SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report: October 4, 1999
GANNETT CO., INC.
(Exact name of registrant as specified in its charter)
Delaware 1-6961 16-0442930
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
1100 Wilson Boulevard, Arlington, Virginia 22234
(Address of principal executive offices)(Zip Code)
(703) 284-6000
(Registrant's telephone number, including area code)
<PAGE>
Amendment No. 1
The company's current report on Form 8-K dated July 27, 1999, is hereby amended
and supplemented as follows.
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
The following financial statements and pro forma financial information are
hereby filed as part of this report.
(a) Financial Statements of Businesses Acquired
(1) Audited financial statements of Newsquest plc as of and for the 53
weeks ended January 3, 1999.
(b) Pro Forma Financial Information
The following pro forma combining financial statements of Gannett Co., Inc.,
and Newsquest plc are included in this report:
(1) Unaudited pro forma condensed combined balance sheet as of and
unaudited pro forma condensed combined statement of income for the year ended
December 27, 1998.
(c) Exhibits
See exhibit index for list of exhibits.
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: October 4, 1999 By: /s/ George R. Gavagan
-------------------------
George R. Gavagan
Vice President and Controller
<PAGE>
EXHIBIT INDEX
Exhibit
Number Title or Description
- ------- ----------------------
23-1 Consent of Deloitte & Touche.
99-1 Audited consolidated balance sheet of Newsquest
plc as of January 3, 1999 and the related
consolidated statements of profit and loss,
reconciliation of movements in shareholders'
funds, and cash flows for the 53 weeks ended
January 3, 1999 (pages 21-45 of Newsquest's Annual
Report for the 53 weeks ended January 3, 1999).
99-2 Unaudited pro forma condensed combined balance
sheet as of December 27, 1998 and the unaudited
pro forma condensed combined statement of
income for the year ended December 27, 1998.
<PAGE>
Exhibit 23-1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the incorporation by reference in the Prospectuses constituting
part of the Registration Statements on Form S-3 (Nos. 33-63673, 33-58686 and
33-53159) and in the Registration Statements on Form S-8 (Nos. 2-63038,
2-84088, 33-15319, 33-16790, 33-28413, 3-35305, 33-50813, 33-64959, 333-04459
and 333-03941) of Gannett Co., Inc. of our report dated March 19, 1999, with
respect to the financial statements of Newsquest plc as of January 3, 1999 and
for the fifty-three weeks then ended, which report appears in the Form 8-K/A of
Gannett Co., Inc. dated October 4, 1999.
/s/ Deloitte & Touche
- ----------------------
Deloitte & Touche
London, United Kingdom
October 4, 1999
<PAGE>
Exhibit 99-1
PORTIONS OF NEWSQUEST PLC ANNUAL REPORT
REPORT OF THE AUDITORS
To the members of Newsquest plc
We have audited the financial statements on pages 22 to 45 which have been
prepared under the accounting policies set out on page 27. We have also
audited the information which is specified by the London Stock Exchange to be
audited in respect of Directors' remuneration, share options and pension
entitlements and which is set out in the paragraphs headed Directors'
emoluments, Directors' share options and Directors' pension arrangements on
pages 18 and 19 of the report to shareholders by the Board on Directors'
remuneration.
Respective responsibilities of Directors and auditors
The Directors are responsible for preparing the Annual Report, including, as
described on pages 16 and 17, the financial statements. Our responsibilities,
as independent auditors, are established by statute, the Auditing Practices
Board, the Listing Rules of the London Stock Exchange, and by our profession's
ethical guidance.
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies Act
1985. We also report to you if, in our opinion, the Directors' Report is not
consistent with the financial statements, if the Company has not kept proper
accounting records, if we have not received all the information and
explanations we require for our audit, or if information specified by law or
the Listing Rules regarding Directors' remuneration and transactions with the
Company and other members of the group is not disclosed.
We review whether the statement on page 15 reflects the compliance with those
provisions of the Combined Code specified for our review by the Stock Exchange,
and we report if it does not. We are not required to form an opinion on the
effectiveness of the corporate governance procedures or the group's internal
controls.
We read the other information contained in the Annual Report, including the
corporate governance statement, and consider whether it is consistent with the
audited financial statements. We consider the implications for our report if
we become aware of any apparent misstatements or material inconsistencies with
the financial statements.
<PAGE>
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made
by the Directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the circumstances of the Company and
the group, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the group as at 3 January 1999 and of the profit
of the group for the fifty-three weeks then ended and have been properly
prepared in accordance with the Companies Act 1985.
Deloitte & Touche
Chartered Accountants and Registered Auditors,
Hill House, 1 Little New Street, London EC4A 3TR
19 March 1999
-21-
<PAGE>
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the 53 weeks ended 3 January 1999 (note 1)
1998 1997
British British
Pounds Pounds
Notes 000's 000's
Turnover
Continuing operations 1,3 300,829 285,577
Acquisitions 4,967 -
--------- ---------
305,796 285,577
Cost of sales (70,407) (67,870)
--------- ---------
Gross profit 235,389 217,707
Non-recurring costs 4 - (8,502)
Other operating expenses (154,039) (146,212)
--------- ---------
Operating expenses 5 (154,039) (154,714)
--------- ---------
Operating profit
Continuing operations 80,467 62,993
Acquisitions 883 -
--------- ---------
6 81,350 62,993
Profit on sale of business - 17,729
--------- ---------
Profit on ordinary activities before
interest 81,350 80,722
Refinancing costs (4,793) (16,648)
Other net interest payable (15,586) (32,465)
--------- ---------
Net interest payable 9 (20,379) (49,113)
--------- ---------
Profit before taxation on ordinary
activities 60,971 31,609
Tax charge on profit on ordinary
activities 10 (19,206) (11,914)
--------- ---------
Profit for the financial year 41,765 19,695
Dividends 11 (11,788) -
--------- ---------
Retained profit 29,977 19,695
========= =========
<PAGE>
Basic earnings per share (pence) 13 21.2 11.9
--------- ---------
Diluted earnings per share (pence) 13 20.9 11.7
--------- ---------
Adjusted diluted earnings per share
(pence) 13 22.5 17.7
--------- ---------
There were no recognised gains or losses other than those included in the
profit and loss account above and therefore no separate statement of total
recognised gains and losses has been presented.
-22-
<PAGE>
CONSOLIDATED BALANCE SHEET
At 3 January 1999 (note 1)
1998 1998 1997 1997
British British British British
Pounds Pounds Pounds Pounds
Notes 000's 000's 000's 000's
Fixed assets
Intangible assets 14 329,634 319,962
Tangible assets 15 67,304 66,578
Investments 16 302 221
--------- ---------
397,240 386,761
Current assets
Stocks 17 1,854 2,099
Debtors 18 40,766 45,056
Pension prepayment
due after one year 27 1,579 2,759
Cash at bank and in
hand 59 3,484
--------- ---------
44,258 53,398
Creditors
Amounts falling due
within one year 19 (79,898) (53,936)
--------- ---------
Net current liabilities (35,640) (538)
--------- ---------
Total assets less
current liabilities 361,600 386,223
Creditors
Amounts falling due after
more than one year 20 (129,968) (177,461)
Provisions for
liabilities and charges 22 (5,241) (4,539)
--------- ---------
Net assets 226,391 204,223
========= =========
Capital and reserves
Called up share capital 23 1,964 2,000
Share premium 24 249,826 249,572
Capital redemption
reserve 24 831 794
Profit and loss account 24 (26,230) (48,143)
--------- ---------
Equity shareholders' funds 226,391 204,223
========= =========
The financial statements on pages 22 to 45 were approved by the Board of
Directors on 19 March 1999 and were signed on its behalf by
J T Brown
J C Pfeil
-23-
<PAGE>
COMPANY BALANCE SHEET
At 3 January 1999 (note 1)
1998 1998 1997 1997
British British British British
Pounds Pounds Pounds Pounds
Notes 000's 000's 000's 000's
Fixed assets
Investments 16 205,892 205,922
Current assets
Debtors 18 101,234 61,665
Cash at bank and in hand 9 -
--------- ---------
101,243 61,665
Creditors
Amounts falling due
within one year 19 (9,366) (221)
--------- ---------
Net current assets 91,877 61,444
--------- ---------
Net assets 297,769 267,366
========= =========
Capital and reserves
Called up share capital 23 1,964 2,000
Share premium 24 249,826 249,572
Capital redemption
reserve 24 831 794
Profit and loss account 24 45,148 15,000
--------- ---------
Equity shareholders' funds 297,769 267,366
========= =========
The financial statements on pages 22 to 45 were approved by the Board of
Directors on 19 March 1999 and were signed on its behalf by
J T Brown
J C Pfeil
-24-
<PAGE>
CONSOLIDATED CASH FLOW STATEMENT
For the 53 weeks ended 3 January 1999 (note 1)
1998 1997
British British
Pounds Pounds
Notes 000's 000's
Cash flow from operating activities 28 99,193 76,068
Returns on investments and servicing of
finance 29A (18,292) (45,852)
Taxation paid 29B (4,821) (1,704)
Capital expenditure and financial
investment 29C (12,573) (8,417)
Acquisitions and disposals 29D (6,975) 41,497
Equity dividends paid (3,946) -
--------- ---------
Net cash inflow before use of liquid
resources and financing 52,586 61,592
Management of liquid resources 29E 2,000 (2,000)
Financing 29F (57,733) (68,415)
--------- ---------
Decrease in cash (3,147) (8,823)
========= =========
<PAGE>
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET DEBT
1998 1997
British British
Pounds Pounds
Notes 000's 000's
Decrease in cash (3,147) (8,823)
Cash outflow from reduction in debt 49,924 164,915
Loan Notes issued as settlement for
acquisitions (2,400) -
Movements in liquid resources (2,000) 2,000
--------- ---------
Change in net debt resulting from cash
flows 42,377 158,092
Exchange movements - 3,567
--------- ---------
Decrease in net debt 42,377 161,659
Net debt at 28 December 1997 (177,430) (339,089)
--------- ---------
Net debt at 3 January 1999 31 (135,053) (177,430)
========= =========
Net debt is stated gross of deferred financing fees (note 20).
-25-
<PAGE>
CONSOLIDATED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the 53 weeks ended 3 January 1999 (note 1)
1998 1997
British British
Pounds Pounds
000's 000's
Profit for the financial year 41,765 19,695
Dividends (11,788) -
Repurchases of share capital (8,064) -
Net proceeds from shares issued 255 96,500
Goodwill arising on acquisition of Newsquest
Capital plc and Westminster Press - (4,359)
Goodwill written back on disposal of Newsquest
(Wessex) - 2,477
--------- ---------
Net additions to shareholders' funds 22,168 114,313
Opening shareholders' funds 204,223 89,910
--------- ---------
Closing shareholders' funds 226,391 204,223
========= =========
-26-
<PAGE>
NOTES TO THE ACCOUNTS
53 weeks ended 3 January 1999
1. ACCOUNTING POLICIES
The consolidated financial statements of Newsquest plc and its subsidiaries
have been prepared in accordance with Accounting Standards currently
applicable in the United Kingdom.
The significant accounting policies adopted are as follows:
Basis of Accounting
The accounts have been prepared under the historical cost convention.
Consolidation and accounting period
The consolidated accounts consolidate the financial statements of Newsquest
plc and all of its subsidiaries. The profit and loss accounts cover the 53
weeks from 29 December 1997 to 3 January 1999 and the 52 weeks from 30
December 1996 to 28 December 1997. The balance sheets for 1998 and 1997
have been drawn up at 3 January 1999 and 28 December 1997 respectively.
Turnover
Turnover represents the invoiced value of sales, excluding Value Added Tax.
Advertising revenues are recognised upon publication of the relevant
newspaper. Circulation revenues, for paid-for newspapers, are recognised
upon sale or distribution. All turnover is derived from the Group's
principal activity being printing and publishing. All turnover arises
in the United Kingdom.
Development expenditure
Development expenditure incurred on the launch of new titles and the
establishment of Internet sites is expensed to the profit and loss account
as incurred.
Investments
Investments held as fixed assets are stated at cost, less provision, if
appropriate, for any diminution in value other than a temporary diminution
in value.
<PAGE>
Goodwill
On the acquisition of a subsidiary company or associated company, the
purchase consideration is allocated between the underlying net tangible and
intangible assets on a fair value basis. Goodwill on acquisitions after 29
December 1997 is included on the balance sheet and amortised over its
expected useful economic life, up to a maximum of 20 years.
Goodwill on acquisitions prior to 29 December 1997 has been written off
against profit and loss reserve as a matter of accounting policy and the
comparative figures in the accounts have been revised to reflect this.
This goodwill will be charged to the profit and loss account in the event
of the disposal of the business to which it relates.
Cash
Cash consists of cash in hand and deposits repayable on demand with a
period of maturity of not more than one working day.
Intangible fixed assets
Publishing rights and titles are stated at fair value on acquisition, based
on the operating profits derived from them, and are not subsequently
revalued. Publishing rights or titles have historically had lives in
excess of 20 years and the Directors do not foresee the end of their
economic life, and, consequently, are treated as having an indefinite
economic life. Having an indefinite economic life, no systematic
amortisation is applied. Intangible assets are reviewed for impairment
annually, and provision is made for any impairment in value. Internally
developed intangibles are not carried on the balance sheet.
Tangible fixed assets
Land and buildings, plant and equipment are stated in the balance sheet at
cost less accumulated depreciation. No depreciation is provided on land.
Freehold buildings, long leases and plant and equipment are depreciated
over their estimated future useful lives, on a straight line basis at rates
from 2%-50%. Short leases are written off over the duration of the lease.
Operating leases
Operating lease rentals are charged to the profit and loss account on a
straight line basis over the term of the lease.
Stocks
Stocks are stated at the lower of cost, on a first in first out basis, and
estimated net realisable value.
<PAGE>
Taxation
Deferred taxation is provided on timing differences, arising from the
different treatment of items for accounting and taxation purposes, which
are expected to reverse in the future, calculated at the rates at which it
is expected that tax will arise.
No provision is made for tax which would become payable on the sale of
intangible assets at stated amounts as there is no present intention to
sell these intangible assets.
Pensions
The group operates a defined benefit pension scheme. The expected costs of
pensions in respect of the Scheme are charged to the profit and loss
account so as to spread the costs over the service lives of employees in
the Scheme. Actuarial surpluses and deficits are allocated over the
average expected remaining service lives of employees. Pension costs are
assessed in accordance with the advice of qualified actuaries.
Vacant property
An accrual is made at the balance sheet date for the net present value of
net future rentals on vacant and surplus property assets.
Foreign exchange
Transactions denominated in foreign currencies are translated into sterling
at the rates ruling at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet date are
translated at the rates ruling at the date or, where appropriate, at the
rate of exchange specified in a matching forward contract or currency swap.
Any translation differences arising are dealt with in the profit and loss
account.
-27-
<PAGE>
2. ACQUISITIONS AND DISPOSALS
Acquisitions
During 1998 Newsquest purchased Kinsman Reeds Limited (May 1998), Property
Weekly Limited (March 1998), Review Free Newspapers Limited (July 1998) and
publishing rights, all of which have been accounted for using acquisition
accounting. The book and fair values of these businesses were as follows:
Fair
Book value Fair
value adjustment value
British British British
Pounds Pounds Pounds
000's 000's 000's
Fixed assets:
Intangible assets 2,521 7,151 9,672
Tangible assets 126 - 126
--------- --------- ---------
2,647 7,151 9,798
Debtors 1,152 - 1,152
Cash at bank and in hand 33 - 33
Loans and overdrafts (626) - (626)
Trade and other creditors (1,475) (68) (1,543)
Corporation Tax 14 (46) (32)
--------- --------- ---------
Net assets acquired 1,745 7,037 8,782
========= ========= =========
Consideration:
Cash 6,382
Loan Notes 2,400
---------
8,782
=========
The principal fair value adjustments were to reflect the valuation of
publishing rights acquired and property and taxation liabilities.
Cost of sales includes GBP 2,856,000 and operating expenses GBP 1,228,000
in respect of these acquisitions.
Disposals
In 1997 the group disposed of Newsquest (Wessex). The results for 1997
include turnover of GBP 6,628,000 and operating profit of GBP 1,466,000 in
respect of Newsquest (Wessex).
<PAGE>
3. TURNOVER
Set out below is an analysis of turnover by type of revenue, showing
separately the effect of acquisitions and disposals.
1998 1997
53 weeks 52 weeks
British British
Pounds Pounds
000's 000's
Display advertising:
National 19,871 18,649
Local 55,398 52,418
--------- ---------
75,269 71,067
--------- ---------
Classified advertising:
Motors 35,653 32,813
Property 36,054 33,049
Recruitment 60,068 52,222
Other 37,413 35,682
--------- ---------
169,188 153,766
--------- ---------
-28-
<PAGE>
3. TURNOVER (continued)
1998 1997
53 weeks 52 weeks
British British
Pounds Pounds
000's 000's
Total advertising 244,457 224,833
Circulation 37,698 36,693
Direct marketing 11,545 10,211
Contract printing 1,193 2,287
Other, including Internet revenues 5,936 4,925
--------- ---------
300,829 278,949
Acquisitions 4,967 -
Disposals - 6,628
--------- ---------
Turnover 305,796 285,577
========= =========
4. NON-RECURRING COSTS
1998 1997
British British
Pounds Pounds
000's 000's
Monitoring fees - 344
Costs associated with listing on the
London Stock Exchange - 7,135
Non-recurring pensions charge - 1,023
--------- ---------
- 8,502
========= =========
5. OPERATING EXPENSES
1998 1997
British British
Pounds Pounds
000's 000's
Distribution costs 48,211 45,602
Administrative expenses 105,828 109,112
--------- ---------
154,039 154,714
========= =========
Administrative expenses include non-recurring costs (note 4).
<PAGE>
6. OPERATING PROFIT
1998 1997
British British
Pounds Pounds
000's 000's
Operating profit is arrived at after
charging/(crediting):
Depreciation of tangible fixed assets:
Owned assets 12,086 12,271
Profit on disposal of tangible fixed
assets (501) (180)
Operating lease rentals:
Land and buildings 2,764 3,042
Plant and equipment 281 404
Restructuring costs 993 1,016
Audit fees 190 180
Auditors' remuneration - non-audit
services 259 386
Exceptional pension charge - 1,023
========= =========
Other amounts payable to auditors not included above were GBP 132,400
(1997 - GBP 624,700).
-29-
<PAGE>
7. STAFF COSTS
1998 1997
British British
Pounds Pounds
000's 000's
Wages and salaries 85,433 81,447
Social security costs 8,193 6,918
Other pension costs 3,429 3,932
--------- ---------
97,055 92,297
========= =========
The average monthly number of employees, including Directors, during the
period was as follows:
1998 1997
Number Number
--------- ---------
Pre-press and printing 1,146 1,266
Editorial 1,427 1,436
Marketing and sales 1,905 1,854
Distribution 681 690
Finance and management 584 582
--------- ---------
5,743 5,828
========= =========
8. DIRECTORS' REMUNERATION
The emoluments of the Directors are given in the Report of the Board on
Remuneration on pages 18 to 19.
9. INTEREST
1998 1997
British British
Pounds Pounds
000's 000's
Refinancing costs comprise of:
Premium on redemption of US$ Loan Notes 4,024 4,550
Deferred financing fees written off 1,093 8,408
Swap termination costs net of related
gains (324) 3,690
--------- ---------
4,793 16,648
========= =========
<PAGE>
Other net interest costs comprise:
Interest receivable (200) (1,108)
Interest payable and similar charges:
Bank loans 8,372 17,114
Amortisation of deferred financing fees 838 2,287
Other loans and similar charges 6,576 14,172
--------- ---------
15,586 32,465
========= =========
Amortisation of deferred financing fees relates to professional costs and
finance fees incurred on the issue of the US$ Loan Notes and establishment
of long-term bank loans.
-30-
<PAGE>
10. TAXATION
1998 1997
British British
Pounds Pounds
000's 000's
UK Corporation Tax at 31% (1997 - 31.5%)
Current 20,053 13,719
Deferred taxation credit (549) (737)
Adjustment to prior years Corporation Tax (1,549) (773)
Adjustment to prior years deferred
taxation 1,251 (295)
--------- ---------
19,206 11,914
========= =========
The adjustment to prior years deferred taxation for the 53 weeks ended 3
January 1999 includes a credit of GBP 147,000 arising as a result of the
change in the Corporation Tax rate from 31% to 30%.
11. DIVIDENDS
1998 1997
British British
Pounds Pounds
000's 000's
Interim dividend of 2p per share paid 3,952 -
Proposed final dividend of 4p per share 7,836 -
--------- ---------
11,788 -
========= =========
Dividends are stated net of dividends receivable of GBP 28,000 on shares
held by Newsquest Employee Trustees Limited where the relevant incentive
scheme does not entitle the participant to dividends.
12. PROFIT FOR THE FINANCIAL YEAR
As permitted by section 230 of the Companies Act 1985, the profit and loss
account of the Company is not presented as part of these financial
statements. The parent Company profit for the financial year was
GBP 50,000,000 (1997 - GBP 15,000,000).
-31-
<PAGE>
13. EARNINGS PER SHARE
1998 1997
Pence Pence
Basic earnings per share 21.2 11.9
Diluted earnings per share 20.9 11.7
Adjusted diluted earnings per share 22.5 17.7
Earnings per share information has been restated in accordance with FRS 14,
"Earnings Per Share". The weighted average number of ordinary shares in
issue in 1997 for the period prior to Listing is based on the number of
shares the A, B, C, D and E ordinary shares respectively were converted
into immediately prior to Listing.
Adjusted diluted earnings per share is calculated using the adjusted
profits set out below, and is provided to give a more meaningful measure of
performance. This adjusts 1998's results for the refinancing costs
incurred on redeeming US$ Loan Notes. It adjusts 1997's results for the
disposal of Newsquest (Wessex), the proceeds of Listing and the changes in
the group's capital structure from new banking arrangements and the
repurchase of US$ Loan Notes as if they had occurred on 1 January 1997.
Therefore adjusted diluted earnings per share assumes that all shares
issued for the Listing were in issue for a full year.
The numbers of shares and earnings used to calculate earnings per share
information is set out below:
1998 1997
Number Number
of shares of shares
Basic weighted average number of shares 197,120,481 165,809,893
Diluted weighted average number of
shares 200,241,167 168,240,819
Adjusted earnings per share weighted
average number of shares 200,241,167 200,548,511
1998 1997
British British
Pounds Pounds
000's 000's
Profit after taxation (used to calculate
earnings per share and diluted earnings
per share) 41,765 19,695
Refinancing costs net of taxation 3,307 11,404
Disposal of Newsquest (Wessex) net of
taxation - (11,550)
Non-recurring costs, Listing and capital
structure net of taxation - 15,997
--------- ---------
Earnings used to calculate adjusted
diluted earnings per share 45,072 35,546
========= =========
<PAGE>
14. INTANGIBLE FIXED ASSETS
1998 1997
British British
Pounds Pounds
000's 000's
Publishing rights and titles
Cost
At beginning of year 319,962 332,376
Acquisitions (note 2) 9,672 -
Divestments - (12,414)
--------- ---------
At end of year 329,634 319,962
========= =========
-32-
<PAGE>
15. TANGIBLE FIXED ASSETS
Land and Plant and
buildings equipment
British British
Pounds Pounds Total
000's 000's 000's
Cost
At 29 December 1997 32,328 112,036 144,364
Additions 20 13,521 13,541
Transfers (510) 510 -
Acquisitions 14 228 242
Disposals (220) (6,997) (7,217)
--------- --------- ---------
At 3 January 1999 31,632 119,298 150,930
--------- --------- ---------
Accumulated depreciation
At 29 December 1997 7,335 70,451 77,786
Charge for the year 892 11,194 12,086
Transfers (110) 110 -
Acquisitions 2 114 116
Disposals (67) (6,295) (6,362)
--------- --------- ---------
At 3 January 1999 8,052 75,574 83,626
--------- --------- ---------
Net book value
At 3 January 1999 23,580 43,724 67,304
========= ========= =========
At 28 December 1997 24,993 41,585 66,578
========= ========= =========
The net book value of land and buildings stated at cost comprises:
1998 1997
British British
Pounds Pounds
000's 000's
Freehold property 14,200 15,767
Leasehold property, more than 50 years
unexpired 7,588 7,821
Leasehold property, less than 50 years
unexpired 1,792 1,405
--------- ---------
23,580 24,993
========= =========
Included in land and buildings is land with a cost of GBP 2,508,000
(1997 - GBP 2,908,000), which is not depreciated.
-33-
<PAGE>
16. INVESTMENTS
Group Other Own
investments shares
British British
Pounds Pounds Total
000's 000's 000's
Cost
At 29 December 1997 110 221 331
Additions 201 - 201
Disposals - (30) (30)
--------- --------- ---------
At 3 January 1999 311 191 502
========= ========= =========
Provisions
At 29 December 1997 110 - 110
Charge in year 90 - 90
--------- --------- ---------
At 3 January 1999 200 - 200
========= ========= =========
Net book value
At 3 January 1999 111 191 302
========= ========= =========
At 28 December 1997 - 221 221
========= ========= =========
Investments in Own
Company subsidiaries shares
British British
Pounds Pounds Total
000's 000's 000's
Cost and net book value
At 29 December 1997 205,701 221 205,922
Disposals - (30) (30)
--------- --------- ---------
At 3 January 1999 205,701 191 205,892
========= ========= =========
Other investments comprise investments in unlisted companies.
The investments in own shares relates to 1,882,357 (1997 - 1,882,357)
ordinary shares held to satisfy obligations under employee share ownership
schemes. At 3 January 1999 beneficial ownership had been conditionally
granted over 1,862,028 (1997 - 1,862,028) shares, of which
beneficial owners of 1,410,906 (1997 - 1,410,906) shares were entitled to
dividends. The shares, whilst legally not the property of the Company,
have been included within investments.
<PAGE>
The major subsidiary companies of Newsquest plc (all of which are
incorporated in Great Britain and registered in England and Wales
and were wholly owned) at 3 January 1999 were:
Name of Company Nature of business
Newsquest Capital plc* Holding Company
Newsquest Media Group Limited Printing and publishing
Newsquest (Bradford) Limited Printing and publishing
Newsquest (Cheshire/Merseyside) Limited Publishing
Newsquest (Essex) Limited Publishing
Newsquest (Kendal) Publishing
Newsquest (Lancashire) Limited Publishing
Newsquest (London) Limited Publishing
Newsquest (Midlands South) Limited Publishing
Newsquest (North East) Limited Publishing
Newsquest (Oxford) Limited Printing and publishing
Newsquest (Sussex) Limited Printing and publishing
Newsquest (Wiltshire) Limited Printing and publishing
Newsquest (York) Limited Printing and publishing
*Only Newsquest Capital plc is owned directly by the Company.
-34-
<PAGE>
17. STOCKS
1998 1997
British British
Pounds Pounds
000's 000's
Raw materials and consumables 1,854 2,099
========= =========
18. DEBTORS
Group Company
--------------------- ---------------------
1998 1997 1998 1997
British British British British
Pounds Pounds Pounds Pounds
000's 000's 000's 000's
Trade debtors 37,158 40,293 - -
Amounts owed by
group companies - - 99,364 61,665
Corporation Tax - - 1,870 -
Other debtors 788 1,855 - -
Prepayments and
accrued income 2,820 2,908 - -
--------- --------- --------- ---------
40,766 45,056 101,234 61,665
========= ========= ========= =========
19. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Group Company
--------------------- ---------------------
1998 1997 1998 1997
British British British British
Pounds Pounds Pounds Pounds
000's 000's 000's 000's
Bank overdrafts 1,722 - - -
Other loans 1,900 - - -
Trade creditors 5,515 5,129 - -
Amounts owed to
group companies - - 196 221
Corporation Tax
payable 30,414 16,699 1,328 -
Other taxation and
social security 7,389 7,906 - -
Other creditors 8,205 7,183 6 -
Accruals and
deferred income 16,917 17,019 - -
Proposed final
dividend 7,836 - 7,836 -
--------- --------- --------- ---------
79,898 53,936 9,366 221
========= ========= ========= =========
<PAGE>
20. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
1998 1997
British British
Pounds Pounds
Currency 000's 000's
Bank loans
Revolving credit facility Sterling 101,000 120,000
Loan Notes
US$ Loan Notes Dollars 30,490 60,914
--------- ---------
Total bank loans and loan notes 131,490 180,914
Less: deferred financing fees (1,522) (3,453)
--------- ---------
129,968 177,461
========= =========
Bank loans and committed facilities
The Revolving Credit Facility is a five year GBP 250 million facility
guaranteed by the principal subsidiaries of the group that expires
in 2002. Interest is payable at rates based on LIBOR. At 3 January
1999 there were undrawn committed borrowing facilities of
GBP 145.4 million, which expire in more than 2 years.
-35-
<PAGE>
20. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
(continued)
US$ Loan Notes
The US$ Loan Notes are issued by Newsquest Capital plc and guaranteed
by Newsquest Media Group Limited. At the end of the year the aggregate
indebtedness for the US$ Loan Notes was US$51.055 million (1997 -
US$102 million). During 1998 $50.945 million of the US$ Loan Notes were
repurchased. Newsquest Capital plc has the option to redeem the US$ Loan
Notes on 1 May 2001 at a 5.5% premium.
The group has a hedge related to its foreign currency exposure arising
from the US dollar denominated loan notes. The cross currency swap
exchanges the principal and interest arising on the US$ Loan Notes to
2001 into sterling. The resulting effective interest rate is 12%.
The currency swap acts as a hedge in respect of US$ Loan Notes.
Consequently the interest rate differential is accrued as a net interest
expense. No unrealised gains or losses on these swaps are recognised
separately as they are offset by the complementary gains or losses on
the underlying transactions hedged by the swap. On termination of a swap
any gain or loss arising is expensed in the profit and loss account.
Deferred
Analysis by year of Bank US$ Loan financing
repayment as at borrowings Notes costs Total
3 January 1999 British British British British
Pounds Pounds Pounds Pounds
000's 000's 000's 000's
Between 2 and 3 years - 30,490* (941) 29,549
Between 3 and 4 years 101,000 - (581) 100,419
--------- --------- --------- ---------
101,000 30,490 (1,522) 129,968
========= ========= ========= =========
* Redemption in 2001 is at the Company's option. The final redemption
date of the US$ Loan Notes is in 2006.
21. FINANCIAL INSTRUMENTS
Details of the group's policy for managing currency, liquidity and
interest rate risk are set out in the Operating and Financial Review
on pages 9 to 12. In the following numerical disclosures short-term
debtors and creditors are excluded.
<PAGE>
Interest rate risk profile
In addition to the cross currency swap referred to above, Newsquest has
entered into four interest rate swaps which convert floating rate debt to
fixed rate debt. The interest rate swaps affect GBP 40 million of debt,
although GBP 10 million does not come into effect until March 1999. After
taking account of these instruments, the interest rate profile of the
group's financial liabilities, all of which are effectively in sterling,
at 3 January 1999, was:
Floating Fixed Financial
Weighted Weighted rate rate liabilities
average average financial financial on which
interest period liabilities liabilities no interest
rate for which Total is paid
rate is British British British British
fixed Pounds Pounds Pounds Pounds
% Years 000's 000's 000's 000's
------ ------ ------- ------- ------- -------
US$ Loan Notes 12.0 2.3 30,490 - 30,490 -
Swapped debt 6.9 3.8 40,000 10,000 30,000 -
Fixed rate debt 7.1 0.5 1,200 - 1,200 -
Floating rate
debt 6.9 N/A 63,422 63,422 - -
------- ------- ------- -------
135,112 73,422 61,690 -
Other financial
liabilities 6,806 - - 6,806
------- ------- ------- -------
141,918 73,422 61,690 6,806
======= ======= ======= =======
Floating rate financial liabilities comprise sterling bank borrowings
that bear interest at rates linked to LIBOR. The group has no financial
assets other than short-term debtors, and immaterial amounts of cash at
bank and unquoted trade related investments.
-36-
<PAGE>
21. FINANCIAL INSTRUMENTS (continued)
Fair values
Set out below is a comparison of book values and fair values of the
group's financial assets and liabilities as at 3 January 1999. Fair values
have been derived from market values:
Book Fair
value value
British British
Pounds Pounds
000's 000's
Primary financial instruments held or issued
to finance the group's operations:
Short-term financial liabilities and
current portion of long-term borrowings 3,622 3,622
Long-term borrowings 129,968 134,843
Financial (assets) and liabilities 6,636 6,636
Derivative financial instruments held
to manage the interest rate and
currency profile:
Interest rate swap liabilities - 1,077
Cross currency contract liabilities - 129
Gains and losses on hedges
The group uses interest rate swaps and a cross currency swap to reduce
its financial risks. Changes in the fair value of instruments used as
hedges are not recognised in the financial statements until the hedged
position matures. Set out below is an analysis of these unrecognised
gains and losses:
Total
net gains/
Gains Losses (losses)
British British British
Pounds Pounds Pounds
000's 000's 000's
Unrecognised gains and losses
on hedges at 29 December 1997 784 - 784
Gains and losses arising in
previous years that were
recognised in 1998 - - -
-------- -------- --------
Gains and losses arising
before 29 December 1997
that were not recognised in
1998 784 - 784
Gains and losses arising in
1998 that were not
recognised in 1998 (784) (1,206) (1,990)
-------- -------- --------
Unrecognised gains and losses
on hedges at 3 January 1999 - (1,206) (1,206)
======== ======== ========
<PAGE>
Of which:
Gains and losses expected to
be recognised in 1999 - (344) (344)
Gains and losses expected to
be recognised in 2000 or later - (862) (862)
======== ======== ========
22. PROVISIONS FOR LIABILITIES AND CHARGES
1998 1997
British British
Pounds Pounds
Deferred taxation liability 000's 000's
At 29 December 1997 4,539 5,573
Disposals - (2)
Provided/(released) in the year 702 (1,032)
------- -------
At 3 January 1999 5,241 4,539
======= =======
The deferred taxation balance can be analysed as follows:
1998 1997
British British
Pounds Pounds
000's 000's
Capital allowances in excess of
depreciation 5,948 5,901
Other timing differences (707) (1,362)
------- -------
5,241 4,539
======= =======
The amount of deferred taxation not provided at 3 January 1999 in
respect of tax rolled-over on capital gains was GBP 2,760,000
(1997 - GBP 2,995,000).
-37-
<PAGE>
23. SHARE CAPITAL
The share capital of the Company comprises:
1998 1997
British British
1998 Pounds 1997 Pounds
Number 000's Number 000's
Authorised
Ordinary shares of
GBP 0.01 each 270,000,000 2,700 270,000,000 2,700
Issued and fully paid
Ordinary shares of
GBP 0.01 each 196,372,957 1,964 200,000,000 2,000
During the year the Company issued 107,957 shares (with a nominal value
of GBP 1,080) to satisfy the exercise of options for a total consideration
of GBP 255,000. During the year the Company repurchased and cancelled
3,735,000 shares at prices ranging from GBP 2.07 to GBP 2.20. The weighted
average cost of the purchases including expenses was GBP 2.16 per share and
the total cost was GBP 8,064,000. At 3 January 1999 the Company had a
remaining authority from shareholders to make open market purchases of
16,265,000 shares. At 3 January 1999 options were exercisable over shares
as follows:
Number Exercise
of shares price Exercise period
GBP
Newsquest Employee
Savings and Share
Option Scheme 1,986,523 1.244 June 2000 to June 2007
Executive Share Option
Scheme: 932,680 2.50 October 2000 to October 2007
18,964 2.90 March 2001 to March 2008
1,186,123 2.24 August 2001 to August 2008
Parties associated with
Glenisla (see note 32) 119,601 2.50 October 1997 to October 2004
<PAGE>
24. STATEMENT OF MOVEMENTS ON RESERVES
Group Capital Share Profit
redemption premium and loss
reserve account account
British British British
Pounds Pounds Pounds
000's 000's 000's
At 29 December 1997 794 249,572 (48,143)
Issue of shares net of expenses - 254 -
Repurchase of shares 37 - (8,064)
Retained profit - - 29,977
--------- --------- ---------
At 3 January 1999 831 249,826 (26,230)
========= ========= =========
Included in the profit and loss account is GBP 65,428,000 in respect of
goodwill arising on acquisitions prior to 28 December 1997 that has been
written off as a matter of accounting policy.
Company Capital Share Profit
redemption premium and loss
reserve account account
British British British
Pounds Pounds Pounds
000's 000's 000's
At 29 December 1997 794 249,572 15,000
Issue of shares net of expenses - 254 -
Repurchase of shares 37 - (8,064)
Retained profit - - 38,212
--------- --------- ---------
At 3 January 1999 831 249,826 45,148
========= ========= =========
-38-
<PAGE>
25. LEASING COMMITMENTS
At 3 January 1999 the group had annual commitments under non-cancellable
operating leases as follows:
1998 1997
Land and Land and
buildings Other buildings Other
British British British British
Pounds Pounds Pounds Pounds
000's 000's 000's 000's
Expiry of operating leases
Falling due within one year 44 62 122 72
Falling due within two to
five years 506 227 381 220
Falling due after five years 2,066 4 2,435 -
--------- --------- --------- ---------
2,616 293 2,938 292
========= ========= ========= =========
At 3 January 1999 and 28 December 1997 the Company had no leasing
commitments.
26. CAPITAL COMMITMENTS
1998 1997
British British
Pounds Pounds
000's 000's
Contracted but not provided for 645 1,801
========= =========
At 3 January 1999 and 28 December 1997 the Company had no capital
commitments.
27. PENSION SCHEMES
A funded defined benefits pension scheme, the Newsquest Pension Scheme
("the Scheme"), is operated for all permanent employees over age 16.
The trustees of the scheme are responsible for the investment of the
Scheme's assets which are held separately from the group. Contributions
by members who transferred from the Reed Elsevier scheme are at the rate
of 4% of salary and by new members at the rate of 6% of their salary.
Pension costs are assessed with the advice of a qualified actuary and are
recognised over the working lives of the members. An actuarial valuation
was undertaken as at 6 April 1998 using the projected unit method. The
main actuarial assumptions were that real salary growth (relative to price
inflation) will be 2% per annum and real investment returns (relative to
price inflation) will average 1% per annum above the index-linked gilt
yield. Based on the valuation the funding level of the scheme was 137% as
at 6 April 1998. The market value of the Scheme's assets at 6 April 1998
was approximately GBP 59.2 million.
The pension cost for the year was GBP 3,429,000 (1997 - GBP 3,925,000).
The prepayment as at 3 January 1999 was GBP 1,579,000
(1997 - GBP 2,759,000).
<PAGE>
28. NET CASH INFLOW FROM OPERATING ACTIVITIES
1998 1997
British British
Pounds Pounds
000's 000's
Operating profit 81,350 62,993
Profit from sale of tangible fixed assets (501) (180)
Depreciation 12,086 12,271
Provisions against investments 90 110
Decrease in stock 245 804
Decrease/(increase) in debtors 5,442 (939)
Decrease in creditors 481 1,009
--------- ---------
Net cash inflow from operating activities 99,193 76,068
========= =========
-39-
<PAGE>
29. ANALYSIS OF CASH FLOWS IN THE CASH FLOW STATEMENT
1998 1997
British British
Pounds Pounds
000's 000's
29A Returns on investments and servicing
of finance
Interest received 235 1,032
Interest paid (14,827) (36,183)
Refinancing costs (3,700) (8,240)
Financing fees and expenses - (2,461)
--------- ---------
Net cash outflow from returns on
investments and servicing of finance (18,292) (45,852)
========= =========
29B Taxation paid
UK Corporation Tax paid (4,821) (1,704)
========= =========
29C Capital expenditure and financial
investment
Payments to acquire investments (201) -
Payments to acquire tangible fixed
assets (13,728) (9,785)
Receipts from sale of tangible fixed
assets 1,356 1,368
--------- ---------
Net cash outflow from capital
expenditure and financial investment (12,573) (8,417)
========= =========
29D Acquisitions and disposals
Purchase of subsidiary undertakings (6,382) -
Receipts from sales of investments in
subsidiaries - 17,869
Net indebtedness (acquired)/disposed
of with businesses (593) 16,456
Receipt of cash relating to post
completion accounts adjustment - 8,863
Payment of accrued fees on acquisition - (1,691)
--------- ---------
Net cash (outflow)/inflow from
acquisitions and disposals (6,975) 41,497
========= =========
29E Management of liquid resources
Cash withdrawn from/(placed on)
short-term deposit 2,000 (2,000)
========= =========
<PAGE>
29F Financing
Issue of ordinary shares 255 96,500
Repurchase of ordinary shares (8,064) -
New bank borrowings - 120,000
Bank loans repaid (19,000) (240,340)
Other loans repaid (500) -
Purchase of US$ Loan Notes (30,424) (44,575)
--------- ---------
Net cash outflow from financing (57,733) (68,415)
========= =========
Reclassifications have been made to the previously reported figures for
"Financing" and "Returns on investments and servicing of finance" for
comparability.
-40-
<PAGE>
30. PURCHASE OF SUBSIDIARY UNDERTAKINGS
1998
British
Pounds
000's
Intangible fixed assets 9,672
Tangible fixed assets 126
Debtors 1,152
Cash 33
Bank loans and overdrafts (626)
Trade and other creditors (1,543)
Corporation Tax (32)
---------
8,782
=========
Satisfied by:
Loan Notes 2,400
Cash 6,382
---------
8,782
=========
Further details on the group's acquisitions are set out in note 2.
31. ANALYSIS OF NET DEBT
At 28 Acquisitions At 3
December (excluding January
1997 cash and Cash flow 1999
GBP 000's overdrafts) GBP 000's GBP 000's
Cash at bank and in
hand 3,484 - (3,425) 59
Less deposits treated
as liquid resources (2,000) - 2,000 -
--------- --------- --------- ---------
1,484 - (1,425) 59
Bank overdrafts - - (1,722) (1,722)
--------- --------- --------- ---------
Net cash per cash flow
statement 1,484 - (3,147) (1,663)
--------- --------- --------- ---------
Other loans - (2,400) 500 (1,900)
Bank loans (120,000) - 19,000 (101,000)
US$ Loan Notes (60,914) - 30,424 (30,490)
--------- --------- --------- ---------
Debt financing (180,914) (2,400) 49,924 (133,390)
--------- --------- --------- ---------
Liquid resources 2,000 - (2,000) -
--------- --------- --------- ---------
Net debt (177,430) (2,400) 44,777 (135,053)
========= ========= ========= =========
Net debt is stated gross of deferred financing fees (note 20).
-41-
<PAGE>
32. RELATED PARTIES
Messrs. Gilhuly, Kravis, Navab, Robbins and Stuart are either partners or
associates of Kohlberg, Kravis and Roberts ("KKR"), the US venture capital
firm. They are Directors of the Company nominated by RRN Associates,
Limited Partnership ("RRN"), which held some 36.88% of the issued share
capital of the Company at 3 January 1999. They receive fees for acting as
Directors as set out in the Report of the Board on Remuneration, and
reimbursement of expenses incurred in the performance of the duties as
Directors. There is a Relationship Agreement between the Company, RRN and
KKR that sets out certain arrangements to ensure the Company can operate
independently. Generally these obligations (other than the non-compete
undertaking from KKR) under the agreement terminate if RRN holds less than
30% of the Company's issued share capital.
Mr. Richard Munton is a Director of Cinven Limited, and serves as the
Director of the Company nominated by them. At 3 January 1999 entities
whose funds are managed by Cinven Limited held 12.97% of the issued share
capital of the Company. He receives fees for acting as a Director as set
out in the Report of the Board on Remuneration, and reimbursement of
expenses incurred in the performance of his duties as a Director.
Monitoring fees for management, consulting and certain other services of
GBP nil (1997 - GBP 313,074) were paid to KKR and a monitoring fee of
GBP nil (1997 - GBP 81,849) was paid to Cinven. These services were
terminated in 1997 as the Company engaged new suppliers of these services.
A final payment of GBP 1.5 million was paid to KKR and GBP 0.5 million
paid to Cinven in respect of these services in 1997.
Glenisla Group Limited ("Glenisla") is an English private limited company
linked to KKR. Directors and parties associated with Glenisla hold options
over 119,601 shares (1997 - 215,369 shares) at an exercise price of
GBP 2.50. Options over 95,768 shares held by these parties were exercised
during 1998.
In September 1997 a Shareholders' Agreement was entered into between the
Company, RRN, RRN Employee Trustees Limited, certain other parties and six
of the group's executive managers. This agreement covers certain aspects
of their share ownership and future sales of shares in the Company. A
second Shareholders' Agreement was entered into on the same date between
the Company, RRN, KKR, Cinven and certain other parties. This agreement
sets out certain matters regarding dealings in shares of the Company by the
parties to the agreement.
At 3 January 1999 no balances were due to KKR and Cinven (1997 - nil).
<PAGE>
33. SUMMARY OF DIFFERENCES BETWEEN UK GAAP AND US GAAP
The consolidated financial statements are prepared in accordance with UK
GAAP, which differs in certain significant respects from US GAAP. These
differences relate principally to the following items and the approximate
effect on profit for the financial year and shareholders' equity is shown
in the tables on pages 44 and 45. While this is not a comprehensive
summary of all differences between UK GAAP and US GAAP, other differences
are considered unlikely to have a significant effect on the consolidated
profit for the financial year and shareholders' equity of the Company.
Goodwill and other intangible assets
Under UK GAAP, goodwill arising on business combinations treated as
acquisitions prior to 1 January 1998 may be written off against retained
earnings. Intangible assets, representing publishing rights and titles,
are carried at fair value on acquisition with no systematic amortisation,
if they have no definite economic life. The carrying value of these
intangible assets is evaluated periodically to determine whether there has
been a loss in value, by reviewing current and estimated future earnings
and cash flows on an undiscounted basis.
Under US GAAP, the cost of intangible assets acquired after 31 October 1970
is required to be amortised over the period of their estimated useful
lives, to a maximum of 40 years.
The amortisation periods for goodwill and the other intangible assets are
over their estimated useful life up to a maximum of 40 years. The
amortisation periods for publishing rights and titles range from five to
40 years. The gross cost under US GAAP, as at 3 January 1999, of
goodwill is GBP 65,428,000 (1997 - GBP 65,428,000) and of other intangibles
GBP 329,634,000 (1997 - GBP 319,962,000). Accumulated amortisation under
US GAAP, as at 3 January 1999 of goodwill is GBP 3,906,000
(1997 - GBP 2,270,000) and of other intangibles is GBP 19,603,000
(1997 - GBP 11,465,000).
-42-
<PAGE>
33. SUMMARY OF DIFFERENCES BETWEEN UK GAAP AND US GAAP (continued)
The Company's management assesses the recoverability of its long-lived
assets by determining whether the net book value of the asset can be
recovered through projected discounted future cash flows from operations.
When future operating cash flows generated are determined not to be
sufficient to cover tangible and intangible assets, an impairment charge
may need to be recorded. The Company's management continually evaluates
the existence of potential impairment by analysing operating results,
trends and prospects. Management also takes into consideration any other
events or circumstances that might indicate potential impairment. If an
impairment charge is required, it is measured based on discounted cash
flows of the business being evaluated or fair value, if available. Based
upon these evaluations, Newsquest has determined that no impairment of
recorded long-lived assets has occurred.
Pensions
The group accounts for pension costs under the rules set out in SSAP 24.
The objectives and principles of SSAP 24 are broadly in line with those
set out in the US accounting standard for pensions, SFAS 87, "Employers'
Accounting for Pensions". However, SSAP 24 is less prescriptive in the
application of the actuarial method and assumptions to be applied in the
calculation of pension costs.
Deferred taxation
Under UK GAAP, in accordance with Statement of Standard Accounting Practice
No. 15, "Accounting for Deferred Tax" deferred taxation is provided at
the rates at which tax is expected to become payable. No provision is
made for amounts which are not expected to become payable in the
foreseeable future. Under US GAAP, deferred taxation is provided on all
temporary differences under the liability method, subject to a valuation
allowance where applicable in respect of deferred tax assets, in accordance
with SFAS 109, "Accounting for Income Taxes". The principal
adjustment to apply US GAAP is to provide deferred taxation on temporary
differences arising from the amortisation under US GAAP of intangible
assets.
Foreign currency
Certain borrowings are denominated in US dollars (note 20). Under UK GAAP,
these borrowings have been translated into pounds sterling at the exchange
rates fixed under foreign currency swaps. Under US GAAP, these borrowings
would be translated at the year end exchange rate.
<PAGE>
Exceptional items
Under US GAAP the costs of Listing (principally fees paid to professional
advisors), but excluding the costs of termination of certain contracts and
the costs of the employee offer included within costs associated with the
Listing, are treated as a reduction of the Listing proceeds and cannot be
charged to the profit and loss account.
Included in exceptional interest costs is GBP 4,793,000
(1997 - GBP 14,590,000) related to the early repayment of debt which under
US GAAP is treated as an extraordinary item.
-43-
<PAGE>
33. SUMMARY OF DIFFERENCES BETWEEN UK GAAP AND US GAAP (continued)
Approximate effects on profit for the financial year of differences between
UK GAAP and US GAAP:
1998 1997
British British
Pounds Pounds
000's 000's
Profit for the financial year under UK GAAP 41,765 19,695
US GAAP adjustments:
Costs associated with Listing - 3,736
Amortisation of goodwill and other
intangibles (9,774) (9,697)
Pensions (1,400) 1,061
Deferred taxation 2,753 1,961
--------- ---------
Profit for the financial year under US GAAP 33,344 16,756
========= =========
Comprising:
Profit before extraordinary items 36,651 26,750
Extraordinary item under US GAAP, net
of applicable tax (3,307) (9,994)
--------- ---------
33,344 16,756
========= =========
Approximate effects on shareholders' equity of differences between UK GAAP
and US GAAP:
1998 1997
British British
Pounds Pounds
000's 000's
Shareholders' equity under UK GAAP 226,391 204,223
US GAAP adjustments:
Net book value of goodwill 61,522 63,158
Accumulated amortisation on intangibles (19,603) (11,465)
Pensions (800) 600
Deferred taxation 6,121 3,368
--------- ---------
Shareholders' equity under US GAAP 273,631 259,884
========= =========
<PAGE>
Cash flow information
Cash flows under UK GAAP differ in certain presentational respects from the
format required under SFAS 95. Under UK GAAP, cash paid or received for
interest and Corporation Tax are presented separately from operating
activities and dividends paid are presented separately from financing
activities. Under SFAS 95, cash flows from operating activities are based
on the net income, which includes interest and income taxes, whilst
dividends paid would be included within financing activities.
Under US GAAP, the following amounts would be reported:
1998 1997
British British
Pounds Pounds
000's 000's
Net cash provided by operating activities 76,080 28,512
Net cash (used in)/provided by
investing activities (19,548) 33,080
Net cash used in financing activities (61,679) (68,415)
--------- ---------
Net decrease in cash and cash equivalents (5,147) (6,823)
========= =========
Net cash and cash equivalents under US GAAP (1,663) 3,484
========= =========
-44-
<PAGE>
33. SUMMARY OF DIFFERENCES BETWEEN UK GAAP AND US GAAP (continued)
Pensions
The following table sets out the funded status of the Newsquest Pension
Scheme under SFAS 87:
1998 1997
British British
Pounds Pounds
000's 000's
Total accumulated and vested benefit obligation (54,300) (48,970)
========= =========
Projected benefit obligation (64,200) (52,328)
Plan assets at fair value 60,700 52,440
--------- ---------
Plan assets in excess of projected
benefit obligation (3,500) 112
Unrecognised net losses 4,300 3,267
--------- ---------
Prepaid pension cost 800 3,379
========= =========
The principal assumptions used to determine the funded status were:
1998 1997
Discount rate 4.75% 6.5%
Salary increases 4.25% 5.5%
Investment return 7.00% 8.0%
-45-
<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. As of
October 4, 1999, Gannett UK effectively owns 100% of Newsquest
shares. The acquisition will be recorded under the purchase method of
accounting and Newsquest's results of operations will be 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
December 27, 1998, 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 December 27, 1998 and of Newsquest at January 3, 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
proposed merger occurred as of the beginning of the period presented. The
unaudited condensed combined statement of income reflects the historical
results of operations for Gannett and Newsquest for their respective 1998
fiscal years.
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
December 27, 1998
(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 $ 66,187 $ 98 $ $ 66,285
Accounts receivable, net 717,159 67,594 784,753
Inventories 87,176 3,074 90,250
Prepaid expenses and
other current assets 35,863 2,618 38,481
---------- ---------- ---------- ----------
Total current assets 906,385 73,384 979,769
Property, plant and
equipment, net 2,063,783 111,597 2,175,380
Excess of acquisition
cost over the
value of assets
acquired, net 3,794,601 546,566 1,196,852 (1) 5,538,019
Other assets 214,711 501 215,212
---------- ---------- ---------- ----------
Total assets $6,979,480 $ 732,048 $1,196,852 $8,908,380
========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of
long-term debt $ 7,812 $ 3,150 $ $ 10,962
Accounts payable and
current portion of
film contracts payable 312,283 37,856 350,139
Accrued expenses
and other current
liabilities 345,687 28,050 70,969 (2) 444,706
Dividends payable 55,790 12,994 68,784
Income taxes 6,395 50,429 56,824
---------- ---------- ---------- ----------
Total current liabilities 727,967 132,479 70,969 931,415
<PAGE>
Deferred income taxes 442,359 8,690 (1,492) (3) 449,557
Long-term debt,
less current portion 1,306,859 215,500 1,502,754 (4) 3,025,113
Postretirement medical
and life insurance
liabilities 308,145 308,145
Other long-term
liabilities 214,326 214,326
Total shareholders'
equity 3,979,824 375,379 (375,379) (5) 3,979,824
---------- ---------- ---------- ----------
Total liabilities and
shareholders' equity $6,979,480 $ 732,048 $1,196,852 $8,908,380
========== ========== ========== ==========
(A) This pro forma balance sheet includes Gannett's historical balances at
December 27, 1998, and Newsquest's historical balances at January 3, 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
Year-to-date ended December 27, 1998
(in thousands of dollars, except per share data)
<CAPTION>
Pro forma Pro forma
Gannett Newsquest adjustments combined
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Newspapers advertising $2,942,995 $ 433,886 $ $3,376,881
Newspaper circulation 1,010,238 62,310 1,072,548
Television 721,298 721,298
Cable and security 240,600 240,600
All other 206,160 10,592 216,752
---------- ---------- ---------- ----------
Total revenues 5,121,291 506,788 5,628,079
Operating expenses
Cost of sales and
operating expenses,
exclusive of
depreciation 2,593,982 229,123 2,823,105
Selling, general and
administrative expenses,
exclusive of
depreciation 773,601 123,804 2,320 (1) 899,725
Depreciation 201,683 19,042 220,725
Amortization of
intangible assets 108,523 42,052 (2) 150,575
---------- ---------- ---------- ----------
Total operating expenses 3,677,789 371,969 44,372 4,094,130
---------- ---------- ---------- ----------
Operating income 1,443,502 134,819 (44,372) 1,533,949
Non-operating income (expense)
Interest (expense), net of
interest income (60,094) (33,774) 33,774 (3) (161,167)
(101,073) (4)
Other 286,005 286,005
---------- ---------- ---------- ----------
Total 225,911 (33,774) (67,299) 124,838
Income before income taxes 1,669,413 101,045 (111,671) 1,658,787
Provision for income taxes 669,500 31,830 (36,330) (5) 665,000
---------- ---------- ---------- ----------
Net income $ 999,913 $ 69,215 $ (75,341) $ 993,787
========== ========== ========== ==========
Net income per share-basic $3.53 $3.51
======= ========
Net income per share-diluted $3.50 $3.48
======= ========
Average outstanding shares:
Basic 283,097 283,097
Diluted 285,711 285,711
</TABLE>
<PAGE>
(A) This pro forma income statement includes Gannett's results for the 52-week
period ended December 27, 1998, and Newsquest results for the 53-week
period ended January 3, 1999.
(B) For comparability, Newsquest results have been reclassified to conform with
Gannett's presentation.
(C) Newsquest results are as reported in U.K. GAAP. U.S. GAAP adjustments are
included with the pro forma adjustments.
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
$1.45 billion plus the assumption of approximately $250 million of liabilities
and transaction-related costs, including $181 million of Newsquest's long-term
debt.
The unaudited pro forma condensed combined balance sheet presents the financial
position of Gannett and Newsquest as of December 27, 1998, assuming that
the transaction occurred as of December 27, 1998. Such pro forma information
is based on the historical balance sheets of Gannett as of December 27, 1998,
and of Newsquest as of January 3, 1999.
As required by Rule 11-02 of Regulation S-X, the unaudited pro forma condensed
combined statement of income assumes that the transaction occurred as of the
beginning of the period presented. The unaudited pro forma condensed combined
statement of income reflects Gannett's historical results of operations for
the 52 weeks ended December 27, 1998, and Newsquest's historical results of
operations for the 53 weeks ended January 3, 1999.
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
at December 27, 1998 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.
<PAGE>
B. Pro forma adjustments to the December 27, 1998 unaudited condensed
combined income statement are made to reflect the following:
(1) Newsquest excess pension amount, which is required to be reflected under
United States GAAP.
(2) Amortization expense on the estimated excess of acquisition cost over fair
value of assets, assuming a life of forty years.
(3) The elimination of Newsquest's interest expense. (See (4) below.)
(4) Gannett's pro forma interest expense on amount assumed borrowed for
consideration paid ($1.58 billion, translated from British pounds at the
beginning of 1998) and Newsquest average 1998 debt ($0.26 billion). The
rate used to calculate interest expense, 5.5%, is based on the weighted
average rate paid by Gannett for commercial paper in 1998.
(5) To adjust consolidated tax provisions for U.S. and U.K. tax effects of
acquisition.
<PAGE>
