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 26, 1999 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)
<PAGE>
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 26, 1999 was 278,771,355.
<PAGE>
PART I. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
ACQUISITIONS/DISPOSITIONS/EXCHANGES
On June 24, 1999, Gannett U.K. Limited ("Gannett UK"), a wholly-owned
subsidiary of Gannett Co., Inc. ("the company"), made a cash offer to acquire
the entire issued and to be issued share capital of Newsquest plc
("Newsquest"). Pursuant to the Offer, Newsquest shareholders elected to
receive 460 pence (U.S. $7.26) in cash or Loan Notes for each of 200.4 million
fully diluted shares, for a total price of approximately 922 million pounds
sterling (U.S. $1.5 billion). Gannett UK also financed the repayment of
Newsquest's existing debt. Share purchases commenced in the third quarter
of 1999 and were financed principally by commercial paper borrowings and
operating cash flow. On July 26, 1999, pursuant to the Offer Document,
Gannett UK declared the Offer unconditional in all respects and shortly
thereafter, Gannett UK effectively owned 100% of Newsquest shares. The
acquisition was recorded under the purchase method of accounting and
Newsquest's results of operations are included in the company's third quarter
financial statements from July 26, 1999 onward.
On July 27, 1999, the company announced an agreement to sell the assets of its
cable division to Cox Communications, Inc. for approximately $2.7 billion
in cash. Closing is expected to occur after regulatory approvals are
obtained in early 2000. Upon closing, a gain will be recognized which, along
with the cable and security segment operating results, will be reported as
discontinued operations in the company's financial statements.
EARNINGS SUMMARY
Quarter
Operating income for the third quarter of 1999 rose $57.3 million or 18%.
Newspaper publishing earnings were up $55.9 million or 23% for the quarter,
reflecting continued strong advertising demand, very strong operating results
at USA TODAY and USA WEEKEND, a 9% decline in newsprint expense and the
positive impact of the recently acquired Newsquest properties. Television
earnings declined $0.7 million or 1% for the quarter. The television segment
results were impacted by recent transactions, including the exchange of the
company's station in Austin, TX for a station in Sacramento, CA, plus other
consideration. Cable earnings rose $2.8 million or 20% for the quarter.
Net income for the third quarter rose $31.0 million or 18%. Net income per
share was $.74 (diluted), up 19%.
<PAGE>
Year-to-Date
Operating income for the first nine months of 1999 rose $110.4 million or 11%.
Non-operating income for the first nine months of 1999 included a second
quarter net pre-tax gain of $55 million ($33 million after-tax) principally
from the exchange of the television stations discussed above. Non-operating
income for the first nine months of 1998 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 for the first nine months of 1999, excluding
the 1999 and 1998 gains referred to above, advanced $72.0 million or 13%.
A presentation of year-to-date earnings excluding the net non-operating
gains follows:
Earnings Summary Excluding
1999 and 1998 Net Non-operating Gains
(dollars in thousands,
except per share amounts)
Year-to-date Ended
Sept. 26, Sept. 27, % Inc
1999 1998 (Dec)
-------- -------- -----
Operating income $1,101,149 $990,768 11.1
Non-operating income (expense):
Interest expense (56,918) (60,767) (6.3)
Other 4,731 2,450 93.1
----------- --------- ------
Total (52,187) (58,317) (10.5)
----------- --------- ------
Income before income taxes 1,048,962 932,451 12.5
Provision for income taxes 418,400 373,880 11.9
----------- --------- ------
Net income $ 630,562 $558,571 12.9
=========== ========= ======
Net income per share-basic $2.26 $1.96 15.3
===== ===== ====
Net income per share-diluted $2.24 $1.95 14.9
===== ===== ====
<PAGE>
Certain pro forma operating results for each business segment are discussed
in the following sections of this report.
NEWSPAPERS
As discussed above, the company completed the acquisition of Newsquest on
July 26, 1999. Newsquest's principal activities are publishing and printing
regional and local newspapers in the United Kingdom with a portfolio that
includes 11 daily newspapers and a variety of non-daily publications. Reported
results include the operating results from the Newsquest properties from
July 26, 1999 onward and were translated from pounds sterling to U.S. dollars
at a weighted average rate of $1.61.
Reported newspaper publishing revenues rose $118.1 million or 12% in the third
quarter of 1999 and $204.7 million or 7% for the year-to-date, reflecting the
impact of revenues from the Newsquest properties. This included a
$110.5 million or 16% gain in advertising revenues for the quarter and
$202.7 million or 10% increase for the year-to-date.
The tables below provide, on a pro forma basis, details of newspaper ad
revenue, including the newly acquired Newsquest properties, for the third
quarter and year-to-date periods of 1999 and 1998. Advertising linage and
preprint distribution details are also provided below; however, linage and
preprint distribution for Newsquest publications are not included.
Advertising revenue, in thousands of dollars (pro forma)
Third Quarter
- --------------
1999 1998 % Change
---- ---- --------
Local $234,251 $234,678 0
National 139,265 124,348 12
Classified 355,791 336,469 6
-------- -------- ----
Total Run-of-Press 729,307 695,495 5
Preprint and
other advertising 112,991 107,312 5
-------- -------- ----
Total ad revenue $842,298 $802,807 5
======== ======== ====
<PAGE>
Advertising linage, in thousands of inches, and preprint distribution, in
millions (pro forma)
Third Quarter
- --------------
1999 1998 % Change
---- ---- --------
Local 8,207 8,201 0
National 811 723 12
Classified 11,653 10,706 9
------ ------ ----
Total Run-of-Press linage 20,671 19,630 5
====== ====== ====
Preprint distribution 1,762 1,704 3
====== ====== ====
Advertising revenue, in thousands of dollars (pro forma)
Year-to-Date
- ------------
1999 1998 % Change
---- ---- --------
Local $716,958 $715,544 0
National 449,185 393,176 14
Classified 1,062,952 1,002,126 6
---------- ---------- ----
Total Run-of-Press 2,229,095 2,110,846 6
Preprint and
other advertising 338,443 320,671 6
---------- ---------- ----
Total ad revenue $2,567,538 $2,431,517 6
========== ========== ====
Advertising linage, in thousands of inches, and preprint distribution, in
millions (pro forma)
Year-to-Date
- ------------
1999 1998 % Change
---- ---- --------
Local 24,843 24,639 1
National 2,463 2,153 14
Classified 33,818 31,259 8
------ ------ ----
Total Run-of-Press linage 61,124 58,051 5
====== ====== ====
Preprint distribution 5,265 5,126 3
====== ====== ====
<PAGE>
Pro forma newspaper advertising revenues rose 5% for the quarter and 6% for the
year-to-date. Local ad revenues and volume were flat for the quarter.
Year-to-date, local ad revenues were flat with volume up 1%. National ad
revenues rose 12% for the quarter and 14% for the year-to-date on a volume
increase of 12% for the quarter and 14% for the year-to-date. Classified ad
revenues increased 6% for the quarter and the year-to-date on a volume increase
of 9% for the quarter and 8% for the year-to-date. Most of the company's
newspapers, including USA TODAY and USA WEEKEND, recorded solid gains in
advertising revenue. Classified gains were strongest in the employment and
automotive categories.
Reported newspaper circulation revenues declined 2% for the quarter and 1% for
the year-to-date. Pro forma net paid daily circulation for the company's local
newspapers was lower by 2% for the quarter and 1% for the year-to-date.
Sunday circulation was lower by 2% for the quarter and for the year-to-date.
USA TODAY reported an average daily paid circulation of 2,235,808 in the
ABC Publisher's statement for the 26 weeks ended September 26, 1999, a 1%
increase over the comparable period a year ago.
Operating costs for the newspaper segment increased $62.2 million or 8% for the
quarter and $94.1 million or 4% for the year-to-date, largely due to the added
costs from the Newsquest properties. In total, newsprint expense decreased 9%
for the quarter and 5% for the year-to-date. Newsprint consumption rose 8% for
the quarter and 4% for the year-to-date, while newsprint prices continued to
decline. The company expects newsprint prices to be lower for the remainder
of the year as compared to the corresponding period of 1998.
Newspaper operating income increased $55.9 million or 23% for the quarter and
$110.6 million or 15% for the year-to-date, reflecting strong advertising gains
throughout the group particularly in classified and national advertising, very
strong operating results at USA TODAY and USA WEEKEND, an overall decrease in
newsprint expense and the positive impact of the recently acquired Newsquest
properties.
<PAGE>
TELEVISION
Reported results include the impact of WLTX-TV (CBS) in Columbia, South
Carolina, purchased in late April of 1998 and the impact of the exchange of
KVUE-TV (ABC) in Austin, Texas for KXTV-TV (ABC) in Sacramento, California on
June 1, 1999. Gannett Television now consists of 21 television stations
reaching 17.3 percent of the U.S. television market.
Reported television revenues increased $7.6 million or 5% for the third quarter
and $3.8 million or 1% for the year-to-date, while operating costs increased
$8.4 million or 9% for the quarter and $10.4 million or 4% for the
year-to-date. On a pro forma basis, television station revenues increased 3%
for the quarter and declined 1% for the year-to-date. Pro forma local
ad revenues increased by 8% for the quarter and 5% for the year-to-date,
while national ad revenues decreased by 3% for the quarter and 7% for the
year-to-date.
Reported television operating income declined $0.7 million or 1% for the
quarter and $6.6 million or 3% for the year-to-date. Recent television station
transactions, including the previously mentioned exchange completed in
June 1999, unfavorably impacted the operating results of the television group.
CABLE AND SECURITY
Reported operating revenues for the cable and security segment increased
$6.4 million or 11% for the third quarter and $11.0 million or 6% for the
year-to-date, while operating income rose $2.8 million or 20% for the quarter
and $5.7 million or 13% for the year-to-date. In early March 1998, the company
sold its alarm security business, previously reported with this segment. On a
pro forma basis for the year-to-date, excluding the 1998 alarm security
results, cable revenues rose $19.2 million or 11% and operating income
increased $6.3 million or 15%.
In late August 1998, the company completed an exchange of its subscribers and
certain cable system assets in the Chicago area (93,000 subscribers) for
subscribers and certain cable systems assets of TCI Communications, Inc. in
Kansas (128,000 subscribers). At the end of the third quarter of 1999, the
cable television business served approximately 517,000 subscribers in three
states or 62% of homes passed.
The increases in cable operating revenues and operating income for the third
quarter and year-to-date reflect the increased subscriber base from the asset
exchange, higher subscription rates and significant increases in advertising
revenues.
As discussed above in the opening section of this report, the company has
announced an agreement to sell the assets of its cable division. Upon closing
of this transaction, a gain on the disposal of the cable division assets, along
with the cable and security segment operating results, will be reported as
discontinued operations in the company's financial statements.
<PAGE>
NON-OPERATING INCOME AND EXPENSE/PROVISION FOR INCOME TAXES
Interest expense increased $9.3 million or 54% for the quarter reflecting
increased commercial paper borrowings to finance the Newsquest acquisition.
Year-to-date interest expense, however, decreased $3.8 million or 6%,
reflecting the pay-down of long-term debt in the first half of 1999 from
operating cash flow and proceeds from the disposal of certain businesses
in 1998 and 1999.
Non-operating income for the year-to-date 1999 included a net pre-tax second
quarter gain of $55 million ($33 million after-tax), while non-operating income
for the year-to-date 1998 included a net pre-tax first quarter gain of
$307 million ($184 million after-tax) as discussed in the Earnings Summary
above.
The company's effective income tax rate was 39.9% for the quarter and
year-to-date periods of 1999 versus 40.1% for the same periods last year.
NET INCOME
Net income increased $31.0 million or 18% for the quarter. For the
year-to-date, excluding the $33 million and $184 million net non-operating
after-tax gains in 1999 and 1998, net income rose $72.0 million or 13%.
Diluted earnings per share rose to $0.74 from $0.62, an increase of 19% for the
quarter, and rose to $2.24 from $1.95, an increase of 15% for the year-to-date
(excluding the 1999 and 1998 net non-operating gains).
The weighted average number of diluted shares outstanding in the quarter
totaled 282,200,000, compared to 286,923,000 for the third quarter of 1998.
Year-to-date, the weighted average number of diluted shares outstanding totaled
282,035,000, compared to 287,073,000 in the same period last year. During the
third quarter of 1999, the company repurchased approximately 1.3 million shares
of common stock at a cost of approximately $91.3 million. In the last half of
1998, the company repurchased approximately six million shares of common stock
at a cost of $329 million. These stock repurchases were partially offset by
shares issued upon the exercise of stock options and the settlement of stock
incentive rights. Exhibit 11 of this Form 10-Q presents the weighted average
number of basic and diluted shares outstanding and the earnings per share for
each period.
<PAGE>
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 $1,345.7 million for the
first nine months of 1999, compared with $1,223.9 million for the same period
of 1998, a 10% increase, reflecting strong overall operating results and the
acquisition of Newsquest.
Capital expenditures for the year-to-date totaled $166 million, compared to
$144 million in 1998. The acquisition of Newsquest during the third quarter
resulted in significant increases in the company's excess of acquisition cost
over the value of assets acquired and its property, plant and equipment.
Although the company's long-term debt was reduced by $358 million in the first
half of 1999 from operating cash flow, at the end of the third quarter, the
company's long-term debt was up $1.18 billion, reflecting commercial paper
borrowings to finance the acquisition of Newsquest. The company's foreign
currency translation adjustment, included in accumulated other comprehensive
income and reported as part of shareholders' equity, totaled $30.3 million,
net of tax, at September 26, 1999, due to the strengthening of the British
pound against the U.S. dollar since the Newsquest acquisition date.
Newsquest's assets and liabilities at September 26, 1999 were translated from
British pounds to U.S. dollars at an exchange rate of $1.64. The company's
regular quarterly dividend of $0.20 per share was declared in the first and
second quarters and $0.21 per share was declared in the third quarter of 1999.
Dividends declared totaled $170.6 million for the first nine months of 1999.
YEAR 2000
In prior filings, the company has included discussion surrounding its Year 2000
plans, which is updated below.
Project
The company developed a plan to ensure that all of its key computer systems
would be Year 2000 compliant in advance of December 31, 1999. The plan
encompasses all operating properties (including those recently acquired),
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.
The implementation/remediation phase is substantially complete. Audit and
contingency planning efforts are also substantially complete, but will continue
to be refined up to the Year 2000.
The company's business systems (i.e., marketing, sales support, customer
billing and accounts receivable, accounting, accounts payable and payroll) at
a 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. By the end
of the third quarter of 1999, more than 99% of these business applications were
Year 2000 compliant. 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 during the fourth
quarter of 1999 according to plan.
<PAGE>
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. At
the end of the third quarter of 1999, more than 97% of such newspaper
publishing systems were Year 2000 compliant. The company expects to complete
installation of compliant publishing systems in the fourth quarter of 1999.
All facility/administrative systems for the newspaper group are Year 2000
compliant.
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 at various points through the fourth quarter of 1999 when the desired
technology becomes available for purchase and installation.
For the cable television business, all business applications and other critical
systems for production, distribution and administration are now Year 2000
compliant.
The company has requested confirmation of compliance from its third party
vendors and, in important cases, has or will run tests in the fourth quarter
of 1999 to verify compliance.
Costs
The costs specifically associated with efforts to achieve Year 2000 compliance
are expected to be less than $33 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 96% of such costs were incurred and
reported through the end of the third quarter of 1999. 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.
<PAGE>
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 portion of its operations
would be adversely impacted, and even if certain operations were so impacted,
it would be only 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 have also prepared
contingency plans.
CERTAIN FACTORS AFFECTING FORWARD LOOKING STATEMENTS
Certain statements in the company's 1998 Annual Report to Shareholders, its
Annual Report on Form 10-K, and in this Quarterly Report contain
forward-looking information. The words "expect," "intend," "believe,"
"anticipate," "likely," "will," and similar expressions generally identify
forward-looking statements. These forward-looking statements are subject to
certain risks and uncertainties 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; (h) rapid technological changes and
frequent new product introductions prevalent in electronic publishing; and
(i) the uncertainty associated with the impact of Year 2000 issues on the
company, its customers, its vendors and others with whom it does business.
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
<CAPTION>
Sept. 26, 1999 Dec. 27, 1998
---------------- ---------------
<S> <C> <C>
ASSETS
Cash $ 54,364 $ 60,103
Marketable securities 12 6,084
Trade receivables, less allowance
(1999 - $29,843; 1998 - $19,143) 721,402 664,540
Inventories 97,481 87,176
Prepaid expenses and other receivables 108,937 88,482
---------------- ---------------
Total current assets 982,196 906,385
---------------- ---------------
Property, plant and equipment
Cost 3,890,338 3,666,743
Less accumulated depreciation (1,700,368) (1,602,960)
---------------- ---------------
Net property, plant and equipment 2,189,970 2,063,783
---------------- ---------------
Intangible and other assets
Excess of acquisition cost over the value of
assets acquired, less amortization 5,434,108 3,794,601
Investments and other assets 329,023 214,711
---------------- ---------------
Total intangible and other assets 5,763,131 4,009,312
---------------- ---------------
Total assets $ 8,935,297 $ 6,979,480
================ ===============
<PAGE>
LIABILITIES & SHAREHOLDERS' EQUITY
Current maturities of long-term debt $ $ 7,812
Accounts payable and current portion of film
contracts payable 360,020 312,283
Compensation, interest and other accruals 306,422 228,222
Dividend payable 58,780 55,790
Income taxes 64,205 6,395
Deferred income 127,236 117,465
---------------- ---------------
Total current liabilities 916,663 727,967
---------------- ---------------
Deferred income taxes 500,379 442,359
Long-term debt, less current portion 2,496,911 1,306,859
Postretirement, medical and life insurance liabilities 306,946 308,145
Other long-term liabilities 271,796 214,326
---------------- ---------------
Total liabilities 4,492,695 2,999,656
---------------- ---------------
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 128,839 126,045
Retained earnings 5,268,045 4,775,313
Accumulated other comprehensive income 39,928
---------------- ---------------
Total 5,761,233 5,225,779
---------------- ---------------
Less treasury stock - 45,649,377 shares and
42,816,478 shares respectively, at cost (1,298,905) (1,223,077)
Deferred compensation related to ESOP (19,726) (22,878)
---------------- ---------------
Total shareholders' equity 4,442,602 3,979,824
---------------- ---------------
Total liabilities and shareholders' equity $ 8,935,297 $ 6,979,480
================ ===============
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
<CAPTION>
Thirteen weeks ended % Inc
Sept. 26, 1999 Sept. 27, 1998 (Dec)
------------- ------------- -----
<S> <C> <C> <C>
Net Operating Revenues:
Newspaper advertising $ 817,844 $ 707,347 15.6
Newspaper circulation 255,754 251,534 1.7
Television 166,770 159,125 4.8
Cable 64,668 58,231 11.1
Other 53,193 49,825 6.8
------------- ------------ -----
Total 1,358,229 1,226,062 10.8
Operating Expenses:
Cost of sales and operating expenses,
exclusive of depreciation 686,661 648,320 5.9
Selling, general and administrative
expenses, exclusive of depreciation 214,436 188,076 14.0
Depreciation 51,726 49,878 3.7
Amortization of intangible assets 35,391 27,122 30.5
------------- ------------ -----
Total 988,214 913,396 8.2
------------- ------------ -----
Operating income 370,015 312,666 18.3
Non-operating income (expense):
Interest expense (26,474) (17,190) 54.0
Other 1,588 (877) --
------------- ------------ -----
Total (24,886) (18,067) 37.7
Income before income taxes 345,129 294,599 17.2
Provision for income taxes 137,650 118,080 16.6
------------- ------------ -----
Net income $ 207,479 $ 176,519 17.5
============= ============ =====
Net income per share - basic $0.74 $0.62 19.4
===== ===== =====
Net income per share - diluted $0.74 $0.62 19.4
===== ===== =====
Dividends per share $0.21 $0.20 5.0
===== ===== =====
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
<CAPTION>
Thirty-nine weeks ended % Inc
Sept. 26, 1999 Sept. 27, 1998 (Dec)
-------------- -------------- -----
<S> <C> <C> <C>
Net Operating Revenues:
Newspaper advertising $ 2,326,669 $ 2,124,016 9.5
Newspaper circulation 757,923 758,375 (0.1)
Television 522,444 518,616 0.7
Cable and Security 190,521 179,521 6.1
Other 152,082 149,581 1.7
-------------- -------------- ------
Total 3,949,639 3,730,109 5.9
Operating Expenses:
Cost of sales and operating expenses,
exclusive of depreciation 1,994,237 1,938,055 2.9
Selling, general and administrative
expenses, exclusive of depreciation 609,668 568,187 7.3
Depreciation 153,327 153,273 0.0
Amortization of intangible assets 91,258 79,826 14.3
-------------- -------------- ------
Total 2,848,490 2,739,341 4.0
-------------- -------------- ------
Operating income 1,101,149 990,768 11.1
Non-operating income (expense):
Interest expense (56,918) (60,767) (6.3)
Other* 59,261 308,977 (80.8)
-------------- -------------- ------
Total 2,343 248,210 (99.1)
Income before income taxes 1,103,492 1,238,978 (10.9)
Provision for income taxes 440,150 496,800 (11.4)
-------------- -------------- ------
Net income $ 663,342 $ 742,178 (10.6)
============== ============== ======
Net income per share - basic $2.37 $2.61 (9.2)
===== ===== =====
Net income per share - diluted $2.35 $2.59 (9.3)
===== ===== =====
Dividends per share $0.61 $0.58 5.2
===== ===== =====
* 1999 results include a net non-operating gain principally from the
exchange of KVUE-TV in Austin, Texas for KXTV-TV in Sacramento, California.
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 gains.
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
<CAPTION>
Thirty-nine weeks ended
Sept. 26, 1999 Sept. 27, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 663,342 $ 742,178
Adjustments to reconcile net income to
operating cash flows:
Depreciation 153,327 153,273
Amortization of intangibles 91,258 79,826
Deferred income taxes 52,549 62,286
Other, net (57,342) (432,208)
--------- ---------
Net cash flow from operating activities 903,134 605,355
--------- ---------
Cash flows from investing activities
Purchase of property, plant and equipment (166,126) (143,682)
Payments for acquisitions, net of cash acquired (1,665,182) (369,804)
Change in other investments (18,626) (1,559)
Proceeds from disposal of certain assets 38,450 649,466
Collection of long-term receivables 8,178 14,649
--------- ---------
Net cash (used for) provided by investing activities (1,803,306) 149,070
--------- ---------
Cash flows from financing activities
Proceeds from (payment of) long-term debt 1,130,394 (470,726)
Dividends paid (167,620) (162,017)
Cost of common shares repurchased (91,259) (137,038)
Proceeds from issuance of common stock 16,644 16,880
--------- ---------
Net cash used provided by (used for)
financing activities 888,159 (752,901)
--------- ---------
Effect of currency exchange rate change 202
--------- ---------
Net (decrease) increase in cash and cash equivalents (11,811) 1,524
Balance of cash and cash equivalents at
beginning of year 66,187 52,778
--------- ---------
Balance of cash and cash equivalents at
end of third quarter $ 54,376 $ 54,302
========= =========
</TABLE>
<PAGE>
<TABLE>
BUSINESS SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
<CAPTION>
Thirteen weeks ended % Inc
Sept. 26, 1999 Sept. 27, 1998 (Dec)
-------------- -------------- -----
<S> <C> <C> <C>
Operating Revenues:
Newspaper publishing $1,126,791 $1,008,706 11.7
Television 166,770 159,125 4.8
Cable 64,668 58,231 11.1
------------- ------------ -----
Total $1,358,229 $1,226,062 10.8
============= ============ =====
Operating Income (net of
depreciation and amortization):
Newspaper publishing $304,676 $248,786 22.5
Television 65,773 66,507 (1.1)
Cable 16,649 13,883 19.9
Corporate (17,083) (16,510) (3.5)
------------- ------------ -----
Total $370,015 $312,666 18.3
============= ============ =====
Depreciation and Amortization:
Newspaper publishing $56,789 $46,386 22.4
Television 15,522 14,643 6.0
Cable 12,293 13,758 (10.6)
Corporate 2,513 2,213 13.6
------------- ------------ -----
Total $87,117 $77,000 13.1
============= ============ =====
Operating Cash Flow:
Newspaper publishing $361,465 $295,172 22.5
Television 81,295 81,150 0.2
Cable 28,942 27,641 4.7
Corporate (14,570) (14,297) (1.9)
------------- ------------ -----
Total $457,132 $389,666 17.3
============= ============ =====
NOTES:
Operating Cash Flow represents operating income for each of the Company's
business segments plus related depreciation and amortization expense.
</TABLE>
<PAGE>
<TABLE>
BUSINESS SEGMENT INFORMATION
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
<CAPTION>
Thirty-nine weeks ended % Inc
Sept. 26, 1999 Sept. 27, 1998 (Dec)
-------------- -------------- -----
<S> <C> <C> <C>
Operating Revenues:
Newspaper publishing $3,236,674 $3,031,972 6.8
Television 522,444 518,616 0.7
Cable and Security 190,521 179,521 6.1
------------- ------------ -----
Total $3,949,639 $3,730,109 5.9
============= ============ =====
Operating Income (net of
depreciation and amortization):
Newspaper publishing $872,853 $762,276 14.5
Television 230,524 237,104 (2.8)
Cable and Security 48,080 42,362 13.5
Corporate (50,308) (50,974) 1.3
------------- ------------ -----
Total $1,101,149 $990,768 11.1
============= ============ =====
Depreciation and Amortization:
Newspaper publishing $151,168 $138,656 9.0
Television 47,298 44,636 6.0
Cable and Security 38,832 43,157 (10.0)
Corporate 7,287 6,650 9.6
------------- ------------ -----
Total $244,585 $233,099 4.9
============= ============ =====
Operating Cash Flow:
Newspaper publishing $1,024,021 $900,932 13.7
Television 277,822 281,740 (1.4)
Cable and Security 86,912 85,519 1.6
Corporate (43,021) (44,324) 2.9
------------- ------------ -----
Total $1,345,734 $1,223,867 10.0
============= ============ =====
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. On a
pro forma basis for the year-to-date, giving effect to the sale of the
Alarm Security Business, cable operations reported gains in revenues of
11%, operating income of 15% and operating cash flow of 6%.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 26, 1999
1. Basis of Presentation
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with the instructions
for Form 10-Q and, therefore, do not include all information and
footnotes which are normally included in the Form 10-K and annual
report to shareholders. The financial statements covering the 13 and
39-week periods ended September 26, 1999, and the comparative period of
1998, reflect all adjustments which, in the opinion of the company,
are necessary for a fair statement of results for the interim periods.
2. Accounting Standards
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" was issued. This standard is effective
for fiscal periods beginning after June 15, 2000. The adoption
of this standard is not expected to have a material effect on the
company's results of operations or financial position.
3. Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income" established standards for
reporting comprehensive income. Comprehensive income for the company includes
net income, foreign currency translation adjustments and unrealized gains on
available-for-sale securities, as defined under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Comprehensive income
totaled $247.4 million for the third quarter and $703.3 million for the
year-to-date ended September 26, 1999, and other comprehensive income in 1999
relates primarily to foreign currency translation adjustments, net of tax.
The accumulated other comprehensive income was net of a deferred income tax
liability of $26.5 million at September 26, 1999.
4. Pro Forma Information (unaudited)
The following table summarizes, on an unaudited, pro forma basis, the estimated
combined results of operations of the company and its subsidiaries as though
the Newsquest acquisition was made at the beginning of 1998. However, this
pro forma combined statement does not necessarily reflect the results of
operations as they would have been if the combined companies had constituted
a single entity during those years.
<PAGE>
In millions, except per share amounts (pro forma and unaudited)
Year-to-date
- ------------
1999 1998
------ ------
Operating revenues $4,241 $4,119
Income before income taxes $1,119 $1,245
Net income $ 673 $ 746
Net income per share - diluted $ 2.39 $ 2.60
The following table summarizes, on an unaudited, pro forma basis, the estimated
combined results of operations of the company and its subsidiaries as though
the Newsquest acquisition was made at the beginning of 1998. However, this
pro forma combined statement does not necessarily reflect the results of
operations as they would have been if the combined companies had constituted
a single entity during those years. It also excludes the 1999 and 1998 net
non-operating gains discussed in Management's Discussion and Analysis of
Operations.
In millions, except per share amounts (pro forma and unaudited)
Year-to-date
- ------------
1999 1998
------ ------
Operating revenues $4,241 $4,119
Income before income taxes $1,066 $ 939
Net income $ 641 $ 562
Net income per share - diluted $ 2.27 $ 1.96
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The company is not subject to market risk associated with derivative financial
instruments or derivative commodity instruments, as the company is not a party
to any such instruments. The company believes that its market risk from other
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 acquisition of Newsquest, which uses British pounds as its
functional currency which is then translated into U.S. dollars.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
In conformity with the requirements of the Integrated Disclosure
System, the company has elected to update its current report on
8-K dated July 27, 1999, as amended and updated on Form 8-K/A dated
October 5, 1999, by including certain exhibits and certain
information required under Rule 3-19 and Article 11 of Regulation
S-X in connection with Gannett's Registration Statements on Form
S-3 (Nos. 33-63673, 33-58686 and 33-53159).
The following financial statements and pro forma financial
information are hereby filed as Exhibits 99-1 and 99-2,
respectively.
(a) Financial Statements of Businesses Acquired
(i) Unaudited consolidated balance sheet of Newsquest plc
as of July 4, 1999 and unaudited consolidated profit and loss
account and cash flows for the twenty-six and twenty-seven
weeks ended July 4, 1999 and July 5, 1998.
(b) Pro Forma Financial Information
(i) Unaudited pro forma condensed combined balance sheet of
Gannett Co., Inc. and Newsquest plc as of June 27, 1999 and
unaudited pro forma condensed combined statement of income for
the twenty-six weeks ended June 27, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See Exhibit Index for list of exhibits filed with this
report.
(b) (i) Current Report on Form 8-K dated July 2, 1999, in
connection with the company's cash offer to acquire shares
of Newsquest plc.
(ii) Current Report on Form 8-K dated July 27, 1999, in
connection with the company's acquisition of Newsquest
plc and the sale of the company's cable business.
(iii) Current Report on Form 8-K/A dated October 5, 1999, in
connection with the company's acquisition of Newsquest plc.
<PAGE>
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 9, 1999 By: /s/ George R. Gavagan
------------------------------------
George R. Gavagan
Vice President and Controller
Dated: November 9, 1999 By: /s/ Thomas L. Chapple
------------------------------------
Thomas L. Chapple
Senior Vice President, General
Counsel and Secretary
<PAGE>
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.
<PAGE>
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. 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.
<PAGE>
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. Amendment No. 2 to January 1,
1997 Restatement incorporated by
reference to Exhibit 10-7 to
Gannett Co., Inc.'s Form 10-Q for the
quarter ended June 27, 1999.
10-8 Gannett Co., Inc. Transitional Incorporated by reference to Exhibit
Compensation Plan.* 10-13 to Gannett Co., Inc.'s Form
10-K for the fiscal year ended
December 30, 1990.
11 Statement re computation of Attached.
earnings per share.
27 Financial Data Schedules. Attached.
99-1 Unaudited consolidated balance Attached.
sheet of Newsquest plc as of
July 4, 1999 and unaudited
consolidated profit and loss
account and cash flows for the
twenty-six and twenty-seven weeks
ended July 4, 1999 and
July 5, 1998.
<PAGE>
99-2 Unaudited pro forma condensed Attached.
combined balance sheet of
Gannett Co., Inc. and Newsquest
plc as of June 27, 1999 and
unaudited pro forma condensed
combined statement of income
for the twenty-six weeks ended
June 27, 1999.
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.
<PAGE>
CALCULATION OF EARNINGS PER SHARE
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
<TABLE>
Thirteen weeks ended Thirty-nine weeks ended
Sept. 26, Sept. 27 Sept. 26, Sept. 27
1999 1998 1999* 1998*
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Basic earnings:
Net income $207,479 $176,519 $663,342 $742,178
Weighted average number of
common shares outstanding 279,581 284,366 279,505 284,381
Basic earnings per share $0.74 $0.62 $2.37 $2.61
Diluted earnings:
Net income $207,479 $176,519 $663,342 $742,178
Weighted average number of
common shares outstanding 279,581 284,366 279,505 284,381
Dilutive effect of out-
standing stock options and
stock incentive rights 2,619 2,557 2,530 2,692
Weighted average number of
shares outstanding, as
adjusted 282,200 286,923 282,035 287,073
Diluted earnings per share $0.74 $0.62 $2.35 $2.59
</TABLE>
* 1999 results include a net non-operating gain principally from the
exchange of KVUE-TV in Austin, Texas for KXTV-TV in Sacramento, California.
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 gains.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the consolidated balance sheets and
statements of income for Gannett Co., Inc. and is
qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> SEP-26-1999
<CASH> 54,364
<SECURITIES> 12
<RECEIVABLES> 751,245
<ALLOWANCES> 29,843
<INVENTORY> 97,481
<CURRENT-ASSETS> 982,196
<PP&E> 3,890,338
<DEPRECIATION> 1,700,368
<TOTAL-ASSETS> 8,935,297
<CURRENT-LIABILITIES> 916,663
<BONDS> 0
<COMMON> 324,421
0
0
<OTHER-SE> 4,118,181
<TOTAL-LIABILITY-AND-EQUITY> 8,935,297
<SALES> 3,949,639
<TOTAL-REVENUES> 3,949,639
<CGS> 1,994,237
<TOTAL-COSTS> 2,848,490
<OTHER-EXPENSES> (59,261)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,918
<INCOME-PRETAX> 1,103,492
<INCOME-TAX> 440,150
<INCOME-CONTINUING> 663,342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 663,342
<EPS-BASIC> 2.37
<EPS-DILUTED> 2.35
<PAGE>
</TABLE>
Exhibit 99-1
NEWSQUEST PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT (UNAUDITED)
For the 26 weeks ended 4 July 1999 and the 27 weeks ended 5 July 1998
1999 1998
British British
Pounds Pounds
000's 000's
Turnover 161,955 157,147
Cost of sales (37,600) (34,875)
--------- ---------
Gross profit 124,355 122,272
Other operating expenses (76,271) (77,724)
--------- ---------
Operating profit 48,084 44,548
Net interest payable (5,268) (9,262)
--------- ---------
Profit before taxation 42,816 35,286
Tax charge on profit (13,059) (11,115)
--------- ---------
Profit for the period 29,757 24,171
========= =========
Basic earnings per share (pence) 0.15 0.12
========= =========
Diluted earnings per share (pence) 0.15 0.12
========= =========
See accompanying note to the financial statements.
<PAGE>
NEWSQUEST PLC
CONSOLIDATED BALANCE SHEET (UNAUDITED)
At 4 July 1999
1999 1999
British British
Pounds Pounds
000's 000's
Fixed assets
Intangible assets 330,508
Tangible assets 67,379
Investments 410
---------
398,297
Current assets
Stocks 1,654
Debtors 44,366
Prepayments and other debtors 4,743
Pension prepayment due after one year 979
Cash at bank and in hand 3,386
---------
55,128
Creditors
Amounts falling due within one year (75,144)
---------
Net current liabilities (20,016)
---------
Total assets less current liabilities 378,281
Creditors
Amounts falling due after more than one year (116,731)
Provisions for liabilities and charges (5,241)
---------
Net assets 256,309
=========
Capital and reserves
Called up share capital 1,965
Share premium 249,986
Capital redemption reserve 831
Profit and loss account 3,527
---------
Equity shareholders' funds 256,309
=========
See accompanying note to the financial statements.
<PAGE>
NEWSQUEST PLC
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
For the 26 weeks ended 4 July 1999 and the 27 weeks ended 5 July 1998
1999 1998
British British
Pounds Pounds
000's 000's
Cash flow from operating activities 54,002 49,483
Returns on investments and servicing of finance (10,591) (7,675)
Taxation paid (1,168)
Capital expenditure and financial investment (6,515) (5,421)
Acquisitions and disposals (907) (2,060)
Equity dividends paid (7,821) -
--------- ---------
Net cash inflow before use of liquid
resources and financing 27,000 34,327
Management of liquid resources 2,000
Financing (21,951) (32,476)
--------- ---------
Increase in cash 5,049 3,851
========= =========
See accompanying note to the financial statements.
<PAGE>
NEWSQUEST PLC
NOTE TO THE FINANCIAL STATEMENTS
1. Accounting Policies and Financial Statement Presentation
The consolidated financial statements of Newsquest plc and its subsidiaries
have been prepared in accordance with Accounting Standards currently applicable
in the United Kingdom (UK GAAP), which differs in certain significant respects
from US GAAP. The primary difference relates to accounting for intangible
assets.
<PAGE>
Exhibit 99-2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On June 24, 1999, Gannett U.K. Limited ("Gannett UK"), a newly formed
wholly-owned subsidiary of Gannett Co., Inc. ("Gannett"), made a cash offer to
acquire the entire issued and to be issued share capital of Newsquest plc
("Newsquest"). Pursuant to the Offer, Newsquest shareholders were offered
460 pence (US $7.26) in cash or Loan Notes for each of 200.4 million fully
diluted shares, for a total price of approximately 922 million pounds sterling
(US $1.5 billion). Additionally, Gannett agreed to assume or retire
Newsquest's existing debt. On July 26, 1999, pursuant to the Offer Document,
Gannett UK declared the Offer unconditional in all respects. Gannett UK
effectively owns 100% of Newsquest shares. The acquisition has been recorded
under the purchase method of accounting and Newsquest's results of operations
are included in the company's financial statements beginning in the
third quarter.
The accompanying unaudited pro forma condensed combined balance sheet
presents the financial position of Gannett Co., Inc. and Newsquest as of
June 27, 1999, assuming that the acquisition of Newsquest occurred as of
that date. Such pro forma information is based on the historical balance
sheets of Gannett at June 27, 1999 and of Newsquest at July 4, 1999.
As required by Rule 11-02 of Regulation S-X, the unaudited pro forma
condensed combined statement of income has been prepared assuming that the
acquisition occurred as of the beginning of the fiscal period presented. The
unaudited condensed combined statement of income, therefore, reflects the
historical results of operations for Gannett and Newsquest for the first half
of their respective 1999 fiscal periods.
The unaudited pro forma condensed combined financial statements give
effect to certain pro forma adjustments which are described in the notes to
these statements. The unaudited pro forma condensed combined financial
statements do not reflect any operating synergies anticipated by Gannett as
a result of the acquisition.
The unaudited pro forma condensed combined results are presented for
informational purposes only and are not necessarily indicative of the results
of operations or financial position which would have been achieved had the
transaction been completed as of the beginning of the period presented, nor is
it necessarily indicative of Gannett's future results of operations or
financial position.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical financial statements of Gannett and
Newsquest, including the related notes thereto.
<PAGE>
<TABLE>
EXHIBIT 99-2
Gannett Co., Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 27, 1999
(in thousands of dollars)
<CAPTION>
Pro forma Pro forma
Gannett Newsquest adjustments combined
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and marketable
securities $ 81,835 $ 5,343 $ $ 87,178
Accounts receivable, net 664,813 70,011 734,824
Inventories 82,206 2,610 84,816
Prepaid expenses and
other current assets 56,879 9,029 65,908
---------- ---------- ---------- ----------
Total current assets 885,733 86,993 972,726
Property, plant and
equipment, net 2,047,913 106,326 2,154,239
Excess of acquisition
cost over the
value of assets
acquired, net 3,797,738 521,552 1,094,983 (1) 5,414,273
Other assets 272,604 647 273,251
---------- ---------- ---------- ----------
Total assets $7,003,988 $ 715,518 $1,094,983 $8,814,489
========== ========== ========== ==========
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and
current portion of
film contracts payable 239,193 20,111 259,304
Accrued expenses
and other current
liabilities 378,522 31,871 70,680 (2) 481,073
Dividends payable 56,000 56,000
Income taxes 32,871 66,598 99,469
---------- ---------- ---------- ----------
Total current liabilities 706,586 118,580 70,680 895,846
Deferred income taxes 467,273 8,270 (1,420) (3) 474,123
Long-term debt,
less current portion 957,152 173,714 1,430,186 (4) 2,561,052
Postretirement medical
and life insurance
liabilities 307,092 307,092
Other long-term
liabilities 222,444 10,491 232,935
Total shareholders'
equity 4,343,441 404,463 (404,463) (5) 4,343,441
---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity $7,003,988 $ 715,518 $1,094,983 $8,814,489
========== ========== ========== ==========
(A) This pro forma balance sheet includes Gannett's historical balances as of
June 27, 1999, and Newsquest's historical balances as of July 4, 1999.
(B) For comparability, Newsquest results have been reclassified to conform
with Gannett's presentation.
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
</TABLE>
<PAGE>
<TABLE>
Gannett Co., Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
Twenty-six weeks ended June 27, 1999
(in thousands of dollars, except per share data)
<CAPTION>
Pro forma Pro forma
Gannett Newsquest adjustments combined
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Newspaper advertising $1,508,825 $ 225,252 $ $1,734,077
Newspaper circulation 502,169 30,556 532,725
Television 355,674 355,674
Cable and security 125,853 125,853
All other 98,889 6,734 105,623
---------- ---------- ---------- ----------
Total revenues 2,591,410 262,542 2,853,952
Operating expenses
Cost of sales and
operating expenses,
exclusive of depreciation 1,307,576 127,475 1,435,051
Selling, general and
administrative expenses,
exclusive of depreciation 395,232 47,148 442,380
Depreciation 101,601 9,971 111,572
Amortization of
intangible assets 55,867 20,630 (1) 76,497
---------- ---------- ---------- ----------
Total operating expenses 1,860,276 184,594 20,630 2,065,500
---------- ---------- ---------- ----------
Operating income 731,134 77,948 (20,630) 788,452
Non-operating income (expense)
Interest (expense), net of
interest income (30,444) (7,906) 7,906 (2) (71,117)
(40,673) (3)
Other 57,673 (634) 57,039
---------- ---------- ---------- ----------
Total 27,229 (8,540) (32,767) (14,078)
Income before income taxes 758,363 69,408 (53,397) 774,374
Provision for income taxes 302,500 21,169 (14,694) (4) 308,975
---------- ---------- ---------- ----------
Net income $ 455,863 $ 48,239 $ (38,703) $ 465,399
========== ========== ========== ==========
Net income per share-basic $1.63 $1.67
======= ========
Net income per share-diluted $1.62 $1.65
======= ========
Average outstanding shares:
Basic 279,466 279,466
Diluted 281,949 281,949
</TABLE>
<PAGE>
(A) This pro forma income statement includes Gannett's results for the 26-week
period ended June 27, 1999, and Newsquest results for the 26-week
period ended July 4, 1999.
(B) For comparability, Newsquest results have been reclassified to conform with
Gannett's presentation.
See accompanying notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
Note 1 - Basis of Presentation
The unaudited pro forma condensed combined balance sheet has been prepared to
reflect the acquisition of Newsquest for an aggregate price of approximately
$1.5 billion plus the assumption of approximately $250 million of liabilities
and transaction-related costs, including $181 million of Newsquest's long-term
debt.
The company believes that the assumptions used in preparing the unaudited pro
forma condensed combined financial statements provide a reasonable basis for
presenting all of the significant effects of the merger (other than any
operating synergies anticipated by Gannett) and that the pro forma adjustments
give effect to those assumptions in the unaudited pro forma condensed combined
financial statements.
Note 2 - Pro Forma Adjustments
A. Pro forma adjustments to the unaudited condensed combined balance sheet
are made to reflect the following:
(1) Adjustment to record the excess of acquisition cost over the fair value
of net assets acquired (goodwill). For purposes of the unaudited pro
forma condensed combined statement of income, goodwill is being amortized
over forty years.
(2) Accrual for estimated acquisition-related expenses incurred by Gannett
and Newsquest.
(3) Deferred tax adjustments in respect of acquisition expenses (see #2), net
of an adjustment in respect of tax deferred on real property sales.
(4) The issuance of commercial paper by Gannett to finance the purchase
price.
(5) The elimination of the shareholders' equity accounts of Newsquest.
B. Pro forma adjustments to the June 27, 1999 unaudited condensed
combined income statement are made to reflect the following:
(1) Amortization expense on the estimated excess of acquisition cost over fair
value of assets, assuming a life of forty years.
(2) The elimination of Newsquest's interest expense. (See (3) below.)
(3) Gannett's pro forma interest expense on the amount assumed borrowed for
consideration paid and acquisition-related expenses ($1.51 billion) and
Newsquest debt ($0.18 billion). The rate used to calculate interest
expense, 4.88%, is based on the weighted average rate paid by Gannett for
commercial paper in the first half of 1999.
(4) To adjust consolidated tax provisions for U.S. and U.K. tax effects of
acquisition.
<PAGE>
