SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended
September 24, 2000 or
_ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
_______ to _________
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 (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Wilson Boulevard, Arlington, Virginia 22234
(Address of principal executive offices) (Zip Code)
(703) 284-6000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
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 X No __
The number of shares outstanding of the issuer's Common Stock,
Par Value $1.00, as of September 24, 2000 was 263,692,168.
PART I. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS
ACQUISITIONS AND EXCHANGES
On July 21, 2000, the company concluded the
acquisition of 19 daily newspapers as well as
numerous weekly and niche publications from Thomson
Newspapers, Inc., for an aggregate purchase price of
$1.036 billion. The company acquired eight daily
newspapers in Wisconsin, eight daily newspapers in
Central Ohio, and single daily newspapers in
Lafayette, LA; Salisbury, MD; and St. George, UT
(collectively, "Thomson").
The company completed its acquisition of Central
Newspapers, Inc. ("Central") on August 1, 2000, for
an approximate cash purchase price of $2.6 billion.
The company also retired Central's existing debt of
approximately $206 million. Central's properties
include The Arizona Republic; The Indianapolis Star;
three other dailies in Indiana and one daily in
Louisiana; a direct marketing business; CNI Ventures,
an internet and technology investment management
group; and other related media and information
businesses.
Both acquisitions have been accounted for under the
purchase method of accounting.
Early in the fourth quarter of 2000, the company
contributed the assets of its newspapers, the Marin
Independent Journal and the Classified Gazette, to
the California Newspapers Partnership in exchange for
an increased ownership interest in the partnership.
The company has had an ownership interest in the
partnership since March of 1999.
EARNINGS SUMMARY
Quarter
Operating income from continuing operations for the
third quarter of 2000 rose $67.6 million or 19%.
Newspaper publishing earnings were up $56.4 million
or 19% for the quarter, reflecting solid national and
classified advertising demand and the positive impact
of the Central and Thomson acquisitions, along with
Newsquest plc ("Newsquest") and News Communications &
Media PLC ("Newscom"), U.K. based newspaper companies
acquired in July 1999 and June 2000, respectively.
Television earnings were up $10.3 million or 16% for
the quarter, largely due to increased political and
Summer Olympics-related advertising demand.
Income from continuing operations was up $10.5
million or 5% for the quarter, and earnings per share
from continuing operations (diluted) rose to $0.79
from $0.70, a 13% increase. Income from continuing
operations was tempered by interest expense on funds
borrowed to acquire the new properties.
Year-to-date
Operating income from continuing operations for the
first nine months of 2000 rose $180.1 million or 17%.
Newspaper publishing earnings were up $164.9 million
or 19%, and television earnings were up $13.5 million
or 6%.
Results in the second quarter of 1999 included a $55
million net pre-tax gain from the exchange of KVUE-TV
in Austin, Texas, for KXTV-TV in Sacramento,
California, plus other consideration. Absent this
non-operating gain in 1999, income from continuing
operations for the first nine months of 2000 rose
$74.5 million or 12%, and earnings per share
(diluted) rose to $2.51 from $2.14, a 17% increase.
After-tax income from the operation of the cable
division, which was sold on January 31, 2000, was
$2.4 million, and the after-tax gain from the sale of
the cable division was $744.7 million. In total,
discontinued operations contributed $2.78 per share
(diluted). Net income for the year-to-date was $5.29
per share (diluted). A presentation of year-to-date
earnings excluding the net non-operating gain from
the television exchange and excluding discontinued
operations follows:
Earnings Summary Excluding
1999 Net Non-operating Gain
and Discontinued Operations
Thirty-nine weeks ended % Inc
Sept. 24, 2000 Sept. 26, 1999 (Dec)
Operating income $ 1,233,184 $1,053,069 17.1
Non-operating income (expense):
Interest expense (118,803) (56,918) 108.7
Other 6,361 4,731 34.5
------------- ------------- ----
Total (112,442) (52,187) 115.5
------------- ------------- ----
Income before income taxes 1,120,742 1,000,882 12.0
Provision for income taxes 443,700 398,300 11.4
------------- ------------- ----
Income from continuing
operations $ 677,042 $ 602,582 12.4
============ ============ ====
Earnings from continuing
operations per share basic $2.53 $2.16 17.1
===== ===== ====
Earnings from continuing
operations per share diluted $2.51 $2.14 17.3
===== ===== ====
NEWSPAPERS
The company completed the Central and Thomson
acquisitions in the third quarter of 2000, and the
Newsquest and Newscom acquisitions in July 1999 and
June 2000, respectively. These acquisitions had a
significant impact on operating results comparisons
for the first nine months of 2000 versus the first
nine months of 1999.
Reported newspaper publishing revenues rose $289.1
million or 26% in the third quarter and $661.7
million or 20% for the year-to-date, reflecting the
impact of revenues at the recently acquired
properties and strong advertising demand. Newspaper
advertising revenues increased $227.4 million or 28%
for the third quarter and $549.2 million or 24% for
the year-to-date.
The tables below provide, on a pro forma basis,
details of newspaper ad revenue, including the newly
acquired Central, Thomson, Newsquest and Newscom
properties, for the third quarter and the first nine
months of 2000 and 1999. Advertising linage and
preprint distribution details are also provided
below; however, linage and preprint distribution for
Newsquest and Newscom publications are not included.
Advertising revenue, in thousands of dollars (pro
forma)
Third quarter: 2000 1999 % Change
- --------------- -------- -------- --------
Local $300,477 $304,329 (1)
National 172,131 157,413 9
Classified 473,664 462,815 2
-------- -------- ----
Total Run-of-Press 946,272 924,557 2
Preprint and other
advertising 161,895 149,764 8
-------- -------- ----
Total ad revenue $1,108,167 $1,074,321 3
======== ======== ====
Advertising linage, in thousands of inches, and
preprint distribution, in millions (pro forma)
Third quarter: 2000 1999 % Change
- --------------- -------- -------- --------
Local 9,787 10,105 (3)
National 1,049 974 8
Classified 14,527 13,880 5
-------- -------- ----
Total Run-of-Press
linage 25,363 24,959 2
======== ======== ====
Preprint distribution 2,427 2,357 3
======== ======== ====
Advertising revenue, in thousands of dollars (pro
forma)
Year-to-date: 2000 1999 % Change
- ------------- -------- -------- --------
Local $928,351 $928,361 0
National 557,362 500,018 11
Classified 1,422,418 1,361,090 5
--------- --------- ----
Total Run-of-Press 2,908,131 2,789,469 4
Preprint and other
advertising 485,832 443,498 10
--------- --------- ----
Total ad revenue $3,393,963 $3,232,967 5
========= ========= ====
Advertising linage, in thousands of inches, and
preprint distribution, in millions (pro forma)
Year-to-date: 2000 1999 % Change
- ------------- -------- -------- --------
Local 30,008 30,467 (2)
National 3,321 2,923 14
Classified 42,682 40,274 6
-------- -------- ----
Total Run-of-Press
linage 76,011 73,664 3
======== ======== ====
Preprint distribution 7,254 6,932 5
======== ======== ====
Pro forma newspaper advertising revenues rose 3% for
the quarter and 5% for the year-to-date. Local ad
revenues decreased 1% on a volume decrease of 3% for
the quarter. Local ad revenues remained level for
the year-to-date on a volume decrease of 2%.
National ad revenues rose 9% on a volume increase of
8% for the quarter and rose 11% on a volume increase
of 14% for the year-to-date. Classified ad revenues
increased 2% on a volume increase of 5% for the
quarter and rose 5% on a volume increase of 6% for
the year-to-date. Most of the company's newspapers,
including USA TODAY, recorded solid gains in advertising
revenue. During the quarter, reported revenues from the
company's United Kingdom operations were unfavorably
impacted by the decline in the exchange rate for
British pounds. If the exchange rate had remained
constant year-over-year, pro forma advertising
revenues would have increased 4% for the quarter and
6% for the year-to-date.
Reported newspaper circulation revenues increased by
$43.5 million or 17% for the third quarter and $72.6
million or 10% for the year-to-date, reflecting the
impact of the Central, Thomson, Newsquest and Newscom
acquisitions. Pro forma net paid daily circulation
for the company's local newspapers remained level for
the quarter and for the year-to-date. Sunday
circulation was lower by 2% for the quarter and by 1%
for the year-to-date. USA TODAY reported an average
daily paid circulation of 2,257,774 in the ABC
Publisher's statement for the 26 weeks ended
September 24, 2000, a 1% increase over the comparable
period a year ago.
Operating costs for the newspaper segment increased
$232.8 million or 28% for the third quarter and
$496.8 million or 21% for the year-to-date, largely
due to the added costs from the new properties. In
total, newsprint expense increased by 30% for the
quarter and 11% for the year-to-date due to a 19%
increase in consumption for the quarter and a 16%
increase in consumption for the year-to-date,
resulting primarily from usage related to the
company's acquisitions. Newsprint prices were higher
than in 1999 for the quarter but lower for the year-
to-date. The company expects higher newsprint costs
in the fourth quarter of 2000 over the prior year,
reflecting the impact of added consumption from
acquisitions and higher newsprint prices.
Newspaper operating income increased $56.4 million or
19% for the quarter and $164.9 million or 19% for the
year-to-date, reflecting strong advertising gains
throughout the group, particularly in national
advertising, and the positive impact of the recently
acquired properties.
TELEVISION
Reported television revenues increased $16.6 million
or 10% for the third quarter, buoyed by political and
Summer Olympic-related advertising demand. Operating
costs for the quarter increased $6.3 million or 6%.
Television revenues increased $33.1 million or 6% for
the year-to-date, and operating costs increased $19.6
million or 7%. Reported results include the March
2000 acquisition of WJXX-TV, the ABC affiliate in
Jacksonville, Florida. On a pro forma basis,
television station revenues also increased 10% for
the quarter and 6% for the year-to-date. Pro forma
local revenues increased 2% for the quarter and
remained level for the year-to-date, while national
revenues increased 24% for the quarter and 15% for
the year-to-date. Reported television operating
income increased $10.3 million or 16% for the quarter
and $13.5 million or 6% for the year-to-date.
Gannett Television consists of 22 television stations
reaching 17.5 percent of the U.S. television market.
NON-OPERATING INCOME AND EXPENSE/PROVISION FOR INCOME
TAXES
Interest expense increased to $76.0 million from
$26.5 million in the third quarter and increased to
$118.8 million from $56.9 million for the
year-to-date, reflecting increased commercial paper
borrowings due to the 1999 Newsquest acquisition, the
Newscom acquisition in the second quarter of 2000,
the Central and Thomson acquisitions in the third
quarter of 2000, and share repurchases. The
increase, however, was tempered by the pay-down of
commercial paper borrowings from the net proceeds on
the sale of the cable business in the first quarter
of 2000 and from operating cash flows. Other
non-operating income in the first nine months of 1999
reflects the $55 million net pre-tax gain resulting
from the exchange of television stations discussed
above.
The company's effective income tax rate was 39.6% for
the third quarter and year-to-date, versus 39.8% for
the same periods last year, reflecting lower state
taxes and lower taxes on foreign operations.
INCOME FROM CONTINUING OPERATIONS/NET INCOME
Income from continuing operations increased $10.5
million or 5% for the quarter. Income from
continuing operations for the year-to-date, excluding
the second quarter 1999 gain from the exchange of
television stations discussed above, increased $74.5
million or 12%. Diluted earnings per share from
continuing operations rose to $0.79 from $0.70 for
the third quarter, a 13% increase. Diluted earnings
per share from continuing operations for the year-to-
date, excluding the 1999 gain, rose to $2.51 from
$2.14, a 17% increase.
Net income totaled $208.3 million for the third
quarter and $1,424.2 million for the year-to-date.
Net income per share (diluted), including
discontinued operations, was $0.79 for the quarter
compared to $0.74 in 1999 and $5.29 for the
year-to-date compared to $2.35 in 1999.
The weighted average number of diluted shares
outstanding in the third quarter totaled 265,232,000,
compared to 282,200,000 for the third quarter of
1999. The weighted average number of diluted shares
outstanding for the first nine months of 2000 totaled
269,234,000, compared to 282,035,000 for the first
nine months of 1999.
On February 1, 2000, the company announced that its
Board approved a new $500 million share repurchase
authorization. On February 23, 2000, having used a
substantial portion of that authorization, the Board
approved an additional $500 million for share
repurchases. During the first six months of 2000,
the company repurchased approximately 14.7 million
shares of common stock at a cost of approximately
$967.2 million. There were no stock repurchases in the
third quarter. The stock repurchases in 2000 were
partially offset by shares issued upon the exercise
of stock options and settlement of stock incentive
rights. Exhibit 11 of this Form 10-Q presents the
weighted average number of basic and diluted shares
outstanding and the earnings per share for each
period.
LIQUIDITY AND CAPITAL RESOURCES
The company's consolidated operating cash flow
(defined as operating income plus depreciation and
amortization of intangible assets), as reported in
the accompanying Business Segment Information,
totaled $524.6 million for the third quarter of 2000,
compared with $428.2 million for the same period of
1999, a 23% increase, and $1,499.6 million for the
first nine months of 2000, compared with $1,258.8
million for the first nine months of 1999, a 19%
increase, reflecting strong overall operating results
and the acquisitions of Central, Thomson, Newsquest
and Newscom.
Capital expenditures totaled $91.1 million for the
third quarter and $213.3 million for the
year-to-date, compared to $62.4 million for the third
quarter of 1999 and $166.1 million for the first nine
months of 1999. The company's debt increased by
$2,963.2 million during the first nine months of
2000, reflecting borrowings for the Newscom, Central
and Thomson acquisitions and for significant share
repurchases, net of operating cash flows and net
proceeds from the sale of the cable business. The
company's debt increased significantly early in the
third quarter of 2000 as a result of the Central and
Thomson acquisitions, which were funded with
commercial paper, backed up by a $3.06 billion
Competitive Advance and Revolving Credit Agreement.
The cable business sale and the Central, Thomson and
Newscom acquisitions resulted in significant changes
in the company's excess of acquisition cost over the
value of assets acquired and its property, plant and
equipment, investments and other assets.
The company's foreign currency translation
adjustment, included in accumulated other
comprehensive income and reported as part of
shareholders' equity, totaled ($96.3 million) at the
end of the third quarter versus $14.3 million at the
end of 1999, reflecting a weakening of the British
pound against the U.S. dollar since the end of the
year. Newsquest and Newscom assets and liabilities
at September 24, 2000, were translated from British
pounds to U.S. dollars at an exchange rate of $1.46.
Newsquest and Newscom operating results were
translated at an average rate of $1.47 for the third
quarter and $1.52 for the year-to-date.
The company's regular quarterly dividend of $0.22 per
share was declared in the third quarter of 2000.
Dividends declared totaled $58.0 million for the
third quarter and $170.2 million for the
year-to-date.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
Certain statements in the company's 1999 Annual
Report to Shareholders, its Annual Report on Form
10-K, its first and second quarter Reports on Form
10-Q, and in this Quarterly Report contain
forward-looking information. The words expect,
intend, believe, anticipate, likely, will and similar
expressions generally identify forward-looking
statements. These forward-looking statements are
subject to certain risks and uncertainties which
could cause actual results and events to differ
materially from those anticipated in the
forward-looking statements.
Potential risks and uncertainties which could
adversely affect the company's ability to obtain
these results include, without limitation, the
following factors: (a) increased consolidation among
major retailers or other events which may adversely
affect business operations of major customers and
depress the level of local and national advertising;
(b) an economic downturn in some or all of the
company's principal newspaper or television markets
leading to decreased circulation or local, national
or classified advertising; (c) a decline in general
newspaper readership patterns as a result of
competitive alternative media or other factors;
(d) an increase in newsprint or syndication
programming costs over the levels anticipated; (e)
labor disputes which may cause revenue declines or
increased labor costs; (f) acquisitions of new
businesses or dispositions of existing businesses;
(g) a decline in viewership of major networks and
local news programming; (h) rapid technological
changes and frequent new product introductions
prevalent in electronic publishing; and (i) a
weakening in the British pound to U.S. dollar
exchange rate.
CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Sept. 24, 2000 Dec. 26, 1999
---------------- ---------------
ASSETS
Cash $ 62,863 $ 46,148
Marketable securities 108,650 12
Trade receivables, less allowance
(2000 - $39,044; 1999 - $30,694) 851,016 800,682
Inventories 123,385 95,014
Prepaid expenses and other receivables 111,584 133,366
---------------- ---------------
Total current assets 1,257,498 1,075,222
---------------- ---------------
Property, plant and equipment
Cost 4,074,626 3,883,912
Less accumulated depreciation (1,696,341) (1,660,060)
---------------- ---------------
Net property, plant and equipment 2,378,285 2,223,852
---------------- ---------------
Intangible and other assets
Excess of acquisition cost over the value of
assets acquired, less amortization 8,735,167 5,398,227
Investments and other assets 394,165 309,145
---------------- ---------------
Total intangible and other assets 9,129,332 5,707,372
---------------- ---------------
Total assets $ 12,765,115 $ 9,006,446
================ ===============
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable and current portion of film
contracts payable $ 461,750 $ 348,589
Compensation, interest and other accruals 313,145 271,495
Dividend payable 58,219 58,297
Income taxes 142,519 77,553
Deferred income 149,346 127,844
---------------- ---------------
Total current liabilities 1,124,979 883,778
---------------- ---------------
Deferred income taxes 222,343 479,547
Long-term debt, less current portion 5,911,927 2,463,250
Postretirement medical and life insurance liabilities 402,952 304,400
Other long-term liabilities 291,643 245,825
---------------- ---------------
Total liabilities 7,953,844 4,376,800
---------------- ---------------
Shareholders' Equity
Preferred stock of $1 par value per share. Authorized
2,000,000 shares; issued - none.
Common stock of $1 par value per share. Authorized
400,000,000; issued, 324,420,732 shares. 324,421 324,421
Additional paid-in capital 156,245 153,267
Retained earnings 6,758,801 5,504,810
Accumulated other comprehensive income (95,618) 25,377
---------------- ---------------
Total 7,143,849 6,007,875
---------------- ---------------
Less treasury stock - 60,728,564 shares and
46,494,301 shares respectively, at cost (2,317,512) (1,359,263)
Deferred compensation related to ESOP (15,066) (18,966)
---------------- ---------------
Total shareholders' equity 4,811,271 4,629,646
---------------- ---------------
Total liabilities and shareholders' equity $ 12,765,115 $ 9,006,446
================ ===============
CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
Thirteen weeks ended % Inc
Sept. 24, 2000 Sept. 26, 1999 (Dec)
Net Operating Revenues:
Newspaper advertising $ 1,045,203 $ 817,844 27.8
Newspaper circulation 299,292 255,754 17.0
Television 183,352 166,770 9.9
Other 71,442 53,193 34.3
------------- ------------- ----
Total 1,599,289 1,293,561 23.6
Operating Expenses:
Cost of sales and operating
expenses, exclusive of
depreciation (1) 820,171 653,754 25.5
Selling, general and administrative
expenses, exclusive of
depreciation (1) 254,542 211,616 20.3
Depreciation 51,509 44,325 16.2
Amortization of intangible assets 52,082 30,500 70.8
------------- ------------- ----
Total 1,178,304 940,195 25.3
------------- ------------- ----
Operating income 420,985 353,366 19.1
------------- ------------- ----
Non-operating income (expense):
Interest expense (75,962) (26,474) 186.9
Other (260) 1,588 ---
------------- ------------- ----
Total (76,222) (24,886) ---
------------- ------------- ----
Income before income taxes 344,763 328,480 5.0
Provision for income taxes 136,500 130,700 4.4
------------- ------------- ----
Income from continuing operations 208,263 197,780 5.3
Discontinued Operations:
Income from the operation of
discontinued operations, net
of tax 9,699 ---
------------- ------------- ----
Net income $ 208,263 $ 207,479 0.4
============= ============= ====
Earnings from continuing
operations per share-basic $0.79 $0.70 12.9
Earnings from discontinued
operations:
Discontinued operations per
share-basic $0.04 ---
----- ----- ----
Net income per share-basic $0.79 $0.74 6.8
===== ===== ====
Earnings from continuing
operations per share-diluted $0.79 $0.70 12.9
Earnings from discontinued
operations:
Discontinued operations per
share-diluted $0.04 ---
----- ----- ----
Net income per share-diluted $0.79 $0.74 6.8
===== ===== ====
Dividends per share $0.22 $0.21 4.8
===== ===== ====
(1) Certain 1999 amounts have been reclassified to conform with the current
year presentation.
CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
Thirty-nine weeks ended % Inc
Sept. 24, 2000 Sept. 26, 1999 (Dec)
Net Operating Revenues:
Newspaper advertising $ 2,875,887 $ 2,326,669 23.6
Newspaper circulation 830,519 757,923 9.6
Television 555,554 522,444 6.3
Other 191,972 152,082 26.2
-------------- -------------- ----
Total 4,453,932 3,759,118 18.5
Operating Expenses:
Cost of sales and operating
expenses, exclusive of
depreciation (1) 2,236,522 1,898,718 17.8
Selling, general and
administrative expenses,
exclusive of depreciation (1) 717,812 601,577 19.3
Depreciation 145,187 129,170 12.4
Amortization of intangible assets 121,227 76,584 58.3
-------------- -------------- ----
Total 3,220,748 2,706,049 19.0
-------------- -------------- ----
Operating income 1,233,184 1,053,069 17.1
Non-operating income (expense):
Interest expense (118,803) (56,918) 108.7
Other (2) 6,361 59,261 ---
-------------- -------------- ----
Total (112,442) 2,343 ---
-------------- -------------- ----
Income before income taxes 1,120,742 1,055,412 6.2
Provision for income taxes 443,700 420,050 5.6
-------------- -------------- ----
Income from continuing operations 677,042 635,362 6.6
Discontinued Operations:
Income from the operation of
discontinued operations,
net of tax 2,437 27,980 (91.3)
Gain on sale of cable business,
net of tax 744,700 ---
-------------- -------------- ----
Net income $ 1,424,179 $ 663,342 114.7
============== ============== =====
Earnings from continuing
operations per share-basic $2.53 $2.27 11.5
Earnings from discontinued
operations:
Discontinued operations
per share-basic $0.01 $0.10 (90.0)
Gain on sale of cable business
per share-basic $2.79 ---
----- ----- ----
Net income per share-basic $5.33 $2.37 ---
===== ===== ====
Earnings from continuing
operations per share-diluted $2.51 $2.25 11.6
Earnings from discontinued
Discontinued operations
per share-diluted $0.01 $0.10 (90.0)
Gain on sale of cable business
per share-diluted $2.77 ---
----- ----- ----
Net income per share-diluted $5.29 $2.35 ---
===== ===== ====
Dividends per share $0.64 $0.61 4.9
===== ===== ====
(1) Certain 1999 amounts have been reclassified to conform with the current
year presentation.
(2) 1999 results include a net non-operating gain principally from the
exchange of KVUE-TV in Austin, Texas for KXTV-TV in Sacramento, California.
See Management's Discussion and Analysis of Operations for earnings summary
excluding net non-operating gain.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirty-nine weeks ended
Sept. 24, 2000 Sept. 26, 1999
-------------- --------------
Cash flows from operating activities
Net income $ 1,424,179 $ 663,342
Adjustments to reconcile net income to
operating cash flows:
Discontinued operations (747,137) (27,980)
Income taxes on sale of cable division (889,301)
Depreciation 145,187 129,170
Amortization of intangibles 121,227 76,584
Deferred income taxes (187,426) 26,042
Other, net 217,408 35,976
--------- ---------
Net cash flow provided by
operating activities 84,137 903,134
--------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (213,298) (166,126)
Payments for acquisitions, net of cash acquired (4,237,148) (1,665,182)
Change in other investments (62,013) (18,626)
Proceeds from sale of certain assets 2,714,362 38,450
Collection of long-term receivables 1,900 8,178
--------- ---------
Net cash used for investing activities (1,796,197) (1,803,306)
--------- ---------
Cash flows from financing activities
Proceeds from long-term debt 2,963,232 1,130,394
Dividends paid (170,265) (167,620)
Cost of common shares repurchased (967,242) (91,259)
Proceeds from issuance of common stock 10,321 16,644
--------- ---------
Net cash provided by financing activities 1,836,046 888,159
--------- ---------
Effect of currency exchange rate change 1,367 202
--------- ---------
Net increase (decrease) in cash and cash equivalents 125,353 (11,811)
Balance of cash and cash equivalents at
beginning of year 46,160 66,187
--------- ---------
Balance of cash and cash equivalents at
end of third quarter $ 171,513 $ 54,376
========= =========
BUSINESS SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirteen weeks ended % Inc
Sept. 24, 2000 Sept. 26, 1999 (Dec)
Operating Revenues:
Newspaper publishing $1,415,937 $1,126,791 25.7
Television 183,352 166,770 9.9
---------- ---------- ----
Total $1,599,289 $1,293,561 23.6
========== ========== ====
Operating Income (net of
depreciation and amortization):
Newspaper publishing $361,068 $304,676 18.5
Television 76,047 65,773 15.6
Corporate (16,130) (17,083) 5.6
---------- ---------- ----
Total $420,985 $353,366 19.1
========== ========== ====
Depreciation and Amortization:
Newspaper publishing $85,405 $56,789 50.4
Television 16,248 15,522 4.7
Corporate 1,938 2,514 (22.9)
---------- ---------- ----
Total $103,591 $74,825 38.4
========== ========== ====
Operating Cash Flow:
Newspaper publishing $446,473 $361,465 23.5
Television 92,295 81,295 13.5
Corporate (14,192) (14,569) 2.6
---------- ---------- ----
Total $524,576 $428,191 22.5
========== ========== ====
NOTE:
Operating Cash Flow represents operating income for each of the company's
business segments plus related depreciation and amortization expense.
BUSINESS SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirty-nine weeks ended % Inc
Sept. 24, 2000 Sept. 26, 1999 (Dec)
Operating Revenues:
Newspaper publishing $3,898,378 $3,236,674 20.4
Television 555,554 522,444 6.3
---------- ---------- ----
Total $4,453,932 $3,759,118 18.5
========== ========== ====
Operating Income (net of
depreciation and amortization):
Newspaper publishing $1,037,734 $872,853 18.9
Television 244,044 230,524 5.9
Corporate (48,594) (50,308) 3.4
---------- ---------- ----
Total $1,233,184 $1,053,069 17.1
========== ========== ====
Depreciation and Amortization:
Newspaper publishing $210,937 $151,168 39.5
Television 49,283 47,298 4.2
Corporate 6,194 7,288 (15.0)
---------- ---------- ----
Total $266,414 $205,754 29.5
========== ========== ====
Operating Cash Flow:
Newspaper publishing $1,248,671 $1,024,021 21.9
Television 293,327 277,822 5.6
Corporate (42,400) (43,020) 1.4
---------- ---------- ----
Total $1,499,598 $1,258,823 19.1
========== ========== ====
NOTE:
Operating Cash Flow represents operating income for each of the company's
business segments plus related depreciation and amortization expense.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Sept. 24, 2000
1. Basis of Presentation
The accompanying unaudited consolidated condensed 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. The financial statements covering the 13 and
39-week periods ended Sept. 24, 2000, and the comparative periods of
1999, reflect all adjustments which, in the opinion of the company,
are necessary for a fair statement of results for the interim periods.
2. Accounting Standards
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" was issued. It was amended in June 1999
by SFAS No. 137, which provides that the standard is effective
for all fiscal quarters of all fiscal years beginning after June 15,
2000. The adoption of this standard, as further amended by
SFAS No. 138, is not expected to have a material effect on the
company's results of operations or financial position.
In May 2000, the Emerging Issues Task Force (EITF) reached a consensus
on EITF 00-1, "Balance Sheet and Income Statement Display under the
Equity Method for Investors in Certain Partnerships and Other Unincorporated
Joint Ventures", prohibiting the use of pro-rata consolidation except in the
extractive and construction industries. The company currently uses pro-rata
consolidation in reporting the results of certain of its newspaper
subsidiaries which are participants in joint operating agencies. EITF 00-1
is effective for fiscal years ending after June 15, 2000 and also requires
reclassification of prior year financial statements. The company will
implement EITF 00-1 in the fourth quarter of 2000 which will require certain
reclassifications but will not have any impact on overall reported results of
operations.
3. Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income" established standards for
reporting comprehensive income. Comprehensive income for the company includes
net income, foreign currency translation adjustments and unrealized gains on
available-for-sale securities, as defined under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Comprehensive income
totaled $166.8 million for the third quarter and $1,303.2 million for the
year-to-date. Other comprehensive income relates to foreign currency
translation adjustments and unrealized gains on available-for-sale securities,
net of tax. The accumulated other comprehensive income was net of a deferred
income tax asset of $26.5 million for the third quarter and $77.4 million for
the year-to-date.
4. Acquisitions and Dispositions
The company completed its acquisition of Central Newspapers, Inc. ("Central")
on August 1, 2000, for an approximate cash purchase price of $2.6 billion.
The company also retired Central's existing debt of approximately $206 million.
Central's properties include The Arizona Republic; The Indianapolis Star; three
other dailies in Indiana and one daily in Louisiana; a direct marketing
business; CNI Ventures, an internet and technology investment management group;
and other related media and information businesses.
On July 21, 2000, the company concluded the acquisition of 19 daily newspapers
as well as numerous weekly and niche publications from Thomson Newspapers, Inc.
for an aggregate purchase price of $1.036 billion. The company acquired
eight daily newspapers in Wisconsin, eight daily newspapers in Central Ohio,
and single daily newspapers in Lafayette, LA; Salisbury, MD; and St. George, UT
(collectively "Thomson").
On May 5, 2000, Gannett U.K. Limited ("Gannett U.K."), a wholly owned
subsidiary of the company, made a cash offer to acquire the entire issued and
to be issued share capital of News Communications & Media PLC ("Newscom").
Pursuant to the Offer, Newscom shareholders elected to receive 1800 pence
(US $28.44) per share in cash or Loan Notes, valuing the entire issued share
capital of Newscom at approximately 444 million British pounds (US $702
million). Gannett U.K. also financed the repayment of Newscom's existing debt.
On June 5, 2000, pursuant to the Offer Document, Gannett U.K. declared the
Offer unconditional in all respects, and shortly thereafter, Gannett U.K.
effectively owned 100% of Newscom shares.
The Central, Thomson and Newscom acquisitions have been accounted for under
the purchase method of accounting and the purchase price allocations are
preliminary. The excess of acquisition cost over the value of assets acquired
recorded through the third quarter relating to these acquisitions totals
$4,247.1 million. The final allocations will be based on a complete evaluation
of assets acquired and liabilities assumed.
On March 17, 2000, the company completed the acquisition of WJXX-TV, the ABC
affiliate in Jacksonville, Florida, which was accounted for under the purchase
method of accounting. Gannett continues to own and operate WLTV-TV, the NBC
affiliate in Jacksonville.
The sale of the assets of the company's cable business for $2.7 billion was
completed on January 31, 2000. Upon closing, an after-tax gain of
approximately $745 million or $2.77 per diluted share was recognized which,
along with the cable segment operating results, are reported as discontinued
operations in the company's financial statements. The company's operating
revenues for the cable segment (now included in discontinued operations)
were $22.1 million for the first quarter of 2000 (sold on January 31, 2000),
$64.7 million for the first quarter of 1999, and $190.5 million for the first
nine months of 1999.
The following table summarizes, on an unaudited, pro forma basis, the
estimated combined results of operations of the company and its subsidiaries
as though the 2000 acquisitions (Newscom, Thomson and Central) and
disposition (cable business) and the 1999 acquisitions (Newsquest,
KXTV-Sacramento) and disposition (KVUE-Austin) were all made at the beginning
of 1999. However, this pro forma combined statement does not necessarily
reflect the results of operations as they would have been if the combined
companies had constituted a single entity during those years.
In millions, except per share amounts (pro forma and unaudited)
Year-to-date
- ------------
2000 1999
-------- --------
Operating revenues $ 5,133 $ 4,948
Income before income taxes $ 1,070 $ 1,037
Income from continuing operations $ 633 $ 615
Income per share from continuing
operations - diluted $ 2.35 $ 2.18
The following table summarizes, on an unaudited, pro forma basis, the
estimated combined results of operations of the company and its subsidiaries
as though the acquisitions and dispositions noted above were
made at the beginning of 1999. However, this pro forma combined statement
does not necessarily reflect the results of operations as they would have
been if the combined companies had constituted a single entity during those
years. It also excludes the 1999 net non-operating gain discussed in
Management's Discussion and Analysis of Operations.
In millions, except per share amounts (pro forma and unaudited)
Year-to-date
- ------------
2000 1999
-------- --------
Operating revenues $ 5,133 $ 4,948
Income before income taxes $ 1,070 $ 982
Income from continuing operations $ 633 $ 583
Income per share from continuing
operations - diluted $ 2.35 $ 2.07
5. Outstanding Shares
The weighted average number of common shares outstanding (basic)
in the third quarter totaled 263,665,000, compared to 279,581,000 for the
third quarter of 1999. The weighted average number of common shares
outstanding (basic) for the first nine months of 2000 totaled 267,344,000,
compared to 279,505,000 for the first nine months of 1999.
The weighted average number of diluted shares outstanding in the third
quarter totaled 265,232,000, compared to 282,200,000 for the third quarter
of 1999. The weighted average number of diluted shares outstanding for the
first nine months of 2000 totaled 269,234,000, compared to 282,035,000 for
the first nine months of 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is not subject to market risk associated with derivative commodity
instruments, as the company is not a party to any such instruments. The
company believes that its market risk from financial instruments, such as
accounts receivable, accounts payable and debt, is not material. The company is
exposed to foreign exchange rate risk primarily due to its operations in the
United Kingdom, which use British pounds as their functional currency, which is
then translated into U.S. dollars.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See Exhibit Index for list of exhibits filed with this
report.
(b) (i) Current Report on Form 8-K filed February 15, 2000, in
connection with the company's sale of its cable business.
(ii) Current Report on Form 8-K filed May 2, 2000, in
connection with the company's amendment of its Rights
Plan Agreement.
(iii) Current Report on Form 8-K filed July 3, 2000, in
connection with the company's acquisition of Central
Newspapers, Inc.
(iv) Current Report on Form 8-K filed August 15, 2000, in
connection with the company's acquisition of Central
Newspapers, Inc.
(v) Current Report on Form 8-K/A filed October 16, 2000, in
connection with the company's acquisition of Central
Newspapers, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GANNETT CO., INC.
Dated: November 8, 2000 By: /s/ George R. Gavagan
------------------------------
George R. Gavagan
Vice President and Controller
Dated: November 8, 2000 By: /s/ Thomas L. Chapple
------------------------------
Thomas L. Chapple
Senior Vice President, General
Counsel and Secretary
EXHIBIT INDEX
Exhibit
Number Exhibit Location
3-1 Second Restated Certificate Incorporated by reference to Exhibit
of Incorporation of Gannett Co., 3-1 to Gannett Co., Inc.'s Form 10-K
Inc. for the fiscal year ended December 26,
1993 ("1993 Form 10-K"). Amendment
incorporated by reference to Exhibit
3-1 to the 1993 Form 10-K. Amendment
dated May 2, 2000, incorporated by
reference to Gannett Co., Inc.'s Form
10-Q for the fiscal quarter ended
March 26, 2000.
3-2 By-laws of Gannett Co., Inc. Attached
(reflects all amendments
through October 17, 2000)
4-1 $1,000,000,000 Revolving Incorporated by reference to Exhibit
Credit Agreement among 4-1 to the 1993 Form 10-K.
Gannett Co., Inc. and the
Banks named therein.
4-2 Amendment Number One Incorporated by reference to Exhibit
to $1,000,000,000 Revolving 4-2 to Gannett Co., Inc.'s Form 10-Q
Credit Agreement among for the fiscal quarter ended June 26,
Gannett Co., Inc. and the 1994.
Banks named therein.
4-3 Amendment Number Two to Incorporated by reference to Exhibit
$1,500,000,000 Revolving 4-3 to Gannett Co., Inc.'s Form 10-K
Credit Agreement among for the fiscal year ended
Gannett Co., Inc. and the December 31, 1995.
Banks named therein.
4-4 Amendment Number Three to Incorporated by reference to Exhibit
$3,000,000,000 Revolving 4-4 to Gannett Co., Inc.'s Form 10-Q
Credit Agreement among for the fiscal quarter ended
Gannett Co., Inc. and the Banks September 29, 1996.
named therein.
4-5 Indenture dated as of March 1, Incorporated by reference to Exhibit
1983 between Gannett Co., Inc. 4-2 to Gannett Co., Inc.'s Form 10-K
and Citibank, N.A., as Trustee. for the fiscal year ended
December 29, 1985.
4-6 First Supplemental Indenture Incorporated by reference to Exhibit
dated as of November 5, 1986 4 to Gannett Co., Inc.'s Form 8-K
among Gannett Co., Inc., filed on November 9, 1986.
Citibank, N.A., as Trustee, and
Sovran Bank, N.A., as Successor
Trustee.
4-7 Second Supplemental Indenture Incorporated by reference to
dated as of June 1, 1995, Exhibit 4 to Gannett Co., Inc.'s
among Gannett Co., Inc., Form 8-K filed on June 15, 1995.
NationsBank, N.A., as Trustee,
and Crestar Bank, as Trustee.
4-8 Rights Plan. Incorporated by reference to
Exhibit 1 to Gannett Co., Inc.'s
Form 8-K filed on May 23, 1990.
Amendment incorporated by reference
to Gannett Co., Inc.'s Form 8-K
filed on May 2, 2000.
4-9 Amendment Number Four to Incorporated by reference to
$3,000,000,000 Revolving Exhibit 4-9 to Gannett Co., Inc.'s
Credit Agreement among Form 10-Q filed on August 12, 1998.
Gannett Co., Inc. and the
Banks named therein.
4-10 $3,000,000,000 Competitive Incorporated by reference to Exhibit
Advance and Revolving Credit 4-10 to Gannett Co., Inc.'s Form 10-Q
Agreement among Gannett Co., filed on August 9, 2000.
Inc. and the Banks named
therein.
10-1 Employment Agreement dated Incorporated by reference to Gannett
December 7, 1992 between Co., Inc.'s Form 10-K for the fiscal
Gannett Co., Inc. and John J. year ended December 27, 1992 ("1992
Curley.* Form 10-K").
10-2 Employment Agreement dated Incorporated by reference to the 1992
December 7, 1992 between Form 10-K.
Gannett Co., Inc. and Douglas H.
McCorkindale.*
10-3 Gannett Co., Inc. 1978 Incorporated by reference to Exhibit
Executive Long-Term Incentive 10-3 to Gannett Co., Inc.'s Form 10-K
Plan* for the fiscal year ended
December 28, 1980. Amendment No. 1
incorporated by reference to
Exhibit 20-1 to Gannett Co., Inc.'s
Form 10-K for the fiscal year ended
December 27, 1981. Amendment No. 2
incorporated by reference to
Exhibit 10-2 to Gannett Co., Inc.'s
Form 10-K for the fiscal year ended
December 25, 1983. Amendments Nos. 3
and 4 incorporated by reference to
Exhibit 4-6 to Gannett Co., Inc.'s
Form S-8 Registration Statement
No. 33-28413 filed on May 1, 1989.
Amendments Nos. 5 and 6 incorporated
by reference to Exhibit 10-8 to
Gannett Co., Inc.'s Form 10-K for the
fiscal year ended December 31, 1989.
Amendment No. 7 incorporated by
reference to Gannett Co., Inc.'s
Form S-8 Registration Statement
No. 333-04459 filed on May 24, 1996.
Amendment No. 8 incorporated by
reference to Exhibit 10-3 to Gannett
Co., Inc.'s Form 10-Q for the quarter
ended September 28, 1997. Amendment
dated December 9, 1997, incorporated
by reference to Gannett Co., Inc.'s
1997 Form 10-K. Amendment No. 9
incorporated by reference to Exhibit
10-3 to Gannett Co., Inc.'s Form 10-Q
for the quarter ended June 27, 1999.
Amendment No. 10 incorporated by
reference to Exhibit 10-3 to Gannett
Co., Inc's Form 10-Q for the quarter
ended June 25, 2000.
10-4 Description of supplemental Incorporated by reference to Exhibit
insurance benefits.* 10-4 to the 1993 Form 10-K.
10-5 Gannett Co., Inc. Supplemental Incorporated by reference to Exhibit
Retirement Plan, as amended.* 10-5 to Gannett Co., Inc.'s Form 10-K
for the fiscal year ended
December 26, 1999.
10-6 Gannett Co., Inc. Retirement Incorporated by reference to Exhibit
Plan for Directors.* 10-10 to the 1986 Form 10-K. 1991
Amendment incorporated by reference
to Exhibit 10-2 to Gannett Co.,
Inc.'s Form 10-Q for the quarter
ended September 29, 1991. Amendment
to Gannett Co., Inc. Retirement
Plan for Directors dated October 31,
1996, incorporated by reference to
Exhibit 10-6 to the 1996 Form 10K.
10-7 Amended and Restated Incorporated by reference to Exhibit
Gannett Co., Inc. 1987 10-1 to Gannett Co., Inc.'s Form 10-Q
Deferred Compensation Plan.* for the fiscal quarter ended
September 29, 1996. Amendment No. 5
incorporated by reference to Exhibit
10-2 to Gannett Co., Inc.'s Form 10-Q
for the quarter ended September 28,
1997. Amendment No. 2 to January 1,
1997 Restatement incorporated by
reference to Exhibit 10-7 to
Gannett Co., Inc.'s Form 10-Q for the
quarter ended June 27, 1999.
10-8 Gannett Co., Inc. Transitional Incorporated by reference to Exhibit
Compensation Plan.* 10-13 to Gannett Co., Inc.'s Form
10-K for the fiscal year ended
December 30, 1990.
11 Statement re computation of Attached.
earnings per share.
27 Financial Data Schedules. Attached.
99-1 Agreement of Plan and Merger Incorporated by reference to Exhibit
dated as of June 28, 2000, 2.1 to Central Newspaper, Inc.'s
among Central Newspapers, Form 8-K dated June 29, 2000.
Inc., Gannett Co., Inc., and
Pacific and Southern
Indiana Corp.
The company agrees to furnish to the Commission, upon request, a copy
of each agreement with respect to long-term debt not filed herewith
in reliance upon the exemption from filing applicable to any series
of debt which does not exceed 10% of the total consolidated assets of
the company.
* Asterisks identify management contracts and compensatory plans
or arrangements.