10-Q 1 form_10q.txt 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 June 30, 2002 or _ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _________ Commission file number 1-6961 GANNETT CO., INC. (Exact name of registrant as specified in its charter) Delaware 16-0442930 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7950 Jones Branch Drive, McLean, VA 22107 (Address of principal executive offices) (Zip Code) (703) 854-6000 (Registrant's telephone number, including area code) Former address: n/a (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ The number of shares outstanding of the issuer's Common Stock, Par Value $1.00, as of June 30, 2002, was 266,841,350. - 1 - PART I. FINANCIAL INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS OPERATING SUMMARY Earnings per diluted share were $1.13 for the second quarter of 2002 versus $1.08 per share on a comparable basis for the second quarter of 2001, a 5% increase, despite continued challenging operating conditions. For the year-to-date, earnings per diluted share were $2.04 versus $1.93 per share on a comparable basis. At the beginning of 2002, the company adopted Statement of Financial Accounting Standards (SFAS) No. 142 ("Statement"), which changed the accounting rules for goodwill and intangible assets. The previously reported diluted earnings per share of 88 cents for the second quarter of 2001 reflected 20 cents per share for goodwill amortization expense, net of tax, that would not have been required had the new Statement been in effect. Similarly, the previously reported earnings per share of $1.53 for the first six months of 2001 reflected 40 cents for goodwill amortization expense, net of tax. Note 2 to the Condensed Consolidated Financial Statements provides additional information on the impact of this new Statement. Operating revenues were $1.62 billion for the second quarter, which was a slight decline of $2.9 million or less than 1%. For the first six months, operating revenues declined $53.3 million or 2%. Operating income on a comparable basis for the second quarter was even, and decreased $22.8 million or 2% for the year-to-date. Newspaper publishing earnings were slightly lower for the quarter, down $6.0 million or 1%, and decreased $37.1 million or 5% for the year-to-date. Lower newspaper earnings resulted from a decline in advertising revenues, most notably national advertising and domestic classified employment, although the rate of decline for many U.S. newspapers narrowed in the second quarter of 2002. These revenue declines were partially offset by cost controls and significantly lower newsprint expense. Television earnings, on a comparable basis, were up $6.9 million or 8% for the quarter and $14.9 million or 10% for the year-to-date, benefiting from solid automotive and better than expected political advertising in the second quarter and Winter Olympics-related advertising in the first quarter. Net income increased $15.0 million or 5% in the second quarter and $33.1 million or 6% for the year-to-date, on a comparable basis, reflecting the operating factors mentioned above and significantly lower interest expense. NEWSPAPERS Reported newspaper publishing revenues declined $15.5 million or 1% for the quarter and $77.5 million or 3% for the year-to-date. Newspaper advertising revenues decreased $12.0 million or 1% for the quarter and $63.1 million or 3% for the year-to-date, reflecting generally soft domestic advertising demand. Refer to Note 6 of the Condensed Consolidated Financial Statements for Business Segment Information. - 2 - The tables below provide, on a pro forma basis, details of newspaper ad revenue for the second quarter and the first six months of 2002 and 2001. Advertising linage and preprint distribution details are also provided below; however, linage and preprint distribution for U.K. publications are not included. This pro forma presentation reflects operating revenue results as if all properties owned at the end of the second quarter of 2002 were owned throughout all periods presented. These tables and related commentary also include the company's pro rata portion of revenue and linage data for its newspapers participating in joint operating agencies. Advertising revenue, in thousands of dollars (pro forma) Second Quarter 2002 2001 % Change ----------- ----------- -------- Local $ 461,764 $ 462,885 (0) National 180,918 189,186 (4) Classified 451,459 453,200 (0) ----------- ----------- ----- Total ad revenue $ 1,094,141 $ 1,105,271 (1) =========== =========== ===== Advertising linage, in thousands of inches, and preprint distribution, in millions (pro forma) Second Quarter 2002 2001 % Change ----------- ----------- -------- Local 9,717 9,894 (2) National 1,017 1,036 (2) Classified 14,813 13,857 7 ----------- ----------- -------- Total Run-of-Press linage 25,547 24,787 3 =========== =========== ======== Preprint distribution 2,553 2,449 4 =========== =========== ======== Advertising revenue, in thousands of dollars (pro forma) Year-to-date 2002 2001 % Change ----------- ----------- -------- Local $ 889,155 $ 896,446 (1) National 347,970 364,612 (5) Classified 870,509 910,484 (4) ----------- ----------- ----- Total ad revenue $ 2,107,634 $ 2,171,542 (3) =========== =========== ===== Advertising linage, in thousands of inches, and preprint distribution, in millions (pro forma) Year-to-date 2002 2001 % Change ----------- ----------- -------- Local 18,767 19,024 (1) National 1,936 1,942 (0) Classified 28,145 26,995 4 ----------- ----------- -------- Total Run-of-Press linage 48,848 47,961 2 =========== =========== ======== Preprint distribution 5,028 4,885 3 =========== =========== ======== - 3 - Pro forma newspaper advertising revenues decreased 1% for the quarter and 3% for the year-to-date. Local ad revenues were flat on a 2% decrease in volume for the quarter and decreased 1% on a 1% decline in volume for the year-to-date. National ad revenues decreased 4% for the quarter on a volume decrease of 2%, while year-to-date revenues were down by 5% with volume nearly even with last year. Classified ad revenues were flat for the quarter on a volume increase of 7% and down 4% on volume increase of 4% for the year-to-date. Newspaper ad revenue results reflect a continuing challenging domestic advertising environment, particularly in the employment category. The company's U.K. operations also experienced softer employment advertising in the second quarter of 2002; however, overall classified results for U.K. properties continue to be stronger than domestic results for both the second quarter and year-to-date. USA TODAY advertising revenues declined 9% for the quarter and the year-to-date primarily reflecting the continued diminished demand for financial, technology and travel-related advertising. Reported newspaper circulation revenues decreased $923,000 or less than 1% for the quarter, with year-to-date revenues down $3.2 million or less than 1%. Pro forma newspaper circulation revenues increased less than 1% for the quarter and decreased less than 1% for the year-to-date. Pro forma net paid daily circulation for the company's newspapers, excluding USA TODAY, declined 1% for the second quarter and the year-to-date, while Sunday circulation was down less than 1% for both the quarter and the year-to-date. USA TODAY reported an average daily paid circulation of 2,211,370 in the ABC Publisher's Statement for the 26 weeks ended March 31, 2002, a 3% decrease over the comparable period a year ago. Operating costs for the newspaper segment declined $9.6 million or 1% for the quarter and $40.3 million or 2% for the year-to-date (on a comparable accounting basis for goodwill and intangible assets - SFAS 142), largely due to lower newsprint expense and cost controls, partially offset by increased pension and other employee benefit expenses. Reported newsprint expense decreased by 24% for the quarter and 21% for the year-to-date as a result of significantly lower prices. Newsprint consumption increased 1% for the quarter and decreased 1% for the year-to-date. Newsprint prices for the remainder of 2002 are expected to be significantly lower on average than in 2001. Cost savings related to recent employee count reductions will be realized but offset by increased pension and other employee benefit expenses. Excluding the positive impact of SFAS 142, newspaper operating income declined $6.0 million or 1% for the quarter and $37.1 million or 5% for the year-to-date, reflecting lower advertising revenues partially offset by strong cost controls and significantly lower newsprint expense. The impact of SFAS No. 142 on the newspaper segment was to improve operating income by $47.0 million and $94.1 million for the second quarter and year-to-date, respectively. - 4 - TELEVISION Reported television revenues increased $12.6 million or 7% for the second quarter and $24.2 million or 7% for the year-to-date. Television revenues benefited from strong automotive and better than expected political advertising in the second quarter and Winter Olympics-related advertising in the first quarter. National advertising revenues increased 12% for the quarter and 10% for the year-to-date, while local advertising revenues increased 4% and 6% for the quarter and year-to-date, respectively. Operating costs increased $5.7 million or 6% on a comparable basis for the quarter and $9.2 million or 5% for the year-to-date, reflecting increased selling, pension and other employee benefit costs. Excluding the positive impact of SFAS No. 142, television operating income increased by $6.9 million or 8% for the quarter and $14.9 million or 10% for the year-to-date. The impact of SFAS 142 on the television segment was to improve operating income by $10.6 million and $21.0 million for the quarter and year-to-date, respectively. Political advertising is expected to be strong in the second half of 2002, and overall television earnings for that period, on a comparable accounting basis, are expected to be above prior year levels. NON-OPERATING INCOME AND EXPENSE/PROVISION FOR INCOME TAXES Interest expense was $41.1 million in the second quarter of 2002 versus $61.7 million in the second quarter of 2001 due to significantly lower interest rates and lower debt levels. Interest expense for the first six months of 2002 was $69.9 million compared to $142.2 million for the same period in 2001. The daily average commercial paper balance outstanding was $2.79 billion during the second quarter of 2002 and $5.31 billion during the second quarter of 2001. The daily average commercial paper balance outstanding was $3.66 billion during the first half of 2002 and $5.36 billion during the first half of 2001. The weighted average interest rates on commercial paper were 1.82% for the second quarter of 2002 and 4.43% for the second quarter of 2001. For the first six months of 2002 and 2001, the weighted average interest rates on commercial paper were 1.82% and 5.16%, respectively. In March 2002, the company issued $1.8 billion aggregate principal amount of unsecured global notes. These notes consist of $600 million aggregate principal amount of 4.95% notes due 2005, $700 million aggregate principal amount of 5.50% notes due 2007 and $500 million aggregate principal amount of 6.375% notes due 2012. The net proceeds of the offering were used to pay down commercial paper borrowings. The company's average borrowing rates are expected to be higher for the remainder of 2002 over the first half average due to the fixed rate notes. However, overall interest expense for the third quarter of 2002 is expected to be below prior year levels because of the favorable spread in commercial paper borrowing rates and lower debt levels. The company's effective income tax rate was 34.4% for the second quarter and first half of 2002 versus the reported rate of 39.4% for the same periods last year. The reduction in the effective rate is primarily a result of the adoption of SFAS No. 142. On a comparable basis, the effective tax rate for the second quarter and first half of 2001 would have been 34.8%. - 5 - NET INCOME Net income, on a comparable basis, increased $15.0 million or 5% for the quarter, and diluted earnings per share increased to $1.13 from $1.08, also a 5% increase. For the first six months, net income, on a comparable basis, increased $33.1 million or 6%, while diluted earnings per share increased 6% to $2.04 from $1.93. The 2001 earnings used in these comparisons includes a positive adjustment of $0.20 and $0.40 per diluted share for the quarter and the year-to-date, respectively, for goodwill amortization expense, net of tax, that would not have been required had SFAS No. 142 been in effect that year. The weighted average number of diluted shares outstanding for the second quarter of 2002 totaled 269,473,000, compared to 266,754,000 for the second quarter of 2001. For the first six months of 2002 and 2001, the weighted average number of diluted shares outstanding totaled 269,013,000 and 266,585,000, respectively. Exhibit 11 of this Form 10-Q presents the weighted average number of basic and diluted shares outstanding and the earnings per share for each period. 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, increased less than 1% to $559.4 million for the second quarter of 2002, compared with $556.9 million for the same period of 2001. The company's consolidated operating cash flow for the first six months of 2002 and 2001 was $1.02 billion and $1.04 billion, respectively, a 2% decrease. The operating cash flow results reflect lower newspaper advertising revenues, partially offset by reduced newspaper expenses and an increase in television segment advertising revenues and earnings. The company's consolidated after-tax cash flow (defined as after-tax income plus depreciation and amortization) increased $15.1 million or 4% for the quarter and $26.7 million or 4% for the year-to-date, reflecting the operating factors discussed above, along with significantly lower interest expense. Working capital declined from the end of the year by $209.5 million, reflecting lower receivables due to seasonal trends in revenues, lower inventories due to lower newsprint prices, the pay-down of long-term debt with cash and marketable securities, and higher current tax liabilities. Capital expenditures totaled $66.8 million for the second quarter of 2002, compared to $82.3 million for the second quarter of 2001. For the first six months of 2002 and 2001, capital expenditures were $124.6 million and $146.4 million, respectively. In March 2002, as discussed above, the company issued $1.8 billion aggregate principal amount of unsecured global notes in an underwritten public offering. The net proceeds of the offering were used to repay outstanding commercial paper obligations. In total, the company's long term debt decreased by $350.5 million during the second quarter of 2002 and $581.0 million during the first six months of 2002, reflecting the pay-down of commercial paper borrowings from operating cash flows. - 6 - Also in March 2002, the company entered into a $2.775 billion revolving credit agreement providing for up to $1.41 billion in 364-day revolving credit loans and up to $1.365 billion in 5-year revolving credit loans. The company terminated its $3.0 billion revolving credit agreement, and its $1.53 billion revolving credit facility which was due to expire in July 2002. At June 30, 2002, the Company had $4.3 billion of credit available under two revolving credit agreements. Under a shelf registration that became effective with the Securities and Exchange Commission in April 2002, an additional $2.5 billion of unsecured debt securities can be issued. Any proceeds from the sale of such securities could be used for general corporate purposes, including capital expenditures, working capital, securities repurchase programs, repayment of long term and short term debt and the financing of future acquisitions. The company may also invest funds that are not required immediately in short term marketable securities. The company's foreign currency translation adjustment, included in accumulated other comprehensive income and reported as part of shareholders' equity, totaled ($49.3 million) at the end of the second quarter versus ($104.9 million) at the end of 2001, reflecting an overall strengthening of Sterling against the U.S. dollar since the end of the year 2001. Newsquest's assets and liabilities at June 30, 2002 were translated from Sterling to U.S. dollars at an exchange rate of $1.53 versus $1.45 at the end of 2001. Newsquest's financial results were translated at an average rate of $1.46 for the second quarter of 2002 versus $1.42 for the second quarter of 2001, and at an average rate of $1.44 for the first half of both years. The company's regular quarterly dividend of $0.23 per share was declared in the second quarter of 2002, totaling $61.4 million and paid on July 1, 2002. OTHER MATTERS Refer to Note 2 of the Condensed Consolidated Financial Statements for further discussion of new accounting standards and their impact on reporting of earnings beginning in 2002. CERTAIN FACTORS AFFECTING FORWARD-LOOKING STATEMENTS Certain statements in the company's 2001 Annual Report to Shareholders, its Annual Report on Form 10-K, and in this Quarterly Report contain forward-looking information. The words "expect", "intend", "believe", "anticipate", "likely", "will" and similar expressions generally identify forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated in the forward-looking statements. Potential risks and uncertainties which could adversely affect the company's ability to obtain these results include, without limitation, the following factors: (a) increased consolidation among major retailers or other events which may adversely affect business operations of major customers and depress the level of local and national advertising; (b) a continued economic downturn in some or all of the company's principal newspaper or television markets leading to decreased circulation or local, national or classified advertising; (c) a decline in general newspaper readership patterns as a result of competitive alternative media or other factors; (d) an increase in newsprint or syndication programming costs over the levels anticipated; (e) labor disputes which may cause revenue declines or increased labor costs; (f) acquisitions of new businesses or dispositions of existing businesses; (g) a decline in viewership of major networks and local news programming; (h) rapid technological changes and frequent new product introductions prevalent in electronic publishing; (i) an increase in interest rates; (j) a weakening in the Sterling to U.S. dollar exchange rate; and (k) general economic, political and business conditions. - 7 - CONDENSED CONSOLIDATED BALANCE SHEETS Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars
June 30, 2002 Dec. 30, 2001 ---------------- --------------- ASSETS Cash $ 57,204 $ 73,905 Marketable securities 21,505 66,724 Trade receivables, less allowance (2002 - $40,928; 2001 - $39,138) 770,276 805,746 Inventories 82,406 104,848 Prepaid expenses and other receivables 106,242 126,975 ---------------- --------------- Total current assets 1,037,633 1,178,198 ---------------- --------------- Property, plant and equipment Cost 4,335,145 4,207,074 Less accumulated depreciation (1,850,326) (1,741,604) ---------------- --------------- Net property, plant and equipment 2,484,819 2,465,470 ---------------- --------------- Other assets Goodwill, less amortization 8,696,678 8,578,025 Other intangible assets, less amortization 102,667 106,334 Investments and other assets 734,125 768,074 ---------------- --------------- Total other assets 9,533,470 9,452,433 ---------------- --------------- Total assets $ 13,055,922 $ 13,096,101 ================ =============== LIABILITIES & SHAREHOLDERS' EQUITY Accounts payable and current portion of film contracts payable $ 281,964 $ 354,622 Compensation, interest and other accruals 279,461 235,093 Dividend payable 61,642 60,947 Income taxes 412,320 323,481 Deferred income 161,309 153,594 ---------------- --------------- Total current liabilities 1,196,696 1,127,737 ---------------- --------------- Deferred income taxes 478,164 503,397 Long-term debt 4,499,039 5,080,025 Postretirement medical and life insurance liabilities 403,125 409,052 Other long-term liabilities 216,237 239,968 ---------------- --------------- Total liabilities 6,793,261 7,360,179 ---------------- --------------- Shareholders' Equity Preferred stock of $1 par value per share. Authorized 2,000,000 shares; issued - none. Common stock of $1 par value per share. Authorized 800,000,000; issued, 324,420,732 shares. 324,421 324,421 Additional paid-in capital 234,992 210,256 Retained earnings 8,013,663 7,589,069 Accumulated other comprehensive loss (49,609) (103,287) ---------------- --------------- Total 8,523,467 8,020,459 ---------------- --------------- Less treasury stock - 57,579,382 shares and 58,623,520 shares respectively, at cost (2,254,011) (2,275,737) Deferred compensation related to ESOP (6,795) (8,800) ---------------- --------------- Total shareholders' equity 6,262,661 5,735,922 ---------------- --------------- Total liabilities and shareholders' equity $ 13,055,922 $ 13,096,101 ================ =============== The accompanying notes are an integral part of these condensed consolidated financial statements.
- 8 - CONDENSED CONSOLIDATED STATEMENTS OF INCOME Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars (except per share amounts)
Thirteen weeks ended % Inc June 30, 2002 July 1, 2001 (Dec) ------------- ------------ ------ Net Operating Revenues: Newspaper advertising $ 1,045,938 $ 1,057,899 (1.1) Newspaper circulation 305,096 306,019 (0.3) Television 191,299 178,692 7.1 Other 81,963 84,622 (3.1) ------------- ------------- ----- Total 1,624,296 1,627,232 (0.2) ------------- ------------- ----- Operating Expenses: Cost of sales and operating expenses, exclusive of depreciation 810,361 824,030 (1.7) Selling, general and administrative expenses, exclusive of depreciation 254,534 246,324 3.3 Depreciation 53,362 51,059 4.5 Amortization of intangible assets 1,834 59,457 (96.9) ------------- ------------- ----- Total 1,120,091 1,180,870 (5.1) ------------- ------------- ----- Operating income 504,205 446,362 13.0 ------------- ------------- ----- Non-operating income (expense): Interest expense (41,101) (61,728) (33.4) Other (81) 528 (115.3) ------------- ------------- ----- Total (41,182) (61,200) (32.7) ------------- ------------- ----- Income before income taxes 463,023 385,162 20.2 Provision for income taxes 159,100 151,700 4.9 ------------- ------------- ----- Net income $ 303,923 $ 233,462 30.2 ============= ============= ===== Net income per share-basic $1.14 $0.88 29.5 ===== ===== ==== Net income per share-diluted $1.13 $0.88 28.4 ===== ===== ==== Dividends per share $0.23 $0.22 4.5 ===== ===== ==== The accompanying notes are an integral part of these condensed consolidated financial statements.
- 9 - CONDENSED CONSOLIDATED STATEMENTS OF INCOME Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars (except per share amounts)
Twenty-six weeks ended % Inc June 30, 2002 July 1, 2001 (Dec) ------------- ------------ ------ Net Operating Revenues: Newspaper advertising $ 2,015,741 $ 2,078,833 (3.0) Newspaper circulation 615,808 619,028 (0.5) Television 358,485 334,305 7.2 Other 158,870 170,014 (6.6) ------------- ------------- ----- Total 3,148,904 3,202,180 (1.7) ------------- ------------- ----- Operating Expenses: Cost of sales and operating expenses, exclusive of depreciation 1,628,927 1,663,577 (2.1) Selling, general and administrative expenses, exclusive of depreciation 502,865 501,062 0.4 Depreciation 106,731 104,340 2.3 Amortization of intangible assets 3,667 118,800 (96.9) ------------- ------------- ----- Total 2,242,190 2,387,779 (6.1) ------------- ------------- ----- Operating income 906,714 814,401 11.3 ------------- ------------- ----- Non-operating income (expense): Interest expense (69,855) (142,170) (50.9) Other (2,373) 976 (343.1) ------------- ------------- ----- Total (72,228) (141,194) (48.8) ------------- ------------- ----- Income before income taxes 834,486 673,207 24.0 Provision for income taxes 287,000 265,200 8.2 ------------- ------------- ----- Net income $ 547,486 $ 408,007 34.2 ============= ============= ===== Net income per share-basic $2.05 $1.54 33.1 ===== ===== ===== Net income per share-diluted $2.04 $1.53 33.3 ===== ===== ===== Dividends per share $0.46 $0.44 4.5 ===== ===== ===== The accompanying notes are an integral part of these condensed consolidated financial statements.
- 10 - CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars
Twenty-six weeks ended June 30, 2002 July 1, 2001 -------------- -------------- Cash flows from operating activities Net income $ 547,486 $ 408,007 Adjustments to reconcile net income to operating cash flows: Depreciation 106,731 104,340 Amortization of intangibles 3,667 118,800 Deferred income taxes (25,234) (6,783) Other, net 62,637 56,876 --------- --------- Net cash flow from operating activities 695,287 681,240 --------- --------- Cash flows from investing activities Purchase of property, plant and equipment (124,565) (146,443) Payments for acquisitions, net of cash acquired (3,200) (133,041) Change in other investments 27,996 (8,564) Proceeds from sale of certain assets 3,616 0 --------- --------- Net cash used for investing activities (96,153) (288,048) --------- --------- Cash flows from financing activities Payment of long-term debt and debt issuance costs (587,187) (330,664) Dividends paid (122,198) (116,271) Proceeds from issuance of common stock 46,720 15,922 --------- --------- Net cash used for financing activities (662,665) (431,013) --------- --------- Effect of currency exchange rate change 1,611 (4,717) --------- --------- Net decrease in cash and cash equivalents (61,920) (42,538) Balance of cash and cash equivalents at beginning of year 140,629 193,196 --------- --------- Balance of cash and cash equivalents at end of second quarter $ 78,709 $ 150,658 ========= ========= The accompanying notes are an integral part of these condensed consolidated financial statements.
- 11 - NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes which are normally included in the Form 10-K and annual report to shareholders. The financial statements covering the 13-week and 26-week periods ended June 30, 2002, and the comparative periods of 2001, reflect all adjustments which, in the opinion of the company, are necessary for a fair statement of results for the interim periods and reflect all normal and recurring adjustments which are necessary for a fair presentation of the company's financial position, results of operations and cash flows as of the dates and for the periods presented. 2. Accounting Standards On December 31, 2001, the company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", which eliminated the amortization of goodwill and other intangibles with indefinite useful lives. The company performed an impairment test of its goodwill and determined that no impairment of the recorded goodwill existed. SFAS No. 142 requires that goodwill be tested for impairment at least annually and more frequently if an event occurs which indicates the goodwill may be impaired. The company will perform its impairment testing during the fourth quarter on an annual basis. Goodwill and other intangible assets are as follows: (in thousands of dollars) June 30, 2002 Dec. 30, 2001 -------------- ------------- Accumulated Accumulated Cost Amortization Cost Amortization ---------- ------------ ---------- ------------ Amortized intangible assets: Subscriber lists $ 110,000 $ 7,333 $ 110,000 $ 3,666 Unamortized intangible assets: Goodwill 9,883,287 1,186,609 9,758,081 1,180,056 ---------- ---------- ---------- ---------- Total $9,993,287 $1,193,942 $9,868,081 $1,183,722 ========== ========== ========== ========== As of June 30, 2002, Newspaper goodwill, net of amortization, was $7.2 billion and Television goodwill, net of amortization, was $1.5 billion. Goodwill and related amortization increased primarily due to the change in currency rates. Amortization expense for subscriber lists was $1.8 million in the quarter ended June 30, 2002. Subscriber lists are amortized on a straight-line basis over 15 years. For each of the next five years, amortization expense relating to the identified intangibles is expected to be $7.3 million. As required by SFAS 142, the results for the second quarter and first 26 weeks of 2001 have not been restated. A reconciliation of net income for those periods and a comparison to the comparable periods of 2002, as if SFAS 142 had been adopted at the beginning of 2001, is presented below. - 12 - Thirteen weeks ended (dollars in thousands) June 30, 2002 July 1, 2001 -------------- ------------- Reported net income $303,923 $233,462 Add back: goodwill amortization, net of tax 55,424 -------- -------- Adjusted net income $303,923 $288,886 ======== ======== Basic earnings per share: Reported net income $1.14 $0.88 Add back: goodwill amortization, net of tax 0.21 ----- ----- Adjusted net income $1.14 $1.09 ===== ===== Diluted earnings per share: Reported net income $1.13 $0.88 Add back: goodwill amortization, net of tax 0.20 ----- ----- Adjusted net income $1.13 $1.08 ===== ===== Twenty-six weeks ended (dollars in thousands) June 30, 2002 July 1, 2001 -------------- ------------- Reported net income $547,486 $408,007 Add back: goodwill amortization, net of tax 106,334 -------- -------- Adjusted net income $547,486 $514,341 ======== ======== Basic earnings per share: Reported net income $2.05 $1.54 Add back: goodwill amortization, net of tax 0.40 ----- ----- Adjusted net income $2.05 $1.94 ===== ===== Diluted earnings per share: Reported net income $2.04 $1.53 Add back: goodwill amortization, net of tax 0.40 ----- ----- Adjusted net income $2.04 $1.93 ===== ===== - 13 - Also, on the first day of its fiscal year, December 31, 2001, the company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 did not have a material impact on the company's financial position or results of operations. In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", was issued. This standard is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of this standard is not expected to have a material effect on the company's financial position or results of operations. 3. Long-term debt In March 2002, the company issued $1.8 billion aggregate principal amount of unsecured global notes in an underwritten public offering. These notes consist of $600 million aggregate principal amount of 4.95% notes due 2005, $700 million aggregate principal amount of 5.50% notes due 2007 and $500 million aggregate principal amount of 6.375% notes due 2012. The net proceeds of the offering were used to pay- down commercial paper borrowings. The company also entered into a $2.775 billion revolving credit agreement in March 2002 which consists of a $1.41 billion 364-day facility which extends to March 2003 and a $1.365 billion 5-year facility which extends to March 2007. At the end of the 364-day period, any borrowings outstanding under the 364- day credit facility are convertible into a one-year term loan at the company's option. During the first quarter of 2002, the company terminated its $3.0 billion revolving credit agreement. The company also terminated its $1.53 billion 364-day revolving credit facility which was due to expire in July 2002 and under which any outstanding borrowings were convertible into a two-year term loan. At December 30, 2001, the company had $6.06 billion of credit available under two revolving credit agreements. At June 30, 2002, the company had $4.3 billion of credit available under two revolving credit agreements. Under a shelf registration that became effective with the Securities and Exchange Commission in April 2002, an additional $2.5 billion of unsecured debt securities can be issued. Any proceeds from the sale of such securities could be used for general corporate purposes, including capital expenditures, working capital, securities repurchase programs, repayment of long term and short term debt and the financing of future acquisitions. The company may also invest funds that are not required immediately in short term marketable securities. - 14 - Approximate annual maturities of long-term debt, assuming that the company had used the $4.3 billion revolving credit agreements to refinance existing unsecured promissory notes on a long-term basis and assuming the company's other indebtedness was paid on its scheduled pay dates, are as follows: In thousands June 30, 2002 -------------- 2003 $ 0 2004 0 2005 1,824,121 2006 14,568 2007 2,060,268 Later years 600,082 -------------- Total $ 4,499,039 ============== 4. Comprehensive Income Comprehensive income for the company includes net income; foreign currency translation adjustments; and unrealized gains or losses on available- for-sale securities, as defined under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Comprehensive income totaled $379.5 million for the second quarter of 2002 and $234.4 million for the second quarter of 2001. Net income totaled $303.9 million and other comprehensive income totaled $75.6 million in 2002. Net income totaled $233.5 million and other comprehensive income totaled $0.9 million in 2001. Comprehensive income totaled $601.2 million for the first half of 2002 and $341.3 million for the first half of 2001. Net income totaled $547.5 million and other comprehensive income totaled $53.7 million in 2002. Net income totaled $408.0 million and other comprehensive losses totaled $66.7 million in 2001. 5. Outstanding Shares The weighted average number of common shares outstanding (basic) in the second quarter totaled 266,785,000 compared to 264,685,000 for the second quarter of 2001. The weighted average number of diluted shares outstanding in the second quarter totaled 269,473,000 compared to 266,754,000 for the second quarter of 2001. The weighted average number of common shares outstanding (basic) for the first half of 2002 totaled 266,483,000 compared to 264,576,000 in the first half of 2001. The weighted average number of diluted shares outstanding for the first half of 2002 totaled 269,013,000 compared to 266,585,000 for the first half of 2001. - 15 - 6. Business Segment Information BUSINESS SEGMENT INFORMATION Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars
Thirteen weeks ended % Inc June 30, 2002 July 1, 2001 (Dec) ------------- ------------ ------ Net Operating Revenues: Newspaper publishing $ 1,432,997 $ 1,448,540 (1.1) Television 191,299 178,692 7.1 ------------- ------------ ----- Total $ 1,624,296 $ 1,627,232 (0.2) ============= ============ ===== Operating Income (net of depreciation and amortization): Newspaper publishing $ 425,225 $ 384,142 10.7 Television 94,463 77,003 22.7 Corporate (15,483) (14,783) (4.7) ------------- ------------ ----- Total $ 504,205 $ 446,362 13.0 ============= ============ ===== Depreciation and Amortization: Newspaper publishing $ 45,315 $ 91,925 (50.7) Television 6,331 17,100 (63.0) Corporate 3,550 1,491 138.1 ------------- ------------ ----- Total $ 55,196 $ 110,516 (50.1) ============= ============ ===== Operating Cash Flow (1): Newspaper publishing $ 470,540 $ 476,067 (1.2) Television 100,794 94,103 7.1 Corporate (11,933) (13,292) 10.2 ------------- ------------ ----- Total $ 559,401 $ 556,878 0.5 ============= ============ ===== (1) Operating Cash Flow represents operating income for each of the company's business segments plus related depreciation and amortization expense.
- 16 - BUSINESS SEGMENT INFORMATION Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars
Twenty-six weeks ended % Inc June 30, 2002 July 1, 2001 (Dec) ------------- ------------ ------ Net Operating Revenues: Newspaper publishing $ 2,790,419 $ 2,867,875 (2.7) Television 358,485 334,305 7.2 ------------- ------------ ----- Total $ 3,148,904 $ 3,202,180 (1.7) ============= ============ ===== Operating Income (net of depreciation and amortization): Newspaper publishing $ 769,928 $ 712,927 8.0 Television 167,232 131,269 27.4 Corporate (30,446) (29,795) (2.2) ------------- ------------ ----- Total $ 906,714 $ 814,401 11.3 ============= ============ ===== Depreciation and Amortization: Newspaper publishing $ 90,550 $ 186,068 (51.3) Television 12,748 34,083 (62.6) Corporate 7,100 2,989 137.5 ------------- ------------ ----- Total $ 110,398 $ 223,140 (50.5) ============= ============ ===== Operating Cash Flow (1): Newspaper publishing $ 860,478 $ 898,995 (4.3) Television 179,980 165,352 8.8 Corporate (23,346) (26,806) 12.9 ------------- ------------ ----- Total $ 1,017,112 $ 1,037,541 (2.0) ============= ============ ===== (1) Operating Cash Flow represents operating income for each of the company's business segments plus related depreciation and amortization expense.
- 17 - PRO FORMA BUSINESS SEGMENT INFORMATION (1) Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars
Thirteen weeks ended % Inc June 30, 2002 July 1, 2001 (Dec) ------------- ------------ ------ Net Operating Revenues: Newspaper publishing $ 1,432,997 $ 1,448,540 (1.1) Television 191,299 178,692 7.1 ------------- ------------ ----- Total $ 1,624,296 $ 1,627,232 (0.2) ============= ============ ===== Operating Income (net of depreciation and amortization): Newspaper publishing $ 425,225 $ 431,179 (1.4) Television 94,463 87,590 7.8 Corporate (15,483) (14,783) (4.7) ------------- ------------ ----- Total $ 504,205 $ 503,986 0.0 ============= ============ ===== Depreciation and Amortization: Newspaper publishing $ 45,315 $ 44,888 1.0 Television 6,331 6,513 (2.8) Corporate 3,550 1,491 138.1 ------------- ------------ ----- Total $ 55,196 $ 52,892 4.4 ============= ============ ===== Operating Cash Flow (2): Newspaper publishing $ 470,540 $ 476,067 (1.2) Television 100,794 94,103 7.1 Corporate (11,933) (13,292) 10.2 ------------- ------------ ----- Total $ 559,401 $ 556,878 0.5 ============= ============ ===== (1) As if Statement of Financial Accounting Standards No. 142 (SFAS No. 142) had been adopted at the beginning of 2001. (2) Operating Cash Flow represents operating income for each of the company's business segments plus related depreciation and amortization expense.
- 18 - PRO FORMA BUSINESS SEGMENT INFORMATION (1) Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars
Twenty-six weeks ended % Inc June 30, 2002 July 1, 2001 (Dec) ------------- ------------ ------ Net Operating Revenues: Newspaper publishing $ 2,790,419 $ 2,867,875 (2.7) Television 358,485 334,305 7.2 ------------- ------------ ----- Total $ 3,148,904 $ 3,202,180 (1.7) ============= ============ ===== Operating Income (net of depreciation and amortization): Newspaper publishing $ 769,928 $ 807,035 (4.6) Television 167,232 152,295 9.8 Corporate (30,446) (29,795) (2.2) ------------- ------------ ----- Total $ 906,714 $ 929,535 (2.5) ============= ============ ===== Depreciation and Amortization: Newspaper publishing $ 90,550 $ 91,960 (1.5) Television 12,748 13,057 (2.4) Corporate 7,100 2,989 137.5 ------------- ------------ ----- Total $ 110,398 $ 108,006 2.2 ============= ============ ===== Operating Cash Flow (2): Newspaper publishing $ 860,478 $ 898,995 (4.3) Television 179,980 165,352 8.8 Corporate (23,346) (26,806) 12.9 ------------- ------------ ----- Total $ 1,017,112 $ 1,037,541 (2.0) ============= ============ ===== (1) As if Statement of Financial Accounting Standards No. 142 (SFAS No. 142) had been adopted at the beginning of 2001. (2) Operating Cash Flow represents operating income for each of the company's business segments plus related depreciation and amortization expense.
- 19 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is not subject to market risk associated with derivative commodity instruments, as the company is not a party to any such instruments. The company believes that its market risk from financial instruments, such as accounts receivable, accounts payable and debt, is not material. The company is exposed to foreign exchange rate risk primarily due to its operations in the United Kingdom, which use Sterling as their functional currency, which is then translated into U.S. dollars. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Securityholders (a) The Annual Meeting of Shareholders of Gannett Co., Inc. was held on May 7, 2002. (b) The following directors were elected at the meeting: Meredith A. Brokaw Donna E. Shalala The Board of Directors elected Solomon D. Trujillo to fill a board vacancy. The following directors' terms of office continued after the meeting: H. Jesse Arnelle James A. Johnson Douglas H. McCorkindale Stephen P. Munn Karen Hastie Williams (c) (i) Two directors were re-elected to the Board of Directors. Tabulation of votes for each of the nominees is as follows: For Withhold Authority Meredith A. Brokaw 218,772,088 1,613,877 Donna E. Shalala 217,543,137 2,842,828 (ii) The proposal to elect PricewaterhouseCoopers LLP as the company's independent auditor was approved. Tabulation of votes for the proposal is as follows. For Against Abstain Election of independent auditors 212,322,912 6,913,806 1,149,247 (iii) The shareholder proposal concerning EEO policy and American Indians was defeated. Tabulation of votes for the proposal is as follows: For Against Abstain Shareholder proposal 12,574,338 182,131,109 4,538,615 - 20 - Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. See Exhibit Index for list of exhibits filed with this report. (b) Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GANNETT CO., INC. Dated: August 7, 2002 By: /s/George R. Gavagan ------------------------------ George R. Gavagan Vice President and Controller Dated: August 7, 2002 By: /s/Thomas L. Chapple ------------------------------ Thomas L. Chapple Senior Vice President, General Counsel and Secretary - 21 - EXHIBIT INDEX Exhibit Number Exhibit Location 3-1 Second Restated Certificate Incorporated by reference to Exhibit of Incorporation of Gannett Co., 3-1 to Gannett Co., Inc.'s Form 10-K Inc. for the fiscal year ended December 26, 1993 ("1993 Form 10-K"). Amendment incorporated by reference to Exhibit 3-1 to the 1993 Form 10-K. Amendment dated May 2, 2000, incorporated by reference to Gannett Co., Inc.'s Form 10-Q for the fiscal quarter ended March 26, 2000. 3-2 By-laws of Gannett Co., Inc. Attached. (reflects all amendments through July 23, 2002) 4-1 Indenture dated as of March 1, Incorporated by reference to Exhibit 1983 between Gannett Co., Inc. 4-2 to Gannett Co., Inc.'s Form 10-K and Citibank, N.A., as Trustee. for the fiscal year ended December 29, 1985. 4-2 First Supplemental Indenture Incorporated by reference to Exhibit dated as of November 5, 1986 4 to Gannett Co., Inc.'s Form 8-K among Gannett Co., Inc., filed on November 9, 1986. Citibank, N.A., as Trustee, and Sovran Bank, N.A., as Successor Trustee. 4-3 Second Supplemental Indenture Incorporated by reference to dated as of June 1, 1995, Exhibit 4 to Gannett Co., Inc.'s among Gannett Co., Inc., Form 8-K filed on June 15, 1995. NationsBank, N.A., as Trustee, and Crestar Bank, as Trustee. 4-4 Rights Plan. Incorporated by reference to Exhibit 1 to Gannett Co., Inc.'s Form 8-K filed on May 23, 1990. Amendment incorporated by reference to Gannett Co., Inc.'s Form 8-K filed on May 2, 2000. 4-5 $3,000,000,000 Competitive Incorporated by reference to Exhibit Advance and Revolving Credit 4-10 to Gannett Co., Inc.'s Form 10-Q Agreement among Gannett Co., filed on August 9, 2000. Inc. and the Banks named therein. 4-6 Amendment Number One to Incorporated by reference to Exhibit $3,000,000,000 Competitive 4-11 to Gannett Co., Inc.'s Form 10-K Advance and Revolving Credit for the fiscal year ended December 31, Agreement among Gannett Co., 2000. Inc. and the Banks named therein. - 22 - 4-7 Amendment Number Two Incorporated by reference to to $3,000,000,000 Competitive Exhibit 4-12 to Gannett Co., Inc.'s Advance and Revolving Credit Form 10-Q for the quarter ended Agreement among Gannett Co., July 1, 2001. Inc. and the Banks named therein. 4-8 Form of 4.950% Note due Incorporated by reference to Exhibit 2005. 4.13 to Gannett Co., Inc.'s Form 8-K filed on March 14, 2002. 4-9 Form of 5.500% Note due 2007. Incorporated by reference to Exhibit 4.14 to Gannett Co., Inc.'s Form 8-K filed on March 14, 2002. 4-10 Form of 6.375% Note due 2012. Incorporated by reference to Exhibit 4.15 to Gannett Co., Inc.'s Form 8-K filed on March 14, 2002. 4-11 Third Supplemental Indenture, Incorporated by reference to Exhibit dated as of March 14, 2002, 4.16 to Gannett Co., Inc.'s Form 8-K between Gannett Co., Inc. and filed on March 14, 2002. Wells Fargo Bank Minnesota, N.A., as Trustee. 4-12 Competitive Advance and Incorporated by reference Revolving Credit Agreement to Exhibit 10.11 to Gannett dated as of March 11, 2002 Co., Inc.'s Form 8-K filed on among Gannett Co., Inc., the March 14, 2002. several lenders from time to time parties thereto, Bank of America, N.A., as Administrative Agent, JP Morgan Chase Bank and Bank One NA, as Co-Syndication Agents, and Barclays Bank PLC, as Documentation Agent. - 23 - 10-3 Gannett Co., Inc. 1978 Incorporated by reference to Exhibit Executive Long-Term Incentive 10-3 to Gannett Co., Inc.'s Form 10-K Plan* for the fiscal year ended December 28, 1980. Amendment No. 1 incorporated by reference to Exhibit 20-1 to Gannett Co., Inc.'s Form 10-K for the fiscal year ended December 27, 1981. Amendment No. 2 incorporated by reference to Exhibit 10-2 to Gannett Co., Inc.'s Form 10-K for the fiscal year ended December 25, 1983. Amendments Nos. 3 and 4 incorporated by reference to Exhibit 4-6 to Gannett Co., Inc.'s Form S-8 Registration Statement No. 33-28413 filed on May 1, 1989. Amendments Nos. 5 and 6 incorporated by reference to Exhibit 10-8 to Gannett Co., Inc.'s Form 10-K for the fiscal year ended December 31, 1989. Amendment No. 7 incorporated by reference to Gannett Co., Inc.'s Form S-8 Registration Statement No. 333-04459 filed on May 24, 1996. Amendment No. 8 incorporated by reference to Exhibit 10-3 to Gannett Co., Inc.'s Form 10-Q for the quarter ended September 28, 1997. Amendment dated December 9, 1997, incorporated by reference to Gannett Co., Inc.'s 1997 Form 10-K. Amendment No. 9 incorporated by reference to Exhibit 10-3 to Gannett Co., Inc.'s Form 10-Q for the quarter ended June 27, 1999. Amendment No. 10 incorporated by reference to Exhibit 10-3 to Gannett Co., Inc's Form 10-Q for the quarter ended June 25, 2000. Amendment No. 11 incorporated by reference to Exhibit 10-3 to Gannett Co., Inc.'s Form 10-K for the fiscal year ended December 31, 2000. 10-4 Description of supplemental Incorporated by reference to Exhibit insurance benefits.* 10-4 to the 1993 Form 10-K. 10-5 Gannett Co., Inc. Supplemental Incorporated by reference to Exhibit Retirement Plan, as amended.* 10-5 to Gannett Co., Inc.'s Form 10-K for the fiscal year ended December 26, 1999. Amendments No. 1 and 2 incorporated by reference to Exhibit 10-5 to Gannett Co., Inc.'s Form 10-K for the fiscal year ended December 30, 2001. 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. - 24 - 10-7 Amended and Restated Incorporated by reference to Exhibit Gannett Co., Inc. 1987 10-1 to Gannett Co., Inc.'s Form 10-Q Deferred Compensation Plan.* for the fiscal quarter ended September 29, 1996. Amendment No. 5 incorporated by reference to Exhibit 10-2 to Gannett Co., Inc.'s Form 10-Q for the quarter ended September 28, 1997. Amendment No. 2 to January 1, 1997 Restatement incorporated by reference to Exhibit 10-7 to Gannett Co., Inc.'s Form 10-Q for the quarter ended June 27, 1999. Amendments Nos. 3 and 4 incorporated by reference to Exhibit 10-7 to Gannett Co., Inc.'s Form 10-K for the fiscal year ended December 31, 2000. Amendment No. 5 incorporated by reference to Exhibit 10-7 to Gannett Co., Inc.'s Form 10-Q for the quarter ended July 1, 2001. 10-8 Gannett Co., Inc. Transitional Incorporated by reference to Exhibit Compensation Plan, as amended 10-8 to Gannett Co., Inc.'s Form and restated October 22, 2001, 10-K for the fiscal year ended and as further amended on December 30, 2001. December 4, 2001.* 10-9 Employment Agreement dated Incorporated by reference to Exhibit January 1, 2001 between 10-9 to Gannett Co., Inc.'s Form 10-K Gannett Co., Inc. and Douglas for the fiscal year ended December 31, H. McCorkindale.* 2000. 10-10 Omnibus Incentive Compensation Incorporated by reference to Exhibit Plan No. 4 to the Company's Registration Statement on Form S-8 (Registration No. 333-60402). Amendment No. 1 incorporated by reference to Exhibit No. 10-10 to Gannett Co., Inc.'s Form 10-K for the fiscal year ended December 30, 2001. 11 Statement re computation of Attached. earnings per share. 99-1 Certification Pursuant to 18 Attached. U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99-2 Certification Pursuant to 18 Attached. U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The company agrees to furnish to the Commission, upon request, a copy of each agreement with respect to long-term debt not filed herewith in reliance upon the exemption from filing applicable to any series of debt which does not exceed 10% of the total consolidated assets of the company. * Asterisks identify management contracts and compensatory plans or arrangements. - 25 -