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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
_______________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-36097
___________________________
GANNETT CO., INC.
(Exact name of registrant as specified in its charter)
___________________________
Delaware
 
38-3910250
(State or Other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
 
 
 
 
7950 Jones Branch Drive,
McLean,
Virginia
 
22107-0910
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (703854-6000.
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol
 
Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share
 
GCI
 
The New York Stock Exchange
Preferred Stock Purchase Rights

N/A

The New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
 
 
 
 
Non-Accelerated Filer
Smaller Reporting Company
 
 
 
 
 
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No
As of August 3, 2020, the total number of shares of the registrant's Common Stock, $0.01 par value, outstanding was 136,305,331.
 




CAUTIONARY NOTE REGARDING FORWARD LOOKING INFORMATION

Certain statements in this report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views regarding, among other things, our future growth, results of operations, performance, and business prospects and opportunities as well as other statements that are other than historical fact. Words such as “anticipate(s),” “expect(s),” “intend(s),” “plan(s),” “target(s),” “project(s),” “believe(s),” “will,” “aim,” “would,” “seek(s),” “estimate(s)” and similar expressions are intended to identify such forward-looking statements.

Forward-looking statements are based on management’s current expectations and beliefs and are subject to a number of known and unknown risks, uncertainties, and other factors that could lead to actual results materially different from those described in the forward-looking statements. We can give no assurance 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:

Risks and uncertainties associated with the ongoing COVID-19 pandemic;

General economic and market conditions;

Economic conditions in the various regions of the United States;

The growing shift within the publishing industry from traditional print media to digital forms of publication;

Risks and uncertainties associated with our Marketing Solutions segment, including its significant reliance on Google for media purchases, its international operations, and its ability to develop and gain market acceptance for new products or services;

Declining print advertising revenue and circulation subscribers;

Our ability to grow our digital marketing services initiatives, digital audience, and advertiser base;

Our ability to grow our business organically;

Variability in the exchange rate relative to the U.S. dollar of currencies in foreign jurisdictions in which we operate;

The risk that we may not realize the anticipated benefits of our acquisitions;

The availability and cost of capital for future investments;

Our indebtedness may restrict our operations and/or require us to dedicate a portion of cash flow from operations to payments associated with our debt;

Our ability to pay dividends consistent with prior practice or at all;

Our ability to reduce costs and expenses;

The impact of any material transactions with the Manager (as defined below) or one of its affiliates, including the impact of any actual, potential, or perceived conflicts of interest;

The competitive environment in which we operate; and

Our ability to recruit and retain key personnel.

Additional risk factors that could cause actual results to differ materially from our expectations include, but are not limited to, the risks identified by us under the heading “Risk Factors” in Item 1A of this report and the statements made in subsequent




filings. Such forward-looking statements speak only as of the date 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.





INDEX TO GANNETT CO., INC.
Q2 2020 FORM 10-Q
 
Item No.
 
Page
 
Part I. Financial Information
 
 
 
 
1
2
 
 
 
2
27
 
 
 
3
45
 
 
 
4
45
 
 
 
 
Part II. Other Information
 
 
 
 
1
46
 
 
 
1A
46
 
 
 
2
61
 
 
 
3
61
 
 
 
4
61
 
 
 
5
61
 
 
 
6
61
 
 
 
 
61






PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
in thousands, except share data
June 30, 2020
 
December 31, 2019
ASSETS
(Unaudited)
 
 
Current assets
 
 
 
Cash and cash equivalents
$
158,603

 
$
156,042

Accounts receivable, net of allowance for doubtful accounts of $26,560 and $19,923
288,509

 
438,523

Inventories
40,468

 
55,090

Prepaid expenses and other current assets
125,208

 
129,460

Total current assets
612,788

 
779,115

Property, plant and equipment, at cost net of accumulated depreciation of $358,746 and $277,291
718,590

 
815,807

Operating lease assets
296,128

 
309,112

Goodwill
559,623

 
914,331

Intangible assets, net
920,525

 
1,012,564

Deferred income tax assets
105,051

 
76,297

Other assets
125,212

 
112,876

Total assets
$
3,337,917

 
$
4,020,102

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities
$
327,071

 
$
453,628

Deferred revenue
213,988

 
218,823

Current portion of long-term debt

 
3,300

Other current liabilities
47,017

 
42,702

Total current liabilities
588,076

 
718,453

Long-term debt
1,633,449

 
1,636,335

Convertible debt
3,300

 
3,300

Deferred tax liabilities
6,256

 
9,052

Pension and other postretirement benefit obligations
214,084

 
235,906

Long-term operating lease liabilities
282,896

 
297,662

Other long-term liabilities
157,313

 
136,188

Total noncurrent liabilities
2,297,298

 
2,318,443

Total liabilities
2,885,374

 
3,036,896

Redeemable noncontrolling interests
458

 
1,850

Commitments and contingent liabilities (See Note 12)
 
 
 
 
 
 
 
Equity
 
 
 
Common stock of $0.01 par value per share, 2,000,000,000 shares authorized, 136,885,320 issued and 136,114,347 shares outstanding at June 30, 2020; 129,386,258 issued and 128,991,544 shares outstanding at December 31, 2019
1,369

 
1,294

Treasury stock at cost, 770,973 and 394,714 shares at June 30, 2020 and December 31, 2019, respectively
(4,818
)
 
(2,876
)
Additional paid-in capital
1,101,899

 
1,090,694

Accumulated deficit
(633,003
)
 
(115,958
)
Accumulated other comprehensive income (loss)
(13,362
)
 
8,202

Total equity
452,085

 
981,356

Total liabilities and equity
$
3,337,917

 
$
4,020,102


The accompanying notes are an integral part of these condensed consolidated financial statements.

2



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Gannett Co., Inc. and Subsidiaries
Unaudited; in thousands, except share data
 
Three months ended June 30,
 
Six months ended June 30,
 
2020
 
2019
 
2020
 
2019
Operating revenues:
 
 
 
 
 
 
 
Advertising and marketing services
$
356,918

 
$
204,697

 
$
843,929

 
$
398,242

Circulation
342,646

 
150,850

 
717,369

 
303,015

Other
67,436

 
48,840

 
154,385

 
90,730

Total operating revenues
767,000

 
404,387

 
1,715,683

 
791,987

Operating expenses:
 
 
 
 
 
 
 
Operating costs
476,735

 
233,407

 
1,043,199

 
462,902

Selling, general and administrative expenses
226,484

 
126,628

 
525,622

 
255,676

Depreciation and amortization
66,327

 
23,328

 
144,352

 
44,251

Integration and reorganization costs
32,306

 
4,278

 
60,560

 
10,077

Acquisition costs
2,379

 
2,364

 
8,348

 
3,137

Impairment of property, plant and equipment
6,859

 
1,262

 
6,859

 
2,469

Goodwill and intangible impairment
393,446

 

 
393,446

 

Loss on sale or disposal of assets
88

 
947

 
745

 
2,737

Total operating expenses
1,204,624

 
392,214

 
2,183,131

 
781,249

Operating income (loss)
(437,624
)
 
12,173

 
(467,448
)
 
10,738

Non-operating (income) expense:
 
 
 
 
 
 
 
Interest expense
57,928

 
10,212

 
115,827

 
20,346

Loss on early extinguishment of debt
369

 

 
1,174

 

Non-operating pension income
(17,553
)
 
(208
)
 
(36,099
)
 
(417
)
Other income, net
(6,261
)
 
(103
)
 
(4,616
)
 
(154
)
Non-operating expense
34,483

 
9,901

 
76,286

 
19,775

Net income (loss) before income taxes
(472,107
)
 
2,272

 
(543,734
)
 
(9,037
)
Benefit for income taxes
(34,276
)
 
(343
)
 
(25,297
)
 
(2,297
)
Net income (loss)
(437,831
)
 
2,615

 
(518,437
)
 
(6,740
)
Net income (loss) attributable to redeemable noncontrolling interests
(938
)
 
(200
)
 
(1,392
)
 
(449
)
Net income (loss) attributable to Gannett
$
(436,893
)
 
$
2,815

 
$
(517,045
)
 
$
(6,291
)
Income (loss) per share attributable to Gannett - basic
$
(3.32
)
 
$
0.05

 
$
(3.95
)
 
$
(0.10
)
Income (loss) per share attributable to Gannett - diluted
$
(3.32
)
 
$
0.05

 
$
(3.95
)
 
$
(0.10
)
Dividends declared per share
$
0.00

 
$
0.38

 
$
0.00

 
$
0.76

 
 
 
 
 
 
 
 
Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(2,552
)
 
3

 
$
(16,585
)
 
3

Pension and other postretirement benefit items:
 
 
 
 
 
 
 
Net actuarial loss
(8,078
)
 

 
(8,078
)
 

Amortization of net actuarial gain
(11
)
 
(30
)
 
(25
)
 
(60
)
Other
95

 

 
1,061

 

Total pension and other postretirement benefit items
(7,994
)
 
(30
)
 
(7,042
)
 
(60
)
Other comprehensive loss before tax
(10,546
)
 
(27
)
 
(23,627
)
 
(57
)
Income tax effect related to components of other comprehensive income
2,059

 

 
2,063

 

Other comprehensive loss, net of tax
(8,487
)
 
(27
)
 
(21,564
)
 
(57
)
Comprehensive loss
(446,318
)
 
2,588

 
(540,001
)
 
(6,797
)
Comprehensive loss attributable to redeemable noncontrolling interests
(938
)
 
(200
)
 
(1,392
)
 
(449
)
Comprehensive loss attributable to Gannett
$
(445,380
)
 
$
2,788

 
$
(538,609
)
 
$
(6,348
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

3




CONDENSED CONSOLIDATED STATEMENTS OF EQUITY 
GANNETT CO., INC.
Unaudited; in thousands, except share data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
Additional
Paid-in
Capital
 
Accumulated other comprehensive income (loss)
 
Retained
Earnings (Accumulated Deficit)
 
Treasury stock
 
 
 
Shares
 
Amount
Shares
 
Amount
 
Total
Three months ended June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2020
132,715,532

 
$
1,327

 
$
1,093,705

 
$
(4,875
)
 
$
(196,110
)
 
657,165

 
$
(4,491
)
 
$
889,556

Net income (loss)

 

 

 

 
(436,893
)
 

 

 
(436,893
)
Restricted share grants
3,531,279

 
36

 
(36
)
 

 

 

 

 

Restricted stock awards settled, net of withholdings
251,250

 
3

 
(109
)
 

 

 

 

 
(106
)
Other comprehensive income, net of income taxes of $2,059

 

 

 
(8,487
)
 


 

 

 
(8,487
)
Equity-based compensation expense

 

 
7,391

 

 

 

 

 
7,391

Issuance of common stock
387,259

 
3

 
1,021

 

 

 

 

 
1,024

Purchase of treasury stock

 

 

 

 

 
55,236

 
(326
)
 
(326
)
Restricted share forfeiture

 

 

 

 

 
58,572

 
(1
)
 
(1
)
Other activity

 

 
(73
)
 

 

 

 

 
(73
)
Balance as of June 30, 2020
136,885,320

 
1,369

 
1,101,899

 
(13,362
)
 
(633,003
)
 
770,973

 
(4,818
)
 
452,085

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of March 31, 2019
60,806,451

 
$
608

 
$
699,787

 
$
(6,911
)
 
$
(5,224
)
 
276,590

 
$
(2,562
)
 
$
685,698

Net income (loss)

 

 

 

 
2,815

 

 

 
2,815

Other comprehensive income, net of income taxes of $0

 

 

 
(27
)
 

 

 

 
(27
)
Equity-based compensation expense

 

 
707

 

 

 

 

 
707

Purchase of treasury stock

 

 

 

 

 
955

 
(11
)
 
(11
)
Restricted share forfeiture

 

 

 

 

 
47,232

 

 

Dividends declared

 

 
(22,920
)
 

 

 

 

 
(22,920
)
Balance as of June 30, 2019
60,806,451

 
$
608

 
$
677,574

 
$
(6,938
)
 
$
(2,409
)
 
324,777

 
$
(2,573
)
 
$
666,262

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements.


4



Unaudited; in thousands, except share data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
Additional
Paid-in
Capital
 
Accumulated other comprehensive income (loss)
 
Retained
Earnings (Accumulated Deficit)
 
Treasury stock
 
 
 
Shares
 
Amount
Shares
 
Amount
 
Total
Six months ended June 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 30, 2019
129,386,258

 
$
1,294

 
$
1,090,694

 
$
8,202

 
$
(115,958
)
 
394,714

 
$
(2,876
)
 
$
981,356

Net income (loss)

 

 

 

 
(517,045
)
 

 

 
(517,045
)
Restricted share grants
4,346,313

 
44

 
(44
)
 

 

 

 

 

Restricted stock awards settled
2,508,585

 
25

 
(9,953
)
 

 

 

 

 
(9,928
)
Other comprehensive income, net of income taxes of $2,063

 

 

 
(21,564
)
 

 

 

 
(21,564
)
Equity-based compensation expense

 

 
18,968

 


 

 

 

 
18,968

Issuance of common stock
644,164

 
6

 
2,570

 

 

 


 


 
2,576

Purchase of treasury stock

 

 

 

 

 
317,687

 
(1,941
)
 
(1,941
)
Restricted share forfeiture

 

 

 

 

 
58,572

 
(1
)
 
(1
)
Other activity

 

 
(336
)
 

 

 

 

 
(336
)
Balance as of June 30, 2020
136,885,320

 
1,369

 
1,101,899

 
(13,362
)
 
(633,003
)
 
770,973

 
(4,818
)
 
452,085

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 30, 2018
60,508,249

 
$
605

 
$
721,605

 
$
(6,881
)
 
$
3,767

 
201,963

 
$
(1,873
)
 
$
717,223

Net income (loss)

 

 

 

 
(6,291
)
 

 

 
(6,291
)
Restricted share grants
298,202

 
3

 
(3
)
 

 

 

 

 

Other comprehensive income, net of income taxes of $0

 

 

 
(57
)
 

 

 

 
(57
)
Equity-based compensation expense

 

 
1,843

 

 

 

 

 
1,843

Impact of adoption of ASC 842 - Leases

 

 

 

 
115

 

 

 
115

Purchase of treasury stock

 

 

 

 

 
52,721

 
(700
)
 
(700
)
Restricted share forfeiture

 

 

 

 

 
70,093

 

 

Dividends declared

 

 
(45,871
)
 

 

 

 

 
(45,871
)
Balance as of June 30, 2019
60,806,451

 
608

 
677,574

 
(6,938
)
 
(2,409
)
 
324,777

 
(2,573
)
 
666,262

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


5



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Gannett Co., Inc. and Subsidiaries
Unaudited; in thousands
 
Six months ended June 30,
 
2020
 
2019
 
 
 
 
Cash flows from operating activities:
 
 
 
Net loss
$
(518,437
)
 
$
(6,740
)
Adjustments to reconcile net income to operating cash flows:
 
 
 
Depreciation and amortization
144,352

 
44,251

Equity-based compensation expense
18,968

 
1,843

Non-cash interest expense
11,902

 
689

Loss on sale or disposal of assets
745

 
2,737

Loss on early extinguishment of debt
1,174

 

Goodwill and intangible impairment
393,446

 

Impairment of property, plant and equipment
6,859

 
2,469

Pension and other postretirement benefit obligations, net of contributions
(49,064
)
 
(649
)
Change in other assets and liabilities, net
14,695

 
13,053

Net cash provided by operating activities
24,640

 
57,653

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired

 
(39,353
)
Purchase of property, plant, and equipment
(22,157
)
 
(4,934
)
Proceeds from sale of real estate and other assets
17,792

 
7,107

Insurance proceeds received for damage to property
1,643

 

Change in other investing activities
(304
)
 

Net cash used for investing activities
(3,026
)
 
(37,180
)
Cash flows from financing activities:
 
 
 
Repayment under term loans
(18,985
)
 
(11,296
)
Borrowing under revolving credit facility

 
102,900

Repayments under revolving credit facility

 
(94,900
)
Payments for employee taxes withheld from stock awards
(1,942
)
 
(700
)
Issuance of common stock
1,007

 

Payment of dividends

 
(46,066
)
Changes in other financing activities
(411
)
 

Net cash used for financing activities
(20,331
)
 
(50,062
)
Effect of currency exchange rate change on cash
(780
)
 
3

Increase (decrease) in cash and cash equivalents and restricted cash
503

 
(29,586
)
Balance of cash, cash equivalents, and restricted cash at beginning of period
188,664

 
52,770

Balance of cash, cash equivalents, and restricted cash at end of period
$
189,167

 
$
23,184

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for taxes, net of refunds
$
(1,720
)
 
$
921

Cash paid for interest
$
125,311

 
$
22,684

Non-cash investing and financing activities:
 
 
 
Accrued capital expenditures
$
718

 
$
183

The accompanying notes are an integral part of these condensed consolidated financial statements.

6



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — Basis of presentation and summary of significant accounting policies

Description of business: Gannett Co., Inc. ("Gannett", "we", "us", "our", or the "Company") is an innovative, digitally focused media and marketing solutions company committed to fostering the communities in our network and helping them build relationships with their local businesses. On November 19, 2019, New Media Investment Group Inc. ("Legacy New Media") completed its acquisition of Gannett Co., Inc. (which was renamed Gannett Media Corp. and is referred herein as "Legacy Gannett"), which retained the name Gannett Co., Inc. and trades on the New York Stock Exchange under the ticker symbol "GCI".

Our current portfolio of media assets includes USA TODAY, local media organizations in 46 states in the U.S. and Guam, and Newsquest (a wholly owned subsidiary operating in the United Kingdom (the "U.K.") with more than 140 local media brands). Gannett also owns the digital marketing services companies ReachLocal, Inc. ("ReachLocal"), UpCurve, Inc. ("UpCurve"), and WordStream, Inc. ("WordStream") and runs the largest media-owned events business in the U.S., GateHouse Live.

Through USA TODAY, our local property network, and Newsquest, Gannett delivers high-quality, trusted content where and when consumers want to engage on virtually any device or platform. Additionally, the Company has strong relationships with hundreds of thousands of local and national businesses in both our U.S. and U.K. markets due to our large local and national sales forces and a robust advertising and marketing solutions product suite. The Company reports in two segments: Publishing and Marketing Solutions. A full description of our segments is included in Note 14 — Segment reporting of the notes to the consolidated financial statements.

COVID-19 Pandemic: The newspaper industry and the Company have experienced declining same-store revenue and profitability over the past several years, and these industry trends are expected to continue in the future. Additionally, during the six months ended June 30, 2020, the Company experienced additional revenue and profitability declines in connection with the COVID-19 global pandemic. More specifically, during March 2020, the Company began to experience decreased demand for its advertising and digital marketing services, commercial print and distribution services, as well as reductions in the single copy and commercial distribution of its newspapers. At this point, the Company’s newspaper production operations have not been significantly impacted and the vast majority of the Company’s non-production employees are currently working remotely. However, the COVID-19 global pandemic had a significant negative impact on the Company’s business and results of operations during the second quarter of 2020, and we expect it to continue to have an impact in future periods. Longer-term, the impact of the COVID-19 pandemic on the Company’s business and results of operations will depend on the severity and length of the pandemic, the duration and extent of the mitigation measures and governmental actions designed to combat the pandemic, as well as the changes in customer behavior as a result of the pandemic, all of which are highly uncertain. As a result, the Company has implemented, and continues to implement, measures to reduce costs and preserve cash flow. These measures include suspension of the quarterly dividend, employee furloughs, decreases in employee compensation, as well as reductions in discretionary spending. In addition, the Company has deferred certain payroll tax remittance as permitted under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") and negotiated the deferral of pension contributions, as well as continuing with its previously disclosed plan to monetize non-core assets. The Company believes these initiatives, along with cash on hand and cash provided by operating activities, will provide sufficient cash flow to enable the Company to meet its commitments. However, these measures will not be sufficient to fully offset the negative impact of the COVID-19 pandemic on the Company's business and results of operations.

Basis of presentation: Our condensed consolidated financial statements are unaudited; however, in the opinion of management, they contain all of the adjustments (consisting of those of a normal, recurring nature) considered necessary to present fairly the financial position, results of operations, and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") applicable to interim periods. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company consolidates entities that it controls due to ownership of a majority voting interest. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Use of estimates: The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and footnotes thereto. Actual results could differ from those estimates. The COVID-19 pandemic has caused increased uncertainty in estimates and assumptions affecting the reported amounts of assets and liabilities as of the date of the condensed consolidated financial statements.

7




Examples of significant estimates include pension and postretirement benefit obligation assumptions, income taxes, leases, self-insurance liabilities, impairment analysis, stock-based compensation, business combinations and valuation of property, plant and equipment and intangible assets. Actual results could differ from those estimates.
 
Fiscal period: Starting in 2019 and subsequent to our acquisition of Legacy Gannett, our fiscal period end coincides with the Gregorian calendar. In periods prior to the acquisition, our fiscal periods ended on the last Sunday of the calendar month. Our fiscal period for the second quarter of 2019 was June 30, 2019.

Advertising and marketing services revenues: Pursuant to our acquisition of Legacy Gannett, we realigned the presentation of marketing services revenues generated by our UpCurve subsidiary from other revenues to advertising and marketing services revenue on the Condensed consolidated statements of operations and comprehensive income (loss). As a result of this updated presentation, advertising and marketing services revenues increased and other revenues decreased $19.9 million for the three months ended June 30, 2019 and $34.8 million for the six months ended June 30, 2019. Operating revenues, net income, retained earnings, and earnings per share remained unchanged.

Segment presentation: In connection with our Legacy Gannett acquisition and as noted above, we reorganized our reportable segments to include (1) Publishing, which consists of our portfolio of regional, national, and international newspaper publishers and (2) Marketing Solutions, which is comprised of our marketing solutions subsidiaries ReachLocal, UpCurve and WordStream. In addition to these operating segments, we have a corporate category that includes activities not directly attributable to a specific segment. This category primarily consists of broad corporate functions and includes legal, human resources, accounting, analytics, finance, and marketing as well as activities and costs not directly attributable to a particular segment and other general business costs.

Cash and cash equivalents, including restricted cash: Cash equivalents represent highly liquid certificates of deposit which have original maturities of three months or less. Restricted cash is held as cash collateral for certain business operations. Restricted cash primarily consists of funding for letters of credit and cash held in an irrevocable grantor trust for our deferred compensation plans. The restrictions will lapse when benefits are paid to plan participants and their beneficiaries as specified in the plans.
The following table presents a reconciliation of cash, cash equivalents, and restricted cash:
 
June 30,
In thousands
2020
 
2019
Cash and cash equivalents
$
158,603

 
$
20,029

Restricted cash included in other current assets
9,298

 
3,155

Restricted cash included in investments and other assets
21,266

 

Total cash, cash equivalents, and restricted cash
$
189,167

 
$
23,184



New accounting pronouncements adopted: The following are new accounting pronouncements that we adopted in the first six months of 2020:

Financial Instruments—Credit Losses: In June 2016, the Financial Accounting Standards Board ("FASB") issued new guidance which amends the principles around the recognition of credit losses by mandating entities incorporate an estimate of current expected credit losses when determining the value of certain assets. The guidance also amends reporting around allowances for credit losses on available-for-sale marketable securities. This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Adopting this guidance did not have a material impact on our consolidated financial statements, refer to Note 4 — Accounts receivable, net for further details.

Intangibles—Internal Use Software: In August 2018, the FASB issued new guidance which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license. This guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. The guidance can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. This guidance was adopted prospectively and did not have a material impact on our consolidated financial statements. Capitalized costs are recognized within prepaid expenses and other current assets or other assets within the consolidated balance sheet.


8



Fair Value Measurement—Disclosure Framework: In August 2018, the FASB issued new guidance that changes disclosure requirements related to fair value measurements as part of the disclosure framework project. The disclosure framework project aims to improve the effectiveness of disclosures in the notes to the financial statements by focusing on requirements that clearly communicate the most important information to users of the financial statements. This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. Adopting this guidance did not have a material impact on our consolidated financial statements.

New accounting pronouncements not yet adopted: The following are new accounting pronouncements that we are evaluating for future impacts on our financial statements:

Compensation—Retirement Plans: In August 2018, the FASB issued new guidance that changes disclosures related to defined benefit pension and other postretirement benefit plans as part of the disclosure framework project. This guidance is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are evaluating the provisions of the updated guidance and assessing the impact on our consolidated financial statements.

Simplifying the Accounting for Income Taxes: In December 2019, the FASB issued new guidance that simplifies the accounting for income taxes. The guidance amends the rules for recognizing deferred taxes for investments, performing intraperiod tax allocations and calculating income taxes in interim periods. It also reduces complexity in certain areas, including accounting for transactions that result in a step-up in the tax basis of goodwill and allocating taxes to members of a consolidated group. This guidance is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We are evaluating the provisions of the updated guidance and assessing the impact on our consolidated financial statements.

NOTE 2 — Revenues

Revenue Recognition

Revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Revenues are recognized as performance obligations that are satisfied either at a point in time, such as when an advertisement is published, or over time, such as customer subscriptions.

The Company’s Condensed consolidated statements of operations and comprehensive income (loss) presents revenues disaggregated by revenue type. Sales taxes and other usage-based taxes are excluded from revenues. The following table presents our revenues disaggregated by source:

 
Three months ended June 30,
 
Six months ended June 30,
In thousands
2020

2019
 
2020
 
2019
Print advertising
$
188,158

 
$
158,205

 
$
456,000

 
$
309,105

Digital advertising and marketing services
168,760

 
46,492

 
387,929

 
89,137

Total advertising and marketing services
356,918

 
204,697

 
843,929

 
398,242

Circulation
342,646

 
150,850

 
717,369

 
303,015

Other
67,436

 
48,840

 
154,385

 
90,730

Total revenues
$
767,000

 
$
404,387

 
$
1,715,683

 
$
791,987


Approximately 6% of our quarter to date and 7% of our year to date revenues were generated from international locations.

Deferred revenue: The Company records deferred revenues when cash payments are received in advance of the Company’s performance obligation. The most significant unsatisfied performance obligation is the delivery of publications to subscription customers. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next three to twelve months in accordance with the terms of the subscriptions.

The Company's payment terms vary by the type and location of the customer and the products or services offered. The period between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer.


9



The following table presents changes in the deferred revenue balance for the six months ended June 30, 2020 by type of revenue:
In thousands
Advertising, Marketing Services, and Other
 
Circulation
 
Total
Beginning balance
$
67,543

 
$
151,280

 
$
218,823

Cash receipts
141,146

 
595,078

 
736,224

Revenue recognized
(144,172
)
 
(596,887
)
 
(741,059
)
Ending balance
$
64,517

 
$
149,471

 
$
213,988



The Company’s primary source of deferred revenue is from circulation subscriptions paid in advance of the service provided. The majority of our subscription customers are billed and pay on monthly terms, but subscription periods can last between one and twelve months. The remaining deferred revenue balance relates to advertising and marketing services and other revenue.

NOTE 3 — Leases

We lease certain real estate, vehicles, and equipment. Our leases have remaining lease terms of 1 to 15 years, some of which may include options to extend the leases, and some of which may include options to terminate the leases. The exercise of lease renewal options is at our sole discretion. The depreciable lives of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise.

As of June 30, 2020, our Condensed consolidated balance sheets include $296.1 million of operating lease right-to-use assets, $44.7 million of short-term operating lease liabilities included in Other current liabilities, and $282.9 million of long-term operating lease liabilities.

The components of lease expense were as follows:
 
Three months ended June 30,
 
Six months ended June 30,
In thousands
2020
 
2019
 
2020
 
2019
Operating lease cost (a)
$
24,437

 
$
7,864

 
$
48,321

 
$
15,969

Short-term lease cost (b)
1,345

 
866

 
4,487

 
1,632

Net lease cost
$
25,782

 
$
8,730

 
$
52,808

 
$
17,601

(a) Includes variable lease costs of $2.6 million and $0.2 million, respectively, and sublease income of $0.9 million and $0.6 million, respectively, for the three months ended June 30, 2020 and 2019 and variable lease costs of $6.8 million and $0.8 million, respectively, and sublease income of $2.0 million and $1.2 million, respectively, for the six months ended June 30, 2020 and 2019.
(b) Excluding expenses relating to leases with a lease term of one month or less.

Future minimum lease payments under non-cancellable leases as of June 30, 2020 are as follows:

In thousands
Year ended December 31, (a)
2020 (excluding the six months ended June 30, 2020)
$
38,209

2021
81,131

2022
72,967

2023
60,508

2024
53,594

Thereafter
236,727

Total future minimum lease payments
543,136

Less: Imputed interest
(215,575
)
Total
$
327,561

(a) Operating lease payments exclude $3.1 million of legally binding minimum lease payments for leases signed but not yet commenced.

10




Other information related to leases were as follows:

 
Six months ended June 30,
In thousands, except lease term and discount rate
2020

2019
Supplemental information
 
 
 
Cash paid for amounts included in the measurement of operating lease liabilities
$
38,989

 
$
12,200

Right-of-use assets obtained in exchange for operating lease obligations
14,610

 
14,983

 
 
 
 
 
As of June 30,
 
2020
 
2019
Weighted-average remaining lease term (in years)
7.9

 
8.8

Weighted-average discount rate
12.78
%
 
10.58
%


NOTE 4 — Accounts receivable, net

The Company performs its evaluation of the collectability of trade receivables based on customer category. For example, trade receivables from individual subscribers to our publications are evaluated separately from trade receivables related to advertising customers. For advertising trade receivables, the Company applies a "black motor formula" methodology as the baseline to calculate the allowance for doubtful accounts. The reserve percentage is calculated as a ratio of total net bad debts (less write-offs less recoveries) for the prior three-year period to total outstanding trade accounts receivable for the same three-year period. The calculated reserve percentage by customer category is applied to the consolidated gross advertising receivable balance, irrespective of aging. In addition, each category has specific reserves for at risk accounts that vary based on the nature of the underlying trade receivables. Due to the short-term nature of our circulation receivables, the Company reserves all receivables aged over 90 days.

The following table presents changes in the allowance for doubtful accounts for the six months ended June 30, 2020:

In thousands
 
Beginning balance
$
19,923

     Current period provision
17,345

     Write-offs charged against the allowance
(12,019
)
     Recoveries of amounts previously written-off
1,467

     Foreign currency
(156
)
Ending balance
$
26,560



Each category considers current economic, industry and customer specific conditions relative to their respective operating environments in the incremental allowances recorded related to high-risk accounts, bankruptcies, receivables in repayment plan and other aging specific reserves. As a result of this analysis, the Company adjusts specific reserves and the amount of allowable credit as appropriate. The collectability of trade receivables related to advertising, marketing services and other customers depends on a variety of factors, including trends in the local and general economic conditions that affect our customers' ability to pay. 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 that may impact our ability to collect on the related receivables. Similarly, while circulation revenues related to individual subscribers are primarily prepaid, changes in economic conditions may also affect our ability to collect on amounts owed from single copy circulation customers.

As of June 30, 2020, the Company estimated future credit losses for trade receivables of $7.7 million due to the potential impacts of the COVID-19 pandemic. This adjustment to the reserve was based on the analysis of higher risk accounts, which include receivables with significant changes in payment timing and aged balances. While the Company continues to realize collectability on the majority of its trade receivables, the amounts and timing have been impacted as a result of the pandemic. The Company will continue to monitor the impact of the COVID-19 pandemic and the related impact on its receivables.


11



For the three and six months ended June 30, 2020, the Company recorded $12.2 million and $17.3 million in bad debt expense, included in Selling, general and administrative expenses on the Condensed consolidated statements of operations and comprehensive income (loss). For the three and six months ended June 30, 2019, the Company recorded $1.9 million and $4.0 million in bad debt expense included in Selling, general and administrative expenses on the Condensed consolidated statements of operations and comprehensive income (loss). We did not record any one-time adjustments as a result of adopting the new guidance on credit losses.

NOTE 5 — Acquisitions

2019 Acquisitions

The Company acquired substantially all the assets, properties, and business of Legacy Gannett on November 19, 2019. The acquisition, which included the USA TODAY NETWORK (made up of USA TODAY and 109 local media organizations in 34 states in the U.S. and Guam, including digital sites and affiliates), ReachLocal, a marketing solutions company, and Newsquest (a wholly owned subsidiary of Legacy Gannett operating in the U.K. with more than 140 local media brands), was completed for an aggregate purchase price of $1.3 billion. The acquisition was financed from the Apollo term loan facility as described in Note 8 — Debt and the issuance of common stock to Legacy Gannett stockholders. The rationale for the acquisition was primarily the attractive nature of the various publications, businesses, and digital platforms as well as the estimated cash flows and cost-saving and revenue-generating opportunities.
 
The following table summarizes the final fair values of the assets and liabilities for the Legacy Gannett acquisition as of June 30, 2020. The final fair values are prior to the Company's annual impairment assessment; refer to Note 6 — Goodwill & Intangible Assets.
In thousands
Estimated fair value as previously reported (a)
Measurement period adjustments (b)
Final fair value as adjusted
Cash and restricted cash acquired
$
149,452

$

$
149,452

Current assets
383,965


383,965

Other assets
97,459


97,459

Property, plant and equipment
536,511


536,511

Operating lease assets
200,550


200,550

Developed technology
47,770

(11,670
)
36,100

Advertiser relationships
272,740

(16,580
)
256,160

Subscriber relationships
104,490

6,100

110,590

Other customer relationships
63,820

3,540

67,360

Trade names
16,470

(630
)
15,840

Mastheads
97,340

8,420

105,760

Goodwill
644,766

13,018

657,784

Total assets
2,615,333

2,198

2,617,531

Current liabilities
513,752

95

513,847

Long-term liabilities
787,019

2,103

789,122

Total liabilities
1,300,771

2,198

1,302,969

Net assets
$
1,314,562

$

$
1,314,562


(a) As previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
(b) The Company recorded measurement period adjustments during the six months ended June 30, 2020. The measurement period adjustments were primarily related to obtaining new facts and circumstances that existed as of the acquisition date that impact the financial projections and carrying values used to value acquired assets and liabilities, including the finalization of certain contracts with customers that impacted the value of intangible assets recorded. The increase to Long-term liabilities was primarily the result of $5.8 million in multi-employer pension liabilities offset by a decrease of $4.0 million in deferred tax liabilities. All measurement period adjustments were offset against Goodwill.

Outside of the Legacy Gannett acquisition, the Company also acquired substantially all the assets, properties and business of certain publications and businesses in 2019, which included 11 daily newspapers, 11 weekly publications, nine shoppers, a remnant advertising agency, five events production businesses, and a business community and networking platform for an aggregate purchase price of $53.4 million including working capital. Additional consideration is earned based on the achievement of EBITDA targets outlined in the asset purchase agreement for specified acquisitions. As of June 30, 2020, $7.0 million of the consideration is payable to the former stockholders and is included in Other current liabilities in the Condensed consolidated balance sheets. The acquisitions were financed from cash on hand. The rationale for the acquisitions was

12



primarily the attractive nature, as applicable, of the various publications, businesses, and digital platforms as well as the estimated cash flows and cost-saving and revenue-generating opportunities available.

The following table summarizes the final fair values of the assets and liabilities for the aforementioned acquisitions.
in thousands
Estimated fair value as previously reported (a)
Measurement period adjustments (b)
Final fair value as adjusted
Cash acquired
$
323

$

$
323

Current assets
9,320

(112
)
9,208

Other assets
950


950

Property, plant and equipment
20,492

730

21,222

Non-compete agreements
280


280

Advertiser relationships
2,357

279

2,636

Subscriber relationships
1,457


1,457

Other customer relationships
1,323

2,942

4,265

Software
140

2,130

2,270

Trade names
299

2,105

2,404

Mastheads
2,896


2,896

Goodwill
20,850

(1,248
)
19,602

Total assets
60,687

6,826

67,513

Current liabilities assumed
11,961


11,961

Long-term liabilities assumed
463

50

513

Total liabilities
12,424

50

12,474

Minority interest
$
1,651

$

$
1,651

Net assets
$
46,612

$
6,776

$
53,388


(a) As previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
(b) During the six months ended June 30, 2020, the Company recognized a contingent liability of $7.0 million for earnout payments not made and finalized the allocation of purchase price to certain customer relationships, software, and trade name intangible assets acquired.

Pro forma information: The following table sets forth unaudited pro forma results of operations assuming the Legacy Gannett acquisition, along with transactions necessary to finance the acquisition, occurred at the beginning of 2019:
 
Three months ended
Six months ended
In thousands; unaudited
June 30, 2019
June 30, 2019
Total revenues
$
1,063,689

$
2,113,678

Net income (loss)
88

(52,081
)
Earnings (loss) per share - diluted
$
0.00

$
(0.42
)


This pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we operated the businesses from the beginning of the periods presented. The pro forma adjustments reflect depreciation expense and amortization of intangibles related to the fair value adjustments of the assets acquired, additional interest expense related to the financing of the transactions, the elimination of acquisition-related costs, and the related tax effects of the adjustments.


13



NOTE 6 — Goodwill & Intangible Assets

Goodwill and intangible assets consisted of the following:
 in thousands
June 30, 2020
 
Gross carrying amount
 
Accumulated
amortization
 
Net carrying
amount
Amortized intangible assets(a):
 
 
 
 
 
Advertiser relationships
$
496,285

 
$
100,061

 
$
396,224

Other customer relationships
112,740

 
21,329

 
91,411

Subscriber relationships
265,491

 
60,059

 
205,432

Other intangible assets
70,317

 
19,076

 
51,241

Total
$
944,833

 
$
200,525

 
$
744,308

Non-amortized intangible assets:

 
 
Goodwill
$
559,623

 
Mastheads(a)
176,217

 
Total
$
735,840

 
 
 
 
December 31, 2019
 
Gross carrying amount
 
Accumulated
amortization
 
Net carrying
amount
Amortized intangible assets:
 
 
 
 
 
Advertiser relationships
$
534,161

 
$
75,363

 
$
458,798

Other customer relationships
109,674

 
14,303

 
95,371

Subscriber relationships
259,391

 
44,878

 
214,513

Other intangible assets
76,552

 
11,229

 
65,323

Total
$
979,778

 
$
145,773

 
$
834,005

Non-amortized intangible assets:
 
 
 
Goodwill
$
914,331

 
Mastheads
$
178,559

 
Total
$
1,092,890

 

(a) Includes measurement period adjustments for the Legacy Gannett and other 2019 acquisitions. Refer to Note 5 — Acquisitions.

The balances and changes in the carrying amount of goodwill by segment are as follows:
in thousands
 
Publishing(a)
 
Marketing Solutions
 
Consolidated
Gross balance at December 31, 2019
$
800,606

 
$
201,646

 
$
1,002,252

Accumulated impairments
(84,272
)
 
(3,649
)
 
(87,921
)
Net balance at December 31, 2019
$
716,334

 
$
197,997

 
$
914,331

 
 
 
 
 
 
Activity during the six months ended June 30, 2019:
 
 
 
 
 
Goodwill impairment
(321,851
)
 
(40,499
)
 
(362,350
)
Measurement period adjustments
70,558

 
(58,788
)
 
11,770

Foreign currency exchange rate changes
(4,128
)
 

 
(4,128
)
Total
$
(255,421
)
 
$
(99,287
)
 
$
(354,708
)
 
 
 
 
 
 
Gross balance at June 30, 2020
$
866,052

 
$
142,858

 
$
1,008,910

Accumulated impairments
(405,139
)
 
(44,148
)
 
(449,287
)
Net balance at June 30, 2020
$
460,913

 
$
98,710

 
$
559,623

(a) The Publishing segment includes the Domestic Publishing and Newsquest reporting units.

14




Consistent with the Company’s past practice, the Company performed its annual goodwill and indefinite-lived intangible (masthead) impairment assessment in the second quarter of 2020 with the assistance of third-party valuation specialists. Within the impairment analyses performed, the Company considered the current and expected future economic and market conditions and the impact on the fair value of each of the reporting units. The primary factors impacting the decrease in fair value include the current and expected impact of the COVID-19 pandemic on the Company’s operations. The most significant assumptions utilized in the determination of the estimated fair values include revenue and EBITDA projections, discount rates and long-term growth rates. The long-term growth rates are dependent on overall market growth rates, the competitive environment, inflation and relative currency exchange rates and could be adversely impacted by a sustained decrease in any of these measures, all of which the Company considered in determining the long-term growth rates used in the analysis, which ranged from negative 0.5% to 3%. The discount rate, which is consistent with a weighted average cost of capital that is likely to be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure. The discount rate may be impacted by adverse changes in the macroeconomic environment and volatility in the equity and debt markets. The Company considered these factors in determining the discount rates used in the analysis, which ranged from 10.0% to 15.5%.

For mastheads, the Company applied a “relief from royalty” approach, a discounted cash flow model, reflecting current assumptions, to fair value the indefinite-lived intangible assets. We compared the fair value of each indefinite-lived asset to its carrying amount, and accordingly, the Company recorded impairments of $4.0 million in both our Domestic Publishing and Newsquest reporting units.

The Company considered the impact of the COVID-19 pandemic on the Company’s operations to be an indicator of impairment under ASC 360. The Company performed a recoverability test for the long-lived asset groups, reflecting current assumptions, to determine whether an impairment loss should be measured. The undiscounted cash flows used in the recoverability test for the Newsquest long-lived asset group were less than the long-lived asset group carrying amount. The Company calculated the fair value of the long-lived asset group and recorded a $23.0 million impairment to advertiser and other customer relationships intangible assets. The discount rate and long-term growth rate assumptions were consistent with the Goodwill assumptions discussed above. Refer Note 7 — Integration and reorganization costs and impairments of property, plant and equipment, for further details on the impairment of property, plant and equipment.

For goodwill, the Company primarily utilized a discounted cash flow method to calculate the fair value of each reporting unit. Market-based metrics were reviewed to evaluate the reasonableness of the Company’s calculation. The Company compared the fair value of each reporting unit to its carrying amount, which resulted in the carrying value of all the reporting groups being in excess of the fair value. As a result, we recorded goodwill impairment charges in the second quarter of $256.5 million, $65.4 million and $40.5 million in our Domestic Publishing, Newsquest and Marketing Solutions reporting units, respectively.

The severity and length of the COVID-19 pandemic, the duration and extent of the mitigation measures and governmental actions designed to combat the pandemic, as well as the changes in customer behavior as a result of the pandemic, all of which are highly uncertain and difficult to predict at the current time, could negatively impact the Company’s future assessment of its results of operations and the underlying assumptions utilized in the determination of the estimated fair values of the reporting units and related mastheads.

The newspaper industry and the Company have experienced declining same-store revenue and profitability over the past several years. Should general economic, market or business conditions continue to decline and have a negative impact on estimates of future cash flow and market transaction multiples, the Company may be required to record additional impairment charges in the future.

NOTE 7 — Integration and reorganization costs and impairments of property, plant and equipment
Over the past several years, the Company has engaged in a series of individual restructuring programs, designed primarily to right-size the Company’s employee base, consolidate facilities and improve operations, including those of recently acquired entities. These initiatives impact all the Company’s operations and can be influenced by the terms of union contracts. All costs related to these programs, which primarily include severance expense, are accrued at the time of the program announcement.


15



Severance-related expenses: We recorded severance-related expenses by segment as follows:
 
Three months ended June 30,
 
Six months ended June 30,
In thousands
2020
 
2019
 
2020
 
2019
Publishing
$
19,142

 
$
2,676

 
$
31,418

 
$
4,656

Marketing Solutions
2,753

 
180

 
4,137

 
736

Corporate and Other
3,847

 
24

 
11,966

 
901

Total
$
25,742

 
$
2,880

 
$
47,521

 
$
6,293


A rollforward of the accrued severance and related costs included in accrued expenses on the Condensed consolidated balance sheets for the six months ended June 30, 2020 are as follows:
In thousands
 
Beginning balance
$
30,785

Restructuring provision included in integration and reorganization costs
47,521

Cash payments
(47,641
)
Ending balance
$
30,665



The restructuring reserve balance is expected to be paid out over the next twelve months.

Facility consolidation and other restructuring-related expenses: We recorded facility consolidation charges and other restructuring-related costs by segment as follows:
 
Three months ended June 30,
 
Six months ended June 30,
In thousands
2020
 
2019
 
2020
 
2019
Publishing
$
1,477

 
$
1,398

 
$
2,509

 
$
1,803

Marketing Solutions
209

 

 
214

 

Corporate and Other
4,878

 

 
10,316

 
1,981

Total
$
6,564

 
$
1,398

 
$
13,039

 
$
3,784



Impairment of property, plant and equipment and accelerated depreciation: As part of ongoing cost efficiency programs, the Company has ceased a number of print operations. In addition, as a result of the Company's annual goodwill and indefinite-lived intangible impairment analysis, the Company performed a recoverability test for long-lived assets groups. There were $6.9 million of property, plant and equipment impairment charges recorded for the three months ended June 30, 2020 by the Publishing segment as a result of this test and $1.3 million property, plant and equipment impairment charges recorded for the same period in 2019 by the Corporate and other segment as a result of cost efficiency programs. For the six months ended June 30, 2020, there were $6.9 million property, plant and equipment impairment charges recorded by the Publishing segment. There were $2.5 million property, plant and equipment impairment charges recorded for the same period in 2019 by the Corporate and other segment.
 
We incurred $11.0 million accelerated depreciation for the three months ended June 30, 2020. $2.6 million of accelerated depreciation was incurred for the same period in 2019. For the three months ended June 30, 2020, accelerated depreciation expenses were related to the publishing segment and are included within depreciation expense. We incurred $35.8 million of accelerated depreciation for the six months ended June 30, 2020. $2.6 million of accelerated depreciation was incurred for the same period in 2019. For the six months ended June 30, 2020, accelerated depreciation expenses were related to the Publishing segment and are included within depreciation expense.

NOTE 8 — Debt

Apollo Term Loan

In November 2019, pursuant to the acquisition of Legacy Gannett, the Company entered into a five-year, senior-secured term loan facility with Apollo Capital Management, L.P. ("Apollo") in an aggregate principal amount of approximately $1.8 billion. The term loan facility, which matures on November 19, 2024, generally bears interest at the rate of 11.5% per annum. Origination fees totaled 6.5% of the total principal amount of the financing at closing. Pursuant to the agreement, Apollo has the right to designate two individuals to attend Board of Directors meetings as non-fiduciary and non-voting observers and

16



participants. In addition, if the total gross leverage ratio exceeds certain thresholds, Apollo has the right to appoint up to two voting directors. Upon the occurrence and during the continuance of an Event of Default (as defined in the term loan facility), the interest rate increases by 2.0%.

The term loan facility contains customary covenants and events of default, including a covenant that the Company have at least $20 million of unrestricted cash on the last day of each fiscal quarter. The term loan facility is required to be prepaid with (i) any unrestricted cash in excess of $40 million at the end of fiscal year 2020 and fiscal year 2021, (ii) 50% of excess cash flow (as such term is defined in the term loan facility) measured at the end of each fiscal quarter (beginning with the third quarter of 2020), subject to a step-up to 90% of excess cash flow for each period in fiscal year 2021 or later if the ratio of consolidated debt to EBITDA (as such terms are defined in the term loan facility) is greater than or equal to 1.00 to 1.00, and (iii) 100% of the net proceeds of any non-ordinary course asset sales. The term loan facility prohibits the payment of cash dividends prior to the thirtieth day of the second quarter of 2020, and thereafter permits payment of cash dividends up to an agreed-upon amount, provided that the ratio of consolidated debt to EBITDA (as such terms are defined therein) does not exceed a specified threshold. As of June 30, 2020, the Company is in compliance with all of the covenants and obligations under the term loan facility.

In connection with the Apollo term loan facility, the Company incurred approximately $4.9 million of fees and expenses and $116.6 million of lender fees which were capitalized and will be amortized over the term of the term loan facility using the effective interest method. 

The Company used the proceeds of the term loan facility to (i) partially fund the acquisition of Legacy Gannett, (ii) repay, prepay, repurchase, redeem, or otherwise discharge in full each of the existing financing facilities (as defined in the agreement and discussed in part below), and (iii) pay fees and expenses incurred to obtain the term loan facility. The Company is permitted to prepay the principal of the term loan facility, in whole or in part, at par plus accrued and unpaid interest, without any prepayment premium or penalty. The term loan facility is guaranteed by the material wholly-owned subsidiaries of the Company, and all obligations of the Company and its subsidiary guarantors are or will be secured by first priority liens on certain material real property, equity interests, land, buildings, and fixtures. The term loan facility contains customary representations and warranties, affirmative covenants, and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, dividends and other distributions, capital expenditures, and events of default.

As of June 30, 2020, the Company had $1.7 billion in aggregate principal outstanding under the term loan facility, $4.4 million of deferred financing costs, and $99.4 million of capitalized lender fees. During the three and six months ended June 30, 2020, the Company recorded $50.6 million and $101.4 million in interest expense, respectively, $5.9 million and $11.8 million in amortization of deferred financing costs, respectively, and $0.4 million and $1.2 million for loss on early extinguishment of debt, respectively. During the three months ended June 30, 2020, the Company paid $124.7 million in interest. The effective interest rate is 12.9%.

Convertible debt

On April 9, 2018, Legacy Gannett completed an offering of 4.75% convertible senior notes, resulting in total aggregate principal of $201.3 million and net proceeds of approximately $195.3 million. Interest on the notes is payable semi-annually in arrears. The notes mature on April 15, 2024 with our earliest redemption date being April 15, 2022. The stated conversion rate of the notes is 82.4572 shares per $1,000 in principal or approximately $12.13 per share.

The Company's acquisition of Legacy Gannett constituted a Fundamental Change and Make-Whole Fundamental Change under the terms of the indenture governing the notes. At the acquisition date, the Company delivered to noteholders a notice offering the right to surrender all or a portion of their notes for cash on December 31, 2019. On December 31, 2019, we completed the redemption of $198.0 million in aggregate principal in exchange for cash.

The $3.3 million principal value of the remaining notes outstanding is reported as convertible debt in the Condensed consolidated balance sheets. The effective interest rate on the notes was 6.05% as of June 30, 2020.

NOTE 9 — Pensions and other postretirement benefit plans

We, along with our subsidiaries, have various defined benefit retirement plans, including plans established under collective bargaining agreements. Our retirement plans include the Gannett Retirement Plan ("GRP"), Newsquest and Romanes Pension Schemes in the U.K. ("U.K. Pension Plans"), and other defined benefit and defined contribution plans. We also provide health care and life insurance benefits to certain retired employees who meet age and service requirements.

17




Retirement plan costs include the following components:

 
Three months ended June 30,
 
2020
 
2019
In thousands
Pension
 
OPEB
 
Pension
 
OPEB
Operating expenses:
 
 
 
 
 
 
 
Service cost - Benefits earned during the period
$