GANNETT CO., INC. MCLEAN, Va., July 22, 2014 /PRNewswire/ -- Highlights for the quarter include the following:
-- Overall company revenue growth of 12 percent, pro forma revenue growth
of 2 percent
-- Strong Broadcasting Segment revenue increased 88 percent, a 13 percent
increase on a pro forma basis
-- Adjusted EBITDA rose 28 percent to $354 million driven by strong
Broadcasting and Digital Segment results
-- Free Cash Flow of $307 million, 78 percent year-over-year increase
Gannett Co., Inc. (NYSE: GCI) today reported non-GAAP earnings per diluted share of $0.67 for the second quarter compared to $0.58 for the second quarter of 2013, a 15.5 percent increase. The company's acquisition of Belo Corp. drove significant growth in Broadcasting Segment results while the Digital and Publishing Segments also contributed to strongly profitable results for the quarter.
Gracia Martore, president and chief executive officer, said, "Our very strong second quarter results reflect the outstanding progress we've made in our strategic transformation, positioning Gannett to compete effectively in today's multi-media landscape. Our expanded broadcast portfolio drove overall company margin expansion during the quarter, as we continue to transform Gannett into a higher margin, higher growth business. In fact, our Broadcasting and Digital Segments generated approximately two-thirds of our Adjusted EBITDA during the quarter. However, the pressure on national advertising across media impacted results for our Publishing and Broadcasting Segments in the quarter."
Martore continued, "We generated over $300 million in free cash flow during the quarter from the strength of our operations as well as the proceeds from the sale of Apartments.com. We are confident that we'll continue to generate healthy levels of cash, which - coupled with our strong balance sheet - provide us with ample financial flexibility to continue to invest in our transformation to bolster continued growth. Looking toward the rest of 2014, we anticipate very strong political advertising demand in the third and fourth quarters and we are well positioned to capture a significant portion of that revenue opportunity."
CONTINUING OPERATIONS
On April 1, 2014, Classified Ventures completed its sale of Apartments.com. Gannett owns a 26.9 percent interest in Classified Ventures and, as a result, received a cash distribution of $155 million in proceeds from Classified Ventures. On June 19, 2014, the company and Sander Media LLC announced the completion of the previously announced sale of KTVK-TV and KASW-TV in Phoenix for $231 million. The total purchase price of the television station sales including KMOV-TV in St. Louis was approximately $408 million. The company's previously announced acquisition of six of London Broadcasting Company's television stations in Texas for $215 million was completed on July 8, 2014.
Total operating revenues in the second quarter were 12.1 percent higher compared to the second quarter in 2013 and totaled $1.46 billion. The increase reflects Broadcasting Segment revenue growth of approximately 88 percent, due primarily to the acquisition of Belo Corp. and 4.2 percent growth in Digital Segment revenues. Publishing Segment revenues were 4.1 percent lower in the quarter. Total company revenue on a pro forma basis, had Gannett owned the Belo television stations during the same quarter last year and excluding results for Captivate and the impact of the sale of Apartments.com, were 1.5 percent higher in the quarter.
Net income attributable to Gannett on a non-GAAP basis was $154.6 million in the quarter, 14.4 percent higher compared to the second quarter of 2013. Operating income on the same basis grew 28.4 percent to $294.2 million reflecting primarily the expansion of our television station portfolio. Adjusted EBITDA (a non-GAAP term detailed in Table 2) was substantially higher in the quarter, up 27.6 percent to $353.5 million compared to $276.9 million in second quarter of 2013.
Special items in the second quarter of 2014 include: operating charges of $51.7 million ($0.16 per share) representing primarily workforce restructuring, other transformation costs and asset impairments; non-operating income of $143.5 million ($0.39 per share) reflecting principally the pre-tax gain from the sale of Apartments.com. Special items in the second quarter of 2013 totaled $35.7 million ($0.10 per share) due primarily to workforce restructuring charges and transformation costs.
The table below details second quarter results on a GAAP and non-GAAP basis.
Dollars in thousands, except per share amounts
GAAP Measure Special Items Non-GAAP Measure
------------ ------------- ----------------
Thirteen Workforce Other Asset Non- Thirteen
restructuring transformation impairment operating
weeks ended costs items weeks ended
Jun. 29, Jun. 29,
2014 2014
---- ----
Operating income $242,502 $22,917 $12,588 $16,187 $ - $294,194
Equity income in unconsolidated investees, 156,540 - - - (147,990) 8,550
net
Other non-operating items (2,982) - - - 4,480 1,498
Income before income taxes 331,912 22,917 12,588 16,187 (143,510) 240,094
Provision for income taxes 106,000 8,600 4,900 800 (52,300) 68,000
Net income 225,912 14,317 7,688 15,387 (91,210) 172,094
Net income attributable to Gannett Co., Inc. 208,467 14,317 7,688 15,387 (91,210) 154,649
Net income per share - diluted $0.90 $0.06 $0.03 $0.07 $(0.39) $0.67
Operating expenses including special charges noted above totaled $1.22 billion in the quarter compared to $1.10 billion in the second quarter of 2013. The 10.7 percent increase reflects the Belo acquisition primarily. On a non-GAAP basis, operating expenses were up 8.6 percent to $1.17 billion. Pro forma non-GAAP operating expenses declined almost 1 percent compared to the second quarter in 2013. A decline in Publishing Segment expenses which reflects the impact of cost control and efficiency efforts were partially offset by increases in Broadcasting and Digital Segment expenses supporting revenue growth.
BROADCASTING
Broadcasting Segment revenues of $398.3 million were almost 88 percent higher in the quarter compared to the second quarter last year. The increase reflects the impact of the Belo acquisition in addition to substantially higher retransmission revenue and political advertising across all of our stations.
The following table summarizes the year-over-year changes in select revenue categories. Digital revenues are included in the "Other" category.
Broadcasting Revenue Detail
Dollars in thousands
Thirteen weeks Percentage change from
thirteen
ended June 29, weeks ended June 30, 2013
2014
----
Reported Pro Forma
(a)
-------- ----------
Core (Local & National) $261,551 74% (2%)
Political 16,569 *** ***
Retransmission (b) 88,654 141% 67%
Other 31,484 40% 10%
Total $398,258 88% 13%
======== === ===
(a) The pro forma figures are presented as if the acquisition of Belo Corp. and the Captivate disposition occurred at the beginning of 2013.
(b) Reverse compensation to network affiliates is included as part of programming costs and therefore not included in this line.
Broadcasting Segment revenues on a pro forma basis were up 13.4 percent compared to the second quarter in 2013. On the same basis, retransmission revenues were 66.6 percent higher and totaled $88.7 million. Politically related advertising revenue reached $16.6 million compared to $2.8 million in the second quarter a year ago. Pro forma digital revenues in the Broadcasting Segment were 15.2 percent higher in the quarter reflecting increasing traction from digital marketing services products. National advertising trends impacted core revenue in the quarter resulting in a 2.0 percent decline compared to the second quarter in 2013. An increase of almost 1 percent in local revenue was more than offset by a 7.3 percent decline in national revenue.
Broadcasting Segment non-GAAP operating expenses totaled $221.6 million in the quarter, up 3.1 percent on a pro forma basis, due in large part to higher reverse network compensation and digital initiative investments. Non-GAAP operating income was $176.7 million while Adjusted EBITDA totaled $194.2 million, increases of 80.1 percent and 84.8 percent, respectively, compared to the second quarter last year. On a pro forma basis, non-GAAP operating income was up significantly, 29.6 percent, and Adjusted EBITDA increased 26.0 percent.
Based on current trends and including a full quarter of results for the former Belo stations, we expect the percentage increase in total television revenues for the third quarter of 2014 to be in the high nineties compared to the third quarter of 2013. On a pro forma basis, the percentage increase in total television revenues in the third quarter of 2014 is projected to be in the high teens compared to the third quarter of 2013.
PUBLISHING
Publishing Segment revenues in the quarter totaled $867.4 million, a 4.1 percent decline compared to $904.2 million in the second quarter of 2013. On a pro forma basis, which excludes the impact of the sale of Apartments.com, Publishing Segment revenues were 3.7 percent lower. The decline reflects continued pressure on advertising demand, particularly domestic national advertising, partially offset by higher revenue associated with digital advertising and marketing solutions.
Advertising revenues were $530.2 million, a 5.7 percent decline compared to $562.5 million in the second quarter of 2013. Pro forma advertising revenues were 5.1 percent lower. On the same basis, retail and classified advertising comparisons in the second quarter were better than first quarter year-over-year comparisons. Employment advertising was up 1.3 percent in the quarter. Excluding national advertising, which was 16.3 percent lower in the quarter, advertising revenue year-over-year comparisons improved sequentially.
Advertising revenue at Newsquest was virtually flat, in pounds, as national advertising was 8.9 percent higher and retail advertising was unchanged. Year-over-year comparisons, in pounds, for all the major advertising categories improved relative to first quarter comparisons. A summary of the year-over-year percent change for each of the company's advertising categories can be found on Table 3.
Circulation revenues were $277.9 million, down just 0.6 percent from $279.7 million in the second quarter in 2013. An increase in circulation revenue at Newsquest was offset by circulation revenue declines at domestic publishing operations. At local domestic publishing sites, home delivery circulation revenue was up in the quarter due, in part, to strategic pricing actions associated with enhanced content.
Pro forma Publishing Segment digital revenues were up 6.9 percent in the quarter reflecting growth in digital marketing solutions and digital advertising. At Newsquest, digital revenues were 24.6 percent higher in local currency while digital revenues at USA TODAY and its associated businesses increased 13.7 percent. Pro forma digital revenues at local domestic publishing operations were up 4.3 percent.
Non-GAAP Publishing Segment operating expenses were $767.8 million in the quarter, a decline of 3.2 percent due largely to continuing cost efficiency efforts.
Operating income on a non-GAAP basis totaled $99.6 million in the quarter while Adjusted EBITDA was $127.1 million.
DIGITAL
Digital Segment operating revenues totaled $194.4 million, a 4.2 percent increase from the second quarter in 2013. The revenue growth was driven primarily by higher revenues at CareerBuilder reflecting strong sales of its human capital software-as-a-service products. Operating expenses in the Digital Segment were 4.9 percent higher as CareerBuilder continued to invest in its sales staff expansion as well as technology support for its human capital software solutions. Digital Segment operating income was $35.7 million in the quarter and Adjusted EBITDA was $45.3 million.
Pro forma digital revenues company-wide, including the Digital Segment and all digital revenues generated by the other business segments, reached $396.9 million, an increase of 6.0 percent. Higher revenue associated with CareerBuilder, digital marketing solutions products and digital advertising drove the increase.
At the end of the quarter, Gannett had approximately 120 domestic web sites affiliated with its local publishing and television markets, USA TODAY, Gannett Government Media and Gannett Healthcare Group. In June, Gannett's consolidated domestic Internet audience was 57.5 million unique visitors reaching 25.2 percent of the Internet audience, according to comScore Media Metrix. USATODAY.com is one of the most popular news sites and the USA TODAY app is a top news app with 20.3 million downloads across iPad, iPhone, Android, Windows and Kindle Fire. USA TODAY mobile visitors continued to grow in June and nearly doubled from June 2013 to approximately 40 million with a 40 percent increase in mobile visitor reach to 23 percent, according to comScore Mobile Metrix. Newsquest is also an Internet leader in the UK where its network of web sites attracted 119.8 million monthly page impressions from approximately 17.8 million unique users in June 2014.
NON-OPERATING ITEMS
The company's equity earnings include its share of operating results from unconsolidated investees including the California Newspapers Partnership, Texas-New Mexico Newspapers Partnership, Tucson newspaper partnership and other online/digital businesses including Classified Ventures.
Equity income in unconsolidated investees totaled $156.5 million in the quarter reflecting primarily the gain from the sale of Apartments.com. Excluding special items in the quarter equity income was $8.6 million, a 9.3 percent decline compared to $9.4 million in the second quarter of 2013.
Interest expense was $64.1 million in the quarter compared to $36.2 million in the second quarter of 2013 reflecting debt issuance associated with the Belo acquisition offset, in part, by a lower average interest rate. Excluding special items, other non-operating income in the quarter would have been $1.5 million compared to an expense of $0.3 million in the second quarter of 2013.
Net cash flow from operating activities was $188.9 million in the quarter. Free cash flow (a non-GAAP measure) totaled $307.1 million, a 77.7 percent increase from the second quarter of 2013. The increase reflects the sale of Apartments.com offset by $41.3 million in pension contributions during the quarter. The balance of long-term debt was $3.45 billion and total cash was $430.7 million at quarter end.
During the second quarter, the company purchased approximately 1.4 million shares for $37.9 million.
USE OF NON-GAAP INFORMATION
The company uses non-GAAP financial performance and liquidity measures to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures should not be considered in isolation from or as a substitute for the related GAAP measures, and should be read together with financial information presented on a GAAP basis.
The company discusses in this report non-GAAP financial performance measures that exclude from its reported GAAP results the impact of special items consisting of workforce restructuring charges, transformation costs, non-cash asset impairment charges, certain gains and expenses recognized in non-operating categories and certain credits and charges to its income tax provision.
The company believes that such expenses, charges and credits are not indicative of normal, ongoing operations and their inclusion in results makes for more difficult comparisons between years and with peer group companies. Workforce restructuring and transformation expenses primarily relate to incremental expenses the company has incurred to consolidate or outsource production processes and centralize other functions. Workforce restructuring expenses include payroll and related benefit costs. It also includes charges related to the company's partial withdrawal from certain multi-employer pension plans. Other transformation costs include incremental expenses incurred by the company to execute on its transformation and growth plan, including those related to the company's recently completed Belo acquisition and incremental expenses associated with optimizing the company's real estate portfolio. Transformation costs also include amortization of acquired advertising contracts. In connection with the acquisition of Belo, Gannett recognized intangible assets for Belo's advertising contracts. Unlike most intangible assets which have useful lives of several years, these intangible assets had a benefit period and related amortization period that is less than three months from the date of acquisition. Asset impairment charges reflect non-cash charges to reduce the book value of certain intangible assets to their respective fair value, as the company's projections for the business underlying the related asset had declined.
The company's non-operating results for 2014 and 2013 included a gain and certain expenses that the company considers special and not indicative of normal ongoing operations:
-- The company recognized a pretax gain of $148 million related to the
Classified Ventures sale of its Apartments.com business. The company
owns a minority stake in Classified Ventures. This gain is reflected in
the line Equity income in unconsolidated investees, net.
-- Other non-operating items for 2014 included special charges primarily
related to the early retirement of the company's 9.375% notes due in
2017. The charges included a call premium paid as well as the write off
of unamortized debt issuance costs and original issue discount.
-- Other non-operating items for 2013 includes Belo acquisition related
expenses and a currency loss related to the weakening of the British
pound associated with the downgrade of the U.K. sovereign credit rating.
The income tax provision for 2014 year to date reflects a special charge of $23.8 million related to Gannett's sale of its interest in television station KMOV-TV in St. Louis, MO, in February 2014. The income tax provision for 2013 year to date included special credits related to reserve releases as a result of federal and state exam resolutions.
The company also discusses Adjusted EBITDA, a non-GAAP financial performance measure that it believes offers a useful view of the overall operation of its businesses. Adjusted EBITDA is defined as net income attributable to Gannett before (1) net income attributable to noncontrolling interests, (2) income taxes, (3) interest expense, (4) equity income, (5) other non-operating items, (6) workforce restructuring, (7) other transformation costs, (8) asset impairment charges, (9) depreciation and (10) amortization. When Adjusted EBITDA is discussed in reference to performance on a consolidated basis, the most directly comparable GAAP financial measure is Net income attributable to Gannett. Management does not analyze non-operating items such as interest expense and income taxes on a segment level; therefore, the most directly comparable GAAP financial measure to Adjusted EBITDA when performance is discussed on a segment level is Operating income. This earnings report also discusses free cash flow, a non-GAAP liquidity measure. Free cash flow is defined as "net cash flow from operating activities" as reported on the statement of cash flows reduced by "purchase of property, plant and equipment" as well as "payments for investments" and increased by "proceeds from investments." The company believes that free cash flow is a useful measure for management and investors to evaluate the level of cash generated by operations and the ability of its operations to fund investments in new and existing businesses, return cash to shareholders under the company's capital program, repay indebtedness, add to the company's cash balance, or use in other discretionary activities. Management uses free cash flow to monitor cash available for repayment of indebtedness and in its discussions with the investment community.
Management uses non-GAAP financial performance measures for purposes of evaluating business unit and consolidated company performance. The company therefore believes that each of the non-GAAP measures presented provides useful information to investors by allowing them to view the company's businesses through the eyes of management and the Board of Directors, facilitating comparison of results across historical periods and providing a focus on the underlying ongoing operating performance of its businesses. In addition, many of the company's peer group companies present similar non-GAAP measures so the presentation of such measures facilitates industry comparisons. Tabular reconciliations for the non-GAAP financial measures are contained in Tables 4 through 8 attached to this news release.
As previously announced, the company will hold an earnings conference call at 10:00 a.m. ET today. The call can be accessed via a live webcast through the company's web site, www.gannett.com, or listen-only conference lines. U.S. callers should dial 800-946-0786 and international callers should dial 719-325-2132 at least 10 minutes prior to the scheduled start of the call. The confirmation code for the conference call is 3951575. To access the replay, dial 1-888-203-1112 in the U.S. International callers should use the number 719-457-0820. The confirmation code for the replay is 3951575. Materials related to the call will be available through the Investor Relations section of the company's web site Tuesday morning.
About Gannett
Gannett Co., Inc. is an international media and marketing solutions company that informs and engages more than 100 million people every month through its powerful network of broadcast, digital, mobile and publishing properties. Our portfolio of trusted brands offers marketers unmatched local-to-national reach and customizable, innovative marketing solutions across any platform. Gannett is committed to connecting people - and the companies who want to reach them - with their interests and communities. For more information, visit www.gannett.com.
Certain statements in this press release may be forward looking in nature or "forward looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The forward looking statements contained in this press release are subject to a number of risks, trends and uncertainties that could cause actual performance to differ materially from these forward looking statements. A number of those risks, trends and uncertainties are discussed in the company's SEC reports, including the company's annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward looking statements in this press release should be evaluated in light of these important risk factors.
Gannett is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this press release by wire services, Internet service providers or other media.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands (except per share amounts)
Table No. 1
Thirteen Thirteen % Increase
weeks ended weeks ended (Decrease)
Jun. 29, 2014 Jun. 30, 2013
------------- -------------
Net operating revenues:
Broadcasting $398,258 $211,962 87.9
Publishing advertising 530,183 562,476 (5.7)
Publishing circulation 277,851 279,655 (0.6)
All other Publishing 59,331 62,100 (4.5)
Digital 194,381 186,506 4.2
Total 1,460,004 1,302,699 12.1
--------- --------- ----
Operating expenses:
Cost of sales and operating
expenses, exclusive of
depreciation 775,627 726,869 6.7
Selling, general and
administrative expenses,
exclusive of 353,779 320,615 10.3
depreciation
Depreciation 44,850 38,467 16.6
Amortization of intangible
assets 14,471 9,368 54.5
Facility consolidation and
asset impairment charges 28,775 4,498 ***
------ -----
Total 1,217,502 1,099,817 10.7
Operating income 242,502 202,882 19.5
------- ------- ----
Non-operating (expense) income:
Equity income in unconsolidated
investees, net 156,540 9,424 ***
Interest expense (64,148) (36,174) 77.3
Other non-operating items (2,982) (9,791) (69.5)
------ ------
Total 89,410 (36,541) ***
------ ------- ---
Income before income taxes 331,912 166,341 99.5
Provision for income taxes 106,000 39,600 ***
------- ------
Net income 225,912 126,741 78.2
Net income attributable to
noncontrolling interests (17,445) (13,121) 33.0
------- -------
Net income attributable to
Gannett Co., Inc. $208,467 $113,620 83.5
======== ======== ====
Net income per share - basic $0.92 $0.50 84.0
Net income per share - diluted $0.90 $0.48 87.5
Weighted average number of
common shares outstanding:
Basic 226,132 228,837 (1.2)
Diluted 232,106 234,636 (1.1)
Dividends declared per share $0.20 $0.20 -
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands (except per share amounts)
Twenty-six Twenty-six % Increase
weeks ended weeks ended (Decrease)
Table No. 1
(continued) Jun. 29, 2014 Jun. 30, 2013
------------- -------------
Net operating
revenues:
Broadcasting $780,526 $403,542 93.4
Publishing advertising 1,031,483 1,088,975 (5.3)
Publishing circulation 559,927 565,627 (1.0)
All other Publishing 118,018 120,862 (2.4)
Digital 374,116 361,428 3.5
Total 2,864,070 2,540,434 12.7
--------- --------- ----
Operating expenses:
Cost of sales and
operating expenses,
exclusive of
depreciation 1,543,159 1,446,593 6.7
Selling, general and
administrative
expenses, exclusive
of 708,992 634,730 11.7
depreciation
Depreciation 89,614 77,393 15.8
Amortization of
intangible assets 32,214 18,496 74.2
Facility consolidation
and asset impairment
charges 43,595 9,283 ***
------ -----
Total 2,417,574 2,186,495 10.6
Operating income 446,496 353,939 26.2
------- ------- ----
Non-operating
(expense) income:
Equity income in
unconsolidated
investees, net 165,031 17,218 ***
Interest expense (133,796) (71,579) 86.9
Other non-operating
items (23,730) (11,374) ***
------- -------
Total 7,505 (65,735) ***
----- ------- ---
Income before income
taxes 454,001 288,204 57.5
Provision for income
taxes 158,500 45,000 ***
------- ------
Net income 295,501 243,204 21.5
Net income
attributable to
noncontrolling
interests (27,875) (25,019) 11.4
------- -------
Net income
attributable to
Gannett Co., Inc. $267,626 $218,185 22.7
======== ======== ====
Net income per share -
basic $1.18 $0.95 24.2
Net income per share -
diluted $1.15 $0.93 23.7
Weighted average
number of common
shares outstanding:
Basic 226,681 229,116 (1.1)
Diluted 232,187 234,866 (1.1)
Dividends declared per
share $0.40 $0.40 -
BUSINESS SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Table No. 2
Thirteen Thirteen % Increase
weeks ended weeks ended (Decrease)
Jun. 29, 2014 Jun. 30, 2013
------------- -------------
Net operating revenues:
Broadcasting $398,258 $211,962 87.9
Publishing 867,365 904,231 (4.1)
Digital 194,381 186,506 4.2
Total $1,460,004 $1,302,699 12.1
========== ========== ====
Operating income (net of depreciation, amortization and
facility consolidation and asset impairment charges):
Broadcasting $171,322 $98,092 74.7
Publishing 53,239 85,192 (37.5)
Digital 35,695 35,277 1.2
Corporate (17,754) (15,679) 13.2
Total $242,502 $202,882 19.5
======== ======== ====
Depreciation, amortization and facility consolidation and asset impairment charges:
Broadcasting $20,621 $6,974 ***
Publishing 53,123 31,415 69.1
Digital 9,603 9,383 2.3
Corporate 4,749 4,561 4.1
---
Total $88,096 $52,333 68.3
======= ======= ====
Adjusted EBITDA (a):
Broadcasting $194,163 $105,066 84.8
Publishing 127,059 138,334 (8.2)
Digital 45,298 44,660 1.4
Corporate (13,005) (11,118) 17.0
Total $353,515 $276,942 27.6
======== ======== ====
(a) "Adjusted EBITDA" is a non-GAAP measure used by management to measure, analyze and compare the performance of its business segment operations at a more detailed level and in a meaningful and consistent manner. The definition of "Adjusted EBITDA" is provided in Table
No. 5, along with reconciliations to the most directly comparable financial measure calculated and presented in accordance with GAAP on the company's condensed consolidated statements of income.
BUSINESS SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Table No. 2 (continued) Twenty-six Twenty-six % Increase
(Decrease)
weeks ended weeks ended
Jun. 29, 2014 Jun. 30, 2013
------------- -------------
Net operating revenues:
Broadcasting $780,526 $403,542 93.4
Publishing 1,709,428 1,775,464 (3.7)
Digital 374,116 361,428 3.5
Total $2,864,070 $2,540,434 12.7
========== ========== ====
Operating income (net of depreciation, amortization and facility consolidation and asset impairment charges):
Broadcasting $325,871 $181,768 79.3
Publishing 96,227 145,329 (33.8)
Digital 59,519 58,881 1.1
Corporate (35,121) (32,039) 9.6
Total $446,496 $353,939 26.2
======== ======== ====
Depreciation, amortization and facility consolidation and asset impairment charges:
Broadcasting $47,815 $13,909 ***
Publishing 89,714 63,651 40.9
Digital 17,891 18,490 (3.2)
Corporate 10,003 9,122 9.7
Total $165,423 $105,172 57.3
======== ======== ====
Adjusted EBITDA (a):
Broadcasting $375,906 $195,677 92.1
Publishing 210,103 236,073 (11.0)
Digital 77,410 77,371 0.1
Corporate (25,118) (22,917) 9.6
Total $638,301 $486,204 31.3
======== ======== ====
(a) "Adjusted EBITDA" is a non-GAAP measure used by management to measure, analyze and compare the performance of its business segment operations at a more detailed level and in a meaningful and consistent manner. The definition of "Adjusted EBITDA" is provided in Table
No. 5, along with reconciliations to the most directly comparable financial measure calculated and presented in accordance with GAAP on the company's condensed consolidated statements of income.
PUBLISHING SEGMENT REVENUE COMPARISONS
Gannett Co., Inc. and Subsidiaries
Unaudited
Table No. 3
The following percentage changes for the Publishing segment advertising and classified revenue categories are presented as if
the sale of Apartments.com occurred at the beginning of 2013.
Second quarter 2014 year-over-year comparisons:
U.S. Newsquest Total
Publishing (in pounds) Publishing
(including USA Segment
TODAY)
-----
Retail (4.7%) (0.1%) (3.4%)
National (18.5%) 8.9% (16.3%)
Classified:
Automotive (3.5%) (6.1%) (2.8%)
Employment (6.5%) 9.4% 1.3%
Real Estate (4.7%) (9.1%) (2.9%)
Legal (3.7%) -% (3.7%)
Other (8.3%) (4.2%) (4.2%)
Total classified (4.9%) (1.9%) (1.9%)
----- ----- -----
Total advertising (7.3%) (0.5%) (5.1%)
===== ===== =====
Year-to-date 2014 year-over-year comparisons:
U.S. Newsquest Total
Publishing (in pounds) Publishing
(including USA Segment
TODAY)
-----
Retail (5.8%) (2.2%) (4.7%)
National (10.6%) (4.1%) (9.6%)
Classified:
Automotive (2.6%) (5.5%) (2.0%)
Employment (7.4%) 7.4% (0.4%)
Real Estate (4.8%) (9.7%) (3.7%)
Legal (5.3%) -% (5.3%)
Other (9.2%) (6.0%) (5.8%)
----- ----- -----
Total classified (5.5%) (3.1%) (3.0%)
----- ----- -----
Total advertising (6.6%) (2.9%) (5.0%)
===== ===== =====
NON-GAAP FINANCIAL INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
The company uses non-GAAP financial performance and liquidity measures to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures are not to be considered in isolation from or as a substitute for the related GAAP measures and should be read only in conjunction with financial information presented on a GAAP basis.
Tables No. 4 through No. 8 reconcile these non-GAAP measures to the most directly comparable GAAP measure.
Table No. 4
GAAP Special Items Non-GAAP
Measure Measure
------- -------
Thirteen Workforce Other Asset Non- Thirteen
transformation impairment
weeks ended restructuring costs operating weeks ended
items
Jun. 29, 2014 Jun. 29, 2014
------------- -------------
Cost of sales and operating expenses, exclusive of $775,627 $(21,160) $ - $ - $ - $754,467
depreciation
Selling, general and administrative expenses, 353,779 (1,757) - - - 352,022
exclusive of depreciation
Facility consolidation and asset impairment 28,775 - (12,588) (16,187) - -
charges
Operating expenses 1,217,502 (22,917) (12,588) (16,187) - 1,165,810
Operating income 242,502 22,917 12,588 16,187 - 294,194
Equity income in unconsolidated investees, net 156,540 - - - (147,990) 8,550
Other non-operating items (2,982) - - - 4,480 1,498
Total non-operating (expense) income 89,410 - - - (143,510) (54,100)
Income before income taxes 331,912 22,917 12,588 16,187 (143,510) 240,094
Provision for income taxes 106,000 8,600 4,900 800 (52,300) 68,000
Net income 225,912 14,317 7,688 15,387 (91,210) 172,094
Net income attributable to Gannett Co., Inc. 208,467 14,317 7,688 15,387 (91,210) 154,649
Net income per share - diluted $0.90 $0.06 $0.03 $0.07 $(0.39) $0.67
GAAP Special Items Non-GAAP
Measure Measure
------- -------
Thirteen Workforce Other Non-operating
transformation items
costs Thirteen
weeks ended restructuring weeks ended
Jun. 30, 2013 Jun. 30, 2013
------------- -------------
Cost of sales and operating expenses, exclusive of depreciation $726,869 $(18,039) $ - $ - $708,830
Selling, general and administrative expenses, exclusive of depreciation 320,615 (3,688) - - 316,927
Facility consolidation charges 4,498 - (4,498) - -
Operating expenses 1,099,817 (21,727) (4,498) - 1,073,592
Operating income 202,882 21,727 4,498 - 229,107
Other non-operating items (9,791) - - 9,479 (312)
Total non-operating (expense) income (36,541) - - 9,479 (27,062)
Income before income taxes 166,341 21,727 4,498 9,479 202,045
Provision for income taxes 39,600 8,600 1,800 3,800 53,800
Net income 126,741 13,127 2,698 5,679 148,245
Net income attributable to Gannett Co., Inc. 113,620 13,127 2,698 5,679 135,124
Net income per share - diluted (a) $0.48 $0.06 $0.01 $0.02 $0.58
(a) Total per share amount does not sum due to rounding.
NON-GAAP FINANCIAL INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
Table No. 4 (continued)
GAAP Special Items Non-GAAP
Measure Measure
------- -------
Twenty-six Workforce Other Asset Non-operating
transformation impairment items
costs Special tax charge Twenty-six
weeks ended restructuring weeks ended
Jun. 29, 2014 Jun. 29, 2014
------------- -------------
Cost of sales and operating expenses, exclusive of depreciation $1,543,159 $(23,887) $ - $ - $ - $ - $1,519,272
Selling, general and administrative expenses, exclusive of depreciation 708,992 (2,495) - - - - 706,497
Amortization of intangible assets 32,214 - (4,480) - - - 27,734
Facility consolidation and asset impairment charges 43,595 - (27,408) (16,187) - - -
Operating expenses 2,417,574 (26,382) (31,888) (16,187) - - 2,343,117
Operating income 446,496 26,382 31,888 16,187 - - 520,953
Equity income in unconsolidated investees, net 165,031 - - - (147,990) - 17,041
Other non-operating items (23,730) - - - 24,880 - 1,150
Total non-operating (expense) income 7,505 - - - (123,110) - (115,605)
Income before income taxes 454,001 26,382 31,888 16,187 (123,110) - 405,348
Provision for income taxes 158,500 9,800 13,100 800 (44,000) (23,800) 114,400
Net income 295,501 16,582 18,788 15,387 (79,110) 23,800 290,948
Net income attributable to Gannett Co., Inc. 267,626 16,582 18,788 15,387 (79,110) 23,800 263,073
Net income per share - diluted $1.15 $0.07 $0.08 $0.07 $(0.34) $0.10 $1.13
GAAP Special Items Non-GAAP
Measure Measure
------- -------
Twenty-six Workforce Other Non-operating Special tax
transformation items benefits
costs Twenty-six
weeks ended restructuring weeks ended
Jun. 30, 2013 Jun. 30, 2013
------------- -------------
Cost of sales and operating expenses, exclusive of depreciation $1,446,593 $(22,530) $ - $ - $ - $1,424,063
Selling, general and administrative expenses, exclusive of depreciation 634,730 (4,563) - - - 630,167
Facility consolidation charges 9,283 - (9,283) - - -
Operating expenses 2,186,495 (27,093) (9,283) - - 2,150,119
Operating income 353,939 27,093 9,283 - - 390,315
Equity income in unconsolidated investees, net 17,218 - - 731 - 17,949
Other non-operating items (11,374) - - 12,476 - 1,102
Total non-operating (expense) income (65,735) - - 13,207 - (52,528)
Income before income taxes 288,204 27,093 9,283 13,207 - 337,787
Provision for income taxes 45,000 10,700 3,700 4,400 27,800 91,600
Net income 243,204 16,393 5,583 8,807 (27,800) 246,187
Net income attributable to Gannett Co., Inc. 218,185 16,393 5,583 8,807 (27,800) 221,168
Net income per share - diluted $0.93 $0.07 $0.02 $0.04 $(0.12) $0.94
NON-GAAP FINANCIAL INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Table No. 5
"Adjusted EBITDA", a non-GAAP measure, is defined as net income attributable to Gannett before (1) net income attributable to noncontrolling interests, (2) income taxes, (3) interest expense, (4) equity income, (5) other non-operating items, (6) workforce restructuring, (7) other transformation costs, (8) asset impairment charges
(9) depreciation and (10) amortization. When Adjusted EBITDA is discussed in reference to performance on a consolidated basis, the most directly comparable GAAP financial measure to Adjusted EBITDA is Net income. Management does not analyze non-operating items such as interest expense and income taxes on a segment level;
therefore, the most directly comparable GAAP financial measure to Adjusted EBITDA when performance is discussed on a segment level is Operating income. Management believes that use of this measure allows investors and management to measure, analyze and compare the performance of its business segment operations at a more detailed
level and in a meaningful and consistent manner.
Reconciliations of Adjusted EBITDA to the most directly comparable financial measure calculated and presented in accordance with GAAP on the company's condensed consolidated statements of income, follow:
Thirteen weeks ended Jun. 29, 2014:
Broadcasting Publishing Digital Corporate Consolidated
Total
-----
Net income attributable to Gannett Co., Inc. $208,467
(GAAP basis)
Net income attributable to noncontrolling 17,445
interests
Provision for income taxes 106,000
Interest expense 64,148
Equity income in unconsolidated investees, (156,540)
net
Other non-operating items 2,982
Operating income (GAAP basis) $171,322 $53,239 $35,695 $(17,754) $242,502
Workforce restructuring 2,220 20,697 - - 22,917
Other transformation costs 3,109 9,479 - - 12,588
Asset impairment charges - 16,187 - - 16,187
--- ------ --- ---
Adjusted operating income (non-GAAP basis) 176,651 99,602 35,695 (17,754) 294,194
Depreciation 11,627 23,476 4,998 4,749 44,850
Amortization 5,885 3,981 4,605 - 14,471
Adjusted EBITDA (non-GAAP basis) $194,163 $127,059 $45,298 $(13,005) $353,515
======== ======== ======= ======== ========
Thirteen weeks ended Jun. 30, 2013:
Broadcasting Publishing Digital Corporate Consolidated
Total
-----
Net income attributable to Gannett Co., Inc. $113,620
(GAAP basis)
Net income attributable to noncontrolling interests 13,121
Provision for income taxes 39,600
Interest expense 36,174
Equity income in unconsolidated investees, net (9,424)
Other non-operating items 9,791
Operating income (GAAP basis) $98,092 $85,192 $35,277 $(15,679) $202,882
Workforce restructuring - 21,727 - - 21,727
Other transformation costs - 4,498 - - 4,498
--- ----- --- --- -----
Adjusted operating income (non-GAAP basis) 98,092 111,417 35,277 (15,679) 229,107
Depreciation 6,793 22,776 4,337 4,561 38,467
Amortization 181 4,141 5,046 - 9,368
Adjusted EBITDA (non-GAAP basis) $105,066 $138,334 $44,660 $(11,118) $276,942
======== ======== ======= ======== ========
NON-GAAP FINANCIAL INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Table No. 5 (continued)
Twenty-six weeks ended Jun. 29, 2014:
Broadcasting Publishing Digital Corporate Consolidated
Total
-----
Net income attributable to Gannett Co., Inc. $267,626
(GAAP basis)
Net income attributable to noncontrolling interests 27,875
Provision for income taxes 158,500
Interest expense 133,796
Equity income in unconsolidated investees, net (165,031)
Other non-operating items 23,730
Operating income (GAAP basis) $325,871 $96,227 $59,519 $(35,121) $446,496
Workforce restructuring 2,220 24,162 - - 26,382
Other transformation costs 12,865 19,023 - - 31,888
Asset impairment charges - 16,187 - - 16,187
Adjusted operating income (non-GAAP basis) 340,956 155,599 59,519 (35,121) 520,953
Depreciation 23,324 46,736 9,551 10,003 89,614
Adjusted amortization (non-GAAP basis) 11,626 7,768 8,340 - 27,734
Adjusted EBITDA (non-GAAP basis) $375,906 $210,103 $77,410 $(25,118) $638,301
======== ======== ======= ======== ========
Twenty-six weeks ended Jun. 30, 2013:
Broadcasting Publishing Digital Corporate Consolidated
Total
-----
Net income attributable to Gannett Co., Inc. $218,185
(GAAP basis)
Net income attributable to noncontrolling interests 25,019
Provision for income taxes 45,000
Interest expense 71,579
Equity income in unconsolidated investees, net (17,218)
Other non-operating items 11,374
Operating income (GAAP basis) $181,768 $145,329 $58,881 $(32,039) $353,939
Workforce restructuring - 27,093 - - 27,093
Other transformation costs - 9,283 - - 9,283
--- ----- --- --- -----
Adjusted operating income (non-GAAP basis) 181,768 181,705 58,881 (32,039) 390,315
Depreciation 13,547 46,001 8,723 9,122 77,393
Amortization 362 8,367 9,767 - 18,496
Adjusted EBITDA (non-GAAP basis) $195,677 $236,073 $77,371 $(22,917) $486,204
======== ======== ======= ======== ========
NON-GAAP FINANCIAL INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Table No. 6
"Free cash flow" is a non-GAAP liquidity measure used in addition to and in conjunction with results presented in
accordance with GAAP. Free cash flow should not be relied upon to the exclusion of GAAP financial measures.
Free cash flow is defined as "Net cash flow from operating activities" as reported on the statement of cash flows reduced
by "Purchase of property, plant and equipment" as well as "Payments for investments" and increased by "Proceeds from
investments." The company believes that free cash flow is a useful measure for management and investors to evaluate the
level of cash generated by operations and the ability of its operations to fund investments in new and existing
businesses, return cash to shareholders under the company's capital program, repay indebtedness, add to the company's
cash balance, or to use in other discretionary activities. Management uses free cash flow to monitor cash available for
repayment of indebtedness and in its discussions with the investment community.
Thirteen Twenty-six
weeks ended weeks ended
Jun. 29, 2014 Jun. 29, 2014
------------- -------------
Net cash flow
from operating
activities $188,937 $354,939
Purchase of
property,
plant and
equipment (35,054) (56,905)
Payments for
investments (4,318) (5,318)
Proceeds from
investments 157,556 163,315
Free cash flow $307,121 $456,031
======== ========
TAX RATE CALCULATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Table No. 7
The calculations of the company's effective tax rate on a GAAP and non-GAAP basis are below:
GAAP Non-GAAP
---- --------
Thirteen Thirteen Thirteen Thirteen
weeks ended weeks ended weeks ended weeks ended
Jun. 29, 2014 Jun. 30, 2013 Jun. 29, 2014 Jun. 30, 2013
------------- ------------- ------------- -------------
Income before taxes
(per Table 4) $331,912 $166,341 $240,094 $202,045
Noncontrolling
interests (per
Table (17,445) (13,121) (17,445) (13,121)
1)
Income before taxes
attributable to $314,467 $153,220 $222,649 $188,924
Gannett Co., Inc.
Provision for income
taxes (per $106,000 $39,600 $68,000 $53,800
Table 4)
Effective tax rate 33.7% 25.8% 30.5% 28.5%
GAAP Non-GAAP
---- --------
Twenty-six Twenty-six Twenty-six Twenty-six
weeks ended weeks ended weeks ended weeks ended
Jun. 29, 2014 Jun. 30, 2013 Jun. 29, 2014 Jun. 30, 2013
------------- ------------- ------------- -------------
Income before taxes
(per Table 4) $454,001 $288,204 $405,348 $337,787
Noncontrolling
interests (per
Table (27,875) (25,019) (27,875) (25,019)
1)
Income before taxes
attributable to $426,126 $263,185 $377,473 $312,768
Gannett Co., Inc.
Provision for income
taxes (per $158,500 $45,000 $114,400 $91,600
Table 4)
Effective tax rate 37.2% 17.1% 30.3% 29.3%
NON-GAAP FINANCIAL INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Table No. 8
A reconciliation of the company's Broadcasting segment revenues and expenses on an as reported basis to a pro forma basis is below:
Thirteen weeks ended Jun. 30, 2013:
Gannett Belo Pro forma Gannett pro forma
adjustments (a) combined
(as reported) (as reported)
------------ ------------
Broadcasting revenue:
Local/national $150,737 $137,451 $(21,396) $266,792
Political 1,886 1,154 (243) 2,797
Retransmission 36,820 18,811 (2,428) 53,203
Other 22,519 16,091 (10,056) 28,554
------ ------ -------
Total broadcasting
revenue 211,962 173,507 (34,123) 351,346
Broadcasting expenses 113,870 124,521 (23,350) 215,041
Broadcasting operating
income $98,092 $48,986 $(10,773) $136,305
======= ======= ======== ========
(a) The pro forma adjustments include reductions to revenues and expenses for the former Belo stations in Phoenix, AZ and St. Louis, MO totaling $27 million and $21 million, respectively. Subsidiaries of Gannett and Sander
Media, a holding company that has a station-operation agreement with Gannett, agreed to sell these stations upon receiving government approval. KMOV-TV, the television station in St. Louis, was sold in February 2014 and
the two television stations in Phoenix were sold in June 2014. Pro forma adjustments also include reductions to revenues and expenses for Captivate that totaled $7 million and $6 million, respectively, as Gannett sold its
controlling interest in Captivate in the third quarter of 2013. The pro forma adjustment for broadcasting expense reflects the addition of $6 million of amortization for definite-lived intangible assets as if the
acquisition of Belo had occurred on the first day of 2013. In addition, the pro forma adjustment for broadcasting expense removes $3 million of merger costs incurred by Belo.
Twenty-six weeks ended Jun. 30, 2013:
Gannett Belo Pro forma Gannett pro forma
adjustments (b) combined
(as reported) (as reported)
------------ ------------
Broadcasting revenue:
Local/national $287,351 $263,111 $(41,997) $508,465
Political 3,527 1,793 (644) 4,676
Retransmission 72,942 37,696 (4,879) 105,759
Other 39,722 31,245 (19,002) 51,965
------ ------ -------
Total broadcasting
revenue 403,542 333,845 (66,522) 670,865
Broadcasting expenses 221,774 244,658 (43,855) 422,577
Broadcasting operating
income $181,768 $89,187 $(22,667) $248,288
======== ======= ======== ========
(b) The pro forma adjustments include reductions to revenues and expenses for the former Belo stations in Phoenix, AZ and St. Louis, MO totaling $53 million and $41 million, respectively. Subsidiaries of Gannett and Sander
Media, a holding company that has a station-operation agreement with Gannett, agreed to sell these stations upon receiving government approval. KMOV-TV, the television station in St. Louis, was sold in February 2014 and
the two television stations in Phoenix were sold in June 2014. Pro forma adjustments also include reductions to revenues and expenses for Captivate that totaled $13 million and $12 million, respectively, as Gannett sold its
controlling interest in Captivate in the third quarter of 2013. The pro forma adjustment for broadcasting expense reflects the addition of $12 million of amortization for definite-lived intangible assets as if the
acquisition of Belo had occurred on the first day of 2013. In addition, the pro forma adjustment for broadcasting expense removes $3 million of merger costs incurred by Belo.
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