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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 September 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 November 2, 2020, the total number of shares of the registrant's Common Stock, $0.01 par value, outstanding was 137,959,262.




 




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.
Q3 2020 FORM 10-Q
 
Item No.
 
Page
 
Part I. Financial Information
 
 
 
 
1
2
 
 
 
2
26
 
 
 
3
44
 
 
 
4
45
 
 
 
 
Part II. Other Information
 
 
 
 
1
45
 
 
 
1A
45
 
 
 
2
60
 
 
 
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
September 30, 2020
 
December 31, 2019
ASSETS
(Unaudited)
 
 
Current assets
 
 
 
Cash and cash equivalents
$
188,960

 
$
156,042

Accounts receivable, net of allowance for doubtful accounts of $23,749 and $19,923
288,400

 
438,523

Inventories
33,776

 
55,090

Prepaid expenses and other current assets
115,137

 
129,460

Total current assets
626,273

 
779,115

Property, plant and equipment, at cost net of accumulated depreciation of $377,072 and $277,291
704,931

 
815,807

Operating lease assets
295,775

 
309,112

Goodwill
560,215

 
914,331

Intangible assets, net
893,721

 
1,012,564

Deferred income tax assets
97,369

 
76,297

Other assets
136,019

 
112,876

Total assets
$
3,314,303

 
$
4,020,102

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable and accrued liabilities
$
340,840

 
$
453,628

Deferred revenue
207,597

 
218,823

Current portion of long-term debt
15,179

 
3,300

Other current liabilities
46,558

 
42,702

Total current liabilities
610,174

 
718,453

Long-term debt
1,615,984

 
1,636,335

Convertible debt
3,300

 
3,300

Deferred tax liabilities
6,256

 
9,052

Pension and other postretirement benefit obligations
198,220

 
235,906

Long-term operating lease liabilities
280,556

 
297,662

Other long-term liabilities
169,536

 
136,188

Total noncurrent liabilities
2,273,852

 
2,318,443

Total liabilities
2,884,026

 
3,036,896

Redeemable noncontrolling interests
4,148

 
1,850

Commitments and contingent liabilities (See Note 13)


 


 
 
 
 
Equity
 
 
 
Common stock of $0.01 par value per share, 2,000,000,000 shares authorized, 137,478,696 issued and 136,305,720 shares outstanding at September 30, 2020; 129,386,258 issued and 128,991,544 shares outstanding at December 31, 2019
1,375

 
1,294

Treasury stock at cost, 1,172,976 and 394,714 shares at September 30, 2020 and December 31, 2019, respectively
(4,841
)
 
(2,876
)
Additional paid-in capital
1,100,269

 
1,090,694

Accumulated deficit
(664,263
)
 
(115,958
)
Accumulated other comprehensive income (loss)
(6,411
)
 
8,202

Total equity
426,129

 
981,356

Total liabilities and equity
$
3,314,303

 
$
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
 
Nine months ended
 
September 30, 2020
 
September 29, 2019
 
September 30, 2020
 
September 29, 2019
Operating revenues:
 
 
 
 
 
 
 
Advertising and marketing services
$
405,227

 
$
184,078

 
$
1,249,156

 
$
582,320

Circulation
336,158

 
146,254

 
1,053,528

 
449,269

Other
73,154

 
46,317

 
227,539

 
137,047

Total operating revenues
814,539

 
376,649

 
2,530,223

 
1,168,636

Operating expenses:
 
 
 
 
 
 
 
Operating costs
492,342

 
218,369

 
1,535,539

 
681,271

Selling, general and administrative expenses
241,652

 
119,821

 
767,275

 
375,497

Depreciation and amortization
61,355

 
24,482

 
205,706

 
68,733

Integration and reorganization costs
13,417

 
3,136

 
73,978

 
13,213

Acquisition costs
1,913

 
12,181

 
10,261

 
15,318

Asset impairments
1,585

 

 
8,444

 
2,469

Goodwill and intangible impairments

 

 
393,446

 

Loss on sale or disposal of assets
795

 
602

 
1,540

 
3,339

Total operating expenses
813,059

 
378,591

 
2,996,189

 
1,159,840

Operating income (loss)
1,480

 
(1,942
)
 
(465,966
)
 
8,796

Non-operating (income) expenses:
 
 
 
 
 
 
 
Interest expense
58,063

 
10,030

 
173,890

 
30,376

Loss on early extinguishment of debt
476

 

 
1,650

 

Non-operating pension income
(18,334
)
 
(208
)
 
(54,433
)
 
(625
)
Gain on sale of investments
(7,800
)
 

 
(7,995
)
 

Other income, net
(2,575
)
 
(22
)
 
(6,993
)
 
(176
)
Non-operating expenses
29,830

 
9,800

 
106,119

 
29,575

Net loss before income taxes
(28,350
)
 
(11,742
)
 
(572,085
)
 
(20,779
)
Income tax expense (benefit)
3,098

 
7,226

 
(22,200
)
 
4,929

Net loss
(31,448
)
 
(18,968
)
 
(549,885
)
 
(25,708
)
Net loss attributable to redeemable noncontrolling interests
(188
)
 
(505
)
 
(1,580
)
 
(954
)
Net loss attributable to Gannett
$
(31,260
)
 
$
(18,463
)
 
$
(548,305
)
 
$
(24,754
)
Loss per share attributable to Gannett - basic
$
(0.24
)
 
$
(0.31
)
 
$
(4.17
)
 
$
(0.41
)
Loss per share attributable to Gannett - diluted
$
(0.24
)
 
$
(0.31
)
 
$
(4.17
)
 
$
(0.41
)
Dividends declared per share
$
0.00

 
$
0.38

 
$
0.00

 
$
1.14

 
 
 
 
 
 
 
 
Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
7,677

 
(3
)
 
$
(8,908
)
 

Pension and other postretirement benefit items:
 
 
 
 
 
 
 
Net actuarial loss

 

 
(8,078
)
 

Amortization of net actuarial gain
(11
)
 
(30
)
 
(36
)
 
(90
)
Other
(714
)
 

 
347

 

Total pension and other postretirement benefit items
(725
)
 
(30
)
 
(7,767
)
 
(90
)
Other comprehensive income (loss) before tax
6,952

 
(33
)
 
(16,675
)
 
(90
)
Income tax expense (benefit) related to components of other comprehensive income
1

 

 
(2,062
)
 

Other comprehensive income (loss), net of tax
6,951

 
(33
)
 
(14,613
)
 
(90
)
Comprehensive loss
(24,497
)
 
(19,001
)
 
(564,498
)
 
(25,798
)
Comprehensive loss attributable to redeemable noncontrolling interests
(188
)
 
(505
)
 
(1,580
)
 
(954
)
Comprehensive loss attributable to Gannett
$
(24,309
)
 
$
(18,496
)
 
$
(562,918
)
 
$
(24,844
)
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 September 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2020
136,885,320

 
$
1,369

 
$
1,101,899

 
$
(13,362
)
 
$
(633,003
)
 
770,973

 
$
(4,818
)
 
$
452,085

Net loss

 

 

 

 
(31,260
)
 

 

 
(31,260
)
Restricted stock awards settled, net of withholdings
564,406

 
6

 
(866
)
 

 

 

 

 
(860
)
Other comprehensive income, net of income taxes of $1

 

 

 
6,951

 


 

 

 
6,951

Equity-based compensation expense

 

 
3,844

 

 

 

 

 
3,844

Issuance of common stock
28,970

 

 
(961
)
 

 

 

 

 
(961
)
Remeasurement of redeemable noncontrolling interests

 

 
(3,878
)
 

 

 

 

 
(3,878
)
Purchase of treasury stock

 

 

 

 

 
4,837

 
(19
)
 
(19
)
Restricted share forfeiture

 

 

 

 

 
397,166

 
(4
)
 
(4
)
Other activity

 

 
231

 

 

 

 

 
231

Balance as of September 30, 2020
137,478,696

 
1,375

 
1,100,269

 
(6,411
)
 
(664,263
)
 
1,172,976

 
(4,841
)
 
426,129

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 29, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of June 30, 2019
60,806,451

 
$
608

 
$
677,574

 
$
(6,938
)
 
$
(2,409
)
 
324,777

 
$
(2,573
)
 
$
666,262

Net loss

 

 

 

 
(18,463
)
 

 

 
(18,463
)
Restricted share grants
1,408

 

 

 

 

 

 

 

Other comprehensive loss, net of income taxes of $0

 

 

 
(33
)
 

 

 

 
(33
)
Equity-based compensation expense

 

 
691

 

 

 

 

 
691

Purchase of treasury stock

 

 

 

 

 
1,599

 
(16
)
 
(16
)
Restricted share forfeiture

 

 

 

 

 
366

 

 

Dividends declared

 

 
(22,983
)
 

 

 

 

 
(22,983
)
Balance at September 29, 2019
60,807,859

 
$
608

 
$
655,282

 
$
(6,971
)
 
$
(20,872
)
 
326,742

 
$
(2,589
)
 
$
625,458

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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
Nine months ended September 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 loss

 

 

 

 
(548,305
)
 

 

 
(548,305
)
Restricted share grants
4,346,313

 
44

 
(44
)
 

 

 

 

 

Restricted stock awards settled, net of withholdings
3,072,991

 
31

 
(10,819
)
 

 

 

 

 
(10,788
)
Other comprehensive loss, net of income tax benefit of $2,062

 

 

 
(14,613
)
 

 

 

 
(14,613
)
Equity-based compensation expense

 

 
22,812

 

 

 

 

 
22,812

Issuance of common stock
673,134

 
6

 
1,609

 

 

 

 

 
1,615

Remeasurement of redeemable noncontrolling interests

 

 
(3,878
)
 

 

 

 

 
(3,878
)
Purchase of treasury stock

 

 

 

 

 
322,524

 
(1,960
)
 
(1,960
)
Restricted share forfeiture

 

 

 

 

 
455,738

 
(5
)
 
(5
)
Other activity

 

 
(105
)
 

 

 

 

 
(105
)
Balance as of September 30, 2020
137,478,696

 
1,375

 
1,100,269

 
(6,411
)
 
(664,263
)
 
1,172,976

 
(4,841
)
 
426,129

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended September 29, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance as of December 30, 2018
60,508,249

 
$
605

 
$
721,605

 
$
(6,881
)
 
$
3,767

 
201,963

 
$
(1,873
)
 
$
717,223

Net loss

 

 

 

 
(24,754
)
 

 

 
(24,754
)
Restricted share grants
299,610

 
3

 
(3
)
 

 

 

 

 

Other comprehensive loss, net of income taxes of $0

 

 

 
(90
)
 

 

 

 
(90
)
Equity-based compensation expense

 

 
2,534

 

 

 

 

 
2,534

Impact of adoption of ASC 842 - Leases

 

 

 

 
115

 

 

 
115

Purchase of treasury stock

 

 

 

 

 
54,320

 
(716
)
 
(716
)
Restricted share forfeiture

 

 

 

 

 
70,459

 

 

Dividends declared

 

 
(68,854
)
 

 

 

 

 
(68,854
)
Balance at September 29, 2019
60,807,859

 
608

 
655,282

 
(6,971
)
 
(20,872
)
 
326,742

 
(2,589
)
 
625,458

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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


5



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Gannett Co., Inc. and Subsidiaries
Unaudited; in thousands
 
Nine months ended
 
September 30, 2020
 
September 29, 2019
 
 
 
 
Cash flows from operating activities:
 
 
 
Net loss
$
(549,885
)
 
$
(25,708
)
Adjustments to reconcile net income to operating cash flows:
 
 
 
Depreciation and amortization
205,706

 
68,733

Equity-based compensation expense
22,812

 
2,534

Non-cash interest expense
17,813

 
1,034

Loss on sale or disposal of assets
1,540

 
3,339

Loss on early extinguishment of debt
1,650

 

Goodwill and intangible impairments
393,446

 

Asset impairments
8,444

 
2,469

Pension and other postretirement benefit obligations, net of contributions
(77,274
)
 
(1,116
)
Change in other assets and liabilities, net
50,028

 
47,245

Net cash provided by operating activities
74,280

 
98,530

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

 
(49,666
)
Purchase of property, plant and equipment
(28,944
)
 
(7,281
)
Proceeds from sale of real estate and other assets
26,186

 
10,314

Insurance proceeds received for damage to property
1,643

 

Change in other investing activities
(864
)
 

Net cash used for investing activities
(1,979
)
 
(46,633
)
Cash flows from financing activities:
 
 
 
Repayments under term loans
(27,619
)
 
(11,296
)
Borrowings under revolving credit facility

 
136,400

Repayments under revolving credit facility

 
(128,400
)
Deferred payments for acquisitions
(7,544
)
 

Payments for employee taxes withheld from stock awards
(1,960
)
 
(716
)
Issuance of common stock
4

 

Payment of dividends

 
(68,886
)
Changes in other financing activities
(352
)
 

Net cash used for financing activities
(37,471
)
 
(72,898
)
Effect of currency exchange rate change on cash
439

 

Increase (decrease) in cash, cash equivalents and restricted cash
35,269

 
(21,001
)
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
$
223,933

 
$
31,769

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for taxes, net of refunds
$
(4,510
)
 
$
1,046

Cash paid for interest
$
176,402

 
$
22,902

Non-cash investing and financing activities:
 
 
 
Accrued capital expenditures
$
758

 
$
105

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 nine months ended September 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 nine months ended September 30, 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 and decreases in employee compensation through the third quarter, 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 are not expected 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 end for the third quarter of 2019 was September 29, 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 $16.6 million and $51.4 million for the three and nine months ended September 29, 2019, respectively. Operating revenues, Net income (loss), 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 and other 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:
In thousands
September 30, 2020
 
September 29, 2019
Cash and cash equivalents
$
188,960

 
$
28,641

Restricted cash included in other current assets
10,796

 
3,128

Restricted cash included in investments and other assets
24,177

 

Total cash, cash equivalents and restricted cash
$
223,933

 
$
31,769



New accounting pronouncements adopted: The following are new accounting pronouncements that we adopted in the first nine 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 recognized as performance obligations 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
 
Nine months ended
In thousands
September 30, 2020

September 29, 2019
 
September 30, 2020
 
September 29, 2019
Print advertising
$
208,047

 
$
139,243

 
$
664,047

 
$
448,348

Digital advertising and marketing services
197,180

 
44,835

 
585,109

 
133,972

Total advertising and marketing services
405,227

 
184,078

 
1,249,156

 
582,320

Circulation
336,158

 
146,254

 
1,053,528

 
449,269

Other
73,154

 
46,317

 
227,539

 
137,047

Total revenues
$
814,539

 
$
376,649

 
$
2,530,223

 
$
1,168,636


For the three and nine months ended September 30, 2020, approximately 7% of our revenues were generated from international locations.

Deferred revenues: 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 revenues balance for the nine months ended September 30, 2020 by type of revenues:
In thousands
Advertising, Marketing Services, and Other
 
Circulation
 
Total
Beginning balance
$
67,543

 
$
151,280

 
$
218,823

Cash receipts
215,050

 
878,856

 
1,093,906

Revenue recognized
(221,052
)
 
(884,080
)
 
(1,105,132
)
Ending balance
$
61,541

 
$
146,056

 
$
207,597



The Company’s primary source of deferred revenues 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 revenues and Other revenues.

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 September 30, 2020, our Condensed consolidated balance sheets include $295.8 million of operating lease right-to-use assets, $43.5 million of short-term operating lease liabilities included in Other current liabilities, and $280.6 million of long-term operating lease liabilities.

The components of lease expense were as follows:
 
Three months ended
 
Nine months ended
In thousands
September 30, 2020
 
September 29, 2019
 
September 30, 2020
 
September 29, 2019
Operating lease cost (a)
$
23,821

 
$
7,841

 
$
72,142

 
$
23,810

Short-term lease cost (b)
828

 
1,124

 
5,315

 
2,756

Net lease cost
$
24,649

 
$
8,965

 
$
77,457

 
$
26,566

(a) 
Includes variable lease costs of $2.9 million and $4.8 million, respectively, and sublease income of $0.9 million and $0.6 million, respectively, for the three months ended September 30, 2020 and September 29, 2019 and variable lease costs of $9.7 million and $5.6 million, respectively, and sublease income of $2.9 million and $1.7 million, respectively, for the nine months ended September 30, 2020 and September 29, 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 September 30, 2020 are as follows:
In thousands
Year ended
December 31, (a)
2020 (excluding the nine months ended September 30, 2020)
$
15,968

2021
82,679

2022
74,650

2023
62,115

2024
55,419

Thereafter
246,439

Total future minimum lease payments
537,270

Less: Imputed interest
(213,143
)
Total
$
324,127

(a) 
Operating lease payments exclude $12.7 million of legally binding minimum lease payments for leases signed but not yet commenced.

10




Other information related to leases were as follows:
 
Nine months ended
In thousands, except lease term and discount rate
September 30, 2020

September 29, 2019
Supplemental information
 
 
 
Cash paid for amounts included in the measurement of operating lease liabilities
$
61,508

 
$
18,899

Right-of-use assets obtained in exchange for operating lease obligations
25,562

 
18,642

 
 
 
 
 
As of
 
September 30, 2020
 
September 29, 2019
Weighted-average remaining lease term (in years)
7.7

 
8.6

Weighted-average discount rate
12.66
%
 
10.54
%


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 and 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 nine months ended September 30, 2020:
In thousands
 
Beginning balance
$
19,923

     Current period provision
23,075

     Write-offs charged against the allowance
(21,139
)
     Recoveries of amounts previously written-off
2,230

     Disposition
(351
)
     Foreign currency
11

Ending balance
$
23,749



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 September 30, 2020, the Company estimated future credit losses for trade receivables of $4.5 million due to the potential impacts of the COVID-19 pandemic. This reserve is 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 collect 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 nine months ended September 30, 2020, the Company recorded $5.7 million and $23.1 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 nine months ended September 29, 2019, the Company recorded $1.5 million and $5.5 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, 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 fair values of the assets and liabilities for the Legacy Gannett acquisition were finalized during the second quarter of 2020.

Outside of the Legacy Gannett acquisition, the Company also acquired substantially all the assets, properties and business of certain publications and businesses in 2019 (the "2019 Acquisitions"), 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. As part of one of the 2019 Acquisitions, the Company also acquired a 58% equity interest in the acquiree, and the minority equity owners retained a 42% interest, which has been classified as a redeemable non-controlling interest on the Condensed consolidated statements of operations and comprehensive income (loss).  Additionally, for specified 2019 Acquisitions, additional consideration is earned based on the achievement of EBITDA targets outlined in the asset purchase agreement. As of September 30, 2020, there is no consideration payable to the former stockholders. The 2019 Acquisitions were financed from cash on hand. The rationale for the 2019 Acquisitions was 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 fair values of the assets and liabilities for the 2019 Acquisitions were finalized during the second quarter of 2020.

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
 
Nine months ended
In thousands; unaudited
September 29, 2019
 
September 29, 2019
Total revenues
$
1,010,508

 
$
3,124,186

Net income (loss)
(58,857
)
 
(110,938
)
Earnings (loss) per share - diluted
$
(0.48
)
 
$
(0.90
)


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.


12



NOTE 6 — Goodwill & Intangible Assets

Goodwill and intangible assets consisted of the following:
 
September 30, 2020
 In thousands
Gross carrying amount
 
Accumulated
amortization
 
Net carrying
amount
Amortized intangible assets(a):
 
 
 
 
 
Advertiser relationships
$
496,062

 
$
111,782

 
$
384,280

Other customer relationships
112,704

 
24,561

 
88,143

Subscriber relationships
265,218

 
67,469

 
197,749

Other intangible assets
70,317

 
23,141

 
47,176

Total
$
944,301

 
$
226,953

 
$
717,348

Non-amortized intangible assets:

 
 
Goodwill
$
560,215

 
Mastheads(a)
176,373

 
Total
$
736,588

 
 
 
 
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.

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 nine months ended September 30, 2020:
 
 
 
 
 
Goodwill impairment
$
(321,851
)
 
$
(40,499
)
 
$
(362,350
)
Measurement period adjustments
70,558

 
(58,788
)
 
11,770

Foreign currency exchange rate changes
(3,536
)
 

 
(3,536
)
Total
$
(254,829
)
 
$
(99,287
)
 
$
(354,116
)
 
 
 
 
 
 
Gross balance at September 30, 2020
$
869,439

 
$
142,858

 
$
1,012,297

Accumulated impairments
(407,934
)
 
(44,148
)
 
(452,082
)
Net balance at September 30, 2020
$
461,505

 
$
98,710

 
$
560,215

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

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

13



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 factor that impacted the decrease in fair value was the 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 during the second quarter of 2020.

During the second quarter of 2020, the Company considered the impact of the COVID-19 pandemic on the Company’s operations to be an indicator of impairment under ASC 360. As such, during the second quarter 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 during the second quarter of 2020. 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, during the second quarter of 2020, we recorded goodwill impairment charges 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.

As of September 30, 2020, the Company performed a review of potential impairment indicators noting that its financial results and forecast have not changed materially since the annual impairment assessment, and it was determined that no indicators of impairment were present.

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. Costs related to these programs, which primarily include severance expense, are accrued when probable and reasonably estimable or at the time of program announcement.


14



Severance-related expenses: We recorded severance-related expenses by segment as follows:
 
Three months ended
 
Nine months ended
In thousands
September 30, 2020
 
September 29, 2019
 
September 30, 2020
 
September 29, 2019
Publishing
$
3,983

 
$
1,489

 
$
35,401

 
$
6,145

Marketing Solutions
1,196

 
431

 
5,333

 
1,167

Corporate and Other
2,103

 
8

 
14,069

 
909

Total
$
7,282

 
$
1,928

 
$
54,803

 
$
8,221


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

Restructuring provision included in integration and reorganization costs
54,803

Cash payments
(71,962
)
Ending balance
$
13,626



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
 
Nine months ended
In thousands
September 30, 2020
 
September 29, 2019
 
September 30, 2020
 
September 29, 2019
Publishing
$
1,137

 
$
1,119

 
$
3,648

 
$
2,922

Marketing Solutions
41

 
70

 
254

 
70

Corporate and Other
4,957

 
19

 
15,273

 
2,000

Total
$
6,135

 
$
1,208

 
$
19,175

 
$
4,992



Asset impairments and accelerated depreciation: As part of ongoing cost efficiency programs, the Company has ceased a number of print operations. There were $1.6 million of asset impairment charges recorded for the three months ended September 30, 2020 by the Publishing and Marketing Solutions segments as a result of these programs compared to no asset impairment charges recorded for the three months ended September 29, 2019. For the nine months ended September 30, 2020, there were $8.4 million asset impairment charges recorded by the Publishing and Marketing Solutions segments. There were $2.5 million asset impairment charges recorded for the nine months ended September 29, 2019 by the Publishing segment.

The Company incurred accelerated depreciation of $9.3 million and $2.2 million for the three months ended September 30, 2020 and September 29, 2019, respectively. For the nine months ended September 30, 2020 and September 29, 2019, the Company incurred accelerated depreciation of $45.0 million and $4.8 million, respectively. For the three and nine months ended September 30, 2020 and the three and nine months ended September 29, 2019, accelerated depreciation expenses were related to the Publishing segment and are included within Depreciation and amortization expense on the Condensed consolidated statements of operations and comprehensive income (loss).


15



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 "Apollo Term Loan"). The Apollo Term Loan 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 participants. In addition, if the total gross leverage ratio exceeds certain thresholds, Apollo has the right to appoint up to two voting directors. As of September 30, 2020, the total gross leverage ratio exceeded certain thresholds, whereby Apollo has the right to appoint one voting director. Upon the occurrence and during the continuance of an Event of Default (as defined in the Apollo Term Loan), the interest rate increases by 2.0%.

The Apollo Term Loan 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 Apollo Term Loan 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 Apollo Term Loan) 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 Apollo Term Loan) 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 Apollo Term Loan 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 September 30, 2020, the Company is in compliance with all of the covenants and obligations under the Apollo Term Loan.

In connection with the Apollo Term Loan, 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 Apollo Term Loan using the effective interest method. 

The Company used the proceeds of the Apollo Term Loan 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 Apollo Term Loan. The Company is permitted to prepay the principal of the Apollo Term Loan, in whole or in part, at par plus accrued and unpaid interest, without any prepayment premium or penalty. The Apollo Term Loan 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 Apollo Term Loan 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 September 30, 2020, the Company had $1.729 billion in aggregate principal outstanding under the Apollo Term Loan, $4.1 million of deferred financing costs, and $93.3 million of capitalized lender fees. During the three and nine months ended September 30, 2020, the Company recorded $51.0 million and $152.4 million in interest expense, respectively, $5.9 million and $17.7 million in amortization of deferred financing costs, respectively, and $0.5 million and $1.7 million for loss on early extinguishment of debt, respectively. During the three and nine months ended September 30, 2020, the Company paid interest of $51.0 million and $176.0 million, respectively. The effective interest rate is 12.9%. As of September 30, 2020, the Company reclassified $15.2 million of the Apollo Term Loan to the Current portion of long-term debt on the Condensed consolidated balance sheets, which represents 50% of the Company's excess cash flow (as such term is defined in the Apollo Term Loan) measured at the end of the third quarter of 2020.

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.


16



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 September 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.

Retirement plan costs include the following components:

 
Three months ended
 
September 30, 2020
 
September 29, 2019
In thousands
Pension
 
OPEB
 
Pension
 
OPEB
Operating expenses:
 
 
 
 
 
 
 
Service cost - Benefits earned during the period
$
693

 
$
27

 
$
159

 
$

Non-operating expenses (Other income):
 
 
 
 
 
 
 
Interest cost on benefit obligation
20,670

 
580

 
737

 
22

Expected return on plan assets
(39,573
)
 

 
(937
)
 

Amortization of actuarial loss (gain)
(26
)
 
15

 
(39
)
 
9

Total non-operating expenses (benefit)
$
(18,929
)
 
$
595

 
$
(239
)
 
$
31

Total expense (benefit) for retirement plans
$
(18,236
)
 
$
622

 
$
(80
)
 
$
31



 
Nine months ended
 
September 30, 2020
 
September 29, 2019
In thousands
Pension
 
OPEB
 
Pension
 
OPEB
Operating expenses:
 
 
 
 
 
 
 
Service cost - Benefits earned during the period
$
2,078

 
$
79

 
$
476

 
$

Non-operating expenses (Other income):
 
 
 
 
 
 
 
Interest cost on benefit obligation
61,803

 
1,740

 
2,210

 
67

Expected return on plan assets
(117,940
)
 

 
(2,812
)
 

Amortization of actuarial loss (gain)
(80
)
 
44

 
(117
)
 
27

Total non-operating expenses (benefit)
$
(56,217
)
 
$
1,784

 
$
(719
)
 
$
94

Total expense (benefit) for retirement plans
$
(54,139
)
 
$
1,863

 
$
(243
)
 
$
94


During the nine months ended September 30, 2020, we contributed $19.6 million and $5.7 million to our pension and other postretirement plans, respectively. In response to the COVID-19 pandemic our GRP in the U.S. has deferred certain contractual contributions and negotiated a contribution payment plan of $5 million per quarter starting December 31, 2020 through the end of the September 30, 2022. Additionally, $11 million in minimum required contributions for the 2019 plan year, as required by the Employee Retirement Income Security Act of 1974 ("ERISA"), have been deferred until January 1, 2021.

NOTE 10 — Income taxes

The following table outlines our pre-tax net income (loss) and income tax amounts:

17




Three months ended
 
Nine months ended
In thousands
September 30, 2020