10-Q 1 gci-20140629x10q.htm 10-Q GCI-2014.06.29-10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
_______________________
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-6961
___________________________
GANNETT CO., INC.
(Exact name of registrant as specified in its charter)
___________________________
Delaware
 
16-0442930
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
7950 Jones Branch Drive, McLean, Virginia
 
22107-0910
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (703) 854-6000.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
ý
Accelerated Filer
¨
 
 
 
 
Non-Accelerated Filer
¨
Smaller Reporting Company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No ý
The total number of shares of the registrant’s Common Stock, $1 par value outstanding as of June 29, 2014 was 225,647,176.
 




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
In thousands, except share data
 
Jun. 29, 2014
 
Dec. 29, 2013
 
(Unaudited)
 
 
ASSETS
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
430,666

 
$
469,203

Trade receivables, less allowance for doubtful accounts (2014 - $17,666; 2013 - $15,275)
773,099

 
834,052

Other receivables
26,832

 
28,592

Inventories
55,050

 
49,950

Deferred income taxes
18,639

 
21,245

Assets held for sale
54,458

 
395,851

Prepaid expenses and other current assets
103,883

 
124,592

Total current assets
1,462,627

 
1,923,485

Property, plant and equipment
 
 
 
Cost
3,956,247

 
4,007,879

Less accumulated depreciation
(2,357,190
)
 
(2,338,247
)
Net property, plant and equipment
1,599,057

 
1,669,632

Intangible and other assets
 
 
 
Goodwill
3,804,551

 
3,790,472

Indefinite-lived and amortizable intangible assets, less accumulated amortization
1,466,718

 
1,477,231

Deferred income taxes
59,722

 

Investments and other assets
754,890

 
379,886

Total intangible and other assets
6,085,881

 
5,647,589

Total assets (a)
$
9,147,565

 
$
9,240,706

The accompanying notes are an integral part of these condensed consolidated financial statements.

2



CONDENSED CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
In thousands, except share data
 
Jun. 29, 2014
 
Dec. 29, 2013
 
(Unaudited)
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities
 
 
 
Accounts payable and current portion of film contracts payable
$
173,388

 
$
215,300

Accrued expenses
437,161

 
499,162

Dividends payable
45,433

 
45,645

Income taxes
101,754

 
17,791

Deferred income
241,428

 
223,404

Current portion of long-term debt
5,890

 
5,890

Total current liabilities
1,005,054

 
1,007,192

Noncurrent liabilities
 
 
 
Income taxes
47,985

 
49,748

Deferred income taxes
695,250

 
587,904

Long-term debt
3,446,737

 
3,707,010

Post-retirement medical and life insurance liabilities
88,173

 
129,078

Pension liabilities
548,932

 
632,195

Other noncurrent liabilities
212,949

 
218,168

Total noncurrent liabilities
5,040,026

 
5,324,103

Total liabilities (a)
6,045,080

 
6,331,295

 
 
 
 
Redeemable noncontrolling interests
17,904

 
14,618

 
 
 
 
Commitments and contingent liabilities (See Note 13)


 


 
 
 
 
Equity
 
 
 
Gannett Co., Inc. shareholders’ equity
 
 
 
Preferred stock of $1 par value per share, 2,000,000 shares authorized, none issued

 

Common stock of $1 par value per share, 800,000,000 shares authorized, 324,418,632 shares issued
324,419

 
324,419

Additional paid-in capital
561,288

 
552,368

Retained earnings
7,898,034

 
7,720,903

Accumulated other comprehensive loss
(458,542
)
 
(494,055
)
 
8,325,199

 
8,103,635

Less treasury stock, at cost (2014 - 98,771,456 shares; 2013 - 96,849,744 shares)
(5,467,088
)
 
(5,410,537
)
Total Gannett Co., Inc. shareholders’ equity
2,858,111

 
2,693,098

Noncontrolling interests
226,470

 
201,695

Total equity
3,084,581

 
2,894,793

Total liabilities and equity
$
9,147,565

 
$
9,240,706

The accompanying notes are an integral part of these condensed consolidated financial statements.

(a) Our consolidated assets as of June 29, 2014 include total assets of $57.5 million of variable interest entities (VIEs) and our consolidated assets as of December 29, 2013 include total assets of $44.7 million of VIEs. These assets can only be used to settle the obligations of the VIEs. Consolidated liabilities as of June 29, 2014 include total liabilities of $4.6 million of the VIEs and our consolidated liabilities as of December 29, 2013 include total liabilities of $2.7 million of the VIEs. The VIEs’ creditors have no recourse to us regarding these liabilities. See further description in Note 1 - Basis of presentation and summary of significant accounting policies.

3



CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands, except share data

 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 29, 2014
 
Jun. 30, 2013
 
Jun. 29, 2014
 
Jun. 30, 2013
 
 
 
 
 
 
 
 
Net Operating Revenues:
 
 
 
 
 
 
 
Broadcasting
$
398,258

 
$
211,962

 
$
780,526

 
$
403,542

Publishing advertising
530,183

 
562,476

 
1,031,483

 
1,088,975

Publishing circulation
277,851

 
279,655

 
559,927

 
565,627

All other Publishing
59,331

 
62,100

 
118,018

 
120,862

Digital
194,381

 
186,506

 
374,116

 
361,428

Total
1,460,004

 
1,302,699

 
2,864,070

 
2,540,434

 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
Cost of sales and operating expenses, exclusive of depreciation
775,627

 
726,869

 
1,543,159

 
1,446,593

Selling, general and administrative expenses, exclusive of depreciation
353,779

 
320,615

 
708,992

 
634,730

Depreciation
44,850

 
38,467

 
89,614

 
77,393

Amortization of intangible assets
14,471

 
9,368

 
32,214

 
18,496

Facility consolidation and asset impairment charges
28,775

 
4,498

 
43,595

 
9,283

Total
1,217,502

 
1,099,817

 
2,417,574

 
2,186,495

Operating income
242,502

 
202,882

 
446,496

 
353,939

 
 
 
 
 
 
 
 
Non-operating (expense) income:
 
 
 
 
 
 
 
Equity income in unconsolidated investees, net
156,540

 
9,424

 
165,031

 
17,218

Interest expense
(64,148
)
 
(36,174
)
 
(133,796
)
 
(71,579
)
Other non-operating items
(2,982
)
 
(9,791
)
 
(23,730
)
 
(11,374
)
Total
89,410

 
(36,541
)
 
7,505

 
(65,735
)
 
 
 
 
 
 
 
 
Income before income taxes
331,912

 
166,341

 
454,001

 
288,204

Provision for income taxes
106,000

 
39,600

 
158,500

 
45,000

Net income
225,912

 
126,741

 
295,501

 
243,204

Net income attributable to noncontrolling interests
(17,445
)
 
(13,121
)
 
(27,875
)
 
(25,019
)
Net income attributable to Gannett Co., Inc.
$
208,467

 
$
113,620

 
$
267,626

 
$
218,185

 
 
 
 
 
 
 
 
Net income per share – basic
$
0.92

 
$
0.50

 
$
1.18

 
$
0.95

Net income per share – diluted
$
0.90

 
$
0.48

 
$
1.15

 
$
0.93

Dividends declared per share
$
0.20

 
$
0.20

 
$
0.40

 
$
0.40

The accompanying notes are an integral part of these condensed consolidated financial statements.


4



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands

 
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 29, 2014
 
Jun. 30, 2013
 
Jun. 29, 2014
 
Jun. 30, 2013
 
 
 
 
 
 
 
 
Net income
$
225,912

 
$
126,741

 
$
295,501

 
$
243,204

Redeemable noncontrolling interests (income not available to shareholders)
(1,395
)
 
28

 
(1,850
)
 
(246
)
Other comprehensive income, before tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
12,809

 
(287
)
 
17,462

 
(32,873
)
Pension and other post-retirement benefit items:
 
 
 
 
 
 
 
Amortization of prior service credit, net
(1,215
)
 
(384
)
 
(1,700
)
 
(806
)
Amortization of actuarial loss
11,798

 
16,275

 
23,233

 
32,135

Remeasurement of post-retirement benefits liability

 

 
33,907

 

Other
(9,297
)
 
(155
)
 
(15,413
)
 
18,931

Pension and other post-retirement benefit items
1,286

 
15,736

 
40,027

 
50,260

Other
819

 
(77
)
 
1,061

 
(1,863
)
Other comprehensive income, before tax
14,914

 
15,372

 
58,550

 
15,524

Income tax effect related to components of other comprehensive income
(5,441
)
 
(5,886
)
 
(21,976
)
 
(16,017
)
Other comprehensive income, net of tax
9,473

 
9,486

 
36,574

 
(493
)
Comprehensive income
233,990

 
136,255

 
330,225

 
242,465

Comprehensive income attributable to noncontrolling interests, net of tax
(16,869
)
 
(13,072
)
 
(27,086
)
 
(22,910
)
Comprehensive income attributable to Gannett Co., Inc.
$
217,121

 
$
123,183

 
$
303,139

 
$
219,555

The accompanying notes are an integral part of these condensed consolidated financial statements.

5



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands

 
Twenty-six Weeks Ended
 
Jun. 29, 2014
 
Jun. 30, 2013
 
 
 
 
Cash flows from operating activities:
 
 
 
Net income
$
295,501

 
$
243,204

Adjustments to reconcile net income to net cash flow from operating activities:
 
 
 
Depreciation and amortization
121,828

 
95,889

Facility consolidation and asset impairment charges
43,595

 
10,202

Pension contributions, net of pension expense
(64,179
)
 
(75,751
)
Equity income in unconsolidated investees, net
(165,031
)
 
(17,218
)
Stock-based compensation – equity awards
17,208

 
15,877

Change in other assets and liabilities, net
106,017

 
(48,262
)
Net cash flow from operating activities
354,939

 
223,941

Cash flows from investing activities:
 
 
 
Purchase of property, plant and equipment
(56,905
)
 
(48,898
)
Payments for acquisitions, net of cash acquired
(121,956
)
 
(18,134
)
Payments for investments
(5,318
)
 
(2,379
)
Proceeds from investments
163,315

 
29,365

Proceeds from sale of certain assets
66,617

 
6,586

Net cash flow from (used for) investing activities
45,753

 
(33,460
)
Cash flows from financing activities:
 
 
 
Payments of borrowings under revolving credit agreements, net

 
(79,000
)
Payments of unsecured fixed rate notes
(250,000
)
 

Payments of unsecured floating rate term loans
(17,925
)
 

Dividends paid
(90,848
)
 
(91,695
)
Cost of common shares repurchased
(75,815
)
 
(41,385
)
Proceeds from issuance of common stock upon exercise of stock options
10,362

 
13,132

Distribution to noncontrolling interests
(877
)
 
(218
)
Deferred payments for acquisitions
(14,481
)
 
(3,693
)
Net cash used for financing activities
(439,584
)
 
(202,859
)
Effect of currency exchange rate change on cash
355

 
(1,155
)
Decrease in cash and cash equivalents
(38,537
)
 
(13,533
)
Balance of cash and cash equivalents at beginning of period
469,203

 
175,030

Balance of cash and cash equivalents at end of period
$
430,666

 
$
161,497

 
 
 
 
Supplemental cash flow information:
 
 
 
Cash paid for taxes, net of refunds
$
45,284

 
$
73,683

Cash paid for interest
$
122,989

 
$
63,055

Non-cash investing and financing activities:
 
 
 
Assets-held-for-sale proceeds
$
381,882

 
$

Capital expenditures
$
6,565

 
$

The accompanying notes are an integral part of these condensed consolidated financial statements.

6



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 29, 2014
NOTE 1 – Basis of presentation and summary of significant accounting policies
Basis of presentation: Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes which are normally included in the Form 10-K and annual report to shareholders. In our opinion, the financial statements reflect all adjustments, which are of a normal recurring nature, that are necessary for a fair presentation of results for the interim periods presented.

Variable Interest Entities (VIE): A variable interest entity is an entity that lacks equity investors or whose equity investors lack a controlling interest in the entity through their equity investments. We consolidate VIEs when we are the primary beneficiary. In determining whether we are the primary beneficiary of a VIE for financial reporting purposes, we consider whether we have the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE and whether we are obligated to absorb losses or the right to receive returns that would be significant to the VIE.
We determined that the entities holding four of our television stations constitute VIEs and the various agreements that we entered into with these entities represent variable interests. We evaluated the arrangements to determine whether we are considered the primary beneficiary, and as a result of this evaluation, we consolidated four stations in the Louisville, KY; Portland, OR; and Tucson, AZ, television markets for the quarter ending June 29, 2014.
The carrying amounts and classification of the assets and liabilities of the consolidated VIEs mentioned above and included in our consolidated balance sheets were as follows:
In thousands
Jun. 29, 2014

Dec. 29, 2013




Current assets
$
19,144


$
4,677

Plant, property and equipment, net
7,375


8,061

Intangible and other assets
30,955


32,008

Total assets
$
57,474


$
44,746

 
 
 
 
Current liabilities
$
9,590


$
7,827

Noncurrent liabilities
32,204


34,173

Total liabilities
$
41,794


$
42,000


Recent accounting standards: In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09 Revenue from Contracts with Customers (Topic 606) which supersedes the guidance in Revenue Recognition (Topic 605). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required.
We are required to adopt ASU 2014-09 in the first quarter of 2017 and early application is not permitted. However, we will need to apply the standard to 2015 and 2016. We can choose to apply the standard using either the full retrospective approach or a modified retrospective approach where we will recognize a cumulative catch up adjustment to the opening balance of retained earnings. We are currently assessing the impact of adopting this pronouncement and the transition method we will use.
In July 2013, the FASB issued ASU 2013-11 Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, A Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 provides guidance on financial statement presentation of an unrecognized tax benefit (UTB) when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. Under ASU 2013-11, an entity must present a UTB, or a portion of a UTB, in the financial statements as a reduction to a deferred tax asset (DTA) for an NOL carryforward, a similar tax loss, or a tax credit carryforward except when:
An NOL carryforward, a similar tax loss, or a tax credit carryforward is unavailable as of the reporting date under the tax law of the jurisdiction.
The entity does not intend to use the DTA for this purpose (provided that the tax law permits a choice).
If either of these conditions exists, an entity should present a UTB in the financial statements as a liability and should not net the UTB with a DTA. ASU 2013-11 is effective for public entities for fiscal years beginning after December 15, 2013, and

7



interim periods within those years. We were required to adopt ASU 2013-11 in the first quarter of 2014, and the impact on our consolidated results of operations, financial position and cash flows was insignificant.
NOTE 2 – Acquisitions and dispositions
In March 2014, Classified Ventures, in which we own a 26.9% interest, agreed to sell Apartments.com to CoStar Group, Inc. for $585 million.  This transaction closed on April 1, 2014, early in our second quarter; as a result of our ownership stake, we received a special $154.6 million distribution from Classified Ventures after the closing of this transaction.
Early in the second quarter, our subsidiary CareerBuilder acquired Broadbean. Broadbean is a leading international job distribution, candidate sourcing and big data analytics software company. Broadbean is headquartered in London, United Kingdom and has offices in the U.S., France, Germany, the Netherlands and Australia. The acquisition unites two technology companies which specialize in sourcing and recruitment.
On February 28, 2014, we completed the previously announced sale of KMOV-TV in St. Louis, MO, to Meredith Corporation, following the receipt of regulatory approvals. As part of the sale, Sander Media conveyed to Meredith Corporation substantially all of its assets used to operate KMOV-TV, which Sander Media acquired when the Gannett-Belo transaction closed on December 23, 2013. We conveyed certain other assets that are needed to provide services to KMOV-TV, which we also acquired from Belo Corp.
On June 19, 2014, we announced, together with Sander Media LLC, that we completed the previously announced sale of KTVK-TV and KASW-TV in Phoenix, AZ, to Meredith Corporation, following receipt of regulatory approvals. As part of the sale, Sander Media conveyed to Meredith all of the assets used in the operation of both stations, which Sander Media acquired upon completion of the Belo transaction last December 2013. We also conveyed certain other assets that we used to provide services for both stations, which were also acquired from the Belo transaction. At the closing, Meredith simultaneously conveyed KASW-TV to SagamoreHill of Phoenix, LLC, which, through its affiliates, owns and operates two television stations in two markets. The total sale price of the Phoenix and St. Louis stations was $407.5 million. The majority of this amount is held in escrow at the end of the second quarter. We used a portion of the proceeds in a tax efficient structure to pay for the acquisition of six London Broadcasting Company television stations from SunTX Capital Partners which closed early in our third quarter.
NOTE 3 – Facility consolidation and asset impairment charges
We evaluated the carrying values of property, plant and equipment at certain publishing businesses as a result of our ongoing facility consolidation efforts. We revised the useful lives of certain assets to reflect the use of those assets over a shortened period as a result. Certain assets classified as held-for-sale according to Accounting Standards Codification (ASC) Topic 360 resulted in us recognizing non-cash charges in both 2014 and 2013 as we reduced the carrying values to equal the fair value less cost to dispose. The fair values were based on the estimated prices of similar assets. We also recorded non-cash impairment charges to reduce the book value of goodwill and other intangible assets. The goodwill impairment and other intangible non-cash charges resulted from our application of the interim impairment testing provisions included within the goodwill subtopic ASC Topic 350. We are required to test goodwill and other indefinite lived assets for impairment annually.  Our annual measurement date for testing is the first day of the fourth quarter.  However, because of softening business conditions at two of our smaller Publishing Segment reporting units, we updated our testing as of the beginning of the second quarter of 2014. Our testing showed that the implied fair value of the goodwill was less than the recorded value.  Therefore, we recognized a charge to reduce the carrying value of goodwill to the implied fair value. We recorded pre-tax charges for facility consolidations and asset impairments of $28.8 million in the second quarter and $43.6 million for the year-to-date period in 2014. For 2013, we recorded $4.5 million pre-tax charges for the second quarter and $9.3 million for the year-to-date period. We also recorded a $1.0 million non-operating pre-tax charge to write off certain broadcasting assets that were donated in the second quarter of 2014 and a $0.9 million non-operating pre-tax charge to write off certain publishing assets in the first quarter of 2013.

8



NOTE 4 – Goodwill and other intangible assets
The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible assets at June 29, 2014 and December 29, 2013:
In thousands
Jun. 29, 2014
 
Dec. 29, 2013
 
Gross
 
Accumulated Amortization
 
Gross
 
Accumulated Amortization
 
 
 
 
 
 
 
 
Goodwill
$
3,804,551

 
$

 
$
3,790,472

 
$

Indefinite-lived intangibles:
 
 
 
 
 
 
 
Television station FCC licenses
1,091,204

 

 
1,091,204

 

Mastheads and trade names
82,903

 

 
82,570

 

Amortizable intangible assets:
 
 
 
 
 
 
 
Customer relationships
302,817

 
194,852

 
290,845

 
177,515

Other
223,650

 
39,004

 
213,790

 
23,663

Customer relationships include subscriber lists and advertiser relationships while other intangibles primarily include retransmission agreements, network affiliations, internally developed technology, patents and amortizable trade names.
The following table summarizes the changes in our net goodwill balance through June 29, 2014:
In thousands
Broadcasting
 
Publishing
 
Digital
 
Total
 
 
 
 
 
 
 
 
Balance at Dec. 29, 2013:
 
 
 
 
 
 
 
Goodwill
$
2,543,333

 
$
7,807,416

 
$
755,528

 
$
11,106,277

Accumulated impairment losses

 
(7,187,535
)
 
(128,270
)
 
(7,315,805
)
Net balance at Dec. 29, 2013
2,543,333

 
619,881

 
627,258

 
3,790,472

Activity during the period:
 
 
 
 
 
 
 
Acquisitions and adjustments
(16,430
)
 
4,578

 
33,233

 
21,381

Impairment

 
(15,310
)
 

 
(15,310
)
Foreign currency exchange rate changes

 
6,666

 
1,342

 
8,008

Total
(16,430
)
 
(4,066
)
 
34,575

 
14,079

Balance at Jun. 29, 2014:
 
 
 
 
 
 
 
Goodwill
2,526,903

 
7,897,708

 
790,103

 
11,214,714

Accumulated impairment losses

 
(7,281,893
)
 
(128,270
)
 
(7,410,163
)
Net balance at Jun. 29, 2014
$
2,526,903

 
$
615,815

 
$
661,833

 
$
3,804,551

On December 23, 2013, we completed our acquisition of Belo. The initial purchase price allocation is preliminary based upon all information available to us at the present time and is subject to change, and such changes could be material. We continue to review underlying assumptions and valuation techniques utilized to calculate the fair value of primarily the indefinite-lived and amortizable intangible assets, property, plant and equipment, investments and deferred income taxes. Certain immaterial adjustments have been made since the initial allocation in the fourth quarter of 2013.

9



NOTE 5 – Long-term debt
Our long-term debt is summarized below:
In thousands
Jun. 29, 2014
 
Dec. 29, 2013
 
 
 
 
Unsecured floating rate term loan due quarterly through August 2018
$
139,000

 
$
154,800

VIE unsecured floating rate term loans due quarterly through December 2018
37,145

 
39,270

Unsecured notes bearing fixed rate interest at 8.75% due November 2014
250,000

 
250,000

Unsecured notes bearing fixed rate interest at 10% due June 2015
66,568

 
66,568

Unsecured notes bearing fixed rate interest at 6.375% due September 2015
250,000

 
250,000

Unsecured notes bearing fixed rate interest at 10% due April 2016
193,429

 
193,429

Unsecured notes bearing fixed rate interest at 9.375% due November 2017

 
250,000

Unsecured notes bearing fixed rate interest at 7.125% due September 2018
250,000

 
250,000

Unsecured notes bearing fixed rate interest at 5.125% due October 2019
600,000

 
600,000

Unsecured notes bearing fixed rate interest at 5.125% due July 2020
600,000

 
600,000

Unsecured notes bearing fixed rate interest at 6.375% due October 2023
650,000

 
650,000

Unsecured notes bearing fixed rate interest at 7.75% due June 2027
200,000

 
200,000

Unsecured notes bearing fixed rate interest at 7.25% due September 2027
240,000

 
240,000

Total principal long-term debt
3,476,142

 
3,744,067

Other (fair market value adjustments and discounts)
(23,515
)
 
(31,167
)
Total long-term debt
3,452,627

 
3,712,900

Less current portion of long-term debt maturities of VIE loans
5,890

 
5,890

Long-term debt, net of current portion
$
3,446,737

 
$
3,707,010

For the first six months of 2014, our long-term debt decreased by $260.3 million as a result of our early repayment of the 9.375% notes due in 2017. We redeemed the notes by paying 104.688% of the outstanding principal amount in accordance with the original terms. The early redemption of these notes will save us approximately $12 million in interest expense for the remainder of 2014. On June 29, 2014, we had unused borrowing capacity of $1.27 billion under our revolving credit agreement that expires in August 2018.
NOTE 6 – Retirement plans
We, along with our subsidiaries, have various retirement plans, including plans established under collective bargaining agreements. The Gannett Retirement Plan (GRP) is our principal retirement plan. Our retirement plan costs include costs for qualified and nonqualified plans and are presented in the following table:
In thousands
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 29, 2014
 
Jun. 30, 2013
 
Jun. 29, 2014
 
Jun. 30, 2013
 
 
 
 
 
 
 
 
Service cost-benefits earned during the period
$
877

 
$
1,756

 
$
2,708

 
$
3,881

Interest cost on benefit obligation
42,372

 
35,071

 
84,738

 
70,254

Expected return on plan assets
(59,174
)
 
(49,299
)
 
(117,748
)
 
(98,842
)
Amortization of prior service cost
1,901

 
1,898

 
3,783

 
3,776

Amortization of actuarial loss
11,674

 
16,190

 
22,901

 
31,550

Expense (credit) for company-sponsored retirement plans
$
(2,350
)
 
$
5,616

 
$
(3,618
)
 
$
10,619

For the twenty-six weeks ended June 29, 2014, we contributed $41.0 million to the GRP, $6.6 million to the G.B. Dealey Retirement Plan (Dealey Plan) and $6.9 million to the Newsquest Pension Scheme in the U.K. (Newsquest Plan). We assumed the Dealey Plan as part of the Belo acquisition that was completed on December 23, 2013. For the remainder of 2014 and based on current funding requirements, we expect to contribute $28.0 million to the GRP, $8.9 million to the Dealey Plan and approximately $7.4 million to the Newsquest Plan.

10



NOTE 7 – Post-retirement benefits other than pension
We provide health care and life insurance benefits to certain retired employees who meet age and service requirements. Most of our retirees contribute to the cost of these benefits and retiree contributions are increased as actual benefit costs increase. Our policy is to fund benefits as claims and premiums are paid. In March 2014, we adopted changes to the retiree medical plan that were effective July 1, 2014. Beginning on that date, we will pay a stipend to certain Medicare-eligible Gannett retirees. This stipend will be accessible through a Healthcare Reimbursement Account and retirees will be able to select from a variety of plans offered through the individual Medicare marketplace. As a result of this change, we remeasured the related post-retirement benefit obligation during the first quarter of 2014, and recorded a reduction to the liability of $33.9 million (with a corresponding adjustment to “Accumulated other comprehensive loss”). Post-retirement benefit costs for health care and life insurance are presented in the following table:
In thousands
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 29, 2014
 
Jun. 30, 2013
 
Jun. 29, 2014
 
Jun. 30, 2013
 
 
 
 
 
 
 
 
Service cost-benefits earned during the period
$
68

 
$
89

 
$
186

 
$
264

Interest cost on net benefit obligation
1,030

 
1,303

 
2,515

 
2,828

Amortization of prior service credit
(3,116
)
 
(2,282
)
 
(5,483
)
 
(4,582
)
Amortization of actuarial loss
124

 
85

 
332

 
585

Net periodic post-retirement benefit credit
$
(1,894
)
 
$
(805
)
 
$
(2,450
)
 
$
(905
)
NOTE 8 – Income taxes
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was approximately $45.0 million as of June 29, 2014 and $46.5 million as of December 29, 2013. The following table summarizes the activity related to unrecognized tax benefits, excluding the federal tax benefit of state tax deductions:
In thousands
Unrecognized Tax Benefits
 
 
Balance at Dec. 29, 2013
$
57,324

Changes in unrecognized tax benefits:
 
Additions based on tax positions related to the current year
3,744

Additions for tax positions of prior years
75

Reductions for tax positions of prior years
(4,315
)
Reductions due to lapse of statutes of limitations
(574
)
Balance at Jun. 29, 2014
$
56,254

We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. Interest income attributable to overpayment of income tax is recognized as a component of income tax expense. We recognized a net benefit from the reversal of interest and penalty expense of $1.2 million in the second quarter of 2014 and $4.6 million during the second quarter of 2013. We recognized a net benefit from the reversal of interest and penalty expense of $2.5 million during the first six months of 2014 and $17.4 million during the first six months of 2013. The net interest and penalty benefits recognized in the second quarter and first six months of 2014 and 2013 are primarily from the release of uncertain tax position reserves due to audit settlements and the lapse of the applicable statutes of limitations. The amount of net accrued interest and penalties related to uncertain tax benefits as of June 29, 2014, was approximately $9.0 million and as of December 29, 2013, was approximately $11.5 million.
We file income tax returns in the U.S. and various state and foreign jurisdictions. The 2010 through 2012 tax years remain subject to IRS examination. The 2009 through 2012 tax years generally remain subject to examination by state authorities, and the 2012 tax year is subject to examination in the U.K. Tax years before 2009 remain subject to examination by certain states primarily due to the filing of amended tax returns as a result of the settlement of the IRS examination for these years and due to ongoing audits.
It is reasonably possible that the amount of unrecognized benefits with respect to certain of our unrecognized tax positions will significantly increase or decrease within the next 12 months. These changes may be the result of settlement of ongoing audits, lapses of statutes of limitations or other regulatory developments. At this time, we estimate the amount of gross unrecognized tax positions may be reduced by up to approximately $8.2 million within the next 12 months primarily due to lapses of statutes of limitations and settlement of ongoing audits in various jurisdictions.

11



NOTE 9 – Supplemental equity information
The following table summarizes equity account activity for the twenty-six week periods ended June 29, 2014 and June 30, 2013:
In thousands
Gannett Co., Inc. Shareholders’ Equity
 
Noncontrolling Interests
 
Total Equity
 
 
 
 
 
 
Balance at Dec. 29, 2013
$
2,693,098

 
$
201,695

 
$
2,894,793

Comprehensive income:
 
 
 
 
 
Net income
267,626

 
27,875

 
295,501

Redeemable noncontrolling interests (income not available to shareholders)

 
(1,850
)
 
(1,850
)
Other comprehensive income
35,513

 
1,061

 
36,574

Total comprehensive income
303,139

 
27,086

 
330,225

Dividends declared
(90,495
)
 

 
(90,495
)
Stock-based compensation
17,208

 

 
17,208

Treasury shares acquired
(75,815
)
 

 
(75,815
)
Other activity
10,976

 
(2,311
)
 
8,665

Balance at Jun. 29, 2014
$
2,858,111

 
$
226,470

 
$
3,084,581

 
 
 
 
 
 
Balance at Dec. 30, 2012
$
2,350,614

 
$
189,298

 
$
2,539,912

Comprehensive income:
 
 
 
 
 
Net income
218,185

 
25,019

 
243,204

Redeemable noncontrolling interests (income not available to shareholders)

 
(246
)
 
(246
)
Other comprehensive income (loss)
1,370

 
(1,863
)
 
(493
)
Total comprehensive income
219,555

 
22,910

 
242,465

Dividends declared
(91,485
)
 

 
(91,485
)
Stock-based compensation
15,877

 

 
15,877

Treasury shares acquired
(41,385
)
 

 
(41,385
)
Other activity
11,728

 
(744
)
 
10,984

Balance at Jun. 30, 2013
$
2,464,904

 
$
211,464

 
$
2,676,368

In August 2012, our CareerBuilder subsidiary acquired 74% of Economic Modeling Specialists Intl. (EMSI), a software firm that specializes in employment data and labor market analytics. Shareholders for the remaining 26% of ownership hold put rights that permit them to put their equity interest to CareerBuilder. Since redemption of EMSI noncontrolling interest is outside of our control, the balance is presented on the Condensed Consolidated Balance Sheets in the caption “Redeemable noncontrolling interests.”

12



The following table summarizes the components of, and the changes in, “Accumulated other comprehensive loss” (net of tax and noncontrolling interests):
In thousands
Retirement Plans
 
Foreign Currency Translation



Total
 
 
 
 
 
 
Thirteen Weeks:
 
 
 
 
 
Balance at Mar. 30, 2014
$
(899,026
)
 
$
431,830

 
$
(467,196
)
Other comprehensive income (loss) before reclassifications
(11,042
)
 
12,808

 
1,766

Amounts reclassified from accumulated other comprehensive income (loss)
6,888

 

 
6,888

Other comprehensive income (loss)
(4,154
)
 
12,808

 
8,654

Balance at Jun. 29, 2014
$
(903,180
)
 
$
444,638

 
$
(458,542
)
 
 
 
 
 
 
Balance at Mar. 31, 2013
$
(1,094,870
)
 
$
385,536

 
$
(709,334
)
Other comprehensive income (loss) before reclassifications
(120
)
 
(287
)
 
(407
)
Amounts reclassified from accumulated other comprehensive income (loss)
9,970

 

 
9,970

Other comprehensive income (loss)
9,850

 
(287
)
 
9,563

Balance at Jun. 30, 2013
$
(1,085,020
)
 
$
385,249

 
$
(699,771
)
 
 
 
 
 
 
Twenty-six Weeks:
 
 
 
 
 
Balance at Dec. 29, 2013
$
(921,232
)
 
$
427,177

 
$
(494,055
)
Other comprehensive income (loss) before reclassifications
4,062

 
17,461

 
21,523

Amounts reclassified from accumulated other comprehensive income (loss)
13,990

 

 
13,990

Other comprehensive income (loss)
18,052

 
17,461

 
35,513

Balance at Jun. 29, 2014
$
(903,180
)
 
$
444,638

 
$
(458,542
)
 
 
 
 
 
 
Balance at Dec. 30, 2012
$
(1,119,263
)
 
$
418,122

 
$
(701,141
)
Other comprehensive income (loss) before reclassifications
14,577

 
(32,873
)
 
(18,296
)
Amounts reclassified from accumulated other comprehensive income (loss)
19,666

 

 
19,666

Other comprehensive income (loss)
34,243

 
(32,873
)
 
1,370

Balance at Jun. 30, 2013
$
(1,085,020
)
 
$
385,249

 
$
(699,771
)
Accumulated other comprehensive income components are included in computing net periodic post-retirement costs (see Notes 6 and 7 for more detail). Reclassifications out of accumulated other comprehensive loss related to these post-retirement plans include the following:
In thousands
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 29, 2014
 
Jun. 30, 2013
 
Jun. 29, 2014
 
Jun. 30, 2013
 
 
 
 
 
 
 
 
Amortization of prior service credit
$
(1,215
)
 
$
(384
)
 
$
(1,700
)
 
$
(806
)
Amortization of actuarial loss
11,798

 
16,275

 
23,233

 
32,135

Total reclassifications, before tax
10,583

 
15,891

 
21,533

 
31,329

Income tax effect
(3,695
)
 
(5,921
)
 
(7,543
)
 
(11,663
)
Total reclassifications, net of tax
$
6,888

 
$
9,970

 
$
13,990

 
$
19,666


13



NOTE 10 – Fair value measurement
We measure and record in the accompanying condensed consolidated financial statements certain assets and liabilities at fair value.  ASC Topic 820, Fair Value Measurement, establishes a hierarchy for those instruments measured at fair value that distinguishes between market data (observable inputs) and our own assumptions (unobservable inputs).  The hierarchy consists of three levels:
Level 1 - Quoted market prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3 - Unobservable inputs developed using our own estimates and assumptions, which reflect those that a market participant would use.
The following table summarizes our assets and liabilities measured at fair value in the accompanying Condensed Consolidated Balance Sheets as of June 29, 2014 and December 29, 2013:
In thousands
Fair Value Measurements as of Jun. 29, 2014
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
Employee compensation related investments
$
30,950

 
$

 
$

 
$
30,950

Sundry investments
36,024

 

 

 
36,024

Total assets
$
66,974

 
$

 
$

 
$
66,974

 
 
 
 
 
 
 
 
Contingent consideration payable
$

 
$

 
$
15,882

 
$
15,882

Total liabilities
$

 
$

 
$
15,882

 
$
15,882


In thousands
Fair Value Measurements as of Dec. 29, 2013
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
 
 
 
 
 
 
Employee compensation related investments
$
28,117

 
$

 
$

 
$
28,117

Sundry investments
34,227

 

 

 
34,227

Total assets
$
62,344

 
$

 
$

 
$
62,344

 
 
 
 
 
 
 
 
Contingent consideration payable
$

 
$

 
$
32,267

 
$
32,267

Total liabilities
$

 
$

 
$
32,267

 
$
32,267

Under certain acquisition agreements, we have agreed to pay the sellers earn-outs based on achievement of future financial performance of the businesses. Contingent consideration payable in the table above represents the estimated fair value of future earn-outs payable under such agreements. The fair value of the contingent payments was measured based on the present value of the consideration expected to be transferred using a discounted cash flow analysis. The discount rate is a significant unobservable input in such present value computations. Discount rates ranged between 10% and 30% depending on the risk associated with the cash flows. Changes to the fair value of earn-outs are reflected in “Selling, general and administrative expenses” on our Condensed Consolidated Statements of Income. For the twenty-six weeks ended June 29, 2014, the contingent consideration decreased by $16.4 million as a result of payments and adjustments to fair value.
The fair value of our total long-term debt, based on the bid and ask quotes for the related debt (Level 2), totaled $3.68 billion at June 29, 2014 and $3.93 billion at December 29, 2013.
During the second quarter of 2014, certain Publishing Segment goodwill assets were impaired as the implied fair value of the goodwill was less than the recorded value. Implied fair value of the goodwill assets totaled $6.2 million and we recognized a goodwill impairment charge of $15.3 million to reduce the carrying value to the implied fair value.



14



NOTE 11 – Business segment information
Our reportable segments based on our management and internal reporting structures are Broadcasting, Publishing and Digital. The Broadcasting Segment at the end of the second quarter includes our 40 owned and serviced television stations. The Publishing Segment principally includes local domestic publishing operations, Newsquest operations in the U.K. and the USA TODAY group. The Digital Segment includes CareerBuilder, Shoplocal and PointRoll.
In thousands
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 29, 2014
 
Jun. 30, 2013
 
Jun. 29, 2014
 
Jun. 30, 2013
 
 
 
 
 
 
 
 
Net Operating Revenues:
 
 
 
 
 
 
 
Broadcasting
$
398,258

 
$
211,962

 
$
780,526

 
$
403,542

Publishing
867,365

 
904,231

 
1,709,428

 
1,775,464

Digital
194,381

 
186,506

 
374,116

 
361,428

Total
$
1,460,004

 
$
1,302,699

 
$
2,864,070

 
$
2,540,434

 
 
 
 
 
 
 
 
Operating Income (net of depreciation, amortization and facility consolidation charges and asset impairment charges):
 
 
 
 
 
 
 
Broadcasting
$
171,322

 
$
98,092

 
$
325,871

 
$
181,768

Publishing
53,239

 
85,192

 
96,227

 
145,329

Digital
35,695

 
35,277

 
59,519

 
58,881

Corporate
(17,754
)
 
(15,679
)
 
(35,121
)
 
(32,039
)
Total
$
242,502

 
$
202,882

 
$
446,496

 
$
353,939

 
 
 
 
 
 
 
 
Depreciation, amortization and facility consolidation charges and asset impairment charges:
 
 
 
 
 
 
 
Broadcasting
$
20,621

 
$
6,974

 
$
47,815

 
$
13,909

Publishing
53,123

 
31,415

 
89,714

 
63,651

Digital
9,603

 
9,383

 
17,891

 
18,490

Corporate
4,749

 
4,561

 
10,003

 
9,122

Total
$
88,096

 
$
52,333

 
$
165,423

 
$
105,172


NOTE 12 – Earnings per share
Our earnings per share (basic and diluted) are presented below:
In thousands, except per share data
Thirteen Weeks Ended
 
Twenty-six Weeks Ended
 
Jun. 29, 2014
 
Jun. 30, 2013
 
Jun. 29, 2014
 
Jun. 30, 2013
 
 
 
 
 
 
 
 
Net income attributable to Gannett Co., Inc.
$
208,467

 
$
113,620

 
$
267,626

 
$
218,185

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding - basic
226,132

 
228,837

 
226,681

 
229,116

Effect of dilutive securities:
 
 
 
 
 
 
 
Restricted stock
2,814

 
2,971

 
2,763

 
2,897

Performance share units
2,212

 
1,734

 
1,725

 
1,797

Stock options
948

 
1,094

 
1,018

 
1,056

Weighted average number of common shares outstanding - diluted
232,106

 
234,636

 
232,187

 
234,866

 
 
 
 
 
 
 
 
Net income per share - basic
$
0.92

 
$
0.50

 
$
1.18

 
$
0.95

Net income per share - diluted
$
0.90

 
$
0.48

 
$
1.15

 
$
0.93


15



The diluted earnings per share amounts exclude the effects of approximately 2.2 million stock options outstanding for the second quarter and year-to-date of 2014 and 6.2 million stock options outstanding for second quarter and year-to-date of 2013, as their inclusion would be anti-dilutive.
NOTE 13 Commitments, contingencies and other matters
We, along with a number of our subsidiaries, are defendants in judicial and administrative proceedings involving matters incidental to their business. Management does not believe that any material liability exists as a result of these matters.
NOTE 14 Subsequent events
On July 8, 2014, we completed the previously announced acquisition of six of London Broadcasting Company’s television stations in Texas for approximately $215.0 million in an all-cash transaction. The acquisition includes KCEN (NBC) in Waco-Temple-Bryan, KYTX (CBS) in Tyler-Longview, KIII (ABC) in Corpus Christi, KBMT (ABC) and its digital sub-channel KJAC (NBC) in Beaumont-Port Arthur, KXVA (FOX) in Abilene-Sweetheart and KIDY (FOX) in San Angelo.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a leading international media and marketing solutions company, and one of the largest, most geographically diverse local content providers in the U.S. Through a vast network of broadcast, digital, mobile and print products, we inform and engage more than 110 million people every month.
Our Broadcasting Segment currently includes 46 television stations that we either own or service through shared service agreements. Excluding owner-operators, we are the No. 1 NBC affiliate group; No. 1 CBS affiliate group; and the No. 4 ABC affiliate group. These stations cover 31% of the U.S. population in markets with nearly 36 million households. We are the largest independent television station group of major network affiliates in the top 25 U.S. markets.
Within our Publishing Segment, we provide content through 82 local U.S. daily publications, including USA TODAY, a multi-platform news and information media company, as well as more than 400 non-daily local publications in 30 states and Guam. USA TODAY ranks No. 1 in the industry in total daily combined print and digital circulation, according to the Alliance for Audited Media. Our subsidiary Newsquest is one of the United Kingdom’s leading regional community news providers, providing its markets with 17 daily paid-for titles, more than 200 weekly print products, magazines and trade publications.
We own and operate a number of stand-alone digital subsidiaries, the results of which are included in our Digital Segment. The largest of these subsidiaries is CareerBuilder, a global leader in human capital solutions, providing everything from labor market intelligence to talent management software and other recruitment solutions, with a presence in more than 60 markets worldwide and a focus on technology solutions and niche sites. CareerBuilder.com is the largest online job site in the U.S., measured both by traffic and revenue.

16



Results from Operations
Our reportable segments based on our management and internal reporting structures are Broadcasting, Publishing, and Digital. The primary categories of Broadcasting Segment revenue are: 1) core advertising which includes local and national non-political advertising; 2) political advertising revenues which are seasonal with peaks occurring in even years (e.g., 2014 and 2012) and particularly in the fourth quarter of those years; 3) retransmission revenues representing fees paid by satellite and cable networks and telecommunications companies to carry our television signals on their network; and 4) other revenues, which consist of digital revenues generated through advertising on the stations’ web, tablet and mobile products; as well as payments by advertisers to television stations for other services, such as producing advertising material. We generate Publishing Segment revenue primarily through advertising and subscriptions to our print and digital publications. Our advertising departments sell retail, classified and national advertising across multiple platforms including print, web sites, mobile, tablet and other specialty publications. The largest subsidiary within our Digital Segment is CareerBuilder, which generates revenues both through its own sales force by providing talent and compensation intelligence, human resource related consulting services and recruitment solutions and through sales of employment advertising placed with its affiliated media organizations.
Our largest component of operating expense is payroll and benefits. Other significant operating expenses include the costs of locally produced content and purchased syndicated programming in the Broadcasting Segment, production (raw materials) and distribution costs within the Publishing Segment, and sales and marketing costs within the Digital Segment.
Consolidated Summary
A consolidated summary of our results is presented below:
In thousands, except per share data
Second Quarter
 
2014
 
% of Total
 
2013
 
% of Total
 
Change
 
 
 
 
 
 
 
 
 
 
Operating revenues:
 
 
 
 
 
 
 
 
 
Broadcasting
$
398,258

 
27
%
 
$
211,962

 
16
%
 
88
%
Publishing
867,365

 
59
%
 
904,231

 
70
%
 
(4
%)
Digital
194,381

 
13
%
 
186,506

 
14
%
 
4
%
Total operating revenues
$
1,460,004

 
100
%
 
$
1,302,699

 
100
%
 
12
%
 
 
 
 
 
 
 
 
 
 
Operating expenses
$
1,217,502

 
 
 
$
1,099,817

 
 
 
11
%
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 


Broadcasting
$
171,322

 
71
%
 
$
98,092

 
48
%
 
75
%
Publishing
53,239

 
22
%
 
85,192

 
42
%
 
(38
%)
Digital
35,695

 
15
%
 
35,277

 
18
%
 
1
%
Corporate
(17,754
)
 
(8
%)
 
(15,679
)
 
(8
%)
 
13
%
Total operating income
242,502

 
100
%
 
202,882

 
100
%
 
20
%
Non-operating expense (income)
(89,410
)
 
 
 
36,541

 
 
 
***

Provision for income taxes
106,000

 
 
 
39,600

 
 
 
***

Net income attributable to noncontrolling interests
17,445

 
 
 
13,121

 
 
 
33
%
Net income attributable to Gannett Co., Inc.
$
208,467

 
 
 
$
113,620

 
 
 
83
%
 
 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.92

 
 
 
$
0.50

 
 
 
84
%
Diluted
$
0.90

 
 
 
$
0.48

 
 
 
88
%
Weighted average number of common shares outstanding:
Basic
226,132

 
 
 
228,837

 
 
 
(1
%)
Diluted
232,106

 
 
 
234,636

 
 
 
(1
%)


17



In thousands, except per share data
Year-to-Date
 
2014
 
% of Total
 
2013
 
% of Total
 
Change
 
 
 
 
 
 
 
 
 
 
Operating revenues:
 
 
 
 
 
 
 
 
 
Broadcasting
$
780,526

 
27
%
 
$
403,542

 
16
%
 
93
%
Publishing
1,709,428

 
60
%
 
1,775,464

 
70
%
 
(4
%)
Digital
374,116

 
13
%
 
361,428

 
14
%
 
4
%
Total operating revenues
$
2,864,070

 
100
%
 
$
2,540,434

 
100
%
 
13
%
 
 
 
 
 
 
 
 
 
 
Operating expenses
$
2,417,574

 
 
 
$
2,186,495

 
 
 
11
%
 
 
 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
 
 
Broadcasting
$
325,871

 
73
%
 
$
181,768

 
51
%
 
79
%
Publishing
96,227

 
22
%
 
145,329

 
41
%
 
(34
%)
Digital
59,519

 
13
%
 
58,881

 
17
%
 
1
%
Corporate
(35,121
)
 
(8
%)
 
(32,039
)
 
(9
%)
 
10
%
Total operating income
446,496

 
100
%
 
353,939

 
100
%
 
26
%
Non-operating expense (income)
(7,505
)
 
 
 
65,735

 
 
 
***

Provision for income taxes
158,500

 
 
 
45,000

 
 
 
***

Net income attributable to noncontrolling interests
27,875

 
 
 
25,019

 
 
 
11
%
Net income attributable to Gannett Co., Inc.
$
267,626

 
 
 
$
218,185

 
 
 
23
%
 
 
 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
 
 
Basic
$
1.18

 
 
 
$
0.95

 
 
 
24
%
Diluted
$
1.15

 
 
 
$
0.93

 
 
 
24
%
Weighted average number of common shares outstanding:
Basic
226,681

 
 
 
229,116

 
 
 
(1
%)
Diluted
232,187

 
 
 
234,866

 
 
 
(1
%)

A number of factors impacted 2014 revenue and expense comparisons. The largest of these drivers was the inclusion of the operations of television stations acquired or serviced as a result of the Belo transaction and continued growth of retransmission revenues in our broadcasting operations. These combined factors led to record Broadcasting Segment revenues. We continued to make progress in stabilizing our publishing operations and managing industry-wide softening of revenues through a number of initiatives including the All Access Content Subscription Model and the USA TODAY content editions in our local domestic publishing operations. Coupled with our efficiency initiatives, including consolidation of printing and distribution platforms, global sourcing and real estate optimization, we are managing expenses to align with continuing industry-wide challenges for our Publishing Segment. Our Digital Segment, led by CareerBuilder, provided consistent solid revenue growth while CareerBuilder positions itself for expansion in the software-as-a-service market for talent management solutions. Growth of digital revenues within our Publishing and Broadcasting Segments reflects the success of our expansion of digital marketing services, particularly with search and social products. As a result of these factors, the mix of our revenues and expenses is changing, with a significantly higher share of our revenues being generated by higher growth and higher margin broadcasting and digital operations.
Our operating revenues were $1.46 billion in the second quarter of 2014, an increase of 12% from $1.30 billion in the same period last year. For the first six months of 2014 operating revenues increased 13% to $2.86 billion from $2.54 billion in 2013. The increase in both periods was driven primarily by a record level of Broadcasting Segment revenues which increased 88% in the second quarter of 2014 and 93% in the first six months of 2014, reflecting revenue from the acquisitions in late 2013 and substantial increases in retransmission and political advertising revenues. On a pro forma basis, had we owned the Belo television stations in the same period last year and excluding Captivate and Apartments.com, total operating revenue would have increased 2% in both the second quarter and first six months of 2014. Broadcasting Segment revenues on a pro forma basis increased 13% in the second quarter of 2014 and 16% year-to-date. A separate discussion of pro forma information begins on page 30. Publishing Segment revenues were down 4% in the second quarter of 2014 and year-to-date, reflecting continued pressure on advertising demand, particularly domestic national advertising, partially offset by higher revenue associated with

18



digital advertising and marketing solutions. Digital Segment revenues increased 4% in the second quarter of 2014, driven by continued growth at CareerBuilder.
Operating expenses increased 11% for both the second quarter and year-to-date period. Broadcasting Segment operating expenses increased 99% in the second quarter and 105% in the first six months due to the impact of the Belo stations acquired in late 2013. On a pro forma basis, company-wide operating expenses were up 1% in the second quarter of 2014 and relatively flat in the first six months compared to the same periods in 2013. Broadcasting Segment expenses on a pro forma basis were up 3% in the second quarter of 2014 and 4% for the year-to-date period compared to the same periods last year. Publishing Segment operating expenses were down 1% in both the second quarter and year-to-date periods due to ongoing cost control and efficiency efforts. Digital Segment operating expenses increased 5% in the second quarter and 4% year-to-date as CareerBuilder continued to invest in its sales staff expansion as well as technology support for its human capital software solutions . A separate discussion of operating expenses excluding special items (non-GAAP basis) begins on page 24.
Non-operating income increased from an expense of $36.5 million for the second quarter of 2013 and $65.7 million for the year-to-date period in 2013 to income of $89.4 million in the second quarter of 2014 and $7.5 million for the year-to-date period, driven primarily by an increase in equity income. Equity income in unconsolidated investees totaled $156.5 million in the second quarter of 2014 and $165.0 million for the year-to-date period, reflecting primarily the gain from the sale of Apartments.com by Classified Ventures, an equity method investee. Interest expense was $64.1 million in the second quarter and $133.8 million for the year-to-date period in 2014 compared to $36.2 million and $71.6 million in the same periods last year reflecting primarily the issuance of debt in the second half of last year to fund the Belo acquisition, partially offset by a lower average interest rate. Total average outstanding debt was $3.48 billion for the second quarter of 2014 compared to $1.48 billion last year. The weighted average interest rate on total outstanding debt was 6.88% for the second quarter of 2014 compared to 8.31% last year. For the year-to-date period total average outstanding debt was $3.58 billion in 2014 compared to $1.49 billion last year. The weighted average interest rate on total outstanding debt was 6.96% year-to-date in 2014 compared to 8.27% in the same period last year.
Our reported effective income tax rate was 33.7% for the second quarter of 2014, compared to 25.8% for the second quarter of 2013. The tax rate for the second quarter in 2014 was higher than the comparable rate in 2013 due to special items in both years. The reported effective income tax rate was 37.2% for the first six months of 2014 compared to 17.1% for the same period last year. These rates reflect special items. The year-to-date 2014 rate was negatively impacted by a $23.8 million tax charge recognized on the sale of KMOV-TV in St. Louis, MO to Meredith Corporation in February 2014. The year-to-date 2013 rate was positively impacted by a net tax benefit of $27.8 million related to resolving a multi-year federal audit settlement and the release of a significant reserve for an uncertain state tax position. A separate discussion of effective income tax rates excluding special items (non-GAAP basis) appears on page 30.
The weighted average number of diluted shares outstanding for the second quarter of 2014 decreased by 2.5 million shares from 2013. For the year-to-date period the weighted average number of diluted shares outstanding in 2014 decreased by 2.7 million shares. These declines reflect shares repurchased since the second quarter of 2013, partially offset by increases in stock option exercises related to recent increases in our stock price. See Part II, Item 2 for information on share repurchases.

19



Segment Results
The following is a discussion of our reported operating segment results for the second quarter and year-to-date period of 2014. Unless otherwise noted, all comparisons are to the comparable prior year period.
Broadcasting Segment Results
A summary of our Broadcasting Segment results is presented below:
In thousands
Second Quarter
 
Year-to-Date
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenues
$
398,258

 
$
211,962

 
88
%
 
$
780,526

 
$
403,542

 
93
%
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating expenses, exclusive of depreciation
206,315

 
106,896

 
93
%
 
406,840

 
207,865

 
96
%
Depreciation
11,627

 
6,793

 
71
%
 
23,324

 
13,547

 
72
%
Amortization
5,885

 
181

 
***

 
16,106

 
362

 
***

Transformation costs
3,109

 

 
***

 
8,385

 

 
***

Total operating expenses
226,936

 
113,870

 
99
%
 
454,655

 
221,774

 
***

Operating income
$
171,322

 
$
98,092

 
75
%
 
$
325,871

 
$
181,768

 
79
%
Broadcasting Segment revenues are grouped into four categories: Core (Local and National), Political, Retransmission and Other. Digital revenues are included in the Other category. The following table summarizes the year-over-year changes in these select revenue categories.
In thousands
Second Quarter
 
2014
 
Percentage Change From 2013
 
Reported
 
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 Belo acquisition and Captivate disposition had occurred at the beginning of 2013.
(b) Reverse compensation to network affiliates is included as part of programming costs and therefore excluded from this line.
In thousands
Year-to-Date
 
2014
 
Percentage Change From 2013
 
Reported
 
Reported
 
Pro Forma (a)
 
 
 
 
 
 
Core (Local & National)
$
518,923

 
81
%
 
2
%
Political
26,544

 
***

 
***

Retransmission (b)
176,121

 
***

 
67
%
Other
58,938

 
48
%
 
13
%
Total
$
780,526

 
93
%
 
16
%