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 30, 2001 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.)
7950 Jones Branch Drive, McLean, VA 22107
(Address of principal executive offices) (Zip Code)
(703) 854-6000
(Registrant's telephone number, including area code)
Former address:
1100 Wilson Boulevard, Arlington, Virginia 22234
(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 30, 2001 was 264,851,808.
PART I. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
OPERATING SUMMARY
Recent acquisitions continued to have a significant impact on operating
results comparisons for the third quarter and the year-to-date 2001 versus
2000. The company completed the Newscom acquisition in June 2000; the
Thomson acquisition in July 2000; and the Central acquisition in August
2000.
Operating revenues declined by $40.6 million or 3% for the third quarter but
increased by $392.5 million or 9% for the year-to-date. Operating income
from continuing operations declined by $84.4 million or 20% for the third
quarter and by $82.2 million or 7% for the year-to-date. Newspaper
publishing earnings declined by $52.9 million or 15% for the quarter and by
$16.6 million or 2% for the year-to-date, resulting from lower ad revenues
in U.S. markets and higher newsprint prices, tempered by a positive impact
from recent acquisitions. Television earnings were down $32.3 million or
43% for the quarter and $69.0 million or 28% for the year-to-date due to the
absence this year of Olympics and political advertising revenues and due to
generally weaker advertising demand.
Income from continuing operations declined by $33.4 million or 16% for the
quarter and $94.2 million or 14% for the year-to-date. Earnings per share
(diluted) from continuing operations were $0.66 for the third quarter, a 16%
decline, and $2.19 for the year-to-date, a 13% decline.
Income from continuing operations for the third quarter and the year-to-date
was adversely impacted by the continued softening of newspaper and
television advertising revenue in a generally weak economy. Domestic
newspapers, including USA TODAY, experienced a pronounced downturn in
advertising revenues following September 11 but have seen improvement since
then. Television operations ran commercial-free in the days immediately
following the attacks. Operating results from the company's U.K. newspapers
improved modestly in the third quarter of 2001.
As noted in the pro forma newspaper revenue discussions below, all major ad
categories were down for the quarter and the year-to-date. Classified
revenues (principally employment) experienced the sharpest decline. The
company does not foresee changes in the general economic environment that
are likely to lead to an improvement in the newspaper revenue outlook for
the coming months.
Likewise, television revenue comparisons have suffered because of weak
advertising demand. Television revenue comparisons are expected to be even
more difficult in the fourth quarter due to the strong political and
Olympics advertising that benefited the fourth quarter of 2000.
Due to the current revenue outlook, the company does not expect to reach the
earnings level reported for the fourth quarter of 2000.
NEWSPAPERS
Reported newspaper publishing revenues declined $5.5 million or less than 1%
for the quarter but rose $465.5 million or 12% for the year-to-date,
reflecting increased revenues from newly acquired properties, tempered by
generally softer domestic advertising demand and the impact of the events of
September 11. Newspaper advertising revenues decreased $16.2 million or 2%
for the quarter but increased $320.4 million or 12% for the year-to-date.
Refer to Note 6 of the Consolidated Condensed Financial Statements for
Business Segment Information.
The tables below provide, on a pro forma basis, details of newspaper ad
revenue, including revenues from the Newscom, Thomson and Central
properties, for the third quarter and the first nine months of 2001 and
2000. Advertising linage and preprint distribution details are also
provided below; however, linage and preprint distribution for U.K.
publications are not included.
Advertising revenue, in thousands of dollars (pro forma)
Third Quarter 2001 2000 % Change
------- ------- --------
Local $ 425,129 $ 444,011 (4)
National 158,923 181,570 (12)
Classified 447,408 485,591 (8)
----------- ----------- --------
Total ad revenue $ 1,031,460 $ 1,111,172 (7)
=========== =========== ========
Advertising linage, in thousands of inches, and preprint distribution,
in millions (pro forma)
Third Quarter 2001 2000 % Change
------- ------- --------
Local 9,044 9,637 (6)
National 860 1,017 (15)
Classified 13,927 14,252 (2)
------ ------ ------
Total Run-of-Press linage 23,831 24,906 (4)
====== ====== ======
Preprint distribution 2,374 2,450 (3)
====== ====== ======
Advertising revenue, in thousands of dollars (pro forma)
Year-to-date 2001 2000 % Change
------- ------- --------
Local $ 1,322,602 $ 1,357,128 (3)
National 523,536 589,972 (11)
Classified 1,358,445 1,457,586 (7)
----------- ----------- --------
Total ad revenue $ 3,204,583 $ 3,404,686 (6)
=========== =========== ========
Advertising linage, in thousands of inches, and preprint distribution,
in millions (pro forma)
Year-to-date 2001 2000 % Change
------- ------- --------
Local 28,328 29,912 (5)
National 2,807 3,256 (14)
Classified 41,220 42,442 (3)
------ ------ ------
Total Run-of-Press linage 72,355 75,610 (4)
====== ====== ======
Preprint distribution 7,279 7,407 (2)
====== ====== ======
Pro forma newspaper advertising revenues decreased 7% for the quarter and 6%
for the year-to-date. Local ad revenues decreased 4% on a 6% decrease in
volume for the quarter and decreased 3% on a 5% decline in volume for the
year-to-date. National ad revenues decreased 12% for the quarter on a
volume decrease of 15%, with year-to-date revenues down by 11% on a volume
decrease of 14%. Classified ad revenues decreased 8% for the quarter on a
volume decrease of 2%, with year-to-date revenues down by 7% on a volume
decrease of 3%. Revenue results reflect advertiser reluctance to spend in
a negative economic environment. The continuing economic downturn adversely
impacted revenues at most domestic Gannett operations, particularly in the
classified employment category. USA TODAY advertising revenues declined
19% for the quarter and for the year-to-date. USA TODAY's revenue
comparisons for the quarter were also adversely affected by the events of
September 11 and the absence of year earlier Olympics-related ad spending.
In the days following the terrorist attacks, there was little demand for
travel-related advertising, an important category for USA TODAY. Reported
revenues from the company's U.K. operations benefited from solid advertising
demand, but comparisons with last year were unfavorably impacted by a
decline in the exchange rate for Sterling, particularly for year-to-date
revenues. If the exchange rate had remained constant year-over-year, total
company pro forma advertising revenues would have declined 5% for the year-
to-date.
Reported newspaper circulation revenues increased $19.2 million or 7% for
the quarter and $132.6 million or 17% for the year-to-date, reflecting the
impact of acquisitions. On a pro forma basis, newspaper circulation
revenues increased 1% for the quarter and were even for the year-to-date
period. Pro forma net paid daily circulation for the company's local
domestic newspapers increased 1% for the third quarter and declined less
than 1% for the first nine months of the year. Sunday circulation was down
1% for the quarter and 2% for the year-to-date. USA TODAY reported an
average daily paid circulation of 2,243,843 in the ABC Publisher's statement
for the 26 weeks ended September 30, 2001, a 1% decrease over the comparable
period a year ago. Overall domestic circulation volume and revenues rose in
the days following September 11.
Operating costs for the newspaper segment increased $47.4 million or 5% for
the quarter and $482.1 million or 18% for the year-to-date, largely due to
added costs from new properties and higher newsprint prices, partially
offset by tight cost controls. Reported newsprint expense increased by 7%
for the quarter, although consumption was down 3%. For the year-to-date,
reported newsprint expense rose 22% on a 5% increase in consumption. On a
pro forma basis, newsprint expense increased 3% for the quarter and 5% for
the year-to-date on decreased consumption of 7% and 10%, respectively. For
the third quarter and first nine months of 2001, average newsprint prices
have been higher than for the corresponding periods of 2000. Newsprint
prices began to decline a few months ago and they are expected to decline
further in the months ahead. As a result, average newsprint prices for the
fourth quarter of 2001 are expected to be even with or slightly below those
of the fourth quarter of 2000. Pro forma newspaper segment expense,
excluding newsprint, declined approximately 2% for the quarter and 4% for
the year-to-date.
Newspaper operating income decreased $52.9 million or 15% for the third
quarter and $16.6 million or 2% for the year-to-date, reflecting softer
domestic advertising demand and higher newsprint prices, partially offset by
cost control measures and the positive impact of earnings from recently
acquired properties.
TELEVISION
Reported television revenues decreased $35.1 million or 19% for the third
quarter and $73.0 million or 13% for the year-to-date. Revenue declines
reflect challenging comparisons with 2000's third quarter, which benefited
from Olympic and strong political ad spending. Third quarter 2001
advertising revenues were also affected by several days of commercial-free
coverage and uncertainty in the wake of the September 11 events. National
advertising revenues decreased 30% for the quarter and 22% for the year-to-
date, while local advertising revenues decreased 12% for the quarter and 8%
for the year-to-date.
Television operating costs for the quarter decreased $2.8 million or 3% and
were $4.0 million or 1% lower for the year-to-date. Reported television
operating income declined by $32.3 million or 42% for the quarter and $69.0
million or 28% for the year-to-date.
NON-OPERATING INCOME AND EXPENSE/PROVISION FOR INCOME TAXES
Interest expense was $48.6 million in the third quarter of 2001 versus $76.0
million in the third quarter of 2000 due to lower interest rates in the
third quarter of 2001, partially offset by higher average borrowings.
Interest expense was $190.8 million for the first nine months of 2001 versus
$118.8 million for the first nine months of 2000, reflecting increased
commercial paper borrowings for the 2000 acquisitions and share repurchases,
tempered by lower interest rates. The daily average commercial paper
balance outstanding was $5.11 billion during the third quarter of 2001 and
$4.31 billion during the third quarter of 2000. For the first nine months
of 2001 and 2000, the daily average commercial paper outstanding balance was
$5.28 billion and $2.22 billion, respectively. The weighted average
interest rate on commercial paper was 3.7% for the third quarter of 2001 and
6.6% for the third quarter of 2000. For the first nine months of 2001 and
2000, the weighted average interest rates were 4.7% and 6.4%, respectively.
The company's borrowing rates are expected to decline further in the fourth
quarter of 2001. Fourth quarter interest expense comparisons to 2000 are
expected to be favorable due to reduced debt levels and lower interest
rates.
The company's effective income tax rate was 39.4% for the third quarter of
2001 versus 39.6% for the same period last year, reflecting lower state
taxes and lower taxes on foreign operations.
NET INCOME
Income from continuing operations was down $33.4 million or 16% for the
quarter and $94.2 million or 14% for the first nine months of 2001. Diluted
earnings per share from continuing operations decreased to $0.66 from $0.79
for the third quarter, a 16% decline, and to $2.19 from $2.51 for the first
nine months of the year, a 13% decline.
After-tax income from the operation of the discontinued cable business of
$2.4 million and the after-tax gain from the sale of this business of $744.7
million, contributed $2.78 per share (diluted) to earnings in the first nine
months of 2000.
The weighted average number of diluted shares outstanding for the third
quarter of 2001 totaled 266,910,000, compared to 265,232,000 for the third
quarter of 2000. The weighted average number of diluted shares outstanding
for the first nine months of 2001 totaled 266,689,000, compared to
269,234,000 for the first nine months of 2000.
In February 2000, the company announced authorizations to repurchase up to
$1 billion of its common stock and during the first nine 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
during the first nine months of 2001. 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 $448.8 million for the
third quarter of 2001, compared with $524.6 million for the same period of
2000, a 14% decrease. The company's consolidated operating cash flow for
the year-to-date totaled $1,486.3 million for the first nine months of 2001,
compared with $1,499.6 million for the first nine months of 2000, a 1%
decrease. The operating cash flow results reflect solid operating cash flow
contributions from the recently acquired newspaper properties, tempered by a
decrease in operating cash flows from the company's television properties,
particularly in the third quarter of 2001.
Capital expenditures totaled $215.5 million for the first nine months of
2001, compared to $213.3 million for the first nine months of 2000. During
the first nine months of 2001, the company made payments of $136.5 million
related to several small acquisitions and additional share purchases of
WKYC-TV.
The company's debt decreased by $676.7 million during the first nine months
of 2001, reflecting the pay-down of commercial paper borrowings from
operating cash flow. Significantly lower interest rates on the commercial
paper borrowings contributed favorably to third quarter and year to date
cash flows.
The increase in the current income tax liability is due to the postponement
by the Internal Revenue Service of the company's third quarter federal
income tax payment.
The company's foreign currency translation adjustment, included in
accumulated other comprehensive income and reported as part of shareholders'
equity, totaled ($83.8 million) at the end of the third quarter versus
($66.4 million) at the end of 2000, reflecting a weakening of Sterling
against the U.S. dollar since the end of the year 2000. Newsquest's assets
and liabilities at September 30, 2001 were translated from Sterling to U.S.
dollars at an exchange rate of $1.47 versus $1.49 at the end of 2000.
Newsquest's financial results were translated at an average rate of $1.44
for the third quarter of 2001 versus $1.47 for the third quarter of 2000, and
at an average rate of $1.44 for the first nine months of 2001 versus $1.52 for
the first nine months of 2000.
The company's regular quarterly dividend of $0.23 per share was declared in
the third quarter of 2001, totaling $60.9 million.
OTHER MATTERS
Refer to Note 2 of the financial statements for a discussion of new
accounting standards and their impact on reporting of earnings beginning in
2002.
The company is in the process of relocating its corporate headquarters and
USA Today facilities to McLean, Virginia, and will have completed this
process by the end of 2001.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
Certain statements in the company's 2000 Annual Report to Shareholders, its
Annual Report on Form 10-K, 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 that 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) a continued
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; (i) an increase in interest rates; (j) a
weakening in the Sterling to U.S. dollar exchange rate; and (k) general
economic, political and business conditions.
CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Sept. 30, 2001 Dec. 31, 2000
---------------- ---------------
ASSETS
Cash $ 68,730 $ 69,954
Marketable securities 59,901 123,242
Trade receivables, less allowance
(2001 - $34,079; 2000 - $37,465) 752,653 875,363
Inventories 114,522 128,321
Prepaid expenses and other receivables 121,068 105,456
---------------- ---------------
Total current assets 1,116,874 1,302,336
---------------- ---------------
Property, plant and equipment
Cost 4,313,745 4,135,201
Less accumulated depreciation (1,806,901) (1,673,802)
---------------- ---------------
Net property, plant and equipment 2,506,844 2,461,399
---------------- ---------------
Other assets
Excess of acquisition cost over the value of
assets acquired, and other intangible assets,
less amortization 8,703,088 8,740,804
Investments and other assets 458,546 475,872
---------------- ---------------
Total other assets 9,161,634 9,216,676
---------------- ---------------
Total assets $ 12,785,352 $ 12,980,411
================ ===============
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable and current portion of film
contracts payable $ 313,000 $ 493,243
Compensation, interest and other accruals 289,987 325,904
Dividend payable 60,946 58,118
Income taxes 371,261 144,599
Deferred income 149,422 152,137
---------------- ---------------
Total current liabilities 1,184,616 1,174,001
---------------- ---------------
Deferred income taxes 349,301 274,829
Long-term debt 5,071,180 5,747,856
Postretirement medical and life insurance liabilities 409,427 403,528
Other long-term liabilities 256,046 276,787
---------------- ---------------
Total liabilities 7,270,570 7,877,001
---------------- ---------------
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 178,105 170,715
Retained earnings 7,401,439 6,995,965
Accumulated other comprehensive loss (83,880) (66,274)
---------------- ---------------
Total 7,820,085 7,424,827
---------------- ---------------
Less treasury stock - 59,568,924 shares and
60,148,871 shares respectively, at cost (2,295,473) (2,307,793)
Deferred compensation related to ESOP (9,830) (13,624)
---------------- ---------------
Total shareholders' equity 5,514,782 5,103,410
---------------- ---------------
Total liabilities and shareholders' equity $ 12,785,352 $ 12,980,411
================ ===============
CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
Thirteen weeks ended % Inc
Sept. 30, 2001 Sept. 24, 2000 (Dec)
Net Operating Revenues:
Newspaper advertising $ 988,045 $ 1,004,280 (1.6)
Newspaper circulation 306,139 286,890 6.7
Television 148,229 183,352 (19.2)
Other 75,515 83,998 (10.1)
------------- ------------- ------
Total 1,517,928 1,558,520 (2.6)
------------- ------------- ------
Operating Expenses:
Cost of sales and operating
expenses, exclusive of
depreciation 824,839 788,209 4.6
Selling, general and
administrative expenses,
exclusive of depreciation 244,308 245,735 (0.6)
Depreciation 50,916 51,509 (1.2)
Amortization of intangible assets 61,267 52,082 17.6
------------- ------------- ------
Total 1,181,330 1,137,535 3.8
------------- ------------- ------
Operating income 336,598 420,985 (20.0)
------------- ------------- ------
Non-operating income (expense):
Interest expense (48,600) (75,962) (36.0)
Other 530 (260) (303.8)
------------- ------------- ------
Total (48,070) (76,222) (36.9)
------------- ------------- ------
Income before income taxes 288,528 344,763 (16.3)
Provision for income taxes 113,700 136,500 (16.7)
------------- ------------- ------
Net income $ 174,828 $ 208,263 (16.1)
============= ============= ======
Net income per share-basic $0.66 $0.79 (16.5)
===== ===== ======
Net income per share-diluted $0.66 $0.79 (16.5)
===== ===== ======
Dividends per share $0.23 $0.22 4.5
===== ===== ======
CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
Thirty-nine weeks ended % Inc
Sept. 30, 2001 Sept. 24, 2000 (Dec)
Net Operating Revenues:
Newspaper advertising $ 3,066,878 $ 2,746,479 11.7
Newspaper circulation 925,167 792,560 16.7
Television 482,534 555,554 (13.1)
Other 245,529 233,054 5.4
------------- ------------- ------
Total 4,720,108 4,327,647 9.1
------------- ------------- ------
Operating Expenses:
Cost of sales and operating
expenses, exclusive of
depreciation 2,488,416 2,138,779 16.3
Selling, general and
administrative expenses,
exclusive of depreciation 745,370 689,270 8.1
Depreciation 155,256 145,187 6.9
Amortization of intangible assets 180,067 121,227 48.5
------------- ------------- ------
Total 3,569,109 3,094,463 15.3
------------- ------------- ------
Operating income 1,150,999 1,233,184 (6.7)
------------- ------------- ------
Non-operating income (expense):
Interest expense (190,770) (118,803) 60.6
Other 1,506 6,361 (76.3)
------------- ------------- ------
Total (189,264) (112,442) 68.3
------------- ------------- ------
Income before income taxes 961,735 1,120,742 (14.2)
Provision for income taxes 378,900 443,700 (14.6)
------------- ------------- ------
Income from continuing operations 582,835 677,042 (13.9)
------------- ------------- ------
Discontinued Operations:
Income from the operation of
discontinued operations, net
of tax 2,437 --
Gain on sale of cable business,
net of tax 744,700 --
------------- ------------- ------
Net income $ 582,835 $ 1,424,179 (59.1)
============= ============= ======
Earnings from continuing
operations per share-basic $2.20 $2.53 (13.0)
Earnings from discontinued
operations:
Discontinued operations per
share-basic $0.01 --
Gain on sale of cable business
per share-basic $2.79 --
----- ----- -------
Net income per share-basic $2.20 $5.33 (58.7)
===== ===== =======
Earnings from continuing
operations per share-diluted $2.19 $2.51 (12.7)
Earnings from discontinued
operations:
Discontinued operations per
share-diluted $0.01 --
Gain on sale of cable business
per share-diluted $2.77 --
----- ----- -------
Net income per share-diluted $2.19 $5.29 (58.6)
===== ===== =======
Dividends per share $0.67 $0.64 4.7
===== ===== =======
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirty-nine weeks ended
Sept. 30, 2001 Sept. 24, 2000
-------------- --------------
Cash flows from operating activities
Net income $ 582,835 $ 1,424,179
Adjustments to reconcile net income to
operating cash flows:
Discontinued operations (747,137)
Income taxes on sale of cable division (889,301)
Depreciation 155,256 145,187
Amortization of intangibles 180,067 121,227
Deferred income taxes 74,472 (187,426)
Other, net 128,980 217,408
--------- ---------
Net cash flow provided by
operating activities 1,121,610 84,137
--------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (215,491) (213,298)
Payments for acquisitions, net of cash acquired (136,529) (4,237,148)
Change in other investments (1,720) (62,013)
Proceeds from sale of certain assets 0 2,714,362
Collection of long-term receivables 0 1,900
--------- ---------
Net cash used for investing activities (353,740) (1,796,197)
--------- ---------
Cash flows from financing activities
(Payment of) proceeds from long-term debt (676,676) 2,963,232
Dividends paid (174,533) (170,265)
Cost of common shares repurchased 0 (967,242)
Proceeds from issuance of common stock 19,574 10,321
--------- ---------
Net cash (used for) provided by financing
activities (831,635) 1,836,046
--------- ---------
Effect of currency exchange rate change (800) 1,367
--------- ---------
Net (decrease) increase in cash and cash equivalents (64,565) 125,353
Balance of cash and cash equivalents at
beginning of year 193,196 46,160
--------- ---------
Balance of cash and cash equivalents at
end of third quarter $ 128,631 $ 171,513
========= =========
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 2001
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-week
and 39-week periods ended September 30, 2001, and the comparative periods
of 2000, reflect all adjustments which, in the opinion of the company,
are necessary for a fair statement of results for the interim periods
and reflect all normal and recurring adjustments which are necessary
for a fair presentation of the company's financial position, results
of operations and cash flows as of the dates and for the periods
presented.
2. Accounting Standards
In July, 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141 (SFAS No. 141), "Business
Combinations", and No. 142 (SFAS No. 142), "Goodwill and Other Intangible
Assets." SFAS No. 141 addresses financial accounting and reporting for
goodwill and other intangible assets acquired in a business combination.
SFAS No. 141 requires the purchase method of accounting to be used for all
business combinations and establishes specific criteria for the recognition
of intangible assets separately from goodwill. SFAS No. 141 is effective
for all business combinations initiated after June 30, 2001.
SFAS No. 142 addresses financial accounting and reporting for goodwill
and other intangible assets subsequent to their acquisition. SFAS No. 142
provides that goodwill and intangible assets which have indefinite useful
lives will not be amortized but rather will be tested at least annually
for impairment. The company will adopt SFAS No. 142 effective
December 31, 2001, the first day of its fiscal year 2002. Upon adoption,
the company will cease amortizing goodwill. Based on the current levels
of goodwill, this would increase net income by approximately $215 million
or $0.80 per share annually beginning in 2002.
3. Comprehensive Income
Comprehensive income for the company includes net income, foreign
currency translation adjustments and unrealized gains or losses on available-
for-sale securities, as defined under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
Comprehensive income totaled $223.9 million for the third quarter of 2001
and $166.8 million for the third quarter of 2000. Net income totaled
$174.8 million and other comprehensive income totaled $49.1 million for
the third quarter of 2001. Net income totaled $208.3 million and
other comprehensive losses totaled $41.5 million for the third quarter of
2000. Other comprehensive income and losses relate to foreign currency
translation adjustments and unrealized gains or losses on available-for-
sale securities, net of tax. The other comprehensive income and losses
were net of deferred income tax expense of $30.1 million for the third
quarter of 2001 and a deferred tax benefit of $26.5 million for the third
quarter of 2000.
Comprehensive income totaled $565.2 million for the first nine months of 2001
and $1,303.2 million for the first nine months of 2000. Net income totaled
$582.8 million and other comprehensive losses totaled $17.6 million for the
first nine months of 2001. Net income totaled $1,424.2 million and other
comprehensive losses totaled $121.0 million for the first nine months of
2000. The other comprehensive losses were net of a deferred income tax benefit
of $10.8 million for the first nine months of 2001 and $77.4 million for the
first nine months of 2000.
4. Acquisitions and Dispositions
The company completed the Thomson acquisition in July 2000 and the Central
acquisition in August 2000. A total of $3.6 billion, representing the excess
of acquisition cost over the fair value of the Thomson and Central net
tangible assets, has been allocated to intangible assets including goodwill.
Identifiable intangible assets are being amortized over 15 years. Goodwill
is being amortized over 40 years.
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 was recognized which, along with the cable segment
operating results, are reported as discontinued operations in the company's
financial statements.
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) were all made at the beginning of 2000.
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)
Quarter-to-date
---------------
2001 2000
-------- --------
Operating revenues $ 1,518 $ 1,636
Income before income taxes $ 289 $ 334
Income from continuing operations $ 175 $ 202
Income per share from continuing
operations - basic $0.66 $0.77
Income per share from continuing
operations - diluted $0.66 $0.76
Year-to-date
---------------
2001 2000
-------- --------
Operating revenues $ 4,720 $ 5,010
Income before income taxes $ 962 $ 1,067
Income from continuing operations $ 583 $ 645
Income per share from continuing
operations - basic $2.20 $2.41
Income per share from continuing
operations - diluted $2.19 $2.39
5. Outstanding Shares
The weighted average number of common shares outstanding (basic)
in the third quarter totaled 264,822,000 compared to 263,665,000 for the
third quarter of 2000. The weighted average number of diluted shares
outstanding in the third quarter totaled 266,910,000 compared to
265,232,000 for the third quarter of 2000.
The weighted average number of common shares outstanding (basic)
in the first nine months of 2001 totaled 264,658,000 compared to 267,344,000
for the first nine months of 2000. The weighted average number of diluted
shares outstanding in the first nine months of 2001 totaled 266,689,000
compared to 269,234,000 for the first nine months of 2000.
6. Business Segment Information
BUSINESS SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirteen weeks ended % Inc
Sept. 30, 2001 Sept. 24, 2000 (Dec)
Operating Revenues:
Newspaper publishing $ 1,369,699 $ 1,375,168 (0.4)
Television 148,229 183,352 (19.2)
------------- ------------- -----
Total $ 1,517,928 $ 1,558,520 (2.6)
============= ============= =====
Operating Income (net of
depreciation and amortization):
Newspaper publishing $ 308,199 $ 361,068 (14.6)
Television 43,743 76,047 (42.5)
Corporate (15,344) (16,130) 4.9
------------- ------------- -----
Total $ 336,598 $ 420,985 (20.0)
============= ============= =====
Depreciation and Amortization:
Newspaper publishing $ 93,613 $ 85,405 9.6
Television 17,098 16,248 5.2
Corporate 1,472 1,938 (24.0)
------------- ------------- -----
Total $ 112,183 $ 103,591 8.3
============= ============= =====
Operating Cash Flow:
Newspaper publishing $ 401,812 $ 446,473 (10.0)
Television 60,841 92,295 (34.1)
Corporate (13,872) (14,192) 2.3
------------- ------------- -----
Total $ 448,781 $ 524,576 (14.4)
============= ============= =====
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. 30, 2001 Sept. 24, 2000 (Dec)
Operating Revenues:
Newspaper publishing $ 4,237,574 $ 3,772,093 12.3
Television 482,534 555,554 (13.1)
------------- ------------- -----
Total $ 4,720,108 $ 4,327,647 9.1
============= ============= =====
Operating Income (net of
depreciation and amortization):
Newspaper publishing $ 1,021,126 $ 1,037,734 (1.6)
Television 175,012 244,044 (28.3)
Corporate (45,139) (48,594) 7.1
------------- ------------- -----
Total $ 1,150,999 $ 1,233,184 (6.7)
============= ============= =====
Depreciation and Amortization:
Newspaper publishing $ 279,681 $ 210,937 32.6
Television 51,181 49,283 3.9
Corporate 4,461 6,194 (28.0)
------------- ------------- -----
Total $ 335,323 $ 266,414 25.9
============= ============= =====
Operating Cash Flow:
Newspaper publishing $ 1,300,807 $ 1,248,671 4.2
Television 226,193 293,327 (22.9)
Corporate (40,678) (42,400) 4.1
------------- ------------- -----
Total $ 1,486,322 $ 1,499,598 (0.9)
============= ============= =====
NOTE:
Operating Cash Flow represents operating income for each of the company's
business segments plus related depreciation and amortization expense.
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 Sterling 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) Form 8-K
None.
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 14, 2001 By: /s/George R. Gavagan
------------------------------
George R. Gavagan
Vice President and Controller
Dated: November 14, 2001 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. Incorporated by reference to
(reflects all amendments Exhibit 3-2 to Gannett Co., Inc.'s
through February 1, 2001) Form 10-K for the fiscal year ended
December 31, 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.
4-11 Amendment Number One to Incorporated by reference to Exhibit
$3,000,000,000 Competitive 4-11 to Gannett Co., Inc.'s Form 10-K
Advance and Revolving Credit for the fiscal year ended December 31,
Agreement among Gannett Co., 2000.
Inc. and the Banks named
therein.
4-12 Amendment Number Two Incorporated by reference to
to $3,000,000,000 Competitive Exhibit 4-12 to Gannett Co., Inc.'s
Advance and Revolving Credit Form 10-Q for the quarter ended
Agreement among Gannett Co., July 1, 2001.
Inc. and the Banks named
therein.
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. Amendment No. 11
incorporated by reference to
Exhibit 10-3 to Gannett Co., Inc.'s
Form 10-K for the fiscal year ended
December 31, 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.
Amendments Nos. 3 and 4 incorporated
by reference to Exhibit 10-7 to
Gannett Co., Inc.'s Form 10-K for the
fiscal year ended December 31, 2000.
Amendment No. 5 incorporated by
reference to Exhibit 10-7 to Gannett
Co., Inc.'s Form 10-Q for the quarter
ended July 1, 2001.
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.
10-9 Employment Agreement dated Incorporated by reference to Exhibit
January 1, 2001 between 10-9 to Gannett Co., Inc.'s Form 10-K
Gannett Co., Inc. and Douglas for the fiscal year ended December 31,
H. McCorkindale.* 2000.
10-10 2001 Omnibus Incentive Incorporated by reference to
Compensation Plan* Exhibit No. 4 to the Company's
Registration Statement on Form S-8
(Registration No. 333-60402).
11 Statement re computation of Attached.
earnings per share.
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.