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 29, 2002 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: n/a
(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 29, 2002 was 267,272,115
1
PART I. FINANCIAL INFORMATION
Items 1 and 2. Financial Statements and Management's Discussion
and Analysis of Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
OPERATING SUMMARY
Earnings per diluted share were 99 cents for the third quarter of 2002 versus 66
cents per diluted share for the third quarter of 2001, a 50% increase. For the
year-to-date, earnings per diluted share increased 38% to $3.02 from $2.19.
Net income rose 52% to $265.6 million for the quarter and 40% to $813.1 million
for the year-to-date. Operating income was up 34% to $450.7 million for the
quarter and 18% to $1.36 billion for the year-to-date.
Operating revenues were $1.58 billion for the third quarter, a 4% increase. For
the first nine months, operating revenues increased by $9.7 million or less than
1% to $4.73 billion.
ACCOUNTING STANDARD
At the beginning of 2002, the company adopted Statement of Financial Accounting
Standard No. 142 (SFAS No. 142 or the "Statement"), "Goodwill and Other
Intangible Assets" which has a material impact on comparisons of 2002 reported
results of operations with 2001. If the Statement had been adopted at the
beginning of 2001, defined as "comparable basis", earnings per diluted share
would have increased 16% for the quarter from 85 cents in 2001 to 99 cents in
2002. For the year-to-date, earnings per diluted share would have increased 9%
to $3.02 from $2.78. On a comparable basis, operating income for the third
quarter would have been up $54.6 million or 14% and $31.8 million or 2% for the
year-to-date. Net income would have increased $38.6 million or 17% in the third
quarter and $71.7 million or 10% for the year-to-date.
In the following discussion of newspaper and broadcasting results, the effect of
this accounting change has been analyzed further. Note 2 and Note 7 to the
Condensed Consolidated Financial Statements also provide information on the new
accounting principle.
NEWSPAPER RESULTS
Newspaper operating revenues are derived principally from advertising and
circulation sales, which accounted for 72% and 22%, respectively, of total
newspaper revenues for both the third quarter and the year-to-date 2002. Ad
revenues also include those derived from advertising placed with newspaper
Internet products. Other newspaper publishing revenues are mainly from
commercial printing businesses and also include earnings from the company's 50%
owned joint operating agencies in Detroit and Tucson. The table below presents
these components of reported revenues for the third quarter and first nine
months of 2002 and 2001.
2
Newspaper operating revenues, in thousands of dollars
Third Quarter 2002 2001 % Change
----------- ----------- --------
Advertising $ 1,006,923 $ 988,045 2
Circulation 303,908 306,139 (1)
Commercial printing and other 86,058 75,515 14
----------- ----------- -----
Total $ 1,396,889 $ 1,369,699 2
=========== =========== =====
Year-to-date 2002 2001 % Change
----------- ----------- --------
Advertising $ 3,022,664 $ 3,066,878 (1)
Circulation 919,716 925,167 (1)
Commercial printing and other 244,928 245,529 (0)
----------- ----------- -----
Total $ 4,187,308 $ 4,237,574 (1)
=========== =========== =====
Reported newspaper publishing revenues increased $27.2 million or 2% for the
quarter and declined $50.3 million or 1% for the year-to-date. Newspaper
advertising revenues rose $18.9 million or 2% for the quarter, primarily due to
gains in local and classified advertising, with the largest gains in local
advertising. The declines in year-to-date revenue amounts were in the national
and classified categories, especially help-wanted classified advertising.
Circulation revenues declined $2.2 million for the quarter and $5.5 million for
the year-to-date, less than 1% for both periods. Other newspaper revenues
increased $10.5 million or 14% for the quarter primarily because of higher
commercial printing volume. Refer to Note 7 of the Condensed Consolidated
Financial Statements for Business Segment Information.
The tables below provide, on a pro forma basis, details of newspaper ad revenue
for the third quarter and the first nine months of 2002 and 2001. This
presentation reflects operating revenue results as if all properties owned at
the end of the third quarter of 2002 were owned throughout all periods
presented. Since there were no material acquisitions or dispositions in the
periods presented, these pro forma comparisons closely mirror reported revenues.
However, these tables and related commentary also include the company's pro rata
portion of revenue and linage data for its newspapers participating in joint
operating agencies. The underlying pro forma advertising linage and preprint
distribution details are also provided; however, linage and preprint
distribution for U.K. publications are not included.
3
Advertising revenue, in thousands of dollars (pro forma)
Third Quarter 2002 2001 % Change
----------- ----------- --------
Local $ 442,061 $ 427,620 3
National 157,618 158,925 (1)
Classified 455,007 448,105 2
----------- ----------- -----
Total ad revenue $ 1,054,686 $ 1,034,650 2
=========== =========== =====
Advertising linage, in thousands of inches, and preprint distribution,
in millions (pro forma)
Third Quarter 2002 2001 % Change
----------- ----------- --------
Local 9,181 9,035 2
National 917 863 6
Classified 14,828 14,015 6
----------- ----------- --------
Total Run-of-Press
linage 24,926 23,913 4
=========== =========== ========
Preprint distribution 2,529 2,339 8
=========== =========== ========
Advertising revenue, in thousands of dollars (pro forma)
Year-to-date 2002 2001 % Change
----------- ----------- --------
Local $ 1,331,942 $ 1,324,075 1
National 505,505 523,533 (3)
Classified 1,326,415 1,358,600 (2)
----------- ----------- -----
Total ad revenue $ 3,163,862 $ 3,206,208 (1)
=========== =========== =====
Advertising linage, in thousands of inches, and preprint distribution,
in millions (pro forma)
Year-to-date 2002 2001 % Change
----------- ----------- --------
Local 27,948 28,060 (0)
National 2,853 2,805 2
Classified 42,972 41,009 5
----------- ----------- --------
Total Run-of-Press
linage 73,773 71,874 3
=========== =========== ========
Preprint distribution 7,556 7,224 5
=========== =========== ========
Pro forma newspaper advertising revenues increased 2% for the quarter and were
1% lower for the year-to-date. Local ad revenues advanced 3% on a 2% increase in
volume for the quarter and increased 1% on a slight decline in volume for the
4
year-to-date. National ad revenues decreased 1% for the quarter on a volume
increase of 6%, while year-to-date revenues were down by 3% on a volume increase
of 2%. Classified ad revenues rose 2% for the quarter on a 6% volume increase
and for the year-to-date declined 2% on a volume increase of 5%.
Year-over-year newspaper ad revenue was stronger in the third quarter of 2002
than in the first and second quarters of 2002; however, the advertising
environment continues to be challenging, particularly in the classified
employment category. The company's U.K. operations also experienced softer
employment advertising in the third quarter of 2002 as compared to 2001 although
like the domestic papers, the year-over-year employment advertising comparisons
were slightly stronger in the third quarter than in earlier quarters of 2002.
USA TODAY advertising revenues declined 7% for the quarter and 9% for the
year-to-date primarily reflecting the continued diminished demand for financial
and technology-related advertising. Travel advertising revenues, which were
below 2001 levels during the first and second quarters of 2002, exceeded 2001
levels during the third quarter.
Pro forma newspaper circulation revenues declined less than 1% for the quarter
and year-to-date. Pro forma net paid daily circulation for the company's
newspapers, excluding USA TODAY, declined 1% for the third quarter and the
year-to-date. Sunday net paid circulation was also down 1% for both the quarter
and the year-to-date. USA TODAY reported an average daily paid circulation of
2,227,839 in the ABC Publisher's Statement for the 26 weeks ended September 29,
2002, a 1% decrease over the comparable period a year ago. In September 2001,
newspaper circulation volume was elevated due to the strong demand for news
and information in the wake of the September 11 terrorist attacks.
On a comparable accounting basis for goodwill and intangible assets (see
discussion of SFAS No. 142 in the Accounting Standard section above), operating
costs for the newspaper segment were flat for the quarter and declined $40.4
million or 1% for the year-to-date. This reflects lower newsprint expense and
cost controls, partially offset by increased pension and other employee benefit
expenses and increased commercial printing expenses. Reported newsprint expense
decreased 23% for the quarter and 21% for the year-to-date as a result of
significantly lower prices. Newsprint consumption increased 2% for the quarter
and was flat for the year-to-date. Newsprint prices will rise in the fourth
quarter, but will remain significantly lower than in 2001. Cost savings
related to employee count reductions made in 2001 and earlier in 2002
continue to be realized but are offset by increased pension and other employee
benefit expenses.
The table following details the impact of SFAS 142 on newspaper operating income
comparisons for the third quarter and first nine months of 2002 and 2001,
respectively.
5
Newspaper operating income, in thousands
Third Quarter 2002 2001 % Change
----------- ----------- --------
As reported $ 384,298 $ 308,199 25
Impact of SFAS 142:
Add back goodwill amortization,
pre-tax - 48,844 -
----------- ----------- -----
Pro forma $ 384,298 $ 357,043 8
=========== =========== =====
Year-to-date 2002 2001 % Change
----------- ----------- --------
As reported $ 1,154,226 $ 1,021,126 13
Impact of SFAS 142:
Add back goodwill amortization,
pre-tax - 142,952 -
----------- ----------- -----
Pro forma $ 1,154,226 $ 1,164,078 (1)
=========== =========== =====
Excluding the positive impact of adopting SFAS No. 142 on comparisons,
newspaper operating income would have increased $27.3 million or 8% for the
quarter, and declined $9.9 million or 1% for the year-to-date. These
results reflect lower newsprint expense partially offset by increased
pension and other employee benefit expenses throughout the first nine months.
Year-over-year newspaper ad revenues were stronger in the third quarter than
in the first and second quarters of 2002. The impact of SFAS No. 142 on
newspaper segment results was to improve comparisons of operating income
by $48.8 million and $143.0 million for the third quarter and year-to-date,
respectively.
In July 2002, the company contributed its newspaper in Vincennes, Indiana,
to the Gannett Foundation, a not-for-profit, private foundation. The
company acquired Action Advertising, a commercial printing company and
publisher of several non-daily publications in Fond du Lac, Wisconsin, in
August 2002; Armed Forces Journal International Publishing Co., publisher
of defense magazines, in September 2002; and several weekly publications
distributed primarily in South Dakota referred to as "Prairie Publications"
in September 2002. These transactions did not significantly affect
newspaper operating results for the third quarter.
TELEVISION RESULTS
Reported television revenues increased $35.8 million or 24% for the third
quarter and $60.0 million or 12% for the year-to-date. Television revenues
benefited from very strong political and solid automotive advertising in the
second and third quarters, as well as Winter Olympics-related advertising in the
first quarter. National revenues increased 40% for the quarter and 19% for the
year-to-date, while local revenues increased 15% and 9% for the quarter and
year-to-date, respectively. Television revenues were unfavorably impacted in
September of 2001 as the company's stations ran commercial free for several days
following September 11.
6
On a comparable accounting basis for goodwill and intangible assets (see
discussion of SFAS No. 142 in the Accounting Standard section above),
operating costs would have increased $8.6 million or 9% for the quarter and
$17.9 million or 6% for the year-to-date, reflecting increased selling,
pension and other employee benefit costs.
The table following details the impact of SFAS 142 on television operating
income comparisons for the third quarter and first nine months of 2002 and 2001,
respectively.
Television operating income, in thousands
Third Quarter 2002 2001 % Change
----------- ----------- --------
As reported $ 81,506 $ 43,743 86
Impact of SFAS 142:
Add back goodwill amortization,
pre-tax - 10,590 -
----------- ----------- -----
Pro forma $ 81,506 $ 54,333 50
=========== =========== =====
Year-to-date 2002 2001 % Change
----------- ----------- --------
As reported $ 248,738 $ 175,012 42
Impact of SFAS 142:
Add back goodwill amortization,
pre-tax - 31,616 -
----------- ----------- -----
Pro forma $ 248,738 $ 206,628 20
=========== =========== =====
Excluding the positive impact of SFAS No. 142 on comparisons, television
operating income would have increased by $27.2 million or 50% for the quarter
and $42.1 million or 20% for the year-to-date. The impact of SFAS No. 142 on
television segment results was to improve operating income comparisons by $10.6
million and $31.6 million for the quarter and year-to-date, respectively.
Political revenue is expected to continue to be strong into the early part of
the fourth quarter of 2002, and overall television earnings for the fourth
quarter, on a comparable accounting basis, are expected to be above prior year
levels.
NON-OPERATING INCOME AND EXPENSE / PROVISION FOR INCOME TAXES
Interest expense was $39.7 million in the third quarter of 2002 versus $48.6
million in the third quarter of 2001 due to significantly lower interest rates
and lower debt levels. Interest expense for the first nine months of 2002 was
$109.6 million compared to $190.8 million for the same period in 2001. The daily
average commercial paper balance outstanding was $2.54 billion during the third
quarter of 2002 and $5.11 billion during the third quarter of 2001. The daily
average commercial paper balance outstanding was $3.29 billion during the first
nine months of 2002 and $5.28 billion during the same period of 2001. The
7
weighted average interest rates on commercial paper were 1.79% for the third
quarter of 2002 and 3.65% for the third quarter of 2001. For the first nine
months of 2002 and 2001, the weighted average interest rates on commercial paper
were 1.81% and 4.68%, respectively.
In March 2002, the company issued $1.8 billion aggregate principal amount of
unsecured global notes. These notes consist of $600 million aggregate principal
amount of 4.95% notes due 2005, $700 million aggregate principal amount of 5.50%
notes due 2007 and $500 million aggregate principal amount of 6.375% notes due
2012. The net proceeds of the offering were used to pay down commercial paper
borrowings.
The company's average borrowing rates are expected to be higher for the fourth
quarter of 2002 over the first nine months average due to the fixed rate notes.
Interest expense for the fourth quarter of 2002 is also expected to be above
prior year levels due to higher average borrowing rates.
Because the company has $2.41 billion in commercial paper obligations at
September 29, 2002 that have relatively short-term maturity dates, the company
is subject to significant changes in the amount of interest expense it might
incur. Assuming the current level of borrowings, a 1/2% decrease in the average
interest rate for commercial paper would result in reduced annual interest
expense of $12.0 million. Similarly, a 1/2% increase in such rates would result
in additional annual interest expense of $12.0 million.
In all periods presented, other non-operating (income) expense consists
primarily of charges for the write-down of certain minority interest investments
and currency translation gains or losses.
The company's effective income tax rate was 34.4% for the third quarter and
first nine months of 2002 versus the 39.4% for the same periods last year. The
reduction in the effective rate is primarily a result of the adoption of SFAS
No. 142. On a comparable basis, the effective tax rate for the third quarter and
first nine months of 2001 would have been 34.8%.
NET INCOME
Net income, on a comparable basis, increased $38.6 million or 17% for the
quarter, and diluted earnings per share increased to 99 cents from 85 cents, a
16% increase. For the first nine months, net income, on a comparable basis,
increased $71.7 million or 10%, while diluted earnings per share increased 9% to
$3.02 from $2.78. The 2001 earnings used in these comparisons includes a
positive adjustment of $0.19 and $0.59 per diluted share for the quarter and the
year-to-date, respectively, for goodwill amortization expense, net of tax, that
would not have been required had SFAS No. 142 been in effect that year.
The weighted average number of diluted shares outstanding for the third quarter
of 2002 totaled 269,306,000, compared to 266,910,000 for the third quarter of
2001. For the first nine months of 2002 and 2001, the weighted average number of
diluted shares outstanding totaled 269,105,000 and 266,689,000, respectively.
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.
8
LIQUIDITY AND CAPITAL RESOURCES
The company's consistent ability to generate substantial cash from its core
businesses was again evident during the third quarter and first nine months of
2002. The company's cash flow from operating activities for the nine months
ended September 29, 2002 was $985.4 million, reflecting solid newspaper and
television results and lower interest payments.
Cash used by the company for investing activities totaled $178.1 million
for the first nine months of 2002. Capital expenditures totaled
$51.1 million for the third quarter of 2002, compared to $69.1 million for
the third quarter of 2001. For the first nine months of 2002 and 2001, capital
expenditures were $175.7 million and $215.5 million, respectively.
Cash used by the company for financing activities totaled $882.3 million for
the first nine months of 2002. Payments to reduce the company's debt, which
includes the payment of debt issuance fees in connection with the company's
fixed rate debt, totaled $760.4 million. The company's regular quarterly
dividend of $0.24 per share was declared in the third quarter of 2002,
totaling $64.1 million and paid on October 1, 2002. Dividends paid for the
first nine months of 2002 and 2001 totaled $183.6 million and $174.5 million,
respectively.
Working capital declined from the end of the year 2001 by $186.9 million,
reflecting lower receivables due to seasonal trends in revenues, lower
inventories due to lower newsprint prices, and the pay-down of long-term debt
with cash and marketable securities.
In March 2002, as discussed above, the company issued $1.8 billion aggregate
principal amount of unsecured global notes in an underwritten public offering.
The net proceeds of the offering were used to repay outstanding commercial paper
obligations. In total, the company's long-term debt decreased by $173.2 million
during the third quarter of 2002 and $754.2 million during the first nine months
of 2002, primarily reflecting the pay-down of commercial paper borrowings from
operating cash flows.
Also in March 2002, the company entered into a $2.775 billion revolving credit
agreement providing for up to $1.41 billion in 364-day revolving credit loans
and up to $1.365 billion in 5-year revolving credit loans. The company
terminated its $3.0 billion revolving credit agreement, and its $1.53 billion
revolving credit facility which was due to expire in July 2002. At September 29,
2002, the Company had $4.305 billion of credit available under two revolving
credit agreements.
Under a shelf registration that became effective with the Securities and
Exchange Commission in April 2002, an additional $2.5 billion of unsecured debt
securities can be issued. Any proceeds from the sale of such securities could be
used for general corporate purposes, including capital expenditures, working
capital, securities repurchase programs, repayment of long-term and short-term
debt and the financing of future acquisitions. The company may also invest funds
that are not required immediately in short-term marketable securities.
In the discussion which follows, the term "operating cash flow" is used and is
defined as operating income plus depreciation and amortization of intangible
assets. Such cash flow amounts vary from net cash flow from operating activities
determined in accordance with generally accepted accounting principles and
9
presented in the Condensed Consolidated Statements of Cash Flows because cash
payments for interest and taxes are not reflected therein, nor are the cash
flow effects of non-operating items. Such operating cash flow amounts are
discussed herein and presented along with the business segment information
because they are used by the company as an important measure of the financial
strength of the company's operations.
Consolidated operating cash flow, as presented in the accompanying Business
Segment Information, increased 13% to $507.1 million for the third quarter of
2002, compared with $448.8 million for the same period of 2001. The company's
consolidated operating cash flow for the first nine months of 2002 and 2001 was
$1.52 billion and $1.49 billion, respectively, a 3% increase. The operating cash
flow results reflect improved newspaper advertising revenues in the third
quarter, lower newsprint expense and an increase in television segment
advertising revenues and earnings.
The company's consolidated after-tax cash flow (defined as after-tax income plus
depreciation and amortization) increased $35.0 million or 12% for the quarter
and $61.8 million or 7% for the year-to-date, reflecting the operating factors
discussed above, along with significantly lower interest expense.
The company's foreign currency translation losses, included in accumulated
other comprehensive income and reported as part of shareholders' equity, totaled
$7.6 million at the end of the third quarter versus $104.9 million at the
end of 2001, reflecting an overall strengthening of Sterling against the U.S.
dollar since the end of the year 2001. Newsquest's assets and liabilities at
September 29, 2002 were translated from Sterling to U.S. dollars at an exchange
rate of $1.56 versus $1.45 at the end of 2001. Newsquest's financial results
were translated at an average rate of $1.55 for the third quarter of 2002 versus
$1.44 for the third quarter of 2001, and at an average rate of $1.48 and $1.44
for the first nine months of 2002 and 2001, respectively.
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. Translation gains or
losses affecting the Condensed Consolidated Statements of Income have not been
significant in the past. If the price of Sterling against the U.S. dollar had
been 10% less than the actual price, reported net income for the first nine
months of 2002 would have decreased approximately 2%.
OTHER MATTERS
In early October 2002, the company acquired a one-third interest in
CareerBuilder, LLC for approximately $98 million joining Knight-Ridder, Inc. and
Tribune Company as owners.
Refer to Note 2 of the Condensed Consolidated Financial Statements for further
discussion of new accounting standards and their impact on the reporting of
earnings beginning in 2002.
CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
Certain statements in the company's 2001 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",
10
"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.
11
CONDENSED CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Sept. 29, 2002 Dec. 30, 2001
---------------- ---------------
ASSETS
Cash $ 43,187 $ 73,905
Marketable securities 24,712 66,724
Trade receivables, less allowance
(2002 - $40,152; 2001 - $39,138) 756,500 805,746
Inventories 87,274 104,848
Prepaid expenses and other receivables 104,404 126,975
---------------- ---------------
Total current assets 1,016,077 1,178,198
---------------- ---------------
Property, plant and equipment
Cost 4,398,232 4,207,074
Less accumulated depreciation (1,909,853) (1,741,604)
---------------- ---------------
Net property, plant and equipment 2,488,379 2,465,470
---------------- ---------------
Other assets
Goodwill, less amortization in 2001 8,766,294 8,578,025
Other intangible assets, less amortization 100,637 106,334
Investments and other assets 739,746 768,074
---------------- ---------------
Total other assets 9,606,677 9,452,433
---------------- ---------------
Total assets $ 13,111,133 $ 13,096,101
================ ===============
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable and current portion of film
contracts payable $ 315,357 $ 354,622
Compensation, interest and other accruals 337,289 235,093
Dividend payable 64,408 60,947
Income taxes 274,017 323,481
Deferred income 161,493 153,594
---------------- ---------------
Total current liabilities 1,152,564 1,127,737
---------------- ---------------
Deferred income taxes 483,792 503,397
Long-term debt 4,325,868 5,080,025
Postretirement medical and life insurance liabilities 395,530 409,052
Other long-term liabilities 232,053 239,968
---------------- ---------------
Total liabilities 6,589,807 7,360,179
---------------- ---------------
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
800,000,000: Issued, 324,420,732 shares. 324,421 324,421
Additional paid-in capital 240,867 210,256
Retained earnings 8,215,164 7,589,069
Accumulated other comprehensive loss (8,377) (103,287)
---------------- ---------------
Total 8,772,075 8,020,459
---------------- ---------------
Less treasury stock - 57,148,617 shares and
58,623,520 shares respectively, at cost (2,244,956) (2,275,737)
Deferred compensation related to ESOP (5,793) (8,800)
---------------- ---------------
Total shareholders' equity 6,521,326 5,735,922
---------------- ---------------
Total liabilities and shareholders' equity $ 13,111,133 $ 13,096,101
================ ===============
The accompanying notes are an integral part of these condensed consolidated financial statements.
12
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
Thirteen weeks ended % Inc
Sept. 29, 2002 Sept. 30, 2001 (Dec)
-------------- -------------- -----
Net Operating Revenues:
Newspaper advertising $ 1,006,923 $ 988,045 1.9
Newspaper circulation 303,908 306,139 (0.7)
Television 184,039 148,229 24.2
Other 86,058 75,515 14.0
-------------- ------------- -----
Total 1,580,928 1,517,928 4.2
-------------- ------------- -----
Operating Expenses:
Cost of sales and operating expenses,
exclusive of depreciation 820,131 824,839 (0.6)
Selling, general and administrative
expenses, exclusive of
depreciation 253,735 244,308 3.9
Depreciation 54,572 50,916 7.2
Amortization of intangible assets 1,830 61,267 (97.0)
-------------- ------------- -----
Total 1,130,268 1,181,330 (4.3)
-------------- ------------- -----
Operating income 450,660 336,598 33.9
-------------- ------------- -----
Non-operating income (expense):
Interest expense (39,709) (48,600) (18.3)
Other (6,015) 530 (1,234.9)
-------------- -------------- -----
Total (45,724) (48,070) (4.9)
-------------- -------------- -----
Income before income taxes 404,936 288,528 40.3
Provision for income taxes 139,300 113,700 22.5
-------------- -------------- -----
Net income $ 265,636 $ 174,828 51.9
============== ============== =====
Net income per share-basic $0.99 $0.66 50.0
===== ===== =====
Net income per share-diluted $0.99 $0.66 50.0
===== ===== =====
Dividends per share $0.24 $0.23 4.3
===== ===== =====
The accompanying notes are an integral part of these condensed consolidated financial statements.
13
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
Thirty-nine weeks ended % Inc
Sept. 29, 2002 Sept. 30, 2001 (Dec)
-------------- -------------- -----
Net Operating Revenues:
Newspaper advertising $ 3,022,664 $ 3,066,878 (1.4)
Newspaper circulation 919,716 925,167 (0.6)
Television 542,524 482,534 12.4
Other 244,928 245,529 (0.2)
-------------- -------------- -----
Total 4,729,832 4,720,108 0.2
-------------- -------------- -----
Operating Expenses:
Cost of sales and operating expenses,
exclusive of depreciation 2,449,058 2,488,416 (1.6)
Selling, general and administrative
expenses, exclusive of
depreciation 756,600 745,370 1.5
Depreciation 161,303 155,256 3.9
Amortization of intangible assets 5,497 180,067 (96.9)
-------------- -------------- -----
Total 3,372,458 3,569,109 (5.5)
-------------- -------------- -----
Operating income 1,357,374 1,150,999 17.9
-------------- -------------- -----
Non-operating income (expense):
Interest expense (109,564) (190,770) (42.6)
Other (8,388) 1,506 (657.0)
-------------- -------------- -----
Total (117,952) (189,264) (37.7)
-------------- -------------- -----
Income before income taxes 1,239,422 961,735 28.9
Provision for income taxes 426,300 378,900 12.5
-------------- -------------- -----
Net income $ 813,122 $ 582,835 39.5
============== ============== =====
Net income per share-basic $3.05 $2.20 38.6
===== ===== =====
Net income per share-diluted $3.02 $2.19 37.9
===== ===== =====
Dividends per share $0.70 $0.67 4.5
===== ===== =====
The accompanying notes are an integral part of these condensed consolidated financial statements.
14
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirty-nine weeks ended
Sept. 29, 2002 Sept. 30, 2001
-------------- --------------
Cash flows from operating activities:
Net income $ 813,122 $ 582,835
Adjustments to reconcile net income to
operating cash flows:
Depreciation 161,303 155,256
Amortization of intangibles 5,497 180,067
Deferred income taxes (19,606) 74,472
Other, net 25,081 128,980
---------- ---------
Net cash flow from operating activities 985,397 1,121,610
---------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (175,652) (215,491)
Payments for acquisitions, net of cash acquired (35,266) (136,529)
Payments for investments (15,824) (18,736)
Proceeds from investments 44,892 17,016
Proceeds from sale of certain assets 3,774 0
---------- ---------
Net cash used for investing activities (178,076) (353,740)
---------- ---------
Cash flows from financing activities:
Payment of long-term debt and debt issuance costs (760,389) (676,676)
Dividends paid (183,566) (174,533)
Proceeds from issuance of common stock 61,668 19,574
---------- ---------
Net cash used for financing activities (882,287) (831,635)
---------- ---------
Effect of currency exchange rate change 2,236 (800)
---------- ---------
Net decrease in cash and cash equivalents (72,730) (64,565)
Balance of cash and cash equivalents at
beginning of year 140,629 193,196
---------- ---------
Balance of cash and cash equivalents at
end of second quarter $ 67,899 $ 128,631
========== =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 29, 2002
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions for Form 10-Q and, therefore, do
not include all information and footnotes which are normally included in the
Form 10-K and annual report to shareholders. The financial statements covering
the 13-week and 39-week periods ended September 29, 2002, and the comparative
periods of 2001, 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
On December 31, 2001, the company adopted Statement of Financial Accounting
Standards No. 142 (SFAS No. 142), "Goodwill and Other Intangible Assets", which
eliminated the amortization of goodwill and other intangibles with indefinite
useful lives. The company performed an impairment test of its goodwill and
determined that no impairment of the recorded goodwill existed. SFAS No. 142
requires that goodwill be tested for impairment at least annually and more
frequently if an event occurs which indicates the goodwill may be impaired. The
company will perform its impairment testing during the fourth quarter on an
annual basis.
Goodwill and other intangible assets are as follows:
(in thousands of dollars) Sept. 29, 2002 Dec. 30, 2001
-------------- --------------
Accumulated Accumulated
Cost Amortization Cost Amortization
---------- ------------ ---------- ------------
Amortized intangible assets:
Subscriber lists $ 109,800 $ 9,163 $ 110,000 $ 3,666
Unamortized intangible assets:
Goodwill $ 8,766,294 $ - $9,758,081 $1,180,056
As of September 29, 2002, Newspaper goodwill was $7.3 billion and Television
goodwill was $1.5 billion. Goodwill increased primarily due to the change in
foreign currency exchange rates and also because of the acquisition of certain
small businesses during the year.
Amortization expense for subscriber lists was $1.8 million in the quarter ended
September 29, 2002. Subscriber lists are amortized on a straight-line basis over
15 years. For each of the next five years, amortization expense relating to the
identified intangibles is expected to be approximately $7.3 million.
As set forth in SFAS No. 142, the results for the third quarter and first nine
months of 2001 have not been restated. A reconciliation of net income for those
16
periods and a comparison to the comparable periods of 2002, as if SFAS 142 had
been adopted at the beginning of 2001, is presented below.
Thirteen weeks ended
(dollars in thousands) Sept. 29, 2002 Sept. 30, 2001
-------------- --------------
Reported net income $265,636 $174,828
Add back: goodwill amortization,
net of tax 52,234
-------- --------
Adjusted net income $265,636 $227,062
======== ========
Basic earnings per share:
Reported net income $0.99 $0.66
Add back: goodwill amortization,
net of tax 0.20
----- -----
Adjusted net income $0.99 $0.86
===== =====
Diluted earnings per share:
Reported net income $0.99 $0.66
Add back: goodwill amortization,
net of tax 0.19
----- -----
Adjusted net income $0.99 $0.85
===== =====
Thirty-nine weeks ended
(dollars in thousands) Sept. 29, 2002 Sept. 30, 2001
-------------- --------------
Reported net income $813,122 $582,835
Add back: goodwill amortization,
net of tax 158,568
-------- --------
Adjusted net income $813,122 $741,403
======== ========
Basic earnings per share:
Reported net income $3.05 $2.20
Add back: goodwill amortization,
net of tax 0.60
----- -----
Adjusted net income $3.05 $2.80
===== =====
Diluted earnings per share:
Reported net income $3.02 $2.19
Add back: goodwill amortization,
net of tax 0.59
----- -----
Adjusted net income $3.02 $2.78
===== =====
Also, on the first day of its fiscal year, December 31, 2001, the company
adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
17
Assets." SFAS No. 144 did not have a material impact on the company's financial
position or results of operations.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities", was issued. This standard is effective for exit or
disposal activities that are initiated after December 31, 2002. The adoption of
this standard is not expected to have a material effect on the company's
financial position or results of operations.
3. Long-term debt
In March 2002, the company issued $1.8 billion aggregate principal amount of
unsecured global notes in an underwritten public offering. These notes consist
of $600 million aggregate principal amount of 4.95% notes due 2005, $700 million
aggregate principal amount of 5.50% notes due 2007 and $500 million aggregate
principal amount of 6.375% notes due 2012. The net proceeds of the offering were
used to pay down commercial paper borrowings.
In March 2002, the company terminated its $3.0 billion revolving credit
agreement, which was scheduled to expire July 1, 2003. Concurrent with the
cancellation of that agreement, the company entered into a $2.775 billion
revolving credit agreement which consists of a $1.41 billion 364-day facility
which extends to March 2003 and a $1.365 billion 5-year facility which extends
to March 2007. At the end of the 364-day period, any borrowings outstanding
under the 364-day credit facility are convertible into a one-year term loan
at the company's option.
The company also canceled its $1.53 billion 364-day facility, which was part
of an overall $3.06 billion revolving credit agreement. The facility was
scheduled to expire in July 2002 and under which any outstanding borrowings
were convertible into a two-year term loan. The other half of the agreement
consisted of a $1.53 billion 5-year facility. That part of the agreement
continues in place and extends to July 2005.
At December 30, 2001, the company had $6.06 billion of credit available
under two revolving credit agreements. At September 29, 2002 the company had
$4.3 billion of credit available under two revolving credit agreements.
Under a shelf registration that became effective with the Securities and
Exchange Commission in April 2002, an additional $2.5 billion of unsecured debt
securities can be issued. Any proceeds from the sale of such securities could be
used for general corporate purposes, including capital expenditures, working
capital, securities repurchase programs, repayment of long-term and short-term
debt and the financing of future acquisitions. The company may also invest funds
that are not required immediately in short-term marketable securities.
Approximate annual maturities of long-term debt, assuming that the company used
the $4.305 billion revolving credit agreements to refinance existing unsecured
promissory notes on a long-term basis and assuming the company's other
indebtedness was paid on its scheduled pay dates, are as follows:
18
In thousands Sept. 29, 2002
--------------
2005 $ 1,648,812
2006 14,838
2007 2,060,526
Later years 601,692
--------------
Total $ 4,325,868
==============
The fair value of the company's total long-term debt, determined based
on quoted market prices for similar issues of debt with the same remaining
maturities and similar terms, totaled $4.49 billion at September 29, 2002.
4. 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 $306.9 million for the third quarter of 2002 and
$223.9 million for the third quarter of 2001. Net income totaled $265.6 million
and other comprehensive income totaled $41.3 million in 2002. Net income totaled
$174.8 million and other comprehensive income totaled $49.1 million in 2001.
Comprehensive income totaled $908.0 million for the first nine months of 2002
and $565.2 million for the first nine months of 2001. Net income totaled $813.1
million and other comprehensive income totaled $94.9 million in 2002. Net income
totaled $582.8 million and other comprehensive losses totaled $17.6 million in
2001.
5. Acquisitions and Dispositions
The company acquired Action Advertising, a commercial printing company and
publisher of several non-daily publications in Fond du Lac, Wisconsin, in
August 2002; Armed Forces Journal International Publishing Co., publisher
of defense magazines, in September 2002; and several weekly publications
distributed primarily in South Dakota referred to as "Prairie Publications"
in September 2002.
In July 2002, the company contributed its newspaper in Vincennes, Indiana, to
the Gannett Foundation, a not-for-profit, private foundation.
These transactions did not significantly affect newspaper operating results for
the third quarter.
6. Outstanding Shares
The weighted average number of common shares outstanding (basic) in the third
quarter totaled 267,056,000 compared to 264,822,000 for the third quarter of
2001. The weighted average number of diluted shares outstanding in the third
quarter totaled 269,306,000 compared to 266,910,000 for the third quarter of
2001.
The weighted average number of common shares outstanding (basic) for the first
19
nine months of 2002 totaled 266,674,000 compared to 264,658,000 in the first
nine months of 2001. The weighted average number of diluted shares outstanding
for the first nine months of 2002 totaled 269,105,000 compared to 266,689,000
for the first nine months of 2001.
20
7. Business Segment Information
BUSINESS SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirteen weeks ended % Inc
Sept. 29, 2002 Sept. 30, 2001 (Dec)
-------------- -------------- -----
Net Operating Revenues:
Newspaper publishing $ 1,396,889 $ 1,369,699 2.0
Television 184,039 148,229 24.2
-------------- -------------- -----
Total $ 1,580,928 $ 1,517,928 4.2
============== ============== =====
Operating Income
(net of depreciation
and amortization):
Newspaper publishing $ 384,298 $ 308,199 24.7
Television 81,506 43,743 86.3
Corporate (15,144) (15,344) 1.3
-------------- -------------- -----
Total $ 450,660 $ 336,598 33.9
============== ============== =====
Depreciation and Amortization:
Newspaper publishing $ 46,252 $ 93,613 (50.6)
Television 6,400 17,098 (62.6)
Corporate 3,750 1,472 154.8
-------------- -------------- -----
Total $ 56,402 $ 112,183 (49.7)
============== ============== =====
Operating Cash Flow (1):
Newspaper publishing $ 430,550 $ 401,812 7.2
Television 87,906 60,841 44.5
Corporate (11,394) (13,872) 17.9
-------------- -------------- -----
Total $ 507,062 $ 448,781 13.0
============== ============== =====
(1) Operating Cash Flow represents operating income for each of the company's
business segments plus related depreciation and amortization expense. This
measure varies from the Condensed Consolidated Statements of Cash Flows.
21
BUSINESS SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirty-nine weeks ended % Inc
Sept. 29, 2002 Sept. 30, 2001 (Dec)
-------------- -------------- -----
Net Operating Revenues:
Newspaper publishing $ 4,187,308 $ 4,237,574 (1.2)
Television 542,524 482,534 12.4
-------------- -------------- -----
Total $ 4,729,832 $ 4,720,108 0.2
============== ============== =====
Operating Income
(net of depreciation
and amortization):
Newspaper publishing $ 1,154,226 $ 1,021,126 13.0
Television 248,738 175,012 42.1
Corporate (45,590) (45,139) (1.0)
-------------- -------------- -----
Total $ 1,357,374 $ 1,150,999 17.9
============== ============== =====
Depreciation and Amortization:
Newspaper publishing $ 136,802 $ 279,681 (51.1)
Television 19,148 51,181 (62.6)
Corporate 10,850 4,461 143.2
-------------- -------------- -----
Total $ 166,800 $ 335,323 (50.3)
============== ============== =====
Operating Cash Flow (1):
Newspaper publishing $ 1,291,028 $ 1,300,807 (0.8)
Television 267,886 226,193 18.4
Corporate (34,740) (40,678) 14.6
-------------- -------------- -----
Total $ 1,524,174 $ 1,486,322 2.5
============== ============== =====
(1) Operating Cash Flow represents operating income for each of the company's
business segments plus related depreciation and amortization expense. This
measure varies from the Condensed Consolidated Statements of Cash Flows.
22
PRO FORMA BUSINESS SEGMENT INFORMATION (1)
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirteen weeks ended % Inc
Sept. 29, 2002 Sept. 30, 2001 (Dec)
-------------- -------------- ------
Net Operating Revenues:
Newspaper publishing $ 1,396,889 $ 1,369,699 2.0
Television 184,039 148,229 24.2
-------------- -------------- -----
Total $ 1,580,928 $ 1,517,928 4.2
============== ============== =====
Operating Income
(net of depreciation
and amortization):
Newspaper publishing $ 384,298 $ 357,043 7.6
Television 81,506 54,333 50.0
Corporate (15,144) (15,344) 1.3
-------------- -------------- -----
Total $ 450,660 $ 396,032 13.8
============== ============== =====
Depreciation and Amortization:
Newspaper publishing $ 46,252 $ 44,769 3.3
Television 6,400 6,508 (1.7)
Corporate 3,750 1,472 154.8
-------------- -------------- -----
Total $ 56,402 $ 52,749 6.9
============== ============== =====
Operating Cash Flow (2):
Newspaper publishing $ 430,550 $ 401,812 7.2
Television 87,906 60,841 44.5
Corporate (11,394) (13,872) 17.9
-------------- -------------- -----
Total $ 507,062 $ 448,781 13.0
============== ============== =====
(1) As if Statement of Financial Accounting Standards No. 142 (SFAS No. 142)
had been adopted at the beginning of 2001.
(2) Operating Cash Flow represents operating income for each of the company's
business segments plus related depreciation and amortization expense. This
measure varies from the Condensed Consolidated Statements of Cash Flows.
23
PRO FORMA BUSINESS SEGMENT INFORMATION (1)
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
Thirty-nine weeks ended % Inc
Sept. 29, 2002 Sept. 30, 2001 (Dec)
-------------- -------------- ------
Net Operating Revenues:
Newspaper publishing $ 4,187,308 $ 4,237,574 (1.2)
Television 542,524 482,534 12.4
-------------- -------------- -----
Total $ 4,729,832 $ 4,720,108 0.2
============== ============== =====
Operating Income
(net of depreciation and
amortization):
Newspaper publishing $ 1,154,226 $ 1,164,078 (0.8)
Television 248,738 206,628 20.4
Corporate (45,590) (45,139) (1.0)
-------------- -------------- -----
Total $ 1,357,374 $ 1,325,567 2.4
============== ============== =====
Depreciation and Amortization:
Newspaper publishing $ 136,802 $ 136,729 0.1
Television 19,148 19,565 (2.1)
Corporate 10,850 4,461 143.2
-------------- -------------- -----
Total $ 166,800 $ 160,755 3.8
============== ============== =====
Operating Cash Flow (2):
Newspaper publishing $ 1,291,028 $ 1,300,807 (0.8)
Television 267,886 226,193 18.4
Corporate (34,740) (40,678) 14.6
-------------- -------------- -----
Total $ 1,524,174 $ 1,486,322 2.5
============== ============== =====
(1) As if Statement of Financial Accounting Standards No. 142 (SFAS No. 142)
had been adopted at the beginning of 2001.
(2) Operating Cash Flow represents operating income for each of the company's
business segments plus related depreciation and amortization expense. This
measure varies from the Condensed Consolidated Statements of Cash Flows.
24
Item 3. 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. Translation gains or losses affecting the
Condensed Consolidated Statements of Income have not been significant in the
past. If the price of Sterling against the U.S. dollar had been 10% less than
the actual price, reported net income for the first nine months of 2002 would
have decreased approximately 2%.
Because the company has $2.41 billion in commercial paper obligations
outstanding at September 29, 2002 that have relatively short-term maturity
dates, the company is subject to significant changes in the amount of interest
expense it might incur. Assuming the current level of borrowings, a 1/2%
decrease in the average interest rate for commercial paper would result in
reduced annual interest expense of $12.0 million. Likewise, a 1/2% increase
in such rates would result in additional annual interest expense of
$12.0 million.
The fair value of the company's total long-term debt, determined based
on quoted market prices for similar issues of debt with the same remaining
maturities and similar terms, totaled $4.49 billion at September 29, 2002.
Item 4. Controls and Procedures
Based on their evaluation as of a date within 90 days of the filing of this Form
10-Q, the company's Chairman, President and Chief Executive Officer and
Executive Vice President/Operations and Chief Financial Officer have concluded
the company's disclosure controls and procedures are effective to ensure that
information required to be disclosed in the reports that the company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. There have been no significant changes in
the company's internal controls or in other factors that could significantly
affect those controls subsequent to the date of their evaluation.
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
Current Report on Form 8-K filed August 7, 2002, in connection with
Regulation FD disclosures concerning the filing of oaths with the
Securities and Exchange Commission pursuant to SEC Order 4-460.
25
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, 2002 By:/s/George R. Gavagan
------------------------------
George R. Gavagan
Vice President and Controller
Dated: November 12, 2002 By:/s/Thomas L. Chapple
------------------------------
Thomas L. Chapple
Senior Vice President, General
Counsel and Secretary
26
CERTIFICATIONS
I, Douglas H. McCorkindale, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gannett Co., Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/Douglas H. McCorkindale
_______________________
Douglas H. McCorkindale
Chairman, President and
Chief Executive Officer
27
I, Larry F. Miller, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gannett Co., Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002
/s/Larry F. Miller
_______________________
Larry F. Miller
Executive Vice President/Operations
and Chief Financial Officer
28
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 Exhibit
(reflects all amendments 3-2 to Gannett Co., Inc.'s Form 10-Q
through July 23, 2002) for the fiscal quarter ended June 30,
2002.
4-1 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.
4-2 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.
4-3 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.
4-4 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.
4-5 $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.
4-6 Amendment Number One to Incorporated by reference to Exhibit
$3,000,000,000 Competitive 4-11 to Gannett Co., Inc.'s Form 10-K
29
Advance and Revolving Credit for the fiscal year ended December 31,
Agreement among Gannett Co., 2000.
Inc. and the Banks named
therein.
4-7 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.
4-8 Form of 4.950% Note due Incorporated by reference to Exhibit
2005. 4-13 to Gannett Co., Inc.'s Form 8-K
filed on March 14, 2002.
4-9 Form of 5.500% Note due 2007. Incorporated by reference to Exhibit
4-14 to Gannett Co., Inc.'s Form 8-K
filed on March 14, 2002.
4-10 Form of 6.375% Note due 2012. Incorporated by reference to Exhibit
4-15 to Gannett Co., Inc.'s Form 8-K
filed on March 14, 2002.
4-11 Third Supplemental Indenture, Incorporated by reference to Exhibit
dated as of March 14, 2002, 4-16 to Gannett Co., Inc.'s Form 8-K
between Gannett Co., Inc. and filed on March 14, 2002.
Wells Fargo Bank Minnesota, N.A.,
as Trustee.
4-12 Competitive Advance and Incorporated by reference
Revolving Credit Agreement to Exhibit 10-11 to Gannett
dated as of March 11, 2002 Co., Inc.'s Form 8-K filed on
among Gannett Co., Inc., the March 14, 2002.
several lenders from time to
time parties thereto,
Bank of America, N.A., as
Administrative Agent, JP Morgan
Chase Bank and Bank One NA, as
Co-Syndication Agents, and
Barclays Bank PLC, as
Documentation Agent.
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
30
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. Amendments No. 1
and 2 incorporated by reference to
Exhibit 10-5 to Gannett Co., Inc.'s
Form 10-K for the fiscal year ended
December 30, 2001. Amendment No. 3
attached.
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
31
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, as amended 10-8 to Gannett Co., Inc.'s Form
and restated October 22, 2001, 10-K for the fiscal year ended
and as further amended on December 30, 2001.
December 4, 2001.*
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 Omnibus Incentive Compensation Incorporated by reference to Exhibit
Plan No. 4 to the Company's Registration
Statement on Form S-8 (Registration
No. 333-60402). Amendment No. 1
incorporated by reference to Exhibit
No. 10-10 to Gannett Co., Inc.'s Form
10-K for the fiscal year ended
December 30, 2001.
11 Statement re computation of Attached.
earnings per share.
99-1 Certification Pursuant to 18 Attached.
U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99-2 Certification Pursuant to 18 Attached.
U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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
32
the company.
* Asterisks identify management contracts and compensatory plans
or arrangements.
33
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Gannett Co., Inc.
("Gannett") on Form 10-Q for the period ending September 29, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Larry F. Miller, executive vice president/operations and
chief financial officer of Gannett, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) the Report fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents,
in all material respects, the financial condition and results
of operations of Gannett.
/s/Larry F. Miller
_______________________________
Larry F. Miller
Executive Vice President/Operations
and Chief Financial Officer
November 12, 2002
GANNETT SUPPLEMENTAL RETIREMENT PLAN
Amendment No. 3 to January 1, 1998 Restatement
Pursuant to Section 6.1 of the Gannett Supplemental Retirement
Plan (the "Plan"), the Executive Compensation Committee hereby amends
the Plan, as follows:
1. Effective as of January 1, 2002, Exhibit A is amended by adding
the following to the end thereof:
Effective January 1, 2002, the definition of compensation that
shall be used for purposes of calculating a Participant's
Monthly Benefit under this Exhibit A shall mean the amounts
paid to the Participant that are included within the definition of
"Earnings" as set forth in Section 2.19 of the Funded Plan. To
the extent that a Participant's Monthly Benefit is determined,
in part, based on the compensation earned before January 1, 2002,
a Participant's compensation for such periods shall be calculated
using the definition under the grandfathered CNI Plan pension
formula applicable to the Participant. In each case, such
definitions shall be applied ignoring the limitations under
Code Section 401(a)(17) and taking into account salary and bonuses
deferred under the Gannett Co., Inc. Deferred Compensation Plan.
GANNETT CO., INC.
By: /s/Richard L. Clapp
________________________________
Richard L. Clapp
Title: Senior Vice President/
Human Resources
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. 29, Sept. 30, Sept. 29, Sept. 30,
2002 2001 2002 2001
------------ ----------- ----------- -----------
Basic earnings:
Net income $ 265,636 $ 174,828 $ 813,122 $ 582,835
Weighted average number of
common shares outstanding 267,056 264,822 266,674 264,658
Basic earnings per share $0.99 $0.66 $3.05 $2.20
Diluted earnings:
Net income $ 265,636 $ 174,828 $ 813,122 $ 582,835
Weighted average number of
common shares outstanding 267,056 264,822 266,674 264,658
Dilutive effect of outstanding
stock options and stock
incentive rights 2,250 2,088 2,431 2,031
Weighted average number of
shares outstanding, as adjusted 269,306 266,910 269,105 266,689
Diluted earnings per share $0.99 $0.66 $3.02 $2.19
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Gannett Co., Inc.
("Gannett") on Form 10-Q for the period ending September 29, 2002 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), I, Douglas H. McCorkindale, chairman, president and chief
executive officer of Gannett, certify, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) the Report fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents,
in all material respects, the financial condition and results
of operations of Gannett.
/s/Douglas H. McCorkindale
_______________________________
Douglas H. McCorkindale
Chairman, President and
Chief Executive Officer
November 12, 2002