TEGNA INC - Quarter Report: 2012 June (Form 10-Q)

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 24, 2012

¨	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)

Registrant’s 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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨ No x

The total number of shares of the registrant’s Common Stock, $1.00 par value outstanding as of June 24, 2012 was 231,421,058.

PART I. FINANCIAL INFORMATION

Items 1 and 2. Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

Results from Operations

Gannett Co., Inc. (the Company) reported 2012 second quarter earnings per diluted share, on a GAAP (generally accepted accounting principles) basis of $0.51 compared to $0.62 for the second quarter of 2011. Earnings per diluted share on a year-to-date basis were $0.79 in 2012 compared to $0.99 last year.

Results for the second quarter of 2012 include $10 million in costs due to workforce restructuring ($6 million after-tax or $0.02 per share), non-cash facility consolidation charges of $5 million ($3 million after-tax or $0.01 per share) and pension settlement charges totaling $5 million ($3 million after-tax or $0.01 per share). Results for the second quarter of 2011 included $9 million in costs due to workforce restructuring ($5 million after-tax or $0.02 per share), non-cash facility consolidation charges of $6 million ($4 million after-tax or $0.02 per share) and a $20 million net tax benefit ($0.08 per share).

Results for the first six months of 2012 include $26 million in costs due to workforce restructuring ($16 million after-tax or $0.07 per share), non-cash facility consolidation charges of $10 million ($6 million after-tax or $0.03 per share) and pension settlement charges totaling $5 million ($3 million after-tax or $0.01 per share). Results for the first six months of 2011 include $15 million in costs due to workforce restructuring ($9 million after-tax or $0.04 per share), non-cash facility consolidation charges of $14 million ($8 million after-tax or $0.03 per share) and a $20 million net tax benefit ($0.08 per share).

A separate discussion of results excluding the effect of special items (Non-GAAP basis) appears on page 9.

A consolidated summary of the Company’s results is presented below:


In thousands of dollars, except per share amounts
Second Quarter
	2012		2011		Change

Operating revenues	$	1,307,040	$	1,334,939		(2	%)
Operating expenses		1,090,522		1,093,185		—

Operating income	$	216,518	$	241,754		(10	%)

Non-operating expense	$	29,759	$	32,927		(10	%)

Net income attributable to Gannett Co., Inc.	$	119,889	$	151,527		(21	%)
Per share – basic	$	0.51	$	0.63		(19	%)
Per share – diluted	$	0.51	$	0.62		(18	%)


Year-to-Date
	2012		2011		Change

Operating revenues	$	2,525,627	$	2,586,200		(2	%)
Operating expenses		2,173,451		2,165,830		—

Operating income	$	352,176	$	420,370		(16	%)

Non-operating expense	$	62,983	$	74,801		(16	%)

Net income attributable to Gannett Co., Inc.	$	188,112	$	242,020		(22	%)
Per share – basic	$	0.80	$	1.01		(21	%)
Per share – diluted	$	0.79	$	0.99		(20	%)

Operating Revenues

Operating revenues declined 2% to $1.31 billion for the second quarter of 2012 and 2% to $2.53 billion for the first six months of the year reflecting softer print advertising demand in the Company’s Publishing segment, partially offset by stronger core and politically related advertising demand in the Broadcasting segment and continued growth of CareerBuilder in the Digital segment. Publishing segment revenues declined 6% for both the quarter and year-to-date periods, reflecting in part, the impact of sluggish economic growth on advertising demand. Within publishing segment revenue, circulation revenue declined less than 1%, a sequential improvement from the first quarter comparison. Circulation revenue for U.S. Community Publishing was 1% higher in the second quarter of 2012 with the impact of the continued roll out of the new all access content subscription model driving the increase. At the end of the second quarter, the Company had just over 16,500 digital subscribers, a number that is expected to increase significantly as the new model is introduced in more publishing markets in the latter half of 2012. Broadcasting segment revenues increased 11% for the quarter and 10% for the first six months of 2012 driven by stronger advertising demand and growth in retransmission revenue. Digital segment revenues were almost 5% higher for the quarter and 6% higher for the year-to-date period primarily reflecting solid revenue growth at CareerBuilder.

Second quarter 2012 company-wide digital revenues, which include Digital segment revenues and all digital revenues generated and reported by the other business segments, were $312 million, 13% higher compared to the second quarter in 2011 and were approximately 24% of the Company’s total operating revenues. For the year-to-date period, company-wide digital revenues were $584 million, 11% higher compared to the same period in 2011. Comparisons for both the quarter and year-to-date periods reflect higher digital advertising and marketing solutions revenue and the continued rollout of the new all access content subscription model.

Operating Expenses

Operating expenses including facility consolidation, workforce restructuring and pension settlement charges, were relatively flat for the quarter and year-to-date periods in 2012. Continuing company-wide cost control and efficiency efforts were offset by strategic initiative expenses that primarily impacted the Publishing segment as well as higher pension expense. Strategic initiative expenses were $30 million for the second quarter and $50 million for the year-to-date period in 2012. These expenses are related to the continued rollout of the all access content subscription model, digital website re-launches and digital marketing service initiatives. Publishing segment expenses decreased by 3% for the quarter and 1% for the year-to-date period, reflecting the impact of continuing efficiency efforts and lower newsprint expense, offset partially by strategic initiative spending. Newsprint expense comparisons to the prior year were 7% lower in both the quarter and the first six months of 2012. The increases in Broadcast and Digital segment expenses were driven by higher costs associated with revenue growth.

Operating Income

Operating income was $217 million for the second quarter of 2012, a decrease of $25 million or 10% compared to the second quarter last year, reflecting the impact of the economy on advertising demand in the Company’s Publishing segment as well as the continuing shift of advertising to alternate forms of media, particularly digital media. Publishing segment operating income was $104 million for the quarter, down 25% from last year due to advertising softness, particularly in April and June, as well as strategic initiative spending. This was partially offset by the impact of company-wide efforts to create efficiencies and lower costs. Broadcasting segment operating income increased 18% to $95 million for the quarter due to the impact of stronger politically related ad demand as well as significantly higher core and retransmission revenue, partially offset by an increase in related sales costs and strategic initiative expenses. Digital segment operating income was $37 million, up slightly from last year as higher revenues at CareerBuilder were partially offset by higher costs associated with revenue growth.

Operating income was $352 million for the year-to-date period, a decrease of 16% compared to last year. For the year-to-date period, Publishing segment results were similarly affected by those factors mentioned for second quarter results. Broadcasting results for the year-to-date period were up 16% reflecting higher core advertising, political and retransmission fees. Digital results were up 1%, again principally reflecting higher revenues at CareerBuilder, offset by higher costs including strategic initiatives. Revenue and expense variances are discussed in more detail below.

Net Income Attributable to Gannett Co., Inc.

Net income attributable to Gannett Co., Inc. was $120 million for the second quarter of 2012, a decrease of 21% compared to 2011. Earnings per diluted share were $0.51 in the second quarter compared to $0.62 last year. For the year-to-date period, net income attributable to Gannett Co., Inc. was $188 million, a decrease of 22% compared to 2011. Earnings per diluted share were $0.79 for the year-to-date period compared to $0.99 last year. These lower results paralleled the overall change in operating income.

The following is a discussion of the Company’s reported operating segment results:

Publishing Results

Publishing revenues declined 6% to $920 million from $977 million in the second quarter last year and declined 6% to $1.79 billion for the year-to-date period. Publishing revenues are derived principally from advertising and circulation sales, which accounted for 65% and 29%, respectively, of total publishing revenues for the second quarter and 64% and 29%, respectively for the year-to-date period. Advertising revenues include amounts derived from advertising placed with print products as well as publishing related internet web sites, mobile and tablet applications. “All other” publishing revenues are mainly from commercial printing operations. The table below presents these components of publishing revenues.

Publishing revenues, in thousands of dollars


Second Quarter	2012		2011		Change

Advertising	$	594,262	$	646,864		(8	%)
Circulation		263,938		265,433		(1	%)
All other		62,133		64,842		(4	%)

Total	$	920,333	$	977,139		(6	%)


Year-to-Date	2012		2011		Change

Advertising	$	1,145,700	$	1,248,600		(8	%)
Circulation		527,274		533,646		(1	%)
All other		121,421		124,678		(3	%)

Total	$	1,794,395	$	1,906,924		(6	%)

The table below presents the principal categories of advertising revenues for the Publishing segment.

Advertising revenues, in thousands of dollars


Second Quarter	2012		2011		Change

Retail	$	310,500	$	333,104		(7	%)
National		95,204		115,045		(17	%)
Classified		188,558		198,715		(5	%)

Total publishing advertising revenue	$	594,262	$	646,864		(8	%)


Year-to-Date	2012		2011		Change

Retail	$	589,478	$	635,601		(7	%)
National		185,644		219,781		(16	%)
Classified		370,578		393,218		(6	%)

Total publishing advertising revenue	$	1,145,700	$	1,248,600		(8	%)

Publishing advertising revenues decreased 8% in the quarter to $594 million from $647 million in the second quarter of 2011. Advertising revenue comparisons were very volatile in the second quarter of 2012. Advertising revenues on a constant currency basis were 12% lower in April, down just 2% in May and declined 9% in June versus last year. Advertising revenues declined 8% for the year-to-date period to $1.15 billion from $1.25 billion. For U.S. publishing, advertising revenue decreased 8% for the second quarter and year-to-date period. In the UK, advertising revenues were lower by 8% for the second quarter and year-to-date period. On a constant currency basis, advertising revenues in the UK declined 5% for the second quarter and 6% for the year-to-date period. The average exchange rate used to translate UK publishing results from the British pound to U.S. dollars decreased 2% to 1.59 for the second quarter from 1.63 last year and decreased 2% to 1.58 for the year-to-date period from 1.61 last year.

The percentage changes in the advertising revenue categories for domestic publishing, Newsquest and in total on a constant currency basis are as follows:


Second Quarter	U.S. Publishing			Newsquest (in pounds)			Total Constant Currency			Total Publishing Segment

Retail		(7	%)		(4	%)		(7	%)		(7	%)
National		(18	%)		3	%		(17	%)		(17	%)
Classified		(4	%)		(7	%)		(5	%)		(5	%)

Total		(8	%)		(5	%)		(8	%)		(8	%)

Year-to-Date	U.S. Publishing			Newsquest (in pounds)			Total Constant Currency			Total Publishing Segment

Retail		(7	%)		(5	%)		(7	%)		(7	%)
National		(16	%)		2	%		(15	%)		(16	%)
Classified		(5	%)		(7	%)		(5	%)		(6	%)

Total		(8	%)		(6	%)		(8	%)		(8	%)

Across the Publishing segment in the second quarter, all categories of advertising revenue comparisons were better than first quarter year-over-year comparisons except national.

Retail advertising was 7% lower in the second quarter of 2012, reflecting volatility as positive year-over-year comparisons in May did not offset softer ad demand in April and June. Retail advertising on a year-to-date basis was also down 7%.

National advertising declined 17% for the second quarter and 16% for the first six months of 2012, driven by declines at USA TODAY and U.S. Community Publishing. National advertising comparisons were positive at Newsquest for both the quarter and year-to-date periods in pounds.

Classified advertising revenue at the Company’s domestic publishing operations declined 4% for the second quarter of 2012, although the comparison improved relative to the first quarter comparisons. All domestic classified advertising category comparisons were better than first quarter comparisons. Automotive advertising was almost 1% higher compared to the second quarter last year, while employment was slightly less than 1% lower. Real estate advertising was down 14%, reflecting the slow recovery in the housing market. Classified advertising comparisons, in pounds, at Newsquest were uneven in the second quarter with lagging results in April and June offsetting slightly positive results in May.

The percentage changes in the classified revenue categories for domestic publishing, Newsquest and in total on a constant currency basis are as follows:


Second Quarter	U.S. Publishing			Newsquest (in pounds)			Total Constant Currency			Total Publishing Segment

Automotive		1	%		(14	%)		(1	%)		(2	%)
Employment		(1	%)		(4	%)		(2	%)		(3	%)
Real Estate		(14	%)		(8	%)		(12	%)		(13	%)
Legal		(3	%)		—			(3	%)		(3	%)
Other		(7	%)		(6	%)		(7	%)		(7	%)

Total		(4	%)		(7	%)		(5	%)		(5	%)

Year-to-Date	U.S. Publishing			Newsquest (in pounds)			Total Constant Currency			Total Publishing Segment

Automotive		(1	%)		(15	%)		(3	%)		(3	%)
Employment		(1	%)		(5	%)		(2	%)		(3	%)
Real Estate		(14	%)		(8	%)		(12	%)		(13	%)
Legal		(7	%)		—			(7	%)		(7	%)
Other		(8	%)		(5	%)		(7	%)		(8	%)

Total		(5	%)		(7	%)		(5	%)		(6	%)

Circulation revenues declined less than 1% for the second quarter of 2012 to $264 million from $265 million last year and declined 1% to $527 million for the first six months of 2012. Circulation revenue for U.S. Community Publishing was 1% higher in the second quarter of 2012 and was up almost 1% for the first six months of 2012. Circulation revenue comparisons were up for the first time since the end of 2008. Circulation revenue comparisons improved sequentially within the second quarter as the all access content subscription model continues to be rolled out. The Company expects that the price for subscribers will increase approximately 25% to 30% as a result of the all access content subscription model. At the end of the quarter, approximately half of the U.S. Community Publishing sites had rolled out the model. The Company expects to complete substantially all of the rollout by the end of 2012. The Company is also implementing single copy price increases of 30% to 100% at nearly all its domestic daily newspapers. The Company expects total circulation revenue in U.S. Community Publishing to grow approximately 25% once all of the markets are rolled out early next year.

Net paid daily circulation for local publishing operations declined 8% for the quarter and 7% for the first six months of 2012, while Sunday net paid circulation decreased by 9% and 6%, respectively. USA TODAY’s average daily circulation decreased 1% compared to the second quarter last year and increased 1% on a year-to-date basis.

“All Other” revenues decreased 4% for the quarter and were down 3% for the year-to-date period, primarily due to a decrease in UK commercial printing revenues.

The Company’s publishing operations, including U.S. Community Publishing, USA TODAY and affiliated companies and Newsquest, generate advertising and subscription revenues from web sites, tablets, and mobile applications that are associated with their publishing businesses. These revenues are reflected within all publishing categories on the income statement discussed above, and they are separate and distinct from revenue generated by businesses included in the Company’s Digital segment. Digital revenues associated with publishing operations increased 29% for the quarter and 21% for the year-to-date period, reflecting the Company’s strategic efforts to provide digital advertising and marketing solutions as well as the impact of the new all access content subscription model. Digital revenues at U.S. Community Publishing were higher 33% for the quarter and 22% for the year-to-date period due to both the digital marketing solutions efforts and to the content subscription model implementations. Digital revenues at USA TODAY and its associated businesses were up 37% for the second quarter and 31% for the first six months of 2012. Digital revenues in the UK were 10% higher in pounds for the quarter and 8% higher for the year-to-date period.

Publishing operating expenses decreased by 3% in the quarter to $816 million from $838 million in the second quarter of 2011 and were down 1% to $1.63 billion for the year-to-date period. The expense declines primarily reflect the result of continued efficiency efforts as well as lower newsprint expense. These savings were partially offset by strategic initiative spending and higher workforce restructuring costs. Expenses related to strategic initiatives totaled approximately $28 million for the quarter and $46 million for the year-to-date period. Workforce restructuring costs totaled $10 million and facility consolidation costs totaled $5 million in the second quarter of 2012 compared to $9 million and $6 million, respectively, last year. For the first six months of 2012, workforce restructuring costs totaled $28 million and facility consolidation costs totaled $10 million compared to $15 million and $14 million, respectively, for the same period last year.

Newsprint expense was 7% lower in the quarter and the first six months of 2012 due to declines in consumption. For the third quarter of 2012, the Company expects its newsprint expense will again be below year ago levels.

Publishing segment operating income was $104 million in the quarter, which includes the impact of strategic investments, compared to $139 million last year, a decrease of 25%. Operating income for the year-to-date period was $166 million, a decrease of 35% compared to last year. The decrease reflects lower operating revenues, partially offset by lower operating expenses.

Digital Results

The Digital segment includes results for CareerBuilder, PointRoll, ShopLocal, Reviewed.com and Planet Discover.

Digital segment operating revenues were $181 million in the second quarter of 2012 compared to $173 million in 2011, an increase of 5%. Year-to-date operating revenues were $350 million compared to $331 million, an increase of 6%, primarily reflecting continued strong revenue growth at CareerBuilder. CareerBuilder continues to build market share in the U.S. and its international operations have expanded in Europe and Brazil.

Digital operating expenses were $145 million in the second quarter of 2012 compared to $137 million in 2011, an increase of 5%. Year-to-date operating expenses were $297 million compared to $279 million in 2011, an

increase of 6%. Expenses increased reflecting higher costs at CareerBuilder and strategic spending on digital initiatives.

Broadcasting Results

Broadcasting includes results from the Company’s 23 television stations and Captivate. Broadcasting revenues were $205 million in the second quarter, 11% higher than the second quarter last year primarily reflecting stronger advertising demand. Revenues for the year-to-date period 2012 were $382 million, an increase of 10% from $348 million last year.

Television revenues for the quarter were $198 million, up 11% from the comparable period in 2011. Television revenues for the year-to-date period were $369 million, up 10% from the comparable period in 2011. Both the quarter and year-to-date comparisons reflect a significant increase in core and politically related advertising. Core advertising was led by an increase in auto spending, which was up almost 30% compared to last year’s second quarter, and up 22% on a year-to-date basis. Increases in medical and banking advertising categories also contributed to the higher core advertising. Political advertising increased $9 million for the second quarter of 2012 compared to last year and $13 million on a year-to-date basis. Retransmission revenues totaled $23 million for the quarter and $45 million year-to-date, both achieving an increase of 17% over the comparable periods in 2011. There are no incremental costs associated with retransmission revenues; therefore, all of these revenues contribute directly to operating income.

Total adjusted television revenues, defined to exclude the estimated incremental impact of ad revenue related to political spending, were up 6% for the second quarter and year-to-date periods of 2012. The increase was due, in part, to strengthened demand for automotive advertising and several other key categories in the quarter.

Digital revenues in Broadcasting were up 13% for the second quarter reflecting a 15% increase in revenues at Captivate and an 11% increase in digital revenue associated with the Company’s television stations. Digital revenues on a year-to-date basis were up 7%.

Based on current trends, the Company expects the percentage increase in total television revenues for the third quarter of 2012 to be in the low thirties compared to the third quarter of 2011.

Broadcasting operating expenses for the second quarter totaled $111 million, up 7% from the second quarter 2011. The increase is primarily due to approximately $2 million of strategic initiative expenses and higher sales costs associated with higher revenue. Broadcasting operating expenses for the first six months totaled $214 million, up 5% from the same period in 2011 due to $3 million of strategic initiative expenses in 2012 and higher sales costs associated with higher revenues. Operating income in 2012 was $95 million for the second quarter and $167 million for the year-to-date period compared to $80 million and $144 million, respectively in 2011.

Corporate Expense

Corporate expense in the second quarter was $19 million, up 40% from the second quarter last year due to the pension settlement charges recognized in the second quarter of 2012. Year-to-date corporate expenses increased 6% to $34 million from $32 million last year, also reflecting the impact of the pension settlement charges.

Non-Operating Income and Expense

Equity Earnings

Equity income increased 9% to $9 million for the second quarter this year and 14% to $13 million year-to-date, due primarily to strong results from Classified Ventures which were up 4% for the quarter and 19% year-to-date.

Interest Expense

The Company’s interest expense for the second quarter was $36 million, down 19% from last year reflecting lower average debt levels. Total average outstanding debt was $1.75 billion for the second quarter of 2012 compared to $2.18 billion last year. The weighted average interest rate for total outstanding debt was 7.41% for the second quarter of 2012 compared to 7.36% last year.

Interest expense for the first six months of 2012 was $76 million, down 17% from last year reflecting primarily lower average debt levels. Total average outstanding debt was $1.76 billion for the first six months of 2012 compared to $2.25 billion last year. The weighted average interest rate for total outstanding debt was 7.72% for the first six months of 2012 compared to 7.34% last year.

At the end of the second quarter of 2012, the Company had $440 million in long-term floating rate obligations outstanding. A 50 basis points increase or decrease in the average interest rate for these obligations would result in an increase or decrease in annualized interest expense of $2.2 million.

Other Non-Operating Items

Other non-operating items decreased $6 million for the second quarter of 2012 and $5 million year-to-date, primarily due to a gain in the second quarter of 2011 associated with the prepayment of a secured promissory note the Company received in connection with the disposition of certain publishing operations in 2010.

Provision for Income Taxes

The Company’s effective income tax rate was 30% for the second quarter of 2012, compared to 22% for the second quarter of 2011. The Company’s effective income tax rate was 29% for first six months of 2012, compared to 25% for the same period last year. The tax rates for both 2012 and 2011 reflect benefits from releases of reserves on prior year tax positions related to tax settlements and the lapse of statutes of limitations. The rate in 2011 was lower than the rate in 2012 due to a special net tax benefit of $20 million primarily from certain audit settlements. A separate discussion of effective income tax rates excluding special items (non-GAAP basis) appears on page 13.

Net Income Attributable to Gannett Co., Inc.

Net income attributable to Gannett Co., Inc. was $120 million for the second quarter of 2012, a decrease of $32 million or 21% compared to 2011. Net income attributable to Gannett Co., Inc. consists of net income reduced by net income attributable to noncontrolling interests. Net income attributable to noncontrolling interests was $16 million in the second quarter of 2012 and $14 million in the same period in 2011. Earnings per diluted share were $0.51 in the second quarter of 2012 compared to $0.62 last year. For the year-to-date period of 2012, net income attributable to Gannett Co., Inc. was $188 million, a decrease of 22% compared to 2011. Net income attributable to noncontrolling interests was $23 million year-to-date in 2012 and $22 million for the same period in 2011. Earnings per diluted share were $0.79 for the year-to-date period in 2012 compared to $0.99 last year.

The weighted average number of diluted shares outstanding for the second quarter of 2012 totaled 237,136,000 compared to 243,995,000 for the second quarter of 2011. For the first six months of 2012 and 2011, the weighted average number of diluted shares outstanding totaled 238,774,000 and 243,652,000, respectively. The decrease is due to shares repurchased since the second quarter of 2011. See Part II, Item 2 for information on share repurchases.

Operating Results - Non-GAAP Information

The Company uses non-GAAP financial performance and liquidity measures to supplement the financial information presented on a GAAP basis. These non-GAAP financial measures are not to be considered in isolation from or as a substitute for the related GAAP measures, and should be read only in conjunction with financial information presented on a GAAP basis.

The Company discusses in this report non-GAAP financial performance measures that exclude from its reported GAAP results the impact of special items consisting of workforce restructuring charges, facility consolidation expenses, pension settlement charges and certain credits to its income tax provision. The Company believes that such expenses are not indicative of normal, ongoing operations and their inclusion in results makes for more difficult comparisons between periods and with peer group companies. Workforce restructuring and facility consolidation expenses primarily relate to incremental expenses the Company has incurred to consolidate or outsource production processes and centralize other functions. These expenses include payroll and related benefit costs and accelerated depreciation. The pension settlement charges result from the acceleration of expense related to the timing of certain pension payments. The credit to the tax provision included in the second quarter of 2011 is related to a tax settlement covering multiple years.

Management uses non-GAAP financial performance measures for purposes of evaluating business unit and consolidated company performance. The Company therefore believes that each of the non-GAAP measures provides useful information to investors by allowing them to view the Company’s businesses through the eyes of management and the Board of Directors, facilitating comparison of results across historical periods, and providing a focus on the underlying ongoing operating performance of its businesses. In addition, many of the Company’s peer group companies present similar non-GAAP measures so the presentation of such measures facilitates industry comparisons.

Non-GAAP Financial Tables/Reconciliations

On an as adjusted basis using non-GAAP amounts for expenses, operating results were as follows:


In thousands of dollars, except per share amounts
Second Quarter	2012		2011		Change

Operating revenues	$	1,307,040	$	1,334,939		(2	%)
Adjusted operating expenses, non-GAAP basis		1,070,266		1,077,999		(1	%)

Adjusted operating income, non-GAAP basis	$	236,774	$	256,940		(8	%)


Adjusted net income attributable to Gannett Co., Inc., non-GAAP basis	$	132,045	$	140,713		(6	%)

Adjusted diluted earnings per share, non-GAAP basis	$	0.56	$	0.58		(3	%)

Year-to-Date	2012		2011		Change

Operating revenues	$	2,525,627	$	2,586,200		(2	%)
Adjusted operating expenses, non-GAAP basis		2,132,118		2,137,021		—

Adjusted operating income, non-GAAP basis	$	393,509	$	449,179		(12	%)


Adjusted net income attributable to Gannett Co., Inc., non-GAAP basis	$	212,845	$	239,629		(11	%)

Adjusted diluted earnings per share, non-GAAP basis	$	0.89	$	0.98		(9	%)

Adjustments to remove special items from GAAP results follow:


In thousands of dollars, except per share amounts
Second Quarter	2012			2011			Change

Operating expenses (GAAP basis)	$	1,090,522		$	1,093,185			—
Remove special items:
Workforce restructuring		(9,736	)		(8,792	)		11	%
Facility consolidation charges		(5,097	)		(6,394	)		(20	%)
Pension settlement charges		(5,423	)		—			*	**

As adjusted (non-GAAP basis)	$	1,070,266		$	1,077,999			(1	%)


Operating income (GAAP basis)	$	216,518		$	241,754			(10	%)
Remove special items:
Workforce restructuring		9,736			8,792			11	%
Facility consolidation charges		5,097			6,394			(20	%)
Pension settlement charges		5,423			—			*	**

As adjusted (non-GAAP basis)	$	236,774		$	256,940			(8	%)


Net income attributable to Gannett Co., Inc. (GAAP basis)	$	119,889		$	151,527			(21	%)
Remove special items (net of tax):
Workforce restructuring		5,836			5,392			8	%
Facility consolidation charges		3,097			3,894			(20	%)
Pension settlement charges		3,223			—			*	**
Prior year tax reserve adjustments, net		—			(20,100	)		*	**

As adjusted (non-GAAP basis)	$	132,045		$	140,713			(6	%)


Diluted earnings per share (GAAP basis)	$	0.51		$	0.62			(18	%)
Remove special items (net of tax):
Workforce restructuring		0.02			0.02			—
Facility consolidation charges		0.01			0.02			(50	%)
Pension settlement charges		0.01			—			*	**
Prior year tax reserve adjustments, net		—			(0.08	)		*	**

As adjusted (non-GAAP basis) (a)	$	0.56		$	0.58			(3	%)

(a)	Total per share amount may not sum due to rounding.


Year-to-Date	2012			2011			Change

Operating expenses (GAAP basis)	$	2,173,451		$	2,165,830			—
Remove special items:
Workforce restructuring		(26,025	)		(14,759	)		76	%
Facility consolidation charges		(9,885	)		(14,050	)		(30	%)
Pension settlement charges		(5,423	)		—			***

As adjusted (non-GAAP basis)	$	2,132,118		$	2,137,021			—


Operating income (GAAP basis)	$	352,176		$	420,370			(16	%)
Remove special items:
Workforce restructuring		26,025			14,759			76	%
Facility consolidation charges		9,885			14,050			(30	%)
Pension settlement charges		5,423			—			***

As adjusted (non-GAAP basis)	$	393,509		$	449,179			(12	%)


Net income attributable to Gannett Co., Inc. (GAAP basis)	$	188,112		$	242,020			(22	%)
Remove special items (net of tax):
Workforce restructuring		15,525			9,259			68	%
Facility consolidation charges		5,985			8,450			(29	%)
Pension settlement charges		3,223			—			***
Prior year tax reserve adjustments, net		—			(20,100	)		***

As adjusted (non-GAAP basis)	$	212,845		$	239,629			(11	%)


Diluted earnings per share (GAAP basis)	$	0.79		$	0.99			(20	%)
Remove special items (net of tax):
Workforce restructuring		0.07			0.04			75	%
Facility consolidation charges		0.03			0.03			—
Pension settlement charges		0.01			—			***
Prior year tax reserve adjustments, net		—			(0.08	)		***

As adjusted (non-GAAP basis) (a)	$	0.89		$	0.98			(9	%)

(a)	Total per share amount may not sum due to rounding.

Consolidated operating expenses on a non-GAAP basis for the second quarter of 2012, adjusted to remove costs associated with workforce restructuring, facility consolidations and pension settlement charges, declined 1% compared to 2011. Consolidated operating expense on a non-GAAP basis for the year-to-date period 2012, adjusted to remove costs associated with workforce restructuring, facility consolidations and pension settlement charges, were flat compared to 2011. This includes approximately $30 million of strategic initiative expenses for the quarter and $50 million year-to-date, as well as $4 million and $10 million increases in pension expense for the quarter and year-to-date period, respectively. Current quarter and year-to-date expense levels reflect the impact of efficiency efforts and facility consolidations in prior quarters and lower newsprint expense partially offset by higher Broadcasting and Digital segment expenses.

As a result of the above cost factors, as well as lower overall revenues, as adjusted operating income on a non-GAAP basis was $237 million for the second quarter of 2012, a decrease of 8% from the comparable period last year and was $394 million for the year-to-date period, a decrease of 12% from the comparable period last year. Adjusted net income attributable to Gannett Co., Inc. on a non-GAAP basis was $132 million for the quarter and $213 million for the year-to-date period, decreases of $9 million or 6% and $27 million or 11%, respectively, compared to last year.

A summary of the impact of facility consolidation and workforce restructuring charges on the Company’s Publishing segment is presented below:


In thousands of dollars
Second Quarter	2012			2011			Change

Publishing segment operating expenses (GAAP basis)	$	816,122		$	838,493			(3	%)
Remove special items:
Workforce restructuring		(9,736	)		(8,792	)		11	%
Facility consolidation charges		(5,097	)		(6,394	)		(20	%)

As adjusted (non-GAAP basis)	$	801,289		$	823,307			(3	%)


Publishing segment operating income (GAAP basis)	$	104,211		$	138,646			(25	%)
Remove special items:
Workforce restructuring		9,736			8,792			11	%
Facility consolidation charges		5,097			6,394			(20	%)

As adjusted (non-GAAP basis)	$	119,044		$	153,832			(23	%)


Year-to-Date	2012			2011			Change

Publishing segment operating expenses (GAAP basis)	$	1,628,144		$	1,650,681			(1	%)
Remove special items:
Workforce restructuring		(27,681	)		(14,759	)		88	%
Facility consolidation charges		(9,885	)		(14,050	)		(30	%)

As adjusted (non-GAAP basis)	$	1,590,578		$	1,621,872			(2	%)


Publishing segment operating income (GAAP basis)	$	166,251		$	256,243			(35	%)
Remove special items:
Workforce restructuring		27,681			14,759			88	%
Facility consolidation charges		9,885			14,050			(30	%)

As adjusted (non-GAAP basis)	$	203,817		$	285,052			(28	%)

Publishing segment operating expenses in the second quarter of 2012 were impacted by $15 million in costs due to workforce restructuring and facility consolidation charges. Excluding the impact of these items, as adjusted operating expenses on a non-GAAP basis declined 3% to $801 million. Publishing segment operating expenses for the year-to-date period of 2012 were impacted by $38 million in costs due to workforce restructuring and facility consolidation charges. Excluding the impact of these items, as adjusted operating expenses on a non-GAAP basis declined 2% to $1.59 billion. The expense declines primarily reflect the result of continued efficiency efforts and lower costs particularly through Gannett Publishing Services and sourcing initiatives as well as lower newsprint expense, partially offset by strategic initiative expenses. As adjusted operating income for the Publishing segment on a non-GAAP basis was $119 million for the second quarter of 2012 and $204 million for the year-to-date period of 2012.

A summary of the impact of special items on the Company’s Corporate segment is presented below:


In thousands of dollars
Second Quarter	2012			2011		Change

Corporate segment operating expenses (GAAP basis)	$	18,810		$	13,470		40	%
Remove special items:
Pension settlement charges		(5,423	)		—		*	**

As adjusted (non-GAAP basis)	$	13,387		$	13,470		(1	%)


Year-to-Date	2012			2011		Change

Corporate segment operating expenses (GAAP basis)	$	34,070		$	31,995		6	%
Remove special items:
Workforce restructuring		1,656			—		*	**
Pension settlement charges		(5,423	)		—		*	**

As adjusted (non-GAAP basis)	$	30,303		$	31,995		(5	%)

A summary of the impact of special items on the Company’s effective tax rate in thousands of dollars follows:


Second Quarter	2012			2011

Income before income taxes as reported	$	186,759		$	208,827
Net income attributable to noncontrolling interests		(15,670	)		(14,000	)

Gannett pretax income (GAAP basis)		171,089			194,827
Remove special items:
Workforce restructuring		9,736			8,792
Facility consolidation charges		5,097			6,394
Pension settlement charges		5,423			—

As adjusted (non-GAAP basis)	$	191,345		$	210,013


Provision for income taxes as reported (GAAP basis)	$	51,200		$	43,300
Remove special items:
Workforce restructuring		3,900			3,400
Facility consolidation charges		2,000			2,500
Pension settlement charges		2,200			—
Prior year tax reserve adjustments, net		—			20,100

As adjusted (non-GAAP basis)	$	59,300		$	69,300


As adjusted effective tax rate (GAAP basis)		29.9	%		22.2	%
As adjusted effective tax rate (non-GAAP basis)		31.0	%		33.0	%



Year-to-Date	2012			2011

Income before income taxes as reported	$	289,193		$	345,569
Net income attributable to noncontrolling interests		(23,281	)		(21,649	)

Gannett pretax income (GAAP basis)		265,912			323,920
Remove special items:
Workforce restructuring		26,025			14,759
Facility consolidation charges		9,885			14,050
Pension settlement charges		5,423			—

As adjusted (non-GAAP basis)	$	307,245		$	352,729


Provision for income taxes as reported (GAAP basis)	$	77,800		$	81,900
Remove special items:
Workforce restructuring		10,500			5,500
Facility consolidation charges		3,900			5,600
Pension settlement charges		2,200			—
Prior year tax reserve adjustments, net		—			20,100

As adjusted (non-GAAP basis)	$	94,400		$	113,100


As adjusted effective tax rate (GAAP basis)		29.3	%		25.3	%
As adjusted effective tax rate (non-GAAP basis)		30.7	%		32.1	%

The adjusted non-GAAP tax rate for the second quarter of 2012 was 31.0% compared to 33.0% for the second quarter of last year. The year-to-date adjusted non-GAAP tax rate was 30.7% and 32.1% for 2012 and 2011, respectively. The effective tax rates reflect benefits from releases of reserves on prior year tax positions.

Certain Matters Affecting Future Operating Results

Earlier this year, Gannett announced a detailed strategy focused on generating sustainable revenue growth, increasing profitability and creating shareholder value. The strategy’s three components are: (1) enhancing our core by stabilizing publishing while continuing to grow broadcast and diversified digital businesses; (2) accelerating growth by entering or expanding into related high-potential businesses; and (3) maintaining focus on operating efficiency and asset optimization. In connection with this strategy, Gannett disclosed that by 2015, it expects overall annual revenue growth in the range of 2% to 4%, and pre-tax margins to increase to between 15% and 19%.

The Company also announced a new capital program to be funded entirely through free cash flow. The Company expects to return more than $1.3 billion to shareholders by 2015. Excess cash flow will be used for further investment opportunities and opportunistic debt reduction. The new capital program includes the following actions:

•

The Board authorized a 150% increase in Gannett’s dividend to $0.80 per share on an annual basis.

•

The Board approved an acceleration of its share repurchases with a new $300 million share repurchase program targeted to be completed over the next two years, which it anticipates making an ongoing part of cash return to shareholders. Through June 24, 2012, the Company repurchased 5.8 million shares at a cost of $81 million.

•

The Company will continue to evaluate opportunistic bolt-on acquisitions.

The Company also highlighted a number of key initiatives and expected performance metrics, including:

•

A new all access content subscription model for U.S. Community Publishing, which charges for content regardless of platform. Non-subscriber access is metered and limited. The Company expects this model to contribute $100 million in earnings to the Publishing segment annually beginning in 2013. The Company also expects to generate incremental advertising revenue from digital platforms launching with the new model. As of the second quarter of 2012, the all access content subscription model had been launched in 38 markets.

•

The re-launch or development of all desktop, mobile and tablet products across Gannett by the end of 2013, beginning with USA TODAY this fall.

•

The development of a new digital marketing services business targeted at small and medium size businesses, which is expected to generate between $275 million and $350 million in annual revenue by 2015. The initiative is now fully operational in all television markets and Gannett’s top 35 domestic publishing markets.

•

The expansion of USA TODAY Sports Media Group, which is expected to be among the top five sports media companies in the country with over $300 million in annual revenue by 2015. In June 2012, USA TODAY Sports Media Group was ranked by Comscore as the fourth most visited digital sports entity.

•

Cost management and other asset optimization initiatives with total annual incremental savings expected to reach $100 million to $150 million by 2015. As part of those initiatives, Gannett Publishing Services is expected to contribute approximately $40 million to pre-tax income in 2012, with an increasing impact thereafter.

Expenses related to the strategic initiatives are expected to be approximately $10 million to $15 million in the third quarter of 2012.

Liquidity, Capital Resources, Financial Position, and Statements of Cash Flows

The Company’s net cash flow from operating activities was $317 million for the first six months of 2012, compared to $415 million for the first six months of 2011. Net cash flow from operating activities for 2012 reflects cash contributions totaling $76 million to the Gannett Retirement Plan, the Company’s principal retirement plan. This compares to cash contributions of $14 million in 2011.

Cash flows used for investing activities totaled $34 million for the first six months of 2012. This includes $38 million of capital spending and $9 million of payments for acquisitions. The Company received $10 million of proceeds from investments and $4 million of proceeds from the sale of certain assets. For the same year-to-date period in 2011, cash flows provided by investing activities totaled $4 million, reflecting $29 million of capital spending, $12 million of payments for certain publishing and digital business acquisitions, and $15 million of payments for investments. The Company also received $26 million of proceeds from investments and $34 million of proceeds from the sale of certain assets, of which included $26 million for the prepayment of a secured promissory note.

Cash flows used for financing activities totaled $248 million for the first six months of 2012 reflecting net debt payments of $102 million, payment of dividends totaling $66 million and repurchases of common shares for $81 million. Cash flows used for financing activities totaled $437 million for the first six months of 2011 reflecting debt payments of $334 million, payment of dividends totaling $19 million and an $85 million payment made to repurchase a noncontrolling membership interest.

At the end of the second quarter of 2012, the Company’s total long-term debt was $1.7 billion and its senior leverage ratio was 1.82x, substantially below the maximum senior leverage ratio of 3.5x the Company is permitted to maintain under its revolving credit agreements.

The long-term debt of the Company is summarized below:


In thousands of dollars
	Jun. 24, 2012		Dec. 25, 2011

Unsecured notes bearing fixed rate interest at 6.375% repaid April 2012	$	—	$	306,534

Borrowings under revolving credit agreements expiring September 2014		440,000		235,000

Unsecured notes bearing fixed rate interest at 8.75% due November 2014		247,977		247,609

Unsecured notes bearing fixed rate interest at 10% due June 2015		60,360		59,522

Unsecured notes bearing fixed rate interest at 6.375% due September 2015		248,236		247,995

Unsecured notes bearing fixed rate interest at 10% due April 2016		171,912		169,775

Unsecured notes bearing fixed rate interest at 9.375% due November 2017		247,349		247,168

Unsecured notes bearing fixed rate interest at 7.125% due September 2018		246,948		246,760


Total long-term debt	$	1,662,782	$	1,760,363

In April 2012, the Company repaid its 6.375% fixed rate notes using borrowings under the credit agreements. On June 24, 2012, the Company had unused borrowing capacity of $665 million under its revolving credit agreements. In addition, its revolving credit agreements allow the Company to borrow at least $1 billion of additional unsecured debt (unrestricted as to purpose) guaranteed by the guarantor subsidiaries under these credit agreements. This borrowing limit is subject to increases depending upon the Company’s total leverage ratio.

The fair value of the Company’s total long-term debt, based principally on quoted market prices for the individual tranches of debt, totaled $1.8 billion at June 24, 2012.

On February 22, 2012, the Company announced that its Board of Directors approved a 150% increase in its regular quarterly dividend to $0.20 per share. The Board of Directors also authorized an acceleration of its share repurchases with a new $300 million share repurchase program targeted to be completed over the next two years. The shares will be repurchased at management’s discretion, either in the open market or in privately negotiated block transactions. The decision to buy back stock will depend on price, availability and other corporate developments. Purchases will occur from time to time and no maximum purchase price has been set. The board will regularly assess the appropriate dividend level and share repurchase levels depending on economic and market conditions.

Through June 24, 2012, the Company repurchased 5.8 million shares at a cost of $81 million under the new share repurchase program.

The Company’s foreign currency translation adjustment, included in accumulated other comprehensive loss and reported as part of shareholders’ equity, totaled $399 million at the end of the second quarter of 2012 versus $400 million at the end of 2011. Newsquest’s assets and liabilities at June 24, 2012 and December 25, 2011 were translated from the British pound to U.S. dollars at an exchange rate of 1.56. For the second quarter, Newsquest’s financial results were translated from the British pound to U.S. dollars at an average rate of 1.59 for 2012 compared to 1.63 last year.

The Company is exposed to foreign exchange rate risk primarily due to its operations in the United Kingdom, for which the British pound is the functional currency. If the price of the British pound against the U.S. dollar had been 10% more or less than the actual price, operating income for the second quarter of 2012 would have increased or decreased approximately 1%.

Looking ahead, the Company expects to fund capital expenditures, interest, dividends, share repurchases, contributions to its pension plans, investments in strategic initiatives and other operating requirements through cash flows from operations. The Company expects to fund debt maturities, acquisitions and investments through a combination of cash flows from operations, borrowing under its credit agreements or funds raised in the capital or credit markets. The Company’s financial and operating performance and its ability to generate sufficient cash flow for these purposes and to maintain compliance with credit facility covenants are subject to certain risk factors as noted in the section below titled “Certain Factors Affecting Forward-Looking Statements.”

Non-GAAP Liquidity Measure

The Company’s free cash flow, a non-GAAP liquidity measure, was $140 million for the quarter ended June 24, 2012 and $288 million year-to-date. Free cash flow, which the Company reconciles to “Net cash flow from operating activities,” is cash flow from operations reduced by “Purchase of property, plant and equipment” as well as “Payments for investments” and increased by “Proceeds from investments”. The Company believes that free cash flow is a useful measure for management and investors to evaluate the level of cash generated by operations and the ability of its operations to fund investments in new and existing businesses, return cash to shareholders under the Company’s new capital program, repay indebtedness, add to the Company’s cash balance, or to use in other discretionary activities. Management uses free cash flow to monitor cash available for repayment of indebtedness and in its discussions with the investment community.

Reconciliations from “Net cash flow from operating activities” to “Free cash flow” follow:


In thousands of dollars
Second Quarter	2012			2011

Net cash flow from operating activities	$	154,495		$	190,726
Purchase of property, plant and equipment		(20,187	)		(16,623	)
Payments for investments		—			(14,322	)
Proceeds from investments		6,067			20,216

Free cash flow	$	140,375		$	179,997



Year-to-Date	2012			2011

Net cash flow from operating activities	$	316,582		$	414,808
Purchase of property, plant and equipment		(38,352	)		(29,251	)
Payments for investments		(500	)		(14,797	)
Proceeds from investments		10,393			25,681

Free cash flow	$	288,123		$	396,441

Net cash flow from operating activities reflects cash contributions to the Gannett Retirement Plan, the Company’s principal retirement plan, of $22 million and $76 million in the second quarter and first six months of 2012, respectively.

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 Company’s 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 potential increase in competition for the Company’s digital segment businesses; (c) a decline in viewership of major networks and local news programming resulting from increased competition or other factors; (d) a continuance of the generally soft economic conditions in the U.S. and the UK or a further economic downturn leading to a continuing or accelerated decrease in circulation or local, national or classified advertising; (e) a further decline in general print readership and/or advertiser patterns as a result of competitive alternative media or other factors; (f) an increase in newsprint or syndication programming costs over the levels anticipated; (g) labor disputes which may cause revenue declines or increased labor costs; (h) acquisitions of new businesses or dispositions of existing businesses; (i) rapid technological changes and frequent new product introductions prevalent in electronic publishing; (j) an increase in interest rates; (k) a weakening in the British pound to U.S. dollar exchange rate; (1) volatility in financial and credit markets which could affect the value of retirement plan assets and the Company’s ability to raise funds through debt or equity issuances; (m) changes in the regulatory environment; (n) credit rating downgrades, which could affect the availability and cost of future financing; (o) adverse outcomes in proceedings with governmental authorities or administrative agencies; and (p) general economic, political and business conditions; and (q) an other-than-temporary decline in operating results and enterprise value that could lead to further non-cash goodwill, other intangible asset, investment or property, plant and equipment impairment charges. The Company continues to monitor the uneven economic recovery in the U.S., as well as new and developing competition and technological change, to evaluate whether any indicators of impairment exist, particularly for those reporting units where fair value is closer to carrying value.

CONDENSED CONSOLIDATED BALANCE SHEETS

Gannett Co., Inc. and Subsidiaries

In thousands of dollars (except per share amounts)


	Jun. 24, 2012			Dec. 25, 2011
	(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	202,089		$	166,926
Trade receivables, less allowance for doubtful receivables (2012 - $30,867, 2011 - $34,646)		623,431			693,194
Other receivables		19,487			17,247
Inventories		62,357			49,122
Deferred income taxes		25,054			22,771
Prepaid expenses and other current assets		87,041			106,631
Assets held for sale		27,089			19,654

Total current assets		1,046,548			1,075,545


Property, plant and equipment
Cost		4,094,935			4,106,681
Less accumulated depreciation		(2,515,651	)		(2,466,454	)

Net property, plant and equipment		1,579,284			1,640,227


Intangible and other assets
Goodwill		2,878,663			2,864,885
Indefinite-lived and amortizable intangible assets, less accumulated amortization		492,501			502,195
Deferred income taxes		168,524			208,650
Investments and other assets		297,671			324,948

Total intangible and other assets		3,837,359			3,900,678


Total assets	$	6,463,191		$	6,616,450

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

Gannett Co., Inc. and Subsidiaries

In thousands of dollars (except per share amounts)


	Jun. 24, 2012			Dec. 25, 2011
	(Unaudited)
LIABILITIES AND EQUITY

Current liabilities
Accounts payable and current portion of film contracts payable	$	193,002		$	215,975
Compensation, interest and other accruals		386,923			431,934
Dividends payable		46,640			18,935
Income taxes		47,293			3,658
Deferred income		243,996			231,435

Total current liabilities		917,854			901,937


Income taxes		100,944			112,088
Long-term debt		1,662,782			1,760,363
Postretirement medical and life insurance liabilities		158,304			163,699
Pension liabilities		823,350			908,110
Other long-term liabilities		227,340			258,228

Total liabilities		3,890,574			4,104,425


Commitments and contingent liabilities (See Note 14)

Equity
Gannett Co., Inc. 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		611,799			617,727
Retained earnings		7,370,460			7,276,200
Accumulated other comprehensive loss		(584,568	)		(595,839	)

		7,722,110			7,622,507

Less treasury stock, 92,997,574 shares and 87,381,638 shares, respectively, at cost		(5,355,946	)		(5,294,616	)

Total Gannett Co., Inc. shareholders’ equity		2,366,164			2,327,891

Noncontrolling interests		206,453			184,134

Total equity		2,572,617			2,512,025


Total liabilities and equity	$	6,463,191		$	6,616,450

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Gannett Co., Inc. and Subsidiaries

Unaudited, in thousands of dollars (except per share amounts)


	Thirteen Weeks Ended
	Jun. 24, 2012			Jun. 26, 2011			% Inc (Dec)
Net Operating Revenues:
Publishing advertising	$	594,262		$	646,864			(8.1	)
Publishing circulation		263,938			265,433			(0.6	)
Digital		181,326			173,447			4.5
Broadcasting		205,381			184,353			11.4
All other		62,133			64,842			(4.2	)

*Total*		1,307,040			1,334,939			(2.1	)


Operating Expenses:
Cost of sales and operating expenses, exclusive of depreciation		720,889			739,654			(2.5	)
Selling, general and administrative expenses, exclusive of depreciation		316,301			297,196			6.4
Depreciation		40,157			42,070			(4.5	)
Amortization of intangible assets		8,078			7,871			2.6
Facility consolidation charges		5,097			6,394			(20.3	)

*Total*		1,090,522			1,093,185			(0.2	)

*Operating income*		216,518			241,754			(10.4	)


Non-operating (expense) income:
Equity income in unconsolidated investees, net		8,663			7,973			8.7
Interest expense		(36,142	)		(44,741	)		(19.2	)
Other non-operating items		(2,280	)		3,841			***

*Total*		(29,759	)		(32,927	)		(9.6	)


Income before income taxes		186,759			208,827			(10.6	)
Provision for income taxes		51,200			43,300			18.2

*Net income*		135,559			165,527			(18.1	)
Net income attributable to noncontrolling interests		(15,670	)		(14,000	)		11.9

*Net income attributable to Gannett Co., Inc.*	$	119,889		$	151,527			(20.9	)


*Net income per share – basic*	$	0.51		$	0.63			(19.0	)

*Net income per share – diluted*	$	0.51		$	0.62			(17.7	)

*Dividends declared per share*	$	0.20		$	0.04			***

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Gannett Co., Inc. and Subsidiaries

Unaudited, in thousands of dollars (except per share amounts)


	Twenty-six Weeks Ended
	Jun. 24, 2012			Jun. 26, 2011			% Inc (Dec)
Net Operating Revenues:
Publishing advertising	$	1,145,700		$	1,248,600			(8.2	)
Publishing circulation		527,274			533,646			(1.2	)
Digital		349,678			331,041			5.6
Broadcasting		381,554			348,235			9.6
All other		121,421			124,678			(2.6	)

*Total*		2,525,627			2,586,200			(2.3	)


Operating Expenses:
Cost of sales and operating expenses, exclusive of depreciation		1,443,129			1,457,169			(1.0	)
Selling, general and administrative expenses, exclusive of depreciation		624,620			594,743			5.0
Depreciation		79,860			83,708			(4.6	)
Amortization of intangible assets		15,957			16,160			(1.3	)
Facility consolidation charges		9,885			14,050			(29.6	)

*Total*		2,173,451			2,165,830			0.4

*Operating income*		352,176			420,370			(16.2	)


Non-operating (expense) income:
Equity income in unconsolidated investees, net		12,975			11,431			13.5
Interest expense		(75,713	)		(91,370	)		(17.1	)
Other non-operating items		(245	)		5,138			***

*Total*		(62,983	)		(74,801	)		(15.8	)


Income before income taxes		289,193			345,569			(16.3	)
Provision for income taxes		77,800			81,900			(5.0	)

*Net income*		211,393			263,669			(19.8	)
Net income attributable to noncontrolling interests		(23,281	)		(21,649	)		7.5

*Net income attributable to Gannett Co., Inc.*	$	188,112		$	242,020			(22.3	)


*Net income per share – basic*	$	0.80		$	1.01			(20.8	)

*Net income per share – diluted*	$	0.79		$	0.99			(20.2	)

*Dividends declared per share*	$	0.40		$	0.08			***

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Gannett Co., Inc. and Subsidiaries

Unaudited, in thousands of dollars


	Thirteen Weeks Ended
	Jun. 24, 2012			Jun. 26, 2011
Net income	$	135,559		$	165,527
Other comprehensive income, before tax:
Foreign currency translation adjustments		(12,297	)		(3,176	)
Pension and other postretirement benefit items:
Amortization of prior service credit, net		(2,878	)		(3,021	)
Amortization of actuarial loss		13,241			11,030
Other		(1,701	)		—

Pension and other postretirement benefit items		8,662			8,009
Other		94			(3,552	)

Other comprehensive (loss) income, before tax		(3,541	)		1,281
Income tax expense related to components of other comprehensive income		(3,157	)		(2,908	)

Other comprehensive loss, net of tax		(6,698	)		(1,627	)

Comprehensive income		128,861			163,900
Comprehensive income attributable to noncontrolling interests, net of tax		(12,921	)		(12,422	)

Comprehensive income attributable to Gannett Co., Inc.	$	115,940		$	151,478

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Gannett Co., Inc. and Subsidiaries

Unaudited, in thousands of dollars


	Twenty-six Weeks Ended
	Jun. 24, 2012			Jun. 26, 2011
Net income	$	211,393		$	263,669
Redeemable noncontrolling interest accretion (income not available to shareholders)		—			(973	)
Other comprehensive income, before tax:
Foreign currency translation adjustments		(1,290	)		21,377
Pension and other postretirement benefit items:
Amortization of prior service credit, net		(5,750	)		(6,021	)
Amortization of actuarial loss		27,396			21,511
Other		(1,701	)		—

Pension and other postretirement benefit items		19,945			15,490
Other		(992	)		(5,899	)

Other comprehensive income, before tax		17,663			30,968
Income tax expense related to components of other comprehensive income		(7,354	)		(5,863	)

Other comprehensive income, net of tax		10,309			25,105

Comprehensive income		221,702			287,801
Comprehensive income attributable to noncontrolling interests, net of tax		(22,319	)		(22,600	)

Comprehensive income attributable to Gannett Co., Inc.	$	199,383		$	265,201

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Gannett Co., Inc. and Subsidiaries

Unaudited, in thousands of dollars


	Twenty-six Weeks Ended
	Jun. 24, 2012			Jun. 26, 2011
*Cash flows from operating activities:*
Net income	$	211,393		$	263,669
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization		95,817			99,868
Facility consolidation charges		9,885			14,050
Pension contributions, net of pension expense		(76,266	)		(21,504	)
Equity income in unconsolidated investees, net		(12,975	)		(11,431	)
Stock-based compensation – equity awards		12,598			14,953
Change in other assets and liabilities, net		76,130			55,203

*Net cash flow from operating activities*		316,582			414,808


*Cash flows from investing activities:*
Purchase of property, plant and equipment		(38,352	)		(29,251	)
Payments for acquisitions, net of cash acquired		(9,180	)		(11,925	)
Payments for investments		(500	)		(14,797	)
Proceeds from investments		10,393			25,681
Proceeds from sale of assets		4,040			34,430

*Net cash (used for) provided by investing activities*		(33,599	)		4,138


*Cash flows from financing activities:*
Payments of borrowings under revolving credit agreements, net		205,000			99,000
Payments of unsecured fixed rate notes		(306,571	)		(433,432	)
Dividends paid		(66,241	)		(19,211	)
Cost of common shares repurchased		(81,010	)		—
Proceeds from issuance of common stock upon exercise of stock options		2,033			1,657
Repurchase of noncontrolling membership interest		—			(85,149	)
Deferred payments for acquisitions		(1,027	)		—

*Net cash used for financing activities*		(247,816	)		(437,135	)

Effect of currency exchange rate change on cash		(4	)		516


*Net increase (decrease) in cash and cash equivalents*		35,163			(17,673	)
Balance of cash and cash equivalents at beginning of period		166,926			183,014

*Balance of cash and cash equivalents at end of period*	$	202,089		$	165,341

The accompanying notes are an integral part of these condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 24, 2012

NOTE 1 – Basis of presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Gannett Co., Inc. (the Company) 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. In the opinion of the Company, the financial statements reflect all adjustments, which are of a normal recurring nature, that are necessary for a fair presentation of results for the interim periods presented.

NOTE 2 – Recent accounting standards

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-05, Presentation of Comprehensive Income. ASU 2011-05 revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in Accounting Standards Codification 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. ASU 2011-05 did not change the items that must be reported in other comprehensive income. The Company adopted the provisions of ASU 2011-05 in the first quarter of 2012 and elected the second option.

NOTE 3 – Facility consolidation charges

The carrying values of property, plant and equipment at certain publishing businesses were evaluated due to facility consolidation efforts. The Company revised the useful lives of certain assets to reflect the use of those assets over a shortened useful life. As a result of the evaluations, the Company recorded pre-tax charges of $5.1 million and $9.9 million in the second quarter and year-to-date 2012, respectively. For the second quarter and year-to-date periods of 2011, the pre-tax charges were $6.4 million and $14.1 million, respectively. Deferred tax benefits were recognized for these charges and, therefore, the quarter and year-to-date after-tax impact was $3.1 million (or $0.01 per share) and $6.0 million (or $0.03 per share) for 2012, respectively. For the second quarter and year-to-date periods of 2011, the after tax impact was $3.9 million (or $0.02 per share) and $8.5 million (or $0.03 per share), respectively.

NOTE 4 – Goodwill and other intangible assets

The following table displays goodwill, indefinite-lived intangible assets, and amortizable intangible assets at June 24, 2012 and December 25, 2011.


(in thousands of dollars)
	Jun. 24, 2012				Dec. 25, 2011
	Gross		Accumulated Amortization		Gross		Accumulated Amortization

Goodwill	$	2,878,663	$	—	$	2,864,885	$	—
Indefinite-lived intangibles:
Mastheads and trade names		93,163		—		93,163		—
Television station FCC licenses		255,304		—		255,304		—
Amortizable intangible assets:
Customer relationships		303,336		182,489		298,437		169,499
Other		44,782		21,595		43,624		18,834

Customer relationships, which include subscriber lists and advertiser relationships, are amortized on a straight-line basis over four to 25 years. Other intangibles primarily include developed technology, patents and amortizable trade names. These assets were assigned lives of between three and 21 years and are amortized on a straight-line basis.

The following table summarizes the changes in the Company’s net goodwill balance through June 24, 2012.


(in thousands of dollars)
	Publishing			Digital			Broadcasting			Total
Balance at Dec. 25, 2011
Goodwill	$	7,643,255		$	680,489		$	1,618,522		$	9,942,266
Accumulated impairment losses		(7,050,778	)		(26,603	)		—			(7,077,381	)

Net balance at Dec. 25, 2011		592,477			653,886			1,618,522			2,864,885


Activity during the period
Acquisitions and adjustments		3,895			12,677			—			16,572
Foreign currency exchange rate changes		—			(2,781	)		(13	)		(2,794	)

Total		3,895			9,896			(13	)		13,778


Balance at Jun. 24, 2012
Goodwill		7,647,150			690,385			1,618,509			9,956,044
Accumulated impairment losses		(7,050,778	)		(26,603	)		—			(7,077,381	)

Net balance at Jun. 24, 2012	$	596,372		$	663,782		$	1,618,509		$	2,878,663

NOTE 5 – Long-term debt

The long-term debt of the Company is summarized below:


(in thousands of dollars)
	Jun. 24, 2012		Dec. 25, 2011

Unsecured notes bearing fixed rate interest at 6.375% repaid April 2012	$	—	$	306,534

Borrowings under revolving credit agreements expiring September 2014		440,000		235,000

Unsecured notes bearing fixed rate interest at 8.75% due November 2014		247,977		247,609

Unsecured notes bearing fixed rate interest at 10% due June 2015		60,360		59,522

Unsecured notes bearing fixed rate interest at 6.375% due September 2015		248,236		247,995

Unsecured notes bearing fixed rate interest at 10% due April 2016		171,912		169,775

Unsecured notes bearing fixed rate interest at 9.375% due November 2017		247,349		247,168

Unsecured notes bearing fixed rate interest at 7.125% due September 2018		246,948		246,760


Total long-term debt	$	1,662,782	$	1,760,363

For the first six months of 2012, the Company’s long-term debt was reduced by $97.6 million reflecting net debt repayments of $102 million partially offset by debt discount amortization.

NOTE 6 – Retirement plans

The Company and its subsidiaries have various retirement plans, including plans established under collective bargaining agreements. The Gannett Retirement Plan is the Company’s principal retirement plan. The Company’s retirement plan costs, which include costs for qualified and nonqualified plans, are presented in the following table:


(in thousands of dollars)
	Thirteen Weeks Ended						Twenty-six Weeks Ended
	Jun. 24, 2012			Jun. 26, 2011			Jun. 24, 2012			Jun. 26, 2011

Service cost-benefits earned during the period	$	1,747		$	1,841		$	3,779		$	3,946
Interest cost on benefit obligation		38,077			41,635			77,731			84,507
Expected return on plan assets		(47,145	)		(51,424	)		(94,794	)		(104,523	)
Amortization of prior service cost		1,917			1,859			3,845			3,734
Amortization of actuarial loss		12,919			9,508			26,424			18,789

Expense for Company-sponsored retirement plans		7,515			3,419			16,985			6,453
Settlement charges		5,423			—			5,423			—

Total retirement plan cost	$	12,938		$	3,419		$	22,408		$	6,453

For the twenty-six weeks ended June 24, 2012, the Company made contributions to the Gannett Retirement Plan (GRP) totaling $76 million. The Company contributed an additional $18 million to the GRP early in the third quarter of 2012. The President signed into law the Moving Ahead for Progress in the 21st Century Act or MAP–21 (H.R.4348) in July 2012. The bill includes, among other things, funding stabilization provisions that would affect required contributions for 2012 and 2013. Detailed guidance necessary to determine the precise impact of this legislation has not been issued. However, the Company expects no additional contributions to the GRP will be required for the remainder of 2012 based on the new legislation and a lower contribution level for 2013.

During the second quarter of 2012, the Company recorded settlement charges totaling $5.4 million as a result of the costs of settlements exceeding the sum of service and interest costs for one of the Company’s retirement plans.

NOTE 7 – 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 Company’s retirees contribute to the cost of these benefits and retiree contributions are increased as actual benefit costs increase. The Company’s 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:


(in thousands of dollars)
	Thirteen Weeks Ended						Twenty-six Weeks Ended
	Jun. 24, 2012			Jun. 26, 2011			Jun. 24, 2012			Jun. 26, 2011

Service cost-benefits earned during the period	$	98		$	130		$	273		$	305
Interest cost on net benefit obligation		1,822			2,227			3,872			4,602
Amortization of prior service credit		(4,795	)		(4,880	)		(9,595	)		(9,755	)
Amortization of actuarial loss		322			1,522			972			2,722


Net periodic postretirement benefit credit	$	(2,553	)	$	(1,001	)	$	(4,478	)	$	(2,126	)

NOTE 8 – Income taxes

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was approximately $77.7 million as of December 25, 2011 and $83.8 million as of June 24, 2012. These amounts reflect 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 25, 2011 was $110.3 million and as of June 24, 2012 was $113.6 million. The $3.3 million increase reflects additions in the current year of $6.4 million and an increase for prior year tax positions of $9.0 million. These increases are partially offset by reductions for tax positions from prior years of $10.1 million, tax settlements of $1.2 million and the lapse of statutes of limitations of $0.9 million.

The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company also recognizes as a component of income tax expense interest income attributable to overpayment of income tax and interest credits for the reversal of interest expense previously recorded for uncertain tax positions which are subsequently released. The Company recognized a net benefit from the reversal of interest and penalty expense of $2.0 million during the second quarter of 2012, and recognized a net interest and penalty expense of $0.5 million during the second quarter of 2011. The net interest and penalty benefit recognized in the second quarter of 2012 is primarily from the release of tax reserves. The amount of net accrued interest and penalties related to uncertain tax benefits as of December 25, 2011, was approximately $34.8 million and as of June 24, 2012, was approximately $30.9 million.

The Company files income tax returns in the U.S. and various state and foreign jurisdictions. The 2009 through 2011 tax years remain subject to examination by the IRS. The 2005 through 2011 tax years generally remain subject to examination by state authorities, and the years 2009-2011 are subject to examination in the UK. In addition, tax years prior to 2005 remain subject to examination by certain states primarily due to the filing of amended tax returns upon settlement of the IRS examination for those years and ongoing state audits.

It is reasonably possible that the amount of unrecognized benefits with respect to certain of the Company’s 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 $49.3 million within the next 12 months.

NOTE 9 – Supplemental equity information

The following table summarizes equity account activity for the twenty-six week periods ended June 24, 2012 and June 26, 2011.


(in thousands of dollars)	Gannett Co., Inc. Shareholders’ Equity			Noncontrolling Interests			Total Equity

Balance at Dec. 25, 2011	$	2,327,891		$	184,134		$	2,512,025
Comprehensive income:
Net income		188,112			23,281			211,393
Other comprehensive income		11,271			(962	)		10,309

Total comprehensive income		199,383			22,319			221,702
Dividends declared		(93,852	)		—			(93,852	)
Stock-based compensation		12,598			—			12,598
Treasury shares acquired		(81,010	)		—			(81,010	)
Other activity		1,154			—			1,154

Balance at Jun. 24, 2012	$	2,366,164		$	206,453		$	2,572,617


(in thousands of dollars)	Gannett Co., Inc. Shareholders’ Equity			Noncontrolling Interests			Total Equity

Balance at Dec. 26, 2010	$	2,163,754		$	170,319		$	2,334,073
Comprehensive income:
Net income		242,020			21,649			263,669
Redeemable noncontrolling interest accretion (income not available to shareholders)		—			(973	)		(973	)
Other comprehensive income		23,181			1,924			25,105

Total comprehensive income		265,201			22,600			287,801
Dividends declared		(19,202	)		—			(19,202	)
Stock-based compensation		14,953			—			14,953
401(k) match		12,236			—			12,236
Other activity		1,811			63			1,874

Balance at Jun. 26, 2011	$	2,438,753		$	192,982		$	2,631,735

NOTE 10 – Fair value measurement

The Company measures and records in the accompanying condensed consolidated financial statements certain assets and liabilities at fair value. ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the company’s 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 Company’s assets and liabilities measured at fair value in the accompanying condensed consolidated balance sheet as of June 24, 2012 and December 25, 2011:


(in thousands of dollars)
	Fair Value Measurements as of Jun. 24, 2012
	Level 1		Level 2		Level 3		Total
Employee compensation related investments	$	30,299	$	—	$	—	$	30,299
Rabbi trust investments		27,345		—		—		27,345

Total assets	$	57,644	$	—	$	—	$	57,644

Contingent consideration payable^a	$	—	$	—	$	21,925	$	21,925

Total liabilities	$	—	$	—	$	21,925	$	21,925


	Fair Value Measurements as of Dec. 25, 2011
	Level 1		Level 2		Level 3		Total
Employee compensation related investments	$	17,224	$	—	$	—	$	17,224
Rabbi trust investments		26,162		—		—		26,162

Total assets	$	43,386	$	—	$	—	$	43,386

Contingent consideration payable^a	$	—	$	—	$	15,808	$	15,808

Total liabilities	$	—	$	—	$	15,808	$	15,808

Under certain acquisition agreements entered into during fiscal 2011 and 2012, the Company has agreed to pay the sellers earn-outs based on the financial performance of the acquired businesses. Contingent consideration payable in the table above represents the estimated fair value of future earn-outs payable under such agreements. The fair value of the contingent payments was measured based on the present value of the consideration expected to be transferred. For the twenty-six weeks ended June 24, 2012, the contingent consideration was increased by $13.9 million as a result of new acquisitions, interest accretion and adjustments to fair value. The increase was partially offset by payments of $7.8 million.

The fair value of the Company’s total long-term debt, based principally on quoted prices on less active markets for the individual tranches of debt (level 2), totaled $1.8 billion and $1.9 billion at June 24, 2012 and December 25, 2011, respectively.

NOTE 11 – Business segment information

The Company has determined that its reportable segments based on its management and internal reporting structures are Publishing, Digital, and Broadcasting. Publishing includes U.S. Community Publishing, Newsquest operations in the UK and the USA TODAY group. The Digital segment includes CareerBuilder, ShopLocal, Planet Discover, Reviewed.com and PointRoll. Broadcasting includes the Company’s 23 television stations and Captivate.


(in thousands of dollars)
	Thirteen weeks ended						% Inc (Dec)
	Jun. 24, 2012			Jun. 26, 2011			% Inc (Dec)
Net Operating Revenues:
Publishing	$	920,333		$	977,139			(5.8	)
Digital		181,326			173,447			4.5
Broadcasting		205,381			184,353			11.4

*Total*	$	1,307,040		$	1,334,939			(2.1	)

Operating Income (net of depreciation, amortization and facility consolidation charges):
Publishing	$	104,211		$	138,646			(24.8	)
Digital		36,531			36,173			1.0
Broadcasting		94,586			80,405			17.6
Corporate		(18,810	)		(13,470	)		39.6

*Total*	$	216,518		$	241,754			(10.4	)

Depreciation, amortization and facility consolidation charges:
Publishing	$	33,736		$	37,271			(9.5	)
Digital		8,330			7,648			8.9
Broadcasting		7,124			7,465			(4.6	)
Corporate		4,142			3,951			4.8

*Total*	$	53,332		$	56,335			(5.3	)


	Twenty-six weeks ended						% Inc (Dec)
	Jun. 24, 2012			Jun. 26, 2011			% Inc (Dec)
Net Operating Revenues:
Publishing	$	1,794,395		$	1,906,924			(5.9	)
Digital		349,678			331,041			5.6
Broadcasting		381,554			348,235			9.6

*Total*	$	2,525,627		$	2,586,200			(2.3	)

Operating Income (net of depreciation, amortization and facility consolidation charges):
Publishing	$	166,251		$	256,243			(35.1	)
Digital		52,794			52,258			1.0
Broadcasting		167,201			143,864			16.2
Corporate		(34,070	)		(31,995	)		6.5

*Total*	$	352,176		$	420,370			(16.2	)

Depreciation, amortization and facility consolidation charges:
Publishing	$	66,950		$	76,191			(12.1	)
Digital		16,235			15,072			7.7
Broadcasting		14,234			14,924			(4.6	)
Corporate		8,283			7,731			7.1

*Total*	$	105,702		$	113,918			(7.2	)

NOTE 12 – Earnings per share

The Company’s earnings per share (basic and diluted) are presented below:


(in thousands except per share amounts)	Thirteen weeks ended				Twenty-six weeks ended
	Jun. 24, 2012		Jun. 26, 2011		Jun. 24, 2012		Jun. 26, 2011
Net income attributable to Gannett Co., Inc.	$	119,889	$	151,527	$	188,112	$	242,020


Weighted average number of common shares outstanding - basic		233,334		240,311		234,807		240,012
Effect of dilutive securities
Stock options		679		1,451		909		1,449
Restricted stock		2,490		2,233		2,561		2,191
Performance share units		633		—		497		—

Weighted average number of common shares outstanding - diluted		237,136		243,995		238,774		243,652


Net income per share-basic	$	0.51	$	0.63	$	0.80	$	1.01


Net income per share-diluted	$	0.51	$	0.62	$	0.79	$	0.99

NOTE 13 – Consolidated Statement of Cash Flows

Cash paid in 2012 and 2011 for income taxes and interest (net of amounts capitalized) was as follows:


(in thousands of dollars)	Thirteen Weeks Ended				Twenty-six Weeks Ended
	Jun. 24, 2012		Jun. 26, 2011		Jun. 24, 2012		Jun. 26, 2011

Income taxes	$	13,748	$	32,098	$	18,965	$	68,077

Interest	$	52,392	$	66,477	$	75,263	$	91,106

NOTE 14 – Commitments, Contingencies and Other Matters

The Company and a number of its subsidiaries are defendants in judicial and administrative proceedings involving matters incidental to their business. The Company’s management does not believe that any material liability will be imposed as a result of these 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 the British pound is the functional currency. If the price of the British pound against the U.S. dollar had been 10% more or less than the actual price, operating income for the second quarter of 2012 would have increased or decreased approximately 1%.

At the end of the second quarter of 2012, the Company had approximately $440 million in long-term floating rate obligations outstanding. A 50 basis points increase or decrease in the average interest rate for these obligations would result in an increase or decrease in annualized interest expense of $2.2 million.

The fair value of the Company’s long-term debt, based on quoted market prices for the individual tranches of debt, totaled $1.8 billion and $1.9 billion at June 24, 2012 and December 25, 2011, respectively.

Item 4. Controls and Procedures

Based on their evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective, as of June 24, 2012, 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 Commission’s rules and forms.

There have been no changes in the Company’s internal controls or in other factors during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Environmental

There have been no material developments with respect to the Company’s potential liability for environmental matters previously reported in the Company’s 2011 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Program		(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program

3/26/12 – 4/29/12		738,400	$	14.46		738,400	$	257,860,197

4/30/12 – 5/27/12		1,244,000	$	13.50		1,244,000	$	241,065,540

5/28/12 – 6/24/12		1,404,500	$	12.82		1,404,500	$	223,054,677

Total		3,386,900	$	13.43		3,386,900	$	223,054,677

On February 21, 2012, the Company’s Board of Directors approved a new program to repurchase up to $300 million in Gannett common stock (replacing the $1 billion program). There is no expiration date for the new $300 million stock repurchase program. However, it is targeted to be completed over the next two years. All shares repurchased were part of a publicly announced repurchase program.

In addition to the above, as of June 24, 2012, 144,000 shares were repurchased as part of the publicly announced repurchase program at an average price of $13.30, but were settled subsequent to the end of the quarter. The effect of those repurchases decreased the maximum dollar value available under the program to $221,140,187.

Item 6. Exhibits

Incorporated by reference to the Exhibit Index attached hereto and made a part hereof.

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, 2012						GANNETT CO., INC.

						/s/ Teresa S. Gendron
						Teresa S. Gendron
						Vice President and Controller
						(on behalf of Registrant and as Chief Accounting Officer)

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	Amended by-laws of Gannett Co., Inc.	Incorporated by reference to Exhibit 3-2 to Gannett Co., Inc.’s Form 10-Q for the fiscal quarter ended June 27, 2010.

4-1	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.

10-1	Description of Gannett Co., Inc.’s Non-Employee Director Compensation*	Attached.

10-2	Termination Benefits Agreement dated July 23, 2012 between Gannett Co., Inc. and Victoria D. Harker.*	Incorporated by reference to Exhibit 99-2 to Gannett Co., Inc.’s Form 8-K filed on June 22, 2012.

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.

101	The following financial information from Gannett Co., Inc. Quarterly Report on Form 10-Q for the quarter ended June 24, 2012, formatted in XBRL includes: (i) Condensed Consolidated Balance Sheets at June 24, 2012 and December 25, 2011, (ii) Condensed Consolidated Statements of Income for the fiscal quarters ended June 24, 2012 and June 26, 2011, (iii) Condensed Consolidated Statements of Comprehensive Income for the fiscal quarters ended June 24, 2012 and June 26, 2011, (iv) Condensed Consolidated Cash Flow Statements for the fiscal year-to-date periods ended June 24, 2012 and June 26, 2011, and (v) the Notes to Condensed Consolidated Financial Statements.	Attached.

*	Asterisk identifies management contracts and compensatory plans or arrangements.