NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 1 — Basis of presentation
Description of business:
Gannett Co., Inc. (Gannett, we, us, our, or the company) is a next-generation media company that empowers communities to connect, act, and thrive. Gannett owns ReachLocal, Inc. (ReachLocal, a digital marketing solutions company), the USA TODAY NETWORK (made up of USA TODAY and
109
local media organizations in
34
states in the U.S. and Guam), and Newsquest (a wholly owned subsidiary with more than
160
local media brands in the U.K.). Gannett delivers high-quality, trusted content where and when consumers want to engage with it on virtually any device or platform.
Separation from former parent:
On June 29, 2015, the separation of Gannett from our former parent, TEGNA Inc., was completed pursuant to a Separation and Distribution Agreement (the Separation Agreement) dated June 26, 2015. On June 29, 2015, our former parent completed the pro rata distribution of
98.5%
of the outstanding shares of Gannett common stock to its stockholders (also referred to herein as the spin-off or "separation"), and Gannett common stock began trading "regular way" on the New York Stock Exchange. Each holder of our former parent's common stock received one share of Gannett common stock for every two shares of our former parent's common stock held on June 22, 2015, the record date for the distribution. Immediately following the distribution, our former parent owned
1.5%
of Gannett's outstanding common stock, and our former parent will continue to own our shares for a period of time not to exceed
five
years after the distribution. Our former parent structured the distribution to be tax free to its U.S. shareholders for U.S. federal income tax purposes.
Basis of presentation:
Prior to the spin-off, we did not prepare separate financial statements. The accompanying audited consolidated and combined financial statements for periods prior to the spin-off were derived from the consolidated and combined financial statements and accounting records of our former parent and present our combined financial position, results of operations, and cash flows as of and for the periods presented as if we were a separate entity.
Through the date of the spin-off, in preparing these consolidated and combined financial statements, management has made certain assumptions or implemented methodologies to allocate various expenses from our former parent to us and from us back to our former parent in the form of cost recoveries. These allocations represent services provided between the two entities and are more fully detailed in
Note 15 — Relationship with our former parent
. We believe the assumptions and methodologies used in these allocations are reasonable; however, such allocated costs, net of cost recoveries, may not be indicative of the actual level of expense that would have been incurred had we been operating on a stand-alone basis, and, accordingly, may not necessarily reflect our consolidated and combined financial position, results of operations, and cash flows had we operated as a stand-alone entity during the periods presented.
In fiscal year
2016
, we identified an error relating to certain participant data that had resulted in an overstatement of the postretirement benefits liabilities transferred from our former parent at separation. Based on our assessments of qualitative and quantitative factors, the error and the related impacts were not considered material to the consolidated financial statements for the year ended
December 25, 2016
or the prior periods. The error was corrected in
2016
by decreasing postretirement medical and life insurance liabilities by
$2.8 million
and pension liabilities by
$23.6 million
, increasing former parent investment, net, which is now reflected in additional paid-in capital, by
$16.3 million
, increasing accumulated other comprehensive loss, net by
$0.4 million
, decreasing deferred tax assets by
$10.0 million
, and decreasing expenses by
$0.5 million
.
NOTE 2 — Summary of significant accounting policies
Fiscal year:
Our fiscal year ends on the last Sunday of the calendar year. Our fiscal year
2016
ended on
December 25, 2016
, fiscal year
2015
ended on
December 27, 2015
, and fiscal year
2014
ended on
December 28, 2014
, each 52-week years.
Consolidation:
The consolidated and combined financial statements include our accounts and those over which we have control after elimination of all intercompany transactions and profits.
Use of estimates:
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated and combined financial statements and footnotes thereto. Actual results could differ from those estimates. Significant estimates include amounts for income taxes, pension and other post-employment benefits, and valuation of long-lived and intangible assets.
Segment presentation:
We classify our operations into two reportable segments: publishing and ReachLocal. In addition to these reportable segments, we have a corporate and other category that includes activities not directly attributable or allocable
to a specific segment. The publishing reportable segment is an aggregation of
two
operating segments: Domestic Publishing and the U.K. Group. For further details, see
Note 14 — Segment reporting
.
Business combinations:
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. The excess of the fair value of purchase consideration over the values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair value of assets acquired and liabilities assumed, management makes significant estimates and assumptions, especially with respect to intangible assets.
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. Management's 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.
Revenue recognition:
Our circulation revenues include revenues for newspapers (both print and digital) purchased by readers or distributors. Circulation revenues are recognized when purchased newspapers are distributed, net of provisions for related returns. Subscriptions are recognized over the subscription period.
Our advertising revenues include amounts charged to advertisers for space purchased in our newspapers, digital ads placed on our digital platforms, advertising and marketing services, other advertising products such as preprints and direct mail, and the provision and sale of online marketing services and products through our ReachLocal subsidiary.
Advertising revenues are recognized, net of agency commissions, in the period when advertising is printed or placed on digital platforms. Marketing services revenues are generally recognized when advertisements or services are delivered.
For our online marketing products provided by our ReachLocal subsidiary, we typically enter into multi-month agreements for the delivery of our products. Under our agreements, our clients typically pay, in advance, a fixed fee on a monthly basis, which includes all charges for the included technology and any media services, management, third-party content and other costs and fees. We record these prepayments as deferred revenue and then revenue is recognized as we purchase media and perform other services.
Our other revenues primarily include commercial printing and distribution. Commercial printing and distribution revenues are recognized when the product is delivered to the customer.
We have various advertising and circulation agreements which have both print and digital deliverables. Revenue from sales agreements that contain multiple deliverable elements is allocated to each element based on the relative best estimate of selling price. Elements are treated as separate units of accounting if there is standalone value upon delivery.
Amounts received from customers in advance of revenue recognition are deferred as liabilities.
Cash and cash equivalents:
Cash equivalents consist of investments with original maturities of three months or less.
Accounts receivable and allowance for doubtful accounts:
Accounts receivable are recorded at invoiced amounts and generally do not bear interest. The allowance for doubtful accounts reflects our estimate of credit exposure, determined principally on the basis of our collection experience, aging of our receivables, and significant individual account credit risk. Credit is extended based upon an evaluation of the customer's financial position, and generally collateral is not required.
Inventories:
Inventories, consisting principally of newsprint, printing ink, and plate material for our publishing operations, are valued at the lower of cost (first-in, first-out) or market.
Assets held for sale:
We classify assets to be sold as held for sale in the period in which all of the following criteria are met: management commits to a plan to sell the disposal group, the disposal group is available for immediate sale in its present condition, an active program to locate a buyer has been initiated, and the sale is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond our control extend the period of time required to sell. The assets held for sale are measured at the lower of carrying value or fair value less any costs to sell.
Property and depreciation:
Property, plant, and equipment is recorded at cost, and depreciation is provided generally on a straight-line basis over the estimated useful lives of the assets. The principal estimated useful lives are
10
to
40
years for buildings and improvements and
3
to
30
years for machinery, equipment, and fixtures. Changes in the estimated useful life of
an asset, which, for example, could happen as a result of facility consolidations, can affect depreciation expense and net income. Major renewals and improvements and interest incurred during the construction period of major additions are capitalized. Expenditures for maintenance, repairs, and minor renewals are charged to expense as incurred.
A breakout of property, plant and equipment by type is presented below:
|
|
|
|
|
|
|
|
|
In thousands
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
Land
|
$
|
132,438
|
|
|
$
|
84,059
|
|
Buildings and Improvements
|
875,313
|
|
|
752,849
|
|
Machinery, equipment and fixtures
|
1,552,030
|
|
|
1,687,875
|
|
Construction in progress
|
9,817
|
|
|
17,786
|
|
Total
|
2,569,598
|
|
|
2,542,569
|
|
Accumulated depreciation
|
(1,481,897
|
)
|
|
(1,645,984
|
)
|
Net property, plant and equipment
|
$
|
1,087,701
|
|
|
$
|
896,585
|
|
Software development costs:
Our subsidiary ReachLocal incurs certain costs to develop software for internal use. These costs are capitalized 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 costs of sales and operating expenses, in addition to amortization of capitalized software development costs, in the accompanying Consolidated and Combined Statements of Income. We monitor our existing capitalized software costs and reduce their carrying value as a result of releases rendering previous features or functions obsolete. Software development costs are evaluated for impairment in accordance with our policy for finite-lived intangible assets and other long lived assets. Costs capitalized as internal use software are amortized on a straight-line basis over an estimated useful life of
three years
.
Leases:
Operating lease rentals are expensed on a straight-line basis over the life of the lease. At lease inception, we determine the lease term by excluding renewal options that are not reasonably assured. The lease term is used to determine whether a lease is capital or operating and is used to calculate straight-line rent expense. Additionally, the depreciable life of leased assets and leasehold improvements is limited by the expected lease term.
Valuation of long-lived assets:
We evaluate the carrying value of long-lived assets (mostly property, plant, and equipment and definite-lived intangible assets) to be held and used whenever events or changes in circumstances indicate the carrying amount may not be recoverable. The carrying value of a long-lived asset group is considered impaired when the projected undiscounted future cash flows are less than their carrying value. We measure impairment based on the amount by which the carrying value exceeds the fair value. Fair value is determined primarily using the projected future cash flows, discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost to dispose.
Goodwill and other intangible assets:
Goodwill represents the excess of acquisition cost over the fair value of assets acquired, including identifiable intangible assets, net of liabilities assumed. Goodwill is tested for impairment on an annual basis (first day of fourth 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.
Before performing the annual two-step goodwill impairment test, we are first permitted to perform a qualitative assessment to determine if the two-step quantitative test must be completed. The qualitative assessment considers events and circumstances such as macroeconomic conditions, industry and market conditions, cost factors and overall financial performance, as well as company and specific reporting unit specifications. If after performing this assessment, we conclude it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we are required to perform a two-step quantitative test. Otherwise, the two-step test is not required. In the first step of 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 determined using various techniques, including multiple of earnings and discounted cash flow valuation techniques. If the carrying amount of the reporting unit exceeds the fair value of the reporting unit, we perform the second step of the impairment test. In the second step of the impairment test, we determine the implied fair value of the reporting unit's goodwill. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, then an impairment of goodwill has occurred and we must recognize an impairment loss for the difference between the carrying amount and the implied fair value of goodwill.
In determining the reporting units, we consider the way we manage our businesses and the nature of those businesses. These reporting units therefore consist of Domestic Publishing, the U.K. Group, and ReachLocal.
We perform an impairment test annually, or more often if circumstances dictate, of our indefinite-lived intangible assets. Intangible assets that have finite useful lives are amortized over those useful lives and are evaluated for impairment as described above. We recognized impairment charges each year from
2014
through
2016
. See
Note 4 — Restructuring activities and asset impairment charges
and
Note 5 — Goodwill and other intangible assets
and other intangibles for additional information.
Investments and other assets:
Investments in entities for which we do not have control, but we have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method. Our share of net earnings and losses from these ventures is included in "Equity income in unconsolidated investees, net" in the Consolidated and Combined Statements of Income. See
Note 6 — Investments
for additional information.
Accounts payable and accrued expenses:
A breakout of accounts payable and accrued expenses by type is presented below:
|
|
|
|
|
|
|
|
|
In thousands
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
Compensation
|
$
|
105,402
|
|
|
$
|
115,602
|
|
Taxes
|
22,995
|
|
|
23,644
|
|
Benefits
|
36,114
|
|
|
38,811
|
|
Other
|
90,943
|
|
|
69,964
|
|
Total accrued liabilities
|
255,454
|
|
|
248,021
|
|
Accounts payable
|
183,270
|
|
|
145,005
|
|
Total accrued liabilities and accounts payable
|
$
|
438,724
|
|
|
$
|
393,026
|
|
Retirement plans:
Pension and other postretirement benefit costs under our defined benefit retirement plans are actuarially determined. We recognize the cost of postretirement benefits including pension, medical and life insurance benefits on an accrual basis over the average life expectancy of employees expected to receive such benefits for plans that have had their benefits frozen. For active plans, costs are recognized over the estimated average future service period.
Equity-based employee compensation:
We grant restricted stock units as well as performance shares to our employees as a form of compensation. The expense for such awards is based on the grant date fair value of the award and is recognized on a straight-line basis over the requisite service period, which is generally the
four
-year incentive period for restricted stock units and the
three
-year incentive period for performance shares. Expense for performance share awards for participants meeting certain retirement eligible criteria as defined in the plan is recognized using the accelerated attribution method. See
Note 11 — Supplemental equity information
for further discussion.
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. See
Note 10 — 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, based on 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.
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 rate 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 other comprehensive income (loss) in the Consolidated and Combined Statements of Comprehensive Income and are classified as accumulated other comprehensive income (loss) in the Consolidated and Combined Balance Sheets and Statements of Equity.
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 operations, totaled approximately
$369.2 million
in
2016
,
$417.4 million
in
2015
, and
$461.3 million
in
2014
. Our long-lived assets in foreign countries, principally ReachLocal operations and in the U.K., totaled approximately
$354.4 million
at
December 25, 2016
,
$330.3 million
at
December 27, 2015
, and
$337.0 million
at
December 28, 2014
.
Supplementary cash flow information:
Supplementary cash flow information, including non-cash investing and financing activities, are as follows:
|
|
|
|
|
|
|
|
|
In thousands
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
Cash paid for taxes, net of refunds
|
$
|
25,719
|
|
|
$
|
38,707
|
|
Cash paid for interest
|
$
|
10,081
|
|
|
$
|
2,995
|
|
Accrued capital expenditures
|
$
|
5,639
|
|
|
$
|
3,251
|
|
Dividends payable
|
$
|
—
|
|
|
$
|
18,501
|
|
Parent, net investment activity subsequent to separation
|
$
|
—
|
|
|
$
|
31,762
|
|
Fair value of noncontrolling equity interests in TNP and CNP
|
$
|
—
|
|
|
$
|
60,954
|
|
Pre-acquisition carrying value of TNP
|
$
|
—
|
|
|
$
|
39,155
|
|
Supplementary non-cash information for the year ended
December 28, 2014
is immaterial.
New accounting pronouncements adopted:
The following are new accounting pronouncements which we have adopted in fiscal year
2016
:
Fair Value Measurement - Disclosures for Investments in Certain Entities That Calculate Net Asset Value (NAV) per Share:
In fiscal year
2015
, we implemented the Financial Accounting Standards Board (FASB) guidance that removes the requirement to include investments in the fair value hierarchy for which the fair value is measured at NAV using the practical expedient under Fair Value Measurement guidance. This guidance impacted our disclosures only.
Income Taxes- Balance Sheet Classification of Deferred Taxes
: In fiscal year
2015
, we early adopted the FASB guidance which requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts.
Business Combinations -
Measurement-Period Adjustments:
In fiscal year
2016
, we applied the FASB guidance that simplifies the accounting for measurement-period adjustments. This guidance eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively and requires that acquirers recognize measurement-period adjustments in the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. The impact was not material to our consolidated financial results.
Presentation of Financial Statements - Going Concern
: We have adopted the FASB guidance related to interim and annual assessments by management to evaluate the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued, or available to be issued, when applicable. Disclosures are required if management concludes that substantial doubt exists or that its plans alleviate substantial doubt that was raised. Our assessments did not indicate substantial doubt regarding our ability to continue as a going concern.
Measurement Date for Retirement Plans:
We have implemented the FASB guidance that gives an employer whose fiscal year-end does not coincide with a calendar month-end the ability, as a practical expedient, to measure defined benefit retirement obligations and related plan assets as of the month-end that is closest to its fiscal year-end. As a result, our retirement plans are measured at December 31, 2016, rather than our fiscal year end,
December 25, 2016
.
Stock-based Compensation:
In fiscal year 2016, we early adopted new guidance surrounding stock-based compensation which simplified certain aspects of the accounting for share-based payment transactions, including income taxes, classification
of awards, and classification of share-based payment activity in the statement of cash flows. The adoption of this new guidance decreased income tax expense by
$8.9 million
for the year ended
December 25, 2016
. Refer to
Note 10 — Income taxes
,
Note 11 — Supplemental equity information
, and
Note 16 — Quarterly statements of income (unaudited)
for further discussion.
Cash and Cash Equivalents, including Statement of Cash Flows and Restricted Cash:
We early adopted new guidance in fiscal year 2016 related to the classification of certain cash flow activity such as debt prepayment, debt extinguishment costs, contingent consideration payments made after a business combination, and distributions received from equity method investees. The adoption of this guidance did not have a material impact on the designations of operating, investing, and financing activities within our statements of cash flows.
New accounting pronouncements not yet adopted:
The following are new accounting pronouncements which are being evaluated by the company for future impacts on our financial position:
Revenue from Contracts with Customers
: In August 2014, the FASB issued a new revenue standard, "Revenue from Contracts with Customer," which prescribes a single comprehensive model for entities to use in the accounting of revenue arising from contracts with customers. The new guidance will supersede virtually all existing revenue guidance under U.S. GAAP and is effective for fiscal years beginning after December 31, 2017. The core principle contemplated by this new standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers are also required. In April and May 2016, the FASB also issued clarifying updates to the new standard specifically to address certain core principles including the identification of performance obligations, licensing guidance, the assessment of the collectability criterion, the presentation of taxes collected from customers, noncash considerations, contract modifications, and completed contracts at transition.
We currently anticipate adopting the new revenue recognition standard using the modified retrospective approach in the fiscal year beginning January 1, 2018. This approach consists of recognizing the cumulative effect of initially applying the standard as an adjustment to opening retained earnings. As part of the modified retrospective approach, we will also amend our disclosures to reflect results under "legacy GAAP" for the initial year of adoption. We are currently evaluating the impact that the updated guidance will have on our financial statements and related disclosures. As part of the implementation process, we are holding regular meetings with key stakeholders from across the organization to discuss the impact of the standard on our existing contracts. We are utilizing a bottoms-up approach to analyze the impact of the standard on our portfolio of contracts by reviewing our current accounting policies and practices to identify potential differences that would result from applying the requirements of the new standard to our existing revenue contracts. We expect to complete this evaluation prior to the fourth quarter of 2017.
Inventory:
In July 2015, the FASB issued new guidance which requires entities using the first-in, first-out inventory costing method to subsequently value inventory at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the impact of this guidance and assessing the impact on our consolidated financial statements.
Leases:
In February 2016, the FASB issued updated guidance modifying lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. This guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the provisions of the updated guidance and assessing the impact on our consolidated financial statements.
Cash and Cash Equivalents, including Statement of Cash Flows and Restricted Cash:
In November 2016, the FASB issued updated guidance requiring entities to explain, in their statements of cash flows, the change during the period in the total of cash, cash equivalents, and amounts generally described as "restricted cash" or "restricted cash equivalents". As a result, restricted cash and restricted cash equivalents must now be included within the total of cash and cash equivalents when reconciling the beginning and end of period totals show on the statement of cash flows. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the provisions of this update and assessing the impact on our consolidated financial statements.
NOTE 3 — Acquisitions
2016 Acquisitions
ReachLocal:
In
August 2016
, we completed the acquisition of
100%
of the outstanding common stock of ReachLocal, Inc. (ReachLocal) for approximately
$162.5 million
in cash, net of cash acquired. We financed the transaction by borrowing
$175.0 million
under our credit facility as well as with available cash, and we incurred acquisition-related expenses of
$12.8 million
for the year ended
December 25, 2016
. Such costs were reflected in selling, general, and administrative expenses in the Consolidated and Combined Statements of Income.
ReachLocal offers online marketing, digital advertising, software-as-a-service, and web presence products and solutions to small and medium sized businesses. It delivers its suite of products and solutions to local businesses through a combination of its proprietary technology platform, its sales force, and select third-party agencies and resellers.
The purchase price, based on management's preliminary estimates, was allocated to the tangible assets and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The allocation of the purchase price is preliminary pending the finalization of the fair value of the acquired net assets and liabilities assumed as well as the acquired deferred income tax assets and liabilities and assumed income and non-income based tax liabilities. As of the acquisition date, the purchase price assigned to the acquired assets and assumed liabilities is summarized as follows:
|
|
|
|
|
In thousands
|
|
Cash acquired
|
$
|
13,195
|
|
Other current assets
|
15,058
|
|
Property, plant and equipment
|
13,486
|
|
Developed technology
|
54,000
|
|
Customer relationships
|
22,500
|
|
Other intangible assets
|
12,000
|
|
Goodwill
|
119,481
|
|
Other noncurrent assets
|
9,852
|
|
Total assets acquired
|
259,572
|
|
Current liabilities
|
63,005
|
|
Noncurrent liabilities
|
20,824
|
|
Total liabilities assumed
|
83,829
|
|
Net assets acquired
|
$
|
175,743
|
|
Acquired property, plant, and equipment are being depreciated on a straight-line basis over the assets' respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships as well as expected future synergies. Goodwill associated with the acquisition of ReachLocal is allocated entirely to the ReachLocal segment. We expect that the purchase price allocated to goodwill and intangible assets will not be deductible for tax purposes.
Since the acquisition date, revenues for ReachLocal were
$110.1 million
and net loss before taxes, excluding acquisition costs, was
$19.9 million
.
Assets of North Jersey Media Group:
In
July 2016
, we completed the acquisition of certain assets of North Jersey Media Group, Inc. (NJMG) for approximately
$39.3 million
. NJMG is a media company with print and digital publishing operations serving primarily the northern New Jersey market. Its brands include such established names as
The Record (Bergen County)
and
The Herald
. We financed the transaction with available cash on hand.
The purchase price, based on management's preliminary estimates, was allocated to the tangible assets and identified intangible assets acquired and liabilities assumed based on their estimated fair values. As of the acquisition date, the purchase price assigned to the acquired assets and assumed liabilities were as follows: property, plant, and equipment of
$26.0 million
, goodwill of
$8.3 million
, intangible assets of
$7.2 million
, noncurrent assets of
$1.0 million
noncurrent liabilities of
$0.3 million
, and net negative working capital of
$2.9 million
. Goodwill related to the acquisition of NJMG is allocated to the publishing segment.
Journal Media Group:
In
April 2016
, we completed the acquisition of
100%
of the outstanding common stock of Journal Media Group, Inc. (JMG) for approximately
$260.6 million
in cash, net of cash acquired. Further, approximately
$2.3 million
of the purchase price paid was treated as post-acquisition expense for accounting purposes. We financed the transaction by borrowing
$250.0 million
under our credit facility as well as with available cash, and we incurred acquisition-related costs of
$10.8 million
for the year ended
December 25, 2016
. Such costs were reflected in selling, general, and administrative expenses in the Consolidated and Combined Statements of Income.
JMG is a media company with print and digital publishing operations serving
15
U.S. markets in
nine
states, including the
Milwaukee Journal Sentinel,
the
Knoxville News Sentinel,
and
The Commercial Appeal
in Memphis
.
The acquisition expanded our print and digital publishing operations domestically.
The purchase price, based on management's preliminary estimates, was allocated to the tangible assets and identified intangible assets acquired based on their estimated fair values. The allocation of the purchase price is preliminary pending the finalization of the acquired deferred income tax assets and liabilities and assumed income and non-income based tax liabilities. As of the acquisition date, the purchase price assigned to the acquired assets and assumed liabilities is summarized as follows:
|
|
|
|
|
In thousands
|
|
Cash acquired
|
$
|
36,825
|
|
Other current assets
|
54,571
|
|
Property, plant and equipment
|
264,357
|
|
Mastheads
|
30,440
|
|
Customer relationships
|
12,440
|
|
Goodwill
|
24,347
|
|
Other noncurrent assets
|
3,825
|
|
Total assets acquired
|
426,805
|
|
Current liabilities
|
71,519
|
|
Noncurrent liabilities
|
60,240
|
|
Total liabilities assumed
|
131,759
|
|
Net assets acquired
|
$
|
295,046
|
|
Acquired property, plant, and equipment are being depreciated on a straight-line basis over the assets' respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships as well as expected future synergies. Goodwill related to the acquisition of JMG is allocated to the publishing segment. We expect that the purchase price allocated to goodwill and intangibles will not be deductible for tax purposes.
Since the acquisition date, revenues for JMG were
$299.8 million
and net loss before taxes, excluding acquisition costs, was
$5.4 million
.
Pro forma information:
The following table sets forth unaudited pro forma results of operations assuming the ReachLocal, NJMG and JMG acquisitions, along with transactions necessary to finance the acquisitions, occurred at the beginning of
2015
:
|
|
|
|
|
|
|
|
|
|
Unaudited
|
In thousands, except per share amounts
|
2016
|
|
2015
|
Total revenues
|
$
|
3,409,111
|
|
|
$
|
3,800,074
|
|
Net income
|
$
|
47,485
|
|
|
$
|
65,038
|
|
Earnings per share - diluted
|
$
|
0.40
|
|
|
$
|
0.56
|
|
This pro forma financial information is based on historical results of operations, adjusted for the allocation of the purchase price and other acquisition accounting adjustments, and is not necessarily indicative of what our results would have been had we operated the businesses 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.
2015 Acquisitions
Texas-New Mexico Partnership:
In
June 2015
, we completed the acquisition of the remaining
59.4%
interest in the Texas-New Mexico Partnership (TNP) that we did not own from Digital First Media. We completed the acquisition through the assignment of our
19.5%
interest in the California Newspapers Partnership (CNP), valued at
$34.4 million
, additional cash consideration, net of cash acquired, of
$5.2 million
, and
$1.9 million
in deferred consideration. As a result, we own
100%
of TNP and no longer have any ownership interest or continuing involvement in CNP. Through the transaction, we acquired print and digital publishing operations serving 11 U.S. markets in Texas, New Mexico and Pennsylvania.
The purchase price was allocated to the tangible assets and identified intangible assets acquired based on their estimated fair values. As of the acquisition date, the purchase price assigned to the acquired assets and assumed liabilities is summarized as follows:
|
|
|
|
|
In thousands
|
|
Current assets
|
$
|
12,310
|
|
Property, plant and equipment
|
20,672
|
|
Intangible assets
|
28,440
|
|
Goodwill
|
30,703
|
|
Total assets acquired
|
92,125
|
|
Current liabilities
|
10,860
|
|
Noncurrent liabilities
|
14,211
|
|
Total liabilities assumed
|
25,071
|
|
Net assets acquired
|
$
|
67,054
|
|
On the acquisition date, the fair value of our
40.6%
interest in TNP was
$26.6 million
, and the fair value of our
19.5%
interest in CNP was
$34.4 million
. The pre-acquisition carrying value of TNP and CNP was
$39.2 million
. We recognized a
$21.8 million
pre-tax non-cash gain on the transaction in the second quarter of 2015.
Acquired property, plant, and equipment are being depreciated on a straight-line basis over the assets' respective estimated remaining useful lives. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and non-contractual relationships as well as expected future synergies. We expect the purchase price allocated to goodwill and mastheads will be deductible for tax purposes. Goodwill related to the acquisition of TNP is allocated to the publishing segment.
Romanes Media Group:
In
May 2015
, our U.K. subsidiary, Newsquest Media Group Ltd. (Newsquest), paid
$23.4 million
, net of cash acquired, to purchase
100%
of the shares of Romanes Media Group (RMG). RMG publishes local newspapers in Scotland, Berkshire, and Northern Ireland, and its portfolio comprises
one
daily newspaper,
28
weekly newspapers, and their associated websites. Goodwill related to the acquisition of RMG is allocated to the publishing segment.
NOTE 4 — Restructuring activities and asset impairment charges
Severance-related expenses
We have initiated various cost reducing actions that are severance-related.
In
2015
, we initiated Early Retirement Opportunity Programs (EROP) for our USA TODAY employees and for employees in certain corporate departments and publishing sites. We recorded severance-related expenses of
$0.8 million
in
2016
and
$42.1 million
in
2015
for these programs.
We also had other employee termination actions associated with our facility consolidation and other cost efficiency efforts. We recorded severance-related expenses of
$42.7 million
in
2016
,
$30.2 million
in
2015
, and
$19.8 million
in 2014.
In
2016
, we recorded
$35.9 million
in costs of sales and operating expenses and
$7.6 million
in selling, general, and administrative expenses of severance-related expenses. In
2015
, we recorded
$59.3 million
in costs of sales and operating expenses and
$13.0 million
in selling, general, and administrative expenses of severance-related expenses. In
2014
, we
recorded
$15.6 million
in costs of sales and operating expenses and
$4.2 million
in selling, general, and administrative expenses of severance-related expenses.
A summary of our liabilities related to employee termination actions by year is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
EROPs
|
|
Other Severance Activities
|
|
Total
|
Balance at December 29, 2013
|
$
|
—
|
|
|
$
|
20,710
|
|
|
$
|
20,710
|
|
Payments
|
—
|
|
|
(28,985
|
)
|
|
(28,985
|
)
|
Expense
|
—
|
|
|
19,797
|
|
|
19,797
|
|
Adjustments
|
—
|
|
|
—
|
|
|
—
|
|
Balance at December 28, 2014
|
$
|
—
|
|
|
$
|
11,522
|
|
|
$
|
11,522
|
|
Payments
|
(10,591
|
)
|
|
(29,657
|
)
|
|
(40,248
|
)
|
Expense
|
42,081
|
|
|
30,185
|
|
|
72,266
|
|
Adjustments
|
240
|
|
|
—
|
|
|
240
|
|
Balance at December 27, 2015
|
$
|
31,730
|
|
|
$
|
12,050
|
|
|
$
|
43,780
|
|
Payments
|
(32,419
|
)
|
|
(36,003
|
)
|
|
(68,422
|
)
|
Expense
|
837
|
|
|
42,689
|
|
|
43,526
|
|
Adjustments
|
(68
|
)
|
|
(165
|
)
|
|
(233
|
)
|
Balance at December 25, 2016
|
$
|
80
|
|
|
$
|
18,571
|
|
|
$
|
18,651
|
|
A summary of our severance-related expenses by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Publishing
|
|
ReachLocal
|
|
Corporate and Other
|
|
Total
|
2016
|
|
|
|
|
|
|
|
|
EROPs
|
$
|
837
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
837
|
|
Other Severance Activities
|
41,963
|
|
|
640
|
|
|
86
|
|
|
42,689
|
|
Total
|
$
|
42,800
|
|
|
$
|
640
|
|
|
$
|
86
|
|
|
$
|
43,526
|
|
2015
|
|
|
|
|
|
|
|
|
|
EROPs
|
$
|
36,772
|
|
|
$
|
—
|
|
|
$
|
5,309
|
|
|
$
|
42,081
|
|
Other Severance Activities
|
30,185
|
|
|
—
|
|
|
—
|
|
|
30,185
|
|
Total
|
$
|
66,957
|
|
|
$
|
—
|
|
|
$
|
5,309
|
|
|
$
|
72,266
|
|
2014
|
|
|
|
|
|
|
|
|
|
EROPs
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other Severance Activities
|
19,797
|
|
|
—
|
|
|
—
|
|
|
19,797
|
|
Total
|
$
|
19,797
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19,797
|
|
Facility consolidation and asset impairment charges
For each year presented, we recognized charges related to facility consolidation efforts and, in certain of these periods, we also recorded non-cash impairment charges to assets and certain investments in which we hold a noncontrolling interest which are accounted for under the equity and cost methods of accounting. All impairment charges captured in
2016
were related to the publishing segment.
A summary of these charges by year is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except per share amounts
|
2016
|
Pre-Tax
Amount
|
|
After-Tax
Amount
|
|
Per Share Amount
|
Facility consolidation and asset impairment charges:
|
Intangible assets
|
$
|
24,398
|
|
|
$
|
15,120
|
|
|
$
|
0.13
|
|
Property, plant and equipment
|
33,518
|
|
|
20,312
|
|
|
0.17
|
|
Other
|
255
|
|
|
157
|
|
|
—
|
|
Total facility consolidation and asset impairment charges against operations
|
$
|
58,171
|
|
|
$
|
35,589
|
|
|
$
|
0.30
|
|
Accelerated depreciation
|
3,218
|
|
|
1,973
|
|
|
0.02
|
|
Non-operating charges:
|
|
|
|
|
|
Equity method investments
|
1,018
|
|
|
624
|
|
|
0.01
|
|
Other non-operating items
|
2,097
|
|
|
1,286
|
|
|
0.01
|
|
Total charges
|
$
|
64,504
|
|
|
$
|
39,472
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except per share amounts
|
2015
|
Pre-Tax
Amount
|
|
After-Tax
Amount
|
|
Per Share Amount
|
Facility consolidation and asset impairment charges:
|
Intangible assets
|
$
|
19,437
|
|
|
$
|
13,131
|
|
|
$
|
0.11
|
|
Property, plant and equipment
|
10,061
|
|
|
6,167
|
|
|
0.05
|
|
Other
|
4,780
|
|
|
2,930
|
|
|
0.03
|
|
Total facility consolidation and asset impairment charges against operations
|
$
|
34,278
|
|
|
$
|
22,228
|
|
|
$
|
0.19
|
|
Non-operating charges:
|
|
|
|
|
|
Equity method investments
|
658
|
|
|
404
|
|
|
—
|
|
Total charges
|
$
|
34,936
|
|
|
$
|
22,632
|
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except per share amounts
|
2014
|
Pre-Tax
Amount
|
|
After-Tax
Amount
|
|
Per Share Amount
|
Facility consolidation and asset impairment charges:
|
Intangible assets
|
$
|
1,701
|
|
|
$
|
1,000
|
|
|
$
|
0.01
|
|
Property, plant and equipment
|
19,467
|
|
|
13,467
|
|
|
0.12
|
|
Other
|
14,048
|
|
|
8,449
|
|
|
0.07
|
|
Total facility consolidation and asset impairment charges against operations
|
$
|
35,216
|
|
|
$
|
22,916
|
|
|
$
|
0.20
|
|
All indefinite-lived intangibles were tested for impairment as of the first day of our fourth quarter. The definite-lived intangible assets were first evaluated based on a qualitative assessment considering changes in circumstances to determine whether the assets are recoverable. Then, we prepared quantitative assessments for the assets which indicated that certain carrying values were less than their respective fair values. Fair values were determined using a relief-from-royalty method or excess earning method. As a result, pre-tax non-cash impairment charges for indefinite lived intangibles totaled
$14.5 million
in
2016
,
$0.9 million
in
2015
, and
$1.7 million
in
2014
. Pre-tax non-cash impairment charges for finite lived intangibles totaled
$9.9 million
in
2016
and
$18.5 million
in
2015
. There were no pre-tax impairment charges for finite lived other intangibles in 2014. The impairments, all of which were recorded to the publishing segment, were principally a result of revenue projections which were lower than expected.
Facility consolidation plans led us to recognize charges associated with revising the useful lives of certain assets over a shortened period as well as shutdown costs. Certain assets classified as held-for-sale resulted in charges also being recognized as the carrying values were reduced to equal the fair value less cost to dispose. These fair values were based on estimates of prices for similar assets.
During
2016
and
2015
, the carrying values of certain investments in which we own a noncontrolling interest were written down to fair value because the business underlying the investments had experienced sustained operating losses, leading us to conclude the investments were impaired. These charges are recorded in "Equity income in unconsolidated investees, net" and "Other non-operating items, net."
NOTE 5 — Goodwill and other intangible assets
Goodwill, indefinite-lived intangible assets, and amortizable intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Dec. 25, 2016
|
|
|
|
|
|
Goodwill
|
$
|
698,288
|
|
|
$
|
—
|
|
|
$
|
698,288
|
|
Indefinite-lived intangibles:
|
|
|
|
|
|
Mastheads and trade names
|
47,410
|
|
|
—
|
|
|
47,410
|
|
Amortizable intangible assets:
|
|
|
|
|
|
Developed technology
|
54,000
|
|
|
(6,621
|
)
|
|
47,379
|
|
Customer relationships
|
89,785
|
|
|
(41,495
|
)
|
|
48,290
|
|
Other
|
12,800
|
|
|
(1,235
|
)
|
|
11,565
|
|
Total
|
$
|
902,283
|
|
|
$
|
(49,351
|
)
|
|
$
|
852,932
|
|
Dec. 27, 2015
|
|
|
|
|
|
Goodwill
|
$
|
575,685
|
|
|
$
|
—
|
|
|
$
|
575,685
|
|
Indefinite-lived intangibles:
|
|
|
|
|
|
Mastheads and trade names
|
31,521
|
|
|
—
|
|
|
31,521
|
|
Amortizable intangible assets:
|
|
|
|
|
|
Developed technology
|
—
|
|
|
—
|
|
|
—
|
|
Customer relationships
|
68,005
|
|
|
(39,813
|
)
|
|
28,192
|
|
Other
|
11,478
|
|
|
(11,478
|
)
|
|
—
|
|
Total
|
$
|
686,689
|
|
|
$
|
(51,291
|
)
|
|
$
|
635,398
|
|
Intangible amortization expense was
$14.9 million
in
2016
and
$11.6 million
in
2015
. The increase is due to the intangibles acquired as a result of our
2016
acquisitions as well as a full year of amortization of the intangibles we acquired as a result of our
2015
acquisitions. Customer relationships, which include subscriber lists and advertiser relationships, are amortized on a straight-line basis over their useful lives. Developed technology consists of digital marketing solutions and other technology acquired as part of the ReachLocal transaction and is amortized on a straight-line basis over their useful lives. Other intangibles are primarily amortizable trade names and are amortized on a straight-line basis over their useful lives. The weighted average remaining amortization periods for customer relationships, acquired technology and other amortizable intangibles are approximately
8.4
,
2.7
and
3.7
years, respectively.
The projected annual amortization expense related to amortizable intangibles as of
December 25, 2016
is as follows:
|
|
|
|
|
In thousands
|
2017
|
$
|
28,183
|
|
2018
|
$
|
28,134
|
|
2019
|
$
|
20,918
|
|
2020
|
$
|
8,021
|
|
2021
|
$
|
5,312
|
|
The balances and changes in the carrying amount of goodwill by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Publishing
|
|
ReachLocal
|
|
Consolidated
|
Balance at Dec. 28, 2014:
|
|
|
|
|
|
Goodwill
|
$
|
7,358,420
|
|
|
$
|
—
|
|
|
$
|
7,358,420
|
|
Accumulated impairment losses
|
(6,814,075
|
)
|
|
—
|
|
|
(6,814,075
|
)
|
Net balance at Dec. 28, 2014
|
$
|
544,345
|
|
|
$
|
—
|
|
|
$
|
544,345
|
|
Activity during the year:
|
|
|
|
|
|
Acquisitions & adjustments
|
39,484
|
|
|
—
|
|
|
39,484
|
|
Foreign currency exchange rate changes
|
(8,144
|
)
|
|
—
|
|
|
(8,144
|
)
|
Total
|
$
|
31,340
|
|
|
$
|
—
|
|
|
$
|
31,340
|
|
Balance at Dec. 27, 2015:
|
|
|
|
|
|
Goodwill
|
7,297,752
|
|
|
—
|
|
|
7,297,752
|
|
Accumulated impairment losses
|
(6,722,067
|
)
|
|
—
|
|
|
(6,722,067
|
)
|
Net balance at Dec. 27, 2015
|
$
|
575,685
|
|
|
$
|
—
|
|
|
$
|
575,685
|
|
Activity during the year:
|
|
|
|
|
|
Acquisitions & adjustments
|
36,532
|
|
|
119,481
|
|
|
156,013
|
|
Foreign currency exchange rate changes
|
(33,410
|
)
|
|
—
|
|
|
(33,410
|
)
|
Total
|
$
|
3,122
|
|
|
$
|
119,481
|
|
|
$
|
122,603
|
|
Balance at Dec. 25, 2016:
|
|
|
|
|
|
Goodwill
|
6,925,236
|
|
|
119,481
|
|
|
7,044,717
|
|
Accumulated impairment losses
|
(6,346,429
|
)
|
|
—
|
|
|
(6,346,429
|
)
|
Net balance at Dec. 25, 2016
|
$
|
578,807
|
|
|
$
|
119,481
|
|
|
$
|
698,288
|
|
In fiscal years
2016
,
2015
and
2014
, we performed a quantitative step one analysis of each of our reporting units as part of the annual goodwill impairment evaluation and determined that the fair values were in excess of the individual reporting units carrying values, and, accordingly, a step two analysis was not required and there were no goodwill impairments.
NOTE 6 — Investments
We have a number of investments accounted for under the equity method. Principal among these are the following:
|
|
|
|
|
% Owned at
Dec. 25, 2016
|
TNI Partners
|
50.00
|
%
|
Albuquerque Publishing Company
(a)
|
40.00
|
%
|
Spirited Media, Inc.
|
31.58
|
%
|
NextGen Solutions, LLC
|
25.00
|
%
|
Digg, Inc.
|
15.00
|
%
|
Ponderay Newsprint Company
|
13.50
|
%
|
Time Razor, Inc.
|
7.06
|
%
|
|
|
(a)
|
Per the terms of our contract, the ownership percentage fluctuates marginally from month to month.
|
The aggregate carrying value of investments recorded under the equity method was
$7.5 million
at
December 25, 2016
and
$7.9 million
at
December 27, 2015
. Certain differences exist between our investment carrying value and the underlying equity of the investee companies principally due to fair value measurement at the date of investment acquisition and due to impairment charges we recorded for certain of the investments.
The company also has other investments recorded at cost. The aggregate carrying value of these investments, net of impairment, were
$6.7 million
at
December 25, 2016
. There were
no
other investments as of
December 27, 2015
.
NOTE 7 — Revolving credit facility
We maintain a
five
-year secured revolving credit facility pursuant to which we may borrow from time to time up to an aggregate principal amount of
$500 million
(Credit Facility). Under the Credit Facility, we may borrow at an applicable margin above the Eurodollar base rate (LIBOR loan) or the higher of the Prime Rate, the Federal Funds Effective Rate plus
0.50%
, or the one month LIBOR rate plus
1.00%
(ABR loan). The applicable margin is determined based on our total leverage ratio but differs between LIBOR loans and ABR loans. For LIBOR-based borrowing, the margin varies from
2.00%
to
2.50%
. For ABR-based borrowing, the margin varies from
1.00%
to
1.50%
. Up to
$50 million
of the Credit Facility is available for issuance of letters of credit. The Credit Facility matures on June 29, 2020.
Customary fees related to the Credit Facility, including commitment fees on the undrawn commitments of between
0.30%
and
0.40%
per annum, are payable quarterly in arrears and are based on our total leverage ratio. Borrowings under the Credit Facility are guaranteed by our wholly-owned material domestic subsidiaries. All obligations of Gannett and each subsidiary guarantor under the Credit Facility are or will be secured by first priority security interests in our equipment, inventory, accounts receivable, fixtures, general intangibles and other personal property, mortgages on certain material real property, and pledges of the capital stock of each subsidiary guarantor.
Under the Credit Facility, our consolidated interest coverage ratio cannot be less than
3.00
:
1.00
, and our total leverage ratio cannot exceed
3.00
:
1.00
as of the last day of the test period consisting of the last four fiscal quarters. We were in compliance with these financial covenants as of
December 25, 2016
.
The Credit Facility also contains a number of covenants that, among other things, limit or restrict our ability, subject to certain exceptions, to: (i) permit certain liens on current or future assets, (ii) enter into certain corporate transactions, (iii) incur additional indebtedness, (iv) make certain payments or declare certain dividends or distributions, (v) dispose of certain property, (vi) make certain investments, (vii) prepay or amend the terms of other indebtedness, or (viii) enter into certain transactions with our affiliates. We were in compliance with these covenants as of
December 25, 2016
.
During 2016, we borrowed
$425 million
under our Credit Facility to complete the acquisitions of JMG and ReachLocal. Refer to
Note 3 — Acquisitions
for further details on these acquisitions. As of
December 25, 2016
, we had
$400 million
in outstanding borrowings under the Credit Facility and
$9.3 million
of letters of credit outstanding, leaving
$90.7 million
of availability remaining.
NOTE 8 — Retirement plans
Defined benefit retirement plans:
We, along with our subsidiaries, have various defined benefit retirement plans, including plans established under collective bargaining agreements. The disclosure tables below include the assets and obligations of the Gannett Retirement Plan (GRP), the Newsquest and Romanes Pension Schemes in the U.K. (Newsquest Plans), the Newspaper Guild of Detroit Pension Plan, the 2015 Supplemental Retirement Plan (SERP), and a supplemental non-qualified retirement plan we assumed pursuant to our acquisition of JMG (JMG Plan). We use a
December 31
measurement date convention for all our retirement plans.
Our pension costs, which include costs for our qualified and non-qualified plans, are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Service cost—benefits earned during the period
|
$
|
3,066
|
|
|
$
|
7,993
|
|
|
$
|
4,498
|
|
Interest cost on benefit obligation
|
125,903
|
|
|
131,149
|
|
|
145,433
|
|
Expected return on plan assets
|
(183,697
|
)
|
|
(196,774
|
)
|
|
(206,164
|
)
|
Amortization of prior service costs
|
6,677
|
|
|
6,893
|
|
|
6,967
|
|
Amortization of actuarial loss
|
61,740
|
|
|
56,722
|
|
|
41,728
|
|
Pension cost (benefit) for our plans and our allocated portions of former
parent-sponsored retirement plans
|
13,689
|
|
|
5,983
|
|
|
(7,538
|
)
|
Participant data corrections
(a)
|
(145
|
)
|
|
—
|
|
|
—
|
|
Settlement charge
|
(49
|
)
|
|
1,254
|
|
|
—
|
|
Expense (credit) for retirement plans
|
$
|
13,495
|
|
|
$
|
7,237
|
|
|
$
|
(7,538
|
)
|
|
|
(a)
|
Refer to
Note 1 — Basis of presentation
for additional details regarding the impacts of the error in participant data identified.
|
The following table provides a reconciliation of pension benefit obligations (on a projected benefit obligation measurement basis), plan assets and funded status, along with the related amounts that are recognized in the Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
In thousands
|
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
Change in benefit obligations
|
|
|
|
Benefit obligations at beginning of year
|
$
|
3,184,795
|
|
|
$
|
3,433,581
|
|
Service cost
|
3,066
|
|
|
7,993
|
|
Interest cost
|
125,903
|
|
|
131,149
|
|
Plan amendments
|
500
|
|
|
—
|
|
Plan participants' contributions
|
4
|
|
|
8
|
|
Actuarial (gain) loss
|
266,925
|
|
|
(106,778
|
)
|
Foreign currency translation
|
(187,624
|
)
|
|
(40,679
|
)
|
Gross benefits paid
|
(211,882
|
)
|
|
(218,998
|
)
|
Acquisitions
|
4,736
|
|
|
26,308
|
|
Transfers out
|
(1,242
|
)
|
|
—
|
|
Settlements
|
—
|
|
|
(4,354
|
)
|
Participant data corrections
(a)
|
(23,600
|
)
|
|
—
|
|
Transfer from separation
|
—
|
|
|
(43,435
|
)
|
Benefit obligations at end of year
|
$
|
3,161,581
|
|
|
$
|
3,184,795
|
|
Change in plan assets
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
2,558,627
|
|
|
$
|
2,654,889
|
|
Transfers
|
—
|
|
|
1,006
|
|
Actual return on plan assets
|
117,162
|
|
|
38,853
|
|
Plan participants' contributions
|
4
|
|
|
8
|
|
Employer contributions
|
88,340
|
|
|
128,179
|
|
Gross benefits paid
|
(211,882
|
)
|
|
(218,998
|
)
|
Acquisitions
|
—
|
|
|
26,179
|
|
Transfers out
|
(1,242
|
)
|
|
—
|
|
Settlements
|
—
|
|
|
(4,354
|
)
|
Foreign currency translation
|
(140,002
|
)
|
|
(30,411
|
)
|
Transfer from separation
|
—
|
|
|
(36,724
|
)
|
Fair value of plan assets at end of year
|
$
|
2,411,007
|
|
|
$
|
2,558,627
|
|
Funded status at end of year
|
$
|
750,574
|
|
|
$
|
626,168
|
|
Amounts recognized in Consolidated Balance Sheets
|
Noncurrent assets
|
$
|
919
|
|
|
$
|
2,166
|
|
Accrued benefit cost—current
|
$
|
(12,230
|
)
|
|
$
|
(15,891
|
)
|
Accrued benefit cost—noncurrent
|
$
|
(739,263
|
)
|
|
$
|
(612,443
|
)
|
|
|
(a)
|
Refer to
Note 1 — Basis of presentation
for additional details regarding the impacts of the error in participant data identified.
|
The funded status (on a projected benefit obligation basis) of our plans at
December 25, 2016
, is as follows
:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Fair Value of
Plan Assets
|
|
Benefit
Obligation
|
|
Funded
Status
|
GRP
|
$
|
1,601,312
|
|
|
$
|
1,975,816
|
|
|
$
|
(374,504
|
)
|
SERP
(a)
|
—
|
|
|
109,952
|
|
|
(109,952
|
)
|
Newsquest Plans
|
717,623
|
|
|
970,988
|
|
|
(253,365
|
)
|
Newspaper Guild of Detroit Plan
|
92,072
|
|
|
101,065
|
|
|
(8,993
|
)
|
JMG Plan
(a)
|
—
|
|
|
3,760
|
|
|
(3,760
|
)
|
Total
|
$
|
2,411,007
|
|
|
$
|
3,161,581
|
|
|
$
|
(750,574
|
)
|
|
|
(a)
|
The SERP and JMG Plans are unfunded, unsecured liabilities.
|
The following table presents information for our retirement plans for which accumulated benefits exceed assets:
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
Accumulated benefit obligation
|
$
|
3,153,811
|
|
|
$
|
3,179,094
|
|
Fair value of plan assets
|
$
|
2,411,007
|
|
|
$
|
2,558,627
|
|
The following table presents information for our retirement plans for which projected benefit obligations exceed assets:
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
Projected benefit obligation
|
$
|
3,161,581
|
|
|
$
|
3,184,795
|
|
Fair value of plan assets
|
$
|
2,411,007
|
|
|
$
|
2,558,627
|
|
The following table summarizes the amounts recorded in "Accumulated other comprehensive loss" that are currently unrecognized as a component of pension expense for our retirement plans as of the dates presented (pre-tax).
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
Net actuarial losses
|
$
|
(1,825,167
|
)
|
|
$
|
(1,613,939
|
)
|
Prior service cost
|
(29,263
|
)
|
|
(35,451
|
)
|
Amounts in accumulated other comprehensive loss
|
$
|
(1,854,430
|
)
|
|
$
|
(1,649,390
|
)
|
The actuarial loss amounts expected to be amortized from "Accumulated other comprehensive loss" into net periodic benefit cost in 2017 are
$70.4 million
. The prior service cost amounts expected to be amortized from "Accumulated other comprehensive loss" into net periodic benefit cost in 2017 are
$6.7 million
.
Changes in plan assets and benefit obligations recognized in "Other comprehensive loss" consist of the following:
|
|
|
|
|
In thousands
|
|
2016
|
Current year actuarial loss
|
$
|
333,460
|
|
Change in prior service cost
|
500
|
|
Actuarial gain due to settlement
|
49
|
|
Amortization of actuarial loss
|
(61,740
|
)
|
Amortization of prior service costs
|
(6,677
|
)
|
Foreign currency gain
|
(68,620
|
)
|
Participant data corrections
(a)
|
8,070
|
|
Total
|
$
|
205,042
|
|
|
|
(a)
|
Refer to
Note 1 — Basis of presentation
for additional details regarding the impacts of the error in participant data identified.
|
Pension costs:
The following assumptions were used to determine net pension costs:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Discount rate
|
4.24%
|
|
4.17%
|
|
4.74%
|
Expected return on plan assets
|
7.60%
|
|
7.63%
|
|
7.91%
|
Rate of compensation increase
|
2.95%
|
|
2.95%
|
|
2.96%
|
The expected return on plan assets assumption was determined based on plan asset allocations, a review of historic capital market performance, historical plan asset performance and a forecast of expected future plan asset returns.
Benefit obligations and funded status:
The following assumptions were used to determine the year-end benefit obligations:
|
|
|
|
|
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
Discount rate
|
3.63%
|
|
4.24%
|
Rate of compensation increase
|
2.95%
|
|
2.96%
|
During
2016
, we made contributions of $
49.9 million
to the Newsquest Plans. In
2017
, we expect to contribute approximately $
18.9 million
to the Newsquest Plans. During
2016
, we contributed $
25.8 million
to the GRP, $
12.0 million
to the SERP and
$0.7 million
to the JMG Plan. In addition to any other contributions that may be required, we will make additional contributions of $
25.0 million
in each of the next four fiscal years ending in 2020 and
$15.0 million
in 2021 for the GRP. Our expected
2017
contributions for Gannett's SERP and JMG Plan are $
11.9 million
and
$0.3 million
, respectively.
Plan assets:
The asset allocation of our plans at the end of
2016
and
2015
, and target allocations for
2017
, by asset category, are presented in the table below:
|
|
|
|
|
|
|
|
|
|
Target Allocation
|
|
|
Allocation of Plan Assets
|
|
2017
|
|
2016
|
|
2015
|
Equity securities
|
47
|
%
|
|
44
|
%
|
|
53
|
%
|
Debt securities
|
35
|
%
|
|
38
|
%
|
|
24
|
%
|
Alternative investments
(a)
|
18
|
%
|
|
18
|
%
|
|
23
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
|
(a)
|
Alternative investments include real estate, private equity and hedge funds.
|
The primary objective of company-sponsored retirement plans is to provide eligible employees with scheduled pension benefits; the "prudent man" guideline is followed with regard to the investment management of retirement plan assets. Consistent with prudent standards for preservation of capital and maintenance of liquidity, the goal is to earn the highest possible total rate of return while minimizing risk. The principal means of reducing volatility and exercising prudent investment judgment is diversification by asset class and by investment manager; consequently, portfolios are constructed to attain prudent diversification in the total portfolio, each asset class, and within each individual investment manager's portfolio. Investment diversification is consistent with the intent to minimize the risk of large losses. All objectives are based upon an investment horizon spanning five years so that interim market fluctuations can be viewed with the appropriate perspective. The target asset allocation represents the long-term perspective. Retirement plan assets will be rebalanced periodically to align them with the target asset allocations. Risk characteristics are measured and compared with an appropriate benchmark quarterly; periodic reviews are made of the investment objectives and the investment managers. Our actual investment return on our Gannett Retirement Plan assets was
0.4%
for
2016
,
1.9%
for
2015
and
5.2%
for
2014
.
Retirement plan assets include approximately
0.6 million
shares of our common stock valued at approximately
$6.0 million
at the end of
2016
. The plan received dividends of approximately
$0.5 million
on these shares in
2016
.
Cash flows:
We estimate the following benefit payments will be made from retirement plan assets, which reflect expected future service, as appropriate. The amounts below represent the benefit payments for our plans.
|
|
|
|
|
In thousands
|
2017
|
$
|
195,190
|
|
2018
|
$
|
191,231
|
|
2019
|
$
|
190,887
|
|
2020
|
$
|
187,341
|
|
2021
|
$
|
184,548
|
|
2022-2026
|
$
|
882,207
|
|
401(k) savings plan
Substantially all our employees (other than those covered by a collective bargaining agreement) who are scheduled to work at least
1,000
hours during each year of employment are eligible to participate in our principal defined contribution plan, The Gannett Co., Inc. 401(k) Savings Plan. Employees can elect to save up to
50%
of compensation on a pre-tax basis subject to certain limits.
For most participants, the plan's matching formula is
100%
of the first
5%
of employee contributions. We also make additional employer contributions on behalf of certain long-term employees. Compensation expense related to 401(k) contributions was
$28.8 million
in
2016
,
$25.8 million
in
2015
, and
$30.4 million
in
2014
. We settled the 401(k) employee match obligation payable in company stock by buying our stock in the open market and depositing it in the participants' accounts.
In connection with our acquisitions of JMG and ReachLocal, as discussed in
Note 3 — Acquisitions
, we assumed 401(k) savings plans. JMG's 401(k) savings plan continues to cover former JMG employees. For most participants in this plan, the matching formula is
50%
of the first
7%
of employee contributions, and the employer match obligation is settled in cash. Additionally, ReachLocal's 401(k) savings plan continues to cover their former full-time U.S. employees and has no employer match obligation.
Multi-employer plans that provide pension benefits
We contribute to a number of multi-employer defined benefit pension plans under the terms of collective-bargaining agreements (CBAs) that cover our union-represented employees. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects:
|
|
•
|
We play no part in the management of plan investments or any other aspect of plan administration.
|
|
|
•
|
Amounts we contribute to the multi-employer plan 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.
|
|
|
•
|
If we choose to stop participating in some of our multi-employer plans, we may be required to pay those plans an amount based on the unfunded status of the plan, referred to as a withdrawal liability.
|
Our participation in these plans for the annual period ended
December 25, 2016
, is outlined in the table below. The "EIN/Plan Number" column provides the Employee Identification Number (EIN) and the three-digit pension plan number. Unless otherwise noted, the two most recent Pension Protection Act (PPA) zone statuses available are for the plan's year-end at
December 25, 2016
and
December 27, 2015
. The zone status is based on information that we 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 a) less than
80%
funded and b) 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.
We make all required contributions to these plans as determined under the respective CBAs. For each of the plans listed below, our contribution represented less than
5%
of total contributions to the plan. This calculation is based on the plan financial statements issued at the end of December 31, 2015. At the date we issue our financial statements, Forms 5500 were unavailable for the plan years ending after December 31, 2015.
We incurred expenses for multi-employer withdrawal liabilities of
$2.0 million
in
2016
and
$6.1 million
in
2015
. Current liabilities on the Consolidated Balance Sheets include
$3.3 million
and
$2.0 million
at
December 25, 2016
, and
December 27, 2015
, respectively, and other noncurrent liabilities on the Consolidated Balance Sheets include
$40.2 million
and
$41.5 million
at
December 25, 2016
, and
December 27, 2015
, respectively, for such withdrawal liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-employer Pension Plans
|
|
|
|
|
|
|
|
|
|
|
EIN Number/
|
Zone Status
Dec. 31,
|
FIP/RP Status
Pending/Implemented
|
Contributions
(in thousands)
|
Surcharge Imposed
|
Expiration Dates of CBAs
|
Pension Plan Name
|
Plan Number
|
2016
|
2015
|
2016
|
2015
|
2014
|
CWA/ITU Negotiated Pension Plan
|
13-6212879/001
|
Red
|
Red
|
Implemented
|
$
|
478
|
|
$
|
411
|
|
$
|
433
|
|
No
|
4/10/2019
|
GCIU—Employer Retirement Benefit Plan
(a)
|
91-6024903/001
|
Red
|
Red
|
Implemented
|
30
|
|
43
|
|
71
|
|
No
|
4/30/2019
|
IAM National Pension Plan
(a)
|
51-6031295/002
|
Green
|
Green
|
NA
|
278
|
|
352
|
|
403
|
|
NA
|
4/30/2019
|
Teamsters Pension Trust Fund of Philadelphia and Vicinity
(a)
|
23-1511735/001
|
Yellow
|
Yellow
|
Implemented
|
1,473
|
|
1,452
|
|
1,298
|
|
NA
|
12/21/2017
|
Central Pension Fund of the International Union of Operating Engineers and Participating Employers
(a)
|
36-6052390/001
|
Green as of Jan. 31, 2016
|
Green as of Jan. 31, 2015
|
NA
|
86
|
|
99
|
|
153
|
|
NA
|
4/30/2019
|
Total
|
|
|
|
|
$
|
2,345
|
|
$
|
2,357
|
|
$
|
2,358
|
|
|
|
|
|
(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.
|
NOTE 9 — Postretirement benefits other than pension
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.
Postretirement benefit cost for health care and life insurance included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Service cost – benefits earned during the period
|
$
|
202
|
|
|
$
|
301
|
|
|
$
|
365
|
|
Interest cost on net benefit obligation
|
4,038
|
|
|
4,019
|
|
|
4,610
|
|
Amortization of prior service credit
|
(4,794
|
)
|
|
(9,615
|
)
|
|
(11,421
|
)
|
Amortization of actuarial (gain) loss
|
415
|
|
|
1,426
|
|
|
718
|
|
Participant data corrections
(a)
|
(350
|
)
|
|
—
|
|
|
—
|
|
Net periodic postretirement benefit credit
|
$
|
(489
|
)
|
|
$
|
(3,869
|
)
|
|
$
|
(5,728
|
)
|
|
|
(a)
|
Refer to
Note 1 — Basis of presentation
for additional details regarding the impacts of the error in participant data identified.
|
The table below provides a reconciliation of benefit obligations and funded status of our postretirement benefit plans:
|
|
|
|
|
|
|
|
|
In thousands
|
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
Change in benefit obligations
|
|
|
|
Net benefit obligations at beginning of year
|
$
|
97,508
|
|
|
$
|
103,528
|
|
Service cost
|
202
|
|
|
301
|
|
Interest cost
|
4,038
|
|
|
4,019
|
|
Plan participants' contributions
|
1,239
|
|
|
3,839
|
|
Plan amendments
|
502
|
|
|
—
|
|
Actuarial loss
|
1,193
|
|
|
3,898
|
|
Gross benefits paid
|
(10,505
|
)
|
|
(13,935
|
)
|
Federal subsidy on benefits paid
|
—
|
|
|
—
|
|
Transfer from separation
|
—
|
|
|
(4,142
|
)
|
Acquisitions
|
8,255
|
|
|
—
|
|
Participant data corrections
(a)
|
(2,771
|
)
|
|
—
|
|
Net benefit obligations at end of year
|
$
|
99,661
|
|
|
$
|
97,508
|
|
Change in plan assets
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
—
|
|
|
$
|
—
|
|
Employer contributions
|
9,266
|
|
|
10,096
|
|
Plan participants' contributions
|
1,239
|
|
|
3,839
|
|
Gross benefits paid
|
(10,505
|
)
|
|
(13,935
|
)
|
Fair value of plan assets at end of year
|
$
|
—
|
|
|
$
|
—
|
|
Benefit obligation at end of year
|
$
|
99,661
|
|
|
$
|
97,508
|
|
Amounts recognized in Consolidated Balance Sheets
|
Accrued benefit cost—current
|
$
|
(9,527
|
)
|
|
$
|
(9,914
|
)
|
Accrued benefit cost—noncurrent
|
$
|
(90,134
|
)
|
|
$
|
(87,594
|
)
|
|
|
(a)
|
Refer to
Note 1 — Basis of presentation
for additional details regarding the impacts of the error in participant data identified.
|
The following table summarizes the amounts recorded in "Accumulated other comprehensive loss" that are currently unrecognized as a component of net periodic postretirement benefit credit as of the dates presented (pre-tax):
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
Net actuarial losses
|
$
|
(4,472
|
)
|
|
$
|
(12,611
|
)
|
Prior service credit
|
22,711
|
|
|
29,515
|
|
Amounts in accumulated other comprehensive loss
|
$
|
18,239
|
|
|
$
|
16,904
|
|
T
he actuarial loss and prior service credit estimated to be amortized from "Accumulated other comprehensive loss" into net periodic benefit cost in
2017
are
$0.6
million and
$3.6
million, respectively.
Changes in plan assets and benefit obligations recognized in "Other comprehensive loss" consist of the following:
|
|
|
|
|
In thousands
|
|
2016
|
Current year actuarial loss
|
$
|
1,193
|
|
Change in prior service cost
|
502
|
|
Amortization of actuarial loss
|
(415
|
)
|
Amortization of prior service credit
|
4,794
|
|
Participant data corrections
(a)
|
(7,409
|
)
|
Total
|
$
|
(1,335
|
)
|
|
|
(a)
|
Refer to
Note 1 — Basis of presentation
for additional details regarding the impacts of the error in participant data identified.
|
Postretirement benefit costs:
The following assumptions were used to determine postretirement benefit cost:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Discount rate
|
4.27
|
%
|
|
4.11
|
%
|
|
4.50
|
%
|
Health care cost trend rate assumed for next year
|
5.70
|
%
|
|
6.18
|
%
|
|
6.26
|
%
|
Ultimate trend rate
|
4.77
|
%
|
|
5.00
|
%
|
|
5.00
|
%
|
Year that ultimate trend rate is reached
|
2019
|
|
|
2018
|
|
|
2018
|
|
Benefit obligations and funded status:
The following assumptions were used to determine the year-end benefit obligation:
|
|
|
|
|
|
|
|
Dec. 27, 2016
|
|
Dec. 27, 2015
|
Discount rate
|
4.01
|
%
|
|
4.35
|
%
|
Health care cost trend rate assumed for next year
|
5.70
|
%
|
|
6.18
|
%
|
Ultimate trend rate
|
4.77
|
%
|
|
5.00
|
%
|
Year that ultimate trend rate is reached
|
2019
|
|
|
2018
|
|
Assumed health care cost trend rates have an effect on the amounts reported for the health care plans. The effect of a
1%
change in the health care cost trend rate would result in a change of approximately
$0.7
million in the
2016
postretirement benefit obligation and no measurable change in the aggregate service and interest components of the
2016
expense.
Cash flows:
We expect to make the following benefit payments, which reflect expected future service. The amounts below represent the benefit payments for our plans.
|
|
|
|
|
In thousands
|
Benefit
Payments
|
2017
|
$
|
9,527
|
|
2018
|
$
|
9,173
|
|
2019
|
$
|
8,664
|
|
2020
|
$
|
7,988
|
|
2021
|
$
|
7,459
|
|
2022-2026
|
$
|
32,159
|
|
The amounts above exclude the participants' share of the benefit cost. Our policy is to fund benefits as claims, stipends and premiums are paid. We expect no subsidy benefits for
2017
and beyond.
NOTE 10 — Income taxes
The provision (benefit) for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
2016
|
Current
|
|
Deferred
|
|
Total
|
Federal
|
$
|
(7,094
|
)
|
|
$
|
8,278
|
|
|
$
|
1,184
|
|
State and other
|
(528
|
)
|
|
262
|
|
|
(266
|
)
|
Foreign
|
5,606
|
|
|
7,194
|
|
|
12,800
|
|
Total
|
$
|
(2,016
|
)
|
|
$
|
15,734
|
|
|
$
|
13,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
2015
|
Current
|
|
Deferred
|
|
Total
|
Federal
|
$
|
(5,383
|
)
|
|
$
|
36,489
|
|
|
$
|
31,106
|
|
State and other
|
(560
|
)
|
|
4,046
|
|
|
3,486
|
|
Foreign
|
6,447
|
|
|
6,845
|
|
|
13,292
|
|
Total
|
$
|
504
|
|
|
$
|
47,380
|
|
|
$
|
47,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
2014
|
Current
|
|
Deferred
|
|
Total
|
Federal
|
$
|
39,740
|
|
|
$
|
18,282
|
|
|
$
|
58,022
|
|
State and other
|
(21,123
|
)
|
|
27,731
|
|
|
6,608
|
|
Foreign
|
—
|
|
|
2,930
|
|
|
2,930
|
|
Total
|
$
|
18,617
|
|
|
$
|
48,943
|
|
|
$
|
67,560
|
|
The components of net income before income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Domestic
|
$
|
19,349
|
|
|
$
|
128,316
|
|
|
$
|
192,741
|
|
Foreign
|
47,079
|
|
|
65,659
|
|
|
85,524
|
|
Total
|
$
|
66,428
|
|
|
$
|
193,975
|
|
|
$
|
278,265
|
|
The provision for income taxes varies from the U.S. federal statutory tax rate as a result of the following differences:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
U.S. statutory tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
State/other income taxes net of federal income tax
|
(3.8
|
)
|
|
2.4
|
|
|
2.5
|
|
Statutory rate differential and permanent differences in earnings in foreign jurisdictions
|
(10.7
|
)
|
|
(6.3
|
)
|
|
(13.4
|
)
|
Impact of rate change in foreign tax jurisdiction
|
1.6
|
|
|
1.9
|
|
|
—
|
|
Valuation allowance
|
3.5
|
|
|
—
|
|
|
4.4
|
|
Net of additional reserves and lapse of statutes of limitations
|
3.3
|
|
|
(1.1
|
)
|
|
(0.9
|
)
|
Impact of accounting method change
|
—
|
|
|
(3.4
|
)
|
|
—
|
|
Domestic manufacturing deduction
|
—
|
|
|
(1.4
|
)
|
|
(1.9
|
)
|
Stock-based compensation
(a)
|
(12.3
|
)
|
|
—
|
|
|
—
|
|
Transaction costs
|
3.4
|
|
|
—
|
|
|
—
|
|
Other, net
|
0.7
|
|
|
(2.4
|
)
|
|
(1.4
|
)
|
Effective tax rate
|
20.7
|
%
|
|
24.7
|
%
|
|
24.3
|
%
|
|
|
(a)
|
We adopted new accounting guidance related to employee stock-based compensation in the fourth quarter of
2016
. The adoption reduced our full year combined income tax provision for federal, state, and foreign by
$8.9 million
and the tax rate by approximately
13.5%
.
|
Deferred income taxes reflect temporary differences in the recognition of revenue and expense for tax reporting and financial statement purposes. Deferred tax liabilities and assets are adjusted for enacted changes in tax laws or tax rates of the various tax jurisdictions. The amount of such adjustments for
2016
was
$1.1 million
compared to
$3.8 million
for
2015
. The adjustments for both
2016
and
2015
were due to reductions in U.K. statutory tax rates. The amount of such adjustments for
2014
was not significant.
Deferred tax liabilities and assets were composed of the following at the end of
2016
and
2015
:
|
|
|
|
|
|
|
|
|
In thousands
|
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
Liabilities
|
|
|
|
Accelerated depreciation
|
$
|
(152,551
|
)
|
|
$
|
(169,483
|
)
|
Total deferred tax liabilities
|
(152,551
|
)
|
|
(169,483
|
)
|
Assets
|
|
|
|
Accrued compensation costs
|
29,670
|
|
|
38,296
|
|
Pension and postretirement benefits
|
302,565
|
|
|
256,418
|
|
Basis difference and amortization of intangibles
|
95,653
|
|
|
165,062
|
|
Federal tax benefits of uncertain state tax positions
|
7,015
|
|
|
7,506
|
|
Partnership investments including impairments
|
21,670
|
|
|
13,107
|
|
Loss carryforwards
|
55,335
|
|
|
34,312
|
|
Other
|
53,789
|
|
|
38,666
|
|
Total deferred tax assets
|
565,697
|
|
|
553,367
|
|
Valuation allowance
|
(194,914
|
)
|
|
(181,893
|
)
|
Total net deferred tax assets (liabilities)
|
$
|
218,232
|
|
|
$
|
201,991
|
|
|
Noncurrent deferred tax assets
|
$
|
218,232
|
|
|
$
|
201,991
|
|
Basis differences relating to all partnership items are reflected in the partnership line item.
The deferred tax assets and liabilities previously transferred from our former parent were adjusted as of
December 25, 2016
due to the annual procedure to true-up the
2015
tax provision estimates to the actual
2015
corporate income tax return filed during the third quarter of
2016
. These changes in estimates primarily relate to the deferred tax liability associated with depreciable assets and other
2015
tax provision to tax return adjustments impacting the previously estimated deferred taxes. The total impact was an increase to deferred tax assets and additional paid-in capital of approximately
$31.0 million
.
As of
December 25, 2016
, we had approximately
$7.8 million
of foreign tax credits,
$5.4 million
of state credits,
$263.9 million
of apportioned state net operating loss carryforwards,
$159.2 million
of foreign net operating loss carry forwards, and
$29.1 million
of foreign capital loss carryforwards. The foreign tax credits, the state tax credits, and the state net operating loss carryovers expire in various amounts beginning in
2017
through
2035
. The countries where we have foreign net operating loss carryovers allow for these losses to be carried forward indefinitely except for Japan and the Netherlands. Net operating loss carryovers in Japan and the Netherlands expire in various amounts beginning in 2020 through 2025. Our foreign capital losses can be carried forward indefinitely.
Included in total deferred tax assets are valuation allowances of approximately
$194.9 million
in
2016
and
$181.9 million
in
2015
, primarily related to unamortizable intangible assets, foreign tax credits, and foreign losses available for carry forward to future years. The increase in the valuation allowance from
2015
to
2016
is related to ReachLocal foreign losses. The valuation allowance is based on an analysis of future sources of taxable income and other sources of positive and negative evidence and whether it is more likely than not that the foreign credits and losses will not be utilized before their expiration. The following table summarizes the activity related to our valuation allowance for deferred tax assets for the year ended
December 25, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Balance at Beginning of Period
|
|
Additions/(Reductions) Charged to Expenses
|
|
Additions/(Reductions) for Acquisitions/Dispositions
|
|
Other (Deductions from)/Additions to Reserves
|
|
Foreign Currency Translation
|
|
Balance at
End of Period
|
$
|
181,893
|
|
|
$
|
(4,786
|
)
|
|
$
|
27,251
|
|
|
$
|
(3,394
|
)
|
|
$
|
(6,050
|
)
|
|
$
|
194,914
|
|
Realization of deferred tax assets for which valuation allowances have not been established is dependent upon generating sufficient future taxable income. We expect to realize the benefit of these deferred tax assets through future reversals of our deferred tax liabilities, through the recognition of taxable income in the allowable carryback and carryforward periods, and through implementation of future tax planning strategies. Although realization is not assured, we believe it is more likely than not that all deferred tax assets for which valuation allowances have not been established will be realized.
The following table summarizes the activity related to unrecognized tax benefits, excluding the federal tax benefit of state tax deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
Dec. 25, 2016
|
|
Dec. 27, 2015
|
|
Dec. 28, 2014
|
Change in unrecognized tax benefits
|
|
|
|
|
|
Balance at beginning of year
|
$
|
17,032
|
|
|
$
|
10,919
|
|
|
$
|
13,875
|
|
Additions based on tax positions related to the current year
|
125
|
|
|
2,021
|
|
|
1,768
|
|
Additions for tax positions of prior years
|
9,416
|
|
|
6,713
|
|
|
545
|
|
Reductions for tax positions of prior years
|
(792
|
)
|
|
—
|
|
|
(2,398
|
)
|
Settlements
|
—
|
|
|
—
|
|
|
(36
|
)
|
Reductions due to lapse of statutes of limitations
|
(1,891
|
)
|
|
(2,621
|
)
|
|
(2,835
|
)
|
Balance at end of year
|
$
|
23,890
|
|
|
$
|
17,032
|
|
|
$
|
10,919
|
|
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was
$17.3 million
as of
December 25, 2016
,
$11.3 million
as of
December 27, 2015
, and
$7.5 million
as of
December 28, 2014
. Additions for tax positions of prior years include
$4.3 million
of liabilities related to research and development credits which are recorded as a reduction to deferred tax assets. Remaining amounts are recorded as an income tax liability and include the federal tax benefit of state tax deductions.
We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. We also recognize interest income attributable to overpayment of income taxes and from the reversal of interest expense previously recorded for uncertain tax positions which are subsequently released as a component of income tax expense. We recognized income from interest and the release of penalty reserves of
$0.6 million
in
2016
,
$0.6 million
in
2015
, and
$1.2 million
in
2014
. The amount of accrued interest and payables related to unrecognized tax benefits was
$3.8 million
as of
December 25, 2016
,
$3.4 million
as of
December 27, 2015
, and
$1.1 million
as of
December 28, 2014
.
We file income tax returns in the U.S. various state and foreign jurisdictions. The tax years 2013 through 2015 remain subject to examination by the IRS. The tax years 2013 through 2015 generally remain subject to examination by state authorities, and the tax years 2011 through 2015 are subject to examination by U.K. tax authorities.
It is reasonably possible the amount of unrecognized benefit with respect to certain of our unrecognized tax positions will significantly increase or decrease within the next
12
months. These changes may be the result of settlement of ongoing audits, lapses of statutes of limitations, or regulatory developments. At this time, we estimate the amount of our gross unrecognized tax positions may decrease by up to approximately
$2.2 million
within the next
12
months primarily due to lapses of statutes of limitations and settlement of ongoing audits in various jurisdictions.
In connection with the spin-off, we entered into a tax matters agreement with our former parent which states each company's rights and responsibilities with respect to payment of taxes, tax return filings, and control of tax examinations. We are generally responsible for taxes allocable to periods (or portions of periods) beginning after the spin-off. Although any changes with regard to additional income tax liabilities which relate to periods prior to the spin-off may impact our effective tax rate in the future, we may be entitled to seek indemnification for these items from our former parent under the tax matters agreement.
NOTE 11 — Supplemental equity information
Capital stock and earnings per share
On June 29, 2015, our former parent distributed
98.5%
of our total shares and retained the remaining
1.5%
. The total shares outstanding at that date was approximately
115 million
. The total number of shares outstanding at that date was used for the calculation of both basic and diluted earnings per share for years prior to 2015.
Our earnings per share (basic and diluted) for each fiscal year is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except per share amounts
|
2016
|
|
2015
|
|
2014
|
Net income
(a)
|
$
|
52,710
|
|
|
$
|
146,091
|
|
|
$
|
210,705
|
|
Weighted average number of common shares outstanding (basic)
|
116,018
|
|
|
115,165
|
|
|
114,959
|
|
Effect of dilutive securities
|
|
|
|
|
|
Restricted stock units (RSUs)
|
1,475
|
|
|
728
|
|
|
—
|
|
Performance shares (PSUs)
|
881
|
|
|
582
|
|
|
—
|
|
Stock options
|
251
|
|
|
220
|
|
|
—
|
|
Weighted average number of common shares outstanding (diluted)
(a)
|
118,625
|
|
|
116,695
|
|
|
114,959
|
|
Earnings per share (basic)
(a)
|
$
|
0.45
|
|
|
$
|
1.27
|
|
|
$
|
1.83
|
|
Earnings per share (diluted)
(a)
|
$
|
0.44
|
|
|
$
|
1.25
|
|
|
$
|
1.83
|
|
|
|
(a)
|
In
2016
, we adopted new guidance around improvements to share-based payment accounting. See
Note 16 — Quarterly statements of income (unaudited)
for further details on the impacts of this guidance on our fiscal year
2016
net income, number of shares outstanding, and earnings per share amounts.
|
The diluted earnings per share amounts exclude the effects of approximately
0.4 million
and
0.1 million
RSUs outstanding for 2016 and 2015, respectively, as their inclusion would be antidilutive.
Share repurchase program
In July 2015, we announced that our Board of Directors approved a share repurchase program authorizing us to repurchase shares with an aggregate value of up to
$150 million
over a
three
-year period. Shares may be repurchased at management's discretion, either in the open market or in privately negotiated block transactions. Management's decision to repurchase shares will depend on share price and other corporate liquidity requirements. As of
December 25, 2016
, approximately
3.8 million
shares have been repurchased under this program at a total cost of
$32.7 million
.
Equity-based awards
We established the Gannett Co. Inc. 2015 Omnibus Incentive Compensation Plan (the Plan) for the purpose of granting equity-based and cash-based awards to Gannett employees and directors. The Plan permits the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, stock awards, restricted stock units (RSUs), performance shares, performance units, and cash-based awards. Awards may be granted to our employees and members of the
Board of Directors. The Executive Compensation Committee of the Board of Directors administers the plan and initially reserved
11.0 million
shares of our common stock for issuance. The Plan provides that shares of common stock subject to awards granted become available again for issuance if such awards are canceled or forfeited. We currently issue stock-based compensation to employees in the form of performance shares and RSUs. We currently issue stock-based compensation to members of our Board of Directors in the form of RSUs. Award grants to our employees are generally made on January 1 and grants to members of our Board of Directors generally will be made in connection with the date of our annual meetings or commencement of service for a new member.
Prior to the spin-off, Gannett employees were eligible to participate in our former parent's 2001 Omnibus Incentive Compensation Plan (the former parent plan). In connection with the spin-off,
4.4 million
former parent options,
8.3 million
former parent RSUs and
3.0 million
former parent performance shares were converted to
1.1 million
Gannett options,
3.0 million
Gannett RSUs and
1.0 million
Gannett performance shares, respectively, with terms that were substantially similar to the terms of the awards under the former parent plan. These awards were modified under the mandatory anti-dilution provision of the grants and an incremental cost of
$3.1 million
will be recorded over the remaining vesting periods of these awards.
Performance share awards generally have a
three
-year vesting period with the number of shares earned (
0%
to
200%
of the target award) determined based upon how our total shareholder return (TSR) compares to the TSR of a peer group of media companies during the
three
-year period. Performance shares generally vest on a pro rata basis if an employee terminates before the end of the performance period due to death, disability or retirement. Non-vested performance shares are generally forfeited upon termination for any other reason. The fair value and compensation expense of each performance share is determined on date of grant by using a Monte Carlo valuation model. Each performance share is equal to and paid in
one
share of our common stock, but carries no voting or dividend rights.
RSU awards generally have a
four
-year incentive period and grant
one
share of common stock for each RSU granted. Subject to special vesting rules that apply to terminations due to death, disability or retirement, RSUs vest at the end of the incentive period; provided that commencing for awards made after 2014, RSUs generally vest
25%
per year over the
four
-year incentive period. Expense is recognized on a straight-line basis over the incentive period based on the grant date fair value.
Members of our Board of Directors receive grants of RSUs as well as cash compensation. Director RSUs generally vest in quarterly installments over
one
year. Expense is recognized on a straight-line basis over the vesting period based on the grant date fair value.
The Executive Compensation Committee may grant other types of awards that are valued in whole or in part by reference to or that are otherwise based on fair market value of our common stock or other criteria established by the Executive Compensation Committee including the achievement of performance goals. The maximum aggregate grant of performance shares and RSU awards that may be awarded to any participant in any fiscal year shall not exceed
500,000
shares of common stock. The maximum aggregate amount of cash-based awards that may be awarded to any participant in any fiscal year shall not exceed
$10 million
.
Determining fair value of performance shares
Valuation and amortization method
–
We determined the fair value of performance shares using the Monte Carlo valuation model. This model projects probable future stock prices for us and our peer group companies subject to certain price caps at the conclusion of the three-year incentive period. Key inputs into the Monte Carlo valuation model include expected term, expected volatility, expected dividend yield and the risk-free rate. Each assumption is discussed below.
Expected term
–
The expected term represents the period that our stock-based awards are expected to be outstanding. The expected term for performance share awards is based on the incentive period of
three
years.
Expected volatility
–
The fair value of stock-based awards reflects volatility factors calculated using historical market data for our common stock and the common stock of our peer group when the Monte Carlo method is used. The time frame used is equal to the expected term.
Expected dividend
–
The dividend assumption is based on our expectations about our dividend policy on the date of grant.
Risk-free interest rate
–
The risk-free interest rate is based on the yield to maturity at the time of the award grant on zero-coupon U.S. government bonds having a remaining life equal to the award's expected term.
Estimated forfeitures
–
When estimating forfeitures, voluntary termination behavior as well as analysis of actual forfeitures was considered.
The following assumptions were used to estimate the fair value of performance share awards that were granted:
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
Expected term
|
3 yrs.
|
|
3 yrs.
|
|
3 yrs.
|
Expected volatility
|
42.20%
|
|
32.00%
|
|
39.32%
|
Risk-free interest rate
|
1.31%
|
|
1.10%
|
|
0.78%
|
Expected dividend yield
|
3.93%
|
|
2.51%
|
|
2.70%
|
Determining fair value of restricted stock units
For RSUs, the grant-date fair value is calculated at the share price on the date of grant less the present value of estimated dividends which will be granted during the vesting period.
Stock-based compensation expense
Stock-based compensation expense for Gannett employee participants in both plans have been included within selling, general, and administrative expense within the Consolidated and Combined Statements of Income. Prior to the distribution date, stock-based compensation expense for Gannett participants in the former parent plan was allocated to us.
The following table shows the stock-based compensation related amounts recognized in the Consolidated and Combined Statements of Income for equity awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
2016
|
|
2015
|
|
2014
|
Restricted stock and RSUs
|
$
|
12,889
|
|
|
$
|
12,235
|
|
|
$
|
9,150
|
|
Performance shares
|
7,687
|
|
|
9,478
|
|
|
7,333
|
|
Stock options
|
—
|
|
|
29
|
|
|
616
|
|
Total stock-based compensation
|
$
|
20,576
|
|
|
$
|
21,742
|
|
|
$
|
17,099
|
|
Restricted stock and RSUs
As of
December 25, 2016
there was
$23.4 million
of unrecognized compensation cost related to non-vested restricted stock and RSUs. This amount will be adjusted for future changes in estimated forfeitures and recognized on a straight-line basis over a weighted average period of
2.4
years. As of
December 27, 2015
, there was
$20.2 million
of unrecognized compensation cost related to non-vested restricted stock and RSUs with a weighted average period remaining of
2.4 years
.
A summary of restricted stock and RSU awards is presented below for the period after the date of separation from our former parent:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Fair Value
|
Outstanding and unvested at June 29, 2015
|
2,885,994
|
|
|
$
|
10.86
|
|
Granted
|
203,061
|
|
|
11.31
|
|
Settled
|
(136,658
|
)
|
|
10.35
|
|
Canceled
|
(174,190
|
)
|
|
10.98
|
|
Outstanding and unvested at Dec. 27, 2015
|
2,778,207
|
|
|
$
|
10.91
|
|
Granted
|
1,483,127
|
|
|
13.36
|
|
Settled
|
(1,066,056
|
)
|
|
10.06
|
|
Canceled
|
(376,442
|
)
|
|
11.81
|
|
Outstanding and unvested at Dec. 25, 2016
|
2,818,836
|
|
|
$
|
12.40
|
|
Performance Shares:
As of
December 25, 2016
, there was
$4.9 million
of unrecognized compensation cost related to non-vested Performance Shares. This amount will be adjusted for future changes in estimated forfeitures and recognized over a weighted average period of
1.7
years. As of
December 27, 2015
, there was
$4.6 million
of unrecognized compensation cost related to non-vested Performance Shares with a weighted average period remaining of
1.7
years.
A summary of the performance shares awards is presented below for the period after the date of separation from our former parent:
|
|
|
|
|
|
|
|
|
Target Number of Shares
|
|
Weighted Average
Fair Value
|
Outstanding and unvested at June 29, 2015
|
926,138
|
|
|
$
|
15.48
|
|
Vested
|
(31,158
|
)
|
|
15.51
|
|
Canceled
|
(101,306
|
)
|
|
15.21
|
|
Outstanding and unvested at Dec. 27, 2015
|
793,674
|
|
|
$
|
15.52
|
|
Granted
|
373,658
|
|
|
19.30
|
|
Vested
|
(265,110
|
)
|
|
13.83
|
|
Canceled
|
(128,075
|
)
|
|
16.34
|
|
Outstanding and unvested at Dec. 25, 2016
|
774,147
|
|
|
$
|
17.82
|
|
Stock Options:
As of
December 25, 2016
and
December 27, 2015
, all stock options were fully vested. Options were exercised with an intrinsic value of approximately $
0.9 million
and
$4.7 million
in
2016
and
2015
, respectively.
A summary of our stock option awards is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
Aggregate
Intrinsic
Value
|
Outstanding at June 29, 2015
|
1,078,289
|
|
|
$
|
6.80
|
|
|
2.5
|
|
$
|
7,901,831
|
|
Exercised
|
(662,304
|
)
|
|
7.53
|
|
|
|
|
|
Canceled
|
(4,102
|
)
|
|
12.61
|
|
|
|
|
|
Outstanding and exercisable at Dec. 27, 2015
|
411,883
|
|
|
$
|
5.58
|
|
|
2.6
|
|
$
|
4,378,900
|
|
Exercised
|
(102,842
|
)
|
|
5.46
|
|
|
|
|
|
|
Canceled
|
(18,774
|
)
|
|
9.40
|
|
|
|
|
|
|
Outstanding and exercisable at Dec. 25, 2016
|
290,267
|
|
|
$
|
5.37
|
|
|
1.9
|
|
$
|
1,304,798
|
|
Accumulated other comprehensive loss
The elements of our "Accumulated other comprehensive loss" consisted of pension, retiree medical and life insurance liabilities and foreign currency translation. The following tables summarize the components of, and changes in, "Accumulated other comprehensive loss," net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
2016
|
Retirement Plans
|
|
Foreign Currency Translation
|
|
Total
|
Balance at beginning of year
|
$
|
(1,058,234
|
)
|
|
$
|
384,810
|
|
|
$
|
(673,424
|
)
|
Other comprehensive loss before reclassifications
|
(166,253
|
)
|
|
(84,526
|
)
|
|
(250,779
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
41,291
|
|
|
—
|
|
|
41,291
|
|
Balance at end of year
|
$
|
(1,183,196
|
)
|
|
$
|
300,284
|
|
|
$
|
(882,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
|
2015
|
Retirement Plans
|
|
Foreign Currency Translation
|
|
Total
|
Balance at beginning of year
|
$
|
(1,082,312
|
)
|
|
$
|
404,200
|
|
|
$
|
(678,112
|
)
|
Other comprehensive loss before reclassifications
|
(12,010
|
)
|
|
(19,390
|
)
|
|
(31,400
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
36,088
|
|
|
—
|
|
|
36,088
|
|
Balance at end of year
|
$
|
(1,058,234
|
)
|
|
$
|
384,810
|
|
|
$
|
(673,424
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
2014
|
Retirement Plans
|
|
Foreign Currency Translation
|
|
Total
|
Balance at beginning of year
|
$
|
(873,595
|
)
|
|
$
|
431,614
|
|
|
$
|
(441,981
|
)
|
Other comprehensive income before reclassifications
|
(232,740
|
)
|
|
(27,414
|
)
|
|
(260,154
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
24,023
|
|
|
—
|
|
|
24,023
|
|
Balance at end of year
|
$
|
(1,082,312
|
)
|
|
$
|
404,200
|
|
|
$
|
(678,112
|
)
|
"Accumulated other comprehensive loss" components are included in the computation of net periodic postretirement costs (see
Note 8 — Retirement plans
and
Note 9 — Postretirement benefits other than pension
for more detail). Reclassifications out of "Accumulated other comprehensive loss" related to these postretirement plans include the following:
|
|
|
|
|
|
|
|
|
In thousands
|
|
2016
|
|
2015
|
Amortization of prior service credit
|
$
|
1,883
|
|
|
$
|
(2,722
|
)
|
Amortization of actuarial loss
|
62,155
|
|
|
58,148
|
|
Total reclassifications, before tax
|
64,038
|
|
|
55,426
|
|
Income tax effect
|
(22,747
|
)
|
|
(19,338
|
)
|
Total reclassifications, net of tax
|
$
|
41,291
|
|
|
$
|
36,088
|
|
NOTE 12 — Commitments, contingencies and other matters
Telephone Consumer Protection Act (TCPA) litigation:
In January 2014, a class action lawsuit was filed against Gannett in the U.S. District Court for the District of New Jersey (Casagrand et al v. Gannett Co., Inc., et al). The suit claims various violations of the Telephone Consumer Protection Act (TCPA) arising from allegedly improper telemarketing calls made to consumers by one of our vendors. The plaintiffs sought to certify a class that would include all telemarketing calls made by the vendor or us. The TCPA provides for statutory damages of
$500
per violation (
$1,500
for willful violations). In
April 2016
, we agreed to settle all of the claims raised. The settlements are reflected, net of insurance recoveries, in our financial statements as of
December 25, 2016
and were not material to our results of operations, financial position, or cash flows.
Environmental contingency:
In 2011, the Advertiser Company, a subsidiary that publishes the Montgomery Advertiser, was notified by the U.S. 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. The U.S. EPA has approved the work plan for the investigation and remediation and has transferred responsibility for oversight of this work to the Alabama Department of Environmental Management. The investigation and remediation are underway. In
2015
, the Advertiser and other members of the Downtown Environmental Alliance also reached a settlement with the U.S. EPA regarding the costs the U.S. EPA spent to investigate the site. The Advertiser's final costs cannot be determined until the cleanup work is completed and contributions from other PRPs are finalized.
Other litigation:
We, along with a number of our subsidiaries, are defendants in judicial and administrative proceedings involving matters incidental to our business. While the ultimate results of these proceedings cannot be predicted with certainty, we expect the ultimate resolution of all pending or threatened claims and litigation will not have a material effect on our consolidated results of operations, financial position, or cash flows.
Leases:
Future minimum lease commitments for non-cancellable operating leases (primarily real-estate) are as follows:
|
|
|
|
|
In thousands
|
|
2017
|
$
|
53,071
|
|
2018
|
51,313
|
|
2019
|
45,855
|
|
2020
|
40,401
|
|
2021
|
37,615
|
|
Later years
|
166,996
|
|
Total
|
$
|
395,251
|
|
Expected future sublease income on these lease commitments are expected to be approximately
$8.2 million
. Total rent expense was
$48.7 million
in
2016
,
$39.7 million
in
2015
, and
$34.1 million
in
2014
.
The lease for our corporate headquarters in McLean, VA provides for an initial term of
15
years with
two
five
-year renewal options. Lease payments will begin at approximately $
6.6 million
per year with an additional $
2.2 million
in lease payments beginning in
2018
. The lease agreement is subject to
2.5%
annual rent escalations. Rent expense is recorded on a straight-line basis over the initial lease term.
Purchase obligations:
We have future expected purchase obligations of
$751.7 million
related to wire services, interactive marketing agreements, professional services, paper distribution agreements, printing contracts, and other legally binding commitments. Amounts which we are liable for under purchase orders outstanding at
December 25, 2016
, are reflected in the Consolidated Balance Sheets as "Accounts payable and accrued liabilities," and are excluded from the amount 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 was in place). The liabilities are established on an actuarial basis with the advice of consulting actuaries and totaled
$71.5 million
as of
December 25, 2016
and
$75.5 million
as of
December 27, 2015
.
Other matters:
In
2014
, we shut down one of our businesses and incurred
$21.0 million
of shutdown costs associated with future contractual promotional payments. These costs were recorded on our Consolidated Balance Sheet and approximately
$0.4 million
remain as of
December 25, 2016
. The majority of the costs will be paid in
2017
. These costs are also included in "Selling, general and administrative expenses, exclusive of depreciation" in the Consolidated and Combined Statements of Income.
NOTE 13 — Fair value measurement
Fair value measurement
We measure and record certain assets and liabilities at fair value in the accompanying consolidated and combined financial statements. Guidance surrounding the valuation of assets and liabilities establishes a hierarchy for those instruments measured at fair value. This hierarchy distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs) and consists of three levels:
Level 1 –
Quoted market prices in active markets for identical assets or liabilities;
Level 2 –
Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 –
Unobservable inputs developed using our own estimates and assumptions, which reflect those that a market participant would use.
As of
December 25, 2016
and
December 27, 2015
, assets and liabilities held at fair value and measured on a recurring basis primarily consist of pension plan assets and our revolving credit facility. The carrying value of our revolving credit facility approximates the fair value and is classified as Level 3.
As permitted by U.S. generally accepted accounting principles, the plans use net asset values as a practical expedient to determine the fair value of certain investments. These investments measured at net asset value have not been classified in the fair value hierarchy. The amounts presented in the table below are intended to permit reconciliation to the amounts presented in the Consolidated Balance Sheets.
The following tables set forth, by level within the fair value hierarchy, the fair values of our pension plans assets relating to the GRP, the Newsquest Plans and the Newspaper Guild of Detroit Pension Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan Assets/Liabilities
|
In thousands
|
Fair value measurement as of Dec. 25, 2016
(a)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
42,439
|
|
|
$
|
4,499
|
|
|
$
|
—
|
|
|
$
|
46,938
|
|
Corporate stock - Gannett Co., Inc.
|
6,031
|
|
|
—
|
|
|
—
|
|
|
6,031
|
|
Corporate stock - other
|
577,120
|
|
|
—
|
|
|
—
|
|
|
577,120
|
|
Real estate
|
—
|
|
|
—
|
|
|
83,522
|
|
|
83,522
|
|
Interest in common/collective trusts:
|
|
|
|
|
|
|
|
Equities
|
—
|
|
|
235,384
|
|
|
—
|
|
|
235,384
|
|
Fixed income
|
—
|
|
|
253,959
|
|
|
—
|
|
|
253,959
|
|
Interest in reg. invest. companies
|
102,412
|
|
|
—
|
|
|
—
|
|
|
102,412
|
|
Partnership/joint venture interests
|
—
|
|
|
—
|
|
|
75,967
|
|
|
75,967
|
|
Hedge funds
|
—
|
|
|
—
|
|
|
173,937
|
|
|
173,937
|
|
Derivative contracts
|
—
|
|
|
2
|
|
|
33
|
|
|
35
|
|
Total assets at fair value excluding those measured
at net asset value
|
$
|
728,002
|
|
|
$
|
493,844
|
|
|
$
|
333,459
|
|
|
$
|
1,555,305
|
|
Instruments measured at net asset value using the practical expedient:
|
Real estate funds
|
|
|
|
|
|
|
15,730
|
|
Interest in common/collective trusts:
|
|
|
|
|
|
|
|
Equities
|
|
|
|
|
|
|
204,822
|
|
Fixed income
|
|
|
|
|
|
|
515,313
|
|
Interest in reg. invest. companies
|
|
|
|
|
|
|
32,066
|
|
Partnership/joint venture interests
|
|
|
|
|
|
|
4,821
|
|
Hedge funds
|
|
|
|
|
|
|
85,456
|
|
Total assets at fair value
|
|
|
|
|
|
|
$
|
2,413,513
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
(498
|
)
|
|
$
|
(2,008
|
)
|
|
$
|
(2,506
|
)
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
(498
|
)
|
|
$
|
(2,008
|
)
|
|
$
|
(2,506
|
)
|
|
|
(a)
|
We use a Dec. 31 measurement date for our retirement plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Fair value measurement as of Dec. 27, 2015
(a)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
14,938
|
|
|
$
|
4,916
|
|
|
$
|
—
|
|
|
$
|
19,854
|
|
Fixed income:
|
|
|
|
|
|
|
|
Corporate bonds
|
—
|
|
|
1,275
|
|
|
—
|
|
|
1,275
|
|
Corporate stock - Gannett Co., Inc.
|
10,118
|
|
|
—
|
|
|
—
|
|
|
10,118
|
|
Corporate stock - other
|
759,479
|
|
|
—
|
|
|
—
|
|
|
759,479
|
|
Real estate
|
—
|
|
|
—
|
|
|
103,746
|
|
|
103,746
|
|
Interest in common/collective trusts:
|
|
|
|
|
|
|
|
Equities
(b)
|
—
|
|
|
267,667
|
|
|
—
|
|
|
267,667
|
|
Fixed income
|
—
|
|
|
111,724
|
|
|
—
|
|
|
111,724
|
|
Interest in reg. invest. companies
|
100,711
|
|
|
—
|
|
|
—
|
|
|
100,711
|
|
Partnership/joint venture interests
|
—
|
|
|
—
|
|
|
99,449
|
|
|
99,449
|
|
Hedge funds
|
—
|
|
|
—
|
|
|
168,209
|
|
|
168,209
|
|
Derivative contracts
|
—
|
|
|
117
|
|
|
40
|
|
|
157
|
|
Total assets at fair value excluding those measured
at net asset value
|
$
|
885,246
|
|
|
$
|
385,699
|
|
|
$
|
371,444
|
|
|
$
|
1,642,389
|
|
Instruments measured at net asset value using the practical expedient:
|
Real estate funds
|
|
|
|
|
|
|
22,303
|
|
Interest in common/collective trusts:
|
|
|
|
|
|
|
|
Equities
|
|
|
|
|
|
|
281,492
|
|
Fixed income
|
|
|
|
|
|
|
381,937
|
|
Interest in reg. invest. companies
|
|
|
|
|
|
|
38,082
|
|
Partnership/joint venture interests
|
|
|
|
|
|
|
32,217
|
|
Hedge funds
|
|
|
|
|
|
|
162,830
|
|
Total assets at fair value
|
|
|
|
|
|
|
$
|
2,561,250
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
(615
|
)
|
|
$
|
(2,008
|
)
|
|
$
|
(2,623
|
)
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
(615
|
)
|
|
$
|
(2,008
|
)
|
|
$
|
(2,623
|
)
|
|
|
(a)
|
We use a Dec. 31 measurement date for our retirement plans.
|
Items included in "Cash and other" in the table above primarily consist of amounts categorized as cash and cash equivalents and pending purchases and sales of securities.
Valuation methodologies used for assets and liabilities measured at fair value are as follows:
|
|
•
|
Other government and corporate bonds are mainly valued based on institutional bid evaluations using proprietary models, using discounted cash flow models or models that derive prices based on similar securities.
|
|
|
•
|
Corporate 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 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.
|
|
|
•
|
Interests in registered investment companies are primarily valued using the published net asset values as quoted through publicly available pricing sources or through proprietary models with varying degrees of complexity. Additionally, the interests are redeemable on 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. There are
$10.4 million
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 investments that were formed to invest in mortgage and trading opportunities and are valued at the net asset value as reported by the fund managers. Additionally, there is an investment that that consists of a fund 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 potential
5%
holdback.
|
|
|
•
|
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 valued, audited financial statements and additional information to evaluate fair value estimates from our investment managers or fund administrator. The following tables set forth a summary of changes in the fair value of our pension plan assets and liabilities that are categorized as Level 3:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan Assets/Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended Dec. 25, 2016
|
|
|
|
Actual Return on Plan
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning
of Year
|
|
Relating to Assets Still Held at Report Date
|
|
Relating to Assets Sold During the Period
|
|
Purchases
|
|
Sales
|
|
Settlements
|
|
Transfers
In and/or Out of
Level 3
(a)
|
|
Balance at
End of
Year
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
|
$
|
103,746
|
|
|
$
|
(19,027
|
)
|
|
$
|
—
|
|
|
$
|
1,697
|
|
|
$
|
(2,894
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
83,522
|
|
Partnership/joint venture interests
|
99,449
|
|
|
(9,075
|
)
|
|
—
|
|
|
4,257
|
|
|
—
|
|
|
(18,664
|
)
|
|
—
|
|
|
75,967
|
|
Hedge funds
|
168,209
|
|
|
5,728
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
173,937
|
|
Derivative contracts
|
40
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33
|
|
Total
|
$
|
371,444
|
|
|
$
|
(22,381
|
)
|
|
$
|
—
|
|
|
$
|
5,954
|
|
|
$
|
(2,894
|
)
|
|
$
|
(18,664
|
)
|
|
$
|
—
|
|
|
$
|
333,459
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
(2,008
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2,008
|
)
|
|
|
(a)
|
Our policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended Dec. 27, 2015
|
|
|
|
Actual Return on Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
Beginning
of Year
|
|
Relating to Assets Still Held at Report Date
|
|
Relating to Assets Sold During the Period
|
|
Purchases
|
|
Sales
|
|
Settlements
|
|
Transfer from parent
|
|
Transfers In and/or Out of Level 3
(a)
|
|
Balance at
End of
Year
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage backed securities
|
$
|
95
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(95
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate bonds
|
382
|
|
|
(8
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(374
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Real estate
|
94,902
|
|
|
3,626
|
|
|
—
|
|
|
5,218
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
103,746
|
|
Partnership/joint venture interests
|
136,501
|
|
|
(10,184
|
)
|
|
—
|
|
|
5,858
|
|
|
—
|
|
|
(20,128
|
)
|
|
(12,598
|
)
|
|
—
|
|
|
99,449
|
|
Hedge funds
|
176,704
|
|
|
5,896
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(14,391
|
)
|
|
—
|
|
|
168,209
|
|
Derivative contracts
|
124
|
|
|
(84
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
40
|
|
Total
|
$
|
408,708
|
|
|
$
|
(754
|
)
|
|
$
|
—
|
|
|
$
|
11,076
|
|
|
$
|
(95
|
)
|
|
$
|
(20,502
|
)
|
|
$
|
(26,989
|
)
|
|
$
|
—
|
|
|
$
|
371,444
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
(2,008
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2,008
|
)
|
|
|
(a)
|
Our policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
|
There were
$2.5 million
in transfers between Levels 1 and 2 for the year ended
December 25, 2016
.
No
such transfers occurred in fiscal year
2015
.
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). Our assets that are measured on a nonrecurring basis are assets held for sale (Level 3), which are evaluated by using executed purchase agreements or third party valuation experts when certain circumstances arise.
The following table summarize the non-financial assets measured at fair value on nonrecurring basis in the accompanying Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Financial Assets
|
In thousands
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Fair value measurement as of Dec. 25, 2016
|
|
|
|
|
|
|
|
Asset held for sale
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,522
|
|
|
$
|
4,522
|
|
Fair value measurement as of Dec. 27, 2015
|
|
|
|
|
|
|
|
Asset held for sale
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,288
|
|
|
$
|
12,288
|
|
NOTE 14 — Segment reporting
We define our reportable segments based on the way the chief operating decision maker (CODM), currently the Chief Executive Officer, manages the operations for purposes of allocating resources and assessing performance. In the third quarter of
2016
, we reorganized our reportable segments as a result of the ReachLocal acquisition to include the following:
|
|
•
|
Publishing, which consists of our portfolio of regional, national, and international newspaper publishers. The results of this segment include retail, classified, and national advertising revenues, circulation revenues from the distribution of our publications on our digital platforms, home delivery of our publications, and single copy sales, and other revenues from commercial printing and distribution arrangements.
|
|
|
•
|
ReachLocal, which consists exclusively of our ReachLocal digital marketing solutions subsidiary. The results of this segment include advertising revenues from our search and display services as well as and other revenues related to web presence and software solutions provided by ReachLocal.
|
In addition to the above operating segments, we have a corporate category that includes activities not directly attributable to a specific segment. This category primarily consists of broad corporate functions and includes legal, human resources, accounting, analytics, finance, and marketing as well as activities and costs not directly attributable to a particular segment such as tax settlements and other general business costs.
The CODM uses Adjusted EBITDA to evaluate the performance of the segments and allocate resources. Adjusted EBITDA is a financial performance measure defined as net income (loss) before (1) income taxes, (2) interest expense, (3) equity income, (4) other non-operating items, (5) severance-related charges (including early retirement programs), (6) facility consolidation costs, (7) asset impairment charges, (8) depreciation, and (9) amortization.
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. Adjusted EBITDA is considered to be a non-GAAP measure and may be different than similarly-titled non-GAAP financial measures used by other companies.
The following presents our segment information by year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Publishing
|
|
ReachLocal
|
|
Corporate and Other
|
|
Consolidated
|
2016
|
|
|
|
|
|
|
|
Advertising
|
$
|
1,603,515
|
|
|
$
|
100,280
|
|
|
$
|
—
|
|
|
$
|
1,703,795
|
|
Circulation
|
1,133,676
|
|
|
—
|
|
|
—
|
|
|
1,133,676
|
|
Other
|
195,904
|
|
|
9,864
|
|
|
4,235
|
|
|
210,003
|
|
Total revenues
|
$
|
2,933,095
|
|
|
$
|
110,144
|
|
|
$
|
4,235
|
|
|
$
|
3,047,474
|
|
Adjusted EBITDA
|
$
|
449,769
|
|
|
$
|
(5,852
|
)
|
|
$
|
(94,304
|
)
|
|
$
|
349,613
|
|
2015
|
|
|
|
|
|
|
|
Advertising
|
$
|
1,611,445
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,611,445
|
|
Circulation
|
1,060,118
|
|
|
—
|
|
|
—
|
|
|
1,060,118
|
|
Other
|
209,655
|
|
|
—
|
|
|
3,794
|
|
|
213,449
|
|
Total revenues
|
$
|
2,881,218
|
|
|
$
|
—
|
|
|
$
|
3,794
|
|
|
$
|
2,885,012
|
|
Adjusted EBITDA
|
$
|
468,999
|
|
|
$
|
—
|
|
|
$
|
(77,484
|
)
|
|
$
|
391,515
|
|
2014
|
|
|
|
|
|
|
|
Advertising
|
$
|
1,840,067
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,840,067
|
|
Circulation
|
1,109,729
|
|
|
—
|
|
|
—
|
|
|
1,109,729
|
|
Other
|
222,082
|
|
|
—
|
|
|
—
|
|
|
222,082
|
|
Total revenues
|
$
|
3,171,878
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,171,878
|
|
Adjusted EBITDA
|
$
|
498,260
|
|
|
$
|
—
|
|
|
$
|
(26,049
|
)
|
|
$
|
472,211
|
|
The following table presents our reconciliation of Adjusted EBITDA to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
2016
|
|
2015
|
|
2014
|
Net income (GAAP basis)
|
$
|
52,710
|
|
|
$
|
146,091
|
|
|
$
|
210,705
|
|
Provision for income taxes
|
13,718
|
|
|
47,884
|
|
|
67,560
|
|
Equity income in unconsolidated investees, net
|
(1,519
|
)
|
|
(11,981
|
)
|
|
(15,857
|
)
|
Interest expense
|
12,791
|
|
|
4,562
|
|
|
576
|
|
Other non-operating items, net
|
1,388
|
|
|
(17,125
|
)
|
|
(653
|
)
|
Operating income (GAAP basis)
|
79,088
|
|
|
169,431
|
|
|
262,331
|
|
Early retirement program
|
837
|
|
|
42,081
|
|
|
—
|
|
Severance-related charges
|
42,689
|
|
|
30,185
|
|
|
19,797
|
|
Acquisition-related expenses
|
32,683
|
|
|
—
|
|
|
—
|
|
Facility consolidation and asset impairment charges
|
58,171
|
|
|
34,278
|
|
|
35,216
|
|
Other items
|
3,181
|
|
|
7,988
|
|
|
43,804
|
|
Depreciation
|
118,092
|
|
|
95,916
|
|
|
97,178
|
|
Amortization
|
14,872
|
|
|
11,636
|
|
|
13,885
|
|
Adjusted EBITDA (non-GAAP basis)
|
$
|
349,613
|
|
|
$
|
391,515
|
|
|
$
|
472,211
|
|
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, interest expense, other non-operating items, net, and provision for income taxes, as reported in the consolidated and combined financial statements, are not part of operating income and are primarily recorded at the corporate level.
NOTE 15 — Relationship with our former parent
Relationship with our former parent subsequent to the spin-off
Transition services agreement:
In connection with the spin-off, we entered into a transition services agreement with our former parent, pursuant to which we and our former parent will provide to each other certain specified services on a transitional basis, including various information technology, financial, and administrative services. The charges for the transition services generally are expected to allow the providing entity to fully recover all out-of-pocket costs and expenses it actually incurs in connection with providing the service plus, in some cases, the allocated indirect costs of providing the services, generally without profit. The transition services agreement will terminate on the expiration of the term of the last service provided under it, not later than
24 months
following the distribution date. Subsequent to separation, we provided certain IT, payroll and other services to our former parent in the amount of
$6.3 million
in 2016 and
$5.9 million
in 2015. Our former parent provided certain services to us in the amount of
$5.7 million
in 2016 and
$3.7 million
in 2015.
Employee matters agreement:
In connection with the spin-off, we entered into an employee matters agreement with our former parent prior to the separation to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefit plans and programs and other related matters. The employee matters agreement governs certain compensation and employee benefit obligations with respect to the current and former employees and non-employee directors of each company. See
Note 8 — Retirement plans
and
Note 9 — Postretirement benefits other than pension
for more detail.
Revenue and other transactions entered into in the ordinary course of business:
Certain of our revenue arrangements relate to contracts entered into in the ordinary course of business with our former parent and its affiliates, principally cars.com, G/O Digital and CareerBuilder.
Relationship with our former parent prior to the spin-off
The following is a discussion of our relationship with our former parent prior to the spin-off, including the services provided by both parties and how transactions with our former parent and its affiliates through
June 28, 2015
were accounted for in the combined financial statements.
Intercompany transactions:
For periods prior to the spin-off, all significant intercompany transactions between either (i) us and our former parent or (ii) us and our former parent's affiliates have been included within the combined financial statements and are considered to be effectively settled through equity contributions or distributions at the time the transactions were recorded.
Equity:
Prior to the spin-off, the Combined Statements of Equity includes the accumulated balance of transactions between us and our former parent, our paid-in-capital and our former parent's interest in our cumulative retained earnings, which are presented within "Former parent's investment, net" and combined with "Accumulated other comprehensive loss" as the two components of equity. The amounts comprising the accumulated balance of transactions between us, our former parent and its affiliates include (i) the cumulative net assets attributed to us by our former parent and its affiliates, (ii) the cumulative net advances to former parent representing our cumulative funds swept (net of funding provided by our former parent and its affiliates to us) as part of the centralized cash management program described further below and (iii) the cumulative charges (net of credits) allocated by our former parent and its affiliates to us for certain support services received by us.
Centralized cash management:
Prior to the spin-off, our former parent utilized a centralized approach to cash management and the financing of its operations, providing funds to its entities as needed. These transactions were recorded in "Former parent's investment, net" when advanced and were reflected in the Combined Statement of Cash Flows. Accordingly, none of our former parent's cash and cash equivalents were assigned to us in the combined financial statements. Cash and cash equivalents prior to the spin-off represent cash held by us.
Support services provided and other amounts with our former parent and former parent's affiliates:
Prior to the spin-off, we received allocated charges from our former parent and its affiliates for certain corporate support services, which are recorded within "Selling, general and administrative expense" in our Combined Statements of Income, net of cost recoveries, reflecting services provided by us and allocated to our former parent. Management believes the bases used for the allocations are reasonable and reflect the portion of such costs, net of cost recoveries, attributable to our operations; however, the amounts may not be representative of the costs necessary for us to operate as a separate stand-alone company.
Pension and other post retirement employee benefit plans with our former parent and former parent's affiliates:
A number of our current and former employees also participated in pension plans and postretirement benefit plans sponsored by our former parent. Retirement benefits obligations, health care and life insurance benefits pursuant to the former parent-sponsored retirement and postretirement plans related to our current and former employees were transferred to us at the separation date and, accordingly, were allocated to us in our consolidated and combined financial statements for all periods prior to the spin-off. This allocation was done by estimating the projected benefit obligation of participants for which the liability was transferred to us at the separation. Subsequent to the spin-off, no further costs were allocated to us.
These allocated costs, net of cost recoveries, are summarized in the following table:
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
2015
(a)
|
|
2014
|
Corporate allocations
(b)
|
$
|
25,832
|
|
|
$
|
60,628
|
|
Occupancy
(c)
|
2,884
|
|
|
5,642
|
|
Depreciation
(d)
|
4,067
|
|
|
7,960
|
|
Other support costs
(e)
|
6,249
|
|
|
15,743
|
|
Cost recoveries
(f)
|
(6,055
|
)
|
|
(9,501
|
)
|
Total
|
$
|
32,977
|
|
|
$
|
80,472
|
|
|
|
(a
)
|
Costs were allocated from our former parent to us up to the spin-off date. No costs were allocated to us by our former parent after the spin-off.
|
|
|
(b)
|
The corporate allocations related to support we received from our former parent and its affiliates for certain corporate activities include: (i) corporate general and administrative expenses, (ii) marketing services, (iii) investor relations, (iv) legal, (v) human resources, (vi) internal audit, (vii) financial reporting, (viii) tax, (ix) treasury, (x) information technology, (xi) production services, (xii) travel services and (xiii) other former parent corporate and infrastructure costs. For these services, we recorded an allocation of a management fee based on actual costs incurred by our former parent and its affiliates. This was allocated to us based upon our revenue as a percentage of total former parent revenue in each fiscal period.
|
|
|
(c)
|
Occupancy costs relate to certain facilities owned and/or leased by our former parent and its affiliates that were utilized by our employees and principally relate to shared corporate office space. These costs were charged to us primarily based on actual square footage utilized or our revenue as a percentage of total former parent revenue in each fiscal period. Occupancy costs include facility rent, repairs and maintenance, security and other occupancy related costs incurred to manage the properties.
|
|
|
(d)
|
Depreciation expense was allocated by former parent and its affiliates for assets primarily relate to facilities and IT equipment that are utilized by former parent and us to operate our businesses. Depreciation expense was allocated primarily based on our revenue as a percentage of total former parent revenue or our utilization of these assets.
|
|
|
(e)
|
Other support costs related to charges to us from former parent and its affiliates include certain insurance costs and our allocated portions of share-based compensation costs and net periodic pension costs relating to the Gannett Supplemental Retirement Plan for employees of our former parent. Such costs were allocated based on actual costs incurred or our revenue as a percentage of total former parent revenue.
|
|
|
(f)
|
Cost recoveries reflect costs recovered from our former parent and our former parent's affiliates for functions provided by us such as functions that serve our former parent's digital and broadcasting platforms for content optimization and financial transaction processing at shared service centers. Such costs were primarily allocated based on our revenue as a percentage of total former parent revenue or based upon transactional volume in each fiscal year.
|
NOTE 16 — Quarterly statements of income (unaudited)
Selected unaudited financial data for each quarter of the last two fiscal years is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except per share amounts
|
Fiscal year ended Dec. 25, 2016
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Total
|
Operating revenues
|
$
|
659,368
|
|
|
$
|
748,791
|
|
|
$
|
772,321
|
|
|
$
|
866,994
|
|
|
$
|
3,047,474
|
|
Operating income
|
$
|
47,459
|
|
|
$
|
24,033
|
|
|
$
|
(28,590
|
)
|
|
$
|
36,186
|
|
|
$
|
79,088
|
|
Net income
(a)
|
$
|
39,596
|
|
|
$
|
12,481
|
|
|
$
|
(23,961
|
)
|
|
$
|
24,594
|
|
|
$
|
52,710
|
|
Per share computations
|
|
|
|
|
|
|
|
|
|
Net income per share—basic
(a)
|
$
|
0.34
|
|
|
$
|
0.11
|
|
|
$
|
(0.21
|
)
|
|
$
|
0.21
|
|
|
$
|
0.45
|
|
Net income per share—diluted
(a)
|
$
|
0.33
|
|
|
$
|
0.10
|
|
|
$
|
(0.21
|
)
|
|
$
|
0.21
|
|
|
$
|
0.44
|
|
Dividends per share
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.64
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
116,311
|
|
|
116,516
|
|
|
116,556
|
|
|
114,688
|
|
|
116,018
|
|
Diluted
|
119,059
|
|
|
119,377
|
|
|
116,556
|
|
|
117,053
|
|
|
118,625
|
|
|
|
(a)
|
In fiscal year
2016
, we elected to early adopt guidance around improvements to share-based payment accounting. This guidance amends the calculation of earnings per share by requiring entities to exclude from assumed proceeds excess tax benefits and tax deficiencies that previously would have been recorded in additional paid-in capital. Such benefits and deficiencies are now captured as part of the calculation of the provision for income taxes. For entities who elect to early adopt, the standard requires the reflection of any adjustments to earnings per share be shown as of the beginning of the fiscal year of adoption. As a result, to capture the effect of adopting the standard, we have retrospectively adjusted our net income for Quarter 1 by
$8.3 million
, Quarter 2 by
$0.2 million
, and Quarter 3 2016 by
$0.3 million
. Additionally, we adjusted our diluted weighted average number of shares outstanding for Quarter 1 by approximately
403
and Quarter 2 by
422
. Our Quarter 3 diluted weighted average number of shares was unchanged due to the reporting of a net loss for the quarter.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except per share amounts
|
Fiscal year ended Dec. 27, 2015
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Total
|
Operating revenues
|
$
|
717,360
|
|
|
$
|
727,072
|
|
|
$
|
701,236
|
|
|
$
|
739,344
|
|
|
$
|
2,885,012
|
|
Operating income
|
$
|
29,811
|
|
|
$
|
48,994
|
|
|
$
|
52,113
|
|
|
$
|
38,513
|
|
|
$
|
169,431
|
|
Net income
|
$
|
33,247
|
|
|
$
|
53,327
|
|
|
$
|
39,166
|
|
|
$
|
20,351
|
|
|
$
|
146,091
|
|
Per share computations
|
|
|
|
|
|
|
|
|
|
Net income per share—basic
|
$
|
0.29
|
|
|
$
|
0.46
|
|
|
$
|
0.34
|
|
|
$
|
0.18
|
|
|
$
|
1.27
|
|
Net income per share—diluted
|
$
|
0.29
|
|
|
$
|
0.46
|
|
|
$
|
0.33
|
|
|
$
|
0.17
|
|
|
$
|
1.25
|
|
Dividends per share
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.32
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
114,959
|
|
|
114,959
|
|
|
115,186
|
|
|
115,555
|
|
|
115,165
|
|
Diluted
|
114,959
|
|
|
114,959
|
|
|
118,168
|
|
|
118,694
|
|
|
116,695
|
|
NOTE 17 — Subsequent events
On February 22, 2017, the Board of Directors declared a dividend of
$0.16
per share, payable on March 24, 2017, to shareholders of record as of the close of business March 10, 2017.