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 March 30, 1997 or _ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _________ Commission file number 1-6961 GANNETT CO., INC. (Exact name of registrant as specified in its charter) Delaware 16-0442930 (state or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1100 Wilson Boulevard, Arlington, Virginia 22234 (Address of principal executive offices) (Zip Code) (703) 284-6000 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ The number of shares outstanding of the issuer's Common Stock, Par Value $1.00, as of March 30, 1997, was 141,548,444.
PART I. FINANCIAL INFORMATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS OPERATING SUMMARY Operating income for the first quarter of 1997 rose $68.5 million or 36%. Newspaper publishing earnings were up $60.2 million or 41% for the quarter reflecting stronger advertising demand, lower newsprint prices, strong USA TODAY operating results and a favorable comparison year to year at The Detroit News. Broadcasting earnings were up $7.4 million or 15% reflecting strong demand for TV and radio advertising and improved results at most of the Company's broadcasting stations. Operating income for the Company's cable and security businesses rose $1.6 million or 14% for the quarter. NEWSPAPERS Reported newspaper publishing revenues rose $39.0 million or 5% in the first quarter of 1997, which included a $36.7 million or 7% gain in advertising revenues. The tables below provide, on a pro forma basis, further details of newspaper ad revenue and linage and preprint distribution for the first quarter of 1997 and 1996: Advertising revenue, in thousands of dollars (pro forma) First Quarter 1997 1996 % Change -------- -------- -------- Local $195,510 $183,691 6 National 102,417 95,738 7 Classified 210,950 192,396 10 -------- -------- -- Total Run-of-Press 508,877 471,825 8 Preprint and other advertising 84,277 83,084 1 -------- --------- -- Total ad revenue $593,154 $554,909 7 ======== ======== == Advertising linage, in thousands of inches (pro forma) First Quarter 1997 1996 % Change ------ ------ -------- Local 7,808 7,343 6 National 620 531 17 Classified 8,932 8,355 7 ------ ------ -- Total Run-of-Press linage 17,360 16,229 7 ====== ====== == Preprint distribution 1,474 1,423 4 ------ ------ -- In the pro forma presentation above, total advertising revenues for the Company's newspapers rose 7% for the quarter. Local ad revenues and volume increased 6% for the quarter. Both the revenue and volume increases were broad based with most newspapers recording gains in local advertising. National ad revenues rose 7% for the quarter on a volume increase of 17%. Significant gains in national revenue were recorded by The Detroit News and USA TODAY. Classified advertising revenues increased 10% for the quarter on a volume increase of 7%. Most of the Company's newspapers, including The Detroit News, recorded solid gains in revenues and volume. Classified gains were strongest in the employment and automotive categories. Reported newspaper circulation revenues rose 2% for the quarter. Net paid daily circulation for the Company's local newspapers was down 1%, while Sunday circulation declined 2%. USA TODAY reported an average daily paid circulation of 2,156,159 in the ABC Publisher's statement for the 26 weeks ended March 30, 1997, which, subject to audit, is a 2% increase over the comparable period a year ago. Operating costs in total for the newspaper segment declined $21.2 million or 3% for the quarter due to lower newsprint prices. In total, newsprint expense declined 29% for the quarter. Newsprint consumption rose 5%. Newspaper operating income increased $60.2 million or 41% for the quarter reflecting strong advertising gains throughout the group, lower newsprint prices, strong USA TODAY operating results and a favorable comparison year to year at The Detroit News. BROADCASTING Reported broadcast revenues increased $8.9 million or 6% for the first quarter, while operating costs were up $1.6 million or 2%. Pro forma broadcasting revenues increased 7% for the quarter. Pro forma local television ad revenues grew 12%, while national revenues were even. Pro forma local radio advertising revenues were up 19%, while national revenues rose 30%. Reported broadcast operating income rose $7.4 million or 15% for the quarter. Continued strong growth in demand for TV and radio advertising, coupled with cost controls, resulted in stronger earnings at most of the Company's broadcasting stations. In January, 1997 the Company concluded the transaction with Argyle Television, Inc. to exchange WLWT-TV(NBC-Cincinnati) and KOCO-TV(ABC-Oklahoma City) for WZZM-TV(ABC-Grand Rapids/Kalamazoo/Battle Creek) and WGRZ-TV(NBC-Buffalo). This exchange, which was necessary to comply with Federal Communications Commission (FCC) cross-ownership rules, was accounted for as a non-monetary transaction under which no gain or loss was recognized. This exchange did not materially affect broadcast operating results for the quarter. In April, 1997 the Company announced that it had entered into an agreement to sell its remaining radio stations, WGCI-AM/FM, Chicago, KHKS-FM, Dallas and KKBQ-AM/FM, Houston, to Evergreen Media. The transaction is subject to FCC and other government approvals and is expected to close later this year. CABLE AND SECURITY Cable television and alarm security operating revenues rose $4.9 million or 9% while operating expenses rose $3.3 million or 7% for the quarter. Operating income from cable and security rose $1.6 million or 14%. Cable revenues increased 8% as the number of basic cable subscribers at quarter end increased 2% and the number of pay subscribers decreased 4%. Alarm security revenue rose 12% and the number of alarm security subscribers at quarter end increased 14%. NON-OPERATING INCOME AND EXPENSE Interest expense decreased $13.9 million or 35% for the quarter reflecting the pay down of commercial paper borrowings from operating cash flow. PROVISION FOR INCOME TAXES The Company's effective income tax rate was 41.3% for the quarter versus 43.0% for the same quarter last year. The decrease in the rate is primarily the result of the statutory rate on expected earnings gains in 1997. NET INCOME Income from continuing operations rose $48.6 million or 56% for the quarter. Earnings per share from continuing operations rose to $0.96 from $0.62, an increase of 55%. Net income rose $45.7 million or 51% for the quarter. Net income per share rose to $0.96 from $0.64, an increase of 50%. In 1996, income from the discontinued outdoor and entertainment operations was $2.9 million or $0.02 per share. The weighted average number of shares outstanding totaled 141,421,000 for the first quarter of 1997, compared to 140,680,000 for the first quarter of 1996. The increase in the number of shares outstanding for the quarter is due mainly to the issuance of shares upon the exercise of stock options and the settlement of stock incentive rights. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operating activities as reported in the accompanying Consolidated Statements of Cash Flows, totaled $313 million for the first quarter, compared with $190 million a year ago reflecting strong overall operating results. Principal uses of cash flow in 1997 were capital expenditures, reduction of debt and dividends. Capital expenditures for the quarter totaled $40 million, compared to $53 million in 1996. The Company's long-term debt (commercial paper obligations) was reduced by $220 million in the quarter. The Company declared a dividend of $0.36 per share or $51 million, which was paid on April 1, 1997. At the end of the first quarter, the Company's long term debt included $274 million of notes payable in March, 1998. These notes, along with the Company's commercial paper obligations, are supported by a $3.0 billion revolving credit agreement with a term extending to November 12, 2000. As a result, these obligations are classified as long-term debt. OTHER MATTERS First quarter expenses included the gift of the Niagara Gazette newspaper to the Gannett Foundation. Subsequent to the transfer, the Gannett Foundation sold the Niagara Gazette so that the proceeds could be used to fund the Foundation and its community grants. The sale also resolved the FCC newspaper-television cross-ownership issues that arose as a result of the company's acquisition of a television station in Buffalo, New York.
<TABLE> CONSOLIDATED BALANCE SHEETS Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars <CAPTION> March 30, 1997 Dec. 29, 1996 ------------- ------------- <S> <C> <C> ASSETS Cash $ 37,224 $ 27,179 Marketable securities 7,755 4,023 Trade receivables, less allowance (1997 - $19,756; 1996 - $18,942) 494,280 569,095 Other receivables 37,878 47,850 Inventories 75,890 73,621 Prepaid expenses 35,776 44,837 ------------ ------------ Total current assets 688,803 766,605 ------------ ------------ Property, plant and equipment: Cost 3,452,379 3,423,400 Less accumulated depreciation (1,474,203) (1,429,340) ------------ ------------ Net property, plant and equipment 1,978,176 1,994,060 ------------ ------------ Intangible and other assets: Excess of acquisition cost over the value of assets acquired, less amortization (1997 - $594,410; 1996 - $569,527) 3,376,250 3,393,931 Investments and other assets 201,667 195,001 ------------ ------------ Total intangible and other assets 3,577,917 3,588,932 ------------ ------------ Total assets $ 6,244,896 $ 6,349,597 ============ ============ LIABILITIES & SHAREHOLDERS' EQUITY Current maturities of long-term debt $ 23,126 $ 23,302 Accounts payable and current portion of film contracts payable 227,775 261,838 Compensation, interest and other accruals 187,454 231,358 Dividend payable 50,802 51,890 Income taxes 120,622 46,098 Deferred income 111,582 104,510 ------------ ------------ Total current liabilities 721,361 718,996 ------------ ------------ Deferred income taxes 391,670 396,170 Long-term debt, less current portion 1,660,470 1,880,293 Postretirement medical and life insurance liabilities 302,896 301,729 Other long-term liabilities 142,202 121,591 ------------ ------------ Total liabilities 3,218,599 3,418,779 ------------ ------------ Shareholders' Equity: Preferred stock of $1 par value per share. Authorized 2,000,000 shares, issued - none Common stock of $1 par value per share. Authorized 400,000,000, issued 162,210,366 shares 162,210 162,210 Additional paid-in capital 87,056 86,126 Retained earnings 3,738,812 3,654,681 ------------ ------------ Total 3,988,078 3,903,017 ------------ ------------ Less treasury stock - 20,661,922 shares and 20,892,661 shares respectively, at cost (932,589) (942,609) Deferred compensation related to ESOP (29,192) (29,590) ------------ ------------ Total shareholders' equity 3,026,297 2,930,818 ------------ ------------ Total liabilities and shareholders' equity $ 6,244,896 $ 6,349,597 ============ ============ </TABLE>
<TABLE> CONSOLIDATED STATEMENTS OF INCOME Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars (except per share amounts) <CAPTION> Thirteen weeks ended % Inc March 30, 1997 March 31, 1996 (Dec) <S> <C> <C> <C> Net Operating Revenues: Newspaper advertising $ 593,552 $ 556,885 6.6 Newspaper circulation 233,370 229,417 1.7 Broadcasting 150,606 141,688 6.3 Cable & Security 61,546 56,612 8.7 Other 37,683 39,281 (4.1) ------------- ------------- ----- Total 1,076,757 1,023,883 5.2 ------------- ------------- ----- Operating Expenses: Cost of sales and operating expenses, exclusive of depreciation 566,522 590,515 (4.1) Selling, general and administrative expenses, exclusive of depreciation 174,791 168,707 3.6 Depreciation 49,782 48,837 1.9 Amortization of intangible assets 24,842 23,515 5.6 ------------- ------------- ----- Total 815,937 831,574 (1.9) ------------- ------------- ----- Operating income 260,820 192,309 35.6 ------------- ------------- ----- Non-operating income (expense): Interest expense (25,618) (39,528) 35.2 Other (5,088) (1,583) (221.4) ------------- ------------- ----- Total (30,706) (41,111) 25.3 ------------- ------------- ----- Income before income taxes 230,114 151,198 52.2 Provision for income taxes 95,050 64,750 46.8 ------------- ------------- ----- Income from continuing operations 135,064 86,448 56.2 Discontinued operations: Income from discontinued operations, net of income taxes 2,902 (100.0) ------------- ------------- ----- Net income $ 135,064 $ 89,350 51.2 ============= ============= ===== Earnings per share: Earnings from continuing operations $0.96 $0.62 54.8 Earnings from discontinued operations, net of tax 0.02 (100.0) ----- ----- ----- Net income per share $0.96 $0.64 50.0 ===== ===== ===== Dividends per share $0.36 $0.35 2.9 ===== ===== ===== </TABLE>
<TABLE> CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars <CAPTION> Thirteen weeks ended March 30, 1997 March 31, 1996 <S> <C> <C> Cash flows from operating activities Net income $ 135,064 $ 86,448 Adjustments to reconcile net income to operating cash flows: Discontinued operations 0 2,902 Depreciation 49,782 48,837 Amortization of intangibles 24,842 23,515 Deferred income taxes (4,500) (5,672) Other, net 107,535 34,057 --------- --------- Net cash flow from operating activities 312,723 190,087 --------- --------- Cash flows from investing activities Purchase of property, plant & equipment (40,263) (53,180) Change in other investments (2,025) (8,500) Proceeds from sale of certain assets 864 3,907 Collection of long-term receivables 2,407 425 --------- --------- Net cash used for investing activities (39,017) (57,348) --------- --------- Cash flow from financing activities Payments of long-term debt (219,999) (89,033) Dividends paid (50,731) (49,246) Proceeds from issuance of common stock 10,801 9,431 --------- --------- Net cash used for financing activities (259,929) (128,848) --------- --------- Net increase in cash and cash equivalents 13,777 3,891 Balance of cash & cash equivalents at beginning of year 31,202 46,985 --------- --------- Balance of cash and cash equivalents at end of first quarter $ 44,979 $ 50,876 ========= ========= </TABLE>
<TABLE> BUSINESS SEGMENT INFORMATION Gannett Co., Inc. and Subsidiaries Unaudited, in thousands of dollars <CAPTION> Thirteen weeks ended % Inc March 30, 1997 March 31, 1996 (Dec) <S> <C> <C> <C> Operating Revenues: Newspaper publishing $ 864,605 $ 825,583 4.7 Broadcasting 150,606 141,688 6.3 Cable and Security 61,546 56,612 8.7 -------------- -------------- ----- Total $ 1,076,757 $ 1,023,883 5.2 ============== ============== ===== Operating Income: (net of depreciation and amortization) Newspaper publishing $ 207,194 $ 146,971 41.0 Broadcasting 57,400 50,039 14.7 Cable and Security 13,365 11,717 14.1 Corporate (17,139) (16,418) (4.4) -------------- -------------- ----- Total $ 260,820 $ 192,309 35.6 ============== ============== ===== Depreciation and Amortization: Newspaper publishing $ 41,149 $ 40,716 1.1 Broadcasting 14,812 13,119 12.9 Cable and Security 16,493 15,961 3.3 Corporate 2,170 2,556 (15.1) -------------- -------------- ----- Total $ 74,624 $ 72,352 3.1 ============== ============== ===== Operating Cash Flow: Newspaper publishing $ 248,343 $ 187,687 32.3 Broadcasting 72,212 63,158 14.3 Cable and Security 29,858 27,678 7.9 Corporate (14,969) (13,862) (8.0) -------------- -------------- ----- Total $ 335,444 $ 264,661 26.7 ============== ============== ===== NOTE: Operating Cash Flow represents operating income for each of the Company's business segments plus related depreciation and amortization expense. </TABLE>
NOTE TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS March 30, 1997 1. Basis of Presentation The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes which are normally included in Form 10-K and annual report to shareholders. The financial statements covering the 13 week period ended March 30, 1997, and the comparative periods of 1996 reflect all adjustments which, in the opinion of the Company, are necessary for a fair statement of results for the interim periods.
PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. See Exhibit Index for list of exhibits filed with this report. (b) Reports on Form 8-K. (i) Current Report on Form 8-K dated January 14, 1997 in connection with the exchange of radio stations for a television station, the sale of Multimedia Entertainment, and restatement of financial statements.
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: May 8, 1997 /s/ ---------------------------------------- Larry F. Miller Senior Vice President/Financial Planning and Controller Dated: May 8, 1997 /s/ ---------------------------------------- Thomas L. Chapple Senior Vice President, General Counsel and Secretary
EXHIBIT INDEX Exhibit Number Title or Description Location 3-1 By-laws of Gannett Co., Attached. Inc. [reflects all amendments through May 6, 1997] 4-1 $1,000,000,000 Revolving Incorporated by reference Credit Agreement among to Exhibit 4-1 to Gannett Gannett Co., Inc. and Co., Inc.'s Form 10-K for the Banks named therein. the fiscal year ended December 26, 1993. 4-2 Amendment Number One to Incorporated by reference $1,000,000,000 Revolving to Exhibit 4-2 to Gannett Credit Agreement among Co., Inc.'s Form 10-Q for Gannett Co., Inc. and the fiscal quarter ended the Banks named therein. June 26, 1994. 4-3 Amendment Number Two to Incorporated by reference $1,500,000,000 Revolving to Gannett Co., Inc.'s Credit Agreement among Form 10-K for the fiscal Gannett Co., Inc. and year ended December 31, the Banks named therein. 1995. 4-4 Amendment Number Three Incorporated by reference to $3,000,000,000 to Exhibit 4-4 to Gannett Revolving Credit Co., Inc.'s Form 10-Q for Agreement among Gannett the fiscal quarter ended Co., Inc. and the Banks September 29, 1996. named therein, dated as of August 20, 1996. 4-5 Indenture dated as of Incorporated by reference March 1, 1983 between to Exhibit 4-2 to Gannett Gannett Co., Inc. and Co., Inc's Form 10-K for the Citibank, N.A., as fiscal year ended Trustee. December 29, 1985. 4-6 First Supplemental Incorporated by reference Indenture dated as of to Exhibit 4 to Gannett November 5, 1986 among Co., Inc.'s Form 8-K filed Gannett Co., Inc., on November 9, 1986. Citibank, N.A., as Trustee, and Sovran Bank, N.A., as Successor Trustee. 4-7 Second Supplemental Incorporated by reference Indenture dated as of to Exhibit 4 to Gannett Co., June 1, 1995 among Inc.'s Form 8-K filed Gannett Co., Inc., June 15, 1995 NationsBank, N.A., as Trustee, and Crestar Bank, as Trustee. 4-8 Rights Plan. Incorporated by reference to Exhibit 1 to Gannett Co., Inc.'s Form 8-K filed on May 23, 1990. 10-1 Amended and Restated Incorporated by reference to Gannett Co., Inc. Exhibit 10-1 to Gannett Co., Deferred Compensation Inc.'s Form 10-Q for the Plan. fiscal quarter ended September 29, 1996. 11 Statement re computation Attached. of earnings per share. 27 Financial Data Schedule Attached. Gannett Co., Inc., agrees to furnish to the Securities and Exchange 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 registrant.