NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — Basis of presentation and summary of significant accounting policies
Description of business:
Gannett Co., Inc. (Gannett, we, us, our, or the company) is an innovative, digitally focused media and marketing solutions company committed to strengthening communities across our network. Gannett owns ReachLocal, Inc. (ReachLocal), a digital marketing solutions company, the USA TODAY NETWORK (made up of USA TODAY and
109
local media organizations in
34
states in the U.S. and Guam, including digital sites and affiliates), and Newsquest (a wholly owned subsidiary operating in the United Kingdom (U.K.) with more than
180
local media brands). 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.
Basis of presentation:
Our condensed consolidated financial statements are unaudited; however, in the opinion of management, they contain all of the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles (U.S. GAAP) applicable to interim periods. All intercompany accounts have been eliminated in consolidation. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2017
.
Fiscal year:
Beginning in 2018, our fiscal year coincides with the Gregorian calendar. Historically, our fiscal year was a 52-53 week fiscal year that ended on the last Sunday of the calendar year and quarterly periods consisted of 13 or 14 weeks ending on the last Sunday of the calendar quarter. The impact of the calendar change did not have a material impact on our financial statements and, as a result, prior year amounts have not been restated.
Use of estimates:
The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates, judgments, and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and footnotes thereto. Actual results could differ from those estimates. Significant estimates and judgments inherent in the preparation of financial statements include accounting for income taxes, pension and other post-employment benefits, allowances for doubtful accounts, stock-based compensation, depreciation and amortization, business combinations, litigation matters, contingencies and the valuation of long-lived and intangible assets.
New accounting pronouncements adopted:
The following are new accounting pronouncements that we adopted in the first quarter of
2018
:
Revenue from Contracts with Customers
: We adopted Financial Accounting Standards Board (FASB) guidance which prescribes a single comprehensive model for entities to use in the accounting of revenue arising from contracts with customers. The new guidance is centered around the core principle 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. We adopted the new revenue recognition standard using the modified retrospective approach; however, we did not record any one-time adjustments to beginning retained earnings as a result of adopting the new guidance. Refer to
Note 2 — Revenues
for further details regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with our customers.
Cash and Cash Equivalents, including Statement of Cash Flows and Restricted Cash:
We adopted FASB guidance requiring entities to disclose, 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. The guidance was adopted retrospectively and the impact was not material to our consolidated financial results.
Restricted cash primarily consists of cash held in an irrevocable grantor trust for our deferred compensation plans and cash held with banking institutions for insurance plans. The restrictions will lapse when benefits are paid to plan participants and their beneficiaries as specified in the plans. The following table presents a reconciliation of cash, cash equivalents, and restricted cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
March 31, 2018
|
|
December 31, 2017
|
|
March 26, 2017
|
Cash and cash equivalents
|
$
|
145,859
|
|
|
$
|
120,589
|
|
|
$
|
89,482
|
|
Restricted cash included in other current assets
|
3,189
|
|
|
2,942
|
|
|
4,351
|
|
Restricted cash included in investments and other assets
|
20,228
|
|
|
20,501
|
|
|
19,874
|
|
Total cash, cash equivalents, and restricted cash
|
$
|
169,276
|
|
|
$
|
144,032
|
|
|
$
|
113,707
|
|
Financial Assets and Financial Liabilities
: We adopted FASB guidance revising 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 impact of adopting this guidance was not material to our consolidated financial results.
Business Combinations—Definition of a Business
: We adopted FASB guidance which amends the definition of a business. This new guidance now requires an entity to evaluate if substantially all of the fair value of 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. The impact of adopting this guidance was not material to our consolidated financial results.
New accounting pronouncements not yet adopted:
The following are new accounting pronouncements that we are evaluating for future impacts on our financial position:
Leases:
In February 2016, the FASB issued updated guidance modifying lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. This guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are evaluating the provisions of the updated guidance and assessing the impact on 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.
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 2 — Revenues
In January 2018, we adopted the new revenue recognition accounting pronouncement, Accounting Standard Codification (ASC) 606 - Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed as of the adoption date. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while prior period amounts are not adjusted and continue to be reported in accordance with legacy accounting under ASC 605 - Revenue recognition. We did not record any one-time adjustments to beginning retained earnings as a result of adopting the new guidance.
The following table presents our revenues disaggregated by source:
|
|
|
|
|
|
|
|
|
in thousands
|
Three months ended
|
|
March 31, 2018
|
|
March 26, 2017
(1)
|
Print advertising
|
$
|
225,513
|
|
|
$
|
270,470
|
|
Digital advertising
|
174,012
|
|
|
165,045
|
|
Total advertising
|
399,525
|
|
|
435,515
|
|
Circulation
|
266,586
|
|
|
283,286
|
|
Other
|
56,840
|
|
|
54,656
|
|
Total revenues
|
$
|
722,951
|
|
|
$
|
773,457
|
|
(1)
Prior period amounts have not been adjusted under the modified retrospective method.
Additionally, approximately
14%
of our revenues are generated from international locations.
Recognition principles:
Our revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Additionally, sales and usage-based taxes are excluded from revenues.
Advertising revenues:
Our advertising revenues include amounts charged to advertisers for space purchased in our newspapers, digital ads placed on our digital platforms, other advertising products and services such as preprints and direct mail, and the provision and sale of online marketing services and products through our ReachLocal subsidiary. Print advertising is recognized in the period when advertising is printed. Digital advertising is recognized when placed on digital platforms either by cost per impression or cost per day. Other advertising product and service revenues are recognized when advertisements or services are delivered.
For online marketing products provided by our ReachLocal subsidiary, we enter into agreements for products in which our clients typically pay in advance and on a monthly basis. These prepayments include all charges for the included technology and any media services, management, third-party content, and other costs and fees. Revenue is then recognized as we purchase media on behalf of the customer and perform other marketing-related services.
For our advertising revenues, we evaluate whether we are the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis) by performing analyses regarding whether we control the provision of specified goods or services before they are transferred to our customers. We report advertising revenues gross when we control advertising inventory before it is transferred to the customer. Our control is evidenced by us being primarily responsible or sharing responsibility for the fulfillment of services and maintaining control over transaction pricing.
Certain customers may receive credits, which are accounted for as a separate performance obligation. We estimate these amounts based on the expected amount to be provided to customers and reduce revenues recognized. We recognize the revenue when the performance obligation is satisfied.
Circulation revenues:
Our circulation revenues include revenues for newspapers (both print and digital) purchased by readers or distributors. Single copy circulation revenues are recognized on a daily basis as purchased newspapers are distributed, net of provisions for related returns. Circulation revenue from digital and home delivery subscriptions are recognized over the subscription period as the performance obligations are delivered.
Other revenues:
Our other revenues consist primarily of amounts received from commercial printing and distribution arrangements, web presence and software-as-a-service solutions sold by our ReachLocal subsidiary, and revenues from other miscellaneous products and services. Commercial printing and distribution revenues are recognized when the product is delivered to the customer. Web presence and software-as-a-service solutions are recognized when the products or services are delivered to the customer.
Arrangements with multiple performance obligations:
We have various advertising and circulation agreements which have both print and digital performance obligations. Revenue from sales agreements that contain multiple performance obligations are allocated to each obligation based on the relative standalone selling price. We generally determine standalone
selling prices based on the prices charged to customers or using expected cost plus a margin that is appropriate for that good or service.
Deferred revenue:
Amounts received from customers in advance of revenue recognition are deferred as liabilities. The following table presents changes in the deferred revenue balance for the
three months ended
March 31, 2018
by type of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands
|
Three months ended March 31, 2018
|
|
Advertising and Other
|
|
Circulation
|
|
Total
|
Beginning balance
|
$
|
33,986
|
|
|
$
|
88,805
|
|
|
$
|
122,791
|
|
Cash receipts
|
78,790
|
|
|
213,275
|
|
|
292,065
|
|
Revenue recognized
|
(76,508
|
)
|
|
(203,715
|
)
|
|
(280,223
|
)
|
Ending balance
|
$
|
36,268
|
|
|
$
|
98,365
|
|
|
$
|
134,633
|
|
The Company’s primary source of deferred revenue is from circulation subscriptions paid in advance of the service provided. The majority of our subscription customers are billed and pay on monthly terms, but subscription periods can last between one and twelve months. The remaining deferred revenue balance relates to advertising and other revenue. The
$11.8 million
increase in deferred revenue as compared to the year ended
December 31, 2017
is the result of an increase in subscription fees billed due to increased average monthly revenue per paying subscriber.
Practical expedients and exemptions:
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within cost of sales. Additionally, we do not disclose the value of unsatisfied performance obligations because the vast majority of our contracts have original expected lengths of one year or less and our payment terms are generally short-term in nature unless a customer is in bankruptcy.
NOTE 3 — 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
2018
and
2017
, we completed other immaterial acquisitions.
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. Facility consolidation and other cost savings plans led us to recognize severance-related expenses, facility consolidation, accelerated depreciation, and 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.
Severance-related expenses:
We recorded severance-related expenses of
$6.6 million
and
$11.9 million
for the
three months ended
March 31, 2018
and
March 26, 2017
, respectively. Of the expenses incurred for the
three months ended
March 31, 2018
,
$5.6 million
related to the publishing segment,
$0.6 million
related to the ReachLocal segment, and
$0.4
million
related to corporate and other. Of the expenses incurred for the
three months ended
March 26, 2017
,
$10.4 million
related to the publishing segment and
$1.5 million
related to corporate and other.
The activity and balance of the severance-related liabilities are as follows:
|
|
|
|
|
In thousands
|
Severance Activities
|
Balance at Dec. 31, 2017
|
$
|
10,562
|
|
Expense
|
6,565
|
|
Payments
|
(7,052
|
)
|
Balance at Mar. 31, 2018
|
$
|
10,075
|
|
Facility consolidation charges and accelerated depreciation:
We recorded facility consolidation charges of
$2.7 million
and
$0.7 million
for the
three months ended
March 31, 2018
and
March 26, 2017
, respectively. In addition, we incurred accelerated depreciation of
$5.2 million
and
$9.8 million
for the
three months ended
March 31, 2018
and
March 26, 2017
, respectively, which is included in depreciation expense. These expenses were related to the publishing segment.
Asset impairment charges:
We recorded charges for asset impairments of
$3.8 million
for each of the
three months ended
March 31, 2018
and
March 26, 2017
, which consisted entirely of impairment charges for property, plant, and equipment. These expenses were related to the publishing segment.
Sale of property:
In
February 2018
, we sold property in Nashville, Tennessee and entered into a
15
-month rent-free leaseback agreement. The sale generated proceeds of approximately
$37.7 million
and is accounted for under the financing method. The property, which has a net book value of approximately
$12.0 million
as of
March 31, 2018
, remains on the balance sheet and will continue to be depreciated until the lease terminates. We recorded the financing liability within
Other noncurrent liabilities
in the Condensed consolidated balance sheet. The sale, along with any related gain, will be recognized when the lease terminates.
NOTE 5 — Revolving credit facility
We maintain a secured revolving credit facility pursuant to which we may borrow from time to time up to an aggregate principal amount of
$500.0 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
$50.0 million
of the Credit Facility is available for issuance of letters of credit. The Credit Facility matures on June 29, 2020.
Customary fees are payable related to the Credit Facility, including commitment fees on the undrawn commitments of between
0.30%
and
0.40%
per annum, payable quarterly in arrears, 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 all financial covenants under the Credit Facility as of
March 31, 2018
.
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
March 31, 2018
.
As of
March 31, 2018
, we had
$305.0 million
in outstanding borrowings under the Credit Facility and
$15.0 million
of letters of credit outstanding, leaving
$180.0 million
of availability remaining. After the quarter ended, we made additional
payments on the revolving credit facility to reduce outstanding borrowings. Refer to
Note 13 — Subsequent events
for additional details.
NOTE 6 — Pensions and other postretirement benefit plans
We, along with our subsidiaries, have various defined benefit retirement plans, including plans established under collective bargaining agreements. Our retirement plans include the Gannett Retirement Plan (GRP), Newsquest and Romanes Pension Schemes in the U.K. (U.K. Pension Plans), and other defined benefit contribution plans. We also provide health care and life insurance benefits to certain retired employees who meet age and service requirements.
Retirement plan costs include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Three months ended
|
|
March 31, 2018
|
|
March 26, 2017
|
|
Pension
|
|
Postretirement
|
|
Pension
|
|
Postretirement
|
Operating expenses:
|
|
|
|
|
|
|
|
Service cost - Benefits earned during the period
|
$
|
602
|
|
|
$
|
55
|
|
|
$
|
820
|
|
|
$
|
52
|
|
Non-operating expenses:
|
|
|
|
|
|
|
|
Interest cost on benefit obligation
|
25,421
|
|
|
783
|
|
|
27,779
|
|
|
941
|
|
Expected return on plan assets
|
(44,549
|
)
|
|
—
|
|
|
(42,417
|
)
|
|
—
|
|
Amortization of prior service cost
|
479
|
|
|
(883
|
)
|
|
1,660
|
|
|
(908
|
)
|
Amortization of actuarial loss
|
15,381
|
|
|
95
|
|
|
17,620
|
|
|
125
|
|
Total non-operating expenses (credit)
|
(3,268
|
)
|
|
(5
|
)
|
|
4,642
|
|
|
158
|
|
Total expense (benefit) for retirement plans
|
$
|
(2,666
|
)
|
|
$
|
50
|
|
|
$
|
5,462
|
|
|
$
|
210
|
|
During the
three months ended March 31, 2018
, we contributed
$10.5 million
and
$3.3 million
to our pension and other post-retirement plans, respectively. We expect to contribute approximately
$25.0 million
to the GRP in each of the fiscal years
2018
through 2020 and
$15.0 million
in 2021. We also expect to contribute approximately
£15.0 million
per year to the U.K. Pension Plans from 2018 through 2022.
NOTE 7 — Income taxes
Our reported effective income tax rate on pre-tax loss was
25.6%
for the
three months ended March 31, 2018
compared to
69.8%
on pre-tax loss for the
three months ended March 26, 2017
. In the case of pre-tax losses, favorable permanent differences such as excess stock compensation and a favorable audit settlement that resulted in the release of tax reserves have the effect of increasing the tax benefit which, in turn, increases the effective tax rate. The Company had lower favorable permanent differences such as excess stock compensation and lower favorable release of tax reserves for the
three months ended March 31, 2018
versus the
three months ended March 26, 2017
; this, combined with the effects of the lower federal statutory rate, resulted in a lower effective tax rate.
Our quarterly effective rate is calculated in part based on full year forecasted income. During
2017
, over
50%
of full year forecasted income was earned in foreign jurisdictions where the income tax rate is lower than in the U.S. The lower domestic income for
2017
was attributable to higher domestic expenses, including public company costs, restructuring charges, and asset impairments relative to comparable corporate expenses incurred in foreign jurisdictions. The mix of income generated from lower tax rate foreign jurisdictions relative to U.S. domestic income had the effect of decreasing our tax expense and our effective rate during
2017
. In contrast, we are forecasting higher U.S. income relative to our foreign jurisdictions during
2018
.
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 a reduction of the corporate tax rate from
35%
to
21%
, limitation of the tax deduction for interest expense to
30%
of earnings, limitation of the deduction for net operating losses (generated after
2017
) to
80%
of current year taxable income, elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether offshore earnings are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. The Tax Act also includes certain provisions that will offset the benefits of the rate reduction such as repeal of the domestic production deduction and disallowance of the deduction of performance based officers’ compensation in excess of
$1 million
.
In
December 2017
, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. As of
March 31, 2018
, we have not completed our accounting for the tax effects of the enactment of the Tax Act; however, where possible, as described herein, we have made a reasonable estimate of the effects on our existing deferred tax balances and related items and other tax liabilities. In
2017
, 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. However, this remeasurement is based on estimates 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 these changes, including the impact on our
2017
tax return filing positions throughout the year, we will update our provisional amounts for this remeasurement.
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was approximately
$29.9 million
as of
March 31, 2018
and
$30.1 million
as of
December 31, 2017
. The amount of accrued interest and penalties payable related to unrecognized tax benefits was
$1.1 million
as of
March 31, 2018
and
$0.9 million
as of
December 31, 2017
.
It is reasonably possible that the amount of unrecognized benefits with respect to certain of our unrecognized tax positions will 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 other regulatory developments. At this time, we estimate the amount of gross unrecognized tax positions may be reduced by up to approximately
$3.4 million
within the next 12 months primarily due to lapses of statutes of limitations and settlements of ongoing audits in various jurisdictions.
NOTE 8 — Supplemental equity information
The following table summarizes equity account activity:
|
|
|
|
|
|
|
|
|
In thousands
|
Three months ended
|
|
March 31, 2018
|
|
March 26, 2017
|
Balance at beginning of period
|
$
|
1,017,395
|
|
|
$
|
856,761
|
|
Comprehensive income:
|
|
|
|
Net loss
|
(377
|
)
|
|
(2,079
|
)
|
Other comprehensive income
|
19,875
|
|
|
12,341
|
|
Total comprehensive income
|
19,498
|
|
|
10,262
|
|
Dividends declared
|
(17,935
|
)
|
|
(18,177
|
)
|
Stock-based compensation
|
4,652
|
|
|
5,125
|
|
Other activity
|
(5,158
|
)
|
|
(3,434
|
)
|
Balance at end of period
|
$
|
1,018,452
|
|
|
$
|
850,537
|
|
Changes in our common stock balance consist entirely of new shares issued for the settlement of employee stock awards. Approximately
1.1 million
and
0.7 million
new shares were issued for the
three months ended
March 31, 2018
and
March 26, 2017
, respectively.
The following table summarizes the components of, and the changes in, Accumulated other comprehensive loss (net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
Retirement Plans
|
|
Foreign Currency Translation
|
|
Total
|
Balance at December 31, 2017
|
$
|
(1,000,790
|
)
|
|
$
|
344,273
|
|
|
$
|
(656,517
|
)
|
Other comprehensive income (loss) before reclassifications
|
(10,868
|
)
|
|
19,374
|
|
|
8,506
|
|
Amounts reclassified from accumulated other comprehensive loss
|
11,369
|
|
|
—
|
|
|
11,369
|
|
Other comprehensive income
|
501
|
|
|
19,374
|
|
|
19,875
|
|
Balance at March 31, 2018
|
$
|
(1,000,289
|
)
|
|
$
|
363,647
|
|
|
$
|
(636,642
|
)
|
|
|
|
|
|
|
Balance at December 25, 2016
|
$
|
(1,183,196
|
)
|
|
$
|
300,284
|
|
|
$
|
(882,912
|
)
|
Other comprehensive income (loss) before reclassifications
|
(5,385
|
)
|
|
5,828
|
|
|
443
|
|
Amounts reclassified from accumulated other comprehensive loss
|
11,898
|
|
|
—
|
|
|
11,898
|
|
Other comprehensive income
|
6,513
|
|
|
5,828
|
|
|
12,341
|
|
Balance at March 26, 2017
|
$
|
(1,176,683
|
)
|
|
$
|
306,112
|
|
|
$
|
(870,571
|
)
|
Accumulated other comprehensive loss components are included in computing net periodic postretirement costs as outlined in
Note 6 — Pensions and other postretirement benefit plans
. Reclassifications out of accumulated other comprehensive loss related to these postretirement plans include the following:
|
|
|
|
|
|
|
|
|
In thousands
|
Three months ended
|
|
March 31, 2018
|
|
March 26, 2017
|
Amortization of prior service credit, net
|
$
|
(404
|
)
|
|
$
|
752
|
|
Amortization of actuarial loss
|
15,476
|
|
|
17,745
|
|
Total reclassifications, before tax
|
15,072
|
|
|
18,497
|
|
Income tax effect
|
(3,703
|
)
|
|
(6,599
|
)
|
Total reclassifications, net of tax
|
$
|
11,369
|
|
|
$
|
11,898
|
|
NOTE 9 — Fair value measurement
We measure and record certain assets and liabilities at fair value. A fair value measurement is determined based on market assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require use of our own estimates and assumptions through present value and other valuation techniques in determination of fair value (Level 3).
As of
March 31, 2018
and
December 31, 2017
, 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, which approximates fair value, in the
Condensed consolidated balance sheets
and is classified as Level 3.
We also have certain assets requiring fair value measurement on a non-recurring basis. Our assets measured on a nonrecurring basis are assets held for sale, which are classified as Level 3 assets and evaluated using executed purchase agreements, letters of intent, or third-party valuation analyses when certain circumstances arise. Assets held for sale totaled
$20.8 million
as of
March 31, 2018
and
$18.9 million
as of
December 31, 2017
.
NOTE 10 — 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 estimated settlements are reflected in our financial statements as of
March 31, 2018
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.
NOTE 11 — Loss per share
Basic and diluted weighted average number of shares outstanding were
112,756,000
and
113,495,000
for the
three months ended
March 31, 2018
and
March 26, 2017
, respectively. Additionally, outstanding common stock equivalents of
3,095,000
and
1,778,000
were excluded from the computation of diluted loss per share for the
three months ended
March 31, 2018
and
March 26, 2017
, respectively, because their effect would have been anti-dilutive due to the net losses in each period.
On
February 28, 2018
, we declared a dividend of
$0.16
per share of common stock, which was paid on
March 26, 2018
, to shareholders of record as of the close of business on
March 12, 2018
. Furthermore, on
May 8, 2018
, we declared a dividend of
$0.16
per share of common stock, payable on
June 25, 2018
, to shareholders of record as of the close of business on
June 11, 2018
.
NOTE 12 — 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 local, classified, and national advertising revenues consisting of both print and digital advertising, circulation revenues from the distribution of our publications on our digital platforms, home delivery of our publications, single copy sales, and other revenues from commercial printing and distribution arrangements. The publishing reportable segment is an aggregation of
two
operating segments: domestic publishing and the U.K.
|
|
|
•
|
ReachLocal, which consists exclusively of our ReachLocal digital marketing solutions subsidiaries. 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
|
Three months ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Advertising - external sales
|
|
$
|
314,223
|
|
|
$
|
85,302
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
399,525
|
|
Advertising - intersegment sales
|
|
12,767
|
|
|
—
|
|
|
—
|
|
|
(12,767
|
)
|
|
—
|
|
Circulation
|
|
266,586
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
266,586
|
|
Other - external sales
|
|
43,678
|
|
|
11,186
|
|
|
1,976
|
|
|
—
|
|
|
56,840
|
|
Other - intersegment sales
|
|
1,406
|
|
|
—
|
|
|
—
|
|
|
(1,406
|
)
|
|
—
|
|
Total revenues
|
|
$
|
638,660
|
|
|
$
|
96,488
|
|
|
$
|
1,976
|
|
|
$
|
(14,173
|
)
|
|
$
|
722,951
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
77,758
|
|
|
$
|
6,209
|
|
|
$
|
(28,899
|
)
|
|
$
|
—
|
|
|
$
|
55,068
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 26, 2017
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
365,085
|
|
|
$
|
70,482
|
|
|
$
|
(52
|
)
|
|
$
|
—
|
|
|
$
|
435,515
|
|
Circulation
|
|
283,286
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
283,286
|
|
Other
|
|
46,553
|
|
|
7,083
|
|
|
1,020
|
|
|
—
|
|
|
54,656
|
|
Total revenues
|
|
$
|
694,924
|
|
|
$
|
77,565
|
|
|
$
|
968
|
|
|
$
|
—
|
|
|
$
|
773,457
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
91,664
|
|
|
$
|
3,146
|
|
|
$
|
(25,129
|
)
|
|
$
|
—
|
|
|
$
|
69,681
|
|
The following table presents our reconciliation of adjusted EBITDA to net income:
|
|
|
|
|
|
|
|
|
In thousands
|
Three months ended
|
|
March 31, 2018
|
|
March 26, 2017
|
Net loss (GAAP basis)
|
$
|
(377
|
)
|
|
$
|
(2,079
|
)
|
Benefit for income taxes
|
(129
|
)
|
|
(5,030
|
)
|
Interest expense
|
4,478
|
|
|
4,255
|
|
Other non-operating items, net
|
(4,311
|
)
|
|
3,887
|
|
Operating income (loss) (GAAP basis)
|
(339
|
)
|
|
1,033
|
|
Depreciation and amortization
|
40,252
|
|
|
46,817
|
|
Restructuring costs
|
9,299
|
|
|
12,551
|
|
Asset impairment charges
|
3,756
|
|
|
3,778
|
|
Acquisition-related items
|
924
|
|
|
1,023
|
|
Other items
|
1,176
|
|
|
4,479
|
|
Adjusted EBITDA (non-GAAP basis)
|
$
|
55,068
|
|
|
$
|
69,681
|
|
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 condensed consolidated financial statements, are not part of operating income and are primarily recorded at the corporate level.
NOTE 13 — Subsequent events
Convertible Debt Offering
On
April 9, 2018
, we completed an offering of
4.75%
convertible senior notes, with an initial offering size of
$175.0 million
aggregate principal amount. As part of the offering, the initial purchaser of the notes exercised its option to purchase an additional
$26.3 million
aggregate principal amount of notes, resulting in total aggregate principal of
$201.3 million
and net proceeds of approximately
$195.0 million
. These proceeds were used to pay down outstanding borrowings under our revolving credit facility.
Interest on the notes is payable semi-annually in arrears. The notes mature on
April 15, 2024
with the earliest redemption date being
April 15, 2022
. The stated conversion rate of the notes is
82.4572
shares per
$1,000
in principal.