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Gannett (GCI)

Filed: 6 Aug 20, 5:15pm


 
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: (703) 854-6000.
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 FilerAccelerated Filer
    
Non-Accelerated FilerSmaller 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
 






PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
in thousands, except share dataJune 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 $19,923288,509
 438,523
Inventories40,468
 55,090
Prepaid expenses and other current assets125,208
 129,460
Total current assets612,788
 779,115
Property, plant and equipment, at cost net of accumulated depreciation of $358,746 and $277,291718,590
 815,807
Operating lease assets296,128
 309,112
Goodwill559,623
 914,331
Intangible assets, net920,525
 1,012,564
Deferred income tax assets105,051
 76,297
Other assets125,212
 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 revenue213,988
 218,823
Current portion of long-term debt
 3,300
Other current liabilities47,017
 42,702
Total current liabilities588,076
 718,453
Long-term debt1,633,449
 1,636,335
Convertible debt3,300
 3,300
Deferred tax liabilities6,256
 9,052
Pension and other postretirement benefit obligations214,084
 235,906
Long-term operating lease liabilities282,896
 297,662
Other long-term liabilities157,313
 136,188
Total noncurrent liabilities2,297,298
 2,318,443
Total liabilities2,885,374
 3,036,896
Redeemable noncontrolling interests458
 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, 20191,369
 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 capital1,101,899
 1,090,694
Accumulated deficit(633,003) (115,958)
Accumulated other comprehensive income (loss)(13,362) 8,202
Total equity452,085
 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
Circulation342,646
 150,850
 717,369
 303,015
Other67,436
 48,840
 154,385
 90,730
Total operating revenues767,000
 404,387
 1,715,683
 791,987
Operating expenses:       
Operating costs476,735
 233,407
 1,043,199
 462,902
Selling, general and administrative expenses226,484
 126,628
 525,622
 255,676
Depreciation and amortization66,327
 23,328
 144,352
 44,251
Integration and reorganization costs32,306
 4,278
 60,560
 10,077
Acquisition costs2,379
 2,364
 8,348
 3,137
Impairment of property, plant and equipment6,859
 1,262
 6,859
 2,469
Goodwill and intangible impairment393,446
 
 393,446
 
Loss on sale or disposal of assets88
 947
 745
 2,737
Total operating expenses1,204,624
 392,214
 2,183,131
 781,249
Operating income (loss)(437,624) 12,173
 (467,448) 10,738
Non-operating (income) expense:       
Interest expense57,928
 10,212
 115,827
 20,346
Loss on early extinguishment of debt369
 
 1,174
 
Non-operating pension income(17,553) (208) (36,099) (417)
Other income, net(6,261) (103) (4,616) (154)
Non-operating expense34,483
 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)
Other95
 
 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 income2,059
 
 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 AmountShares Amount Total
Three months ended June 30, 2020               
Balance as of March 31, 2020132,715,532
 $1,327
 $1,093,705
 $(4,875) $(196,110) 657,165
 $(4,491) $889,556
Net income (loss)
 
 
 
 (436,893) 
 
 (436,893)
Restricted share grants3,531,279
 36
 (36) 
 
 
 
 
Restricted stock awards settled, net of withholdings251,250
 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 stock387,259
 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, 2020136,885,320
 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, 201960,806,451
 $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, 201960,806,451
 $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 AmountShares Amount Total
Six months ended June 30, 2020               
Balance as of December 30, 2019129,386,258
 $1,294
 $1,090,694
 $8,202
 $(115,958) 394,714
 $(2,876) $981,356
Net income (loss)
 
 
 
 (517,045) 
 
 (517,045)
Restricted share grants4,346,313
 44
 (44) 
 
 
 
 
Restricted stock awards settled2,508,585
 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 stock644,164
 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, 2020136,885,320
 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, 201860,508,249
 $605
 $721,605
 $(6,881) $3,767
 201,963
 $(1,873) $717,223
Net income (loss)
 
 
 
 (6,291) 
 
 (6,291)
Restricted share grants298,202
 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, 201960,806,451
 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 amortization144,352
 44,251
Equity-based compensation expense18,968
 1,843
Non-cash interest expense11,902
 689
Loss on sale or disposal of assets745
 2,737
Loss on early extinguishment of debt1,174
 
Goodwill and intangible impairment393,446
 
Impairment of property, plant and equipment6,859
 2,469
Pension and other postretirement benefit obligations, net of contributions(49,064) (649)
Change in other assets and liabilities, net14,695
 13,053
Net cash provided by operating activities24,640
 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 assets17,792
 7,107
Insurance proceeds received for damage to property1,643
 
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 stock1,007
 
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 cash503
 (29,586)
Balance of cash, cash equivalents, and restricted cash at beginning of period188,664
 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 2 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 thousands2020 2019
Cash and cash equivalents$158,603
 $20,029
Restricted cash included in other current assets9,298
 3,155
Restricted cash included in investments and other assets21,266
 
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 thousands2020
2019 2020 2019
Print advertising$188,158
 $158,205
 $456,000
 $309,105
Digital advertising and marketing services168,760
 46,492
 387,929
 89,137
Total advertising and marketing services356,918
 204,697
 843,929
 398,242
Circulation342,646
 150,850
 717,369
 303,015
Other67,436
 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 thousandsAdvertising, Marketing Services, and Other Circulation Total
Beginning balance$67,543
 $151,280
 $218,823
Cash receipts141,146
 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 thousands2020 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
202181,131
202272,967
202360,508
202453,594
Thereafter236,727
Total future minimum lease payments543,136
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 rate2020
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 obligations14,610
 14,983
    
 As of June 30,
 2020 2019
Weighted-average remaining lease term (in years)7.9
 8.8
Weighted-average discount rate12.78% 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 provision17,345
     Write-offs charged against the allowance(12,019)
     Recoveries of amounts previously written-off1,467
     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 assets383,965

383,965
Other assets97,459

97,459
Property, plant and equipment536,511

536,511
Operating lease assets200,550

200,550
Developed technology47,770
(11,670)36,100
Advertiser relationships272,740
(16,580)256,160
Subscriber relationships104,490
6,100
110,590
Other customer relationships63,820
3,540
67,360
Trade names16,470
(630)15,840
Mastheads97,340
8,420
105,760
Goodwill644,766
13,018
657,784
Total assets2,615,333
2,198
2,617,531
Current liabilities513,752
95
513,847
Long-term liabilities787,019
2,103
789,122
Total liabilities1,300,771
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, 9 shoppers, a remnant advertising agency, 5 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 assets9,320
(112)9,208
Other assets950

950
Property, plant and equipment20,492
730
21,222
Non-compete agreements280

280
Advertiser relationships2,357
279
2,636
Subscriber relationships1,457

1,457
Other customer relationships1,323
2,942
4,265
Software140
2,130
2,270
Trade names299
2,105
2,404
Mastheads2,896

2,896
Goodwill20,850
(1,248)19,602
Total assets60,687
6,826
67,513
Current liabilities assumed11,961

11,961
Long-term liabilities assumed463
50
513
Total liabilities12,424
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 endedSix months ended
In thousands; unauditedJune 30, 2019June 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.


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NOTE 6 — Goodwill & Intangible Assets

Goodwill and intangible assets consisted of the following:
 in thousandsJune 30, 2020
 Gross carrying amount 
Accumulated
amortization
 
Net carrying
amount
Amortized intangible assets(a):
     
Advertiser relationships$496,285
 $100,061
 $396,224
Other customer relationships112,740
 21,329
 91,411
Subscriber relationships265,491
 60,059
 205,432
Other intangible assets70,317
 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 relationships109,674
 14,303
 95,371
Subscriber relationships259,391
 44,878
 214,513
Other intangible assets76,552
 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 adjustments70,558
 (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.

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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.


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Severance-related expenses: We recorded severance-related expenses by segment as follows:
 Three months ended June 30, Six months ended June 30,
In thousands2020 2019 2020 2019
Publishing$19,142
 $2,676
 $31,418
 $4,656
Marketing Solutions2,753
 180
 4,137
 736
Corporate and Other3,847
 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 costs47,521
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 thousands2020 2019 2020 2019
Publishing$1,477
 $1,398
 $2,509
 $1,803
Marketing Solutions209
 
 214
 
Corporate and Other4,878
 
 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 2 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 2 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 thousandsPension OPEB Pension OPEB
Operating expenses:       
Service cost - Benefits earned during the period$704
 $19
 $159
 $
Non-operating expenses (Other income):       
Interest cost on benefit obligation20,416
 593
 736
 22
Expected return on plan assets(38,551) 
 (936) 
Amortization of actuarial loss (gain)(27) 16
 (39) 9
Total non-operating expenses (benefit)$(18,162) $609
 $(239) $31
Total expense (benefit) for retirement plans$(17,458) $628
 $(80) $31


 Six months ended June 30,
 2020 2019
In thousandsPension OPEB Pension OPEB
Operating expenses:       
Service cost - Benefits earned during the period$1,385
 $52
 $317
 $
Non-operating expenses (Other income):       
Interest cost on benefit obligation41,133
 1,160
 1,473
 45
Expected return on plan assets(78,367) 
 (1,875) 
Amortization of actuarial loss (gain)(54) 29
 (78) 18
Total non-operating expenses (benefit)$(37,288) $1,189
 $(480) $63
Total expense (benefit) for retirement plans$(35,903) $1,241
 $(163) $63

During the six months ended June 30, 2020, we contributed $10.2 million and $4.3 million to our pension and other postretirement plans, respectively. In response to the COVID-19 pandemic, our U.K. Pension Plans have negotiated deferral of $12 million in 2020 contributions to be paid in 2021 and our GRP in the U.S. has deferred our 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:

Three months ended June 30, Six months ended June 30,
In thousands2020 2019 2020 2019
Pre-tax net income (loss)$(472,107) $2,272
 $(543,734) $(9,037)
Benefit for income taxes(34,276) (343) (25,297) (2,297)
Effective tax rate7.3% ***
 4.7% 25.4%

*** Indicates a percentage that is not meaningful.

The benefit for income taxes for the three months ended June 30, 2020 was caused largely by the pre-tax net loss generated during the quarter. The benefit from income taxes was reduced due to non-deductible asset impairments, non-deductible officers' compensation, and the creation of a valuation allowance against deferred tax assets arising from non-deductible interest carryforwards. These non-deductible expenses resulted in an estimated annual effective tax rate lower than the statutory Federal rate of 21%. The benefit for income taxes for the three months ended June 30, 2020 was calculated using the estimated annual effective tax rate of 6.8%. The estimated annual effective tax rate is based on a projected tax benefit for the year.


18



The CARES Act was enacted on March 27, 2020. The Company will realize a tax benefit attributable to the legislation which permits a refund of tax benefits from earlier years. The legislation also allows the Company to defer certain employer payroll tax payments in 2020 to the end of 2021 and 2022. Finally, the Company is evaluating and may pursue Employee Retention Tax Credits as provided under the CARES Act. The Company continually monitors guidance from the U.S. Department of the Treasury (the "Treasury") and the Internal Revenue Service to determine whether additional tax benefits are available from this legislation and similar stimulus efforts.

The Tax Cuts and Jobs Act of 2007 (“TCJA”) revised business interest expense limitations under I.R.C. Section 163(j) such that business interest deductions are not allowed in amounts exceeding prescribed percentages of EBITDA for tax years beginning before January 1, 2022. For tax years beginning after January 1, 2022, deductible interest cannot exceed prescribed percentages of EBIT. Unused business interest deductions are carried forward and recorded as deferred tax assets. The Company has evaluated the potential utilization of such carryforward deferred tax assets and determined full valuation allowances are appropriate as future utilization is uncertain.

The total amount of unrecognized tax benefits that, if recognized, may impact the effective tax rate was approximately $33.8 million as of June 30, 2020 and $32.4 million as of December 31, 2019. The amount of accrued interest and penalties payable related to unrecognized tax benefits was $2.3 million as of June 30, 2020 and $1.9 million as of December 31, 2019.

It is reasonably possible that further adjustments to our unrecognized tax benefits may be made within the next twelve months due to audit settlements and regulatory interpretations of existing tax laws. At this time, an estimate of potential change to the amount of unrecognized tax benefits cannot be made.

NOTE 11 — Supplemental equity information

Earnings (loss) per share

The following table sets forth the computation of basic and diluted earnings (loss) per share:

in thousands, except share dataThree months ended June 30, Six months ended June 30,
 2020 2019 2020 2019
Net income (loss) attributable to Gannett$(436,893) $2,815
 $(517,045) $(6,291)
        
Basic weighted average shares outstanding131,471
 60,031
 130,999
 59,998
Diluted weighted average shares outstanding131,471
 60,031
 130,999
 59,998


The Company excluded the following securities from the computation of diluted income per share because their effect would have been antidilutive:
 Three months ended June 30, Six months ended June 30,
in thousands, except share data2020 2019 2020 2019
Stock warrants1,362
 1,362
 1,362
 1,362
Stock options6,068
 2,905
 6,068
 2,905
Restricted stock grants8,510
 450
 8,510
 450



19



Share repurchase program

On May 17, 2017, the Board of Directors authorized the repurchase of up to $100.0 million of the Company's common stock, par value $0.01 per share ("Common Stock") over the next twelve months ("Share Repurchase Program"). The Board of Directors had authorized extensions of the Share Repurchase Program through May 19, 2020. The plan expired on May 19, 2020 with no extension or replacement plan in place. NaN shares were repurchased under the program during the six months ended June 30, 2020.

Manager stock options

Pursuant to the anti-dilution provisions of the Incentive Plan, the exercise price on the 652,311 remaining options granted to the Company's manager, FIG LLC (the "Manager") in 2014 were equitably adjusted during the six months ended June 30, 2019 from $12.95 to $11.46 as a result of return of capital distributions. Also, these options were equitably adjusted during the six months ended June 30, 2020 from $11.46 to $9.94 as a result of return of capital distributions.

Pursuant to the anti-dilution provisions of the Incentive Plan, the exercise price on the 700,000 options granted to the Manager in 2015 were equitably adjusted during the six months ended June 30, 2019 from $18.94 to $17.45 as a result of return of capital distributions.  Also, these options were equitably adjusted during the six months ended June 30, 2020 from $17.45 to $15.93 as a result of return of capital distributions.

Pursuant to the anti-dilution provisions of the Incentive Plan, the exercise price on the 862,500 options granted to the Manager in 2016 were equitably adjusted during the six months ended June 30, 2019 from $13.24 to $11.75 as a result of return of capital distributions.  Also, these options were equitably adjusted during the six months ended June 30, 2020 from $11.75 to $10.23 as a result of return of capital distributions.

Pursuant to the anti-dilution provisions of the Incentive Plan, the exercise price on the 690,000 options granted to the Manager in 2018 were equitably adjusted during the six months ended June 30, 2019 from $16.45 to $14.96 as a result of return of capital distributions. Also, these options were equitably adjusted during the six months ended June 30, 2020 from $14.96 to $13.44 as a result of return of capital distributions.

The following table includes additional information regarding the Manager stock options:
in thousands, except share dataNumber of Options Weighted-Average Grant Date Fair Value Weighted-Average Exercise Price Weighted-Average Remaining Contractual Term (Years) Aggregate Intrinsic Value ($000)
Outstanding at December 31, 20196,068
 $1.78
 $14.70
 8.2 $
Granted
 $
 $
    
Outstanding at June 30, 20206,068
 $1.78
 $13.97
 7.7 $
          
Exercisable at June 30, 20203,551
 $1.78
 $12.94
 6.5 $


Stock compensation

The Company recognized compensation cost for share-based payments of $7.4 million and $19.0 million for the three and six months ended June 30, 2020, respectively, and $0.7 million and $1.8 million for the three and six months ended June 30, 2019, respectively. The total compensation cost not yet recognized related to non-vested awards as of June 30, 2020 was $25.6 million, which is expected to be recognized over a weighted average period of 2.1 years through July 2022.


20



Restricted stock grants (“RSGs”)

The following table outlines restricted stock unit ("RSU") and performance stock unit ("PSU") award activity specific to Legacy Gannett for the six months ended June 30, 2020:

 Six months ended June 30,
 2020
in thousands, except per share data
Number
of 
RSUs & PSUs
 Weighted-
Average
Grant Date
Fair Value
Unvested at beginning of period7,368
 $6.28
Granted282
 0.90
Vested(3,012) 6.28
Forfeited(371) 2.31
Unvested at end of period4,267
 $6.27

Restricted stock award activity was as follows:

 Six months ended June 30,
 2020 2019
in thousands, except per share data
Number
of RSGs
 
Weighted-
Average
Grant Date
Fair Value
 
Number
of RSGs
 Weighted-
Average
Grant Date
Fair Value
Unvested at beginning of period317
 $14.61
 384
 $16.11
Granted5,248
 3.91
 298
 13.65
Vested(1,041) 6.19
 (162) 15.90
Forfeited(283) 2.21
 (70) 15.27
Unvested at end of period4,241
 $4.26
 450
 $14.69


As of June 30, 2020, the consolidated aggregate intrinsic value of unvested RSGs was $11.7 million.

Rights Agreement

On April 6, 2020, the Company's Board of Directors adopted a stockholder rights plan in the form of a Section 382 Rights Agreement ("Rights Agreement") to preserve and protect the Company's income tax net operating loss carryforwards ("NOLs") and other tax assets. As of December 31, 2019, the Company had approximately $435 million of NOLs available which could be used in certain circumstance to offset future federal taxable income.

Under the Rights Agreement, the Board declared a non-taxable dividend of 1 preferred share purchase right for each outstanding share of Common Stock. The rights will be exercisable only if a person or group acquires 4.99% or more of Gannett’s Common Stock. Gannett’s existing shareholders that beneficially own in excess of 4.99% of the Common Stock are "grandfathered in" at their current ownership level and the rights then become exercisable if any of those shareholders acquire an additional 0.5% or more of Common Stock of the Company. If the rights become exercisable, all holders of rights, other than the person or group triggering the rights, will be entitled to purchase Gannett Common Stock at a 50 percent discount or Gannett may exchange each right held by such holders for 1 share of Common Stock. Rights held by the person or group triggering the rights will become void and will not be exercisable. The Board of Directors has the discretion to exempt any person or group from the provisions of the Rights Agreement.

The rights issued under the Rights Agreement will expire on the day following the certification of the voting results for Gannett’s 2021 annual meeting of shareholders, unless Gannett’s shareholders ratify the Rights Agreement at or prior to such meeting, in which case the Rights Agreement will continue in effect until April 5, 2023. The Board of Directors also has the ability to terminate the plan if it determines that doing so would be in the best interest of Gannett’s stockholders. The rights may also expire at an earlier date if certain events occur, as described more fully in the Rights Agreement filed by the Company with the Securities and Exchange Commission. The Apollo term loan facility was amended April 6, 2020, to allow for the Rights Agreement.

21



There were no issuances of preferred stock during the three months ended June 30, 2020.

Accumulated other comprehensive loss

The following tables summarize the components of, and the changes in, Accumulated other comprehensive loss (net of tax) for the six months ended June 30, 2020 and 2019:
 Six months ended June 30, 2020
In thousandsRetirement Plans Foreign Currency Translation



Total
Beginning balance$936
 $7,266
 $8,202
Other comprehensive income (loss) before reclassifications(4,961) (16,585) (21,546)
Amounts reclassified from accumulated other comprehensive loss(1)
(18) 
 (18)
Net current period other comprehensive income (loss), net of taxes(4,979) (16,585) (21,564)
Ending balance$(4,043) $(9,319) $(13,362)
(1) 
This accumulated other comprehensive income (loss) component is included in the computation of net periodic benefit cost. See Note 9 — Pensions and other postretirement benefit plans

 Six months ended June 30, 2019
In thousandsRetirement Plans Foreign Currency Translation Total
Beginning balance$(6,881) $
 $(6,881)
Other comprehensive income (loss) before reclassifications
 3
 3
Amounts reclassified from accumulated other comprehensive loss(1)
(60) 
 (60)
Net current period other comprehensive income (loss), net of taxes(60) 3
 (57)
Ending balance$(6,941) $3
 $(6,938)

(1) 
This accumulated other comprehensive income (loss) component is included in the computation of net periodic benefit cost. See Note 9 — Pensions and other postretirement benefit plans

Accumulated other comprehensive loss components are included in computing net periodic postretirement costs as outlined in NOTE 9 — Pensions and other postretirement benefit plans. Reclassifications out of accumulated other comprehensive loss related to these postretirement plans include the following:

 Three months ended June 30, Six months ended June 30,
In thousands2020 2019 2020 2019
Amortization of prior service credit, net$
 $
 $
 $
Amortization of actuarial gain(11) (30) (25) (60)
Total reclassifications, before tax(11) (30) (25) (60)
Income tax effect3
 
 7
 
Total reclassifications, net of tax$(8) $(30) $(18) $(60)


Dividends

The Company did 0t pay dividends during the six months ended June 30, 2020 and paid dividends of $46.1 million for the six months ended June 30, 2019.

On April 1, 2020, the Company announced that in light of the unprecedented economic disruption and uncertainty caused by the COVID-19 pandemic, the Board of Directors had determined that it is in the best interests of shareholders for the Company to preserve liquidity by suspending the Company’s quarterly dividend.


22



NOTE 12 — Fair value measurement

We measure and record certain assets and liabilities at fair value. A fair value measurement is determined based on market assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted active markets that are observable either directly or indirectly (Level 2), and (iii) unobservable inputs that require use of our own estimates and assumptions through present value and other valuation techniques in determination of fair value (Level 3).

As of June 30, 2020 and December 31, 2019, assets and liabilities recorded at fair value and measured on a recurring basis primarily consist of pension plan assets. As permitted by U.S. GAAP, we use net asset values as a practical expedient to determine the fair value of certain investments. These investments measured at net asset value have not been classified in the fair value hierarchy.

The term loan facility is recorded at carrying value, which approximates fair value, in the Condensed consolidated balance sheets and is classified as Level 3.

We also have certain assets requiring fair value measurement on a non-recurring basis. Our assets measured on a non-recurring basis are assets held for sale, which are classified as Level 3 assets and evaluated using executed purchase agreements, letters of intent, or third-party valuation analyses when certain circumstances arise. Assets held for sale totaled $21.6 million as of June 30, 2020 and $25.5 million as of December 31, 2019.

NOTE 13 — Commitments, contingencies and other matters

The Company is and may become involved from time to time in legal proceedings in the ordinary course of its business, including but not limited to with respect to such matters as libel, invasion of privacy, intellectual property infringement, wrongful termination actions, complaints alleging employment discrimination, and regulatory investigations and inquiries. In addition, the Company is involved from time to time in governmental and administrative proceedings concerning employment, labor, environmental, and other claims. Insurance coverage mitigates potential loss for certain of these matters. Historically, such claims and proceedings have not had a material adverse effect on the Company’s consolidated results of operations or financial position.

Equity purchase arrangements that are exercisable by the counterparty to the agreement and that are outside the sole control of the Company are accounted for in accordance with ASC 480-10-S99-3A and are classified as Redeemable noncontrolling interests in the Condensed consolidated balance sheets.

Environmental contingency: We assumed responsibility for certain environmental contingencies in connection with our acquisition of Legacy Gannett. More specifically, in March 2011, the Advertiser Company ("Advertiser"), a subsidiary that publishes the Montgomery Advertiser, was notified by the U.S. Environmental Protection Agency ("EPA") that it had been identified as a potentially responsible party ("PRP") for the investigation and remediation of groundwater contamination in downtown Montgomery, Alabama. The Advertiser is a member of the Downtown Environmental Alliance, which has agreed to jointly fund and conduct all required investigation and remediation. In 2016, the Advertiser and other members of the Downtown Environmental Alliance reached a settlement with the EPA regarding the costs the EPA spent to investigate the site. The EPA has transferred responsibility for oversight of the site to the Alabama Department of Environmental Management, which has approved the work plan for the additional site investigation that is currently underway. The Advertiser's final costs cannot be determined until the investigation is complete, a determination is made on whether any remediation is necessary, and contributions from other PRPs are finalized.

Other litigation: We are defendants in judicial and administrative proceedings involving matters incidental to our business. Although the Company is unable to predict with certainty the eventual outcome of any litigation, regulatory investigation or inquiry, in the opinion of management, the Company does not expect its current and any threatened legal proceedings to have a material adverse effect on the Company’s business, financial position or consolidated results of operations. Given the inherent unpredictability of these types of proceedings, however, it is possible that future adverse outcomes could have a material effect on the Company’s financial results.


23



NOTE 14 — Segment reporting
We define our reportable segments based on the way the Chief Operating Decision Maker ("CODM"), which for the second quarter of 2020 comprised the Chief Executive Officer and the former Chief Executive Officer of our operating subsidiary, manages the operations for purposes of allocating resources and assessing performance. Our reportable segments include the following:

Publishing, which consists of our portfolio of local, regional, national, and international newspaper publishers. The results of this segment include local, classified, and national advertising revenues consisting of both print and digital advertising, circulation revenues from the distribution of our publications on our digital platforms, home delivery of our publications, single copy sales, and other revenues from commercial printing, events, and distribution arrangements. The Publishing reportable segment is an aggregation of 2 operating segments: Domestic Publishing and the U.K.
 
Marketing Solutions, which is comprised of our digital marketing solutions subsidiaries ReachLocal and UpCurve. The results of this segment include advertising and marketing services revenues through multiple services including search advertising, display advertising, search optimization, social media, website development, web presence products, and software-as-a-service solutions.

In addition to the above 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, finance, and marketing as well as other general business costs.

In the ordinary course of business, our reportable segments enter into transactions with one another. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues and expenses recognized by the segment that is the counterparty to the transaction are eliminated in consolidation and do not affect consolidated results.

The CODM uses adjusted EBITDA to evaluate the performance of the segments and allocate resources. Adjusted EBITDA is a financial performance measure we believe offers a useful view of the overall operation of our businesses and may be different than similarly-titled measures used by other companies. We define Adjusted EBITDA as net income (loss) from continuing operations attributable to Gannett before (1) income tax expense (benefit), (2) interest expense, (3) gains or losses on early extinguishment of debt, (4) non-operating items, primarily pension costs, (5) depreciation and amortization, (6) integration and reorganization costs, (7) impairment of property, plant and equipment, (8) goodwill and intangible impairments, (9) net loss (gain) on sale or disposal of assets, (10) equity-based compensation, (11) acquisition costs, and (12) certain other non-recurring charges.

Management considers adjusted EBITDA to be the appropriate metric to evaluate and compare the ongoing operating performance of our segments on a consistent basis across reporting periods as it eliminates the effect of items which we do not believe are indicative of each segment's core operating performance.

24




The following tables present our segment information:

 Three months ended June 30, 2020
In thousandsPublishing Marketing Solutions Corporate and other Intersegment Eliminations Consolidated
Advertising and marketing services - external sales$266,398
 $89,809
 $711
 $
 $356,918
Advertising and marketing services - intersegment sales25,854
 
 
 (25,854) 
Circulation342,645
 
 1
 
 342,646
Other60,996
 4,754
 1,686
 
 67,436
Total revenues$695,893
 $94,563
 $2,398
 $(25,854) $767,000
          
Adjusted EBITDA$91,991
 $2,784
 $(16,757) $
 $78,018

 Three months ended June 30, 2019
In thousandsPublishing Marketing Solutions Corporate and other Intersegment Eliminations Consolidated
Advertising and marketing services - external sales$180,890
 $23,157
 $650
 $
 $204,697
Advertising and marketing services - intersegment sales18,288
 
 
 (18,288) 
Circulation150,827
 
 23
 
 150,850
Other44,430
 4,188
 222
 
 48,840
Total revenues$394,435
 $27,345
 $895
 $(18,288) $404,387
          
Adjusted EBITDA$55,493
 $(2,459) $(5,739) $
 $47,295

 Six months ended June 30, 2020
In thousandsPublishing Marketing Solutions Corporate and other Intersegment Eliminations Consolidated
Advertising and marketing services - external sales$636,277
 $206,092
 $1,560
 $
 $843,929
Advertising and marketing services - intersegment sales59,611
 
 
 (59,611) 
Circulation717,365
 
 4
 
 717,369
Other140,790
 9,752
 3,843
 
 154,385
Total revenues$1,554,043
 $215,844
 $5,407
 $(59,611) $1,715,683
          
Adjusted EBITDA$203,014
 $10,668
 $(36,598) $
 $177,084

25




 Six months ended June 30, 2019
In thousandsPublishing Marketing Solutions Corporate and other Intersegment Eliminations Consolidated
Advertising and marketing services - external sales$352,708
 $44,547
 $987
 $
 $398,242
Advertising and marketing services - intersegment sales35,328
 
 
 (35,328) 
Circulation302,991
 
 24
 
 303,015
Other81,489
 8,685
 556
 
 90,730
Total revenues$772,516
 $53,232
 $1,567
 $(35,328) $791,987
          
Adjusted EBITDA$97,188
 $(5,689) $(11,354) $
 $80,145


The following table presents our reconciliation of adjusted EBITDA to net income (loss):


Three months ended June 30, Six months ended June 30,
In thousands2020 2019 2020 2019
Net income (loss) attributable to Gannett$(436,893) $2,815
 $(517,045) $(6,291)
Benefit for income taxes(34,276) (343) (25,297) (2,297)
Interest expense57,928
 10,212
 115,827
 20,346
Loss on early extinguishment of debt369
 
 1,174
 
Non-operating pension income(17,553) (208) (36,099) (417)
Other non-operating income(6,261) (103) (4,616) (154)
Depreciation and amortization66,327
 23,328
 144,352
 44,251
Integration and reorganization costs32,306
 4,278
 60,560
 10,077
Acquisition costs2,379
 2,364
 8,348
 3,137
Impairment of property, plant and equipment6,859
 1,262
 6,859
 2,469
Goodwill and intangible impairment393,446
 
 393,446
 
Loss on sale or disposal of assets88
 947
 745
 2,737
Equity-based compensation expense7,391
 707
 18,968
 1,843
Other items5,908
 2,036
 9,862
 4,444
Adjusted EBITDA (non-GAAP basis)$78,018
 $47,295
 $177,084
 $80,145


Asset information by segment is not a key measure of performance used by the CODM function. Accordingly, we have not disclosed asset information by segment. Additionally, equity income in unconsolidated investees, net, interest expense, other non-operating items, net, and benefit for income taxes, as reported in the Condensed consolidated financial statements, are not part of operating income and are primarily recorded at the corporate level.

NOTE 15 — Related party transactions

As of June 30, 2020, the Manager, which is an affiliate of Fortress Investment Group LLC ("Fortress"), and its affiliates owned approximately 4% of the Company’s outstanding stock and approximately 40% of the Company’s outstanding warrants. The Manager or its affiliates hold 6,068,075 stock options of the Company’s stock as of June 30, 2020. During the three and six months ended June 30, 2020, 0 dividends were paid to Fortress and its affiliates. During the three and six months ended June 30, 2019, Fortress and its affiliates were paid $0.2 million and $0.5 million in dividends, respectively.

The Company's Chief Executive Officer is an employee of Fortress (or one of its affiliates), and his salary is paid by Fortress (or one of its affiliates). The management fee paid is reduced by the compensation paid to the Chief Financial Officer.




26



Amended and Restated Management Agreement

On November 26, 2013, New Media entered into a management agreement (as amended and restated, "the Management Agreement") with the Manager, an affiliate of Fortress, pursuant to which the Manager managed the operations of New Media. New Media paid the Manager an annual management fee equal to 1.50% of the Company's Total Equity (as defined in the Management Agreement), and the Manager was eligible to receive incentive compensation.

On August 5, 2019, in connection with the execution of the Legacy Gannett acquisition agreement, the Company and the Manager entered into the Amended and Restated Management and Advisory Agreement (the “Amended Management Agreement”). Effective upon the consummation of the acquisition on November 19, 2019, the Amended Management Agreement replaced the Management Agreement. The Amended Management Agreement (i) establishes a termination date for the Manager’s services of December 31, 2021, in lieu of annual renewals of the term; (ii) reduces the “incentive fee” payable under the Amended Management Agreement from 25% to 17.5% for the remainder of the term; (iii) reduces by 50% the number of options that would otherwise be issuable in connection with the issuance of shares as consideration for the acquisition, and imposes a premium on the exercise price; (iv) eliminates the Manager’s right to receive options in connection with future equity raises by the Company; and (v) eliminates certain payments otherwise due at or after the end of the term of the prior management agreement.

In connection with entering into the Amended Management Agreement and the occurrence of the consummation of the acquisition, the Company issued to the Manager 4,205,607 shares of Company Common Stock and granted to the Manager options to acquire 3,163,264 shares of Company Common Stock. The Manager is restricted from selling the issued shares until the expiration of the Amended Management Agreement, or otherwise upon a change in control and certain other extraordinary events. The options have an exercise price of $15.50 and become exercisable upon the first trading day immediately following the first 20 consecutive trading day period in which the closing price of the Company Common Stock (on its principal U.S. national securities exchange) is at or above $20 per share (subject to adjustment). The options also become exercisable upon a change in control and certain other extraordinary events.

Upon expiration of the term of the Amended Management Agreement, the Manager will cease providing external management services to the Company, and the Manager will no longer be the employer of the person serving in the role of Chief Executive Officer of the consolidated company.

The following table provides the management and incentive fees recognized and paid to the Manager:

 Three months ended June 30, Six months ended June 30,
In thousands2020 2019 2020 2019
Management fee expense4,674
 2,456
 8,433
 4,912
Incentive fee expense
 1,413
 
 1,413
Management fees paid3,759
 2,456
 7,383
 6,167
Incentive fees paid
 
 2,602
 5,220
Reimbursement for expenses658
 577
 1,325
 1,226


The Company had an outstanding liability for all Management Agreement related fees of $4.7 million and $6.5 million at June 30, 2020 and December 31, 2019, respectively, included in accrued expenses.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures should be read in conjunction with our unaudited Condensed consolidated financial statements and related notes. Management's Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and other factors described under Cautionary Note Regarding Forward-Looking Statements and throughout this Quarterly Report, as well as the factors described in our 2019 Annual Report on Form 10-K, this report, and subsequent periodic reports filed with the Securities and Exchange Commission, particularly under "Risk Factors."

Overview


27



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. Until November 19, 2019, our corporate name was New Media Investment Group Inc. ("New Media") and Gannett Co., Inc. was a separate publicly traded company. On November 19, 2019, New Media completed its acquisition of Gannett Co., Inc. (which was renamed Gannett Media Corp. and is referred to herein as “Legacy Gannett”). In connection with the acquisition, New Media changed its name to Gannett Co., Inc. and assumed Legacy Gannett's ticker symbol "GCI" (having previously traded under "NEWM").

As a result of the acquisition, historical results for fiscal years 2019 and prior are those of legacy New Media up to and through the date of the acquisition.

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 ("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 with it 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 operating segments, Publishing and Marketing Solutions. We also have a corporate and other category that includes activities not directly attributable to a specific segment. A full description of our segments is included in Note 14 — Segment reporting of the notes to the Condensed consolidated financial statements.

Certain matters affecting current and future operating results

The following items affect period-over-period comparisons from 2019 and will continue to affect period-over-period comparisons for future results:

Acquisitions

In November 2019, we acquired substantially all of the assets, properties, and business of Legacy Gannett for an aggregate purchase price of $1.3 billion. The acquisition was funded by a new term loan facility with an aggregate principal balance of $1.8 billion and available cash on hand.

During 2019 prior to the acquisition of Legacy Gannett, we acquired substantially all the assets, properties, and business of certain publications and businesses, including 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 estimated 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). These acquisitions were financed from available cash on hand.

Integration and reorganization costs

In the three months ended June 30, 2020, the Company incurred integration and reorganization costs of $32.3 million. Of the total charges incurred, $25.7 million were related to severance activities while $6.6 million were related to other costs, including those for the purpose of consolidating operations. In the six months ended June 30, 2020, the Company incurred integration and reorganization costs of $60.6 million. Of the total charges incurred, $47.5 million were related to severance activities while $13.0 million were related to other costs, including those for the purpose of consolidating operations.

In the three months ended June 30, 2019, the Company incurred integration and reorganization costs of $4.3 million. Of the total charges incurred, $2.9 million were related to severance activities while $1.4 million were related to other costs, including those for the purpose of consolidating operations. In the six months ended June 30, 2019, the Company incurred integration and reorganization costs of $10.1 million. Of the total charges incurred, $6.3 million were related to severance activities while $3.8 million were related to other costs, including those for the purpose of consolidating operations.


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Facility consolidation and impairment of property, plant and equipment

In the three months ended June 30, 2020, the Company ceased operations of 10 printing facilities as part of the synergy and ongoing cost reduction programs. As a result, the Company recognized accelerated depreciation of $11.0 million during the three months ended June 30, 2020. There were no impairment charges recognized relating to retired equipment during the three months ended June 30, 2020. In the six months ended June 30, 2020, the Company ceased operations of 24 printing facilities as part of the synergy and ongoing cost reduction programs. As a result, the Company recognized accelerated depreciation of $35.8 million during the six months ended June 30, 2020. There were no impairment charges recognized relating to retired equipment during the six months ended June 30, 2020.

There were $6.9 million of property, plant and equipment impairment charges recorded for the three and six months ended June 30, 2020 by the Publishing segment as a result of the Company's recoverability test for long-lived asset groups performed as of June 30, 2020.

In the three months ended June 30, 2019, the Company ceased operations of three print publications and eight printing operations as part of the ongoing cost reduction programs. As a result, the Company recognized impairment charges relating to retired equipment of $1.3 million during the three months ended June 30, 2019. In the six months ended June 30, 2019, the Company ceased operations of three print publications and nine printing operations as part of the ongoing cost reduction programs. As a result, the Company recognized impairment charges relating to retired equipment of $2.5 million during the six months ended June 30, 2019.

In the three months ended June 30, 2019, there were $1.3 million property, plant and equipment impairment charges recorded by the Corporate and other segment as a result of cost efficiency programs. For the six months ended June 30, 2019, there were $2.5 million property, plant and equipment impairment charges recorded by the Corporate and other segment.

Goodwill and intangible impairment

In the three and six months ended June 30, 2020, the Company incurred a goodwill and intangible impairment of $393.4 million primarily due to the current and expected impact of the COVID-19 pandemic on the Company’s operations.
 
There was no goodwill and intangible impairment recognized in the three and six months ended June 30, 2019.

Foreign currency

The Company's U.K. publishing operations are conducted through its Newsquest subsidiary. In addition, the Company's ReachLocal subsidiary has foreign operations in regions such as Canada, Australia / New Zealand and India. Earnings from operations in foreign regions are translated into U.S. dollars at average exchange rates prevailing during the period, and assets and liabilities are translated at exchange rates in effect at the balance sheet date. Translation fluctuations impact revenue, expense, and operating income results for international operations.

Newsprint supply

Newsprint expense at our publishing segment was $6.7 million higher in the second quarter of 2020 compared to the second quarter of 2019 primarily due to acquired expenses of $16.5 million offset by declines in circulation and print advertising volumes and lower prices, in addition to page count reductions and press configuration efficiencies, when compared to the same period in 2019. Newsprint expense at our publishing segment was $22.0 million higher in the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to acquired expenses of $38.6 million offset by declines in circulation and print advertising volumes, lower prices, page count reductions and press configuration efficiencies, when compared to the same period in 2019.

Outlook for the remainder of 2020

Strategy

The Company's areas of focus for 2020 continue to include (1) integrating the Legacy Gannett and New Media organizations and achieving synergy targets, (2) deleveraging the balance sheet via cash flow from operations and real estate monetization, and (3) driving improved revenue trends by focusing on complementary growth businesses. Key integration and

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synergy workstreams include consolidating production and distribution facilities, integrating and centralizing back office functions, centralizing and regionalizing our publishing sales, content, and circulation marketing organizations, and consolidating our marketing solutions organizations. The Company will continue to invest in our current growth businesses, such as digital marketing services, digital subscriptions, and events, while also experimenting with new business models, such as a marketplace model, to help offset the revenue declines from traditional businesses to enable the Company to return to revenue growth over the next three to five years.

Impacts of COVID-19

The ongoing COVID-19 pandemic and related measures to contain its spread have resulted in significant volatility and economic uncertainty, which is expected to continue in the near term. While we have generally been exempt from mandates requiring closures of non-essential business and have been able to continue operations, these circumstances are expected to continue to create volatility and unfavorable trends in our financial results as individuals and businesses rationalize expenditures during this time of uncertainty.

During the first half of 2020, the Company experienced decreased demand for its advertising and digital marketing services, commercial print and distribution services, as well as reductions in events and the single copy and commercial distribution of its newspapers. The Company currently expects that the COVID-19 global pandemic will continue to have a negative impact on the Company’s business and results of operations in the near-term. Longer-term, the ultimate 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 remain 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 continues to believe these initiatives, along with cash on hand, cash provided by operating activities, and relief from the CARES Act will provide sufficient cash flow to enable the Company to meet its commitments. However, these measures will not be sufficient to fully offset the impact of the COVID-19 pandemic on the Company’s business and, as such, the Company’s results of operations may be negatively impacted, and such impacts could be material.




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Results of Operations

Consolidated Summary

A summary of our segment results is presented below:
 Three months ended June 30, Six months ended June 30,
In thousands2020 2019 Change 2020 2019 Change
Operating revenues:           
Publishing$695,893
 $394,435
 $301,458
 $1,554,043
 $772,516
 $781,527
Marketing Solutions94,563
 27,345
 67,218
 215,844
 53,232
 162,612
Corporate and other2,398
 895
 1,503
 5,407
 1,567
 3,840
Intersegment eliminations(25,854) (18,288) (7,566) (59,611) (35,328) (24,283)
Total operating revenues767,000
 404,387
 362,613
 1,715,683
 791,987
 923,696
Operating expenses:           
Publishing$1,045,492
 $370,152
 $675,340
 $1,876,021
 $729,981
 $1,146,040
Marketing Solutions140,403
 31,152
 109,251
 263,135
 62,667
 200,468
Corporate and other44,583
 9,198
 35,385
 103,586
 23,929
 79,657
Intersegment eliminations(25,854) (18,288) (7,566) (59,611) (35,328) (24,283)
Total operating expenses1,204,624
 392,214
 812,410
 2,183,131
 781,249
 1,401,882
Operating income (loss)(437,624) 12,173
 (449,797) (467,448) 10,738
 (478,186)
Non-operating expense34,483
 9,901
 24,582
 76,286
 19,775
 56,511
Income (loss) before income taxes(472,107) 2,272
 (474,379) (543,734) (9,037) (534,697)
Benefit for income taxes(34,276) (343) (33,933) (25,297) (2,297) (23,000)
Net income (loss)$(437,831) $2,615
 $(440,446) $(518,437) $(6,740) $(511,697)
            
Loss per share attributable to Gannett - diluted$(3.32) $0.05
 $(3.37) $(3.95) $(0.10) $(3.85)

Intersegment eliminations in the preceding table represent digital advertising marketing services revenues and expenses associated with products sold by our U.S. local publishing sales teams but which are fulfilled by our Marketing Solutions segment. When discussing segment results, these revenues and expenses are presented gross but are eliminated in consolidation.

Operating revenues:

Our Publishing segment generates revenue primarily through advertising and subscriptions for our print and digital publications. Our advertising teams sell local, national, and classified advertising across multiple platforms, including print, online, mobile, and tablet as well as niche publications. In addition, our Publishing segment advertising teams sell digital marketing services which are primarily fulfilled by teams within our Marketing Solutions segment. Circulation revenues are derived principally from home delivery and single copy sales of our publications and distributing our publications on our digital platforms. Other revenues are derived mainly from commercial printing, events, and distribution arrangements.

Our Marketing Solutions segment generates advertising and marketing services revenues through multiple services including search advertising, display advertising, search optimization, social media, website development, web presence products, customer relationship management, Google-suite offerings, and software-as-a-service solutions. Other revenues in our Marketing Solutions segment are derived from system integration services, cloud offerings, and software licensing.

Quarter ended June 30, 2020 versus quarter ended June 30, 2019

Total operating revenues were $767.0 million for the second quarter of 2020. The increase in total revenue was comprised of a $152.2 million increase in advertising and marketing services revenues, a $191.8 million increase in circulation revenues, and an $18.6 million increase in other revenues. Revenue at the Publishing and Marketing Solutions segments increased by $301.5 million and $67.2 million, respectively, primarily due to acquisition-related revenues, including revenue contributed by Legacy Gannett, partially offset by the impacts of COVID-19.


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Six months ended June 30, 2020 versus six months ended June 30, 2019

Total operating revenues were $1.7 billion for the six months ended June 30, 2020. The increase in total revenue was comprised of a $445.7 million increase in advertising and marketing services revenues, a $414.4 million increase in circulation revenues, and a $63.7 million increase in other revenues. Revenue at the Publishing and Marketing Solutions segments increased by $781.5 million and $162.6 million, respectively, primarily due to acquisition-related revenues, including revenue contributed by Legacy Gannett, partially offset by the impacts of COVID-19.

Operating expenses:

Operating expenses consist primarily of the following:

Operating costs such as labor, newsprint, and delivery costs in our Publishing segment or the cost of online media acquired from third parties, such as Google, and costs to manage and operate our marketing solutions and technology infrastructure in our Marketing Solutions segment;
Selling, general, and administrative expenses such as labor, payroll, outside services, and benefits costs;
Depreciation and amortization;
Integration and reorganization costs such as severance charges, facility consolidation charges, and acquisition or integration-related costs;
Costs incurred pursuant to acquisitions or mergers;
Impairment charges such as those for property, plant and equipment, goodwill, or other intangible assets; and
Net gains or losses on the sale or disposal of assets such as property, plant, and equipment.

Quarter ended June 30, 2020 versus quarter ended June 30, 2019

Total operating expenses were $1.2 billion for the second quarter of 2020, an increase from the same period in 2019. Total operating expenses across all segments increased primarily due to acquired operating expenses contributed by Legacy Gannett, impairment recognized for property, plant and equipment and goodwill and intangibles during the second quarter of 2020, and increased integration and reorganization costs incurred related to the Legacy Gannett acquisition. These increases in operating expenses were offset by measures implemented to reduce costs and preserve cash flow as a result of the COVID-19 pandemic which began impacting the Company toward the end of the first quarter of 2020.

Operating costs were $476.7 million in the second quarter of 2020. Publishing segment operating costs increased $203.4 million, while Marketing Solutions segment operating costs increased $43.9 million, primarily due to the contributions of Legacy Gannett, partially offset by costs associated with declines in revenue from continuing operations, in part, as a result of the pandemic and continued cost efficiency efforts resulting from the consolidation and centralization of operations.

Selling, general, and administrative expenses were $226.5 million in the second quarter of 2020, an increase compared to 2019. Publishing segment selling, general, and administrative expenses increased $65.9 million, while Marketing Solutions segment selling, general, and administrative expenses increased $18.3 million, primarily due to the contributions of Legacy Gannett, partially offset by continued cost efficiency efforts as well as cost containment initiatives implemented as a result of the COVID-19 pandemic.

Integration and reorganization costs were $32.3 million in the second quarter of 2020, an increase of $28.0 million compared to the same period in 2019. Integration and reorganization costs at the Publishing, Corporate and other, and Marketing Solutions segments increased $16.5 million, $8.7 million, and $2.8 million, respectively, primarily due to additional severance costs stemming from acquisition-related synergies and the continued consolidation of our operations resulting from the ongoing implementation of our plans to reduce costs and preserve cash flow and the integration of acquired businesses.

Acquisitions costs were $2.4 million in the second quarter of 2020, flat compared to the same period in 2019. The acquisition costs, the vast majority of which were incurred at the Corporate and other segment, was primarily due to costs of $2.3 million incurred in conjunction with the acquisition of Legacy Gannett.

There was impairment of property, plant and equipment of $6.9 million in the second quarter of 2020, an increase of $5.6 million compared to the same period in 2019. The Company incurred a goodwill and intangible impairment of $393.4 million in the second quarter of 2020 compared to no goodwill and mastheads impairment recognized in the same period in 2019.


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Six months ended June 30, 2020 versus six months ended June 30, 2019

Total operating expenses were $2.2 billion for the six months ended June 30, 2020, an increase from the same period in 2019. Total operating expenses across all segments increased primarily due to acquired operating expenses contributed by Legacy Gannett, impairment recognized for property, plant and equipment and goodwill and intangibles during the second quarter of 2020, and increased integration and reorganization costs incurred related to the Legacy Gannett acquisition. These increases were offset by measures implemented to reduce costs and preserve cash flow as a result of the COVID-19 pandemic, which began impacting the Company toward the end of the first quarter of 2020.

Operating costs were $1.0 billion in the six months ended June 30, 2020. Publishing segment operating costs increased $496.5 million, while Marketing Solutions segment operating costs increased $98.9 million, primarily due to the contributions of Legacy Gannett, partially offset by costs associated with declines in revenue from continuing operations, in part, as a result of the pandemic and continued cost efficiency efforts resulting from the consolidation and centralization of operations.

Selling, general, and administrative expenses were $525.6 million in the six months ended June 30, 2020, an increase compared to 2019. Publishing segment selling, general, and administrative expenses increased $183.8 million, while Marketing Solutions segment selling, general, and administrative expenses increased $47.7 million, primarily due to the contributions of Legacy Gannett, partially offset by continued cost efficiency efforts as well as cost containment initiatives implemented as a result of the COVID-19 pandemic.

Integration and reorganization costs were $60.6 million in the six months ended June 30, 2020, an increase of $50.5 million compared to the same period in 2019. Integration and reorganization costs at the Publishing, Corporate and other, and Marketing Solutions segments increased $27.5 million, $3.6 million, and $19.4 million, respectively, primarily due to additional severance costs stemming from acquisition-related synergies and the continued consolidation of our operations resulting from the ongoing implementation of our plans to reduce costs and preserve cash flow and the integration of acquired businesses.

Acquisitions costs were $8.3 million in the six months ended June 30, 2020, an increase of $5.2 million compared to the same period in 2019. The increase in acquisition costs, the vast majority of which were incurred at the Corporate and other segment, was primarily due to costs of $6.9 million incurred in conjunction with the acquisition of Legacy Gannett.

There was impairment of property, plant and equipment of $6.9 million in the six months ended June 30, 2020, an increase of $4.4 million compared to the same period in 2019. The Company incurred a goodwill and intangible impairment of $393.4 million in the second quarter of 2020 compared to no goodwill and intangible impairment recognized in the same period in 2019.



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Publishing segment

A summary of our Publishing segment results is presented below:

 Three months ended June 30, Six months ended June 30,
In thousands2020 2019 Change ($) 2020 2019 Change ($)
Operating revenues:           
Advertising and marketing services$292,252
 $199,178
 $93,074
 $695,888
 $388,036
 $307,852
Circulation342,645
 150,827
 191,818
 717,365
 302,991
 414,374
Other60,996
 44,430
 16,566
 140,790
 81,489
 59,301
Total operating revenues695,893
 394,435
 301,458
 1,554,043
 772,516
 781,527
Operating expenses:    

      
Operating costs432,920
 229,568
 203,352
 951,779
 455,270
 496,509
Selling, general and administrative expenses176,043
 110,113
 65,930
 406,856
 223,007
 183,849
Depreciation and amortization56,553
 21,769
 34,784
 123,510
 40,599
 82,911
Integration and reorganization costs20,619
 4,074
 16,545
 33,927
 6,458
 27,469
Impairment of property, plant and equipment6,859
 2,469
 4,390
 6,859
 2,469
 4,390
Goodwill and intangible impairment352,947
 
 352,947
 352,947
 
 352,947
Net loss on sale or disposal of assets(449) 2,159
 (2,608) 143
 2,178
 (2,035)
Total operating expenses1,045,492

370,152
 675,340
 1,876,021
 729,981
 1,146,040
Operating income$(349,599) $24,283
 (373,882) $(321,978) $42,535
 (364,513)

Operating revenues:

Quarter ended June 30, 2020 versus quarter ended June 30, 2019

Advertising and marketing services revenues were $292.3 million for the second quarter of 2020, which included revenues from international operations of $20.1 million for the second quarter of 2020. This increase compared to the same period in 2019 was primarily attributable to $178.0 million in acquired advertising and marketing services revenues, including $177.4 million related to Legacy Gannett.

Print advertising revenues were $187.9 million for the second quarter of 2020, an increase of $29.9 million compared to the same period in 2019. Local and national print advertising revenues were $92.0 million and $25.7 million, respectively, for the second quarter of 2020, a decrease of $10.1 million and an increase of $19.0 million, respectively, compared to the same period in 2019. The increases in local and national print advertising revenues were attributable to $63.7 million in acquired revenues, including $63.2 million in acquired revenues related to Legacy Gannett. Classified print advertising revenues of $70.2 million for 2020 increased $21.0 million compared to 2019, primarily attributable to acquired revenues of $38.9 million, including $38.8 million in acquired revenues related to Legacy Gannett. The increases across all categories of print advertising revenues were partially offset by reduced demand consistent with general trends adversely impacting the publishing industry and unfavorable impacts resulting from the COVID-19 pandemic, which began in the latter part of the first quarter of 2020.

Digital advertising and marketing services revenues were $104.4 million for the second quarter of 2020, an increase of $63.1 million compared to the same period in 2019. Digital media revenues were $65.3 million for the second quarter of 2020, an increase of $41.9 million compared to the same period in 2019, primarily due to $48.2 million in acquired revenues, including $48.2 million in acquired revenues related to Legacy Gannett. Digital marketing services revenues were $23.6 million for the second quarter of 2020, an increase of $12.4 million compared to the same period in 2019. This increase was attributable to $16.4 million in acquired revenues related to Legacy Gannett. Digital classified revenues were $15.4 million for the second quarter of 2020, an increase of $8.8 million compared to the same period in 2019 due to $10.9 million in acquired revenues, including $10.9 million in acquired revenues related to Legacy Gannett. The impacts from the COVID-19 pandemic which began in the latter part of the first quarter of 2020 negatively affected digital revenues across each category.

Circulation revenues were $342.6 million for the second quarter of 2020. Print circulation revenues were $321.8 million for the second quarter of 2020, an increase of $176.1 million from the same period in 2019 due to $193.4 million in acquired revenues, including $193.0 million in acquired revenues related to Legacy Gannett, partially offset by declines stemming from a reduction in volume of our single copy and home delivery sales, reflecting the impact of COVID-19 on businesses that buy and sell copies

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of our publications as well as general industry trends. Digital circulation revenues were $20.8 million for the second quarter of 2020, an increase of $15.7 million from the same period in 2019 primarily due to $14.7 million in acquired revenues and a 31.3% increase in digital only subscribers.

Other revenues of $61.0 million in the second quarter of 2020 increased $16.6 million compared to the same period in 2019. Other revenues accounted for approximately 9% of total Publishing segment revenues for the quarter.

Six months ended June 30, 2020 versus six months ended June 30, 2019

Advertising and marketing services revenues were $695.9 million for the six months ended June 30, 2020, which included revenues from international operations of $54.1 million for the six months ended June 30, 2020. This increase compared to the same period in 2019 was primarily attributable to $427.4 million in acquired advertising and marketing services revenues, including $423.4 million related to Legacy Gannett.

Print advertising revenues were $455.5 million for the six months ended June 30, 2020, an increase of $146.7 million compared to the same period in 2019. Local and national print advertising revenues were $228.8 million and $62.0 million, respectively, for the six months ended June 30, 2020, an increase of $31.2 million and $49.1 million, respectively, compared to the same period in 2019. The increases in local and national print advertising revenues were attributable to $161.2 million in acquired revenues, including $158.3 million in acquired revenues related to Legacy Gannett. Classified print advertising revenues of $164.7 million for 2020 increased $66.4 million compared to 2019, primarily attributable to acquired revenues of $91.1 million, including $90.3 million in acquired revenues related to Legacy Gannett. The increases across all categories of print advertising revenues were partially offset by reduced demand consistent with general trends adversely impacting the publishing industry and unfavorable impacts resulting from the COVID-19 pandemic, which began in the latter part of the first quarter of 2020.

Digital advertising and marketing services revenues were $240.4 million for the six months ended June 30, 2020, an increase of $161.2 million compared to the same period in 2019. Digital media revenues were $151.8 million for the six months ended June 30, 2020, an increase of $107.7 million compared to the same period in 2019, primarily due to $113.5 million in acquired revenues, including $113.3 million in acquired revenues related to Legacy Gannett. Digital marketing services revenues were $54.2 million for the six months ended June 30, 2020, an increase of $32.4 million compared to the same period in 2019. This increase was attributable to $37.4 million in acquired revenues related to Legacy Gannett. Digital classified revenues were $34.4 million for the six months ended June 30, 2020, an increase of $21.1 million compared to the same period in 2019 due to $24.1 million in acquired revenues, including $24.0 million in acquired revenues related to Legacy Gannett. The impacts from the COVID-19 pandemic, which began in the latter part of the first quarter 2020 negatively affected digital revenues across each category.

Circulation revenues were $717.4 million for the six months ended June 30, 2020. Print circulation revenues were $676.8 million for the six months ended June 30, 2020, an increase of $384.1 million from the same period in 2019 due to $412.3 million in acquired revenues, including $409.7 million in acquired revenues related to Legacy Gannett and increases from our strategic pricing programs, partially offset by declines stemming from a reduction in volume of our single copy and home delivery sales, reflecting the impact of COVID-19 on businesses that buy and sell copies of our publications as well as general industry trends. Digital circulation revenues were $40.5 million for the six months ended June 30, 2020, an increase of $30.3 million from the same period in 2019 primarily due to $28.7 million in acquired revenues.

Other revenues of $140.8 million in the six months ended June 30, 2020 increased $59.3 million compared to the same period in 2019. Other revenues accounted for approximately 9% of total Publishing segment revenues for the quarter.

Operating expenses:

Quarter ended June 30, 2020 versus quarter ended June 30, 2019

Operating costs were $432.9 million for the second quarter of 2020, an increase of $203.4 million from the same period in 2019. Newsprint and ink costs were $29.5 million in the second quarter, an increase of $6.1 million compared to 2019, primarily as a result of acquired newsprint and ink costs related to Legacy Gannett, partially offset by declines in circulation and print advertising volumes, lower prices, page count reductions and press configuration efficiencies when compared to the same period in 2019. News and editorial expenses were $9.7 million in the second quarter of 2020, an increase of $2.4 million compared to 2019, primarily as a result of acquired news and editorial expenses related to Legacy Gannett, partially offset by synergy savings. Distribution costs were $100.6 million in the second quarter of 2020, an increase of $62.8 million, primarily due to acquired hauling and delivery costs related to Legacy Gannett partially offset by synergy savings and lower production volumes. Other material

35



categories of costs contributing to the overall increase in operating costs include $76.7 million increase in compensation and benefit costs and $29.1 million increase in outside services, which include portions of outside printing, professional and outside services, paid search and ad serving, feature services, and credit card fees. Increases in compensation costs during the period primarily resulting from the Legacy Gannett acquisition were offset by decreases from cost containment initiatives implemented in connection with the COVID-19 pandemic and ongoing integration efforts. Similarly, increases in outside service costs were offset by declines in activity as a result of the COVID-19 pandemic and cost containment initiatives.

Total selling, general, and administrative expenses were $176.0 million for the second quarter of 2020, an increase of $65.9 million from the same period in 2019. Outside services costs, which include portions of outside printing, professional and outside services, paid search and ad serving, feature services, and credit card fees, were $10.0 million in the second quarter, an increase of $0.9 million compared to 2019, primarily as a result of outside services costs related to Legacy Gannett offset by reductions resulting from reduced activity as a result of the COVID-19 pandemic as well as cost containment initiatives. Other material categories of costs contributing to the overall increase in selling, general, and administrative expenses include $19.9 million in compensation and benefit costs and $36.8 million in other general and administrative costs. Increases in compensation costs during the period primarily resulting from the Legacy Gannett acquisition were offset by decreases from cost containment initiatives implemented in connection with the COVID-19 pandemic and ongoing integration efforts.

Depreciation and amortization expenses were $56.6 million for the second quarter of 2020, a $34.8 million increase from the same period in 2019, primarily attributable to the acquired property and intangibles from the Legacy Gannett acquisition and an increase in accelerated depreciation of $8.5 million as a result of ongoing cost reduction programs compared to the same period in 2019.

Integration and reorganization costs were $20.6 million in the second quarter of 2020, an increase of $16.5 million compared to the same period in 2019, primarily attributable to integration and reorganization costs related to Legacy Gannett driven by severance costs related to acquisition-related synergies and the continued consolidation of our operations resulting from the ongoing implementation of our plans to reduce costs and preserve cash flow.

Six months ended June 30, 2020 versus six months ended June 30, 2019

Operating costs were $951.8 million for the six months ended June 30, 2020, an increase of $496.5 million from the same period in 2019. Newsprint and ink costs were $69.8 million in the six months ended June 30, 2020, an increase of $22.3 million compared to 2019, primarily as a result of acquired newsprint and ink costs related to Legacy Gannett, offset by declines in circulation and print advertising volumes, lower prices, page count reductions and press configuration efficiencies when compared to the same period in 2019. News and editorial expenses were $21.1 million in the six months ended June 30, 2020, an increase of $6.4 million compared to 2019, primarily as a result of acquired news and editorial expenses related to Legacy Gannett, partially offset by synergy savings. Distribution costs were $207.6 million in the six months ended June 30, 2020, an increase of $130.4 million, primarily due to acquired hauling and delivery costs related to Legacy Gannett partially offset by synergy savings and lower production volumes. Other material categories of costs contributing to the overall increase in operating costs include $188.0 million in compensation and benefit costs and $84.1 million in outside services, which include portions of outside printing, professional and outside services, paid search and ad serving, feature services, and credit card fees. Increases in compensation costs during the period primarily resulting from the Legacy Gannett acquisition were offset by decreases from cost containment initiatives implemented in connection with the COVID-19 pandemic and ongoing integration efforts. Similarly, increases in outside service costs were offset by declines in activity as a result of the COVID-19 pandemic and cost containment initiatives.

Total selling, general, and administrative expenses were $406.9 million for the six months ended June 30, 2020, an increase of $183.8 million from the same period in 2019. Outside services costs, which include portions of outside printing, professional and outside services, paid search and ad serving, feature services, and credit card fees, were $23.1 million in the six months ended June 30, 2020, an increase of $5.8 million compared to 2019, primarily as a result of acquired outside services costs related to Legacy Gannett offset by reductions resulting from reduced activity as a result of the COVID-19 pandemic as well as cost containment initiatives. Other material categories of costs contributing to the overall increase in selling, general, and administrative expenses include $62.0 million in compensation and benefit costs and $81.1 million in other general and administrative costs. Increases in compensation costs during the period primarily resulting from the Legacy Gannett acquisition were offset by decreases from cost containment initiatives implemented in connection with the COVID-19 pandemic and ongoing integration efforts.

Depreciation and amortization expense were $123.5 million for the six months ended June 30, 2020, an $82.9 million increase from the same period in 2019, primarily attributable to the acquired property and intangibles from the Legacy Gannett acquisition and an increase in accelerated depreciation of $33.1 million as a result of ongoing cost reduction programs compared to the same period in 2019.

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Integration and reorganization costs were $33.9 million in the six months ended June 30, 2020, an increase of $27.5 million compared to the same period in 2019, primarily attributable to integration and reorganization costs related to Legacy Gannett driven by severance costs related to acquisition-related synergies and the continued consolidation of our operations resulting from the ongoing implementation of our plans to reduce costs and preserve cash flow.

Publishing segment adjusted EBITDA:
 Three months ended June 30, Six months ended June 30,
In thousands2020 2019 Change ($) 2020 2019 Change ($)
Net income (loss) attributable to Gannett (GAAP basis)$(328,207) $24,830
 $(353,037) $(281,213) $43,586
 $(324,799)
Interest expense92
 23
 69
 110
 78
 32
Non-operating pension income(17,480) (208) (17,272) (35,953) (417) (35,536)
Other non-operating income(3,066) (162) (2,904) (3,530) (263) (3,267)
Depreciation and amortization56,553
 21,769
 34,784
 123,510
 40,599
 82,911
Integration and reorganization costs20,619
 4,074
 16,545
 33,927
 6,458
 27,469
Impairment of property, plant and equipment6,859
 2,469
 4,390
 6,859
 2,469
 4,390
Goodwill and intangible impairment352,947
 
 352,947
 352,947
 
 352,947
Net loss on sale or disposal of assets(449) 2,159
 (2,608) 143
 2,178
 (2,035)
Other items4,123
 539
 3,584
 6,214
 2,500
 3,714
Adjusted EBITDA (non-GAAP basis)$91,991
 $55,493
 $36,498
 $203,014
 $97,188
 $105,826

Adjusted EBITDA for our publishing segment was $92.0 million for the second quarter of 2020, an increase of $36.5 million compared to the same period in 2019. The increase was primarily attributable to acquired Adjusted EBITDA for Legacy Gannett and ongoing operating efficiencies offset by declines in print advertising and circulation revenues in part reflecting lower demand during the second quarter of 2020, which were impacted by the ongoing economic effects of COVID-19, and ongoing operating efficiencies.

Adjusted EBITDA for our publishing segment was $203.0 million for the six months ended June 30, 2020, an increase of $105.8 million compared to the same period in 2019. The increase was primarily attributable to acquired Adjusted EBITDA for Legacy Gannett and ongoing operating efficiencies offset by declines in print advertising and circulation revenues in part reflecting lower demand beginning near the end of the first quarter of 2020, which were impacted by the ongoing economic effects of COVID-19, and ongoing operating efficiencies.


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Marketing Solutions segment

A summary of our Marketing Solutions segment results is presented below:
 Three months ended June 30, Six months ended June 30,
In thousands2020 2019 Change 2020 2019 Change
Operating revenues:           
Advertising and marketing services$89,809
 $23,157
 $66,652
 $206,092
 $44,547
 $161,545
Other4,754
 4,188
 566
 9,752
 8,685
 1,067
Total operating revenues94,563
 27,345
 67,218
 215,844
 53,232
 162,612
Operating expenses:    
      
Operating costs63,264
 19,376
 43,888
 136,519
 37,648
 98,871
Selling, general and administrative expenses29,158
 10,817
 18,341
 69,892
 22,224
 47,668
Depreciation and amortization4,004
 778
 3,226
 11,335
 2,056
 9,279
Integration and reorganization costs2,962
 180
 2,782
 4,351
 736
 3,615
Goodwill and intangible impairment40,499
 
 40,499
 40,499
 
 40,499
Net loss on sale or disposal of assets516
 1
 515
 539
 3
 536
Total operating expenses140,403
 31,152
 109,251
 263,135
 62,667
 200,468
Operating loss$(45,840) $(3,807) $(42,033) $(47,291) $(9,435) $(37,856)

Operating revenues:

Quarter ended June 30, 2020 versus quarter ended June 30, 2019

Advertising and marketing services revenues were $89.8 million for the second quarter of 2020, an increase compared to the same period in 2019, which included revenues from international entities of $8.6 million for the second quarter of 2020. This increase was primarily attributable to $74.8 million in acquired advertising and marketing services revenues related to Legacy Gannett. Other revenues were $4.8 million for the second quarter of 2020, an increase of 14% compared to the same period in 2019. This increase is primarily the result of increases in license revenue for cloud software products. These increases were partially offset by decreases driven by the impacts of the COVID-19 pandemic which began in the latter part of the first quarter of 2020.

Six months ended June 30, 2020 versus six months ended June 30, 2019

Advertising and marketing services revenues were $206.1 million for the six months ended June 30, 2020, an increase compared to the same period in 2019, which included revenues from international entities of $19.1 million for the six months ended June 30, 2020. This increase was primarily attributable to $171.1 million in acquired advertising and marketing services revenues related to Legacy Gannett. Other revenues were $9.8 million for the six months ended June 30, 2020, an increase of $1.1 million compared to the same period in 2019. This increase is primarily the result of increases in license revenue for cloud software products. These increases were partially offset by decreases driven by the impacts of the COVID-19 pandemic, which began in the latter part of the first quarter of 2020.

Operating expenses:

Quarter ended June 30, 2020 versus quarter ended June 30, 2019

Operating costs, which include online media acquired from third parties, costs to manage and operate the segment's solutions and technology infrastructure, and other third-party direct costs, were $63.3 million for the second quarter of 2020, an increase compared to the same period in 2019. This increase was primarily attributable to acquired operating costs related to Legacy Gannett. Outside service costs, which include costs of online media acquired from third-party publishers, totaled $48.9 million for the second quarter of 2020 compared to $12.1 million for the same period in 2019. The increase is primarily the result of acquired outside service costs related to Legacy Gannett and increased costs of media associated with lower rebates and margin pressure experienced during the first half of 2020. Other material categories of costs contributing to the overall increase in operating costs include $7.0 million in compensation and benefit costs, which was offset by reductions associated with cost containment initiatives in connection with the COVID-19 pandemic.


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Selling, general, and administrative expenses were $29.2 million for the second quarter of 2020, an increase compared to the same period in 2019. This increase was primarily attributable to acquired selling, general, and administrative expenses related to Legacy Gannett.

Depreciation and amortization were $4.0 million for the second quarter of 2020; an increase compared to the second quarter of 2019. This was primarily attributable to an increase in amortization expense stemming from new product and development initiatives.

Six months ended June 30, 2020 versus six months ended June 30, 2019

Operating costs, which include online media acquired from third parties, costs to manage and operate the segment's solutions and technology infrastructure, and other third-party direct costs, were $136.5 million for the six months ended June 30, 2020, an increase compared to the same period in 2019. This increase was primarily attributable to acquired operating costs related to Legacy Gannett. Outside service costs, which include costs of online media acquired from third-party publishers, totaled $81.8 million for the six months ended June 30, 2020 compared to $23.4 million for the same period in 2019. The increase is primarily the result of acquired outside service costs related to Legacy Gannett and increased costs of media associated with lower rebates and margin pressure experienced in the first quarter of 2020. Other material categories of costs contributing to the overall increase in operating costs include $18.0 million in compensation and benefit costs, which was offset by reductions associated with cost containment initiatives in connection with the COVID-19 pandemic.

Selling, general, and administrative expenses were $69.9 million for the six months ended June 30, 2020, an increase compared to the same period in 2019. This increase was primarily attributable to acquired selling, general, and administrative expenses related to Legacy Gannett, partially offset by decreases related to cost containment initiatives as a result of the COVID-19 pandemic and ongoing integration activities.

Depreciation and amortization were $11.3 million for the six months ended June 30, 2020, an increase compared to the six months ended June 30, 2019. This was primarily attributable to an increase in amortization expense stemming from new product and development initiatives.


Marketing Solutions segment adjusted EBITDA:
 Three months ended June 30, Six months ended June 30,
In thousands2020 2019 Change 2020 2019 Change
Net income (loss) attributable to Gannett (GAAP basis)$(43,226) $(3,807) $(39,419) $(48,301) $(9,435) $(38,866)
Other non-operating income(2,614) 
 (2,614) 1,010
 
 1,010
Depreciation and amortization4,004
 778
 3,226
 11,335
 2,056
 9,279
Integration and reorganization costs2,962
 180
 2,782
 4,351
 736
 3,615
Goodwill and intangible impairment40,499
 
 40,499
 40,499
 
 40,499
Net loss on sale or disposal of assets516
 1
 515
 539
 3
 536
Other items643
 389
 254
 1,235
 951
 284
Adjusted EBITDA (non-GAAP basis)$2,784
 $(2,459) $5,243
 $10,668
 $(5,689) $16,357

Adjusted EBITDA for our Marketing Solutions segment was $2.8 million for the second quarter of 2020, an increase compared to the same period in 2019 primarily due to additional Adjusted EBITDA from Legacy Gannett.

Adjusted EBITDA for our Marketing Solutions segment was $10.7 million for the six months ended June 30, 2020, an increase compared to the same period in 2019 primarily due to additional Adjusted EBITDA from Legacy Gannett.


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Corporate and other segment

Corporate and other operating expenses were $44.6 million for the second quarter of 2020, an increase of $35.4 million compared to the same period in 2019 primarily attributable to acquired operating expenses related to Legacy Gannett. Also included in corporate operating expenses for the second quarter of 2020 were $8.7 million of integration and reorganization costs and $5.8 million of depreciation and amortization expenses.

Corporate and other operating expenses were $103.6 million for the six months ended June 30, 2020, an increase of $79.7 million compared to the same period in 2019 primarily attributable to acquired operating expenses related to Legacy Gannett and an increase in acquisition costs of $5.2 million. Also included in corporate operating expenses for the six months ended June 30, 2020 were $22.3 million of integration and reorganization costs and $9.5 million of depreciation and amortization expenses.

Non-operating expense

Interest expense: Interest expense for the second quarter of 2020 was $57.9 million compared to $10.2 million in the same period in 2019. Interest expense for the six months ended June 30, 2020 was $115.8 million compared to $20.3 million in the same period in 2019. The increase in interest expense for 2020 is due to a higher effective interest rate and a larger debt balance compared to the prior year period.

Non-operating pension income: Non-operating pension income for second quarter of 2020 was $17.6 million compared to $0.2 million in the same period in 2019. Non-operating pension income for the six months ended June 30, 2020 was $36.1 million compared to $0.4 million in the same period in 2019. The increase during the three and six months ended June 30, 2020 is due to increased expected return on plan assets in excess of interest costs on benefit obligations when compared to the same period in 2019.

Other non-operating items, net: Our non-operating items, net, are driven by certain items that fall outside of our normal business operations. Non-operating items, net, consisted of $6.3 million in income for the second quarter of 2020 compared to $0.1 million in income for the same period in 2019. Non-operating items, net, consisted of $4.6 million in income for the six months ended June 30, 2020 compared to $0.2 million in income for the same period in 2019.

Income tax expense (benefit)

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

 Three months ended June 30, Six months ended June 30,
In thousands2020 2019 2020 2019
Pre-tax net income (loss)$(472,107) $2,272
 $(543,734) $(9,037)
Benefit for income taxes(34,276) (343) (25,297) (2,297)
Effective tax rate7.3% ***
 4.7% 25.4%
*** Indicates a percentage that is not meaningful.

The benefit for income taxes for the three months ended June 30, 2020 was caused largely by the pre-tax net loss generated during the quarter. The benefit from income taxes was reduced due to non-deductible asset impairments, non-deductible officers' compensation, and the creation of a valuation allowance against deferred tax assets arising from non-deductible interest carryforwards. These non-deductible expenses resulted in an estimated annual effective tax rate lower than the statutory Federal rate of 21%. The benefit for income taxes for the three months ended June 30, 2020 was calculated using the estimated annual effective tax rate of 6.8%. The estimated annual effective tax rate is based on a projected tax benefit for the year.
  
The CARES Act was enacted on March 27, 2020. The Company will realize a tax benefit attributable to the legislation which permits a refund of tax benefits from earlier years. The legislation also allows the Company to defer certain employer payroll tax payments in 2020 to the end of 2021 and 2022. Finally, the Company is evaluating and may pursue Employee Retention Tax Credits as provided under the CARES Act. The Company continually monitors guidance from the U.S. Department of the Treasury (the "Treasury") and the Internal Revenue Service to determine whether additional tax benefits are available from this legislation and similar stimulus efforts.


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The Tax Cuts and Jobs Act of 2007 (“TCJA”) revised business interest expense limitations under I.R.C. Section 163(j) such that business interest deductions are not allowed in amounts exceeding prescribed percentages of EBITDA for tax years beginning before January 1, 2022. For tax years beginning after January 1, 2022, deductible interest cannot exceed prescribed percentages of EBIT. Unused business interest deductions are carried forward and recorded as deferred tax assets. The Company has evaluated the potential utilization of such carryforward deferred tax assets and determined full valuation allowances are appropriate as future utilization is uncertain.

Net income (loss) attributable to Gannett and diluted income (loss) per share attributable to Gannett

Net loss attributable to Gannett was $436.9 million and diluted loss per share attributable to Gannett per share was $3.32 for the second quarter of 2020 compared to net income attributable to Gannett of $2.8 million and income per share attributable to Gannett per share of $0.05 for the same period in 2019. The change reflects the various items discussed above. Net loss attributable to Gannett was $517.0 million and diluted loss per share attributable to Gannett per share was $3.95 for the six months ended June 30, 2020 compared to net loss attributable to Gannett of $6.3 million and diluted loss per share attributable to Gannett per share of $0.10 for the same period in 2019. The change reflects the various items discussed above.

Liquidity and capital resources

Our operations, which have historically generated strong positive cash flow, are expected to provide sufficient liquidity, together with cash on hand, to meet our ongoing liquidity requirements, primarily operating expenses, interest expense and capital expenditures.

Details of our cash flows are included in the table below:
 Six months ended June 30,
In thousands2020 2019
Net cash provided by operating activities$24,640
 $57,653
Net cash used for investing activities(3,026) (37,180)
Net cash used for financing activities(20,331) (50,062)
Effect of currency exchange rate change on cash(780) 3
Increase (decrease) in cash$503
 $(29,586)

Operating cash flows

Our largest source of cash provided by our operations is advertising revenues primarily generated from local and national advertising and marketing services revenues (retail, classified, and online). Additionally, we generate cash through circulation subscribers, commercial printing and delivery services to third parties, and events. Our primary uses of cash from our operating activities include compensation, newsprint, delivery, and outside services.

Our net cash flow from operating activities was $24.6 million for the first six months of 2020, a decrease of $33.0 million compared to the same period in 2019. The decrease in net cash flow from operating activities was primarily due to interest paid on the term loan of $124.7 million and severance payments of $41.2 million, offset by increases in working capital attributable to the merger with Legacy Gannett in November 2019.

Investing cash flows

Cash flows used for investing activities totaled $3.0 million for the first six months of 2020, primarily consisting of capital expenditures of $22.2 million, partially offset by proceeds from sale of certain assets of $17.8 million.

Cash flows used for investing activities totaled $37.2 million for the first six months of 2019, primarily consisting of payments for acquisitions, net of cash acquired, of $39.4 million and capital expenditures of $4.9 million, offset by proceeds from sales of certain assets of $7.1 million.


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Financing cash flows

Cash flows used for financing activities totaled $20.3 million for the first six months of 2020, primarily consisting of repayments of borrowings under our Apollo term loan facility of $19.0 million and $1.9 million in payments for employee taxes withheld from stock awards.

Cash flows used for financing activities totaled $50.1 million for the first six months of 2019, primarily consisting of the payments of dividends of $46.1 million and repayments of borrowings under our term loan facility $11.3 million and $0.7 million in payments for employee taxes withheld from stock awards, offset by net borrowings under the revolving credit facility of $8.0 million.

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 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 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. 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.

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


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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.

Additional information

We continue to evaluate the impacts of the COVID-19 pandemic on our results of operations and cash flows. As part of these measures, we have taken steps to manage cash outflow by rationalizing expenses and implementing various cost containment initiatives. These initiatives include, but are not limited to, strategic reductions in force, furloughs, reductions in pay for senior management and the cancellation of certain non-essential expenditures. We continue to evaluate opportunities to manage the amount and timing of significant expenditures associated with vendors, creditors, and pension regulators.

In connection with these measures, we previously announced that the Board of Directors had determined it is in the best interest of the Company to preserve liquidity by suspending the quarterly dividend until economic conditions improve. We expect to reinstate the dividend when appropriate but cannot provide assurance if or when we will resume paying dividends on a regular basis.

The CARES Act, enacted March 27, 2020, provides various forms of relief to companies impacted by the COVID-19 pandemic. As part of the relief available under the Act, we have enacted a plan to defer remittance of our Federal Insurance Contributions Act taxes as allowed by the legislation.

In the U.K. we have negotiated a deferral of $12 million in pension contributions due in 2020 to now be paid in 2021. For the Gannett Retirement Plan in the U.S., we have deferred our contractual contribution 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 ERISA, have been deferred until January 1, 2021.

Although we currently forecast sufficient near-term liquidity, the ultimate impact of the COVID-19 pandemic remains uncertain and could have a material negative impact on the Company's liquidity and its ability to meet its ongoing obligations, including its obligations under the Apollo term loan facility. As the implications of the COVID-19 pandemic continue to evolve, we will continue to closely monitor and explore additional opportunities to appropriately manage liquidity.

Non-GAAP Financial Measures

A non-GAAP financial measure is generally defined as one that purports to measure historical or future financial performance, financial position, or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable GAAP measure. We define and use Adjusted EBITDA, a non-GAAP financial measure, as set forth below.

Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) from continuing operations before:

Income tax expense (benefit);
Interest expense;
Gains or losses on early extinguishment of debt;
Non-operating items, primarily pension costs;
Depreciation and amortization;
Integration and reorganization costs;
Impairment of property, plant and equipment;
Goodwill and intangible impairments;

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Net loss (gain) on sale or disposal of assets;
Equity-based compensation;
Acquisition costs; and
Certain other non-recurring charges.

Management’s Use of Adjusted EBITDA

Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered in isolation or as an alternative to income from operations, net income (loss), cash flow from continuing operating activities, or any other measure of performance or liquidity derived in accordance with GAAP. We believe this non-GAAP measure as we have defined it is helpful in identifying trends in our day-to-day performance because the items excluded have little or no significance on our day-to-day operations. This measure provides an assessment of controllable expenses and affords management the ability to make decisions which are expected to facilitate meeting current financial goals as well as achieve optimal financial performance.

Adjusted EBITDA provides us with a measure of financial performance, independent of items that are beyond the control of management in the short-term such as depreciation and amortization, taxation, non-cash impairments, and interest expense associated with our capital structure. This metric measures our financial performance based on operational factors that management can impact in the short-term, namely the cost structure or expenses of the organization. Adjusted EBITDA is one of the metrics we use to review the financial performance of our business on a monthly basis.

Limitations of Adjusted EBITDA

Adjusted EBITDA has limitations as an analytical tool. It should not be viewed in isolation or as a substitute for GAAP measures of earnings or cash flows. Material limitations in making the adjustments to our earnings to calculate Adjusted EBITDA and using this non-GAAP financial measure as compared to GAAP net income (loss) include: the cash portion of interest/financing expense, income tax (benefit) provision, and charges related to impairment of property, plant and equipment, which may significantly affect our financial results.

A reader of our financial statements may find this item important in evaluating our performance, results of operations, and financial position. We use non-GAAP financial measures to supplement our GAAP results in order to provide a more complete understanding of the factors and trends affecting our business.

Adjusted EBITDA is not an alternative to net income, income from operations, or cash flows provided by or used in operations as calculated and presented in accordance with GAAP. Readers of our financial statements should not rely on Adjusted EBITDA as a substitute for any such GAAP financial measure. We strongly urge readers of our financial statements to review the reconciliation of income (loss) from continuing operations to Adjusted EBITDA along with our consolidated financial statements included elsewhere in this report. We also strongly urge readers of our financial statements to not rely on any single financial measure to evaluate our business. In addition, because Adjusted EBITDA is not a measure of financial performance under GAAP and is susceptible to varying calculations, the Adjusted EBITDA measure as presented in this report may differ from and may not be comparable to similarly titled measures used by other companies.

We use Adjusted EBITDA as a measure of our day-to-day operating performance, which is evidenced by the publishing and delivery of news and other media and excludes certain expenses that may not be indicative of our day-to-day business operating results. We consider the (gain) loss on early extinguishment of debt to be financing related costs associated with interest expense or amortization of financing fees. Accordingly, we exclude financing related costs such as the early extinguishment of debt because they represent the write-off of deferred financing costs, and we believe these non-cash write-offs are similar to interest expense and amortization of financing fees, which by definition are excluded from Adjusted EBITDA. Such charges are incidental to, but not reflective of, our day-to-day operating performance and it is appropriate to exclude charges related to these financing activities which, depending on the nature of the financing arrangement, would have otherwise been amortized over the period of the related agreement and does not require a current cash settlement. Such charges are incidental to, but not reflective of our day-to-day operating performance of the business that management can impact in the short term.


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The table below shows the reconciliation of (loss) income from continuing operations to Adjusted EBITDA for the periods presented:
 Three months ended June 30, Six months ended June 30,
In thousands2020 2019 Change 2020 2019 Change
Net income (loss) attributable to Gannett$(436,893) $2,815
 $(439,708) $(517,045) $(6,291) $(510,754)
Benefit for income taxes(34,276) (343) (33,933) (25,297) (2,297) (23,000)
Interest expense57,928
 10,212
 47,716
 115,827
 20,346
 95,481
Loss on early extinguishment of debt369
 
 369
 1,174
 
 1,174
Non-operating pension income(17,553) (208) (17,345) (36,099) (417) (35,682)
Other non-operating income(6,261) (103) (6,158) (4,616) (154) (4,462)
Depreciation and amortization66,327
 23,328
 42,999
 144,352
 44,251
 100,101
Integration and reorganization costs32,306
 4,278
 28,028
 60,560
 10,077
 50,483
Acquisition costs2,379
 2,364
 15
 8,348
 3,137
 5,211
Impairment of property, plant and equipment6,859
 1,262
 5,597
 6,859
 2,469
 4,390
Goodwill and intangible impairment393,446
 
 393,446
 393,446
 
 393,446
Loss on sale or disposal of assets88
 947
 (859) 745
 2,737
 (1,992)
Equity-based compensation expense7,391
 707
 6,684
 18,968
 1,843
 17,125
Other items5,908
 2,036
 3,872
 9,862
 4,444
 5,418
Adjusted EBITDA (non-GAAP basis)$78,018
 $47,295
 $30,723
 $177,084
 $80,145
 $96,939

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We believe our market risk from financial instruments, such as accounts receivable and accounts payable, is not material.

We are exposed to foreign exchange rate risk due to our operations in the U.K., for which the British pound sterling is the functional currency. We are also exposed to foreign exchange rate risk due to our Marketing Solutions segment which has operating activities denominated in currencies other than the U.S. dollar, including the Australian dollar, Canadian dollar, Indian rupee, and New Zealand dollar.

Translation gains or losses affecting the Condensed consolidated statements of operations and comprehensive income (loss) have not been significant in the past.

Our cumulative foreign currency translation adjustment reported as part of our equity totaled $9.3 million at June 30, 2020. No such amounts were reported for the three months ended June 30, 2019.

Newsquest's assets and liabilities were translated from British pounds sterling to U.S. dollars at the June 30, 2020 exchange rate of 1.23. Newsquest's financial results were translated at an average rate of 1.26 for the first six months of 2020.

If the price of the British pound sterling against the U.S. dollar had been 10% more or less than the actual price, operating income would have increased or decreased approximately $10.8 million for the first six months of 2020. In addition, a 10% fluctuation in each of ReachLocal's currencies relative to the U.S. dollar would have increased or decreased operating income by approximately $0.3 million for the first six months of 2020.

Item 4. Controls and Procedures

Based on their evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) were not effective because of the previously reported material weakness in internal control over financial reporting, which we describe in part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2019 ("2019 Form 10-K").

Remediation of Material Weakness

We continue to implement our remediation plan for the previously reported material weakness in internal control over financial reporting, described in Part II, Item 9A of our 2019 Form 10-K, which includes steps to prioritize dedicated personnel, improve reporting processes, and enhance related supporting technology. We are committed to maintaining a strong internal

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control environment and implementing measures designed to help ensure that control deficiencies contributing to the material weakness are remediated as soon as possible. We will consider the material weakness remediated after the applicable controls operate for a sufficient period of time, and management has concluded, through testing, that the controls are operating effectively.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting or in other factors during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As a result of the COVID-19 pandemic, most of our workforce has shifted to a primarily work-from-home environment since March 2020. The change to remote working was rapid and while pre-existing controls were not specifically designed to operate in our current work-from-home operating environment, we believe that our internal control over financial reporting was not materially impacted. We are continually monitoring and assessing the COVID-19 pandemic's effect on our internal controls to minimize the impact on their design and effectiveness.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Except as disclosed in Note 13 — Commitments, contingencies and other matters, there have been no material developments with respect to our potential liability for legal and environmental matters previously reported in our 2019 Form 10-K.

Item 1A. Risk Factors

You should carefully consider the following risks and other information in this Quarterly Report on Form 10-Q in evaluating us and our Common Stock. Any of the following risks could materially and adversely affect our results of operations, financial condition, our ability to make distributions on our Common Stock and the market price of our Common Stock. For ease of review, the risk factors generally have been grouped into categories, but many of the risks described in a given category relate to multiple categories.

Risks Related to Our Acquisition and Integration of Legacy Gannett

We may not achieve the intended benefits of the acquisition of Legacy Gannett.

We completed the acquisition of Legacy Gannett in November 2019, and there can be no assurance that we will be able to realize the expected benefits of the transaction.

There are many challenges associated with integrating a material acquisition, such as our acquisition of Legacy Gannett, including the integration of executive and other employee teams with historically different cultures and priorities; the coordination of personnel located across multiple geographic locations; retaining key management and other employees; consolidating corporate and administrative infrastructures and eliminating duplicative operations; the diversion of management’s attention from ongoing business concerns; retaining existing business and operational relationships, including customers, suppliers and other counterparties, and attracting new business and operational relationships; unanticipated issues in integrating information technology, communications and other systems; as well as unforeseen expenses associated with the acquisition. These and other challenges could result in unanticipated operational challenges and the failure to realize anticipated synergies in the expected timeframe or at all.

If we fail to realize anticipated synergies in the amount and within the timeframe expected, our actual financial condition and results of operations may differ materially from the illustrative financial information disclosed in connection with the acquisition, which was based on various assumptions and estimates that may prove to be incorrect. Such illustrative financial information did not constitute management’s projections of future financial performance or results of operations; however, any material variance from such illustrative financial information could result in negative investor reactions that materially and adversely affect the market price of our Common Stock.


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Our actual financial condition and results of operations may differ materially even if synergies are realized, due to macroeconomic and other external factors or a variety of other risks to our business that are independent of the acquisition.

Our future results will suffer if we do not effectively manage our expanded operations.

With completion of the Legacy Gannett acquisition, the size of our business has increased significantly. Our continued success depends, in part, upon our ability to manage this expanded business, which poses substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. We cannot assure you that we will be successful or that we will realize the expected operating efficiencies, cost savings, and other benefits from the combined business that we currently anticipate.

The diversion of resources and management’s attention to the integration of Legacy Gannett could adversely affect our day-to-day business.

The integration of Legacy Gannett places a significant burden on our management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could adversely affect our financial results.

We incurred a substantial amount of indebtedness in connection with the Legacy Gannett acquisition, which could materially and adversely affect our business.

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 matures on November 19, 2024 and generally bears interest at the rate of 11.5% per annum. Accordingly, we are required to dedicate a substantial portion of cash flow from operations to fund interest payments. In addition, we are required to repay our credit facility from time to time with (i) the proceeds of non-ordinary course asset sales and casualty and condemnation events, (ii) a percentage of excess cash flow (ranging from 50% to 90%, depending on the current leverage ratio), and (iii) any unrestricted cash at the end of the 2020 and 2021 fiscal years in excess of $40 million. Our debt service obligations reduce the amount of cash flow available to fund our working capital, capital expenditures, investments and potential distributions to stockholders. Moreover, there can be no assurance that we will be able to generate sufficient cash flow to satisfy our debt service obligations. Our ability to satisfy our debt service obligations depends on our ability to generate cash flow from operations, which is subject to a variety of risks, including general economic conditions and the strength of our competitors, which are outside our control.

We have stated our intention to refinance our indebtedness prior to maturity on more favorable terms, but there can be no assurance that we will be able to do so. Our ability to achieve more favorable terms would likely require us to substantially reduce our total outstanding indebtedness relative to current levels. Our ability to prepay our existing indebtedness is highly dependent on both the strength of our cash flow from operations as well as our ability to generate significant proceeds from sales of real estate, the timing and amount of which is highly uncertain. In addition, any refinancing would depend upon the condition of the finance and credit markets.

The terms of our indebtedness impose significant operating and financial restrictions on us. Our credit facility requires us to comply with numerous affirmative and negative covenants, including a requirement to maintain minimum liquidity of $20 million, and restrictions limiting our ability to, among other things, incur additional indebtedness, make investments and acquisitions, pay certain dividends, sell assets, merge, incur certain liens, enter into agreements with its affiliates, make capital expenditures, change our business, engage in sale/leaseback transactions, and modify our organizational documents. With respect to dividends, we can only pay cash dividends up to an agreed-upon amount, provided the ratio of consolidated debt to EBITDA (as such terms are defined in the credit facility) does not exceed a specified ratio. Stockholders also should be aware that they have no contractual or other legal right to dividends that have not been declared.

A failure to satisfy our debt service obligations, a breach of a covenant in our credit facility, or a material breach of a representation or warranty in our credit facility, among other events specified in the credit facility, could give rise to a default, which could give rise to the right of our lenders to declare our indebtedness, together with accrued interest and other fees, to be immediately due and payable. An acceleration of our indebtedness would have a material adverse effect on our business, financial condition, results of operations, cash flows and stock price.

One of our lenders, Apollo, has the right to appoint representatives to our Board, and Apollo’s interests may conflict with those of our stockholders.


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Our credit facility grants Apollo the right to appoint two board observers to our Board. In the event that the ratio of consolidated debt to EBITDA (as such terms are defined in the term loan facility) drops below certain specified thresholds, Apollo will have the right to appoint up to two voting directors (who must be reasonably acceptable to us) in lieu of such board observer(s). The interests of Apollo, as a lender under our credit facility, may conflict with those of our stockholders.

Risks Related to Competition from Digital Media

Our business currently relies on sources of revenue that have been, and likely will continue to be, negatively affected by digital commerce and media.

In recent years, we have experienced declining revenue (on a same-store basis). The majority of our revenue is from (i) advertising and marketing services and (ii) paid circulation (in each case, both in print and digital mediums). Print advertising alone accounted for approximately 25% of our total revenue for the three months ended June 30, 2020 and 27% of our total revenue for the six months ended June 30, 2020.

To date, our revenue declines have been driven primarily by a pronounced decline across all categories of print advertising revenue (national, local and classified) related to the rise of digital media and commerce. Media companies generally charge much lower rates for digital advertising than for print advertising due to the range of advertising choices across digital products and platforms and the large inventory of available digital advertising space, and mobile advertising rates typically are even lower than desktop digital rates. Additionally, brick-and-mortar businesses are significant consumers of print advertising and with the rise of digital commerce many of these types of businesses have, and continue to, close retail outlets, which adversely affects the demand for print advertising.

Circulation revenue has been affected to a lesser extent, but more marked future declines in circulation revenue are possible. Revenue from paid circulation is a function of the volume of subscribers and the price of subscriptions. In recent years, we have experienced significant declines in the number of subscribers to our newspapers, as a result of competition from digital media and the demographic shift of traditional print newspaper readers getting older while younger generations tend to consume media through digital platforms. We have also focused on growing the volume of digital subscribers, but there can be no assurance that we will be able to grow, or even retain, our current digital subscriber volume, especially at rates similar to the rates we are able to charge for our print products.

Declining subscriber volume can also lead to more marked declines in advertising revenue. Print subscriber volume declines directly impact preprint and other print revenues that are linked to number of subscribers. In terms of digital advertising revenues, news aggregation websites and customized news feeds (often free to users) reduce traffic on our websites and related digital advertising revenues. These types of websites also compete with us in selling digital only subscriptions to our websites which reduces our ability to monetize our content digitally. If traffic levels stagnate or decline, and/or print subscriber volume continues to decline, we may not be able to maintain or increase the advertising rates or attract new advertising customers.

We also generate revenue from a commercial printing and distribution business that manage printing and distribution of publications for third parties, which generated approximately 5% of our revenue in the second quarter 2020, or approximately 5% of our revenue in the six months ended June 30, 2020. Our commercial and/or printing businesses could also be adversely affected by the same secular trends that are affecting our core advertising and circulation revenues. These third parties are experiencing the same print volume declines our business experiences and as such our commercial printing and distribution revenues could experience declines in the future. In addition, our relationships with these third parties are generally pursuant to short-term contracts, and a decision by any of the three largest national publications or the major local publications to cease publishing in those markets or seek alternatives to their current business practice of partnering with us could have an additional adverse effect on our revenue trends.

For all of the foregoing reasons, we may experience persistent declines in revenue, which could adversely affect our results of operations and financial condition, our ability to make distributions on our Common Stock and the market price of our Common Stock.

We may be unsuccessful in our efforts to stabilize revenue trends.

We have focused on offsetting traditional print advertising and circulation revenue declines in part by diversifying our sources of revenue through the development and acquisition of complementary businesses with growth potential. For example, our business UpCurve offers a suite of technology solutions to small- and medium-sized businesses (SMBs) and GateHouse Live produces local events. With the acquisition of Legacy Gannett, we expanded our digital marketing solutions businesses to include ReachLocal and WordStream.

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There can be no assurance that we will be able to grow revenue from these or other complementary businesses we may develop internally or acquire, or that any revenue generated by new business lines will be adequate to offset revenue declines from our legacy businesses. For example, technological developments could adversely affect the availability, applicability, marketability and profitability of the suite of SMB services we offer. Technological developments and any changes we make to our business strategy may require significant capital investments, and such investments may be restricted by our current credit facility.

These complementary businesses also face competition from various digital media providers, such as Google and Yahoo!, who may have more resources to invest in product development and marketing. Our salesforce may not be able to utilize the relationships we have throughout our local property network to effectively sell these products. If we are unable to diversify our traditional revenues with revenues from complementary businesses, we may experience persistent declines in revenue which could adversely affect our results of operations and financial condition, our ability to make distributions on our Common Stock and the market price of our Common Stock.

Our ReachLocal business purchases most of its media from Google, and its business could be adversely affected if Google takes actions that are adverse to our interests or if we fail to meet advertiser or spend targets necessary for receiving rebates from Google. WordStream also derives significant revenue from customer spend on Google media. Similar actions from Yahoo!, Microsoft, Facebook and other media providers also could adversely affect these businesses.

Most of ReachLocal and WordStream's cost of sales relates to the purchase of media, and a substantial majority of the media it purchases is from Google. In addition, a substantial portion of WordStream's revenue consists of rebates from Google for achieving certain advertiser or spend targets. Google accounts for a large majority of all U.S. searches, and Google's share in certain foreign markets is often even greater. As a result, we expect our ReachLocal and WordStream businesses will depend upon media purchases and rebates from Google for the foreseeable future. This dependence makes that business vulnerable to actions Google may take to change the manner in which it sells AdWords, provides rebates to us, or conducts its business. In addition, any new developments or rumors of developments regarding Google's business practices that affect the local online advertising industry may adversely affect our products or create perceptions with clients that our ability to compete in the online marketing industry has been impaired. These risks also apply to other publishers with whom we do business, including Yahoo!, Facebook and Microsoft, though to a lesser degree.

Risks Related to Macroeconomic Factors

Our ability to generate revenue is highly sensitive to the strength of the economies in which we operate and the demographics of the local communities that we serve.

Our advertising revenues and, to a lesser extent, circulation revenues, depend upon a variety of factors specific to the communities that our publications serve. These factors include, among others, the size and demographic characteristics of the local population, local economic conditions in general and the economic condition of the retail segments of the communities that our publications serve. The effects of the COVID-19 pandemic, including mandatory business closures, have generally worsened the economic condition of many retail segments. If the local economy, population or prevailing retail environment of a community we serve experiences a downturn, our publications, revenues and profitability in that market could be adversely affected. Our advertising revenues are also susceptible to negative trends in the general economy that affect customer spending. The advertisers in our newspapers and other publications and related websites are primarily retail businesses that can be significantly affected by regional or national economic downturns and other developments. For example, many traditional retail companies continue to face greater competition from online retailers and face uncertainty in their businesses, which has reduced and may continue to reduce their advertising spending. Declines in the U.S. economy could also significantly affect key advertising revenue categories, such as help wanted, real estate, and automotive. The effects of the COVID-19 pandemic have generally exacerbated these circumstances.

We expect the COVID-19 pandemic to have a material negative impact on our business and results of operations in the near term, and possibly longer.

While we are generally exempt from governmental mandates requiring closures of non-essential businesses in response to the COVID-19 pandemic, actions taken to mitigate the pandemic could materially and adversely affect our business. Our ability to generate revenue is highly sensitive to the strength of the economies in which we operate, and actions taken to mitigate the COVID-19 pandemic, including widespread business closures and social distancing measures, could lead to an economic recession. During the first six months of 2020, we experienced revenue and profitability declines in connection with the COVID-19 global pandemic. Since March 2020, we have experienced decreasing demand for our advertising and digital

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marketing services as well as reductions in the single copy and commercial distribution of our newspapers. Declining revenue may impair our ability to generate sufficient cash flows to service our term loan facility with Apollo. Accordingly, the COVID-19 pandemic has had the effect of heightening various risks described in this Form 10-Q.

While we have implemented, and continue to implement, measures intended to reduce costs and preserve cash flow in response to COVID-19 pandemic (including, but not limited to, employee furloughs, decreases in employee compensation and reductions in discretionary spending), there can be no assurance that we will be able to offset the negative impacts of the pandemic and that we will have sufficient cash flow to satisfy our commitments. Moreover, such measures, and further measures we may implement in the future in response to the COVID-19 pandemic, may negatively impact our reputation and our ability to attract and retain employees. See "Risks Related to Pension Obligations and Employees" below.

In the long-term, the ultimate impact of the COVID-19 pandemic on our business and results of operations will depend on the severity and length of the pandemic, the duration, effectiveness, and extent of the mitigation measures and governmental actions designed to combat the pandemic, as well as changes in customer behavior as a result of the pandemic, all of which are highly uncertain. A prolonged duration of the COVID-19 pandemic and mitigation measures could have a material negative impact on our business and results of operations.

Uncertainty and adverse changes in the general economic conditions of markets in which we participate, including due to the recent COVID-19 pandemic, may continue to negatively affect our business.

Current and future conditions in the economy have an inherent degree of uncertainty, which has been magnified by the recent COVID-19 pandemic. As a result, it is difficult to estimate the level of growth or contraction for the economy as a whole. It is even more difficult to estimate growth or contraction in various parts, sectors and regions of the economy, including the markets in which we participate. In particular, the COVID-19 pandemic and related measures to contain its spread have created significant volatility and economic uncertainty, which is expected to continue in the near term. In addition, advertisers may respond to such uncertainty by reducing their budgets or shifting priorities or spending patterns, which could have a material adverse impact on our business.

Adverse changes may also occur as a result of weak global economic conditions, declining oil prices, wavering customer confidence, increasing unemployment, volatility in stock markets, contraction of credit availability, declines in real estate values, natural disasters, or other factors affecting economic conditions in general. These changes may negatively affect the sales of our products, increase exposure to losses from bad debts, increase the cost and decrease the availability of financing, or increase costs associated with publishing and distributing our publications.

The collectability of accounts receivable under adverse economic conditions could deteriorate to a greater extent than provided for in our financial statements and in our projections of future results.

Adverse economic conditions in the U.S. may increase our exposure to losses resulting from financial distress, insolvency and the potential bankruptcy of our advertising customers. We recorded write-offs of accounts receivable relating to recent bankruptcies of national retailers. Our accounts receivable is stated at net estimated realizable value, and our allowance for doubtful accounts has been determined based on several factors, including receivable agings, significant individual credit risk accounts and historical experience. If such collectability estimates prove inaccurate, adjustments to future operating results could occur.

Risks Related to International Operations

We may be unsuccessful in managing our international operations.

Newsquest operates in the U.K., and ReachLocal has international sales operations in Australia, New Zealand and Canada, as well as campaign support services in India. Revenue from Newsquest accounted for 5.5% of our Publishing segment's total revenue for the three months ended June 30, 2020 and 6.2% of our Publishing segment's total revenue for the six months ended June 30, 2020. Revenue from international operations outside North America accounted for 5.0% of our Marketing Solutions segment's total revenue for the three months ended June 30, 2020 and 4.8% of our Marketing Solutions segment's total revenue for the six months ended June 30, 2020. Our ability to manage these international operations successfully is subject to numerous risks inherent in foreign operations, including:

Challenges or uncertainties arising from unexpected legal, political, or systemic events, including the global COVID-19 pandemic;
Difficulties or delays in developing a network of clients in international markets;

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Restrictions on the ability of U.S. companies to do business in foreign countries;
Different legal or regulatory requirements, including with respect to internet services, privacy and data protection, censorship, banking and money transmitting, and selling, which may limit or prevent the offering of our products in some jurisdictions or otherwise harm our business;
International intellectual property laws that may be insufficient to protect our intellectual property or permit us to successfully defend our intellectual property in international lawsuits;
Different employee/employer relationships and the existence of workers' councils and labor unions, which could make it more difficult to terminate underperforming salespeople;
Difficulties in staffing and managing foreign operations;
Difficulties in accounts receivable collection;
Currency fluctuations and price controls or other restrictions on foreign currency;
Potential adverse tax consequences including difficulties in repatriating earnings generated abroad; and
Lack of infrastructure to adequately conduct electronic commerce transactions.

Any of the foregoing factors could adversely impact our international operations, which could harm our overall business, operating results, and financial condition.

Foreign exchange variability could materially and adversely affect our consolidated operating results.

Our financial statements are denominated in U.S. dollars. Newsquest operates in the U.K., and its operations are conducted in foreign currency, primarily the British pound sterling. Weakening in the British pound sterling to U.S. dollar exchange rate has in the past, and could in the future, diminish Newsquest's contributions to our results of operations. In addition, ReachLocal conducts operations in several foreign jurisdictions. If the value of currency in any of those jurisdictions weakens as compared with the U.S. dollar, ReachLocal’s operations in those jurisdictions similarly will contribute less to our results.

The U.K. vote to leave the European Union could adversely impact our business, results of operations, and financial condition.

The U.K. left the European Union on January 31, 2020 (“Brexit”). At this stage, the nature of the future relationship between the U.K. and the remaining European Union countries following Brexit has yet to be agreed, and negotiations with the European Union on the terms of Brexit have demonstrated the difficulties that exist in reaching such an agreement. Depending on the terms of the negotiations, the U.K. could also lose access to the single European Union market and to the global trade deals negotiated by the European Union on behalf of its members. Such a decline in trade could affect the attractiveness of the U.K. as a global investment center and, as a result, could have a detrimental impact on economic growth in the country. Furthermore, regardless of the form of any withdrawal agreement, there are likely to be changes in the legal rights and obligations of commercial parties across all industries following Brexit, and British regulatory requirements once outside the European Union could be subject to significant change. Any of the foregoing could result in an economic downturn in Newsquest’s markets, which could depress the demand for our products and services.

The enactment of a Digital Services Tax in the U.K. may impact future results.

On July 22, 2020, a Digital Services Tax ("DST") was enacted in the United Kingdom. This 2% tax is effective April 1, 2020. The DST applies to gross revenue of specified digital business models deriving value from participation of their U.K.-based users. While the tax is intended to apply to search engines, social media platforms, and online marketplaces, it may be applied to online advertising when users of our publications receive advertising based on their participation with the publications. If that is the case, we may have to pay additional cash taxes, which could adversely affect our results of operations, financial condition, and cash flows.


Additional Risks Related to Our Business

Our business is subject to seasonal and other fluctuations, which affects our revenues and operating results.

Our business is subject to seasonal fluctuations that we expect to continue to be reflected in our operating results in future periods. Our first fiscal quarter of the year tends to be our weakest quarter because advertising volume is at its lowest levels following the December holiday season. Correspondingly, our second and fourth fiscal quarters tend to be our strongest because they include heavy holiday and seasonal advertising. Other factors that affect our quarterly revenues and operating results may be beyond our control, including changes in the pricing policies of our competitors, the hiring and retention of key personnel, wage and cost pressures, distribution costs, changes in newsprint prices and general economic factors.

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The value of our intangible assets may become impaired, which could adversely affect future reported results of operations and stockholders’ equity

Our goodwill and indefinite-lived assets (mastheads) are subject to annual impairment testing, and more frequent testing upon the occurrence of certain events or significant changes in our circumstances, to determine whether the fair value of such assets is less than their carrying value. In such case, a non-cash charge to earnings may be necessary in the relevant period, which could adversely affect future reported results of operations and stockholders’ equity. At June 30, 2020, the carrying value of our goodwill was $559.6 million, the carrying value of mastheads was $176.2 million, and the carrying value of our amortizable intangible assets was $744.3 million.

We performed assessments for possible impairment of the carrying value of goodwill and indefinite-lived intangibles in connection with the Legacy Gannett acquisition and as of December 31, 2019. The footnotes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 describe the key assumptions used in the 2019 goodwill impairment analysis.

As of June 30, 2020, we performed our annual impairment test. In connection with our review, we noted that the market capitalization of the Company declined significantly during the three months ended June 30, 2020 and there was widespread stock-market volatility, resulting from the COVID-19 pandemic. As a result, we recognized impairments on goodwill as well as certain mastheads and definite lived intangibles.

Management assumptions used to calculate fair value are highly subjective and involve forecasts of future economic and market conditions and their impact on operating performance. Changes in key assumptions impacting the analyses could result in the recognition of impairment. 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 customers behavior as a result of the pandemic, all of which are highly uncertain and difficult to predict at the current time, could negatively impact our future assessment of projected results of operations and the underlying assumptions utilized in the determination of the estimated fair values of the reporting units and related mastheads.

For further information on goodwill and intangible assets, see Note 6 — Goodwill & Intangible Assets.

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

As a public company, we are required to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future. In fiscal year 2019, we identified a material weakness in our internal control over financial reporting. See “Our management and independent auditors have identified a material weakness in our internal control over financial reporting, and we may be unable to develop, implement and maintain appropriate controls in future periods, which may lead to errors or omissions in our financial statements” below. If we are not able to maintain or document effective internal control over financial reporting, our management and our independent registered public accounting firm will not be able to certify as to the effectiveness of our internal control over financial reporting. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis or may cause us to restate previously issued financial information and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial reporting. This could materially adversely affect us by, for example, a decline in our share price and impairing our ability to raise capital, if and when desirable.

As a result of the COVID-19 pandemic, our workforce has shifted to primarily working from home beginning in March 2020. Our pre-existing controls were not specifically designed to operate in our current work-from-home operating environment, and there can be no assurance that they will be effective in the current environment.

Our management and independent auditors have identified a material weakness in our internal control over financial reporting, and we may be unable to develop, implement and maintain appropriate controls in future periods, which may lead to errors or omissions in our financial statements.


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The Sarbanes-Oxley Act and related rules and regulations require that management report annually on the effectiveness of our internal control over financial reporting and assess the effectiveness of our disclosure controls and procedures on a quarterly basis. Maintaining and adapting our internal controls is expensive and requires significant management attention. Moreover, as we continue to grow, our internal controls may become more complex and require additional resources to ensure they remain effective amid dynamic regulatory and other guidance.

As described in Item 9A, “Controls and Procedures” of this 2019 Form 10-K, we concluded that our disclosure controls and procedures were not effective as of December 31, 2019 and that we had, as of such date, a material weakness in our internal control over financial reporting related to internal control deficiencies over the revenue recognition process; specifically, the Company did not maintain effective controls due to the aggregation of control deficiencies related to inadequate manual preventative and detective controls and information technology general controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements would not be prevented or detected on a timely basis. This material weakness identified did not result in any adjustments or restatements of our audited and unaudited consolidated financial statements or disclosures for any prior period previously reported by the Company. However, until the material weakness is remediated, and our associated disclosure controls and procedures improved, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting occur in the future, our future consolidated financial statements or other information filed with the SEC may contain material misstatements.

We are in the process of remediating the material weakness, but our efforts may not be successful. If we are unable to remediate the material weakness in an appropriate and timely manner, or if we identify additional control deficiencies that individually or together constitute significant deficiencies or material weaknesses, our ability to accurately record, process, and report financial information and consequently, our ability to prepare financial statements within required time periods, could be adversely affected. Failure to maintain effective internal control over financial reporting could result in violations of applicable securities laws, stock exchange listing requirements, and the covenants under our debt agreements, subject us to litigation and investigations, negatively affect investor confidence in our financial statements, and adversely impact our stock price and ability to access capital markets.

We are evaluating and developing a plan, which will include the implementation of appropriate processes and controls to remediate the material weakness described above. While we work toward the design and implementation of these processes and controls, we may rely significantly on manual procedures to assist us with meeting the objectives otherwise fulfilled by an effective control environment. The implementation of new procedures and controls could be costly and distract management from other activities.

We may not be able to protect intellectual property rights upon which our business relies and, if we lose intellectual property protection, our assets may lose value.

Our business depends on our intellectual property, including, but not limited to, our titles, mastheads, content and proprietary software, which we may attempt to protect through patents, copyrights, trade laws and contractual restrictions, such as confidentiality agreements. We believe our proprietary and other intellectual property rights are important to our success and our competitive position.

Despite our efforts to protect our proprietary rights, unauthorized third parties may attempt to copy or otherwise obtain and use our content, services and other intellectual property, and we cannot be certain that the steps we have taken will prevent any misappropriation or confusion among consumers and merchants, or unauthorized use of these rights. If we are unable to procure, protect and enforce our intellectual property rights, we may not realize the full value of these assets, and our business may suffer. If we must litigate to enforce our intellectual property rights or determine the validity and scope of the proprietary rights of third parties, such litigation may be costly and divert the attention of our management from day-to-day operations.

We are subject to environmental and employee safety and health laws and regulations that could cause us to incur significant compliance expenditures and liabilities.

Our operations are subject to federal, state and local laws and regulations pertaining to the environment, storage tanks and the management and disposal of wastes at our facilities. Under various environmental laws, a current or previous owner or operator of real property may be liable for contamination resulting from the release or threatened release of hazardous or toxic substances or petroleum at that property. Such laws often impose liability on the owner or operator without regard to fault, and the costs of any required investigation or cleanup can be substantial. Although in connection with certain of our acquisitions we have rights to indemnification for certain environmental liabilities, these rights may not be sufficient to reimburse us for all losses that we might incur if a property acquired by us has environmental contamination. In addition, although in connection

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with certain of our acquisitions we have obtained insurance policies for coverage for certain potential environmental liabilities, these policies have express exclusions to coverage as well as express limits on amounts of coverage and length of term. Accordingly, these insurance policies may not be sufficient to provide coverage for us for all losses that we might incur if a property acquired by us has environmental contamination.

Our operations are also subject to various employee safety and health laws and regulations, including those pertaining to occupational injury and illness, employee exposure to hazardous materials and employee complaints. Environmental and employee safety and health laws tend to be complex, comprehensive and frequently changing. As a result, we may be involved from time to time in administrative and judicial proceedings and investigations related to environmental and employee safety and health issues. These proceedings and investigations could result in substantial costs to us, divert our management’s attention and adversely affect our ability to sell, lease or develop our real property. Furthermore, if it is determined that we are not in compliance with applicable laws and regulations, or if our properties are contaminated, it could result in significant liabilities, fines or the suspension or interruption of the operations of specific printing facilities.

Future events, such as changes in existing laws and regulations, new laws or regulations or the discovery of conditions not currently known to us, may give rise to additional compliance or remedial costs that could be material.

Our possession and use of personal information and the use of payment cards by our customers present risks and expenses that could harm our business. Unauthorized access to or disclosure or manipulation of such data, whether through breach of our network security or otherwise, could expose us to liabilities and costly litigation and damage our reputation.

Our online systems store and process confidential subscriber and other sensitive data, such as names, email addresses, addresses, and other personal information. Therefore, maintaining our network security is critical. Additionally, we depend on the security of our third-party service providers. Unauthorized use of or inappropriate access to our, or our third-party service providers’ networks, computer systems and services could potentially jeopardize the security of confidential information, including payment card (credit or debit) information, of our customers. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we or our third-party service providers may be unable to anticipate these techniques or to implement adequate preventative measures. Non-technical means, for example, actions by an employee, can also result in a data breach. A party that is able to circumvent our security measures could misappropriate our proprietary information or the information of our customers or users, cause interruption in our operations, or damage our computers or those of our customers or users. As a result of any such breaches, customers or users may assert claims of liability against us and these activities may subject us to legal claims, adversely impact our reputation, and interfere with our ability to provide our products and services, all of which may have an adverse effect on our business, financial condition and results of operations. The coverage and limits of our insurance policies may not be adequate to reimburse us for losses caused by security breaches.

A significant number of our customers authorize us to bill their payment card accounts directly for all amounts charged by us. These customers provide payment card information and other personally identifiable information which, depending on the particular payment plan, may be maintained to facilitate future payment card transactions. Under payment card rules and our contracts with our card processors, if there is a breach of payment card information that we store, we could be liable to the banks that issue the payment cards for their related expenses and penalties. In addition, if we fail to follow payment card industry data security standards, even if there is no compromise of customer information, we could incur significant fines or lose our ability to give our customers the option of using payment cards. If we were unable to accept payment cards, our business would be seriously harmed.

There can be no assurance that any security measures we, or our third-party service providers, take will be effective in preventing a data breach. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. If an actual or perceived breach of our security occurs, the perception of the effectiveness of our security measures could be harmed and we could lose customers or users. Failure to protect confidential customer data or to provide customers with adequate notice of our privacy policies could also subject us to liabilities imposed by United States federal and state regulatory agencies or courts. We could also be subject to evolving state laws that impose data breach notification requirements, specific data security obligations, or other customer privacy-related requirements. Our failure to comply with any of these laws or regulations may have an adverse effect on our business, financial condition and results of operations.

We could incur significant liability if the separation of Legacy Gannett from its former parent were determined to be a taxable transaction.


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In connection with the separation of Legacy Gannett from its former parent, Legacy Gannett’s former parent received an opinion from outside tax counsel to the effect that the requirements for tax-free treatment under Section 355 of the Code would be satisfied. The opinion relied on certain facts, assumptions, representations, and undertakings from Legacy Gannett's former parent and Legacy Gannett regarding the past and future conduct of the companies' respective businesses and other matters. If any of these facts, assumptions, representations, or undertakings were incorrect or not satisfied, we and our stockholders may not be able to rely on the opinion of tax counsel and could be subject to significant tax liabilities. Further, notwithstanding the opinion of tax counsel, the IRS could determine upon audit that the separation is taxable if it determines that any of these facts, assumptions, representations, or undertakings were incorrect or violated, if it disagrees with the conclusions in the opinion, or for other reasons, including as a result of certain significant changes in the share ownership of Legacy Gannett or its former parent after the separation. If the separation were determined to be taxable for U.S. federal income tax purposes, Legacy Gannett’s former parent and its stockholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities, and we could incur significant liabilities.

The Internal Revenue Service may disallow all or part of a worthless stock loss and bad debt deduction.

The IRS could challenge an election made in 2017 to treat one of our ReachLocal international subsidiaries as a disregarded entity for U.S. federal income tax purposes, which resulted in worthless stock and bad debt deductions of $101.0 million, yielding a tax benefit of $32.0 million. These tax deductions are subject to audit and possible adjustment by the IRS, which could result in the reversal of all or part of the income tax benefit. To account for this uncertainty, a reserve of $11.0 million has been established to reduce the benefit to an estimated realizable value of $21.0 million. While we believe this represents our best estimate of the benefit to be realized upon final acceptance of our tax return, the IRS could reject or reduce the amount of tax benefit related to these deductions. If the IRS rejects or reduces the amount of this income tax benefit, we may have to pay additional cash income taxes, which could adversely affect our results of operations, financial condition, and cash flows. We cannot guarantee what the ultimate outcome or amount of the benefit we receive, if any, will be.

We may not be able to generate future taxable income which may prevent our realization of deferred tax assets.

We have substantial deferred tax assets reported on our balance sheet. If we do not have taxable income in future years, we may be required to reestablish a valuation allowance against our federal deferred tax assets.


Risks Related to Pension Obligations and Employees

We are required to use a portion of our cash flows to make contributions to our pension plans, which diverts cash flow from operations, and the amount of required future contributions may be difficult to estimate.

We, along with our subsidiaries, sponsor various defined benefit retirement plans, including plans established under collective bargaining agreements. Our retirement plans include (i) the Gannett Retirement Plan (GRP), (ii) the Gannett 2015 Supplemental Retirement Plan, (iii) the Newsquest Pension Scheme in the U.K., (iv) the Newspaper Guild of Detroit Pension Plan, (v) a supplemental retirement plan we assumed pursuant to our acquisition of JMG, (vi) the George W. Prescott pension plan, and (vii) The Times Publishing Company pension plan.

Our pension plans invest in a variety of equity and debt securities. Future volatility and disruption in the equity and bond markets could cause declines in the asset values of our pension plans. For many of our retirement plans, our pension benefit obligations exceed the value of pension assets. As of December 31, 2019, our retirement plans were underfunded by a total of $116.9 million on a U.S. GAAP basis.

The excess of pension benefit obligations over assets is expected to give rise to required pension contributions over the next several years. We have committed to make quarterly contributions of $5.0 million to the GRP beginning in December 2020 through September 2022. Our ability to make contribution payments will depend on our future cash flows, which are subject to general economic, financial, competitive, business, legislative, regulatory, and other factors beyond our control. Various factors, including future investment returns, interest rates, and potential pension legislative changes, may impact the timing and amount of future pension contributions. In addition, decreases in the discount rate used to determine minimum funding requirements could result in increased future contributions. As a result, we may need to make additional pension contributions above what is currently estimated, which could reduce the cash available for our businesses.

We depend on key personnel and we may not be able to operate or grow our business effectively if we lose the services of any of our key personnel or are unable to attract qualified personnel in the future.


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The success of our business is heavily dependent on our ability to retain our management and other key personnel and to attract and retain qualified personnel in the future. Competition for senior management personnel is intense, and we may not be able to retain our key personnel. Although we have entered into employment agreements with certain of our key personnel, these agreements do not ensure that our key personnel will continue in their present capacity with us for any particular period of time. We do not have key man insurance for any of our current management or other key personnel. The loss of any key personnel would require our remaining key personnel to divert immediate and substantial attention to seeking a replacement. An inability to find a suitable replacement for any departing executive officer on a timely basis could adversely affect our ability to operate or grow our business.

A shortage of skilled or experienced employees in the media industry, or our inability to retain such employees, could pose a risk to achieving improved productivity and reducing costs, which could adversely affect our profitability.

Production and distribution of our various publications requires skilled and experienced employees. A shortage of such employees, or our inability to retain such employees, could have an adverse impact on our productivity and costs, our ability to expand, develop and distribute new products and our entry into new markets. The cost of retaining or hiring such employees could exceed our expectations which could adversely affect our results of operations.

A number of our employees are unionized, and our business and results of operations could be adversely affected if current or additional labor negotiations or contracts were to further restrict our ability to maximize the efficiency of our operations.

As of December 31, 2019, we employed 21,255 employees, of whom 2,807 (or approximately 13%) were represented by seven unions. 51% of the unionized employees are in four states: Michigan, Ohio, Wisconsin and Indiana and represent 15%, 12%, 13% and 11% of all our union employees, respectively.

Although our newspapers have not experienced a union strike in the recent past nor do we anticipate a union strike to occur, we cannot preclude the possibility that a strike may occur at one or more of our newspapers at some point in the future. We believe that, in the event of a newspaper strike, we would be able to continue to publish and deliver to subscribers, which is critical to retaining advertising and circulation revenues, although there can be no assurance of this. Further, settlement of actual or threatened labor disputes or an increase in the number of our employees covered by collective bargaining agreements can have unknown effects on our labor costs, productivity and flexibility.

Sustained increases in costs of employee health and welfare benefits may reduce our profitability.

In recent years, we have experienced significant increases in the cost of employee benefits because of economic factors beyond our control, including increases in health care costs. At least some of these factors may continue to put upward pressure on the cost of providing medical benefits. Although we have actively sought to control increases in these costs, there can be no assurance that we will succeed in limiting cost increases and continued upward pressure could reduce the profitability of our businesses.

Risks Related to Our Manager

The inability of our Manager to retain or obtain key personnel could delay or hinder implementation of our investment strategies, which could impair our ability to make distributions and could reduce the value of your investment.

Our Chief Executive Officer and certain other individuals who perform services for us are employees of our Manager. We are reliant on our Manager, which has significant discretion as to the implementation of our operating policies and strategies, to conduct our business. We are dependent on the services of certain key employees of our Manager whose compensation may be partially or entirely dependent upon the amount of incentive or management compensation earned by our Manager and whose continued service is not guaranteed, and the loss of such services could adversely affect our operations. If any of these people were to cease their affiliation with us or our Manager, either we or our Manager may be unable to find suitable replacements, and our operating results could suffer.

Because we are dependent upon our Manager and its affiliates to conduct our operations, any adverse changes in the financial health of our Manager or its affiliates, or in our relationship with them, could hinder our Manager’s ability to successfully manage our operations.

We are dependent on our Manager and its affiliates to manage our operations and acquire and manage our investments. Under the direction of our Board of Directors, our Manager makes decisions with respect to the management of our company. To

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conduct its operations, our Manager depends upon the fees and other compensation that it receives from us in connection with managing our company and from other entities and investors with respect to investment management services it provides. Any adverse changes in the financial condition of our Manager or its affiliates, or our relationship with our Manager, could hinder our Manager’s ability to successfully manage our operations, which could materially adversely affect our business, results of operations, financial condition and ability to make distributions to our stockholders. For example, adverse changes in the financial condition of our Manager could limit its ability to attract key personnel.

There are conflicts of interest in our relationship with our Manager.

Our Management Agreement with our Manager was not negotiated between unaffiliated parties, and its terms, including fees payable, may not be as favorable to us as if they had been negotiated with an unaffiliated third party.

There are conflicts of interest inherent in our relationship with our Manager insofar as our Manager and its affiliates-including investment funds, private investment funds, or businesses managed by our Manager-invest in media assets and whose investment objectives may overlap with our investment objectives. Certain investments appropriate for us may also be appropriate for one or more of these other investment vehicles. Certain members of our Board of Directors and employees of our Manager, who may also be our officers, also serve as officers and/or directors of these other entities. Although we have the same Manager, we may compete with entities affiliated with our Manager or Fortress for certain target assets. From time to time, affiliates of Fortress may focus on investments in assets with a similar profile as our target assets that we may seek to acquire. These affiliates may have meaningful purchasing capacity, which may change over time depending upon a variety of factors, including, but not limited to, available equity capital and debt financing, market conditions and cash on hand. In addition, with respect to Fortress funds in the process of selling investments, our Manager may be incentivized to regard the sale of such assets to us positively, particularly if a sale to an unrelated third party would result in a loss of fees to our Manager.

Our Management Agreement with our Manager does not prevent our Manager or any of its affiliates, or any of their officers and employees, from engaging in other businesses or from rendering services of any kind to any other person or entity, including investment in, or advisory service to others investing in, any type of media or media related investment, including investments that meet our principal investment objectives. Our Manager may engage in additional investment opportunities related to media assets in the future, which may cause our Manager to compete with us for investments or result in a change in our current investment strategy. In addition, our certificate of incorporation provides that if Fortress or an affiliate or any of their officers, directors or employees acquire knowledge of a potential transaction or matter that may be a corporate opportunity, they have no duty, to the fullest extent permitted by law, to offer such corporate opportunity to us, our stockholders or our affiliates. In the event that any of our directors and officers who is also a director, officer or employee of Fortress or its affiliates acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as a director or officer of ours and such person acts in good faith, then to the fullest extent permitted by law such person is deemed to have fully satisfied such person’s fiduciary duties owed to us and is not liable to us if Fortress or its affiliates pursues or acquires the corporate opportunity or if such person did not present the corporate opportunity to us.

The ability of our Manager and its officers and employees to engage in other business activities, subject to the terms of our Management Agreement with our Manager, may reduce the amount of time that our Manager, its officers or other employees spend managing us. In addition, we may engage in material transactions with our Manager or another entity managed by our Manager or one of its affiliates, which may present an actual, potential or perceived conflict of interest. It is possible that actual, potential or perceived conflicts could give rise to investor dissatisfaction, litigation or regulatory enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult, and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential, actual or perceived conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially adversely affect our business in a number of ways, including causing an inability to raise additional funds, a reluctance of counterparties to do business with us, a decrease in the prices of our equity securities and a resulting increased risk of litigation and regulatory enforcement actions.

The management compensation structure that we have agreed to with our Manager, as well as compensation arrangements that we may enter into with our Manager in the future (in connection with new lines of business or other activities), may incentivize our Manager to invest in high risk investments. In addition to its management fee, our Manager is currently entitled to receive incentive compensation. In evaluating investments and other management strategies, the opportunity to earn incentive compensation may lead our Manager to place undue emphasis on the maximization of such measures at the expense of other criteria, such as preservation of capital, in order to achieve higher incentive compensation. Investments with higher yield potential are generally riskier or more speculative than lower-yielding investments.


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Our Board of Directors does not approve each investment decision made by our Manager. In addition, we may change our investment strategy without a stockholder vote, which may result in our making investments that are different, riskier or less profitable than our current investments.

Our Manager has great latitude in determining the types and categories of assets it may decide are proper investments for us, including the latitude to invest in types and categories of assets that may differ from those in which we currently invest. Our Board of Directors periodically reviews our investment portfolio. However, our Board of Directors does not review or pre-approve each proposed investment or our related financing arrangements. In addition, in conducting periodic reviews, our Board of Directors relies primarily on information provided to them by our Manager. Furthermore, transactions entered into by our Manager may be difficult or impossible to unwind by the time they are reviewed by our Board of Directors even if the transactions contravene the terms of the Management Agreement. In addition, we may change our investment strategy, including our target asset classes, without a stockholder vote.

Our investment strategy may evolve in light of existing market conditions and investment opportunities, and this evolution may involve additional risks depending upon the nature of the assets in which we invest and our ability to finance such assets on a short- or long-term basis. Investment opportunities that present unattractive risk-return profiles relative to other available investment opportunities under particular market conditions may become relatively attractive under changed market conditions, and changes in market conditions may therefore result in changes in the investments we target. Decisions to make investments in new asset categories present risks that may be difficult for us to adequately assess and could therefore reduce our ability to pay dividends on our Common Stock or have adverse effects on our liquidity or financial condition. A change in our investment strategy may also increase our exposure to interest rate, real estate market or credit market fluctuations. In addition, a change in our investment strategy may increase the guarantee obligations we agree to incur or increase the number of transactions we enter into with affiliates. Our failure to accurately assess the risks inherent in new asset categories or the financing risks associated with such assets could adversely affect our results of operations and our financial condition.

Our Manager will not be liable to us for any acts or omissions performed in accordance with the Management Agreement, including with respect to the performance of our investments.

Pursuant to our Management Agreement, our Manager assumes no responsibility other than to render the services called for thereunder in good faith and shall not be responsible for any action of our Board of Directors in following or declining to follow its advice or recommendations. Our Manager, its members, managers, officers and employees will not be liable to us or any of our subsidiaries, to our Board of Directors, or our or any subsidiary’s stockholders or partners for any acts or omissions by our Manager, its members, managers, officers or employees, except by reason of acts constituting bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement. We shall, to the full extent lawful, reimburse, indemnify and hold our Manager, its members, managers, officers and employees, and each other person, if any, controlling our Manager, harmless of and from any and all expenses, losses, damages, liabilities, demands, charges and claims of any nature whatsoever (including attorneys’ fees) in respect of or arising from any acts or omissions of an indemnified party made in good faith in the performance of our Manager’s duties under our Management Agreement and not constituting such indemnified party’s bad faith, willful misconduct, gross negligence or reckless disregard of our Manager’s duties under our Management Agreement.

Our Manager’s due diligence of investment opportunities or other transactions may not identify all pertinent risks, which could materially affect our business, financial condition, liquidity and results of operations.

Our Manager intends to conduct due diligence with respect to each investment opportunity or other transaction it pursues. It is possible, however, that our Manager’s due diligence processes will not uncover all relevant facts, particularly with respect to any assets we acquire from third parties. In these cases, our Manager may be given limited access to information about the investment and will rely on information provided by the target of the investment. In addition, if investment opportunities are scarce, the process for selecting bidders is competitive, or the timeframe in which we are required to complete diligence is short, our ability to conduct a due diligence investigation may be limited, and we would be required to make investment decisions based upon a less thorough diligence process than would otherwise be the case. Accordingly, investments and other transactions that initially appear to be viable may prove not to be over time, due to the limitations of the due diligence process or other factors.

Risks Related to our Common Stock

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


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The market price of our Common Stock may fluctuate widely, depending upon many factors, some of which may be beyond our control. These factors include, without limitation:

Risks and uncertainties associated with the ongoing COVID-19 pandemic;
Our business profile and market capitalization may not fit the investment objectives of any stockholder;
A shift in our investor base;
Our quarterly or annual earnings, or those of other comparable companies;
Actual or anticipated fluctuations in our operating results;
Changes in accounting standards, policies, guidance, interpretations or principles;
Risks relating to our ability to meet long-term forecasts;
Announcements by us or our competitors of significant investments, acquisitions or dispositions;
The failure of securities analysts to cover our Common Stock;
Changes in earnings estimates by securities analysts or our ability to meet those estimates;
The operating and stock price performance of other comparable companies;
Negative public perception of us, our competitors, or industry;
Overall market fluctuations; and
General economic conditions.

Stock markets in general and recently have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our Common Stock. Additionally, these and other external factors have caused and may continue to cause the market price and demand for our Common Stock to fluctuate, which may limit or prevent investors from readily selling their shares of Common Stock and may otherwise negatively affect the liquidity of our Common Stock.

Our Common Stock may be delisted from the NYSE if we fail to comply with continued listing standards.

Our Common Stock currently trades on the New York Stock Exchange (“NYSE”), and the continued listing of our Common Stock on the NYSE is subject to our compliance with a number of listing standards, including minimum share price requirements. If we fall out of compliance with NYSE’s listing standards and fail to regain compliance within the applicable cure periods, our Common Stock may be delisted from the NYSE. Failure to maintain our NYSE listing could negatively impact us and our stockholders by reducing the willingness of investors to hold our Common Stock because of the resulting decreased price, liquidity and trading of our Common Stock, and analyst coverage, among others.

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

Sales or issuances of substantial amounts of shares of our Common Stock in the public market, or the perception that such sales or issuances might occur, could adversely affect the market price of our Common Stock. The issuance of our Common Stock in connection with property, portfolio or business acquisitions or the settlement of awards that may be granted under our Incentive Plans (as defined below) or otherwise could also have an adverse effect on the market price of our Common Stock.

We have suspended our quarterly dividend and may not be able to pay dividends in the future or at all.

On April 1, 2020, we announced that our Board of Directors determined that it is in the best interests of our stockholders for the Company to preserve liquidity by suspending our quarterly dividend. Although we expect to reinstate the dividend when appropriate, subject to approval by our Board of Directors and restrictions in our credit facility, there can be no assurance if or when we will resume paying dividends on a regular basis.

Under our credit facility, we can only pay cash dividends up to an agreed-upon amount and provided that the ratio of consolidated debt to EBITDA (as such terms are defined in the credit facility) does not exceed a specified ratio. Stockholders also should be aware that they have no contractual or other legal right to dividends that have not been declared.

Our Board of Directors’ determinations regarding dividends will depend on a variety of factors, including the Company’s GAAP net income, free cash flow generated from operations or other sources, liquidity position and potential alternative uses of cash, such as acquisitions, as well as economic conditions and expected future financial results. There can be no guarantee regarding the timing and amount of any dividends. Our ability to resume payment of dividends in the future will depend on our future financial performance, which in turn depends on the successful implementation of our strategy and on financial, competitive, regulatory, technical and other factors, general economic conditions, demand and selling prices for our products and other factors specific to our industry or specific projects, many of which are beyond our control. Therefore, our ability to

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generate free cash flow depends on the performance of our operations and could be limited by decreases in our profitability or increases in costs, capital expenditures, or debt servicing requirements.

The percentage ownership of our existing stockholders may be diluted in the future.

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

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest in our company may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt and equity financings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as redeeming our shares, making investments, incurring additional debt, making capital expenditures, declaring dividends or placing limitations on our ability to acquire, sell or license intellectual property rights.

The percentage ownership of our existing stockholders may also be diluted in the future as result of the issuance of ordinary shares in Gannett upon the exercise of 10-year warrants (the “Gannett Warrants”). The Gannett Warrants collectively represent the right to acquire our Common Stock, which in the aggregate are equal to 5% of our Common Stock outstanding as of November 26, 2013 (calculated prior to dilution from shares of our Common Stock issued pursuant to Drive Shack Inc.'s (formerly known as Newcastle Investment Corp.) contribution of Local Media Group Holdings LLC and assignment of related stock purchase agreement to Gannett (the “Local Media Contribution”)) at a strike price of 46.35 calculated based on a total equity value of Gannett prior to the Local Media Contribution of $1.2 billion as of November 26, 2013. As a result, our Common Stock may be subject to dilution upon the exercise of such Gannett Warrants. As of December 31, 2019, the Gannett Warrants were equal to 1% of our Common Stock outstanding as of December 31, 2019 at a strike price of 46.35.

Furthermore, the percentage ownership in Gannett may be diluted in the future because of options issued to our Manager. As of June 30, 2020, there were 6,068,075 options outstanding at a weighted average exercise price of $13.97 held by our Manager and/or its affiliates.

Dilution may also result from the issuances of shares under our equity compensation plans (our "Incentive Plans"), which provide for the grant of equity and equity-based awards, including restricted stock, stock options, stock appreciation rights, performance awards, and other equity-based and non-equity based awards, in each case to our directors, officers, employees, among others. As of December 31, 2019, the number of shares remaining available for future issuance under our Incentive Plans, excluding shares to be issued upon exercise of outstanding options, warrants and rights, was 15.7 million.

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

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

Amendment of provisions in our amended and restated certificate of incorporation and amended and restated bylaws regarding the election of directors, the term of office of directors, the filling of director vacancies and the resignation and removal of directors only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon;
Amendment of provisions in our amended and restated certificate of incorporation regarding corporate opportunity only upon the affirmative vote of at least 80% of the then issued and outstanding shares of our capital stock entitled to vote thereon;
Removal of directors only for cause and only with the affirmative vote of at least 80% of the voting interest of stockholders entitled to vote in the election of directors;
Our Board to determine the powers, preferences and rights of our preferred stock and to issue such preferred stock without stockholder approval;
Provisions in our amended and restated certificate of incorporation and amended and restated bylaws prevent stockholders from calling special meetings of our stockholders;
Advance notice requirements applicable to stockholders for director nominations and actions to be taken at annual meetings;

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A prohibition, in our amended and restated certificate of incorporation, stating that no holder of shares of our Common Stock will have cumulative voting rights in the election of directors, which means that the holders of majority of the issued and outstanding shares of our Common Stock can elect all the directors standing for election; and
Action by our stockholders outside a meeting, in our amended and restated certificate of incorporation and our amended and restated bylaws, only by unanimous written consent.

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

Future offerings of debt securities, which would rank senior to our common stock upon our liquidation, and future offerings of equity securities, may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.

We may raise additional capital through the issuance of debt or equity securities (including preferred stock) from time to time. Upon liquidation, holders of our debt securities and preferred stock and lenders with respect to other borrowings (including the lenders under our existing senior secured credit facility) will be entitled to our available assets prior to the holders of our common stock. Preferred stock could have a preference on liquidating distributions or a preference on dividend payments that could limit our ability to pay dividends to the holders of our common stock. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in us.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

This item is not applicable.

Item 3. Defaults Upon Senior Securities

This item is not applicable.

Item 4. Mine Safety Disclosures

This item is not applicable.

Item 5. Other Information

This item is not applicable.



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Item 6. Exhibits

3.1 Certificate of Designation of Series A Junior Participating Preferred Stock of Gannett Co., Inc. Incorporated by reference to Exhibit 3.1 to Gannett’s Current Report on Form 8-K, filed April 7, 2020.
     
4.1 
Section 382 Rights Agreement, dated as of April 6, 2020, by and between Gannett Co., Inc. and American Stock Transfer & Trust Company LLC, as Rights Agent.

 
Incorporated by reference to Exhibit 4.1 to Gannett’s Current Report on Form 8-K, filed April 7, 2020.

     
10.1 Offer Letter Agreement, dated March 25, 2020, by and between Gannett Co., Inc. and Douglas E. Horne. Incorporated by reference to Exhibit 10.1 to Gannett’s Current Report on Form 8-K, filed April 6, 2020.
     
10.2 Amendment No. 2, dated as of April 6, 2020, to the Credit Agreement, dated as of November 19, 2019, by and among Gannett Co., Inc., Gannett Holdings LLC, each person listed as a guarantor on the signature pages thereto, the lenders from time to time party thereto and Cortland Capital Market Services LLC, as collateral agent and administrative agent. 
Incorporated by reference to Exhibit 10.4 to Gannett’s Quarterly Report on Form 10-Q, filed May 7, 2020.

     
31.1 Rule 13a-14(a) Certification of CEO 
     
31.2 Rule 13a-14(a) Certification of CFO 
     
32.1 Section 1350 Certification of CEO 
     
32.2 Section 1350 Certification of CFO 
     
101 The following financial information from Gannett Co., Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Operations and Comprehensive Income; (iii) Condensed Consolidated Statements of Cash Flow; (iv) Condensed Consolidated Statements of Equity; and (v) Notes to Condensed Consolidated Financial Statements Attached.
     
104 Cover Page Interactive Data File (formatted as Inline XBRL and embedded within the Inline XBRL document) Attached.



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 6, 2020GANNETT CO., INC.
  
 /s/ Douglas E. Horne
 Douglas E. Horne
 Chief Financial Officer
 (on behalf of Registrant and as Principal Financial Officer)


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