekly
   Galesburg   

Knox County Neighbors

www.galesburg.com

   Free Weekly
   Macomb    Daily Brief    Free Weekly
   Metamora   

Woodford Times

www.woodfordtimes.com

   Free Weekly
   Morton   

Morton Times News

www.mortontimesnews.com

   Free Weekly
   Washington   

Washington Times Reporter

www.washingtontimesreporter.com

   Free Weekly
   Aledo    Town Crier Advertiser    Shopper
   Canton    Fulton County Shopper    Shopper
   Carmi    White County Shopper News    Shopper
   Flora    CCAP Special    Shopper
   Galatia   

Money Stretcher

www.galatiamoneystretcher.com

   Shopper
   Geneseo    Henry County Advertizer/Shopper    Shopper
   Macomb    McDonough County Choice    Shopper
   Marion    This Week in Williamson County    Shopper
   Monmouth    Pennysaver    Shopper
   Olney    Richland County Shopper    Shopper
   Olney    Jasper County News Eagle    Shopper
   Pontiac    Livingston Shopping News    Shopper
   West Frankfort    Free Press    Shopper

 

24


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

Missouri    Camdenton   

Lake Sun Leader

www.lakenewsonline.com

   Daily
   Carthage   

The Carthage Press

www.carthagepress.com

   Daily
   Chillicothe   

Constitution Tribune

www.chillicothenews.com

   Daily
   Hannibal   

Hannibal Courier Post

www.hannibal.net

   Daily
   Independence   

The Examiner

www.examiner.net

   Daily
   Kirksville   

Kirksville Daily Express & News

www.kirksvilledailyexpress.com

   Daily
   Macon   

Chronicle Herald

www.maconch.com

   Daily
   Mexico   

The Mexico Ledger

www.mexicoledger.com

   Daily
   Moberly   

Moberly Monitor Index

www.moberlymonitor.com

   Daily
   Neosho   

Neosho Daily News

www.neoshodailynews.com

   Daily
   Rolla   

Rolla Daily News

www.therolladailynews.com

   Daily
   Waynesville   

The Daily Guide

www.waynesvilledailyguide.com

   Daily
   Aurora   

Aurora Advertiser

www.auroraadvertiser.net

   Paid Weekly
   Boonville   

Boonville Daily News

www.boonvilledailynews.com

   Paid Weekly
   Brookfield   

The Linn County Leader

www.linncountyleader.com

   Paid Weekly
   Greenfield   

The Vedette

www.greenfieldvedette.com

   Paid Weekly
   St James   

St James Leader Journal

www.leaderjournal.com

   Paid Weekly
   Boonville    Weekly    Free Weekly
   Camdenton   

West Side Star

www.lakenewsonline.com

   Free Weekly
   Carthage    The Carthage Press Wednesday TMC    Free Weekly
   Hannibal    Salt River Journal    Free Weekly
   Neosho    The Neighborhood Showcase    Free Weekly
   Osage Beach    Lake Area News Focus    Free Weekly
   Osage Beach    Lake of the Ozarks Real Estate    Free Weekly
   Osage Beach    Tube Tab    Free Weekly
   Osage Beach    Vacation News    Free Weekly
   Rolla    Rolla Daily News “Plus”    Free Weekly
   Aurora    Big AA Shopper    Shopper
   Brookfield    Sho-Me Shopper    Shopper
   Camdenton    Penny Saver    Shopper
   Chillicothe    Chillicothe C-T Shopper    Shopper
   Greenfield    Lake Stockton Shopper    Shopper
   Joplin    Big Nickel    Shopper

 

25


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Kirksville    Nemo Trader    Shopper
   Kirksville    Kirksville Crier    Shopper
   Macon   

Macon Journal

www.maconch.com

   Shopper
   Moberly    The Shopper    Shopper
   Osage Beach    Lake of the Ozarks Boats    Shopper
   Waynesville    Pulaski County Weekly    Shopper
Kansas    Dodge City   

Dodge City Daily Globe

www.dodgeglobe.com

   Daily
   Leavenworth   

The Leavenworth Times

www.leavenworthtimes.com

   Daily
   McPherson   

McPherson Sentinel

www.mcphersonsentinel.com

   Daily
   Newton   

The Newton Kansan

www.thekansan.com

   Daily
   Pittsburg   

The Morning Sun

www.morningsun.net

   Daily
   El Dorado   

The Butler County Times-Gazette

www.butlercountytimesgazette.com

   Paid Weekly
   Greensburg   

Kiowa County Signal

www.kiowacountysignal.com

   Paid Weekly
   Pratt   

The Pratt Tribune

www.pratttribune.com

   Paid Weekly
   St John   

St John News

www.sjnewsonline.com

   Paid Weekly
   Wellington   

Wellington Daily News

www.wellingtondailynews.com

   Paid Weekly
   Dodge City    La Estrella    Free Weekly
   Leavenworth    Lansing This Week    Free Weekly
   Leavenworth   

The Fort Leavenworth Lamp

www.ftleavenworthlamp.com

   Free Weekly
   Dodge City    Shoppers Weekly    Shopper
   El Dorado    Shoppers Guide    Shopper
   Hiawatha    Penny Press 4    Shopper
   Leavenworth    Chronicle Shopper    Shopper
   McPherson/Newton    South Central Kansas Shoppers Guide    Shopper
   Pittsburg    The Sunland Shopper    Shopper
   Pratt    Sunflower Shopper    Shopper
Michigan    Adrian   

The Daily Telegram

www.lenconnect.com

   Daily
   Cheboygan   

Cheboygan Daily Tribune

www.cheboygannews.com

www.mackinacjournal.com

   Daily
   Coldwater   

The Daily Reporter

www.thedailyreporter.com

   Daily
   Hillsdale   

Hillsdale Daily News

www.hillsdale.net

   Daily
   Holland   

The Holland Sentinel

www.hollandsentinel.com

   Daily
   Ionia   

Sentinel-Standard

www.sentinel-standard.com

   Daily

 

26


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Sault Ste Marie   

The Evening News

www.sooeveningnews.com

   Daily
   Sturgis   

Sturgis Journal

www.sturgisjournal.com

   Daily
   Coldwater   

Bronson Journal

www.thebronsonjournal.com

   Paid Weekly
   Coldwater    Jonesville Independent    Paid Weekly
   Adrian   

Adrian Access Shopper

www.accessshoppersguide.com

   Shopper
   Allegan   

Flashes Shopping Guide (Allegan/Lakeshore)

www.flashespublishers.com

   Shopper
   Cheboygan    Shopper Fair    Shopper
   Coldwater    The Reporter Extra    Shopper
   Coldwater    Coldwater Shoppers Guide    Shopper
   Hillsdale   

Tip Off Shopping Guide

www.tipoffonline.com

   Shopper
   Holland   

Flashes Shopping Guide (Holland/Zeeland)

www.flashespublishers.com

   Shopper
   Ionia    Sentinel-Standard TMC    Shopper
   Sault Ste Marie    Tri County Buyers Guide    Shopper
   Sturgis    Sturgis Gateway Shopper    Shopper
California    Ridgecrest   

The Daily Independent

www.ridgecrestca.com

www.rocketeer2.com

   Daily
   Yreka   

Siskiyou Daily News

www.siskiyoudaily.com

   Daily
   Gridley   

Gridley Herald

www.gridleyherald.com

   Paid Weekly
   Mt Shasta   

Weed Press

www.mtshastanews.com

   Paid Weekly
   Mt Shasta   

Dunsmuir News

www.mtshastanews.com

   Paid Weekly
   Mt Shasta   

Mt Shasta Herald

www.mtshastanews.com

   Paid Weekly
   Taft   

Midway Driller

www.taftmidwaydriller.com

   Paid Weekly
   Gridley   

Gidley Shopping News

www.gridleyherald.com

   Shopper
   Mt Shasta    Super Saver Advertiser    Shopper
   Ridgecrest    Super Tuesday    Shopper
Minnesota    Crookston   

Crookston Daily Times

www.crookstontimes.com

   Daily
   Cottonwood    Tri-County News    Paid Weekly
   Granite Falls   

Granite Falls Advocate-Tribune

www.granitefallsnews.com

   Paid Weekly
   Montevideo   

Montevideo American News

www.montenews.com

   Paid Weekly
   Redwood Falls   

Redwood Gazette

www.redwoodfallsgazette.com

   Paid Weekly
   Sleepy Eye   

Sleepy Eye Herald Dispatch

www.sleepyeyenews.com

   Paid Weekly

 

27


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   St James   

St James Plaindealer

www.stjamesnews.com

   Paid Weekly
   Wabasso    The Wabasso Standard    Paid Weekly
   Halstad    The Valley Journal    Free Weekly
   Crookston    Crookston Valley Shopper    Shopper
   Halstad    The Shopper    Shopper
   Montevideo   

The Star Advisor

www.montenews.com

   Shopper
   Redwood Falls    Redwood Falls Livewire    Shopper
   Sleepy Eye    Brown County Reminder    Shopper
   St James    Town and Country Shopper    Shopper
Arkansas    Arkadelphia   

Daily Siftings Herald

www.siftingsherald.com

   Daily
   Hope   

Hope Star

www.hopestar.com

   Daily
   Stuttgart   

Stuttgart Daily Leader

www.stuttgartdailyleader.com

   Daily
   Gurdon   

Gurdon Times

www.thegurdontimes.com

   Paid Weekly
   Heber Springs   

The Sun Times

www.thesuntimes.com

   Paid Weekly
   Helena   

The Daily World

www.helena-arkansas.com

   Paid Weekly
   Hope   

Nevada County Picayune

www.picayune-times.com

   Paid Weekly
   Newport   

Newport Independent

www.newportindependent.com

   Paid Weekly
   White Hall   

The White Hall Journal

www.whitehalljournal.com

   Paid Weekly
   Arkadelphia   

Arkadelphia Extra

www.siftingsherald.com

   Free Weekly
   Helena   

Daily World TMC

www.helena-arkansas.com

   Free Weekly
   Hope   

Star Extra

www.hopestar.com

   Free Weekly
   Stuttgart   

The Xtra

www.stuttgartdailyleader.com

   Free Weekly
   White Hall    The Arsenel Sentinel    Free Weekly
New York    Corning   

The Leader

www.the-leader.com

   Daily
   Hornell   

Evening Tribune

www.eveningtribune.com

   Daily
   Wellsville   

Wellsville Daily Reporter

www.wellsvilledaily.com

   Daily
   Dansville   

Genesee Country Express

www.dansvilleonline.com

   Paid Weekly
   Penn Yan   

The Chronicle-Express

www.chronicle-express.com

   Paid Weekly
   Saugerties   

Saugerties Post Star

www.poststarnews.com

   Paid Weekly

 

28


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Bath   

Steuben Courier-Advocate

www.steubencourier.com

   Free Weekly
   Corning    Corning Pennysaver    Shopper
   Hornell    Pennysaver Plus    Shopper
   Horseheads    The Shopper    Shopper
   Liberty    Catskill Shopper    Shopper
   Penn Yan    Chronicle Ad-Visor    Shopper
   Saugerties    Saugerties Pennysaver    Shopper
   Saugerties    Mountain Pennysaver    Shopper
Louisiana    Bastrop   

The Bastrop Daily Enterprise

www.bastropenterprise.com

   Daily
   DeRidder   

Beauregard Daily News

www.beauregarddailynews.net

   Paid Weekly
   Donaldsonville   

The Donaldsonville Chief

www.donaldsonvillechief.com

   Paid Weekly
   Gonzales   

Gonzales Weekly Citizen

www.weeklycitizen.com

   Paid Weekly
   Leesville   

Leesville Daily Leader

www.leesvilledailyleader.com

   Paid Weekly
   Plaquemine   

Post South

www.postsouth.com

   Paid Weekly
   Sulphur   

Southwest Daily News

www.sulphurdailynews.com

   Paid Weekly
   Sulphur    Vinton News    Paid Weekly
   Sterlington    North Quachita Weekly    Free Weekly
   Gonzales   

The Marketeer

www.weeklycitizen.com

   Shopper
   Gonzales   

Nickel Ads

www.weeklycitizen.com

   Shopper
   Plaquemine   

West Bank Shopper

www.postsouth.com

   Shopper
   Sulphur    Calcasieu Shopper    Shopper
Pennsylvania    Honesdale   

The Wayne Independent

www.wayneindependent.com

   Daily
   Waynesboro   

The Record Herald

www.therecordherald.com

   Daily
   Carbondale   

The Villager

www.moscowvillager.com

   Paid Weekly
   Carbondale   

Carbondale News

www.thecarbondalenews.com

   Paid Weekly
   Greencastle   

The Echo Pilot

www.echo-pilot.com

   Paid Weekly
   Hawley   

News Eagle

www.neagle.com

   Paid Weekly
   Hawley    The Pike Pennysaver    Shopper
   Honesdale    The Independent Extra    Shopper
West Virginia    Keyser   

Mineral Daily News Tribune

www.newstribune.info

   Daily
   Ripley   

The Jackson Herald

www.jacksonnewspapers.com

   Paid Weekly

 

29


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Ripley   

The Jackson Star News

www.jacksonnewspapers.com

   Paid Weekly
   Keyser    Today’s Shopper    Shopper
   Ravenswood   

Star Herald Weekender

www.jacksonnewspapers.com

   Shopper
Colorado    LaJunta   

LaJunta Tribune Democrat

www.lajuntatribunedemocrat.com

   Daily
   LaJunta   

Ag Journal

www.agjournalonline.com

   Paid Weekly
   LaJunta   

Fowler Tribune

www.fowlertribune.com

   Paid Weekly
   Las Pimas   

Bent County Democrat

www.bcdemocratonline.com

   Paid Weekly
Nebraska    Nebraska City   

Nebraska City News Press

www.ncnewspress.com

   Paid Weekly
   Syracuse   

Syracuse Journal Democrat

www.journaldemocrat.com

   Paid Weekly
   Nebraska City    Penny Press 1    Shopper
Oklahoma    Ardmore   

The Daily Ardmoreite

www.ardmoreite.com

   Daily
   Shawnee   

The Shawnee News-Star

www.news-star.com

   Daily
   Ardmore    Entertainment Spotlight    Shopper
North Dakota    Devils Lake   

Devils Lake Daily Journal

www.devilslakejournal.com

   Daily
   Devils Lake    The Country Peddler    Shopper
Tennessee    Oak Ridge   

The Oak Ridger

www.oakridger.com

   Daily
Iowa    Hamburg   

Hamburg Reporter

www.hamburgreporter.com

   Paid Weekly

 

30


Table of Contents

 

Metro Newspaper Group

 

State

  

City

  

Masthead

  

Circulation Type

Massachusetts    Brockton   

The Enterprise

www.enterprisenews.com

   Daily
   Fall River   

The Herald News

www.heraldnews.com

   Daily
   Framingham   

The Metrowest Daily News

www.metrowestdailynews.com

   Daily
   Milford   

The Milford Daily News

www.milforddailynews.com

   Daily
   Quincy   

Patriot Ledger

www.patriotledger.com

   Daily
   Taunton   

Taunton Daily Gazette

www.tauntongazette.com

   Daily
   Abington   

Abington Mariner

www.wickedlocal.com/abington

   Paid Weekly
   Acton/Roxborough   

The Beacon

www.wickedlocal.com/acton

   Paid Weekly
   Allston   

Allston/Brighton Tab

www.wickedlocal.com/allston

   Paid Weekly
   Arlington   

The Arlington Advocate

www.wickedlocal.com/arlington

   Paid Weekly
   Bedford   

Bedford Minuteman

www.wickedlocal.com/bedford

   Paid Weekly
   Belmont   

Belmont Citizen-Herald

www.wickedlocal.com/belmont

   Paid Weekly
   Beverly   

Beverly Citizen

www.wickedlocal.com/beverly

   Paid Weekly
   Billerica   

Billerica Minuteman

www.wickedlocal.com/billerica

   Paid Weekly
   Boxford   

Tri-Town Transcript

www.wickedlocal.com/boxford

   Paid Weekly
   Braintree   

Braintree Forum

www.wickedlocal.com/braintree

   Paid Weekly
   Brewster   

The Cape Codder

www.wickedlocal.com/capecod

   Paid Weekly
   Burlington   

Burlington Union

www.wickedlocal.com/burlington

   Paid Weekly
   Cambridge   

Cambridge Chronicle & Tab

www.wickedlocal.com/cambridge

   Paid Weekly
   Carver   

Carver Reporter

www.wickedlocal.com/carver

   Paid Weekly
   Chelmsford   

Chelmsford Independent

www.wickedlocal.com/chelmsford

   Paid Weekly
   Cohasset   

Cohasset Mariner

www.wickedlocal.com/cohasset

   Paid Weekly
   Concord   

The Concord Journal

www.wickedlocal.com/concord

   Paid Weekly
   Danvers   

Danvers Herald

www.wickedlocal.com/danvers

   Paid Weekly

 

31


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Dedham   

Dedham Transcript

www.wickedlocal.com/dedham

   Paid Weekly
   Dover   

Dover/Sherborn Press

www.wickedlocal.com/dover

   Paid Weekly
   Easton   

Easton Journal

www.wickedlocal.com/easton

   Paid Weekly
   Framingham   

Westwood Press

www.wickedlocal.com/westwood

   Paid Weekly
   Georgetown   

Georgetown Record

www.wickedlocal.com/georgetown

   Paid Weekly
   Hamilton   

Hamilton-Wenham Chronicle

www.wickedlocal.com/hamilton

   Paid Weekly
   Hanover   

Hanover Mariner

www.wickedlocal.com/hanover

   Paid Weekly
   Hingham   

The Hingham Journal

www.wickedlocal.com/hingham

   Paid Weekly
   Holbrook   

Holbrook Sun

www.wickedlocal.com/holbrook

   Paid Weekly
   Hopkinton   

Hopkinton Crier

www.wickedlocal.com/hopkinton

   Paid Weekly
   Hudson   

Hudson Sun

www.wickedlocal.com/hudson

   Paid Weekly
   Hyannis   

The Register

www.wickedlocal.com/barnstable

   Paid Weekly
   Ipswich   

Ipswich Chronicle

www.wickedlocal.com/ipswich

   Paid Weekly
   Kingston   

Kingston Reporter

www.wickedlocal.com/kingston

   Paid Weekly
   Lexington   

Lexington Minuteman

www.wickedlocal.com/lexington

   Paid Weekly
   Lincoln   

Lincoln Journal

www.wickedlocal.com/lincoln

   Paid Weekly
   Littleton   

Littleton Independent

www.wickedlocal.com/littleton

   Paid Weekly
   Malden   

Malden Observer

www.wickedlocal.com/malden

   Paid Weekly
   Mansfield   

Mansfield News

www.wickedlocal.com/mansfield

   Paid Weekly
   Marblehead   

Marblehead Reporter

www.wickedlocal.com/marblehead

   Paid Weekly
   Marion   

The Sentinel

www.wickedlocal.com/marion

   Paid Weekly
   Marlborough   

Marlborough Enterprise

www.wickedlocal.com/marlborough

   Paid Weekly
   Marshfield   

Marshfield Mariner

www.wickedlocal.com/marshfield

   Paid Weekly
   Maynard/Stow   

The Beacon-Villager

www.wickedlocal.com/maynard

   Paid Weekly
   Medfield   

Medfield Press

www.wickedlocal.com/medfield

   Paid Weekly

 

32


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Medford   

Medford Transcript

www.wickedlocal.com/medford

   Paid Weekly
   Melrose   

Melrose Free Press

www.wickedlocal.com/melrose

   Paid Weekly
   Natick   

Natick Bulletin & Tab

www.wickedlocal.com/natick

   Paid Weekly
   North Andover   

North Andover Citizen

www.wickedlocal.com/northandover

   Paid Weekly
   Northborough/Southborough   

The Northborough/Southborough Villager

www.wickedlocal.com/northborough

   Paid Weekly
   Norwell   

Norwell Mariner

www.wickedlocal.com/norwell

   Paid Weekly
   Norwood   

Norwood Transcript & Bulletin

www.wickedlocal.com/norwood

   Paid Weekly
   Pembroke   

Pembroke Mariner & Express

www.wickedlocal.com/pembroke

   Paid Weekly
   Plymouth   

Old Colony Memorial

www.wickedlocal.com/plymouth

   Paid Weekly
   Provincetown   

The Provincetown Banner

www.wikedlocal.com/provincetown

   Paid Weekly
   Reading   

The Reading Advocate

www.wickedlocal.com/reading

   Paid Weekly
   Rockland   

Rockland Mariner

www.wickedlocal.com/rockland

   Paid Weekly
   Roslindale   

Roslindale Transcript

www.wickedlocal.com/roslindale

   Paid Weekly
   Saugus   

Saugus Advertiser

www.wickedlocal.com/saugus

   Paid Weekly
   Scituate   

Scituate Mariner

www.wickedlocal.com/scituate

   Paid Weekly
   Sharon   

Sharon Advocate

www.wickedlocal.com/sharon

   Paid Weekly
   Shrewsbury   

Shrewsbury Chronicle

www.wickedlocal.com/shrewsbury

   Paid Weekly
   Somerville   

Somerville Journal

www.wickedlocal.com/somerville

   Paid Weekly
   Stoughton   

Stoughton Journal

www.wickedlocal.com/stoughton

   Paid Weekly
   Sudbury   

The Sudbury Town Crier

www.wickedlocal.com/sudbury

   Paid Weekly
   Swampscott   

Swampscott Reporter

www.wickedlocal.com/swampscott

   Paid Weekly
   Tewksbury   

Tewksbury Reporter

www.wickedlocal.com/tewksbury

   Paid Weekly
   Wakefield   

Wakefield Observer

www.wickedlocal.com/wakefield

   Paid Weekly
   Walpole   

The Walpole Times

www.wickedlocal.com/walpole

   Paid Weekly
   Waltham   

Waltham News Tribune

www.wickedlocal.com/waltham

   Paid Weekly

 

33


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Wareham   

Wareham Courier

www.wickedlocal.com/wareham

   Paid Weekly
   Watertown   

Watertown Tab & Press

www.wickedlocal.com/watertown

   Paid Weekly
   Wayland   

The Wayland Town Crier

www.wickedlocal.com/wayland

   Paid Weekly
   Wellesley   

The Wellesley Townsman

www.wickedlocal.com/wellesley

   Paid Weekly
   West Roxbury   

West Roxbury Transcript

www.wickedlocal.com/west-roxbury

   Paid Weekly
   Westborough   

Westborough News

www.wickedlocal.com/westborough

   Paid Weekly
   Westford   

Westford Eagle

www.wickedlocal.com/westford

   Paid Weekly
   Weston   

The Weston Town Crier

www.wickedlocal.com/weston

   Paid Weekly
   Weymouth   

Weymouth News

www.wickedlocal.com/weymouth

   Paid Weekly
   Winchester   

The Winchester Star

www.wickedlocal.com/winchester

   Paid Weekly
   Bellingham   

County Gazette

www.wickedlocal.com/franklin

   Free Weekly
   Boston   

Boston Homes

www.linkbostonhomes.com

   Free Weekly
   Bourne   

Bourne Courier

www.wickedlocal.com/bourne

   Free Weekly
   Bridgewater   

Bridgewater Independent

www.wickedlocal.com/bridgewater

   Free Weekly
   Brookline   

Brookline Tab

www.wickedlocal.com/brookline

   Free Weekly
   Canton   

Canton Journal

www.wickedlocal.com/canton

   Free Weekly
   Danvers    North Shore Sunday    Free Weekly
   Fall River   

OJornal

www.ojournal.com

   Free Weekly
   Falmouth   

Falmouth Bulletin

www.wickedlocal.com/falmouth

   Free Weekly
   Framingham   

Framingham Tab

www.wickedlocal.com/framingham

   Free Weekly
   Gloucester    Cape Ann Beacon    Free Weekly
   Needham   

Needham Times

www.wickedlocal.com/needham

   Free Weekly
   Newburyport   

The Newburyport Current

www.wickedlocal.com/newburyport

   Free Weekly
   Newton   

Newton Tab

www.wickedlocal.com/newton

   Free Weekly
   North Attleborough   

The North Attleborough Free Press

www.wickedlocal.com/northattleborough

   Free Weekly
   Randolph   

Randolph Herald

www.wickedlocal.com/randolph

   Free Weekly

 

34


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Raynham   

Raynham Call

www.wickedlocal.com/raynham

   Free Weekly
   Salem   

Salem Gazette

www.wickedlocal.com/salem

   Free Weekly
   Sandwich    Sandwich Broadsider    Free Weekly
   Stoneham   

Stoneham Sun

www.wickedlocal.com/stoneham

   Free Weekly
   Wilmington   

Wilmington Advocate

www.wickedlocal.com/wilmington

   Free Weekly
   Woburn   

Woburn Advocate

www.wickedlocal.com/woburn

   Free Weekly
   Fall River    South Coast Life    Shopper
   Taunton    Yellow Jacket    Shopper
   Amesbury    www.wickedlocal.com/amesbury    On-line Only
   Ashland    www.wickedlocal.com/ashland    On-line Only
   Avon    www.wickedlocal.com/avon    On-line Only
   Bellingham    www.wickedlocal.com/bellingham    On-line Only
   Berkley    www.wickedlocal.com/berkley    On-line Only
   Bolton    www.wickedlocal.com/bolton    On-line Only
   Boxborough    www.wickedlocal.com/boxborough    On-line Only
   Brewster    www.wickedlocal.com/brewster    On-line Only
   Brockton    www.wickedlocal.com/brockton    On-line Only
   Chatham    www.wickedlocal.com/chatham    On-line Only
   Clinton    www.wickedlocal.com/clinton    On-line Only
   Dennis    www.wickedlocal.com/dennis    On-line Only
   Dighton    www.wickedlocal.com/dighton    On-line Only
   Duxbury    www.wickedlocal.com/duxbury    On-line Only
   East Bridgewater    www.wickedlocal.com/bridgewatereast    On-line Only
   Eastham    www.wickedlocal.com/eastham    On-line Only
   Essex    www.wickedlocal.com/essex    On-line Only
   Fall River    www.wickedlocal.com/fall-river    On-line Only
   Foxborough    www.wickedlocal.com/foxborough    On-line Only
   Gloucester    www.wickedlocal.com/gloucester    On-line Only
   Halifax    www.wickedlocal.com/halifax    On-line Only
   Hanson    www.wickedlocal.com/hanson    On-line Only
   Harvard    www.wickedlocal.com/harvard    On-line Only
   Harwich    www.wickedlocal.com/harwich    On-line Only
   Holliston    www.wickedlocal.com/holliston    On-line Only
   Hopedale    www.wickedlocal.com/hopedale    On-line Only
   Hull    www.wickedlocal.com/hull    On-line Only
   Lakeville    www.wickedlocal.com/lakeville    On-line Only
   Lancaster    www.wickedlocal.com/lancaster    On-line Only
   Manchester    www.wickedlocal.com/manchester    On-line Only
   Mashpee    www.wickedlocal.com/mashpee    On-line Only
   Mattapoisett    www.wickedlocal.com/mattapoisett    On-line Only
   Medway    www.wickedlocal.com/medway    On-line Only
   Mendon    www.wickedlocal.com/mendon    On-line Only
   Middleborough    www.wickedlocal.com/middleborough    On-line Only
   Middleton    www.wickedlocal.com/middleton    On-line Only
   Milford    www.wickedlocal.com/milford    On-line Only
   Millis    www.wickedlocal.com/millis    On-line Only

 

35


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Milton    www.wickedlocal.com/milton    On-line Only
   Nantucket    www.wickedlocal.com/nantucket    On-line Only
   Norfolk    www.wickedlocal.com/norfolk    On-line Only
   North Boston    www.wickedlocal.com/northofboston    On-line Only
   Norton    www.wickedlocal.com/norton    On-line Only
   Orleans    www.wickedlocal.com/orleans    On-line Only
   Plainville    www.wickedlocal.com/plainville    On-line Only
   Plympton    www.wickedlocal.com/plympton    On-line Only
   Quincy    www.wickedlocal.com/quincy    On-line Only
   Rehoboth    www.wickedlocal.com/rehoboth    On-line Only
   Rochester    www.wickedlocal.com/rochester    On-line Only
   Rockport    www.wickedlocal.com/rockport    On-line Only
   Sandwich    www.wickedlocal.com/sandwich    On-line Only
   Sherborn    www.wickedlocal.com/sherborn    On-line Only
   Somerset    www.wickedlocal.com/somerset    On-line Only
   Southborough    www.wickedlocal.com/southborough    On-line Only
   Stow    www.wickedlocal.com/stow    On-line Only
   Swansea    www.wickedlocal.com/swansea    On-line Only
   Taunton    www.wickedlocal.com/taunton    On-line Only
   Topsfield    www.wickedlocal.com/topsfield    On-line Only
   Truro    www.wickedlocal.com/truro    On-line Only
   Upton    www.wickedlocal.com/upton    On-line Only
   Wellfleet    www.wickedlocal.com/wellfleet    On-line Only
   Wenham    www.wickedlocal.com/wenham    On-line Only
   West Bridgewater    www.wickedlocal.com/bridgewaterwest    On-line Only
   West Port    www.wickedlocal.com/westport    On-line Only
   Whitman    www.wickedlocal.com/whitman    On-line Only
   Wrentham    www.wickedlocal.com/wrentham    On-line Only
   Yarmouth    www.wickedlocal.com/yarmouth    On-line Only
New York    Canandaigua   

Daily Messenger

www.mpnnow.com

www.mpnnow.com/commercialprinting

   Daily
   Newark/Palmyra   

Wayne Post

www.waynepost.com

   Paid Weekly
   Brighton/Pittsford   

Brighton-Pittsford Post

www.brightonpittsfordpost.com

   Free Weekly
   Canandaigua    Canandaigua Community Post    Free Weekly
   Fairport   

Fairport-ER Post

www.fairport-erpost.com

   Free Weekly
   Gates/Chili   

Gates-Chili Post

www.gateschilipost.com

   Free Weekly
   Greece   

Greece Post

www.greecepost.com

   Free Weekly
   Henrietta   

Henrietta Post

www.henriettapost.com

   Free Weekly
   Irondequoit   

Irondequoit Post

www.irondequiotpost.com

   Free Weekly
   Penfield   

Penfield Post

www.penfieldpost.com

   Free Weekly
   Victor   

Victor Post

www.victorpost.com

   Free Weekly

 

36


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Webster   

Webster Post

www.websterpost.com

   Free Weekly
   Lyons    Lyons Shopping Guide    Shopper
   Newark    Newark Pennysaver    Shopper
   Sodus    Sodus Pennysaver    Shopper
   Wayne County    Timesaver    Shopper
Delaware    Dover   

Smyrna/Clayton Sun Times

www.scsuntimes.com

   Paid Weekly
   Dover   

The Middletown Transcript

www.middletowntranscript.com

   Paid Weekly
   Dover   

The Sussex Countian

www.sussexcountian.com

   Paid Weekly
   Dover   

Dover Post

www.doverpost.com

   Free Weekly
   Dover   

Community Publication

www.communitypub.com

   Free Weekly
   Dover   

Milford Beacon

www.milfordbeacon.com

   Free Weekly
   Dover   

The Express

www.delmarvaexpress.com

   Shopper

 

37


Table of Contents

 

Large Daily Newspapers

 

State

  

City

  

Masthead

  

Circulation Type

Illinois    Freeport   

The Journal Standard

www.journalstandard.com

   Daily
   Lincoln   

The Courier

www.lincolncourier.com

   Daily
   Peoria   

Journal Star

www.pjstar.com

   Daily
   Rockford   

Rockford Register Star

www.rrstar.com

www.rockfordwoman.com

www.rockfordparent.com

   Daily
   Springfield   

The State Journal-Register

www.sj-r.com

   Daily
   Freeport    The Scene    Shopper
   Lincoln    Logan County Shopper    Shopper
   Peoria    JS Shopper    Shopper
   Peoria    Pekin Extra    Shopper
   Rockford    The Weekly    Shopper
   Springfield    Springfield Advertiser    Shopper
   Springfield    Springfield Shopper    Shopper
New York    Herkimer   

The Evening Telegram

www.herkimertelegram.com

   Daily
   Little Falls   

The Evening Times

www.littlefallstimes.com

   Daily
   Utica   

Utica Observer-Dispatch

www.uticaod.com

   Daily
   Hamilton    Mid-York Weekly    Free Weekly
   Utica    The Pennysaver    Free Weekly
   Herkimer    Your Valley    Shopper
   Rome    Rome Pennysaver    Shopper
Ohio    Canton   

The Repository

www.cantonrep.com

   Daily
   Dover/New Philadelphia   

The Times-Reporter

www.timesreporter.com

   Daily
   Massillon   

The Independent

www.indeonline.com

   Daily
   Green   

The Suburbanite

www.thesuburbanite.com

   Free Weekly
   Canton    The Wrap    Shopper
   Dover/New Philadelphia    TMC-ExTRa    Shopper
   Ohio    www.fridaynightohio.com    On-line Only
Connecticut    Norwich   

The Bulletin

www.norwichbulletin.com

   Daily
   Norwich    Bulletin Deals    Shopper

 

38


Table of Contents

 

Local Media

 

State

  

City

  

Masthead

  

Circulation Type

Massachusetts    Hyannis   

Cape Cod Times

www.CapeCodOnline.com

   Daily
   New Bedford   

The Standard-Times

www.southcoasttoday.com

   Daily
   Hyannis   

Barnstable Patriot

www.barnstablepatriot.com

   Paid Weekly
   Middleboro   

Middleboro Gazette

www.southcoasttoday.com

   Paid Weekly
   Nantucket   

Nantucket Inquirer & Mirror

www.ack.net

www.discovernantucket.com

   Paid Weekly
   New Bedford   

Advocate

www.southcoasttoday.com

   Paid Weekly
   New Bedford   

Chronicle

www.southcoasttoday.com

   Paid Weekly
   New Bedford   

Spectator

www.southcoasttoday.com

   Paid Weekly
   Fall River   

Fall River Spirit

www.southcoasttoday.com

   Free Weekly
   Hyannis    DollarSaver/TMC    Shopper
   Middleboro   

Middleboro Gazette

www.southcoasttoday.com

   Shopper
   New Bedford    SouthCoast MarketPlace/TMC    Shopper
New Hampshire    Portsmouth   

Portsmouth Herald

www.seacoastonline.com

   Daily
   Exeter   

Exeter News-Letter

www.seacoastonline.com

   Paid Weekly
   Hampton   

Hampton Union

www.seacoastonline.com

   Paid Weekly
   Portsmouth   

Seacoast Sunday

www.seacoastonline.com

   Paid Weekly
   Hampton   

Beachcomber

www.seacoastonline.com

   Free Weekly
New York    Middletown   

Times Herald-Record

www.recordonline.com

   Daily
   Middletown   

The Gazette

www.hudsonvalley.com

   Free Weekly
   Middletown   

Pointer View

www.pointerview.com

   Free Weekly
   Middletown    Extra/TMC    Shopper
Oregon    Medford   

Ashland Daily Tidings

www.dailytidings.com

   Daily
   Medford   

Mail Tribune

www.mailtribune.com

   Daily
   Medford    A la Carte/TMC    Shopper
   Medford   

Nickel

www.medfordnickel.com

   Shopper
California    Stockton   

The Stockton Record

www.recordnet.com

   Daily

 

39


Table of Contents

State

  

City

  

Masthead

  

Circulation Type

   Stockton    VIDA    Free Weekly
   Stockton   

The Valley Marketplace/TMC

www.valleymarketplace.com

   Shopper
Pennsylvania    Stroudsburg   

Pocono Record

www.poconorecord.com

   Daily
   Stroudsburg    Pike & Monroe Life    Free Weekly
   Stroudsburg    Plus/TMC    Shopper
Maine    Kennebunk   

York County Coast Star

www.seacoastonline.com

   Paid Weekly
   York   

York Weekly

www.seacoastonline.com

   Paid Weekly

 

40


Table of Contents
Item 1A. Risk Factors

You should carefully consider the following risks and other information in this Annual Report 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, like the economic downturn recently experienced, 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. Continuing or deepening softness 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, rising oil prices, wavering consumer confidence, unemployment, declines in stock markets, contraction of credit availability, declines in real estate values, 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 two geographic regions of the United States.

Our Company primarily generates revenue in two geographic regions: the Northeast and the Midwest. During the year ended December 29, 2013, approximately 36% of our total revenues (and those of our Predecessor) were generated in two states in the Northeast: Massachusetts and New York. During the same period, approximately 34% of our total revenues were generated in two states in the Midwest: Illinois and Ohio. 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 two regions in particular could significantly affect our consolidated operations and financial results.

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 December 29, 2013, GateHouse’s outstanding indebtedness included the First Lien Credit Facility (as defined below) consisting of term loans in the aggregate principal amount of $75 million and a revolving credit

 

41


Table of Contents

facility in an aggregate principal amount of up to $40 million (of which $25 million was funded on November 26, 2013) and a Second Lien Credit Facility (as defined below) consisting of a term loan in the aggregate principal amount of $50 million. Additionally, Local Media Parent entered into the Local Media Credit Facility, which consists of a $33 million senior secured term loan, which was funded on September 3, 2013, and a senior secured asset-based revolving credit facility in an aggregate principal amount of up to $10 million, whose full availability was activated on October 25, 2013. This 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.

The Local Media Credit Facility and GateHouse Credit Facilities contain covenants that restrict our operations and may inhibit our ability to grow our business, increase revenues and pay dividends to our stockholders.

The Local Media Credit Facility and GateHouse Credit Facilities contain 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 Local Media Credit Facility and GateHouse Credit Facilities, as applicable (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 Local Media Credit Facility and GateHouse Credit Facilities generally restrict our ability to, among other things:

 

   

incur or guarantee additional debt;

 

   

make certain investments or acquisitions;

 

   

transfer or sell assets;

 

   

make distributions on common stock;

 

   

create or incur liens; and

 

   

enter into transactions with affiliates.

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 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 could also significantly limit our

 

42


Table of Contents

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, pay dividends 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 or 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 pay a substantial portion of our free cash flow as a dividend to our stockholders, subject to satisfactory financial performance and approval by our Board of Directors. 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 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. 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.

Our Predecessor suspended the payments of dividends commencing with the second quarter of 2008. We own substantially all of our Predecessor’s assets, and our Predecessor experienced revenue and cash flow declines in the past. In addition, 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.

As a holding company, we are also dependent on our subsidiaries being able to pay dividends to us. 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, our ability to pay dividends will be substantially affected by the ability of our subsidiaries to provide cash to us. 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. We may not be able to pay dividends in accordance with our announced intent or at all.

 

43


Table of Contents

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 have increased 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 Predecessor experienced declines in its credit ratings, and filed a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code, which could adversely affect our ability to obtain new financing to fund our operations and strategic initiatives or to refinance our existing debt at attractive rates.

During 2008, GateHouse’s credit rating was downgraded to below investment grade by both Standard & Poor’s and Moody’s Investors Service. GateHouse’s credit rating was further downgraded in 2009 and 2010. Furthermore, on September 27, 2013, GateHouse filed a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code (and emerged from Chapter 11 protection on November 26, 2013). These downgrades and events may negatively affect our cost of financing and subject us to more restrictive covenants than those that might otherwise apply. As a result, our financing options may be limited. Any future downgrades in our credit ratings could further increase our borrowing costs, subject us to more onerous terms and reduce or eliminate our borrowing flexibility in the future. Such limitations on our financing options may adversely affect our ability to refinance existing debt and incur new debt to fund our operations and strategic initiatives.

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.

The basic raw material for our publications is newsprint. We generally maintain only a 45 to 55-day inventory of newsprint, although our participation in a newsprint-buying consortium has helped ensure adequate supply. 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 for 2013 was approximately $643 per metric ton. Recent and future consolidation of major newsprint suppliers may adversely affect price competition among suppliers. 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.

Our Predecessor experienced declines in advertising revenue, and further declines, which could adversely affect our results of operations and financial condition, may occur.

Our Predecessor experienced declines in advertising revenue over the past few years, due primarily to the economic recession and advertisers’ shift from print to digital media. Advertising revenue decreased by $26.2 million, or 7.4%, in the year ended December 30, 2012, as compared to the year ended January 1, 2012. Advertising revenue decreased by $29.6 million, or 9.0%, in the year ended December 29, 2013, as compared to the year ended December 30, 2012 for total company excluding Local Media (“GateHouse Standalone”). 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. 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.

 

44


Table of Contents

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. 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 a decline 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.

We have invested in growing our digital business, 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 key partnerships have been entered into to assist with our digital business. We continue to believe that our digital businesses 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 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. If our digital strategy is not as successful as we anticipate, our financial condition, results of operations and ability to pay dividends could be adversely affected.

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.

Accordingly, we may not be able to create sufficient advertiser interest in our digital businesses and to maintain or increase the advertising rates of the inventory on our websites.

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.

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.

 

45


Table of Contents

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 30, 2012, our Predecessor’s circulation revenue decreased by $0.3 million, or 0.2%, as compared to the year ended January 1, 2012. There can be no assurance that our circulation revenue will not decline again in the future. Our Predecessor has been able to maintain its 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 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 a dividend.

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. 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.

Our Predecessor had a history of losses and we may not be able to maintain profitable operations in the future.

Our Predecessor experienced losses from continuing operations of approximately $27.5 million and $21.0 million in 2012 and 2011, respectively. Our results of operations in the future will depend on many factors, including our ability to execute our business strategy and realize efficiencies through our clustering strategy. Our failure to achieve profitability in the future could adversely affect the trading price of our Common Stock and our ability to pay dividends and raise additional capital for growth.

The value of our intangible assets may become impaired, depending upon future operating results.

As a result of the Restructuring, which was considered a triggering event for the non-amortizable intangibles, our Predecessor performed a valuation analysis to determine if an impairment existed as of September 29, 2013. The fair values of our Predecessor’s reporting units for goodwill and newspaper mastheads were estimated using the expected present value of future cash flows, recent industry transaction multiples and using estimates, judgments and assumptions that their management believed were appropriate in the circumstances and were consistent with the terms of the Plan. The estimates and judgments used in the assessment included multiples for revenue and EBITDA, the weighted average cost of capital and the terminal growth rate. Given the Restructuring, our Predecessor determined that discounted cash flows provided the best estimate of the fair value of its reporting units. The estimated fair value of the Large Daily reporting unit exceeded its carrying value and Step 2 of the analysis was not necessary. The Small Community reporting unit failed the Step 1 goodwill impairment analysis. Our Predecessor performed Step 2 of the analysis using consistent assumptions, as discussed above, and determined an impairment was not present for this reporting unit. The estimated fair value of each reporting unit’s mastheads exceeded their carrying values, using consistent assumptions as discussed above. The masthead fair value was estimated using the relief from royalty valuation method. For further information on goodwill and intangible assets, see Note 8 “Goodwill and Intangible Assets” to the consolidated financial statements.

 

46


Table of Contents

Due to reductions in our Predecessor’s operating projections during the third quarter in conjunction with the Restructuring, an impairment charge of $68.6 million was recognized for advertiser relationships within the Predecessor’s Metro and Small Community reporting units, an impairment charge of $19.1 million was recognized for subscriber relationships within the Company’s Metro and Small Community reporting units, an impairment charge of $2.1 million was recognized for customer relationships within the Company’s Metro reporting unit and an impairment charge of $1.8 million was recognized for trade names and publication rights within the Directories business unit. Refer to Note 19 “Fair Value Measurement” for additional information on the impairment charge. For further information on our Predecessor’s impairment charge and its effect on the Company financial statements, see Note 19 “Fair Value Measurement” to the consolidated financial statements.

The newspaper industry and more specifically, our Predecessor have experienced declining same store revenue and profitability in the past. 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 additional impairment charges in the future.

At December 29, 2013 the carrying value of our goodwill is $125.9 million, mastheads is $45.9 million, and amortizable intangible assets is $99.6 million.

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 Predecessor’s 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.

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 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, our Predecessor experienced significant increases in the cost of employee medical benefits because of economic factors beyond its 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.

 

47


Table of Contents

Our pension and postretirement plans were underfunded by $10.2 million at December 29, 2013. Our pension plan invests in a variety of equity and debt securities, many of which were affected by the disruptions in the credit and capital markets in 2009 and 2010. Future volatility and disruption in the stock markets could cause further 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 our Predecessor 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.

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 December 29, 2013, we employed approximately 5,576 employees, of whom approximately 784 (or approximately 14.1%) were represented by 27 unions. 90% of the unionized employees are in three states: Massachusetts, Illinois and Ohio and represent 24%, 41% and 25% of all our union employees, respectively. Most of our unionized employees work under collective bargaining agreements that expire in 2014.

 

48


Table of Contents

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.

Our potential inability to successfully execute cost control measures could result in greater than expected total operating costs.

We and our Predecessor 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 may not realize all of the anticipated benefits of the synergies between GateHouse and Local Media or potential future acquisitions, which could adversely affect our business, financial condition and results of operations.

Our ability to realize the anticipated benefits of the synergies between GateHouse and Local Media or potential future acquisitions of assets or companies will depend, in part, on our ability to scale-up to appropriately integrate the businesses of Local Media and GateHouse and other such acquired companies with our business. The process of acquiring assets or companies may disrupt our business and may not result in the full benefits expected. Additionally, we may not be successful in identifying acquisition opportunities, assessing the value, strengths and weaknesses of these opportunities and 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. The risks associated with integrating the operations of GateHouse and Local Media and potential future acquisitions include, among others:

 

   

uncoordinated market functions;

 

   

unanticipated issues in integrating the operations and personnel of the acquired businesses;

 

   

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;

 

   

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 GateHouse and Local Media 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

 

49


Table of Contents

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.

Our financial results were affected by the adoption of fresh start reporting and may not reflect historical trends.

Pursuant to the Plan, we acquired substantially all of the assets of our Predecessor. The Restructuring resulted in us becoming a new reporting entity and adopting fresh start accounting. As required by fresh start accounting, our Predecessor’s assets and liabilities were adjusted to measured value, and we recognized certain assets and liabilities not previously recognized in our Predecessor’s financial statements. Accordingly, our financial condition and results of operations from and after the Effective Date are not comparable to the financial condition and results of operations reflected in our Predecessor’s historical consolidated financial statements, including those presented herein.

We cannot be certain that the Restructuring will not adversely affect our operations going forward.

We cannot provide assurance that the Restructuring will not adversely affect our future operations. Our suppliers and vendors could stop providing supplies or services to us or provide such supplies or services only on unfavorable terms such as “cash on delivery,” “cash on order” or other terms that could have an adverse impact on our short-term cash flows. In addition, the Restructuring may adversely affect our ability to retain existing readers and advertisers, attract new readers and advertisers and maintain contracts that are critical to our 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.

We are externally managed by our Manager. Our Manager does not have any prior experience directly managing our Company or media-related assets. We are completely 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 is 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.

There may be conflicts of interest in our relationship with our Manager, including with respect to corporate opportunities.

We have entered into a Management Agreement with an affiliate of Fortress pursuant to which our management team will not be required to exclusively dedicate their services to us and will provide services for other entities affiliated with our Manager.

Our amended and restated certificate of incorporation and amended and restated bylaws provide that if Fortress or any of their officers, directors or employees acquire knowledge of a potential transaction that could 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 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

 

50


Table of Contents

director or officer of the Company 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 that 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 have unintended consequences for us. We have agreed to pay our Manager a management fee that is not tied to our performance. The management fee may not sufficiently incentivize our Manager to generate attractive risk-adjusted returns for us. In addition, our Manager may be eligible to receive incentive compensation, which may incentivize our Manager to invest in high risk investments. 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 common equity offerings, our Manager may be incentivized to cause us to issue additional Common Stock, which could be dilutive to existing stockholders. See “Description of Our Capital Stock—Corporate Opportunity.”

We may compete with affiliates of our Manager, which could adversely affect our and their results of operations.

Affiliates of our Manager are not restricted in any manner from competing with us. Affiliates of our Manager may decide to invest in the same types of assets that we invest in. See “—Risks Related to Our Manager—There may be conflicts of interest in our relationship with our Manager, including with respect to corporate opportunities.”

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. The Management Agreement may only be terminated annually upon (i) the reasonable affirmative vote of a majority of at least two-thirds of our independent directors, or by a vote of the holders of a simple majority of the outstanding shares of our Common Stock, that there has been unsatisfactory performance by our Manager that is materially detrimental to us or (ii) a determination by a simple majority of our independent directors that the management fee payable to our Manager is not fair, subject to our Manager’s right to prevent such a termination by accepting a mutually acceptable reduction of fees. Our Manager will be provided 60 days’ prior notice of any termination and will be paid a termination fee equal to the amount of the management fee earned by the Manager during the twelve month period 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

 

51


Table of Contents

price determined as if our assets were sold for their fair market value (as determined by an appraisal, taking into account, among other things, the expected future value of the underlying investments) or otherwise we may continue to pay the incentive 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. In addition, our independent directors may not vigorously enforce the provisions of our Management Agreement against our Manager. For example, our independent directors may refrain from terminating our Manager because doing so could result in the loss of key personnel. Furthermore, we are dependent on our Manager and may not find a suitable replacement if our Manager terminates the Management Agreement.

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 will not assume any responsibility other than to render the services called for thereunder in good faith and will not be responsible for any action of our Board 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, 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 business 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 business 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 business opportunity and will rely on information provided by the target of the business opportunity. In addition, if business 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 business decisions based upon a less thorough diligence process than would otherwise be the case. Accordingly, business opportunities 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.

Risks Related to our Common Stock

There can be no assurance that the market for our stock will provide you with adequate liquidity.

A “when-issued” trading market for New Media’s Common Stock on the New York Stock Exchange began on February 4, 2014 and “regular-way” trading of New Media’s Common Stock began on February 14, 2014. There can be no assurance that an active trading market for our common stock will develop or be sustained in the future, and 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;

 

52


Table of Contents
   

our quarterly or annual earnings, or those of other comparable companies;

 

   

actual or anticipated fluctuations in our operating results;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

announcements by us or our competitors of significant investments, acquisitions or dispositions;

 

   

the failure of securities analysts to cover our Common Stock after the Distribution;

 

   

changes in earnings estimates by securities analysts or our ability to meet those estimates;

 

   

the operating and stock price performance of other comparable companies;

 

   

overall market fluctuations; and

 

   

general economic conditions.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our Common Stock.

Sales or issuances of shares of our common stock could adversely affect the market price of our Common Stock.

Sales of substantial amounts of shares of our Common Stock in the public market, or the perception that such sales might occur, could adversely affect the market price of our Common Stock. Stockholders that received shares of our Common Stock in the spin-off may sell our Common Stock because our business profile or market capitalization as an independent company does not fit their investment objectives or because our Common Stock is not included in certain indices after the Distribution. The issuance of our common stock in connection with property, portfolio or business acquisitions or the settlement of awards that may be granted under our Incentive Plan or otherwise could also have an adverse effect on the market price of our Common Stock.

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.

As a public company, we are required to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. If we are not able to maintain or document effective internal control over financial reporting, our independent registered public accounting firm will not be able to certify as to the effectiveness of our internal control over financial reporting. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis, or may cause us to restate previously issued financial information, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial reporting. This could materially adversely affect us by, for example, leading to a decline in our share price and impairing our ability to raise capital, if and when desirable.

The percentage ownership of existing shareholders in New Media may be diluted in the future.

We may issue equity in order to raise capital or in connection with future acquisitions and strategic investments, which would dilute investors’ percentage ownership in New Media. In addition, your percentage ownership may be diluted if we issue equity instruments such as debt and equity financing.

 

53


Table of Contents

The percentage ownership of existing shareholders in New Media may also be diluted in the future as result of the issuance of ordinary shares in New Media upon the exercise of 10-year warrants, collectively representing the right to acquire, in the aggregate, equity equal to 5% of the issued and outstanding shares of New Media (the “New Media Warrants”). The New Media Warrants collectively represent the right to acquire New Media Common Stock, which in the aggregate are equal to 5% of New Media Common Stock as of the Effective Date (calculated prior to dilution from shares of New Media Common Stock issued pursuant to Newcastle’s contribution of Local Media Parent and assignment of related stock purchase agreement to New Media (the “Local Media Contribution”)) at a strike price of $46.35 calculated based on a total equity value of New Media prior to the Local Media Contribution of $1.2 billion as of the Effective Date. As a result, New Media Common Stock may be subject to dilution upon the exercise of such New Media Warrants.

Furthermore, the percentage ownership in New Media may be diluted in the future because of equity awards that we expect will be granted to our Manager pursuant to our Management Agreement. Upon the successful completion of an offering of shares of our Common Stock or any shares of preferred stock, we will grant our Manager options equal to 10% of the number of shares being sold in the offering (excluding the shares issued to Newcastle in the Local Media Contribution), with an exercise price equal to the offering price per share paid by the public or other ultimate purchaser. The board of directors of New Media approved a Nonqualified Stock Option and Incentive Award Plan (the “Incentive Plan”) which provides for the grant of equity and equity-based awards, including restricted stock, stock options, stock appreciation rights, performance awards, restricted stock units, tandem awards and other equity-based and non-equity based awards, in each case to our Manager, to the directors, officers, employees, service providers, consultants and advisors of our Manager who perform services for us, and to our directors, officers, employees, service providers, consultants and advisors. Any future grant would cause further dilution. We have initially reserved 15 million shares of our Common Stock for issuance under the Incentive Plan; on the first day of each fiscal year beginning during the ten-year term of the Incentive Plan and in and after calendar year 2015, that number will be increased by a number of shares of our Common Stock equal to 10% of the number of shares of our Common Stock newly issued by us during the immediately preceding fiscal year (and, in the case of fiscal year 2014, after the effective date of the Incentive Plan).

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and of Delaware law may prevent or delay an acquisition of our company, which could decrease the trading price of our Common Stock.

Our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirers to negotiate with our Board rather than to attempt a hostile takeover. These provisions provide for:

 

   

a classified board of directors with staggered three-year terms;

 

   

amendment of provisions in our amended and restated certificate of incorporation and amended and restated bylaws regarding the election of directors, classes of directors, the term of office of directors, the filling of director vacancies and the resignation and removal of directors only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon (provided, however, that for so long as Newcastle and certain other affiliates of Fortress and permitted transferees (collectively, the “Fortress Stockholders”) beneficially own at least 20% of our issued and outstanding Common Stock, such provisions may be amended with the affirmative vote of a majority of the voting interest of stockholders entitled to vote or by a majority of the entire Board of Directors);

 

   

amendment of provisions in our amended and restated certificate of incorporation regarding corporate opportunity only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon;

 

   

removal of directors only for cause and only with the affirmative vote of at least 80% of the voting interest of stockholders entitled to vote in the election of directors (provided, however, that for so long

 

54


Table of Contents
 

as the Fortress Stockholders beneficially own at least 20% of our issued and outstanding Common Stock, directors may be removed with or without cause with the affirmative vote of a majority of the voting interest of stockholders entitled to vote);

 

   

our Board to determine the powers, preferences and rights of our preferred stock and to issue such preferred stock without stockholder approval;

 

   

provisions in our amended and restated certificate of incorporation and amended and restated bylaws prevent stockholders from calling special meetings of our stockholders (provided, however, that for so long as the Fortress Stockholders beneficially own at least 20% of our issued and outstanding Common Stock, Fortress Stockholders may call special meetings of our stockholders);

 

   

advance notice requirements applicable to stockholders for director nominations and actions to be taken at annual meetings;

 

   

a prohibition, in our amended and restated certificate of incorporation, stating that no holder of shares of our Common Stock will have cumulative voting rights in the election of directors, which means that the holders of majority of the issued and outstanding shares of our Common Stock can elect all the directors standing for election; and

 

   

action by our stockholders outside a meeting, in our amended and restated certificate of incorporation and our amended and restated bylaws, only by unanimous written consent (provided, however, that for so long as the Fortress Stockholders beneficially own at least 20% of our issued and outstanding Common Stock, our stockholders may act without a meeting by written consent of a majority of the voting interest of stockholders entitled to vote).

Public stockholders who might desire to participate in these types of transactions may not have an opportunity to do so, even if the transaction is considered favorable to stockholders. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or a change in our management and Board and, as a result, may adversely affect the market price of our Common Stock and your ability to realize any potential change of control premium.

 

Item 1B. Unresolved Staff Comments

Not applicable.

 

Item 2. Properties

We own and operate 37 print facilities across the United States. GateHouse’s print facilities range in size from approximately 500 to 82,000 square feet (combined printing and office space). GateHouse’s executive offices are located in Fairport, New York, where we lease approximately 15,000 square feet under a lease terminating in June 2014. Local Media’s executive offices are in a 47,000 square feet owned building in Middletown, New York.

We maintain our properties in good condition and believe that our current facilities are adequate to meet the present needs of our business. We do not believe any individual property is material to our financial condition or results of operations.

 

Item 3. Legal Proceedings

We become involved from time to time in claims and lawsuits incidental to the ordinary course of our business, including such matters as libel, invasion of privacy, intellectual property infringement, wrongful termination actions and complaints alleging discrimination. In addition, we are involved from time to time in governmental and administrative proceedings concerning employment, labor, environmental and other claims.

 

55


Table of Contents

Insurance coverage mitigates potential loss for certain of these matters. Historically, such claims and proceedings have not had a material adverse effect upon our consolidated results of operations or financial condition. While we are unable to predict the ultimate outcome of any currently outstanding legal actions, we believe that it is not a likely possibility that the disposition of these matters would have a material adverse effect upon our consolidated results of operations, financial condition or cash flow.

On September 4, 2013, our Predecessor, GateHouse, and its affiliated debtors (the “Debtors”) announced that our Predecessor the Administrative Agent (as defined below), Newcastle and other lenders (the “Participating Lenders”) under the 2007 Credit Facility entered into the Restructuring Support Agreement, effective September 3, 2013 (the “Support Agreement”), in which the parties agreed to support, subject to the terms and conditions of the Support Agreement, the Restructuring pursuant to the consummation of the Plan. The Support Agreement relates to the Restructuring of our Predecessor’s obligations under its Outstanding Debt and our Predecessor’s equity pursuant to the Plan.

Pursuant to the Restructuring, Newcastle made the Cash-Out Offer. The holders of the Outstanding Debt had the option of receiving, in satisfaction of their Outstanding Debt, their pro rata share of the (i) Cash-Out Offer and/or (ii) New Media Common Stock and the net proceeds, if any, of the GateHouse Credit Facilities. On the Effective Date, November 26, 2013, Newcastle received its pro rata share of New Media Common Stock and the net proceeds of the GateHouse Credit Facilities for all Outstanding Debt it holds, including Outstanding Debt purchased in the Cash-Out Offer. All pensions, trade and all other unsecured claims will be paid in the ordinary course.

On September 20, 2013, our Predecessor commenced a pre-packaged solicitation of the Plan (the “Solicitation”). On September 27, 2013, our Predecessor filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, case number 13-12503. Under the Support Agreement, which terminated on the Effective Date, each of the Participating Lenders agreed to (a) support and take any reasonable action in furtherance of the Restructuring, (b) timely vote their Outstanding Debt to accept the Plan and not change or withdraw such vote, (c) support approval of the Disclosure Statement (defined below) and confirmation of the Plan, as well as certain relief to be requested by Debtors from the Bankruptcy Court, (d) refrain from taking any action inconsistent with the confirmation or consummation of the Plan, and (e) not propose, support, solicit or participate in the formulation of any plan other than the Plan. Holders of Outstanding Debt sufficient to meet the requisite threshold of 67% in amount and majority in number (calculated without including any insider) necessary for acceptance of the Plan under the Bankruptcy Code voted to accept the Plan in the Solicitation. 100% of the holders of the Outstanding Debt voted to accept the Plan under the terms of the Support Agreement. As a result, Debtors commenced Chapter 11 cases and sought approval of the disclosure statement for the Plan (the “Disclosure Statement”) and confirmation of the Plan therein. The Plan was confirmed by the Bankruptcy Court on November 6, 2013 and our Predecessor effected the transactions contemplated by the Plan to emerge from bankruptcy protection on November 26, 2013. See additional discussion in Note 2 to our consolidated financial statements, “Voluntary Reorganization Under Chapter 11.”

 

Item 4. Mine Safety Disclosures

Not applicable.

 

56


Table of Contents

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

New Media Common Stock trades on the New York Stock Exchange (“NYSE”) under the trading symbol “NEWM” since the spin-off from Newcastle. A “when-issued” trading market for New Media’s Common Stock on the NYSE began on February 4, 2014 and “regular-way” trading of New Media Common Stock began on February 14, 2014. Prior to February 4, 2014, there was no public market for New Media Common Stock. Set forth in the table below for the periods presented are the high and low sale prices for New Media Common Stock as reported on the NYSE.

 

     HIGH      LOW  

Fiscal Year Ending December 28, 2014:

     

First Quarter (Since February 4, 2014 through March 4, 2014)

   $ 15.25       $ 10.35   

From the most recent available Company information, on March 4, 2014 there were approximately 56 holders of record.

Dividends

New Media currently intends to distribute a substantial portion of free cash flow as a dividend, subject to satisfactory financial performance and Board approval. 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 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. The availability of free cash flow for the payment of dividends is also subject to restrictions in both the GateHouse Credit Facilities and Local Media Credit Facility.

Unregistered Sales of Equity Securities

In connection with the restructuring of GateHouse, on the Effective Date New Media issued 30,000,000 shares New Media Common Stock pursuant the Plan in accordance with Section 1145(a)(1) of the U.S. Bankruptcy Code (the “Bankruptcy Code”).

Additionally, on the Effective Date, New Media issued 1,362,479 10-year warrants at a strike price of $46.35 per share to the former equity holders of GateHouse pursuant to the Plan, in accordance with Section 1145(a)(2) of the Bankruptcy Code.

 

57


Table of Contents
Item 6. Selected Financial Data

The following table presents our selected historical financial data as of and for each of the years in the five year period ended December 29, 2013. The information in this table should be read in conjunction with the information under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business” and our historical consolidated financial statements and the related notes thereto included elsewhere in this report.

 

    Successor Company          Predecessor Company  
    Two Months Ended
December 29,

2013
         Ten Months Ended
November 6,

2013
    Year Ended
December 30,
2012(2)
    Year Ended
January 1,
2012
    Year Ended
December 31,
2010
    Year Ended
December 31,
2009
 
(in thousands, except per share data)                                         

Statement of Operations Data:

               

Revenues:

               

Advertising

  $ 63,340          $ 265,078      $ 330,881      $ 357,134      $ 385,579      $ 398,927   

Circulation

    29,525            118,810        131,576        131,879        133,192        138,233   

Commercial printing and other

    10,366            29,402        26,097        25,657        25,967        30,960   
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    103,231            413,290        488,554        514,670        544,738        568,120   

Operating costs and expenses:

               

Operating costs

    56,614            232,066        268,222        281,884        296,974        324,263   

Selling, general and administrative

    28,749            136,832        145,020        146,295        154,516        159,197   

Depreciation and amortization

    6,588            33,409        39,888        42,426        45,080        54,237   

Integration and reorganization costs

    1,758            1,577        4,393        5,884        2,324        1,857   

Impairment of long-lived assets

    —             91,599        —         1,733        430        193,041   

Loss (gain) on sale of assets

    27            1,163        1,238        455        1,551        (418

Goodwill and mastheads impairment

    —             —         —         385        —         273,914   
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    9,495            (83,356     29,793        35,608        43,863        (437,971

Interest expense, amortization of deferred financing costs, gain on early extinguishment of debt, (gain) loss on derivative instruments, reorganization items, net, and other

    1,798            (871,399     57,463        58,361        69,520        72,502   
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    7,697            788,043        (27,670     (22,753     (25,657     (510,473

Income tax expense (benefit)

    491            (197     (207     (1,803     (155     342   
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    7,206            788,240        (27,463     (20,950     (25,502     (510,815

Loss from discontinued operations, net of income taxes

    —             (1,034     (2,340     (699     (542     (19,287
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    7,206            787,206        (29,803     (21,649     (26,044     (530,102

Net loss attributable to noncontrolling interest

    —             208        —         —         —         —    
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to New Media

  $ 7,206          $ 787,414      $ (29,803   $ (21,649   $ (26,044   $ (530,102
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income (loss) from continuing operations attributable to New Media per share

  $ 0.24          $ 13.58      $ (0.47   $ (0.36   $ (0.46   $ (8.93

Diluted income (loss) from continuing operations attributable to New Media per share

  $ 0.24          $ 13.58      $ (0.47   $ (0.36   $ (0.46   $ (8.93

Basic net income (loss) attributable to New Media common stockholders per share

  $ 0.24          $ 13.56      $ (0.51   $ (0.37   $ (0.45   $ (9.24

Diluted net income (loss) attributable to New Media common stockholders per share

  $ 0.24          $ 13.56      $ (0.51   $ (0.37   $ (0.45   $ (9.24

Other Data:

               

Adjusted EBITDA (1)

  $ 16,096          $ 988,265      $ 69,766      $ 80,547      $ 89,511      $ 82,571   

Cash interest paid

  $ 925          $ 43,606      $ 55,976      $ 58,225      $ 59,317      $ 67,950   

 

(1)

We define Adjusted EBITDA as net income (loss) from continuing operations before income tax expense (benefit), interest/financing expense, depreciation and amortization and non-cash impairments. Adjusted EBITDA is not a measurement of financial performance under

 

58


Table of Contents
  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 in 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 an indicator for management to determine if adjustments to current spending decisions are needed.

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 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 our cost structure or expenses of the organization. Adjusted EBITDA is one of the metrics used by senior management and the board of directors to review the financial performance of our business on a monthly basis.

Not all companies calculate Adjusted EBITDA using the same methods; therefore, the Adjusted EBITDA figures set forth herein may not be comparable to Adjusted EBITDA reported by other companies. A substantial portion of our Adjusted EBITDA must be dedicated to the payment of interest on our outstanding indebtedness and to service other commitments, thereby reducing the funds available to us for other purposes. Accordingly, Adjusted EBITDA does not represent an amount of funds that is available for management’s discretionary use. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this report.

(2)

The year ended December 30, 2012 included a 53rd week of operations for approximately 60% of the business.

The table below shows the reconciliation of income (loss) from continuing operations to Adjusted EBITDA for the periods presented:

 

    Successor Company          Predecessor Company  
    Two Months Ended
December 29,

2013
         Ten Months Ended
November 6,

2013
    Year Ended
December 30,
2012(3)
    Year Ended
January 1,
2012
    Year Ended
December 31,
2010
    Year Ended
December 31,
2009
 
(in thousands)                                         

Income (loss) from continuing operations

  $ 7,206          $ 788,240      $ (27,463   $ (20,950   $ (25,502   $ (510,815

Income tax expense (benefit)

    491            (197     (207     (1,803     (155     342   

Loss (gain) on derivative instruments (1)

    —             14        (1,635     (913     8,277        12,672   

Gain on early extinguishment of debt (2)

    —             —         —         —         —         (7,538

Amortization of deferred financing costs

    171            842        1,255        1,360        1,360        1,360   

Write-off of financing costs

    —             —         —         —         —         743   

Interest expense

    1,640            74,358        57,928        58,309        60,021        64,615   

Impairment of long-lived assets

    —             91,599        —         1,733        430        193,041   

Depreciation and amortization

    6,588            33,409        39,888        42,426        45,080        54,237   

Goodwill and mastheads impairment

    —             —         —         385       —         273,914   
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA from continuing operations

  $ 16,096 (a)        $ 988,265 (b)    $ 69,766 (c)    $ 80,547 (d)    $ 89,511 (e)    $ 82,571 (f) 
 

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Adjusted EBITDA for the two months ended December 29, 2013 included net expenses of $4,828, which are one time in nature or non-cash compensation. Included in these net expenses of $4,828 are non-cash compensation and other expenses of $3,043, integration and reorganization costs of $1,758 and a $27 loss on the sale of assets.
(b) Adjusted EBITDA for the ten months ended November 6, 2013 included net income of $(930,229), which are one time in nature or non-cash compensation. Included in these net expenses of $(930,229) are non-cash compensation and other expenses of $(932,969), integration and reorganization costs of $1,577 and a $1,163 loss on the sale of assets.

Adjusted EBITDA also does not include $123 of EBITDA generated from our discontinued operations.

 

(c) Adjusted EBITDA for the year ended December 30, 2012 included net expenses of $11,264, which are one time in nature or non-cash compensation. Included in these net expenses of $11,264 are non-cash compensation and other expenses of $5,378, integration and reorganization costs of $4,393 and a $1,238 loss on the sale of assets.

Adjusted EBITDA also does not include $255 of EBITDA generated from our discontinued operations.

 

59


Table of Contents
(d) Adjusted EBITDA for the year ended January 1, 2012 included net expenses of $10,565, which are one time in nature or non-cash compensation. Included in these net expenses of $10,565 are non-cash compensation and other expenses of $4,226, integration and reorganization costs of $5,884 and a $455 loss on the sale of assets.

Adjusted EBITDA also does not include $432 of EBITDA generated from our discontinued operations.

 

(e) Adjusted EBITDA for the year ended December 31, 2010 included net expenses of $8,880, which are one time in nature or non-cash compensation. Included in these net expenses of $8,880 are non-cash compensation and other expenses of $5,005, integration and reorganization costs of $2,324 and a $1,551 loss on the sale of assets.

Adjusted EBITDA also does not include $463 of EBITDA generated from our discontinued operations.

 

(f) Adjusted EBITDA for the year ended December 31, 2009 included net expenses of $10,071, which are one time in nature or non-cash compensation. Included in these net expenses of $10,071 are non-cash compensation and other expenses of $8,632, integration and reorganization costs of $1,857 and a $418 gain on the sale of assets.

Adjusted EBITDA also does not include $(855) of EBITDA generated from our discontinued operations.

 

(1) Non-cash (gain) loss on derivative instruments is related to interest rate swap agreements which are financing related and are excluded from Adjusted EBITDA.
(2) Non-cash write-off of deferred financing costs are similar to interest expense and amortization of financing fees and are excluded from Adjusted EBITDA.
(3)

The year ended December 30, 2012 included a 53rd week of operations for approximately 60% of the business.

 

    As of  
    Successor Company          Predecessor Company  
    December 29,
2013
         December 30,
2012
    January 1,
2012
    December 31,
2010
    December 31,
2009
 
(in thousands)                             

Balance Sheet Data:

           

Total assets

  $ 689,953          $ 469,766      $ 510,802      $ 546,327      $ 591,929   

Total long-term obligations, including current maturities

    187,119            1,177,298        1,185,212        1,197,347        1,222,102   

Stockholders’ equity (deficit)

    395,362            (834,159     (805,632     (792,121     (753,576

 

60


Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and notes to those statements appearing in this report. The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors under the heading “Risk Factors” and elsewhere in this report that could cause our actual future growth, results of operations, performance and business prospects and opportunities to differ materially from those expressed in, or implied by, such forward-looking statements. See “Cautionary Note Regarding Forward-Looking Information” at the beginning of this report.

Comparability of Information

As a result of the restructuring of GateHouse Media, LLC (formerly known as GateHouse Media, Inc.) (“GateHouse” or “Predecessor”) (the “Restructuring”), all GateHouse debt, including derivative liabilities and deferred financing assets, was eliminated on November 6, 2013, the confirmation date (the “Confirmation Date”) of the pre-packaged plan under Chapter 11 of title 11 of the United States Bankruptcy Code (the “Plan”). Fresh start accounting also led to changes in the basis of our assets and liabilities including property, plant and equipment and intangible assets that will impact future depreciation and amortization expense levels. As a result of the adoption of fresh start accounting, New Media’s (“New Media,” “Company,” “us,” or “we”) reorganized company post-emergence financial statements will generally not be comparable with the financial statements of GateHouse prior to emergence, including historical financial information in this Annual Report on Form 10-K.

Overview

New Media a newly listed company that owns, operates and invests in high quality local media assets. 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 size businesses (“SMBs”).

Our portfolio of media assets today spans across 352 markets and 24 states. Our products include 421 community print publications, 350 websites, 333 mobile sites and six yellow page directories. We reach over 12 million people per week and serve over 130,000 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 their 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 into the local consumers leading to growth in subscription income. We also believe our local consumer penetration will lead to 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.

Our business strategy is to be the preeminent provider of local news, information, advertising and digital services in the markets we operate in today. We aim to grow our business organically through what we believe are both our consumer and SMB strategies. We also plan to pursue strategic acquisitions of high quality local media assets at attractive valuation levels. Finally, we intend to periodically distribute a substantial portion of our free cash flow as a dividend to stockholders, subject to satisfactory financial performance and approval by our Board of Directors and dividend restrictions in both the GateHouse Credit Facilities (as defined below) and Local Media Credit Facility (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. The availability of free cash flow for the payment of dividends is also subject to restrictions in both the GateHouse and Local Media Credit Facilities.

 

61


Table of Contents

Our focus on owning and operating dominant local content oriented media properties in small to mid-size markets, we believe, puts us in a position to better execute on our strategy. We believe that being the dominant 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 in-markets presence gives us the opportunity to expand our advertising and lead generation products with local business customers.

Central to our business strategy is our digital marketing services business called Propel Marketing (“Propel”). We launched the business in 2012 and have seen rapid growth since then. We believe Propel and its digital marketing service products will be a key component to our overall organic growth strategy.

The opportunity Propel looks to seize upon is as follows:

There are approximately 27 million SMBs in the U.S. Of these, approximately 26.7 million have 20 employees or less.

Many of the owners and managers of these SMBs do not have the bandwidth, expertise or resource to navigate the fast evolving digital marketing sector, but they increasingly know they have to be present there to stay connected with current and future customers. Propel is designed to offer a complete set of digital marketing services to SMBs that are turn-key with results that are transparent to the business owners. Propel provides four broad categories of services: building businesses a presence, helping businesses to be located by consumers online, engaging with consumers, and growing their customer base.

We believe our local media properties are uniquely positioned to sell these digital marketing services to local business owners. Our strong and trusted local brands, combined with our in-market sales presence give us a distinct advantage to sell these services, which are new and can be complicated to local business owners.

Our core products include:

 

   

85 daily newspapers with total paid circulation of approximately 736,000;

 

   

240 weekly newspapers (published up to three times per week) with total paid circulation of approximately 300,000 and total free circulation of approximately 680,000;

 

   

96 “shoppers” (generally advertising-only publications) with total circulation of approximately 1.9 million;

 

   

350 locally focused websites and 333 mobile sites, which extend our businesses onto the internet and mobile devices with approximately 100 million page views per month;

 

   

six yellow page directories, with a distribution of approximately 432,000, that covers a population of approximately 1.1 million people; and

 

   

Propel digital marketing services.

Our advertising revenue tends to follow a seasonal pattern, with higher advertising revenue in months containing significant events or holidays. Accordingly, our first quarter, followed by our third quarter, historically are our weakest quarters of the year in terms of revenue. 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.

Our Predecessor has experienced on-going declines in 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

 

62


Table of Contents

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 Propel, as well as online, and mobile applications, to support our print publications in order to capture this shift as witnessed by our Predecessor’s digital advertising revenue growth, which doubled between 2009 and 2012.

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 over 50% of our operating 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 and clustering strategy.

The Company’s operating segments (Large Community Newspapers, Small Community Newspapers, Local Media Newspapers and Directories) are aggregated into one reportable business segment.

Recent Developments

Industry

The newspaper industry and our Predecessor have experienced declining same store revenue and profitability over the past several years. As a result, we previously implemented plans to reduce costs and preserve cash flow. We have also invested in potential growth opportunities, primarily in the digital space. We believe the cost reductions and the new digital initiatives, together with the Restructuring described below, 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, continued high unemployment levels, declines in real estate values, 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, even after an economic recovery. 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 individual newspaper mastheads were estimated using the expected present value of future cash flows and recent industry transaction multiples, using estimates, judgments and assumptions, that we believe were 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.

Restructuring

On September 4, 2013, our Predecessor, GateHouse, and its affiliated debtors (the “Debtors”) announced that our Predecessor, the Administrative Agent (as defined below), Newcastle Investment Corp. (“Newcastle”) and other lenders (the “Participating Lenders”) under the Amended and Restated Credit Agreement by and among certain affiliates of our Predecessor, the lenders from time to time party thereto and Cortland Products Corp., as administrative agent (the “Administrative Agent”), dated February 27, 2007 (the “2007 Credit Facility”) entered into the Restructuring Support Agreement, effective September 3, 2013 (the “Support Agreement”), in which the parties agreed to support, subject to the terms and conditions of the Support Agreement, the Restructuring pursuant to the consummation of the Plan. The Support Agreement relates to the Restructuring of our Predecessor’s obligations under the 2007 Credit Facility and certain interest rate swaps secured thereunder (collectively, the “Outstanding Debt”) and our Predecessor’s equity pursuant to the Plan.

 

63


Table of Contents

On September 20, 2013, our Predecessor commenced a pre-packaged solicitation of the Plan (the “Solicitation”). Under the Support Agreement, which terminated on the Effective Date (as defined below), each of the Participating Lenders agreed to (a) support and take any reasonable action in furtherance of the Restructuring, (b) timely vote their Outstanding Debt to accept the Plan and not change or withdraw such vote, (c) support approval of the Disclosure Statement (defined below) and confirmation of the Plan, as well as certain relief to be requested by Debtors from the Bankruptcy Court, (d) refrain from taking any action inconsistent with the confirmation or consummation of the Plan, and (e) not propose, support, solicit or participate in the formulation of any plan other than the Plan. Holders of Outstanding Debt sufficient to meet the requisite threshold of 67% in amount and majority in number (calculated without including any insider) necessary for acceptance of the Plan under the Bankruptcy Code voted to accept the Plan in the Solicitation. 100% of the holders of the Outstanding Debt voted to accept the Plan under the terms of the Support Agreement. As a result, Debtors commenced Chapter 11 cases and sought approval of the disclosure statement for the Plan (the “Disclosure Statement”) and confirmation of the Plan therein. The Plan was confirmed by the Bankruptcy Court on November 6, 2013 and our Predecessor effected the transactions contemplated by the Plan to emerge from bankruptcy protection on November 26, 2013. On the Effective Date (as defined below), Newcastle owned 84.6% of New Media’s total equity.

On September 27, 2013, our Predecessor filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, case number 13-12503. On November 6, 2013 the Bankruptcy Court confirmed the Plan. Our Predecessor effected the transactions contemplated by the Plan and emerged from Chapter 11 protection on November 26, 2013 (the “Effective Date”).

The Plan discharged claims and interests against our Predecessor primarily through the (a) issuance of shares of common stock in a new holding company, New Media (“New Media Common Stock” or our “Common Stock”) and/or payment of cash to holders of claims in connection with the 2007 Credit Facility and related interest rate swaps, (b) reinstatement of certain claims, (c) entry into the Management Agreement (as defined below), (d) issuance of warrants by New Media to former equity holders in our Predecessor and (e) entry into the GateHouse Credit Facilities (as defined below) the net proceeds of which were distributed to holders that elected to receive New Media Common Stock. See Note 2 to the consolidated financial statements, “Voluntary Reorganization Under Chapter 11.”

Pursuant to the Restructuring, Newcastle purchased the Outstanding Debt claims in cash and at 40% of (i) $1,167 million of principal of claims under the 2007 Credit Facility, plus (ii) accrued and unpaid interest at the applicable contract non-default rate with respect thereto, plus (iii) all amounts, excluding any default interest, arising from transactions in connection with interest rate swaps secured under the 2007 Credit Facility (the “Cash-Out Offer”) on the Effective Date. The holders of the Outstanding Debt had the option of receiving, in satisfaction of their Outstanding Debt, their pro rata share of the (i) Cash-Out Offer and/or (ii) New Media Common Stock and the net proceeds, if any, of new debt facilities GateHouse Credit Facilities (as defined below). Newcastle received its pro rata share of New Media Common Stock and the $149 million in net proceeds of the GateHouse Credit Facilities (as defined below) for all Outstanding Debt it holds, including Outstanding Debt purchased in the Cash-Out Offer. All pensions, trade and all other unsecured claims will be paid in the ordinary course.

On the Effective Date, New Media entered into a management agreement with FIG LLC (the Manager) (“Management Agreement”) pursuant to which the Manager will manage the operations of New Media. The annual management fee will be 1.50% of New Media’s gross equity as set forth in the Management Agreement and is eligible to receive incentive compensation.

On August 27, 2013, our Predecessor entered into a management agreement (the “Local Media Management Agreement”) with and among Local Media Group Holdings LLC (“Local Media Parent”) to manage the operations of its direct subsidiary Local Media. The Company has determined that the Local Media Management Agreement results in Local Media being a variable interest entity (“VIE”) and has consolidated Local Media’s financial position and results of operations from September 3, 2013. On September 3, 2013, Local Media Parent

 

64


Table of Contents

completed its acquisition of thirty three publications from News Corp Inc. Local Media was not part of the bankruptcy filing. However, as part of the Plan, Newcastle agreed to contribute 100% of the stock of Local Media Parent to New Media as of the Effective Date. The contribution was made to New Media to assign Newcastle’s rights under the stock purchase agreement to which it acquired Local Media as of the Effective Date. Consideration received by Newcastle was the New Media Common Stock collectively equal to the cost of the acquisition of Local Media by Newcastle (as adjusted pursuant to the Plan) upon emergence from Chapter 11 on the Effective Date. The Company accounted for the consolidation of Local Media under the purchase method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”, as New Media received a controlling financial interest in Local Media as of the Effective Date.

Upon emergence from Chapter 11, New Media adopted fresh start reporting in accordance with ASC Topic 852, “Reorganizations” (“ASC 852”). Under fresh start accounting, a new entity is deemed to have been created on the Effective Date for financial reporting purposes and our Predecessor’s recorded amounts of assets and liabilities will be adjusted to reflect their estimated fair values. As a result of the adoption of fresh start accounting, New Media’s reorganized company post-emergence financial statements will generally not be comparable with the financial statements of our Predecessor prior to emergence, including the historical financial information in this report. See Notes 2 and 3 to the consolidated financial statements, “Voluntary Reorganization Under Chapter 11” and “Fresh Start Accounting.”

Spin-off from Newcastle

On February 13, 2014, Newcastle completed the spin-off of the Company. Each share of Newcastle common stock outstanding as of 5:00 PM, Eastern Time, on February 6, 2014, the Record Date, entitled the holder thereof to receive 0.07219481485 shares of New Media Common Stock (the “Distribution” or the “spin-off”). 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, the fees included in the management agreement with the Manager became effective.

Critical Accounting Policy Disclosure

The preparation of financial statements in conformity with 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. Due to the bankruptcy filing, we have applied debtor-in-possession accounting and fresh start accounting as described in ASC 852 for the applicable periods of 2013. The following accounting policies require significant estimates and judgments.

Goodwill and Long-Lived Assets

The application of the purchase method of accounting for business combinations and fresh start accounting related to reorganization require the use of significant estimates and assumptions in the determination of the fair value of assets and liabilities in order to properly allocate the purchase price consideration or enterprise value between assets that are depreciated and amortized from goodwill. Our estimates of the fair values of assets and liabilities are based upon assumptions believed to be reasonable, and when appropriate, include assistance from independent third-party valuation firms. Refer to Note 3, “Fresh Start Accounting, and Note 4, “Local Media Acquisition.”

As a result of the application of fresh start accounting we have a significant amount of goodwill. Goodwill at December 29, 2013 was $125.9 million. We assess the potential impairment of goodwill and intangible assets with indefinite lives on an annual basis as of the end or our second fiscal quarter in accordance with the provisions of Financial Accounting Standards Board (“FASB”) ASC Topic 350 “Intangibles—Goodwill and Other.” We perform our impairment analysis on each of our reporting units. The reporting units have discrete financial information and are regularly reviewed by management. The fair value of the applicable reporting unit

 

65


Table of Contents

is compared to its carrying value. Calculating the fair value of a reporting unit requires us to make significant estimates and assumptions. We estimate fair value by applying third-party market value indicators to projected cash flows and/or projected earnings before interest, taxes, depreciation, and amortization. In applying this methodology, we rely on a number of factors, including current operating results and cash flows, expected future operating results and cash flows, future business plans, and market data. If the carrying value of the reporting unit exceeds the estimate of fair value, we calculate the impairment as the excess of the carrying value of goodwill over its implied fair value.

We account for long-lived assets in accordance with the provisions of ASC Topic 360, “Property, Plant and Equipment” (“ASC 360”). We assess the recoverability of our long-lived assets, including property, plant and equipment and definite lived intangible assets, whenever events or changes in business circumstances indicate the carrying amount of the assets, or related group of assets, may not be fully recoverable. Factors leading to impairment include significant under-performance relative to historical or projected results, significant changes in the manner of use of the acquired assets or the strategy for our overall business and significant negative industry or economic trends. The assessment of recoverability is based on management’s estimates by comparing the sum of the estimated undiscounted cash flows generated by the underlying asset, or other appropriate grouping of assets, to its carrying value to determine whether an impairment existed at its lowest level of identifiable cash flows. If the carrying amount of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment is recognized to the extent the carrying value of such asset exceeds its fair value.

The fair values of our reporting units for goodwill impairment testing and individual newspaper mastheads are estimated using the expected present value of future cash flows, recent industry transaction multiples and using estimates, judgments and assumptions that management believes are appropriate in the circumstances.

The sum of the fair values of the reporting units are reconciled to our current market capitalization (based upon the stock market price) plus an estimated control premium.

Significant judgment is required in determining the fair value of our goodwill and long-lived assets to measure impairment, including the determination of multiples of revenue and Adjusted EBITDA and future earnings projections. The estimates and judgments that most significantly affect the future cash flow estimates are assumptions related to revenue, and in particular, potential changes in future advertising (including the impact of economic trends and the speed of conversion of advertising and readership to online products from traditional print products); trends in newsprint prices; and other operating expense items.

We performed annual impairment testing of goodwill and indefinite lived intangible assets during the second quarter of 2013, 2012 and 2011. Additionally, we performed impairment testing of goodwill and indefinite lived intangibles during the first quarter of 2012 and the fourth quarter of 2011 due to operational management changes. As a result, impairment charges related to goodwill were recorded in fiscal 2012 and 2011, see additional information in Note 8 to the consolidated financial statements “Goodwill and Intangible Assets.”

Newspaper mastheads (newspaper titles and website domain names) are not subject to amortization and are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair value of each group of mastheads with their carrying amount. We used a relief from royalty approach which utilizes a discounted cash flow model to determine the fair value of each newspaper masthead. Our judgments and estimates of future operating results in determining the reporting unit fair values are consistently applied in determining the fair value of mastheads. We performed impairment tests on newspaper mastheads as of June 30, 2013, July 1, 2012, April 1, 2012, January 1, 2012 and June 26, 2011. See Note 8 to the consolidated financial statements, “Goodwill and Intangible Assets,” for a discussion of the impairment charges taken.

Intangible assets subject to amortization (primarily advertiser and subscriber lists) are tested for recoverability whenever events or change in circumstances indicate that their carrying amounts may not be

 

66


Table of Contents

recoverable. The carrying amount of each asset group is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of such asset group. We performed impairment tests on long lived assets (including intangible assets subject to amortization) as of September 29, 2013, June 30, 2013, July 1, 2012 and June 26, 2011. Due to reductions in the Company’s operating projections during the third quarter of 2013 in conjunction with the bankruptcy process, an impairment charge was recognized for intangible assets subject to amortization. See Note 8 to the consolidated financial statements, “Goodwill and Intangible Assets,” for a discussion of the impairment charges taken.

The newspaper industry and our Predecessor 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, we may be required to record additional impairment charges in the future.

Derivative Instruments

The bankruptcy filing was a termination event under our Predecessor’s interest rate swap agreements and all derivative discussions below relate to our Predecessor. We record all of our derivative instruments on our balance sheet at fair value pursuant to ASC Topic 815, “Derivatives and Hedging” (“ASC 815”) and ASC Topic 820 “Fair Value Measurements and Disclosures.” Fair value is based on counterparty quotations adjusted for our credit related risk. Our derivative instruments are measured using significant unobservable inputs and they represent all liabilities measured at fair value. To the extent a derivative qualifies as a cash flow hedge under ASC 815, unrealized changes in the fair value of the derivative are recognized in accumulated other comprehensive income. However, any ineffective portion of a derivative’s change in fair value is recognized immediately in earnings. Fair values of derivatives are subject to significant variability based on market conditions, such as future levels of interest rates. This variability could result in a significant increase or decrease in our accumulated other comprehensive income and/or earnings but will generally have no effect on cash flows, provided the derivative is carried through to full term. We also assess the capabilities of our counterparties to perform under the terms of the contracts. A change in the assessment could have an impact on the accounting and economics of our derivatives.

Revenue Recognition

Advertising revenue is recognized upon publication of the advertisement. Circulation revenue from subscribers is billed to customers at the beginning of the subscription period and is recognized on a straight-line basis over the term of the related subscription. Circulation revenue from single copy sales is recognized based on date of publication, net of provisions for related returns. Revenue for commercial printing is recognized upon delivery. Directory revenue is recognized on a straight-line basis over the period in which the corresponding directory is distributed.

Income Taxes

We account for income taxes under the provisions of ASC Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using tax rates in effect for the year in which the differences are expected to affect taxable income. The assessment of the realizability of deferred tax assets involves a high degree of judgment and complexity. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are expected to be realized. When we determine that it is more likely than not that we will be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would be made and reflected either in income or as an adjustment to goodwill. This determination will be made by considering various factors, including our expected future results, that in our judgment will make it more likely than not that these deferred tax assets will be realized.

 

67


Table of Contents

FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109” and now codified as ASC 740. ASC 740 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on a tax return. Under ASC 740, the financial statements will reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without considering time values.

Pension and Postretirement Liabilities

ASC Topic 715, “Compensation—Retirement Benefits” requires recognition of an asset or liability in the consolidated balance sheet reflecting the funded status of pension and other postretirement benefit plans such as retiree health and life, with current-year changes in the funded status recognized in the statement of stockholders’ equity.

The determination of pension plan obligations and expense is based on a number of actuarial assumptions. Two critical assumptions are the expected long-term rate of return on plan assets and the discount rate applied to pension plan obligations. For other postretirement benefit plans, which provide for certain health care and life insurance benefits for qualifying retired employees and which are not funded, critical assumptions in determining other postretirement benefit obligations and expense are the discount rate and the assumed health care cost-trend rates.

Our only pension plan has assets valued at $20.3 million and the plan’s benefit obligation is $24.3 million resulting in the plan being 83% funded.

To determine the expected long-term rate of return on pension plan’s assets, we consider the current and expected asset allocations, as well as historical and expected returns on various categories of plan assets, input from the actuaries and investment consultants, and long-term inflation assumptions. We used an assumption of 8.0% for its expected return on pension plan assets for 2013. If we were to reduce its rate of return by 50 basis points then the expense for 2013 would have increased approximately $0.1 million.

The assumed health care cost-trend rate also affects other postretirement benefit liabilities and expense. A 100 basis point increase in the health care cost trend rate would result in an increase of approximately $0.4 million in the December 29, 2013 postretirement benefit obligation and a 100 basis point decrease in the health care cost trend rate would result in a decrease of approximately $0.3 million in the December 29, 2013 postretirement benefit obligation.

Self-Insurance Liability Accruals

We maintain self-insured medical and workers’ compensation programs. We purchase stop loss coverage from third parties which limits our exposure to large claims. We record a liability for healthcare and workers’ compensation costs during the period in which they occur as well as an estimate of incurred but not reported claims.

 

68


Table of Contents

Results of Operations

The following table summarizes our historical results of operations for New Media, otherwise known as the Successor Company for the two months ended December 29, 2013 and the Predecessor Company for the ten months ended November 6, 2013 and for the years ended December 30, 2012 and January 1, 2012. We believe the comparison of combined results for the year ended December 29, 2013 versus the years ended December 30, 2012 and January 1, 2012, respectively, provides the best analysis of our results of operations, while the adoption of fresh start accounting presents the results of operations of a new reporting entity, the only consolidated statement of operations items impacted by the bankruptcy reorganization under Chapter 11 are depreciation and amortization expense, interest expense, and reorganization items. Those effects of fresh start accounting are discussed in more detail in the respective sections below.

 

    Combined     Successor Company          Predecessor Company  
    Year Ended
December 29,
2013
    Two Months Ended
December 29,

2013
         Ten Months Ended
November 6,

2013
    Year Ended
December 30,
2012(2)
    Year Ended
January 1,
2012
 
(in thousands)                                   

Revenues:

             

Advertising

  $ 328,418      $ 63,340          $ 265,078      $ 330,881      $ 357,134   

Circulation

    148,335        29,525            118,810        131,576        131,879   

Commercial printing and other

    39,768        10,366            29,402        26,097        25,657   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Total revenues

    516,521        103,231            413,290        488,554        514,670   

Operating costs and expenses:

             

Operating costs

    288,680        56,614            232,066        268,222        281,884   

Selling, general and administrative

    165,581        28,749            136,832        145,020        146,295   

Depreciation and amortization

    39,997        6,588            33,409        39,888        42,426   

Integration and reorganization costs

    3,335        1,758            1,577        4,393        5,884   

Impairment of long-lived assets

    91,599        —             91,599        —         1,733   

Loss on sale of assets

    1,190        27            1,163        1,238        455   

Goodwill and mastheads impairment

    —         —             —         —         385   
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Operating income (loss)

    (73,861     9,495            (83,356     29,793        35,608   

Interest expense

    75,998        1,640            74,358        57,928        58,309   

Amortization of deferred financing costs

    1,013        171            842        1,255        1,360   

Loss (gain) on derivative instruments

    14        —             14        (1,635     (913

Other (income) expense

    991        (13         1,004        (85     (395

Reorganization items, net

    (947,617     —             (947,617     —         —    
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    795,740        7,697            788,043        (27,670     (22,753

Income tax expense (benefit)

    294        491            (197     (207     (1,803
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

  $ 795,446      $ 7,206          $ 788,240      $ (27,463   $ (20,950
 

 

 

   

 

 

       

 

 

   

 

 

   

 

 

 

Year Ended December 29, 2013 Compared To Year Ended December 30, 2012

Revenue. Total revenue for the year ended December 29, 2013 increased by $28.0 million, or 5.7%, to $516.5 million from $488.5 million for the year ended December 30, 2012. The increase in total revenue was comprised of a $2.5 million, or 0.7%, decrease in advertising revenue which was offset by a $16.8 million, or 12.7%, increase in circulation revenue and a $13.7 million, or 52.4%, increase in commercial printing and other revenue. Advertising revenue includes $27.2 million from Local Media in 2013 while total company excluding Local Media (“GateHouse Standalone”) declines were $29.6 million or 9.0%. Advertising revenue declines were primarily driven by declines on the print side of our business in the local retail and classified categories, which were partially offset by growth in digital advertising. The local retail print declines reflect both secular pressures and a continuing uncertain and economic environment. These secular trends and economic conditions have also led to a decline in our print circulation volumes which have been slightly offset by price increases in certain locations. Our circulation revenue was also impacted by approximately $1.4 million for a net to gross accounting

 

69


Table of Contents

change at two of our larger locations in 2013. The increase in circulation revenue was primarily due to circulation revenue from Local Media of $16.4 million. The increase in commercial printing and other revenue was primarily due to commercial printing and other revenue from growth of our small business marketing services at Propel combined with Local Media commercial print and other revenue of $9.7 million.

Operating Costs. Operating costs for the year ended December 29, 2013 increased by $20.5 million, or 7.6%, to $288.7 million from $268.2 million for the year ended December 30, 2012. The increase in operating costs primarily relates to operating costs from Local Media of $32.0 million and by an increase in GateHouse Standalone outside service expenses of $4.7 million. These increases in operating costs were partially offset by a decrease in GateHouse Standalone compensation expenses, newsprint expenses, professional and consulting fees, supplies, repairs and maintenance, and travel expenses of $6.2 million, $4.5 million, $3.5 million, $0.9 million, $0.4 million, and $0.4 million, respectively. These GateHouse Standalone decreases are the result of permanent cost reductions as we continue to work to consolidate operations and improve the productivity of our labor force.

Selling, General and Administrative. Selling, general and administrative expenses for the year ended December 29, 2013 increased by $20.6 million, or 14.2%, to $165.6 million from $145.0 million for the year ended December 30, 2012. The increase in selling, general and administrative expenses primarily relates to selling, general and administrative expenses from Local Media of $12.9 million and an increase in GateHouse Standalone outside services and professional and consulting fees of $8.5 million and $1.4 million respectively. These increases in selling, general and administrative expenses were partially offset by a decrease in compensation expenses of $2.0 million. The increase in GateHouse Standalone outside services is primarily from legal expenses of $6.5 million related to reorganization costs prior to filing bankruptcy.

Depreciation and Amortization. Depreciation and amortization expense for the year ended December 29, 2013 increased by $0.1 million to $40.0 million from $39.9 million for the year ended December 30, 2012. Depreciation and amortization expense increased due to depreciation expense of Local Media of $3.8 million, which was offset by a reduction in depreciation expense due to the sale and disposal of assets. The application of fresh start accounting did not have a material impact on depreciation and amortization.

Integration and Reorganization Costs. During the year ended December 29, 2013 and December 30, 2012, we recorded integration and reorganization costs of $3.3 million and $4.4 million, respectively, primarily resulting from severance costs related to the continued consolidation of our operations resulting from our ongoing implementation of our plans to reduce costs and preserve cash flow.

Impairment of Long-Lived Assets. During the year ended December 29, 2013 we incurred a charge of $91.6 million related to the impairment on our advertiser relationships, subscriber relationships, customer relationships and other intangible assets due to reductions in our operating projections within our various reporting units. There were no such charges during the year ended December 30, 2012.

Interest Expense. Interest expense for the year ended December 29, 2013 increased by $18.1 million to $76.0 million from $57.9 million for the year ended December 30, 2012, which primarily resulted from the reclassifications out of accumulated other comprehensive income of $26.3 million related to the dedesignation of the hedging relationship related to swap agreements in connection with the bankruptcy filing. The 2013 interest expense was also impacted by there being no interest on the GateHouse debt in November and significantly lower debt balance in December.

Loss (Gain) on Derivative Instruments. During the year ended December 30, 2012, we recorded a net gain on derivative instruments of $1.6 million, which was comprised of reclassifications of accumulated other comprehensive income amortization related to swaps terminated in 2008 that were partially offset by the impact of the ineffectiveness of our remaining swap agreements. The accumulated other comprehensive income reclassification for swaps terminated in 2008 was fully amortized in 2012 and the 2013 loss on derivative instruments relates only to the ineffectiveness of our remaining swaps.

 

70


Table of Contents

Reorganization Items, Net. Costs directly attributable to the bankruptcy filing are reported as reorganization items, net during the predecessor ten month period ending November 6, 2013. Reorganization items, net primarily relates to the gain on extinguishment of debt of $722.8 million and the revaluation of assets of $246.2 million which were partially offset by $11.6 million of third party bankruptcy fees and a $6.8 million credit agreement amendment fee.

Income Tax Expense (Benefit). During the year ended December 29, 2013, we recorded an income tax expense of $0.3 million due to the state tax related to the bankruptcy filing. During the year ended December 30, 2012, we recorded an income tax benefit of $0.2 million due to a reduction in uncertain tax positions which was partially offset by a tax expense due to the elimination of the tax effect related to the expiration of a previously terminated swap that could be fully recognized for tax purposes in the current year.

Net Income (Loss) from Continuing Operations. Net income from continuing operations for the year ended December 29, 2013 was $795.4 million and net loss from continuing operations for the year ended December 30, 2012 was $27.5 million. Our net income from continuing operations increased due to the factors noted above.

Year Ended December 30, 2012 Compared To Year Ended January 1, 2012

Comparisons to the prior year were impacted by two factors around the number of days in the reporting period. First, there was a 53rd week in 2011 for approximately 60% of the business already on a 52 week (5-4-4 quarterly) reporting cycle. Also in 2011, the remaining 40% of the Company changed its reporting cycle from a calendar year to a 52 week reporting cycle in order to be consistent with the rest of the Company. We estimate the 53rd week in 2011 resulted in $4.8 million of revenue and $3.8 million of operating and selling, general and administrative expense. Comparisons below have not been adjusted for this calendar change.

Revenue. Total revenue for the year ended December 30, 2012 decreased by $26.1 million, or 5.1%, to $488.5 million from $514.6 million for the year ended January 1, 2012. The difference between same store revenue and GAAP revenue for the current period is immaterial, therefore, further revenue discussions will be limited to GAAP results. The decrease in total revenue was comprised of a $26.2 million, or 7.4%, decrease in advertising revenue and a $0.3 million, or 0.2%, decrease in circulation revenue which was partially offset by a $0.4 million, or 1.7%, increase in commercial printing and other revenue. Advertising revenue declines were primarily driven by declines on the print side of our business in the local retail and classified categories, which were partially offset by growth in digital advertising. The local retail print declines reflect both secular pressures and an uncertain and weak 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. Our circulation revenue was also impacted by approximately $1.5 million for a net to gross accounting change due to a change from a carrier to a distributor model at one of our largest locations in 2012. The $0.4 million increase in commercial printing and other revenue is primarily the result of the launch of our small business marketing services and the stabilizing of our commercial printing operations during 2012.

Operating Costs. Operating costs for the year ended December 30, 2012 decreased by $13.7 million, or 4.8%, to $268.2 million from $281.9 million for the year ended January 1, 2012. The decrease in operating costs was primarily due to a decrease in compensation expenses, newsprint and ink, delivery and utility expenses of $12.4 million, $6.5 million, $3.3 million and $0.8 million, respectively, which were partially offset by an increase in outside services of $9.1 million. This decrease is the result of permanent cost reductions as we continue to work to consolidate operations and improve the productivity of our labor force.

Selling, General and Administrative. Selling, general and administrative expenses for the year ended December 30, 2012 decreased by $1.3 million, or 0.9%, to $145.0 million from $146.3 million for the year ended January 1, 2012. The decrease in selling, general and administrative expenses was primarily due to a decrease in compensation of $1.6 million. We expect that the majority of these reductions will be permanent in nature.

 

71


Table of Contents

Depreciation and Amortization. Depreciation and amortization expense for the year ended December 30, 2012 decreased by $2.5 million to $39.9 million from $42.4 million for the year ended January 1, 2012. The decrease in depreciation and amortization expense was primarily due to the sale and disposal of assets in 2011 and 2012, which reduced depreciation expense.

Integration and Reorganization Costs. During the years ended December 30, 2012 and January 1, 2012, we recorded integration and reorganization costs of $4.4 million and $5.9 million, respectively, primarily resulting from severance costs related to the consolidation of certain print and other operations.

Impairment of Long-Lived Assets. During the year ended January 1, 2012 we incurred an impairment charge of $1.7 million related to the consolidation of our print operations and property, plant and equipment which were classified as held for sale. There were no such charges during the year ended December 30, 2012.

Goodwill and Mastheads Impairment. During the year ended January 1, 2012, we recorded a $0.4 million impairment on our goodwill due to an operational management change in the fourth quarter of 2011 which transferred a goodwill balance of $0.4 million to a reporting unit that previously did not have a goodwill balance. A similar operational change occurred in the first quarter of 2012 and resulted in a $0.2 million impairment that was subsequently reclassified to discontinued operations.

Interest Expense. Total interest expense for the year ended December 30, 2012 decreased by $0.4 million, or 0.7%, to $57.9 million from $58.3 million for the year ended January 1, 2012. The decrease was due to declines in interest rates and their related impact on the unhedged position or our debt and a slight decrease in our total outstanding debt.

Loss (Gain) on Derivative Instruments. During the years ended December 30, 2012 and January 1, 2012, we recorded a net gain of $1.6 million and $0.9 million, respectively, which was comprised of reclassifications of accumulated other comprehensive income amortization related to swaps terminated in 2008 that were partially offset by the impact of the ineffectiveness of our remaining swap agreements.

Income Tax Expense (Benefit). During the year ended December 30, 2012, we recorded an income tax benefit of $0.2 million due to a reduction in uncertain tax positions which was partially offset by a tax expense due to the elimination of the tax effect related to the expiration of a previously terminated swap that could be fully recognized for tax purposes in the current year. During the year ended January 1, 2012, we recorded an income tax benefit of $1.8 million primarily due to the elimination of the tax effect related to the expiration of a previously terminated swap that could be fully recognized for tax purposes in the current year.

Net Loss from Continuing Operations. Net loss from continuing operations for the year ended December 30, 2012 was $27.5 million. Net loss from continuing operations for the year ended January 1, 2012 was $21.0 million. Our net loss from continuing operations increased due to the factors noted above.

Liquidity and Capital Resources

Our primary cash requirements are for working capital, debt obligations and capital expenditures. We have no material outstanding commitments for capital expenditures. We expect our 2014 capital expenditure to total approximately between $5.5 million and $6.5 million. Our long term debt and debt service obligations were significantly reduced following the Restructuring. For more information on our long term debt and debt service obligations, see Note 11 of consolidated financial statements. Our principal sources of funds have historically been, and are expected to continue to be, cash provided by operating activities.

As a holding company, we have no operations of our own and accordingly we have no independent means of generating revenue, and our internal sources of funds to meet our cash needs, including payment of expenses, are dividends and other permitted payments from our subsidiaries.

 

72


Table of Contents

In the future, we expect to fund our operations through cash provided by operating activities, the incurrence of debt or the issuance of additional equity securities. The Company expects that it will have adequate capital resources and liquidity to meet its 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.

GateHouse Credit Facilities

The Revolving Credit, Term Loan and Security Agreement (the “First Lien Credit Facility”) dated November 26, 2013 by and among GateHouse, GateHouse Media Intermediate Holdco, LLC formerly known as GateHouse Media Intermediate Holdco, Inc. (“GMIH”), certain wholly-owned subsidiaries of GMIH (collectively with GMIH and GateHouse, the “Loan Parties”), PNC Bank, National Association, as the administrative agent, Crystal Financial LLC, as term loan B agent, and each of the lenders party thereto provides for (i) a term loan A in the aggregate principal amount of $25 million, (ii) a term loan B in the aggregate principal amount of $50 million, and (iii) a revolving credit facility in an aggregate principal amount of up to $40 million (of which $25 million was funded on the Effective Date). The Term Loan and Security Agreement (the “Second Lien Credit Facility” and together with the First Lien Credit Facility, the “GateHouse Credit Facilities”) dated November 26, 2013 by and among the Loan Parties, Mutual Quest Fund and each of the lenders party thereto provides for a term loan in an aggregate principal amount of $50 million.

The GateHouse Credit Facilities impose upon GateHouse certain financial and operating covenants, including, among others, requirements that GateHouse satisfy certain financial tests, including a minimum fixed charge coverage ratio of not less than 1.0 to 1.0, a maximum leverage ratio of not greater than 3.25 to 1.0, a minimum EBITDA and a limitation on capital expenditures, and restrictions on GateHouse’s ability to incur additional debt, incur liens and encumbrances, consolidate, amalgamate or merge with any other person, pay dividends, dispose of assets, make certain restricted payments, engage in transactions with affiliates, materially alter the business it conducts and taking certain other corporate actions. As of December 29, 2013, GateHouse was in compliance with all applicable covenants and could draw on the revolving credit facility under the First Lien Credit Facility if it chose to do so.

Refer to “Indebtedness” section below for further discussion of the GateHouse Credit Facilities.

Local Media Credit Facility

Certain of Local Media’s subsidiaries (together, the “Borrowers”) and Local Media entered into a Credit Agreement, dated as of September 3, 2013, with a syndicate of financial institutions with Credit Suisse AG, Cayman Islands Branch, as administrative agent (the “Local Media Credit Facility”). The Local Media Credit Facility provided for: (a) a $33 million term loan facility that matures on September 4, 2018; and (b) a $10 million revolving credit facility (subject to the activation condition that Credit Suisse Loan Funding LLC (“CS”), as lead arranger, assigns the revolving loan commitment to an unaffiliated lender), with a $3 million sub-limit for letters of credit and a $4 million sub-limit for swing loans, that matures on September 4, 2018. On October 25, 2013, CS assigned the revolving loan commitment to Capital One Business Corp and the revolving credit facility was activated.

The Local Media Credit Facility contains financial covenants that require Local Media and the Borrowers to maintain (a) a Leverage Ratio of not more than 2.5 to 1.0 and a Fixed Charge Coverage Ratio (as defined in the

 

73


Table of Contents

Local Media Credit Facility) of at least 2.0 to 1.0, each measured at the end of each fiscal quarter for the four-quarter period then ended. The Local Media Credit Facility contains affirmative and negative covenants applicable to Local Media and the Borrowers customarily found in loan agreements for similar transactions, including, but not limited to, restrictions on their ability to incur indebtedness, create liens on assets, engage in certain lines of business, engage in mergers or consolidations, dispose of assets, make investments or acquisitions, engage in transactions with affiliates, pay dividends or make other restricted payments. The Local Media Credit Facility contains customary events of default, including, but not limited to, defaults based on a failure to pay principal, interest, fees or other obligations, subject to specified grace periods (other than with respect to principal); any material inaccuracy of representation or warranty; breach of covenants; default in other material indebtedness; a Change of Control (as defined in the Local Media Credit Facility); bankruptcy and insolvency events; material judgments; certain ERISA events; and impairment of collateral. As of December 29, 2013, Local Media is in compliance with all of the covenants and obligations under the Local Media Credit Facility. The Local Media Credit Facility was amended on October 17, 2013 and on February 28, 2014. The October 17, 2013 amendment corrected a typographical mistake. The February 28, 2014 amendment provided that among other things, sales of real property collateral and reinvestment of the proceeds from such sales could only be made with the consent of the Administrative Agent, modified the properties included in the real property collateral, and set forth in detail the documentary post-closing requirements with respect to the real property collateral.

Refer to “Indebtedness” section below for further discussion of the Local Media Credit Facility.

Cash Flows

The following table summarizes our historical cash flows.

 

     Successor Company          Predecessor Company  
     Two Months Ended
December 29,

2013
         Ten Months Ended
November 6,

2013
    Year Ended
December 30,
2012
    Year Ended
January 1,
2012
 
(in thousands)                              

Cash provided by (used in) operating activities

   $ 16,160          $ (5,972   $ 23,499      $ 22,439   

Cash used in investing activities

     (1,377         (2,799     (1,044     (731

Cash used in financing activities

     (3,690         (5,038     (7,140     (11,249

Cash Flows from Operating Activities. Net cash provided by operating activities for the two months ended December 29, 2013 was $16.2 million. The net cash provided by operating activities resulted from net income of $7.2 million, depreciation and amortization of $6.6 million, a net increase in cash provided by working capital of $2.2 million, and amortization of deferred financing costs of $0.2 million. The increase in cash provided by working capital primarily resulted from an increase accrued expenses and accounts payable offset by an increase in accounts receivable.

Net cash used in operating activities for the ten months ended November 6, 2013 was $6.0 million. The net cash used in operating activities resulted from non-cash reorganization items, net of $954.6 million and an increase funding of pension and other post-retirement obligations of $1.1 million, partially offset by net income of $787.2 million, an impairment of long-lived assets of $91.6 million, an increase in non-cash interest related to unrealized losses upon dedesignation of cash flow hedges of $26.3 million, depreciation and amortization of $33.5 million, a net increase in cash provided by working capital of $8.0 million, a $2.3 million loss on the sale of assets, and amortization of deferred financing costs of $0.8 million. The increase in cash provided by working capital primarily resulted from an increase in accrued expenses.

Net cash provided by operating activities for the year ended December 30, 2012 was $23.5 million. The net cash provided by operating activities resulted from a depreciation and amortization of $40.6 million, a net increase in cash provided by working capital of $10.3 million, an impairment of long-lived assets of $2.1 million,

 

74


Table of Contents

a $1.3 million loss on the sale of assets, amortization of deferred financing costs of $1.2 million, a goodwill impairment charge of $0.2 million, and non-cash compensation of $0.1 million, partially offset by a net loss of $29.8 million, a gain of $1.6 million on derivative instruments, and an increase funding of pension and other post-retirement obligations of $0.9 million. The increase in cash provided by working capital primarily resulted from a decrease in prepaid expenses related to a newsprint pricing agreement that required a prepayment of $10 million in fiscal 2011. No such prepayment was required in fiscal 2012.

Net cash provided by operating activities for the year ended January 1, 2012 was $22.4 million. The net cash provided by operating activities resulted from a depreciation and amortization of $43.4 million, an impairment of long-lived assets of $2.1 million, amortization of deferred financing costs of $1.4 million, a $0.8 million loss on the sale of assets, non-cash compensation of $0.5 million, a goodwill impairment charge of $0.4 million, partially offset by a net loss of $21.6 million, an increase funding of pension and other post-retirement obligations of $1.9 million, a net decrease in cash provided by working capital of $1.6 million, and a gain of $0.9 million on derivative instruments. The decrease in cash provided by working capital primarily resulted from a decrease in accrued expenses and an increase in prepaid expenses related to a newsprint pricing agreement that allowed for fixed pricing in 2012 below market rates from December 31, 2010 to January 1, 2012 offset by a decrease in accounts receivable and an increase in accounts payable.

Cash Flows from Investing Activities. Net cash used in investing activities for the two months ended December 29, 2013 was $1.4 million. During the two months ended December 29, 2013, we used $1.5 million for capital expenditures, which was offset by 0.1 million received from the sale of publications, other assets and insurance proceeds.

Net cash used in investing activities for the ten months ended November 6, 2013 was $2.8 million. During the ten months ended November 6, 2013, we used $3.6 million for capital expenditures, which was offset by $0.8 million received from the sale of publications, other assets and insurance proceeds.

Net cash used in investing activities for the year ended December 30, 2012 was $1.0 million. During the year ended December 30, 2012, we used $4.6 million for capital expenditures, which was offset by $3.6 million received from the sale of publications, other assets and insurance proceeds.

Net cash used in investing activities for the year ended January 1, 2012 was $0.7 million. During the year ended January 1, 2012, we used $3.3 million for capital expenditures, which was offset by $2.6 million received from the sale of publications, other assets and insurance proceeds.

Cash Flows from Financing Activities. Net cash used in financing activities for the two months ended December 29, 2013 was $3.7 million due to the payment of dividends of $149.0 million and the payment of debt issuance costs of $3.7 million offset by borrowings under the GateHouse Credit Facilities of $149.0 million.

Net cash used in financing activities for the ten months ended November 6, 2013 was $5.0 million due to a repayment under the 2007 Credit Facility of $6.6 million which was offset by additional paid-in capital of $1.6 million related to the VIE Local Media.

Net cash used in financing activities for the year ended December 30, 2012 was $7.1 million due to repayments under the 2007 Credit Facility.

Net cash used in financing activities for the year ended January 1, 2012 was $11.2 million due to a repayment under the 2007 Credit Facility.

Changes in Financial Position

The discussion that follows highlights significant changes in our financial position and working capital from December 29, 2013 to December 30, 2012.

 

75


Table of Contents

Accounts Receivable. Accounts receivable increased $16.7 million from December 30, 2012 to December 29, 2013. This increase was due to $14.3 million of receivables related to the Local Media acquisition during the third quarter of 2013, which was partially offset by the timing of cash collections and lower revenue recognized in 2013 compared to 2012.

Inventory. Inventory increased $1.7 million from December 30, 2012 to December 29, 2013, which primarily relates to the Local Media acquisition during the third quarter of 2013.

Prepaid Expenses. Prepaid expenses increased $2.2 million from December 30, 2012 to December 29, 2013, which primarily relates to the Local Media acquisition during the third quarter of 2013.

Property, Plant, and Equipment. Property, plant, and equipment increased $153.6 million during the period from December 30, 2012 to December 29, 2013, of which $97.5 million relates to fresh start accounting adjustments, $73.7 million relates to the Local Media consolidation in the third quarter of 2013, and $5.2 million that was related to capital expenditures. These increases in property, plant, and equipment were partially offset by $20.7 of depreciation and $2.2 million relates to assets sold, classified as held for sale and discontinued operations.

Goodwill. Goodwill increased $112.2 million from December 30, 2012 to December 29, 2013, of which $111.0 million relates to fresh start accounting adjustments and $1.2 million from the Local Media contribution and consolidation.

Intangible Assets. Intangible assets decreased $73.6 million from December 30, 2012 to December 29, 2013, of which $91.6 million relates to an impairment charge in the third quarter and $19.3 million of amortization, which were offset by an increase of $33.3 million of fresh start accounting adjustments and $4.1 million from the Local Media consolidation in the third quarter of 2013.

Deferred Financing Costs, Net. Deferred financing costs, net increased $6.6 million from December 30, 2012 to December 29, 2013, of which $8.5 million relates to the payment and accrual related to our new debt facilities, which was offset by $1.0 million of amortization of deferred financing costs and the write-off of deferred financing costs of $0.9 million on our former debt.

Current Portion of Long-term Debt. Current portion of long-term debt decreased $2.3 million from December 30, 2012 to December 29, 2013, due to a $6.6 million principal payment as required by the 2007 Credit Facility, as amended, which represented 50% of the Excess Cash Flow related to the fiscal year ended December 30, 2012, which was offset by $3.5 million in borrowings under the GateHouse Credit Facilities and $0.8 million in borrowings under the Local Media Credit Facility.

Accounts Payable. Accounts payable increased $1.6 million from December 30, 2012 to December 29, 2013, of which $1.3 million relates to Local Media consolidation during the third quarter of 2013 and $1.0 million primarily relates to the timing of vendor payments, which was partially offset by $0.7 million from the disposal of a non wholly owned subsidiary in Chicago, Illinois.

Accrued Expenses. Accrued expenses increased $28.7 million from December 30, 2012 to December 29, 2013, which primarily resulted from $16.6 million from the Local Media contribution and consolidation during the third quarter of 2013 and the $14.5 million accrual of professional and legal fees that were not paid as of December 29, 2013.

Accrued Interest. Accrued interest decreased $3.8 million from December 30, 2012 to December 29, 2013, which primarily resulted from the reduction of our outstanding debt balances in connection with the bankruptcy filing.

Long-term Debt. Long-term debt decreased $989.7 million from December 30, 2012 to December 29, 2013, of which $1,167.5 million resulted from the elimination of the 2007 Credit Facility in connection with the bankruptcy filing, which was offset by $145.5 million in borrowings under the GateHouse Credit Facilities and $32.2 million in borrowings under the Local Media Credit Facility.

 

76


Table of Contents

Derivative Instruments. Derivative instrument liability decreased $45.7 million from December 30, 2012 to December 29, 2013, of which $19.3 million was due to changes in the fair value measurement of our interest rate swaps and $26.3 million resulted from the elimination of the derivative instrument liability in connection with the bankruptcy filing.

Pension and Other Postretirement Benefit Obligations. Pension and other postretirement benefit obligations decreased $5.3 million from December 30, 2012 to December 29, 2013, of which $3.3 million relates to fresh start accounting adjustments and a $2.0 million change to the Company’s pension and postretirement plans throughout the year.

Additional Paid-In Capital. Additional paid-in capital decreased $443.9 million from December 30, 2012 to December 29, 2013, of which $831.4 million relates to fresh start accounting adjustments and $149.0 million payment of dividends. These decreases were offset by additional paid-in capital of $536.4 million related to the issuance of new common stock, warrants, and the contribution of Local Media in connection with emergence from Chapter 11 of the Bankruptcy.

Accumulated Other Comprehensive Income (Loss). Accumulated other comprehensive income increased $53.1 million from December 30, 2012 to December 29, 2013, of which $26.3 million resulted from a release of accumulated other comprehensive loss related to the termination of the derivative agreements, $19.3 resulted from the change in fair value of the interest rate swaps, $6.9 million relates to the elimination of the Predecessor accumulated other comprehensive loss as part of the fresh start accounting, and a $0.5 million change to the Company’s pension and postretirement plans.

Retained Earnings (Accumulated Deficit). Accumulated deficit decreased $1,618.1 million from December 30, 2012 to December 29, 2013, due to plan effects and fresh start accounting adjustments of $1,792.7 million that reset accumulated deficit to zero, and Successor net income of $7.2 million which was partially offset by Predecessor net loss of $181.8 million during the period from December 31, 2012 through November 6, 2013.

Noncontrolling Interest. Noncontrolling interest decreased $2.2 million from December 30, 2012 to December 29, 2013 due to $2.2 million related to the disposal of a non wholly owned subsidiary.

Indebtedness

As part of the Restructuring, our Predecessor’s previous long-term debt was extinguished pursuant to the Support Agreement on the Effective Date of the Plan.

GateHouse Credit Facilities

The First Lien Credit Facility provides for (i) a term loan A in the aggregate principal amount of $25 million, a term loan B in the aggregate principal amount of $50 million, and a revolving credit facility in an aggregate principal amount of up to $40 million (of which $25 million was funded on the Effective Date). Borrowings under the First Lien Credit Facility bear interest at a rate per annum equal to (i) with respect to the revolving credit facility, the applicable Revolving Interest Rate (as defined the First Lien Credit Facility), (ii) with respect to the term loan A, the Term Loan A Rate (as defined in the First Lien Credit Facility), and (iii) with respect to the term loan B, the Term Loan B Rate (as defined in the First Lien Credit Facility). Amounts outstanding under the term loans and revolving credit facility will be fully due and payable on November 26, 2018.

The Second Lien Credit Facility provides for a term loan in an aggregate principal amount of $50 million. Borrowings under the Second Lien Credit Facility bear interest, at the Loan Parties’ option, equal to (i) the LIBOR Rate (as defined in the Second Lien Credit Facility) plus 11.00% or (ii) the Alternate Base Rate (as defined in the Second Lien Credit Facility) plus 10.00%. The outstanding principal will be fully due and payable on the maturity date of November 26, 2019.

 

77


Table of Contents

No principal payments are due on the revolving credit facility until the maturity date. Principal amounts outstanding under Term Loan A and Term Loan B of the First Lien Credit Facility will be payable in quarterly installments as follows: (I) four consecutive quarterly installments each in the amount of $0.9 million, commencing on January 1, 2014, (II) four consecutive quarterly installments each in the amount of $1.3 million, commencing on January 1, 2015, and (III) twelve consecutive quarterly installments each in the amount $2.0 million, commencing on January 1, 2016, followed by a final payment of all unpaid principal, accrued and unpaid interest and all unpaid fees and expenses which will be fully due and payable on November 26, 2018. The principal payments will be applied against Term Loan A until fully paid, and then to Term Loan B. The outstanding principal of the Second Lien Credit Facility will be fully due and payable on the maturity date of November 26, 2019. Only interest payments are due under the Second Lien Credit Facility until maturity. The Loan Parties are required to prepay borrowings under the GateHouse Credit Facilities in an amount equal to: (i) 100% of Excess Cash Flow (as defined in the GateHouse Credit Facilities) earned during any fiscal year quarter if the Leverage Ratio (as defined in the GateHouse Credit Facilities) as of the end of such fiscal quarter was greater than or equal to 2.75 to 1.0; (ii) 50% of Excess Cash Flow earned during any fiscal quarter if the Leverage Ratio of the Loan Parties as of the end of such fiscal quarter was less than 2.75 to 1.0 and greater than or equal to 2.5 to 1.0; and (iii) 0% of Excess Cash Flow earned during any fiscal quarter if the Leverage Ratio of the Loan Parties as of the end of such fiscal quarter was not more than 2.5 to 1.0. In addition, in the event of certain asset sales, borrowings or casualty events, the GateHouse Credit Facilities require the Loan Parties to prepay borrowings with the proceeds.

The GateHouse Credit Facilities impose upon GateHouse certain financial and operating covenants, including, among others, requirements that GateHouse satisfy certain financial tests, including a minimum fixed charge coverage ratio of not less than 1.0 to 1.0, a maximum leverage ratio of not greater than 3.25 to 1.0, a minimum EBITDA and a limitation on capital expenditures, and restrictions on GateHouse’s ability to incur additional debt, incur liens and encumbrances, consolidate, amalgamate or merge with any other person, pay dividends, dispose of assets, make certain restricted payments, engage in transactions with affiliates, materially alter the business it conducts and taking certain other corporate actions. As of December 29, 2013, GateHouse was in compliance with all applicable covenants and could draw on the revolving credit facility under the First Lien Credit Facility if it chose to do so.

Pursuant to the Plan, holders of the Outstanding Debt who elected to receive New Media Common Stock received their pro rata share of the Proceeds of the GateHouse Credit Facilities, net of certain transaction expenses (the “Net Proceeds”). The Net Proceeds distributed to holders of the Outstanding Debt totaled $149 million. The proceeds of additional drawings of the revolving credit facility under the First Lien Credit Facility after the Effective Date will be applied towards ongoing working capital needs, general corporate purposes, capital expenditures and potential acquisitions.

New Media distributed to each holder of New Media Common Stock, including Newcastle on account of the Cash-Out Offer, its pro rata share of $149 million in Net Proceeds of the GateHouse Credit Facilities net of certain transaction costs. GateHouse’s entry into the GateHouse Credit Facilities was not a condition to the effectiveness of the Plan.

Local Media Credit Facility

The Local Media Credit Facility provided for: (a) a $33 million term loan facility that matures on September 4, 2018; and (b) a $10 million revolving credit facility (which was activated on October 25, 2013 when CS, as lead arranger, assigned the revolving loan commitment to an unaffiliated lender), with a $3 million sub-limit for letters of credit and a $4 million sub-limit for swing loans, that matures on September 4, 2018. On October 25, 2013, CS assigned the revolving loan commitment to Capital One Business Corp and the revolving credit facility was activated.

Borrowings under the Local Media Credit Facility bear interest, at the borrower’s option, equal to the LIBOR Rate (as defined in the Local Media Credit Facility) plus 6.5% per annum for a LIBOR Rate Loan (as

 

78


Table of Contents

defined in the Local Media Credit Facility), or the Base Rate (as defined in the Local Media Credit Facility) plus 5.5% per annum for a Base Rate Loan (as defined in the Local Media Credit Facility). Under the revolving credit facility, the Borrowers will also pay a monthly commitment fee of 0.75% per annum on the unused portion of the revolving credit facility and a fee of 6.0% on the aggregate amount of outstanding letters of credit. No principal payments are due on the revolving credit facility until the maturity date. Under the revolving credit facility, the Company will also pay a monthly commitment fee of 0.75% per annum on the unused portion of the revolving credit facility and a fee of 6.0% on the aggregate amount of outstanding letters of credit. Principal payments are due on the term loan facility as follows: (a) $0.2 million at the end of each fiscal quarter beginning with the fiscal quarter ending December 31, 2013 through the fiscal quarter ending September 30, 2015; and (b) $0.4 million beginning with the fiscal quarter ending December 31, 2015 and at the end of each fiscal quarter thereafter with the remaining balance of principal becoming fully due and payable on the maturity date. The Borrowers are required to prepay borrowings under the Local Media Credit Facility in amounts and under circumstances as set forth in the Local Media Credit Facility.

The Borrowers are required to prepay borrowings under the Local Media Credit Facility in an amount equal to: (i) 100% of expected Excess Cash Flow (as defined in the Local Media Credit Facility) with respect to a fiscal quarter if the Leverage Ratio (as defined in the Local Media Credit Facility) of Local Media and the Borrowers as of t