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

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-36097
___________________________
GANNETT CO., INC.
(Exact name of registrant as specified in its charter)
___________________________
Delaware 38-3910250
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
7950 Jones Branch Drive, McLean, Virginia 22107-0910
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 854-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Trading Symbol Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share GCI The New York Stock Exchange
Preferred Stock Purchase Rights N/A The New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No
As of August 3, 2021, 142,617,066 shares of the registrant's Common Stock were outstanding.




CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our current views regarding, among other things, our future growth, results of operations, performance, and business prospects and opportunities, and are not statements of historical fact. Words such as "anticipate(s)," "expect(s)," "intend(s)," "plan(s)," "target(s)," "project(s)," "believe(s)," "forecast," "will," "aim," "would," "seek(s)," "estimate(s)" and similar expressions are intended to identify such forward-looking statements.

Forward-looking statements are based on management’s current expectations and beliefs and are subject to a number of known and unknown risks, uncertainties, and other factors that could lead to actual results materially different from those described in the forward-looking statements. We can give no assurance our expectations will be attained. Our actual results, liquidity, and financial condition may differ from the anticipated results, liquidity, and financial condition indicated in these forward-looking statements. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause our actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others:

General economic and market conditions;
The competitive environment in which we operate;
Risks and uncertainties associated with the ongoing COVID-19 pandemic;
Economic conditions in the various regions of the United States, the United Kingdom, and other regions in which we operate our business;
The shift within the publishing industry from traditional print media to digital forms of publication;
Risks and uncertainties associated with our Digital Marketing Solutions segment, including its significant reliance on Google for media purchases, its international operations, and its ability to develop and gain market acceptance for new products or services;
Declining print advertising revenue and circulation subscribers;
Our ability to grow our digital marketing services initiatives, digital audience, and advertiser base;
Our ability to grow our business organically;
Variability in the exchange rate relative to the U.S. dollar of currencies in foreign jurisdictions in which we operate;
The risk that we may not realize the anticipated benefits of our acquisitions;
The availability and cost of capital for future investments;
Our indebtedness may restrict our operations and/or require us to dedicate a portion of cash flow from operations to payments associated with our debt;
Our current intention not to pay dividends and our ability to pay dividends consistent with prior practice or at all;
Our ability to reduce costs and expenses;
Our ability to remediate a material weakness in our internal control over financial reporting; and
Our ability to recruit and retain key personnel, as well as any shortage of skilled or experienced employees, including journalists.

Additional risk factors that could cause actual results to differ materially from our expectations include, but are not limited to, the risks identified by us under the heading “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2021, and the statements made in subsequent filings. Such forward-looking statements speak only as of the date they are made. Except to the extent required by law, we expressly disclaim any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or change in events, conditions, or circumstances on which any statement is based.




INDEX TO GANNETT CO., INC.
Q2 2021 FORM 10-Q
 



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

GANNETT CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except share data June 30, 2021 December 31, 2020
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 158,563  $ 170,725 
Accounts receivable, net of allowance for doubtful accounts of $17,955 and $20,843 as of June 30, 2021 and December 31, 2020, respectively
291,452  314,305 
Inventories 34,535  35,075 
Prepaid expenses and other current assets 113,275  116,581 
Total current assets 597,825  636,686 
Property, plant and equipment, net of accumulated depreciation of $362,677 and $362,029 as of June 30, 2021 and December 31, 2020, respectively
522,347  590,272 
Operating lease assets 278,389  289,504 
Goodwill 534,218  534,088 
Intangible assets, net 770,811  824,650 
Deferred tax assets 58,571  90,240 
Other assets 211,627  143,474 
Total assets $ 2,973,788  $ 3,108,914 
Liabilities and equity
Current liabilities:
Accounts payable and accrued liabilities $ 351,919  $ 378,246 
Deferred revenue 184,619  186,007 
Current portion of long-term debt 106,644  128,445 
Other current liabilities 49,939  48,602 
Total current liabilities 693,121  741,300 
Long-term debt 823,009  890,323 
Convertible debt 396,964  581,405 
Deferred tax liabilities 22,567  6,855 
Pension and other postretirement benefit obligations 90,019  99,765 
Long-term operating lease liabilities 262,390  274,460 
Other long-term liabilities 157,708  151,847 
Total noncurrent liabilities 1,752,657  2,004,655 
Total liabilities 2,445,778  2,745,955 
Redeemable noncontrolling interests (2,067) (1,150)
Commitments and contingent liabilities (See Note 12)
Equity
Preferred stock, $0.01 par value, 300,000 shares authorized, of which 150,000 shares are designated as Series A Junior Participating Preferred Stock, none of which were issued and outstanding at June 30, 2021 and December 31, 2020
—  — 
Common stock of $0.01 par value per share, 2,000,000,000 shares authorized, 144,638,938 shares issued and 142,624,274 shares outstanding at June 30, 2021; 139,494,741 shares issued and 138,102,993 shares outstanding at December 31, 2020
1,446  1,395 
Treasury stock at cost, 2,014,664 shares and 1,391,748 shares at June 30, 2021 and December 31, 2020, respectively
(6,935) (4,903)
Additional paid-in capital 1,395,191  1,103,881 
Accumulated deficit (913,638) (786,437)
Accumulated other comprehensive income 54,013  50,173 
Total equity 530,077  364,109 
Total liabilities and equity $ 2,973,788  $ 3,108,914 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2

GANNETT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three months ended June 30, Six months ended June 30,
In thousands, except per share amounts 2021 2020 2021 2020
Advertising and marketing services $ 420,110  $ 356,918  $ 808,467  $ 843,929 
Circulation 310,259  342,646  635,696  717,369 
Other 73,906  67,436  137,196  154,385 
Total operating revenues 804,275  767,000  1,581,359  1,715,683 
Operating costs 473,172  476,735  950,970  1,043,199 
Selling, general and administrative expenses 222,904  226,484  426,588  525,622 
Depreciation and amortization 48,242  66,327  106,345  144,352 
Integration and reorganization costs 8,444  32,306  21,848  60,560 
Asset impairments —  6,859  833  6,859 
Goodwill and intangible impairments —  393,446  —  393,446 
Net loss on sale or disposal of assets 5,294  88  10,039  745 
Other operating expenses 774  2,379  11,350  8,348 
Total operating expenses 758,830  1,204,624  1,527,973  2,183,131 
Operating income (loss) 45,445  (437,624) 53,386  (467,448)
Interest expense 35,264  57,928  74,767  115,827 
Loss on early extinguishment of debt 2,834  369  22,235  1,174 
Non-operating pension income (23,906) (17,553) (47,784) (36,099)
Loss on Convertible notes derivative —  —  126,600  — 
Other income, net (1,148) (6,261) (3,023) (4,616)
Non-operating expense 13,044  34,483  172,795  76,286 
Income (loss) before income taxes 32,401  (472,107) (119,409) (543,734)
Provision (benefit) for income taxes 17,692  (34,276) 8,583  (25,297)
Net income (loss) 14,709  (437,831) (127,992) (518,437)
Net loss attributable to redeemable noncontrolling interests (406) (938) (791) (1,392)
Net income (loss) attributable to Gannett $ 15,115  $ (436,893) $ (127,201) $ (517,045)
Income (loss) per share attributable to Gannett - basic $ 0.11  $ (3.32) $ (0.95) $ (3.95)
Income (loss) per share attributable to Gannett - diluted $ 0.10  $ (3.32) $ (0.95) $ (3.95)
Other comprehensive income (loss):
Foreign currency translation adjustments $ 1,750  $ (2,552) $ 4,787  $ (16,585)
Pension and other postretirement benefit items:
Net actuarial loss (1,426) (8,078) (300) (8,078)
Amortization of net actuarial loss (gain) (5) (11) 15  (25)
Other (292) 95  (846) 1,061 
Total pension and other postretirement benefit items (1,723) (7,994) (1,131) (7,042)
Other comprehensive income (loss) before tax 27  (10,546) 3,656  (23,627)
Income tax benefit related to components of other comprehensive income (loss) (390) (2,059) (184) (2,063)
Other comprehensive income (loss), net of tax 417  (8,487) 3,840  (21,564)
Comprehensive income (loss) 15,126  (446,318) (124,152) (540,001)
Comprehensive loss attributable to redeemable noncontrolling interests (406) (938) (791) (1,392)
Comprehensive income (loss) attributable to Gannett $ 15,532  $ (445,380) $ (123,361) $ (538,609)
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


GANNETT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
In thousands 2021 2020
Operating activities
Net loss $ (127,992) $ (518,437)
Adjustments to reconcile net loss to operating cash flows:
Depreciation and amortization 106,345  144,352 
Share-based compensation expense 9,202  18,968 
Non-cash interest expense 11,531  11,902 
Net loss on sale or disposal of assets 10,039  745 
Loss on Convertible notes derivative 126,600  — 
Loss on early extinguishment of debt 22,235  1,174 
Goodwill and intangible impairments —  393,446 
Asset impairments 833  6,859 
Pension and other postretirement benefit obligations (78,038) (49,064)
Change in other assets and liabilities, net 11,832  14,695 
Net cash provided by operating activities 92,587  24,640 
Investing activities
Purchase of property, plant and equipment (15,821) (22,157)
Proceeds from sale of real estate and other assets 23,341  17,792 
Change in other investing activities (335) 1,339 
Net cash provided by (used for) investing activities 7,185  (3,026)
Financing activities
Payments of debt issuance costs (33,921) — 
Borrowings under term loans 1,045,000  — 
Repayments under term loans (1,129,605) (18,985)
Payments for employee taxes withheld from stock awards (2,030) (1,942)
Changes in other financing activities (423) 596 
Net cash used for financing activities (120,979) (20,331)
Effect of currency exchange rate change on cash 625  (780)
(Decrease) increase in cash, cash equivalents and restricted cash (20,582) 503 
Balance of cash, cash equivalents and restricted cash at beginning of period 206,726  188,664 
Balance of cash, cash equivalents and restricted cash at end of period $ 186,144  $ 189,167 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4


GANNETT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
Three months ended June 30, 2021
Common stock Additional
Paid-in
Capital
Accumulated other comprehensive income (loss) Accumulated Deficit Treasury stock
In thousands, except share data Shares Amount Shares Amount Total
Balance at March 31, 2021 144,443,628  $ 1,444  $ 1,421,977  $ 53,596  $ (928,753) 1,901,927  $ (6,612) $ 541,652 
Net income attributable to Gannett —  —  —  —  15,115  —  —  15,115 
Restricted stock awards settled, net of withholdings 5,198  —  (11) —  —  —  —  (11)
Restricted share grants —  —  —  —  —  —  —  — 
Equity component of the 2027 Notes —  —  (32,534) —  —  —  —  (32,534)
Other comprehensive income, net of income tax benefit of $390
—  —  —  417  —  —  417 
Share-based compensation expense —  —  5,779  —  —  —  —  5,779 
Issuance of common stock 190,112  —  —  —  —  — 
Treasury stock —  —  —  —  —  62,835  (323) (323)
Restricted share forfeiture —  —  —  —  —  49,902  —  — 
Other activity —  —  (20) —  —  —  —  (20)
Balance at June 30, 2021 144,638,938  $ 1,446  $ 1,395,191  $ 54,013  $ (913,638) 2,014,664  $ (6,935) $ 530,077 
Three months ended June 30, 2020
Common stock Additional
Paid-in
Capital
Accumulated other comprehensive income (loss) Accumulated Deficit Treasury stock
In thousands, except share data Shares Amount Shares Amount Total
Balance at March 31, 2020 132,715,532  $ 1,327  $ 1,093,705  $ (4,875) $ (196,110) 657,165  $ (4,491) $ 889,556 
Net loss attributable to Gannett —  —  —  —  (436,893) —  —  (436,893)
Restricted stock awards settled, net of withholdings 251,250  (109) —  —  —  —  (106)
Restricted share grants 3,531,279  36  (36) —  —  —  —  — 
Other comprehensive loss, net of income tax benefit of $2,059
—  —  —  (8,487) —  —  —  (8,487)
Share-based compensation expense —  —  7,391  —  —  —  —  7,391 
Issuance of common stock 387,259  1,021  —  —  —  —  1,024 
Treasury stock —  —  —  —  —  55,236  (326) (326)
Restricted share forfeiture —  —  —  —  —  58,572  (1) (1)
Other activity —  —  (73) —  —  —  —  (73)
Balance at June 30, 2020 136,885,320  $ 1,369  $ 1,101,899  $ (13,362) $ (633,003) 770,973  $ (4,818) $ 452,085 
5

GANNETT CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY [CONTINUED]
(Unaudited)
Six months ended June 30, 2021
Common stock Additional
Paid-in
Capital
Accumulated other comprehensive income (loss) Accumulated Deficit Treasury stock
In thousands, except share data Shares Amount Shares Amount Total
Balance as of December 31, 2020 139,494,741  $ 1,395  $ 1,103,881  $ 50,173  $ (786,437) 1,391,748  $ (4,903) $ 364,109 
Net loss attributable to Gannett —  —  —  —  (127,201) —  —  (127,201)
Restricted stock awards settled, net of withholdings 1,061,840  10  (1,906) —  —  —  —  (1,896)
Restricted share grants 3,877,836  39  (39) —  —  —  —  — 
Equity component of the 2027 Notes —  —  283,718  —  —  —  —  283,718 
Other comprehensive income, net of income tax benefit of $184
—  —  —  3,840  —  —  —  3,840 
Share-based compensation expense —  —  9,202  —  —  —  —  9,202 
Issuance of common stock 204,521  61  —  —  —  —  63 
Remeasurement of redeemable noncontrolling interests —  —  126  —  —  —  —  126 
Treasury stock —  —  —  —  —  393,153  (2,030) (2,030)
Restricted share forfeiture —  —  —  —  —  229,763  (2) (2)
Other activity —  —  148  —  —  —  —  148 
Balance at June 30, 2021 144,638,938  $ 1,446  $ 1,395,191  $ 54,013  $ (913,638) 2,014,664  $ (6,935) $ 530,077 
Six months ended June 30, 2020
Common stock Additional
Paid-in
Capital
Accumulated other comprehensive income (loss) Accumulated Deficit Treasury stock
In thousands, except share data Shares Amount Shares Amount Total
Balance as of December 31, 2019 129,386,258  $ 1,294  $ 1,090,694  $ 8,202  $ (115,958) 394,714  $ (2,876) $ 981,356 
Net loss attributable to Gannett —  —  —  —  (517,045) —  —  (517,045)
Restricted stock awards settled, net of withholdings 2,508,585  25  (9,953) —  —  —  —  (9,928)
Restricted share grants 4,346,313  44  (44) —  —  —  —  — 
Other comprehensive loss, net of income tax benefit of $2,063
—  —  —  (21,564) —  —  —  (21,564)
Share-based compensation expense —  —  18,968  —  —  —  —  18,968 
Issuance of common stock 644,164  2,570  —  —  —  —  2,576 
Treasury stock —  —  —  —  —  317,687  (1,941) (1,941)
Restricted share forfeiture —  —  —  —  —  58,572  (1) (1)
Other activity —  —  (336) —  —  —  —  (336)
Balance at June 30, 2020 136,885,320  $ 1,369  $ 1,101,899  $ (13,362) $ (633,003) 770,973  $ (4,818) $ 452,085 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — Description of Business and basis of presentation

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 premier 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.

Our current portfolio of media assets includes USA TODAY, local media organizations in 46 states in the U.S., and Newsquest, a wholly-owned subsidiary operating in the United Kingdom (the "U.K.") with more than 120 local 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 segments: Publishing and Digital Marketing Solutions ("DMS"). A full description of our segments is included in Note 13 — Segment reporting in the notes to the condensed consolidated financial statements.

Impacts of the COVID-19 pandemic

As a result of the COVID-19 pandemic, we experienced a significant decline in Advertising and marketing services revenues, which accelerated the secular declines that we continue to experience. We continue to experience constraints on the sales of single copy newspapers, largely tied to business travel and in-person events. While we have seen operating trends improve since the second quarter of 2020, which represents the quarter that was most significantly impacted by the pandemic, we expect that the COVID-19 pandemic will continue to have a negative impact on our business and results of operations in the near-term, including lower revenues associated with in-person events and sales of single copy newspapers as a result of continued restrictions and reduced business travel. If the COVID-19 pandemic were to revert to conditions that existed during 2020, including measures to help mitigate and control the spread of the virus, we would expect to experience further negative impacts in Advertising and marketing services revenues.

We have implemented, and continue to implement, measures to reduce costs and preserve cash flow. These measures include, evaluating and applying for all governmental relief programs for which we are eligible, including the Paycheck Protection Program ("PPP"), suspension of the quarterly dividend and refinancing of our debt, as well as reductions in discretionary spending. In addition, we are continuing with our previously disclosed plan to monetize non-core assets.

In connection with the CARES Act, we have received $16.4 million in PPP funding in support of certain of our locations that were meaningfully affected by the COVID-19 pandemic. As of June 30, 2021, PPP loans of $16.4 million are included in Other long-term liabilities in the condensed consolidated balance sheets and in Operating activities in the condensed consolidated statements of cash flows. Interest expense related to PPP funding was immaterial for the three and six months ended June 30, 2021. Management intends to apply for forgiveness of the PPP loans in accordance with applicable guidelines.

Basis of presentation

Our condensed consolidated financial statements are unaudited; however, in the opinion of management, they contain all of the adjustments (consisting of those of a normal, recurring nature) considered necessary to present fairly the financial position, results of operations, and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") applicable to interim periods. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company consolidates entities that it controls due to ownership of a majority voting interest. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
7


Use of estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and footnotes thereto. Actual results could differ from those estimates.

Significant estimates inherent in the preparation of the condensed 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 intangible assets and the mark to market of the conversion feature associated with the convertible debt.

Recent accounting pronouncements adopted

Simplifying the Accounting for Income Taxes

In December 2019, the Financial Accounting Standards Board (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. While adopting this guidance allowed the Company to record a tax benefit for the first quarter of 2021 because year-to-date losses on interim periods are no longer limited to losses annually forecasted, it did not have a material impact on the Company's condensed consolidated financial statements in the second quarter of 2021.

Recent accounting pronouncements not yet adopted

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the FASB issued new guidance ("ASU 2020-06") 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 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. The Company does not expect the adoption of this guidance to have a material impact on the condensed consolidated financial statements.

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

Three months ended June 30, Six months ended June 30,
In thousands 2021 2020 2021 2020
Print advertising $ 200,925  $ 188,158  $ 394,121  $ 456,000 
Digital advertising and marketing services 219,185  168,760  414,346  387,929 
Total advertising and marketing services 420,110  356,918  808,467  843,929 
Circulation 310,259  342,646  635,696  717,369 
Other 73,906  67,436  137,196  154,385 
Total revenues $ 804,275  $ 767,000  $ 1,581,359  $ 1,715,683 

8

For both the three and six months ended June 30, 2021, approximately 8% of revenues were generated from international locations. For the three and six months ended June 30, 2020, approximately 6% and 7% of revenues, respectively, were generated from international locations.

Deferred revenues

The Company records deferred revenues when cash payments are received in advance of the Company’s performance obligation. The Company's primary source of deferred revenues is from circulation subscriptions paid in advance of the service provided, which represents future delivery of publications (the 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 changes in the deferred revenues balance by type of revenues:

Six months ended June 30, 2021 Six months ended June 30, 2020
In thousands Advertising, Marketing Services, and Other Circulation Total Advertising, Marketing Services, and Other Circulation Total
Beginning balance $ 51,686  $ 134,321  $ 186,007  $ 67,543  $ 151,280  $ 218,823 
Cash receipts 132,167  512,262  644,429  141,146  595,078  736,224 
Revenue recognized (130,545) (515,272) (645,817) (144,172) (596,887) (741,059)
Ending balance $ 53,308  $ 131,311  $ 184,619  $ 64,517  $ 149,471  $ 213,988 

NOTE 3 — Leases

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

As of June 30, 2021, our condensed consolidated balance sheets included $278.4 million of operating lease right-to-use assets, $43.3 million of short-term operating lease liabilities included in Other current liabilities, and $262.4 million of long-term operating lease liabilities.

The components of lease expense are as follows:
Three months ended June 30, Six months ended June 30,
In thousands 2021 2020 2021 2020
Operating lease cost (a)
$ 19,978  $ 21,872  $ 40,649  $ 41,505 
Short-term lease cost (b)
423  1,345  565  4,487 
Variable lease cost 2,637  2,565  5,721  6,816 
Net lease cost $ 23,038  $ 25,782  $ 46,935  $ 52,808 
(a)Includes sublease income of $1.8 million and $0.9 million for the three months ended June 30, 2021 and 2020, respectively, and $3.0 million and $2.0 million for the six months ended June 30, 2021 and 2020, respectively.
(b)Excluding expenses relating to leases with a lease term of one month or less.

9

Future minimum lease payments under non-cancellable leases are as follows:
In thousands
Year ended
December 31, (a)
2021 (excluding the six months ended June 30, 2021) $ 34,897 
2022 79,073 
2023 66,118 
2024 58,535 
2025 49,499 
Thereafter 206,312 
Total future minimum lease payments 494,434 
Less: Imputed interest (188,726)
Total $ 305,708 
(a)Operating lease payments exclude $13.8 million of legally binding minimum lease payments for leases signed but not yet commenced.

Supplemental information related to leases is as follows:
Six months ended June 30,
In thousands, except lease term and discount rate 2021 2020
Cash paid for amounts included in the measurement of operating lease liabilities $ 43,076  $ 38,989 
Right-of-use assets obtained in exchange for operating lease obligations 15,289  14,610 
Loss on sale and leaseback transactions, net 2,014  — 
As of June 30,
2021 2020
Weighted-average remaining lease term (in years) 7.5 7.9
Weighted-average discount rate 12.82  % 12.78  %

NOTE 4 — Accounts receivable, net

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

The following table presents changes in the allowance for doubtful accounts for the six months ended June 30, 2021 and 2020:
Six months ended June 30,
In thousands 2021 2020
Beginning balance $ 20,843  $ 19,923 
Current period provision 681  17,345 
Write-offs charged against the allowance (5,943) (12,019)
Recoveries of amounts previously written-off 2,296  1,467 
Foreign currency 78  (156)
Ending balance $ 17,955  $ 26,560 

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,
10

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 three and six months ended June 30, 2021, the Company recorded $2.9 million and $0.7 million in bad debt expense, respectively. For the three and six months ended June 30, 2020, the Company recorded $12.2 million and $17.3 million in bad debt expense, respectively. Bad debt expense is included in Selling, general and administrative expenses on the condensed consolidated statements of operations and comprehensive income (loss). For the three months ended June 30, 2021, the Company recorded an increase in bad debt expense due to an increase in revenues and the related increase in accounts receivable. For the six months ended June 30, 2021, the Company recorded an overall reduction to bad debt expense compared to the six months ended June 30, 2020, due to a reduction in required reserves. The reduction in required reserves for the six months ended June 30, 2021 was due to a lower volume of accounts receivable due to seasonality, higher recoveries, and lower write-offs compared to the corresponding prior year period.

NOTE 5 — Goodwill and intangible assets

Goodwill and intangible assets consisted of the following:
June 30, 2021 December 31, 2020
 In thousands Gross carrying amount Accumulated
amortization
Net carrying
amount
Gross carrying amount Accumulated
amortization
Net carrying
amount
Finite-lived intangible assets:
Advertiser relationships $ 458,584  $ 134,297  $ 324,287  $ 460,331  $ 112,468  $ 347,863 
Other customer relationships 102,914  29,587  73,327  102,925  23,682  79,243 
Subscriber relationships 255,443  85,825  169,618  255,702  71,271  184,431 
Other intangible assets 68,687  36,390  32,297  68,687  26,982  41,705 
Sub-total $ 885,628  $ 286,099  $ 599,529  $ 887,645  $ 234,403  $ 653,242 
Indefinite-lived intangible assets:
Mastheads 171,282  171,408 
Total intangible assets $ 770,811  $ 824,650 
Goodwill $ 534,218  $ 534,088 

Consistent with the Company’s past practice, the Company performed its annual goodwill and indefinite-lived intangible impairment assessment in the second quarter of 2021 with the assistance of third-party valuation specialists. Within the impairment analyses performed, the Company considered the current and expected future economic and market conditions and the impact on the fair value of each of the reporting units. The most significant assumptions utilized in the determination of the estimated fair values include revenue and cash flow 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 3.0%. 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 11.0% to 15.0%.

11

For goodwill, the Company determined the fair value of each reporting unit using a combination of a discounted cash flow analysis and a market-based approach. During the second quarter of 2021, the Company compared the fair value of each reporting unit to its carrying amount, which resulted in the fair value of all the reporting groups being in excess of their carrying values.

For mastheads, the Company applied a “relief from royalty” approach, a discounted cash flow model, reflecting current assumptions, to fair value of the indefinite-lived intangible assets. During the second quarter of 2021, the Company compared the fair value of each indefinite-lived intangible asset to its carrying amount, which resulted in the fair value of each indefinite-lived intangible asset being in excess of its carrying value.

In addition to the annual impairment test, the Company is required to regularly assess whether a triggering event has occurred under ASC 360, which would require interim impairment testing. As of June 30, 2021, the Company performed a review of potential impairment indicators and it was determined that no indicators of impairment were present.

During the second quarter of 2020, the Company recorded goodwill impairment charges of $256.5 million, $65.4 million and $40.5 million in our Domestic Publishing, Newsquest and Marketing Solutions reporting units, respectively, and recorded indefinite-lived impairments of $4.0 million in both our Domestic Publishing and Newsquest reporting units, as a result of the annual impairment assessment. 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, and as such, the Company recorded an intangible asset impairment of $23.0 million related to advertiser and other customer relationships.

NOTE 6 — Integration and reorganization costs and asset impairments

Over the past several years, the Company has engaged in a series of individual restructuring programs, designed primarily to right-size the Company’s employee base, consolidate facilities and improve operations, including those of recently acquired entities. These initiatives impact all the Company’s operations and can be influenced by the terms of union contracts. Costs related to these programs, which primarily include severance expense, are accrued when probable and reasonably estimable or at the time of program announcement.

Severance-related expenses

We recorded severance-related expenses by segment as follows:
Three months ended June 30, Six months ended June 30,
In thousands 2021 2020 2021 2020
Publishing $ 1,405  $ 19,142  $ 8,184  $ 31,418 
Digital Marketing Solutions (24) 2,753  (81) 4,137 
Corporate and other (252) 3,847  123  11,966 
Total $ 1,129  $ 25,742  $ 8,226  $ 47,521 

A rollforward of the accrued severance and related costs included in Accounts payable and accrued expenses on the condensed consolidated balance sheets for the six months ended June 30, 2021 is as follows:
In thousands Severance and
Related Costs
Beginning balance $ 30,943 
Restructuring provision included in integration and reorganization costs 8,226 
Cash payments (25,527)
Ending balance $ 13,642 

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

12

Facility consolidation and other restructuring-related expenses

We recorded facility consolidation charges and other restructuring-related costs by segment as follows:
Three months ended June 30, Six months ended June 30,
In thousands 2021 2020 2021 2020
Publishing $ (1,602) $ 1,477  $ (1,055) $ 2,509 
Digital Marketing Solutions 228  209  451  214 
Corporate and other 8,689  4,878  14,226  10,316 
Total $ 7,315  $ 6,564  $ 13,622  $ 13,039 

Asset impairments

As part of ongoing cost efficiency programs, during the six months ended June 30, 2021 the Company recorded Asset impairment charges of $0.8 million at the Publishing segment related to various real estate sales. During both the three and six months ended June 30, 2020, the Company recorded $6.9 million of Asset impairment charges at the Publishing segment as a result of the Company's recoverability test for long-lived assets.

Accelerated depreciation

The Company incurred accelerated depreciation of $1.1 million and $11.0 million for the three months ended June 30, 2021 and 2020, respectively, and $10.3 million and $35.8 million for the six months ended June 30, 2021 and 2020, respectively, related to the shortened useful life of assets due to the sale of property at the Publishing segment and included within Depreciation and amortization expense on the condensed consolidated statements of operations and comprehensive income (loss).

NOTE 7 — Debt

Senior Secured 5-Year Term Loan

On February 9, 2021, the Company entered into a five-year, senior-secured term loan facility with the lenders from time to time party thereto and Citibank, N.A., as collateral agent and administrative agent for the lenders, 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. Interest on the 5-Year Term Loan is payable at least every three months in arrears, beginning in May 2021.

The proceeds from the 5-Year Term Loan were used to repay the remaining principal balance and accrued interest of $1.043 billion and $13.3 million, respectively, (the "Payoff") on the Company's five-year, senior-secured 11.5% term loan facility with Apollo Capital Management, L.P. (the "Acquisition Term Loan") and to pay fees and expenses incurred to obtain the 5-Year Term Loan.

There were certain lenders that participated in both the Acquisition Term Loan and the new 5-Year Term Loan and their balances in the Acquisition Term Loan were deemed to be modified. The Company will continue to defer, over the new term, the deferred financing fees and original issue discount from the Acquisition Term Loan of $1.5 million and $34.7 million, respectively, related to those lenders. Further, certain lenders in the Acquisition Term Loan did not participate in the new 5-Year Term Loan and their balances in the Acquisition Term Loan were deemed to be extinguished. As a result, the Company recognized a Loss on early extinguishment of debt of $17.2 million in the first quarter of 2021 as a result of the write-off of the remaining original issue discount and deferred financing fees related to those lenders. Third party fees of approximately $13.0 million were allocated to the new lenders in the 5-Year Term Loan on a pro-rata basis, and $20.9 million of original issue discount were capitalized and will be amortized over the term of the 5-Year Term Loan using the effective interest method. Third party fees of $0.7 million and $10.9 million, which were allocated to the lenders whose balances were deemed to be modified, were expensed and recorded in Other operating expenses in the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2021, respectively.

The 5-Year Term Loan will amortize in equal quarterly installments 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
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(as such terms are defined in the 5-Year Term Loan) is equal to or less than a specified ratio, 5% per annum) (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. As of June 30, 2021, the Company is in compliance with all of the covenants and obligations under the 5-Year Term Loan.

As of June 30, 2021, the Company had $990.5 million in aggregate principal outstanding under the 5-Year Term Loan, $13.2 million of unamortized deferred financing costs, and $47.7 million of unamortized original issue discount and an effective interest rate of 9.5%. During the three months ended June 30, 2021, the Company recorded and paid $20.1 million for interest expense related to the 5-Year Term Loan. During the six months ended June 30, 2021, the Company recorded $31.3 million and $13.4 million of interest expense and paid $20.2 million and $13.4 million of interest for the 5-Year Term Loan and Acquisition Term Loan, respectively. Additionally, during the three and six months ended June 30, 2021, the Company had $2.8 million and $22.2 million, respectively, related to Loss on early extinguishment of debt, which related to the write-off of original issue discount and deferred financing fees as a result of early prepayments on the 5-Year Term Loan and Acquisition Term Loan. Included in the Loss on early extinguishment of debt for the six months ended June 30, 2021, was $17.2 million related to the write-off of the remaining original issue discount and deferred financing fees from the Acquisition Term Loan and approximately $2.2 million related to the write-off of original issue discount and deferred financing fees as a result of early prepayments on the Acquisition Term Loan prior to the Payoff. For the three and six months ended June 30, 2021, the Company recorded $1.0 million and $1.5 million, respectively, of amortization of deferred financing costs, and $3.4 million and $5.3 million, respectively, of amortization of original issue discount, for the 5-Year Term Loan. For the three and six months ended June 30, 2020, the Company recorded $0.3 million and $0.5 million, respectively, of amortization of deferred financing costs, and $5.6 million and $11.3 million, respectively, of amortization of original issue discount for the Acquisition Term Loan.

Under the 5-Year Term Loan, the Company is contractually obligated to make prepayments with the proceeds from asset sales and may elect to make optional payments with excess free cash flow from operations. For the three and six months ended June 30, 2021, we made prepayments totaling $45.8 million and $54.5 million, respectively, which were classified as financing activities in the condensed consolidated statements of cash flows. These amounts are inclusive of both mandatory and optional prepayments.

Senior Secured Convertible Notes due 2027

On November 17, 2020, the Company entered into an Exchange Agreement with certain of the lenders (the "Exchanging Lenders") under 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 2027 Notes for the retirement of an equal amount of term loans under the Acquisition Term Loan (the "Exchange"). 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 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.

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, par value $0.01 per share (“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
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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.

Upon issuance, the $497.1 million principal value of the 2027 Notes was separated into two components: (i) a debt component and (ii) a derivative component. At that time, we determined that the conversion option was not clearly and closely related to the economic characteristics of the 2027 Notes, nor did the conversion option meet the scope exception related to contracts in an entity’s own equity as we did not 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 was reported within Convertible debt in the condensed consolidated balance sheets at December 31, 2020 and was marked to fair value through earnings.

The $389.1 million debt liability component of the 2027 Notes 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 condensed consolidated balance sheets. The debt liability 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.

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. The Company concluded that as of February 26, 2021, the conversion option qualified for equity classification and the bifurcated derivative liability no longer needed to be accounted for as a separate derivative on a prospective basis from the date of reassessment. As of February 26, 2021, the fair value of the conversion option of $316.2 million was reclassified to Equity as Additional paid-in capital. Any remaining debt discount that arose at the date of debt issuance from the original bifurcation will continue to be amortized through interest expense. As of June 30, 2021, the deferred tax asset related to the embedded conversion feature of the 2027 Notes was reclassified to Equity as a reduction to Additional paid-in-capital and reduced the carrying amount of the equity component of the 2027 Notes to $283.7 million.

As of February 26, 2021, the date of reassessment, and December 31, 2020, the estimated fair value of the derivative liability for the embedded conversion feature was $316.2 million and $189.6 million, respectively. At December 31, 2020, the derivative liability was reported within Convertible debt in the condensed consolidated balance sheets. The derivative liability was 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 $126.6 million at the date of reassessment and reclassification to Equity was due to the increase in our stock price, partially offset by the increase in the discount rate, and was recorded in Non-Operating Other (income) expense, net in the condensed consolidated statements of operations and comprehensive income (loss) for the six months ended June 30, 2021. The loss due to the revaluation of the derivative is not deductible for tax purposes. The assumptions used to determine the fair value as of February 26, 2021 and December 31, 2020 were:
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February 26, 2021 December 31, 2020
Annual volatility 70.0  % 70.0  %
Discount rate 12.2  % 9.3  %
Stock price $ 4.95  $ 3.36 

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 $103.4 million as of June 30, 2021 will be amortized over the remaining contractual life of the 2027 Notes. For the three and six months ended June 30, 2021, interest expense on the 2027 Notes totaled $7.4 million and $14.9 million, respectively. Amortization of the discount was $2.8 million and $5.1 million for the three and six months ended June 30, 2021, respectively. Amortization of debt issuance costs were immaterial for the three and six months ended June 30, 2021. The effective interest rate on the liability component of the 2027 Notes was 10.5% as of June 30, 2021. Additional information related to the liability component of the 2027 Notes includes the following:

In thousands June 30, 2021 December 31, 2020
Net carrying value of liability component $ 393.7  $ 388.4 
Unamortized discount of liability component $ 103.4  $ 108.7 

For the six months ended June 30, 2021, no shares were issued upon conversion, exercise, or satisfaction of the required conditions. Refer to Note 10 — Supplemental equity information for details on the convertible debt's impact to diluted earnings per share under the if-converted method.

Senior Convertible Notes due 2024

The $3.3 million principal value of the remaining 4.75% convertible senior notes due 2024 (the "2024 Notes") outstanding is reported as convertible debt in the condensed consolidated balance sheets. The effective interest rate on the 2024 Notes was 6.05% as of June 30, 2021.

NOTE 8 — Pensions and other postretirement benefit plans

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

Retirement plan costs include the following components:
Pension Benefits
Postretirement Benefits
Three months ended June 30, Three months ended June 30,
In thousands 2021 2020 2021 2020
Operating expenses:
Service cost - benefits earned during the period $ 469  $ 704  $ 13  $ 19 
Non-operating expenses:
Interest cost on benefit obligation 17,106  20,416  401  593 
Expected return on plan assets (41,408) (38,551) —  — 
Amortization of actuarial loss (gain) 42  (27) (47) 16 
Total non-operating (benefit) expenses $ (24,260) $ (18,162) $ 354  $ 609 
Total expense (benefit) for retirement plans $ (23,791) $ (17,458) $ 367  $ 628 

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Pension Benefits
Postretirement Benefits
Six months ended June 30, Six months ended June 30,
In thousands 2021 2020 2021 2020
Operating expenses:
Service cost - benefits earned during the period $ 980  $ 1,385  $ 44  $ 52 
Non-operating expenses (Other income):
Interest cost on benefit obligation 34,137  41,133  902  1,160 
Expected return on plan assets (82,838) (78,367) —  — 
Amortization of actuarial loss (gain) 77  (54) (62) 29 
Total non-operating (benefit) expenses $ (48,624) $ (37,288) $ 840  $ 1,189 
Total expense (benefit) for retirement plans $ (47,644) $ (35,903) $ 884  $ 1,241 

During the six months ended June 30, 2021, we contributed $27.8 million and $3.5 million to our pension and other postretirement plans, respectively, including $11 million in minimum required contributions for the GR Plan attributable to the 2019 plan year, as required by the Employee Retirement Income Security Act of 1974 ("ERISA"), which were deferred until January 4, 2021. Additionally, in response to the COVID-19 pandemic, our GR Plan in the U.S. has deferred certain contractual contributions and negotiated a contribution payment plan of $5.0 million per quarter starting December 31, 2020 through the end of September 30, 2022.

NOTE 9 — Income taxes

The following table outlines our pre-tax net income (loss) and income tax amounts:
Three months ended June 30, Six months ended June 30,
In thousands 2021 2020 2021 2020
Income (loss) before income taxes $ 32,401  $ (472,107) $ (119,409) $ (543,734)
Provision (benefit) for income taxes 17,692  (34,276) 8,583  (25,297)
Effective tax rate 54.6  % 7.3  % (7.2) % 4.7  %

The provision for income taxes for the three months ended June 30, 2021 was mainly driven by pre-tax income and is impacted by the creation of valuation allowances on non-deductible interest expense carryforwards in combination with the U.K. enacted legislation to increase the statutory tax rate from 19% to 25%, effective April 1, 2023. While the U.K. corporate tax rate change does not impact 2021 or 2022 tax filings, the rate change impacts the tax effected value of the U.K. deferred tax liabilities. The provision was calculated using the estimated annual effective tax rate of 49.6%. The estimated annual effective tax rate is based on a projected tax expense for the full year.

The tax provision for the six months ended June 30, 2021 was mainly driven by the pre-tax net loss generated during the first quarter of 2021. The tax provision is impacted by the derivative revaluation, which is nondeductible for tax purposes, partially offset by the creation of valuation allowances on non-deductible interest expense carryforwards as well as state income tax and foreign tax expense.

As of June 30, 2021, we reclassified $32.5 million as tax effected in connection with the retirement of the deferred tax asset related to the embedded conversion feature associated with the Company’s 2027 Notes. The retirement of the deferred tax asset resulted from the reclassification of the embedded conversion feature from a derivative liability to Equity as a reduction to Additional paid-in-capital during the first quarter of 2021. See Note 7 - Debt for additional information about the Company's 2027 Notes.

The total amount of unrecognized tax benefits that, if recognized, may impact the effective tax rate was approximately $42.9 million as of June 30, 2021 and $39.5 million as of December 31, 2020. The amount of accrued interest and penalties payable related to unrecognized tax benefits was $3.0 million as of June 30, 2021 and $2.6 million as of December 31, 2020.

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.

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

NOTE 10 — Supplemental equity information

Income (loss) per share

The following table sets forth the information used to compute basic and diluted income (loss) per share:
Three months ended June 30, Six months ended June 30,
In thousands, except per share data 2021 2020 2021 2020
Net income (loss) attributable to Gannett $ 15,115  $ (436,893) $ (127,201) $ (517,045)
Interest adjustment to Net income (loss) attributable to Gannett related to assumed conversions of the 2027 Notes, net of taxes
7,470  —  —  — 
Net income (loss) attributable to Gannett for diluted earnings per share $ 22,585  $ (436,893) $ (127,201) $ (517,045)
Basic weighted average shares outstanding 134,744  131,471  134,411  130,999 
Effect of dilutive securities:
Restricted stock grants 3,350  —  —  — 
2027 Notes 99,419  —  —  — 
Diluted weighted average shares outstanding 237,513  131,471  134,411  130,999 
Income (loss) per share attributable to Gannett - basic $ 0.11  $ (3.32) $ (0.95) $ (3.95)
Income (loss) per share attributable to Gannett - diluted $ 0.10  $ (3.32) $ (0.95) $ (3.95)

The Company excluded the following securities from the computation of diluted income per share because their effect would have been antidilutive:
Three months ended June 30, Six months ended June 30,
In thousands 2021 2020 2021 2020
Warrants 845  1,362  845  1,362 
Stock options 6,068  6,068  6,068  6,068 
Restricted stock grants (a)
46  8,510  10,577  8,510 
2027 Notes (b)
—  —  99,419  — 
(a)Includes Restricted stock awards ("RSAs"), Restricted stock units ("RSUs") and Performance stock units ("PSUs").
(b)Represents the total number of shares that would be convertible at June 30, 2021 as stipulated in the Indenture.

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. Conversion of all of the 2027 Notes into Common Stock (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), would result in the issuance of an aggregate of 294.2 million shares of Common Stock. The Company has excluded approximately 194.8 million shares from the loss per share calculation, representing the difference between the total number of shares that would be convertible at June 30, 2021 and the total number of shares issuable assuming the maximum increase in the conversion rate.

Share-based compensation

The Company recognized compensation cost for share-based payments of $5.8 million and $9.2 million for the three and six months ended June 30, 2021, respectively, and $7.4 million and $19.0 million for the three and six months ended June 30, 2020, respectively.
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The total compensation cost not yet recognized related to non-vested awards as of June 30, 2021 was $34.8 million, which is expected to be recognized over a weighted-average period of 2.3 years through September 2023.

Restricted stock awards

During the six months ended June 30, 2021, a total of 4.1 million RSAs were granted. RSAs generally vest in equal annual installments over a three-year period subject to the participants' continued employment with the Company. The weighted average grant date fair value of RSAs granted during the six months ended June 30, 2021 was $5.28.

Rights Agreement

On April 6, 2020, the Company's board of directors (the "Board") 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. The Rights Agreement was approved by the Company's stockholders on June 7, 2021 at the 2021 annual meeting of stockholders. As of December 31, 2020, the Company had approximately $543.5 million of NOLs available which could be used in certain circumstances 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 has the discretion to exempt any person or group from the provisions of the Rights Agreement.

The Rights Agreement will continue in effect until April 5, 2023. The Board has the ability to terminate the plan if it determines that doing so would be in the best interest of Gannett’s stockholders. The rights may also expire at an earlier date if certain events occur, as described more fully in the Rights Agreement filed by the Company with the Securities and Exchange Commission.

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 the Board, 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 six months ended June 30, 2021.

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Accumulated other comprehensive income (loss)

The following tables summarize the components of, and the changes in, Accumulated other comprehensive income (loss), net of tax for the six months ended June 30, 2021 and 2020:
Six months ended June 30, 2021 Six months ended June 30, 2020
In thousands Pension and Postretirement Plans Foreign Currency Translation



Total Pension and Postretirement Plans Foreign Currency Translation Total
Beginning balance $ 40,441  $ 9,732  $ 50,173  $ 936  $ 7,266  $ 8,202 
Other comprehensive income (loss) before reclassifications (958) 4,787  3,829  (4,961) (16,585) (21,546)
Amounts reclassified from accumulated other comprehensive income (loss)(a)(b)
11  —  11  (18) —  (18)
Net current period other comprehensive income (loss), net of taxes (947) 4,787  3,840  (4,979) (16,585) (21,564)
Ending balance $ 39,494  $ 14,519  $ 54,013  $ (4,043) $ (9,319) $ (13,362)
(a)This accumulated other comprehensive income (loss) component is included in the computation of net periodic benefit cost. See Note 8 — Pensions and other postretirement benefit plans.
(b)Amounts reclassified from accumulated other comprehensive loss are recorded net of tax impacts of $4 thousand and $7 thousand for the six months ended June 30, 2021 and 2020, respectively.

NOTE 11 — 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 June 30, 2021 and December 31, 2020, assets and liabilities recorded at fair value and measured on a recurring basis primarily consist of pension plan assets. As permitted by U.S. GAAP, we use net asset values ("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 5-Year Term Loan is recorded at carrying value, which approximates fair value in the condensed consolidated balance sheets and is classified as Level 2. Refer to additional discussion regarding fair value of the 2027 Notes in Note 7 — 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. Assets held for sale totaled $13.1 million as of June 30, 2021 and $14.7 million as of December 31, 2020. The Company performs its annual goodwill and indefinite-lived intangible impairment assessment during the second quarter of the year. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered to be Level 3 measurements. Refer to Note 5 — Goodwill and intangible assets for additional discussion regarding the annual impairment assessment.

NOTE 12 — 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 matters such 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.
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Environmental contingency

We assumed responsibility for certain alleged environmental contingencies in connection with our acquisition of Gannett Co., Inc. (which was renamed Gannett Media Corp. and is referred to as "Legacy Gannett") in the fourth quarter of 2019. Those environmental contingencies include a March 2011 claim by the U.S. Environmental Protection Agency (the "EPA") against The Advertiser Company ("Advertiser"), a subsidiary that publishes the Montgomery Advertiser. The EPA identified Advertiser as a potentially responsible party ("PRP") for the investigation and potential remediation of groundwater contamination in downtown Montgomery, Alabama. The Advertiser became a member of the Downtown Environmental Alliance (the "Alliance"), which has agreed to jointly fund and conduct all required investigation and remediation. In 2016, the Advertiser and other members of the Alliance reached a settlement with the EPA regarding the costs the EPA spent to investigate the site. The EPA transferred responsibility for oversight of the site to the Alabama Department of Environmental Management, which approved a site investigation by the Alliance and subsequently determined that a monitoring-only remedy was appropriate. While long-term soil vapor and groundwater monitoring continues, at this time, we do not believe it is reasonably likely that this matter will become a material liability.

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

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 condensed consolidated balance sheets.

NOTE 13 — Segment reporting

We define our reportable segments based on the way the Chief Operating Decision Maker ("CODM"), which is our Chief Executive Officer, manages the operations for purposes of allocating resources and assessing performance. Our reportable segments include the following:

Publishing is comprised of our portfolio of local, regional, national, and international newspaper publishers. The results of this segment include Advertising and marketing services revenues from local, classified, and national advertising across multiple platforms, including print, online, mobile, and tablet as well as niche publications, Circulation revenues from home delivery, digital distribution and single copy sales of our publications, and Other revenues, mainly from commercial printing, distribution arrangements, revenues from our events business, digital content syndication and affiliate revenues and third-party newsprint sales. The Publishing reportable segment is an aggregation of two operating segments: Domestic Publishing and U.K. Publishing.
Digital Marketing Solutions is comprised of our digital marketing solutions subsidiary, ReachLocal. 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, customer relationship management, 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, including 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.
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The CODM uses Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett to evaluate the performance of the segments and allocate resources. Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett are non-GAAP financial performance measures we believe offer a useful view of the overall operation of our businesses and may be different than similarly-titled measures used by other companies. We define Adjusted EBITDA as Net income (loss) attributable to Gannett before (1) Income tax expense (benefit), (2) Interest expense, (3) Gains or losses on the early extinguishment of debt, (4) Non-operating pension income (expense), (5) Loss on Convertible notes derivative, (6) Other non-operating items, including 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, (13) Other operating expenses, including third-party debt expenses and acquisition costs, (14) Gains or losses on the sale of investments and (15) certain other non-recurring charges. We define Adjusted EBITDA margin as Adjusted EBITDA divided by total Operating revenues. We define Adjusted Net income (loss) attributable to Gannett before (1) Gains or losses on the early extinguishment of debt, (2) Loss on Convertible notes derivative, (3) Integration and reorganization costs, (4) Other operating expenses, including third-party debt expenses and acquisition costs, (5) Asset impairments, (6) Goodwill and intangibles impairments, (7) Gains or losses on the sale or disposal of assets, and (8) the tax impact of the above items.

Management considers Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted Net income (loss) attributable to Gannett to be the appropriate metrics 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 tables present our segment information:

Three months ended June 30, 2021
In thousands Publishing Digital Marketing Solutions Corporate and other Intersegment Eliminations Consolidated
Advertising and marketing services - external sales $ 309,469  $ 110,037  $ 604  $ —  $ 420,110 
Advertising and marketing services - intersegment sales 32,012  —  —  (32,012) — 
Circulation 310,258  —  —  310,259 
Other 72,806  —  1,100  —  73,906 
Total operating revenues $ 724,545  $ 110,037  $ 1,705  $ (32,012) $ 804,275 
Adjusted EBITDA (non-GAAP basis) $ 114,189  $ 12,529  $ (10,949) $ —  $ 115,769 

Three months ended June 30, 2020
In thousands Publishing Digital Marketing Solutions Corporate and other Intersegment Eliminations Consolidated
Advertising and marketing services - external sales $ 266,398  $ 89,809  $ 711  $ —  $ 356,918 
Advertising and marketing services - intersegment sales 25,854  —  —  (25,854) — 
Circulation 342,645  —  —  342,646 
Other 60,996  4,754  1,686  —  67,436 
Total operating revenues $ 695,893  $ 94,563  $ 2,398  $ (25,854) $ 767,000 
Adjusted EBITDA (non-GAAP basis) $ 91,991  $ 2,784  $ (16,757) $ —  $ 78,018 

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Six months ended June 30, 2021
In thousands Publishing Digital Marketing Solutions Corporate and other Intersegment Eliminations Consolidated
Advertising and marketing services - external sales $ 595,923  $ 211,413  $ 1,131  $ —  $ 808,467 
Advertising and marketing services - intersegment sales 59,868  —  —  (59,868) — 
Circulation 635,694  —  —  635,696 
Other 132,645  905  3,646  —  137,196 
Total operating revenues $ 1,424,130  $ 212,318  $ 4,779  $ (59,868) $ 1,581,359 
Adjusted EBITDA (non-GAAP basis) $ 216,397  $ 21,701  $ (21,864) $ —  $ 216,234 
Six months ended June 30, 2020
In thousands Publishing Digital Marketing Solutions Corporate and other Intersegment Eliminations Consolidated
Advertising and marketing services - external sales $ 636,277  $ 206,092  $ 1,560  $ —  $ 843,929 
Advertising and marketing services - intersegment sales 59,611  —  —  (59,611) — 
Circulation 717,365  —  —  717,369 
Other 140,790  9,752  3,843  —  154,385 
Total operating revenues $ 1,554,043  $ 215,844  $ 5,407  $ (59,611) $ 1,715,683 
Adjusted EBITDA (non-GAAP basis) $ 203,014  $ 10,668  $ (36,598) $ —  $ 177,084 
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The table below shows the reconciliation of Net income (loss) attributable to Gannett to Adjusted EBITDA and Net income (loss) attributable to Gannett margin to Adjusted EBITDA margin:
Three months ended June 30, Six months ended June 30,
In thousands 2021 2020 2021 2020
Net income (loss) attributable to Gannett $ 15,115  $ (436,893) $ (127,201) $ (517,045)
Provision (benefit) for income taxes 17,692  (34,276) 8,583  (25,297)
Interest expense 35,264  57,928  74,767  115,827 
Loss on early extinguishment of debt 2,834  369  22,235  1,174 
Non-operating pension income (23,906) (17,553) (47,784) (36,099)
Loss on Convertible notes derivative —  —  126,600  — 
Other non-operating income, net (1,148) (6,261) (3,023) (4,616)
Depreciation and amortization 48,242  66,327  106,345  144,352 
Integration and reorganization costs 8,444  32,306  21,848  60,560 
Other operating expenses 774  2,379  11,350  8,348 
Asset impairments —  6,859  833  6,859 
Goodwill and intangible impairments —  393,446  —  393,446 
Net loss on sale or disposal of assets 5,294  88  10,039  745 
Share-based compensation expense 5,779  7,391  9,202  18,968 
Other items 1,385  5,908  2,440  9,862 
Adjusted EBITDA (non-GAAP basis) $ 115,769  $ 78,018  $ 216,234  $ 177,084 
Net income (loss) attributable to Gannett margin 1.9  % (57.0)