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 an innovative, digitally focused media and marketing solutions company committed to strengthening communities across our network. Gannett owns ReachLocal, Inc. (ReachLocal), an international 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
170
local media brands in the U.K.). Through, the USA TODAY NETWORK and Newsquest, 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 company completed its separation from TEGNA Inc. (our former parent or TEGNA) via a spin-off (the spin-off or separation). In the spin-off, TEGNA shareholders of record on June 22, 2015, the record date for the distribution, received one share of Gannett common stock for every two shares of TEGNA common stock held. On June 29, 2015, Gannett common stock began trading on the New York Stock Exchange as an independent, public company.
NOTE 2 — Summary of significant accounting policies
Fiscal year:
In fiscal years 2017 and prior, our fiscal years ended on the last Sunday of the calendar year. Our fiscal year for
2017
was a 53-week year ending on
December 31, 2017
. Fiscal year
2016
ended on
December 25, 2016
, and fiscal year
2015
ended on
December 27, 2015
, each 52-week years. Starting in 2018, our fiscal year will coincide with the Gregorian calendar.
Basis of presentation and consolidation:
The consolidated and combined financial statements include our accounts and those which we control after elimination of all intercompany balances, transactions, and profits.
Prior to the date of the spin-off, these consolidated and combined financial statements were prepared from the 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. These consolidated and combined financial statements include allocations between Gannett and our former parent as 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 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.
Use of estimates:
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires us 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 reporting 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. Goodwill is assigned to the reporting unit that benefits from the synergies arising from the business combination. When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to intangible assets.
Critical estimates in valuing certain identifiable assets include, but are not limited to, expected long-term revenues, future expected operating expenses, cost of capital, and appropriate discount rates. Our estimates of fair value are based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
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 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. Revenue is then 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 and is 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 net realizable value.
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: (1) we commit to a plan to sell the disposal group, (2) the disposal group is available for immediate sale in its present condition, (3) an active program to locate a buyer has been initiated, and (4) 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. Assets held for sale are measured at the lower of carrying value or fair value less any costs to sell.
Property, software development costs, 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 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 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.
We capitalize costs to develop software for internal use when it is determined the development efforts will result in new or additional functionality or new products. Costs incurred prior to meeting these criteria and costs associated with ongoing maintenance are expensed as incurred and included in
Cost 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
3
to
5
years.
A breakout of property, plant and equipment and software is presented below:
|
|
|
|
|
|
|
|
|
In thousands
|
December 31, 2017
|
|
December 25, 2016
|
Land
|
$
|
114,354
|
|
|
$
|
132,438
|
|
Buildings and improvements
|
800,777
|
|
|
875,313
|
|
Machinery, equipment, and fixtures
|
1,310,138
|
|
|
1,421,865
|
|
Software
|
122,743
|
|
|
130,165
|
|
Construction in progress
|
14,837
|
|
|
9,817
|
|
Total
|
2,362,849
|
|
|
2,569,598
|
|
Accumulated depreciation
|
(1,429,515
|
)
|
|
(1,481,897
|
)
|
Net property, plant and equipment
|
$
|
933,334
|
|
|
$
|
1,087,701
|
|
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. 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, intangible assets and software) 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 annually on the first day of the 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. 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. As of
December 31, 2017
, our reporting units consist of Domestic Publishing, the U.K. Group, and ReachLocal.
For indefinite-lived intangible assets, we perform an impairment test annually or more often if circumstances dictate. Intangible assets that have definite useful lives are amortized over those useful lives and are evaluated for impairment as described above. We recognized impairment charges on intangible assets each year from
2015
through
2017
. See
Note 4 — Restructuring activities and asset impairment charges
and
Note 5 — Goodwill and other intangible assets
for additional information.
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 and SweetIQ transactions and is amortized on a straight-line basis over their useful lives. Other intangibles are primarily definite lived trade names and are amortized on a straight-line basis over their useful lives. The useful lives of our definite-lived intangible assets range from
three
to
11 years
.
Investments and other assets:
Investments in entities for which we do not have control but 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
Other non-operating items, net
in the Consolidated and combined statements of income. See
Note 6 — Investments
for additional information. We account for non-marketable investments under the cost method. We regularly review our investments for impairment, including when the carrying value of an investment exceeds its related market value. If it has been determined that an investment has sustained an other-than-temporary decline in its value, the investment is written-down to its fair value. The factors we consider in determining an other-than-temporary decline in value has occurred include (i) the market value of the security in relation to its cost basis, (ii) the financial condition of the investee, and (iii) our intent and ability to retain the investment for a sufficient period of time to allow for recovery in the market value of the investment.
Accounts payable and accrued expenses:
A breakout of accounts payable and accrued expenses is presented below:
|
|
|
|
|
|
|
|
|
In thousands
|
December 31, 2017
|
|
December 25, 2016
|
Compensation
|
$
|
85,530
|
|
|
$
|
105,402
|
|
Taxes (primarily property and sales taxes)
|
20,175
|
|
|
22,995
|
|
Benefits
|
42,995
|
|
|
36,114
|
|
Other
|
73,370
|
|
|
90,943
|
|
Total accrued liabilities
|
222,070
|
|
|
255,454
|
|
Accounts payable
|
165,336
|
|
|
183,270
|
|
Total accrued liabilities and accounts payable
|
$
|
387,406
|
|
|
$
|
438,724
|
|
Retirement plans:
Pension and other postretirement benefit costs under our defined benefit retirement plans are actuarially determined. For plans with frozen benefits, we recognize the cost of postretirement benefits such as pension, medical, and life insurance benefits on an accrual basis over the average life expectancy of employees expected to receive such benefits. For active plans, costs are recognized over the estimated average future service period.
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 granted to participants meeting certain retirement eligibility criteria as defined in the equity compensation 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 upon consideration of the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We record a liability for uncertain tax positions taken or expected to be taken in a tax return. Any change in judgment related to the expected ultimate resolution of uncertain tax positions is recognized in earnings in the period in which such change occurs.
Loss contingencies:
We are subject to various legal proceedings, claims, and regulatory matters, the outcomes of which are subject to significant uncertainty. We determine whether to disclose or accrue for loss contingencies based on an assessment of whether the risk of loss is remote, reasonably possible, or probable and whether it can be reasonably estimated. We accrue for loss contingencies when such amounts are probable and reasonably estimable. If a contingent liability is only reasonably possible, we will disclose the potential range of the loss if material and estimable.
Foreign currency translation:
The statements of income of foreign operations have been translated to U.S. dollars using the average currency exchange rates in effect during the relevant period. The balance sheets have been translated using the
currency exchange rates as of the end of the accounting period. The impact of currency exchange rate changes on the translation of the balance sheets are included in
Comprehensive income (loss)
in the Consolidated and combined statements of comprehensive income and are classified as Accumulated other comprehensive loss in the Consolidated balance sheets and Consolidated and combined 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
$390.7 million
in
2017
,
$371.7 million
in
2016
, and
$416.9 million
in
2015
. Our long-lived assets in foreign countries, principally in the U.K. and ReachLocal operations, totaled approximately
$338.0 million
at
December 31, 2017
,
$354.4 million
at
December 25, 2016
, and
$330.3 million
at
December 27, 2015
.
Supplementary cash flow information:
Supplementary cash flow information, including non-cash investing and financing activities, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
December 31, 2017
|
|
December 25, 2016
|
|
December 27, 2015
|
Cash paid for taxes, net of refunds
|
$
|
(18,887
|
)
|
|
$
|
25,719
|
|
|
$
|
38,707
|
|
Cash paid for interest
|
$
|
16,912
|
|
|
$
|
10,081
|
|
|
$
|
2,995
|
|
Accrued capital expenditures
|
$
|
5,886
|
|
|
$
|
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
|
|
New accounting pronouncements adopted:
The following are new accounting pronouncements which we have adopted in fiscal year
2017
:
Inventory:
We adopted Financial Accounting Standards Board (FASB) guidance that 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 impact of adopting this guidance was not material to our consolidated financial results.
Compensation—Retirement Benefits:
We adopted FASB guidance requiring changes to the presentation of net periodic pension and other postretirement benefit costs. Specifically, this guidance requires entities to classify the service cost component of the net benefit cost in the same income statement line item as other employee compensation costs while all other components of net benefit cost must be presented as non-operating items. The guidance further requires such classification changes to be retrospectively applied beginning in the interim period in which the guidance is adopted.
As a result of adopting this guidance, total operating expenses decreased
$10.3 million
in
2016
and increased
$4.9 million
in
2015
with offsetting changes to other non-operating items, net. Cost of sales decreased
$6.1 million
in
2016
and increased
$3.0 million
in
2015
, while selling, general, and administrative expenses decreased
$4.2 million
in
2016
and increased
$1.9 million
in
2015
. Net income, retained earnings, and earnings per share for both years remained unchanged.
New accounting pronouncements not yet adopted:
The following are new accounting pronouncements that we are evaluating 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 Customers," 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 15, 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 to which 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, non-cash considerations, contract modifications, and completed contracts at transition.
We have evaluated the impact of this new standard and have concluded that our financial statements will not be materially impacted upon adoption; however, we expect to expand certain disclosures as required.
We will adopt 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.
Financial Assets and Financial Liabilities
: In January 2016, the FASB issued guidance which revises the classification and measurement of investments in equity securities and the presentation of certain fair value changes in financial liabilities measured at fair value. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2017. We are evaluating the provisions of the updated guidance and expect the impact of adopting this guidance to not be material to our consolidated financial results.
Leases:
In February 2016, the FASB issued updated guidance modifying lease accounting for both lessees and lessors to increase transparency and comparability. Lessees are required to recognize lease assets and lease liabilities for those leases classified as operating leases under previous accounting standards and to disclose key information about leasing arrangements. This guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are 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 shown 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 will adopt this guidance effective January 1, 2018. The adoption of this guidance will not be material to our consolidated financial statements.
Intangibles—Goodwill and Other
: In January 2017, the FASB issued new guidance which simplifies the subsequent measurement of goodwill. The guidance permits an entity to perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with such losses not exceeding the total amount of goodwill allocated to that reporting unit. This guidance is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We are evaluating the provisions of the updated guidance and assessing the impact on our consolidated financial statements.
Business Combinations—Definition of a Business
: In January 2017, the FASB issued new guidance that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. This guidance is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We are evaluating the provisions of the updated guidance and assessing the impact on our consolidated financial statements.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income:
In February 2018, the FASB issued new guidance that allows a reclassification from accumulated other comprehensive income to retained earnings for the tax effects of items within accumulated other comprehensive income, generally described as stranded tax effects, resulting from the Tax Cuts and Jobs Act. This guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are evaluating the provisions of the updated guidance and assessing the impact on our consolidated financial statements.
NOTE 3 — Acquisitions
2017
Acquisitions
SweetIQ:
In
April 2017
, our ReachLocal subsidiary completed the acquisition of SweetIQ, a location and customer engagement software provider, for approximately
$31.8 million
, net of cash acquired. SweetIQ's customers include businesses with multi-location brands and agencies that target local marketing.
The allocation of the purchase price is preliminary pending the finalization of the fair value of the acquired net assets and liabilities assumed, deferred income taxes, and assumed income and non-income based tax liabilities. As of the acquisition date, the purchase price was assigned to the acquired assets and assumed liabilities as follows: goodwill of
$18.8 million
, intangible assets of
$15.2 million
(comprised of trade names, customer relationships, and developed technology), noncurrent assets of
$0.6 million
, noncurrent liabilities of
$1.8 million
, and positive net working capital of
$0.3 million
. 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 SweetIQ is allocated to the ReachLocal segment. We do not expect the purchase price allocated to goodwill and intangibles to be deductible for tax purposes.
Other:
During
2017
, we completed other immaterial acquisitions.
2016
Acquisitions
ReachLocal:
In
August 2016
, we completed the acquisition of
100%
of the outstanding common stock of ReachLocal for approximately
$162.5 million
, net of cash acquired.
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 allocation of the purchase price was based upon estimated fair values. The determination of the fair value of the assets acquired and liabilities assumed has been completed and the final allocation of the purchase price is as follows:
|
|
|
|
|
In thousands
|
|
Cash acquired
|
$
|
13,195
|
|
Other current assets
|
14,612
|
|
Property, plant and equipment
|
13,486
|
|
Developed technology
|
54,000
|
|
Customer relationships
|
22,500
|
|
Other intangible assets
|
12,000
|
|
Goodwill
|
120,165
|
|
Other noncurrent assets
|
9,852
|
|
Total assets acquired
|
259,810
|
|
Current liabilities
|
63,005
|
|
Noncurrent liabilities
|
21,062
|
|
Total liabilities assumed
|
84,067
|
|
Net assets acquired
|
$
|
175,743
|
|
Acquired property, plant, and equipment is 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 do not expect the purchase price allocated to goodwill and trade names to be deductible for tax purposes.
ReachLocal, including SweetIQ, is a separate segment, and its results of operations are provided in
NOTE 14 — Segment reporting
.
Assets of North Jersey Media Group:
In
July 2016
, we completed the acquisition of certain assets of NJMG for approximately
$38.6 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
.
The allocation of the purchase price was based upon estimated fair values. The determination of the fair value of the assets acquired and liabilities assumed has been completed, and the final allocation of the purchase price is as follows: property, plant, and equipment of
$26.0 million
, goodwill of
$7.4 million
, intangible assets of
$7.2 million
(comprised largely of mastheads, customer relationships, and non-compete agreements), noncurrent assets of
$1.0 million
, noncurrent liabilities of
$0.3 million
, and net negative working capital of
$1.7 million
. 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 NJMG is allocated to the publishing segment. We expect the purchase price allocated to goodwill and mastheads will be deductible for tax purposes.
Journal Media Group:
In
April 2016
, we completed the acquisition of
100%
of the outstanding common stock of JMG for approximately
$260.6 million
, net of cash acquired. Further, approximately
$2.3 million
of the purchase price paid was treated as post-acquisition expense for accounting purposes.
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 allocation of the purchase price was based upon estimated fair values. The determination of the fair value of the assets acquired and liabilities assumed has been completed and the final allocation of the purchase price is 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
|
25,258
|
|
Other noncurrent assets
|
3,825
|
|
Total assets acquired
|
427,716
|
|
Current liabilities
|
71,519
|
|
Noncurrent liabilities
|
61,151
|
|
Total liabilities assumed
|
132,670
|
|
Net assets acquired
|
$
|
295,046
|
|
Acquired property, plant, and equipment is 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. Any goodwill recognized related to the acquisition of JMG was allocated to the publishing segment. We expect the purchase price allocated to goodwill and mastheads will not be deductible for tax purposes.
Other:
During
2016
, we completed other immaterial acquisitions.
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 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, paid
$23.4 million
, net of cash acquired, to purchase
100%
of the shares of 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
Over the past several years, we have engaged in a series of individual restructuring programs designed to right size our employee base, consolidate facilities, and improve operations, including those of recently acquired entities.
Severance-related expenses:
In
2017
, we recorded severance-related expenses of
$37.0 million
. Of these expenses,
$30.1 million
related to the publishing segment and
$5.9 million
related to the corporate and other segment. The remainder is captured within our ReachLocal segment.
In
2016
, we recorded severance-related expenses of
$43.5 million
. Of these expenses,
$42.8 million
related to the publishing segment and
$0.6 million
related to the ReachLocal segment. The remainder is captured within our corporate and other segment.
In
2015
, we recorded severance-related expenses of
$72.3 million
. Of these expenses,
$67.0 million
related to the publishing segment and
$5.3 million
related to the corporate and other segment.
All severance-related charges are reported in restructuring costs on the Consolidated and combined statements of income.
The activity and balance of severance-related liabilities are as follows:
|
|
|
|
|
In thousands
|
Severance Activities
|
Balance at December 27, 2015
|
$
|
43,780
|
|
Payments
|
(68,422
|
)
|
Expense
|
43,526
|
|
Adjustments
|
(233
|
)
|
Balance at December 25, 2016
|
$
|
18,651
|
|
Payments
|
(45,102
|
)
|
Expense
|
37,013
|
|
Adjustments
|
—
|
|
Balance at December 31, 2017
|
$
|
10,562
|
|
Facility consolidation charges:
In
2017
, we recorded facility consolidation charges of
$7.3 million
. In addition, we incurred accelerated depreciation of
$44.0 million
, which is included in depreciation expense. These expenses were related to the publishing segment.
In
2016
, we recorded charges for facility consolidations of
$2.3 million
. In addition, we incurred accelerated depreciation of
$3.2 million
, which is included in depreciation expense. These expenses were related to the publishing segment.
In
2015
, we recorded charges for facility consolidations of
$5.1 million
.
No
accelerated depreciation was incurred in
2015
. These expenses were related to the publishing segment.
Asset impairment charges:
Facility consolidation and other cost savings plans led us to recognize asset impairment charges. As part of our plans, we are selling certain assets which we have classified as held-for-sale and for which we have reduced the carrying values to equal the fair values less costs to dispose. In addition, we had impairments of intangible assets which were principally a result of cash flow projections which were lower than expected.
In
2017
, we recorded charges for asset impairments of
$46.8 million
, which includes impairment charges of
$40.3 million
for property, plant and equipment,
$3.1 million
for indefinite lived intangibles and
$3.4 million
for definite lived intangibles. These expenses were related to the publishing segment.
In
2016
, we recorded charges for asset impairments of
$55.9 million
, which includes impairment charges of
$31.5 million
for property, plant and equipment,
$14.5 million
for indefinite lived intangibles and
$9.9 million
for definite lived intangibles. These expenses were related to the publishing segment.
In
2015
, we recorded charges for asset impairments of
$29.1 million
, which includes impairment charges of
$9.7 million
for property, plant and equipment,
$0.9 million
for indefinite lived intangibles and
$18.5 million
for definite lived intangibles. These expenses were related to the publishing segment.
NOTE 5 — Goodwill and other intangible assets
Goodwill, indefinite lived intangible assets, and definite lived intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
December 31, 2017
|
|
|
|
|
|
Goodwill
|
$
|
737,716
|
|
|
$
|
—
|
|
|
$
|
737,716
|
|
Indefinite lived intangibles:
|
|
|
|
|
|
Mastheads and trade names
|
46,156
|
|
|
—
|
|
|
46,156
|
|
Definite lived intangible assets:
|
|
|
|
|
|
Developed technology
|
68,853
|
|
|
(26,139
|
)
|
|
42,714
|
|
Customer relationships
|
89,616
|
|
|
(47,945
|
)
|
|
41,671
|
|
Other
|
13,591
|
|
|
(4,478
|
)
|
|
9,113
|
|
Total
|
$
|
955,932
|
|
|
$
|
(78,562
|
)
|
|
$
|
877,370
|
|
December 25, 2016
|
|
|
|
|
|
Goodwill
|
$
|
698,288
|
|
|
$
|
—
|
|
|
$
|
698,288
|
|
Indefinite lived intangibles:
|
|
|
|
|
|
Mastheads and trade names
|
47,410
|
|
|
—
|
|
|
47,410
|
|
Definite lived 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
|
|
Intangible amortization expense was
$30.6 million
in
2017
,
$14.9 million
in
2016
and
$11.6 million
in 2015. The increase is due to the full year amortization of the intangibles acquired as a result of our
2016
acquisitions as well as the intangibles acquired as a result of our
2017
acquisitions. The weighted average remaining amortization periods for customer relationships, acquired technology, and other amortizable intangibles are approximately
7.0
,
3.1
and
2.8
years, respectively.
The projected annual amortization expense related to amortizable intangibles as of
December 31, 2017
is as follows:
|
|
|
|
|
In thousands
|
2018
|
$
|
30,688
|
|
2019
|
$
|
24,173
|
|
2020
|
$
|
11,083
|
|
2021
|
$
|
7,562
|
|
2022
|
$
|
6,295
|
|
The balances and changes in the carrying amount of goodwill by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Publishing
|
|
ReachLocal
|
|
Consolidated
|
Balance at December 27, 2015:
|
|
|
|
|
|
Goodwill
|
$
|
7,297,752
|
|
|
$
|
—
|
|
|
$
|
7,297,752
|
|
Accumulated impairment losses
|
(6,722,067
|
)
|
|
—
|
|
|
(6,722,067
|
)
|
Net balance at December 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 December 25, 2016:
|
|
|
|
|
|
Goodwill
|
6,925,236
|
|
|
119,481
|
|
|
7,044,717
|
|
Accumulated impairment losses
|
(6,346,429
|
)
|
|
—
|
|
|
(6,346,429
|
)
|
Net balance at December 25, 2016
|
$
|
578,807
|
|
|
$
|
119,481
|
|
|
$
|
698,288
|
|
Activity during the year:
|
|
|
|
|
|
Acquisitions & adjustments
|
3,238
|
|
|
19,451
|
|
|
22,689
|
|
Foreign currency exchange rate changes
|
15,421
|
|
|
1,318
|
|
|
16,739
|
|
Total
|
$
|
18,659
|
|
|
$
|
20,769
|
|
|
$
|
39,428
|
|
Balance at December 31, 2017:
|
|
|
|
|
|
Goodwill
|
7,116,038
|
|
|
140,250
|
|
|
7,256,288
|
|
Accumulated impairment losses
|
(6,518,572
|
)
|
|
—
|
|
|
(6,518,572
|
)
|
Net balance at December 31, 2017
|
$
|
597,466
|
|
|
$
|
140,250
|
|
|
$
|
737,716
|
|
In fiscal years
2017
,
2016
and
2015
, we performed quantitative step one analyses 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, step two analyses were not required and no goodwill impairment was recorded.
NOTE 6 — Investments
We have a number of investments accounted for under the equity method. Principal among these are the following:
|
|
|
|
|
% Owned at
December 31, 2017
|
TNI Partners
|
50.00
|
%
|
Albuquerque Publishing Company
(a)
|
40.00
|
%
|
NextGen Solutions, LLC
|
25.00
|
%
|
Spirited Media, Inc.
|
23.48
|
%
|
Digg, Inc.
|
15.00
|
%
|
Ponderay Newsprint Company
|
13.50
|
%
|
|
|
(a)
|
Per the terms of our contract, the ownership percentage fluctuates marginally from month to month. Closing balance is in a liability position.
|
The aggregate carrying value of investments recorded under the equity method was
$3.1 million
at
December 31, 2017
and
$7.5 million
at
December 25, 2016
. Certain differences exist between our investment carrying value and the underlying equity of the investee companies principally due to the fair value measurement at the date of investment acquisition and due to impairment charges we recorded for certain investments. Furthermore, there are certain equity investments with negative carrying values that are presented as liabilities within the Consolidated Balance Sheets.
We also have other investments recorded at cost. The aggregate carrying value of these investments, net of impairment, was
$7.9 million
at
December 31, 2017
and
$6.7 million
at
December 25, 2016
.
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 experienced sustained operating losses, leading us to conclude the investments
were impaired. These impairments, which were recorded in the
Other non-operating items, net
line item of the Consolidated and combined statements of income, totaled
$0.4 million
,
$3.0 million
, and
$5.3 million
in
2017
,
2016
, and
2015
, respectively.
NOTE 7 — Revolving credit facility
We maintain a secured revolving credit facility pursuant to which we may borrow 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
, in each case as of the last day of the test period consisting of the last four consecutive fiscal quarters. We were in compliance with these financial covenants as of
December 31, 2017
.
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 31, 2017
.
As of
December 31, 2017
, we had
$355.0 million
in outstanding borrowings under the credit facility and
$15.0 million
of letters of credit outstanding, leaving
$130.0 million
of availability.
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. (U.K. Pension Plans), the Newspaper Guild of Detroit Pension Plan, the 2015 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 retirement plans.
Pursuant to our adoption of new guidance surrounding the presentation of net periodic benefit costs as discussed in
NOTE 2 — Summary of significant accounting policies
, net periodic benefit costs other than service costs are now included in the
Other non-operating items, net
line item in the Consolidated and combined statements of income.
Our pension costs, which include costs for our qualified and non-qualified plans, are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
2017
|
|
2016
|
|
2015
|
Operating expenses:
|
|
|
|
|
|
Service cost—benefits earned during the period
|
$
|
2,300
|
|
|
$
|
3,066
|
|
|
$
|
7,993
|
|
Non-operating expenses:
|
|
|
|
|
|
Interest cost on benefit obligation
|
111,272
|
|
|
125,903
|
|
|
131,149
|
|
Expected return on plan assets
|
(169,700
|
)
|
|
(183,697
|
)
|
|
(196,774
|
)
|
Amortization of prior service costs
|
6,670
|
|
|
6,677
|
|
|
6,893
|
|
Amortization of actuarial loss
|
72,656
|
|
|
61,740
|
|
|
56,722
|
|
Total non-operating expenses (benefit)
|
20,898
|
|
|
10,623
|
|
|
(2,010
|
)
|
Pension cost for our plans and our allocated portions of former
parent-sponsored retirement plans
|
23,198
|
|
|
13,689
|
|
|
5,983
|
|
Participant data corrections
|
—
|
|
|
(145
|
)
|
|
—
|
|
Settlement charge
|
—
|
|
|
(49
|
)
|
|
1,254
|
|
Total expense for retirement plans
|
$
|
23,198
|
|
|
$
|
13,495
|
|
|
$
|
7,237
|
|
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
|
|
December 31, 2017
|
|
December 25, 2016
|
Change in benefit obligations
|
|
|
|
Benefit obligations at beginning of year
|
$
|
3,161,581
|
|
|
$
|
3,184,795
|
|
Service cost
|
2,300
|
|
|
3,066
|
|
Interest cost
|
111,272
|
|
|
125,903
|
|
Plan amendments and participant contributions
|
—
|
|
|
504
|
|
Actuarial (gain) loss
|
(24,356
|
)
|
|
266,925
|
|
Foreign currency translation
|
89,915
|
|
|
(187,624
|
)
|
Gross benefits paid
|
(203,279
|
)
|
|
(211,882
|
)
|
Acquisitions
|
—
|
|
|
4,736
|
|
Transfers out
|
—
|
|
|
(1,242
|
)
|
Settlements
|
(254
|
)
|
|
—
|
|
Participant data corrections
|
—
|
|
|
(23,600
|
)
|
Benefit obligations at end of year
|
$
|
3,137,179
|
|
|
$
|
3,161,581
|
|
Change in plan assets
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
2,411,007
|
|
|
$
|
2,558,627
|
|
Actual return on plan assets
|
365,597
|
|
|
117,162
|
|
Employer and participant contributions
|
53,990
|
|
|
88,344
|
|
Gross benefits paid
|
(203,279
|
)
|
|
(211,882
|
)
|
Transfers out
|
—
|
|
|
(1,242
|
)
|
Settlements
|
(254
|
)
|
|
—
|
|
Foreign currency translation
|
72,776
|
|
|
(140,002
|
)
|
Fair value of plan assets at end of year
|
$
|
2,699,837
|
|
|
$
|
2,411,007
|
|
Funded status at end of year
|
$
|
437,342
|
|
|
$
|
750,574
|
|
Amounts recognized in Consolidated Balance Sheets
|
Noncurrent assets
|
$
|
2,103
|
|
|
$
|
919
|
|
Accrued benefit cost—current
|
$
|
(17,569
|
)
|
|
$
|
(12,230
|
)
|
Accrued benefit cost—noncurrent
|
$
|
(421,876
|
)
|
|
$
|
(739,263
|
)
|
The funded status (on a projected benefit obligation basis) of our plans at
December 31, 2017
, is as follows
:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Fair Value of
Plan Assets
|
|
Benefit
Obligation
|
|
Funded
Status
|
GRP
|
$
|
1,764,525
|
|
|
$
|
1,974,458
|
|
|
$
|
(209,933
|
)
|
SERP
(a)
|
—
|
|
|
112,763
|
|
|
(112,763
|
)
|
U.K. Pension Plans
|
835,283
|
|
|
937,578
|
|
|
(102,295
|
)
|
Newspaper Guild of Detroit Plan
|
100,029
|
|
|
108,866
|
|
|
(8,837
|
)
|
JMG Plan
(a)
|
—
|
|
|
3,514
|
|
|
(3,514
|
)
|
Total
|
$
|
2,699,837
|
|
|
$
|
3,137,179
|
|
|
$
|
(437,342
|
)
|
|
|
(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
|
|
|
|
|
December 31, 2017
|
|
December 25, 2016
|
Accumulated benefit obligation
|
$
|
3,132,445
|
|
|
$
|
3,153,811
|
|
Fair value of plan assets
|
$
|
2,699,837
|
|
|
$
|
2,411,007
|
|
The following table presents information for our retirement plans for which projected benefit obligations exceed assets:
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
December 31, 2017
|
|
December 25, 2016
|
Projected benefit obligation
|
$
|
3,137,179
|
|
|
$
|
3,161,581
|
|
Fair value of plan assets
|
$
|
2,699,837
|
|
|
$
|
2,411,007
|
|
The following table summarizes the pre-tax 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.
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
December 31, 2017
|
|
December 25, 2016
|
Net actuarial losses
|
$
|
(1,540,698
|
)
|
|
$
|
(1,825,167
|
)
|
Prior service cost
|
(22,593
|
)
|
|
(29,263
|
)
|
Amounts in accumulated other comprehensive loss
|
$
|
(1,563,291
|
)
|
|
$
|
(1,854,430
|
)
|
The actuarial loss amounts expected to be amortized from Accumulated other comprehensive loss into net periodic benefit cost in
2018
are
$61.3 million
. The prior service cost amounts expected to be amortized from Accumulated other comprehensive loss into net periodic benefit cost in
2018
are
$1.9 million
.
Changes in plan assets and benefit obligations recognized in Other comprehensive income consist of the following:
|
|
|
|
|
In thousands
|
|
2017
|
Current year actuarial gain
|
$
|
(221,526
|
)
|
Amortization of actuarial loss
|
(72,656
|
)
|
Amortization of prior service costs
|
(6,671
|
)
|
Foreign currency loss
|
29,546
|
|
Total
|
$
|
(271,307
|
)
|
Pension costs:
The following assumptions were used to determine net pension costs:
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
3.63%
|
|
4.24%
|
|
4.17%
|
Expected return on plan assets
|
7.24%
|
|
7.60%
|
|
7.63%
|
Rate of compensation increase
|
2.95%
|
|
2.95%
|
|
2.95%
|
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:
|
|
|
|
|
|
December 31, 2017
|
|
December 25, 2016
|
Discount rate
|
3.34%
|
|
3.63%
|
Rate of compensation increase
|
2.95%
|
|
2.95%
|
During
2017
, we contributed
$25.5 million
to the GRP,
$8.5 million
to the SERP and
$0.3 million
to the JMG Plan. In addition to any other contributions that may be required, we will make additional contributions of
$25.0 million
during
2018
through 2020 and
$15.0 million
in 2021 for the GRP. Our expected
2018
contributions for Gannett's SERP and JMG Plan are
$16.9 million
and
$0.3 million
, respectively. During
2017
, we made contributions of
$19.4 million
to the U.K. Pension Plans. We also expect to contribute approximately
£15.0 million
per year to the U.K. Pension Plans from
2018
through
2022
.
Plan assets:
The target asset allocation of our plans for
2018
and allocations at the end of
2017
and
2016
, by asset category, are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
Target Allocation
|
|
Allocation of Plan Assets
|
|
2018
|
|
2017
|
|
2016
|
Equity securities
|
46
|
%
|
|
46
|
%
|
|
44
|
%
|
Debt securities
|
37
|
%
|
|
40
|
%
|
|
38
|
%
|
Alternative investments
(a)
|
17
|
%
|
|
14
|
%
|
|
18
|
%
|
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
20.2%
for
2017
,
0.4%
for
2016
and
1.9%
for
2015
.
Retirement plan assets include approximately
0.6 million
shares of our common stock valued at approximately
$7.2 million
at the end of
2017
. The plan received dividends of approximately
$0.4 million
on these shares in
2017
.
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
|
2018
|
$
|
219,689
|
|
2019
|
$
|
204,839
|
|
2020
|
$
|
201,739
|
|
2021
|
$
|
199,787
|
|
2022
|
$
|
196,157
|
|
2023 - 2027
|
$
|
951,526
|
|
401(k) savings plan
Generally, employees who are scheduled to work at least
1,000
hours during the year are eligible to participate in our principal defined contribution plan, The Gannett Co., Inc. 401(k) Savings Plan (the 401(k) Plan). Employees covered under collective bargaining agreements are eligible to participate in the 401(k) Plan only if participation has been bargained. 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
$29.0 million
in
2017
,
$28.8 million
in
2016
, and
$25.8 million
in
2015
. We settle 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. The JMG 401(k) savings plan (JMG Plan) continued to cover former JMG employees until the JMG plan was merged with the 401(k) Plan in March
2017
. For most participants in this plan, the matching formula was
50%
of the first
7%
of employee contributions, and the employer match obligation is settled in cash. Additionally, starting in July
2017
, ReachLocal employees were able to transfer assets into the 401(k) Plan.
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 31, 2017
, 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 31, 2017
and
December 25, 2016
. 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, 2016. At the date we issue our financial statements, Forms 5500 were unavailable for the plan years ending after December 31, 2016.
We incurred
no
expenses for multi-employer withdrawal liabilities in
2017
,
$2.0 million
in
2016
and
$6.1 million
in
2015
. We released withdrawal liabilities of
$7.8 million
in
2017
and
none
for
2016
and
2015
. Current liabilities on the Consolidated Balance Sheets include
$2.9 million
and
$3.3 million
at
December 31, 2017
, and
December 25, 2016
, respectively, and other noncurrent liabilities on the Consolidated Balance Sheets include
$33.0 million
and
$40.2 million
at
December 31, 2017
, and
December 25, 2016
, 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
|
2017
|
2016
|
2017
|
2016
|
2015
|
CWA/ITU Negotiated Pension Plan
|
13-6212879/001
|
Red
|
Red
|
Implemented
|
$
|
431
|
|
$
|
478
|
|
$
|
411
|
|
No
|
4/10/2019
|
GCIU—Employer Retirement Benefit Plan
(a)
|
91-6024903/001
|
Red
|
Red
|
Implemented
|
30
|
|
30
|
|
43
|
|
Yes
|
4/30/2019
|
IAM National Pension Plan
(a)
|
51-6031295/002
|
Green
|
Green
|
NA
|
241
|
|
278
|
|
352
|
|
NA
|
4/30/2019
|
Teamsters Pension Trust Fund of Philadelphia and Vicinity
(a)
|
23-1511735/001
|
Yellow
|
Yellow
|
Implemented
|
1,347
|
|
1,473
|
|
1,452
|
|
NA
|
(b)
|
Central Pension Fund of the International Union of Operating Engineers and Participating Employers
(a)
|
36-6052390/001
|
Green as of Jan. 31, 2017
|
Green as of Jan. 31, 2016
|
NA
|
82
|
|
86
|
|
99
|
|
NA
|
4/30/2019
|
Total
|
|
|
|
|
$
|
2,131
|
|
$
|
2,345
|
|
$
|
2,357
|
|
|
|
|
|
(a)
|
This plan has elected to utilize special amortization provisions provided under the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010.
|
|
|
(b)
|
In February 2018, an interim agreement was executed to maintain the terms and contributions of the plan past the expiration date of 12/21/2017. This agreement is subject to additional negotiation.
|
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
|
|
2017
|
|
2016
|
|
2015
|
Operating expenses:
|
|
|
|
|
|
Service cost – benefits earned during the period
|
$
|
151
|
|
|
$
|
202
|
|
|
$
|
301
|
|
Non-operating expenses:
|
|
|
|
|
|
Interest cost on net benefit obligation
|
3,605
|
|
|
4,038
|
|
|
4,019
|
|
Amortization of prior service credit
|
(3,648
|
)
|
|
(4,794
|
)
|
|
(9,615
|
)
|
Amortization of actuarial (gain) loss
|
103
|
|
|
415
|
|
|
1,426
|
|
Participant data corrections
|
—
|
|
|
(350
|
)
|
|
—
|
|
Total non-operating cost (benefit)
|
60
|
|
|
(691
|
)
|
|
(4,170
|
)
|
Net periodic postretirement expense (benefit)
|
$
|
211
|
|
|
$
|
(489
|
)
|
|
$
|
(3,869
|
)
|
The table below provides a reconciliation of benefit obligations and funded status of our postretirement benefit plans:
|
|
|
|
|
|
|
|
|
In thousands
|
|
December 31, 2017
|
|
December 25, 2016
|
Change in benefit obligations
|
|
|
|
Net benefit obligations at beginning of year
|
$
|
99,661
|
|
|
$
|
97,508
|
|
Service cost
|
151
|
|
|
202
|
|
Interest cost
|
3,605
|
|
|
4,038
|
|
Plan participants' contributions
|
1,014
|
|
|
1,239
|
|
Plan amendments
|
—
|
|
|
502
|
|
Actuarial (gain) loss
|
(2,210
|
)
|
|
1,193
|
|
Gross benefits paid
|
(9,855
|
)
|
|
(10,505
|
)
|
Acquisitions
|
—
|
|
|
8,255
|
|
Participant data corrections
|
—
|
|
|
(2,771
|
)
|
Net benefit obligations at end of year
|
$
|
92,366
|
|
|
$
|
99,661
|
|
Change in plan assets
|
|
|
|
Fair value of plan assets at beginning of year
|
$
|
—
|
|
|
$
|
—
|
|
Employer contributions
|
8,841
|
|
|
9,266
|
|
Plan participants' contributions
|
1,014
|
|
|
1,239
|
|
Gross benefits paid
|
(9,855
|
)
|
|
(10,505
|
)
|
Fair value of plan assets at end of year
|
$
|
—
|
|
|
$
|
—
|
|
Benefit obligation at end of year
|
$
|
92,366
|
|
|
$
|
99,661
|
|
Amounts recognized in Consolidated Balance Sheets
|
Accrued benefit cost—current
|
$
|
(9,022
|
)
|
|
$
|
(9,527
|
)
|
Accrued benefit cost—noncurrent
|
$
|
(83,344
|
)
|
|
$
|
(90,134
|
)
|
The following table summarizes the pre-tax 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:
|
|
|
|
|
|
|
|
|
In thousands
|
|
|
|
|
December 31, 2017
|
|
December 25, 2016
|
Net actuarial losses
|
$
|
(3,233
|
)
|
|
$
|
(4,472
|
)
|
Prior service credit
|
19,063
|
|
|
22,711
|
|
Amounts in accumulated other comprehensive loss
|
$
|
15,830
|
|
|
$
|
18,239
|
|
T
he actuarial loss and prior service credit estimated to be amortized from
Accumulated other comprehensive loss
into net periodic benefit cost in
2018
are
$0.4
million and
$3.5
million, respectively.
Changes in plan assets and benefit obligations recognized in Other comprehensive loss consist of the following:
|
|
|
|
|
In thousands
|
|
2017
|
Current year actuarial gain
|
$
|
(1,561
|
)
|
Amortization of actuarial loss
|
(103
|
)
|
Amortization of prior service credit
|
3,648
|
|
Total
|
$
|
1,984
|
|
Postretirement benefit costs:
The following assumptions were used to determine postretirement benefit cost:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Discount rate
|
4.01
|
%
|
|
4.27
|
%
|
|
4.11
|
%
|
Health care cost trend rate assumed for next year
|
5.80
|
%
|
|
5.70
|
%
|
|
6.18
|
%
|
Ultimate trend rate
|
5.00
|
%
|
|
4.77
|
%
|
|
5.00
|
%
|
Year that ultimate trend rate is reached
|
2022
|
|
|
2019
|
|
|
2018
|
|
Benefit obligations and funded status:
The following assumptions were used to determine the year-end benefit obligation:
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 25, 2016
|
Discount rate
|
3.60
|
%
|
|
4.01
|
%
|
Health care cost trend rate assumed for next year
|
5.80
|
%
|
|
5.70
|
%
|
Ultimate trend rate
|
5.00
|
%
|
|
4.77
|
%
|
Year that ultimate trend rate is reached
|
2022
|
|
|
2019
|
|
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
$0.3
million in the
2017
postretirement benefit obligation and no measurable change in the aggregate service and interest components of the
2017
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
|
2018
|
$
|
9,022
|
|
2019
|
$
|
8,209
|
|
2020
|
$
|
7,605
|
|
2021
|
$
|
7,129
|
|
2022
|
$
|
6,788
|
|
2023 - 2027
|
$
|
29,009
|
|
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
2018
and beyond.
NOTE 10 — Income taxes
The provision (benefit) for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
2017
|
Current
|
|
Deferred
|
|
Total
|
Federal
|
$
|
2,210
|
|
|
$
|
28,775
|
|
|
$
|
30,985
|
|
State and other
|
(787
|
)
|
|
(4,652
|
)
|
|
(5,439
|
)
|
Foreign
|
920
|
|
|
7,388
|
|
|
8,308
|
|
Total
|
$
|
2,343
|
|
|
$
|
31,511
|
|
|
$
|
33,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The components of net income before income taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
2017
|
|
2016
|
|
2015
|
Domestic
|
$
|
4,006
|
|
|
$
|
19,349
|
|
|
$
|
128,316
|
|
Foreign
|
36,735
|
|
|
47,079
|
|
|
65,659
|
|
Total
|
$
|
40,741
|
|
|
$
|
66,428
|
|
|
$
|
193,975
|
|
In December
2017
, the Tax Cuts and Jobs Act (the Tax Act) was signed into law. The Tax Act contains significant changes to corporate taxation, including reducing the corporate tax rate from
35%
to
21%
. 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. We recorded
$42.8 million
as additional income tax expense in the fourth quarter of
2017
to reduce the value of our deferred tax assets as a result of the reduction in the federal income tax rate.
As of
December 31, 2017
, we had not completed our accounting for the tax effects of enactment of the Tax Act; however, where possible, as described herein, we made a reasonable estimate of the effects on our existing deferred tax balances and related items and other tax liabilities. We remeasured our deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally
21%
for U.S. federal tax purposes. The provisional amount recorded related to the remeasurement of our deferred tax assets and liabilities of
$42.8 million
. The Tax Act also establishes a partial territorial system and one-time transition tax on historical foreign earnings. We have made a reasonable estimate that we do not have historical foreign earnings that are subject to the transition tax. These estimates are as of the enactment date of the Tax Act and our existing analysis of the numerous complex tax law changes in the Tax Act. As we finalize our analysis of the tax law changes in the Tax Act, including the impact on our current year tax return filing positions, throughout
2018
, we will update our provisional amounts for this remeasurement.
During the third quarter of
2017
, we made an election to treat one of our ReachLocal international subsidiaries as a disregarded entity for U.S. federal income tax purposes, which resulted in a worthless stock and bad debt deduction. As a result of this election, we incurred a tax loss that resulted in a
$20.1 million
tax benefit, net of reserve for uncertain tax positions. An
additional state tax benefit of
$0.9 million
for this item was recorded in the fourth quarter. We expect our domestic operations to generate sufficient taxable income to fully utilize the tax benefit of the loss. This tax loss may be subject to audit and future adjustment by the IRS, which could result in a reversal of none, part, or all of the income tax benefit or could result in a benefit higher than the net amount recorded. If the IRS rejects or reduces the amount of the income tax benefit related to the worthless stock and bad debt deduction, we may have to pay additional cash income taxes, which could adversely affect our results of operations, financial condition, and cash flows. We cannot guarantee what the ultimate outcome or amount of the benefit we receive, if any, will be.
For
2017
and
2016
, net income generated in foreign jurisdictions was
90%
and
71%
, respectively, where the income tax rate is lower than in the U.S., whereas
34%
of our
2015
net income was generated in foreign jurisdictions. The lower domestic net income is attributable to higher expenses domestically for corporate expenses related to restructuring charges, asset impairments, and public company costs as compared with foreign jurisdictions. The recent changes in the mix of income generated from lower tax rate foreign jurisdictions relative to U.S. domestic net income have had the effect of decreasing our tax expense.
The provision for income taxes varies from the U.S. federal statutory tax rate as a result of the following differences:
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
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
|
(0.7
|
)
|
|
(3.8
|
)
|
|
2.4
|
|
Statutory rate differential and permanent differences in earnings in foreign jurisdictions
|
(17.5
|
)
|
|
(10.7
|
)
|
|
(6.3
|
)
|
Impact of rate change in U.S. and foreign tax jurisdictions
|
105.3
|
|
|
1.6
|
|
|
1.9
|
|
Valuation allowance
|
20.0
|
|
|
3.5
|
|
|
—
|
|
Net of additional reserves and lapse of statutes of limitations
|
29.1
|
|
|
3.3
|
|
|
(1.1
|
)
|
Impact of accounting method change
|
—
|
|
|
—
|
|
|
(3.4
|
)
|
Domestic manufacturing deduction
|
—
|
|
|
—
|
|
|
(1.4
|
)
|
Meals and entertainment
|
5.1
|
|
|
2.7
|
|
|
—
|
|
Stock-based compensation
(a)
|
(3.9
|
)
|
|
(12.3
|
)
|
|
—
|
|
Worthless stock and bad debt deduction
|
(90.0
|
)
|
|
—
|
|
|
—
|
|
Transaction costs
|
—
|
|
|
3.4
|
|
|
—
|
|
Other, net
|
0.9
|
|
|
(2.0
|
)
|
|
(2.4
|
)
|
Effective tax rate
|
83.3
|
%
|
|
20.7
|
%
|
|
24.7
|
%
|
|
|
(a)
|
We adopted new accounting guidance related to employee stock-based compensation in the fourth quarter of
2016
. The adoption reduced our
2016
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
2017
was
$42.2 million
compared to
2016
adjustments of
$1.1 million
and
2015
adjustments of
$3.8 million
. The adjustments for
2017
are related to the statutory rate reduction in the United States, and the adjustments in
2016
and
2015
were due to rate reductions in U.K. statutory tax rates.
Our deferred tax assets were further reduced for the establishment of valuation allowances related to two of our publishing properties of
$7.7 million
and state net operating losses of
$3.4 million
, which was recorded as additional income tax expense in
2017
.
Deferred tax liabilities and assets were composed of the following at the end of
2017
and
2016
:
|
|
|
|
|
|
|
|
|
In thousands
|
|
December 31, 2017
|
|
December 25, 2016
|
Liabilities
|
|
|
|
Accelerated depreciation
|
$
|
(69,048
|
)
|
|
$
|
(152,551
|
)
|
Total deferred tax liabilities
|
(69,048
|
)
|
|
(152,551
|
)
|
Assets
|
|
|
|
Accrued compensation costs
|
25,596
|
|
|
29,670
|
|
Pension and postretirement benefits
|
144,837
|
|
|
302,565
|
|
Basis difference and amortization of intangibles
|
57,012
|
|
|
95,653
|
|
Federal tax benefits of uncertain state tax positions
|
2,026
|
|
|
7,015
|
|
Partnership investments including impairments
|
9,171
|
|
|
21,670
|
|
Loss carryforwards
|
68,914
|
|
|
55,335
|
|
Other
|
33,539
|
|
|
53,789
|
|
Total deferred tax assets
|
341,095
|
|
|
565,697
|
|
Valuation allowance
|
(170,764
|
)
|
|
(194,914
|
)
|
Total net deferred tax assets
|
$
|
101,283
|
|
|
$
|
218,232
|
|
|
Noncurrent deferred tax assets (net of deferred tax liabilities of $1,209 and $0 at December 31, 2017 and December 25, 2016, respectively)
|
$
|
101,283
|
|
|
$
|
218,232
|
|
As of
December 31, 2017
, we had approximately
$52.5 million
of U.S. federal net operating loss carryforwards,
$6.6 million
of other business tax credits,
$4.1 million
of foreign tax credits,
$7.2 million
of state credits,
$266.9 million
of apportioned state net operating loss carryforwards,
$255.0 million
of foreign net operating loss carryforwards, and
$33.1 million
of foreign capital loss carryforwards. The U.S. federal net operating losses, the foreign tax credits, the state tax credits, and the state net operating loss carryovers expire in various amounts beginning in
2018
through
2037
. The countries where we have foreign net operating loss carryovers allow for these losses to be carried forward indefinitely except for Canada, Japan, and the Netherlands. Net operating loss carryovers in Canada, Japan, and the Netherlands expire in various amounts beginning in
2020
through
2037
. Our foreign capital losses can be carried forward indefinitely.
Included in total deferred tax assets are valuation allowances of approximately
$170.8 million
in
2017
and
$194.9 million
in
2016
, primarily related to unamortizable intangible assets, foreign tax credits, state net operating losses, state credits, and foreign losses available for carry forward to future years. We recorded valuation allowances of
$7.7 million
related to unamortizable intangible assets for two of our publishing properties and
$3.4 million
related to state net operating losses during
2017
. The decrease in the valuation allowance from
2016
to
2017
is primarily related to the tax rate change. 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 identified deferred tax assets will not be realized before their expiration. The following table summarizes the activity related to our valuation allowance for deferred tax assets for the year ended
December 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
194,914
|
|
|
$
|
11,131
|
|
|
$
|
71
|
|
|
$
|
(40,979
|
)
|
|
$
|
5,627
|
|
|
$
|
170,764
|
|
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
|
|
|
|
December 31, 2017
|
|
December 25, 2016
|
|
December 27, 2015
|
Change in unrecognized tax benefits
|
|
|
|
|
|
Balance at beginning of year
|
$
|
23,890
|
|
|
$
|
17,032
|
|
|
$
|
10,919
|
|
Additions based on tax positions related to the current year
|
15,850
|
|
|
125
|
|
|
2,021
|
|
Additions for tax positions of prior years
|
136
|
|
|
9,416
|
|
|
6,713
|
|
Reductions for tax positions of prior years
|
—
|
|
|
(792
|
)
|
|
—
|
|
Settlements
|
(4,727
|
)
|
|
—
|
|
|
—
|
|
Reductions due to lapse of statutes of limitations
|
(2,165
|
)
|
|
(1,891
|
)
|
|
(2,621
|
)
|
Balance at end of year
|
$
|
32,984
|
|
|
$
|
23,890
|
|
|
$
|
17,032
|
|
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was
$30.1 million
as of
December 31, 2017
,
$17.3 million
as of
December 25, 2016
, and
$11.3 million
as of
December 27, 2015
. Additions to current year positions of
$14.6 million
and prior year positions of
$4.3 million
are recorded as reductions to deferred tax assets as unrecognized tax benefits. 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
$5.3 million
in
2017
,
$0.6 million
in each of
2016
and
2015
. The amount of accrued interest and payables related to unrecognized tax benefits was
$0.9 million
as of
December 31, 2017
,
$3.8 million
as of
December 25, 2016
, and
$3.4 million
as of
December 27, 2015
.
We file income tax returns in the United States, various states, and certain foreign jurisdictions. The tax years
2013
through
2016
generally remain subject to examination by the Internal Revenue Services and other foreign tax authorities. Tax years prior to
2013
remain subject to examination by certain states due to ongoing audits.
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
$3.3 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
Earnings per share
Our earnings per share (basic and diluted) for each fiscal year is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except per share amounts
|
2017
|
|
2016
|
|
2015
|
Net income
|
$
|
6,887
|
|
|
$
|
52,710
|
|
|
$
|
146,091
|
|
Weighted average number of common shares outstanding (basic)
|
113,047
|
|
|
116,018
|
|
|
115,165
|
|
Effect of dilutive securities
|
|
|
|
|
|
Restricted stock units (RSUs)
|
1,515
|
|
|
1,475
|
|
|
728
|
|
Performance shares (PSUs)
|
928
|
|
|
881
|
|
|
582
|
|
Stock options
|
120
|
|
|
251
|
|
|
220
|
|
Weighted average number of common shares outstanding (diluted)
|
115,610
|
|
|
118,625
|
|
|
116,695
|
|
Earnings (loss) per share (basic)
|
$
|
0.06
|
|
|
$
|
0.45
|
|
|
$
|
1.27
|
|
Earnings (loss) per share (diluted)
|
$
|
0.06
|
|
|
$
|
0.44
|
|
|
$
|
1.25
|
|
The diluted earnings per share amounts exclude the effects of approximately
0.7 million
,
0.4 million
, and
0.1 million
shares outstanding for
2017
,
2016
and
2015
, respectively, as their inclusion would be antidilutive.
Share repurchase program
In
July 2015
, 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.
During
2017
, we repurchased
two million
shares at a cost of
$17.4 million
. As of
December 31, 2017
, approximately
5.8 million
shares have been repurchased under this program at a total cost of
$50.0 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 granting of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, stock awards, restricted stock units (RSUs), performance shares, performance share units (PSUs), 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. In
2017
, our shareholders approved a new total reserve of shares available for issuance of
18.0 million
. 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 PSUs 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 are generally made in connection with the date of our annual meetings or commencement of service for a new member.
PSU 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. PSUs 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 PSUs are generally forfeited upon termination for any other reason. The fair value and compensation expense of each PSU is determined on the date of grant by using a Monte Carlo valuation model. Each PSU 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 issued prior to 2014 vest at the end of the incentive period. For awards granted after 2014, RSUs generally vest
25%
per year over the
four
-year incentive period. For all RSU grants, expense is recognized on a straight-line basis over the incentive period based on the grant date fair value.
Compensation expense for PSU and RSU awards is recognized net of forfeitures. When estimating forfeitures, voluntary termination behavior as well as analysis of actual forfeitures is considered. Forfeitures are estimated throughout the period and adjusted to actuals at the end of the year.
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 the fair market value of our common stock or other criteria which they establish such as the achievement of performance goals. The maximum aggregate grant of PSU and RSU awards that may be awarded to any participant in any fiscal year cannot exceed
500,000
shares of common stock, and the maximum aggregate amount of cash-based awards that may be awarded to any participant in any fiscal year cannot exceed
$10 million
.
Determining fair value of PSUs
Valuation and amortization method
–
We determine the fair value of PSUs 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 PSU 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.
The following assumptions were used to estimate the fair value of PSU awards that were granted:
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
Expected term
|
3 yrs.
|
|
3 yrs.
|
|
3 yrs.
|
Expected volatility
|
39.90%
|
|
42.20%
|
|
32.00%
|
Risk-free interest rate
|
1.47%
|
|
1.31%
|
|
1.10%
|
Expected dividend yield
|
6.59%
|
|
3.93%
|
|
2.51%
|
Determining fair value of RSUs
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
|
|
2017
|
|
2016
|
|
2015
|
Restricted stock and RSUs
|
$
|
13,135
|
|
|
$
|
12,889
|
|
|
$
|
12,235
|
|
Performance shares
|
7,206
|
|
|
7,687
|
|
|
9,478
|
|
Stock options
|
—
|
|
|
—
|
|
|
29
|
|
Total stock-based compensation
|
$
|
20,341
|
|
|
$
|
20,576
|
|
|
$
|
21,742
|
|
Restricted stock and RSUs
As of
December 31, 2017
, there was
$19.5 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 25, 2016
, there was
$23.4 million
of unrecognized compensation cost related to non-vested restricted stock and RSUs with a weighted average period remaining 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 remaining period of
2.4 years
.
A summary of restricted stock and RSU awards is presented below:
|
|
|
|
|
|
|
|
|
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 December 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 December 25, 2016
|
2,818,836
|
|
|
$
|
12.40
|
|
Granted
|
2,251,936
|
|
|
8.04
|
|
Settled
|
(2,373,277
|
)
|
|
11.36
|
|
Canceled
|
(433,482
|
)
|
|
10.37
|
|
Outstanding and unvested at December 31, 2017
|
2,264,013
|
|
|
$
|
9.55
|
|
PSUs
As of
December 31, 2017
, there was
$3.7 million
of unrecognized compensation cost related to non-vested PSUs. 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 25, 2016
, there was
$4.9 million
of unrecognized compensation cost related to non-vested PSUs with a weighted average period remaining of
1.7
years. As of
December 27, 2015
, there was
$4.6 million
of unrecognized compensation cost related to non-vested PSUs with a weighted average period remaining of
1.7 years
.
A summary of the PSU awards is presented below:
|
|
|
|
|
|
|
|
|
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 December 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 December 25, 2016
|
774,147
|
|
|
$
|
17.82
|
|
Granted
|
1,012,030
|
|
|
10.86
|
|
Vested
|
(209,838
|
)
|
|
17.67
|
|
Canceled
|
(426,048
|
)
|
|
14.58
|
|
Outstanding and unvested at December 31, 2017
|
1,150,291
|
|
|
$
|
12.92
|
|
Stock Options:
As of
December 31, 2017
,
December 25, 2016
, and
December 27, 2015
, all stock options were fully vested. Options were exercised with an intrinsic value of approximately
$0.6 million
,
$0.9 million
, and
$4.7 million
in
2017
,
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 and exercisable 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 December 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 December 25, 2016
|
290,267
|
|
|
$
|
5.37
|
|
|
1.9
|
|
$
|
1,304,798
|
|
Exercised
|
(140,699
|
)
|
|
5.18
|
|
|
|
|
|
Canceled
|
(170
|
)
|
|
5.52
|
|
|
|
|
|
Outstanding and exercisable at December 31, 2017
|
149,398
|
|
|
$
|
5.56
|
|
|
1.2
|
|
$
|
901,207
|
|
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
|
2017
|
Retirement Plans
|
|
Foreign Currency Translation
|
|
Total
|
Balance at beginning of year
|
$
|
(1,183,196
|
)
|
|
$
|
300,284
|
|
|
$
|
(882,912
|
)
|
Other comprehensive income before reclassifications
|
133,623
|
|
|
43,990
|
|
|
177,613
|
|
Amounts reclassified from accumulated other comprehensive loss
|
48,782
|
|
|
—
|
|
|
48,782
|
|
Balance at end of year
|
$
|
(1,000,791
|
)
|
|
$
|
344,274
|
|
|
$
|
(656,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
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
|
|
2017
|
|
2016
|
Amortization of prior service credit
|
$
|
3,023
|
|
|
$
|
1,883
|
|
Amortization of actuarial loss
|
72,759
|
|
|
62,155
|
|
Total reclassifications, before tax
|
75,782
|
|
|
64,038
|
|
Income tax effect
|
(27,000
|
)
|
|
(22,747
|
)
|
Total reclassifications, net of tax
|
$
|
48,782
|
|
|
$
|
41,291
|
|
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 claims raised. The settlements are reflected in our financial statements as of
December 31, 2017
, and were not material to our results of operations, financial position, or cash flows.
Environmental contingency:
In
March 2011
, the Advertiser Company (Advertiser), a subsidiary that publishes the
Montgomery Advertiser
, was notified by the U.S. Environmental Protection Agency (EPA) that it had been identified as a potentially responsible party (PRP) for the investigation and remediation of groundwater contamination in downtown Montgomery, Alabama. The
Advertiser is a member of the Downtown Environmental Alliance, which has agreed to jointly fund and conduct all required investigation and remediation. In
2015
, the Advertiser and other members of the Downtown Environmental Alliance reached a settlement with the U.S. EPA regarding the costs the U.S. EPA spent to investigate the site. The U.S. EPA has transferred responsibility for oversight of the site to the Alabama Department of Environmental Management, which has approved the work plan for the additional site investigation that is currently underway. The Advertiser's final costs cannot be determined until the investigation is complete, a determination is made on whether any remediation is necessary, and contributions from other PRPs are finalized.
Other litigation:
We 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
|
|
2018
|
$
|
58,459
|
|
2019
|
52,190
|
|
2020
|
45,501
|
|
2021
|
41,845
|
|
2022
|
37,477
|
|
Later years
|
193,315
|
|
Total
|
$
|
428,787
|
|
Expected future sublease income on these lease commitments is expected to be approximately
$8.6 million
. Total rent expense was
$54.2 million
in
2017
,
$48.7 million
in
2016
, and
$39.7 million
in
2015
.
Purchase obligations:
We have future expected purchase obligations of
$833.4 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 31, 2017
, 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 is in place). The liabilities are established on an actuarial basis with the advice of consulting actuaries and totaled
$66.4 million
as of
December 31, 2017
and
$71.5 million
as of
December 25, 2016
.
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 31, 2017
and
December 25, 2016
, assets and liabilities recorded at fair value and measured on a recurring basis primarily consist of pension plan assets. As permitted by U.S. GAAP, we use net asset values as a practical expedient to determine the fair value of certain investments. These investments measured at net asset value have not been classified in the fair value hierarchy. The revolving credit facility is recorded at carrying value in the Consolidated balance sheets and is classified as Level 3. The carrying value in the revolving credit facility approximates fair value.
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
December 31
measurement date fair values of our pension plans assets relating to the GRP, the U.K. Pension Plans, and the Newspaper Guild of Detroit Pension Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan Assets/Liabilities
|
In thousands
|
Fair value measurement as of December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
22,496
|
|
|
$
|
2,953
|
|
|
$
|
—
|
|
|
$
|
25,449
|
|
Corporate stock - Gannett Co., Inc.
|
652,066
|
|
|
—
|
|
|
—
|
|
|
652,066
|
|
Corporate stock - other
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Real estate
|
—
|
|
|
—
|
|
|
112,374
|
|
|
112,374
|
|
Interest in common/collective trusts:
|
|
|
|
|
|
|
|
Equities
|
—
|
|
|
306,967
|
|
|
—
|
|
|
306,967
|
|
Fixed income
|
—
|
|
|
301,181
|
|
|
—
|
|
|
301,181
|
|
Interest in registered investment companies
|
108,416
|
|
|
—
|
|
|
—
|
|
|
108,416
|
|
Partnership/joint venture interests
|
—
|
|
|
—
|
|
|
75,907
|
|
|
75,907
|
|
Hedge funds
|
—
|
|
|
—
|
|
|
132,554
|
|
|
132,554
|
|
Derivative contracts
|
—
|
|
|
—
|
|
|
23
|
|
|
23
|
|
Total assets at fair value excluding those measured
at net asset value
|
$
|
782,978
|
|
|
$
|
611,101
|
|
|
$
|
320,858
|
|
|
$
|
1,714,937
|
|
Instruments measured at net asset value using the practical expedient:
|
Real estate funds
|
|
|
|
|
|
|
12,583
|
|
Interest in common/collective trusts:
|
|
|
|
|
|
|
|
Equities
|
|
|
|
|
|
|
258,867
|
|
Fixed income
|
|
|
|
|
|
|
634,060
|
|
Interest in registered investment companies
|
|
|
|
|
|
|
38,747
|
|
Partnership/joint venture interests
|
|
|
|
|
|
|
42,810
|
|
Hedge funds
|
|
|
|
|
|
|
339
|
|
Total assets at fair value
|
|
|
|
|
|
|
$
|
2,702,343
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
(498
|
)
|
|
$
|
(2,008
|
)
|
|
$
|
(2,506
|
)
|
Total liabilities at fair value
|
$
|
—
|
|
|
$
|
(498
|
)
|
|
$
|
(2,008
|
)
|
|
$
|
(2,506
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Fair value measurement as of December 25, 2016
|
|
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
(b)
|
—
|
|
|
235,384
|
|
|
—
|
|
|
235,384
|
|
Fixed income
|
—
|
|
|
253,959
|
|
|
—
|
|
|
253,959
|
|
Interest in registered investment 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 registered investment 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
|
)
|
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
$9.3
|
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 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 a 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 values, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Pension Plan Assets/Liabilities
|
In thousands
|
For the year ended December 31, 2017
|
|
|
|
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
|
$
|
83,522
|
|
|
$
|
12,735
|
|
|
$
|
—
|
|
|
$
|
16,117
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
112,374
|
|
Partnership/joint venture interests
|
75,967
|
|
|
9,763
|
|
|
—
|
|
|
14,152
|
|
|
(1,740
|
)
|
|
(22,235
|
)
|
|
—
|
|
|
75,907
|
|
Hedge funds
|
173,937
|
|
|
8,617
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50,000
|
)
|
|
—
|
|
|
132,554
|
|
Derivative contracts
|
33
|
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
Total
|
$
|
333,459
|
|
|
$
|
31,105
|
|
|
$
|
—
|
|
|
$
|
30,269
|
|
|
$
|
(1,740
|
)
|
|
$
|
(72,235
|
)
|
|
$
|
—
|
|
|
$
|
320,858
|
|
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 December 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
|
|
Transfer from parent
|
|
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.
|
There were
no
transfers between Levels 1 and 2 for the year ended
December 31, 2017
and
$2.5 million
of such transfers for the year ended
December 25, 2016
.
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, letters of intent or third party valuation analyses 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 December 31, 2017
|
|
|
|
|
|
|
|
Asset held for sale
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,916
|
|
|
$
|
18,916
|
|
Fair value measurement as of December 25, 2016
|
|
|
|
|
|
|
|
Asset held for sale
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,522
|
|
|
$
|
4,522
|
|
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. Our reportable segments include the following:
|
|
•
|
Publishing, which consists of our portfolio of local, regional, national, and international newspaper publishers. The results of this segment include retail, classified, and national advertising revenues consisting of both print and digital advertising, circulation revenues from the distribution of our publications on our digital platforms, home delivery of our publications, single copy sales, and other revenues from commercial printing and distribution arrangements. The publishing reportable segment is an aggregation of two operating segments: Domestic Publishing and the U.K.
|
|
|
•
|
ReachLocal, which consists of our ReachLocal digital marketing solutions subsidiaries and SweetIQ. The results of this segment include advertising revenues from our search and display services and other revenues related to web presence and software solutions provided by ReachLocal.
|
In addition to the above operating segments, we have a corporate and other category that includes activities not directly attributable to a specific segment. This category primarily consists of broad corporate functions and includes legal, human resources, accounting, finance, and marketing as well as activities such as tax settlements and other general business costs.
In the ordinary course of business, our reportable segments enter into transactions with one another. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues and expenses recognized by the segment that is the counterparty to the transaction are eliminated in consolidation and do not affect consolidated results.
The CODM uses adjusted EBITDA to evaluate the performance of the segments and allocate resources. Adjusted EBITDA is a non-GAAP financial performance measure we believe offers a useful view of the overall operation of our businesses and may be different than similarly-titled non-GAAP financial measures used by other companies. Adjusted EBITDA is defined as net income before (1) income taxes, (2) interest expense, (3) equity income, (4) other non-operating items, (5) restructuring costs, (6) acquisition-related expenses (including integration expenses), (7) asset impairment charges, (8) other items (including certain business transformation costs, litigation expenses, multi-employer pension withdrawals and gains or losses on certain investments), (9) depreciation, and (10) amortization. When adjusted EBITDA is discussed in this report, the most directly comparable GAAP financial measure is net income.
Management considers adjusted EBITDA to be the appropriate metric to evaluate and compare the ongoing operating performance of our segments on a consistent basis across reporting periods as it eliminates the effect of items which we do not believe are indicative of each segment's core operating performance.
The following table presents our segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Publishing
|
|
ReachLocal
|
|
Corporate and Other
|
|
Intersegment Eliminations
|
|
Consolidated
|
2017
|
|
|
|
|
|
|
|
|
|
Advertising - external sales
|
$
|
1,472,325
|
|
|
$
|
319,345
|
|
|
$
|
(52
|
)
|
|
$
|
—
|
|
|
$
|
1,791,618
|
|
Advertising - intersegment sales
|
25,948
|
|
|
—
|
|
|
—
|
|
|
(25,948
|
)
|
|
—
|
|
Circulation
|
1,120,739
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,120,739
|
|
Other - external sales
|
189,853
|
|
|
39,383
|
|
|
4,887
|
|
|
—
|
|
|
234,123
|
|
Other - intersegment sales
|
3,378
|
|
|
—
|
|
|
—
|
|
|
(3,378
|
)
|
|
—
|
|
Total revenues
|
$
|
2,812,243
|
|
|
$
|
358,728
|
|
|
$
|
4,835
|
|
|
$
|
(29,326
|
)
|
|
$
|
3,146,480
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
$
|
432,420
|
|
|
$
|
16,553
|
|
|
$
|
(89,040
|
)
|
|
$
|
—
|
|
|
$
|
359,933
|
|
|
|
|
|
|
|
|
|
|
|
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
|
$
|
444,108
|
|
|
$
|
(5,852
|
)
|
|
$
|
(78,361
|
)
|
|
$
|
—
|
|
|
$
|
359,895
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
—
|
|
|
$
|
(82,410
|
)
|
|
$
|
—
|
|
|
$
|
386,589
|
|
We changed certain corporate allocations at the beginning of fiscal year
2017
and retrospectively applied that change.
The following table presents our reconciliation of adjusted EBITDA to net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
2017
|
|
2016
|
|
2015
|
Net income (GAAP basis)
|
$
|
6,887
|
|
|
$
|
52,710
|
|
|
$
|
146,091
|
|
Provision for income taxes
|
33,854
|
|
|
13,718
|
|
|
47,884
|
|
Interest expense
|
17,142
|
|
|
12,791
|
|
|
4,562
|
|
Other non-operating items, net
|
9,688
|
|
|
10,151
|
|
|
(34,032
|
)
|
Operating income (GAAP basis)
|
67,571
|
|
|
89,370
|
|
|
164,505
|
|
Depreciation and amortization
|
191,885
|
|
|
132,964
|
|
|
107,552
|
|
Asset impairment charges
|
46,796
|
|
|
55,940
|
|
|
29,130
|
|
Restructuring costs
|
44,284
|
|
|
45,757
|
|
|
77,414
|
|
Acquisition-related items
|
5,202
|
|
|
32,683
|
|
|
—
|
|
Other items
|
4,195
|
|
|
3,181
|
|
|
7,988
|
|
Adjusted EBITDA (non-GAAP basis)
|
$
|
359,933
|
|
|
$
|
359,895
|
|
|
$
|
386,589
|
|
Asset information by segment is not a key measure of performance used by the CODM. Accordingly, we have not disclosed asset information by segment. Additionally, equity income in unconsolidated investees, net, interest expense, other non-operating items, net, and provision for income taxes, as reported in the consolidated 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 would provide certain specified services on a transitional basis, including various information technology, financial, and administrative services. Subsequent to separation, we provided certain IT, payroll and other services to our former parent in the amount of
$0.9 million
in
2017
,
$7.1 million
in
2016
and
$5.9 million
in
2015
. Our former parent provided certain services to us in the amount of
$0.4 million
in
2017
,
$5.7 million
in
2016
and
$3.7 million
in
2015
. The transition services agreement terminated during
2017
.
Relationship with our former parent prior to the spin-off
Allocation of costs from our former parent:
Through the date of the spin-off, our former parent and its affiliates performed certain corporate activities on behalf of the company. Costs of these services that were allocated or charged to us were based on actual costs incurred. No such expenses were incurred in
2016
and
2017
. During the year ended
December 27, 2015
, we incurred
$33.0 million
of expenses related to charges for services performed by our former parent and these expenses were recorded within
Selling, general and administrative expenses
in our Consolidated and combined statements of income as incurred.
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.
Cash and cash equivalents
prior to the spin-off represent cash held by us.
Equity:
Prior to the spin-off, the Consolidated and 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.
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 December 31, 2017
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
|
Total
|
Operating revenues
|
$
|
773,457
|
|
|
$
|
774,507
|
|
|
$
|
744,274
|
|
|
$
|
854,242
|
|
|
$
|
3,146,480
|
|
Operating income
|
$
|
1,033
|
|
|
$
|
10,504
|
|
|
$
|
11,778
|
|
|
$
|
44,256
|
|
|
$
|
67,571
|
|
Net income (loss)
*
|
$
|
(2,079
|
)
|
|
$
|
(487
|
)
|
|
$
|
23,044
|
|
|
$
|
(13,591
|
)
|
|
$
|
6,887
|
|
Per share computations
|
|
|
|
|
|
|
|
|
|
Net income per share—basic
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.20
|
|
|
$
|
(0.12
|
)
|
|
$
|
0.06
|
|
Net income per share—diluted
|
$
|
(0.02
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
0.20
|
|
|
$
|
(0.12
|
)
|
|
$
|
0.06
|
|
Dividends per share
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
|
$
|
0.64
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic
|
113,495
|
|
|
113,652
|
|
|
113,253
|
|
|
111,787
|
|
|
113,047
|
|
Diluted
|
113,495
|
|
|
113,652
|
|
|
115,774
|
|
|
111,787
|
|
|
115,610
|
|
*
Net loss for the first quarter of
2017
includes restructuring costs of
$12.6 million
and accelerated depreciation of
$9.8 million
.
Net loss for the second quarter of
2017
includes asset impairment charges of
$14.7 million
, restructuring costs of
$9.8 million
, and accelerated depreciation of
$13.8 million
. Net income for the third quarter of
2017
includes restructuring costs of
$5.8 million
and accelerated depreciation of
$14.0 million
. Net loss for the fourth quarter of
2017
includes asset impairment charges of
$26.8 million
, restructuring costs of
$16.1 million
, and accelerated depreciation of
$6.4 million
.
In addition to the items above, net income for the third quarter of
2017
includes a net tax benefit of
$20.1 million
related to a worthless stock and bad debt deduction for one of our ReachLocal international subsidiaries. Net loss for the fourth quarter of
2017
includes tax expense of
$42.8 million
resulting from the revaluation of deferred tax assets and liabilities in connection with the Tax Cuts and Jobs Act, tax expense of
$7.7 million
related to the revaluation of a deferred tax asset associated with a deferred intercompany transaction, and an incremental tax benefit of
$0.9 million
related to the worthless stock and bad debt deduction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except per share amounts
|
Fiscal year ended December 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 (loss)
|
$
|
50,203
|
|
|
$
|
25,989
|
|
|
$
|
(25,838
|
)
|
|
$
|
39,016
|
|
|
$
|
89,370
|
|
Net income (loss)**
|
$
|
39,596
|
|
|
$
|
12,481
|
|
|
$
|
(23,961
|
)
|
|
$
|
24,594
|
|
|
$
|
52,710
|
|
Per share computations
|
|
|
|
|
|
|
|
|
|
Net income per share—basic
|
$
|
0.34
|
|
|
$
|
0.11
|
|
|
$
|
(0.21
|
)
|
|
$
|
0.21
|
|
|
$
|
0.45
|
|
Net income per share—diluted
|
$
|
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
|
|
**
Net income for the second quarter of
2016
includes acquisition related charges of
$12.8 million
and restructuring costs of
$18.2 million
. Net loss for the third quarter of
2016
includes asset impairment charges of
$27.2 million
, acquisition related costs of
$14.4 million
, and restructuring costs of
$6.6 million
. Net income for the fourth quarter of
2016
includes asset impairment charges of
$25.0 million
and restructuring costs of
$16.7 million
.
NOTE 17 — Subsequent events
On February 5, 2018 we closed on the sale of one of two parcels of property in downtown Nashville, generating net proceeds of approximately
$38.0 million
. In conjunction with the sale, we entered into a
15
-month rent-free leaseback agreement for the sold property.
During January and February 2018, we repaid
$50.0 million
on our revolving credit facility.
On February 28, 2018, the Board of Directors declared a dividend of
$0.16
per share, payable on March 26, 2018, to shareholders of record as of the close of business March 12, 2018.