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 27, 1998 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 27, 1998, was 281,604,254.
PART I. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
EARNINGS SUMMARY
Quarter
- -------
Operating income for the third quarter of 1998 rose
$28.0 million or 10%. Newspaper publishing earnings
were up $31.0 million or 14% for the quarter,
reflecting continued strong advertising demand,
better results at The Detroit News, and the positive
impact of recent newspaper acquisitions.
Broadcasting earnings were down $5.4 million or 7%
for the quarter, due to the Company's sale of its
five remaining radio stations on the first day of
fiscal 1998, which had been previously reported in
this segment. Earnings from Cable operations were
higher, but the comparisons with last year are
tempered by the sale in March 1998 of the alarm
security business which was previously reported in
this segment.
Pro forma operating results for each business
segment are discussed in the following sections of
this report.
Net income for the third quarter rose $24.1 million
or 16%. Net income per share was $.62 (diluted), up
17%.
Year-to-Date
- ------------
Operating income for the first nine months of 1998
rose $87.7 million or 10%. Non-operating income for
the first nine months included a first quarter net
pre-tax gain of $306.5 million ($183.6 million after
tax) primarily from the disposition of the Company's
five remaining radio stations and its alarm security
business. Net income excluding this gain rose $76.3
million or 16% for the year-to-date.
A presentation of year-to-date earnings excluding
the net non-operating gain follows:
Earnings Summary Excluding
1998 Net Non-operating Gain
Year-to-date ended % Inc
Sept. 27, 1998 Sept. 28, 1997 (Dec)
Operating income $ 990,768 $ 903,041 9.7
----------- ----------- ------
Non-operating income
(expense):
Interest expense (60,767) (73,819) (17.7)
Other 2,450 (7,665) ---
----------- ----------- ------
Total (58,317) (81,484) (28.4)
----------- ----------- ------
Income before income taxes 932,451 821,557 13.5
Provision for income taxes 373,880 339,300 10.2
----------- ----------- ------
Net income $ 558,571 $ 482,257 15.8
=========== =========== ======
Net income per share-basic $1.96 $1.70 15.3
===== ===== ====
Net income per share-diluted $1.95 $1.69 15.4
===== ===== ====
NEWSPAPERS
Reported newspaper publishing revenues rose $91.0
million or 10% in the third quarter of 1998, which
included a $74.3 million or 12% gain in advertising
revenues. Newspaper publishing revenues were up
$315.5 million or 12% for the year-to-date,
including advertising gains of $241.1 million or
13%. These revenue increases include the impact of
recent newspaper acquisitions.
The tables below provide, on a pro forma basis,
details of newspaper ad revenue and linage and
preprint distribution for the third quarter and
year-to-date periods of 1998 and 1997:
Advertising revenue, in thousands of dollars (pro forma)
Third Quarter 1998 1997 % Change
- ------------- ---- ---- --------
Local $ 217,318 $ 210,443 3
National 114,778 112,340 2
Classified 267,074 250,874 6
--------- --------- ---
Total Run-of-Press 599,170 573,657 4
Preprint and other advertising 112,938 101,740 11
--------- --------- ---
Total ad revenue $ 712,108 $ 675,397 5
========= ========= ===
Advertising linage, in thousands of inches, and
preprint distribution, in millions (pro forma)
Third Quarter 1998 1997 % Change
- ------------- ---- ---- --------
Local 8,335 8,027 4
National 746 693 8
Classified 11,050 10,177 9
------ ------ ---
Total Run-of-Press linage 20,131 18,897 7
====== ====== ===
Preprint distribution 1,739 1,614 8
====== ====== ===
Advertising revenue, in thousands of dollars (pro forma)
Year-to-Date 1998 1997 % Change
- ------------- ---- ---- --------
Local $ 660,516 $ 640,141 3
National 365,562 345,782 6
Classified 788,093 728,644 8
--------- --------- ---
Total Run-of-Press 1,814,171 1,714,567 6
Preprint and other advertising 321,959 296,530 9
--------- --------- ---
Total ad revenue $2,136,130 $2,011,097 6
========= ========= ===
Advertising linage, in thousands of inches, and
preprint distribution, in millions (pro forma)
Year-to-Date 1998 1997 % Change
- ------------- ---- ---- --------
Local 25,015 24,280 3
National 2,213 2,098 5
Classified 31,771 29,058 9
------ ------ ---
Total Run-of-Press linage 58,999 55,436 6
====== ====== ===
Preprint distribution 5,212 4,846 8
====== ====== ===
Pro forma newspaper advertising revenues rose 5% for
the quarter and 6% for the year-to-date. Local ad
revenues increased 3% for the quarter and for the
year-to-date. National ad revenues rose 2% for the
quarter and 6% for the year-to-date. Classified ad
revenues increased 6% for the quarter and 8% for the
year-to-date. Most of the Company's newspapers,
including The Detroit News and USA TODAY, recorded
solid gains in advertising revenue. Classified gains
were strongest in the employment category.
Reported newspaper circulation revenues rose 7% for
the quarter and 8% for the first nine months,
reflecting recent acquisitions. Pro forma net paid
daily circulation for the Company's local newspapers
was up 1% for the quarter and 2% for the year-to-
date, while Sunday circulation was lower by 2% for
the quarter and 1% for the year-to-date. USA TODAY
reported an average daily paid circulation of
2,213,255 in the ABC Publisher's statement for the
26 weeks ended September 27, 1998, a 2% increase
over the comparable period a year ago.
Operating costs for the newspaper segment increased
$60.0 million or 9% for the quarter and $241.7
million or 12% for the first nine months. Higher
newsprint prices and consumption, along with other
incremental costs from recent acquisitions,
contributed to the increase. In total, newsprint
expense increased 15% for the quarter and 23% for
the year-to-date. Newsprint consumption rose 8% for
the quarter and 10% for the year-to-date, including
consumption by recently acquired businesses. Year-
to-year newsprint price comparisons for the fourth
quarter of 1998 are expected to be more favorable.
Newspaper operating income increased $31.0 million
or 14% for the quarter and $73.7 million or 11% for
the first nine months, reflecting strong advertising
gains throughout the group, a favorable comparison
year to year at The Detroit News and the impact of
recent acquisitions.
In early fiscal 1998, the Company sold its newspaper
in St. Thomas, Virgin Islands, and contributed its
newspaper in Saratoga Springs, New York, to the
Gannett Foundation.
In July 1998, the Company sold five daily newspapers
in Ohio, Illinois and West Virginia and completed
the acquisition of several newspapers in New Jersey,
including The Daily Record in Morristown and the
Ocean County Observer in Toms River. These
transactions did not materially affect newspaper
operating results for the third quarter.
BROADCASTING
Early in the first quarter of 1998, the Company sold
its five remaining radio stations (in Chicago,
Dallas and Houston) and purchased two television
stations, WCSH-TV (NBC) in Portland, Maine, and
WLBZ-TV (NBC) in Bangor, Maine. In late April 1998,
the Company purchased WLTX-TV (CBS) in Columbia,
South Carolina. These acquisitions did not
materially affect results of operations for the
third quarter or for the year-to-date. The
Company's broadcast group now includes 21 television
stations reaching 16.6 percent of U.S. television
homes.
Reported broadcast revenues decreased $5.8 million
or 4% for the third quarter and increased $13.9
million or 3% for the year-to-date. Operating costs
were flat for the quarter and increased $3.0 million
or 1% for the year-to-date. On a pro forma basis,
television station revenues increased by 1% for the
quarter and 7% for the year-to-date. Advertising
demand was tempered by the General Motors strike in
the third quarter. Pro forma local television ad
revenues remained relatively flat for the quarter
and increased 8% for the year-to-date. Pro forma
national television ad revenues increased 2% for the
quarter and 7% for the year-to-date.
Reported broadcast operating income declined $5.4
million or 7% for the quarter but rose $10.8 million
or 5% for the first nine months. These results were
tempered by the Company's sale of its five remaining
radio stations on the first day of fiscal 1998,
which had been previously reported in this segment.
On a pro forma basis, operating income increased 1%
for the quarter and 12% for the year-to-date. Third
quarter results were adversely affected by the
General Motors strike.
CABLE AND SECURITY
Operating income for the business segment rose $1.6
million or 13% for the quarter and $2.8 million or
7% for the year-to-date. In early March 1998, the
Company sold its alarm security business, previously
reported with this segment, and in late August 1998,
completed an exchange of its cable systems in the
Chicago area (93,000 subscribers) for the TCI
Communications, Inc. systems in Kansas (128,000
subscribers). On a pro forma basis, giving effect
to these transactions, cable revenues rose $4.8
million or 9% for the third quarter and $13.3
million or 8% for the year-to-date. Pro forma
operating income from cable rose $2.1 million or 17%
for the quarter and $4.4 million or 11% for the
year-to-date.
The number of basic cable subscribers at quarter end
increased 9% and the number of pay subscribers
decreased 2%, as compared to the prior year.
NON-OPERATING INCOME AND EXPENSE
Interest expense declined $6.2 million or 27% for
the quarter and $13.1 million or 18% for the year-
to-date, reflecting the pay-down of long-term debt
from operating cash flow and proceeds from the sale
of certain businesses.
Non-operating income for the year-to-date included
a net pre-tax first quarter gain of $306.5 million
($183.6 million after tax), as discussed in the
Earnings Summary above.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate was 40.1%
for the quarter and year-to-date periods of 1998
versus 41.3% for the same periods last year. The
decrease in the effective tax rate reflects the
diminished impact of the amortization of non-
deductible intangible assets on expected higher
earnings in 1998.
NET INCOME
Net income for the third quarter rose $24.1 million
to $176.5 million, a 16% increase. Basic earnings
per share rose to $0.62 from $0.54, an increase of
15%, and diluted earnings per share rose to $0.62
from $0.53, an increase of 17%.
Net income for the year-to-date, excluding the
$183.6 million net non-operating after-tax gain
discussed above, rose $76.3 million or 16%. Basic
earnings per share excluding the net non-operating
gain rose to $1.96 from $1.70, an increase of 15%,
while diluted earnings per share excluding the net
non-operating gain rose to $1.95 from $1.69, an
increase of 15%. Net income was $742.2 million for
the year-to-date, including the first quarter net
non-operating gain. Year-to-date basic earnings per
share from net income were $2.61, and diluted
earnings per share were $2.59.
The weighted average number of basic and diluted
shares outstanding for the quarter and for the year-
to-date increased slightly over the same periods
last year due to the issuance of shares upon the
exercise of stock options and the settlement of
stock incentive rights. During the third quarter,
the Company's Board of Directors authorized the
repurchase of up to $250 million of Company common
stock and on September 30, the Board authorized an
additional $500 million for Company common stock
repurchases. Approximately 3.1 million shares were
purchased by the end of the third quarter with a
total cost of $177.7 million. Exhibit 11 of this
Form 10-Q presents the weighted average number of
basic and diluted shares outstanding 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 $1,223.9 million for the first nine months
of 1998, compared with $1,127.4 million for the same
period of 1997, a 9% increase, reflecting strong
overall operating results.
Capital expenditures for the year-to-date totaled
$144 million, compared to $142 million in 1997. The
Company's long-term debt was reduced by $471 million
during the first nine months of 1998 from operating
cash flow and proceeds from the sale of certain
businesses. The Company's regular quarterly dividend
of $0.19 per share was declared in the first and
second quarters and $0.20 per share was declared in
the third quarter. Dividends declared totaled $165
million for the first nine months.
On July 1, 1998, the Company amended its Revolving
Credit Agreement to extend its expiration date to
July 1, 2003 and to increase the maintenance of net
worth provision to $2.0 billion.
YEAR 2000
General
- -------
The "Year 2000 Issue" is the result of computer
programs that were written using two digits rather
than four to define the applicable year. If the
Company's computer programs with date-sensitive
functions are not Year 2000 compliant, they may
recognize a date using "00" as the Year 1900 rather
than the Year 2000. This could result in a system
failure or miscalculations causing disruptions of
operations, including, among other things, temporary
stoppage of newspaper, broadcast and/or cable
operations and the inability to process
transactions, send invoices or engage in similar
normal business activities.
Project
- -------
The Company has developed a plan to ensure that all
of its key computer systems will be Year 2000
compliant in advance of December 31, 1999. The plan
encompasses all operating properties, corporate
headquarters and, where necessary, computer
applications that directly interface elements of the
company's business with business partners,
customers, suppliers and service providers.
The plan structure includes several phases:
inventory, assessment, detailed analysis,
implementation/remediation, audit and contingency
planning. The first three phases of inventory,
assessment and detailed analysis are complete. At
this time, the Company's efforts are concentrated on
implementation/remediation which will be essentially
completed by the end of the first quarter of 1999.
Audit and contingency planning efforts are also
underway and are expected to be completed in the
first quarter of 1999, but will continue to be
refined up to the Year 2000.
The Company has over 125 business units which
generally operate independently and therefore have
separate computer systems and various production and
administrative equipment with embedded computer
systems. Much of the hardware and software used at
the business unit level is standardized and
supported centrally. For these systems, Year 2000
issues are being addressed by a centrally managed
Information Technology Group. Other Year 2000
issues are being addressed by local personnel at the
individual business units with guidance where
necessary from headquarters staff or consulting
specialists.
At the end of the third quarter of 1998, the Company
has achieved Year 2000 compliance in many critical
systems areas.
The Company's business systems (i.e., marketing,
sales support, customer billing and accounts
receivable, accounting, accounts payable and
payroll) at the majority of its local operating
properties and at its headquarters are already Year
2000 compliant. This has been achieved through a
systematic roll-out of Year 2000 compliant software
where it was necessary. For those few properties
which still operate business systems that are not
Year 2000 compliant, the Company has already
purchased or developed the necessary software and
will be installing it through the first three
quarters of 1999 according to plan. By the end of
1998, more than 85% of these business applications
will be Year 2000 compliant.
For newspaper operations, critical systems also
include publishing systems (i.e., front-end
editorial and classified, networks, press and
mailroom/distribution systems) and other
facility/administrative systems. The majority of
the Company's newspapers now have publishing systems
that are Year 2000 compliant, and by the end of 1998
more than 80% of such systems will be Year 2000
compliant. The remaining few newspapers will
complete installation of publishing systems in the
first half of 1999, apart from one to be completed
in the third quarter. Facility/administrative
systems for the newspaper group are expected to be
Year 2000 compliant by the end of 1998, with the
exception of a few isolated systems that will be
made compliant in the first quarter of 1999.
The Company's 21 television stations generally use
standard purchased software and systems for
production and broadcasting. Each station operates
these systems independently on separate hardware
platforms. Nearly all critical television station
systems have been modified or upgraded as necessary
for Year 2000 compliance. For the few remaining
systems, compliance will be achieved in mid-1999
when the desired technology becomes available for
purchase and installation.
For the cable television business, most business
applications and other critical systems for
production, distribution and administration are now
Year 2000 compliant, and the remainder will be made
compliant by the first quarter of 1999.
The Company has requested confirmation of compliance
from its third party vendors and, in important
cases, has or will run tests to verify compliance.
Costs
- -----
The Company's efforts to address potential Year 2000
problems began within its central Information
Technology Group in 1995 and were broadened to
include all departments/operations in 1997. The
costs specifically associated with efforts to
achieve Year 2000 compliance are expected to be less
than $25 million in the aggregate (exclusive of
software and hardware that has been or will be
replaced or upgraded in the normal course of
business), and more than 90% of such costs have been
incurred and reported through the third quarter of
1998. Year 2000 compliance costs are not material
to the Company's financial position or to operating
results for any of the years involved and compliance
efforts have not significantly affected progress of
other information technology plans or programs.
Risks
- -----
The business risks the Company would face if it were
unable to achieve Year 2000 compliance for its
critical systems could vary significantly in degree
of seriousness, depending on the system and the
business unit affected. The Company may be unable to
publish certain of its newspapers, broadcast from
certain of its television stations and/or deliver
programming in certain cable markets. If this
occurred, it would most likely be due to Year 2000
related failure of the Company's utility,
telecommunications or content service providers, not
from internal company system failure. The Company
continues to work directly with these vendors to
evaluate risk levels.
If the Company's operations were affected in this
manner, revenue losses would result which would not
be fully recovered when normal operations resumed.
Incremental repair and start up costs might also be
incurred. Given the present state of its Year 2000
compliance program and its plans to complete it as
described above, the Company does not expect that a
significant number of its business units would be
unable to operate, and even if certain units were
unable to operate, it would be for a limited time.
Consequently, management does not believe possible
disruptions of this nature would have a material
effect on the Company's financial condition or
results of operations.
While the Company believes its Year 2000 plan will
ensure functionality of all key systems, each
business unit and corporate headquarters are also
preparing contingency plans.
CERTAIN FACTORS AFFECTING FORWARD LOOKING STATEMENTS
Certain statements in the Company's 1997 Annual
Report to Shareholders, its Annual Report on Form
10-K, its first and second 1998 Quarterly 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 or
national 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; and (h) rapid technological
changes and frequent new product introductions
prevalent in electronic publishing.
CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Sept. 27, 1998 Dec. 28, 1997
---------------- ----------------
ASSETS
Cash $ 35,226 $ 45,059
Marketable securities 19,076 7,719
Trade receivables, less allowance
(1998 - $17,847; 1997 - $18,020) 594,926 638,311
Inventories 94,510 101,080
Prepaid expenses and other receivables 153,839 92,465
--------------- ---------------
Total current assets 897,577 884,634
--------------- ---------------
Property, plant and equipment
Cost 3,733,189 3,754,837
Less accumulated depreciation (1,640,109) (1,562,795)
--------------- ---------------
Net property, plant and equipment 2,093,080 2,192,042
--------------- ---------------
Intangible and other assets
Excess of acquisition cost over the value of
assets acquired, less amortization 3,773,817 3,584,393
Investments and other assets 211,282 229,282
--------------- ---------------
Total intangible and other assets 3,985,099 3,813,675
--------------- ---------------
Total assets $ 6,975,756 $ 6,890,351
=============== ===============
LIABILITIES & SHAREHOLDERS' EQUITY
Current maturities of long-term debt $ $ 18,375
Accounts payable and current portion of film
contracts payable 313,639 300,260
Compensation, interest and other accruals 284,701 234,675
Dividend payable 56,917 53,915
Income taxes 10,138 12,893
Deferred income 115,637 118,459
--------------- ---------------
Total current liabilities 781,032 738,577
--------------- ---------------
Deferred income taxes 464,540 402,254
Long-term debt, less current portion 1,288,183 1,740,534
Postretirement, medical and life insurance liabilities 310,745 312,082
Other long-term liabilities 229,187 217,168
--------------- ---------------
Total liabilities 3,073,687 3,410,615
--------------- ---------------
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 106,274 104,366
Retained earnings 4,572,871 3,995,712
--------------- ---------------
Total 5,003,566 4,424,499
--------------- ---------------
Less treasury stock - 42,816,478 shares and
40,546,253 shares respectively, at cost (1,077,597) (916,708)
Deferred compensation related to ESOP (23,900) (28,055)
--------------- ---------------
Total shareholders' equity 3,902,069 3,479,736
--------------- ---------------
Total liabilities and shareholders' equity $ 6,975,756 $ 6,890,351
=============== ===============
CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
Thirteen weeks ended % Inc
Sept. 27, 1998 Sept. 28, 1997 (Dec)
Net Operating Revenues:
Newspaper advertising $ 707,347 $ 633,019 11.7
Newspaper circulation 251,534 235,439 6.8
Broadcasting 159,125 164,895 (3.5)
Cable and Security 58,231 63,502 (8.3)
Other 49,825 49,235 1.2
------------ ------------ ------
Total 1,226,062 1,146,090 7.0
------------ ------------ ------
Operating Expenses:
Cost of sales and operating expenses,
exclusive of depreciation 648,320 602,418 7.6
Selling, general and administrative
expenses, exclusive of depreciation 188,076 184,092 2.2
Depreciation 49,878 49,979 (0.2)
Amortization of intangible assets 27,122 24,900 8.9
------------ ------------ ------
Total 913,396 861,389 6.0
------------ ------------ ------
Operating income 312,666 284,701 9.8
------------ ------------ ------
Non-operating income (expense):
Interest expense (17,190) (23,418) (26.6)
Other (877) (1,573) (44.2)
------------ ------------ ------
Total (18,067) (24,991) (27.7)
------------ ------------ ------
Income before income taxes 294,599 259,710 13.4
Provision for income taxes 118,080 107,250 10.1
------------ ------------ ------
Net income $ 176,519 $ 152,460 15.8
============ ============ ======
Net income per share - basic $0.62 $0.54 14.8
============ ============ ======
Net income per share - diluted $0.62 $0.53 17.0
============ ============ ======
Dividends per share $0.20 $0.19 5.3
============ ============ ======
CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
Thirty-nine weeks ended % Inc
Sept. 27, 1998 Sept. 28, 1997 (Dec)
Net Operating Revenues:
Newspaper advertising $ 2,124,016 $ 1,882,877 12.8
Newspaper circulation 758,375 701,046 8.2
Broadcasting 518,616 504,746 2.7
Cable and Security 179,521 189,411 (5.2)
Other 149,581 132,594 12.8
-------------- -------------- ---------
Total 3,730,109 3,410,674 9.4
-------------- -------------- ---------
Operating Expenses:
Cost of sales and operating
expenses, exclusive of depreciation 1,938,055 1,744,586 11.1
Selling, general and administrative
expenses, exclusive of depreciation 568,187 538,670 5.5
Depreciation 153,273 149,737 2.4
Amortization of intangible assets 79,826 74,640 6.9
-------------- -------------- ---------
Total 2,739,341 2,507,633 9.2
-------------- -------------- ---------
Operating income 990,768 903,041 9.7
-------------- -------------- ---------
Non-operating income (expense):
Interest expense (60,767) (73,819) (17.7)
Other* 308,977 (7,665) ----
-------------- -------------- ---------
Total 248,210 (81,484) ----
-------------- -------------- ---------
Income before income taxes 1,238,978 821,557 50.8
Provision for income taxes 496,800 339,300 46.4
-------------- -------------- ---------
Net income $ 742,178 $ 482,257 53.9
============== ============== =========
Net income per share - basic $2.61 $1.70 53.5
============== ============== =========
Net income per share - diluted $2.59 $1.69 53.3
============== ============== =========
Dividends per share $0.58 $0.55 5.5
============== ============== =========
* 1998 results include a net non-operating gain principally from the disposition
of several businesses including Radio and Alarm Security. 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. 27, 1998 Sept. 28, 1997
-------------- --------------
Cash flows from operating activities
Net income $ 742,178 $ 482,257
Adjustments to reconcile net income to
operating cash flows:
Depreciation 153,273 149,737
Amortization of intangibles 79,826 74,640
Deferred income taxes 62,286 (13,500)
Other, net (432,208) (21,688)
--------- ---------
Net cash flow from operating activities 605,355 671,446
--------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (143,682) (142,062)
Payments for acquisitions, net of cash acquired (369,804) (98,721)
Change in other investments (1,559) (10,501)
Proceeds from sale of certain assets 649,466 8,993
Collection of long-term receivables 14,649 3,828
--------- ---------
Net cash provided by (used for) investing activities 149,070 (238,463)
--------- ---------
Cash flows from financing activities
Payments of long-term debt (470,726) (290,787)
Dividends paid (162,017) (152,226)
Cost of common shares repurchased (137,038)
Proceeds from issuance of common stock 16,880 24,952
--------- ---------
Net cash used for financing activities (752,901) (418,061)
--------- ---------
Net increase in cash and cash equivalents 1,524 14,922
Balance of cash and cash equivalents at
beginning of year 52,778 31,202
--------- ---------
Balance of cash and cash equivalents at
end of third quarter $ 54,302 $ 46,124
========= =========
BUSINESS SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirteen weeks ended % Inc
Sept. 27, 1998 Sept. 28, 1997 (Dec)
Operating Revenues:
Newspaper publishing $ 1,008,706 $ 917,693 9.9
Broadcasting 159,125 164,895 (3.5)
Cable and Security 58,231 63,502 (8.3)
--------------- --------------- --------
Total $ 1,226,062 $ 1,146,090 7.0
=============== =============== ========
Operating Income
(net of depreciation
and amortization):
Newspaper publishing $ 248,787 $ 217,793 14.2
Broadcasting 66,507 71,884 (7.5)
Cable and Security 13,883 12,323 12.7
Corporate (16,511) (17,299) 4.6
--------------- --------------- ---------
Total $ 312,666 $ 284,701 9.8
=============== =============== =========
Depreciation and Amortization:
Newspaper publishing $ 46,386 $ 41,065 13.0
Broadcasting 14,643 14,404 1.7
Cable and Security 13,758 17,196 (20.0)
Corporate 2,213 2,214 (0.0)
--------------- --------------- ---------
Total $ 77,000 $ 74,879 2.8
=============== =============== =========
Operating Cash Flow:
Newspaper publishing $ 295,173 $ 258,858 14.0
Broadcasting 81,150 86,288 (6.0)
Cable and Security 27,641 29,519 (6.4)
Corporate (14,298) (15,085) 5.2
--------------- --------------- ---------
Total $ 389,666 $ 359,580 8.4
=============== =============== =========
NOTES:
Operating Cash Flow represents operating income for each of the Company's
business segments plus related depreciation and amortization expense.
In the first quarter of 1998, the Company sold its Alarm Security Business
which had been reported in the Cable and Security business segment. In the
third quarter of 1998, the Company exchanged certain of its cable operations,
resulting in increased subscribers. On a pro forma basis for the third
quarter, giving effect to these transactions, cable operations reported gains
in revenue of 9%, operating income of 17% and operating cash flow of 8%.
On a year-to-date basis, pro forma cable operations reflect an 8% revenue gain,
an 11% improvement in operating income and a 6% gain in operating cash flow.
On the first day of fiscal 1998, the Company sold its five remaining radio
stations, which had been reported in the Broadcasting business segment.
The Company also purchased two television stations in Maine in early fiscal
1998 and a television station in Columbia, South Carolina, in May 1998.
On a pro forma basis for the third quarter, giving effect to these
transactions, television operations reported gains in revenue of 1%,
operating income of 1% and even operating cash flow. On a year-to-date basis,
pro forma television operations reflect a 7% revenue gain, a 12% improvement
in operating income and a 9% gain in operating cash flow.
BUSINESS SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirty-nine weeks ended % Inc
Sept. 27, 1998 Sept. 28, 1997 (Dec)
Operating Revenues:
Newspaper publishing $ 3,031,972 $ 2,716,517 11.6
Broadcasting 518,616 504,746 2.7
Cable and Security 179,521 189,411 (5.2)
--------------- -------------- -------
Total $ 3,730,109 $ 3,410,674 9.4
=============== ============== =======
Operating Income
(net of depreciation
and amortization):
Newspaper publishing $ 762,276 $ 688,569 10.7
Broadcasting 237,104 226,275 4.8
Cable and Security 42,362 39,573 7.0
Corporate (50,974) (51,376) 0.8
--------------- -------------- -------
Total $ 990,768 $ 903,041 9.7
=============== ============== =======
Depreciation and Amortization:
Newspaper publishing $ 138,656 $ 123,577 12.2
Broadcasting 44,636 43,898 1.7
Cable and Security 43,157 50,348 (14.3)
Corporate 6,650 6,554 1.5
--------------- -------------- -------
Total $ 233,099 $ 224,377 3.9
=============== ============== =======
Operating Cash Flow:
Newspaper publishing $ 900,932 $ 812,146 10.9
Broadcasting 281,740 270,173 4.3
Cable and Security 85,519 89,921 (4.9)
Corporate (44,324) (44,822) 1.1
--------------- -------------- -------
Total $ 1,223,867 $ 1,127,418 8.6
=============== ============== =======
NOTES:
See the Company's Business Segment Information for the 13-week period ending
September 27, 1998, on the preceding page.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 27, 1998
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 Form 10-K and annual
report to shareholders. The financial statements covering the 13 and
39-week periods ended September 27, 1998, and the comparative periods of
1997 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 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130), and No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS 131),
were issued. SFAS 130 is not currently applicable as the Company
has no items of other comprehensive income in any period presented.
SFAS 131 will not have any impact on the Company's reported financial
position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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) Reports on 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 12, 1998 /s/George R. Gavagan
----------------------------------------
George R. Gavagan
Vice President and Controller
Dated: November 12, 1998 /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.
3-2 By-laws of Gannett Co., Inc. Incorporated by reference to Exhibit
(reflects all amendments 3-1 to Gannett Co., Inc.'s Form 10-Q
through September 24, 1997) for the fiscal quarter ended
September 28, 1997.
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.
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.
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.
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.* 10-8 to Gannett Co., Inc's Form 10-K
for the fiscal year ended
December 27, 1986 ("1986 Form 10-K").
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.
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.
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.
CALCULATION OF EARNINGS PER SHARE
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
Thirteen weeks ended Thirty-nine weeks ended
---------------------- ----------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
------------ ------------ ----------- ---------
Basic earnings:
Net income $176,519 $152,460 $742,178 $482,257
Weighted average number of
common shares outstanding 284,366 283,597 284,381 283,227
Basic earnings per share $0.62 $0.54 $2.61 $1.70
Diluted earnings:
Net income $176,519 $152,460 $742,178 $482,257
Weighted average number of
common shares outstanding 284,366 283,597 284,381 283,227
Dilutive effect of out-
standing stock options and
stock incentive rights 2,557 2,361 2,692 2,092
Weighted average number of
shares outstanding, as
adjusted 286,923 285,958 287,073 285,319
Diluted earnings per share $0.62 $0.53 $2.59 $1.69
5
1,000
9-MOS
DEC-27-1998
DEC-29-1997
SEP-27-1998
35,226
19,076
612,773
17,847
94,510
897,577
3,733,189
1,640,109
6,975,756
740,369
0
324,421
0
0
3,618,311
6,975,756
3,730,109
3,730,109
1,938,055
2,739,341
(308,977)
0
60,767
1,238,978
496,800
742,178
0
0
0
742,178
2.61
2.59
5
1,000
9-MOS
DEC-28-1997
DEC-30-1996
SEP-28-1997
44,155
1,969
570,160
17,310
93,826
772,677
3,578,270
1,565,100
6,398,938
663,692
0
324,421
0
0
2,958,816
6,398,938
3,410,674
3,410,674
1,744,586
2,507,633
7,665
0
73,819
821,557
339,300
482,257
0
0
0
482,257
1.70
1.69
