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Slide 1: s Gannett 2003 ANNUAL REPORT
Slide 2: TA B L E O F TA B L E O F C O N T E N T S 2003 Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Company and Divisional Officers . . . . . . . . . . . . . . . . . . . . 1 2 7 8 Form 10-K Cover photograph of the Gannett/USA TODAY headquarters building in McLean, Va., by Timothy Hursley
Slide 3: 2003 FINANCIAL SUMMARY Operating revenues in millions 99 00 01 02 03 $5067 $6184 $6300 $6422 $6711 In thousands, except per share amounts Operating revenues . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . Net income per share – diluted . . . Operating cash flow (1) . . . . . . . . . $ $ $ $ $ 2003 6,711,115 1,981,018 1,211,213 4.46 2,212,550 $ $ $ $ $ 2002 6,422,249 1,926,309 1,160,128 4.31 2,148,753 Change 4.5% 2.8% 4.4% 3.5% 3.0% Income from continuing operations, in millions 99 00 01 02 03 $919 $972 $831 $1160 $1211 Income per share (diluted) from continuing operations 99 00 01 02 03 $3.26 $3.63 $3.12 $4.31 $4.46 Working capital . . . . . . . . . . . . . . . $ 261,424 $ 174,454 49.9% Long-term debt . . . . . . . . . . . . . . . $ 3,834,511 $ 4,547,265 (15.7%) Total assets . . . . . . . . . . . . . . . . . . . $14,706,239 $13,733,014 7.1% Capital expenditures (2) . . . . . . . . $ 277,909 $ 272,754 1.9% Shareholders’ equity . . . . . . . . . . . . $ 8,422,981 $ 6,911,795 21.9% Dividends per share . . . . . . . . . . . $ .98 $ .94 4.3% Weighted average common shares outstanding – diluted . . . . . 271,872 269,286 1.0% (1) Represents operating income plus depreciation and amortization of intangible assets. This measure varies from amounts reported in the audited Consolidated Statements of Cash Flows. (2) Excluding capitalized interest. On Dec. 31, 2001, the company adopted Statement of Financial Accounting Standards No. 142 (SFAS No. 142) “Goodwill and Other Intangible Assets,” which favorably affected comparisons of 2003 and 2002 results with prior years. Refer to the discussion in Note 3 to the company’s financial statements on page 38 of the company’s Form 10-K. C O M PA N Y P R O F I L E Gannett Co., Inc. is a diversified news and information company that publishes newspapers, operates broadcasting stations and is engaged in marketing, commercial printing, a newswire service, data services and news programming. Gannett is an international company with headquarters in McLean, Va., and operations in 43 states, the District of Columbia, Guam, the United Kingdom, Belgium, Germany, Italy and Hong Kong. Gannett is the USA’s largest newspaper group in terms of circulation. The company’s 100 U.S. daily newspapers have a combined daily paid circulation of 7.6 million. They include USA TODAY, the nation’s largest-selling daily newspaper, with a circulation of approximately 2.2 million. In addition, Gannett owns a variety of non-daily publications and USA WEEKEND, a weekly newspaper magazine. Newsquest plc, a wholly owned Gannett subsidiary acquired in mid-1999, is one of the largest regional newspaper publishers in the United Kingdom with a portfolio of more than 300 titles. Its publications include 17 daily newspapers with a combined circulation of approximately 725,000. Newsquest also publishes a variety of non-daily publications, including Berrow’s Worcester Journal, the oldest continuously published newspaper in the world. Gannett owns and operates 22 television stations covering 17.8 percent of the USA. Gannett is an Internet leader with sites sponsored by most of its TV stations and newspapers, including USATODAY.com, one of the most popular news sites on the Web. Gannett was founded by Frank E. Gannett and associates in 1906 and incorporated in 1923. The company went public in 1967. Its more than 272 million outstanding shares of common stock are held by approximately 12,800 shareholders of record in all 50 states and several foreign countries. The company has approximately 53,000 employees. 1
Slide 4: LETTER TO SHAREHOLDERS G annett once again demonstrated its strength in 2003. We showed our stamina, our staying power and the quality of our management in the face of yet another year of lackluster advertising demand and a tepid economy. We achieved record results: Operating revenues were $6.7 billion; net income rose 4 percent to a record $1.21 billion; operating cash flow advanced 3 percent to $2.2 billion. Diluted earnings per share, on a GAAP basis, were a record $4.46, compared with $4.31 for 2002. These terrific numbers are the result of hard work by Gannett employees. Gannett is a company that does well in good times, and really well in tough times. And 2003 was another tough year for the company, the industry and the nation. It was another chapter in the recession that wouldn’t end. There was the war in Iraq, which captured the nation’s attention and turned it away from a recovery early in the year. Our newspapers, television stations and Internet sites produced some of their best journalism during the intense combat period: We had more than 40 journalists in the region – 23 of them embedded with the troops. We won a number of awards and recognition in the industry. But the home front struggled to keep the economy going and advertising suffered. It is only just now recovering. As the worst of the fighting ended in the spring, we became hopeful that some long-sought changes in government regulations would help jump-start activity in the industry. In June, the Federal Communications Commission finally voted to change the rules that bar ownership of a newspaper and television station in the same market. We believe this rule change will allow us to compete even more effectively with the rest of the fast-paced and growing media world. Unfortunately, the changes were blocked almost immediately by court action and Congress. Acquisition discussions slowed and stopped. Douglas H. McCorkindale, Chairman, President and CEO 2
Slide 5: 2 00 3 Congress eventually blessed a partial change, allowing companies to own stations that cover up to 39 percent of the country. But the cross-ownership part of the rule remains on hold by the courts. In the end, we believe the courts will come to the right conclusion, permit cross-ownership and allow us to enter more markets and continue to expand our businesses. Then Congress enacted the Do Not Call Registry. This popular law impacted Gannett, since we traditionally have sold about half of our subscriptions through phone solicitation. But we responded in a classically Gannett way. We engaged our talent and creativity and devised new ways to appeal to subscribers. Among them: A pilot program underway in Jackson, Tenn., that took the all-out, “cold-turkey” approach – dropping all telemarketing efforts and seeking out other means of getting customers. Lessons learned are being offered throughout the Newspaper Division. Another change by Congress, to the campaign-finance rules, left parties and candidates confused about what spending they could and could not do. While they are sorting it out, we are hoping the millions of dollars in political-ad spending that gave our television group a record year in 2002 will return in 2004. That political-ad spending, coupled with revenues from the Winter Olympics in 2002, were a boon in 2002 (at about $100 million in revenue) and a challenge to overcome in 2003. Comparisons to the 2002 numbers dogged the Broadcast group all year. Those boom years have Gannett’s Broadcast group working to build strategies and budgets around the biannual bumps. Among the changes: stronger positioning of our stations in their markets to attract the ad dollars, new products on-air and online, and new business development. For newspapers, a readership phenomenon that’s been building for years crested in 2003. The Newspaper Division was ready for it and provided some of Gannett’s good news for the year. Younger adults have been going their own way in the information universe for some time. With so many media opportunities to grab their attention – cable TV, network TV, the Internet – newspapers were getting Gannett’s Internet efforts were paying off in 2003 and added to the year’s upside. Online revenues overall were up 44 percent for the year, with local newspaper Web sites increasing by 45 percent and core revenues for USATODAY.com up by 41 percent. 3
Slide 6: LETTER TO SHAREHOLDERS lost in the shuffle. But research showed there is a way to win them over. In 2002, we introduced two youth-oriented, free, weekly publications in Lansing, Mich., and Boise, Idaho. We watched closely and learned from those launches. In 2003’s fourth quarter, using the experience gained and our strength in the markets, three new free weeklies were rolled out: CiN Weekly in Cincinnati; Velocity in Louisville, Ky.; and INtake in Indianapolis. Three more were launching in early 2004: Spark in Wilmington, Del.; Link in Greenville, S.C.; and InsideR in Rochester, N.Y. Reaction has been terrific. Content emphasizing things to do, entertainment and lifestyle news are grabbing readers and advertisers alike. They are establishing audiences as well as driving traffic to our Web sites. Cincinnati, for example, reported a 40 percent increase in 2003 entertainment page views alone. Meanwhile, Gannett’s Internet efforts were paying off in 2003 and added to the year’s upside. Online revenues overall were up 44 percent for the year, with local newspaper Web sites increasing by 45 percent and core revenues for USATODAY.com up by 41 percent. Traffic on Gannett sites each month reached more than 21 million visitors and more than 275 million page views. And the Internet is being used in other ways to attract business to Gannett. CareerBuilder, owned jointly with Knight Ridder and Tribune, made significant gains in market share and revenue. Market revenue grew 48% in 2003. Deals with AOL and MSN have already resulted in significantly increased traffic. Sales of online ads for Gannett can be handled on the Web, and a special, 24/7 intranet site provides advertising management with the latest information for sales teams. A number of Gannett newspapers have begun to take classified ads online, with more coming online in 2004. Newsquest, where Internet expertise is second nature, was another bright light for Gannett in 2003. The U.K. branch of the company again proved to be troopers and delivered excellent results in both revenues and operating profits. Among Newsquest’s strengths is the speed with which it develops and Three more Gannett newspapers jumped into the fray to appeal to 25- to 34-year-old readers with weekly publications: CiN Weekly in Cincinnati, Velocity in Louisville, Ky., and INtake in Indianapolis. More such publications are planned for 2004. The publications feature local content, with colorful presentation and many local faces, views and perspectives of young adults. 4
Slide 7: 2 00 3 delivers new publications to the marketplace. Again in 2003, Newsquest’s regional papers launched a number of new titles, including the profitable-from-day-one Uckfield Leader, the smallest stand-alone free title in Newsquest’s line. Also launched: Jobs Extra, maximizing recruitment classifieds; Press Zone, a guide to local services in York; and Fast Track, a marketing venture with Southampton Airport. Their nimble method was our inspiration stateside: in addition to the youth publications, the Newspaper Division in the U.S. launched 260 new publications, sections and ad vehicles in 2003. In March 2003, we formed, with MediaNews Group, the Texas-New Mexico Newspapers Partnership. Gannett contributed its El Paso (Texas) Times and MediaNews contributed its New Mexico daily newspapers to the partnership. The deal raised to 100 the number of our U.S. daily newspapers. Newsquest also was the site of a key acquisition in 2003. The Scottish Media Group’s publishing arm became part of Newsquest in early 2003. The group consisted of three Scottish newspapers in Glasgow: The Herald, Sunday Herald and Evening Times; 11 specialty consumer and business-to-business magazine titles; and an online advertising and content business. Included was a state-of-the-art printing facility that’s being worked into Newsquest’s operations. Toward the end of the year, we brought Clipper Magazine, Inc. into the Gannett fold. Clipper is one of the nation’s largest independent direct-mail advertising magazine companies – it publishes more than 325 individual editions in 24 states. It’s a wonderful company, with strong management by the founders and a great opportunity to grow. All of the 2003 acquisitions are classic Gannett deals: companies with great potential that prove their worth from day one. Quality is a key focus at all of our operations. Broadcast continued the drive to be No. 1 or No. 2 in all of its markets through employee training and a commitment to service in the community. Gannett extended the reach of Newsquest, its U.K. newspaper group, into Scotland when it acquired SMG Publishing in 2003. The acquisition included three Scottish regional newspapers (The Herald, Evening Times and the Sunday Herald); 11 specialty consumer and business-to-business magazine titles; and an online advertising and content business. 5
Slide 8: LETTER TO SHAREHOLDERS Becoming the leading source of local news draws respect from the community as well as advertising revenues. A great example of the quality initiative is WTSP-TV the CBS affiliate in Tampa-St. Petersburg, Fla. , WTSP went from third or fourth place in the market to first in news at noon and 6 p.m. and to a pitched battle for first at 11 p.m. USA TODAY worked to attract and retain advertisers through a number of initiatives involving the paper and its Web site, USATODAY.com. By the end of the fourth quarter, the efforts were paying off with an ad-revenue uptick of 10 percent for the quarter. In the Newspaper Division, a new effort to reach readers was launched, emphasizing local news and the newspapers’ strong connections to their communities. “Real Life, Real News: Connecting with Readers’ Lives” was introduced in September. The goal: to make news more relevant to readers. Strong, favorable responses from media critics and readers soon followed. One sign of quality is the awards Gannett newspapers, TV stations, Web sites and employees win. In 2003, we took home more than 1,100 awards ranging from hundreds of local journalism honors and EMMYs to national prizes such as the Edward R. Murrow Awards, the National Press Photographers Association Awards, the Clarion Awards and, in the U.K., the Beacon Award for Delivering Business Excellence. So, Gannett ended a tough year with some of the best numbers in the industry, hundreds of awards to attest to our quality and with the groundwork laid for a robust 2004. With our new publications, new ways to attract advertising, and with our continuing commitment to quality, we are looking forward to a great new year. Douglas H. McCorkindale, Chairman, President and CEO 6
Slide 9: BOARD OF DIRECTORS (a) (b) (c) (d) (e) Member of Audit Committee. Member of Executive Committee. Member of Executive Compensation Committee. Member of Nominating and Public Responsibility Committee. Member of Gannett Management Committee. Douglas H. McCorkindale Chairman, president and chief executive officer, Gannett Co., Inc. Formerly: President, chief executive officer and vice chairman, Gannett Co., Inc. (2000-2001), Vice chairman and president, Gannett Co., Inc. (1997-2000). Other directorships: The Associated Press; Continental Airlines, Inc.; Lockheed Martin Corporation; and funds that are part of the Prudential group of mutual funds. Age 64. (b,e) H. Jesse Arnelle Of counsel to Winston-Salem, N.C., law firm of Womble, Carlyle, Sandridge & Rice. Other directorships: FPL Group, Inc.; Textron Corporation; Eastman Chemical Co.; Armstrong World Industries; Waste Management, Inc.; and Metropolitan Life Series Fund. Age 70. (a,d) Louis D. Boccardi Retired president and chief executive officer of The Associated Press; former executive editor, The Associated Press; former member and chairman of the Pulitzer Prize Board; and member of the Board of Visitors, the Graduate School of Journalism, Columbia University. Age 66. (c) Meredith A. Brokaw Founder, Penny Whistle Toys, Inc., New York City, and author of children’s books. Other directorships: Conservation International, Washington, D.C. Age 63. (d) James A. Johnson Vice chairman, Perseus LLC. Other directorships: The Goldman Sachs Group, Inc.; Target Corporation; Temple-Inland Corporation; UnitedHealth Group; KB Home Corporation; chairman emeritus of the John F. Kennedy Center for the Performing Arts; and former chairman and honorary trustee of the Board of Trustees of The Brookings Institution. Age 60. (b,c) Stephen P. Munn Chairman, Carlisle Companies, Inc. Age 61. (a,c) Donna E. Shalala President, University of Miami. Other directorships: UnitedHealth Group; and Lennar Corporation. Age 63. (d) Solomon D. Trujillo Chief executive officer and director, Orange S.A. Other directorships: PepsiCo, Inc.; and Target Corporation. Age 52. (a) Karen Hastie Williams Partner of Washington, D.C., law firm of Crowell & Moring. Other directorships: The Chubb Corporation; Continental Airlines, Inc.; SunTrust Banks, Inc.; WGL Holdings, Inc., the parent company of Washington Gas Light Company; and trustee of the Fannie Mae Foundation and the Enterprise Foundation. Age 59. (a,b,c) MCCORKINDALE ARNELLE BOCCARDI BROKAW JOHNSON MUNN SHALALA TRUJILLO HASTIE WILLIAMS 7
Slide 10: C O M PA N Y A N D D I V I S I O N A L O F F I C E R S G annett’s principal management group is the Gannett Management Committee, which coordinates overall management policies for the company. The Gannett Newspaper Operating Committee oversees operations of the company’s newspaper division. The Gannett Broadcasting Operating Committee coordinates management policies for the company’s television stations. The members of these three groups are identified below. The managers of the company’s various local operating units enjoy substantial autonomy in local policy, operational details, news content and political endorsements. Gannett’s headquarters staff includes specialists who provide advice and assistance to the company’s operating units in various phases of the company’s operations. Below is a listing of the officers of the company and the heads of its national and regional divisions. Officers serve for a term of one year and may be re-elected. Information about the officer who serves as a director (Douglas H. McCorkindale) can be found on page 7. Christopher W. Baldwin, Vice president, taxes. Age 60. Lynn Beall, Senior vice president, Gannett Television, and George R. Gavagan, Vice president and controller. Age 57. Michael A. Hart, Vice president and treasurer. Age 58. Barbara A. Henry, Group president, Indiana Newspaper Group, and president and publisher, The Indianapolis Star. Age 51.s Roxanne V. Horning, Vice president, compensation and benefits. Age 54. John B. Jaske, Senior vice president, labor relations and assistant general counsel. Age 59.• Richard A. Mallary, Senior vice president, Gannett Television. Age 61.x Gracia C. Martore, Senior vice president and chief financial officer. Age 52.• Todd A. Mayman, Vice president, associate general counsel and secretary. Age 44. Mark S. Mikolajczyk, Senior vice president, operations, Newspaper Division. Age 43.s Craig A. Moon, President and publisher, USA TODAY. Age 54.• Roger Ogden, Senior vice president, Gannett Television, and president and general manager, KUSA-TV, Denver, Colo. Age 58.x W. Curtis Riddle, Senior group president, East Newspaper Group, and president and publisher, The News Journal, Wilmington, Del. Age 53.s Gary F. Sherlock, Group president, Atlantic Newspaper Group, and president and publisher, The Journal News, Westchester County, N.Y. Age 58.s Mary P. Stier, Senior group president, Midwest Newspaper president and general manager, KSDK-TV St. Louis, Mo. , Age 43.x José A. Berrios, Vice president, human resources and diver- sity. Age 59. Thomas L. Chapple, Senior vice president, chief administrative officer and general counsel. Age 56.• Susan Clark-Johnson, Chairman and CEO, Phoenix Newspapers, Inc., senior group president, Pacific Newspaper Group, and publisher and CEO, The Arizona Republic. Age 57.s Michael J. Coleman, Senior group president, South Group, and president and publisher, The Des Moines Register. Age 47.s Donald M. Stinson, Senior vice president, marketing, Newspaper Newspaper Group, and president and publisher, FLORIDA TODAY at Brevard County. Age 60.s Robert T. Collins, Group president, New Jersey Newspaper Group, and president and publisher, Asbury Park Press. Age 61.s Philip R. Currie, Senior vice president, news, Newspaper Division. Age 48.s Wendell J. Van Lare, Vice president and senior labor counsel. Age 59. Frank J. Vega, President and CEO, Detroit Newspapers. Age 55.s Barbara W. Wall, Vice president and senior legal counsel. Age 49. Gary L. Watson, President, Gannett Newspaper Division. Division. Age 63.s Paul Davidson, Chairman and chief executive officer, Newsquest. Age 49.• Craig A. Dubow, President and CEO, Gannett Broadcasting. Age 58.• s John A. Williams, Senior vice president, diversified business and development, Newspaper Division. Age 53.s Age 49.•x Daniel S. Ehrman, Jr., Vice president, planning and development. Age 57. Lawrence P. Gasho, Vice president, financial analysis. Age 61. • s x Member of the Gannett Management Committee. Member of the Gannett Newspaper Operating Committee. Member of the Gannett Broadcasting Operating Committee. 8
Slide 11: SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 2003 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission file number 1-6961 GANNETT CO., INC. (Exact name of registrant as specified in charter) Delaware (State or Other Jurisdiction of Incorporation or Organization of Registrant) 16-0442930 (I.R.S. Employer Identification No.) 7950 Jones Branch Drive, McLean, Virginia (Address of principal executive offices) 22107-0910 (Zip Code) Registrant’s telephone number, including area code: (703) 854-6000 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, par value $1.00 per share Name of Each Exchange on Which Registered The New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [ ] The aggregate market value of the voting common equity held by non-affiliates of the registrant based on the closing sales price of the registrant’s Common Stock as reported on The New York Stock Exchange on June 27, 2003, was $20,590,444,571. The registrant has no non-voting common equity. As of February 20, 2004, 272,876,460 shares of the registrant’s Common Stock were outstanding. DOCUMENTS INCORPORATED BY REFERENCE The definitive proxy statement relating to the registrant’s Annual Meeting of Shareholders to be held on May 4, 2004, is incorporated by reference in Part III to the extent described therein. 1
Slide 12: INDEX TO GANNETT CO., INC. 2003 FORM 10-K Item No. ––––––– 1. 2. 3. 4. Part I Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part II Market for Registrant’s Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part III Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Part IV Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page –––– 4 15 15 15 5. 6. 7. 7A. 8. 9. 9A. 16 17 17 27 28 56 56 10. 11. 12. 13. 14. 56 57 57 57 57 15. 57 3
Slide 13: PART I ITEM 1. BUSINESS Company Profile Gannett Co., Inc. is a diversified news and information company that publishes newspapers, operates broadcasting stations, operates Web sites in connection with its newspaper and broadcast operations, and is engaged in marketing, commercial printing, a newswire service, data services and news programming. Gannett is an international company operating primarily in the U.S. and the United Kingdom (U.K.). Approximately 85% of its revenues are from domestic operations in 43 states, the District of Columbia, and Guam. It has foreign operations in the United Kingdom and in certain European and Asian markets. Its headquarters are in McLean, Va., near Washington, D.C., and is home to approximately 600 corporate employees. Gannett was founded by Frank E. Gannett and associates in 1906 and incorporated in 1923. The company went public in 1967. It reincorporated in Delaware in 1974. Its more than 272 million outstanding shares of common stock are held by approximately 12,800 shareholders of record in all 50 states and several foreign countries. The company has approximately 53,000 employees. The company has two principal business segments: newspaper publishing and broadcasting (television). Financial information for each of the company’s reportable segments can be found in our financial statements, as discussed under Item 7 “Management’s Discussion and Analysis” beginning on page 17, and as presented under Item 8 “Financial Statements and Supplementary Data” beginning on page 28 of this Form 10-K. Gannett is the USA’s largest newspaper group in terms of circulation. The company’s 100 U.S. daily newspapers have a combined daily paid circulation of 7.6 million. They include USA TODAY, the nation’s largest-selling daily newspaper, with a circulation of approximately 2.2 million. In addition, Gannett owns USA WEEKEND, a weekend newspaper magazine, and more than 500 non-daily publications in the United States. Newsquest plc, a wholly owned Gannett subsidiary acquired in mid-1999 and expanded through further acquisitions since (including Scottish Media Group plc acquired in 2003), is the second largest regional newspaper publisher in the U.K. with a portfolio of more than 300 titles. Its publications include 17 daily newspapers with a combined circulation of approximately 725,000. Newsquest also publishes a variety of non-daily publications, including Berrow’s Worcester Journal, the oldest continuously published newspaper in the world. Total average daily circulation of the company’s domestic and U.K. daily newspapers was approximately 8.3 million at the end of 2003. The newspaper segment also includes: Nursing Spectrum, publisher of biweekly periodicals specializing in advertising for nursing employment; Army Times Publishing Co., which publishes military and defense newspapers; Clipper Magazine, a direct mail advertising magazine that publishes more than 325 individual editions in 24 states; a 19.49% interest in California Newspapers Partnership, a partnership that includes 28 daily California newspapers; a 66.2% interest in Texas-New Mexico Newspapers Partnership, a partnership that includes 6 daily newspapers in Texas and New Mexico; and a 13.5% interest in Ponderay Newsprint Company in California. Certain of the company’s newspaper subsidiaries are participants in joint operating agencies. Each joint operating agency performs the production, sales and distribution functions for the subsidiary and another newspaper publishing company under a joint operating agreement. The company’s operating results in the Detroit and Tucson joint operating agencies are accounted for under the equity method, and are reported as a net amount in other operating revenues. In addition to publishing, the newspaper segment includes the following: Gannett News Service, which provides news services for its newspaper operations; Gannett Retail Advertising Group, which represents the company’s local newspapers in the sale of advertising to national and regional retailers, service providers and franchise businesses; and Gannett Offset, which is composed of the Gannett Offset print group and Gannett Marketing Services Group. The Gannett Offset print group currently includes five nonheatset printing plants and one heatset printing facility. Gannett Offset’s dedicated commercial printing plants are located in Atlanta, Ga.; Minneapolis, Minn.; Miramar, Fla.; Norwood, Mass.; St. Louis, Mo.; and Springfield, Va. Gannett Marketing Services Group coordinates the sale of direct-marketing services through: Telematch, a database management and data enhancement company; and Gannett Direct Marketing Services, a direct-marketing company with operations in Louisville, Ky. The company also owns USATODAY.com and other Internet services at most of its local newspapers and television stations; and Gannett Media Technologies International, which develops and markets software and other products for the publishing industry. The company also owns a one-third equity interest in CareerBuilder, LLC, an online service providing recruitment resources. The company owns and operates 22 television stations covering 17.8 percent of the USA in markets with more than 19.3 million households. Newspaper Publishing/United States On Dec. 28, 2003, the company operated 100 U.S. daily newspapers, including USA TODAY, and more than 500 non-daily local publications in 41 states and Guam. The Newspaper Division is headquartered in McLean, Va., and on Dec. 28, 2003, it had approximately 40,000 full- and part-time employees. USA TODAY was introduced in 1982 as the country’s first national, general-interest daily newspaper. It is available in all 50 states and is available to readers on the day of publication throughout the U.S. USA TODAY is produced at facilities in McLean, Va., and is transmitted via satellite to offset printing plants around the country. It is printed at Gannett plants in 20 U.S. markets and under contract at offset plants in 15 other U.S. markets. It is sold at newsstands and vending machines generally at 50 cents per copy. Mail subscriptions are available nationwide and abroad, and home, hotel and office delivery is offered in many markets. Approximately 65% of its net paid circulation results from singlecopy sales at newsstands, vending machines or to hotel guests, and the remainder is from home and office delivery, mail, educational and other sales. USA TODAY International is printed from satellite transmission under contract in London, Frankfurt, Hong Kong and Belgium, and is distributed in Europe, the Middle East, Africa and Asia. It is available in more than 50 foreign countries. 4
Slide 14: For domestic editions, USA TODAY is party to a contract with one satellite transmission service which runs through the end of 2004 and provides for the satellite transmissions of USA TODAY from the McLean, Va., office (or Silver Spring, Md., its back-up facility) to 35 domestic print sites across the USA. For international editions, USA TODAY is party to a contract with a second satellite transmission provider which extends indefinitely (but is cancelable by either party with 60 days’ notice) and provides for satellite transmissions to three contract print sites in Europe and one contract print site in Asia. The company has adequate back-up for these transmission processes. USATODAY.com, one of the most popular newspaper sites on the Web, had more than 35 million visits per month at the end of 2003. Gannett News Service (GNS) is headquartered in McLean, Va., and operates bureaus in six other states and Washington, D.C. (see page 12 for more information). GNS provides national and regional news coverage and sports, features, photo and graphic services to Gannett newspapers. GNS is also syndicated to several nonGannett newspapers. The newspaper publishing segment also includes USA WEEKEND, which is distributed as a weekend newspaper magazine in 598 newspapers throughout the country, with a total circulation of 23.7 million as of January 2004, the second-largest weekly magazine in circulation in the nation. Nursing Spectrum is a communications company that promotes the recognition and support of the nursing community by providing timely, relevant, and compelling information through its awardwinning magazines, annual career guides and Web sites. On Feb. 2, 2004, the company acquired NurseWeek, an industry leader with print publications and an award-winning Web site focused on the nursing industry. Altogether, Nursing Spectrum will now publish 12 regional magazines and have a combined circulation of more than one million registered nurses in the top 50 metropolitan markets each month, or almost half of the registered nurses in the U.S. Nursing Spectrum’s and NurseWeek’s award-winning Web sites average more than 1.8 million page views per month. At the end of 2003, 73 of the company’s domestic daily newspapers, including USA TODAY, were published in the morning and 27 were published in the evening. For local U.S. newspapers, excluding USA TODAY, morning circulation accounts for approximately 87% of total daily volume, while evening circulation accounts for 13%. Individually, Gannett newspapers are the leading news and information source with strong brand recognition in their markets. Their durability lies in the quality of their management, their flexibility, their focus on such customer-directed programs as Complete Community Coverage in News, cross-branding of the daily newspaper, online, and weekly products, ADQ (described further below) continuous focus on customer service and quality, and their capacity to invest in new technology. Collectively, they form a powerful network to distribute news and advertising information across the nation. In 2003, news departments across Gannett continued to emphasize coverage of local news as the key to successful news reporting. Under the Complete Community Coverage model developed in 2000, newsrooms expanded the amount of local news on their Web sites. Continued emphasis was placed on reaching younger readers, especially those in the 25- to 34-year-old age group, through stronger Web sites and more focused news and features coverage. In 2003, the Gannett Newspaper Division (News Department) worked with Gannett’s community newspapers to launch a new effort to reach more readers. A program called “Real Life, Real News: Connecting with Readers’ Lives” was developed and introduced to Gannett editors at a meeting in September. Each Gannett newspaper developed a plan for rollout of the approach in its community. The program focuses on making news more relevant to readers and capturing “Moments of Life” that are important in the lives of readers. The “Real Life, Real News” approach is being integrated into both print and online content. For example, Gannett newspapers in Cincinnati, Indianapolis and Louisville launched free weekly publications aimed at reaching more young adults in their communities. The new publications joined weeklies already in place in Boise, Idaho, and Lansing, Mich. The publications feature information on entertainment opportunities in the communities. All of the company’s domestic daily newspapers receive Gannett News Service. In addition, all newspapers subscribe to The Associated Press, and some receive various supplemental news and syndicated features. Gannett News Service provided strong coverage of topics of high interest to individual newspapers through its regional reporting. It also coordinated the work of local newspapers, the Army Times Publishing Co., USA TODAY, USATODAY.com, Gannett online operations and its own Washington bureau staff in providing extensive, converged coverage of the war in Iraq and related developments. In 2003, the company continued to emphasize increasing its revenue from medium and smaller advertisers in each market it serves. These efforts will continue in 2004. Initiatives have focused on sales and rate management and the construction of pre-packaged programs scalable to the company’s largest and smallest markets. Sales management initiatives increased the number and quality of sales calls, improved sales compensation and enhanced consistent sales training. Rate management programs focused on selling multiple advertising insertions and reviewing rates and rate structures to ensure that they match the opportunities in the market. The company operates an intranet site to provide its advertising management with up-to-date information and sales programs 24 hours a day, seven days a week. The company regularly calculates market potential and adjusts its local strategic plans accordingly. The company will continue in 2004 to make its personnel competitive and effective in their leadership, strategic thinking and marketing skills through such programs. The Newspaper Division’s advertising quality initiative, known as ADQ, produced its ninth consecutive year of improved ad quality. ADQ efforts are focused on accuracy and customer service in ad placement and billing functions. ADQ has reduced credit costs significantly since its 1995 launch. Three principles guide online strategy at Gannett’s local newspapers. First, spending for the online business must be justified by additional revenues, additional customers and additional profits. Second, emphasis needs to be on serving our local markets. A key reason customers turn to a Gannett newspaper’s online site is to find local news and information. The credibility of the local newspaper, the known and trusted information source, extends to the company’s Web sites and thus differentiates Gannett from other 5
Slide 15: Internet sites. This is a major factor that allows Gannett newspapers to compete successfully as Internet information providers. Third, the natural synergies between the local newspaper and local Web site should be utilized. The local content already available, the customer relationships, the news and advertising sales forces, and the promotional vehicle are all advantages for the newspaper. The company’s strategy is to use these advantages to create strong and timely content, sell packaged advertising products that serve the advertisers, hold down costs, and leverage the known and trusted brand of the newspaper. This strategy has served Gannett well in the development of our newspaper Internet efforts. The aggressive local focus, including advertising sales efforts, combined with effective use of national economies of scale and standardized technology, resulted in solid results in 2003. Online revenue for local newspaper Web sites increased by 45% in 2003, which followed a 25% increase in 2002 and a 35% increase in 2001. Recent traffic on our sites reached more than 21 million visitors and over 275 million page views per month. The Advertising Matrix sales program was implemented at 24 Gannett newspapers in 2003 and more newspapers will follow in 2004. The Matrix is a program for selling multiple ads across multiple product lines and packaging them into one buy for the customer. A typical Matrix package might include a retail display ad, a classified help wanted ad, a print-and-deliver insert targeted to specific zones, an online directory listing and an online coupon. The Bundle Wizard, which performs some of the functions of the Matrix on a more limited scale, is available to markets not using the Matrix. The company also developed and implemented proprietary customer contact and relationship management software in some of its markets. The system is used to reach potential employment advertisers, and will be expanded to reach retailers and real estate agents. Gannett has online classified ad order entry software installed in 13 locations. The software allows customers to place their classified ad via the newspaper’s Web site. It permits customers to build both their print and online ad using templates provided by the newspaper or to customize the ad to meet their specific requirements. It also facilitates upsell opportunities such as bolding, attention-getters, photos and e-mail hyperlinks. When customers complete the design of their ads and select a product schedule, they receive a real-time price quote. Customers can then book their ads without further newspaper involvement. Gannett expects to expand these programs to 42 newspapers by the end of 2004. Franchise XPress, a sales program operated by the Gannett Retail Advertising Group, sold 106 million newspaper-distributed single sheet inserts to hundreds of franchise retailers in Gannett markets during 2003. These inserts are typically distributed in areas close to the retailer’s store. Insert Xpress, another newspaperdistributed single sheet sales program, sold more than 200 million inserts to local retail advertisers in 2003. In 2003, Gannett continued to update its legacy software to provide additional advertising functionality. This latest release contains a new pricing engine that will permit the packaging and selling of multiple products across multiple mediums and support advertising initiatives such as the Matrix sales program. At the end of 2003, the release had been implemented at 15 newspapers with more implementations planned for 2004. 6 Advancements were also made in circulation technologies. A total of 58 newspapers now offer their customers seamless online services on their Web sites to start new subscriptions, make payments, schedule vacation stops and restarts or deliver complaints. In addition, all newspapers offer the EZ-Pay system to subscribers so they can have their payments automatically charged to their credit card or deducted from their checking account. Use of the EZ-Pay system reduces billing and customer account administration costs and facilitates customer retention. At year end, 12% of all subscribers were using EZ-Pay. Gannett Media Technologies International (GMTI) provides important technological support and products for the company’s domestic newspapers in a number of big areas, including ad software and database management, editorial production and archiving, and Web site hosting. In addition, GMTI provides similar services to other newspaper companies. GMTI continued to increase its installed base of Internet-based Celebro advertising systems. Celebro facilitates increased revenue opportunities through the creation of new advertising products and by making it easier for the advertisers to choose newspaper publications over the competition. Real estate companies and auto dealerships are linked directly to GMTI’s database servers where Celebro’s HomesPlus and AutoChooser software allows them to send complete, digitized ad files to newspapers for pagination and printing. Newspapers are freed from most production requirements and advertisers replace time-consuming manual tasks with labor saving technology. At year-end, GMTI maintained 65 HomesPlus databases, 33 of which are Gannett newspapers, and 32 are non-Gannett customers. AutoChooser is in production at 20 Gannett newspapers and 36 non-Gannett newspapers. Additionally, AutoChooser hosts auto dealer Web sites on behalf of some newspaper customers. GMTI increased its Digital Collections customer base to 113 system installations. Of these, 30 are non-Gannett installations. Each of these systems serves a multi-purpose role for pre-press photo production, the capture and management of wire photos, archiving photos, stories, graphics and pages, and for news library research. In 2003, Gannett acquired sole ownership of InfiNet, which previously had been a partnership with Knight Ridder, Inc., and Landmark Communications, Inc. InfiNet was an application service provider (ASP) where the main line of business was hosting Web services, including those of the partners. InfiNet was merged into GMTI and expanded the GMTI line of business into ASP services including Web hosting. GMTI now manages hosting for most Gannett newspaper Web sites, and continues to manage systems for Landmark, Knight Ridder and numerous other publishers. With respect to newspaper production, 68 domestic daily newspaper plants print by the offset process, and 11 newspapers print using various letterpress processes. There are 84 newspapers that have converted to the 50-inch web-width format. Readers have found this size to be easier to handle and use. The 50-inch format change can result in more than a 7% savings in newsprint consumption. Two more of the company’s newspapers are scheduled for web-width reduction in 2004.
Slide 16: During the past few years, the company has consolidated certain functions of its newspaper operations in a number of geographic areas in order to achieve greater marketing, administrative and production effectiveness and efficiencies. The company will continue to assess and consolidate certain functions where there are expected benefits. In recent years, improved technology for all of the newspapers has resulted in greater speed and accuracy and in a reduction in the number of production hours worked. The company expects this trend to continue in 2004. The principal sources of newspaper revenues are circulation and advertising. Circulation: Detailed information about the circulation of the company’s newspapers may be found on pages 10-13 and 20-21 of this Form 10-K. The 2% decline in the company’s daily circulation is, in part, a result of the decision to raise home-delivery prices early in 2003 at 15 of the larger newspapers, including Phoenix, Detroit and Indianapolis. The 1% decline in Sunday circulation is consistent with the national pattern the industry has experienced for several years. Twenty-seven of the company’s local newspapers reported gains in daily circulation in 2003, and 22 increased Sunday circulation. Home-delivery prices for the company’s newspapers are established individually for each newspaper and range from $1.62 to $3.11 per week for daily newspapers and from $0.71 to $2.75 per copy for Sunday newspapers. Price increases for certain elements of local circulation volume were initiated at 10 newspapers in 2003. Advertising: The newspapers have advertising departments that sell retail, classified and national advertising. The Gannett Retail Advertising Group also sells advertising on behalf of the company’s local newspapers to national and regional retailers and service providers. The company also contracts with outside representative firms that specialize in the sale of national advertising. Analyses of newspaper advertising revenues are presented on pages 19-20 of this Form 10-K. Retail advertising is display advertising associated with local merchants, such as department and grocery stores. Classified advertising includes ads listed together in sequence by the nature of the ads, such as automobile sales, real estate sales and help wanted. National advertising is display advertising principally from advertisers who are promoting products or brand names nationally. Retail and national advertising may appear in the newspaper itself or in preprinted sections. Ad revenues from newspaper Internet affiliates are reported along with revenue from publishing. Generally there are different rates for each category of advertising, and the rates for each newspaper are set independently, varying from city to city. The newspapers have made continuing efforts to serve their readers and advertisers by introducing complete market coverage programs and by targeting specific market segments desired by many advertisers through the use of specially zoned editions and other specialty publications. Continuing and comprehensive efforts are also underway to leverage Web site and newspaper marketing and advertising sales opportunities. Competition: The company’s newspapers compete with other media for advertising principally on the basis of their advertising rates and their performance in helping to sell the advertisers’ products or services. They compete for circulation principally on the basis of their content and price. While most of the company’s newspapers do not have daily newspaper competitors that are published in the same city, in certain of the company’s larger markets, there is such direct competition. Most of the company’s newspapers compete with other newspapers published in nearby cities and towns and with free-distribution and paid-advertising weeklies, as well as other print and non-print media. The rate of development of opportunities in, and competition from, emerging electronic communications services, including those related to the Internet, is increasing. Through internal development programs, acquisitions and partnerships, the company’s efforts to explore new opportunities in news, information and communications businesses have expanded and will continue to do so. At the end of 2003, The Cincinnati Enquirer, The Detroit News and the Tucson (Ariz.) Citizen were published under joint operating agreements with non-Gannett newspapers located in the same cities. All of these agreements provide for joint business, advertising, production and circulation operations and a contractual division of profits. The editorial and reporting staffs of the company’s newspapers, however, are separate and autonomous from those of the non-Gannett newspapers. In January 2004, the company provided notice to The E.W. Scripps Company, as required under the terms of the Joint Operating Agreement (JOA) involving The Cincinnati Enquirer, The Cincinnati Post and The Kentucky Post, that the JOA would not be renewed when it expires on Dec. 31, 2007. Environmental regulation: Gannett is committed to protecting the environment. The company’s goal is to ensure its facilities comply with federal, state, local and foreign environmental laws and to incorporate appropriate environmental practices and standards in its operations. The company retains a corporate environmental consultant who is responsible for overseeing regulatory compliance and taking preventive measures where appropriate. The company is one of the industry leaders in the use of recycled newsprint and increased its purchases of newsprint containing some recycled content from 42,000 metric tons in 1989 to over 920,000 metric tons in 2003. During 2003, all of the company’s newspapers consumed some recycled newsprint. For the year, nearly 75% of the company’s newsprint purchases contained recycled content. The company’s newspapers use inks, photographic chemicals, solvents and fuels. The use, management, and disposal of these substances may be regulated by federal, state, local and foreign agencies. Some of the company’s newspaper subsidiaries have been included among the potentially responsible parties in connection with the alleged disposal of ink or other wastes at disposal sites that have been subsequently identified as requiring remediation. Additional information about these matters can be found on page 15 of this Form 10-K. The company does not believe that these matters will have a material impact on its financial position or results of operations. 7
Slide 17: Raw materials: Newsprint, which is the basic raw material used to publish newspapers, has been and may continue to be subject to significant price changes from time to time. During 2003, the company’s total newsprint consumption was 1,270,000 metric tons, including the company’s portion of newsprint consumed at joint operating agencies, consumption by USA WEEKEND, USA TODAY tonnage consumed at non-Gannett print sites and consumption by Newsquest. Newsprint consumption was slightly higher than in 2002, up 4%, primarily due to recent acquisitions and growth in commercial printing activities. The company purchases newsprint from 23 domestic and global suppliers under contracts that expire at various times through 2010. In 2003, newsprint supplies were adequate. The company believes that the available sources of newsprint, together with present inventories, will continue to be adequate to supply the needs of its newspapers. The average cost per ton of newsprint consumed in 2003 increased 5% compared to the 2002 average cost. Newspaper Publishing/United Kingdom In the second quarter of 2003, the company purchased the publishing business of Scottish Media Group plc (SMG), which consists of three Scottish regional newspapers; 11 specialty consumer and business-to-business magazine titles; and an online advertising and content business. Altogether, Newsquest now publishes more than 300 titles in the United Kingdom, including 17 daily newspapers. Newsquest operates its newspaper publishing activities around geographic clusters to maximize the use of management, finance, printing and personnel resources. This approach enables the group to offer readers and advertisers a range of attractive products across the market. The clustering of titles and, usually, the publication of a free newspaper alongside a paid-for newspaper, allows cross-selling of advertising among newspapers serving the same or contiguous markets, thus satisfying the needs of its advertisers and audiences. At the end of 2003, Newsquest had 17 such clusters in the United Kingdom. Newsquest’s policy is to produce free and paid-for newspapers with an attractive level of quality local editorial content. Newsquest also distributes a substantial volume of advertising leaflets in the communities it serves and it offers a travel/vacation booking service. At the end of 2003, Newsquest (including SMG) had nearly 9,300 full-time and part-time employees. Newsquest’s revenues for 2003 (including SMG, acquired in April 2003) were approximately $970 million. As with U.S. newspapers, advertising is the largest component of revenue, comprising approximately 78%. Circulation revenue represents 12% of revenues and printing activities account for much of the remainder. Newsquest is actively seeking to maximize the value of its local information expertise through development of opportunities offered by the Internet. Through internal growth and in partnership with other businesses, Newsquest has established a number of local and national Web sites that offer news and other information of special interest to its communities, as well as classified and retail advertising and shopping services. Newsquest newspapers operate in competitive markets. Their principal competitors include other regional and national newspaper and magazine publishers, other advertising media such as radio and billboard, and Internet-based news, information and communication businesses. 8 Broadcasting On Dec. 28, 2003, the company’s television division, headquartered in McLean, Va., included 22 television stations in markets with a total of more than 19.3 million households. At the end of 2003, the broadcasting division had approximately 3,000 full-time and part-time employees. Broadcasting revenues accounted for approximately 11% of the company’s reported operating revenues in 2003, 12% in 2002 and 11% in 2001. The principal sources of the company’s broadcasting revenues are: 1) local advertising focusing on the immediate geographic area of the stations; 2) national advertising; 3) compensation paid by the networks for carrying commercial network programs; 4) advertising on the stations’ Web sites; and 5) payments by advertisers to television stations for other services, such as the production of advertising material. The advertising revenues derived from a station’s local news programs make up a significant part of its total revenues. Advertising rates charged by a television station are based on the ability of a station to deliver a specific audience to an advertiser. The larger a station’s share in any particular daypart, the more leverage a station has in asking for a price advantage. As the market fluctuates with supply and demand, so does the station’s rate card. Practically all national advertising is placed through independent advertising representatives. Local advertising time is sold by each station’s own sales force. Generally, a network provides programs to its affiliated television stations, sells commercial advertising announcements within the network programs and compensates the local stations by paying an amount based on the television station’s network-affiliation agreement. For all of its stations, the company is party to network-affiliation agreements. The company’s three ABC affiliates have agreements which expire between 2005-2007. The agreements for its six CBS affiliates run through 2004-2005. The company’s 13 NBCaffiliated stations have agreements that will expire in December 2005. Programming: The costs of locally produced and purchased syndicated programming are a significant portion of television operating expenses. Syndicated programming costs are determined based upon largely uncontrollable market factors, including demand from the independent and affiliated stations within the market. In recent years, the company’s television stations have emphasized their locally produced news and entertainment programming in an effort to provide programs that distinguish the stations from the competition and to better control costs. Competition: In each of its broadcasting markets, the company’s stations compete for revenues with other network-affiliated and independent television and radio broadcasters and with other advertising media, such as cable television, newspapers, magazines and outdoor advertising. The stations also compete in the emerging local electronic media space, which includes Internet or Internetenabled devices and any digital spectrum opportunities associated with digital television (DTV). The company’s broadcasting stations compete principally on the basis of their market share, advertising rates and audience composition.
Slide 18: Local news is most important to a station’s success, and there is a growing emphasis on other forms of programming that relate to the local community. Network and syndicated programming constitute the majority of all other programming broadcast on the company’s television stations, and the company’s competitive position is directly affected by viewer acceptance of this programming. Other sources of present and potential competition for the company’s broadcasting properties include pay cable, home video and audio recorders and video disc players, direct broadcast satellite and low-power television. Some of these competing services have the potential of providing improved signal reception or increased home entertainment selection, and they are continuing development and expansion. Pursuant to the Satellite Home Viewer Improvement Act of 1999, a number of the company’s television stations are currently being delivered by satellite carriers to subscribers within the stations’ markets. The company has entered into retransmission consent agreements with satellite carriers that authorize such delivery that expire in mid-2004. The company anticipates these agreements will be renewed when they expire. This law also permits satellite carriers to retransmit distant network television stations into areas served by local television stations if it is determined, using FCC-approved signal strength measurement standards, that local stations do not deliver an acceptable viewing signal. Regulation: The company’s television stations are operated under the authority of the Federal Communications Commission (FCC) under the Communications Act of 1934, as amended (Communications Act), and the rules and policies of the FCC (FCC Regulations). Television broadcast licenses are granted for periods of eight years. They are renewable by broadcasters upon application to the FCC and usually are renewed except in rare cases in which a conflicting application, a petition to deny, a complaint or an adverse finding as to the licensee’s qualifications results in loss of the license. The company believes it is in substantial compliance with all applicable provisions of the Communications Act and FCC Regulations. FCC Regulations also prohibit concentrations of broadcasting control and regulate network programming. FCC Regulations governing multiple ownership limit, or in some cases, prohibit the common ownership or control of most communications media serving common market areas (for example, television and radio; television and daily newspapers; or radio and daily newspapers). FCC rules permit common ownership of two television stations in the same market in certain circumstances provided that at least one of the commonly owned stations is not among the market’s top four rated stations at the time of acquisition. It is under this standard that the company acquired a second television station in Jacksonville, Fla. In 2003, the FCC substantially changed its ownership rules to allow greater media ownership opportunities, including 1) permitting common ownership of different properties in the same market (depending on market size) but retaining limitations in markets of three or fewer television stations where cross-ownership is prohibited; 2) permitting ownership of a number of television stations in a market (depending on market size); and 3) increasing the national TV ownership cap, covering the number of U.S. TV households one company is permitted to serve from 35% to 45%. In January, Congress passed legislation setting the national ownership cap figure at 39%. Presently the company’s 22 television stations reach an aggregate of 17.8% of U.S. TV households. Appeals of the 2003 FCC decision were filed and the new rules have not taken effect. Oral argument was held on Feb. 11, 2004, and a court decision is expected later in the year. If the 2003 FCC ruling is upheld, it could present opportunities for the company to acquire additional properties in markets it currently serves. Employee relations At the end of 2003, the company and its subsidiaries had approximately 53,000 full-time and part-time employees. Three of the company’s newspapers were published in 2003 together with noncompany newspapers pursuant to joint operating agreements, and the employment total above includes the company’s pro-rata share of employees at those joint production and business operations. Approximately 13% of those employed by the company and its subsidiaries are represented by labor unions. They are represented by 96 local bargaining units affiliated with nine international unions under collective bargaining agreements. These agreements conform generally with the pattern of labor agreements in the newspaper and broadcasting industries. The company does not engage in industrywide or companywide bargaining. The company’s U.K. subsidiaries bargain with three unions over working practices, wages and health and safety issues only. The company provides competitive group life and medical insurance programs for full-time domestic employees at each location. The company pays a substantial portion of these costs and employees contribute the balance. Virtually all of the company’s units provide retirement or profit-sharing plans which cover eligible full-time employees. In 1990, the company established a 401(k) Savings Plan, which is available to most of its domestic employees and a small number of unionized employees. Newsquest employees have local staff councils for consultation and communication with local Newsquest management. Newsquest provides the majority of its employees with 1) the option to participate in a stock option-linked savings plan; 2) the option to purchase Gannett shares through a share incentive plan; and 3) a retirement plan that incorporates life insurance. The company strives to maintain good relationships with its employees. 9
Slide 19: MARKETS WE SERVE NEWSPAPERS AND NEWSPAPER DIVISION Daily newspapers State Territory City Alabama Montgomery Arizona Phoenix Tucson Arkansas Mountain Home Palm Springs California Salinas Tulare Visalia Colorado Fort Collins Connecticut Norwich Delaware Wilmington Florida Brevard County Fort Myers Pensacola Georgia Gainesville Guam Hagatna Hawaii Honolulu Idaho Boise Illinois Rockford Indiana Indianapolis Lafayette Marion Muncie Richmond Iowa Des Moines Iowa City Kentucky Louisville Louisiana Alexandria Lafayette Monroe Opelousas Shreveport Maryland Salisbury Michigan Battle Creek Detroit Circulation Newspaper Morning Afternoon Sunday Montgomery Advertiser 50,365 61,921 The Arizona Republic 455,937 571,501 Tucson Citizen 33,370 The Baxter Bulletin 11,235 The Desert Sun 52,734 55,191 The Salinas Californian 18,826 Tulare Advance-Register 7,881 Visalia Times-Delta 21,600 Fort Collins Coloradoan 28,460 34,716 Norwich Bulletin 28,015 32,176 The News Journal 117,292 140,882 FLORIDA TODAY 87,743 106,810 The News-Press 90,585 108,653 Pensacola News Journal 63,292 81,377 The Times * 20,102 23,958 Pacific Daily News 23,255 21,695 The Honolulu Advertiser 144,502 166,483 The Idaho Statesman 65,606 87,630 Rockford Register Star 66,763 79,808 The Indianapolis Star 251,374 367,700 Journal and Courier 36,694 43,371 Chronicle-Tribune 18,143 20,856 The Star Press 32,450 35,561 Palladium-Item 18,434 22,348 The Des Moines Register 154,569 245,468 Iowa City Press-Citizen 14,912 The Courier-Journal 216,122 281,661 Alexandria Daily Town Talk 35,542 40,955 The Daily Advertiser 45,983 56,525 The News-Star 36,047 40,309 Daily World 9,986 11,692 The Times 66,329 80,993 The Daily Times 27,322 31,338 Battle Creek Enquirer 24,963 33,200 225,616 The Detroit News The Detroit News and Free Press 722,385 Lansing Lansing State Journal 72,251 92,174 Port Huron Times Herald 29,323 39,567 27,894 37,357 St. Cloud Times St. Cloud Minnesota Mississippi Hattiesburg Hattiesburg American 22,048 25,868 Jackson The Clarion-Ledger 96,952 109,702 Missouri Springfield Springfield News-Leader 61,844 90,417 Montana Great Falls Great Falls Tribune 33,499 37,264 Reno Reno Gazette-Journal 66,403 83,911 Nevada New Jersey Asbury Park Asbury Park Press 166,142 223,192 39,861 40,901 Courier News Bridgewater Cherry Hill Courier-Post 78,751 94,744 East Brunswick Home News Tribune 61,597 68,206 44,510 42,212 Daily Record Morristown Vineland The Daily Journal 17,566 (a) Number in parentheses notes chronological order in which existing newspapers joined Gannett. * On Feb. 16, 2004, Gannett exchanged The Times in Gainesville, Ga., for two daily newspapers in Tennessee. Non-daily publications: see listing of U.S. non-daily locations on page 12. 10 Joined Founded Gannett (a) 1829 1995 (62) 1890 2000 (90) 1870 1976 (30) 1901 1995 (63) 1927 1986 (56) 1871 1977 (36) 1882 1993 (61) 1859 1977 (37) 1873 1977 (38) 1791 1981 (49) 1871 1978 (43) 1966 1966 (9) 1884 1971 (24) 1889 1969 (11) 1947 1981 (48) 1944 1971 (23) 1856 1993 (60) 1864 1971 (16) 1855 1967 (10) 1903 2000 (91) 1829 1971 (17) 1867 1971 (20) 1899 2000 (92) 1831 1976 (29) 1849 1985 (53) 1860 1977 (40) 1868 1986 (58) 1883 2000 (93) 1865 2000 (71) 1890 1977 (42) 1939 2000 (94) 1871 1977 (41) 1900 2000 (72) 1900 1971 (18) 1873 1986 (55) 1855 1900 1861 1897 1837 1893 1885 1870 1879 1884 1875 1879 1900 1864 1971 1970 1977 1982 1982 1977 1990 1977 1997 1927 1959 1997 1998 1986 (15) (12) (35) (51) (50) (34) (59) (31) (68) (5) (7) (69) (70) (57)
Slide 20: Daily newspapers State Territory City New Mexico Alamogordo Carlsbad Deming Farmington Las Cruces Silver City New York Binghamton Elmira Ithaca Poughkeepsie Rochester Utica Westchester County North Carolina Asheville Ohio Bucyrus Chillicothe Cincinnati Coshocton Fremont Lancaster Mansfield Marion Newark Port Clinton Zanesville Oklahoma Muskogee Circulation Joined Newspaper Morning Afternoon Sunday Founded Gannett (a) Alamogordo Daily News† 6,957 8,383 1898 2003 (95) Carlsbad Current-Argus† 8,149 8,252 1889 2003 (96) The Deming Headlight† * 1881 2003 (97) The Daily Times† 17,860 19,504 1894 2003 (98) Las Cruces Sun-News† 25,057 24,778 1881 2003 (99) Silver City Sun-News† * * 1995 2003(100) Press & Sun-Bulletin 55,534 70,376 1904 1943 (6) Star-Gazette 28,949 40,071 1828 1906 (1) The Ithaca Journal 18,376 1815 1912 (2) Poughkeepsie Journal 40,146 50,794 1785 1977 (33) Rochester Democrat and Chronicle 170,850 231,643 1833 1918 (3) Observer-Dispatch 45,261 52,272 1817 1922 (4) The Journal News 142,511 168,868 1829 1964 (8) Asheville Citizen-Times 56,300 70,477 1870 1995 (64) Telegraph-Forum 7,171 1923 2000 (73) Chillicothe Gazette 15,937 15,987 1800 2000 (74) The Cincinnati Enquirer 193,731 308,838 1841 1979 (44) Coshocton Tribune 6,967 7,349 1842 2000 (75) The News-Messenger 13,483 1856 1975 (27) Lancaster Eagle-Gazette 14,858 14,916 1807 2000 (76) News Journal 33,044 41,765 1885 2000 (77) The Marion Star 14,228 14,281 1880 2000 (78) The Advocate 21,959 22,989 1820 2000 (79) News Herald 5,833 1864 1975 (28) Times Recorder 21,126 20,676 1852 2000 (80) Muskogee Daily Phoenix and Times-Democrat 17,877 19,097 1888 1977 (39) Oregon Salem Statesman Journal 56,521 62,937 1851 1974 (26) Pennsylvania Chambersburg Public Opinion 18,342 1869 1971 (14) South Carolina Greenville The Greenville News 89,772 117,943 1874 1995 (65) South Dakota Sioux Falls Argus Leader 54,154 76,305 1881 1977 (32) Tennessee Clarksville The Leaf-Chronicle 22,613 26,931 1808 1995 (66) Jackson The Jackson Sun 35,359 40,997 1848 1985 (54) Nashville The Tennessean 174,868 248,728 1812 1979 (45) Texas El Paso El Paso Times† 73,196 90,322 1879 1972 (25) Utah St. George The Spectrum 22,551 23,918 1963 2000 (81) Vermont Burlington The Burlington Free Press 48,331 57,496 1827 1971 (13) Virginia McLean USA TODAY 2,251,035 1982 1982 (52) 18,050 21,141 1904 1995 (67) The Daily News Leader Staunton Washington Bellingham The Bellingham Herald 24,415 31,079 1890 1971 (21) Olympia The Olympian 35,513 43,263 1889 1971 (19) West Virginia Huntington The Herald-Dispatch 32,126 38,347 1909 1971 (22) 53,391 69,043 1853 2000 (82) The Post-Crescent Appleton Wisconsin Fond du Lac The Reporter 19,840 19,731 1870 2000 (83) Green Bay Green Bay Press-Gazette 56,689 83,399 1915 1980 (46) Manitowoc Herald Times Reporter 15,544 16,023 1898 2000 (84) Marshfield Marshfield News-Herald 13,815 1927 2000 (85) Oshkosh Northwestern 21,528 25,393 1868 2000 (86) Oshkosh 1907 2000 (87) 25,748 23,724 The Sheboygan Press Sheboygan Stevens Point Stevens Point Journal 12,931 1873 2000 (88) Central Wisconsin Sunday 18,926 22,862 29,297 1903 1980 (47) Wausau Daily Herald Wausau Wisconsin Rapids The Daily Tribune 13,436 1914 2000 (89) * Circulation figures included with Las Cruces Sun-News amounts. † Newspapers are published by the Texas-New Mexico Newspapers Partnership, in which Gannett owns a 66.2% equity interest. 11
Slide 21: NEWSPAPERS AND NEWSPAPER DIVISION (continued) Army Times Publishing Co. Headquarters: Springfield, Va. Advertising offices: New York, N.Y.; Chicago, Ill.; Los Angeles, Calif.; Detroit, Mich. Publications: Army Times, Navy Times, Marine Corps Times, Air Force Times, Federal Times, Defense News, Armed Forces Journal, ISR Journal, Training and Simulation Journal Clipper Magazine, Inc. Headquarters: Mountville, Pa. Nursing Spectrum Offices: Dallas/Fort Worth, Texas (serving Texas and Louisiana); Falls Church, Va. (serving Washington, D.C./Baltimore, Md.); Hoffman Estates, Ill. (serving Illinois, Indiana, Michigan and Ohio); Ft. Lauderdale, Fla. (serving Ft. Lauderdale and Tampa); King of Prussia, Pa. (serving Philadelphia and the Delaware Valley); Lexington, Mass. (serving New England states); Sunnyvale, Calif. (serving California and the Western States); Westbury, N.Y. (serving New York and New Jersey) Non-daily publications Weekly, semi-weekly, monthly or bimonthly publications in Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Guam, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Juarez, Mexico USA WEEKEND Circulation 23.7 million in 598 newspapers Headquarters: McLean, Va. Advertising offices: Chicago, Ill.; Detroit, Mich.; Los Angeles, Calif.; New York, N.Y. Gannett Media Technologies International: Cincinnati, Ohio; Norfolk, Va.; Tempe, Ariz. Gannett Offset Headquarters: Springfield, Va. Offset sites: Atlanta, Ga.; Minneapolis, Minn.; Miramar, Fla.; Norwood, Mass.; St. Louis, Mo.; Springfield, Va. Gannett Offset Marketing Services Group Gannett Direct Marketing Services, Inc.: Louisville, Ky. Telematch: Springfield, Va. Gannett Retail Advertising Group: Chicago, Ill. Gannett Satellite Information Network: McLean, Va. Gannett News Service Headquarters: McLean, Va. Bureau: Washington, D.C. State bureaus: Albany, N.Y.; Baton Rouge, La.; Newark, N.J.; Sacramento, Calif.; Springfield, Ill.; Tallahassee, Fla. USA TODAY Headquarters and editorial offices: McLean, Va. Print sites: Arlington, Texas; Atlanta, Ga.; Batavia, N.Y.; Brevard County, Fla.; Chandler, Ariz.; Chicago, Ill.; Columbia, S.C.; Fort Collins, Colo.; Fort Myers, Fla.; Hattiesburg, Miss.; Kankakee, Ill.; Lansing, Mich.; Las Vegas, Nev.; Lawrence, Kan.; Mansfield, Ohio; Marin County, Calif.; Minneapolis, Minn.; Miramar, Fla.; Nashville, Tenn.; Newark, Ohio; Norwood, Mass.; Olympia, Wash.; Pasadena, Texas; Port Huron, Mich.; Raleigh, N.C.; Richmond, Ind.; Rockaway, N.J.; St. Louis, Mo.; Salisbury, N.C.; Salt Lake City, Utah; San Bernardino, Calif.; Springfield, Va.; Warrendale, Pa.; White Plains, N.Y.; Wilmington, Del. International print sites: Frankfurt, Germany; Gosselies, Belgium; Hong Kong; London, England National offices: Atlanta, Ga.; Boston, Mass.; Buffalo, N.Y.; Charlotte, N.C.; Chicago, Ill.; Cincinnati, Ohio; Dallas, Texas; Denver, Colo.; Detroit, Mich.; Houston, Texas; Los Angeles, Calif.; Minneapolis, Minn.; Nashville, Tenn.; New York, N.Y.; Orlando, Fla.; Philadelphia, Pa.; Phoenix, Ariz.; San Francisco, Calif.; Seattle, Wash.; St. Louis, Mo.; Washington, D.C. International offices: Hong Kong; London, England; Singapore Advertising offices: McLean, Va.; Atlanta, Ga.; Chicago, Ill.; Dallas, Texas; Detroit, Mich.; London, England; Los Angeles, Calif.; New York, N.Y.; San Francisco, Calif. USA TODAY SPORTS WEEKLY Editorial offices: McLean, Va. Advertising offices: Chicago, Ill.; McLean, Va.; New York, N.Y. USATODAY.com Headquarters and editorial offices: McLean, Va. Advertising offices: Atlanta, Ga.; Chicago, Ill.; Dallas, Texas; Detroit, Mich.; Los Angeles, Calif.; McLean, Va.; New York, N.Y.; San Francisco, Calif. 12
Slide 22: NEWSQUEST PLC Daily newspapers City Basildon Blackburn Bolton Bournemouth Bradford Brighton Colchester Darlington Glasgow Glasgow Newport Oxford Southampton Swindon Weymouth Worcester York Newspaper Evening Echo Lancashire Evening Telegraph Bolton Evening News Daily Echo Telegraph & Argus The Argus Evening Gazette The Northern Echo Evening Times The Herald South Wales Argus Oxford Mail Southern Daily Echo Evening Advertiser Dorset Echo Worcester Evening News Evening Press Morning Circulation Afternoon 40,019 37,448 36,181 37,481* 48,363 44,514 27,055 58,194* 95,761 85,932 31,376 28,685 49,301* 24,550 21,032* 21,066 37,881 52,202 85,850 27,758 26,872 20,601 18,072 36,733 Saturday 32,004 28,113 45,841 43,166 Founded 1969 1886 1867 1900 1868 1880 1970 1870 1876 1783 1892 1928 1888 1854 1921 1937 1882 Joined Gannett 1999 1999 1999 2000 1999 1999 1999 1999 2003 2003 2000 1999 2000 1999 2000 1999 1999 * Monday-Saturday inclusive Non-daily publications: Essex, London, Midlands, North East, North West, South Coast, South East, South and East Wales, South West, Yorkshire BROADCASTING Television stations State Arizona City Flagstaff Kingman Phoenix Little Rock Sacramento Denver Washington Jacksonville Tampa-St. Petersburg Atlanta Macon Bangor Portland Grand Rapids Minneapolis-St. Paul St. Louis Buffalo Greensboro Cleveland Columbia Knoxville Station KNAZ-TV KMOH-TV* KPNX-TV KTHV-TV KXTV-TV KUSA-TV WUSA-TV WJXX-TV WTLV-TV WTSP-TV WXIA-TV WMAZ-TV WLBZ-TV WCSH-TV WZZM-TV KARE-TV KSDK-TV WGRZ-TV WFMY-TV WKYC-TV WLTX-TV WBIR-TV Channel/Network Channel 2/NBC Channel 6/NBC Channel 12/NBC Channel 11/CBS Channel 10/ABC Channel 9/NBC Channel 9/CBS Channel 25/ABC Channel 12/NBC Channel 10/CBS Channel 11/NBC Channel 13/CBS Channel 2/NBC Channel 6/NBC Channel 13/ABC Channel 11/NBC Channel 5/NBC Channel 2/NBC Channel 2/CBS Channel 3/NBC Channel 19/CBS Channel 10/NBC Weekly Audience(a) (b) (b) 1,215,000 414,000 1,058,000 1,236,000 1,954,000 414,000 493,000 1,327,000 1,711,000 199,000 120,000 335,000 414,000 1,434,000 1,083,000 556,000 598,000 1,318,000 276,000 438,000 Founded 1970 1988 1953 1955 1955 1952 1949 1989 1957 1965 1948 1953 1954 1953 1962 1953 1947 1954 1949 1948 1953 1956 Joined Gannett 1997 1997 1979 1994 1999 1979 1986 2000 1988 1996 1979 1995 1998 1998 1997 1983 1995 1997 1988 1995 1998 1995 Arkansas California Colorado District of Columbia Florida Georgia Maine Michigan Minnesota Missouri New York North Carolina Ohio South Carolina Tennessee (a) Weekly audience is number of TV households reached, according to the November 2003 Nielsen book. (b) Audience numbers fall below minimum reporting standards. * Gannett has an agreement to sell KMOH-TV The closing is expected in the first half of 2004. . 13
Slide 23: GANNETT ON THE NET News and information about Gannett is available on our Web site, www.gannett.com. In addition to news and other information about our company, we provide access through this site to our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after we file or furnish them electronically with the Securities and Exchange Commission. We also provide access on this Web site to our Principles of Corporate Governance, the charters of our Audit, Executive Compensation and Nominating and Public Responsibility Committees and other important governance documents and policies, including our Ethics and Inside Trading Policies. Copies of all of these corporate governance documents are available to any shareholder upon written request made to our Secretary at our headquarters address. In addition, we will disclose on this Web site changes to, or waivers of, our corporate Ethics Policy. Gannett properties also offer online services or informational sites on the Internet as follows: Gannett Corporate Gannett Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.gannett.com Newspapers and Newspaper Division USA TODAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.usatoday.com USA WEEKEND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.usaweekend.com Alexandria (La.) Daily Town Talk . . . . . . . . . . . . . . . . . . . . . . .www.thetowntalk.com The Post-Crescent, Appleton, Wis. . . . . . . . . . . . . . . . . . . . . .www.postcrescent.com Asbury Park (N.J.) Press . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.app.com Asheville (N.C.) Citizen-Times . . . . . . . . . . . . . . . . . . . . . . . .www.citizen-times.com Battle Creek (Mich.) Enquirer . . . . . . . . . . . . . . . . . . . .www.battlecreekenquirer.com The Bellingham (Wash.) Herald . . . . . . . . . . . . . . . . . . .www.bellinghamherald.com Press & Sun-Bulletin, Binghamton, N.Y. . . . . . . . . . . . . . . .www.pressconnects.com The Idaho Statesman, Boise . . . . . . . . . . . . . . . . . . . . . . . .www.idahostatesman.com Telegraph-Forum, Bucyrus, Ohio . . . . . . . . . . . . . .www.bucyrustelegraphforum.com FLORIDA TODAY, Brevard County . . . . . . . . . . . . . . . . . . . .www.floridatoday.com Courier News, Bridgewater, N.J. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.c-n.com The Burlington (Vt.) Free Press . . . . . . . . . . . . . . . . . .www.burlingtonfreepress.com Public Opinion, Chambersburg, Pa. . . . . . . . . . . . . . . .www.publicopiniononline.com Courier-Post, Cherry Hill, N.J. . . . . . . . . . . . . . . . . . . . .www.courierpostonline.com Chillicothe (Ohio) Gazette . . . . . . . . . . . . . . . . . . . . . . . .www.chillicothegazette.com The Cincinnati Enquirer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.cincinnati.com The Leaf-Chronicle, Clarksville, Tenn. . . . . . . . . . . . . . . .www.theleafchronicle.com Coshocton (Ohio) Tribune . . . . . . . . . . . . . . . . . . . . . . . .www.coshoctontribune.com The Des Moines Register . . . . . . . . . . . . . . . . . . . . . . . . . . . .DesMoinesRegister.com The Detroit News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .detnews.com Home News Tribune, East Brunswick, N.J. . . . . . . . . . . . . . . . . . . . . .www.thnt.com Star-Gazette, Elmira, N.Y. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.stargazette.com El Paso (Texas) Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.elpasotimes.com The Reporter, Fond du Lac, Wis. . . . . . . . . . . . . . . . . . . . . . . .www.fdlreporter.com Fort Collins Coloradoan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.coloradoan.com The News-Press, Fort Myers, Fla. . . . . . . . . . . . . . . . . . . . . . . . www.news-press.com The News-Messenger, Fremont, Ohio . . . . . . . . . . . . .www.thenews-messenger.com The Times, Gainesville, Ga.* . . . . . . . . . . . . . . . . . . . . . . .www.gainesvilletimes.com Great Falls (Mont.) Tribune . . . . . . . . . . . . . . . . . . . . . . . .www.greatfallstribune.com Green Bay (Wis.) Press-Gazette . . . . . . . . . . . . . . . .www.greenbaypressgazette.com The Greenville (S.C.) News . . . . . . . . . . . . . . . . . . . . . . . . . . . .greenvilleonline.com Pacific Daily News, Hagatna, Guam . . . . . . . . . . . . . . . . . . . . . .www.guampdn.com Hattiesburg (Miss.) American . . . . . . . . . . . . . . . . . . .www.hattiesburgamerican.com The Honolulu Advertiser . . . . . . . . . . . . . . . . . . . . . . . .www.honoluluadvertiser.com The Herald-Dispatch, Huntington, W.Va. . . . . . . . . . . . . . .www.herald-dispatch.com The Indianapolis Star . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.indystar.com Iowa City (Iowa) Press-Citizen . . . . . . . . . . . . . . . . . . . . . . . .www.press-citizen.com The Ithaca (N.Y.) Journal . . . . . . . . . . . . . . . . . . . . . . . . . .www.theithacajournal.com The Clarion-Ledger, Jackson, Miss. . . . . . . . . . . . . . . . . . . . .www.clarionledger.com The Jackson (Tenn.) Sun . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.jacksonsun.com Journal and Courier, Lafayette, Ind. . . . . . . . . . . . . . . . . . . . . . . . .www.jconline.com The Daily Advertiser, Lafayette, La. . . . . . . . . . . . . . . . . . . . .www.theadvertiser.com Lancaster (Ohio) Eagle-Gazette . . . . . . . . . . . . . . . . .www.lancastereaglegazette.com Lansing (Mich.) State Journal . . . . . . . . . . . . . . . . . . . .www.lansingstatejournal.com The Courier-Journal, Louisville, Ky. . . . . . . . . . . . . . . . . . .www.courier-journal.com Herald Times Reporter, Manitowoc, Wis. . . . . . . . . . . . . . . . . . . .www.htrnews.com News Journal, Mansfield, Ohio . . . . . . . . . . . . . . . .www.mansfieldnewsjournal.com Chronicle-Tribune, Marion, Ind. . . . . . . . . . . . . . . . . . . .www.chronicle-tribune.com The Marion (Ohio) Star . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.marionstar.com Marshfield (Wis.) News-Herald . . . . . . . . . . . . . .www.marshfieldnewsherald.com The News-Star, Monroe, La. . . . . . . . . . . . . . . . . . . . . . . . . . . .www.thenewsstar.com The Montgomery (Ala.) Advertiser . . . . . . . . . . . . .www.montgomeryadvertiser.com Daily Record, Morristown, N.J. . . . . . . . . . . . . . . . . . . . . . . . . .www.dailyrecord.com The Baxter Bulletin, Mountain Home, Ark. . . . . . . . . . . . . .www.baxterbulletin.com The Star Press, Muncie, Ind. . . . . . . . . . . . . . . . . . . . . . . . . . . .www.thestarpress.com The Tennessean, Nashville . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.tennessean.com The Advocate, Newark, Ohio . . . . . . . . . . . . . . . . . . . . . . .www.newarkadvocate.com Newspaper Network of Central Ohio . . . . . . . . . . . . . . . . . . . . .www.centralohio.com Norwich (Conn.) Bulletin . . . . . . . . . . . . . . . . . . . . . . . . . .www.norwichbulletin.com The Olympian, Olympia, Wash. . . . . . . . . . . . . . . . . . . . . . . . .www.theolympian.com Daily World, Opelousas, La. . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.dailyworld.com * Oshkosh (Wis.) Northwestern . . . . . . . . . . . . . . . . . . . . .www.thenorthwestern.com The Desert Sun, Palm Springs, Calif. . . . . . . . . . . . . . . . . . . .www.thedesertsun.com Pensacola (Fla.) News Journal . . . . . . . . . . . . . . . .www.PensacolaNewsJournal.com The Arizona Republic, Phoenix . . . . . . . . . . . . . . . . . . . . . . . . . . .www.azcentral.com News Herald, Port Clinton, Ohio . . . . . . . . . . . . . . .www.portclintonnewsherald.com Times Herald, Port Huron, Mich. . . . . . . . . . . . . . . . . . . . . .www.thetimesherald.com Poughkeepsie (N.Y.) Journal . . . . . . . . . . . . . . . . . . .www.poughkeepsiejournal.com Reno (Nev.) Gazette-Journal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.rgj.com Palladium-Item, Richmond, Ind. . . . . . . . . . . . . . . . . . . . . . . . . . . .www.pal-item.com Rochester (N.Y.) Democrat and Chronicle . . . . . . .www.DemocratandChronicle.com Rockford (Ill.) Register Star . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.rrstar.com Statesman Journal, Salem, Ore. . . . . . . . . . . . . . . . . . . . .www.statesmanjournal.com The Salinas Californian . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.thecalifornian.com The Daily Times, Salisbury, Md. . . . . . . . . . . . . . . . . . . . . . .www.delmarvanow.com The Sheboygan (Wis.) Press . . . . . . . . . . . . . . . . . . . . . .www.sheboygan-press.com Argus Leader, Sioux Falls, S.D. . . . . . . . . . . . . . . . . . . . . . . . . .www.argusleader.com St. Cloud (Minn.) Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.sctimes.com The Spectrum, St. George, Utah . . . . . . . . . . . . . . . . . . . . . . .www.thespectrum.com The Times, Shreveport, La. . . . . . . . . . . . . . . . . . . . . . . . .www.shreveporttimes.com Springfield (Mo.) News-Leader . . . . . . . . . . . . . . . . . . . . . . .www.news-leader.com The Daily News Leader, Staunton, Va. . . . . . . . . . . . . . . . . . . .www.newsleader.com Stevens Point (Wis.) Journal . . . . . . . . . . . . . . . . . . .www.stevenspointjournal.com Tucson (Ariz.) Citizen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.tucsoncitizen.com Tulare (Calif.) Advance-Register . . . . . . . . . . . . . . . .www.tulareadvanceregister.com Observer-Dispatch, Utica, N.Y. . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.uticaod.com The Daily Journal, Vineland, N.J. . . . . . . . . . . . . . . . . . . . .www.thedailyjournal.com Visalia (Calif.) Times-Delta . . . . . . . . . . . . . . . . . . . . . . .www.visaliatimesdelta.com Wausau (Wis.) Daily Herald . . . . . . . . . . . . . . . . . . . . .www.wausaudailyherald.com The Journal News, Westchester County, N.Y. . . . . . . . . . . .www.thejournalnews.com The News Journal, Wilmington, Del. . . . . . . . . . . . . . . . . .www.delawareonline.com The Daily Tribune, Wisconsin Rapids, Wis. . . . .www.wisconsinrapidstribune.com Times Recorder, Zanesville, Ohio . . . . . . . . . . . . .www.zanesvilletimesrecorder.com Army Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.armytimes.com Navy Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.navytimes.com Marine Corps Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.marinetimes.com Air Force Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.airforcetimes.com Federal Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.federaltimes.com Defense News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.defensenews.com Military City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.militarycity.com Nursing Spectrum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.nursingspectrum.com Gannett Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.gannettoffset.com Gannett Direct Marketing Services . . . . . . . . . . . . . . . . . . . . . . . . . . .www.gdms.com Gannett Media Technologies International . . . . . . . . . . . . . . . . . . . . . .www.gmti.com 101 Things to Do Magazine . . . . . . . . . . . . . . . . . . . . . . . . .www.101thingstodo.com Clipper Magazine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.clippermagazine.com Newsquest PLC Newsquest Media Group . . . . . . . . . . . . . . . . . . . . . . . . . .www.newsquest.co.uk Evening Echo, Basildon . . . . . . . . . . . . . . . . . . . . . . . . . . .www.thisisessex.co.uk Lancashire Evening Telegraph, Blackburn . . . . . . . . .www.thisislancashire.co.uk Bolton Evening News, Bolton . . . . . . . . . . . . . . . . . .www.thisislancashire.co.uk Daily Echo, Bournemouth . . . . . . . . . . . . . . . . . . . . . . . . . .www.thisisdorset.net Telegraph & Argus, Bradford . . . . . . . . . . . . . . . . . . . .www.thisisbradford.co.uk The Argus, Brighton . . . . . . . . . . . . . . . . . . . . .www.thisisbrightonandhove.co.uk Evening Gazette, Colchester . . . . . . . . . . . . . . . . . . . . . . .www.thisisessex.co.uk The Northern Echo, Darlington . . . . . . . . . . . . . . .www.thisisthenortheast.co.uk The Herald, Glasgow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.theherald.co.uk Evening Times, Glasgow . . . . . . . . . . . . . . . . . . . . . . . .www.eveningtimes.co.uk South Wales Argus, Newport . . . . . . . . . . . . . . . . . . . . . .www.thisisgwent.co.uk Oxford Mail, Oxford . . . . . . . . . . . . . . . . . . . . . . . .www.thisisoxfordshire.co.uk Southern Daily Echo, Southampton . . . . . . . . . . . . . . . .www.thisishampshire.net Evening Advertiser, Swindon . . . . . . . . . . . . . . . . . . . .www.thisiswiltshire.co.uk Dorset Echo, Weymouth . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.thisisdorset.net Worcester Evening News, Worcester . . . . . . . . . .www.thisisworcestershire.co.uk Evening Press, York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.thisisyork.co.uk Broadcasting WXIA-TV, Atlanta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.11alive.com WLBZ-TV, Bangor, Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.wlbz.com WGRZ-TV, Buffalo, N.Y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.wgrz.com WKYC-TV, Cleveland, Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.wkyc.com WLTX-TV, Columbia, S.C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.wltx.com KUSA-TV, Denver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.9news.com WZZM-TV, Grand Rapids-KalamazooBattle Creek, Mich. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.wzzm13.com WFMY-TV, Greensboro, N.C. . . . . . . . . . . . . . . . . . . . . . .www.wfmynews2.com WTLV-TV/WJXX-TV, Jacksonville, Fla. . . . . . . . . . . . .www.firstcoastnews.com WBIR-TV, Knoxville, Tenn. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.wbir.com KTHV-TV, Little Rock, Ark. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.kthv.com WMAZ-TV, Macon, Ga. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.13wmaz.com KARE-TV, Minneapolis-St. Paul . . . . . . . . . . . . . . . . . . . . . . . .www.kare11.com KPNX-TV, Phoenix, Ariz. . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.azcentral.com WCSH-TV, Portland, Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.wcsh6.com , KXTV-TV Sacramento, Calif. . . . . . . . . . . . . . . . . . . . . . . . . . .www.news10.net KSDK-TV, St. Louis, Mo. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .www.ksdk.com WTSP-TV, Tampa-St. Petersburg, Fla. . . . . . . . . . . . . . . .www.tampabays10.com , WUSA-TV Washington, D.C. . . . . . . . . . . . . . . . . . . . . . . . . .www.wusatv9.com On Feb. 16, 2004, Gannett exchanged The Times in Gainesville, Ga., for two daily newspapers in Tennessee. 14
Slide 24: ITEM 2. PROPERTIES Newspaper Publishing/United States Generally, the company owns the plants that house all aspects of the newspaper publication process. In the case of USA TODAY, at Dec. 28, 2003, 15 non-Gannett printers were used to print the newspaper in U.S. markets where there are no company newspapers with appropriate facilities. Four non-Gannett printers in foreign countries are used to print USA TODAY International. USA WEEKEND, Clipper Magazine and Nursing Spectrum are also printed under contracts with commercial printing companies. Many of the company’s newspapers have outside news bureaus and sales offices, which generally are leased. In a few markets, two or more of the company’s newspapers share combined facilities; and in certain locations, facilities are shared with other newspaper properties. The company’s newspaper properties have rail siding facilities or access to main roads for newsprint delivery purposes and are conveniently located for distribution purposes. During the past five years, new or substantial additions or remodeling of existing facilities have been completed or are at some stage of construction at 37 of the company’s newspaper operations. Gannett continues to make significant investments in renovations of new facilities, where the investment improves the products for its readers and advertisers as well as productivity and operating efficiency. The company’s facilities are adequate for present operations. A listing of newspaper publishing centers and key properties may be found on pages 10-12. Newspaper Publishing/United Kingdom Newsquest owns certain of the plants where its newspapers are produced and leases other facilities. Its new headquarters is in Weybridge, Surrey. Substantial additions to Newsquest’s printing capacity and color capabilities have been made since Gannett acquired Newsquest in 1999. All of Newsquest’s properties are adequate for present purposes. A listing of Newsquest publishing centers and key properties may be found on page 13. Broadcasting The company’s broadcasting facilities are adequately equipped with the necessary television broadcasting equipment. The company owns transmitter sites in 26 locations and leases one site. During the past five years, new broadcasting facilities or substantial improvements to existing facilities were completed in Jacksonville, Knoxville, Columbia, Cleveland and Tampa. Technical facility expansion to accommodate DTV was completed at 22 sites between 1998 and 2003. The company’s broadcast facilities are adequate for present purposes. A listing of broadcasting stations may be found on page 13. Corporate facilities The company’s headquarters and USA TODAY are located in McLean, Va. The company also owns a data and network operations center in nearby Maryland. Headquarters facilities are adequate for present operations. ITEM 3. LEGAL PROCEEDINGS Information regarding legal proceedings may be found on page 48 in Note 10 of the Notes to Consolidated Financial Statements. Environmental Some of the company’s newspaper subsidiaries have been identified as potentially responsible parties for cleanup of contaminated sites as a result of their alleged disposal of ink or other wastes at disposal sites that have been subsequently identified as requiring remediation. In three such matters, the company’s liability could exceed $100,000. In September 2003, the USEPA notified Multimedia, Inc., a wholly owned Gannett subsidiary, that the company is considered a de minimis potentially responsible party for costs associated with the Operating Industries, Inc. Superfund Site in Monterey, Calif. The settlement offer amount is not yet known. In July 2000, the state of New Jersey notified the Courier-Post in Cherry Hill that it was seeking to recover from the newspaper and other parties cleanup costs totaling approximately $1.9 million. These costs were allegedly expended by the New Jersey Department of Environmental Protection to clean up discharges of hazardous substances at the Noble Oil Company site at 30 Cramer Road, Tabernacle, Burlington County, N.J. To date, the CourierPost has not made any payments to New Jersey in connection with this matter, and no estimate of the newspaper’s liability at the site is available. In September 1995, The Greenville (S.C.) News, along with other parties, entered into Administrative Order on Consent Number 95-26-C with the USEPA, which obligated the signatories to fund a Remedial Investigation/Feasibility Study at the AquaTech Environmental, Inc. Superfund Site five miles east of Greer, S.C. The Greenville News expects to be responsible for less than 1% of future cleanup costs; however, no estimate of such costs is available. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 15
Slide 25: PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Gannett Co., Inc. shares are traded on the New York Stock Exchange with the symbol GCI. Information regarding outstanding shares, shareholders and dividends may be found on pages 1, 4 and 26 of this Form 10-K. Gannett Common stock prices High-low range by fiscal quarters based on NYSE-composite closing prices. Year 1993 Quarter First . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . First . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . First . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . First . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . First . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . First . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . Low $25.32 $23.75 $23.88 $23.75 $26.69 $25.32 $24.19 $23.38 $25.07 $26.00 $26.50 $26.44 $29.63 $32.25 $32.00 $34.75 $35.81 $40.50 $48.00 $51.13 $57.25 $65.13 $55.81 $48.94 High $27.69 $27.38 $25.69 $29.07 $29.19 $27.44 $25.82 $26.69 $27.50 $27.88 $27.75 $32.19 $35.38 $35.82 $35.07 $39.25 $44.75 $50.66 $53.00 $61.81 $69.94 $74.69 $73.56 $68.06 Year 1999 Quarter First . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . First . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . First . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . First . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . First . . . . . . . . . . . . . . . . Second . . . . . . . . . . . . . . Third . . . . . . . . . . . . . . . Fourth . . . . . . . . . . . . . . First . . . . . . . . . . . . . . . . Low $61.81 $61.81 $66.81 $68.81 $61.75 $59.25 $49.25 $48.69 $56.50 $59.58 $55.55 $58.55 $65.03 $71.50 $63.39 $66.62 $67.68 $70.43 $75.86 $77.56 $84.50 High $70.25 $75.44 $76.94 $79.31 $83.25 $72.13 $60.06 $63.06 $67.74 $69.38 $69.11 $71.10 $77.85 $79.87 $77.70 $79.20 $75.10 $79.70 $79.18 $88.93 $90.01* 1994 2000 1995 2001 1996 2002 1997 2003 1998 2004 * Through February 24, 2004 16
Slide 26: ITEM 6. SELECTED FINANCIAL DATA Selected financial data for the years 1999 through 2003 is contained under the heading “Selected Financial Data” on pages 51-53 and is derived from financial statements for those years which were audited by PricewaterhouseCoopers LLP, independent auditors. The information contained in the “Selected Financial Data” is not necessarily indicative of the results of operations to be expected for future years, and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 and the consolidated financial statements and related notes thereto included in Item 8 of this Form 10-K. Business acquisitions, exchanges, dispositions and investments 2003: In March 2003, the company completed a non-monetary transaction under which it contributed its newspaper in El Paso to a newly formed partnership, Texas-New Mexico Newspapers Partnership. The partnership includes the El Paso newspaper and five other daily newspapers in nearby New Mexico that were contributed by MediaNews Group. The company recorded this non-monetary transaction as two simultaneous but separate events; that is, a sale of 33.8% of its interest in the El Paso Times for which a non-operating gain was recognized, and the acquisition of a 66.2% interest in the partnership. The non-monetary gain from the partnership transaction is reflected in non-operating income. In April 2003, the company completed the acquisition of the publishing business of Scottish Media Group plc (SMG). The SMG publishing business consists of three Scottish regional newspapers; 11 specialty consumer and business-to-business magazine titles; and an online advertising and content business. The company purchased 100% of the stock of the Scotland businesses. In late August 2003, the company acquired the majority interest in The Ashland Media Group in Phoenix, Ariz. Ashland Media publishes TV y Más, La Voz and TV Shopper, which are weekly publications. Ashland Media also has a direct marketing business, AZ Mail. On Oct. 31, 2003, the company acquired the assets of Clipper Magazine, Inc., one of the nation’s largest direct-mail advertising magazine companies. The acquisition also includes several affiliated operations including a full-service advertising agency, an e-mail customer retention service, a direct-mail service to new movers and MyClipper.com, a companion Web site for the core direct-mail advertising offerings. The company also purchased several small non-daily publications in the U.S. and in the U.K. The acquisitions of SMG, Ashland Media, Clipper Magazine and non-daily publications, which had an aggregate purchase price of approximately $483 million, were recorded under the purchase method of accounting. The company is in the process of finalizing valuations of the businesses, thus the allocation of the purchase price is preliminary. ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Basis of reporting Following is a discussion of the key factors that have affected the company’s business over the last three fiscal years. This commentary should be read in conjunction with the company’s financial statements, Selected Financial Data and the remainder of this Form 10-K. Critical accounting policies and the use of estimates: The company prepares its financial statements in accordance with generally accepted accounting principles (GAAP) which require the use of estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent matters. The company bases its estimates on historical experience, actuarial studies and other assumptions, as appropriate, concerning the carrying values of its assets and liabilities and disclosure of contingent matters. The company re-evaluates its estimates on an ongoing basis. Actual results could differ from these estimates. Critical accounting policies for the company involve its assessment of the recoverability of its long-lived assets, including goodwill and other intangible assets, which are based on such factors as estimated future cash flows and current fair value estimates of businesses. The company’s accounting for pension and retiree medical benefits requires the use of various estimates concerning the work force, interest rates, plan investment return, and involves the use of advice from consulting actuaries. The company’s accounting for income taxes in the U.S. and foreign jurisdictions is sensitive to interpretation of various laws and regulations therein, and to company policy and expectations as to the repatriation of earnings from foreign sources. Please refer to page 35 of this Form 10-K for a more complete discussion of all of the company’s significant accounting policies. The company’s fiscal year ends on the last Sunday of the calendar year. The company’s 2003 fiscal year ended on Dec. 28, 2003, and encompassed a 52-week period. The company’s 2002 and 2001 fiscal years also encompassed 52-week periods. 17
Slide 27: 2002: The company purchased several small non-daily publications in the U.S. and in the U.K., a commercial printing business in Wisconsin and a defense industry magazine in McLean, Va. These acquisitions, which had an aggregate purchase price of approximately $35 million, were accounted for under the purchase method of accounting. The company contributed its Vincennes (Ind.) SunCommercial newspaper to the Gannett Foundation in July 2002. The Gannett Foundation is a not-for-profit, private foundation that makes charitable awards in the communities in which Gannett operates its newspapers and television stations. These business acquisitions and dispositions did not materially affect the company’s financial position or results of operations. In October 2002, the company acquired a one-third equity interest in CareerBuilder, LLC, an online service providing recruitment resources, for approximately $98 million. 2001: During 2001, the company purchased the remaining 36% interest in WKYC-TV, Cleveland, that it did not previously own. Additionally, the company purchased several small non-daily publications in the U.S. and in the U.K. These acquisitions, which had an aggregate purchase price of approximately $186 million, were accounted for under the purchase method of accounting. The company contributed its Marietta (Ohio) Times newspaper to the Gannett Foundation in May 2001. The company sold its daily newspaper in Lansdale, Pa., in September 2001. These business acquisitions and dispositions did not materially affect the company’s financial position or results of operations. RESULTS OF OPERATIONS Consolidated summary A consolidated summary of the company’s results is presented below. In millions of dollars, except per share amounts Operating revenues . . . . . . Operating expenses . . . . . . Operating income . . . . . . . . Net income, as reported . . . Earnings per share, as reported Basic . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . 2003 $6,711 $4,730 $1,981 $1,211 Change 4% 5% 3% 4% 2002 $6,422 $4,496 $1,926 $1,160 Change 2% (5%) 21% 40% 2001 $6,300 $4,710 $1,590 $ 831 $ 4.49 $ 4.46 3% 3% $ 4.35 $ 4.31 39% 38% $ 3.14 $ 3.12 A discussion of operating results of the company’s newspaper and broadcasting segments, along with other factors affecting net income, follows. All references to “operating cash flow” are to a non-GAAP financial measure. Management believes that use of this measure allows investors and management to measure, analyze and compare the cash resources generated from its business segments in a meaningful and consistent manner. The focus on operating cash flow is appropriate given the consistent and generally predictable strength of cash flow generation by newspaper and television operations, and the short period of time it takes to convert new orders to cash. A reconciliation of these non-GAAP amounts to the company’s operating income, which the company believes is the most directly comparable financial measure calculated and presented in accordance with GAAP in the company’s consolidated statements of income, is presented in Note 11 “Business Segment Information” of the consolidated financial statements. At the beginning of 2002, the company adopted Statement of Financial Accounting Standards No. 142 (SFAS No. 142 or the “Statement”) “Goodwill and Other Intangible Assets,” which has a material impact on comparisons of 2003 and 2002 reported results of operations with reported results for 2001. If the Statement had been adopted at the beginning of 2001, defined as “comparable basis,” net income and earnings per share amounts would have been as follows: In millions of dollars, except per share amounts 2003 $ 1,211 Net income, as reported . . . . . . . . . . . . . Add back: goodwill amortization, net of tax . . . . . . . . . . . . . $ 1,211 Adjusted net income . . . . . . . . . . . . . . . Earnings per share, as reported Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.49 Add back: goodwill amortization, net of tax . . . . . . . . . . . . . $4.49 Adjusted earnings per basic share . . . . . Earnings per share, as reported $4.46 Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . Add back: goodwill amortization, net of tax . . . . . . . . . . . . . Adjusted earnings per diluted share . . . $4.46 2002 $ 1,160 2001 $ 831 216 $ 1,047 $3.14 .81 $3.95 $3.12 .80 $3.92 $ 1,160 $4.35 $4.35 $4.31 $4.31 18
Slide 28: In the following discussions of newspaper and broadcasting results for 2002 as compared to 2001, the effect of this accounting change has been analyzed further. Note 3 to the consolidated financial statements also provides information on the accounting principle change. The company’s growth over the years has been through, in part, the acquisition of businesses. Certain operating results information discussed below is on a pro forma basis, which means that results are presented as if all properties owned at the end of 2003 were owned throughout the periods covered by the discussion. The company consistently uses, for individual businesses and for aggregated business data, pro forma reporting of operating results in its internal financial reports, because it enhances measurement of performance by permitting comparisons with prior period historical data. Likewise, the company uses this same pro forma data in its external reporting of key financial results and benchmarks. Newspapers In addition to its domestic local newspapers, the company’s newspaper publishing operations include USA TODAY, USA WEEKEND, Newsquest (including the SMG operations acquired in 2003), which publishes daily and non-daily newspapers in the United Kingdom, and Gannett Offset commercial printing. The newspaper segment in 2003 contributed 89% of the company’s revenues and 86% of its operating income. Record earnings were achieved by the newspaper segment in 2003, reflecting the results from the newly acquired SMG Publishing business, the newly formed Texas-New Mexico Newspapers Partnership and Clipper Magazine, Inc. and gains at most other U.S. and U.K. newspapers. In addition, a favorable currency exchange rate and growth in commercial printing activities positively impacted newspaper earnings. Newsquest’s financial results (including SMG) were translated from British pounds to U.S. dollars using a weighted average rate of $1.63 for 2003, as compared to $1.50 for 2002. Newspaper operating results were as follows: In millions of dollars 2003 Revenues . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . Operating income . . . . . . . . Operating cash flow . . . . . . $5,991 $4,278 $1,713 $1,903 Change 6% 6% 6% 6% 2002 $5,651 $4,035 $1,616 $1,797 Change — (5%) 15% 2% 2001 $5,637 $4,236 $1,401 $1,770 Newspaper operating revenues: Newspaper operating revenues are derived principally from advertising and circulation sales, which accounted for 73% and 20%, respectively, of total newspaper revenues in 2003. Ad revenues also include those derived from advertising placed with newspaper Internet products. Other newspaper publishing revenues are mainly from commercial printing businesses, earnings from the company’s 50% owned joint operating agencies in Detroit and Tucson and earnings from its 19.49% equity interest in the California Newspapers Partnership. The table below presents these components of reported revenues for the last three years. Newspaper operating revenues, in millions of dollars 2003 Advertising . . . . . . . . . . . . . Circulation . . . . . . . . . . . . . Commercial printing and other . . . . . . . . Total . . . . . . . . . . . . . . . . . . $4,397 $1,213 $ 381 $5,991 Change 7% 3% 10% 6% 2002 $4,123 $1,182 $ 346 $5,651 Change — (1%) 5% — 2001 $4,120 $1,188 $ 329 $5,637 The table below presents the components of reported advertising revenues for the last three years. Advertising revenues, in millions of dollars 2003 Change Local . . . . . . . . . . . . . . . . . $1,849 5% National . . . . . . . . . . . . . . . $ 732 8% Classified . . . . . . . . . . . . . . $1,816 8% Total ad revenue . . . . . . . . . $4,397 7% 2002 $1,761 $ 678 $1,684 $4,123 Change 1% (1%) — — 2001 $1,750 $ 687 $1,683 $4,120 Reported advertising revenues for 2003 increased $274 million or 7%, while pro forma revenues presented in a separate table below reflect a 5% increase. Pro forma basis means that these results are presented as if all properties owned at the end of 2003 were owned throughout the periods presented. The variance between reported amounts and pro forma amounts relates principally to the full-year effect of the Clipper Magazine acquisition on Oct. 31, 2003, the SMG Publishing acquisition completed in April 2003 and the establishment of the Texas-New Mexico Newspapers Partnership in March 2003. In the tables that follow, newspaper advertising linage, circulation volume statistics and related revenue results are presented on a pro forma basis. 19
Slide 29: For Newsquest, advertising and circulation revenues are fully reflected in the pro forma amounts below, as are daily paid circulation volumes. Advertising linage for Newsquest is not reflected, however. Advertising revenues, in millions of dollars (pro forma) 2003 Change 2002 Local . . . . . . . . . . . . . . . . . National . . . . . . . . . . . . . . . Classified . . . . . . . . . . . . . . Total ad revenue . . . . . . . . . $1,931 $ 739 $1,832 $4,502 3% 6% 5% 5% $1,868 $ 697 $1,741 $4,306 the fourth quarter. Overall, on a reported and pro forma basis, the company’s classified results from Newsquest were stronger than its domestic results. Newspaper advertising revenues in millions, as reported. Change 1% (1%) — — 2001 $1,844 $ 704 $1,738 $4,286 99 00 01 02 03 $3115 $3973 $4120 $4123 $4397 Advertising linage, in millions of inches, and preprint distribution (pro forma) 2003 Change 2002 Change 2001 Local . . . . . . . . . . . . . . . . . National . . . . . . . . . . . . . . . Classified . . . . . . . . . . . . . . Total Run-of-Press . . . . . . . Preprint distribution (millions) . . . . . . . . . . . . . . 37.9 4.1 58.7 100.7 11,374 (2%) 8% 3% 2% 9% 38.7 3.8 56.7 99.2 10,466 (2%) 6% 7% 3% 6% 39.4 3.6 52.9 95.9 9,885 The table below reconciles advertising revenues on a pro forma basis to advertising revenues on a GAAP basis. In millions of dollars Pro forma ad revenues . . . . . . . . . . . . . Add: Effect of dispositions . . . . . . . . . Less: Effect of acquisitions . . . . . . . . . As reported ad revenues . . . . . . . . . . . . 2003 $4,502 — (105) $4,397 2002 $4,306 1 (184) $4,123 2001 $4,286 9 (175) $4,120 Reported local ad revenues were up $88 million or 5% in 2003. Pro forma local ad revenues were up 3%, with pro forma linage down 2%. Local ad revenues benefited from growth in preprint ad demand and revenues from non-daily publications. Ad spending by some of the larger retailers declined in 2003. Reported national ad revenues were up $54 million or 8% in 2003. Pro forma national ad revenues increased 6% on an 8% pro forma volume increase. This reflects improvement at certain of the company’s larger domestic newspapers, including USA TODAY, and the U.K. properties. National revenues at USA TODAY increased 4%, reflecting strong gains from automotive, telecommunications, retail and pharmaceutical-related advertising, which more than offset weakness in the technology and travel advertising categories. Reported classified ad revenues increased $132 million or 8%. On a pro forma basis, classified ad revenues increased 5%, with pro forma linage up 3%. Classified ad revenue gains were driven by strength in the automotive and real estate categories and online advertising at our local domestic and U.K. newspapers. Employment ad revenues continued to be adversely impacted by the weak U.S. labor market, however this category strengthened in Looking to 2004, modest ad revenue and volume growth are anticipated in most categories and in most newspaper markets. New products are being developed throughout the newspaper group and added resources are planned for sales and marketing initiatives. Revenue results for 2004 will, of course, be affected by the general economic performance in the U.S. and the U.K., consumer confidence, the strength of the job market, weakening or strengthening in the British pound-to-U.S. dollar exchange rate and the geopolitical environment. Reported 2003 newspaper circulation revenues increased $31 million or 3% in 2003 primarily as a result of the SMG and Texas-New Mexico transactions. For local newspapers, morning circulation accounts for approximately 79% of total daily volume, while evening circulation accounts for 21%. On a pro forma basis, local morning and Sunday circulation volumes declined about 1% and evening circulation declined 3% from 2002. Selected circulation price increases were implemented in 2003 at certain newspapers. USA TODAY’s average daily circulation for 2003 increased 1% to 2,251,035. USA TODAY reported an average daily paid circulation of 2,243,142 in the ABC Publisher’s Statement for the 26 weeks ended Sept. 28, 2003, a slight increase over the comparable period a year earlier. Newspaper circulation revenues in millions, as reported. 99 00 01 02 03 $942 $1083 $1188 $1182 $1213 Pro forma circulation volume for the company’s local newspapers is summarized in the table below and includes data for the company’s newspapers participating in joint operating agencies. Average net paid circulation volume, in thousands (pro forma) 2003 Local Newspapers Morning . . . . . . . . . . . . Evening . . . . . . . . . . . . . Total daily . . . . . . . . . . . Sunday . . . . . . . . . . . . . . 4,812 1,257 6,069 7,032 Change (1%) (3%) (2%) (1%) 2002 4,883 1,297 6,180 7,092 Change — (3%) (1%) (1%) 2001 4,900 1,338 6,238 7,151 20
Slide 30: The actual number of people reading newspapers, in addition to net-paid circulation, is becoming increasingly important to advertisers as they decide where to place their advertising. Readership numbers indicate that a typical newspaper’s reach is greater than its paid circulation. That’s attributed in part to “pass-along” readership, or those reading newspapers that they didn’t subscribe to or purchase such as multiple adults reading the newspaper in a household, those reading restaurant copies or newspapers at work, in libraries, etc. According to the Audit Bureau of Circulations (ABC), the independent auditing firm, there has been increased emphasis on readership as a meaningful circulation measurement tool within the U.S. newspaper industry. The ABC Reader Profiles include the number of readers reading each newspaper sold, a “readers per copy” measure, for both weekday and Sunday editions. Based on data from ABC Reader Profiles reported for certain of the company’s newspapers, an average of 2.39 adults read a typical copy of a weekday Gannett newspaper; on Sunday the average is 2.34. For 2002, reported advertising revenues were even with yearearlier amounts, reflecting a continued soft advertising environment. A higher foreign exchange rate for Newsquest operations favorably impacted revenue comparisons. Reported and pro forma local ad revenues were up 1% in 2002 with pro forma linage down 2%. Ad spending by some of the largest retailers continued to be soft in 2002, reflecting closings and consolidations in an uncertain U.S. economy. Local revenue benefited however, from revenue gains from small- and mediumsized advertisers and new product developments. Reported and pro forma national ad revenues for 2002 were down 1% with pro forma linage up 6%. National revenues at USA TODAY were down 6%, adversely affected by diminished demand for financial-, technology- and travel-related advertising. Reported and pro forma classified revenues in 2002 increased slightly and pro forma linage increased by 7%. This reflects higher automotive and real estate advertising partially offset by lower revenues from classified employment advertising. Reported 2002 newspaper circulation revenues decreased $6 million or less than 1%. On a pro forma basis, local morning circulation volume was even with 2001. Evening and Sunday circulation volumes declined 3% and 1%, respectively, from 2001. Selected circulation price increases were implemented in 2002 at certain newspapers. USA TODAY’s average daily circulation for 2002 declined less than 1% to 2,238,174. USA TODAY reported an average daily paid circulation of 2,227,839 in the ABC Publisher’s Statement for the six months ended Sept. 30, 2002, a 1% decrease over the comparable period in 2001. Newspaper operating expense: Newspaper operating costs rose $243 million, or 6%, in 2003 primarily as a result of the SMG, Clipper Magazine and Texas-New Mexico transactions, increased commercial printing volume, higher newsprint expense and higher insurance, pension and other employee benefit costs. Newspaper operating costs, excluding the SMG, Clipper Magazine and Texas-New Mexico transactions, increased $131 million or 3%. Benefit cost increases in 2003 were tempered by modifications to certain retiree and employee benefit programs. The higher foreign exchange rate in 2003 for Newsquest operations also adversely impacted expense comparisons. Newsprint expense increased 10% reflecting higher year-over-year prices and increased consumption due primarily to the aforementioned transactions and increased commercial printing activity. Newsprint expense, excluding the 2003 transactions mentioned above, increased 7%. Newsprint consumption increased 4%. Newspaper payroll costs were up 7% for the year again reflecting added costs from the 2003 acquisitions and the unfavorable impact of currency on expense comparisons. For 2004, newsprint consumption for presently owned properties is expected to increase modestly, and average prices are also expected to increase. The following table details the impact of SFAS No. 142 on newspaper operating cost comparisons of 2003, 2002 and 2001. Newspaper operating costs, in millions of dollars As reported . . . . . . . . . . . . . Impact of SFAS No. 142: Less: goodwill amortization, pre-tax . . . . . Adjusted . . . . . . . . . . . . . . . 2003 $4,278 Change 6% 2002 $4,035 Change (5%) 2001 $4,236 $4,278 6% $4,035 — (191) $4,045 Newspaper operating costs declined $201 million, or 5%, in 2002 mainly due to the decrease in goodwill amortization (see discussion of accounting change in Note 3 on page 38) and lower newsprint expense. On a comparable accounting basis for goodwill, newspaper operating costs declined $10 million, or less than 1%. This reflects lower newsprint expense and cost controls, partially offset by increased pension and other employee benefit expenses, increased commercial printing volume and expense, and an increase in the average exchange rate for Sterling. Newsprint expense decreased 19%, due to significantly lower prices. Newsprint consumption increased about 1% for the year. Consumption in 2002 was tempered by the impact of web-width reductions implemented in 2001 and in 2002. Newspaper payroll costs were up 1% for the year. Newspaper operating income: Operating income increased $97 million or 6% over 2002. The operating income improvement was largely due to the positive impact of earnings from the SMG and Texas-New Mexico transactions, favorable foreign exchange rates and gains in advertising revenues. Earnings gains were tempered by overall increased employee benefit costs and newsprint expense. Newsquest’s financial results were translated from British pounds to U.S. dollars using a weighted average rate of $1.63 for 2003, as compared to $1.50 for 2002. For 2004, newspaper operating income is expected to show continued growth, reflecting full-year results for the 2003 acquisitions and modest revenue gains, partially offset by higher newsprint, payroll and benefit costs. 21
Slide 31: Operating income increased $215 million or 15% in 2002. On a comparable accounting basis reflecting the adoption of SFAS No. 142, operating income increased $24 million or 2%. The following table details the impact of SFAS No. 142 on newspaper operating income comparisons. Newspaper operating income, in millions of dollars As reported . . . . . . . . . . . . . Impact of SFAS No. 142: Add back: goodwill amortization, pre-tax . . . . . . Adjusted . . . . . . . . . . . . . . . . 2003 $1,713 Change 6% 2002 $1,616 Change 15% 2001 $1,401 $1,713 6% $1,616 2% 191 $1,592 Newspaper operating income improvement for 2002 reflects lower newsprint expense partially offset by increased pension and other employee benefit expenses. Newsquest’s financial results were translated from British pounds to U.S. dollars using a weighted average rate of $1.50 for 2002, as compared to $1.44 for 2001. Broadcasting The company’s broadcasting operations at the end of 2003 included 22 television stations in markets reaching 17.8% of U.S. television homes. Over the last three years, reported broadcasting revenues, expenses, operating income and operating cash flows were as follows: In millions of dollars Revenues . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . Operating income . . . . . . . . Operating cash flow . . . . . . 2003 $720 $390 $330 $356 Change (7%) (3%) (11%) (10%) 2002 $771 $400 $371 $397 Change 16% (3%) 48% 25% 2001 $663 $413 $250 $317 Total broadcast revenues rose $108 million or 16% for 2002. Revenues benefited from very strong political and issue advertising and revenues from the Winter Olympics in Salt Lake City, Utah, on the company’s NBC stations. Local and national advertising revenues increased 11% and 26%, respectively, over 2001. Political and issue advertising in key states contributed to the increase in broadcast revenues. Reported operating expenses declined $13 million, or 3%, in 2002 mainly due to the adoption of SFAS No. 142 and the resulting decrease in goodwill amortization expense. On a comparable accounting basis for goodwill, broadcast operating expenses increased $29 million or 8%. Broadcast payroll costs were 4% higher for the year, principally due to selling costs associated with higher revenue levels in 2002 and higher pension and other employee benefit costs. The following table details the impact of SFAS No. 142 on broadcast operating cost comparisons of 2003, 2002 and 2001. Broadcast operating costs, in millions of dollars As reported . . . . . . . . . . . . . Impact of SFAS No. 142: Less: goodwill amortization, pre-tax . . . . . . Adjusted . . . . . . . . . . . . . . . . 2003 $390 Change (3%) 2002 $400 Change (3%) 2001 $ 413 $390 (3%) $400 8% (42) $ 371 Broadcasting revenues in millions, as reported. 99 00 01 02 03 $729 $789 $663 $771 $720 Reported broadcast revenues declined $51 million or 7% for 2003. The revenue decline reflects a challenging comparison with 2002, which benefited from approximately $100 million in political and Olympic ad spending. Ad demand was negatively impacted by the hostilities overseas. Local and national advertising revenues decreased 1% and 15%, respectively, from 2002. Reported operating expenses declined $10 million or 3% in 2003 as lower programming and advertising sales costs were partially offset by increased news and employee benefit costs. For 2004, television revenues and earnings are expected to improve with higher ad spending from political campaigns and the Summer Olympics on our NBC stations. Consolidated operating expenses Over the last three years, the company’s consolidated operating expenses were as follows: Consolidated operating expenses, in millions of dollars 2003 Change 2002 $3,454 6% $3,254 Cost of sales . . . . . . . . . . . . Selling, general and admin. expenses . . . . . . . . . $1,045 2% $1,019 Depreciation . . . . . . . . . . . . $ 223 4% $ 215 Amortization of intangible assets . . . . . . . . . $ 8 13% $ 7 Change (1%) 3% 6% (97%) 2001 $3,276 $ 990 $ 202 $ 241 22
Slide 32: Cost of sales for 2003 increased $200 million or 6%, reflecting the effect of SMG and other businesses acquired during the year, higher newsprint expense, and increased pension and other employee benefit costs. Benefit cost increases were tempered by modifications to certain retiree and employee benefits. Average newsprint prices increased 5% in 2003. SG&A increased in 2003 by $26 million or 2% also due primarily to new businesses acquired in 2003 and generally higher newspaper advertising sales expenses. Depreciation expense increased 4% in 2003 and amortization of intangibles increased 13%, primarily due to businesses acquired and the higher exchange rate. For 2004, the company expects employee benefit costs to increase further, primarily in the medical area. Medical costs are expected to increase as the high rate of medical cost inflation continues throughout the U.S. Cost of sales for 2002 decreased $22 million or 1%. This reflected significantly lower newsprint expense and cost controls partially offset by increased pension and other employee benefit expenses. SG&A increased $29 million or 3% in 2002, due primarily to increased advertising sales expenses at newspapers and broadcast stations. Depreciation expense increased 6% in 2002 primarily due to the new USA TODAY and Corporate headquarters facility, completed in the fourth quarter of 2001. Amortization expense decreased $234 million in 2002 due to the adoption of SFAS No. 142 (see discussion of accounting change on page 18). Payroll, benefits and newsprint costs (along with certain other production material costs), the largest elements of the company’s operating expenses, are presented below, expressed as a percentage of total pre-tax operating expenses. 2003 49.5% 17.2% 2002 47.6% 16.7% 2001 43.7% 18.5% Payroll and employee benefits . . . . . . . Newsprint and other production material . . . . . . . . . . . . . . . Non-operating income and expense Interest expense in 2003 decreased $7 million or 5% due to lower average commercial paper balances outstanding and lower interest rates on commercial paper debt. The lower interest expense from commercial paper debt was partially offset by incremental interest expense in the first quarter of 2003 from the fixed-rate notes issued in March 2002 (discussed below). The company reduced its commercial paper borrowings by approximately $705 million during 2003. The daily average outstanding balance of commercial paper was $2.4 billion during 2003 and $3.1 billion during 2002. The weighted average interest rate on commercial paper was 1.2% for 2003 and 1.8% for 2002. The company’s average borrowing rates are expected to be slightly higher in 2004. Interest expense in 2002 declined $75 million due to significantly lower interest rates and lower debt levels. Most of the company’s debt was in commercial paper for which the daily average outstanding balance was $3.1 billion during 2002 and $5.2 billion during 2001. The weighted average interest rate on commercial paper was 1.8% for 2002 and 4.1% for 2001. The company reduced its commercial paper borrowings by $2.3 billion during 2002. In March 2002, the company issued $1.8 billion aggregate principal amount of unsecured global notes. These notes consist of $600 million aggregate principal amount of 4.95% notes due 2005, $700 million aggregate principal amount of 5.50% notes due 2007 and $500 million aggregate principal amount of 6.375% notes due 2012. The net proceeds of the offering were used to pay down commercial paper borrowings. In all years shown, non-operating income and expense include costs associated with certain minority interest investments in online/new technology businesses. In 2003, other non-operating expense also includes the non-monetary gain on the company’s sale of 33.8% of its interest in the El Paso Times (see further discussion on page 17) along with minority interest expense related to the Texas-New Mexico Newspapers Partnership and the Ashland Media partnership. Operating cash flow The company’s consolidated operating cash flow totaled $2.213 billion in 2003 compared to $2.149 billion in 2002 and $2.034 billion in 2001. The 3% increase in operating cash flow for 2003 reflects the increase in earnings for newspapers and lower interest expense. The table below presents operating cash flow as a percent of revenue over the last 5 years. Operating cash flow, as a percent of revenue. 99 00 01 02 03 36.4 35.5 32.3 33.5 33.0 Payroll and employee benefits as a percentage of total pre-tax operating expenses, on a comparable basis for goodwill, was 46% in 2001. Newsprint and other production materials, on a comparable basis for goodwill, was 19.4% of total pre-tax operating expenses in 2001. 23
Slide 33: Provision for income taxes The company’s effective income tax rate was 34.2% in 2003, 34.3% in 2002 and 39.4% in 2001. The decrease in the effective tax rate each year reflects generally lower taxes related to foreign operations. The decrease in 2002’s rate is also due to lower state taxes and the adoption of SFAS No. 142 (see discussion on page 18). The company does not expect its effective rate to change significantly in 2004 from 2003. Net income In 2003, the company reported net income of $1.21 billion or $4.46 per diluted share, up 4% and 3%, respectively. Operating income from newspapers increased in 2003 while it declined for the broadcasting segment. Net non-operating costs were lower principally due to lower interest expense and a non-monetary gain recognized on the sale of the company’s 33.8% interest in its El Paso newspaper in the first quarter of 2003. Average diluted shares outstanding for 2003 totaled 271,872,000, compared to 269,286,000 in 2002. Basic shares totaled 269,559,000 for 2003 and 266,885,000 for 2002. In 2002, the company reported net income of $1.16 billion or $4.31 per diluted share, up 40% and 38%, respectively. Operating income from newspapers and broadcasting was higher in 2002 both on a reported basis and on a comparable basis for SFAS No. 142. Net non-operating costs were lower, principally due to lower interest expense. In 2001, the company reported net income of $831 million or $3.12 per diluted share. Operating income from both business segments declined in 2001 and net non-operating costs were higher, principally because of greater interest expense. Income from continuing operations, in millions. 99 00 01 02 03 $919 $972 $831 $1160 $1211 FINANCIAL POSITION Liquidity and capital resources The company’s cash flow from operating activities was nearly $1.5 billion in 2003, reflecting strong newspaper results and the absence of a pension contribution in 2003. Cash used by the company for investing activities totaled $766 million, primarily reflecting capital spending of $281 million, and $483 million for several acquisitions. Cash used by the company for financing activities totaled $738 million in 2003, reflecting the pay down of debt of $713 million and dividends paid of $261 million, offset by proceeds from the exercise of stock options. There were no significant changes in the make up or level of the company’s working capital accounts in 2003. Certain key measurements of the elements of working capital for the last three years are presented in the following chart: Working capital measurements Current ratio . . . . . . . . . . . . . . . . . . . . . Accounts receivable turnover . . . . . . . . Newsprint inventory turnover . . . . . . . . 2003 1.3-to-1 7.7 6.3 2002 1.2-to-1 7.9 6.2 2001 1.0-to-1 7.5 5.9 The company’s operations have historically generated strong positive cash flow, which, along with the company’s program of issuing commercial paper and maintaining bank revolving credit agreements, has provided adequate liquidity to meet the company’s 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 company’s commercial paper has been rated A-1 and P-1 by Standard & Poor’s and Moody’s Investors Service, respectively. The company’s senior unsecured long-term debt is rated A by Standard & Poor’s and A2 by Moody’s Investors Service. The company has a shelf registration statement with the Securities and Exchange Commission under which up to $2.5 billion of additional debt securities may be issued. The company’s Board of Directors has established a maximum aggregate level of $7 billion for amounts which may be raised through borrowings or the issuance of equity securities. Long-term debt The long-term debt of the company is summarized below. In thousands of dollars Unsecured promissory notes . . . . . . . . Unsecured global notes . . . . . . . . . . . . Other indebtedness . . . . . . . . . . . . . . . . Total long-term debt . . . . . . . . . . . . . . Dec. 28, 2003 $ 1,927,500 1,794,455 112,556 $ 3,834,511 Dec. 29, 2002 $ 2,632,879 1,792,887 121,499 $ 4,547,265 The unsecured promissory notes at Dec. 28, 2003, were due from Dec. 29, 2003, to Jan. 29, 2004, with rates varying from 1.04% to 1.08%. The unsecured promissory notes at Dec. 29, 2002, were due from Jan. 2, 2003, to Jan. 24, 2003, with rates varying from 1.32% to 1.35%. 24
Slide 34: The maximum amount of such promissory notes outstanding at the end of any period during 2003 and 2002 was $2.7 billion and $5.0 billion, respectively. The daily average outstanding balance was $2.4 billion during 2003 and $3.1 billion during 2002 and the weighted average interest rate on commercial paper was 1.2% for 2003 and 1.8% for 2002. The weighted average interest rate on all debt was 3.1% for 2003 and 3.0% for 2002. In March 2002, the company issued $1.8 billion aggregate principal amount of unsecured global notes in an underwritten public offering. These notes consist of $600 million aggregate principal amount of 4.95% notes due 2005, $700 million aggregate principal amount of 5.50% notes due 2007 and $500 million aggregate principal amount of 6.375% notes due 2012. The net proceeds of the offering were used to pay down commercial paper borrowings. Other indebtedness includes the loan notes issued in the U.K. to the former shareholders of Newsquest and Newscom in connection with those acquisitions. The Newsquest and Newscom notes ($15.4 million and $80.5 million, respectively) bear interest at .5% below the Sterling London Interbank Offered Rate (LIBOR), subject to a cap of 6.5% and 6.75%, respectively. The Newsquest and Newscom notes are due on Dec. 31, 2006, and Dec. 31, 2007, respectively, but may be redeemed by the company on each interest payment date. The noteholders are entitled to require the company to repay all or part of the notes on any interest payment date by giving 30 days’ written notice. The remaining other indebtedness at Dec. 28, 2003, consists primarily of industrial revenue bonds with maturities in 2008 and 2009 at variable interest rates (1.4% at Dec. 28, 2003). At Dec. 28, 2003, the company had $4.1975 billion of credit available under two revolving credit agreements. The agreements provide for revolving credit periods which permit borrowings from time-to-time to the maximum commitments. The 2000 $1.53 billion agreement revolving credit period extends to July 2005. The 2002 $2.6675 billion agreement consists of a $1.3025 billion 364-day facility which extends to March 2004 and a $1.365 billion 5-year facility which extends to March 2007. At the end of the 364-day period, any borrowings outstanding under the 364-day credit facility are convertible into a 1-year term loan at Gannett’s option. The 364-day facility portion of the 2002 agreement was increased to $1.3375 billion in early January 2004. In February 2004, the company received commitments of $2.66 billion from a number of banks to provide revolving credit facilities that have a 364-day facility, a 2-year facility and a 5-year facility to replace the $1.3375 billion 364-day facility that matures in March 2004 and the $1.53 billion 5-year facility that matures in July 2005. Concurrent with the effective date of the new revolving credit agreement, expected in March 2004, the company will terminate the $1.3375 billion 364-day facility and the $1.53 billion 5-year facility. The revolving credit agreements provide backup for commercial paper and for general corporate purposes; therefore, the unsecured promissory notes and Newsquest and Newscom notes are classified as long-term debt. The commitment fee rates for the 2002 revolving credit agreement may range from .05% to .20%, depending on Standard & Poor’s or Moody’s credit rating of the company’s senior unsecured long-term debt. The rates in effect on Dec. 28, 2003, were .06% for the 364-day facility and .08% for the 5-year facility. At the option of the company, the interest rate on borrowings under this agreement may be .17% to .55% above the prime rate, the Eurodollar base rate or the Federal Funds Effective Rate plus .50%. The percentages that apply depend on Standard & Poor’s or Moody’s credit rating of the company’s senior unsecured long-term debt. The commitment fee rates for the $1.53 billion revolving credit agreement may range from .07% to .09%, depending on Standard & Poor’s or Moody’s credit rating of the company’s senior unsecured long-term debt. The rate in effect on Dec. 28, 2003, was .07% for the 5-year facility. At the option of the company, the interest rate on borrowings under this agreement may be at .13% to .24% above the prime rate, the Eurodollar base rate or the Federal Funds Effective Rate plus .50%. The percentages that apply depend on Standard & Poor’s or Moody’s credit rating of the company’s senior unsecured long-term debt. The current revolving credit agreements contain restrictive provisions that require the maintenance of net worth of at least $2.5 billion and an interest coverage ratio of 3:1. At Dec. 28, 2003, and Dec. 29, 2002, net worth was $8.4 billion and $6.9 billion, respectively. The interest coverage ratio for the year ended Dec. 28, 2003, was 15:1. Under a shelf registration that became effective with the Securities and Exchange Commission in April 2002, an additional $2.5 billion of unsecured debt securities can be issued. Proceeds from the sale of such securities may be used for general corporate purposes, including capital expenditures, working capital, securities repurchase programs, repayment of long-term and short-term debt and financing of future acquisitions. The company may also invest borrowed funds that are not required immediately for other purposes in short-term marketable securities. Approximate annual maturities of long-term debt, assuming that the company had used its $4.1975 billion of revolving credit agreements to refinance existing unsecured promissory notes on a long-term basis and assuming the company’s other indebtedness was paid on its scheduled pay dates, are as follows: In thousands of dollars 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — 1,162,057 15,351 2,061,752 87,475 507,876 $ 3,834,511 The fair value of the company’s total long-term debt, determined based on quoted market prices for similar issues of debt with the same remaining maturities and similar terms, totaled $4.0 billion at Dec. 28, 2003, compared with a book value of $3.8 billion. At Dec. 28, 2003, and Dec. 29, 2002, the company estimates that the amount reported on the balance sheet for financial instruments, including cash and cash equivalents, trade and other receivables, and other long-term liabilities, approximates fair value. 25
Slide 35: The company has a capital expenditure program (not including business acquisitions) of approximately $280 million planned for 2004, including approximately $48 million for land and buildings or renovation of existing facilities, $209 million for machinery and equipment, and $23 million for vehicles and other assets. Management reviews the capital expenditure program periodically and modifies it as required to meet current business needs. It is expected that the 2004 capital program will be funded from operating cash flow. Off balance sheet arrangements and contractual obligations The following table summarizes the expected cash outflows resulting from financial contracts and commitments. Information on our recurring purchases of materials for use in our daily operations are not included as these amounts are generally consistent from year to year and are not long-term in nature (less than three months). Contractual obligations In millions of dollars Total Long-term debt . . . . . . . . . . $3,835 Operating leases . . . . . . . . . 304 Printing contracts . . . . . . . . 368 Purchase obligations . . . . . . 378 Other long-term liabilities . 512 Total . . . . . . . . . . . . . . . . . . $5,397 Payments due by period 2004 2005-06 2007-08 Thereafter $ — $1,178 $2,149 $0508 45 77 61 121 51 84 71 162 196 127 36 19 122 76 81 233 $ 414 $ 1,542 $2,398 $1,043 $50 million. The stock purchase was financed with a loan from the company. In June of 2003, the debt was fully repaid and all of the shares had been fully allocated to participants. The company elected not to add additional shares to the ESOP and began funding future contributions in cash. The ESOP uses the cash match to purchase on the open market an equivalent number of shares of company stock on behalf of the participants. The company’s common stock outstanding at Dec. 28, 2003, totaled 272,417,046 shares, compared with 267,909,686 shares at Dec. 29, 2002. Dividends Dividends declared on common stock amounted to $264 million in 2003, compared with $251 million in 2002, reflecting an increase in the dividend rate and an increase in shares outstanding. Dividends declared per share. 94 95 96 97 98 99 00 01 02 03 $.67 $.69 $.71 $.74 $.78 $.82 $.86 $.90 $.94 $.98 The amounts above include amounts paid or expected to be paid into the company’s retirement plans on a voluntary basis in 2004 and include expected amounts to be paid under postretirement benefit plans. The company has a 13.5% general partnership interest in Ponderay Newsprint Company. The company, on a several basis, is a guarantor of 13.5% of the principal and interest on a term loan that totals $98 million held by Ponderay. In December 1990, the company adopted a Transitional Compensation Plan (the Plan). The Plan provides termination benefits to key executives whose employment is terminated under certain circumstances within two years following a change in control of the company. Benefits under the Plan include a severance payment of up to three years’ compensation and continued life and medical insurance coverage. Capital stock In 2000, the Board approved an authorization for the repurchase of up to an additional $1 billion in common stock, in addition to $258 million remaining from a prior authorization. During 2000, the company repurchased approximately 14.7 million shares for $967 million, leaving $291 million available for future repurchases at Dec. 28, 2003. In February 2004, the company announced its plan to reactivate its existing share repurchase program. Certain of the shares previously acquired by the company have been reissued in settlement of employee stock awards. An employee 401(k) Savings Plan was established in 1990, which includes a company matching contribution in the form of Gannett stock. To fund the company’s matching contribution, an Employee Stock Ownership Plan (ESOP) was formed which acquired 2,500,000 shares of Gannett stock from the company for On Oct. 1, 2003, the quarterly dividend was increased from $.24 to $.25 per share. Cash dividends 2003 4th Quarter . . . . . . . . . . . . . . 3rd Quarter . . . . . . . . . . . . . . 2nd Quarter . . . . . . . . . . . . . . 1st Quarter . . . . . . . . . . . . . . 2002 4th Quarter . . . . . . . . . . . . . . 3rd Quarter . . . . . . . . . . . . . . 2nd Quarter . . . . . . . . . . . . . . 1st Quarter . . . . . . . . . . . . . . Payment date Jan. 2, 2004 Oct. 1, 2003 July 1, 2003 April 1, 2003 Jan. 2, 2003 Oct. 1, 2002 July 1, 2002 April 1, 2002 Per share $.25 $.25 $.24 $.24 $.24 $.24 $.23 $.23 Effects of inflation and changing prices and other matters The company’s results of operations and financial condition have not been significantly affected by inflation and changing prices. In both of its principal businesses, subject to normal competitive conditions, the company generally has been able to pass along rising costs through increased selling prices. Further, the effects of inflation and changing prices on the company’s property, plant and equipment and related depreciation expense have been reduced as a result of an ongoing capital expenditure program and the availability of replacement assets with improved technology and efficiency. The company is exposed to foreign exchange rate risk primarily due to its ownership of Newsquest, which uses the British pound as its functional currency, which is then translated into U.S. dollars. The company’s foreign currency translation adjustment, related to Newsquest and reported as part of shareholders’ equity, totaled $352 million at Dec. 28, 2003. This reflects an overall strengthening of the British pound against the U.S. dollar since the Newsquest acquisition. Newsquest’s assets and liabilities were 26
Slide 36: translated from British pounds to U.S. dollars at the Dec. 28, 2003, exchange rate of $1.78. Refer to Item 7A below for additional detail. 2004 business transactions and other matters: On Feb. 2, 2004, the company acquired NurseWeek, a multimedia company with print publications and an award-winning Web site focused on the recruitment, recognition and education of nurses. NurseWeek will continue to be published as a separate publication of Nursing Spectrum. Altogether, Nursing Spectrum will publish 12 regional magazines with a combined circulation of more than 1 million registered nurses. The two Web sites, www.nurseweek.com and www.nursingspectrum.com, average more than 1.8 million page views per month. The company has an agreement to sell its NBC affiliate in Kingman Ariz., KMOH-TV Closing is expected in the first half . of 2004. On Feb. 16, 2004, the company exchanged its daily newspaper, The Times, in Gainesville, Ga., for two daily newspapers in Tennessee. In late March 2003, the company entered into an agreement, conditional upon regulatory consent, with Independent News and Media Limited for the acquisition of its Greater London regional publishing business. On October 21, 2003, the Secretary of State for Trade and Industry in the U.K. approved the purchase by the company of the bulk of the titles owned by Independent News and Media Limited but did not approve the purchase of certain other titles, and the agreement therefore lapsed. The titles have subsequently been purchased by a third party. New accounting pronouncements: In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, which addresses consolidation by business enterprises. In December 2003, the FASB completed deliberations of proposed modifications to FIN 46 resulting in multiple effective dates in 2003 and 2004 based on the nature as well as the creation date of the variable interest entity. The adoption of the provisions of FIN 46 applicable to 2003 did not have, and the company believes that the provisions to be adopted in 2004 will not have, a material impact on its financial position or results of operations. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) became law in December 2003. The Act introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Questions have arisen regarding whether an employer that provides postretirement prescription drug coverage (a plan) should recognize the effects of the Act on its accumulated postretirement benefit obligation and net postretirement benefit costs and, if so, when and how to account for those effects. In response to these questions, the FASB issued FASB Staff Position 106-1 (FSP 106-1), which confirms that companies are required to account for changes in relevant laws. FSP 106-1, however, also recognized that the accounting for the federal subsidy was not explicitly addressed in the accounting literature and therefore allowed companies to defer accounting for the Act until guidance is issued. As permitted by FSP 106-1, the company has deferred accounting for the effects of the Act until the authoritative guidance is issued, which could require the company to change previously reported information. Certain factors affecting forward-looking statements Certain statements in this Annual Report on Form 10-K contain forward-looking information. The words “expect,” “intend,” “believe,” “anticipate,” “likely,” “will” and similar expressions generally identify forward-looking statements. These forwardlooking statements are subject to certain risks and uncertainties which could cause actual results and events to differ materially from those anticipated in the forward-looking statements. Potential risks and uncertainties which could adversely affect the company’s ability to obtain these results include, without limitation, the following factors: (a) increased consolidation among major retailers or other events which may adversely affect business operations of major customers and depress the level of local and national advertising; (b) an economic downturn in some or all of the company’s principal newspaper or television markets leading to decreased circulation or local, national or classified advertising; (c) a decline in general newspaper readership patterns as a result of competitive alternative media or other factors; (d) an increase in newsprint or syndication programming costs over the levels anticipated; (e) labor disputes which may cause revenue declines or increased labor costs; (f) acquisitions of new businesses or dispositions of existing businesses; (g) a decline in viewership of major networks and local news programming; (h) rapid technological changes and frequent new product introductions prevalent in electronic publishing; (i) an increase in interest rates; (j) a weakening in the British-pound-to-U.S. dollar exchange rate; and (k) general economic, political and business conditions. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is not subject to market risk associated with derivative commodity instruments, as the company is not a party to any such instruments. The company believes that its market risk from financial instruments, such as accounts receivable, payable and debt, is not material. The company is exposed to foreign exchange rate risk primarily due to its operations in the United Kingdom, which use the British pound as their functional currency, which is then translated into U.S. dollars. Translation gains or losses affecting the Consolidated Statements of Income have not been significant in the past. If the price of Sterling against the U.S. dollar had been 10% less than the actual price, reported net income for 2003 would have decreased approximately 2%. Because the company has $1.9 billion in commercial paper obligations outstanding at Dec. 28, 2003, that have relatively short-term maturity dates, the company is subject to significant changes in the amount of interest expense it might incur. Assuming the current level of commercial paper borrowings, a 1/2% increase or decrease in the average interest rate for commercial paper would result in an increase or decrease in annual interest expense of $9.6 million, respectively. Refer to page 25 for information regarding the fair value of the company’s long-term debt. 27
Slide 37: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page —— FINANCIAL STATEMENTS Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Balance Sheets at December 28, 2003, and December 29, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Income for each of the three fiscal years in the period ended December 28, 2003 . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows for each of the three fiscal years in the period ended December 28, 2003 . . . . . . . . . . . . . . . Consolidated Statements of Shareholders’ Equity for each of the three fiscal years in the period ended December 28, 2003 . . . . . . . . Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SUPPLEMENTARY DATA Quarterly Statements of Income (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FINANCIAL STATEMENT SCHEDULE Financial Statement Schedule for each of the three fiscal years in the period ended December 28, 2003 Schedule II – Valuation and Qualifying Accounts and Reserves* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OTHER INFORMATION Management’s Responsibility for Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * All other schedules prescribed under Regulation S-X are omitted because they are not applicable or not required. 29 30 32 33 34 35 54 55 29 51 28
Slide 38: REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Gannett Co., Inc.: In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Gannett Co., Inc. and its subsidiaries at Dec. 28, 2003 and Dec. 29, 2002, and the results of their operations and their cash flows for each of the three years in the period ended Dec. 28, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the company’s management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Notes 1 and 3, effective at the beginning of 2002 the company adopted Statement of Financial Accounting Standards No. 142, and, accordingly, changed its method of accounting for goodwill and other intangible assets. MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of the company has prepared and is responsible for the consolidated financial statements and related financial information included in this report. These financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. These financial statements necessarily include amounts determined using management’s best judgments and estimates. The company’s accounting and other control systems provide reasonable assurance that assets are safeguarded and that the books and records reflect the authorized transactions of the company. Underlying the concept of reasonable assurance is the premise that the cost of control not exceed the benefit derived. Management believes that the company’s accounting and other control systems appropriately recognize this cost/benefit relationship. The company’s independent auditors, PricewaterhouseCoopers LLP, provide an independent assessment of the degree to which management meets its responsibility for fairness in financial reporting. They regularly evaluate the company’s system of internal accounting controls and perform such tests and other procedures as they deem necessary to reach and express an opinion on the financial statements. The PricewaterhouseCoopers LLP report appears alongside. The Audit Committee of the Board of Directors is responsible for reviewing and monitoring the company’s financial reports and accounting practices to ascertain that they are appropriate in the circumstances. The Audit Committee consists of four non-management directors, and meets to discuss audit and financial reporting matters with representatives of financial management, the internal auditors and the independent auditors. The internal auditors and the independent accountants have direct access to the Audit Committee to review the results of their examinations, the adequacy of internal accounting controls and the quality of financial reporting. PricewaterhouseCoopers LLP McLean, Virginia February 2, 2004 Douglas H. McCorkindale Chairman, President and Chief Executive Officer Gracia C. Martore Senior Vice President and Chief Financial Officer 29
Slide 39: GANNETT CO., INC. CONSOLIDATED BALANCE SHEETS In thousands of dollars Assets Current assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade receivables (less allowance for doubtful receivables of $41,530 and $36,610, respectively) . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, plant and equipment Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery, equipment and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible and other assets Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other intangible assets, less accumulated amortization of $19,264 and $10,993, respectively . . . . . . Investments and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total intangible and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The accompanying notes are an integral part of these consolidated financial statements. Dec. 28, 2003 $ 67,188 907,619 66,348 115,924 66,182 1,223,261 239,437 1,382,861 2,846,446 219,154 4,687,898 (2,005,630) 2,682,268 9,601,767 108,736 1,090,207 10,800,710 $ 14,706,239 Dec. 29, 2002 $ 90,374 827,398 52,700 101,189 61,418 1,133,079 240,515 1,313,404 2,730,488 138,360 4,422,767 (1,887,762) 2,535,005 8,822,299 98,807 1,143,824 10,064,930 $ 13,733,014 30
Slide 40: GANNETT CO., INC. CONSOLIDATED BALANCE SHEETS In thousands of dollars Liabilities and shareholders’ equity Current liabilities Accounts payable Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Postretirement medical and life insurance liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Minority interests in consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commitments and contingent liabilities (see Note 10) Shareholders’ equity Preferred stock, par value $1: Authorized, 2,000,000 shares: Issued, none . . . . . . . . . . . . . . . . . . . . . . Common stock, par value $1: Authorized, 800,000,000 shares: Issued, 324,420,732 shares, as to both years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less Treasury stock, 52,003,686 shares and 56,511,046 shares, respectively, at cost . . . . . . . . . . . . . . Deferred compensation related to ESOP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities, minority interests and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The accompanying notes are an integral part of these consolidated financial statements. Dec. 28, 2003 Dec. 29, 2002 $ 323,015 29,807 100,750 25,954 150,890 68,143 101,663 161,615 961,837 743,975 3,834,511 337,989 312,507 6,190,819 92,439 $ 298,080 29,662 111,995 26,806 149,072 64,443 121,276 157,291 958,625 678,541 4,547,265 378,855 257,933 6,821,219 — 324,421 471,581 9,444,791 319,305 10,560,098 (2,137,117) — 8,422,981 $ 14,706,239 324,421 279,778 8,498,015 44,190 9,146,404 (2,231,557) (3,052) 6,911,795 $ 13,733,014 31
Slide 41: GANNETT CO., INC. CONSOLIDATED STATEMENTS OF INCOME In thousands of dollars Fiscal year ended Net operating revenues Newspaper advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Newspaper circulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Broadcasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses Cost of sales and operating expenses, exclusive of depreciation . . . . . . . . . . . . . Selling, general and administrative expenses, exclusive of depreciation . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income (expense) Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other non-operating items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income per share - basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income per share - diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dec. 28, 2003 $ 4,397,244 1,212,891 719,884 381,096 6,711,115 3,453,769 1,044,796 223,261 8,271 4,730,097 1,981,018 (139,271) 5,207 (6,641) (140,705) 1,840,313 629,100 1,211,213 $4.49 $4.46 Dec. 29, 2002 $ 4,122,685 1,182,103 771,303 346,158 6,422,249 3,254,003 1,019,493 215,117 7,327 4,495,940 1,926,309 (146,359) 3,448 (18,870) (161,781) 1,764,528 604,400 $ 1,160,128 $4.35 $4.31 Dec. 30, 2001 $ 4,119,773 1,188,467 662,652 328,714 6,299,606 3,275,522 990,472 202,456 241,321 4,709,771 1,589,835 (221,854) 8,493 (5,877) (219,238) 1,370,597 539,400 $ 831,197 $3.14 $3.12 $ The accompanying notes are an integral part of these consolidated financial statements. 32
Slide 42: GANNETT CO., INC. CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands of dollars Fiscal year ended Cash flows from operating activities Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to operating cash flows . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension contributions, net of pension expense . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net, including gains on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Increase) decrease in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (Decrease) in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase (Decrease) in interest and taxes payable . . . . . . . . . . . . . . . . . . . . . . . . Change in other assets and liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flow from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from investing activities Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments for acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . Payments for investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of certain assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows from financing activities Proceeds of unsecured global notes, net of debt issuance fees . . . . . . . . . . . . . . Payments of unsecured promissory notes and other indebtedness . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from issuance of common stock upon exercise of stock options . . . . . Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of currency exchange rate change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance of cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . Balance of cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . Dec. 28, 2003 $ 1,211,213 223,261 8,271 65,434 76,024 (47,253) (69,948) (14,153) (12,666) 28,483 10,443 1,479,109 (281,264) (482,650) (28,328) 12,825 13,012 (766,405) — (712,754) (260,737) 235,939 (737,552) 1,662 (23,186) 90,374 67,188 Dec. 29, 2002 $ 1,160,128 215,117 7,327 175,144 (300,707) (5,671) (16,783) 3,647 (15,869) (155,299) (35,334) 1,031,700 (274,828) (35,266) (126,270) 45,262 5,450 (385,652) 1,786,687 (2,325,647) (247,721) 84,899 (701,782) 5,479 (50,255) 140,629 $ 90,374 Dec. 30, 2001 $ 831,197 202,456 241,321 228,568 (309,099) (9,461) 67,035 22,457 (103,195) 177,950 (30,232) 1,318,997 (324,579) (186,201) (63,791) 21,154 38,539 (514,878) — (667,831) (235,472) 48,780 (854,523) (2,163) (52,567) 193,196 140,629 $ $ The accompanying notes are an integral part of these consolidated financial statements. 33
Slide 43: GANNETT CO., INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY In thousands of dollars Fiscal years ended December 30, 2001, December 29, 2002, and December 28, 2003 Balance: Dec. 31, 2000 . . . . . . . . . . . . . . . . Net income, 2001 . . . . . . . . . . . . . . . . . . . . Foreign currency translation adjustment . . . Unrealized gain on securities, net of reclassification adjustments, net of taxes of $933 . . . . . . . . . . . . . . . . . . . . . . . . Total comprehensive income . . . . . . . . . . . . Dividends declared, 2001: $.90 per share . . Stock options exercised . . . . . . . . . . . . . . . . Stock issued under incentive plan . . . . . . . . Tax benefit derived from stock incentive plans . . . . . . . . . . . . . . . . . . . . . . . Compensation expense related to ESOP . . . Tax benefit from ESOP . . . . . . . . . . . . . . . . Balance: Dec. 30, 2001 . . . . . . . . . . . . . . . . Net income, 2002 . . . . . . . . . . . . . . . . . . . . Foreign currency translation adjustment . . . Unrealized loss on securities, net of tax benefit of $1,548 . . . . . . . . . . . . . Minimum pension liability adjustment, net of tax benefit of $6,676 . . . . . . . . . . . . . Total comprehensive income . . . . . . . . . . . . Dividends declared, 2002: $.94 per share . . Stock options exercised . . . . . . . . . . . . . . . . Stock issued under incentive plan . . . . . . . . Tax benefit derived from stock incentive plans . . . . . . . . . . . . . . . . . . . . . . . Compensation expense related to ESOP . . . Tax benefit from ESOP . . . . . . . . . . . . . . . . Balance: Dec. 29, 2002 . . . . . . . . . . . . . . . . Net income, 2003 . . . . . . . . . . . . . . . . . . . . Foreign currency translation adjustment . . . Carrying value adjustment for certain securities, net of taxes of $544 . . . . . . . . . . Minimum pension liability adjustment, net of tax benefit of $13,586 . . . . . . . . . . . . Total comprehensive income . . . . . . . . . . . . Dividends declared, 2003: $.98 per share . . Stock options exercised . . . . . . . . . . . . . . . . Stock issued under incentive plan . . . . . . . . Restricted stock issued under incentive plan . Tax benefit derived from stock incentive plans . . . . . . . . . . . . . . . . . . . . . . . Compensation expense related to ESOP . . . Balance: Dec. 28, 2003 . . . . . . . . . . . . . . . . Common stock $1 par value $ 324,421 Additional paid-in capital $ 170,715 Retained earnings $ 6,995,965 831,197 Accumulated other comprehensive income (loss) $ (66,274) (38,540) Treasury stock $ (2,307,793) Deferred compensation related to ESOP $ (13,624) Total $ 5,103,410 831,197 (38,540) 1,527 (238,301) 17,751 2,937 18,853 4,824 $ 324,421 $ 210,256 208 $ 7,589,069 1,160,128 $ (103,287) 160,896 (2,526) (10,893) (251,217) 42,210 3,461 23,851 5,748 $ 324,421 $ 279,778 35 $ 8,498,015 1,211,213 $ 44,190 296,349 932 (22,166) (264,437) 143,076 3,975 115 44,637 (178) $ 471,581 92,586 1,854 $ (2,231,557) $ (3,052) 42,378 1,802 $ (2,275,737) $ (8,800) 30,278 1,778 1,527 794,184 (238,301) 48,029 4,715 18,853 4,824 208 $ 5,735,922 1,160,128 160,896 (2,526) (10,893) 1,307,605 (251,217) 84,588 5,263 23,851 5,748 35 $ 6,911,795 1,211,213 296,349 932 (22,166) 1,486,328 (264,437) 235,662 5,829 115 44,637 3,052 $ 8,422,981 $ 324,421 $ 9,444,791 $ 319,305 $ (2,137,117) $ 3,052 — The accompanying notes are an integral part of these consolidated financial statements. 34
Slide 44: NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Summary of significant accounting policies Fiscal year: The company’s fiscal year ends on the last Sunday of the calendar year. The company’s 2003 fiscal year ended on Dec. 28, 2003, and encompassed a 52-week period. The company’s 2002 and 2001 fiscal years also encompassed 52-week periods. Consolidation: The consolidated financial statements include the accounts of the company and its wholly and majority owned subsidiaries after elimination of all significant intercompany transactions and profits. Investments in entities for which the company does not have control, but has the ability to exercise significant influence over the operating and financial policies, are accounted for under the equity method. Accordingly, the company’s share of net earnings and losses from these ventures is included in the Consolidated Statements of Income. Operating agencies: Certain of the company’s newspaper subsidiaries are participants in joint operating agencies. Each joint operating agency performs the production, sales and distribution functions for the subsidiary and another newspaper publishing company under a joint operating agreement. The company’s operating results in the Detroit and Tucson joint operating agencies are accounted for under the equity method, reported as a net amount in other operating revenues. The company also owns a minority interest in a newspaper publishing partnership. Operating results for this partnership are accounted for under the equity method and reported as a net amount in other operating revenues. Critical accounting policies and the use of estimates: The company prepares its financial statements in accordance with generally accepted accounting principles which require the use of estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and related disclosure of contingent matters. The company bases its estimates on historical experience, actuarial studies and other assumptions, as appropriate, concerning the carrying values of its assets and liabilities and disclosure of contingent matters. The company re-evaluates its estimates on an ongoing basis. Actual results could differ from these estimates. Critical accounting policies for the company involve its assessment of the recoverability of its long-lived assets, including goodwill and other intangible assets, which are based on such factors as estimated future cash flows and current fair value estimates of businesses. The company’s accounting for pension and retiree medical benefits requires the use of various estimates concerning the work force, interest rates, plan investment return, and involves the use of advice from consulting actuaries. The company’s accounting for income taxes in the U.S. and foreign jurisdictions is sensitive to interpretation of various laws and regulations therein, and to company policy and expectations as to the repatriation of earnings from foreign sources. A more complete discussion of all of the company’s significant accounting policies follows. Cash and cash equivalents: The company considers its marketable securities, which are readily convertible into cash (with original maturity dates of less than 90 days) and consist of short-term investments in government securities, commercial paper and money market funds, as cash equivalents. Inventories: Inventories, consisting principally of newsprint, printing ink, plate material and production film for the company’s newspaper publishing operations, are valued primarily at the lower of cost (first-in, first-out) or market. Property and depreciation: Property, plant and equipment is recorded at cost, and depreciation is provided generally on a straight-line basis over the estimated useful lives of the assets. The principal estimated useful lives are: buildings and improvements, 10 to 40 years; and machinery, equipment and fixtures, four to 30 years. Major renewals and improvements and interest incurred during the construction period of major additions are capitalized. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred. Goodwill and other intangible assets: Intangible assets and the excess of acquisition cost over the fair value of assets acquired (goodwill) represent the cost of intangible assets at the time operating properties were purchased. On Dec. 31, 2001, the company adopted Statement of Financial Accounting Standards No. 142 (SFAS No. 142) “Goodwill and Other Intangible Assets,” which eliminated the amortization of goodwill and other intangibles with indefinite useful lives unless the intangible asset is deemed to be impaired. The company performed an impairment test of its goodwill and determined that no impairment of recorded goodwill existed at Dec. 28, 2003. Intangible assets that have finite useful lives continue to be amortized over those useful lives. See additional detail in Note 3 on page 38. Valuation of long-lived assets: In accordance with SFAS No. 144, the company evaluates the carrying value of long-lived assets to be held and used whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The carrying value of a long-lived asset is considered impaired when the projected undiscounted future cash flows are less than its carrying value. The company measures impairment based on the amount by which the carrying value exceeds the fair market value. Fair market value is determined primarily using the projected future cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose. 35
Slide 45: Investments and other assets: Investments in non-public businesses in which the company does not have control or does not exert significant influence are carried at cost and losses resulting from periodic evaluations of the carrying value of these investments are included as a non-operating expense. At Dec. 28, 2003, and Dec. 29, 2002, such investments aggregated approximately $23 million and $20 million, respectively. Investments in public equity securities are classified as available for sale with related gains and losses included in equity as other comprehensive income. The company’s television stations are parties to program broadcast contracts. These contracts are recorded at the gross amount of the related liability when the programs are available for telecasting. Program assets are classified as current (as a prepaid expense) or noncurrent (as an other asset) in the Consolidated Balance Sheets, based upon the expected use of the programs in succeeding years. The amount charged to expense appropriately matches the cost of the programs with the revenues associated with them. The liability for these contracts is classified as current or noncurrent in accordance with the payment terms of the contracts. The payment period generally coincides with the period of telecast for the programs, but may be shorter. Revenue recognition: The company’s revenues include amounts charged to customers for space purchased in the company’s newspapers, amounts charged to customers for commercial printing jobs, advertising broadcast on the company’s television stations and for ads placed on its Internet Web sites. Newspaper revenues also include circulation revenues for newspapers purchased by readers or distributors reduced by the amount of discounts. Advertising revenues are recognized, net of agency commissions, in the period when advertising is printed or placed on Web sites or broadcast. Commercial printing revenues are recognized when the job is delivered to the customer. Circulation revenues are recognized when purchased newspapers are distributed. Amounts received from customers in advance of revenue recognition are deferred as liabilities. Retirement plans: Pension costs under the company’s retirement plans are actuarially determined. The company’s policy is to fund costs accrued under its qualified pension plans. The company recognizes the cost of postretirement medical and life insurance benefits on an accrual basis over the working lives of employees expected to receive such benefits. Stock-based employee compensation: Stock-based compensation is accounted for by using the intrinsic value-based method in accordance with Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees.” Under APB No. 25, because the exercise price of the company’s employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. As permitted, the company has elected to adopt the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123, “Accounting for Stock-Based Compensation,” establishes a fair value-based method of accounting for employee stock-based compensation plans and encourages companies to adopt that method. However, it also allows companies to continue to apply the intrinsic value-based method currently prescribed under APB No. 25. The company has chosen to continue to report stock-based compensation in accordance with APB No. 25, and provides the following pro forma disclosure of the effects of applying the fair value method to all applicable awards granted. Under APB No. 25 and related interpretations, no compensation cost has been recognized for the company’s stock options. Had compensation cost for the company’s stock options been determined based on the fair value at the grant date for those awards as permitted (but not required) under the alternative method of SFAS No. 123, the company’s results of operations and related per share amounts would have been reduced to the pro forma amounts indicated below: In thousands, except per share amounts 2003 Net income As reported . . . . . . . . . . . . . . $ 1,211,213 Less: compensation expense determined under SFAS 123, net of tax . . . . . . . (64,034) Pro forma . . . . . . . . . . . . . . . $1,147,179 Net income per share - basic As reported . . . . . . . . . . . . . . $4.49 Pro forma . . . . . . . . . . . . . . . $4.26 Net income per share - diluted As reported . . . . . . . . . . . . . . $4.46 Pro forma . . . . . . . . . . . . . . . $4.22 2002 2001 $1,160,128 $ 831,197 (52,762) (34,795) $1,107,366 $ 796,402 $4.35 $4.15 $4.31 $4.11 $3.14 $3.01 $3.12 $2.98 The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 2003, 2002 and 2001, respectively: dividend yield of 1.33%, 1.34% and 1.33%; expected volatility of 19.16%, 26.12% and 26.37%; risk-free interest rates of 3.83%, 3.89% and 4.60%; and expected lives of seven years each. Income taxes: The company accounts for certain income and expense items differently for financial reporting purposes than for income tax reporting purposes. Deferred income taxes are provided in recognition of these temporary differences. Per share amounts: The company reports earnings per share on two bases, basic and diluted. All basic income per share amounts are based on the weighted average number of common shares outstanding during the year. The calculation of diluted earnings per share also considers the assumed dilution from the exercise of stock options and from stock incentive rights. 36
Slide 46: Foreign currency translation: The income statement of Newsquest operations has been translated to U.S. dollars using the average currency exchange rates in effect during the relevant period. Newsquest’s balance sheet has been translated using the currency exchange rate as of the end of the accounting period. The impact of currency exchange rate changes on the translation of Newsquest’s balance sheet is included in comprehensive income, and is classified as accumulated other comprehensive income (loss) in shareholders’ equity. New accounting pronouncements: In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51, which addresses consolidation by business enterprises. In December 2003, the FASB completed deliberations of proposed modifications to FIN 46 resulting in multiple effective dates in 2003 and 2004 based on the nature as well as the creation date of the variable interest entity. The adoption of the provisions of FIN 46 applicable to 2003 did not have, and the company believes that the provisions to be adopted in 2004 will not have, a material impact on its financial position or results of operations. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) became law in December 2003. The Act introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Questions have arisen regarding whether an employer that provides postretirement prescription drug coverage (a plan) should recognize the effects of the Act on its accumulated postretirement benefit obligation and net postretirement benefit costs and, if so, when and how to account for those effects. In response to these questions, the FASB issued FASB Staff Position 106-1 (FSP 106-1), which confirms that companies are required to account for changes in relevant laws. FSP 106-1, however, also recognized that the accounting for the federal subsidy was not explicitly addressed in the accounting literature and therefore allowed companies to defer accounting for the Act until guidance is issued. As permitted by FSP 106-1, the company has deferred accounting for the effects of the Act until the authoritative guidance is issued, which could require the company to change previously reported information. Reclassifications: Certain prior year amounts have been reclassified to conform with the current year presentation. NOTE 2 Acquisitions, exchanges, dispositions and investments 2003: In March 2003, the company completed a non-monetary transaction under which it contributed its newspaper in El Paso to a newly formed partnership, Texas-New Mexico Newspapers Partnership. The partnership includes the El Paso newspaper and six other daily newspapers in nearby New Mexico that were contributed by MediaNews Group. The company recorded this nonmonetary transaction as two simultaneous but separate events; that is, a sale of 33.8% of its interest in the El Paso Times for which a non-operating gain was recognized, and the acquisition of a 66.2% interest in the partnership. The non-monetary gain from the partnership transaction is reflected in non-operating income. In April 2003, the company completed the acquisition of the publishing business of Scottish Media Group plc (SMG). The SMG publishing business consists of three Scottish regional newspapers; 11 specialty consumer and business-to-business magazine titles; and an online advertising and content business. The company purchased 100% of the stock of the Scotland businesses. In August 2003, the company acquired the majority interest in The Ashland Media Group in Phoenix, Ariz. Ashland Media publishes TV y Más, La Voz and TV Shopper, which are weekly publications. Ashland Media also has a direct marketing business, AZ Mail. On Oct. 31, 2003, the company acquired the assets of Clipper Magazine, Inc., one of the nation’s largest direct-mail advertising magazine companies. The acquisition also includes several affiliated operations including a full-service advertising agency, an e-mail customer retention service, a direct-mail service to new movers and MyClipper.com, a companion Web site for the core direct-mail advertising offerings. The company also purchased several small non-daily publications in the U.S. and in the U.K. The 2003 business acquisitions had an aggregate purchase price of approximately $483 million and were recorded under the purchase method of accounting. The company is in the process of finalizing valuations of the businesses, thus the allocation of the purchase price is preliminary. 37
Slide 47: 2002: The company purchased several small non-daily publications in the U.S. and in the U.K., a commercial printing business in Wisconsin and a defense magazine in McLean, Va. These acquisitions, which had an aggregate purchase price of approximately $35 million, were accounted for under the purchase method of accounting. The company contributed its Vincennes (Ind.) SunCommercial newspaper to the Gannett Foundation in July 2002. The Gannett Foundation is a not-for-profit, private foundation that makes charitable awards in the communities in which Gannett operates its newspapers and television stations. These business acquisitions and dispositions did not materially affect the company’s financial position or results of operations. In October 2002, the company acquired a one-third equity interest in CareerBuilder, LLC, an online service providing recruitment resources, for approximately $98 million. 2001: During 2001, the company purchased the remaining 36% interest in WKYC-TV, Cleveland, that it did not previously own. Additionally, the company purchased several small non-daily publications in the U.S. and in the U.K. In connection with the acquisition of several non-daily publications in the U.K. (“Dimbleby”), the company issued loan notes totaling approximately 12.7 million British pounds (U.S. $18.3 million) to the shareholders of Dimbleby. These acquisitions, which had an aggregate purchase price of approximately $186 million, were accounted for under the purchase method of accounting. The company contributed its Marietta (Ohio) Times newspaper to the Gannett Foundation in May 2001. The company sold its daily newspaper in Lansdale, Pa., in September 2001. These business acquisitions and dispositions did not materially affect the company’s financial position or results of operations. NOTE 3 Goodwill and other intangible assets Effective Dec. 31, 2001, the first day of the company’s 2002 fiscal year, the company adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which establishes financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS No. 142, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed at least annually for impairment. Recognized intangible assets that have finite useful lives will continue to be amortized over their useful lives and are subject to tests for impairment in accordance with the provisions of SFAS No. 144. SFAS No. 142 required that goodwill be tested for impairment at the reporting unit level at adoption and at least annually thereafter. The company performed an impairment test of its goodwill upon adoption, at Dec. 29, 2002, and at Dec. 28, 2003, and determined that no impairment of goodwill existed. A reconciliation of the impact of adoption of SFAS No. 142 on net income, and basic and diluted earnings per share for the years ended Dec. 28, 2003, Dec. 29, 2002, and Dec. 30, 2001, is set forth below: In thousands of dollars, except per-share amounts 2003 2002 Reported net income . . . . . . $1,211,213 Add back: goodwill amortization, net of tax . . . . . Adjusted net income . . . . . . $1,211,213 Basic earnings per share: Reported net income . . . . . . . $4.49 Add back: goodwill amortization, net of tax . . . . . Adjusted net income . . . . . . $4.49 $4.46 Diluted earnings per share: Reported net income . . . . . . . Add back: goodwill amortization, net of tax . . . . . Adjusted net income . . . . . . $4.46 $1,160,128 2001 $ 831,197 215,688 $1,046,885 $3.14 .81 $3.95 $3.12 $1,160,128 $4.35 $4.35 $4.31 $4.31 .80 $3.92 38
Slide 48: The following table displays the intangible assets that are subject to amortization and intangible assets not subject to amortization as of Dec. 28, 2003, and Dec. 29, 2002: In thousands of dollars Gross Dec. 28, 2003 Goodwill . . . . . . . . . . . . . . Customer relationships . . . Total . . . . . . . . . . . . . . . . . . Dec. 29, 2002 Goodwill . . . . . . . . . . . . . . Subscriber lists . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . $ 9,601,767 128,000 $ 9,729,767 $ 8,822,299 109,800 $ 8,932,099 Accumulated Amortization $ $ $ $ — 19,264 19,264 — 10,993 10,993 Net $ 9,601,767 108,736 $ 9,710,503 $ 8,822,299 98,807 $ 8,921,106 NOTE 4 Consolidated statements of cash flows Cash paid in 2003, 2002 and 2001 for income taxes and for interest (net of amounts capitalized) was as follows: In thousands of dollars Income taxes . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . 2003 $ 555,039 $ 140,097 2002 $ 722,034 $ 121,697 2001 $138,688 $223,691 Amortization expense was approximately $8.3 million in 2003 and $7.3 million in 2002. Customer relationships, which include subscriber lists and in 2003, advertiser relationships, are amortized on a straight-line basis over 15 years. For each of the next five years, amortization expense relating to the identified intangibles is expected to be approximately $10 million. In thousands of dollars Newspaper Publishing Goodwill, net Balance at Dec. 30, 2001 . . $ 7,051,747 Acquisitions . . . . . . . . . . . . 28,317 Foreign currency exchange rate changes . . . . 215,957 Balance at Dec. 29, 2002 . . $ 7,296,021 Acquisitions . . . . . . . . . . . . 498,968 Foreign currency exchange rate changes . . . . 280,500 Balance at Dec. 28, 2003 . . $ 8,075,489 In thousands of dollars Newspaper Publishing Broadcasting Amortized intangible assets, net Balance at Dec. 30, 2001 . . $ 106,334 $ — $ Dispositions . . . . . . . . . . . . (200) — Amortization . . . . . . . . . . . (7,327) — 98,807 $ — $ Balance at Dec. 29, 2002 . . $ Acquisitions . . . . . . . . . . . . 18,200 — — (8,271) Amortization . . . . . . . . . . . Balance at Dec. 28, 2003 . . $ 108,736 $ — $ Total 106,334 (200) (7,327) 98,807 18,200 (8,271) 108,736 Broadcasting $ 1,526,278 — — $ 1,526,278 — — $ 1,526,278 Total $ 8,578,025 28,317 215,957 $ 8,822,299 498,968 280,500 $ 9,601,767 Interest in the amount of $3.4 million, $2.1 million and $8.6 million was capitalized in 2003, 2002 and 2001, respectively. The income taxes paid by the company for 2001 are below typical levels. Internal Revenue Service Rule 2001-61 permitted the deferral of the company’s third- and fourth-quarter 2001 estimated tax payments until Jan. 15, 2002. Other In connection with the establishment of the Texas-New Mexico Newspapers Partnership, the company recorded a minority interest liability totaling $90 million. No other significant liabilities were assumed in connection with the 2003, 2002 and 2001 acquisitions. In 2003 and 2002, the company issued 87,263 and 82,942 shares of common stock, respectively, in settlement of previously granted stock incentive rights for the four-year period 1999-2002 and the compensation liability of $9.0 million and $7.7 million, respectively, for these rights was transferred to shareholders’ equity. 39
Slide 49: NOTE 5 Long-term debt The long-term debt of the company is summarized below. In thousands of dollars Unsecured promissory notes . . . . . . . . Unsecured global notes . . . . . . . . . . . . Other indebtedness . . . . . . . . . . . . . . . . Total long-term debt . . . . . . . . . . . . . . Dec. 28, 2003 $ 1,927,500 1,794,455 112,556 $ 3,834,511 Dec. 29, 2002 $ 2,632,879 1,792,887 121,499 $ 4,547,265 The unsecured promissory notes at Dec. 28, 2003, were due from Dec. 29, 2003, to Jan. 29, 2004, with rates varying from 1.04% to 1.08%. The unsecured promissory notes at Dec. 29, 2002, were due from Jan. 2, 2003, to Jan. 24, 2003, with rates varying from 1.32% to 1.35%. The maximum amount of such promissory notes outstanding at the end of any period during 2003 and 2002 was $2.7 billion and $5.0 billion, respectively. The daily average outstanding balance was $2.4 billion during 2003 and $3.1 billion during 2002 and the weighted average interest rate on commercial paper was 1.2% for 2003 and 1.8% for 2002. The weighted average interest rate on all debt was 3.1% for 2003 and 3.0% for 2002. In March 2002, the company issued $1.8 billion aggregate principal amount of unsecured global notes in an underwritten public offering. These notes consist of $600 million aggregate principal amount of 4.95% notes due 2005, $700 million aggregate principal amount of 5.50% notes due 2007 and $500 million aggregate principal amount of 6.375% notes due 2012. The net proceeds of the offering were used to pay down commercial paper borrowings. Other indebtedness includes the loan notes issued in the U.K. to the former shareholders of Newsquest and Newscom in connection with their acquisitions. The Newsquest and Newscom notes ($15.4 million and $80.5 million, respectively) bear interest at .5% below the Sterling London Interbank Offered Rate (LIBOR), subject to a cap of 6.5% and 6.75%, respectively. The Newsquest and Newscom notes are due on Dec. 31, 2006, and Dec. 31, 2007, respectively, but may be redeemed by the company on each interest payment date. The noteholders are entitled to require the company to repay all or part of the notes on any interest payment date by giving 30 days’ written notice. The remaining other indebtedness at Dec. 28, 2003, consists primarily of industrial revenue bonds with maturities in 2008 and 2009 at variable interest rates (1.4% at Dec. 28, 2003). At Dec. 28, 2003, the company had $4.1975 billion of credit available under two revolving credit agreements. The agreements provide for revolving credit periods which permit borrowings from time-to-time to the maximum commitments. The 2000 $1.53 billion agreement revolving credit period extends to July 2005. The 2002 $2.6675 billion agreement consists of a $1.3025 billion 364-day facility which extends to March 2004 and a $1.365 billion 5-year facility which extends to March 2007. At the end of the 364-day period, any borrowings outstanding under the 364-day credit facility are convertible into a 1-year term loan at Gannett’s option. The 364-day facility portion of the 2002 agreement increased to $1.3375 billion in early January 2004. The company is currently negotiating a new revolving credit agreement with a group of banks that will replace the $1.3375 billion 364-day facility that matures in March 2004 and the $1.53 billion 5-year facility that matures in July 2005. Concurrent with the effective date of the new revolving credit agreement, expected in March 2004, the company would terminate the $1.3375 billion 364-day facility and the $1.53 billion 5-year facility. The company’s revolving credit agreements provide backup for commercial paper and for general corporate purposes; therefore, the unsecured promissory notes and Newsquest and Newscom notes are classified as long-term debt. The commitment fee rates for the 2002 revolving credit agreement may range from .05% to .20%, depending on Standard & Poor’s or Moody’s credit rating of the company’s senior unsecured long-term debt. The rates in effect on Dec. 28, 2003, were .06% for the 364-day facility and .08% for the 5-year facility. At the option of the company, the interest rate on borrowings under this agreement may be .17% to .55% above the prime rate, the Eurodollar base rate or the Federal Funds Effective Rate plus .50%. The percentages that apply depend on Standard & Poor’s or Moody’s credit rating of the company’s senior unsecured longterm debt. The commitment fee rates for the $1.53 billion revolving credit agreement may range from .07% to .09%, depending on Standard & Poor’s or Moody’s credit rating of the company’s senior unsecured long-term debt. The rate in effect on Dec. 28, 2003, was .07% for the 5-year facility. At the option of the company, the interest rate on borrowings under this agreement may be at .13% to .24% above the prime rate, the Eurodollar base rate or the Federal Funds Effective Rate plus .50%. The percentages that apply depend on Standard & Poor’s or Moody’s credit rating of the company’s senior unsecured long-term debt. 40
Slide 50: The current revolving credit agreements contain restrictive provisions that require the maintenance of net worth of at least $2.5 billion and an interest coverage ratio of 3:1. At Dec. 28, 2003, and Dec. 29, 2002, net worth was $8.4 billion and $6.9 billion, respectively. The interest coverage ratio for the year ended Dec. 28, 2003, was 15:1. Under a shelf registration that became effective with the Securities and Exchange Commission in April 2002, an additional $2.5 billion of unsecured debt securities can be issued. Proceeds from the sale of such securities may be used for general corporate purposes, including capital expenditures, working capital, securities repurchase programs, repayment of long-term and short-term debt and financing of future acquisitions. The company may also invest borrowed funds that are not required immediately for other purposes in short-term marketable securities. Approximate annual maturities of long-term debt, assuming that the company had used its $4.1975 billion of revolving credit agreements to refinance existing unsecured promissory notes on a long-term basis and assuming the company’s other indebtedness was paid on its scheduled pay dates, are as follows: In thousands of dollars 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTE 6 Retirement plans The company and its subsidiaries have various retirement plans, including plans established under collective bargaining agreements, under which substantially all full-time employees are covered. The Gannett Retirement Plan is the company’s principal retirement plan and covers most U.S. employees of the company and its subsidiaries. Benefits under the Gannett Retirement Plan are based on years of service and final average pay. The tables below also include the assets and obligations of Newsquest Retirement Plans in the U.K. The company uses a Dec. 31 measurement date for its retirement plans. The company’s pension costs, which include costs for its qualified, non-qualified and union plans, for 2003, 2002 and 2001 are presented in the following table: In thousands of dollars 2003 Service cost - benefits earned during the period . . . . . . . . . Interest cost on benefit obligation . Expected return on plan assets . . . . Amortization of transition asset . . . Amortization of prior service credit . . . . . . . . . . . . . . . . . . . . . . . . Amortization of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . Pension expense for companysponsored retirement plans . . . . . . . Union and other pension cost . . . . . Pension cost . . . . . . . . . . . . . . . . . . . $ 77,378 155,933 (170,099) (68) (20,340) 72,026 114,830 7,388 $ 122,218 2002 $ 69,486 152,534 (181,198) (68) (19,594) 36,114 57,274 7,150 $ 64,424 2001 $ 70,643 150,935 (217,796) (68) (18,908) 824 (14,370) 6,404 $ (7,966) $ — 1,162,057 15,351 2,061,752 87,475 507,876 $ 3,834,511 The fair value of the company’s total long-term debt, determined based on quoted market prices for similar issues of debt with the same remaining maturities and similar terms, totaled $4.0 billion at Dec. 28, 2003, compared with a book value of $3.8 billion. At Dec. 28, 2003, and Dec. 29, 2002, the company estimates that the amount reported on the balance sheet for financial instruments, including cash and cash equivalents, trade and other receivables, and other long-term liabilities, approximates fair value. 41
Slide 51: The following table provides a reconciliation of benefit obligations (on a Projected Benefit Obligation measurement basis), plan assets and funded status of the company-sponsored retirement plans, along with the related amounts that are recognized in the Consolidated Balance Sheets. In thousands of dollars Dec. 28, 2003 Change in benefit obligation Net benefit obligation at beginning of year . . . . . . . . . . . . . . . . $ 2,402,386 Service cost . . . . . . . . . . . . . . . . . . . . 77,378 Interest cost . . . . . . . . . . . . . . . . . . . . 155,933 Plan participants’ contributions . . . . . 10,500 Plan amendments . . . . . . . . . . . . . . . (4,327) Actuarial loss . . . . . . . . . . . . . . . . . . . 192,701 Foreign currency translation . . . . . . . 40,530 (137,360) Gross benefits paid . . . . . . . . . . . . . . Net benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . $ 2,737,741 Change in plan assets Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . $ 2,021,991 Actual return on plan assets . . . . . . . 487,808 Plan participants’ contributions . . . . . 10,500 Employer contributions . . . . . . . . . . . 35,091 Gross benefits paid . . . . . . . . . . . . . . (137,360) 35,014 Foreign currency translation . . . . . . . Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . $ 2,453,044 Funded status at end of year . . . . . . . $ (284,697) Unrecognized net actuarial loss . . . . 1,039,202 Unrecognized prior service credit . . . (160,576) Unrecognized net transition asset . . . (10) Net amount recognized at 593,919 end of year . . . . . . . . . . . . . . . . . . . . . $ Amounts recognized in Consolidated Balance Sheets Prepaid benefit cost . . . . . . . . . . . . . . $ 702,656 3,077 Intangible assets . . . . . . . . . . . . . . . . $ Accumulated other comprehensive loss related to minimum pension liability . . . . . . . . . . . . . . . . . . . . . . . $ 23,144 Accrued benefit cost . . . . . . . . . . . . . $ (134,958) Dec. 29, 2002 Pension costs: The following assumptions were used to determine net pension costs. 2003 6.75% 8.75% 4.00% 2002 7.25% 9.50% 4.00% 2001 7.625% 10.00% 4.50% Discount rate . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets . . . . . . . Rate of compensation increase . . . . . . . $ 2,182,302 69,486 152,534 7,604 (8,662) 105,580 33,971 (140,429) 2,402,386 $ $ 1,990,404 (236,209) 7,604 366,119 (140,429) 34,502 2,021,991 (380,395) 1,221,587 (171,171) (78) 669,943 768,800 3,533 The expected return on asset assumption was determined based on the plan’s asset allocations, a review of historic capital market performance, historical plan performance and a forecast of expected future asset returns. The company lowered its expected return on asset assumption from 9.5% in 2002 to 8.75% in 2003 due to changes in the capital markets. The company reviews this longterm assumption on a periodic basis. The company also lowered its discount rate from 7.25% at the end of 2001 to 6.75% at the end of 2002, and to 6.25% at the end of 2003. Benefit obligations and funded status: The accumulated benefit obligation for all of the company-sponsored retirement plans was $2.4 billion and $2.1 billion at the end of 2003 and 2002, respectively. At the end of 2003, the Gannett Retirement Plan and the company’s plans in the U.K. were fully funded on an Accumulated Benefit Obligation measurement basis. The Projected Benefit Obligation exceeds the fair value of plan assets for all of the company-sponsored retirement plans. The following assumptions were used to determine the year-end benefit obligation. 2003 6.25% 4.00% 2002 6.75% 4.00% $ $ Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of compensation increase . . . . . . . . . . . . . . . . The following table presents information for those company retirement plans for which assets exceed accumulated benefits: In thousands of dollars Accumulated benefit obligation . . . . . . . . . . Fair value of plan assets . . . . . . . . . . . . . . . . 2003 $2,264,172 2,453,044 2002 $2,007,783 2,021,991 $ $ $ $ $ 17,569 (119,959) The accumulated benefit obligation for the company’s unfunded retirement plans was approximately $135 million and $120 million at Dec. 28, 2003 and Dec. 29, 2002, respectively. The company did not contribute to the Gannett Retirement Plan in 2003, however, it contributed $50 million to the plan in February 2004. In December 2002 and 2001 the company contributed $330 million and $300 million, respectively, to the Gannett Retirement Plan. The company contributed approximately $30.4 million in 2003 and $32 million in 2002 to its U.K. retirement plans. Employer contributions and gross benefits paid reflected in the above tables include approximately $4.7 million and $4.4 million paid from company assets in 2003 and 2002, respectively. 42
Slide 52: Plan assets: The fair value of plan assets is approximately $2.5 billion and $2.0 billion at the end of 2003 and 2002, respectively. The expected long-term rate of return on these assets was 8.75% for 2003 and 9.50% for 2002. The asset allocation for company-sponsored pension plans at the end of 2003 and 2002, and target allocations for 2004, by asset category, are presented in the table below. Target Allocation 2004 Equity securities . . . . . . . . . 59 % Debt securities . . . . . . . . . . 30 Real estate . . . . . . . . . . . . . — Other . . . . . . . . . . . . . . . . . 11 Total . . . . . . . . . . . . . . . . . . 100 % Allocation of Plan Assets 2003 2002 63 % 45 % 29 47 1 1 7 7 100 % 100 % NOTE 7 Postretirement benefits other than pensions 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 cost of providing retiree health care and life insurance benefits is actuarially determined and accrued over the service period of the active employee group. The company’s policy is to fund benefits as claims and premiums are paid. See discussion in “New Accounting Pronouncements” on page 37 regarding a new Medicare act. Postretirement benefit cost for health care and life insurance for 2003, 2002 and 2001 included the following components: In thousands of dollars 2003 Service cost - benefits earned during the period . . . . . . . . . . . . . . . . . . $ 3,132 Interest cost on net benefit obligation . . 19,756 Amortization of prior service credit . . . (11,839) Amortization of actuarial loss (gain) . . . 1,589 Net periodic postretirement benefit cost . . . . . . . . . . . . . . . . . . . . . . $ 12,638 Curtailment gain . . . . . . . . . . . . . . . . . . $(30,710) 2002 $ 3,535 19,337 (10,888) — $11,984 $ — 2001 $ 6,512 24,674 (7,728) (10) $23,448 $ — The primary objective of company-sponsored retirement plans is to provide eligible employees with scheduled pension benefits: the “prudent man” guideline is followed with regard to the investment management of retirement plan assets. Consistent with prudent standards for preservation of capital and maintenance of liquidity, the goal is to earn the highest possible total rate of return while minimizing risk. The principal means of reducing volatility and exercising prudent investment judgment is diversification by asset class and by investment manager; consequently, portfolios are constructed to attain prudent diversification in the total portfolio, each asset class, and within each individual investment manager’s portfolio. Investment diversification is consistent with the intent to minimize the risk of large losses. All objectives are based upon an investment horizon spanning five years so that interim market fluctuations can be viewed with the appropriate perspective. The target asset allocation represents the long-term perspective. Retirement plan assets will be rebalanced at least annually to align them with the target asset allocations. Risk characteristics are measured and compared with an appropriate benchmark quarterly; periodic reviews are made of the investment objectives and the investment managers. Retirement plan assets include approximately 1,242,300 shares of the company’s common stock valued at approximately $111 million and $89 million at the end of 2003 and 2002, respectively. Cash flows: The company contributed $50 million to the Gannett Retirement Plan in February 2004 and plans to contribute approximately $34 million to its U.K. retirement plans in 2004. In addition, the company expects the plans to make the following benefit payments, which reflect expected future service, as appropriate: In thousands of dollars 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009-2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . In 2003, the company recognized a curtailment gain of $30.7 million with respect to the elimination of postretirement medical and life insurance benefits for employees under 40 years of age on Jan. 1, 2004, and subsequent new hires. $ 139,004 144,294 152,371 160,967 170,030 1,016,310 43
Slide 53: The table below provides a reconciliation of benefit obligations and funded status of the company’s postretirement benefit plans: In thousands of dollars Dec. 28, 2003 Change in benefit obligation Net benefit obligation at beginning of year . . . . . . . . . . . . . . . . Service cost . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . Plan participants’ contributions . . . . . Plan amendment . . . . . . . . . . . . . . . . . Actuarial loss . . . . . . . . . . . . . . . . . . . Gross benefits paid . . . . . . . . . . . . . . Net benefit obligation at end of year . . . . . . . . . . . . . . . . . . . . . Change in plan assets Fair value of plan assets at beginning of year . . . . . . . . . . . . . . . . Employer contributions . . . . . . . . . . . Plan participants’ contributions . . . . . Gross benefits paid . . . . . . . . . . . . . . Fair value of plan assets at end of year . . . . . . . . . . . . . . . . . . . . . Benefit obligation at end of year . . . . Unrecognized net actuarial loss . . . . . Unrecognized prior service credit . . . Accrued postretirement benefit cost . . . . . . . . . . . . . . . . . . . . . . . . . . . Dec. 29, 2002 Benefit obligations and funded status: The following assumptions were used to determine the year-end benefit obligation: 2003 6.25% 12.00% 5.00% 2009 2002 6.75% 10.00% 5.00% 2008 $ 331,814 3,132 19,756 6,392 (73,930) 24,848 (31,116) 280,896 $ 324,331 3,535 19,337 8,944 — 10,247 (34,580) 331,814 Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Health care cost trend rate assumed for next year . . Ultimate trend rate . . . . . . . . . . . . . . . . . . . . . . . . . . Year that ultimate trend rate is reached . . . . . . . . . . $ $ 0 24,724 6,392 (31,116) 0 280,896 (69,588) 126,681 337,989 0 25,636 8,944 ( 34,580) 0 331,814 (48,277) 95,318 378,855 A 12% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2004. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. The effect of a 1% increase in the health care cost trend rate used would result in increases of approximately $19 million in the 2003 postretirement benefit obligation and $2 million in the aggregate service and interest components of the 2003 expense. The effect of a 1% decrease in the health care cost trend rate used would result in decreases of approximately $17 million in the 2003 postretirement benefit obligation and $2 million in the aggregate service and interest components of the 2003 expense. Cash flows: The company expects to make the following benefit payments, which reflect expected future service, as appropriate: In thousands of dollars 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2009-2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ $ $ Postretirement benefit costs: The following assumptions were used to determine postretirement benefit cost: 2003 Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.75% Health care cost trend on coverage – pre 65 . . . 10.00% Health care cost trend on coverage – post 65 . . 10.00% Ultimate trend rate . . . . . . . . . . . . . . . . . . . . . . . 5.00% Year that ultimate trend rate is reached . . . . . . . 2008 2002 2001 7.25% 7.625% 7.00% 8.00% 10.00% 12.00% 5.00% 5.00% 2005 2005 35,389 37,981 39,936 41,794 43,460 228,142 The above table includes the participants’ share of the benefit cost. The company’s policy is to fund the above-mentioned benefits as claims and premiums are paid. 44
Slide 54: NOTE 8 Income taxes The provision for income taxes consists of the following: In thousands of dollars 2003 Federal . . . . . . . . . . . . . . . . . . State and other . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . In thousands of dollars 2002 Federal . . . . . . . . . . . . . . . . . . State and other . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . In thousands of dollars 2001 Federal . . . . . . . . . . . . . . . . . . State and other . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . Current $458,871 70,990 33,805 $563,666 Deferred $ 42,390 5,860 17,184 $ 65,434 Total $ 501,261 76,850 50,989 $ 629,100 The company has not provided for U.S. taxes on a portion of earnings from its U.K. operations which it considers permanently invested in those operations. Deferred income taxes reflect temporary differences in the recognition of revenue and expense for tax reporting and financial statement purposes. Deferred tax liabilities and assets were composed of the following at the end of 2003 and 2002: In thousands of dollars Dec. 28, 2003 Liabilities Accelerated depreciation . . . . . . . . . . Accelerated amortization of deductible intangibles . . . . . . . . . . . . Pension . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax liabilities . . . . . . . Assets Accrued compensation costs . . . . . . . Postretirement medical and life . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred tax assets . . . . . . . . . . Net deferred tax liabilities . . . . . . . . . $ 365,307 301,776 196,956 114,962 979,001 (55,189) (125,806) (54,031) (235,026) 743,975 Dec. 29, 2002 $ 345,285 267,490 228,714 89,898 931,387 (49,798) (142,069) (60,979) (252,846) 678,541 Current $367,788 46,094 15,374 $429,256 Deferred $ 136,372 15,462 23,310 $ 175,144 Total $ 504,160 61,556 38,684 $ 604,400 Current $241,713 34,437 34,681 $310,831 Deferred $ 200,065 28,504 0 $ 228,569 Total $ 441,778 62,941 34,681 $ 539,400 $ $ The provision for income taxes varies from the U.S. federal statutory tax rate as a result of the following differences: Fiscal year U.S. statutory tax rate . . . . . . . . . . . . . . . . . Increase (decrease) in taxes resulting from: State/other income taxes net of federal income tax benefit . . . . . . . . . . . Earnings in jurisdictions taxed at rates different from the statutory U.S. federal rate . . . . . . . . . . . . . . . . . . . Goodwill amortization not deductible for tax purposes . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . Effective tax rate . . . . . . . . . . . . . . . . . . . . 2003 35.0% 2002 35.0% 2001 35.0% 2.7 2.3 3.0 (3.2) — (0.3) 34.2% (2.5) — (0.5) 34.3% (1.6) 3.8 (0.8) 39.4% 45
Slide 55: NOTE 9 Capital stock, stock options, incentive plans The company’s earnings per share from continuing operations (basic and diluted) for 2003, 2002 and 2001 are presented below: In thousands, except per share amounts Net income . . . . . . . . . . . . . . . . . Weighted average number of common shares outstanding (basic) . . . . . . . . . . . . . . . . . . . . . Effect of dilutive securities Stock options . . . . . . . . . . . . . . . Stock incentive rights . . . . . . . . . Restricted stock . . . . . . . . . . . . . Weighted average number of common shares outstanding (diluted) . . . . . . . . . . . . . . . . . . . Earnings per share (basic) . . . . . Earnings per share (diluted) . . . . 2003 $1,211,213 2002 2001 $1,160,128 $831,197 269,559 2,312 — 1 266,885 2,221 180 — 264,821 1,761 251 — 271,872 $4.49 $4.46 269,286 $4.35 $4.31 266,833 $3.14 $3.12 The 2003, 2002 and 2001 diluted earnings per share amounts exclude the effects of approximately 5.2 million, 2.4 million and 10.6 million stock options outstanding, respectively, as their inclusion would be antidilutive. In 2000, the Board approved an authorization for the repurchase of up to an additional $1 billion in common stock, in addition to $258 million remaining from a prior authorization. During 2000, the company repurchased approximately 14.7 million shares for $967 million, leaving $291 million available for future repurchases at Dec. 28, 2003. In February 2004, the company announced its plan to reactivate its existing share repurchase program. Certain of the shares previously acquired by the company have been reissued in settlement of employee stock awards. In May 2001, the company’s shareholders approved the adoption of the Omnibus Incentive Compensation Plan (the Plan), which replaced the 1978 Long-Term Executive Incentive Plan (1978 Plan). The Plan, which is administered by the Executive Compensation Committee of the Board of Directors, provides for the issuance of up to 12 million shares of company common stock for awards granted on or after May 7, 2001. No more than 1,500,000 of the authorized shares may be granted in the aggregate in the form of Restricted Stock, Performance Shares and/or Performance Units. The Plan provides for the granting of stock options, stock appreciation rights, restricted stock and other equity-based and cash-based awards. Awards may be granted to employees of the company and members of the Board of Directors. The 1978 Plan did not provide for granting awards to members of the board. The Plan provides that shares of common stock subject to awards granted under the Plan become available again for issuance under the Plan if such awards are canceled or forfeited. A similar feature existed under the 1978 Plan but with the adoption of the Omnibus Plan, canceled or forfeited shares subject to grants under the 1978 Plan are permanently retired. Stock options may be granted as either non-qualified stock options or incentive stock options. The options are granted to purchase common stock of the company at not less than 100% of the fair market value on the day the option is granted. Options are exercisable at such times and subject to such terms and conditions as the Executive Compensation Committee determines but generally the exercise period is 10 years and the options become exercisable at 25% per year after a one-year waiting period. Under the 1978 Plan, options issued prior to 1996 had an eight-year exercise period. The Plan restricts the granting of stock options to any participant in any fiscal year to no more than 1,000,000 shares. The limit under the 1978 Plan was 350,000 shares. A Stock Appreciation Right (SAR) is a right to receive an amount in any combination of cash or common stock equal in value to the excess of the fair market value of the shares covered by such SAR on the date of exercise over the aggregate exercise price of the SAR for such shares. SARs may be granted in tandem with related options or freestanding. The exercise price of an SAR is equal to the fair market value of a share of common stock on the date the SAR is granted. No more than 1,000,000 shares of common stock may be granted in the form of SARs to any participant in any fiscal year. No SARs have been granted as of Dec. 28, 2003. 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. Under the 1978 Plan, such awards could be issued in the form of Stock Incentive Rights (SIR). These rights entitle an employee to receive one share of common stock at the end of a four-year incentive period conditioned on the employee’s continued employment with the company. The Plan continues to permit the issuance of such awards but also allows restrictions other than the incentive period. Additionally, under the Plan, no more than 500,000 restricted shares may be granted to any participant in any fiscal year. Under the 1978 Plan there was no limit. No restricted stock awards in the form of an SIR have been issued since July 2000 and all previously granted awards matured and were paid out in 2003. During 2003, five members of the Board of Directors were awarded 6,992 shares of restricted stock in a form other than a SIR, as part of their compensation plans. These awards vest over three years and expense is recognized over the three-year earn-out period based on the grant price of the restricted stock. All vested shares will be issued to the directors when they leave the board. Also during 2003, a restricted stock unit grant of $150,000 was awarded to the company’s Chairman, which was deferred under the Deferred Compensation Plan and converted into 1,913 shares of company common stock. The award was charged to expense when granted. The Executive Compensation Committee may grant other types of awards that are valued in whole or in part by reference to or that are otherwise based on fair market value of the company’s common stock or other criteria established by the Executive Compensation Committee and the achievement of performance goals. The maximum aggregate grant of performance shares that may be awarded to any participant in any fiscal year shall not exceed 500,000 shares of common stock. The maximum aggregate amount of performance units or cash-based awards that may be awarded to any participant in any fiscal year shall not exceed $10,000,000. 46
Slide 56: In the event of a change in control as defined in the Plan, (1) all outstanding options and SARs will become immediately exercisable in full, (2) all restricted periods and restrictions imposed on non-performance based restricted stock awards will lapse, and (3) target payment opportunities attainable under all outstanding awards of performance-based restricted stock, performance units and performance shares will be paid on a prorated basis as specified in the Plan. The Plan does not provide for the grant of option surrender rights in tandem with stock options, as was the case under the 1978 Plan, and has eliminated the requirement under the 1978 Plan that awards that were accelerated as a result of a change in control could only be exercised during certain window periods. A summary of the status of the company’s stock option awards as of Dec. 28, 2003, Dec. 29, 2002, and Dec. 30, 2001, and changes thereto during the years then ended is presented below: Weighted average exercise price $63.53 86.76 53.95 67.28 70.34 64.21 Further information about stock options outstanding at Dec. 28, 2003, follows: Weighted average Number remaining outstanding contractual at 12/28/03 life (yrs) 571,715 3.0 16,400 3.0 4,327,280 6.3 6,514,615 7.3 7,612,102 8.2 5,170,950 10.0 24,213,062 7.9 Weighted average exercise price $37.38 $45.68 $55.72 $68.21 $71.47 $87.33 $70.34 Weighted average exercise price $37.38 $45.68 $56.04 $67.52 $72.82 $74.28 $64.21 Range of exercise prices $32.00-40.00 $41.00-50.00 $54.00-59.50 $60.00-69.50 $70.00-79.00 $80.00-89.00 Number exercisable at 12/28/03 571,715 16,400 3,155,498 3,921,124 3,303,532 — 10,968,269 2003 Stock Option Activity Outstanding at beginning of year . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at end of year . . . . . . . . . . . . Options exercisable at year end . . . . . . . . Weighted average fair value of Options granted during the year . . . . . . . . Shares 23,841,229 5,413,986 (4,363,284) (678,869) 24,213,062 10,968,269 $21.73 Stock Incentive Rights The company has not granted stock incentive rights since July 2000. In 2003, 87,263 shares of common stock were issued in settlement of all remaining stock incentive rights. The compensation cost for these rights has been charged against income based on the grant price of the rights spread over the four-year earnout periods. 401(k) Savings Plan In 1990, the company established a 401(k) Savings Plan (the Plan). Substantially all employees of the company (other than those covered by a collective bargaining agreement) who are scheduled to work at least 1,000 hours during each year of employment are eligible to participate in the Plan. Employees could elect to save up to 15% of compensation on a pre-tax basis subject to certain limits. This limit was increased to 20% in 2002. The company matches 50% of the first 6% of employee contributions. From inception through June 2003, the match was funded with company common stock issued through an Employee Stock Ownership Plan (ESOP) established in 1990 when the 401(k) plan was introduced. The ESOP acquired 2,500,000 shares of Gannett stock from the company for $50 million. The stock purchase was financed with a loan from the company, and the shares were pledged as collateral for the loan. The company made monthly contributions to the ESOP equal to the ESOP’s debt service requirements less dividends. All dividends received by the ESOP were used to pay debt service. As the debt was paid, shares were released as collateral and were available for allocation to participants. In June of 2003, the debt was fully repaid and all of the shares had been fully allocated to participants. The company elected not to add additional shares to the ESOP and began funding future contributions in cash. The ESOP uses the cash match to purchase on the open market an equivalent number of shares of company stock on behalf of the participants. Beginning in 2002, Plan participants were able to fully diversify their Plan investments. Previously, employees under age 55 could not sell the shares of Gannett common stock they received as the company-match portion of the 401(k) plan. 2002 Stock Option Activity Outstanding at beginning of year . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at end of year . . . . . . . . . . . . Options exercisable at year end . . . . . . . . Weighted average fair value of Options granted during the year . . . . . . . . Shares 20,526,064 5,813,750 (2,027,943) (470,642) 23,841,229 10,766,605 $21.48 Weighted average exercise price $59.57 70.24 42.41 64.62 63.53 59.14 2001 Stock Option Activity Outstanding at beginning of year . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . . . . . . . . . . . Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . Outstanding at end of year . . . . . . . . . . . . Options exercisable at year end . . . . . . . . Weighted average fair value of Options granted during the year . . . . . . . . Shares 16,767,813 5,945,245 (1,438,807) (748,187) 20,526,064 9,018,580 $22.58 Weighted average exercise price $54.19 69.21 33.92 65.09 59.57 53.08 47
Slide 57: For the period during which the company funded the match with company stock, the company followed the shares allocated method in accounting for its ESOP. Under that method, the costs of shares allocated to match employees’ contributions or to replace dividends that are used for debt service are accounted for as compensation expense. The cost of unallocated shares is reported as deferred compensation in the financial statements. The company, at its option, may repurchase shares from employees who leave the Plan. The shares are purchased at fair market value, and the difference between the original cost of the shares and fair market value is expensed at the time of purchase. The company has not repurchased any shares since June of 2003 and currently has no plans to do so in the future. All of the shares initially purchased by the ESOP are considered outstanding for earnings per share calculations. Dividends on allocated and unallocated shares are recorded as reductions of retained earnings. Compensation expense for the 401(k) match and repurchased shares was $17.3 million in 2003, $10.7 million in 2002 and $9.7 million in 2001. In 2002 the Board authorized 3,000,000 shares of common stock to be registered in connection with savings-related share option plans available to eligible employees of Newsquest. Preferred Share Purchase Rights In May 1990, the Board of Directors declared a dividend distribution of one Preferred Share Purchase Right (Right) for each common share held, payable to shareholders of record on June 8, 1990. The Rights become exercisable when a person or group of persons acquires or announces an intention to acquire ownership of 15% or more of the company’s common shares. Holders of the Rights may acquire an interest in a new series of junior participating preferred stock, or they may acquire an additional interest in the company’s common shares at 50% of the market value of the shares at the time the Rights are exercised. The Rights are redeemable by the company at any time prior to the time they become exercisable, at a price of $.01 per Right. In May 2000, the company announced that its Board of Directors approved an amendment to its Shareholder Rights Plan to extend the expiration date of the Rights to May 31, 2010, and increase the initial exercise price of each preferred stock purchase right to $280. NOTE 10 Commitments and contingent liabilities Litigation: On December 31, 2003, two employees of the company’s television station KUSA in Denver filed a purported 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 Jan. 1, 1998, the date that certain amendments to the Plan took effect. The plaintiffs allege, 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 seek to have their post-1997 benefits recalculated and seek other equitable relief. Gannett believes that it has valid defenses to the issues raised in the complaint and will defend itself vigorously. Due to the uncertainties of judicial determinations, however, it is not possible at this time to predict the ultimate outcome of this matter with respect to liability or damages, if any. The company and a number of its subsidiaries are defendants in other 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. Leases: Approximate future minimum annual rentals payable under non-cancelable operating leases, primarily real estate-related, are as follows: In thousands of dollars 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 44,815 40,316 36,325 32,013 28,537 121,536 303,542 Total minimum annual rentals have not been reduced for future minimum sublease rentals aggregating approximately $3 million. Total rental costs reflected in continuing operations were $57 million for 2003, $56 million for 2002 and $59 million for 2001. Program broadcast contracts: The company has commitments under program broadcast contracts totaling $109.2 million for programs to be available for telecasting in the future. Guarantees: The company has a 13.5% general partnership interest in Ponderay Newsprint Company. The company, on a several basis, is a guarantor of 13.5% of the principal and interest on a term loan that totals $98 million held by Ponderay. In December 1990, the company adopted a Transitional Compensation Plan (the Plan). The Plan provides termination benefits to key executives whose employment is terminated under certain circumstances within two years following a change in control of the company. Benefits under the Plan include a severance payment of up to three years’ compensation and continued life and medical insurance coverage. 48
Slide 58: NOTE 11 Business operations and segment information The company has determined that its reportable segments based on its management and internal reporting structure are newspaper publishing, which is the largest segment of its operations, and broadcasting (television). The newspaper segment at the end of 2003 consisted of 100 U.S. daily newspapers in 41 states and one U.S. territory, including USA TODAY, a national, general-interest daily newspaper; and USA WEEKEND, a magazine supplement for newspapers. The newspaper segment also includes Newsquest, which is a regional newspaper publisher in the United Kingdom with a portfolio of more than 300 titles that includes 17 paid-for daily newspapers, paid-for weekly newspapers, free weekly newspapers and other publications. The newspaper segment in the U.S. also includes more than 500 non-daily publications, a nationwide network of offset presses for commercial printing, newspaper-related online businesses and several smaller businesses. As discussed in Note 1, the company accounts for results from its 50% owned joint operating agencies in Detroit and Tucson on the equity method of accounting (as a net amount in other operating revenue for the newspaper segment). The newspaper segment also reflects minority interests in a newspaper publishing partnership and a newsprint production partnership. The broadcasting segment’s activities for 2003 include the operation of 22 U.S. television stations reaching 17.8 percent of U.S. television homes. The company’s foreign revenues in 2003, 2002 and 2001 totaled approximately $983 million, $788 million and $755 million, respectively, principally from publications distributed in the United Kingdom. The company’s long-lived assets in foreign countries, principally in the United Kingdom, totaled approximately $3.3 billion, $2.6 billion, and $2.3 billion at Dec. 28, 2003, Dec. 29, 2002, and Dec. 30, 2001, respectively. Separate financial data for each of the company’s business segments is presented in the table that follows. The accounting policies of the segments are those described in Note 1. The company evaluates the performance of its segments based on operating income and operating cash flow. Operating income represents total revenue less operating expenses, including depreciation and amortization of intangibles. In determining operating income by industry segment, general corporate expenses, interest expense, interest income, and other income and expense items of a non-operating nature are not considered, as such items are not allocated to the company’s segments. Operating cash flow represents operating income plus depreciation and amortization of intangible assets. Beginning with fiscal year 2002, the company ceased amortizing goodwill. See Notes 1 and 3 for a further discussion of this accounting change. Corporate assets include cash and cash equivalents, certain investments, long-term receivables and plant and equipment primarily used for corporate purposes. Interest capitalized has been included as a corporate capital expenditure for purposes of segment reporting. 49
Slide 59: In thousands of dollars Business segment financial information 2003 Operating revenues Newspaper publishing . . . . $ 5,991,231 Broadcasting . . . . . . . . . . . 719,884 . . . . . . . . . . . . . . . . . . . $ 6,711,115 Operating income Newspaper publishing . . . . $ 1,713,163 Broadcasting . . . . . . . . . . . 330,054 Corporate (1) . . . . . . . . . . . (62,199) . . . . . . . . . . . . . . . . . . . $ 1,981,018 Depreciation and amortization Newspaper publishing . . . . $ 189,805 Broadcasting . . . . . . . . . . . 26,394 Corporate (1) . . . . . . . . . . . 15,333 . . . . . . . . . . . . . . . . . . . $ 231,532 Operating cash flow (2) Newspaper publishing . . . . $ 1,902,968 Broadcasting . . . . . . . . . . . 356,448 Corporate (1) . . . . . . . . . . . (46,866) . . . . . . . . . . . . . . . . . . . $ 2,212,550 Identifiable assets Newspaper publishing . . . . $12,136,877 Broadcasting . . . . . . . . . . . 1,990,214 Corporate (1) . . . . . . . . . . . 579,148 . . . . . . . . . . . . . . . . . . . $14,706,239 Capital expenditures Newspaper publishing . . . . $ 259,680 Broadcasting . . . . . . . . . . . 15,886 Corporate (1) . . . . . . . . . . . 5,698 $ 281,264 2002 $ 5,650,946 771,303 $ 6,422,249 $ 1,615,664 371,132 (60,487) $ 1,926,309 $ 181,669 25,429 15,346 222,444 2001 $ 5,636,954 662,652 $ 6,299,606 $ 1,400,609 249,783 (60,557) $ 1,589,835 $ 369,044 67,639 7,094 443,777 The following is a reconciliation of operating cash flow amounts to operating income: In thousands of dollars 2003 Newspaper publishing Operating cash flow . . . . . . Less: Depreciation . . . . . . . . . . . Amortization . . . . . . . . . . Operating income . . . . . . . . Broadcasting Operating cash flow . . . . . . Less: Depreciation . . . . . . . . . . . Amortization . . . . . . . . . . Operating income . . . . . . . . Corporate Operating cash flow (1) . . . Less: Depreciation . . . . . . . . . . . Amortization . . . . . . . . . . Operating income . . . . . . . . All segments Operating cash flow . . . . . . Less: Depreciation . . . . . . . . . . . Amortization . . . . . . . . . . Operating income . . . . . . . . $ 1,902,968 (181,534) (8,271) $ 1,713,163 $ 356,448 (26,394) — 330,054 (46,866) (15,333) — (62,199) 2002 $ 1,797,333 (174,342) (7,327) $ 1,615,664 $ 396,561 (25,429) — 371,132 (45,141) (15,346) — (60,487) 2001 $ 1,769,653 (169,931) (199,113) $ 1,400,609 $ 317,422 (25,431) (42,208) 249,783 (53,463) (7,094) — (60,557) $ $ $ $ $ $ $ $ $ 1,797,333 396,561 (45,141) $ 2,148,753 $11,117,735 2,037,605 577,674 $13,733,014 $ 221,647 40,383 12,798 274,828 $ 1,769,653 317,422 (53,463) $ 2,033,612 $10,558,641 2,004,486 532,974 $13,096,101 $ 230,223 21,602 72,754 324,579 $ $ $ $ 2,212,550 (223,261) (8,271) $ 1,981,018 $ 2,148,753 (215,117) (7,327) $ 1,926,309 $ 2,033,612 (202,456) (241,321) $ 1,589,835 $ $ (1) Corporate amounts represent those not directly related to the company’s two business segments. (2) Operating cash flow amounts represent operating income plus depreciation and amortization of intangible assets. 50
Slide 60: SELECTED FINANCIAL DATA (See notes a and b on page 52) In thousands of dollars, except per share amounts Net operating revenues Newspaper advertising . . . . . . . . . . . . . . . . . . . . Newspaper circulation . . . . . . . . . . . . . . . . . . . . Broadcasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses Costs and expenses . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangible assets . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . Non-operating (expense) income Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . Provision for income taxes . . . . . . . . . . . . . . . . Income from continuing operations . . . . . . . . Income from continuing operations: per basic/diluted share . . . . . . . . . . . . . . . . . . . 2003 $ 4,397,244 1,212,891 719,884 381,096 6,711,115 4,498,565 223,261 8,271 4,730,097 1,981,018 (139,271) (1,434) 1,840,313 629,100 $ 1,211,213 $4.49/$4.46 2002 $ 4,122,685 1,182,103 771,303 346,158 6,422,249 4,273,496 215,117 7,327 4,495,940 1,926,309 (146,359) (15,422) 1,764,528 604,400 $ 1,160,128 $4.35/$4.31 2001 $ 4,119,773 1,188,467 662,652 328,714 6,299,606 4,265,994 202,456 241,321 4,709,771 1,589,835 (221,854) 2,616 1,370,597 539,400 $ 831,197 $3.14/$3.12 2000 $ 3,972,936 1,082,759 788,767 339,624 6,184,086 3,990,915 195,428 180,487 4,366,830 1,817,256 (219,228) 10,812 1,608,840 636,900 $ 971,940 $ 3.65/$3.63 1999 $ 3,115,250 942,368 728,642 280,356 5,066,616 3,223,424 169,460 110,631 3,503,515 1,563,101 (94,619) 58,705 (1) 1,527,187 607,800 $ 919,387 (1) $3.29/$3.26 (1) Comparable Basis Reporting (2) Income from continuing operations, as reported Adjustment for SFAS No. 142: add back goodwill amortization, net of tax . . . . Adjusted income from continuing operations . . Adjusted income from continuing operations: per basic/diluted share (2) . . . . . . . . . . . . . . . . $ 1,211,213 $ 1,160,128 $ 831,197 $ 971,940 $ 919,387 (1) $ 1,211,213 $4.49/$4.46 $ 1,160,128 $ 4.35/$4.31 215,688 $ 1,046,885 $3.95/$3.92 160,332 $ 1,132,272 $ 4.25/$4.22 109,831 $ 1,029,218 (1) $ 3.69/$3.65 (1) Other selected financial data Dividends declared per share . . . . . . . . . . . . . . . Weighted average number of common shares outstanding in thousands: basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial position Long-term debt, excluding current maturities . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on equity (3) . . . . . . . . . . . . . . . . . . . . . . Percentage increase (decrease) As reported, earnings from continuing operations, after tax, per share: basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparable basis earnings from continuing operations, after tax, per share (2): basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends declared per share . . . . . . . . . . . . . . . Credit ratios Long-term debt to shareholders’ equity . . . . . . . Times interest expense earned . . . . . . . . . . . . . . $.98 $.94 $.90 $.86 $.82 269,559 271,872 $ 3,834,511 $ 8,422,981 $14,706,239 15.8% 266,885 269,286 $ 4,547,265 $ 6,911,795 $13,733,014 18.3% 264,821 266,833 $ 5,080,025 $ 5,735,922 $13,096,101 19.3% 266,426 268,118 $ 5,747,856 $ 5,103,410 $12,980,411 23.3% 279,048 281,608 $ 2,463,250 $ 4,629,646 $ 9,006,446 23.9% (1) 3.2% 3.5% 3.2% 3.5% 4.3% 45.5% 14.2X 38.5% 38.1% 10.1% 9.9% 4.4% 65.8% 13.2X (14.0%) (14.0%) (7.1%) (7.1%) 4.7% 88.6% 7.2X 10.9% 11.3% 15.2% 15.6% 4.9% 112.6% 8.3X (3.5%) (1) (3.6%) (1) — (1) (0.3%)(1) 5.1% 53.2% 17.1X 11-year summary (1) Includes pre-tax net non-operating gain principally from the exchange of KVUE-TV for KXTV-TV of $55 million (after-tax gain of $33 million or $.11 per share). (2) As if Statements of Financial Accounting Standards No. 142 (SFAS No. 142) had been adopted for all periods presented – see Note 3 on page 38. (3) Calculated using income from continuing operations on a comparable basis. See Note 3 on page 38. 51
Slide 61: NOTES TO SELECTED FINANCIAL DATA (a) The company and its subsidiaries made the acquisitions listed below during the period. The results of operations of these acquired businesses are included in the accompanying financial information from the date of acquisition. (b) During the period, the company sold or otherwise disposed of substantially all of the assets or capital stock of certain other subsidiaries and divisions of other subsidiaries which are listed on page 53. Note 2 of the consolidated financial statements on pages 37-38 contains further information concerning certain of these acquisitions and dispositions. Acquisitions and dispositions 1999-2003 The growth of the company has resulted from acquisitions of businesses, as well as from internal expansion. Its acquisitions since the beginning of 1999 are shown below. The company has disposed of several businesses during this period, which are presented on the following page. Acquisitions 1999-2003 Year acquired 1999 Name The Reporter Lehigh Acres News-Star Dealer Magazine KXTV-TV Newsquest plc Tucker Communications, Inc. Pennypower Shopping News The Pioneer Republican and other publications Buyers’ Digest The Clarion WJXX-TV Mason Valley News, Fernley Leader-Dayton Courier Brevard Technical Journal Dickson Shoppers Greenville Parent Magazine News Communications & Media plc Space Coast Press Certain assets of Thomson Newspapers Inc. Central Newspapers, Inc. Daily World Windsor Beacon 50+ Lifestyles and other publications 2001 Shopping News Gatwick Life, Horley Life The Bulletin Board The Dimbleby Newspapers PMP Company Ltd. AutoChooser Honolulu Pennysaver Buy and Sell Classifieds (continued on following page) Location Melbourne, Fla. Lehigh Acres, Fla. Reno, Nev. Sacramento, Calif. United Kingdom Westchester Co., N.Y. Branson & Springfield, Mo. Des Moines, Iowa Franklin County, Vt. Redcar, U.K. Jacksonville, Fla. Lyon County, Nev. Brevard County, Fla. Middle Tennessee Greenville County, S.C. United Kingdom Brevard County, Fla. Wisconsin, Ohio, Louisiana, Maryland, Utah Arizona, Indiana, Louisiana Opelousas, La. Windsor, Colo. Des Moines, Iowa St. Cloud, Minn. Surrey/Sussex, U.K. Montgomery, Ala. London, U.K. Honolulu, Hawaii Tempe, Ariz. Honolulu, Hawaii Honolulu, Hawaii Publication times or business Weekly newspaper Weekly newspaper Weekly magazine Television station Daily and weekly newspapers Weekly newspaper Weekly newspaper Weekly newspapers Weekly newspaper Weekly newspaper Television station Weekly newspapers Monthly magazine Weekly newspapers Monthly magazine Daily and weekly newspapers and other publications Weekly newspaper 19 daily and numerous weekly newspapers 6 daily newspapers; other related businesses Daily newspaper Weekly newspaper Monthly magazines Weekly newspaper Weekly newspapers Weekly newspaper Weekly newspapers Monthly and bi-monthly publications Software product Weekly newspaper Bi-weekly newspapers 2000 52
Slide 62: Acquisitions 1999-2003 (continued) Year acquired 2002 Name Consumer Press Pioneer Shopper Action Advertising Prairie Publications Armed Forces Journal International Texas-New Mexico Newspapers Partnership InfiNet SMG Publishing Lettercatch Ltd. 101 Things to Do Kopitzke Corp. Cuarto Poder Publicaciones, LLC; Ashland Publishing, LLC; Ashland Printing and Mailing, LLC and AZ Mail RB Communications LLC Pensacola Business Journal Clipper Magazine, Inc. Location Great Falls, Mont. St. George, Utah Fond du Lac, Wis. Sioux Falls, S.D. McLean, Va. Texas, New Mexico Norfolk, Va. United Kingdom United Kingdom Hawaii Sister Bay, Wis. Phoenix, Ariz. Publication times or business Weekly newspaper Weekly newspaper Commercial printing business Weekly newspapers Magazines Daily newspapers Internet publishing and information service Daily newspapers, magazines and other related business Weekly newspapers Magazines and Web site Weekly newspaper, commercial printing, retail office supply business and Web site Weekly newspapers and direct marketing company Magazines Bi-monthly publication Direct-mail advertising magazine company, advertising agency, email customer retention service and Web site 2003 Las Vegas, Nev., Phoenix, Ariz. Pensacola, Fla. Lancaster, Pa. Dispositions 1999-2003 Year disposed 1999 2000 Name The San Bernardino County Sun (2) KVUE-TV (3) Multimedia Cable Marin Independent Journal (2) Classified Gazette (2) Space News The Marietta Times (1) The Reporter Ocean Springs Record and Gautier Independent Vincennes Sun-Commercial (1) El Paso Times (4) Location San Bernardino, Calif. Austin, Texas Kansas, Oklahoma, North Carolina Marin, Calif. San Rafael, Calif. Springfield, Va. Marietta, Ohio Lansdale, Pa. Ocean Springs, Miss. Vincennes, Ind. El Paso, Texas Publication times or business Daily newspaper Television station Cable television systems Daily newspaper Semi-weekly newspaper Weekly newspaper Daily newspaper Daily newspaper Weekly newspapers Daily newspaper Daily newspaper 2001 2002 2003 (1) (2) (3) (4) These properties were contributed to the Gannett Foundation, a not-for-profit, private foundation. Contributed for an equity interest in the California Newspaper Partnership. Exchanged for KXTV-TV in Sacramento, Calif. Contributed for a 66.2% equity interest in the Texas-New Mexico Newspapers Partnership. 53
Slide 63: QUARTERLY STATEMENTS OF INCOME (Unaudited) In thousands of dollars Fiscal year ended December 28, 2003 Net operating revenues Newspaper advertising . . . . . . . . . . . . . . . . . . . . . . . . . Newspaper circulation . . . . . . . . . . . . . . . . . . . . . . . . . Broadcasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses Cost of sales and operating expenses, exclusive of depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses, exclusive of depreciation . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangible assets . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating (expense) income Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income per share - basic . . . . . . . . . . . . . . . . . . . . Net income per share - diluted (1) . . . . . . . . . . . . . . . 1st Quarter $1,006,047 302,431 158,176 85,591 1,552,245 2nd Quarter $ 1,115,381 303,180 192,727 93,995 1,705,283 3rd Quarter $ 1,067,039 300,277 172,302 91,665 1,631,283 4th Quarter $ 1,208,777 307,003 196,679 109,845 1,822,304 Total $ 4,397,244 1,212,891 719,884 381,096 6,711,115 836,622 248,571 54,229 1,830 1,141,252 410,993 (36,109) 4,852 (31,257) 379,736 129,900 $ 249,836 $ .93 $ .93 856,972 262,917 55,078 2,174 1,177,141 528,142 (36,334) 899 (35,435) 492,707 168,400 $ 324,307 $ 1.21 $ 1.20 849,088 259,147 58,452 2,134 1,168,821 462,462 (33,857) (4,573) (38,430) 424,032 145,000 $ 279,032 $ 1.03 $ 1.03 911,087 274,161 55,502 2,133 1,242,883 579,421 (32,971) (2,612) (35,583) 543,838 185,800 $ 358,038 $ 1.32 $ 1.31 3,453,769 1,044,796 223,261 8,271 4,730,097 1,981,018 (139,271) (1,434) (140,705) 1,840,313 629,100 $ 1,211,213 $ 4.49 $ 4.46 (1) As a result of rounding, the total of the four quarters’ earnings per share does not equal the earnings per share for the year. 54
Slide 64: QUARTERLY STATEMENTS OF INCOME (Unaudited) In thousands of dollars Fiscal year ended December 29, 2002 Net operating revenues Newspaper advertising . . . . . . . . . . . . . . . . . . . . . . . . . Newspaper circulation . . . . . . . . . . . . . . . . . . . . . . . . . Broadcasting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses Cost of sales and operating expenses, exclusive of depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and administrative expenses, exclusive of depreciation . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangible assets . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating (expense) income Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income per share - basic . . . . . . . . . . . . . . . . . . . . Net income per share - diluted (1) . . . . . . . . . . . . . . . 1st Quarter $ 969,803 299,262 167,186 76,907 1,513,158 2nd Quarter $ 1,045,938 293,990 191,299 81,963 1,613,190 3rd Quarter $ 1,006,923 292,659 184,039 86,058 1,569,679 4th Quarter $ 1,100,021 296,192 228,779 101,230 1,726,222 Total $ 4,122,685 1,182,103 771,303 346,158 6,422,249 807,116 248,331 53,369 1,833 1,110,649 402,509 (28,754) (2,292) (31,046) 371,463 127,900 $ 243,563 $ .92 $ .91 799,255 254,534 53,362 1,834 1,108,985 504,205 (41,101) (81) (41,182) 463,023 159,100 $ 303,923 $ 1.14 $ 1.13 808,882 253,735 54,572 1,830 1,119,019 450,660 (39,709) (6,015) (45,724) 404,936 139,300 $ 265,636 $ .99 $ .99 838,750 262,893 53,814 1,830 1,157,287 568,935 (36,795) (7,034) (43,829) 525,106 178,100 $ 347,006 $ 1.30 $ 1.29 3,254,003 1,019,493 215,117 7,327 4,495,940 1,926,309 (146,359) (15,422) (161,781) 1,764,528 604,400 $ 1,160,128 $ 4.35 $ 4.31 (1) As a result of rounding, the total of the four quarters’ earnings per share does not equal the earnings per share for the year. SCHEDULE II – Valuation and qualifying accounts and reserves In thousands of dollars Balance at beginning of period Additions charged to cost and expenses Additions/(reductions) for acquisitions/ Deductions dispositions from reserves (1) Balance at end of period Allowance for doubtful receivables Fiscal year ended Dec. 28, 2003 . . . . . . . Fiscal year ended Dec. 29, 2002 . . . . . . . Fiscal year ended Dec. 30, 2001 . . . . . . . $ 36,610 $ 39,138 $ 37,465 $ 17,893 $ 22,097 $ 32,891 $ 6,552 $ $ (93) (361) $(19,525) $(24,532) $(30,857) $ 41,530 $ 36,610 $ 39,138 (1) Consists of write-offs, net of recoveries and foreign currency translation adjustments in each year. 55
Slide 65: ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. CONTROLS AND PROCEDURES Based on their evaluation, the company’s Chairman, President and Chief Executive Officer and Senior Vice President and Chief Financial Officer have concluded the company’s disclosure controls and procedures are effective as of Dec. 28, 2003, 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 significant changes in the company’s internal controls or in other factors that have materially affected, or are reasonably likely to materially affect, the company’s internal controls over financial reporting. Craig A. Dubow President and CEO, Gannett Broadcasting (2001-present). Formerly: President, Gannett Television (2000-2001); Executive Vice President, Gannett Television (1996-2000). Age 49. Daniel S. Ehrman, Jr. Vice President, Planning & Development (1997-present). Age 57. George R. Gavagan Vice President and Controller (1997-present). Formerly: Vice President, Corporate Accounting Services (1993-1997). Age 57. John B. Jaske Senior Vice President, Labor Relations and Assistant General Counsel (1992-present). Age 59. Gracia C. Martore Senior Vice President and Chief Financial Officer (2003-present). Formerly: Senior Vice President, Finance and Treasurer (20012002); Treasurer and Vice President, Investor Relations (19982001); Vice President, Treasury Services and Investor Relations (1996-1998). Age 52. Douglas H. McCorkindale Chairman, President and Chief Executive Officer (2001-present). Formerly: President, Chief Executive Officer and Vice Chairman (2000-2001); Vice Chairman and President (1997-2000). Age 64. Craig A. Moon President and Publisher, USA TODAY (2003-present). Formerly: Executive Vice President, Gannett Newspaper Division (20022003); Group President, South Newspaper Group and President and Publisher, The Tennessean (1999-2002); President and Publisher, The Tennessean (1989-2002). Age 54. Gary L. Watson President, Gannett Newspaper Division (1990-present). Age 58. Information concerning the Board of Directors of the company is incorporated by reference to the company’s Proxy Statement pursuant to General Instruction G(3) to Form 10-K. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Below is a listing of the executive officers of the company. Executive officers serve for a term of one year and may be re-elected. Thomas L. Chapple Senior Vice President, Chief Administrative Officer and General Counsel (2003-present). Formerly: Senior Vice President, General Counsel and Secretary (1995-2003). Age 56. Paul Davidson Chairman and Chief Executive Officer, Newsquest (2003-present). Formerly: Chief Executive, Newsquest (2001-2003); Group Managing Director (1995-2001). Age 49. U.K. citizen. 56
Slide 66: ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to the company’s Proxy Statement pursuant to General Instruction G(3) to Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Incorporated by reference to the company’s Proxy Statement pursuant to General Instruction G(3) to Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to the company’s Proxy Statement pursuant to General Instruction G(3) to Form 10-K. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Incorporated by reference to the company’s Proxy Statement pursuant to General Instruction G(3) to Form 10-K. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements, Financial Statement Schedules and Exhibits. (1) Financial Statements. As listed in the Index to Financial Statements and Supplementary Data on page 28. (2) Financial Statement Schedules. As listed in the Index to Financial Statements and Supplementary Data on page 28. Note: All other schedules are omitted as the required information is not applicable or the information is presented in the consolidated financial statements or related notes. (3) Pro Forma Financial Information. Not Applicable. (4) Exhibits. See Exhibit Index on pages 61-63 for list of exhibits filed with this Form 10-K. Management contracts and compensatory plans or arrangements are identified with asterisks on the Exhibit Index. (b) Reports on Form 8-K. Current Report on Form 8-K furnished on October 15, 2003 pursuant to Item 12 on Form 8-K. 57
Slide 67: SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: February 24, 2004 GANNETT CO., INC. (Registrant) By:/s/Gracia C. Martore ——————————————— Gracia C. Martore, Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Dated: February 24, 2004 /s/Douglas H. McCorkindale ——————————————— Douglas H. McCorkindale, Director, Chairman, President and Chief Executive Officer /s/Gracia C. Martore ——————————————— Gracia C. Martore, Senior Vice President and Chief Financial Officer Dated: February 24, 2004 /s/H. Jesse Arnelle ——————————————— H. Jesse Arnelle, Director /s/Meredith A. Brokaw ——————————————— Louis D. Boccardi, Director /s/Meredith A. Brokaw ——————————————— Meredith A. Brokaw, Director /s/James A. Johnson ——————————————— James A. Johnson, Director /s/Stephen P. Munn ——————————————— Stephen P. Munn, Director /s/Donna E. Shalala ——————————————— Donna E. Shalala, Director /s/Solomon D. Trujillo ——————————————— Solomon D. Trujillo, Director /s/Karen Hastie Williams ——————————————— Karen Hastie Williams, Director Dated: February 24, 2004 Dated: February 24, 2004 Dated: February 24, 2004 Dated: February 24, 2004 Dated: February 24, 2004 Dated: February 24, 2004 Dated: February 24, 2004 Dated: February 24, 2004 58
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Slide 70: EXHIBIT INDEX Exhibit Number 3-1 Exhibit Second Restated Certificate of Incorporation of Gannett Co., Inc. Location Incorporated by reference to Exhibit 3-1 to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 26, 1993 (“1993 Form 10-K”). Amendment incorporated by reference to Exhibit 3-1 to the 1993 Form 10-K. Amendment dated May 2, 2000, incorporated by reference to Gannett Co., Inc.’s Form 10-Q for the fiscal quarter ended March 26, 2000. Incorporated by reference to Exhibit 3-2 to Gannett Co., Inc.’s Form 10-Q for the fiscal quarter ended June 29, 2003. Incorporated by reference to Exhibit 1 to Gannett Co., Inc.’s Form 8-A filed on May 23, 1990. 3-2 By-laws of Gannett Co., Inc. 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. Indenture dated as of March 1, 1983 between Gannett Co., Inc. and Citibank, N.A., as Trustee. First Supplemental Indenture dated as of November 5, 1986 among Gannett Co., Inc., Citibank, N.A., as Trustee, and Sovran Bank, N.A., as Successor Trustee. Second Supplemental Indenture dated as of June 1, 1995, among Gannett Co., Inc., NationsBank, N.A., as Trustee, and Crestar Bank, as Trustee. Third Supplemental Indenture, dated as of March 14, 2002, between Gannett Co., Inc. and Wells Fargo Bank Minnesota, N.A., as Trustee. Rights Agreement, dated as of May 21, 1990, between Gannett Co., Inc. and First Chicago Trust Company of New York, as Rights Agent. 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. Form of Rights Certificate. 4-1 Incorporated by reference to Exhibit 4-2 to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 29, 1985. Incorporated by reference to Exhibit 4 to Gannett Co., Inc.’s Form 8-K filed on November 9, 1986. 4-2 4-3 Incorporated by reference to Exhibit 4 to Gannett Co., Inc.’s Form 8-K filed on June 15, 1995. 4-4 Incorporated by reference to Exhibit 4.16 to Gannett Co., Inc.’s Form 8-K filed on March 14, 2002. 4-5 Incorporated by reference to Exhibit 1 to Gannett Co., Inc.’s Form 8-A filed on May 23, 1990. 4-5-1 Incorporated by reference to Exhibit 2 to Gannett Co., Inc.’s Form 8-A/A filed on May 2, 2000. 4-6 Incorporated by reference to Exhibit 1 to Gannett Co., Inc.’s Form 8-A filed on May 23, 1990. Incorporated by reference to Exhibit 2 to Gannett Co., Inc.’s Form 8-B filed on June 14, 1972. Incorporated by reference to Exhibit 4-10 to Gannett Co., Inc.’s Form 10-Q filed on August 9, 2000. 4-7 Specimen Certificate for Gannett Co., Inc.’s common stock, par value $1.00 per share. $3,000,000,000 Competitive Advance and Revolving Credit Agreement among Gannett Co., Inc. and the Banks named therein. Amendment Number One to $3,000,000,000 Competitive Advance and Revolving Credit Agreement among Gannett Co., Inc. and the Banks named therein. Amendment Number Two to $3,000,000,000 Competitive Advance and Revolving Credit Agreement among Gannett Co., Inc. and the Banks named therein. 10-1 10-1-1 Incorporated by reference to Exhibit 4-11 to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 31, 2000. 10-1-2 Incorporated by reference to Exhibit 4-12 to Gannett Co., Inc.’s Form 10-Q for the quarter ended July 2, 2001. 61
Slide 71: 10-2 Competitive Advance and Revolving Credit Agreement dated as of March 11, 2002, among Gannett Co., Inc., the several lenders from time to time parties thereto, Bank of America, N.A., as Administrative Agent, JP Morgan Chase Bank and Bank One NA, as Co-Syndication Agents, and Barclays Bank PLC, as Documentation Agent (the “2002 Credit Agreement”). First Amendment, dated as of February 28, 2003 and effective as of March 17, 2003 to the Competitive Advance and Revolving Credit Agreement dated as of March 11, 2002 among Gannett Co., Inc., the several lenders from time to time parties thereto, Bank of America, N.A., as Administrative Agent, JP Morgan Chase Bank and Bank One NA, as Co-Syndication Agents, and Barclay Bank PLC, as Documentation Agent. Gannett Co., Inc. 1978 Executive Long-Term Incentive Plan.* Incorporated by reference to Exhibit 10.11 to Gannett Co., Inc.’s Form 8-K filed on March 14, 2002. 10-2-1 Incorporated by reference to Exhibit 4-13 to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 29, 2002. 10-3 Incorporated by reference to Exhibit 10-3 to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 28, 1980. Amendment No. 1 incorporated by reference to Exhibit 20-1 to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 27, 1981. Amendment No. 2 incorporated by reference to Exhibit 10-2 to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 25, 1983. Amendments Nos. 3 and 4 incorporated by reference to Exhibit 4-6 to Gannett Co., Inc.’s Form S-8 Registration Statement No. 33-28413 filed on May 1, 1989. Amendments Nos. 5 and 6 incorporated by reference to Exhibit 10-8 to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 31, 1989. Amendment No. 7 incorporated by reference to Gannett Co., Inc.’s Form S-8 Registration Statement No. 333-04459 filed on May 24, 1996. Amendment No. 8 incorporated by reference to Exhibit 10-3 to Gannett Co., Inc.’s Form 10-Q for the quarter ended September 28, 1997. Amendment dated December 9, 1997, incorporated by reference to Gannett Co., Inc.’s 1997 Form 10-K. Amendment No. 9 incorporated by reference to Exhibit 10-3 to Gannett Co., Inc.’s Form 10-Q for the quarter ended June 27, 1999. Amendment No. 10 incorporated by reference to Exhibit 10-3 to Gannett Co., Inc.’s Form 10-Q for the quarter ended June 25, 2000. Amendment No. 11 incorporated by reference to Exhibit 10-3 to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 31, 2000. Incorporated by reference to the same-numbered Exhibit to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 29, 2002. Incorporated by reference to Exhibit 10-1 to Gannett Co., Inc.’s Form 10-Q for the quarter ended June 29, 2003. 10-4 Description of supplemental insurance benefits.* 10-5 Gannett Supplemental Retirement Plan Restatement dated February 1, 2003.* 10-6 Gannett Co., Inc. Retirement Plan for Directors.* Incorporated by reference to Exhibit 10-10 to the 1986 Form 10-K. 1991 Amendment incorporated by reference to Exhibit 10-2 to Gannett Co., Inc.’s Form 10-Q for the quarter ended September 29, 1991. Amendment to Gannett Co., Inc. Retirement Plan for Directors dated October 31, 1996, incorporated by reference to Exhibit 10-6 to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 29, 1996. 62
Slide 72: 10-7 Gannett Co., Inc. Deferred Compensation Plan Restatement dated February 1, 2003 (reflects all amendments through October 20, 2003).* Gannett Co., Inc. Transitional Compensation Plan.* Incorporated by reference to Exhibit 10.1 to Gannett Co., Inc.’s Form 10-Q for the quarter ended September 28, 2003. Incorporated by reference to Exhibit 10-8 to Gannett Co., Inc.’s Form 10-K for the fiscal year ended December 30, 2001. Amendment dated December 3, 2002 incorporated by reference to the same-numbered Exhibit to Gannett Co., Inc.’s Form 10-K for the year ended December 29, 2002. Incorporated by reference to Exhibit 10-3 to Gannett Co., Inc.’s Form 10-Q for the quarter ended September 28, 2003. Incorporated by reference to Exhibit No. 10.1 to Gannett Co., Inc.’s Registration Statement on Form S-8 (Registration No. 333-105029). Incorporated by reference to the same-numbered Exhibit to Gannett Co., Inc.’s Form 10-K for the year ended December 29, 2002. Incorporated by reference to the same-numbered Exhibit to Gannett Co., Inc.’s Form 10-K for the year ended December 29, 2002. Attached. 10-8 10-9 Employment Agreement dated July 21, 2003 between Gannett Co., Inc. and Douglas H. McCorkindale.* Omnibus Incentive Compensation Plan.* 10-10 10-11 Gannett Co., Inc. Savings-Related Share Option Scheme for Employees of Gannett U.K. Limited and its Subsidiaries.* Gannett U.K. Limited Share Incentive Plan.* 10-12 10-13 Service Agreement, dated as of July 23, 2001, by and between Newsquest Media Group Limited and Paul Davidson.* Subsidiaries of Gannett Co., Inc. Consent of Independent Accountants. Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 21 23 31-1 31-2 32-1 Attached. Attached. Attached. Attached. Attached. 32-2 Attached. For purposes of the incorporation by reference of documents as Exhibits, all references to Form 10-K or 10-Q of Gannett Co., Inc. refer to Forms 10-K and 10-Q filed with the Commission under Commission file number 1-6961. The company agrees to furnish to the Commission, upon request, a copy of each agreement with respect to long-term debt not filed herewith in reliance upon the exemption from filing applicable to any series of debt which does not exceed 10% of the total consolidated assets of the company. * Asterisks identify management contracts and compensatory plans or arrangements. 63
Slide 73: GLOSSARY OF FINANCIAL TERMS Presented below are definitions of certain key financial and operational terms that we hope will enhance your reading and understanding of Gannett’s 2003 Form 10-K. ADVERTISING LINAGE - Measurement term for the volume of space sold as advertising in the company’s newspapers; refers to number of column inches, with each newspaper page composed of five to six columns. BALANCE SHEET - A summary statement that reflects the company’s assets, liabilities and shareholders’ equity at a particular point in time. BROADCASTING REVENUES - Primarily amounts charged to customers for commercial advertising aired on the company’s television stations. CIRCULATION - The number of newspapers sold to customers each day (“paid circulation”). The company keeps separate records of morning, evening and Sunday circulation. CIRCULATION REVENUES - Amounts charged to newspaper readers or distributors reduced by the amount of discounts. Charges vary from city to city and depend on the type of sale (i.e., subscription or single copy) and distributor arrangements. COMPARABLE BASIS - The company’s operating results stated as if Statement of Financial Accounting Standard No. 142 “Goodwill and Other Intangible Assets” had been adopted at the beginning of 1998. See further discussion of accounting change on page 18 and in Note 3 on page 38. COMPREHENSIVE INCOME - The change in equity (net assets) of the company from transactions and other events from non-owner sources. Comprehensive income comprises net income and other items previously reported directly in shareholders’ equity, principally the foreign currency translation adjustment. CURRENT ASSETS - Cash and other assets that are expected to be converted to cash within one year. CURRENT LIABILITIES - Amounts owed that will be paid within one year. DEFERRED INCOME - Revenue derived principally from advance subscription payments for newspapers. Revenue is recognized in the period in which it is earned. DEPRECIATION - A charge against the company’s earnings that allocates the cost of property, plant and equipment over the estimated useful lives of the assets. DIVIDEND - Payment by the company to its shareholders of a portion of its earnings. EARNINGS PER SHARE (basic) - The company’s earnings divided by the average number of shares outstanding for the period. EARNINGS PER SHARE (diluted) - The company’s earnings divided by the average number of shares outstanding for the period, giving effect to assumed dilution from outstanding stock options and stock incentive rights. GAAP - Generally accepted accounting principles. GOODWILL - In a business purchase, this represents the excess of amounts paid over fair value of tangible and other identified intangible assets acquired. The company adopted a new accounting standard on Dec. 31, 2001, the first day of fiscal 2002, under which goodwill is only written off if it is considered to be impaired. (Also see “Purchase.”) INVENTORIES - Raw materials, principally newsprint, used in the business. NEWSPAPER ADVERTISING REVENUES - Amounts charged to customers for space (“advertising linage”) purchased in the company’s newspapers. There are three major types of advertising revenue: retail ads from local merchants, such as department stores; classified ads, which include automotive, real estate and “help wanted”; and national ads, which promote products or brand names on a nationwide basis. OPERATING CASH FLOW - A non-GAAP measure of operating income adjusted for depreciation and amortization of intangible assets. PRO FORMA - A non-GAAP manner of presentation intended to improve comparability of financial results; it assumes business purchases/dispositions were completed at the beginning of the earliest period discussed (i.e., results are compared for all periods but only for businesses presently owned). PURCHASE - A business acquisition. The acquiring company records at its cost the acquired assets less liabilities assumed. The reported income of an acquiring company includes the operations of the acquired company from the date of acquisition. RESULTS OF CONTINUING OPERATIONS - A key section of the statement of income which presents operating results for the company’s principal ongoing businesses (newspaper and broadcasting). RETAINED EARNINGS - The earnings of the company not paid out as dividends to shareholders. STATEMENT OF CASH FLOWS - A financial statement that reflects cash flows from operating, investing and financing activities, providing a comprehensive view of changes in the company’s cash and cash equivalents. STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY A statement that reflects changes in the common stock, retained earnings and other equity accounts. STATEMENT OF INCOME - A financial statement that reflects the company’s profit by measuring revenues and expenses. STOCK OPTION - An award that gives key employees the right to buy shares of the company’s stock, pursuant to a vesting schedule, at the market price of the stock on the date of the award. 64
Slide 74: SHAREHOLDERS SERVICES Gannett Stock Gannett Co., Inc. shares are traded on the New York Stock Exchange with the symbol GCI. The company’s transfer agent and registrar is Wells Fargo Bank, N.A. General inquiries and requests for enrollment materials for the programs described below should be directed to Wells Fargo Shareowner Services, P.O. Box 64854, St. Paul, MN 55164-0854 or by telephone at 1-800-778-3299 or at www.wellsfargo.com/shareownerservices. Dividend reinvestment plan The Dividend Reinvestment Plan (DRP) provides Gannett shareholders the opportunity to purchase additional shares of the company’s common stock free of brokerage fees or service charges through automatic reinvestment of dividends and optional cash payments. Cash payments may range from a minimum of $10 to a maximum of $5,000 per month. Automatic cash investment service for the DRP This service provides a convenient, no-cost method of having money automatically withdrawn from your checking or savings account each month and invested in Gannett stock through your DRP account. Direct deposit service Gannett shareholders may have their quarterly dividends electronically credited to their checking or savings accounts on the payment date at no additional cost. Annual meeting The annual meeting of shareholders will be held at 10 a.m. Tuesday, May 4, 2004, at Gannett headquarters. For more information News and information about Gannett is available on our Web site (www.gannett.com). Quarterly earnings information will be available around the middle of April, July and October 2004. We have posted on this site our principles of corporate governance, ethics policy and the charters for the audit, nominating and public responsibility and executive compensation committees of our board of directors, and we intend to post updates to these corporate governance materials promptly if any changes (including through any amendments or waivers of the ethics policy) are made. This site also provides access to our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K as filed with the SEC. Complete copies of our corporate governance materials and our Form 10-K may be obtained by writing the Secretary, Gannett Co., Inc., 7950 Jones Branch Drive, McLean, VA 22107. Shareholders who wish to contact the company directly about their Gannett stock should call Shareholder Services at Gannett headquarters, 703-854-6960. Gannett Headquarters 7950 Jones Branch Drive McLean, VA 22107 703-854-6000 THIS REPORT WAS WRITTEN AND PRODUCED BY EMPLOYEES OF GANNETT. Vice President and Controller George Gavagan Assistant Controller Frank Spasoff Director/Consolidation Accounting and Financial Reporting Leslie Sears Vice President/Corporate Communications Tara Connell Senior Manager/Publications Laura Dalton Creative Director/Designer Michael Abernethy Printing Monroe Litho, Rochester, N.Y. Photo Credits: Page 2: McCorkindale by Lisa Hartjen. Page 5: by Stacey Tate, Gannett. Page 7: Directors’ photos by Stacey Tate, Gannett.
Slide 75: s GANNETT CO., INC. 7950 JONES BRANCH DRIVE, M C L E A N , VA 2 2 1 0 7