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EX-23.2 - CONSENT OF ERNST & YOUNG LLP REGARDING NEW MEDIA - New Media Investment Group Inc.d674261dex232.htm
EX-23.3 - CONSENT OF ERNST & YOUNG LLP REGARDING DOW JONES LOCAL MEDIA - New Media Investment Group Inc.d674261dex233.htm
EX-23.4 - CONSENT OF KPMG LLP REGARDING THE PROVIDENCE JOURNAL - New Media Investment Group Inc.d674261dex234.htm
Table of Contents

As filed with the Securities and Exchange Commission on September 17, 2014

Registration No. 333-193887

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 3 to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

New Media Investment Group Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2711   38-3910250
(State or other jurisdiction of incorporation or organization)  

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

1345 Avenue of the Americas

New York, New York, 10105

212-479-3160

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Cameron D. MacDougall, Esq.

Fortress Investment Group LLC

1345 Avenue of the Americas

New York, New York 10105

212-479-1522

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

With a copy to:

Duane McLaughlin, Esq.

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, New York 10006

(212) 225-2000

 

With a copy to:

Richard B. Aftanas, Esq.

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, New York 10036

(212) 735-3000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed
Maximum
Aggregate

Offering Price(1) (2)

 

Amount of

Registration Fee(3)

Common stock, par value $0.01 per share

  $126,850,750   $16,339

 

 

(1) Estimated solely for the purpose of determining the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended.
(2) Includes shares to be sold upon exercise of the underwriters’ over-allotment option. See “Underwriting.”
(3) The registrant previously paid $12,880 and has paid $3,459 in connection with the filing of this amendment.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense.

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such dates as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information in this Prospectus is not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 2014

PRELIMINARY PROSPECTUS

6,500,000 Shares

New Media Investment Group Inc.

Common Stock

(Par Value, $0.01 per share)

 

 

We are offering 6,500,000 shares of our Common Stock. Our shares of Common Stock were listed on the New York Stock Exchange (the “NYSE”) under the symbol “NEWM” on February 14, 2014. As of September 16, 2014, the closing sales price for our Common Stock on the NYSE was $16.97 per share. Please see “Market Price and Dividends” on page 36 for more information.

 

 

Investing in our Common Stock involves risks. See “Risk Factors” beginning on page 14 to read about certain factors you should consider before buying our Common Stock.

 

 

 

     Per
Share
   Total

Public Offering Price

     

Underwriting Discounts(1)

     

Proceeds, to us (before expenses)

     

 

(1) See “Underwriting” for a description of compensation payable to the underwriters. The underwriters will not receive any underwriting discount or commission on the sale of shares of our Common Stock made in connection with this offering to certain of our officers, directors and other related parties.

The underwriters may also exercise their option to purchase up to an additional 975,000 shares of our common stock at the public offering price from us, less the underwriting discounts and commissions payable by us within 30 days from the date of this Prospectus.

The underwriters expect to deliver the shares of Common Stock against payment on or about                     , 2014.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any securities.

 

 

 

Citigroup   Credit Suisse

The date of this Prospectus is                     , 2014.


Table of Contents

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     14   

CAUTIONARY NOTE REGARDING FORWARD LOOKING INFORMATION

     30   

THE RESTRUCTURING AND THE SPIN OFF

     31   

CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF OUR COMMON STOCK

     34   

USE OF PROCEEDS

     36   

MARKET PRICE INFORMATION AND DIVIDENDS

     36   

CAPITALIZATION

     37   

DILUTION

     38   

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

     39   

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     43   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     59   

BUSINESS

     92   

OUR MANAGER AND MANAGEMENT AGREEMENT

     132   

MANAGEMENT

     137   

COMPENSATION OF DIRECTORS

     147   

EXECUTIVE COMPENSATION

     149   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     164   

CERTAIN RELATIONSHIPS AND TRANSACTIONS WITH RELATED PERSONS, AFFILIATES AND AFFILIATED ENTITIES

     166   

DESCRIPTION OF OUR CAPITAL STOCK

     169   

SHARES ELIGIBLE FOR FUTURE SALE

     174   

UNDERWRITING

     176   

LEGAL MATTERS

     181   

EXPERTS

     181   

WHERE YOU CAN FIND MORE INFORMATION

     181   

INDEX TO FINANCIAL STATEMENTS

     F-1   

You should rely only on the information contained in this Prospectus and any free writing prospectus prepared by us or on our behalf that we have referred you to. We and the underwriters have not authorized anyone to provide you with additional or different information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This Prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. We and the underwriters are not making an offer of these securities in any state, country or other jurisdiction where the offer is not permitted. You should not assume that the information in this Prospectus or any free writing prospectus is accurate as of any date other than the date of the applicable document regardless of its time of delivery or the time of any sales of our Common Stock (as defined below). Our business, financial condition, results of operations or cash flows may have changed since the date of the applicable document.

 

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Presentation of Information

Unless the context otherwise requires, any references in this Prospectus to “we,” “our,” “us” and the “Company” relating to periods prior to the Restructuring (as defined below) mean GateHouse Media, LLC (formerly known as GateHouse Media, Inc.) (“GateHouse,” “Predecessor” or “Predecessor Company”) and for periods after the Restructuring mean New Media Investment Group Inc. (“New Media,” “Successor” or “Successor Company”). All figures included in this Prospectus are as of June 29, 2014, unless stated otherwise.

 

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PROSPECTUS SUMMARY

This summary of certain information contained in this Prospectus may not include all the information that is important to you. To understand fully and for a more complete description of the terms and conditions of this offering, you should read this Prospectus in its entirety and the documents to which you are referred. See “Where You Can Find More Information.”

Our Company

We are a newly listed company primarily focused on investing in a high quality, diversified portfolio of local media assets and on growing our audiences, existing online advertising and digital marketing services businesses.

We are one of the largest publishers of locally based print and online media in the United States as measured by number of daily publications. We operate in 357 markets across 24 states. Our portfolio of products, which includes 425 community publications, 357 related websites, 345 mobile sites, six yellow page directories, and a digital marketing services business (“Propel”), serves more than 130,000 business advertising accounts and reaches approximately 12 million people on a weekly basis. As of September 3, 2014, taking into account our two recent acquisitions completed on June 30, 2014 and our acquisition of The Providence Journal completed on September 3, 2014, our portfolio of products now includes 444 community publications, 372 related websites and 360 mobile sites.

Our print and digital products focus on the local community from both a content, advertising and digital services standpoint. 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 audiences such as local news and politics, community and regional events, youth sports, opinion and editorial pages, local schools, obituaries, police blotters, and wedding and engagement announcements. Our local news content is unique and highly valued by consumers who live in our markets, and there are limited, and in some cases no competing sources of local content for our target customers.

More than 83% 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 as well as a highly recognized media brand name in each community we serve. We believe our brands are a trusted source for local news and information by consumers in our market, and a trusted business partner to locally owned and operated businesses.

We also have a locally oriented, “in-market” sales force that gives us direct face to face access to small and medium sized businesses (“SMBs”) in all of our respective markets, consisting of over 1,000 sales representatives, including 37 dedicated to Propel and 16 third party partnerships. We believe this “in-market” sales presence, combined with our trusted media brands gives us a distinct advantage with regard to growing into new digital categories (such as digital marketing services). Digital marketing services businesses are poised to benefit from the rise in internet advertising, which grew 17% between 2012 and 2013, and 242% between 2005 and 2013, according to the 2014 IAB Internet Advertising Revenue report.

New Media intends to focus its business strategy on stabilizing its core traditional media business and on building its digital marketing services business and growing its audiences and online advertising business, leveraging its strong local brands, its “in-market” sales force and news delivery platforms. We believe this will offset many of the challenges experienced by our Predecessor Company, GateHouse. With its improved capital

 

 

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structure and digital focus, combined with its strengths and strategy, we believe that New Media will be able to grow stockholder value. However, there can be no assurances of this. See “Risk Factors.”

We intend to create stockholder value through growth in our revenue and cash flow by stablizing our core traditional media business, expanding Propel, growing our audiences and our online advertising business and pursuing strategic acquisitions of high quality local media assets at attractive valuation levels. However, there is no guarantee that we will be able to accomplish any of these strategic initiatives. A key component of 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 intend to distribute a substantial portion of our free cash flow as a dividend to stockholders, through a quarterly dividend, subject to satisfactory financial performance, approval by our board of directors (the “Board of Directors” or the “Board”) and dividend restrictions in the New Media Credit Agreement (as defined below). The Board of Directors’ determinations regarding dividends will depend on a variety of factors, including the Company’s U.S. generally accepted accounting principles (“GAAP”) net income, free cash flow generated from operations or other sources, liquidity position and potential alternative uses of cash, such as acquisitions, as well as economic conditions and expected future financial results.

On July 31, 2014, the Company announced a second quarter 2014 cash dividend of $0.27 per share of common stock, par value $0.01 per share, of New Media (“New Media Common Stock” or our “Common Stock”). The dividend was paid on August 21, 2014 to shareholders of record as of the close of business on August 12, 2014.

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. More than 83% of our daily newspapers have been published for more than 100 years and 100% have been published for more than 50 years. 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. We believe our local news content is unique and highly valued by consumers who live in our markets, and there are limited, and in some cases no competing sources of local content for our target customers.

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 37 dedicated to Propel and 16 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, particularly in the digital sector.

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 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 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

 

 

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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 and high operating profit margins and maintain our low capital expenditure and working capital requirements. As a result of the Restructuring, which extinguished GateHouse’s Outstanding Debt (as defined below), our interest and debt servicing expenses are significantly lower than GateHouse’s interest and debt servicing expenses. As of June 29, 2014, our debt structure consists of the New Media Credit Agreement. We currently estimate that we will have significant free cash flow totaling $50 to $70 million in 2014 which we believe will lead to stockholder value creation 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.

A key component of 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 intend to distribute a substantial portion of our free cash flow as a dividend to stockholders, through a quarterly dividend, subject to satisfactory financial performance, approval by our Board of Directors and dividend restrictions in the New Media Credit Agreement. The Board of Directors’ determinations regarding dividends will depend on a variety of factors, including the Company’s GAAP net income, free cash flow generated from 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 key elements of our strategy include:

Maintain Our Leading Position in the Delivery of Proprietary Local Content in Our Communities. We seek to maintain our position as a leading provider of unique 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 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 business, Propel. We believe Propel will allow us to sell digital marketing

 

 

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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 2014 U.S. Local Media Forecast by BIA/Kelsey, these businesses are expected to spend $36 billion on digital marketing by 2015. Owners of SMBs often lack the resources and expertise to navigate the digital marketing services 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. We believe local SMBs will turn to our trusted local media brands to help them navigate through developing their digital marketing presence and strategy. We believe our “in-market” sales presence and strong local brands give us a distinct advantage to being the leading local provider of digital marketing services, through Propel.

Pursue Strategic Accretive Acquisitions. We intend to capitalize on the highly fragmented and distressed local print industries which have greatly reduced valuation levels. We initially expect to focus our investments primarily in the local newspaper sector 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 print media 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. We also believe there may be opportunities to acquire other strong businesses that have local sales force and SMB customer relationships or digital product companies, both of which could quickly scale for Propel.

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 some of the challenges experienced by GateHouse. With its improved capital structure and digital focus, combined with its strengths and strategy and dividend strategy, we believe that New Media will be able to grow stockholder value. However, there can be no assurance of this. See “Risk Factors.”

 

 

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Challenges

We will likely face challenges commonly encountered by recently reorganized entities, including the risk that even under our improved 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;

 

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

 

    we may not be able to successfully acquire local print media assets at attractive valuations due to a rise in valuations from a more competitive landscape of acquirors.

For more information about New Media’s risks and challenges, see “Risk Factors.”

Our Manager and Management Agreement

We are managed by FIG LLC (our “Manager”), an affiliate of Fortress (as defined below), pursuant to the terms of a Management and Advisory Agreement, dated as of November 26, 2013, as amended and restated (the “Management Agreement”), between us and our Manager. The terms of our Management Agreement are described in more detail under “Our Manager and Management Agreement” elsewhere in this Prospectus.

Recent Developments

Acquisitions

On June 30, 2014, the Company completed two acquisitions of 20 publications with a total purchase price of $15.85 million, which includes estimated working capital. The acquisitions include six daily, ten weekly publications, and four shoppers serving areas of Texas, Oklahoma, Kansas and Virginia with an aggregate circulation of approximately 54,000. The acquisitions were funded with $9.85 million of cash and $6 million from the Revolving Credit Facility (as defined below).

On September 3, 2014, the Company completed the acquisition of The Providence Journal with a total purchase price of $46 million. The acquisition includes one daily and two weekly publications serving areas of Rhode Island with a daily circulation of approximately 72,000 and 96,000 on Sunday.

Dividend

On July 31, 2014, the Company announced a second quarter 2014 cash dividend of $0.27 per share of New Media Common Stock. The dividend was paid on August 21, 2014 to shareholders of record as of the close of business on August 12, 2014.

First Amendment to Credit Agreement

On September 3, 2014, the New Media Credit Agreement (as defined below) was amended to provide for additional term loans under the Incremental Facility (as defined below) in an aggregate principal amount of $25 million, which was used to finance a portion of The Providence Journal acquisition.

 

 

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Risk Factors

Our business is subject to various risks. For a description of these risks, see the section entitled “Risk Factors” beginning on page 14 and the other information included elsewhere in this Prospectus.

Corporate Information

Our principal executive offices are located at 1345 Avenue of the Americas, New York, New York, 10105. Our telephone number is 212-479-3160 and our website is http://www.newmediainv.com/. Nothing on our website is included or incorporated by reference herein.

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.

 

LOGO

 

 

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The Offering

 

Common stock we are offering

6,500,000 shares.

 

Common stock to be issued and outstanding after this offering

36,515,870 shares (37,490,870 shares if the underwriters exercise their over-allotment option in full).

 

Underwriters’ option to purchase additional shares

We have granted the underwriters a 30-day option to purchase up to 975,000 additional shares of our Common Stock at the public offering price, less underwriting discounts and commission.

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and giving effect to the sale of shares of our Common Stock to certain of our officers and directors and an officer of our Manager that will not be subject to underwriting discounts or commissions, will be approximately $107.4 million, assuming a public offering price of $16.97 per share (the closing sales price of our Common Stock on the NYSE on September 16, 2014), or $123.7 million if the underwriters exercise their option to purchase additional shares of Common Stock in full. We intend to use the proceeds from this offering for working capital and other general corporate purposes, which may include potential investments in, and acquisitions of, local media businesses and assets. Presently, we have no agreements with any potential acquisition parties. We have not yet determined the amount of net proceeds to be used specifically for any of the foregoing purposes. Accordingly, management will have broad discretion over the use of the net proceeds to us from this offering and investors will be relying on the judgment of our management regarding the application of these proceeds. Pending their use, we plan to invest the net proceeds to us from this offering in short term, interest bearing obligations, investment grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government. See “Use of Proceeds.”

 

Dividend Policy

We currently intend to distribute a substantial portion of our free cash flow as a dividend to stockholders, through a quarterly dividend, subject to satisfactory financial performance, approval by the Board of Directors and dividend restrictions in the New Media Credit Agreement. The Board of Directors’ determinations regarding dividends will depend on a variety of factors, including the Company’s GAAP net income, free cash flow generated from 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. However, our ability to pay dividends is subject to a number of risks and uncertainties, and there can be no assurance regarding whether we will pay dividends in the future. See, for example, “Risk Factors—Risks Related to Our Business—We may not be able to pay dividends in accordance with our announced intent or at all.”

 

 

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Listing

Our shares were listed on the NYSE under the symbol “NEWM” on February 14, 2014.

 

Risk Factors

See “Risk Factors” for a discussion of factors you should carefully consider before deciding to invest in our Common Stock.

 

Tax Considerations

See “Certain U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders of Our Common Stock” for more information regarding tax considerations.

Except as otherwise indicated, all information in this prospectus assumes no exercise by the underwriters of their option to purchase an additional 975,000 shares of Common Stock from us.

The number of shares of our Common Stock that will be outstanding after this offering is based on 30,015,870 shares of our Common Stock outstanding as of June 29, 2014, which excludes options to purchase 650,000 shares of our Common Stock, representing 10% of the number of shares being offered by us hereby, that will be granted to an affiliate of our Manager in connection with this offering, pursuant to our Incentive Plan (as defined below) and subject to adjustment if the underwriters exercise their option to purchase additional shares of our Common Stock.

 

 

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Summary Historical Consolidated and Pro Forma Financial Data

The selected consolidated statement of operations data for New Media for the two months ended December 29, 2013, for GateHouse for the ten months ended November 6, 2013 (collectively, the “combined year ended December 29, 2013”) and for GateHouse for the year ended December 30, 2012 and the year ended January 1, 2012 and the selected consolidated balance sheet data for New Media as of December 29, 2013 and for GateHouse as of December 30, 2012 have been derived from the audited Consolidated Financial Statements of New Media and GateHouse, our Predecessor, included elsewhere in this Prospectus. The selected consolidated balance sheet data for GateHouse as of January 1, 2012 has been derived from GateHouse’s audited financial statements not included in this Prospectus. The selected financial data as of and for the combined year ended December 29, 2013, ten months ended November 6, 2013 and the years ended December 30, 2012 and January 1, 2012, have been revised to reflect one of GateHouse’s publications as a discontinued operation for comparability.

The selected condensed consolidated statement of operations data for New Media for the six months ended June 29, 2014 and for GateHouse for the six months ended June 30, 2013 and the selected condensed consolidated balance sheet data for New Media as of June 29, 2014 have been derived from the Unaudited Condensed Consolidated Financial Statements of New Media and GateHouse, our Predecessor, included elsewhere in this Prospectus. The selected consolidated balance sheet data for GateHouse as of June 30, 2013 has been derived from GateHouse’s unaudited financial statements not included in this Prospectus.

Operating results for the ten months ended November 6, 2013 included the impact of GateHouse’s emergence from bankruptcy and adoption of fresh start accounting. As a result of the execution of the Restructuring Support Agreement, in which GateHouse, the Administrative Agent (as defined below), Newcastle Investment Corp. (“Newcastle”) and other lenders under the 2007 Credit Facility (as defined below) agreed to support the Restructuring pursuant to the consummation of the Plan (as defined below), all debt, including derivative liabilities and deferred financing assets, was eliminated. This resulted in a significant reduction in our interest expense and the elimination of the gain (loss) on derivative instruments and deferred financing amortization. The adoption of fresh start accounting led to changes in the basis of our property, plant and equipment and intangible assets that will impact future depreciation and amortization expense levels. Other significant changes to our financial information include that we expect to become subject to federal and state income taxation and to pay fees to our Manager (as defined below). The impact of these changes is discussed in greater detail within the Unaudited Pro Forma Condensed Combined Financial Information section of this Prospectus. The data should be read in conjunction with the Consolidated Financial Statements, Unaudited Condensed Consolidated Financial Statements, related notes and other financial information included herein.

The following selected unaudited pro forma condensed combined statement of operations for the six months ended June 29, 2014 and for the year ended December 29, 2013 gives effect to the Pro Forma Transactions (as defined below) as if the Pro Forma Transactions had occurred or had become effective as of December 31, 2012 (beginning of our fiscal year 2013). The unaudited pro forma condensed combined balance sheet as of June 29, 2014 gives effect to the Pro Forma Transactions as if they had occurred on June 29, 2014. The unaudited pro forma condensed combined financial information excludes the effects of this offering.

The pro forma financial information is provided for informational and illustrative purposes only and should be read in conjunction with “Use of Proceeds,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” New Media’s historical financial statements and related notes thereto, including Predecessor GateHouse’s historical consolidated financial statements and notes thereto, Local Media’s historical combined financial statements and notes thereto, and Providence Journal’s historical consolidated financial statements and notes thereto, each included elsewhere in this Prospectus. In addition, the historical consolidated financial statements of GateHouse, our Predecessor, are not comparable following its emergence from Chapter 11 due to the effects of the consummation of the Plan, as well as adjustments for fresh-start accounting. All tables are presented in thousands unless otherwise noted.

 

 

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The unaudited pro forma condensed combined financial information has been prepared to reflect adjustments to our historical consolidated financial information that are (i) directly attributable to the Pro Forma Transactions, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statement of operations, expected to have a continuing impact on our results.

The unaudited pro forma condensed combined financial information reflects the following (collectively, the “Pro Forma Transactions”):

 

    commencing from the date of “regular-way” trading of New Media Common Stock on a major U.S. national securities exchange (the “Listing”), New Media’s management and incentive fee payable to the Manager by us;

 

    adoption of fresh-start accounting by GateHouse in accordance with Accounting Standards Codification (“ASC”) Topic 852, “Reorganizations,” (“ASC 852”) upon confirmation of the plan of reorganization;

 

    cancellation of our Predecessor’s 2007 Credit Facility and related interest rate swaps in exchange for New Media Common Stock pursuant to the Plan and entry into the GateHouse Credit Facilities (as defined below);

 

    impact of Local Media purchase accounting adjustments, in accordance with ASC Topic 805, “Business Combinations,” as a result of GateHouse consolidation of Local Media beginning on September 3, 2013 and Newcastle’s contribution of 100% common stock of Local Media Group Holdings LLC (“Local Media Parent”) to New Media in exchange for New Media Common Stock pursuant to the Plan;

 

    payment of GateHouse Credit Facilities and Local Media Credit Facility (as defined below) in full and entering into the New Media Credit Agreement; and

 

    impact of Providence Journal purchase accounting adjustments, in accordance with ASC Topic 805, “Business Combinations” (“ASC 805”), and the incremental financing under the New Media Credit Agreement as a result of New Media’s acquisition.

 

    Successor Company          Predecessor
Company
         Combined          Successor
Company
         Predecessor Company  
  Six Months
Ended
June 29,

2014
    Six Months
Ended
June 29,
2014
         Six Months
Ended
June 30,

2013
         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
 
    Pro Forma     Historical          Historical          Pro Forma          Historical          Historical     Historical     Historical  
(in thousands, except per
share data)
                                                                   

Statement of Operations Data:

                               

Revenues:

                               

Advertising

  $ 197,435      $ 178,460          $ 150,559          $ 421,741          $ 63,340          $ 265,078      $ 330,881      $ 357,134   

Circulation

    107,315        90,471            65,513            216,232            29,525            118,810        131,576        131,879   

Commercial printing and other

    39,228        31,535            14,107            72,152            10,366            29,402        26,097        25,657   
 

 

 

   

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

Total revenues

    343,978        300,466            230,179            710,125            103,231            413,290        488,554        514,670   

Operating costs and expenses:

                               

Operating costs

    196,603        172,470            129,998            395,315            56,614            232,066        268,222        281,884   

Selling, general and administrative

    114,975        102,251            78,722            229,900            28,749            136,832        145,020        146,295   

Depreciation and amortization

    23,161        19,918            19,636            45,972            6,588            33,409        39,888        42,426   

Integration and reorganization costs

    837        837            958            3,335            1,758            1,577        4,393        5,884   

Impairment of long-lived assets

    —          —             —             133,867            —              91,599        —          1,733   

Loss (gain) on sale of assets

    687        687            1,043            1,190            27            1,163        1,238        455   

 

 

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Table of Contents
    Successor Company          Predecessor
Company
         Combined          Successor
Company
         Predecessor Company  
  Six Months
Ended
June 29,

2014
    Six Months
Ended
June 29,
2014
         Six Months
Ended
June 30,

2013
         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
 
    Pro Forma     Historical          Historical          Pro Forma          Historical          Historical     Historical     Historical  
(in thousands, except per
share data)
                                                                   

Goodwill and mastheads impairment

    —          —             —             —              —              —          —          385   
 

 

 

   

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (7,715     4,303            (178         (99,454         9,495            (83,356     29,793        35,608   

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

    9,319        17,330            30,425            19,577            1,798            (871,399     57,463        58,361   
 

 

 

   

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations before income taxes

    (1,604     (13,027         (30,603         (119,031         7,697            788,043        (27,670     (22,753

Income tax (benefit) expense

    (628     (3,067         —             (46,600         491            (197     (207     (1,803
 

 

 

   

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

(Loss) income from continuing operations

    (976     (9,960         (30,603         (72,431         7,206            788,240        (27,463     (20,950

Loss from discontinued operations, net of income taxes

    N/A        —             1,034            N/A            —              (1,034     (2,340     (699
 

 

 

   

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

Net (loss) income

    (976     (9,960         (31,637         (72,431         7,206            787,206        (29,803     (21,649

Net loss attributable to noncontrolling interest

    N/A        —              —              N/A            —              208        —          —     
 

 

 

   

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

Net (loss) income attributable to New Media

  $ (976   $ (9,960       $ (31,637       $ (72,431       $ 7,206          $ 787,414      $ (29,803   $ (21,649
 

 

 

   

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

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

  $ (0.03   $ (0.33       $ (0.53       $ (2.41       $ 0.24          $ 13.58      $ (0.47   $ (0.36

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

  $ (0.03   $ (0.33       $ (0.53       $ (2.41       $ 0.24          $ 13.58      $ (0.47   $ (0.36

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

  $ (0.03   $ (0.33       $ (0.54       $ (2.41       $ 0.24          $ 13.56      $ (0.51   $ (0.37

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

  $ (0.03   $ (0.33       $ (0.54       $ (2.41       $ 0.24          $ 13.56      $ (0.51   $ (0.37

Other Data:

                               

Adjusted EBITDA(1)

  $ N/A      $ 24,379          $ 18,450            N/A          $ 16,096          $ 988,265      $ 69,766      $ 80,547   

Cash interest paid

  $ N/A      $ 7,238          $ 7,403            N/A          $ 925          $ 43,606      $ 55,976      $ 58,225   

 

(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 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.

 

 

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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—Adjusted EBITDA.”

 

(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
         Successor
Company
         Predecessor Company  
    Six Months
Ended
June 29,
2014
         Six Months
Ended
June 30,
2013
         Two
Months Ended
December 29,
2013
         Ten
Months Ended
November 6,
2013
    Year Ended
December 30,
2012(3)
    Year Ended
January 1,
2012
 
    Historical          Historical          Historical          Historical     Historical     Historical  
(in thousands)                                                   

Income (loss) from continuing operations

  $ (9,960       $ (30,603       $ 7,206          $ 788,240      $ (27,463   $ (20,950

Income tax expense (benefit)

    (3,067         —              491            (197     (207     (1,803

Loss (gain) on derivative instruments(1)

    51            9            —             14        (1,635     (913

Gain on early extinguishment of debt(2)

    9,047            —              —             —         —         —     

Amortization of deferred financing costs

    758            522            171            842        1,255        1,360   

Write-off of financing costs

    —                    —             —         —         —     

Interest expense

    7,632            28,886            1,640            74,358        57,928        58,309   

Impairment of long-lived assets

    —                    —             91,599        —         1,733   

Depreciation and amortization

    19,918            19,636            6,588            33,409        39,888        42,426   

Goodwill and mastheads impairment

    —              —              —             —         —         385   
 

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

Adjusted EBITDA from continuing operations

  $ 24,379 (a)        $ 18,450 (b)        $ 16,096 (c)        $ 988,265 (d)    $ 69,766 (e)    $ 80,547 (f) 
 

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

 

(a)  Adjusted EBITDA for the six months ended June 29, 2014 included net expenses of $8,985, which are one-time in nature or non-cash compensation. Included in these net expenses of $8,985 is non-cash compensation and other expense of $7,461, integration and reorganization costs of $837 and a $687 loss on the sale of assets.
(b)  Adjusted EBITDA for the six months ended June 30, 2013 included net expenses of $7,949, which are one-time in nature or non-cash compensation. Included in these net expenses of $7,949 is non-cash compensation and other expense of $6,376, non-cash portion of postretirement benefits expense of $(428), integration and reorganization costs of $958 and a $1,043 loss on the sale of assets.

 

 

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

 

(c)  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.

 

(d)  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.

 

(e)  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.

 

(f)  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.

 

(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
         Successor
Company
         Predecessor Company  
    June 29,
2014
    June 29,
2014
         June 30,
2013
         December 29,
2013
         December 30,
2012
    January 1,
2012
 
  Pro Forma     Historical          Historical          Historical          Historical     Historical  
(in thousands)                                                   

Balance Sheet Data:

                       

Total assets

  $ 713,561      $ 670,543          $ 433,704          $ 689,953          $ 469,766      $ 510,802   

Total long-term obligations, including current maturities

    231,190        197,660            1,170,220            187,119            1,177,298        1,185,212   

Stockholders’ equity (deficit)

    385,423        385,423            (848,855         395,362            (834,159     (805,632

 

 

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Table of Contents

RISK FACTORS

You should carefully consider the following risks and other information in this Prospectus in evaluating us and our Common Stock. Any of the following risks could materially and adversely affect our business, results of operations, financial condition or liquidity, in which case, the trading price of our Common Stock could decline and you could lose all or part of your investment. 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. For the six months ended June 29, 2014, approximately 39% of our total revenues were generated in two states in the Northeast: Massachusetts and New York. During the same period, approximately 28% 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.

 

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Table of Contents

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 June 29, 2014, New Media’s outstanding indebtedness consists of a credit agreement, entered into on June 4, 2014 (the “New Media Credit Agreement”) by and among New Media Holdings II LLC (the “New Media Borrower”), a wholly owned subsidiary of New Media, New Media Holdings I LLC (“Holdings I”), the lenders party thereto, RBS Citizens, N.A. and Credit Suisse Securities (USA) LLC as joint lead arrangers and joint bookrunners, Credit Suisse AG, Cayman Islands Branch as syndication agent and Citizens Bank of Pennsylvania as administration agent. The New Media Credit Agreement provides for (i) a $200,000 senior secured term facility (the “Term Loan Facility”) and (ii) a $25,000 senior secured revolving credit facility, with a $5,000 sub-facility for letters of credit and a $5,000 sub-facility for swing loans (the “Revolving Credit Facility”). In addition, the New Media Borrower may request one or more new commitments for term loans or revolving loans from time to time up to an aggregate total of $75 million, subject to certain conditions (the “Incremental Facility”). On September 3, 2014, the New Media Credit Agreement was amended to provide for additional term loans under the Incremental Facility in an aggregate principal amount of $25 million. 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 New Media Credit Agreement contains covenants that restrict our operations and may inhibit our ability to grow our business, increase revenues and pay dividends to our stockholders.

The New Media Credit Agreement contains various restrictions, covenants and representations and warranties. If we fail to comply with any of these covenants or breach these representations or warranties in any material respect, such noncompliance would constitute a default under the New Media Credit Agreement (subject to applicable cure periods), and the lenders could elect to declare all amounts outstanding under the agreements related thereto to be immediately due and payable and enforce their respective interests against collateral pledged under such agreements.

The covenants and restrictions in the New Media Credit Agreement generally restrict our ability to, among other things:

 

    incur or guarantee additional debt;

 

    make certain investments, loans or acquisitions;

 

    transfer or sell assets;

 

    make distributions on capital stock or redeem or repurchase capital stock;

 

    create or incur liens;

 

    enter into transactions with affiliates;

 

    consolidate, merge or sell all or substantially all of our assets; and

 

    create restrictions on the payment of dividends or other amounts to us from our restricted subsidiaries.

 

 

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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 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. For more information regarding the covenants and requirements discussed above, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness.”

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 and results of operations.

We may not be able to pay dividends in accordance with our announced intent or at all.

We have announced our intent to distribute a substantial portion of our free cash flow as a dividend to our stockholders, through a quarterly dividend, subject to satisfactory financial performance, approval by our Board of Directors and dividend restrictions in the New Media Credit Agreement. The Board of Directors’ determinations regarding dividends will depend on a variety of factors, including the Company’s GAAP net income, free cash flow generated from operations or other sources, liquidity position and potential alternative uses of cash, such as acquisitions, as well as economic conditions and expected future financial results. Although we recently paid a second quarter 2014 cash dividend of $0.27 per share of Common Stock, there can be no guarantee that we will continue to pay dividends in the future or that this recent dividend is representative of the amount of any future dividends. Our ability to declare future dividends will depend on our future financial performance, which in turn depends on the successful implementation of our strategy and on financial, competitive, regulatory, technical and other factors, general economic conditions, demand and selling prices for our products and other factors specific to our industry or specific projects, many of which are beyond our control. Therefore, our ability to generate free cash flow depends on the performance of our operations and could be limited by decreases in our profitability or increases in costs, capital expenditures or debt servicing requirements.

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

 

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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.

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 $826 per metric ton in 2008 and experiencing a low of almost $440 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. We continue to search for organic

 

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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. Competition for advertising revenues and paid circulation comes from direct mail, directories, radio, television, outdoor advertising, other newspaper publications, the internet and other media. For example, as the use of the internet and mobile devices has increased, we have lost some classified advertising and subscribers to online advertising businesses and our free internet sites that contain abbreviated versions of our publications. Competition for advertising revenues is based largely upon advertiser results, advertising rates, readership, demographics and circulation levels. Competition for circulation is based largely upon the content of the publication and its price and editorial quality. Our local and regional competitors vary from market to market and many of our competitors for advertising revenues are larger and have greater financial and distribution resources than us. We may incur increased costs competing for advertising expenditures and paid circulation. We may also experience 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, including Propel, 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, including Propel. We continue to believe that our digital businesses, including Propel, 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, including with regard to Propel, 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.

 

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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.

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 was 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 dividends.

The increasing popularity of digital media could also adversely affect circulation of our newspapers, which may decrease circulation revenue and cause more marked declines in print advertising. 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

 

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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 prepared in the context of the Restructuring. 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 to New Media’s Consolidated Financial Statements and Note 6 to New Media’s Unaudited Condensed Consolidated Financial Statements, “Goodwill and Intangible Assets.”

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 Ventures business unit. See Note 19 to New Media’s Consolidated Financial Statements, “Fair Value Measurement,” for further information on our Predecessor’s impairment charge and its effect on the Company’s financial statements.

Given the recent revaluation of assets related to fresh start accounting, there is a relatively small amount of fair value excess for certain reporting units as of the second quarter 2014 annual impairment test. Specifically the fair value of the Large Daily Newspapers, Metro Newspapers and Small Community Newspaper reporting units exceeded carrying value by less than 10%. In addition, the masthead fair value for these groups exceeded carrying value by less than 3%. Considering a relatively low headroom for these reporting units and mastheads and declining same store revenue and profitability in the newspaper industry over the past several years, these are considered to be at risk for a future impairment in the event of decline in general economic, market or business conditions or any significant unfavorable changes in the forecasted cash flows, weighted-average cost of capital and/or market transaction multiples.

At June 29, 2014 the carrying value of our goodwill was $126.6 million, mastheads was $46.4 million, and amortizable intangible assets was $98.1 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

 

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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.

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

 

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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 June 29, 2014, we employed approximately 5,552 employees, of whom approximately 702 (or approximately 12.6%) were represented by 28 unions. 87% of the unionized employees are in three states: Massachusetts, Illinois and Ohio and represent 24%, 34% and 29% of all our union employees, respectively. Most of our unionized employees work under collective bargaining agreements that expire in 2014.

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 our recent 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 our recent acquisitions, including our acquisition of The Providence Journal, or potential future acquisitions of assets or companies will depend, in part, on our ability to scale-up to appropriately integrate the businesses of 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 recent 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;

 

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    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 recent or potential future acquisitions, or if we encounter unforeseen expenses, difficulties, complications or delays frequently encountered in connection with the integration of acquired entities and the expansion of operations, our growth and ability to compete may be impaired, we may fail to achieve acquisition synergies and we may be required to focus resources on integration of operations rather than other profitable areas. Moreover, the success of any acquisition will depend upon our ability to effectively integrate the acquired assets or businesses. The acquired assets or businesses may not contribute to our revenues or earnings to any material extent, and cost savings and synergies we expect at the time of an acquisition may not be realized once the acquisition has been completed. Furthermore, if we incur indebtedness to finance an acquisition, the acquired business may not be able to generate sufficient cash flow to service that indebtedness. Unsuitable or unsuccessful acquisitions could adversely affect our business, financial condition, results of operations, cash flow and ability to pay dividends.

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

Pursuant to the Plan (as defined below), 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 historical consolidated financial statements. Accordingly, our financial condition and results of operations from and after the Effective Date (as defined below) are not comparable to the financial condition and results of operations reflected in our Predecessor’s historical consolidated financial statements, including those presented herein.

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 FIG LLC (the Manager) pursuant to the management agreement that we entered into on November 26, 2013, as amended and restated (the “Management Agreement”). 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.

 

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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 FIG LLC, an affiliate of Fortress Investment Group LLC (“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 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.”

 

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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 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.

 

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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 our Common Stock on the NYSE began on February 4, 2014 and “regular-way” trading of our 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;

 

    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;

 

    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. 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 (as defined below) or otherwise could also have an adverse effect on the market price of our Common Stock. See “Shares Eligible for Future Sale.”

We and our officers and directors have agreed that, for a period of 45 days from the date of this Prospectus, we and they will not, without the prior written consent of the underwriters, dispose of or hedge any shares or any securities convertible into or exchangeable for our Common Stock. The underwriters, in their sole discretion, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. If the restrictions under the lock-up agreements are waived, our Common Stock may become available for sale into the market, subject to applicable law, which could reduce the market price for 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

 

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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.

If you purchase shares of Common Stock in this offering, you will suffer immediate dilution in the book value of your shares.

The public offering price is substantially higher than the pro forma as adjusted net tangible book value per share of our Common Stock based on the total value of our tangible assets less our total liabilities immediately following this offering.

Therefore, if you purchase shares of our Common Stock in this offering, you will experience immediate and substantial dilution of $11.23 per share in the price you pay for shares of our Common Stock as compared to its pro forma as adjusted net tangible book value giving effect to this offering, assuming the issuance and sale of 6,500,000 shares of our Common Stock at the assumed public offering price of $16.97 per share (the closing sales price of our Common Stock on the NYSE on September 16, 2014). For further information on this calculation, see “Dilution” elsewhere in this Prospectus.

Your percentage ownership in New Media may be diluted in the future.

We may issue additional 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.

Your percentage ownership in New Media may also be diluted in the future as a result of the New Media Warrants (as defined below). 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 the Local Media Contribution (as defined below)) 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, your 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. Our Board of Directors 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

 

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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). For a more detailed description of the Incentive Plan, see “Management—Nonqualified Stock Option and Incentive Award Plan.”

In connection with this offering, we will issue to an affiliate of our Manager options to purchase shares of our Common Stock, equal in number to 10% of the number of shares being offered hereby, with an exercise price equal to the offering price per share paid by the public or other ultimate purchaser. This option will also be granted upon the successful completion of any future offering of shares of our Common Stock or any shares of preferred stock. Our board of directors may also determine to issue options to the Manager or its affiliates that are not subject to the Plan, provided that the number of shares underlying any options granted to the Manager in connection with capital raising efforts would not exceed 10% of the shares sold in such offering and would be subject to NYSE rules.

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 Common 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 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;

 

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    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. See “Description of Our Capital Stock—Anti-Takeover Effects of Delaware Law, Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.”

 

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CAUTIONARY NOTE REGARDING FORWARD LOOKING INFORMATION

Certain statements in this Prospectus 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;

 

    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;

 

    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 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” and elsewhere in this Prospectus. 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.

 

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THE RESTRUCTURING AND THE SPIN OFF

The Restructuring

We acquired our operations as part of the restructuring of GateHouse. On September 27, 2013, GateHouse commenced Chapter 11 cases in the Bankruptcy Court (the “Restructuring”) in which it sought confirmation of its Joint Prepackaged Chapter 11 Plan (as modified, amended or supplemented from time to time, the “Plan”) sponsored by Newcastle, as the holder of the majority of the Outstanding Debt (as defined below). The Bankruptcy Court confirmed the Plan on November 6, 2013. GateHouse effected the transactions contemplated by the Plan and emerged from Chapter 11 protection on November 26, 2013 (the “Effective Date”).

Pursuant to the Restructuring, Newcastle offered to purchase GateHouse’s obligations under the 2007 Credit Facility (as defined below) and certain interest rate swaps secured thereunder (collectively, the “Outstanding Debt”) in cash and at 40% of (i) $1,167,449,812.96 of principal of claims under the Amended and Restated Credit Agreement by and among certain affiliates of GateHouse, the lenders from time to time party thereto and Cortland Products Corp., as administrative agent (the “Administrative Agent”), dated February 27, 2007 (as amended, 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 of the GateHouse Credit Facilities. All pensions, trade and all other unsecured claims will be paid in the ordinary course.

On the Effective Date (1) reorganized GateHouse became a wholly owned subsidiary of New Media as a result of (a) the cancellation and discharge of the currently outstanding equity interests of GateHouse (the holders of which received warrants issued by New Media (as described below)) 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 acquisition of Local Media from News Corp. by Newcastle on September 3, 2013 (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 (the “Local Media Contribution”); (3) New Media entered into the Management Agreement with the 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. See Note 2 to New Media’s Consolidated Financial Statements and Unaudited Condensed Consolidated Financial Statements, “Voluntary Reorganization Under Chapter 11.”

As of the Effective Date of the Plan, New Media’s debt structure consisted of multiple 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, f/k/a 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 provided 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). Borrowings under the First Lien Credit Facility bore 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 Agreement), (ii) with respect to the term loan A, the Term Loan A Rate (as defined in the First Lien Credit Agreement) and (iii) with respect to the term loan B, the Term Loan B Rate (as defined in the First Lien Credit Agreement).

 

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The Term Loan and Security Agreement (the “Second Lien Credit Facility” and together with the First Lien Credit Facility, the “GateHouse Credit Facilities”) dated November 26, 2013 by and among the Loan Parties, Mutual Quest Fund and each of the lenders party thereto provided for a term loan in an aggregate principal amount of $50 million. Borrowings under the Second Lien Credit Facility bore interest, at the Loan Parties’ option, equal to (1) the LIBOR Rate (as defined in the Second Lien Credit Facility) plus 11.00% or (2) the Alternate Base Rate (as defined in the Second Lien Credit Facility) plus 10.00%. The GateHouse Credit Facilities were fully paid on June 4, 2014.

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. GateHouse’s entry into the GateHouse Credit Facilities was not a condition to the effectiveness of the Plan.

Additionally, the Credit Agreement dated September 3, 2013, by and among Local Media Parent, the borrowers party thereto, the lenders party thereto, Capital One Business Credit Corp., as successor to Credit Suisse AG, Cayman Islands Branch, as administrative agent (the “Local Media Credit Facility Administrative Agent”) and collateral agent and Credit Suisse Loan Funding LLC, as lead arranger (the “Local Media Credit Facility”) provided for a $33.0 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. 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 Local Media Credit Facility Administrative Agent, modified the properties included in the real property collateral, and set forth in detail the documentary post-closing requirements with respect to the real property collateral. The Local Media Credit Facility was paid in full on June 4, 2014.

Subsequent to the Restructuring, we entered into the New Media Credit Agreement. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Indebtedness” for more information.

Upon emergence from Chapter 11, we adopted fresh-start reporting in accordance with ASC Topic 852, “Reorganizations.” Under fresh-start accounting, a new entity is deemed to have been created on the Effective Date of the Plan for financial reporting purposes and GateHouse’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, our 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 Prospectus. As a result of the adoption of fresh-start accounting, our reorganized company post-emergence financial statements are generally not comparable with the financial statements of our Predecessor prior to emergence, including the historical financial information in this Prospectus. See Note 2 to New Media’s Consolidated Financial Statements and Unaudited Condensed Consolidated Financial Statements, “Voluntary Reorganization Under Chapter 11.”

New Media Warrants

On the Effective Date, New Media was deemed to have issued and distributed 1,362,479 10-year warrants (the “New Media Warrants”) to the former equity holders of GateHouse (the “Former Equity Holders”). The New Media Warrants collectively represent the right to acquire New Media Common Stock, which in the aggregate was 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 the Local Media Contribution) at a strike price per share 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. Former equity interests were cancelled under the Plan. New Media Warrants

 

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will not have the benefit of antidilution protections, other than customary protections including for stock splits and stock dividends. The New Media Warrants expire on November 26, 2023. This description is a summary and is subject to, and qualified in its entirety by, the provisions of the Amended and Restated Warrant Agreement filed as Exhibit 10.35 to our registration statement on Form S-1.

Spin-Off from Newcastle

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 believes that our value could be increased over time through a strategy aimed at acquiring local media assets and organically growing our digital marketing business. In addition, Newcastle’s board of directors believed that our Company’s prospects would be enhanced by the ability to operate unfettered by REIT requirements. 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 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 spin-off was completed on February 13, 2014. Immediately thereafter, we became a publicly traded company independent from Newcastle trading on the NYSE under the ticker symbol “NEWM.”

 

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CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS FOR

NON-U.S. HOLDERS OF OUR COMMON STOCK

The following is a discussion of certain U.S. federal income and estate tax considerations generally applicable to the ownership and disposition of our Common Stock by Non-U.S. Holders. For purposes of this section under the heading “Certain U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders of our Common Stock,” a “Non-U.S. Holder” means a beneficial owner of our Common Stock that is a nonresident alien individual, a foreign corporation, or any other person that is not subject to U.S. federal income tax on a net income basis in respect of such Common Stock.

This discussion deals only with Common Stock held as capital assets by Non-U.S. Holders who acquire Common Stock in this offering. This discussion does not cover all aspects of U.S. federal income taxation that may be relevant to the purchase, ownership or disposition of our Common Stock by investors in light of their specific facts and circumstances. In particular, this discussion does not address all of the tax considerations that may be relevant to persons in special tax situations, including persons that will hold our Common Stock in connection with a U.S. trade or business or a U.S. permanent establishment, certain former citizens or residents of the United States, and persons that are a “controlled foreign corporation,” a “passive foreign investment company” or a partnership or other pass-through entity for U.S. federal income tax purposes, or are otherwise subject to special treatment under the Internal Revenue Code (the “Code”). This section does not address any other U.S. federal tax considerations (such as gift tax) or any state, local or non-U.S. tax considerations. You should consult your own tax advisors about the tax consequences of the purchase, ownership and disposition of our Common Stock in light of your own particular circumstances, including the tax consequences under state, local, foreign and other tax laws and the possible effects of any changes in applicable tax laws.

Furthermore, this discussion is based upon on the Code, U.S. Treasury regulations, published administrative interpretations of the IRS, and judicial decisions, all of which are subject to differing interpretations or to change, possibly with retroactive effect. We have not sought any ruling from the IRS with respect to the statements made and the conclusions reached in this discussion, and there can be no assurance that the IRS will agree with such statements and conclusions.

Dividends

In the event that we make a distribution of cash or property with respect to our Common Stock, any such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of a Non-U.S. Holder’s investment, up to such Non-U.S. Holder’s tax basis in our Common Stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in “—Sale, Exchange or Other Taxable Disposition of our Common Stock.”

Dividends paid to a Non-U.S. Holder generally will be subject to U.S. federal withholding tax at a 30% rate, or such lower rate as may be specified by an applicable tax treaty. Even if a Non-U.S. Holder is eligible for a lower treaty rate, we and other payors will generally be required to withhold at a 30% rate (rather than the lower treaty rate) on dividend payments to such Non-U.S. Holder, unless:

 

    such Non-U.S. Holder has furnished to us or such other payor a valid IRS Form W-8-BEN-E or other documentary evidence establishing its entitlement to the lower treaty rate with respect to such payments and neither we nor our paying agent (or other payor) have actual knowledge or reason to know to the contrary, and

 

   

in the case of actual or constructive dividends, if required by the Foreign Account Tax Compliance Act or any intergovernmental agreement enacted pursuant to that law, such Non-U.S. Holder or any entity through which it receives such dividends have provided the withholding agent with certain information

 

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with respect to its or the entity’s direct and indirect U.S. owners, and if such Non-U.S. Holder holds our Common Stock through a foreign financial institution, such institution has entered into an agreement with the U.S. government to collect and provide to the U.S. tax authorities information about its accountholders (including certain investors in such institution or entity) and such Non-U.S. Holder has provided any required information to such institution.

If a Non-U.S. Holder is eligible for a reduced rate of U.S. federal withholding tax pursuant to an applicable income tax treaty or otherwise, it may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Investors are encouraged to consult with their own tax advisors regarding the possible implications of these withholding requirements on their investment in our Common Stock.

Sale, Exchange or Other Taxable Disposition of our Common Stock

A Non-U.S. Holder generally will not be subject to U.S. federal income tax with respect to gain recognized on a sale, exchange or other taxable disposition of our Common Stock unless:

 

    in the case of an individual, such holder is present in the United States for 183 days or more in the taxable year of the sale, exchange or other taxable disposition, and certain other conditions are met, or

 

    we are or have been a United States real property holding corporation for federal income tax purposes and a Non-U.S. Holder held, directly or indirectly, at any time during the five-year period ending on the date of the disposition, more than 5% of our Common Stock.

In the case of the sale or disposition of our Common Stock on or after January 1, 2017, a Non-U.S. Holder may be subject to a 30% withholding tax on the gross proceeds of the sale or disposition unless the requirements described in the last bullet point under “—Dividends” above are satisfied. Investors are encouraged to consult with their own tax advisors regarding the possible implications of these withholding requirements on their investment in our Common Stock and the potential for a refund or credit in the case of any withholding tax.

We have not been, are not and do not anticipate becoming a United States real property holding corporation for U.S. federal income tax purposes.

Information Reporting and Backup Withholding

We must report annually to the IRS and to each Non-U.S. Holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which Non-U.S. Holders reside under the provisions of an applicable income tax treaty.

A Non-U.S. Holder may be subject to backup withholding for dividends paid to it unless it certifies under penalty of perjury that it is a Non-U.S. Holder or otherwise establish an exemption. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against such Non-U.S. Holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.

U.S. Federal Estate Tax

Any Common Stock held (or deemed held) by an individual Non-U.S. Holder at the time of his or her death will be included in such Non-U.S. Holder’s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

 

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Table of Contents

USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and giving effect to the sale of shares of our Common Stock to certain of our officers and directors and an officer of our Manager that will not be subject to underwriting discounts or commissions, will be approximately $107.4 million, assuming a public offering price of $16.97 per share (the last reported sales price of our common stock on the NYSE on September 16, 2014), or $123.7 million if the underwriters exercise their option to purchase additional shares of Common Stock in full. We intend to use the proceeds from this offering for working capital and other general corporate purposes, which may include potential investments in, and acquisitions of, local media businesses and assets. Presently, we have no agreements with any potential acquisition parties. We have not yet determined the amount of net proceeds to be used specifically for any of the foregoing purposes. Accordingly, management will have broad discretion over the use of the net proceeds to us from this offering and investors will be relying on the judgment of our management regarding the application of these proceeds. Pending their use, we plan to invest the net proceeds to us from this offering in short term, interest bearing obligations, investment grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.

MARKET PRICE INFORMATION AND DIVIDENDS

Market Price Data

New Media Common Stock trades on the 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, 2013)

   $ 15.65       $ 10.35   

Second Quarter

   $ 15.79       $ 12.89   

Third Quarter (through September 16, 2014)

   $ 17.95       $ 13.59   

From the most recent available Company information, on September 16, 2014 there were approximately 49 holders of record.

Dividends

New Media currently intends to distribute a substantial portion our free cash flow as a dividend to stockholders, through a quarterly dividend, subject to satisfactory financial performance, Board approval and dividend restrictions in the New Media Credit Agreement. The Board of Directors’ determinations regarding dividends will depend on a variety of factors, including the Company’s GAAP net income, free cash flow generated from 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. On July 31, 2014, the Company announced a second quarter 2014 cash dividend of $0.27 per share of New Media Common Stock. The dividend was paid on August 21, 2014 to shareholders of record as of the close of business on August 12, 2014.

 

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Table of Contents

CAPITALIZATION

The following table sets forth cash and cash equivalents and capitalization of New Media as of June 29, 2014 (i) on an actual basis, (ii) on a pro forma basis to give effect to the Pro Forma Adjustments and (iii) on a pro forma as adjusted basis to give effect to the Pro Forma Adjustments as well as the sale of 6,500,000 shares of Common Stock by us in this offering at an assumed public offering price of $16.97 per share (the closing sales price of our Common Stock on the NYSE on September 16, 2014), after deducting the underwriting discount and estimated offering expenses payable by us.

This table should be read in conjunction with the Consolidated Financial Statements, Unaudited Condensed Consolidated Financial Statements, related notes and other financial information, including the unaudited pro forma condensed combined financial information, included herein.

 

     As of June 29, 2014  
     Actual     Pro forma     Pro forma
as adjusted
 
     (in thousands, except share data)  

Cash and cash equivalents

   $ 31,347      $ 18,347      $ 125,702   
  

 

 

   

 

 

   

 

 

 

Debt:

      

New Media Credit Agreement(1)

     192,398        225,898        225,898   

Long-term liabilities, including current portion

     5,262        5,292        5,292   
  

 

 

   

 

 

   

 

 

 

Total long-term debt, including current portion

   $ 197,660      $ 231,190      $ 231,190   
  

 

 

   

 

 

   

 

 

 

Stockholders’ equity:

      

Common stock, $0.01 par value, 30,015,870, 30,015,870 and 36,515,870 shares issued and outstanding on an actual, pro forma and pro forma as adjusted basis, respectively

     300        300        365   

Additional paid-in-capital

     387,419        387,419        494,709   

Accumulated other comprehensive income

     458        458        458   

Retained earnings

     (2,754     (2,754     (2,754
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     385,423        385,423        492,778   
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 583,083      $ 616,613      $ 723,968   
  

 

 

   

 

 

   

 

 

 

 

(1) The New Media Credit Agreement provides for (i) a $200 million senior secured term facility and (ii) a $25 million senior secured revolving credit facility, with a $5 million sub-facility for letters of credit and a $5 million sub-facility for swing loans. In addition, the New Media Borrower may request one or more new commitments for term loans or revolving loans from time to time up to an aggregate total of $75 million subject to certain conditions.

 

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Table of Contents

DILUTION

If you invest in our Common Stock, your ownership interest will be diluted to the extent of the difference between the public offering price per share of our Common Stock and the pro forma as adjusted net tangible book value per share of our Common Stock upon consummation of this offering. Net tangible book value per share represents the book value of our total tangible assets less the book value of our total liabilities divided by the number of shares of Common Stock then issued and outstanding.

After giving effect to the Pro Forma Adjustments, our net pro forma net tangible book value as of June 29, 2014 would have been approximately $102,166,000, or approximately $3.40 per share, based on 30,015,870 shares of Common Stock issued and outstanding as of such date.

After giving effect to the Pro Forma Adjustments as well as the sale of 6,500,000 shares of Common Stock by us in this offering at an assumed public offering price of $16.97 per share (the closing sales price of our Common Stock on the NYSE on September 16, 2014), our pro forma as adjusted net tangible book value as of June 29, 2014 would have been approximately $209,520,950, or approximately $5.74 per share. This represents an immediate and substantial dilution of $11.23 per share to new investors purchasing Common Stock in this offering. The following table illustrates this dilution per share:

 

Assumed public offering price per share

      $ 16.97   

Pro forma net tangible book value per share as of June 29, 2014 after giving effect to the Pro Forma Adjustments but before giving effect this offering

   $ 3.40      

Increase in net tangible book value per share attributable to this offering

     2.34      
  

 

 

    

Pro forma as adjusted net tangible book value per share after giving effect to the Pro Forma Adjustments as well as this offering

        5.74   
     

 

 

 

Dilution per share to new investors in this offering

      $ 11.23   
     

 

 

 

The following table summarizes, as of June 29, 2014 on a pro forma basis for the Pro Forma Adjustments as well as this offering, the differences between the number of shares of Common Stock received from us in the spin-off and the total price and the average price per share attributed to existing stockholders’ shares of Common Stock and paid by the new investors in this offering, before deducting the underwriting discounts and estimated offering expenses payable by us, at an assumed public offering price of $16.97 per share (the closing sales price of our Common Stock on the NYSE on September 16, 2014).

 

     Shares Purchased     Total Consideration     Average
Price
per
Share
 
     Number      Percent     Amount      Percent    
     (in thousands)     

 

    (in thousands)     

 

       

Existing stockholders

     30,016         82.2     387,719         77.9   $ 12.92   

New investors

     6,500         17.8     110,305         22.1   $ 16.97   
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     36,516         100.0     498,024         100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

If the underwriters exercise their option to purchase additional shares of Common Stock in full, the pro forma as adjusted net tangible book value per share after this offering as of June 29, 2014 would be approximately $6.03 per share and the dilution to new investors per share after this offering would be $10.94 per share.

A $1.00 increase (decrease) in the assumed public offering price of $16.97 per share (the closing sales price of our Common Stock on the NYSE on September 16, 2014) would increase (decrease) total consideration paid by new investors and average price per share paid by new investors by $6,500,000 and $1.00 per share, respectively. An increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) total consideration paid by new investors and average price per share paid by new investors by $16,970,000 and $0 per share, respectively.

The pro forma information discussed above is for illustrative and informational purposes only. See “Unaudited Pro Forma Condensed Combined Financial Information.”

 

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Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The selected consolidated statement of operations data for New Media for the two months ended December 29, 2013, for GateHouse for the ten months ended November 6, 2013, for GateHouse for the year ended December 30, 2012 and for the year ended January 1, 2012 and the selected consolidated balance sheet data for New Media as of December 29, 2013 and for GateHouse as of December 30, 2012 have been derived from the Audited Consolidated Financial Statements of New Media and GateHouse, our Predecessor, included elsewhere in this Prospectus. The selected consolidated statement of operations data for GateHouse for the years ended December 31, 2010 and 2009 and the selected consolidated balance sheet data for GateHouse as of January 1, 2012, December 31, 2010 and December 31, 2009 have been derived from GateHouse’s audited financial statements not included in this Prospectus. The selected financial data as of and for the combined year ended December 29, 2013, ten months ended November 6, 2013 and the years ended December 30, 2012, January 1, 2012, December 31, 2010 and December 31, 2009 have been revised to reflect one of GateHouse’s publications as a discontinued operation for comparability.

The selected condensed consolidated statement of operations data for New Media for the six months ended June 29, 2014 and for GateHouse for the six months ended June 30, 2013 and the selected condensed consolidated balance sheet data for New Media as of June 29, 2014 have been derived from the Unaudited Condensed Consolidated Financial Statements of New Media and GateHouse, our Predecessor, included elsewhere in this Prospectus. The selected consolidated balance sheet data for GateHouse as of June 30, 2013 has been derived from Gate House’s unaudited financial statements not included in this Prospectus.

Operating results for the ten months ended November 6, 2013 included the impact of our emergence from bankruptcy and adoption of fresh start accounting. The historical consolidated financial statements of our Predecessor are not comparable following its emergence from Chapter 11 due to the effects of the consummation of the Plan, as well as adjustments for fresh-start accounting. The data should be read in conjunction with the Consolidated Financial Statements, Unaudited Condensed Consolidated Financial Statements, related notes, Management’s Discussion and Analysis of Financial Condition and Results of Operations and other financial information included herein.

 

    Successor
Company
         Predecessor
Company
         Successor
Company
         Predecessor Company  
    Six Months
Ended
June 29,
2014
         Six Months
Ended
June 30,
2013
         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

  $ 178,460          $ 150,559          $ 63,340          $ 265,078      $ 330,881      $ 357,134      $ 385,579      $ 398,927   

Circulation

    90,471            65,513            29,525            118,810        131,576        131,879        133,192        138,233   

Commercial printing and other

    31,535            14,107            10,366            29,402        26,097        25,657        25,967        30,960   
 

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    300,466            230,179            103,231            413,290        488,554        514,670        544,738        568,120   

Operating costs and expenses:

                           

Operating costs

    172,470            129,998            56,614            232,066        268,222        281,884        296,974        324,263   

Selling, general and administrative

    102,251            78,722            28,749            136,832        145,020        146,295        154,516        159,197   

Depreciation and amortization

    19,918            19,636            6,588            33,409        39,888        42,426        45,080        54,237   

Integration and reorganization costs

    837            958            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

    687            1,043            27            1,163        1,238        455        1,551        (418

Goodwill and mastheads impairment

    —             —              —             —         —          385        —         273,914   
 

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    4,303            (178         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

    17,330            30,425            1,798            (871,399     57,463        58,361        69,520        72,502   
 

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    (13,027         (30,603         7,697            788,043        (27,670     (22,753     (25,657     (510,473

Income tax expense (benefit)

    (3,067         —              491            (197     (207     (1,803     (155     342   
 

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

    (9,960         (30,603         7,206            788,240        (27,463     (20,950     (25,502     (510,815

Loss from discontinued operations, net of income taxes

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

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    (9,960         (31,637         7,206            787,206        (29,803     (21,649     (26,044     (530,102
 

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

39


Table of Contents
    Successor
Company
         Predecessor
Company
         Successor
Company
         Predecessor Company  
    Six Months
Ended
June 29,
2014
         Six Months
Ended
June 30,
2013
         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)                                                               

Net loss attributable to noncontrolling interest

    —              —              —             208        —          —         —         —    
 

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to New Media

  $ (9,960       $ (31,637       $ 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

  $ (0.33       $ (0.53       $ 0.24          $ 13.58      $ (0.47   $ (0.36   $ (0.46   $ (8.93

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

  $ (0.33       $ (0.53       $ 0.24          $ 13.58      $ (0.47   $ (0.36   $ (0.46   $ (8.93

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

  $ (0.33       $ (0.54       $ 0.24          $ 13.56      $ (0.51   $ (0.37   $ (0.45   $ (9.24

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

  $ (0.33       $ (0.54       $ 0.24          $ 13.56      $ (0.51   $ (0.37   $ (0.45   $ (9.24

Other Data:

                           

Adjusted EBITDA(1)

  $ 24,379          $ 18,450          $ 16,096          $ 988,265      $ 69,766      $ 80,547      $ 89,511      $ 82,571   

Cash interest paid

  $ 7,238          $ 7,403          $ 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 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—Adjusted EBITDA.”

 

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

 

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Table of Contents

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

 

    Successor
Company
         Predecessor
Company
        Successor
Company
         Predecessor Company  
    Six months
ended
June 29,
2014
         Six months
ended
June 30,
2013
        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

  $ (9,960       $ (30,603     $ 7,206          $ 788,240      $ (27,463   $ (20,950   $ (25,502   $ (510,815

Income tax expense (benefit)

    (3,067         —           491            (197     (207     (1,803     (155     342   

Loss (gain) on derivative instruments(1)

    51            9          —             14        (1,635     (913     8,277        12,672   

Gain on early extinguishment of debt (2)

    9,047            —           —             —         —         —          —          (7,538

Amortization of deferred financing costs

    758            522          171            842        1,255        1,360        1,360        1,360   

Write-off of financing costs

    —                  —             —         —         —          —         743   

Interest expense

    7,632            28,886          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

    19,918            19,636          6,588            33,409        39,888        42,426        45,080        54,237   

Goodwill and mastheads impairment

    —              —           —             —         —         385        —         273,914   
 

 

 

       

 

 

     

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA from continuing operations

  $ 24,379 (a)        $ 18,450 (b)      $ 16,096 (c)        $ 988,265 (d)    $ 69,766 (e)    $ 80,547 (f)    $ 89,511 (g)    $ 82,571 (h) 
 

 

 

       

 

 

     

 

 

       

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)  Adjusted EBITDA for the six months ended June 29, 2014 included net expenses of $8,985, which are one-time in nature or non-cash compensation. Included in these net expenses of $8,985 is non-cash compensation and other expense of $7,461, integration and reorganization costs of $837 and a $687 loss on the sale of assets.
(b)  Adjusted EBITDA for the six months ended June 30, 2013 included net expenses of $7,949, which are one-time in nature or non-cash compensation. Included in these net expenses of $7,949 is non-cash compensation and other expense of $6,376, non-cash portion of postretirement benefits expense of $(428), integration and reorganization costs of $958 and a $1,043 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 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.
(d)  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.

 

(e)  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.

 

(f)  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.

 

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

 

(g)  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.

 

(h)  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
         Successor
Company
        

 

    Predecessor Company  
    June 29,
2014
         June 30,
2013
         December 29,
2013
         December 30,
2012
    January 1,
2012
    December 31,
2010
    December 31,
2009
 
(in thousands)                                                         

Balance Sheet Data:

                         

Total assets

  $ 670,543          $ 433,704          $ 689,953          $ 469,766      $ 510,802      $ 546,327      $ 591,929   

Total long-term obligations, including current maturities

    197,660            1,170,220            187,119            1,177,298        1,185,212        1,197,347        1,222,102   

Stockholders’ equity (deficit)

    385,423            (848,855         395,362            (834,159     (805,632     (792,121     (753,576

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined balance sheet as of June 29, 2014 and the unaudited pro forma condensed combined statement of operations for the six months ended June 29, 2014 and for the year ended December 29, 2013 are based on (i) the audited consolidated financial statements of 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 (ii) the unaudited consolidated financial statements of New Media as of and for the six months ended June 29, 2014 and (iii) the consolidated financial statements of The Providence Journal Company (“Providence Journal”) as of and for the six months ended June 30, 2014 and for the year ended December 31, 2013, each included in this Prospectus.

The unaudited pro forma condensed combined statement of operations for the six months ended June 29, 2014 and for the year ended December 29, 2013 gives effect to the Pro Forma Transactions (as defined below) as if the Pro Forma Transactions had occurred or had become effective as of December 31, 2012 (beginning of our fiscal year 2013). The unaudited pro forma condensed combined balance sheet as of June 29, 2014 gives effect to the Pro Forma Transactions as if they had occurred on June 29, 2014. The unaudited pro forma condensed combined financial information excludes the effects of this offering.

The pro forma financial information is provided for informational and illustrative purposes only and should be read in conjunction with “Use of Proceeds,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” New Media’s historical financial statements and related notes thereto, including Predecessor GateHouse’s historical consolidated financial statements and notes thereto, Local Media’s historical combined financial statements and notes thereto, and Providence Journal’s historical consolidated financial statements and notes thereto, each included elsewhere in this Prospectus.

The unaudited pro forma condensed combined financial information has been prepared to reflect adjustments to our historical consolidated financial information that are (i) directly attributable to the Pro Forma Transactions, (ii) factually supportable and (iii) with respect to the unaudited pro forma condensed combined statement of operations, expected to have a continuing impact on our results.

The unaudited pro forma condensed combined financial information reflects the following Pro Forma Transactions:

 

    commencing from the date of the Listing, New Media’s management and incentive fee payable to the Manager by us;

 

    adoption of fresh-start accounting by GateHouse in accordance with ASC 852, upon confirmation of the Plan;

 

    cancellation of our Predecessor’s 2007 Credit Facility and related interest rate swaps in exchange for New Media Common Stock pursuant to the Plan and entry into the GateHouse Credit Facilities;

 

    impact of Local Media purchase accounting adjustments, in accordance with ASC 805, as a result of GateHouse consolidation of Local Media beginning on September 3, 2013 and Newcastle’s contribution of 100% common stock of Local Media Parent to New Media in exchange for New Media Common Stock pursuant to the Plan;

 

    payment of GateHouse Credit Facilities and Local Media Credit Facility in full and entering into the New Media Credit Agreement; and

 

    impact of Providence Journal purchase accounting adjustments, in accordance with ASC 805, and the incremental financing under the New Media Credit Agreement in connection with New Media’s acquisition.

The impact of adoption of fresh-start accounting, cancellation of Predecessor 2007 Credit Facility, refinancing of GateHouse Credit Facilities and Local Media Credit Facility and acquisition of Local Media are already reflected in the Company’s historical consolidated balance sheet as of June 29, 2014 and the impact of

 

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adoption of fresh-start accounting and acquisition of Local Media are already reflected in the historical consolidated statement of operations of New Media for the six months ended June 29, 2014; accordingly, no pro forma adjustment has been made to these financial statements as the impact of such transactions is included in our respective historical financial information.

The unaudited pro forma condensed combined statement of operations for the year-ended December 29, 2013 excludes approximately $947.6 million of non-recurring charges that the Company incurred in connection with certain Pro Forma Transactions, including reorganization gain on the extinguishment of debt, gain on fresh-start accounting and other reorganization expenses.

Each of the transactions reflected in the adjustments is described in more detail below.

The unaudited pro forma condensed combined financial information is included for illustrative and informational purposes only and does not purport to reflect our results of operations or financial condition had the pro forma transactions occurred at an earlier date. The unaudited pro forma condensed combined financial information also should not be considered representative of our future financial condition or results of operations.

GateHouse Effects of Plan and Fresh-Start and Other Adjustments

New Media had no operations until November 26, 2013, when it assumed control of GateHouse and Local Media. 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. On September 27, 2013, our Predecessor filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. On November 6, 2013 (the “Confirmation Date”) the Bankruptcy Court confirmed the Plan. Our Predecessor effected the transactions contemplated by the Plan and emerged from Chapter 11 protection on the Effective Date.

Upon confirmation of the Plan by the Bankruptcy Court on November 6, 2013, New Media adopted fresh start accounting. Under fresh start accounting, a new entity is deemed to have been created for financial reporting purposes and the Predecessor’s recorded amounts of assets and liabilities were 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 is generally not comparable with the financial statements of the Predecessor prior to November 6, 2013.

The Plan discharged claims and interests against our Predecessor primarily through the (a) issuance of New Media Common Stock, (b) Newcastle’s contribution of 100% common stock of Local Media Parent to New Media in exchange for New Media Common Stock, (c) reinstatement of certain claims, and (d) issuance of the New Media Warrants to the Former Equity Holders in our Predecessor. See Note 3 to New Media’s Consolidated Financial Statements, “Fresh Start Accounting.”

On November 26, 2013, GateHouse entered into the Gatehouse Credit Facilities. Pursuant to the Plan, but not a condition to the effectiveness of the Plan, holders of the 2007 Credit Facility and related interest rate swaps outstanding debt who elected to receive New Media Common Stock received their pro rata share of the Net Proceeds. The Net Proceeds distributed to these holders totaled $149.0 million. The GateHouse Credit Facilities were subsequently refinanced on June 4, 2014. See following section “New Media Refinancing Adjustments”.

On the Effective Date, New Media entered into the Management Agreement pursuant to which the Manager will manage the operations of New Media. Commencing from the Listing, New Media will pay its Manager a management fee equal to 1.5% of New Media’s Total Equity (as defined in the Management Agreement) and the Manager is eligible to receive incentive compensation.

The effects of the Plan, adoption of fresh start accounting and entry into the GateHouse Credit Facilities and Management Agreement are collectively referred to as the Restructuring.

 

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The Restructuring transactions are reflected in the audited financial statements of New Media as of the Confirmation Date and November 26, 2013 for the GateHouse Credit Facilities. As such, the historical consolidated balance sheet reflects these transactions. The unaudited pro forma condensed combined statement of operations combines the Predecessor ten months ended November 6, 2013 and the Successor, New Media, two months ended December 29, 2013. The Successor two months ended December 29, 2013 reflects the effects of the Restructuring. The unaudited pro forma condensed combined statement of operations gives effect to the Restructuring for the Predecessor period as if the Restructuring had occurred on December 31, 2012.

The “GateHouse Effects of Plan and Fresh-Start and Other Adjustments” column in the unaudited pro forma condensed combined statement of operations gives effect to the following: (i) the termination of the 2007 Credit Facility and related interest rate swap and (ii) the revised depreciation and amortization expense due to the revaluation of the tangible and intangible assets upon the application of fresh-start accounting by GateHouse, in accordance with ASC 852. The reorganization gain resulting from the extinguishment of the prepetition debt pursuant to the Plan, gain on fresh-start accounting, and other reorganization expenses were approximately $947.6 million. The reorganization gain and other reorganization expenses is eliminated in the unaudited pro forma condensed combined statement of operations as the reorganization gains and expenses are non-recurring. The “GateHouse Effects of Plan and Fresh-Start and Other Adjustments” column also includes the Company’s entry into the GateHouse Credit Facilities and Management Agreement as though not directly an element of the Plan, they are components of the overall restructuring.

For additional information regarding the “GateHouse Effects of Plan Adjustments and Fresh-Start and Other Adjustments,” see the notes to the pro forma financial information.

Local Media Purchase Accounting and Other Adjustments

On September 3, 2013, Newcastle completed the acquisition of Local Media from News Corp. At that time, the Local Media operations were managed by GateHouse, pursuant to a management and advisory agreement. As a result of this agreement, management determined that Local Media was a variable interest entity and that GateHouse was the primary beneficiary because it had both the power to direct the activities that most significantly impact the economic performance of Local Media and it participated in the residual returns of Local Media that could be significant to Local Media. Because GateHouse was the primary beneficiary, it consolidated Local Media beginning September 3, 2013.

As part of the Plan, Newcastle agreed to contribute 100% of the stock of Local Media Parent to New Media. Following the Restructuring, the Company accounted for the consolidation of Local Media under the purchase method of accounting in accordance with ASC 805 as New Media obtained a controlling financial interest in Local Media. Accordingly, the assets acquired and liabilities assumed were recorded at their acquisition date fair values. Such acquisition value was not materially different from the acquisition value allocated upon GateHouse’s consolidation of Local Media in accordance with ASC 805 on September 3, 2013.

As Local Media was consolidated in GateHouse historical results beginning on September 3, 2013, the pro forma adjustments are only for the period from December 31, 2012 through September 2, 2013. These adjustments are included in a separate column labeled as “Local Media Purchase Accounting and Other Adjustments” to reflect the purchase accounting impact on depreciation, amortization and interest expense as if the purchase accounting occurred as of December 31, 2012.

Local Media’s fiscal year ends on the last Sunday in June. The unaudited pro forma condensed combined statements of operations were created with a year end on the last Sunday in December, which is consistent with the historical consolidated financial statements of GateHouse. Local Media results from September 3, 2013 are included in the historical GateHouse results of operations. The historical results of Local Media for the eight months ended September 2, 2013 were derived by taking the historical results of operations of Local Media for

 

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the year ended June 30, 2013, and subtracting Local Media’s historical results of operations for the six months ended December 30, 2012, and adding the two months of historical results of operations from July 1, 2013 to September 2, 2013.

See Note 4 to New Media’s Consolidated Financial Statements, “Local Media Acquisition.”

To conform the fiscal periods of Local Media’s historical combined financial statements to that of New Media, the following amounts were excluded from the pro forma financial information. Local Media had revenue of $28,320 and net income of $1,505 for the two month period from July 1, 2013 to September 2, 2013.

 

     Local Media’s Fiscal Year
Ended
June 30, 2013
 
     Excluded from the
Year Ended
December 29, 2013
 

Revenues

   $ 83,345   

Income from continuing operations

   $ 11,913   

New Media Refinancing Adjustments

On June 4, 2014, New Media entered the New Media Credit Agreement which provides for (i) the Term Loan Facility and (ii) the Revolving Credit Facility. The Term Loan Facility matures on June 4, 2020 and the maturity date for the Revolving Credit Facility is June 4, 2019. In addition, New Media may request one or more new commitments for term loans or revolving loans from time to time up to an aggregate total of $75,000.

The proceeds of the New Media Credit Agreement, which included a $6,725 original issue discount, were used to repay in full all amounts outstanding under the GateHouse Credit Facilities, the Local Media Credit Facility and to pay fees associated with the financing, with the balance going to the Company for general corporate purposes.

One lender under the New Media Credit Agreement was also a lender under the GateHouse Credit Facilities. This portion of the transaction was accounted for as a modification under ASC Topic 470-50, “Debt Modifications and Extinguishments” (“ASC 470-50”), as the difference between the present value of the cash flows under the New Media Credit Agreement and the present value of the cash flows under the GateHouse Credit Facilities was less than 10%. The unamortized deferred financing costs and original issuance discount balances as of the refinance date pertaining to this lender’s portion of the GateHouse Credit Facilities will be amortized over the terms of the new facility. The remaining portion of the GateHouse Credit Facilities and the Local Media Credit Facility debt refinancing constituted an extinguishment of debt under ASC 470-50, and was accounted for accordingly.

The refinancing related adjustments are reflected in the unaudited financial statements of New Media as of June 29, 2014. As such, the historical consolidated balance sheet reflects this transaction. Adjustments to the statement of operations related to the refinancing are in a separate column titled “New Media Refinancing Adjustments” to reflect the impact on interest expense and amortization of deferred financing costs as if the refinancing occurred as of December 31, 2012.

See Note 7 to New Media’s Unaudited Condensed Consolidated Financial Statements, “Indebtedness.”

Providence Journal Purchase Accounting and Other Adjustments

On September 3, 2014, New Media completed its acquisition of the assets of The Providence Journal Company. The “Providence Journal Purchase Accounting and Other Adjustments” column of the pro forma financial information gives effect to preliminary purchase accounting adjustments in accordance with ASC 805.

 

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The Providence Journal acquisition was financed with $9.0 million of revolving debt that will mature on June 4, 2019, $25.0 million of additional term debt under the New Media Credit Agreement that will mature on June 4, 2020 and $13.0 million of cash. The revolving debt has an interest rate of LIBOR plus 5.25% and the term loan has an interest rate of LIBOR, or minimum of 1%, plus 6.25%. Financing costs of $0.5 million and original issue discount of $0.5 million were incurred related to the consummation of this debt. The purchase price of approximately $46.0 million will be allocated to the fair value of the net assets acquired and any excess value over the tangible and identifiable intangible assets will be recorded as goodwill.

The Company obtained a third party independent valuation to assist in the determination of the fair values of property, plant and equipment and intangible assets. The property, plant and equipment valuation includes an analysis of recent comparable sales and offerings of land parcels in each of the subject’s markets. The estimated fair value is supported by the consideration to be paid and was determined using standard generally accepted appraisal practices and valuation procedures. The valuation firm used the three basic approaches to value: the cost approach (used for equipment where an active secondary market is not available and building improvements), the direct sales comparison (market) approach (used for land and equipment where an active secondary market is available) and the income approach (used for intangible assets). These approaches used are based on the cost to reproduce assets, market exchanges for comparable assets and the capitalization of income. Useful lives range from 1 to 5 years for personal property and 7 to 19 years for real property.

The valuation utilized a relief from royalty method, an income approach, to determine the fair value of mastheads. Key assumptions utilized in this valuation include revenue projections, a royalty rate of 1.5%, a long term growth rate of 0.0%, a tax rate of 39.2% and a discount rate of 24.0%. The Company valued the following intangible assets using the income approach, specifically the excess earnings method: subscriber relationships, advertiser relationships and customer relationships. In determining the fair value of these intangible assets, the excess earnings approach values the intangible asset at the present value of the incremental after-tax cash flows attributable only to the asset after deducting contributory asset charges. The incremental after-tax cash flows attributable to the subject intangible asset are then discounted to their present value. A static pool approach using historical attrition rates was used to estimate attrition rates of 3.0% to 10.0% for advertiser relationships, subscriber relationships and customer relationships. The long term growth rate was estimated to be 0.0% and the discount rate was estimated at 24.5%. Amortizable lives range from 14 to 17 years for subscriber relationships, advertiser relationships and customer relationships, while mastheads are considered a non-amortizable intangible asset.

The valuations used in this Prospectus represent current estimates based on data available. However, updates to these valuations will be completed as of the acquisition date based on the results of asset and liability valuations, as well as the related calculation of deferred income taxes. The differences between the actual valuations and the current estimated valuations used in preparing the pro forma financial information may be material and will be reflected in our future balance sheets and may affect amounts, including depreciation and amortization expense, which we will recognize in our statement of operations post acquisition. As such, the pro forma financial information may not accurately represent our post acquisition financial condition or results from operations and any differences may be material.

 

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NEW MEDIA INVESTMENT GROUP AND SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Statements of Operations

(In thousands, except share and per share data)

 

    Year Ended December 29, 2013  
    New Media
Historical
Two

Months
Ended
December 29,
2013
    GateHouse
Predecessor
Ten

Months
Ended
November 6,
2013
    GateHouse
Effects of
Plan, Fresh
Start and
Other
Adjustments
    Local
Media
Historical
September 2,
2013
    Local Media
Purchase
Accounting
and Other
Adjustments
    New Media
Refinancing
Adjustments
    Providence
Journal
Historical
December 31,
2013
    Providence
Journal
Purchase
Accounting
and Other
Adjustments
    Pro Forma
Year
Ended
December 29,
2013
 

Revenues:

                 

Advertising

  $ 63,340      $ 265,078        $ 52,308          $ 41,015        $ 421,741   

Circulation

    29,525        118,810          33,855            34,042          216,232   

Commercial printing and other

    10,366        29,402          17,372            15,012          72,152   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

    103,231        413,290        —          103,535        —          —          90,069        —          710,125   

Operating costs and expenses:

                 

Operating costs

    56,614        232,066          93,358        (34,131 )(h)        80,024        (32,616 )(n)      395,315   

Selling, general, and administrative

    28,749        136,832        (2,428 )(a,f)        34,131 (h)          32,616 (n)      229,900   

Depreciation and amortization

    6,588        33,409        (8,058 )(b)      5,351        2,195 (i)        7,872        (1,385 )(o)      45,972   

Integration and reorganization costs

    1,758        1,577                    3,335   

Impairment of long-lived and intangible assets

    —          91,599          42,268                133,867   

Loss on sale of assets

    27        1,163                    1,190   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    9,495        (83,356     10,486        (37,442     (2,195     —          2,173        1,385        (99,454

Interest expense

    1,640        74,358        (73,988 )(c)        1,656 (j)      12,108 (l)        2,386 (p)      18,160   

Amortization of deferred financing costs

    171        842        (754 )(d)        284 (j)      56 (m)        83 (p)      682   

Loss on derivative instruments

    —          14        (14 )(e)                —     

Other (income) expense

    (13     1,004                (256       735   

Reorganization items, net

    —          (947,617     947,617 (f)                —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    7,697        788,043        (862,375     (37,442     (4,135     (12,164     2,429        (1,084     (119,031

Income tax expense

    491        (197     (26,382 )(q)      (13,742     (2,535 )(q)      (4,762 )(q)      1,269 (q)      (742 )(q)      (46,600
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

  $ 7,206      $ 788,240      $ (835,993   $ (23,700   $ (1,600   $ (7,402   $ 1,160      $ (342   $ (72,431
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss per share:

                 

Basic and diluted:

                 

Income (loss) from continuing operations

  $ 0.24                    $ (2.41 )(g) 

Basic weighted average shares outstanding

    30,000,000                      30,000,000   

Diluted weighted average shares outstanding

    30,000,000                      30,000,000   

 

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NEW MEDIA INVESTMENT GROUP AND SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Statements of Operations

(In thousands, except share and per share data)

 

    Six Months Ended June 29, 2014  
    New Media
Historical
June 29, 2014
    New Media
Refinancing
Adjustments
         Providence
Journal
June 30, 2014
    Providence Journal
Purchase Accounting
and Other
Adjustments
    Pro Forma
June 29, 2014
 

Revenues:

            

Advertising

  $ 178,460           $ 18,975        $ 197,435   

Circulation

    90,471             16,844          107,315   

Commercial printing and other

    31,535             7,693          39,228   
 

 

 

   

 

 

      

 

 

   

 

 

   

 

 

 

Total revenues

    300,466        —             43,512        —          343,978   

Operating costs and expenses:

            

Operating costs

    172,470             37,935        (13,802 )(n)      196,603   

Selling, general, and administrative

    102,251        (1,078   (a,k)        13,802  (n)      114,975   

Depreciation and amortization

    19,918             3,599        (356 )(o)      23,161   

Integration and reorganization costs

    837                 837   

(Gain) loss on sale of assets

    687                 687   
 

 

 

   

 

 

      

 

 

   

 

 

   

 

 

 

Operating loss

    4,303        1,078           1,978        356        7,715   

Interest expense

    7,632        255      (l)        1,194  (p)      9,081   

Amortization of deferred financing costs

    758        (459   (m)        42  (p)      341   

Loss on early extinguishment of debt

    9,047        (9,047   (k)          —     

(Gain) loss on derivative instruments

    51        (51   (m)          —     

Other (income) expense

    (158          55          (103
 

 

 

   

 

 

      

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    (13,027     10,380           1,923        (880     (1,604

Income tax benefit

    (3,067     2,031      (q)      827        (419 ) (q)      (628
 

 

 

   

 

 

      

 

 

   

 

 

   

 

 

 

Loss from continuing operations

  $ (9,960   $ 8,349         $ 1,096      $ (461     (976
 

 

 

   

 

 

      

 

 

   

 

 

   

 

 

 

Loss per share:

            

Basic and diluted:

            

Loss from continuing operations

  $ (0.33            $ (0.03 )(g) 

Basic weighted average shares outstanding

    30,000,000                 30,000,000   

Diluted weighted average shares outstanding

    30,000,000                 30,000,000   

 

Plan Adjustments, Fresh-Start and Other Adjustments

 

a. Commencing from the Listing, we pay our Manager a management fee equal to 1.5% per annum of Total Equity calculated and payable monthly in arrears in cash. Total Equity is generally the equity transferred by Newcastle to the Company upon Listing, plus total net proceeds from any equity capital raised (including through stock offerings), plus certain capital contributions to subsidiaries, plus the equity value of assets transferred to the Company prior to or after the date of the Management Agreement, less capital dividends and capital distributions. In addition to the management fee and commencing from the Listing, our Manager is eligible to receive on a quarterly basis annual incentive compensation in an amount equal to the product of 25.0% of the dollar amount by which (a) the adjusted net income of the Company exceeds (b)(i) the weighted daily average Total Equity (plus cash capital raising costs), multiplied by (ii) a simple interest rate of 10.0% per annum.

 

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This adjustment reflects the impact of the management fee and is calculated based on the pro forma financial information. For purposes of the pro forma, the equity value of $390.4 million, which is equal to the equity transferred by Newcastle to the Company upon Listing, is utilized and resulted in a management fee of $5.9 million for the year ended December 29, 2013. An adjustment of $0.7 million is included for the six months ended June 29, 2014 to reflect the pro forma impact of the management fee from the beginning of the year to the Listing date, refer to table below:

 

     Six months ended
June 29,
2014
 

Total Equity

   $ 390,449   
  

 

 

 

Base management fee of 1.5%

     2,928   

Elimination of historical management fee

     (2,229
  

 

 

 

Management fee adjustment

   $ 699   
  

 

 

 

The adjusted net loss, which excludes depreciation and amortization and adjusts for cash taxes, was $73.1 million for the year ended December 29, 2013 resulted in no incentive compensation for the year. The table below sets forth the calculation of the incentive compensation:

 

     Year ended
December 29,
2013
 

New Media pro forma net loss

   $ (72,431 )

Plus: income taxes

     (46,600 )

Plus: depreciation and amortization

     45,972   

Less: cash taxes

     —    
  

 

 

 

Adjusted net loss

     (73,059 )

10% of Total Equity

     39,045   
  

 

 

 

Adjusted net income less 10% of Total Equity

     —    
  

 

 

 

Incentive compensation at 25% of the excess of adjusted net income over 10% of Total Equity

   $ —    
  

 

 

 

No incentive compensation is included in the pro forma statement of operations for the six months ended June 29, 2014.

 

b. This adjustment reflects the adoption of fresh start accounting resulting in the revaluation of the tangible and intangible assets. The fair value of Predecessor GateHouse’s property, plant and equipment exceeded its carrying value by approximately $97.5 million and its intangible assets carrying value exceeded its fair value by approximately $33.3 million. This adjustment eliminates the historical depreciation and amortization expense and records the incremental ten months of depreciation and amortization based on the fair values determined as of the Confirmation Date. Refer to the audited consolidated financial statements of New Media for the year ended December 29, 2013 for additional information on the useful lives and fair value disclosures.

The following tables provide the details on the depreciation and amortization adjustments:

 

     Year ended
December 29,
2013
 

Incremental ten months Successor GateHouse depreciation

   $ 18,211   

Elimination of Predecessor GateHouse depreciation*

     (13,266 )
  

 

 

 

Total increase in depreciation adjustment

   $ 4,945   
  

 

 

 

 

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     Year ended
December 29,
2013
 

Incremental ten months Successor GateHouse amortization

   $ 5,243   

Elimination of Predecessor GateHouse amortization

     (18,246 )
  

 

 

 

Total decrease in amortization adjustment

   $ (13,003 )  
  

 

 

 

 

  * Excludes $1.9 million of depreciation expense for Local Media Predecessor included in the column “GateHouse Predecessor ten months ended November 6, 2013” from date of acquisition (September 3, 2013) through November 6, 2013. See Note i for depreciation adjustment related to Local Media.

 

c. The Restructuring provided for substantial changes to our debt structure as of November 26, 2013. This adjustment eliminates the Predecessor GateHouse interest expense of approximately $74.0 million, excluding $0.4 million of interest expense for Local Media Predecessor included in the column “GateHouse Predecessor ten months ended November 6, 2013” from acquisition date (September 3, 2013) through November 6, 2013.

 

d. The pro forma impact associated with the extinguishment of the 2007 Credit Facility is $0.8 million, which excludes $0.1 million for Local Media Predecessor included in the column “GateHouse Predecessor ten months ended November 6, 2013” from acquisition date (September 3, 2013) through November 6, 2013, is eliminated by this adjustment.

 

e. The Restructuring of the debt eliminated the derivative instruments that are secured pursuant to the 2007 Credit Facility. As a result, this adjustment eliminates any gain or loss on these instruments included in the column “GateHouse Predecessor ten months ended November 6, 2013.”

 

f. Reflects the elimination of our bankruptcy-related reorganization expenses of $8.3 million, which were recorded as a selling, general, and administrative expense, and reorganization items incurred during Chapter 11 of $947.6 million as follows:

 

     Predecessor
Company
 

Write-off of predecessor deferred financing fees

   $ 948   

Credit agreement amendment fees

     6,790   

Bankruptcy fees

     11,643   

Net gain on reorganization adjustments

     (722,796

Net gain on fresh start adjustments

     (246,243

Adjustment to the allowed claim for derivative instruments

     2,041   
  

 

 

 

Total reorganization items

     (947,617
  

 

 

 

 

g. Our Predecessor’s equity interests outstanding were cancelled pursuant to the Plan and New Media issued shares of Common Stock with a par value of $0.01 per share. The number of shares used to compute pro forma basic and diluted loss per share is 30,000,000 which is the number of weighted average shares outstanding as of June 29, 2014. The pro forma basic and diluted loss per share for the year ended December 29, 2013 is estimated to be $2.41 and the pro forma basic and diluted loss per share for the six months ended June 29, 2014 is estimated to be $0.03.

 

     Year ended
December 29, 2013
 

Pro forma net loss

   $ (72,431 )

New Media Common Stock outstanding

     30,000   
  

 

 

 

Pro forma loss per share (amounts in dollars)

   $ (2.41 )  

 

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     Six months ended
June 29, 2014
 

Pro forma net loss

   $ (976 )

New Media Common Stock outstanding

     30,000   
  

 

 

 

Pro forma loss per share (amounts in dollars)

   $ (0.03 )  

We did not include any potential shares issuable upon exercise of the New Media Warrants or unvested restricted share grants in the diluted loss per share calculation as their effect would have been anti-dilutive to the per share calculations. See Note 3 to New Media’s Consolidated Financial Statements, “Fresh Start Accounting.”

Local Media Purchase Accounting and Other Adjustments

 

h. Historical results for Local Media reported operating expense, which includes both operating and selling, Local Media Purchase Accounting and Other Adjustments general and administrative expenses. This adjustment allocates expense to both categories to conform to our statement of operations classification.

 

i. Upon the acquisition, the purchase price of Local Media was allocated to the fair value of its assets and liabilities. The fair value of its property, plant and equipment exceeded its carrying value as of the acquisition date by approximately $9.4 million. The unaudited pro forma condensed combined statement of operations reflects the depreciation adjustment based on the fair value. The pro forma adjustment to depreciation expense includes an increase of $2.2 million for the year ended December 29, 2013. No adjustment was made for amortization expense as the fair value change was minimal. See Note 4 to New Media’s Consolidated Financial Statements, “Local Media Acquisition.”

 

j. The financing of the Local Media Acquisition included $33.0 million of debt, which matures in September 2018 and has an interest rate of LIBOR, or minimum of 1.00%, plus 6.50%. Financing costs of $1.9 million were incurred related to this financing and are amortized over the five year term. This adjustment estimates the impact of interest expense and the amortization of deferred financing costs for Local Media. Every 1/8 of a percent change in LIBOR, after the 1.0% minimum is exceeded, would result in a $41,000 change in annual interest expense.

The following table provides the interest expense and financing fee amortization.

 

     Year ended
December 29,
2013
 

Interest expense on Local Media financing at 7.50%

   $ 1,656   

Deferred financing fees amortized over 5 years

   $ 284   

New Media Refinancing Adjustments

 

k. As part of the debt refinancing, $1.8 million of third party fees associated with the modified debt did not meet capitalization requirements and were expense as incurred during the six months ended June 29, 2014. Additionally, a loss of $9.0 million was recognized on the extinguishment of the debt. This adjustment eliminates the impact of these nonrecurring items.

 

l. The debt refinancing and entering into the New Media Credit Agreement will result in a net increase to the interest expense of $12.1 million for the year ended December 29, 2013. This includes the annual amortization of the additional original issuance discount of $6.7 million from the New Media Credit Agreement as well as approximately $0.9 million of original issuance discount related to the modification of the GateHouse Credit Facilities in relation to the lender under both agreements. The $7.6 million of original issue discount will be amortized over the 6 year term of the New Media Credit Agreement.

For the six months ended June 29, 2014, the debt refinancing will result in a $0.3 million increase in interest expense.

 

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The tables below provide the calculation of the pro forma interest expense:

 

     Year ended
December 29,
2013
 

Full year interest expense on New Media Term Loan Facility at 7.25%

   $ 14,500   

Full year original issuance discount accretion on New Media Term Loan Facility

     1,274   

Elimination of GateHouse Credit Facilities and Local Media Credit Facility interest expense

     (3,666 )
  

 

 

 

Total increase to interest expense adjustment

   $ 12,108   
  

 

 

 

 

     Six months ended
June 29,
2014
 

Six months interest expense on New Media Term Loan Facility at 7.25%

   $ 7,250   

Six months original issuance discount accretion on New Media Term Loan Facility

     637   

Elimination of GateHouse Credit Facilities and Local Media Credit Facility interest expense

     (7,632 )
  

 

 

 

Total increase to interest expense adjustment

   $ 255   
  

 

 

 

Our weighted average interest rate on the New Media Credit Agreement was approximately 7.25% as the Revolving Credit Facility is assumed to be undrawn. A 1/8% increase or decrease in the weighted average interest rate, including from an increase in LIBOR (excluding the impact of the LIBOR floor), would increase or decrease interest expense on the New Media Credit Agreement by approximately $0.2 million annually.

 

     Drawn      Rate     Weighted Average  

Revolving Credit Facility

   $ —           5.45 %     —   %

Term Loan Facility

     200,000         7.25 %     7.25 %
  

 

 

      

 

 

 
   $ 200,000           7.25 %  
  

 

 

      

 

 

 

 

m. As a result of the refinancing, the Company had a total of $3.6 million of deferred financing fees related to the New Media Credit Agreement. These deferred financing fees included arrangement fees, legal and other related costs. The following table presents the pro forma impact of the deferred financing fees associated with the New Media Credit Agreement and those associated with the elimination of the GateHouse Credit Facilities and Local Media Credit Facility.

 

     Year ended
December 29,
2013
 

Total new deferred financing fees

   $ 3,593   

Amortization period

     5-6 years   

Full year New Media Credit Agreement deferred financing fees

     599   

Elimination of GateHouse Credit Facilities and Local Media Credit Facility deferred financing fees

     (543 )
  

 

 

 

Total deferred financing fee adjustment

   $ 56   
  

 

 

 

 

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     Six months ended
June 29,
2014
 

Total new deferred financing fees

   $ 3,593   

Amortization period

     5-6 years   

Six months New Media Credit Agreement deferred financing fees

     299   

Elimination of GateHouse Credit Facilities and Local Media Credit Facility deferred financing fees

     (758 )
  

 

 

 

Total deferred financing fee adjustment

   $ (459
  

 

 

 

As part of the refinancing, the interest rate swap associated with the GateHouse Credit Facilities was terminated. This adjustment also eliminates the loss associated with this derivative instrument for the six months ended June 29, 2014.

Providence Journal Purchase Accounting and Other Adjustments

 

n. Historical results for The Providence Journal reported operating expense, which includes both operating and selling, Providence Journal Purchase Accounting and Other Adjustments general and administrative expenses. This adjustment allocates expense to both categories to conform to our statement of operations classification.

 

o. In accordance with ASC 805, the purchase price of The Providence Journal will be allocated to the fair value of its assets and liabilities. For purposes of the pro forma statements of operations, the fair value of its property, plant and equipment exceeded its carrying value by approximately $0.6 million and the fair value of its intangible assets exceeded its carrying value by approximately $5.9 million based on the current estimate. This adjustment modifies historical depreciation and amortization expense based on the estimated fair value of property, plant and equipment and definite-lived intangible assets. The amount of the purchase price allocated to property, plant and equipment and intangible assets and the related pro forma calculation of depreciation and amortization expense are preliminary and subject to the completion of appraisals to determine the fair market value of the tangible and intangible assets.

 

p. The financing of the Providence Journal acquisition included $34.0 million of debt, $9.0 million under the revolving credit facility and $25.0 million of additional term loans under the New Media Credit Agreement (collectively “Financing of Providence Journal Acquisition”), net of $0.5 million of original issue discount and $0.5 million of deferred financing fees. This adjustment recognizes the additional interest and deferred financing amortization cost related to the debt as reflected in the following tables.

 

     Year ended
December 29,
2013
 

Full year interest expense on Financing of Providence Journal Acquisition at 6.77%

   $ 2,303   

Full year original issuance discount accretion on Financing of Providence Journal Acquisition

     83   
  

 

 

 

Total increase to interest expense adjustment

   $ 2,386   
  

 

 

 

 

     Six months ended
June 29,
2014
 

Six months interest expense on Financing of Providence Journal Acquisition at 6.77%

   $ 1,152   

Six months original issuance discount accretion on Financing of Providence Journal Acquisition

     42   
  

 

 

 

Total increase to interest expense adjustment

   $ 1,194   
  

 

 

 

 

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Our weighted average interest rate on the Financing of Providence Journal Acquisition is estimated to be approximately 6.77%. A 1/8% increase or decrease in the weighted average interest rate, including from an increase in LIBOR (excluding the impact of the LIBOR floor), would increase or decrease interest expense on the New Media Credit Agreement by approximately $0.03 million annually.

 

     Drawn      Rate     Weighted Average  

Revolving Credit Facility

   $ 9,000        5.45 %     1.44 %

Term Loan Facility

     25,000        7.25 %     5.33 %
  

 

 

      

 

 

 
   $  34,000           6.77 %
  

 

 

      

 

 

 

 

     Year ended
December 29,
2013
 

Total new deferred financing fees

   $ 500   

Amortization period

     5-6 years   

Full year Financing of Providence Journal Acquisition deferred financing fees

     83   
  

 

 

 

Total deferred financing fee adjustment

   $ 83   
  

 

 

 

 

     Six months ended
June 29,
2014
 

Total new deferred financing fees

   $ 500   

Amortization period

     5-6 years   

Six months Financing of Providence Journal Acquisition deferred financing fees

     42   
  

 

 

 

Total deferred financing fee adjustment

   $ 42   
  

 

 

 

Tax Impact on Pro Forma Adjustments

 

q. This adjustment provides the estimated impact of income tax expense or benefit based on the Company’s estimated effective tax rate of 39.15%.

The table below provides a calculation of the pro forma income tax expense for New Media for the year ended December 29, 2013:

 

New Media historical two months ended December 29, 2013 pre-tax net income

   $ 7,697   

GateHouse Predecessor ten months ended November 6, 2013 pre-tax net income

     788,043   

Effects of Plan and fresh start and other adjustments

     (862,375

Local Media pre acquisition

     (37,442 )

Local Media adjustments

     (4,135 )

New Media refinancing adjustments

     (12,164 )

Providence Journal pre acquisition

     2,429  

Providence Journal adjustments

     (1,084
  

 

 

 

New Media pro forma pre-tax net loss

   $ (119,031 )

Effective tax rate

     39.15 %
  

 

 

 

Income tax benefit

   $ (46,600 )
  

 

 

 

 

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The table below provides a calculation of the pro forma income tax expense for New Media for the six months ended June 29, 2014:

 

New Media historical June 29, 2014 pre-tax net income

   $ (13,027

New Media refinancing adjustments

     10,380  

Providence Journal pre acquisition

     1,923  

Providence Journal adjustments

     (880
  

 

 

 

New Media pro forma pre-tax net loss

   $ (1,604

Effective tax rate

     39.15 %
  

 

 

 

Income tax benefit

   $ (628 )
  

 

 

 

 

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NEW MEDIA INVESTMENT GROUP AND SUBSIDIARIES

Unaudited Pro Forma Condensed Combined Balance Sheet

(In thousands)

 

     As of June 29, 2014  
     New
Media
Historical
June 29,
2014
    Providence
Journal
Historical
June 30,
2014
     Providence
Journal
Purchase
Accounting
and Other
Adjustments
        Pro
Forma
June 29,
2014
 

Assets

           

Current assets:

           

Cash and cash equivalents

   $ 31,347      $ 213       $ (13,213   (r,s)   $ 18,347   

Restricted cash

     6,477               6,477   

Accounts receivable, net

     65,322        7,423             72,745   

Inventory

     7,463        2,657             10,120   

Prepaid expenses

     7,974        2,054             10,028   

Other current assets

     15,057        466         (466   (u)     15,057   
  

 

 

   

 

 

    

 

 

     

 

 

 

Total current assets

     133,640        12,813         (13,679       132,774   

Property, plant, and equipment, net

     258,498        30,539         598      (t)     289,635   

Goodwill

     126,571           3,441      (t)     130,012   

Intangible assets, net

     144,475        2,915         5,855      (t)     153,245   

Deferred financing costs, net

     3,543           500      (r)     4,043   

Other assets

     3,816        36             3,852   
  

 

 

   

 

 

    

 

 

     

 

 

 

Total assets

   $ 670,543      $ 46,303       $ (3,285     $ 713,561   
  

 

 

   

 

 

    

 

 

     

 

 

 

Liabilities and Stockholders’ Equity

           

Current liabilities:

           

Current portion of long-term liabilities

   $ 646             $ 646   

Current portion of long-term debt

     1,500         $ 250      (r)     1,750   

Accounts payable

     5,454        1,914             7,368   

Accrued expenses

     40,853        3,169             44,022   

Deferred revenue

     31,746        4,405             36,151   
  

 

 

   

 

 

    

 

 

     

 

 

 

Total current liabilities

     80,199        9,488         250          89,937   

Long-term liabilities:

           

Long-term debt

     190,898           33,250      (r)     224,148   

Long-term liabilities, less current portion

     4,616        5,211         (5,181   (u)     4,646   

Pension and other postretirement benefit obligations

     9,407               9,407   
  

 

 

   

 

 

    

 

 

     

 

 

 

Total liabilities

     285,120        14,699         28,319          328,138   
  

 

 

   

 

 

    

 

 

     

 

 

 

Stockholders’ equity:

           

Common stock

     300               300   

Additional paid-in capital

     387,419               387,419   

Accumulated other comprehensive income

     458               458   

(Accumulated deficit) retained earnings

     (2,754     31,604         (31,604   (v)     (2,754
  

 

 

   

 

 

    

 

 

     

 

 

 

Total stockholders’ equity

     385,423        31,604         (31,604       385,423   
  

 

 

   

 

 

    

 

 

     

 

 

 

Total liabilities and stockholders’ equity

   $ 670,543      $ 46,303       $ (3,285     $ 713,561   
  

 

 

   

 

 

    

 

 

     

 

 

 

 

Providence Journal Purchase Accounting and Other Adjustments

 

r.

The Providence Journal acquisition was financed with $9.0 million of revolving debt that will mature on June 4, 2019, $25.0 million of additional term debt under the New Media Credit Agreement that will mature

 

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  on June 4, 2020 and $13.0 million of cash. The revolving facility has an interest rate of LIBOR plus 5.25% and the term loan has an interest rate of LIBOR, or minimum of 1%, plus 6.25%. Financing costs of $0.5 million and original issue discount of $0.5 million are anticipated to be incurred related to the consummation of this debt. This adjustment recognizes the deferred financing costs, debt and cash amounts.

 

s. This adjustment removes those assets that were not assumed in the Providence Journal acquisition, including cash.

 

t. In accordance with ASC 805, the purchase price for Providence Journal will be allocated to the fair value of its assets and liabilities (including identifiable intangible assets). The value assigned to property, plant and equipment, goodwill and intangible assets is preliminary and subject to the completion of valuations to determine the fair market value of the tangible and intangible assets.

 

u. This adjustment eliminates the net deferred tax asset and liability balances related to assets and liabilities acquired. The preliminary purchase price allocation does not result in a difference between book and tax basis, as such no deferred tax balance is recorded.

 

v. This adjustment eliminates the historical stockholders’ equity as a result of the Providence Journal purchase accounting.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise specified or the context otherwise requires, for purposes of this section under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” references to “we,” “our” “us” and the “Company” relating to periods prior to the Restructuring (as defined below) mean GateHouse Media, Inc. (“GateHouse,” or our “Predecessor”) and its consolidated subsidiaries and for periods after the Restructuring, mean New Media Investment Group Inc. (“New Media”).

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements, Unaudited Condensed Consolidated Financial Statements and notes to those statements appearing in this Prospectus. 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 Prospectus 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.”

Comparability of Information

As a result of our commencement of Chapter 11 cases in the Bankruptcy Court (the “Restructuring”) in which GateHouse sought confirmation of its Joint Prepackaged Chapter 11 Plan (as modified, amended or supplemented from time to time, the “Plan”), all of GateHouse’s debt, including derivative liabilities and deferred financing assets, was eliminated on November 6, 2013, the confirmation date of 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 reorganized company post-emergence financial statements will generally not be comparable with the financial statements of our Predecessor prior to emergence, including historical financial information in this Prospectus.

Overview

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 spans across 357 markets and 24 states. Our products include 425 community print publications, 357 websites, 345 mobile sites, six yellow page directories and a digital marketing services business (“Propel”). 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 local 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

 

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media assets at attractive valuation levels. Finally, we intend to distribute a substantial portion of our free cash flow as a dividend to stockholders, through a quarterly dividend, subject to satisfactory financial performance and approval by our board of directors (the “Board of Directors” or the “Board”) and dividend restrictions in the New Media Credit Agreement (as defined below). The Board of Directors’ determinations regarding dividends will depend on a variety of factors, including the Company’s U.S. generally accepted accounting principles (“GAAP”) net income, free cash flow generated from operations or other sources, liquidity position and potential alternative uses of cash, such as acquisitions, as well as economic conditions and expected future financial results.

On July 31, 2014, the Company announced a second quarter 2014 cash dividend of $0.27 per share of Common Stock, par value $0.01 per share, of New Media (“New Media Common Stock” or our “Common Stock”). The dividend was paid on August 21, 2014 to shareholders of record as of the close of business on August 12, 2014.

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 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 resources or expertise 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 digital 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:

 

    87 daily newspapers with total paid circulation of approximately 712,000;

 

    243 weekly newspapers (published up to three times per week) with total paid circulation of approximately 303,000 and total free circulation of approximately 719,000;

 

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

 

    357 locally focused websites and 345 mobile sites, which extend our businesses onto the internet and mobile devices with approximately 118 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.

 

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In addition to our core products, we also opportunistically produce niche publications that address specific local market interests such as recreation, sports, healthcare and real estate.

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 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 Ventures) are aggregated into one reportable segment.

Recent Developments

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.

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 (as 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

 

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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. On September 27, 2013, our Predecessor filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, case number 13-12503. 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 (the “Effective Date”). On the Effective Date, Newcastle owned 84.6% of New Media’s total equity.

The Plan discharged claims and interests against our Predecessor primarily through the (a) issuance of New Media 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 of 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 New Media’s Consolidated Financial Statements and Unaudited Condensed 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 of the GateHouse Credit Facilities. 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 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 Total Equity (as defined in the Management Agreement) and the Manager 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 Group Inc. (formerly known as Dow Jones Local Media Group, Inc.) (“Local Media”). The Company has determined that the Local Media Management Agreement resulted 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 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 following the Restructuring. The Local Media Management Agreement was terminated effective June 4, 2014.

Upon Gatehouse’s 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

 

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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 Prospectus. See “The Restructuring and Spin Off” and Note 2 to New Media’s Consolidated Financial Statements and Unaudited Condensed Consolidated Financial Statements, “Voluntary Reorganization Under Chapter 11,” and Note 3 to New Media’s Consolidated Financial Statements, “Fresh Start Accounting.”

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 and particularly our Propel business, among other digital initiatives. 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.

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.

Acquisitions

On June 30, 2014, the Company completed two acquisitions of 20 publications with a total purchase price of $15.85 million, which includes estimated working capital. The acquisitions include six daily, ten weekly publications, and four shoppers serving areas of Texas, Oklahoma, Kansas and Virginia with an aggregate circulation of approximately 54,000. The acquisitions were funded with $9.85 million of cash and $6 million from the Revolving Credit Facility (as defined below).

On September 3, 2014, the Company completed the acquisition of The Providence Journal with a total purchase price of $46 million. The acquisition includes one daily and two weekly publications serving areas of Rhode Island with a daily circulation of approximately 72,000 and 96,000 on Sunday.

 

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Dividend

On July 31, 2014, the Company announced a second quarter 2014 cash dividend of $0.27 per share of New Media Common Stock. The dividend was paid on August 21, 2014 to shareholders of record as of the close of business on August 12, 2014.

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. See Note 3 to New Media’s Consolidated Financial Statements, “Fresh Start Accounting” and Note 4 to New Media’s Consolidated Financial Statements, “Local Media Acquisition.”

As a result of the application of fresh start accounting we have a significant amount of goodwill. Goodwill at June 29, 2014 was $126.6 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 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.” 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.

 

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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 (as defined below) 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 2014, 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 Note 8 to New Media’s Consolidated Financial Statements and Note 6 to New Media’s Unaudited Condensed Consolidated Financial Statements, “Goodwill and Intangible Assets,” for additional information.

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 29, 2014, June 30, 2013, July 1, 2012, April 1, 2012, January 1, 2012 and June 26, 2011. See Note 8 to New Media’s Consolidated Financial Statements and Note 6 to New Media’s Unaudited Condensed 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 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 June 29, 2014, 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 New Media’s Consolidated Financial Statements and Note 6 to New Media’s Unaudited Condensed Consolidated Financial Statements, “Goodwill and Intangible Assets,” for a discussion of the impairment charges taken.

Given the recent revaluation of assets related to fresh start accounting, there is a relatively small amount of fair value excess for certain reporting units as of the second quarter 2014 annual impairment testing. Specifically the fair value of the Large Daily Newspapers, Metro Newspapers and Small Community Newspaper reporting units exceeded carrying value by less than 10%. In addition, the masthead fair value for these groups exceeded carrying value by less than 3%. Considering a relatively low headroom for these reporting units and mastheads and declining same store revenue and profitability in the newspaper industry over the past several years, these are considered to be at risk for a future impairment in the event of decline in general economic, market or business conditions or any significant unfavorable changes in the forecasted cash flows, weighted-average cost of capital and/or market transaction multiples.

 

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Derivative Instruments

The bankruptcy filing was a termination event under our Predecessor’s interest rate swap agreements. 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.

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.

 

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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 the 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.

 

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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 for the three and six months ended June 29, 2014 and the Predecessor Company for the three and six months ended June 30, 2013, 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.

 

    Successor
Company
         Predecessor
Company
         Successor
Company
         Predecessor
Company
         Combined          Successor
Company
         Predecessor Company  
    Three
Months
Ended

June 29,
2014
         Three
Months
Ended

June 30,
2013
         Six
Months
Ended
June 29,
2014
         Six
Months
Ended

June 30,
2013
         Year
Ended

December  29,
2013
         Two
Months

Ended
December  29,
2013
         Ten
Months

Ended
November  6,
2013
    Year
Ended

December  30,
2012(1)
    Year
Ended

January 1,
2012
 
(in thousands)                                                                                    

Revenues:

                                         

Advertising

  $ 95,837          $ 79,220          $ 178,460          $ 150,559          $ 328,418          $ 63,340          $ 265,078      $ 330,881      $ 357,134   

Circulation

    46,102            33,047            90,471            65,513            148,335            29,525            118,810        131,576        131,879   

Commercial printing and other

    16,494            7,331            31,535            14,107            39,768            10,366            29,402        26,097        25,657   
 

 

 

       

 

 

       

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

Total revenues

    158,433            119,598            300,466            230,179            516,521            103,231            413,290        488,554        514,670   

Operating costs and expenses:

                                         

Operating costs

    87,615            64,978            172,470            129,998            288,680            56,614            232,066        268,222        281,884   

Selling, general and administrative

    52,235            41,156            102,251            78,722            165,581            28,749            136,832        145,020        146,295   

Depreciation and amortization

    10,109            9,791            19,918            19,636            39,997            6,588            33,409        39,888        42,426   

Integration and reorganization costs

    412            741            837            958            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

    688            649            687            1,043            1,190            27            1,163        1,238        455   

Goodwill and mastheads impairment

    —             —             —             —             —             —             —         —         385   
 

 

 

       

 

 

       

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

Operating income (loss)

    7,374            2,283            4,303            (178         (73,861         9,495            (83,356     29,793        35,608   

Interest expense

    3,827            14,456            7,632            28,886            75,998            1,640            74,358        57,928        58,309   

Amortization of deferred financing costs

    333            261            758            522            1,013            171            842        1,255        1,360   

Loss (gain) on derivative instruments

    9,047            —             9,047            —             14            —             14        (1,635     (913

Other (income) expense

    76            5            51            9            991            (13         1,004        (85     (395

Reorganization items, net

    (159         737            (158         1,008            (947,617         —             (947,617     —         —    
 

 

 

       

 

 

       

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

    (5,750         (13,176         (13,027         (30,603         795,740            7,697            788,043        (27,670     (22,753

Income tax expense (benefit)

    (2,481         —             (3,067                   294            491            (197     (207     (1,803
 

 

 

       

 

 

       

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

  $ (3,269       $ (13,176       $ (9,960       $ (30,603       $ 795,446          $ 7,206          $ 788,240      $ (27,463   $ (20,950
 

 

 

       

 

 

       

 

 

       

 

 

       

 

 

       

 

 

       

 

 

   

 

 

   

 

 

 

 

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

 

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Three Months Ended June 29, 2014 Compared To Three Months Ended June 30, 2013

Revenue. Total revenue for the Successor Company for the three months ended June 29, 2014 increased by $38.8 million, or 32.5%, to $158.4 million from $119.6 million for the Predecessor Company for the three months ended June 30, 2013. The increase in total revenue was comprised of a $16.6 million, or 21.0%, increase in advertising revenue and a $13.0 million, or 39.5%, increase in circulation revenue, and a $9.2 million, or 125.0%, increase in commercial printing and other revenue. The increase in revenue of $38.8 includes revenues from acquisitions of $42.8 million; $21.7 million from advertising, $13.8 million from circulation, and $7.3 million from commercial printing and other. Same store revenue for the Successor Company for the three months ended June 29, 2014 decreased by $0.9 million, or 0.5%, to $158.4 million. The decrease in same store revenue was comprised of a $3.9 million, or 3.9%, decrease in advertising revenue, which was partially offset by a $0.3 million, or 0.8%, increase in circulation revenue and a $2.7 million, or 19.3%, increase in commercial printing and other revenue. Same store advertising revenue declines were primarily driven by declines on the print side of our business in the local retail category. The local retail print declines reflect both secular pressures and a continuing uncertain economic environment. These secular trends and economic conditions have also led to a decline in our print circulation volumes which have been offset by price increases in select locations. The $2.7 million increase in commercial printing and other revenue is primarily the result of the growth in Propel, our small business marketing service business within GateHouse Ventures.

Operating Costs. Operating costs for the Successor Company for the three months ended June 29, 2014 increased by $22.6 million, or 34.8%, to $87.6 million from $65.0 million for the Predecessor Company for the three months ended June 30, 2013. The increase in operating costs of $22.6 million includes operating costs from acquisitions of $24.2 million, which were partially offset by a $1.6 million decrease in legacy operating costs. This decline in legacy operating costs was primarily due to a decrease in compensation expenses, newsprint expenses, and hauling and delivery expenses of $0.6 million, $0.5 million, and $0.4 million, respectively. On a same store basis, operating costs for the Successor Company for the three months ended June 29, 2014 decreased by $2.1 million, or 2.4%, to $87.6 million. These 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 Successor Company for the three months ended June 29, 2014 increased by $11.1 million, or 26.9%, to $52.2 million from $41.1 million for the Predecessor Company for the three months ended June 30, 2013. The increase in selling, general and administrative expenses of $11.1 million includes selling, general and administrative expenses from acquisitions of $10.3 million. The additional $0.8 million increase in selling, general and administrative expenses was primarily due to an increase in professional and consulting fees of $1.8 million, which was partially offset by a decrease in compensation expenses, outside services, and postage expenses of $0.5 million, $0.3 million, and $0.3 million, respectively. On a same store basis, selling, general and administrative expenses for the Successor Company for the three months ended June 29, 2014 increased by $1.9 million, or 3.8%, to $52.2 million related to $1.8 million of debt refinancing fees that did not meet capitalization requirements.

Integration and Reorganization Costs. During the three months ended June 29, 2014 and June 30, 2013, we recorded integration and reorganization costs of $0.4 million and $0.7 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.

Interest Expense. Interest expense for the three months ended June 29, 2014 decreased by $10.6 million to $3.8 million from $14.4 million for the three months ended June 30, 2013. The decrease in interest expense was primarily due to the decrease in our total outstanding debt as a result of our restructuring during 2013.

Loss on Early Extinguishment of Debt. During the three months ended June 29, 2014, we recorded a loss of $9.0 million due to the early extinguishment of long-term debt.

 

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Income Tax Benefit. During the three months ended June 29, 2014, we recorded an income tax benefit of $2.5 million due to the interim period treatment driven by the annualized effective rate excess of the deferred tax liability related to indefinite lived assets.

Loss from Continuing Operations. Loss from continuing operations for the three months ended June 29, 2014 and June 30, 2013 was $3.3 million and $13.2 million, respectively. Our net loss from continuing operations decreased due to the factors noted above.

Six months Ended June 29, 2014 Compared To Six months Ended June 30, 2013

Revenue. Total revenue for the Successor Company for the six months ended June 29, 2014 increased by $70.3 million, or 30.5%, to $300.5 million from $230.2 million for the Predecessor Company for the six months ended June 30, 2013. The increase in total revenue was comprised of a $27.9 million, or 18.5%, increase in advertising revenue and a $25.0 million, or 38.1%, increase in circulation revenue, and a $17.4 million, or 123.5%, increase in commercial printing and other revenue. The increase in revenue of $70.3 includes revenues from acquisitions of $79.0 million; $39.2 million from advertising, $26.2 million from circulation, and $13.6 million from commercial printing and other. Same store revenue for the Successor Company for the six months ended June 29, 2014 decreased by $4.9 million, or 1.6%, to $300.5 million. The decrease in same store revenue was comprised of a $10.6 million, or 5.6%, decrease in advertising revenue, which was partially offset by a $0.1 million, or 0.1%, increase in circulation revenue and a $5.6 million, or 21.6%, increase in commercial printing and other revenue. Same store advertising revenue declines were primarily driven by declines on the print side of our business in the local retail and classified categories. The local retail print declines reflect both secular pressures and a continuing uncertain economic environment. These secular trends and economic conditions have also led to a decline in our print circulation volumes, which have been offset by price increases in select locations. The $5.6 million increase in commercial printing and other revenue is primarily the result of the growth in Propel, our small business marketing service business within GateHouse Ventures.

Operating Costs. Operating costs for the Successor Company for the six months ended June 29, 2014 increased by $42.5 million, or 32.7%, to $172.5 million from $130.0 million for the Predecessor Company for the six months ended June 30, 2013. The increase in operating costs of $42.5 million includes operating costs from acquisitions of $46.7 million which were partially offset by a $4.2 million decrease in legacy operating costs. This decline in legacy operating costs was primarily due to a decrease in compensation expenses, newsprint expenses, hauling and delivery, and professional and consulting fees of $1.8 million, $1.2 million, $0.9 million, and $0.2 million, respectively. On a same store basis, operating costs for the Successor Company for the six months ended June 29, 2014 decreased by $5.1 million, or 2.8%, to $172.5 million. These 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 Successor Company for the six months ended June 29, 2014 increased by $23.5 million, or 29.9%, to $102.2 million from $78.7 million for the Predecessor Company for the six months ended June 30, 2013. The increase in selling, general and administrative expenses of $23.5 million includes selling, general and administrative expenses from acquisitions of $20.8 million. The additional $2.7 million increase in selling, general and administrative expenses was primarily due to an increase in professional and consulting fees of $2.7 million. On a same store basis, selling, general and administrative expenses for the Successor Company for the six months ended June 29, 2014 increased by $3.7 million, or 3.7%, to $102.2 million, which includes $1.8 million of debt refinancing fees that did not meet capitalization requirements.

Integration and Reorganization Costs. During the six months ended June 29, 2014 and June 30, 2013, we recorded integration and reorganization costs of $0.8 million and $1.0 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.

 

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Interest Expense. Interest expense for the six months ended June 29, 2014 decreased by $21.3 million to $7.6 million from $28.9 million for the six months ended June 30, 2013. The decrease in interest expense was primarily due to the decrease in our total outstanding debt as a result of our restructuring during 2013.

Loss on Early Extinguishment of Debt. During the six months ended June 29, 2014, we recorded a loss of $9.0 million due to the early extinguishment of long-term debt.

Income Tax Benefit. During the six months ended June 29, 2014, we recorded an income tax benefit of $3.1 million due to the interim period treatment driven by the annualized effective rate excess of the deferred tax liability related to indefinite lived assets.

Loss from Continuing Operations. Loss from continuing operations for the six months ended June 29, 2014 and June 30, 2013 was $10.0 million and $30.6 million, respectively. Our net loss from continuing operations decreased due to the factors noted above.

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 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 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.

 

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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 years 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.

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.

 

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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.

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.