NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — Description of business, basis of presentation, and summary of significant accounting policies
Description of Business
Gannett Co., Inc. ("Gannett", "we", "us", "our", or the "Company") is a subscription-led and digitally focused media and marketing solutions company committed to empowering communities to thrive. We aim to be the premiere source for clarity, connections and solutions within our communities. Our strategy is focused on driving audience growth and engagement by delivering deeper content experiences to our consumers, while offering the products and marketing expertise our advertisers desire. The execution of this strategy is expected to allow the Company to continue its evolution from a more traditional print media business to a digitally focused content platform.
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 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 2019 represents legacy New Media’s results up to and through the date of the acquisition plus the new consolidated company’s results of operations for the approximately six-week period between the date of acquisition and the 2019 fiscal year end.
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 120 local news media brands. Gannett also owns the digital marketing services companies ReachLocal, Inc. ("ReachLocal"), UpCurve, Inc. ("UpCurve"), and WordStream, Inc. ("WordStream"), which are marketed under the LOCALiQ brand, and runs the largest media-owned events business in the U.S., USA TODAY NETWORK Ventures.
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 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 Digital Marketing Solutions ("DMS"), plus a corporate and other category. A full description of our segments is included in Note 14 — Segment reporting.
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 year ended December 31, 2020, the Company experienced additional revenue and profitability declines in connection with the COVID-19 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 pandemic had a significant negative impact on the Company's business and results of operations during the year ended December 31, 2020. 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 refinancing our debt to reduce costs, suspension of the quarterly dividend, and decreases in employee compensation through the third quarter, as well as reductions in discretionary spending. In addition, the Company has deferred certain payroll tax remittance as permitted under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") and negotiated the deferral of pension contributions, as well as continuing with its previously disclosed plan to monetize non-core assets. The Company believes these initiatives, along with cash on hand and cash provided by operating activities, will provide sufficient cash flow to enable the Company to meet its commitments. However, these measures are not expected to fully offset the negative impact of the COVID-19 pandemic on the Company's business and results of operations.
Basis of presentation
The consolidated financial statements include all the assets, liabilities, revenues, expenses and cash flows of entities which Gannett controls due to ownership of a majority voting interest ("subsidiaries"). All significant intercompany accounts and transactions between consolidated entities have been eliminated in consolidation.
Use of estimates: The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates and judgments inherent in the preparation of the consolidated financial statements include pension and postretirement benefit obligation assumptions, income taxes, goodwill and intangible asset impairment analysis, valuation of property, plant and equipment and the mark to market of the conversion feature associated with debt.
Fiscal year: 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.
Reclassifications: Certain amounts in prior period consolidated financial statements have been reclassified to conform to the current year presentation. Pursuant to our acquisition of Legacy Gannett, in the fourth quarter of 2019 we realigned the presentation of marketing services revenues generated by our UpCurve subsidiary from Other revenues to Advertising and marketing services revenues on the 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 $58.2 million for the year ended December 30, 2018. Operating revenues, net income, retained earnings, and earnings per share remained unchanged. We also realigned the presentation of facility consolidation charges incurred by New Media to reflect the disclosure methodology of the combined Company. As a result of this updated presentation, Selling, general and administrative expenses decreased and Integration and reorganization costs increased by $4.8 million. Net income, retained earnings, and earnings per share remained unchanged.
Summary of Significant Accounting Policies
Cash, cash equivalents and 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, cash held in an irrevocable grantor trust for our deferred compensation plans and cash held with banking institutions for insurance plans.
The following table presents a reconciliation of cash, cash equivalents and restricted cash:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
2020
|
|
2019
|
|
2018
|
Cash and cash equivalents
|
$
|
170,725
|
|
|
$
|
156,042
|
|
|
$
|
48,651
|
|
Restricted cash included in prepaid expenses and other current assets
|
11,356
|
|
|
10,800
|
|
|
4,119
|
|
Restricted cash included in other assets
|
24,645
|
|
|
21,822
|
|
|
—
|
|
Total cash, cash equivalents and restricted cash
|
$
|
206,726
|
|
|
$
|
188,664
|
|
|
$
|
52,770
|
|
Accounts receivable: Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts. The Company’s allowance for doubtful accounts is based upon several factors including the length of time the receivables are past due, historical payment trends and current economic factors. The Company generally does not require collateral.
Inventories: Inventory consists principally of newsprint, which is valued at the lower of net realizable value. Cost is determined using the first-in, first-out ("FIFO") method.
Property, plant, and equipment, software development costs and depreciation: Property, plant, and equipment are recorded at cost or at fair value for property, plant and equipment related to acquired businesses. Routine maintenance and repairs are expensed as incurred. Depreciation is calculated under the straight-line method over the estimated useful lives.
Leasehold improvements are amortized under the straight-line method over the shorter of the lease term or estimated useful life of the asset.
We capitalize costs to develop software for internal use when it is determined the development efforts will result in new or additional functionality or new products. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and included in Operating costs in the accompanying Consolidated statements of operations and comprehensive income (loss).
Property, plant and equipment and software development costs are evaluated for impairment in accordance with our policy for amortizable intangible assets and other long-lived assets.
A breakout of property, plant and equipment and software is presented below:
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|
|
|
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Year ended December 31,
|
In thousands
|
2020
|
|
2019
|
Useful Life
(Up to)
|
Land
|
$
|
74,549
|
|
|
$
|
105,805
|
|
|
Buildings and improvements
|
348,591
|
|
|
416,537
|
|
40 years
|
Machinery and equipment
|
426,348
|
|
|
474,418
|
|
30 years
|
Furniture, fixtures and computer software(a)
|
96,739
|
|
|
82,651
|
|
10 years
|
Construction in progress
|
6,074
|
|
|
13,687
|
|
|
Total
|
952,301
|
|
|
1,093,098
|
|
|
Less: accumulated depreciation
|
(362,029)
|
|
|
(277,291)
|
|
|
Property, plant and equipment, net
|
$
|
590,272
|
|
|
$
|
815,807
|
|
|
(a)Costs capitalized as internal use software are amortized on a straight-line basis over an estimated useful life of 3 to 5 years.
Depreciation expense was $155.3 million, $67.2 million, and $50.8 million for the years ended December 31, 2020, December 31, 2019, and December 30, 2018, respectively.
Business combinations: The operating results of the acquired business are reflected in the Company’s consolidated financial statements as of the acquisition date. We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. Any excess of the purchase price over the estimated fair values of net assets acquired is recorded as goodwill. Goodwill is assigned to the reporting unit that benefits from the synergies arising from the business combination. When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets. Transaction costs are expensed as incurred.
Critical estimates in valuing certain identifiable assets include, but are not limited to, expected long-term revenues, future expected operating expenses, cost of capital, and appropriate discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
Goodwill, intangible and long-lived assets: Goodwill represents the excess of acquisition cost over the fair value of assets acquired, including identifiable intangible assets, net of liabilities assumed. Indefinite-lived intangible assets consist of newspaper mastheads and finite-lived intangible assets consist of advertiser, customer and subscriber relationships, we well as trade names, and developed technology. Newspaper mastheads are not amortized because it has been determined that the useful lives of such mastheads are indefinite. Intangible assets that have finite useful lives are amortized over those useful lives.
Goodwill is tested for impairment annually on the last day of our second quarter or between annual tests if events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We perform our impairment analysis on each of our reporting units. We evaluate our reporting units annually, as well as when changes in our operating structure occur. The Company has the option to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company elects to perform a qualitative assessment and concludes it is more likely than not that the fair value of the reporting unit is equal to or greater than its carrying value, no further assessment of that reporting unit’s goodwill is necessary; otherwise goodwill must be tested for impairment. In the quantitative test, we are required to determine the fair value of each reporting unit and compare it to the carrying amount of the reporting unit. Fair value of the reporting unit is defined as the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. The Company generally determines the fair value of a
reporting unit using a combination of a discounted cash flow analysis and a market-based approach. Estimates of fair value include inputs that are subjective in nature, involve uncertainties, and involve matters of significant judgment that are made at a specific point in time. Changes in key assumptions from period to period could significantly affect the estimates of fair value. Significant assumptions used in the fair value estimates include projected revenues and related growth rates over time, projected operating cash flow margins, discount rates, and future economic and market conditions. If the carrying value of the reporting unit exceeds the estimate of fair value, we calculate the impairment as the excess of the carrying value of goodwill over its implied fair value.
Indefinite-lived intangible assets, which are newspaper mastheads, are tested for impairment annually on the last day of our second quarter or more frequently if events or changes in circumstances indicate the asset might be impaired. The impairment test consists of a comparison of the fair value of each group of mastheads with their carrying amount. We used a relief from royalty approach which utilizes a discounted cash flow model to determine the fair value of newspaper mastheads. Our judgments and estimates of future operating results in determining the reporting unit fair values are consistently applied in determining the fair value of mastheads.
The Company assesses the recoverability of its long-lived assets, including property, plant and equipment and finite-lived intangible assets, whenever events or changes in circumstances indicate their carrying amounts may not be recoverable. The evaluation is performed by asset group, which is the lowest level of identifiable cash flows independent of other assets. The assessment of recoverability is based on management’s estimates by comparing the sum of the estimated undiscounted cash flows generated by the underlying asset groups to its carrying value of the asset groups to determine whether an impairment existed at its lowest level of identifiable cash flows. If the carrying amount of the asset group is greater than the expected undiscounted cash flows to be generated by the asset group, an impairment is recognized to the extent the carrying value of such asset group exceeds its fair value.
All three of our reporting units have goodwill balances. See Note 6 — Goodwill and intangible assets for a discussion of impairment charges taken on Goodwill in the second fiscal quarter of 2020. We have not subsequently identified any indicators of impairment that would indicate our reporting units are at risk of failing the goodwill or indefinite-lived intangible asset impairment test.
Income taxes: Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company establishes a valuation allowance if it is more likely than not that all or a portion of a deferred tax asset will not be realized. See Note 11 — Income taxes for further discussion.
We also evaluate any uncertain tax positions and recognize a liability for the tax benefit associated with an uncertain tax position if it is more likely than not that the tax position will not be sustained on examination by the taxing authorities upon consideration of the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We record a liability for uncertain tax positions taken or expected to be taken in a tax return. Any change in judgment related to the expected ultimate resolution of uncertain tax positions is recognized in earnings in the period in which such change occurs.
Fair value of financial instruments: The carrying value of the Company’s cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to the short maturity of these instruments. An estimate of the fair value of the Company’s debt and embedded conversion option is disclosed in Note 8 — Debt. For further details surrounding our policies on fair value measurement, including the fair values of our pension plan assets, refer to Note 10 — Fair value measurement.
Deferred financing costs: Deferred financing costs consist of costs incurred in connection with debt financings and are recorded as a contra-liability in Long-term debt on the Consolidated balance sheets. Such costs are amortized using the effective interest method over the estimated remaining term of the debt. This amortization represents a component of Interest expense.
Advertising costs: Advertising costs are expensed in the period incurred. The Company incurred total advertising expenses for the years ended December 31, 2020, December 31, 2019, and December 30, 2018 of $50.0 million, $26.8 million, and $18.2 million, respectively.
Pension and postretirement liabilities: Pension and other postretirement benefit costs under our defined benefit retirement plans are actuarially determined. For plans with frozen benefits, we recognize the cost of postretirement benefits such as pension, medical, and life insurance benefits on an accrual basis over the average life expectancy of employees expected to receive such benefits. For active plans, costs are recognized over the estimated average future service period. See Note 9 — Pensions and other postretirement benefit plans for further details.
Self-insurance liability accruals: The Company maintains self-insured medical and workers’ compensation programs. The Company purchases stop loss coverage from third parties, which limits our exposure to large claims. The Company records a liability for healthcare and workers’ compensation costs during the period in which they occur, including an estimate of incurred but not reported claims.
Concentration of risk: Due to the distributed nature of our operations, we are not subject to significant concentrations of risk relating to customers, products, or geographic locations. Our foreign revenues, principally from businesses in the U.K. and ReachLocal international operations, totaled approximately $231.5 million for the year ended December 31, 2020. Our long-lived assets in foreign countries, principally in the U.K. and ReachLocal international operations, totaled approximately $280.1 million at December 31, 2020.
Leases: We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease assets, Other current liabilities, and Long-term operating lease liabilities on our Consolidated balance sheets. Operating lease right-of-use ("ROU") assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The rates implicit within the Company's leases are generally not determinable; therefore, the Company uses judgment to determine the incremental borrowing rate used to calculate the present value of lease payments. The incremental borrowing rate for each lease is primarily based on publicly available information for companies within the same industry and with similar credit profiles and adjusted for the impact of collateralization, the lease term, and other specific terms included in the Company’s lease arrangements. ROU assets are assessed for impairment in accordance with the Company’s accounting policy for long-lived assets.
Our lease terms include options to extend or terminate. The period which is subject to an option to extend the lease is included in the lease term if it is reasonably certain that the option will be exercised. The period which is subject to an option to terminate the lease is included if it is reasonably certain that the option will not be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
For certain equipment leases, we apply a portfolio approach to account for the operating lease ROU assets and liabilities.
Accounts payable and accrued liabilities: A breakout is presented below:
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|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
2020
|
|
2019
|
Accounts payable
|
$
|
131,797
|
|
|
$
|
146,995
|
|
Compensation
|
115,061
|
|
|
131,006
|
|
Taxes (primarily property and sales taxes)
|
30,834
|
|
|
18,073
|
|
Benefits
|
22,821
|
|
|
33,070
|
|
Interest
|
3,676
|
|
|
23,602
|
|
Other
|
74,057
|
|
|
100,882
|
|
Accounts payable and accrued liabilities
|
$
|
378,246
|
|
|
$
|
453,628
|
|
Loss contingencies: We are subject to various legal proceedings, claims, and regulatory matters, the outcomes of which are subject to significant uncertainty. We determine whether to disclose or accrue for loss contingencies based on an assessment of whether the risk of loss is remote, reasonably possible, or probable and whether it can be reasonably estimated. We accrue for loss contingencies when such amounts are probable and reasonably estimable. If a contingent liability is only reasonably possible, we will disclose the potential range of the loss if material and estimable.
Foreign currency translation: The statements of income of foreign operations have been translated to U.S. dollars using the average currency exchange rates in effect during the relevant period. The balance sheets have been translated using the currency exchange rates as of the end of the accounting period. The impact of currency exchange rate changes on the translation of the balance sheets are included in Comprehensive income (loss) in the Consolidated statements of operations and
comprehensive income (loss) and are classified as Accumulated other comprehensive income in the Consolidated balance sheets and Consolidated statements of equity.
Supplementary cash flow information: Supplementary cash flow information, including non-cash investing and financing activities, are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Net cash (refund) paid for taxes
|
$
|
(3,964)
|
|
|
$
|
1,192
|
|
|
$
|
1,272
|
|
Cash paid for interest
|
218,110
|
|
|
40,208
|
|
|
31,178
|
|
Accrued capital expenditures
|
544
|
|
|
2,227
|
|
|
69
|
|
Common stock issued in exchange for Legacy Gannett shares
|
—
|
|
|
391,809
|
|
|
—
|
|
Recent accounting pronouncements adopted
The following are new accounting pronouncements which we have adopted in fiscal year 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.
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.
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 ending after December 15, 2020, with early adoption permitted. Adopting this guidance did not have a material impact on our Consolidated financial statements.
Recent accounting pronouncements not yet adopted
The following are new accounting pronouncements that we are evaluating for future impacts on our financial position:
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.
Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity: In August 2020, the FASB issued new guidance that simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. In addition to eliminating certain accounting models, the guidance amends the disclosures for convertible instruments and earnings-per-share ("EPS") guidance. It also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. This guidance is effective for fiscal years beginning after December 15, 2023, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are evaluating the impacts that the adoption of ASU 2020-06 will have on our accounting for the 2027 Notes, and the impact on our Consolidated financial statements. See Note 8 — Debt for further discussion of the 2027 Notes.
NOTE 2 — Revenues
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.
The following table presents our revenues disaggregated by source.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Print advertising
|
$
|
901,805
|
|
|
$
|
689,595
|
|
|
$
|
625,065
|
|
Digital advertising and marketing services
|
808,439
|
|
|
263,049
|
|
|
161,512
|
|
Total advertising and marketing services
|
1,710,244
|
|
|
952,644
|
|
|
786,577
|
|
Circulation
|
1,391,996
|
|
|
704,842
|
|
|
574,963
|
|
Other
|
303,430
|
|
|
210,423
|
|
|
164,484
|
|
Total revenues
|
$
|
3,405,670
|
|
|
$
|
1,867,909
|
|
|
$
|
1,526,024
|
|
Revenues generated from international operations comprised 6.8% for the year ended December 31, 2020, and 2.0% for the year ended December 31, 2019, which consisted of approximately six weeks of operations from Legacy Gannett.
Advertising and Marketing Services Revenues
The Company generates Print advertising revenues primarily by delivering advertising in its national publication, USA TODAY, and in its local publications including newspapers. Advertising revenues are categorized as local retail, local classified, online, and national. Print advertising revenue is recognized upon publication of the advertisement.
Digital advertising and marketing revenues are generated primarily by online marketing products provided by our DMS segment. The Company enters into agreements for products in which our clients typically pay in advance and on a monthly basis. These prepayments include all charges for the included technology and any media services, management, third-party content, and other costs and fees, all of which are accounted for as a single performance obligation. Revenue is then recognized as we purchase and deliver media on behalf of the customer and perform other marketing-related services.
For our Advertising and marketing services revenues, we evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis) by performing analyses regarding whether we control the provision of specified goods or services before they are transferred to our customers. We report Advertising and marketing services revenues gross when we control advertising inventory before it is transferred to the customer. Our control is evidenced by us being primarily responsible or sharing responsibility for the fulfillment of services and maintaining control over transaction pricing. We recognize revenue when the performance obligation is satisfied.
Circulation Revenues
Circulation revenues are derived from print and digital subscriptions as well as single copy sales at retail stores, vending racks and boxes. Circulation revenues from subscribers are generally billed to customers at the beginning of the subscription period and are typically recognized over the subscription period as the performance obligations are delivered. The term of customer subscriptions normally ranges from one to twelve months. Circulation revenues from single-copy income are recognized based on the date of publication, net of provisions for related returns.
Other Revenues
The Company provides commercial printing services to third parties as a means to generate incremental revenue and utilize excess printing capacity. Customers consist primarily of other publishers that do not have their own printing presses and do not compete with other Gannett publications. The Company also prints other commercial materials, including flyers, business cards and invitations. Revenue is generally recognized upon delivery. In addition, the Company generates revenues from its events and promotions business. Revenues are generated primarily through ticket sales, endurance events and race management services. Revenue is generally recognized when the event occurs.
Practical Expedients and Exemptions
The Company expenses sales commissions or other costs to obtain contracts when incurred because the amortization period is generally one year or less. These costs are recorded within Selling, general and administrative expenses.
The Company does not disclose unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which the Company has the right to invoice for services performed.
Deferred revenues
The Company records deferred revenues when cash payments are received in advance of the Company’s performance. The Company's primary source of Deferred revenues is from circulation subscriptions paid in advance of the service provided, which represents future delivery of publications performance obligation to subscription customers. The Company expects to recognize the revenue related to unsatisfied performance obligations over the next one 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. The majority of our subscription customers are billed and pay on monthly terms.
The following table presents the change in the Deferred revenues by type of revenue for years ended December 31, 2020 and 2019, respectively:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020
|
|
Year ended December 31, 2019
|
In thousands
|
Advertising, Marketing Services and Other
|
|
Circulation
|
|
Total
|
|
Advertising, Marketing Services and Other
|
|
Circulation
|
|
Total
|
Beginning balance
|
$
|
67,444
|
|
|
$
|
151,379
|
|
|
$
|
218,823
|
|
|
$
|
22,542
|
|
|
$
|
82,645
|
|
|
$
|
105,187
|
|
Acquired deferred revenue
|
—
|
|
|
—
|
|
|
—
|
|
|
42,369
|
|
|
95,341
|
|
|
137,710
|
|
Cash receipts
|
278,131
|
|
|
1,159,831
|
|
|
1,437,962
|
|
|
128,504
|
|
|
529,004
|
|
|
657,508
|
|
Revenue recognized
|
(287,903)
|
|
|
(1,170,300)
|
|
|
(1,458,203)
|
|
|
(125,971)
|
|
|
(555,611)
|
|
|
(681,582)
|
|
Reduction due to dispositions
|
$
|
(5,986)
|
|
|
$
|
(6,589)
|
|
|
(12,575)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
|
Ending balance
|
$
|
51,686
|
|
|
$
|
134,321
|
|
|
$
|
186,007
|
|
|
$
|
67,444
|
|
|
$
|
151,379
|
|
|
$
|
218,823
|
|
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 December 31, 2020, our Consolidated balance sheets include $289.5 million of operating lease right-to use assets, $42.9 million of short-term operating lease liabilities included in Other current liabilities, and $274.5 million of long-term operating lease liabilities.
The components of operating lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands
|
2020
|
|
2019
|
Operating lease cost (a)
|
$
|
96,218
|
|
|
$
|
38,985
|
|
Short-term lease cost (b)
|
5,663
|
|
|
5,086
|
|
Total lease expense
|
$
|
101,881
|
|
|
$
|
44,071
|
|
(a) Includes variable lease costs of $12.8 million and $8.4 million, respectively, and sublease income of $3.8 million and $2.5 million, respectively, for the year ended December 31, 2020 and 2019.
(b) Excluding expenses relating to leases with a lease term of one month or less.
Supplemental information related to leases were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
In thousands, except lease term and discount rate
|
2020
|
|
2019
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
$
|
86,999
|
|
$
|
35,837
|
Right-of-use assets obtained in exchange for operating lease obligations
|
36,247
|
|
28,545
|
|
|
|
|
Loss on sale and leaseback transactions, net
|
3,821
|
|
—
|
|
|
|
|
|
Weighted-average remaining lease term (in years)
|
7.7
|
|
8.3
|
Weighted-average discount rate
|
12.9
|
%
|
|
12.4
|
%
|
Future minimum lease payments under non-cancellable leases are as follows:
|
|
|
|
|
|
In thousands
|
Year ended December 31,
|
2021
|
$
|
77,351
|
|
2022
|
75,560
|
|
2023
|
62,627
|
|
2024
|
56,021
|
|
2025
|
47,686
|
|
Thereafter
|
201,215
|
|
Total future minimum lease payments
|
520,460
|
|
Less: Imputed interest
|
203,090
|
|
Total
|
$
|
317,370
|
|
As of December 31, 2020, we have entered into leases that have not yet commenced with future lease payments of $12.0 million, that are not yet recorded on the Consolidated balance sheets.
NOTE 4 — Accounts Receivable, net
The Company performs its evaluation of the collectability of trade receivables based on customer category. For example, trade receivables from individual subscribers to our publications are evaluated separately from trade receivables related to advertising customers. For advertising trade receivables, the Company applies a "black motor formula" methodology as the baseline to calculate the allowance for doubtful accounts. The reserve percentage is calculated as a ratio of total net bad debts (less write-offs and recoveries) for the prior three-year period to total outstanding trade accounts receivable for the same three-year period. The calculated reserve percentage by customer category is applied to the consolidated gross advertising receivable balance, irrespective of aging. In addition, each category has specific reserves for at risk accounts that vary based on the nature of the underlying trade receivables. Due to the short-term nature of our circulation receivables, the Company reserves all receivables aged over 90 days.
The following table presents changes in the allowance for doubtful accounts:
|
|
|
|
|
|
In thousands
|
Year ended December 31, 2020
|
Beginning balance
|
$
|
19,923
|
|
Current period provision
|
28,654
|
|
Write-offs charged against the allowance
|
(29,532)
|
|
Recoveries of amounts previously written-off
|
2,824
|
|
Disposition
|
(1,011)
|
|
Foreign currency
|
(15)
|
|
Ending balance
|
$
|
20,843
|
|
The calculation of the allowance 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.
For the years ended December 31, 2020, and December 31, 2019, the Company recorded $28.7 million and $9.7 million in bad debt expense, respectively, which is included in Selling, general and administrative expenses on the Consolidated statements of operations and comprehensive income (loss).
NOTE 5 — Acquisitions and dispositions
Acquisitions during 2019
Legacy Gannett acquisition
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 ("USAT") and 109 local media organizations in 46 states in the U.S. and Guam, including digital sites and affiliates), ReachLocal, Inc. ("ReachLocal"), a marketing solutions company, and Newsquest (a wholly owned subsidiary of Legacy Gannett operating in the United Kingdom with more than 120 local media brands), was completed for an aggregate purchase price of $1.3 billion. The acquisition was financed from the Acquisition Term Loan as described in Note 8 — Debt and the issuance of common stock to Legacy Gannett stockholders as described in Note 12 — Supplemental equity information. The rationale for the acquisition was primarily the attractive nature of the various publications, businesses, and digital platforms as well as the estimated cash flows and cost-saving and revenue-generating opportunities. The fair values of the assets and liabilities for the Legacy Gannett acquisition were finalized during the second quarter of 2020.
The following table summarizes the final fair values of the assets and liabilities for the Legacy Gannett acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Estimated fair value as previously reported (a)
|
Measurement period adjustments (b)
|
Final fair value as adjusted
|
Cash and restricted cash acquired
|
$
|
149,452
|
|
$
|
—
|
|
$
|
149,452
|
|
Current assets
|
383,965
|
|
—
|
|
383,965
|
|
Other assets
|
97,459
|
|
—
|
|
97,459
|
|
Property, plant and equipment
|
536,511
|
|
—
|
|
536,511
|
|
Operating lease assets
|
200,550
|
|
—
|
|
200,550
|
|
Developed technology
|
47,770
|
|
(11,670)
|
|
36,100
|
|
Advertiser relationships
|
272,740
|
|
(16,580)
|
|
256,160
|
|
Subscriber relationships
|
104,490
|
|
6,100
|
|
110,590
|
|
Other customer relationships
|
63,820
|
|
3,540
|
|
67,360
|
|
Trade names
|
16,470
|
|
(630)
|
|
15,840
|
|
Mastheads
|
97,340
|
|
8,420
|
|
105,760
|
|
Goodwill
|
644,766
|
|
13,018
|
|
657,784
|
|
Total assets
|
2,615,333
|
|
2,198
|
|
2,617,531
|
|
Current liabilities
|
513,752
|
|
95
|
|
513,847
|
|
Long-term liabilities
|
787,019
|
|
2,103
|
|
789,122
|
|
Total liabilities
|
1,300,771
|
|
2,198
|
|
1,302,969
|
|
Net assets
|
$
|
1,314,562
|
|
$
|
—
|
|
$
|
1,314,562
|
|
(a)As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2019.
(b)The Company recorded measurement period adjustments during the second quarter of 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.
2019 Acquisitions
The Company also acquired substantially all the assets, properties and business of certain publications and businesses in 2019 (the "2019 Acquisitions"), which included 11 daily newspapers, 11 weekly publications, nine shoppers, a remnant advertising agency, five events production businesses, and a business community and networking platform for an aggregate purchase price of $53.4 million including 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 Consolidated statements of operations and comprehensive income (loss). Additionally, for specified 2019 Acquisitions, additional consideration is earned based on the achievement of EBITDA targets outlined in the asset purchase agreement. As of December 31, 2020, there is no consideration payable to the former stockholders. The 2019 Acquisitions were financed from cash on hand. The rationale for the 2019 Acquisitions was primarily the attractive nature, as applicable, of the various publications, businesses, and digital platforms as well as the estimated cash flows and cost-saving and revenue-generating opportunities available. The fair values of the assets and liabilities for the 2019 Acquisitions were finalized during the second quarter of 2020.
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 and restricted cash acquired
|
$
|
323
|
|
$
|
—
|
|
$
|
323
|
|
Current assets
|
9,320
|
|
(112)
|
|
9,208
|
|
Other assets
|
950
|
|
—
|
|
950
|
|
Property, plant and equipment
|
20,492
|
|
730
|
|
21,222
|
|
Non-compete agreements
|
280
|
|
—
|
|
280
|
|
Advertiser relationships
|
2,357
|
|
279
|
|
2,636
|
|
Subscriber relationships
|
1,457
|
|
—
|
|
1,457
|
|
Other customer relationships
|
1,323
|
|
2,942
|
|
4,265
|
|
Software
|
140
|
|
2,130
|
|
2,270
|
|
Trade names
|
299
|
|
2,105
|
|
2,404
|
|
Mastheads
|
2,896
|
|
—
|
|
2,896
|
|
Goodwill
|
20,850
|
|
(1,248)
|
|
19,602
|
|
Total assets
|
60,687
|
|
6,826
|
|
67,513
|
|
Current liabilities
|
11,961
|
|
—
|
|
11,961
|
|
Long-term liabilities
|
463
|
|
50
|
|
513
|
|
Total liabilities
|
12,424
|
|
50
|
|
12,474
|
|
Minority interest
|
1,651
|
|
—
|
|
1,651
|
|
Net assets
|
$
|
46,612
|
|
$
|
6,776
|
|
$
|
53,388
|
|
(a) As previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
(b) During the six months ended June 30, 2020, the Company recognized a contingent liability of $7.0 million for earnout payments not made and finalized the allocation of purchase price to certain customer relationships, software, and trade name intangible assets acquired. The contingent liability was paid in full during the third quarter of 2020 and was included in financing activities on the Consolidated statement of cash flows.
The following unaudited pro forma consolidated results of operations assume that the acquisition of Legacy Gannett, along with transactions necessary to finance the acquisition, occurred at the beginning of 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
Unaudited; In thousands (except per share amounts)
|
December 31, 2019
|
|
December 30, 2018
|
Total revenues
|
$
|
4,177,583
|
|
|
$
|
4,440,491
|
|
Net loss
|
(292,395)
|
|
|
(169,617)
|
|
Loss per share - diluted
|
(2.27)
|
|
|
(1.31)
|
|
The unaudited 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 since 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.
Dispositions during 2020
On October 30, 2020, we completed the sale of BridgeTower Media, LLC. As a result of the sale, we recognized a pre-tax gain of approximately $8.2 million, net of selling expenses and is included in Net (gain) loss on sale or disposal of assets on the Consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2020.
NOTE 6 — Goodwill and intangible assets
Goodwill and intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2020
|
|
Year ended December 31, 2019
|
In thousands
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Advertiser relationships
|
$
|
460,331
|
|
|
$
|
112,468
|
|
|
$
|
347,863
|
|
|
$
|
534,161
|
|
|
$
|
75,363
|
|
|
$
|
458,798
|
|
Customer relationships
|
102,925
|
|
|
23,682
|
|
|
79,243
|
|
|
109,674
|
|
|
14,303
|
|
|
95,371
|
|
Subscriber relationships
|
255,702
|
|
|
71,271
|
|
|
184,431
|
|
|
259,391
|
|
|
44,878
|
|
|
214,513
|
|
Other intangible assets
|
68,687
|
|
|
26,982
|
|
|
41,705
|
|
|
76,552
|
|
|
11,229
|
|
|
65,323
|
|
Sub-total
|
$
|
887,645
|
|
|
$
|
234,403
|
|
|
$
|
653,242
|
|
|
$
|
979,778
|
|
|
$
|
145,773
|
|
|
$
|
834,005
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
Mastheads
|
|
|
|
|
171,408
|
|
|
|
|
|
|
178,559
|
|
Total Intangible assets
|
|
|
|
|
$
|
824,650
|
|
|
|
|
|
|
$
|
1,012,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
$
|
534,088
|
|
|
|
|
|
|
$
|
914,331
|
|
As of December 31, 2020, the weighted average amortization periods for amortizable intangible assets are 11.3 years for advertiser relationships, 9.9 years for customer relationships, 10.3 years for subscriber relationships, and 4.0 years for other intangible assets. The weighted average amortization period in total for all amortizable intangible assets is 10.3 years.
For the years ended December 31, 2020, December 31, 2019, and December 30, 2018, amortization expense was $108.5 million, $44.7 million, and $34.0 million, respectively.
As of December 31, 2020, estimated future amortization expense as is as follows:
|
|
|
|
|
|
In thousands
|
2021
|
$
|
103,298
|
|
2022
|
96,997
|
|
2023
|
91,875
|
|
2024
|
90,548
|
|
2025
|
82,082
|
|
Thereafter
|
188,442
|
|
Total
|
$
|
653,242
|
|
Changes in the carrying amount of Goodwill by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Publishing
|
|
Digital Marketing Solutions
|
|
Total
|
Balance at December 30, 2018, net of accumulated impairment losses of $25,641:
|
$
|
280,295
|
|
|
$
|
30,442
|
|
|
$
|
310,737
|
|
Goodwill acquired in business combinations
|
498,061
|
|
|
167,555
|
|
|
665,616
|
|
Goodwill impairment
|
(62,280)
|
|
|
—
|
|
|
(62,280)
|
|
Goodwill related to divestitures
|
(42)
|
|
|
—
|
|
|
(42)
|
|
Measurement period adjustments
|
(852)
|
|
|
—
|
|
|
(852)
|
|
Foreign currency exchange rate changes
|
1,152
|
|
|
—
|
|
|
1,152
|
|
Balance at December 31, 2019, net of accumulated impairment losses of $87,921:
|
$
|
716,334
|
|
|
$
|
197,997
|
|
|
$
|
914,331
|
|
|
|
|
|
|
|
Goodwill impairment
|
(321,851)
|
|
|
(40,499)
|
|
|
(362,350)
|
|
Goodwill related to divestitures
|
(20,328)
|
|
|
(6,592)
|
|
|
(26,920)
|
|
Measurement period adjustments
|
45,205
|
|
|
(33,435)
|
|
|
11,770
|
|
Foreign currency exchange rate changes
|
(2,743)
|
|
|
—
|
|
|
(2,743)
|
|
Balance at December 31, 2020, net of accumulated impairment losses of $455,844:
|
$
|
416,617
|
|
|
$
|
117,471
|
|
|
$
|
534,088
|
|
Consistent with the Company's past practice, the Company performed its annual goodwill and indefinite-lived intangible asset impairment assessment in the second quarter of 2020 with the assistance of third-party valuation specialists. In the impairment analyses performed, the Company considered the current and expected future economic and market conditions and the impact on the fair value of each of the reporting units. The primary factor that impacted the decrease in fair value was the impact of the COVID-19 pandemic on the Company’s operations. The most significant assumptions utilized in the determination of the estimated fair values include revenue and EBITDA projections, discount rates and long-term growth rates. The long-term growth rates are dependent on overall market growth rates, the competitive environment, inflation and relative currency exchange rates and could be adversely impacted by a sustained decrease in any of these measures, all of which the Company considered in determining the long-term growth rates used in the analysis, which ranged from negative 0.5% to positive 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 Goodwill, the Company primarily utilized a discounted cash flow method to calculate the fair value of each reporting unit. Market-based metrics were reviewed to evaluate the reasonableness of the Company’s calculation. The Company compared the fair value of each reporting unit to its carrying amount, which resulted in the carrying value of all the reporting groups being in excess of the fair value. As a result, during the second quarter of 2020, we recorded goodwill impairment charges of $256.5 million, $65.4 million and $40.5 million in our Domestic Publishing, Newsquest and Digital Marketing Solutions reporting units, respectively.
For newspaper mastheads, the Company applied a "relief from royalty" approach, a discounted cash flow model, reflecting current assumptions, to fair value the indefinite-lived intangible assets. We compared the fair value of each indefinite-lived asset to its carrying amount, and accordingly, the Company recorded impairments of $4.0 million in both our Domestic Publishing and Newsquest reporting units during the second quarter of 2020.
During the second quarter of 2020, the Company considered the impact of the COVID-19 pandemic on the Company’s operations to be an indicator of impairment under ASC 360. As such, during the second quarter of 2020, the Company performed a recoverability test for the long-lived asset groups, reflecting current assumptions, to determine whether an impairment loss should be measured. The undiscounted cash flows used in the recoverability test for the Newsquest long-lived asset group were less than the long-lived asset group carrying amount. The Company calculated the fair value of the long-lived asset group and recorded a $23.0 million impairment to advertiser and other customer relationships intangible assets during the second quarter of 2020. The discount rate and long-term growth rate assumptions were consistent with the Goodwill assumptions discussed above. Refer to Note 7 — Integration and reorganization costs and asset impairments for further details on the impairment of property, plant and equipment.
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 continue to further 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 revenues and profitability over the past several years. Should general economic, market or business conditions continue to decline and have a negative impact on estimates of future cash flow and market transaction multiples, the Company may be required to record additional impairment charges in the future.
As of December 31, 2020, the Company performed a review of potential impairment indicators noting that its financial results and forecasted net cash flows have not changed materially since the annual impairment assessment performed in the second quarter of 2020, and it was determined that no indicators of impairment were present.
In connection with our impairment assessment performed in connection with the acquisition of Legacy Gannett, we recorded goodwill and intangible asset impairment charges of $100.7 million in 2019. Subsequent to the acquisition of Legacy Gannett, as of December 31, 2019, the Company performed a review of potential impairment indicators, noting its financial results and forecast had not changed materially since impairment assessment performed in connection with the acquisition, and it was determined no indicators of impairment were present.
NOTE 7 — Integration and reorganization costs and asset impairments
Over the past several years, in furtherance of the Company’s cost-reduction and cash-preservation plans, 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 of the Company’s geographic regions and are often influenced by the terms of union contracts within the region. All costs related to these programs, which primarily include severance expense, are accrued at the time of the program announcement or over the remaining service period.
Severance-related expenses
We recorded expenses for severance and related costs by segment as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Publishing
|
$
|
55,655
|
|
|
$
|
19,556
|
|
|
$
|
11,678
|
|
Digital Marketing Solutions
|
6,320
|
|
|
1,916
|
|
|
—
|
|
Corporate and other
|
24,322
|
|
|
19,080
|
|
|
262
|
|
Total
|
$
|
86,297
|
|
|
$
|
40,552
|
|
|
$
|
11,940
|
|
A rollforward of the accrued severance and related costs included in Accounts payable and accrued liabilities on the Consolidated balance sheets for the years ended December 31, 2020 and December 31, 2019 is outlined below:
|
|
|
|
|
|
In thousands
|
Severance and
Related Costs
|
Balance at December 30, 2018
|
$
|
2,554
|
|
Acquired restructuring provision balances
|
692
|
|
Restructuring provision included in Integration and reorganization costs
|
40,552
|
|
Cash payments
|
(13,013)
|
|
Balance at December 31, 2019
|
30,785
|
|
|
|
Restructuring provision included in Integration and reorganization costs
|
86,297
|
|
Cash payments
|
(86,139)
|
|
Balance at December 31, 2020
|
$
|
30,943
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Publishing
|
$
|
5,197
|
|
|
$
|
3,931
|
|
|
$
|
2,809
|
|
Digital Marketing Solutions
|
343
|
|
|
286
|
|
|
—
|
|
Corporate and other(a)
|
53,894
|
|
|
7,443
|
|
|
262
|
|
Total
|
$
|
59,434
|
|
|
$
|
11,660
|
|
|
$
|
3,071
|
|
(a)Includes a $30.4 million expense related to the early termination of the Amended and Restated Management and Advisory Agreement with FIG LLC.
Asset impairments and accelerated depreciation
As part of ongoing cost-efficiency programs, the Company has ceased a number of print operations. Pursuant to these actions, we recorded Asset impairments by segment as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Publishing
|
$
|
10,312
|
|
|
$
|
3,009
|
|
|
$
|
1,538
|
|
Digital Marketing Solutions
|
717
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
11,029
|
|
|
$
|
3,009
|
|
|
$
|
1,538
|
|
We also recorded accelerated depreciation at the Publishing segment of $49.6 million, $7.9 million, and $3.6 million for the years ended December 31, 2020, December 31, 2019 and December 30, 2018, respectively, which are included in Depreciation and amortization on the Consolidated statements of operations and comprehensive income (loss).
NOTE 8 — Debt
Senior Secured Convertible Notes due 2027
On November 17, 2020, the Company entered into an Exchange Agreement (the "Exchange Agreement") with certain of the lenders (the "Exchanging Lenders") under the Company’s five-year, senior-secured 11.5% term loan facility with Apollo Capital Management, L.P. ("Apollo") in an aggregate principal amount of approximately $1.792 billion dated November 19, 2019, (the "Acquisition Term Loan") pursuant to which the Company and the Exchanging Lenders agreed to exchange $497.1 million in aggregate principal amount of the Company’s newly issued 6.0% Senior Secured Convertible Notes due 2027 (the "2027 Notes") for the retirement of an equal amount of term loans under the Acquisition Term Loan (the “Exchange”). Following the Exchange, the outstanding balance under the Acquisition Term Loan was $1.019 billion (the "Remaining Term Loan") as of December 31, 2020. The 2027 Notes were issued pursuant to an Indenture (the "Indenture") dated as of November 17, 2020, between the Company and U.S. Bank National Association, as trustee. The Indenture, as supplemented by the Second Supplemental Indenture, includes affirmative and negative covenants that are substantially consistent with the 5-Year Term Loan, as well as customary events of default.
In connection with the Exchange, the Company entered into an Investor Agreement (the "Investor Agreement") with the holders of the 2027 Notes (the "Holders") establishing certain terms and conditions concerning the rights and restrictions on the Holders with respect to the Holders' ownership of the 2027 Notes. The Company also entered into an amendment to the Registration Rights Agreement dated November 19, 2019, between the Company and FIG LLC. In addition, the Remaining Term Loan was amended as described below (the "Amendment").
Interest on the 2027 Notes is payable semi-annually in arrears. The 2027 Notes mature on December 1, 2027, unless earlier repurchased or converted. The 2027 Notes may be converted at any time by the holders into cash, shares of the Company’s Common Stock or any combination of cash and Common Stock, at the Company's election. The initial conversion rate is 200 shares of Common Stock per $1,000 principal amount of the 2027 Notes, which is equal to a conversion price of $5.00 per share of Common Stock (the "Conversion Price").
The conversion rate is subject to customary adjustment provisions as provided in the Indenture. In addition, the conversion rate will be subject to adjustment in the event of any issuance or sale of Common Stock (or securities convertible into Common Stock) at a price equal to or less than the Conversion Price in order to ensure that following such issuance or sale, the 2027 Notes would be convertible into approximately 42% of the Common Stock after giving effect to such issuance or sale (assuming the initial principal amount of the 2027 Notes remains outstanding).
Upon the occurrence of a "Make-Whole Fundamental Change" (as defined in the Indenture), the Company will in certain circumstances increase the conversion rate for a specified period of time. If a "Fundamental Change" (as defined in the Indenture) occurs, the Company will be required to offer to repurchase the 2027 Notes at a repurchase price of 110% of the principal amount thereof.
Holders of the 2027 Notes will have the right to put up to approximately $100 million of the 2027 Notes at par on or after the date that is 91 days after the maturity date of the 5-Year Term Loan.
Under the Indenture, the Company 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 Indenture) does not exceed a specified ratio. In addition, the Indenture provides that, at any time that the Company’s Total Gross Leverage Ratio (as defined in the Indenture) exceeds 1.5 and the Company approves the declaration of a dividend, the Company must offer to purchase a principal amount of 2027 Notes equal to the proposed amount of the dividend.
Until the four-year anniversary of the issuance date, the Company will have the right to redeem for cash up to approximately $99.4 million of the 2027 Notes at a redemption price of 130% of the principal amount thereof, with such amount reduced ratably by any principal amount of 2027 Notes that has been converted by the holders or redeemed or purchased by the Company.
The 2027 Notes are guaranteed by Gannett Holdings LLC and any subsidiaries of the Company (collectively, the "Guarantors") that guarantee the 5-Year Term Loan. The Notes are secured by the same collateral securing the 5-Year Term Loan. The 2027 Notes rank as senior secured debt of the Company and are secured by a second priority lien on the same collateral package securing the indebtedness incurred in connection with the 5-Year Term Loan.
As of December 31, 2020, the $497.1 million principal value of the 2027 Notes is separated into two components: (i) a debt component and (ii) a derivative component. We have determined that the conversion option is not clearly and closely related to the economic characteristics of the 2027 Notes, nor does the conversion option meet the scope exception related to contracts in an entity’s own equity as we do not currently have the ability to control whether the settlement of the conversion feature, if settled in full, would be in cash or shares due to the approval requirement to issue those shares. As a result, we concluded that the embedded conversion option must be separated from the debt liability, separately valued, and accounted for as a derivative liability. The initial value allocated to the derivative liability was $115.3 million, with a corresponding reduction in the carrying value of the 2027 Notes. The derivative liability, which is reported within Convertible debt in the Consolidated balance sheets, will be marked to fair value through earnings. At the Special Meeting of stockholders of the Company, held on February 26, 2021 (the "Special Meeting"), our stockholders approved the issuance of the maximum number of shares of Common Stock issuable upon conversion of the 2027 Notes. As a result, the conversion option can be share-settled in full and the conversion option qualifies for equity classification and meets the scope exception to derivative accounting as of February 26, 2021.
The $389.1 million debt liability component was initially measured at fair value using the present value of its cash flows at a discount rate of 10.7% and is reported as Convertible debt in the Consolidated balance sheets. The debt component of the 2027 Notes is classified as Level 2 because it is measured at fair value using commonly accepted valuation methodologies and indirectly observable, market-based risk measurements and historical data, and a review of prices and terms available for similar debt instruments that do not contain a conversion feature.
As of November 17, 2020, the date of issuance and December 31, 2020, the estimated fair value of the derivative liability for the embedded conversion feature is $115.3 million and $189.6 million, respectively, and is reported within Convertible debt in the Consolidated balance sheets. The derivative liability is classified as Level 3 because it is measured at fair value on a recurring basis using a binomial lattice model using assumptions based on market information and historical data, and significant unobservable inputs. The increase in the fair value of the derivative liability of $74.3 million from its initial value was due to the increase in our stock price and was recorded in Non-Operating Other (income) expense, net in the Consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2020. The assumptions used to determine the fair value as of December 31, 2020 were:
|
|
|
|
|
|
|
December 31, 2020
|
Annual volatility
|
70.0
|
%
|
Discount rate
|
9.3
|
%
|
Increases or decreases in the discount rate would have inverse impacts on the fair value of the derivative liability, while changes in the volatility would have corresponding increases or decreases in the fair value of the derivative liability.
Total debt issuance costs of $2.3 million will be amortized over the 7-year contractual life of the 2027 Notes. The total unamortized discount of $110.3 million and $108.7 million as of November 17, 2020, and December 31, 2020, respectively, will be amortized over the remaining contractual life of the 2027 Notes. For the year ended December 31, 2020, interest expense on the 2027 Notes totaled $3.6 million. Amortization of debt issuance costs were immaterial for the year ended December 31, 2020. Amortization of the discount was $1.6 million for the year ended December 31, 2020. The effective interest rate on the liability component of the 2027 Notes was 10.5% as of December 31, 2020.
For the year ended December 31, 2020, no shares were issued upon conversion, exercise, or satisfaction of the required conditions. Refer to Note 12 — Supplemental equity information for details on the convertible debt's impact to diluted earnings per share under the if-converted method.
Permitted Financing Under the 2027 Notes
The Company may refinance the Remaining Term Loan with new first lien debt, as long as the new first lien debt satisfies the requirements of a Permitted Refinancing. New first lien debt will constitute a "Permitted Refinancing" so long as, among other things, (i) the principal amount of the new debt does not exceed the balance of the Remaining Term Loan (plus interest and fees), (ii) the all-in-yield of the new debt does not exceed 9.5% per annum and (iii) the other terms of the new debt are no less favorable to the Company.
Refer to Note 16 — Subsequent events for discussion of the refinancing of the Remaining Term Loan on February 9, 2021, as permitted by the Indenture. Holders of the 2027 Notes had the option to require the Company to repurchase their 2027 Notes at a price equal to 101.5% of par, which amount would increase by 1.5% on each three month anniversary of the issuance date of the 2027 Notes. The Indenture permits the Company to raise additional first lien or second lien debt to finance any such repurchases, subject to certain conditions set forth therein. No holders of the 2027 Notes exercised their option to require the Company to repurchase their 2027 Notes in connection with the refinancing of the Remaining Term Loan.
Acquisition Term Loan
On November 19, 2019, pursuant to the acquisition of Legacy Gannett, the Company entered into the Acquisition Term Loan, which matures on November 19, 2024. Origination fees totaled 6.5% of the total principal amount of the financing at closing.
In connection with the Exchange, the Company, the Guarantors, Alter Domus Products Corp., as administrative agent and collateral agent, and the lenders under the Acquisition Term Loan executed the Amendment which, among other things, (i) requires quarterly amortization payments in an amount equal to the interest rate savings resulting from the Exchange for the applicable quarter, (ii) increases the threshold under the requirement for prepayment of the Acquisition Term Loan with unrestricted cash and cash equivalents in excess of $40 million from $40 million to $70 million for the 2020 fiscal year and (iii) replaces Apollo's right to appoint directors to the Board in the event the gross leverage ratio exceeds certain thresholds with the right to increase the size of the Board of Directors and to nominate directors for election to the Board in the event the gross leverage ratio exceeds such thresholds. As of December 31, 2020, the total gross leverage ratio exceeded certain thresholds, whereby Apollo had the right to nominate one voting director. As of December 31, 2020, the Company is in compliance with all of the covenants and obligations under the Acquisition Term Loan. Upon the occurrence and during the continuance of an Event of Default (as defined in the Acquisition Term Loan), the interest rate increases by 2.0%. The proceeds from the 5-Year Term Loan were used to repay the Acquisition Term Loan (the "Payoff"), and we are no longer subject to the terms of the Acquisition Term Loan.
In connection with the Acquisition Term Loan, the Company incurred approximately $4.9 million of fees and expenses and $116.6 million of lender fees which were capitalized and will be amortized over the term of the Acquisition Term Loan using the effective interest method.
The Company used the proceeds of the Acquisition Term Loan to (i) partially fund the acquisition of Legacy Gannett, (ii) repay, prepay, repurchase, redeem, or otherwise discharge in full each of the existing financing facilities (as defined in the agreement and discussed in part below), and (iii) pay fees and expenses incurred to obtain the Acquisition Term Loan. The Company is permitted to prepay the principal of the Acquisition Term Loan, in whole or in part, at par plus accrued and unpaid interest, without any prepayment premium or penalty. The Acquisition Term Loan is guaranteed by the material wholly-owned subsidiaries of the Company, and all obligations of the Company and its subsidiary guarantors are or will be secured by first priority liens on certain material real property, equity interests, land, buildings, and fixtures. The Acquisition Term Loan contains customary representations and warranties, affirmative covenants, and negative covenants applicable to the Company and its subsidiaries, including, among other things, restrictions on indebtedness, liens, investments, fundamental changes, dispositions, dividends and other distributions, capital expenditures, and events of default.
As of December 31, 2020, the Company had $1.075 billion in aggregate principal outstanding under the Acquisition Term Loan, $2.4 million of deferred financing costs, and $54.0 million of capitalized lender fees. During the year ended December 31, 2020, the Company recorded $194.0 million in interest expense, $24.0 million in amortization of deferred financing costs, and $43.8 million related to loss on early extinguishment of debt, including $34.0 million related to the Exchange and $9.8 million related to early prepayments. During the year ended December 31, 2020, the Company paid interest of $217.5 million. The effective interest rate is 12.9%. As of December 31, 2020, the Company reclassified $128.4 million of the Acquisition Term Loan to the Current portion of long-term debt on the Consolidated balance sheets, which represents (i) 50% of the Company's excess cash flow (as such term is defined in the Acquisition Term Loan) and (ii) quarterly amortization payments in an amount equal to the interest rate savings resulting from the Exchange measured at the end of 2020.
Senior Convertible Notes due 2024
On April 9, 2018, Legacy Gannett completed an offering of 4.75% convertible senior notes (the "2024 Notes"), with an initial offering size of $175.0 million aggregate principal amount. As part of the offering, the initial purchaser of the 2024 Notes exercised its option to purchase an additional $26.3 million aggregate principal amount of notes, resulting in total aggregate principal of $201.3 million and net proceeds of approximately $195.3 million. Interest on the 2024 Notes is payable semi-annually in arrears. The 2024 Notes mature on April 15, 2024 with the 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.
Upon conversion, we have the option to settle in cash, shares of our common stock, or a combination of the two. Additionally, holders may convert the 2024 Notes at their option prior to January 15, 2024, only if one or more of the following conditions are present: (i) if, during any 20 of the 30 trading days immediately preceding a quarter end, our common stock trading price is 130% of the stated conversion price, (ii) if, during the 5 business day period after any 10 consecutive trading day period, the trading price per $1,000 principal amount of notes is less than 98% of the product of (a) the last reported sale price of the Company's common stock and (b) the conversion rate on each such trading day, or (iii) a qualified change in control event occurs. Depending on the nature of the triggering event, the conversion rate may also be subject to adjustment.
The Company's acquisition of Legacy Gannett constituted a Fundamental Change and Make-Whole Fundamental Change under the terms of the indenture governing the 2024 Notes. At the acquisition date, the Company delivered to the holders of the 2024 Notes a notice offering the right to surrender all or a portion of their notes for cash on December 31, 2019. Holders were required to surrender their notes by December 30, 2019, and in return, the Company redeemed the 2024 Notes for either (i) cash at a repurchase price equal to 100% of the principal amount, plus accrued and unpaid interest from October 15, 2019, to December 29, 2019, or (ii) converted equity plus cash at the stated conversion rate of 82.4572 shares per $1,000 in principal, comprised of 0.5427 shares of Parent common stock, plus $6.25 of cash. On December 31, 2019, the Company completed the redemption of $198.0 million in aggregate principal in exchange for cash.
As of December 31, 2020 and 2019, the $3.3 million principal value of the 2024 Notes is reported as Convertible debt in the Consolidated balance sheets. The effective interest rate on the notes was 6.05% as of December 31, 2020. During the year ended December 31, 2020, the Company recorded $0.2 million in interest expense, of which $0.1 million is cash interest paid on aforementioned redemption.
Future debt obligation payments
Future debt obligation payments are as follows:
|
|
|
|
|
|
In thousands
|
Year ended December 31,
|
2021
|
$
|
128,065
|
|
2022
|
27,340
|
|
2023
|
27,340
|
|
2024
|
895,705
|
|
2025
|
—
|
|
Thereafter
|
497,094
|
|
Total debt obligations
|
$
|
1,575,544
|
|
NOTE 9 — Pensions and other postretirement benefit plans
The Company, along with our subsidiaries, sponsor various defined benefit plans, including plans established under collective bargaining agreements. Our retirement plans include: the Gannett Retirement Plan ("GR Plan"), the Newsquest and Romanes Pension Schemes in the U.K. ("U.K. Pension Plans"), the Newspaper Guild of Detroit Pension Plan, the George W. Prescott Publishing Company Pension Plan (the "GWP Plan") and the Times Publishing Company Defined Benefit Pension Plan (the "TPC Plan") plan. The GWP Plan was amended to freeze all future benefit accruals by December 31, 2008, except for a select group of union employees whose benefits were frozen in 2009, the GR Plan was amended to freeze all future benefit accruals by August 1, 2008, except for a select group of unions and the TPC Plan was frozen as of May 31, 2007, prior to the Company's acquisition of the TPC Plan.
The Company also maintains several postretirement medical and life insurance plans which cover certain employees. We provide health care and life insurance benefits to certain retired employees who meet age and service requirements. Most of our retirees contribute to the cost of these benefits and retiree contributions are increased as actual benefit costs increase. The cost of providing retiree health care and life insurance benefits is actuarially determined. Our policy is to fund benefits as claims and premiums are paid. We use a December 31 measurement date for these plans.
The following table presents the change in the projected benefit obligation for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
In thousands
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Projected benefit obligation at beginning of period
|
$
|
2,973,182
|
|
|
$
|
74,190
|
|
|
$
|
73,667
|
|
|
$
|
4,330
|
|
Service cost
|
2,618
|
|
|
999
|
|
|
105
|
|
|
17
|
|
Interest cost
|
82,581
|
|
|
12,408
|
|
|
2,315
|
|
|
419
|
|
Change in prior service cost
|
1,905
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Actuarial (gain) loss
|
257,110
|
|
|
3,701
|
|
|
6,648
|
|
|
(484)
|
|
Foreign currency translation
|
38,003
|
|
|
11,812
|
|
|
—
|
|
|
—
|
|
Benefits and expenses paid
|
(187,014)
|
|
|
(111,842)
|
|
|
(7,149)
|
|
|
(1,117)
|
|
Acquisitions
|
—
|
|
|
2,981,914
|
|
|
—
|
|
|
70,325
|
|
Settlements
|
(6,336)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Participant contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
200
|
|
Administrative expenses
|
(903)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Employer implicit subsidy fulfilled
|
—
|
|
|
—
|
|
|
—
|
|
|
(23)
|
|
Projected benefit obligation at end of period
|
$
|
3,161,146
|
|
|
$
|
2,973,182
|
|
|
$
|
75,586
|
|
|
$
|
73,667
|
|
The following table presents the change in the fair value of plan assets for the years ended December 31 and the plans’ funded status at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
In thousands
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Fair value of plan assets at beginning of period
|
$
|
2,856,296
|
|
|
$
|
54,035
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
481,311
|
|
|
38,054
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
41,018
|
|
|
91,466
|
|
|
7,078
|
|
|
844
|
|
Participant contributions
|
—
|
|
|
—
|
|
|
—
|
|
|
164
|
|
Acquisitions
|
—
|
|
|
2,771,796
|
|
|
—
|
|
|
—
|
|
Settlements
|
(6,322)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
(187,014)
|
|
|
(111,022)
|
|
|
(7,078)
|
|
|
(1,008)
|
|
Administrative expenses
|
(903)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency translation
|
40,986
|
|
|
12,787
|
|
|
—
|
|
|
—
|
|
Expenses paid
|
—
|
|
|
(820)
|
|
|
—
|
|
|
—
|
|
Fair value of plan assets at end of period
|
$
|
3,225,372
|
|
|
$
|
2,856,296
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded status at end of period
|
64,226
|
|
|
(116,886)
|
|
|
(75,586)
|
|
|
(73,667)
|
|
Unrecognized actuarial (gain) loss
|
(69,640)
|
|
|
(4,527)
|
|
|
5,195
|
|
|
(1,518)
|
|
Unrecognized prior service cost
|
1,905
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net accrued benefit cost
|
(3,509)
|
|
|
(121,413)
|
|
|
(70,391)
|
|
|
(75,185)
|
|
Amounts recognized in the Consolidated balance sheets at December 31 are listed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
In thousands
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Other assets
|
$
|
95,180
|
|
|
$
|
58,818
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accounts payable and accrued liabilities
|
332
|
|
|
6,771
|
|
|
6,443
|
|
|
6,694
|
|
Pension and other postretirement benefit obligations
|
30,622
|
|
|
168,933
|
|
|
69,143
|
|
|
66,973
|
|
Accumulated other comprehensive (loss) income
|
67,735
|
|
|
4,527
|
|
|
(5,195)
|
|
|
1,518
|
|
Net accrued benefit cost
|
$
|
(3,509)
|
|
|
$
|
(121,413)
|
|
|
$
|
(70,391)
|
|
|
$
|
(75,185)
|
|
Accumulated pension benefit obligations were $3.2 billion and $3.0 billion as of December 31, 2020 and 2019, respectively. For the Funded plans, the fair value of plan assets exceeds the projected benefit obligation and accumulated benefit obligation. For the Underfunded plans, the projected benefit obligation and accumulated benefit obligation exceed the fair value of plan assets. Information about funded and unfunded pension plans at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded plans
|
|
Underfunded plans
|
In thousands
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Projected benefit obligation
|
$
|
2,957,432
|
|
|
$
|
932,357
|
|
|
$
|
203,714
|
|
|
$
|
2,040,825
|
|
Accumulated benefit obligation
|
2,956,973
|
|
|
932,357
|
|
|
201,755
|
|
|
2,039,075
|
|
Fair value of plan assets
|
3,052,612
|
|
|
991,173
|
|
|
172,760
|
|
|
1,865,123
|
|
Net periodic benefit cost and amounts recognized in Other comprehensive income (loss)
The combined net pension and postretirement benefit recognized in the Consolidated statements of operations was $69.4 million, $8.1 million and $0.8 million for the years ended December 31, 2020, December 31, 2019, and December 30, 2018, respectively.
The following table presents the components of net periodic benefit expense (benefit) at December 31, 2020, December 31, 2019 and December 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
In thousands
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
$
|
2,618
|
|
|
$
|
999
|
|
|
$
|
606
|
|
|
$
|
105
|
|
|
$
|
17
|
|
|
$
|
7
|
|
Non-operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
82,581
|
|
|
12,408
|
|
|
2,775
|
|
|
2,315
|
|
|
419
|
|
|
153
|
|
Expected return on plan assets
|
(157,082)
|
|
|
(22,303)
|
|
|
(4,452)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of unrecognized loss (gain)
|
102
|
|
|
158
|
|
|
113
|
|
|
(65)
|
|
|
(72)
|
|
|
(24)
|
|
Other adjustment
|
—
|
|
|
305
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Non-operating (income) expense included in Other (income) expense
|
(74,399)
|
|
|
(9,432)
|
|
|
(1,564)
|
|
|
2,250
|
|
|
347
|
|
|
129
|
|
Net periodic expense (benefit)
|
$
|
(71,781)
|
|
|
$
|
(8,433)
|
|
|
$
|
(958)
|
|
|
$
|
2,355
|
|
|
$
|
364
|
|
|
$
|
136
|
|
Other changes in plan assets and benefit obligations recognized in Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss (gain)
|
$
|
(67,119)
|
|
|
$
|
(12,050)
|
|
|
$
|
1,872
|
|
|
$
|
6,648
|
|
|
$
|
(484)
|
|
|
$
|
(363)
|
|
Change in prior service cost
|
1,905
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of net actuarial gain (loss)
|
(102)
|
|
|
(158)
|
|
|
(113)
|
|
|
65
|
|
|
72
|
|
|
24
|
|
Other adjustment
|
2,108
|
|
|
(305)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Amount recognized in Other comprehensive income (loss)
|
$
|
(63,208)
|
|
|
$
|
(12,513)
|
|
|
$
|
1,759
|
|
|
$
|
6,713
|
|
|
$
|
(412)
|
|
|
$
|
(339)
|
|
The aggregate amount of net actuarial gain related to the Company’s pension plans recognized in other comprehensive (loss) income as of December 31, 2020 was $67.1 million.
Assumptions
The following assumptions were used in connection with the Company’s actuarial valuation of its pension plans and postretirement benefit obligations at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Weighted average discount rate
|
2.2
|
%
|
|
2.9
|
%
|
|
2.6
|
%
|
|
3.3
|
%
|
Rate of increase in future compensation levels (a)
|
2.0
|
%
|
|
2.0
|
%
|
|
N/A
|
|
N/A
|
Current year medical trend
|
N/A
|
|
N/A
|
|
5.5
|
%
|
|
5.9
|
%
|
Ultimate year medical trend
|
N/A
|
|
N/A
|
|
4.5
|
%
|
|
4.5
|
%
|
Year of ultimate trend
|
N/A
|
|
N/A
|
|
2025
|
|
2034
|
(a) Relates only to the GR Plan, the 2015 SERP and the Newspaper Guild of Detroit defined benefit pension plans.
The following assumptions were used to calculate the net periodic benefit cost for the Company’s pension plans and postretirement benefit obligations at December 31, 2020 and 2019 and December 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
Weighted average discount rate
|
2.9
|
%
|
|
3.1
|
%
|
|
3.5
|
%
|
|
3.3
|
%
|
|
3.3
|
%
|
|
3.3
|
%
|
Rate of increase in future compensation levels (a)
|
2.0
|
%
|
|
2.0
|
%
|
|
—
|
%
|
|
N/A
|
|
N/A
|
|
N/A
|
Weighted average expected return on assets
|
5.8
|
%
|
|
6.1
|
%
|
|
7.5
|
%
|
|
N/A
|
|
N/A
|
|
N/A
|
Current year medical trend
|
N/A
|
|
N/A
|
|
N/A
|
|
6.0
|
%
|
|
6.1
|
%
|
|
6.4
|
%
|
Ultimate year medical trend
|
N/A
|
|
N/A
|
|
N/A
|
|
4.5
|
%
|
|
4.5
|
%
|
|
4.5
|
%
|
Year of ultimate trend
|
N/A
|
|
N/A
|
|
N/A
|
|
2025
|
|
2035
|
|
2026
|
(a) Relates only to the GR Plan, the 2015 SERP and the Newspaper Guild of Detroit defined benefit pension plans.
To determine the expected long-term rate of return on pension plan assets, the Company considers the current and expected asset allocations as well as historical and expected returns on various categories of plan assets, input from the actuaries and investment consultants, and long-term inflation assumptions. The expected allocation of pension plan assets is based on a diversified portfolio consisting of domestic and international equity securities and fixed income securities. This expected return is then applied to the fair value of plan assets. The Company amortizes experience gains and losses, including the effects of changes in actuarial assumptions and plan provisions, over a period equal to the average future service of plan participants or over the average remaining life expectancy of inactive participants.
The fiduciaries of the pension plans set investment policies and strategies for the pension trusts. Objectives include preserving the funded status of the plan and balancing risk against return.
The weighted average target asset allocation of our plans for 2021 and allocations at the end of 2020 and 2019, by asset category, are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocation
|
|
Allocation of Plan Assets
|
|
2021
|
|
2020
|
|
2019
|
Equity securities
|
30%
|
|
36%
|
|
39%
|
Debt securities
|
52%
|
|
50%
|
|
46%
|
Alternative investments(a)
|
18%
|
|
14%
|
|
15%
|
Total
|
100%
|
|
100%
|
|
100%
|
(a)Alternative investments include real estate, private equity and hedge funds.
During the year ended December 31, 2020, we contributed $41.0 million and $7.1 million to our pension and other postretirement plans, respectively. In response to the COVID-19 pandemic, the GR Plan in the U.S. has deferred certain contractual contributions and negotiated a contribution payment plan of $5 million per quarter starting December 31, 2020, through the end of 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"), were deferred until January 4, 2021 and have been paid.
Expected Future Benefit Payments
We expect to make the following benefit payments, which reflect expected future service. The amounts below represent the benefit payments for our pension plans.
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Pension Benefits
|
|
Postretirement Benefits
|
2021
|
$
|
196,340
|
|
|
$
|
6,415
|
|
2022
|
192,772
|
|
|
6,130
|
|
2023
|
188,865
|
|
|
5,840
|
|
2024
|
187,303
|
|
|
5,543
|
|
2025
|
184,634
|
|
|
5,238
|
|
Thereafter
|
818,771
|
|
|
22,044
|
|
The amounts above exclude the participants' share of the benefit cost. We expect no subsidy benefits for 2021 and beyond.
Employer contributions, for the Company's defined benefit pension plans, expected to be paid during the year ending December 31, 2021, is $58.2 million.
Multiemployer plans
The Company is a participant in six multiemployer pension plans covering certain employees with collective bargaining agreements ("CBAs"). The risks of participating in these multiemployer plans are different from single-employer plans in the following aspects:
•The Company plays no part in the management of plan investments or any other aspect of plan administration;
•Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers;
•If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and
•If the Company chooses to stop participating in some of its multiemployer plans, the Company may be required to pay those plans an amount based on the unfunded status of the plan, referred to as withdrawal liability.
The Company’s participation in these plans for the year ended December 31, 2020, is outlined in the table below. The "EIN/Pension Plan Number" column provides the Employee Identification Number (EIN) and the three-digit plan number. Unless otherwise noted, the two most recent Pension Protection Act (PPA) zone statuses available are for the plans for the years ended December 31, 2020, and December 31, 2019, respectively. The zone status is based on information the Company received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65% funded; plans in the orange zone are both (i) less than 80% funded and (ii) have an accumulated/expected funding deficiency in any of the next six plan years, net of any amortization extensions; plans in the yellow zone meet either one of the criteria mentioned in the orange zone; and plans in the green zone are at least 80% funded. The "FIP/RP Status Pending/Implemented" column indicates plans for which a financial improvement plan (FIP) or a rehabilitation plan (RP) is either pending or has been implemented. The last column lists the expiration date(s) of the collective-bargaining agreement(s) to which the plans are subject. The Company makes all required contributions to these plans as determined under the respective CBAs. For each of the plans listed below, the Company’s contribution represented less than 5% of total contributions to the plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EIN Number/Plan Number
|
Zone Status
Year Ended
|
FIP/RP Status
Pending/Implemented
|
Contributions (In thousands)
|
Surcharge Imposed
|
Expiration Dates of CBAs
|
Pension Plan Name
|
December 31, 2020
|
December 31, 2019
|
2020
|
2019
|
2018
|
CWA/ITU Negotiated Pension Plan
|
13-6212879/001
|
Red
|
Red
|
Implemented
|
$
|
393
|
|
$
|
51
|
|
$
|
9
|
|
No
|
Under negotiation
|
GCIU—Employer Retirement Benefit Plan(a)
|
91-6024903/001
|
Red
|
Red
|
Implemented
|
89
|
|
75
|
|
78
|
|
No
|
1/5/2022
|
The Newspaper Guild International Pension Plan(a)
|
52-1082662/001
|
Red
|
Red
|
Implemented
|
92
|
|
31
|
|
19
|
|
No
|
Under negotiation and June 8, 2019
|
IAM National Pension Plan(a) (b)
|
51-6031295/002
|
Red
|
Red
|
Implemented
|
173
|
|
11
|
|
—
|
|
Yes
|
1/7/2022
|
Teamsters Pension Trust Fund of Philadelphia and Vicinity(a)
|
23-1511735/001
|
Yellow
|
Yellow
|
Implemented
|
1,218
|
|
139
|
|
—
|
|
N/A
|
(c)
|
Central Pension Fund of the International Union of Operating Engineers and Participating Employers(a)
|
36-6052390/001
|
Green as of Jan. 31, 2020
|
Green as of Jan. 31, 2019
|
N/A
|
59
|
|
6
|
|
—
|
|
N/A
|
1/10/2022
|
Total
|
|
|
|
|
$
|
2,024
|
|
$
|
313
|
|
$
|
106
|
|
|
|
(a)This plan has elected to utilize special amortization provisions provided under the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010.
(b)The trustees of this plan have voluntarily elected to put the fund in critical status to strengthen its funding position.
(c)In February 2018, an interim agreement was executed to maintain the terms and contributions of the plan past the expiration date of 12/31/2017. This agreement is subject to additional negotiation.
The Company assumed three multiemployer plan withdrawal liabilities in connection with the acquisition of Legacy Gannett. The liability on the acquisition date was estimated to be approximately $40.8 million, excluding interest. The penalties are payable over 20 years. The total unpaid balance for the Company's withdrawal liabilities as of December 31, 2020, is approximately $45.1 million.
Defined contribution plans
In connection with the acquisition of Legacy Gannett, the Company assumed sponsorship of the Gannett Co., Inc. 401(k) Savings Plan, which was renamed the Gannett Media Corp 401(k) Savings Plan (the "Gannett 401(k) Plan") effective January 1, 2021. On January 1, 2021, the New Media Investment Group Inc. Retirement Savings Plan (the "New Media 401(k) Plan") was merged into the Gannett 401(k) Plan (collectively, the "Savings Plans") and the New Media 401(k) Plan was discontinued.
Under the Gannett 401(k) Plan, employees are immediately eligible to participate, while under the New Media 401(k) Plan, eligible employees were required to satisfy certain age and service requirements to participate. Effective January 1, 2021, employees covered under collective bargaining agreements are eligible to participate in the Gannett 401(k) Plan only if participation has been bargained, unless previously eligible in the New Media 401(k) Plan. Employees covered by the Gannett
401(k) Plan can elect to save up to 75% of compensation on a pre-tax basis, subject to IRS limitations and for most participants, the plan's matching formula was 100% of the first 4% of employee contributions and 50% on the next 2% of employee contributions. Under the New Media 401(k) Plan, eligible employees were able to contribute up to 100% of their eligible compensation, subject to IRS limitations. The New Media 401(k) Plan also provided for discretionary matching and non-elective contributions that could be made in separate amounts among different allocation groups. Matching contributions to the Savings Plans, with the exception of certain employees covered under collective bargain agreements, were suspended in August 2020 and have not resumed. For the years ended December 31, 2020, December 31, 2019, and December 30, 2018, the Company's matching contributions to the Savings Plans were $16.0 million, $4.9 million and $4.0 million.
NOTE 10 — Fair value measurement
In accordance with ASC 820, "Fair Value Measurement," fair value measurements are required to be disclosed using a three-tiered fair value hierarchy which distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Level 1 refers to fair values determined based on quoted prices in active markets for identical assets or liabilities, Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
As of December 31, 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 GAAP, we use net asset values ("NAV") as a practical expedient to determine the fair value of certain investments. These investments measured at NAV have not been classified in the fair value hierarchy.
The Acquisition Term Loan is recorded at carrying value, which approximates fair value, in the Consolidated balance sheets and is classified as Level 3. Refer to additional discussion regarding fair value of the 2027 Notes, including debt and embedded derivative components in Note 8 — Debt.
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). Assets held for sale (Level 3) are measured on a nonrecurring basis and are evaluated using executed purchase agreements, letters of intent or third-party valuation analyses when certain circumstances arise. At December 31, 2020 and December 31, 2019, the Company had Assets held for sale of $14.7 million and $25.5 million, respectively.
The following table sets forth by level, within the fair value hierarchy, the fair values of assets and liabilities related to the following pension plans: the (i) GWP Plan, (ii) TPC Plan, (iii) GR Plan, (iv) U.K. Pension Plans and (v) Newspaper Guild of Detroit Pension Plan as of December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan Assets and Liabilities as of December 31, 2020
|
In thousands
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
14,975
|
|
|
$
|
4,577
|
|
|
$
|
—
|
|
|
$
|
19,552
|
|
|
|
|
|
|
|
|
|
Corporate common stock
|
517,123
|
|
|
—
|
|
|
—
|
|
|
517,123
|
|
Real estate
|
—
|
|
|
1,096
|
|
|
125,929
|
|
|
127,025
|
|
Interest in common/collective trusts:
|
|
|
|
|
|
|
|
Equities
|
19,398
|
|
|
559,190
|
|
|
—
|
|
|
578,588
|
|
Fixed income
|
23,481
|
|
|
1,427,963
|
|
|
—
|
|
|
1,451,444
|
|
Interest in 103-12 investment entities
|
—
|
|
|
76,430
|
|
|
—
|
|
|
76,430
|
|
Partnership/joint venture interests
|
—
|
|
|
—
|
|
|
174,789
|
|
|
174,789
|
|
Hedge funds
|
—
|
|
|
—
|
|
|
113,850
|
|
|
113,850
|
|
Derivative contracts
|
3,307
|
|
|
—
|
|
|
2
|
|
|
3,309
|
|
Total plan assets at fair value excluding those measured at NAV
|
$
|
578,284
|
|
|
$
|
2,069,256
|
|
|
$
|
414,570
|
|
|
$
|
3,062,110
|
|
Instruments measured at NAV using the practical expedient:
|
Real estate funds
|
|
|
|
|
|
|
10,581
|
|
Interest in common/collective trusts:
|
|
|
|
|
|
|
|
Equities
|
|
|
|
|
|
|
48,632
|
|
Fixed income
|
|
|
|
|
|
|
53,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partnership/joint venture interests
|
|
|
|
|
|
|
53,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets at fair value
|
|
|
|
|
|
|
$
|
3,227,878
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
(498)
|
|
|
$
|
(2,008)
|
|
|
$
|
(2,506)
|
|
Total plan liabilities at fair value
|
$
|
—
|
|
|
$
|
(498)
|
|
|
$
|
(2,008)
|
|
|
$
|
(2,506)
|
|
The following table set forth a summary of changes in the fair value of the Level 3 pension plan assets and liabilities that for the year ended December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Return on Plan
Assets
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Balance at
Beginning
of Year
|
|
|
|
Relating to Assets Still Held at Report Date
|
|
Relating to Assets Sold During the Period
|
|
Purchases
|
|
Sales
|
|
Settlements
|
|
|
|
Balance at
End of
Year
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
$
|
99,223
|
|
|
|
|
$
|
2,556
|
|
|
$
|
—
|
|
|
$
|
24,150
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
125,929
|
|
Partnership/joint venture interests
|
149,018
|
|
|
|
|
2,845
|
|
|
—
|
|
|
54,543
|
|
|
(31,617)
|
|
|
—
|
|
|
|
|
174,789
|
|
Hedge funds
|
123,126
|
|
|
|
|
5,724
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,000)
|
|
|
|
|
113,850
|
|
Derivative contracts
|
5
|
|
|
|
|
(3)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
2
|
|
Total assets
|
$
|
371,372
|
|
|
|
|
$
|
11,122
|
|
|
$
|
—
|
|
|
$
|
78,693
|
|
|
$
|
(31,617)
|
|
|
$
|
(15,000)
|
|
|
|
|
$
|
414,570
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
2,008
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
2,008
|
|
There were no transfers between Levels 1 and 2 for the year ended December 31, 2020.
The following table sets forth by level, within the fair value hierarchy, the fair values of assets and liabilities related to the following pension plans: the (i) GWP Plan, (ii) TPC Plan, (iii) GR Plan, (iv) U.K. Pension Plans and (v) the Newspaper Guild of Detroit Pension Plan as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan Assets and Liabilities as of December 31, 2019
|
In thousands
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
27,884
|
|
|
$
|
4,003
|
|
|
$
|
—
|
|
|
$
|
31,887
|
|
Corporate common stock
|
537,295
|
|
|
—
|
|
|
—
|
|
|
537,295
|
|
Real estate
|
—
|
|
|
$
|
1,202
|
|
|
99,223
|
|
|
100,425
|
|
Interest in registered investment companies:
|
|
|
|
|
|
|
|
Equities
|
19,191
|
|
|
523,300
|
|
|
—
|
|
|
542,491
|
|
Fixed income
|
27,237
|
|
|
1,124,852
|
|
|
—
|
|
|
1,152,089
|
|
Interest in 103-12 investment entities
|
—
|
|
|
81,326
|
|
|
—
|
|
|
81,326
|
|
Partnership/joint venture interests
|
—
|
|
|
—
|
|
|
149,018
|
|
|
149,018
|
|
Hedge funds
|
—
|
|
|
—
|
|
|
123,126
|
|
|
123,126
|
|
Derivative contracts
|
—
|
|
|
—
|
|
|
5
|
|
|
5
|
|
Total plan assets at fair value, excluding those measured at NAV
|
$
|
611,607
|
|
|
$
|
1,734,683
|
|
|
$
|
371,372
|
|
|
$
|
2,717,662
|
|
Assets measured at NAV using the practical expedient:
|
|
|
|
|
|
|
|
Real estate
|
|
|
|
|
|
|
10,966
|
|
Interest in common/collective trusts:
|
|
|
|
|
|
|
|
Equities
|
|
|
|
|
|
|
41,547
|
|
Fixed income
|
|
|
|
|
|
|
52,116
|
|
Partnership/joint venture interests
|
|
|
|
|
|
|
37,145
|
|
Total plan assets at fair value
|
|
|
|
|
|
|
$
|
2,859,436
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
(634)
|
|
|
$
|
(498)
|
|
|
$
|
(2,008)
|
|
|
$
|
(3,140)
|
|
Total plan liabilities at fair value
|
$
|
(634)
|
|
|
$
|
(498)
|
|
|
$
|
(2,008)
|
|
|
$
|
(3,140)
|
|
For the year ended December 31, 2019, the Company applied the practical expedient for certain assets where the NAV of the fund was available from the administrator but was not provided to the Company on a daily basis. As a result, at December 31, 2019, the Company presented these funds as measured at NAV using the practical expedient. As the fair value of such assets was available to the Company on a daily basis, we have determined that the valuation of such assets should have been included in the fair value hierarchy in accordance with ASU 2018-09 and have reflected this in the fair value measurement table as of December 31, 2019 included above. The impact of this change was an increase in Interest in registered investment companies and Interest in 103-12 investment entities of $989.0 million in the fair value hierarchy and a corresponding decrease in those assets measured at NAV using the practical expedient as of December 31, 2019. There was no change to the total value of plan assets as of December 31, 2019.
The following table set forth a summary of changes in the fair value of the Level 3 pension plan assets and liabilities that for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual Return on Plan
Assets
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Balance at
Beginning
of Year
|
|
Level 3 Assets Acquired
|
|
Relating to Assets Still Held at Report Date
|
|
Relating to Assets Sold During the Period
|
|
Purchases
|
|
Sales
|
|
Settlements
|
|
|
|
Balance at
End of
Year
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
$
|
—
|
|
|
$
|
109,047
|
|
|
$
|
(1,324)
|
|
|
$
|
2,911
|
|
|
$
|
—
|
|
|
$
|
(11,411)
|
|
|
$
|
—
|
|
|
|
|
$
|
99,223
|
|
Partnership/joint venture interests
|
—
|
|
|
147,225
|
|
|
3,185
|
|
|
—
|
|
|
133
|
|
|
—
|
|
|
(1,525)
|
|
|
|
|
149,018
|
|
Hedge funds
|
—
|
|
|
121,588
|
|
|
1,538
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
123,126
|
|
Derivative contracts
|
—
|
|
|
4
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
5
|
|
Total assets
|
$
|
—
|
|
|
$
|
377,864
|
|
|
$
|
3,400
|
|
|
$
|
2,911
|
|
|
$
|
133
|
|
|
$
|
(11,411)
|
|
|
$
|
(1,525)
|
|
|
|
|
$
|
371,372
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
2,008
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
2,008
|
|
There were no transfers between Levels 1 and 2 for the year ended December 31, 2019.
Valuation methodologies used for pension plan assets and liabilities measured at fair value are as follows:
•Corporate common stock is valued primarily at the closing price reported on the active market on which the individual securities are traded;
•Investments in direct real estate have been valued by an independent qualified valuation professional in the U.K. using a valuation approach that capitalizes any current or future income streams at an appropriate multiplier. Investments in real estate funds are mainly valued utilizing the net asset valuations provided by the underlying private investment companies or through proprietary models with varying degrees of complexity;
•Interests in common/collective trusts and interests in 103-12 investments are primarily equity and fixed income investments valued using net asset values provided by the administrator of the underlying fund available daily to the Company. Unit price of common/collective trusts are often based on underlying investments which are traded on an active market. Where daily net asset values are not provided, interests in common/collective trusts and interests in 103-12 investments are valued either through the use of a net asset value as provided monthly by the fund family or fund company or through proprietary models with varying degrees of complexity. Shares in the common/collective trusts are generally redeemable upon request;
•Investments in partnerships and joint venture interests classified in Level 3 are valued based on an assessment of each underlying investment, considering items such as expected cash flows, changes in market outlook and subsequent rounds of financing. These investments are included in Level 3 of the fair value hierarchy because exit prices tend to be unobservable and reliance is placed on the above methods. Most of the partnerships are general leveraged buyout funds, others include a venture capital fund, a fund formed to invest in special credit opportunities, an infrastructure fund and a real estate fund. Interest in partnership investments could be sold on the secondary market but cannot be redeemed. Instead, distributions are received as the underlying assets of the funds are liquidated. As of December 31, 2020 and 2019, there are $6.6 million and $7.0 million, respectively, in unfunded commitments related to partnership/joint venture interests. One of the Plan's investments in partnerships and joint venture interests represents a limited partnership commingled fund valued using the net asset value as reported by the fund manager;
•Investments in hedge funds consist of hedge funds whose strategy is to produce a return uncorrelated with market movements. This fund is classified as a Level 3 because its valuation is derived from unobservable inputs and a proprietary assessment of the underlying investments. Shares in the hedge funds are generally redeemable twice a year or on the last business day of each quarter with at least 60 days written notice subject to a potential 5% holdback; and
•Derivatives primarily consist of forward and swap contracts. Forward contracts are valued at the spot rate, plus or minus forward points between the valuation date and maturity date. Swaps are valued at the mid-evaluation price using discounted cash flow models. Items in Level 3 are valued based on the market values of other securities for which they represent a synthetic combination.
We review appraised values, audited financial statements and additional information to evaluate fair value estimates from our investment managers and/or fund administrator.
NOTE 11 — Income taxes
The components of Net income (loss) before income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Domestic
|
$
|
(646,795)
|
|
|
$
|
(206,270)
|
|
|
$
|
20,019
|
|
Foreign
|
(59,052)
|
|
|
(914)
|
|
|
—
|
|
Total
|
$
|
(705,847)
|
|
|
$
|
(207,184)
|
|
|
$
|
20,019
|
|
The Provision (benefit) for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Current:
|
|
|
|
|
|
Federal
|
$
|
(6,896)
|
|
|
$
|
113
|
|
|
$
|
—
|
|
State and local
|
1,877
|
|
|
1,725
|
|
|
1,679
|
|
Foreign
|
1,744
|
|
|
(68)
|
|
|
—
|
|
Total current
|
(3,275)
|
|
|
1,770
|
|
|
1,679
|
|
Deferred:
|
|
|
|
|
|
Federal
|
(20,832)
|
|
|
(85,144)
|
|
|
(2,690)
|
|
State and local
|
(12,064)
|
|
|
(2,833)
|
|
|
2,923
|
|
Foreign
|
2,721
|
|
|
213
|
|
|
—
|
|
Total deferred
|
(30,175)
|
|
|
(87,764)
|
|
|
233
|
|
Provision (benefit) for income taxes
|
$
|
(33,450)
|
|
|
$
|
(85,994)
|
|
|
$
|
1,912
|
|
The Provision (benefit) for income taxes varies from the Federal statutory tax rate as a result of the following differences:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Federal statutory tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
State and local income taxes, net of federal benefit
|
1.4
|
|
|
0.7
|
|
|
21.1
|
|
Debt refinancing
|
(2.5)
|
|
|
—
|
|
|
—
|
|
Change in valuation allowance
|
(9.2)
|
|
|
22.6
|
|
|
(13.4)
|
|
|
|
|
|
|
|
Non-deductible meals, entertainment, and other expenses
|
(0.4)
|
|
|
(0.8)
|
|
|
5.0
|
|
Transaction costs
|
(0.1)
|
|
|
(2.0)
|
|
|
—
|
|
|
|
|
|
|
|
Goodwill Impairment
|
(5.5)
|
|
|
—
|
|
|
(24.1)
|
|
Effective tax rate
|
4.7
|
%
|
|
41.5
|
%
|
|
9.6
|
%
|
*** Indicates a percentage that is not meaningful.
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Fixed Assets
|
$
|
(31,439)
|
|
|
$
|
(30,246)
|
|
|
|
Right of use asset
|
(82,275)
|
|
|
(83,588)
|
|
|
|
Convertible debt
|
(27,674)
|
|
|
—
|
|
|
|
Definite and indefinite lived intangible assets
|
(62,666)
|
|
|
(85,528)
|
|
|
|
Total deferred tax liabilities
|
$
|
(204,054)
|
|
|
$
|
(199,362)
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
Accrued compensation costs
|
33,325
|
|
|
32,719
|
|
|
|
Accrued liabilities
|
18,341
|
|
|
16,717
|
|
|
|
Disallowed interest
|
56,527
|
|
|
11,247
|
|
|
|
Goodwill
|
27,182
|
|
|
—
|
|
|
|
Pension and other postretirement benefit obligations
|
21,525
|
|
|
56,611
|
|
|
|
Partnership investments including impairments
|
3,837
|
|
|
7,971
|
|
|
|
Loss carryforwards
|
233,049
|
|
|
189,912
|
|
|
|
Lease liabilities
|
82,369
|
|
|
85,177
|
|
|
|
Derivative liability
|
32,534
|
|
|
—
|
|
|
|
Other
|
29,286
|
|
|
25,073
|
|
|
|
Total deferred tax assets
|
$
|
537,975
|
|
|
$
|
425,427
|
|
|
|
Less: Valuation allowance
|
(250,536)
|
|
|
(158,820)
|
|
|
|
Total net deferred tax assets
|
$
|
287,439
|
|
|
$
|
266,607
|
|
|
|
Noncurrent net deferred tax assets (liabilities)
|
$
|
83,385
|
|
|
$
|
67,245
|
|
|
|
In assessing the realizability of deferred tax assets, management considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During the year ended December 31, 2020, the Company recorded $90 million of valuation allowances against its deferred tax assets. The Company considered all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance for deferred tax assets was needed. The Company reached the conclusion it was appropriate to record a valuation allowance against a portion of its federal deferred tax assets in light of available evidence. We relied on evidence shown by reversing taxable temporary differences, as well as expectations of future taxable income with the appropriate tax character. The increase in valuation allowance relates to non-deductible interest expense and capital loss carryforwards. During the year ended December 31, 2019, the Company released $46.9 million of valuation allowance against net deferred tax assets and federal net operating losses. The Company continues to maintain its existing valuation allowance against net deferred tax assets in many of its state and foreign jurisdictions as it is not believed to be more likely than not that its deferred tax assets will be realized in such jurisdictions.
The following table summarizes the activity related to our valuation allowance for deferred tax assets for the year ended December 31, 2020 (In thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Beginning of Period
|
|
Additions/(Reductions) Charged to Expenses
|
|
Additions/(Reductions) for Acquisitions/Dispositions
|
|
Other Additions to (Deductions from) Reserves
|
|
Foreign Currency Translation
|
|
Balance at End of Period
|
$
|
158,820
|
|
|
$
|
90,444
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,272
|
|
|
$
|
250,536
|
|
The aforementioned valuation allowance relates to unamortizable intangible assets, nondeductible interest expense carryforwards, capital losses, state and foreign net operating losses and other tax attributes that are deemed unrealizable as of December 31, 2020.
As of December 31, 2020, the Company had $543.5 million of Federal net operating loss ("NOL") carryforwards, $219.7 million of Federal disallowed business interest expense carryforwards, $1.136 billion of apportioned state NOL carryforwards, and $194.3 million of foreign net NOL carryforwards, which are available to offset future taxable income. Additionally, as of December 31, 2020, the Company had $7.6 million of other business tax credits, $2.4 million of foreign tax credits, $5.8 million of state credits, and $34.7 million of foreign capital loss carryforwards. The Federal NOL carryforwards begin to expire in 2031 and the state NOL carryforwards began to expire in 2020. A portion of the NOL's are subject to the limitations of Internal Revenue Code Section 382. This section provides limitations on the availability of NOL's to offset current taxable income if significant ownership changes have occurred for federal tax purposes.
The following table summarizes the activity related to unrecognized tax benefits, excluding the federal tax benefit of state tax deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Change in unrecognized tax benefits
|
|
|
|
|
|
Balance at beginning of year
|
$
|
34,074
|
|
|
$
|
1,190
|
|
|
$
|
1,160
|
|
Additions based on tax positions related to the current year
|
6,617
|
|
|
658
|
|
|
—
|
|
Additions for tax positions of prior years
|
1,611
|
|
|
—
|
|
|
30
|
|
Reductions for tax positions of prior years
|
(1,417)
|
|
|
(352)
|
|
|
—
|
|
Increase due to current year business acquisitions
|
—
|
|
|
32,578
|
|
|
—
|
|
Balance at end of year
|
$
|
40,885
|
|
|
$
|
34,074
|
|
|
$
|
1,190
|
|
At December 31, 2020, the Company’s uncertain tax positions of $39.5 million, if recognized, would impact the effective tax rate. 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. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. At December 31, 2020 and 2019, the accrual for uncertain tax positions included $2.6 million and $1.9 million of interest and penalties, respectively.
The Company files a Federal consolidated income tax return for which the statute of limitations remains open for the 2015 tax year and subsequent years. U.S. state jurisdictions have statute of limitations generally ranging from 3 to 6 years. The federal income tax returns for calendar years 2015-2017 for Legacy Gannett are under federal audit. The statute of limitations for the Company's U.K. income tax return remains open for tax years for 2018 and forward. Section 2303 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act extended the carryback period for corporate net operating losses to five years. This law change permitted the Company to carry back a loss from 2019 to claim a $7.8 million refund.
NOTE 12 — Supplemental equity information
Earnings (loss) per share
The following table sets forth the computation of basic and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Net income (loss) attributable to Gannett
|
$
|
(670,479)
|
|
|
$
|
(119,842)
|
|
|
$
|
18,196
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
131,742
|
|
|
67,671
|
|
|
58,014
|
|
Effect of dilutive securities: Stock options and restricted stock grants
|
—
|
|
|
—
|
|
|
385
|
|
Diluted weighted average shares outstanding
|
131,742
|
|
|
67,671
|
|
|
58,399
|
|
The Company excluded the following securities from the computation of diluted income per share because their effect would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Warrants
|
845
|
|
|
1,362
|
|
|
1,362
|
|
Stock options
|
6,068
|
|
|
2,905
|
|
|
700
|
|
Restricted stock grants (a)
|
7,694
|
|
|
9,494
|
|
|
—
|
|
2027 Notes (b)
|
27,482
|
|
|
—
|
|
|
—
|
|
(a) Includes Restricted stock awards ("RSA"), Restricted stock units ("RSU") and Performance stock units ("PSU").
(b) Represents 19.9% of Common Stock outstanding as of December 31, 2020.
The 2027 Notes may be converted at any time by the holders into cash, shares of the Company’s Common Stock or any combination of cash and Common Stock, at the Company’s election. Assuming the maximum increase in the Conversion Rate as a result of a Make-Whole Fundamental Change but no other adjustments to the Conversion Rate, the Company has excluded approximately 266.7 million shares from the earnings (loss) per share calculation as the Company would have been required to settle any conversion in cash for the year ended December 31, 2020.
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 ("Share Repurchase Program") over twelve months following that date. 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. No shares were repurchased under the program during 2020.
At-the-Market Offering
On August 6, 2020, we filed a shelf registration statement for an at-the-market ("ATM") offering, which is a type of follow-on offering of stock utilized by publicly traded companies in order to raise capital over time. Under the offering, we may offer and sell shares of Common Stock having an aggregate offering price of up to $50 million from time to time. We currently intend to use the net proceeds from sales of shares under the ATM program for general corporate purposes, including repayment of indebtedness. The timing of any sales will depend on a variety of factors, including the underlying price of our Common Stock and capital needs. We do not expect to utilize the shelf registration statement until such time that our stock rebounds to a level that management believes more fully reflects the Company’s underlying value. However, we believe that the shelf registration statement provides us with additional financing flexibility to efficiently access the capital markets when desired.
Manager stock options and warrants
Effective 11:59 p.m. on December 31, 2020, the Company’s relationship with FIG LLC (the "Manager") was terminated and all transfer restrictions contained in the Amended Management Agreement on shares of our common stock owned by the Manager, or acquired by the Manager upon the exercise of stock options to acquire common stock, lapsed.
Pursuant to the anti-dilution provisions of the New Media Nonqualified Stock Option and Incentive Award Plan (the "New Media Incentive Plan"), the exercise price on the 652,311 remaining stock options granted to the Manager in 2014 were equitably adjusted during the year ended December 31, 2019, from $12.95 to $11.46 as a result of return of capital distributions. Also, these stock options were equitably adjusted during the year ended December 31, 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 stock options granted to the Manager in 2015 were equitably adjusted during the year ended December 31, 2019, from $18.94 to $17.45 as a result of return of capital distributions. Also, these stock options were equitably adjusted during the year ended December 31, 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 stock options granted to the Manager in 2016 were equitably adjusted during the year ended December 31, 2019, from $13.24 to $11.75 as a result of return of capital distributions. Also, these stock options were equitably adjusted during the year ended December 31, 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 stock options granted to the Manager in 2018 were equitably adjusted during the year ended December 31, 2019, from $16.45 to $14.96 as a result of return of capital distributions. Also, these stock options were equitably adjusted during the year ended December 31, 2020, from $14.96 to $13.44 as a result of return of capital distributions.
In connection with the acquisition of Legacy Gannett, during 2019 the Company issued 4,205,607 shares of its common stock as consideration for the acquisition. For the purpose of compensating the Manager for its successful efforts in facilitating the acquisition, the Company granted stock options to the Manager to purchase 3,163,264 shares of the Company’s common stock at a price of $15.50, which had an aggregate fair value of approximately $0.3 million as of the grant date.
In addition to the above stock options, the Company has issued warrants collectively representing the right to acquire common stock at a future date. As of December 31, 2020, the warrants, if exercised would represent approximately 0.6% of common stock outstanding at a strike price of $46.35.
The following table includes additional information regarding the Manager stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
(In thousands)
|
|
Weighted-Average Grant Date Fair Value
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term (Years)
|
|
|
Outstanding at December 30, 2018
|
2,905
|
|
|
$
|
3.59
|
|
|
$
|
15.31
|
|
|
7.3
|
|
|
Granted
|
3,163
|
|
|
$
|
0.11
|
|
|
$
|
15.50
|
|
|
|
|
|
Outstanding at December 31, 2019
|
6,068
|
|
|
$
|
1.78
|
|
|
$
|
14.70
|
|
|
8.2
|
|
|
Granted
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
Outstanding at December 31, 2020
|
6,068
|
|
|
$
|
1.78
|
|
|
$
|
13.97
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2020
|
4,276
|
|
|
$
|
1.78
|
|
|
$
|
13.33
|
|
|
6.4
|
|
|
Share-based compensation
Share-based payments to employees and the board of directors, including grants of stock options and restricted stock, are required to be recognized in the consolidated financial statements over the service period (generally the vesting period) based on fair values measured on grant dates, less forfeitures.
The Company recognized compensation cost for share-based payments of $26.4 million for the year ended December 31, 2020, $11.3 million for the year ended December 31, 2019, and $3.2 million for the year ended December 30, 2018. The total compensation cost not yet recognized related to non-vested awards as of December 31, 2020 was $17.6 million, which is expected to be recognized over a weighted average period of 1.9 years through November 2022.
Restricted stock grants ("RSG")
In connection with our acquisition of Legacy Gannett, the Company assumed management of the Gannett Co. Inc. 2015 Omnibus Incentive Compensation Plan (the "2015 Incentive Plan"). Pursuant to a Form S-8 filed with the SEC on November 20, 2019, we registered 16.4 million shares of common stock under this plan and two other plans assumed pursuant to the acquisition. Of this total, approximately 10.5 million shares of Legacy Gannett common stock under the Gannett Co. Inc. 2015 Omnibus Incentive Compensation Plan which were outstanding immediately prior to the acquisition were registered for issuance. On December 21, 2020, the Board authorized the freeze of the 2015 Incentive Plan such that no new awards will be granted pursuant to the 2015 Incentive Plan after such date. The Board also approved Amendment No. 1 to the Company's 2020 Omnibus Incentive Compensation Plan (the "2020 Incentive Plan") to make available for grant under the 2020 Incentive Plan the shares that remained available for issuance under the 2015 Incentive Plan as of such date, the use of which is subject to the limitations of Rule 303A.08 of the NYSE Listed Company Manual.
On February 26, 2020, the Company adopted the 2020 Incentive Plan to reinforce the long-term commitment to the Company's success of the Company's independent directors, officers and other employees and consultants, assist the Company in attracting and retaining individuals with experience and ability, and to benefit the Company's stockholders by encouraging high levels of performance by individuals whose performance is a key element in achieving the Company's continued success. The 2020 Incentive Plan amended and restated the prior New Media Incentive Plan. The 2020 Incentive Plan provides that if
service terminates for certain specified conditions, all unvested shares of Restricted Stock may be forfeited. During the period prior to the lapse and removal of the vesting restrictions, a grantee of a Restricted Stock Award ("RSA") will have all the rights of a stockholder, including without limitation, the right to vote and the right to receive all dividends or other distributions. Any dividends or other distributions that are declared with respect to the shares of Restricted Stock will be paid at the time such shares vest. The value of the RSAs on the date of issuance is recognized in Selling, general, and administrative expense over the vesting period with a corresponding increase to additional paid-in-capital.
The following table outlines Restricted stock unit ("RSU") and Performance stock unit ("PSU") activity specific to Legacy Gannett:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
|
Number
of RSUs & PSUs
(In thousands)
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Number
of RSUs & PSUs
(In thousands)
|
|
Weighted-
Average
Grant Date
Fair Value
|
Unvested at beginning of year
|
7,368
|
|
|
$
|
6.28
|
|
|
—
|
|
|
$
|
—
|
|
Granted
|
282
|
|
|
0.90
|
|
|
10,466
|
|
|
6.28
|
|
Vested
|
(4,713)
|
|
|
6.27
|
|
|
(3,081)
|
|
|
6.28
|
|
Forfeited
|
(424)
|
|
|
2.81
|
|
|
(17)
|
|
|
6.28
|
|
Unvested at end of year
|
2,513
|
|
|
$
|
6.28
|
|
|
7,368
|
|
|
$
|
6.28
|
|
The following table outlines RSA activity for the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
|
Number
of RSAs
(In thousands)
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Number
of RSAs
(In thousands)
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Number
of RSAs
(In thousands)
|
|
Weighted-
Average
Grant Date
Fair Value
|
Unvested at beginning of year
|
317
|
|
|
$
|
14.61
|
|
|
384
|
|
|
$
|
16.11
|
|
|
342
|
|
|
$
|
16.86
|
|
Granted
|
6,781
|
|
|
3.35
|
|
|
301
|
|
|
13.62
|
|
|
227
|
|
|
16.43
|
|
Vested
|
(1,280)
|
|
|
5.72
|
|
|
(274)
|
|
|
15.45
|
|
|
(170)
|
|
|
18.01
|
|
Forfeited
|
(637)
|
|
|
3.90
|
|
|
(94)
|
|
|
15.12
|
|
|
(15)
|
|
|
16.55
|
|
Unvested at end of year
|
5,181
|
|
|
$
|
3.39
|
|
|
317
|
|
|
$
|
14.61
|
|
|
384
|
|
|
$
|
16.11
|
|
As of December 31, 2020, the consolidated aggregate intrinsic value of unvested RSGs was $25.9 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 one 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 stockholders 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 stockholders 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% discount or Gannett may exchange each right held by such holders for one 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 stockholders, unless Gannett’s stockholders 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 SEC.
Preferred Stock
The Company has authorized 300,000 shares of preferred stock, par value $0.01 per share, issuable in one or more series designated by our board of directors, of which 150,000 shares have been designated as Series A Junior Participating Preferred Stock, none of which are outstanding. There were no issuances of preferred stock during the year ended December 31, 2020.
Accumulated other comprehensive income (loss)
The changes in Accumulated other comprehensive income (loss) by component for the years ended December 31, 2020, and December 31, 2019, are outlined below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Pension and Postretirement Benefit Plans
|
|
Foreign Currency Translation
|
|
Total
|
Balance at December 31, 2017
|
$
|
(5,461)
|
|
|
$
|
—
|
|
|
$
|
(5,461)
|
|
Other comprehensive loss before reclassifications
|
(1,509)
|
|
|
—
|
|
|
(1,509)
|
|
Amounts reclassified from accumulated other comprehensive loss (a)
|
89
|
|
|
—
|
|
|
89
|
|
Net current period other comprehensive loss, net of taxes
|
(1,420)
|
|
|
—
|
|
|
(1,420)
|
|
Balance at December 30, 2018
|
$
|
(6,881)
|
|
|
$
|
—
|
|
|
$
|
(6,881)
|
|
Other comprehensive income before reclassifications
|
7,731
|
|
|
7,266
|
|
|
14,997
|
|
Amounts reclassified from accumulated other comprehensive income (a)
|
86
|
|
|
—
|
|
|
86
|
|
Net current period other comprehensive income, net of taxes
|
7,817
|
|
|
7,266
|
|
|
15,083
|
|
Balance at December 31, 2019
|
$
|
936
|
|
|
$
|
7,266
|
|
|
$
|
8,202
|
|
Other comprehensive income before reclassifications
|
39,479
|
|
|
2,466
|
|
|
41,945
|
|
Amounts reclassified from accumulated other comprehensive income (a) (b)
|
26
|
|
|
—
|
|
|
26
|
|
Net current period other comprehensive income, net of taxes
|
39,505
|
|
|
2,466
|
|
|
41,971
|
|
Balance at December 31, 2020
|
$
|
40,441
|
|
|
$
|
9,732
|
|
|
$
|
50,173
|
|
(a)Accumulated other comprehensive income (loss) component represents amortization of actuarial loss and is included in the computation of net periodic benefit cost. See Note 9 — Pensions and other postretirement benefit plans.
(b) Amounts reclassified from accumulated other comprehensive loss are recorded net of tax impacts of $0.01 million for the year ended December 31, 2020.
Dividends
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 stockholders for the Company to preserve liquidity by suspending the Company's quarterly dividend. Therefore, the Company did not pay dividends during the year ended December 31, 2020. During the year ended December 31, 2019, and December 30, 2018, the Company paid dividends of $1.52 and $1.49 per share of Common Stock, respectively.
NOTE 13 — Commitments, contingencies and other matters
Legal Proceedings
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 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.
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, AL. 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 U.S. EPA regarding the costs the U.S. EPA spent to investigate the site. The U.S. 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. In addition, neither our potential loss nor a range of potential loss in connection with the Advertiser's final costs can be estimated until such time as we can reasonably make such estimate based on the foregoing factors.
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.
Other
Purchase obligations
We have future expected purchase obligations of $548.0 million related to printing contracts, licenses and IT support agreements, professional services, interactive marketing agreements, and other legally binding commitments. Amounts which we are liable for under purchase orders outstanding at December 31, 2020, are reflected in the Consolidated balance sheets as Accounts payable and are excluded from the amounts referred to above.
Self-insurance
We are self-insured for most of our employee medical coverage and for our casualty, general liability, and libel coverage (subject to a cap above which third-party insurance is in place). The liabilities, which are reflected in Accounts payable and Other long-term liabilities in the Consolidated balance sheets, are established on an actuarial basis with the advice of consulting actuaries and totaled $43.1 million and $65.4 million as of December 31, 2020 and December 31, 2019, respectively.
Redeemable noncontrolling interests
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 Consolidated balance sheets.
NOTE 14 — Segment reporting
We define our reportable segments based on the way the Chief Operating Decision Maker (CODM), which is the Chief Executive Officer, 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 and distribution arrangements. The Publishing reportable segment is an aggregation of two operating segments: Domestic Publishing and the U.K.
•Digital 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 non-GAAP financial performance measure we believe offers a useful view of the overall operation of our businesses and may be different than similarly-titled non-GAAP financial measures used by other companies. We define Adjusted EBITDA as net income (loss) attributable to Gannett before: (1) Income tax expense (benefit), (2) Interest expense, (3) Gains or losses on early extinguishment of debt, (4) Non-operating pension income, (5) Unrealized (gain) loss on Convertible notes derivative, (6) Other Non-operating items, primarily equity income, (7) Depreciation and amortization, (8) Integration and reorganization costs, (9) Asset impairments, (10) Goodwill and intangible impairments, (11) Gains or losses on the sale or disposal of assets, (12) Share-based compensation expense, (13) Acquisition costs, (14) Gains or losses on the sale of investments, and (15) 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.
The following table presents information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Publishing
|
|
Digital Marketing Solutions
|
|
Corporate and Other
|
|
Intersegment Eliminations
|
|
Consolidated
|
Year ended December 31, 2020
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services - external sales
|
$
|
1,295,158
|
|
|
$
|
411,940
|
|
|
$
|
3,146
|
|
|
$
|
—
|
|
|
$
|
1,710,244
|
|
Advertising and marketing services - intersegment sales
|
114,342
|
|
|
—
|
|
|
—
|
|
|
(114,342)
|
|
|
—
|
|
Circulation
|
1,391,983
|
|
|
—
|
|
|
13
|
|
|
—
|
|
|
1,391,996
|
|
Other
|
278,964
|
|
|
16,665
|
|
|
7,801
|
|
|
—
|
|
|
303,430
|
|
Total operating revenues
|
$
|
3,080,447
|
|
|
$
|
428,605
|
|
|
$
|
10,960
|
|
|
$
|
(114,342)
|
|
|
$
|
3,405,670
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (non-GAAP basis)
|
$
|
459,195
|
|
|
$
|
24,361
|
|
|
$
|
(69,661)
|
|
|
$
|
—
|
|
|
$
|
413,895
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services - external sales
|
$
|
819,046
|
|
|
$
|
131,003
|
|
|
$
|
2,595
|
|
|
$
|
—
|
|
|
$
|
952,644
|
|
Advertising and marketing services - intersegment sales
|
78,539
|
|
|
—
|
|
|
—
|
|
|
(78,539)
|
|
|
—
|
|
Circulation
|
704,811
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|
704,842
|
|
Other
|
190,256
|
|
|
18,239
|
|
|
1,928
|
|
|
—
|
|
|
210,423
|
|
Total operating revenues
|
$
|
1,792,652
|
|
|
$
|
149,242
|
|
|
$
|
4,554
|
|
|
$
|
(78,539)
|
|
|
$
|
1,867,909
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (non-GAAP basis)
|
$
|
268,916
|
|
|
$
|
(3,279)
|
|
|
$
|
(41,766)
|
|
|
$
|
—
|
|
|
$
|
223,871
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 30, 2018
|
|
|
|
|
|
|
|
|
|
Advertising and marketing services - external sales
|
$
|
704,945
|
|
|
$
|
80,086
|
|
|
$
|
1,546
|
|
|
$
|
—
|
|
|
$
|
786,577
|
|
Advertising and marketing services - intersegment sales
|
68,089
|
|
|
—
|
|
|
—
|
|
|
(68,089)
|
|
|
—
|
|
Circulation
|
574,961
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
574,963
|
|
Other
|
147,129
|
|
|
15,785
|
|
|
1,570
|
|
|
—
|
|
|
164,484
|
|
Total operating revenues
|
$
|
1,495,124
|
|
|
$
|
95,871
|
|
|
$
|
3,118
|
|
|
$
|
(68,089)
|
|
|
$
|
1,526,024
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (non-GAAP basis)
|
$
|
220,415
|
|
|
$
|
(6,404)
|
|
|
$
|
(33,718)
|
|
|
$
|
—
|
|
|
$
|
180,293
|
|
The following table presents our reconciliation of Net income (loss) attributable to Gannett to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Net income (loss) attributable to Gannett
|
$
|
(670,479)
|
|
|
$
|
(119,842)
|
|
|
$
|
18,196
|
|
Provision (benefit) for income taxes
|
(33,450)
|
|
|
(85,994)
|
|
|
1,912
|
|
Interest expense
|
228,513
|
|
|
63,660
|
|
|
36,072
|
|
Loss on early extinguishment of debt
|
43,760
|
|
|
6,058
|
|
|
2,886
|
|
Non-operating pension income
|
(72,149)
|
|
|
(9,085)
|
|
|
(1,435)
|
|
Unrealized loss on Convertible notes derivative
|
74,329
|
|
|
—
|
|
|
—
|
|
Gain on sale of investments
|
(7,995)
|
|
|
—
|
|
|
—
|
|
Other non-operating (income) expense, net
|
(8,499)
|
|
|
(426)
|
|
|
597
|
|
Depreciation and amortization
|
263,819
|
|
|
111,882
|
|
|
84,791
|
|
Integration and reorganization costs
|
145,731
|
|
|
52,212
|
|
|
15,011
|
|
Acquisition costs
|
11,152
|
|
|
60,618
|
|
|
2,651
|
|
Asset impairments
|
11,029
|
|
|
3,009
|
|
|
1,538
|
|
Goodwill and intangible impairments
|
393,446
|
|
|
100,743
|
|
|
—
|
|
Net (gain) loss on sale or disposal of assets
|
(5,680)
|
|
|
4,723
|
|
|
(3,971)
|
|
Share-based compensation expense
|
26,350
|
|
|
11,324
|
|
|
3,156
|
|
Other items
|
14,018
|
|
|
24,989
|
|
|
18,889
|
|
Adjusted EBITDA (non-GAAP basis)
|
$
|
413,895
|
|
|
$
|
223,871
|
|
|
$
|
180,293
|
|
Asset information by segment is not a key measure of performance used by the CODM. Accordingly, we have not disclosed asset information by segment. Additionally, equity income in unconsolidated investees, net, interest expense, other non-operating items, net, and provision for income taxes, as reported in the Consolidated financial statements, are not part of operating income and are primarily recorded at the corporate level.
NOTE 15 — Related party transactions
As of December 31, 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. On November 18, 2020, 517,239 warrants held by Fortress were cancelled and as of December 31, 2020, the Manager and its affiliates held approximately 2% of the Company’s outstanding warrants. The Manager or its affiliates hold 6,068,075 stock options of the Company’s stock as of December 31, 2020. During the year ended December 31, 2020, no dividends were paid to Fortress and its affiliates. During both the years ended December 31, 2019, and December 30, 2018, Fortress and its affiliates were paid $1.0 million in dividends. Effective 11:59 p.m. on December 31, 2020, the Company’s relationship with the Manager was terminated.
For the year ended December 31, 2020, the Company's Chief Executive Officer was an employee of Fortress (or one of its affiliates), and his salary was paid by Fortress (or one of its affiliates). In connection with the termination of the Company’s relationship with the Manager, the Company’s Chief Executive Officer became employed by the Company as of January 1, 2021.
Termination of the 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 New Media’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) established a termination date for the Manager’s services of December 31, 2021, in lieu of annual renewals of the term; (ii) reduced the "incentive fee" payable
under the Amended Management Agreement from 25% to 17.5% for the remainder of the term; (iii) reduced 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) eliminated the Manager’s right to receive options in connection with future equity raises by the Company; and (v) eliminated certain payments otherwise due at or after the end of the term of the prior management agreement. As discussed below, the Company’s relationship with the Manager terminated effective at 11:59 p.m. Eastern Time on December 31, 2020.
In connection with entering into the Amended Management Agreement and the occurrence of the consummation of the acquisition of Legacy Gannett, the Company issued to the Manager 4,205,607 shares of common stock and granted to the Manager stock options to acquire 3,163,264 shares of common stock.
On December 21, 2020, the Company entered into a Termination Agreement (the "Termination Agreement") with the Manager providing for the early termination of the Amended Management Agreement, effective at 11:59 p.m. Eastern Time on December 31, 2020. Upon termination of the Amended Management Agreement, the Manager ceased providing external management services to the Company, and the Manager no longer is the employer of the person serving in the role of Chief Executive Officer of the Company. In connection with the Termination Agreement, the Company made a one-time cash payment of $30.4 million to the Manager. In addition, all transfer restrictions contained in the Amended Management Agreement on shares of our common stock owned by the Manager, or acquired by the Manager upon the exercise of stock options to acquire common stock, lapsed. In connection with the termination of our relationship with the Manager, we extended offers of employment to certain employees of the Manager or its affiliates who provided services to the Company, including to our Chief Executive Officer. Certain indemnification and other obligations in the Amended Management Agreement survived the termination of our relationship with the Manager.
The following table provides the management and incentive fees recognized and paid to the Manager:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
In thousands
|
December 31, 2020
|
|
December 31, 2019
|
|
December 30, 2018
|
Management fee expense
|
$
|
16,972
|
|
|
$
|
10,992
|
|
|
$
|
10,674
|
|
Incentive fee expense
|
—
|
|
|
4,067
|
|
|
11,143
|
|
Management fees paid
|
16,327
|
|
|
11,078
|
|
|
9,619
|
|
Incentive fees paid
|
2,602
|
|
|
6,675
|
|
|
14,129
|
|
Reimbursement for expenses
|
2,628
|
|
|
2,905
|
|
|
2,501
|
|
As of December 31, 2020, there was no outstanding liability for Management Agreement related fees and a liability of $6.5 million at December 31, 2019, included in Accounts payable and accrued liabilities on the Consolidated balance sheets.
NOTE 16 — Subsequent events
Term Loan Refinancing
On February 9, 2021, the Company entered into a five-year, senior-secured term loan facility with Citibank, N.A. in an aggregate principal amount of $1.045 billion (the "5-Year Term Loan"). The 5-Year Term Loan matures on February 9, 2026 and, at the Company's option, bears interest at the rate of the London Interbank Offered Rate plus a margin equal to 7.00% per annum or an alternate base rate plus a margin equal to 6.00% per annum. Accordingly, we are required to dedicate a substantial portion of cash flow from operations to fund interest payments.
The proceeds from the 5-Year Term Loan were used for the Payoff, and to pay fees and expenses incurred to obtain the 5-Year Term Loan and consummate the Payoff.
The 5-Year Term Loan will amortize quarterly at a rate of 10% per annum (or, if the ratio of Total Indebtedness secured on an equal priority basis with the 5-Year Term Loan (net of Unrestricted Cash) to Consolidated EBITDA (as such terms are defined in the 5-Year Term Loan) is equal to or less than a specified ratio, 5% per annum) payable in equal quarterly installments (the "Quarterly Amortization Installment"), beginning September 30, 2021. In addition, we will be required to repay the 5-Year Term Loan from time to time with (i) the proceeds of non-ordinary course asset sales and casualty and condemnation events, (ii) the proceeds of indebtedness that is not otherwise permitted under the 5-Year Term Loan and (iii) the aggregate amount of cash and cash equivalents on hand in excess of $100 million at the end of each fiscal year. The 5-Year
Term Loan is subject to a requirement to have minimum unrestricted cash of $30 million as of the last day of each fiscal quarter.
Following this transaction, total debt outstanding will be $1.545 billion, which will include the $1.045 billion 5-Year Term Loan, $497.1 million 2027 Notes, and $3.3 million 2024 Notes. In addition, we anticipate recording a loss on extinguishment of the Acquisition Term Loan and other fees of approximately $27 million.
Special Meeting of Stockholders
At the Special Meeting, our stockholders approved, for purposes of Rule 312.03(c) of the New York Stock Exchange, of the issuance of the maximum number of shares of Common Stock issuable upon conversion of the 2027 Notes. Following receipt of the stockholder approval, the Company has the flexibility to settle conversion of the 2027 Notes with shares of Common Stock in full (rather than cash of an equivalent value).