Gannett Co., Inc. Reports Record Broadcasting Revenue and Adjusted EBITDA; 16% Increase in Non-GAAP Earnings per Diluted Share to $0.67; Earnings per Diluted Share of $0.90 on a GAAP Basis

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

weeks ended

Jun. 29,
2014


Workforce
restructuring


Other
transformation
costs


Asset
impairment


Non-
operating
items


Thirteen

weeks ended

Jun. 29,
2014

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


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
ended June 29,
2014


Percentage change from thirteen
weeks ended June 30, 2013



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

weeks ended

Jun. 29, 2014


Thirteen

weeks ended

Jun. 30, 2013


% Increase

(Decrease)

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
depreciation


353,779



320,615



10.3


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)








 

Table No. 1 (continued)


Twenty-six
weeks ended
Jun. 29, 2014


Twenty-six
weeks ended
Jun. 30, 2013


% Increase
(Decrease)








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
depreciation


708,992



634,730



11.7


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

weeks ended

Jun. 29, 2014


Thirteen

weeks ended

Jun. 30, 2013


% Increase

(Decrease)

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
weeks ended
Jun. 29, 2014


Twenty-six
weeks ended
Jun. 30, 2013


% Increase (Decrease)








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.

Publishing

(including USA
TODAY)


Newsquest

(in pounds)


Total

Publishing

Segment







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.

Publishing

(including USA
TODAY)


Newsquest

(in pounds)


Total

Publishing

Segment







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

Measure


Special Items


Non-GAAP

Measure


Thirteen

weeks ended

Jun. 29, 2014


Workforce

restructuring


Other
transformation
costs


Asset
impairment


Non-

operating
items


Thirteen

weeks ended

Jun. 29, 2014

Cost of sales and operating expenses, exclusive of
depreciation

$

775,627



$

(21,160)



$



$



$



$

754,467


Selling, general and administrative expenses,
exclusive of depreciation

353,779



(1,757)









352,022


Facility consolidation and asset impairment
charges

28,775





(12,588)



(16,187)






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

Measure


Special Items


Non-GAAP

Measure




Thirteen

weeks ended

Jun. 30, 2013


Workforce

restructuring


Other transformation costs


Non-operating items


Thirteen

weeks ended

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

Measure


 

Special Items


 

Non-GAAP

Measure


Twenty-six

weeks ended

Jun. 29, 2014


Workforce

restructuring


Other transformation costs


Asset impairment


Non-operating items


Special tax charge


Twenty-six

weeks ended

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

Measure


Special Items


Non-GAAP

Measure




Twenty-six

weeks ended

Jun. 30, 2013


Workforce

restructuring


Other transformation costs


Non-operating items


Special tax benefits


Twenty-six

weeks ended

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.

(GAAP basis)









$

208,467


Net income attributable to noncontrolling
interests









17,445


Provision for income taxes









106,000


Interest expense









64,148


Equity income in unconsolidated investees,
net









(156,540)


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.

(GAAP basis)









$

113,620


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.

(GAAP basis)









$

267,626


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.

(GAAP basis)









$

218,185


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
weeks ended
Jun. 29, 2014


Twenty-six
weeks ended
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
weeks ended
Jun. 29, 2014


Thirteen
weeks ended
Jun. 30, 2013


Thirteen
weeks ended
Jun. 29, 2014


Thirteen
weeks ended
Jun. 30, 2013









Income before taxes (per Table 4)

$

331,912



$

166,341



$

240,094



$

202,045


Noncontrolling interests (per Table
1)

(17,445)



(13,121)



(17,445)



(13,121)


Income before taxes attributable to
Gannett Co., Inc.

$

314,467



$

153,220



$

222,649



$

188,924










Provision for income taxes (per
Table 4)

$

106,000



$

39,600



$

68,000



$

53,800










Effective tax rate

33.7

%


25.8

%


30.5

%


28.5

%


















GAAP


Non-GAAP


Twenty-six
weeks ended
Jun. 29, 2014


Twenty-six
weeks ended
Jun. 30, 2013


Twenty-six
weeks ended
Jun. 29, 2014


Twenty-six
weeks ended
Jun. 30, 2013









Income before taxes (per Table 4)

$

454,001



$

288,204



$

405,348



$

337,787


Noncontrolling interests (per Table
1)

(27,875)



(25,019)



(27,875)



(25,019)


Income before taxes attributable to
Gannett Co., Inc.

$

426,126



$

263,185



$

377,473



$

312,768










Provision for income taxes (per
Table 4)

$

158,500



$

45,000



$

114,400



$

91,600










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

(as reported)


Belo

(as reported)


Pro forma adjustments (a)


Gannett pro forma combined









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

(as reported)


Belo

(as reported)


Pro forma adjustments (b)


Gannett pro forma combined









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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SOURCE Gannett Co., Inc.



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