Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
|
|
|
þ |
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 29, 2008
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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
incorporation or organization)
|
|
(I.R.S. Employer Identification No.) |
|
|
|
7950 Jones Branch Drive, McLean, Virginia
|
|
22107-0910 |
(Address of principal executive offices)
|
|
(Zip Code) |
Registrants telephone number, including area code: (703) 854-6000.
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large Accelerated Filer þ
|
|
Accelerated Filer o
|
|
Non-Accelerated Filer o
|
|
Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act): Yes o No þ
The total number of shares of the registrants Common Stock, $1.00 par value, outstanding as of
June 29, 2008, was 228,114,304.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Items 1 and 2. Financial Statements and Managements Discussion and Analysis of Financial
Condition and Results of Operations
MANAGEMENTS DISCUSSION AND ANALYSIS OF OPERATIONS
Preliminary Second Quarter Earnings Results
In its press release of July 16, 2008, the company reported that preliminary 2008 second
quarter earnings per diluted share were $1.02 compared with $1.24 per diluted share in the second
quarter of 2007. These preliminary results, however, did not include non-cash charges to be
recorded in the quarter, which had not been finalized at that time, for the impairment of goodwill,
other intangible assets and certain other assets. In its July 16, 2008 press release, the company
indicated that such charges were expected to total in the range of $2.6 billion to $2.9 billion on
a pre tax basis and $2.4 billion to $2.7 billion on an after tax basis.
The financial statements included in this Form 10-Q reflect final adjustments for these
matters, which totaled $2.8 billion on a pre tax basis and $2.5 billion after tax.
Final Reported Results from Continuing Operations
The company reported a loss from continuing operations for the second quarter of 2008 of
$2,290.8 million or $10.03 per diluted share. For the same period a year ago income from
continuing operations was $289.9 million or $1.24 per diluted share.
For the year-to-date, the 2008 loss from continuing operations was $2,099.0 million or $9.17
per diluted share compared to income in 2007 from continuing operations of $496.2 million or $2.11
per diluted share.
During the second quarter of 2008, the company recorded certain non-cash impairment charges
totaling approximately $2.8 billion on a pre tax basis and $2.5 billion on an after tax basis or
$11.08 per diluted share. These charges are more fully described in the following section of this
report.
Non-Cash Charges Recorded in Second Quarter 2008
Softening business conditions and a decline in the companys stock price required the company
to perform impairment tests on goodwill, intangible assets, and other long lived assets as of March
31, 2008, the first day of its fiscal second quarter. As a result, the company has recorded
non-cash impairment charges in the quarter to reduce the book value of publishing goodwill, other
publishing intangible assets including mastheads, and certain publishing property, plant and
equipment assets. The carrying value of certain of the companys investments in newspaper
publishing partnerships and other businesses, which are accounted for under the equity method, were
also written down. The company also recorded accelerated depreciation expense associated with
certain cost reduction initiatives.
A summary of these charges is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre Tax |
|
|
After Tax |
|
|
Per Diluted |
|
(in millions except per share amounts) |
|
Amount |
|
|
Amount |
|
|
Share Amount (a) |
|
Publishing segment asset impairments: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
2,138 |
|
|
$ |
2,138 |
|
|
$ |
9.36 |
|
Other intangible assets-principally mastheads |
|
|
176 |
|
|
|
113 |
|
|
|
0.50 |
|
Property, plant and equipment |
|
|
177 |
|
|
|
110 |
|
|
|
0.48 |
|
|
|
|
|
|
|
|
|
|
|
Total asset impairments |
|
|
2,491 |
|
|
|
2,361 |
|
|
|
10.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
Publishing |
|
|
8 |
|
|
|
5 |
|
|
|
0.02 |
|
Broadcasting |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
Corporate |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total included in operating expenses |
|
|
2,502 |
|
|
|
2,368 |
|
|
|
10.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newspaper publishing partnerships and other equity
method investments |
|
|
261 |
|
|
|
162 |
|
|
|
0.71 |
|
|
|
|
|
|
|
|
|
|
|
Total non-cash charges |
|
$ |
2,763 |
|
|
$ |
2,530 |
|
|
$ |
11.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Per diluted share amounts are for the quarter ended June 29, 2008 and totals may not sum due
to rounding. |
2
The goodwill impairment charge results from the application of the impairment testing
provisions of Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible
Assets (SFAS No. 142). Impairment testing is customarily performed annually, and last had been
performed at the end of 2007, at which time no goodwill impairment charge was indicated. Because
of softening business conditions within the companys publishing segment and the decline in the
companys stock price and market capitalization, this testing was updated as of the beginning of
the second quarter of 2008. For one of the reporting units in its publishing segment, an
impairment was indicated. The fair value of the reporting unit was determined using discounted
cash flow and multiple of earnings techniques. The company then undertook the next step in the
impairment testing process by determining the fair value of assets and liabilities within this
reporting unit.
The implied value of goodwill determined by the valuation for this reporting unit was less
than the carrying amount by $2.1 billion, and therefore an impairment charge in this amount was
taken. There was no tax benefit recognized related to the impairment charge since the recorded
goodwill was non-deductible as it arose from stock purchase transactions. Therefore the after tax
effect of the impairment was $2.1 billion or $9.36 per diluted share.
The impairment charge of $176 million for other publishing intangible assets was required
because revenue results from the underlying businesses have softened from what was expected at the
time they were purchased. In accordance with SFAS No. 142, the carrying values of impaired
indefinite lived intangible assets, principally mastheads, were reduced to fair value. Fair value
was determined using a relief-from-royalty method. In addition, the carrying values of certain
definite lived intangible assets, principally customer relationships, were reduced to fair value in
accordance with Statement of Financial Accounting Standard No. 144 Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS No. 144). Deferred tax benefits have been recognized for
these intangible asset impairment charges and therefore the after tax impact was $113 million or
$0.50 per diluted share.
The carrying value of property, plant and equipment amounts at certain publishing businesses
was also evaluated due to softening business conditions. The recoverability of these assets was
measured in accordance with SFAS No. 144. This measurement process indicated that expected
undiscounted future cash flows to be generated by certain asset groups would be less than the asset
carrying values. The carrying values of these asset groups were therefore reduced to fair value
and an impairment charge of $177 million was taken. Asset group fair values were determined using
a multiple of earnings technique. The company also recognized accelerated depreciation of $11
million in connection with certain cost reduction initiatives. Deferred tax benefits were
recognized for these charges and therefore the after tax impact was $117 million or $0.51 per
diluted share.
For certain of the companys newspaper publishing partnership investments, and for certain
other investments in which the company owns a minority equity interest, carrying values were
written down to fair value because the businesses underlying the investments had experienced
significant and sustained declines in operating performance, leading the company to conclude that
they were other than temporarily impaired. The adjustment of newspaper publishing partnership
carrying values comprise the majority of these investment charges, and these were driven by many of
the same factors affecting the companys wholly owned publishing businesses. These investment
carrying value adjustments were $261 million pre tax and $162 million on an after tax basis, or
$0.71 per diluted share. The pre tax charges for these investments are reflected as Equity income
(losses) in unconsolidated investees, net in the Statement of Income (Loss).
Operating Revenue and Expense Discussion
The narrative which follows provides background on key revenue and expense areas and principal
factors affecting amounts and comparisons.
Operating Revenues
Operating revenues declined 10.2% to $1.7 billion for the second quarter of 2008 and 9.3% to
$3.4 billion for the first six months of the year. Revenue results were affected primarily by
weakness in the economy in the US and the UK, and a very challenging advertising environment that
depressed revenues for both the publishing and broadcasting segments. A more detailed discussion
of revenues is included in following sections of this report.
3
Operating Expenses
As a result of the non-cash charges discussed above, operating expenses increased
substantially. Excluding the non-cash charges discussed above for goodwill, other intangible
assets, and property, plant and equipment, operating costs declined 7% for the second quarter and
year-to-date period, respectively.
During the second quarter of 2008, the company made changes to its domestic benefit plans by
improving its 401(k) plan while freezing benefits under certain company sponsored defined benefit
pension plans. As a result, the company recognized a pre tax curtailment gain for its domestic
pension plans of approximately $46.5 million ($28.9 million after tax or $0.13 per share).
However, the pension curtailment gain was almost totally offset by approximately $39.9 million in
pre tax severance expenses ($26.4 million after tax or $0.12 per share) related to reductions in
force and efficiency efforts in the U.S. and the UK.
Excluding severance costs, payroll expenses were down 4% for the quarter and 3% for the first
six months, reflecting headcount reductions across the company.
Newsprint expenses were down 12% for the second quarter of 2008 and 16% for the first six
months. Newsprint usage prices for the second quarter rose 5% but consumption was down 16%. For
the six month period, prices were 1% lower and consumption was 15% lower.
The companys continued aggressive cost control efforts at all business properties during the
quarter mitigated to a significant degree the effects of lower revenue results. The company has
increased strategic spending for online/digital operations, including costs for new personnel and
technology.
2007 Business Dispositions
In May 2007, the company completed the sale of the Norwich (CT) Bulletin; the Rockford (IL)
Register Star; the Observer-Dispatch in Utica, NY; and The Herald-Dispatch in Huntington, WV to
GateHouse Media, Inc. and contributed the Chronicle-Tribune in Marion, IN to the Gannett
Foundation. For all periods presented, results from these businesses have been reported as
discontinued operations.
Publishing Results
Publishing revenues decreased 11% to $1.5 billion from $1.7 billion in the second quarter and
decreased 10% to $3.0 billion from $3.4 billion year-to-date. Domestic advertising revenues
decreased 14% for the second quarter and 12% for the first six months. In British pounds,
advertising revenues in the UK decreased 13% for the second quarter and 10% for the first six
months. On a constant currency basis total publishing advertising revenue would have decreased 13%
for the second quarter and 12% year-to-date. The average exchange rate used to translate UK
publishing results from Sterling to U.S. dollars decreased 1% to 1.97 from 1.99 for the second
quarter and increased less than 1% to 1.98 from 1.97 for the year-to-date period.
Publishing operating revenues are derived principally from advertising and circulation sales,
which accounted for 73% and 20% of total publishing revenues for the second quarter and the
year-to-date period. Advertising revenues include amounts derived from advertising placed with
publishing internet web sites as well as print products. Other publishing revenues are mainly from
commercial printing operations and PointRoll. The table below presents the components of
publishing revenues.
Publishing revenues, in thousands of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
|
$ |
1,108,189 |
|
|
$ |
1,281,555 |
|
|
|
(14 |
) |
Circulation |
|
|
305,994 |
|
|
|
312,506 |
|
|
|
(2 |
) |
All other |
|
|
111,238 |
|
|
|
113,908 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,525,421 |
|
|
$ |
1,707,969 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date |
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
|
$ |
2,205,083 |
|
|
$ |
2,503,182 |
|
|
|
(12 |
) |
Circulation |
|
|
615,172 |
|
|
|
630,041 |
|
|
|
(2 |
) |
All other |
|
|
211,855 |
|
|
|
222,901 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,032,110 |
|
|
$ |
3,356,124 |
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
4
The table below presents the principal categories of advertising revenues for the publishing
segment.
Advertising revenues, in thousands of dollars
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
505,195 |
|
|
$ |
550,857 |
|
|
|
(8 |
) |
National |
|
|
168,934 |
|
|
|
200,815 |
|
|
|
(16 |
) |
Classified |
|
|
434,060 |
|
|
|
529,883 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
Total publishing advertising revenue |
|
$ |
1,108,189 |
|
|
$ |
1,281,555 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date |
|
2008 |
|
|
2007 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
984,218 |
|
|
$ |
1,069,634 |
|
|
|
(8 |
) |
National |
|
|
343,752 |
|
|
|
380,028 |
|
|
|
(10 |
) |
Classified |
|
|
877,113 |
|
|
|
1,053,520 |
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
Total publishing advertising revenue |
|
$ |
2,205,083 |
|
|
$ |
2,503,182 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
Publishing advertising revenues decreased 14% from $1.3 billion to $1.1 billion for the second
quarter as the company experienced softness in all three revenue categories. UK publishing
advertising decreased 13% reflecting a downturn in all categories, with the classified decline
being the most significant. For US domestic publishing, advertising decreased 14%, reflecting
softness in all categories, also led by classified. For the year-to-date period, publishing
advertising revenues declined 12%.
For the second quarter and year-to-date periods, retail advertising revenues declined 8%.
Retail advertising in the U.S. was down 8% for the quarter and the year-to-date. Revenues were
lower in most principal retail categories, with the most significant declines in the furniture,
department store, and telecommunications categories. Certain of these category losses are tied to
the very soft real estate environment in the US and the UK.
National advertising revenues declined 16% and 10% for the second quarter and year-to-date,
respectively. National ad revenue softness reflects overall advertising declines at USA TODAY of
17% for the second quarter and 8% year-to-date. Paid ad pages at USA TODAY were 831 for the second
quarter compared to 1,034 for the same period last year and 1,657 year-to-date compared to 1,937
last year.
Total classified advertising revenues decreased 18% for the quarter and 17% year-to-date, led
by the very soft domestic real estate market in the west and southeast, specifically Florida,
Arizona, California and Nevada. Domestic classified real estate revenues were down 30% for both
the quarter and year-to-date. Classified employment revenues were down 29% for the quarter and 27%
year-to-date, and auto revenues decreased 11% for the quarter and the year-to-date. Classified
revenues for UK publishing decreased 14% for the quarter and 11% year-to-date, on a constant
currency basis. In the UK, auto and real estate advertising revenues were down 19% and 27% for the
quarter and 20% and 21% year-to-date, respectively, while employment revenues were 11% lower for
the quarter and 9% lower year-to-date, all on a constant currency basis.
Total online/digital revenues associated with publishing operations rose 5% and 6% for the
quarter and year-to-date, respectively.
Circulation revenues declined 2% for the second quarter and the first six months of 2008. Net
paid daily circulation for publishing operations, excluding USA TODAY, declined 4% in the second
quarter and 6% year-to-date while Sunday net paid circulation was down 5% for the second quarter
and the year-to-date period. In the March Publishers Statement submitted to ABC, circulation for
USA TODAY for the previous six months increased 0.3% from 2,278,022 in 2007 to 2,284,219 in 2008.
The decrease in All other revenues for the second quarter and year-to-date periods, is
primarily due to lower commercial printing activity, partially offset by higher revenues at
PointRoll.
5
As a result of the non-cash charges discussed above, publishing operating expenses increased
substantially. Excluding these non-cash charges, publishing operating expenses were down 6% for
the second quarter and year-to-date, respectively due to strong operating cost controls, including
a significant decline in newsprint usage and expense. Newsprint expense was 12% lower for the
quarter, reflecting a 16% decline in usage, including savings from web width reductions and greater
use of light weight newsprint, partially offset by a 5% increase in price. Year-to-date, newsprint
expense declined 16% on a 15% decline in usage and a 1% decrease in price. For the remainder of
2008, newsprint prices are expected to be above prior year levels while consumption will be below
last year.
Cost comparisons for the publishing segment are also affected by an allocation of the
previously discussed curtailment gain recognized in the second quarter upon the freezing of
benefits under company sponsored domestic defined benefit pension plans. However this gain was
offset by second quarter severance expenses of $38 million related to reductions in force and
efficiency efforts for domestic and UK publishing.
Excluding the impact of the non-cash charges, newsprint costs, the pension curtailment gain
and severance costs, publishing expenses declined 5% for the quarter and year-to-date. This
reflects aggressive cost controls at most properties, partially offset by increased spending for
the companys online/digital operations, including costs associated with personnel additions and
technology to support new initiatives.
The publishing segment reported a loss for the second quarter and year-to-date periods of
2008, reflecting the non-cash impairment charges discussed above. Absent these charges, publishing
operating income decreased $103.0 million or 26% for the quarter and $158.1 million or 21% for the
year-to-date, reflecting the challenging print advertising environment, partially mitigated by
operating cost savings throughout the group.
Broadcasting Results
Broadcasting includes results from the companys 23 television stations and Captivate.
Reported broadcasting revenues were $192.6 million in the second quarter compared to $204.7 million
in 2007, a decline of $12.1 million or 6%. Year-to-date revenues were $362.7 million compared to
$387.7 million in 2007, a decline of $25.0 million or 6%. Television revenues, excluding
Captivate, were down 6% in the quarter, with local revenues down 7% and national revenues down 11%.
Year-to-date revenues, excluding Captivate, were down 7%, with local revenues down 8% and national
revenues down 9%. The decline in revenue reflects reduced ad demand amid the generally softer
economic environment. The year-to-date revenue decline also reflects the absence in 2008 of Super
Bowl ad spending on the companys CBS affiliates. These factors were partially offset by an
increase of approximately $3.1 million and $7.3 million in politically related advertising revenue
for the second quarter and year-to-date 2008, respectively. Online revenues increased 17% for the
quarter and 14% year-to-date.
Broadcasting operating expenses decreased more than 3% for the second quarter and more than 4%
for the first 6 months of 2008, to $113.3 million and $225.7 million, reflecting an allocation of
part of the pension curtailment gain, lower ad sales expense and lower stock-based compensation,
partially offset by severance costs and the non-cash charges involving property, plant and
equipment discussed above.
Reported operating income from broadcasting was down $8.2 million or 9% in the second quarter
and $14.5 million or 10% year-to-date.
Corporate Expense
Corporate expenses in the second quarter were $10.0 million as compared to $18.7 million a
year ago. Year-to-date corporate expenses were $25.7 million compared to $41.8 million a year ago.
The decline reflects an allocation of part of the pension curtailment gain, as well as tight cost
controls and lower stock compensation expense.
Consolidated Operating Expenses
Total consolidated operating expenses increased substantially due to the inclusion of the
non-cash charges related to goodwill, other intangible assets and property, plant and equipment.
Excluding the non-cash charges, operating expenses were below last year by $95 million, or 7%.
Year-to-date total operating expenses decreased by $195 million or 7%. Important savings were
achieved in publishing, broadcasting and at the corporate level. In addition to lower newsprint
expense, payroll and stock compensation, most other general operating costs were lower for both
business segments and for corporate. Operating expense comparisons were also favorably affected by
the excess of the pension plan curtailment gain ($46.5 million) over severance expense ($39.9
million) recorded in the second quarter.
6
Non-Operating Income and Expense
The companys interest expense decreased $22.4 million or 34% for the quarter and $46.8
million or 34% year-to-date, reflecting lower interest levels and average debt balance. The daily
average outstanding balance of commercial paper was $845 million during the second quarter of 2008
and $2.4 billion during the second quarter of 2007. The daily average outstanding balance of
commercial paper was $785 million during the first six months of 2008 and $2.2 billion during the
first six months of 2007. The weighted average interest rate on commercial paper was 3.2% and 5.4%
for the second quarter of 2008 and 2007, respectively. For the year-to-date periods of 2008 and
2007, the weighted average interest rate on commercial paper was 3.6% and 5.4%, respectively.
Total average outstanding debt for the second quarter was $3.96 billion in 2008 and $4.71 billion
in 2007. For the year-to-date periods of 2008 and 2007, the total average outstanding debt was
$3.97 billion and $4.92 billion, respectively. The weighted average interest rate for total
outstanding debt was 4.2% for the quarter as compared to 5.4% last year and 4.4% year-to-date as
compared to 5.4% last year.
As discussed more fully in the Liquidity, Capital Resources, Financial Position, and
Statement of Cash Flows section of this report, the company has floating rate notes in the form of
commercial paper obligations and a $280.0 million term loan that was drawn in July 2008. At the
end of the second quarter, the company also had floating rate convertible notes outstanding but, as
expected, these were repaid in their entirety on July 15, 2008, financed with a combination of new
term loan proceeds and commercial paper borrowings. Subsequent to the repayment of the convertible
notes, the company had approximately $2.3 billion in floating rate obligations outstanding. A 1/2%
increase or decrease in the average interest rate for these obligations would result in an increase
or decrease in annual interest expense of $11.3 million.
At the end of 2007, the companys equity share of operating results from its newspaper
partnerships, including Tucson, which participates in a joint operating agency, the California
Newspapers Partnership and Texas-New Mexico Newspapers Partnership, were reclassified from All
other revenue and reflected as Equity income (losses) in unconsolidated investees, net in the
non-operating section of the Consolidated Statements of Income. This line also includes equity
income and losses from online/new technology businesses which were previously classified in Other
non-operating items. All other revenue is now comprised principally of commercial printing
revenues and revenue from PointRoll. All periods presented reflect these reclassifications.
The companys net equity loss in unconsolidated investees as reported for the second quarter
and year-to-date periods of 2008 is substantial due to the inclusion of $261 million of impairment
charges related to minority equity investments in newspaper partnerships and certain other
businesses. Excluding the impairment charges, the companys net equity income in unconsolidated
investees declined $10 million for the second quarter and $20 million for the first six months of
2008, primarily due to lower operating results from its newspaper partnership investments,
increased promotional and business development spending at CareerBuilder and Classified Ventures
and operating costs for newly established digital/online businesses, including Metromix.
Other non-operating income for the year-to-date period of 2008 reflects a first quarter gain
of $25.5 million on the sale of excess land adjacent to the companys headquarters in McLean,
Virginia.
Provision (Benefit) for Income Taxes
The company reported a pre tax loss of $2,425.0 million for its second quarter and $2,133.5
million for the first six months of 2008. These pre tax losses include impairment charges
discussed previously, the majority of which are not deductible for income tax purposes. Therefore,
the effective tax benefit rate on these pre tax losses, including the impairment charges, are at
the very low levels of 5.5% for the second quarter and 1.6% for the year-to-date period. Excluding
the pre tax and tax effects of all impairment charges recorded in the second quarter, the companys
effective tax rate on such earnings would have been 29.0% for the second quarter and 31.4% for the
year-to-date period. The tax rates for 2008 reflect a lower statutory rate on UK earnings and
benefits from favorable renegotiations of prior year tax positions with UK tax authorities.
Discontinued Operations
Earnings from discontinued operations represent the combined operating results (net of income
taxes) of the Norwich (CT) Bulletin, the Rockford (IL) Register Star, the Observer-Dispatch in
Utica, NY and The Herald-Dispatch in Huntington, WV that were sold to GateHouse Media, Inc. on May
7, 2007 and the Chronicle-Tribune in Marion, IN that was contributed to the Gannett Foundation on
May 21, 2007. The revenues and expenses from each of these properties have, along with associated
income taxes, been removed from continuing operations and netted into a single amount on the
Statement of Income titled Income from the operation of discontinued operations, net of tax for
the first quarter of 2007.
7
Taxes provided on the earnings from discontinued operations totaled $1.3 million and $4.1
million for the second quarter and year-to-date 2007, respectively. This includes U.S. federal and
state income taxes and represents an effective rate of approximately 39%. The excess of this
effective rate over the U.S. statutory rate of 35% is due principally to state income taxes. Also
included in discontinued operations is the $73.8 million net after tax gain recognized in the
second quarter of 2007 on the disposal of these properties. Taxes provided on the gain totaled
approximately $139.8 million, covering U.S. federal and state income taxes and represent an
effective rate of 65%. The excess of this effective rate over the U.S. statutory rate of 35% is
due principally to the non-deductibility of goodwill associated with the properties disposed.
Earnings from discontinued operations, excluding the gain, per diluted share were $0.01 and
$0.03 for the second quarter and year-to-date 2007, respectively. Second quarter 2007 earnings per
diluted share for the gain on the disposition of these properties were $0.31.
Net Income/Loss
The companys net loss was $2,290.8 million or $10.03 per diluted share for the second quarter
compared to net income of $365.7 million or $1.56 per diluted share for 2007. For the year-to-date
period of 2008 the companys net loss was $2,099.0 or $9.17 per diluted share compared with net
income of $576.3 million or $2.45 per diluted share for the comparable period of 2007. The 2008
results include $2.8 billion of non-cash charges discussed above ($2.5 billion after tax).
The weighted average number of diluted shares outstanding for the second quarter of 2008
totaled 228,325,000 compared to 234,605,000 for the second quarter of 2007. For the first six
months of 2008 and 2007, the weighted average number of diluted shares outstanding totaled
228,772,000 and 234,814,000, respectively. The decline in outstanding shares is the result of the
companys share repurchase program under which approximately 0.6 million shares were repurchased
during the second quarter of 2008, 2.1 million shares were repurchased during the first six months
of 2008, and 3.0 million shares were repurchased in the second half of 2007. See Part II, Item 2
for information on share repurchases.
Acquisitions, Investments and Asset Dispositions
On December 31, 2007, the company acquired X.com, Inc. (BNQT.com). X.com, Inc. operates an
action sports digital network covering eight different action sports including surfing,
snowboarding and skateboarding. X.com will be affiliated with the USA TODAY Sports brand. This
acquisition was not material to results of operations or financial condition.
In February 2008, the company formed quadrantONE, a new digital ad sales network, with three
other top media companies: Tribune Company, Hearst Corporation and The New York Times Company.
In March 2008, the company purchased a minority stake in Fantasy Sports Ventures (FSV). FSV
owns a set of fantasy sports content sites and manages advertising across a network of affiliated
sites.
In May 2008, the company purchased a minority stake in Cozi Group Inc. (COZI). COZI owns and
maintains family organization software aimed at busy families.
Subsequent to the close of the second quarter, the company acquired from Tribune Company and
The McClatchy Company their minority ownership interests in ShopLocal LLC, a leading marketing and
database services company for major retailers in the U.S. The company now owns 100% of ShopLocal
and will consolidate its results beginning in the third quarter of 2008. The acquisition will
enable ShopLocal to collaborate with another Gannett company, PointRoll, to create ads that
dynamically connect retail advertisers and consumers, online and in the store.
Subsequent to the end of the second quarter the company purchased a minority stake in Mogulus,
LLC, a company that provides internet broadcasting services. The company also increased its
investment in 4INFO subsequent to the end of the period, maintaining its approximate ownership
interest.
In April 2007, the company disposed of a parcel of real estate located adjacent to its
corporate headquarters in McLean, Virginia. In accordance with the installment method of
accounting under SFAS No. 66, Accounting for Sales of Real Estate, $6 million of the gain was
recognized in other non-operating income during the second quarter of 2007. The remaining gain of
$25.5 million was deferred and recognized in the first quarter of 2008.
The financial statements reflect an allocation of purchase price that is preliminary for
acquisitions completed subsequent to July 1, 2007.
8
Liquidity, Capital Resources, Financial Position, and Statements of Cash Flows
The companys cash flow from operating activities was $537.6 million for the first six months
of 2008, compared to $648.9 million for the first six months of 2007. The decrease reflects lower
publishing and broadcast earnings and related cash flow from those operations.
Cash flows used in the companys investing activities totaled $5.9 million for the six months
of 2008, reflecting $58.0 million of capital spending, $11.3 million of payments for acquisitions
(discussed in Note 5 to the financial statements), and $24.0 million for investments. These cash
inflows were partially offset by $69.2 million of proceeds from the sale of assets and $18.3
million of proceeds from investments.
Cash flows used in financing activities totaled $31.6 million for the first six months of 2008
reflecting net debt proceeds of $226.2 million, the payment of dividends totaling $184.0 million
and the repurchase of common stock of $72.8 million. The companys regular quarterly dividend of
$0.40 per share, which was declared in the second quarter of 2008, totaled $91.4 million and was
paid in July 2008.
On July 25, 2006, the Board of Directors authorized the repurchase of an additional $1 billion
of the companys common stock. The shares will be repurchased at managements discretion, either in
the open market or in privately negotiated block transactions. Managements decision to repurchase
shares will depend on price, availability and other corporate developments. Purchases will occur
from time to time and no maximum purchase price has been set. As of June 29, 2008, the company had
remaining authority to repurchase up to $808.9 million of the companys common stock. For more
information on the share repurchase program, refer to Item 2 of Part II of this Form 10-Q.
On June 16, 2008 the company repaid at scheduled maturity $500 million in aggregate principal
amount of 4.125% notes, using borrowings in the commercial paper market.
On April 2, 2007, the company repaid at scheduled maturity $700 million in aggregate principal
amount of 5.50% notes. The repayment was funded with proceeds of commercial paper borrowings,
including $525 million which had been raised prior to the end of the first quarter of 2007 and
which were temporarily invested in marketable securities until the repayment date of the notes.
In June 2007, the company issued $1.0 billion aggregate principal amount of unsecured senior
convertible notes in an underwritten public offering. Proceeds from the notes were used to repay
commercial paper obligations. The convertible notes bore interest at a floating rate equal to one
month LIBOR, reset monthly, minus twenty-three basis points. As anticipated, on July 15, 2008, the
holders of all of the convertible notes required the company to repurchase their notes for cash at
a price equal to 100% of the principal amount of the notes submitted for repurchase, plus accrued
and unpaid interest.
In July 2008, the company received proceeds of $280 million from borrowings under a new term
loan agreement with certain lenders. The term loan is payable in full on July 14, 2011. The loan
agreement requires the maintenance of net worth of at least $3.5 billion, and also contains
covenants and default provisions customary for facilities of this nature and substantially similar
to those contained in each of the companys other credit agreements, as amended, dated February 27,
2004 and December 13, 2004. The loan carries interest at a floating rate and may be prepaid at any
time without penalty.
The proceeds from the term loan, along with proceeds received from commercial paper issuances,
approximately $500 million of which had been received from borrowings prior to the end of the
second quarter and which were held in interest bearing deposits, were used to repurchase the $1.0
billion convertible notes discussed above.
The companys operations have historically generated strong positive cash flow which, along
with the companys program of issuing commercial paper and maintaining bank revolving credit
agreements, has provided adequate liquidity to meet the companys requirements, including those for
acquisitions.
The company regularly issues commercial paper for cash requirements and maintains revolving
credit agreements equal to or in excess of any commercial paper outstanding. The companys
commercial paper is rated A-2 and P-2 by Standard & Poors (S&P) and Moodys Investors Service
(Moodys), respectively. The companys senior unsecured long-term debt is rated BBB+ by S&P and A3
by Moodys. Subsequent to the end of the quarter, on July 17, 2008, Moodys announced that it was
placing the companys long-term rating of A3 under review for a possible downgrade, while
re-affirming the P-2 short-term rating applicable to its commercial paper.
9
The company has an effective universal shelf registration statement with the Securities and
Exchange Commission under which an unspecified amount of securities may be issued. Proceeds from
any takedowns off the shelf may be used for general corporate purposes, including capital
expenditures, working capital, securities repurchase programs, repayment of debt and the financing
of acquisitions.
The companys foreign currency translation adjustment, included in accumulated other
comprehensive income and reported as part of shareholders equity, totaled $744 million at the end
of the second quarter 2008 versus $777 million at the end of 2007. This change reflects a slight
decrease in the exchange rate for British Pound Sterling. Newsquests assets and liabilities at
June 29, 2008 and December 30, 2007 were translated from Sterling to U.S. dollars at an exchange
rate of approximately 2.00 at June 29, 2008 and the end of 2007, respectively. For the second
quarter and first six months of 2008, Newsquests financial results were translated at an average
rate of 1.97 and 1.98, compared to 1.99 and 1.97 last year.
The company is exposed to foreign exchange rate risk primarily due to its operations in the
United Kingdom, for which Sterling is the functional currency. If the price of Sterling against
the U.S. dollar had been 10% more or less than the actual price, operating income, excluding the
non-cash impairment charges, for the second quarter and year-to-date periods of 2008 would have
increased or decreased approximately 2%.
Certain Factors Affecting Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q 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. The company is not responsible for
updating or revising any forward-looking statements, whether the result of new information, future
events or otherwise, except as required by law.
Potential risks and uncertainties which could adversely affect the companys 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 further economic downturn in some or all of the
companys principal publishing or broadcasting markets leading to decreased circulation or local,
national or classified advertising; (c) a decline in general publishing readership and/or
advertiser 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; (k) volatility in financial and credit markets which could affect the value
of retirement plan assets and the companys ability to raise funds through debt or equity
issuances; (1) changes in the regulatory environment; (m) an other than temporary decline in
operating results and enterprise value that could lead to further non-cash goodwill, other
intangible asset or property, plant and equipment impairment charges; and (n) general economic,
political and business conditions.
10
CONDENSED CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
In thousands of dollars (except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Jun. 29, 2008 |
|
|
Dec. 30, 2007 |
|
|
|
(Unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
577,362 |
|
|
$ |
77,249 |
|
Trade receivables, less allowance for doubtful receivables
(2008 $34,984; 2007 $36,772) |
|
|
863,373 |
|
|
|
956,523 |
|
Other Receivables |
|
|
40,889 |
|
|
|
92,660 |
|
Inventories |
|
|
118,827 |
|
|
|
97,086 |
|
Deferred income taxes |
|
|
27,470 |
|
|
|
28,470 |
|
Prepaid expenses and other current assets |
|
|
81,703 |
|
|
|
91,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,709,624 |
|
|
|
1,343,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
|
|
|
|
|
|
Cost |
|
|
4,763,790 |
|
|
|
4,921,877 |
|
Less accumulated depreciation |
|
|
(2,401,464 |
) |
|
|
(2,306,207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment |
|
|
2,362,326 |
|
|
|
2,615,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible and other assets |
|
|
|
|
|
|
|
|
Goodwill |
|
|
7,873,254 |
|
|
|
10,034,943 |
|
Indefinite-lived and other amortized intangible assets,
less
accumulated amortization |
|
|
544,590 |
|
|
|
735,461 |
|
Investments and other assets |
|
|
886,302 |
|
|
|
1,158,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible and other assets |
|
|
9,304,146 |
|
|
|
11,928,802 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
13,376,096 |
|
|
$ |
15,887,727 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
11
CONDENSED CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
In thousands of dollars (except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Jun. 29, 2008 |
|
|
Dec. 30, 2007 |
|
|
|
(Unaudited) |
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable and current portion of film
contracts payable |
|
$ |
238,715 |
|
|
$ |
257,393 |
|
Compensation, interest and other accruals |
|
|
384,438 |
|
|
|
407,245 |
|
Dividends payable |
|
|
91,689 |
|
|
|
93,050 |
|
Income taxes |
|
|
52,458 |
|
|
|
24,301 |
|
Deferred income |
|
|
157,753 |
|
|
|
180,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
925,053 |
|
|
|
962,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
478,096 |
|
|
|
696,112 |
|
Income taxes |
|
|
288,300 |
|
|
|
319,778 |
|
Long-term debt |
|
|
4,324,586 |
|
|
|
4,098,338 |
|
Postretirement medical and life insurance liabilities |
|
|
208,501 |
|
|
|
216,988 |
|
Other long-term liabilities |
|
|
488,520 |
|
|
|
556,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
6,713,056 |
|
|
|
6,850,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests in consolidated subsidiaries |
|
|
18,870 |
|
|
|
20,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 shares;
Issued: 324,418,632 shares |
|
|
324,419 |
|
|
|
324,419 |
|
Additional paid-in capital |
|
|
733,515 |
|
|
|
721,205 |
|
Retained earnings |
|
|
10,737,655 |
|
|
|
13,019,143 |
|
Accumulated other comprehensive income |
|
|
398,410 |
|
|
|
430,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,193,999 |
|
|
|
14,495,658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less treasury stock, 96,304,328 shares and
94,216,075 shares, respectively, at cost |
|
|
(5,549,829 |
) |
|
|
(5,478,499 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
6,644,170 |
|
|
|
9,017,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities, minority interests and
shareholders equity |
|
$ |
13,376,096 |
|
|
$ |
15,887,727 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
12
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
% Inc |
|
|
|
June 29, 2008 |
|
|
July 1, 2007 |
|
|
(Dec) |
|
Net Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Publishing advertising |
|
$ |
1,108,189 |
|
|
$ |
1,281,555 |
|
|
|
(13.5 |
) |
Publishing circulation |
|
|
305,994 |
|
|
|
312,506 |
|
|
|
(2.1 |
) |
Broadcasting |
|
|
192,568 |
|
|
|
204,666 |
|
|
|
(5.9 |
) |
All other |
|
|
111,238 |
|
|
|
113,908 |
|
|
|
(2.3 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,717,989 |
|
|
|
1,912,635 |
|
|
|
(10.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and operating expenses, exclusive of depreciation |
|
|
988,538 |
|
|
|
1,052,476 |
|
|
|
(6.1 |
) |
Selling, general and administrative expenses, exclusive of
depreciation |
|
|
299,539 |
|
|
|
320,636 |
|
|
|
(6.6 |
) |
Depreciation |
|
|
65,618 |
|
|
|
62,677 |
|
|
|
4.7 |
|
Amortization of intangible assets |
|
|
6,475 |
|
|
|
8,855 |
|
|
|
(26.9 |
) |
Goodwill and other asset impairment charges (see Note 3) |
|
|
2,491,365 |
|
|
|
|
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,851,535 |
|
|
|
1,444,644 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(2,133,546 |
) |
|
|
467,991 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity income (losses) in unconsolidated investees, net (see Note 3) |
|
|
(252,793 |
) |
|
|
17,470 |
|
|
|
*** |
|
Interest expense |
|
|
(43,957 |
) |
|
|
(66,400 |
) |
|
|
(33.8 |
) |
Other non-operating items |
|
|
5,340 |
|
|
|
10,324 |
|
|
|
(48.3 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(291,410 |
) |
|
|
(38,606 |
) |
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(2,424,956 |
) |
|
|
429,385 |
|
|
|
*** |
|
Provision (benefit) for income taxes |
|
|
(134,200 |
) |
|
|
139,500 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(2,290,756 |
) |
|
|
289,885 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from the operation of discontinued operations, net of tax |
|
|
|
|
|
|
1,963 |
|
|
|
*** |
|
Gain on disposal of newspaper business net of tax |
|
|
|
|
|
|
73,814 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(2,290,756 |
) |
|
$ |
365,662 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from continuing operations per share basic |
|
$ |
(10.03 |
) |
|
$ |
1.24 |
|
|
|
*** |
|
Discontinued operations per share basic |
|
|
|
|
|
|
0.01 |
|
|
|
*** |
|
Gain on disposal of newspaper business per share basic |
|
|
|
|
|
|
0.32 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per share basic |
|
$ |
(10.03 |
) |
|
$ |
1.56 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from continuing operations per share diluted |
|
$ |
(10.03 |
) |
|
$ |
1.24 |
|
|
|
*** |
|
Discontinued operations per share diluted |
|
|
|
|
|
|
0.01 |
|
|
|
*** |
|
Gain on disposal of newspaper business per share diluted |
|
|
|
|
|
|
0.31 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per share diluted |
|
$ |
(10.03 |
) |
|
$ |
1.56 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
0.40 |
|
|
$ |
0.31 |
|
|
|
29.0 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
13
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six Weeks Ended |
|
|
% Inc |
|
|
|
June 29, 2008 |
|
|
July 1, 2007 |
|
|
(Dec) |
|
Net Operating Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing advertising |
|
$ |
2,205,083 |
|
|
$ |
2,503,182 |
|
|
|
(11.9 |
) |
Publishing circulation |
|
|
615,172 |
|
|
|
630,041 |
|
|
|
(2.4 |
) |
Broadcasting |
|
|
362,748 |
|
|
|
387,725 |
|
|
|
(6.4 |
) |
All other |
|
|
211,855 |
|
|
|
222,901 |
|
|
|
(5.0 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,394,858 |
|
|
|
3,743,849 |
|
|
|
(9.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales and operating expenses, exclusive of depreciation |
|
|
1,975,038 |
|
|
|
2,110,412 |
|
|
|
(6.4 |
) |
Selling, general and administrative expenses, exclusive of
depreciation |
|
|
594,435 |
|
|
|
641,157 |
|
|
|
(7.3 |
) |
Depreciation |
|
|
125,220 |
|
|
|
124,862 |
|
|
|
0.3 |
|
Amortization of intangible assets |
|
|
14,715 |
|
|
|
17,710 |
|
|
|
(16.9 |
) |
Goodwill and other asset impairment charges (see Note 3) |
|
|
2,491,365 |
|
|
|
|
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
5,200,773 |
|
|
|
2,894,141 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
(1,805,915 |
) |
|
|
849,708 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity income (losses) in unconsolidated investees, net (see Note 3) |
|
|
(264,548 |
) |
|
|
15,990 |
|
|
|
*** |
|
Interest expense |
|
|
(92,506 |
) |
|
|
(139,345 |
) |
|
|
(33.6 |
) |
Other non-operating items |
|
|
29,491 |
|
|
|
10,286 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
(327,563 |
) |
|
|
(113,069 |
) |
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(2,133,478 |
) |
|
|
736,639 |
|
|
|
*** |
|
Provision (benefit) for income taxes |
|
|
(34,500 |
) |
|
|
240,400 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(2,098,978 |
) |
|
|
496,239 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from the operation of discontinued operations, net of tax |
|
|
|
|
|
|
6,221 |
|
|
|
*** |
|
Gain on disposal of newspaper business net of tax |
|
|
|
|
|
|
73,814 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(2,098,978 |
) |
|
$ |
576,274 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from continuing operations per share basic |
|
$ |
(9.17 |
) |
|
$ |
2.12 |
|
|
|
*** |
|
Discontinued operations per share basic |
|
|
|
|
|
|
0.03 |
|
|
|
*** |
|
Gain on disposal of newspaper business per share basic |
|
|
|
|
|
|
0.31 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per share basic |
|
$ |
(9.17 |
) |
|
$ |
2.46 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) from continuing operations per share diluted |
|
$ |
(9.17 |
) |
|
$ |
2.11 |
|
|
|
*** |
|
Discontinued operations per share diluted |
|
|
|
|
|
|
0.03 |
|
|
|
*** |
|
Gain on disposal of newspaper business per share diluted |
|
|
|
|
|
|
0.31 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) per share diluted |
|
$ |
(9.17 |
) |
|
$ |
2.45 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
0.80 |
|
|
$ |
0.62 |
|
|
|
29.0 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
14
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars
|
|
|
|
|
|
|
|
|
|
|
Twenty-six weeks ended |
|
|
|
June 29, 2008 |
|
|
July 1, 2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net Income (Loss) |
|
$ |
(2,098,978 |
) |
|
$ |
576,274 |
|
Adjustments to reconcile net income (loss) to operating cash
flows: |
|
|
|
|
|
|
|
|
Gain on sale of discontinued operations, net of tax |
|
|
|
|
|
|
(73,814 |
) |
Depreciation and amortization |
|
|
139,935 |
|
|
|
144,679 |
|
Goodwill and other asset impairment charges (see Note 3) |
|
|
2,491,365 |
|
|
|
|
|
Provision for deferred income taxes |
|
|
(216,100 |
) |
|
|
12,100 |
|
Pension (benefit) expense, net of pension contributions |
|
|
(33,047 |
) |
|
|
30,037 |
|
Equity losses (income) in unconsolidated investees, net (see
Note 3) |
|
|
264,548 |
|
|
|
(15,990 |
) |
Stock-based compensation |
|
|
13,404 |
|
|
|
20,521 |
|
Other net, including asset sale gains and changes in other
assets and liabilities |
|
|
(23,487 |
) |
|
|
(44,924 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flow from operating activities |
|
|
537,640 |
|
|
|
648,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
|
(57,989 |
) |
|
|
(59,974 |
) |
Payments for acquisitions, net of cash acquired |
|
|
(11,295 |
) |
|
|
(20,972 |
) |
Payments for investments |
|
|
(23,998 |
) |
|
|
(67,144 |
) |
Proceeds from investments |
|
|
18,266 |
|
|
|
20,266 |
|
Proceeds from sale of assets |
|
|
69,160 |
|
|
|
438,869 |
|
Purchase of investments in marketable securities |
|
|
|
|
|
|
(58,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by investing activities |
|
|
(5,856 |
) |
|
|
252,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt, net of debt issuance
fees |
|
|
|
|
|
|
1,000,000 |
|
Proceeds from (payments of) unsecured promissory notes |
|
|
726,248 |
|
|
|
(953,663 |
) |
Payments of unsecured fixed rate notes and other indebtedness |
|
|
(500,000 |
) |
|
|
(700,000 |
) |
Dividends paid |
|
|
(184,043 |
) |
|
|
(145,598 |
) |
Cost of common shares repurchased |
|
|
(72,764 |
) |
|
|
(90,354 |
) |
Proceeds from issuance of common stock |
|
|
|
|
|
|
12,065 |
|
Distributions to minority interest in consolidated partnerships |
|
|
(1,068 |
) |
|
|
(1,487 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities |
|
|
(31,627 |
) |
|
|
(879,037 |
) |
|
|
|
|
|
|
|
Effect of currency exchange rate change |
|
|
(44 |
) |
|
|
1,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
500,113 |
|
|
|
24,067 |
|
Balance of cash and cash equivalents at
beginning of period |
|
|
77,249 |
|
|
|
94,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of cash and cash equivalents at
end of period |
|
$ |
577,362 |
|
|
$ |
118,323 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
15
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 29, 2008
NOTE 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 thirteen week and year-to-date periods ended June 29, 2008, and
the comparable periods of 2007, 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 companys financial
position, results of operations and cash flows as of the dates and for the periods presented.
In connection with the May 2007 sale of the Norwich (CT) Bulletin; the Rockford (IL) Register
Star; the Observer-Dispatch in Utica, NY; and The Herald-Dispatch in Huntington, WV to GateHouse
Media, Inc. and the contribution of the Chronicle-Tribune in Marion, IN to the Gannett Foundation,
the results for these publishing businesses are presented in the Condensed Consolidated Statements
of Income as discontinued operations. At June 29, 2008, there were no results of operations or net
assets related to these discontinued operations. Amounts applicable to the discontinued
operations, which have been reclassified in the Statements of Income for the thirteen week and
twenty-six week periods ended July 1, 2007, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks ended |
|
|
Twenty-six Weeks ended |
|
(in millions of dollars) |
|
July 1, 2007 |
|
|
July 1, 2007 |
|
Revenues |
|
$ |
11.8 |
|
|
$ |
41.0 |
|
Pre tax income |
|
$ |
3.3 |
|
|
$ |
10.3 |
|
Net income |
|
$ |
2.0 |
|
|
$ |
6.2 |
|
Gain (after tax) |
|
$ |
73.8 |
|
|
$ |
73.8 |
|
At the end of 2007, the companys equity share of operating results from its newspaper
partnerships, including Tucson, which participates in a joint operating agency, the California
Newspapers Partnership and Texas-New Mexico Newspapers Partnership, were reclassified from All
other revenue and reflected as Equity income (losses) in unconsolidated investees, net in the
non-operating section of the Consolidated Statements of Income. This line also includes equity
income and losses from online/new technology businesses which were previously classified in Other
non-operating items. All other revenue is now comprised principally of commercial printing
revenues and revenue from PointRoll. All periods presented reflect these reclassifications.
NOTE 2 Recently issued accounting standards
In June 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP)
EITF No. 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities. This FSP provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings per share pursuant to
the two-class method. The FSP is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those years. Upon adoption, a company
is required to retrospectively adjust its earnings per share data (including any amounts related to
interim periods, summaries of earnings and selected financial data) to conform with the provisions
in this FSP. Early application of this FSP is prohibited. The adoption of FSP No. EITF 03-6-1 will
not have a material effect on the companys Consolidated Financial Statements.
In May 2008, the FASB issued FSP No. APB 14-1, Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement). This FSP
clarifies that convertible debt instruments that may be settled in cash upon conversion (including
partial cash settlement) are not addressed by paragraph 12 of APB Opinion No. 14, Accounting for
Convertible Debt and Debt Issued with Stock Purchase Warrants. Additionally, this FSP specifies
that issuers of such instruments should separately account for the liability and equity components
in a manner that will reflect the entitys nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. This FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal years. The
adoption of FSP No. APB 14-1 will not have a material effect on the companys Consolidated
Financial Statements.
16
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133 (SFAS No. 161). SFAS No. 161 amends and expands the disclosure requirements of SFAS No.
133 with the intent to provide users of financial statements with an enhanced understanding of: (i)
How and why an entity uses derivative instruments; (ii) How derivative instruments and related
hedged items are accounted for under SFAS No. 133 and its related interpretations and (iii) How
derivative instruments and related hedged items affect an entitys financial position, financial
performance and cash flows. This statement is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008, with early application encouraged.
The company is in the process of evaluating the impact of SFAS No. 161 on its Consolidated
Financial Statements.
In December 2007 the FASB issued Statement of Financial Accounting Standards No. 141 (revised
2007), Business Combinations (SFAS No. 141(R)) and No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS No. 160). SFAS No. 141(R) and
SFAS No. 160 are effective for the beginning of fiscal year 2009. SFAS No. 141(R) will change how
business acquisitions are accounted for and will impact financial statements both on the
acquisition date and in subsequent periods. SFAS No. 160 will change the accounting and reporting
for minority interest, which will be recharacterized as noncontrolling interests and classified as
a component of equity. The company is in the process of studying the impact of these standards on
the companys financial accounting and reporting.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair
Value Measurements (SFAS No. 157) which is effective for fiscal years beginning after November 15,
2007. The company adopted SFAS No. 157 at the beginning of 2008. SFAS No. 157 defines fair value,
establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value
measurements. Refer to Note 12 for information regarding the companys fair value measurements. In
November 2007, the FASB agreed to a one-year deferral of the effective date for nonfinancial assets
and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. The company
is currently assessing the impact of adopting the deferred portion of the pronouncement.
17
NOTE 3 Impairment and other non-cash charges
Softening business conditions and a decline in the companys stock price required the company
to perform impairment tests on its goodwill, intangible assets, and other long lived assets as of
March 31, 2008, the first day of its fiscal second quarter. As a result, the company has recorded
non-cash impairment charges in the quarter to reduce the book value of publishing goodwill, other
publishing intangible assets including mastheads, and certain publishing property, plant and
equipment assets. The carrying value of certain of the companys investments in newspaper
publishing partnerships and other businesses, which are accounted for under the equity method, were
also written down. The company also recorded accelerated depreciation expense associated with
certain cost reduction initiatives.
A summary of these charges is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre Tax |
|
|
After Tax |
|
|
Per Diluted |
|
(in millions except per share amounts) |
|
Amount |
|
|
Amount |
|
|
Share Amount (a) |
|
Publishing segment asset impairments: |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
2,138 |
|
|
$ |
2,138 |
|
|
$ |
9.36 |
|
Other intangible assetsprincipally mastheads |
|
|
176 |
|
|
|
113 |
|
|
|
0.50 |
|
Property, plant and equipment |
|
|
177 |
|
|
|
110 |
|
|
|
0.48 |
|
|
|
|
|
|
|
|
|
|
|
Total asset impairments |
|
|
2,491 |
|
|
|
2,361 |
|
|
|
10.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
Publishing |
|
|
8 |
|
|
|
5 |
|
|
|
0.02 |
|
Broadcasting |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
Corporate |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total included in operating expenses |
|
|
2,502 |
|
|
|
2,368 |
|
|
|
10.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Newspaper publishing partnerships and other equity
method investments |
|
|
261 |
|
|
|
162 |
|
|
|
0.71 |
|
|
|
|
|
|
|
|
|
|
|
Total non-cash charges |
|
$ |
2,763 |
|
|
$ |
2,530 |
|
|
$ |
11.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Per diluted share amounts are for the quarter ended June 29, 2008 and totals may not sum due
to rounding. |
The goodwill impairment charge results from the application of the impairment testing
provisions of Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible
Assets (SFAS No. 142). Impairment testing is customarily performed annually, and last had been
performed at the end of 2007, at which time no goodwill impairment charge was indicated. Because
of softening business conditions within the companys publishing segment and the decline in the
companys stock price and market capitalization, this testing was updated as of the beginning of
the second quarter of 2008. For one of the reporting units in its publishing segment, an
impairment was indicated. The fair value of the reporting unit was determined using discounted
cash flow and multiple of earnings techniques. The company then undertook the next step in the
impairment testing process by determining the fair value of assets and liabilities within this
reporting unit.
The implied value of goodwill determined by the valuation for this reporting unit was less
than the carrying amount by $2.1 billion, and therefore an impairment charge in this amount was
taken. There was no tax benefit recognized related to the impairment charge since the recorded
goodwill was non-deductible as it arose from stock purchase transactions. Therefore, the after tax
effect of the impairment was $2.1 billion or $9.36 per diluted share.
The impairment charge of $176 million for other publishing intangible assets was required
because revenue results from the underlying businesses have softened from what was expected at the
time they were purchased. In accordance with SFAS No. 142, the carrying values of impaired
indefinite lived intangible assets, principally mastheads, were reduced to fair value. Fair value
was determined using a relief-from-royalty method. In addition, the carrying values of certain
definite lived intangible assets, principally customer relationships, were reduced to fair value in
accordance with Statement of Financial Accounting Standard No. 144 Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS No. 144). Deferred tax benefits have been recognized for
these intangible asset impairment charges and therefore the after tax impact was $113 million or
$0.50 per diluted share.
18
The carrying value of property, plant and equipment amounts at certain publishing businesses
was also evaluated due to softening business conditions. The recoverability of these assets was
measured in accordance with SFAS No. 144. This measurement process indicated that expected
undiscounted future cash flows to be generated by certain asset groups would be less than the asset
carrying values. The carrying values of these asset groups were therefore reduced to fair value
and an impairment charge of $177 million was taken. Asset group fair values were determined using
a multiple of earnings technique. The company also recognized accelerated depreciation of $11
million in connection with certain cost reduction initiatives. Deferred tax benefits were
recognized for these charges and therefore the after tax impact was $117 million or $0.51 per
diluted share.
For certain of the companys newspaper publishing partnership investments, and for certain
other investments in which the company owns a minority equity interest, carrying values were
written down to fair value because the businesses underlying the investments had experienced
significant and sustained declines in operating performance, leading the company to conclude that
they were other than temporarily impaired. The adjustment of newspaper publishing partnership
carrying values comprise the majority of these investment charges, and these were driven by many of
the same factors affecting the companys wholly owned publishing businesses. These investment
carrying value adjustments were $261 million pre tax and $162 million on an after tax basis, or
$0.71 per diluted share. The pre tax charges for these investments are reflected as Equity income
(losses) in unconsolidated investees, net in the Statement of Income (Loss).
NOTE 4 Equity based awards
Stock-based compensation
For the quarter ended June 29, 2008 and July 1, 2007, options were granted for 34,683 and
32,625 shares, respectively. For the year-to-date periods ended June 29, 2008 and July 1, 2007,
options were granted for 807,883 and 805,725 shares, respectively. The following weighted average
assumptions were used to estimate the fair value of those options.
|
|
|
|
|
|
|
|
|
|
|
Year-to-date |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Average expected term |
|
|
4.5 years |
|
|
|
4.5 years |
|
Expected volatility |
|
|
18.45 |
% |
|
|
17.80 |
% |
Risk-free interest rates |
|
|
2.92 |
% |
|
|
4.52 |
% |
Expected dividend yield |
|
|
4.20 |
% |
|
|
2.07 |
% |
For the second quarter 2008, the company recorded stock-based compensation expense of $6.0
million, consisting of $3.0 million for nonqualified stock options and $3.0 million for restricted
shares. For the year-to-date 2008, the company recorded stock-based compensation expense of $13.4
million, consisting of $7.5 million for nonqualified stock options and $5.9 million for restricted
shares. The related tax benefit for stock compensation was $2.3 million for the second quarter and
$5.1 million for the year-to-date period. On an after tax basis, total stock compensation expense
was $3.7 million or $0.02 per share for the second quarter and $8.3 million or $0.04 per share
year-to-date.
For the second quarter of 2007, the company recorded stock-based compensation expense of $6.9
million, consisting of $4.0 million for nonqualified stock options and $2.9 million for restricted
shares (including shares issuable under the long-term incentive program). For the year-to-date
2007, the company recorded stock based compensation expense of $20.5 million, consisting of $13.9
million for nonqualified stock options and $6.6 million for restricted shares. The related tax
benefit for stock compensation expense was $2.6 million for the second quarter and $7.8 million for
the year-to-date period. On an after tax basis, total stock compensation expense was $4.3 million
or $0.02 per share for the second quarter and $12.7 million or $0.05 per share year-to-date.
During the quarter and year-to-date ended June 29, 2008, no options were exercised.
During the quarter and year-to-date ended July 1, 2007, options for 91,538 and 216,864 shares
of common stock were exercised. The company received $5.1 million and $12.1 million of cash from
the exercise of these options. The intrinsic value of the options exercised was approximately $0.3
million for the second quarter and $1.1 million for the year-to-date. The actual tax benefit
realized from the tax deductions from the options exercised was $0.1 million for the second quarter
and $0.4 million for the year-to-date.
Option exercises are satisfied through the issuance of shares from treasury stock.
19
A summary of the status of the companys stock option awards as of June 29, 2008 and changes
thereto during 2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
|
|
Shares |
|
|
Exercise Price |
|
|
Term (in years) |
|
|
Intrinsic Value |
|
Outstanding at beginning of year |
|
|
27,933,353 |
|
|
$ |
70.88 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
807,883 |
|
|
|
31.98 |
|
|
|
|
|
|
|
|
|
Canceled/Expired |
|
|
(855,860 |
) |
|
|
74.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at quarter end |
|
|
27,885,376 |
|
|
$ |
69.66 |
|
|
|
4.36 |
|
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at quarter end |
|
|
23,252,971 |
|
|
$ |
73.04 |
|
|
|
4.01 |
|
|
$ |
0.00 |
|
Restricted stock
In addition to stock options, the company issues stock-based compensation in the form of
restricted stock. Restricted stock is an award of common stock that is subject to restrictions and
such other terms and conditions as the Executive Compensation Committee determines. These awards
entitle an employee to receive shares of common stock at the end of a four-year incentive period
conditioned on continued employment. Compensation expense for restricted stock is recognized for
the awards that are expected to vest. The expense is based on the fair value of the awards on the
date of grant and is generally recognized on a straight-line basis over the four-year incentive
period.
The company has also issued restricted stock to its Board of Directors. Upon each annual
meeting of shareholders, each director receives a long-term award of 1,250 shares of restricted
stock or options to purchase 5,000 shares of stock. The restricted stock awards vest over three
years and expense is recognized on a straight-line basis over the vesting period based on the fair
value of the restricted stock on the date of grant. The options generally vest at 25% per year
beginning on the first anniversary date of the grant date and expense is recognized over the
four-year vesting period.
Additionally, directors may elect to receive their annual fees in restricted stock or options
in lieu of cash. These shares or options generally vest at 25% per quarter after the grant date.
Expense is recognized on a straight-line basis over the twelve- month board year for which the fees
are paid based on the fair value of the stock award on the date of grant.
Directors may also elect to receive their meeting fees in restricted stock or options in lieu
of cash. Restricted stock or options issued as compensation for meeting fees are issued at the
end of the board year during which the fees were earned and fully vests on the date of grant.
Expense is recognized on a straight-line basis over the course of the board year.
All shares of restricted stock in which the directors vest are held by the company for the
benefit of the directors until their retirement, at which time vested shares are delivered to the
Directors.
20
A summary of the status of the restricted stock awards as of June 29, 2008 and changes during
2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average Fair |
|
|
|
Shares |
|
|
Value |
|
Restricted stock outstanding and unvested at
beginning of year |
|
|
1,041,222 |
|
|
$ |
47.89 |
|
Granted |
|
|
45,372 |
|
|
|
31.09 |
|
Vested |
|
|
(13,528 |
) |
|
|
50.80 |
|
Canceled |
|
|
(34,101 |
) |
|
|
48.92 |
|
|
|
|
|
|
|
|
|
Restricted stock outstanding and unvested at
quarter end |
|
|
1,038,965 |
|
|
$ |
47.08 |
|
|
|
|
|
|
|
|
Long-term incentive program
In February 2006, the company adopted a three-year strategic long-term incentive program, or
LTIP. Through the use of the LTIP, the company desired to motivate key executives to drive success
in new businesses while continuing to achieve success in our core businesses. Because of softening
business conditions, in the second quarter of 2008 the company determined that program targets
would not be achieved, and previously accrued cost at the end of the first quarter of 2008 was
reversed.
NOTE 5 Acquisitions, investments and asset dispositions
On December 31, 2007, the company acquired X.com, Inc. (BNQT.com). X.com, Inc. operates an
action sports digital network covering eight different action sports including surfing,
snowboarding and skateboarding. X.com will be affiliated with the USA TODAY Sports brand. This
acquisition was not material to results of operations or financial condition.
In February 2008, the company formed quadrantONE, a new digital ad sales network, with three
other top media companies: Tribune Company, Hearst Corporation and The New York Times Company.
In March 2008, the company purchased a minority stake in Fantasy Sports Ventures (FSV). FSV
owns a set of fantasy sports content sites and manages advertising across a network of affiliated
sites.
In May 2008, the company purchased a minority stake in Cozi Group Inc. (COZI). COZI owns and
maintains family organization software aimed at busy families.
Subsequent to the close of the second quarter, the company acquired from Tribune Company and
The McClatchy Company their minority ownership interests in ShopLocal LLC, a leading marketing and
database services company for major retailers in the U.S. The company now owns 100% of ShopLocal
and will consolidate its results beginning in the third quarter of 2008. The acquisition will
enable ShopLocal to collaborate with another Gannett company, PointRoll, to create ads that
dynamically connect retail advertisers and consumers, online and in the store.
Subsequent to the end of the second quarter the company purchased a minority stake in Mogulus,
LLC, a company that provides internet broadcasting services. The company also increased its
investment in 4INFO subsequent to the end of the period, maintaining its approximate ownership
interest.
In April 2007, the company disposed of a parcel of real estate located adjacent to its
corporate headquarters in McLean, Virginia. In accordance with the installment method of
accounting under SFAS No. 66, Accounting for Sales of Real Estate, a portion of the gain was
recognized in other non-operating income during the second quarter of 2007. The remaining gain of
$25.5 million was deferred and recognized in the first quarter of 2008.
The financial statements reflect an allocation of purchase price that is preliminary for
acquisitions subsequent to July 1, 2007.
21
NOTE 6 Goodwill and other intangible assets
The following table displays goodwill, indefinite-lived intangible assets, and amortizable
intangible assets at
June 29, 2008 and December 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2008 |
|
|
December 30, 2007 |
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Accumulated |
|
(in thousands of dollars) |
|
Gross |
|
|
Amortization |
|
|
Gross |
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
7,873,254 |
|
|
$ |
|
|
|
$ |
10,034,943 |
|
|
$ |
|
|
Indefinite-lived intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mastheads and trade names |
|
|
113,935 |
|
|
|
|
|
|
|
248,501 |
|
|
|
|
|
Television station FCC licenses |
|
|
255,304 |
|
|
|
|
|
|
|
255,304 |
|
|
|
|
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
|
247,810 |
|
|
|
104,257 |
|
|
|
307,114 |
|
|
|
110,491 |
|
Other |
|
|
46,512 |
|
|
|
14,714 |
|
|
|
48,222 |
|
|
|
13,189 |
|
Amortization expense was $6.5 million in the quarter ended June 29, 2008 and $14.7 million
year-to-date. For the second quarter and year-to-date of 2007, amortization expense was $8.9 and
$17.7 million respectively. Amortization expense in the quarter ended June 29, 2008 was reduced
slightly due to the impairment of certain amortizable intangible assets discussed in Note 3.
Customer relationships, which include subscriber lists and advertiser relationships, are amortized
on a straight-line basis over four to 25 years. Other intangibles include commercial printing
relationships, internally developed technology and other assets. These assets were assigned lives
of between 2.5 and 15 years and are amortized on a straight-line basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of dollars) |
|
Publishing |
|
|
Broadcasting |
|
|
Total |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at Dec. 30, 2007 |
|
$ |
8,415,891 |
|
|
$ |
1,619,052 |
|
|
$ |
10,034,943 |
|
Acquisitions and adjustments |
|
|
8,094 |
|
|
|
|
|
|
|
8,094 |
|
Impairment |
|
|
(2,138,000 |
) |
|
|
|
|
|
|
(2,138,000 |
) |
Dispositions |
|
|
(137 |
) |
|
|
|
|
|
|
(137 |
) |
Foreign currency exchange rate
changes |
|
|
(31,545 |
) |
|
|
(101 |
) |
|
|
(31,646 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at June 29, 2008 |
|
$ |
6,254,303 |
|
|
$ |
1,618,951 |
|
|
$ |
7,873,254 |
|
|
|
|
|
|
|
|
|
|
|
Goodwill decreased primarily due to the non-cash charges discussed further in Note 3.
NOTE 7 Long-term debt
On June 16, 2008 the company repaid the $500 million in unsecured notes bearing interest at
4.125% that were due using borrowings in the commercial paper market.
On April 2, 2007, the company repaid at scheduled maturity $700 million in aggregate principal
amount of 5.50% notes. The repayment was funded with proceeds of commercial paper borrowings,
including $525 million which had been raised prior to the end of the first quarter of 2007 and
which were temporarily invested in marketable securities until the repayment date of the notes.
In June 2007, the company issued $1.0 billion aggregate principal amount of unsecured senior
convertible notes in an underwritten public offering. Proceeds from the notes were used to repay
commercial paper obligations. The convertible notes bore interest at a floating rate equal to one
month LIBOR, reset monthly, minus twenty-three basis points. As anticipated, on July 15, 2008, the
holders of the convertible notes required the company to repurchase the convertible notes for cash
at a price equal to 100% of the principal amount of the notes submitted for repurchase, plus
accrued and unpaid interest.
22
In July 2008, the company received proceeds of $280 million from borrowings under a new term
loan agreement with certain lenders. The term loan is payable in full on July 14, 2011. The loan
agreement requires the
maintenance of net worth of at least $3.5 billion, and also contains covenants and default
provisions customary for facilities of this nature and substantially similar to those contained in
each of the companys other credit agreements, as amended, dated February 27, 2004 and December 13,
2004. The loan carries interest at a floating rate and may be prepaid at any time without penalty.
The proceeds from the term loan, along with proceeds received from commercial paper issuances,
approximately $500 million of which had been received from borrowings prior to the end of the
second quarter and which were held in interest bearing deposits, were used to repurchase the $1.0
billion convertible notes discussed above.
The following schedule of annual maturities of long-term debt assumes the company had used its
$3.9 billion of revolving credit agreements to refinance existing unsecured promissory notes, the
unsecured fixed rate notes, the unsecured floating rate notes, the unsecured senior convertible
notes and other indebtedness due in 2008, 2009 and 2011. Based on this refinancing assumption, all
of these obligations are reflected in the maturities for 2012.
|
|
|
|
|
(in thousands) |
|
June 29, 2008 |
|
|
|
|
|
|
2009 |
|
|
|
|
2010 |
|
|
|
|
2011 |
|
|
|
|
2012 |
|
$ |
4,324,586 |
|
2013 |
|
|
|
|
Later years |
|
|
|
|
|
|
|
|
Total |
|
$ |
4,324,586 |
|
|
|
|
|
NOTE 8 Retirement plans
The company and its subsidiaries have various retirement plans, including plans established
under collective bargaining agreements, under which most full-time employees are covered. The
Gannett Retirement Plan is the companys principal retirement plan and covers most U.S. employees
of the company and its subsidiaries.
On June 10, 2008, the companys Board of Directors authorized and approved amendments to each
of (i) the Gannett Retirement Plan; (ii) the Gannett Supplemental Retirement Plan (SERP); (iii) the
Gannett 401(k) Savings Plan (401(k) Plan); and (iv) the Gannett Deferred Compensation Plan (DCP).
The amendments are designed to improve the 401(k) Plan while reducing the amount and volatility of
future pension expense. As a result of the amendments to the Gannett Retirement Plan and SERP,
most participants in these plans will have their benefits frozen as of August 1, 2008, meaning that
their service and earnings on and after that date will not be considered for purposes of
calculating their retirement benefits. Participants whose Gannett Retirement Plan and, if
applicable, SERP benefits are frozen will have their frozen benefits periodically increased by a
cost of living adjustment until benefits commence. Effective August 1, 2008, most participants
whose benefits are frozen under the Gannett Retirement Plan and, if applicable, the SERP will
receive higher matching contributions under the 401(k) Plan. Under the new formula, the matching
contribution rate generally will increase from 50% of the first 6% of compensation that an employee
elects to contribute to the plan to 100% of the first 5% of compensation. Gannett will also make
additional employer contributions to the 401(k) Plan on behalf of certain employees. The DCP was
amended to provide for Gannett contributions on behalf of certain employees whose benefits under
the 401(k) Plan are capped by IRS rules that limit the amount of compensation that can be taken
into account when calculating benefits under a qualified plan. Generally, Gannetts contributions
to the DCP will be calculated by applying the same formula that applies to an employees matching
and additional employer contributions under the 401(k) Plan to the employees compensation in
excess of the IRS compensation limit.
As a result of the amendments to freeze most benefit accruals in the Gannett Retirement Plan
and the SERP, the company recognized a net pre tax pension curtailment gain of $46.5 million in the
second quarter of 2008 in accordance with Statement of Financial Accounting Standards No. 88,
Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits. Incremental contributions under the enhanced 401(k) Savings Plan will
commence August 1, 2008.
23
The companys pension costs, which include costs for qualified, nonqualified and union plans
are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
Year-to-date |
|
(in millions of dollars) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost-benefits earned during
the period |
|
$ |
19.4 |
|
|
$ |
24.5 |
|
|
$ |
43.2 |
|
|
$ |
51.1 |
|
Interest cost on benefit obligation |
|
|
53.1 |
|
|
|
49.7 |
|
|
|
106.7 |
|
|
|
98.9 |
|
Expected return on plan assets |
|
|
(68.4 |
) |
|
|
(68.1 |
) |
|
|
(139.0 |
) |
|
|
(135.9 |
) |
Amortization of prior service credit |
|
|
(3.8 |
) |
|
|
(5.5 |
) |
|
|
(9.0 |
) |
|
|
(10.3 |
) |
Amortization of actuarial loss |
|
|
7.6 |
|
|
|
11.3 |
|
|
|
15.5 |
|
|
|
22.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension expense for company-sponsored
retirement plans |
|
|
7.9 |
|
|
|
11.9 |
|
|
|
17.4 |
|
|
|
26.0 |
|
Curtailment gain |
|
|
(46.5 |
) |
|
|
|
|
|
|
(46.5 |
) |
|
|
|
|
Union and other pension cost |
|
|
1.8 |
|
|
|
2.0 |
|
|
|
3.6 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension (benefit) cost |
|
$ |
(36.8 |
) |
|
$ |
13.9 |
|
|
$ |
(25.5 |
) |
|
$ |
30.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 9 Postretirement benefits other than pension
The company provides health care and life insurance benefits to certain retired employees who
meet age and service requirements. Most of the companys retirees contribute to the cost of these
benefits and retiree contributions are increased as actual benefit costs increase. The companys
policy is to fund benefits as claims and premiums are paid. Postretirement benefit costs for
health care and life insurance are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
Year-to-date |
|
(in millions of dollars) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost-benefits earned during the period |
|
$ |
0.5 |
|
|
$ |
0.5 |
|
|
$ |
1.0 |
|
|
$ |
1.0 |
|
Interest cost on net benefit obligation |
|
|
3.5 |
|
|
|
3.4 |
|
|
|
7.0 |
|
|
|
6.8 |
|
Amortization of prior service credit |
|
|
(3.9 |
) |
|
|
(1.8 |
) |
|
|
(7.8 |
) |
|
|
(5.7 |
) |
Amortization of actuarial loss |
|
|
1.2 |
|
|
|
0.1 |
|
|
|
2.4 |
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic postretirement benefit cost |
|
$ |
1.3 |
|
|
$ |
2.2 |
|
|
$ |
2.6 |
|
|
$ |
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10 Income taxes
The company adopted the provisions of FASB Interpretation No. 48 Accounting for Uncertainty
in Income Taxes (FIN No. 48) on January 1, 2007.
The total amount of unrecognized tax benefits that, if recognized, would impact the effective
tax rate was approximately $182 million as of December 30, 2007 and $149 million as of the end of
the second quarter of 2008. This amount reflects the federal tax benefit of state tax deductions.
Excluding the federal tax benefit of state tax deductions, the total amount of unrecognized tax
benefits as of December 30, 2007 was $264 million and as of June 29, 2008 was $231 million. The
$33 million net decrease reflects a net reduction for prior year tax positions of $21 million, a
reduction for cash settlements of $13 million, a reduction for lapses of statutes of limitations of
$4 million, and additions in the current year of $5 million. The reduction for prior year tax
positions, as well as the reduction for cash settlements, was primarily related to favorable
settlements with the UK tax authorities.
The company recognizes interest and penalties related to unrecognized tax benefits as a
component of income tax expense. The company also recognizes interest income attributable to
overpayment of income taxes as a component of income tax expense. The company recognized interest
expense (income) of $9 million and $(5) million during the second quarter of 2008 and 2007,
respectively. The amount of net accrued interest and penalties related to uncertain tax benefits
as of December 30, 2007 was approximately $83 million and as of June 29, 2008, was approximately
$100 million.
24
The company files income tax returns in the U.S. and various state and foreign jurisdictions.
The 2005 through 2007 tax years remain subject to examination by the IRS. The IRS has commenced
examination of the companys 2005 and 2006 U.S. income tax returns, and this examination is
expected to be completed in 2009. The 2004 through 2007 tax years generally remain subject to
examination by state authorities, and the years 2003-2007 are subject to examination in the U.K.
In addition, tax years prior to 2004 remain subject to examination by certain states primarily due
to the filing of amended tax returns upon settlement of the IRS examination for these years and due
to ongoing audits.
It is reasonably possible that the amount of the unrecognized benefits with respect to certain
of the companys unrecognized tax positions will significantly increase or decrease within the next
12 months. These changes may be the result of settlement of ongoing audits, lapses of statutes of
limitations or other regulatory developments. At this time, the company estimates that the amount
of its gross unrecognized tax positions may decrease by up to approximately $50 million within the
next 12 months primarily due to lapses of statutes of limitations in various jurisdictions and
potential settlements of ongoing audits and negotiations.
NOTE 11 Comprehensive income (loss)
The table below presents the components of comprehensive income (loss) for the second quarter
and first six months of 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
|
Year-to-date |
|
(in thousands of dollars) |
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,290,756 |
) |
|
$ |
365,662 |
|
|
$ |
(2,098,978 |
) |
|
$ |
576,274 |
|
Other comprehensive income (loss) |
|
|
(23,421 |
) |
|
|
78,484 |
|
|
|
(32,480 |
) |
|
|
99,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
(2,314,177 |
) |
|
$ |
444,146 |
|
|
$ |
(2,131,458 |
) |
|
$ |
676,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) consists primarily of foreign currency translation and
mark-to-market adjustments on the interest rate swaps.
NOTE 12 Fair value measurement
The company measures and records in the accompanying condensed consolidated financial
statements certain assets and liabilities at fair value on a recurring basis. SFAS No. 157
establishes a fair value hierarchy for those instruments measured at fair value that distinguishes
between assumptions based on market data (observable inputs) and our own assumptions (unobservable
inputs). The hierarchy consists of three levels:
|
|
|
Level 1 -
|
|
Quoted market prices in active markets for identical assets or liabilities; |
Level 2 -
|
|
Inputs other than Level 1 inputs that are either directly or indirectly observable; and |
Level 3 -
|
|
Unobservable inputs developed using estimates and assumptions developed by the
company, which reflect those that a market participant would use. |
The following table summarizes the financial instruments measured at fair value in the
accompanying condensed consolidated balance sheet as of June 29, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of |
|
|
|
June 29, 2008 |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation related investments |
|
$ |
44,597 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
44,597 |
|
Sundry investments |
|
$ |
25,525 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
25,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
|
|
|
$ |
13,396 |
|
|
$ |
|
|
|
$ |
13,396 |
|
25
NOTE 13 Business segment information
The company has determined that its reportable segments based on its management and internal
reporting structures are publishing, which is the largest segment of its operations, and
broadcasting.
Broadcasting includes results from the companys 23 television stations and Captivate.
Captivate is a national news and entertainment network that delivers programming and full motion
video advertising through wireless digital video screens in elevators of premier office towers and
in select hotels across North America.
Excluding discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
% Inc |
|
(unaudited, in thousands of dollars) |
|
June 29, 2008 |
|
|
July 1, 2007 |
|
|
(Dec) |
|
Net Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Publishing |
|
$ |
1,525,421 |
|
|
$ |
1,707,969 |
|
|
|
(10.7 |
) |
Broadcasting |
|
|
192,568 |
|
|
|
204,666 |
|
|
|
(5.9 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,717,989 |
|
|
$ |
1,912,635 |
|
|
|
(10.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) (net of
depreciation, amortization and
asset impairment see Note 3): |
|
|
|
|
|
|
|
|
|
|
|
|
Publishing |
|
$ |
(2,202,786 |
) |
|
$ |
399,279 |
|
|
|
*** |
|
Broadcasting |
|
|
79,234 |
|
|
|
87,412 |
|
|
|
(9.4 |
) |
Corporate |
|
|
(9,994 |
) |
|
|
(18,700 |
) |
|
|
(46.6 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(2,133,546 |
) |
|
$ |
467,991 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, Amortization and
Asset Impairment (see Note 3): |
|
|
|
|
|
|
|
|
|
|
|
|
Publishing |
|
$ |
2,548,122 |
|
|
$ |
59,163 |
|
|
|
*** |
|
Broadcasting |
|
|
10,160 |
|
|
|
8,459 |
|
|
|
20.1 |
|
Corporate |
|
|
5,176 |
|
|
|
3,910 |
|
|
|
32.4 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,563,458 |
|
|
$ |
71,532 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-six weeks ended |
|
|
% Inc |
|
|
|
June 29, 2008 |
|
|
July 1, 2007 |
|
|
(Dec) |
|
Net Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Publishing |
|
$ |
3,032,110 |
|
|
$ |
3,356,124 |
|
|
|
(9.7 |
) |
Broadcasting |
|
|
362,748 |
|
|
|
387,725 |
|
|
|
(6.4 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,394,858 |
|
|
$ |
3,743,849 |
|
|
|
(9.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) (net
of depreciation, amortization
and asset impairment see
Note 3): |
|
|
|
|
|
|
|
|
|
|
|
|
Newspaper publishing |
|
$ |
(1,917,254 |
) |
|
$ |
739,887 |
|
|
|
*** |
|
Broadcasting |
|
|
137,039 |
|
|
|
151,574 |
|
|
|
(9.6 |
) |
Corporate |
|
|
(25,700 |
) |
|
|
(41,753 |
) |
|
|
(38.4 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(1,805,915 |
) |
|
$ |
849,708 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, Amortization and
Asset Impairment (see Note 3): |
|
|
|
|
|
|
|
|
|
|
|
|
Newspaper publishing |
|
$ |
2,603,501 |
|
|
$ |
117,474 |
|
|
|
*** |
|
Broadcasting |
|
|
18,655 |
|
|
|
17,182 |
|
|
|
8.6 |
|
Corporate |
|
|
9,144 |
|
|
|
7,916 |
|
|
|
15.5 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,631,300 |
|
|
$ |
142,572 |
|
|
|
*** |
|
|
|
|
|
|
|
|
|
|
|
26
NOTE 14 Earnings (loss) per share
The companys earnings (loss) per share (basic and diluted) are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen weeks ended |
|
|
Twenty-six weeks ended |
|
(in thousands except per share amounts) |
|
June 29, 2008 |
|
|
July 1, 2007 |
|
|
June 29, 2008 |
|
|
July 1, 2007 |
|
Income (loss) from continuing operations (see Note 3) |
|
$ |
(2,290,756 |
) |
|
$ |
289,885 |
|
|
$ |
(2,098,978 |
) |
|
$ |
496,239 |
|
Income from the operation of discontinued operations, net of tax |
|
|
|
|
|
|
1,963 |
|
|
|
|
|
|
|
6,221 |
|
Gain on disposal of newspaper business, net of tax |
|
|
|
|
|
|
73,814 |
|
|
|
|
|
|
|
73,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(2,290,756 |
) |
|
$ |
365,662 |
|
|
$ |
(2,098,978 |
) |
|
$ |
576,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding basic |
|
|
228,325 |
|
|
|
234,196 |
|
|
|
228,772 |
|
|
|
234,391 |
|
Effect of dilutive securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
85 |
|
Restricted stock |
|
|
|
|
|
|
344 |
|
|
|
|
|
|
|
338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding diluted
(a) |
|
|
228,325 |
|
|
|
234,605 |
|
|
|
228,772 |
|
|
|
234,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations per share basic |
|
$ |
(10.03 |
) |
|
$ |
1.24 |
|
|
$ |
(9.17 |
) |
|
$ |
2.12 |
|
Discontinued operations per share basic |
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
0.03 |
|
Gain on disposal of newspaper business net of tax basic |
|
|
|
|
|
|
0.32 |
|
|
|
|
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic |
|
$ |
(10.03 |
) |
|
$ |
1.56 |
|
|
$ |
(9.17 |
) |
|
$ |
2.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations per share diluted |
|
$ |
(10.03 |
) |
|
$ |
1.24 |
|
|
$ |
(9.17 |
) |
|
$ |
2.11 |
|
Discontinued operations per share diluted |
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
0.03 |
|
Gain on disposal of newspaper business per share diluted |
|
|
|
|
|
|
0.31 |
|
|
|
|
|
|
|
0.31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share diluted |
|
$ |
(10.03 |
) |
|
$ |
1.56 |
|
|
$ |
(9.17 |
) |
|
$ |
2.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Diluted weighted average common shares exclude 448 and 445 incremental shares resulting from
the application of the treasury stock method to outstanding options and restricted stock for the
thirteen and twenty-six weeks ended June 29, 2008, respectively. Their effect is anti-dilutive as
results for these periods were a net loss. |
27
NOTE 15 Litigation
On December 31, 2003, two employees of the companys television station KUSA in Denver filed a
class action lawsuit in the U.S. District Court for the District of Colorado against Gannett and
the Gannett Retirement Plan (Plan) on behalf of themselves and other similarly situated individuals
who participated in the Plan after January 1, 1998, the date that certain amendments to the Plan
took effect. The complaint was amended to add a third plaintiff. The plaintiffs alleged, among
other things, that the current pension plan formula adopted in that amendment violated the age
discrimination accrual provisions of the Employee Retirement Income Security Act. The plaintiffs
sought to have their post-1997 benefits recalculated and sought other equitable relief. The court
granted the plaintiffs motion to certify a class. On July 1, 2008, subsequent to the end of the
companys second quarter, the court granted summary judgment in favor of the defendants, and
entered a judgment dismissing all claims of the class plaintiffs and the individual plaintiffs.
The plaintiffs right to appeal the decision expired on July 31, 2008.
The company and a number of its subsidiaries are defendants in other judicial and
administrative proceedings involving matters incidental to their business. The companys
management does not believe that any material liability will be imposed as a result of these other
matters.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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, for which Sterling is the
functional currency. If the price of Sterling against the U.S. dollar had been 10% more or less
than the actual price, operating income, excluding the non-cash impairment charges, for the second
quarter and year-to-date periods of 2008 would have increased or decreased approximately 2%.
As discussed more fully in the Liquidity, Capital Resources, Financial Position, and
Statement of Cash Flows section of this report, the company has floating rate notes in the form of
commercial paper obligations and a $280.0 million term loan that was drawn in July 2008. At the
end of the second quarter, the company also had floating rate convertible notes outstanding but, as
expected, these were repaid in their entirety on July 15, 2008, financed with a combination of new
term loan proceeds and commercial paper borrowings. Subsequent to the repayment of the convertible
notes, the company had approximately $2.3 billion in floating rate obligations outstanding. A 1/2%
increase or decrease in the average interest rate for these obligations would result in an increase
or decrease in annual interest expense of $11.3 million.
The fair value of the companys total long-term debt, determined based on quoted market prices
for similar issues of debt with the same remaining maturities and similar terms, totaled $4.29
billion at June 29, 2008.
Item 4. Controls and Procedures
Based on their evaluation, the companys Chairman, President and Chief Executive Officer and
Executive Vice President and Chief Financial Officer have concluded the companys disclosure
controls and procedures are effective as of June 29, 2008, to ensure that information required to
be disclosed in the reports that the company files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms. There have been no changes in the companys
internal controls or in other factors during the fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the companys internal controls over financial
reporting.
28
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
|
|
|
|
(a) Total |
|
|
|
|
|
|
Purchased as Part |
|
|
(d) Approximate Dollar |
|
|
|
Number of |
|
|
(b) Average |
|
|
of Publicly |
|
|
Value of Shares that |
|
|
|
Shares |
|
|
Price Paid per |
|
|
Announced |
|
|
May Yet Be Purchased |
|
Period |
|
Purchased |
|
|
Share |
|
|
Program |
|
|
Under the Program |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/31/08 5/04/08 |
|
|
98,000 |
|
|
$ |
25.50 |
|
|
|
98,000 |
|
|
$ |
821,422,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/05/08 6/01/08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
821,422,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6/02/08 6/29/08 |
|
|
483,100 |
|
|
$ |
25.85 |
|
|
|
483,100 |
|
|
$ |
808,936,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Second
Quarter 2008 |
|
|
581,100 |
|
|
$ |
25.79 |
|
|
|
581,100 |
|
|
$ |
808,936,610 |
|
All of the shares included in column (c) of the table above were repurchased under the
remaining $1 billion authorization announced on July 25, 2006. There is no expiration date for the
repurchase program. No repurchase program expired during the periods presented above and
management does not intend to terminate the repurchase program. All shares repurchased were part
of the publicly announced repurchase program.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Gannett Co., Inc. was held on April 30, 2008. The
following describes the actions taken at the Annual Meeting.
Three nominees were re-elected to the Board of Directors with each receiving greater than 95%
of the vote. Tabulation of votes for each of the nominees was as follows:
|
|
|
|
|
|
|
|
|
|
|
For |
|
|
Withhold Authority |
|
Craig A. Dubow |
|
|
194,795,565 |
|
|
|
9,813,200 |
|
Donna E. Shalala |
|
|
195,902,115 |
|
|
|
8,706,650 |
|
Neal Shapiro |
|
|
196,625,153 |
|
|
|
7,983,612 |
|
The proposal to ratify Ernst & Young LLP as the companys independent registered public
accounting firm was approved. Tabulation of the votes for the proposal was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker |
|
|
|
For |
|
|
Against |
|
|
Abstain |
|
|
Non-Vote |
|
Ratification of
independent auditors |
|
|
202,480,302 |
|
|
|
343,413 |
|
|
|
1,785,050 |
|
|
|
- 0 - |
|
29
Item 5. Other Events
On July 31, 2008, the companys Board of Directors amended Article II, Sections 4 and 6 of the
companys bylaws. Amended Article II, Section 4(A)(1) clarifies that the notice described in clause
(c) of Article II, Section 4(A)(1) shall be the exclusive means for a stockholder to make
nominations or submit other business (other than matters properly brought under Rule 14a-8 under
the Exchange Act and included in the Corporations notice of meeting) before an annual meeting of
stockholders. Under amended Article II, Section 4(A)(2), to be in proper form, a stockholders
notice must set forth, in addition to the information that was previously required by the bylaws, a
description of (i) any option, warrant, convertible security, stock appreciation right, or similar
right with an exercise or conversion privilege or a settlement payment or mechanism at a price
related to any class or series of shares of the Corporation or with a value derived in whole or in
part from the value of any class or series of shares of the Corporation, whether or not such
instrument or right shall be subject to settlement in the underlying class or series of capital
stock of the Corporation or otherwise (a Derivative Instrument) directly or indirectly owned
beneficially by such stockholder and any other direct or indirect opportunity to profit or
share in any profit derived from any increase or decrease in the value of shares of the
Corporation, (ii) any proxy, contract, arrangement, understanding, or relationship pursuant to
which such stockholder has a right to vote any shares of any security of the Corporation, (iii) any
short interest in any security of the Corporation, (iv) any rights to dividends on the shares of
the Corporation owned beneficially by such stockholder that are separated or separable from the
underlying shares of the Corporation, (v) any proportionate interest in shares of the Corporation
or Derivative Instruments held, directly or indirectly, by a general or limited partnership in
which such stockholder is a general partner or, directly or indirectly, beneficially owns an
interest in a general partner and (vi) any performance-related fees (other than an asset-based fee)
that such stockholder is entitled to based on any increase or decrease in the value of shares of
the Corporation or Derivative Instruments, if any, as of the date of such notice, including without
limitation any such interests held by members of such stockholders immediate family sharing the
same household. Amended Article II, Section 4(C)(3) clarifies that any references in the Bylaws to
the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the
requirements applicable to nominations or proposals as to any other business to be considered
pursuant to Section 4(A)(1)(c) or Section 4(B) of the Bylaws. Amended Article II, Section 6
establishes the record date as the date on which the Company shall determine whether the number of
director nominees exceeds the number of directors to be elected for purposes of the director
election vote requirements set forth in Article II, Section 6. The amended bylaws are attached as
Exhibit 3-2 to this Form 10-Q.
Item 6. Exhibits
Incorporated by reference to the Exhibit Index attached hereto and made a part hereof.
30
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.
|
|
|
|
|
Date: August 1, 2008 |
GANNETT CO., INC.
|
|
|
/s/ George R. Gavagan
|
|
|
George R. Gavagan |
|
|
Vice President and Controller
(on behalf of Registrant and as Chief Accounting Officer) |
|
31
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Exhibit |
|
Location |
|
|
|
|
|
3-1
|
|
Third Restated Certificate of
Incorporation of Gannett Co., Inc.
|
|
Incorporated by
reference to
Exhibit 3.1 to
Gannett Co., Inc.s
Form 10-Q for the
fiscal quarter ended
April 1, 2007. |
|
|
|
|
|
3-2
|
|
By-laws of Gannett Co., Inc.
|
|
Attached. |
|
|
|
|
|
3-3
|
|
Form of Certificate of Designation,
Preferences and Rights setting
forth the terms of the Series A
Junior Participating Preferred
Stock, par value $1.00 per share,
of Gannett Co., Inc.
|
|
Incorporated by
reference to
Exhibit 1 to Gannett
Co., Inc.s Form 8-A
filed on May 23,
1990. |
|
|
|
|
|
4-1
|
|
Rights Agreement, dated as of
May 21, 1990, between Gannett Co.,
Inc. and First Chicago Trust
Company of New York, as Rights
Agent.
|
|
Incorporated by
reference to
Exhibit 1 to Gannett
Co., Inc.s Form 8-A
filed on May 23,
1990. |
|
|
|
|
|
4-2
|
|
Amendment No. 1 to Rights Agreement,
dated as of May 2, 2000, between
Gannett Co., Inc. and Norwest Bank
Minnesota, N.A., as successor
rights agent to First Chicago Trust
Company of New York.
|
|
Incorporated by
reference to
Exhibit 2 to Gannett
Co., Inc.s
Form 8-A/A filed on
May 2, 2000. |
|
|
|
|
|
4-3
|
|
Form of Rights Certificate.
|
|
Incorporated by
reference to
Exhibit 1 to Gannett
Co., Inc.s Form 8-A
filed on May 23,
1990. |
|
|
|
|
|
4-4
|
|
Specimen Certificate for Gannett
Co., Inc.s common stock, par value
$1.00 per share.
|
|
Incorporated by
reference to
Exhibit 2 to Gannett
Co., Inc.s Form 8-B
filed on June 14,
1972. |
|
|
|
|
|
31-1
|
|
Rule 13a-14(a) Certification of CEO.
|
|
Attached. |
|
|
|
|
|
31-2
|
|
Rule 13a-14(a) Certification of CFO.
|
|
Attached. |
|
|
|
|
|
32-1
|
|
Section 1350 Certification of CEO.
|
|
Attached. |
|
|
|
|
|
32-2
|
|
Section 1350 Certification of CFO.
|
|
Attached. |
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.
32