References to “we”, “our”, “us” and the like throughout the Consolidated Financial Statements refer to the Company. References to “2018”, “2017” and the like refer to the fiscal years ended the last Sunday in September.

Investments in TNI and MNI are accounted for using the equity method and are reported at cost, plus our share of undistributed earnings since acquisition less, for TNI, amortization of intangible assets.

The preparation of the Consolidated Financial Statements in conformity with Generally Accepted Accounting Principles ("GAAP") requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We evaluate these estimates and judgments on an ongoing basis.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

In February 2018, the Financial Accounting Standards Board ("FASB") issued a new standard that gives entities the option to reclassify the tax effects related to items in accumulated other comprehensive income as a result of tax reform to retained earnings. The new standard is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

In March 2017, the FASB issued a new standard to improve the presentation of pension and postretirement benefit expense. The new standard requires that the service cost component of pension and postretirement benefits expense is recognized as compensation expense, while the remaining components of the expense (benefit) are presented outside of operating income. The current presentation includes all components of the expense (benefit) as Compensation in our Consolidated Statements of Income and Comprehensive Income

In August 2016, the FASB issued a new standard to conform the presentation in the statement of cash flows for certain transactions, including cash distribution from equity method investments, among others. The adoption of the new standard is required in fiscal year 2020. The adoption of this standard will reclassify certain cash receipts within the Consolidation Statements of Cash Flows.

In March 2016, the FASB issued a new standard with improvements to the accounting for employee share-based payments. The new standard simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes and statutory tax withholding requirements, as well as classification in the statement of cash flows. We adopted this new standard in 2018, as required, and the adoption did not have a material impact on the Consolidated Financial Statements.

In February 2016, the FASB issued a new standard for the accounting treatment of leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases with terms greater than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. We currently anticipate adopting the new lease standard in the first quarter of our fiscal year 2020. To date we have made progress in our assessment of the new lease standard. We are currently evaluating the provisions of the updated guidance and assessing the impact on our Consolidated Financial Statements.

In May 2014, the FASB issued a new revenue recognition standard which prescribes a single comprehensive model for entities to use to account for revenue arising from contracts with customers. The new guidance will supersede virtually all existing revenue guidance under U.S. GAAP and is effective for our fiscal year 2019. The core principle contemplated by this new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers are also required. In April and May 2016, the FASB also issued clarifying updates to the new standard specifically to address certain core principles including the identification of performance obligations, licensing guidance, the assessment of the collectability criterion, the presentation of taxes collected from customers, noncash considerations, contract modifications, and completed contracts at transition.

We currently anticipate adopting the new revenue recognition standard using the modified retrospective approach in the fiscal year beginning October 1, 2018. This approach consists of recognizing the cumulative effect, if any, of initially applying the standard as an adjustment to opening retained earnings.

We are currently evaluating the impact that the new revenue recognition standard will have on our financial statements and related disclosures. As part of the implementation process, we are holding regular meetings with key stakeholders to discuss the impact of the standard across our organization. We are continuing to review our customer contracts, identifying contractual provisions that may result in a change in the timing or the amount of revenue recognized and assessing the enhanced disclosure requirements of the new guidance. We do expect material impacts to the content and structure of our financial statements in the form of additional disclosures. We expect to complete our assessment in the fourth quarter of fiscal year 2018.

Income or loss of TNI (before income taxes) is allocated equally to Star Publishing and Citizen.

TNI makes weekly distributions of its earnings and for the 13 weeks ended March 25,June 24, 2018 and March 26,June 25, 2017 we received $1,631,000$1,177,000 and $1,437,000$1,213,000 in distributions, respectively. In the 2639 weeks ended March 25,June 24, 2018 and March 26,June 25, 2017 we received $3,198,000$4,375,000 and $2,420,000$3,633,000 in distributions, respectively.

Summarized results of MNI are as follows:

MNI makes quarterly distributions of its earnings and in the 13 weeks ended March 25,June 24, 2018 and March 26,June 25, 2017 we received dividends of $1,250,000 and $1,000,000, respectively.$500,000 in both years. In the 2639 weeks ended March 25,June 24, 2018 and March 26,June 25, 2017 we received dividends of $2,000,000$2,500,000 and $2,250,000,$2,750,000, respectively.

Changes in the carrying amount of goodwill are as follows:

Annual amortization of intangible assets for the 52 or 53 weeks ended MarchJune 2019 to MarchJune 2023 is estimated to be $16,992,000, $15,827,000, $15,564,000, $12,924,000$16,766,000, $15,695,000, $15,269,000, $12,379,000 and $12,019,000,$11,898,000, respectively.

On March 31, 2014, we completed a comprehensive refinancing of our debt (the"2014 Refinancing"), which included the following:

Our weighted average cost of debt, excluding amortization of debt financing costs at March 25,June 24, 2018, is 9.9%10.0%.

At March 25,June 24, 2018, aggregate minimum required maturities of debt excluding amounts required to be paid from future excess cash flow computations total $18,759,000$11,703,000 for the remainder of 2018, $12,145,000$6,303,000 in 2019, $0zero in 2020, $0zero in 2021, $385,000,000 in 2022 and $100,417,000$96,806,000 thereafter.

The Notes are senior secured obligations of the Company and mature on March 15, 2022. At March 25,June 24, 2018, the principal balance of the Notes totaled $385,000,000.

We may redeem some, or all, of the principal amount of the Notes at any time. On or after March 15, 2018, we may redeem the Notes as follows:

If we sell certain of our assets or experience specific kinds of changes of control, we must, subject to certain exceptions, offer to purchase the Notes at 101% of the principal amount. Any redemption of the Notes must also satisfy any accrued and unpaid interest thereon.

be used for working capital and general corporate purposes (including letters of credit). At March 25,June 24, 2018, after consideration of letters of credit, we have approximately $33,835,000 available for future use under the Revolving Facility.

Prior to March 31, 2017, we were required to offer the Pulitzer Excess Cash Flow to the 2nd Lien Lenders to prepay the 2nd Lien Term Loan at par, which payment the 2nd Lien Lenders could accept or reject. After March 31, 2017, Pulitzer Excess Cash Flow is used to prepay the 2nd Lien Term Loan, at par. Pulitzer Excess Cash Flow payments are required to be paid 45 days after the end of the quarter.

The Warrant Agreement contains provisions requiring the Warrants to be measured at fair value and included in other liabilities in our Consolidated Balance Sheets. We re-measure the fair value of the liability each reporting

period, with changes reported in other, net non-operating income (expense). The initial fair value of the Warrants was $16,930,000. See Note 9.

In connection with the issuance of the Warrants, we entered into a Registration Rights Agreement dated as of March 31, 2014 (the “Registration Rights Agreement”). The Registration Rights Agreement requires, among other matters, that we use our commercially reasonable efforts to maintain the effectiveness for certain specified periods of a shelf registration statement related to the shares of Common Stock to be issued upon exercise of the Warrants.

The rights of each of the collateral agents with respect to the Lee Legacy Collateral and the Pulitzer Collateral are subject to customary intercreditor and intercompany agreements.

 

Final maturities of our debt range from December 2018 through December 2022.

We have several noncontributory defined benefit pension plans that together cover selected employees. Benefits under the plans were generally based on salary and years of service. Effective in 2012, substantially all benefits are frozen and only a small amount of additional benefits are being accrued. Our liability and related expense for benefits under the plans are recorded over the service period of employees based upon annual actuarial calculations. Plan funding strategies are influenced by government regulations. Plan assets consist primarily of domestic and foreign corporate equity securities, government and corporate bonds, hedge fund investments and cash.

 

In addition, we provide retiree medical and life insurance benefits under postretirement plans at several of our operating locations. The level and adjustment of participant contributions vary depending on the specific plan. In addition, St. Louis Post-Dispatch LLC, provides postemployment disability benefits to certain employee groups prior to retirement. Our liability and related expense for benefits under the postretirement plans are recorded over the service period of active employees based upon annual actuarial calculations. We accrue postemployment disability benefits when it becomes probable that such benefits will be paid and when sufficient information exists to make reasonable estimates of the amounts to be paid.

We use a fiscal year end measurement date for all of our pension and postretirement medical plan obligations.

 

The net periodic postretirement cost (benefit) components for our postretirement plans are as follows:

Amortization of net gains (losses) and prior service benefits are recorded as compensation in the Consolidated Statements of Income and Comprehensive Income.

In the 13 weeks ended June 24,2018 we contributed $780,000 to our pension plans. Based on our forecast at March 25,June 24, 2018, we expect to make contributions of $4,940,000$4,170,000 to our pension trust during the remainder of fiscal 2018.

In March 2017, we notified certain participants in one of our post employment medical plans of changes to their plan and in December 2017, our fiscal second quarter, the plan was terminated. These changes resulted in a non-cash curtailment gain of $2,031,000 in the 1339 weeks ended March 25,June 24, 2018 and $3,741,000 in the 1339 weeks ended March 26,June 25, 2017. Curtailment gains are recorded in gainloss (gain) on sales of assets and other, net in the Consolidated Statements of Income and Comprehensive income.

On December 22, 2017, comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law. Among other provisions, the 2017 Tax Act reduces the federal statutory corporate income tax rate from 35% to 21%. The reduction of the corporate tax rate caused us to re-measure our deferred tax assets and liabilities to the lower federal base rate of 21%. The discretediscreet adjustment from revaluing our deferred tax assets and liabilities resulted in a provisional net decrease in income tax expense of $24,872,000 for the 2639 weeks ended March 25,June 24, 2018.

The changes resulting from the 2017 Tax Act are complex and the final transitional impact of the 2017 Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the 2017 Tax Act, any legislative action to address questions that arise because of the 2017 Tax Act, changes in accounting standards for income taxes or related interpretations in response to the 2017 Tax Act and updates or changes to estimates the Company has used to calculate the transition impacts, including impacts from changes to current year earnings estimates and changes in the timing of reversals of deferred income tax assets and liabilities. The Securities Exchange Commission has issued rules that allow for a measurement period of up to one year after the enactment date of the 2017 Tax Act to finalize the recording of the related

transitional impact. We did not make any adjustments to the provisional amount recorded and currently anticipate finalizing the transitional impact of the 2017 Tax Act in the fourth quarter of 2018.

Including the transitional impact of revaluing deferred tax assets and liabilities, we recorded an income tax expense of $927,000$1,972,000 and a tax benefit of $18,763,000$16,791,000 related to income before taxes of $3,460,000$6,722,000 and $19,097,000$25,820,000 for the 13 and 2639 weeks ended March 25,June 24, 2018, respectively. We recorded income tax expense of $1,144,000$1,843,000 and $7,410,000$9,253,000 related to income before taxes of $7,521,000$8,130,000 and $26,228,000$34,358,000 for the 13 and 2639 weeks ended March 26,June 25, 2017, respectively.

The effective income tax rate for the 13 and 2639 weeks ended March 25,June 24, 2018 was 26.8%29.3% and a negative 98.3%65.0%, respectively. The effective income tax rate for the 13 and 2639 weeks ended March 26,June 25, 2017 was 15.2%22.7% and 28.3%26.9%, respectively. The majority of the differences between the effective tax rates and the statutory tax rates were due to the transitional adjustments from the 2017 Tax Act as well as the nontaxable income and nondeductible expenses related to the fair value adjustment of the warrants.

We file a consolidated federal tax return, as well as combined and separate tax returns in approximately 27 state and local jurisdictions. We have various income tax examinations ongoing which are at different stages of completion, but generally our income tax returns have been audited or closed to audit through 2009.2012. See Note 10 for a discussion of our tax audits.

At September 25, 2017, we had approximately $57,856,000 of state net operating loss tax benefits and a federal net operating loss carryforward of approximately $6,247,000.$17,850,000.

The following table sets forth the computation of basic and diluted earnings per common share:

Total unrecognized compensation expense for unvested restricted Common Stock at March 25,June 24, 2018 is $3,003,892,$2,398,498, which will be recognized over a weighted average period of 1.51.3 years.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments for which it is practicable to estimate value.

The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of those instruments. Investments totaling $6,318,000, including our 17% ownership of the nonvoting common stock of TCT and a private equity investment, are carried at cost. As of September 30, 2017, based on the most recent data available, the approximate fair value of the private equity

investment is $9,183,000,$9,182,000, which is a level 3 fair value measurement. Fair value of the remaining investments approximates book value.

As discussed more fully in Note 4, we recorded a liability for the Warrants issued in connection with the Warrant Agreement. The liability was initially measured at its fair value and we remeasure the liability to fair value each reporting period, with changes reported in other non-operating income (expense). The initial fair value of the Warrants was $16,930,000. The fair value of Warrants at September 2017, December 2017March 2018 and MarchJune 2018 is $1,580,000, $2,011,000$1,456,000 and $1,456,000,$1,051,000, respectively. Fair value is determined using the Black-Scholes option pricing model. These represent level 2 fair value measurements.

We file income tax returns with the Internal Revenue Service ("IRS") and various state tax jurisdictions. From time to time, we are subject to routine audits by those agencies and those audits may result in proposed adjustments. We have considered the alternative interpretations that may be assumed by the various taxing agencies, believe our positions taken regarding our filings are valid, and that adequate tax liabilities have been recorded to resolve such matters. However, the actual outcome cannot be determined with certainty and the difference could be material, either positively or negatively, to the Consolidated Statements of Operations and Comprehensive Income (Loss) in the periods in which such matters are ultimately determined. We do not believe the final resolution of such matters will be material to our consolidated financial position or cash flows.

We have various income tax examinations ongoing and at various stages of completion, but generally our income tax returns have been audited or closed to audit through 2009.

We are involved in a variety of legal actions that arise in the normal course of business. Insurance coverage mitigates potential loss for certain of these matters. While we are unable to predict the ultimate outcome of these legal actions, it is our opinion that the disposition of these matters will not have a material adverse effect on our Consolidated Financial Statements, taken as a whole.

The Company contributes to three multiemployer pension plans. In June 2017, a union contract covering certain of our employees under a multiemployer pension plan expired resulting in a partial withdrawal from one of the multiemployer plans. In 2017, the Company recorded an estimate of the partial withdrawal liability totaling $2,600,000. Once the multiemployer pension plan's administrators finalize the partial withdrawal liability, it will be paid in equal installments over a twenty year period.