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Article by DailyStocks_admin    (04-28-08 07:57 AM)

The Daily Magic Formula Stock for 04/28/2008 is Gannett Co Inc. According to the Magic Formula Investing Web Site, the ebit yield is 16% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

Company Profile

Gannett Co., Inc. is a leading international news and information company. In the United States, the company publishes 90 daily newspapers, including USA TODAY, and nearly 1,000 non-daily publications. Along with each of its daily newspapers, the company operates Web sites offering news, information and advertising that is customized for the market served and integrated with its publishing operations. USA TODAY.com is one of the most popular news sites on the Web. The company is the largest newspaper publisher in the U.S.

Newspaper publishing operations in the United Kingdom, operating as Newsquest, include 17 paid-for daily newspapers, almost 300 non-daily publications, locally integrated Web sites and classified business Web sites with national reach. Newsquest is the second largest regional newspaper publisher in the U.K.

In broadcasting, the company operates 23 television stations in the U.S. with a market reach of more than 20.1 million households. Each of these stations also operates locally oriented Web sites offering news, entertainment and advertising content, in text and video format. Through its Captivate subsidiary, the broadcasting group delivers news, information and advertising to a highly desirable audience demographic through its video screens in office tower and select hotel elevators.

Gannett’s total Online U.S. Internet Audience in January 2007 was 23.2 million unique visitors, reaching about 14.8% of the Internet audience, as measured by Nielsen//NetRatings.

Complementing its publishing and broadcasting businesses, the company has made strategic investments in online advertising. These include PointRoll, which provides online advertisers with rich media marketing services, and Planet Discover, which provides our local Web sites with deep, robust local search technology, and through several important partnership investments, including CareerBuilder for employment advertising; Classified Ventures for auto and real estate ads; Topix.net, a news content aggregator; ShermansTravel, an online travel service; ShopLocal, a provider of online marketing solutions for local, regional and national advertisers of all types; and 4INFO, which provides mobile phone search services.

The company continues to evolve as it meets the demands of consumers and advertisers in the new digital environment. Three key initiatives have been set forth to take advantage of these opportunities.


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Drive innovation throughout the company, as demonstrated by the company’s creation of the Gannett Center for Design and Innovation. This center has received more than 1,000 ideas from company employees and is fostering selected ones that show promise for new business models.


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Transform the company newsrooms into Information Centers to gather and disseminate news and information across multiple platforms 24 hours a day, seven days a week. This shift expands the newsroom focus from traditional print or newscast deliveries to other delivery systems on the Web, mobile phones, and e-mail. This allows the company to better connect with customers and satisfy the needs of advertisers.


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Strengthen the foundation of the company by finding, developing and retaining the best and the brightest employees through a robust Leadership and Diversity program. Gannett’s Diversity Council has been charged with attracting and retaining superior talent and developing a diverse workforce that reflects the communities Gannett serves. The council has also established greater site accountability and identification of best practices that can be used by the company to further its diversity initiatives. All of these programs tie into the company’s other strategic initiatives.

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 1972. Its more than 234 million outstanding shares of common stock are held by approximately 9,579 shareholders of record in all 50 states and several foreign countries. The company has approximately 49,675 employees. Its headquarters are in McLean, Va., near Washington, D.C.

Business segments: The company has two principal business segments: newspaper publishing and broadcasting. Financial information for each of the company‚Äôs reportable segments can be found in our financial statements, as discussed under Item 7 ‚ÄúManagement‚Äôs Discussion and Analysis of Financial Condition and Results of Operations‚ÄĚ and as presented under Item 8 ‚ÄúFinancial Statements and Supplementary Data‚ÄĚ of this Form 10-K.

The company’s 90 U.S. daily newspapers have a combined daily paid circulation of approximately 7.2 million. They include USA TODAY, the nation’s largest-selling daily newspaper, with a circulation of approximately 2.3 million. Within the publishing segment, the company continues to diversify and expand its portfolio through business acquisitions and internal development. Some examples of this diversification are:


‚ÄĘ USA WEEKEND, a weekly newspaper magazine carried by approximately 600 local newspapers with an aggregate paid circulation reach of 23.0 million.


‚ÄĘ PointRoll, a leading rich media marketing company that provides Internet user-friendly technology that allows advertisers to expand their online space and impact.


‚ÄĘ Planet Discover, a provider of local, integrated online search and advertising technology.


‚ÄĘ Clipper Magazine, a direct mail advertising magazine that publishes more than 489 individual market editions in 28 states.


‚ÄĘ Army Times Publishing, which publishes military and defense newspapers.


‚ÄĘ Gannett Healthcare Group, publisher of bi-weekly Nursing Spectrum and NurseWeek periodicals specializing in nursing news and employment advertising, which reach one million or nearly half of the registered nurses in the U.S.


‚ÄĘ Gannett Offset, a network of six commercial printing operations in the U.S.

Newspaper partnerships: The company owns a 19.49% interest in California Newspapers Partnership, a partnership that includes 24 daily California newspapers; a 40.6% interest in Texas-New Mexico Newspapers Partnership, a partnership that includes seven daily newspapers in Texas and New Mexico and four newspapers in Pennsylvania; and a 13.5% interest in Ponderay Newsprint Company in the state of Washington.

The company’s newspaper subsidiaries in Detroit, Cincinnati and Tucson 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. Operating results for the Detroit and Cincinnati joint operating agencies are fully consolidated along with a charge for the minority partners’ share of profits. The operating results of the Tucson joint operating agency are accounted for under the equity method, and are reported as a net amount in other operating revenues. The Cincinnati joint operating agency will not be renewed when it expires on Dec. 31, 2007.

Strategic investments: In August 2006, the company made additional investments in CareerBuilder.com, ShopLocal.com, and Topix.net totaling $155 million, which increased the ownership stake in each of those businesses. The company now holds a 42.5% equity interest in CareerBuilder.com, the leading national online service providing recruitment resources; a 42.5% equity interest in ShopLocal.com, a leading provider of Web-based marketing solutions for national and local retailers; and a 31.9% interest in Topix.net, an online news content aggregator.

In January 2006, the company acquired a minority interest in 4INFO, a Palo Alto, Calif., company which offers a comprehensive suite of mobile phone search services. The company also entered into a marketing and distribution agreement for its U.S. newspapers with 4INFO.

The company also owns a 23.6% stake in Classified Ventures, an online business focused on real estate and automotive advertising categories; and a 23.3% interest in ShermansTravel, an online travel news, advertising and booking service.

With all of these affiliates, the company has established important business relationships to leverage its publishing and online assets and operations to grow its revenue base and profits.

Newspaper Publishing/United States

The company‚Äôs U.S. newspapers reach 16.7 million readers every weekday and 14 million readers every Sunday ‚Äď providing critical news and information from their customers‚Äô neighborhoods and from around the globe.

At the end of 2006, the company operated 90 U.S. daily newspapers, including USA TODAY, and nearly 1,000 non-daily local publications in 36 states and Guam. The Newspaper Division and USA TODAY are headquartered in McLean, Va. On Dec. 31, 2006, this segment had approximately 37,575 full- and part-time employees.

The company’s local newspapers are managed through its U.S. Newspaper Division. These newspapers are in large and small markets, and the geographical diversity is a core strength of the company.

Gannett publishes in major markets such as Phoenix, Ariz.; Indianapolis, Ind.; Detroit, Mich.; Cincinnati, Ohio; Des Moines, Iowa; Nashville, Tenn.; Asbury Park, N.J.; Louisville, Ky.; and Westchester, N.Y.

Mid-sized markets are represented by Salem, Ore.; Fort Myers, Fla.; Appleton, Wis.; Palm Springs, Calif.; Montgomery, Ala.; and Greenville, S.C.

St. George, Utah; Fort Collins, Colo.; Sheboygan, Wis.; Iowa City, Iowa; and Ithaca, N.Y., are examples of our smaller markets.

USA TODAY was introduced in 1982 as the country’s first national, general-interest daily newspaper. It is available in all 50 states to readers on the day of publication throughout the U.S.

It is produced at facilities in McLean, Va., and is transmitted via satellite to offset printing plants around the country and internationally. It is printed at Gannett plants in 20 U.S. markets and at offset plants, not owned by Gannett, in 16 other U.S. markets.

USATODAY.com, one of the most popular newspaper sites on the Web, had more than 53 million visits per month at the end of 2006.

At all of the company’s local newspapers, Web sites are operated on a fully integrated basis.

Other businesses that complement, support or are managed and reported within the newspaper segment include: USA WEEKEND, PointRoll, Clipper Magazine, Army Times Publishing, Gannett Healthcare Group, Planet Discover and Gannett Offset. In addition, Gannett News Service provides news services for company newspaper operations and sells its services to independent newspapers; Gannett Retail Advertising Group represents the company’s local newspapers in the sale of advertising to national and regional franchise businesses; Telematch offers database management services; Gannett Direct Marketing offers direct-marketing services; and Gannett Media Technologies International develops and markets software and other products for the publishing industry, and provides technology support for the company’s newspaper and Web operations.

News and editorial matters: Gannett newspapers are the leading news and information source in their markets ‚Äď with strong brand recognition that attracts readers and advertisers. We maintain and enhance the newspapers‚Äô strengths with quality management and staff, who focus continuously on product improvements and customer service. Collectively, Gannett newspapers, their Web sites and their expanding portfolio of non-daily publications form a powerful network to distribute and share news and information across the nation. News and editorial decisions are made autonomously by local management.

In 2006, Gannett newsrooms began sweeping changes in content and approach with the introduction of the Information Center concept that enhances their ability to deliver much more information on a 24/7 cycle and in many formats. In addition to more traditional coverage, the newsrooms have elevated such areas as multimedia, data delivery and custom content. The approach of breaking news online and updating in print has become the practice. Additionally, extensive newsroom training in video production for video streaming on webcasts has enhanced local content and viewership.

At the same time, there is expanded emphasis on delivery of local content to readers ‚Äď in the daily and Sunday print products, in non-daily publications and on the community sites online. Some groundbreaking efforts involving community interaction were undertaken, especially in the area of investigative journalism.

The company’s domestic daily newspapers receive Gannett News Service (GNS) and subscribe to The Associated Press, and some receive various supplemental news services and syndicated features. GNS is headquartered in McLean, Va., and operates bureaus in Washington, D.C., and six state capitals: Albany, N.Y., Baton Rouge, La., Trenton, N.J., Sacramento, Calif., Springfield, Ill., and Tallahassee, Fla. GNS provides strong coverage of topics of high interest to individual newspapers through its regional reports.

Gannett newspapers and staffers were again recognized nationally for outstanding work. Jerry Mitchell, investigative reporter for The Clarion-Ledger in Jackson, Miss., won the George Polk Award for Justice Reporting for stories that led to the reopening of murder cases of three civil-rights activists and the conviction of the man behind the killings. Mitchell also received a career recognition award from the Investigative Reporters and Editors organization and he was a finalist for a Pulitzer Prize in the Beat Reporting category for the civil-rights work. Other Gannett Pulitzer finalists were Marshall Ramsey of The Clarion-Ledger and Mike Thompson of the Detroit Free Press, both in the Editorial Cartooning category. The Pacific Daily News in Guam received the Robert G. McGruder Award for Diversity Leadership and The Des Moines Register received an Overall Excellence Award from the Society of American Business Editors and Writers. The Daily Advertiser of Lafayette, La., won the 2006 Dart Award for Excellence in Reporting on Victims of Violence.

Audience research: As Gannett newspapers continue to expand their non-daily and online products, a new research approach, audience aggregation, was launched in 2005 and executed more fully in 2006. The company now considers the reach and coverage of multiple products in their communities in their totality ‚Äď as a family of connected products. This broader-based view is to establish the net reach of all products, or selected product offerings, in a single Gannett market. For example, in Phoenix, the combination of many Gannett products ‚Äď including daily and Sunday newspapers, a strong local Web site, weeklies and Spanish language products, among many others ‚Äď reaches 76% of the adult population over seven days, more than 2.1 million people, far more than the print edition of the daily newspaper, The Arizona Republic, reaches by itself.

The company has gathered audience aggregation data for more than 30 Gannett newspapers and will continue to add to that in 2007. While efforts are now focused on our largest properties, the initiative will be launched at all Gannett sites. This aggregated data allows the sales staff to provide detailed information to advertisers about how best to reach their potential customers, which products to use in which combination, and how often. As a result, our ability to use audience aggregation will enable our sales staffs to increase our total advertising revenues while enabling advertisers to enhance the efficiencies of their advertising costs. The training of ad sales staff on how to best execute this audience-based selling strategy is also ongoing.

In addition to the audience-based initiative, the company continues to measure customer attitudes, behaviors and opinions, including conducting usability labs, to better understand our customers’ Web site patterns, and use focus groups with product users and advertisers to more clearly determine their needs.

Circulation: Detailed information about the circulation of the company’s newspapers may be found later in this Form 10-K. Nine of the company’s local newspapers reported gains in daily circulation in 2006, and eight increased Sunday circulation. Circulation declined in other markets, a trend generally consistent with the domestic newspaper industry.

Home-delivery prices for the company’s newspapers are established individually for each newspaper and range from $1.50 to $3.50 per week for daily newspapers and from $.71 to $2.75 per copy for Sunday newspapers.

As it has done since the inception of the National Do Not Call Registry in 2003, the company continued to aggressively diversify its circulation start sources ‚Äď using more direct mail, kiosk and crew sales efforts. A new sales program called Project 378 was developed and rolled out to all newspapers in 2006. The goal of the program is to focus on long-term subscriber retention at the time sales orders are taken. The program details, through a step-by-step sales process, how to promote and sell new subscriptions that last for a longer period of time. In December 2006, subscriber retention of all new subscriptions when measured at 13-weeks of service had improved by 13.3% and by 6.2% when measured at 26 weeks.

The company continued its emphasis on its automated payment plan, EZ-Pay. Total EZ-Pay subscribers grew from 33.5% of all subscribers at the end of 2005 to 40.0% of all subscribers at the end of 2006 ‚Äď a 19% increase. EZ-Pay subscribers include those on recurring credit/debit cards as well as 52-week paid-in-advance customers. Subscriber retention among those who use EZ-Pay is currently 29% higher than for subscribers who pay the traditional way, by mail. This higher retention improves circulation volume and provides for a higher return on investment for new subscriber start costs. The company‚Äôs goal for 2007 is to increase the number of EZ-Pay subscribers by 25%.

Additionally, the company is consolidating all circulation inbound customer service calling operations into three Centers of Excellence (COE) across the country. The COE goals are efficiency and standardization of procedures which will result in better customer service at a lower price. State of the art technology will be employed to help realize the efficiency savings. The first COE opened in Greenville, S.C., in November 2006. All three will be fully functional by the fourth quarter of 2007.

Additional circulation efforts have focused on a fee-for-delivery concept. This was successfully implemented in the Nashville, Tenn., market and the company continues to look to expand this effort to other newspaper properties.

During 2006, the Audit Bureau of Circulations (ABC) announced a new program called Insert Verification Service (IVS). This service involves conducting an audit of the Sunday preprint distribution process to assure advertisers that their messages are getting to the customers they are targeting. Gannett’s 22 largest daily newspapers have signed up for IVS in 2007.

At the end of 2006, 68 of the company’s domestic daily newspapers, including USA TODAY, were published in the morning and 22 were published in the evening. For local U.S. newspapers, excluding USA TODAY, morning circulation accounts for 92% of total daily volume, while evening circulation accounts for 8%.

USA TODAY is sold at newsstands and vending machines generally at 75 cents per copy. Mail subscriptions are available nationwide and abroad, and home, hotel and office delivery is offered in many markets. Approximately 62% of its net paid circulation results from single-copy sales at newsstands, vending machines or to hotel guests, and the remainder is from home and office delivery, mail, educational and other sales.

Advertising: The newspapers have advertising departments that sell retail, classified and national advertising across multiple platforms including the newspaper, online and niche publications. The Gannett Retail Advertising Group sells regional and national franchise business on behalf of the company’s local newspapers. The company also contracts with outside representative firms that specialize in the sale of national ads. Ad revenues from newspaper Internet operations are reported together with revenue from print publishing.

Local or retail display advertising is associated with local merchants or locally owned businesses. In addition, retail includes regional and national chains ‚Äď such as department stores and grocery ‚Äď that sell in the local market.

Classified advertising includes the major categories of automotive, employment and real estate as well as private consumer-to-consumer business for other merchandise and services. While traditional placement for these ad segments has been the classified section, ads also run in other sections within the newspaper, on our Web sites and in niche magazines that specialize in the business segment.

National advertising is display advertising principally from advertisers who are promoting national products or brands. Examples are pharmaceuticals, travel, airlines, or packaged goods. Both retail and national ads also include preprints, typically stand-alone multiple pages that are inserted in the newspaper.

Our audience aggregation approach to research and product development has allowed us to go to market with a new sales approach. Formerly, our salespeople were product experts, focusing on the unique features and benefits of our diverse product line. In the past year, we have intensified our audience-based selling approach which first identifies the advertiser’s best customers and then matches products that best reach that audience. While there are still many advertisers who want to attain mass reach, many others want to target specific audiences by demographics, geography, consumer buying habits or customer behavior. Our Information Center approach allows us to reach these diverse audiences in different ways: through new products, new media options and through repurposing and repackaging news and information in a variety of formats. Our readership research also defines the audience usage of these products and allows us to create customer-centric solutions that will provide enhanced results for advertisers. The company’s audience-based sales efforts have been directed to all levels of advertisers from the smallest locally owned businesses to large complex businesses. Along with this new sales approach, the company has intensified its sales and management training and improved the quality of sales calls.

A new sales force structure was rolled out across our largest 20 newspapers in 2006. The new structure will be in place at all newspapers by the end of 2007. It aligns sales and support resources to the needs of the customer ‚Äď based on staff experience with advertising planning and customer contact. The new structure increases our staff productivity and improves customer service. To maximize our outbound-calling efforts to generate new business, an Internet-based outbound telesales training program was launched companywide. We also completed a full rollout of Gannett‚Äôs unique classified recruitment sales lead application.

In conjunction with this effort, all of the company’s sales force is undertaking the T.I.D.E. program (Think. Identify. Develop. Execute.) in order to better address advertiser needs. More than 800 newspaper, digital and broadcast executives are participating in this program.

Online operations: The overriding objective of our online strategy at Gannett newspapers is to provide compelling content to best serve our customers. 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 newspaper’s Web site and thus differentiates it from other Internet sites. This is a major factor that allows Gannett newspapers to compete successfully as Internet information providers.

A second objective in our online business development is to maximize the natural synergies between the local newspaper and local Web site. The local content already available, the customer relationships, the news and advertising sales staff, and the promotional capabilities are all competitive advantages for Gannett. The company’s strategy is to use these advantages to create strong and timely content, sell packaged advertising products that meet the demands of advertisers, operate efficiently and leverage the known and trusted brand of the newspaper.

One example of executing this strategy is The Indianapolis Star’s Indymoms.com. In December, this newly launched site attracted 600,000 page views by focusing on a community of stay-at-home and working mothers, with a print edition planned to debut in March 2007. Several Gannett newspapers have launched similar sites with family-oriented content, calendars and forums, helping moms connect on neighborhood news, schools, parenting issues and family activities including Wilmington, Del., Louisville, Ky., and Cincinnati; others, including Des Moines, Rochester, N.Y., Westchester, N.Y., Nashville, Fort Myers, Fla., Fort Collins, Colo., and Monroe, La., plan to launch similar products in early 2007.

Complementing this work are efforts to register users of Gannett Web sites in order to obtain zip code, age and gender. Such information allows us to better understand the needs of our customers along with providing better defined groups for advertisers.

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 2006. Strong growth in our online revenues also reflects the value of our digital joint ventures and partnerships with national online advertising providers including CareerBuilder and Classified Ventures. Recent traffic on our sites totaled more than 74 million visits and more than 451 million page views per month. Online revenue for local newspaper Web sites increased by 24% in 2006.

Gannett Media Technologies International (GMTI) provides technological support and products for the company’s domestic newspapers and Internet activities, including ad software and database management, editorial production and archiving, and Web site hosting. In addition, GMTI provides similar services to other newspaper companies.

Non-daily operations: The growth of non-daily and online products continued in 2006. The company now publishes nearly 1,000 non-daily publications in the U.S. The company‚Äôs strategy for non-daily publications is to target them at ‚Äúcommunities of interest‚ÄĚ defined in one of three ways: geographically, demographically (e.g. seniors, young readers or ethnic communities) or by lifestyle (e.g. golf or boating enthusiasts).

Production: Eighty-seven domestic daily newspapers are printed by the offset process, and three newspapers are printed using various letterpress processes.

In recent years, improved technology has resulted in greater speed and accuracy and in a reduction in the number of production hours worked at the company‚Äôs newspapers. The company expects this trend to continue in 2007 and also expects to consolidate some job functions across multiple newspapers sites. New state-of-the-art presses came on line in 2006 in Binghamton, N.Y., Rockford, Ill., and Lafayette, Ind. In Binghamton, the production of three newspapers was centralized and in Lafayette, a ‚ÄúBerliner‚ÄĚ type press was installed. In 2007, press refurbishment and further production consolidation efforts will take place.

During 2006, 24 additional newspapers moved to a 48-inch web width from a 50-inch width, and the three new press launches came on line at 48 inches. An additional 12 press sites will complete the conversion to 48-inch web in 2007.

In 2006, light-weight (45 gram) newsprint was tested and 15 sites began running it daily. The company plans to increase the use of light-weight newsprint in 2007.

Newspaper efficiency improvements also continue to be made in other areas of production. The company introduced new ink optimization software which allowed for savings due to less color ink consumption. Synergies are also planned through the consolidation of toning centers throughout the company network.

Competition: The company’s newspapers and affiliated Web sites compete with other media for advertising principally on the basis of their performance in helping to sell the advertisers’ products or services and their advertising rates. They compete for circulation and readership against other news and information providers, as well as others seeking the time and attention of readers. 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 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, including magazines, television, direct mail, cable television, radio, outdoor advertising and Internet media.

The rate of development of opportunities in, and competition from, emerging digital 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.

Joint operating agencies: At the end of 2006, The Cincinnati Enquirer, the Detroit Free Press 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 749,000 metric tons in 2006. During 2006, all of the company’s newspapers consumed some recycled newsprint. For the year, 77% 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 in Item 3, Legal Proceedings, in 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.

Raw materials ‚Äď U.S. & U.K.: 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 2006, the company‚Äôs total newsprint consumption was 1,216,000 metric tons, including the 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 lower than in 2006, down 2% on an as reported basis and 4% lower on a pro forma basis. The company purchases newsprint from 19 domestic and global suppliers, some of which are under contracts expiring in 2025.

In 2006, newsprint supplies were adequate. The company has and continues to moderate newsprint consumption and expense through press web-width reductions and the printing of some publications on lighter basis weights. The company believes that 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 2006 increased 9% compared to the 2005 cost. The average cost per ton of newsprint is expected to decline slightly in 2007.

Newspaper Publishing/United Kingdom

Newsquest publishes almost 300 titles in the United Kingdom, including 17 daily paid-for newspapers. Newsquest operates its 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 2006, 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.

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, Internet-based news and other information and communication businesses.

At the end of 2006, Newsquest had approximately 8,600 full-time and part-time employees. Newsquest’s revenues for 2006 were approximately $1.2 billion. As with U.S. newspapers, advertising is the largest component of revenue, comprising approximately 78%. Circulation revenue represents 13% of revenues and printing activities account for much of the remainder. During 2006, Newsquest restructured several back office operations to reduce costs.

Newsquest continued to increase color availability in its papers with the installation of a new color tower in Essex. Efficiency improvements have also come through the ink optimization software which was rolled out across the print sites in 2006. Further production improvements were made through the introduction of computer to plate technology at two sites and a mechanical inserter at one site.

Products: Product quality was again recognized by annual awards. Newsquest (Herald & Times) in Glasgow won both Media Company and Publishing Company of the Year at the Drum Scottish Media Awards. For the fifth year, The Northern Echo won North East Newspaper of the Year at the North East Press Awards, while in the south of England, the Oxford Times won a special award for Paid-For Weekly Newspaper of the Year at the Newspaper Society Weekly Newspaper Awards.

Product changes in the year included rationalizing edition structures and making daily products available earlier in many markets. The Argus Lite was launched in February 2006. This free daily product targets commuters traveling by train from Brighton to London each weekday morning. Broadsheet titles the Wiltshire Gazette & Herald and The Wilts & Glos Standard were also converted into tabloid format.

Online operations: Newsquest actively seeks 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.

By the end of 2006, all of Newsquest‚Äôs dailies were producing video reports of dramatic and newsworthy events as well as mobile phone clips sent in by readers that captured the attention of local audiences on the Web. For example, the Brighton Argus invited readers to send mobile phone pictures from a New Year‚Äôs Day concert by a locally-based U.K. dance music star. Newsquest papers also reached out in other ways to make themselves relevant to younger people. In November in Newport, an electronic ‚Äėbook of condolence‚Äô for four teenage victims of a car crash was established by the South Wales Argus. This attracted nearly 300 tributes ‚Äďlargely from young people ‚Äď and 200 of the comments were reverse published into an eight-page supplement for the paper.

By the end of 2006, online audience for Newsquest’s Web sites reached 43 million monthly page views from approximately 3.3 million unique users. Newsquest owns 25% of fish4, an online employment Web site. In the National Online Recruitment Audience Survey 2007, fish4 was the U.K.’s most popular recruitment Web site with more than 2.5 million unique visitors per month. Additionally, Newsquest’s wholly owned business s1 was the most popular recruitment Web site in Scotland in the same survey, attracting 316,000 Scottish-based job seekers per month, compared to 114,000 for its nearest rival.

CEO BACKGROUND

Charles B. Fruit



Mr. Fruit, 60, has served as Senior Advisor in Marketing, Strategy and Innovation to The Coca-Cola Company since March 2006. He is also President of Gardner Williams Consulting, LLC, an independent marketing consulting firm. Prior to assuming his current position with The Coca-Cola Company, Mr. Fruit served that company in various executive capacities since 1991, including as Senior Vice President and Chief Marketing Officer from June 2004 to March 2006. He is a director of the Advertising Council, Inc. and TiVo, Inc. He has been a director of Gannett since February 2007.



Arthur H. Harper



Mr. Harper, 51, has served as Managing Partner of GenNx360 Capital Partners, a private equity firm focused on business to business companies, since 2006. He is a former President and Chief Executive Officer of General Electric’s Equipment Services division. He is also a director of Monsanto Company. He has been a director of Gannett since March 2006.



John Jeffry Louis



Mr. Louis, 44, has served as Chairman and Co-Founder of Parson Capital Corporation, a Chicago-based private equity and venture capital firm, since 1992. He is also a director of S.C. Johnson and Son, Inc. and Johnson Financial Group, Inc., President of the Board of Trustees of Deerfield Academy, and a trustee of Northwestern University, Shedd Aquarium and the Chicago Council on Global Affairs. He has been a director of Gannett since October 2006.



The following directors are serving on the Board for a term that ends at the 2008 Annual Meeting:



Louis D. Boccardi



Mr. Boccardi, 69, was President and Chief Executive Officer of The Associated Press from 1985 until his retirement in 2003. He was a member of the Pulitzer Prize Board from 1994 to 2003 and Chairman of the Pulitzer Prize Board in 2002. He has been a member of the Board of Visitors, the Graduate School of Journalism, Columbia University since 1989, and he is the chairman of the audit committee of the International Center for Journalists. He has been a director of Gannett since 2003.

Craig A. Dubow



Mr. Dubow, 52, is Chairman, President and Chief Executive Officer of Gannett. He became President and Chief Executive Officer and a director of Gannett in July 2005, and Chairman of Gannett in July 2006. He was President and Chief Executive Officer of the Gannett Broadcast Division from 2001 to July 2005, and was President of the Gannett Broadcast Division from 2000 to 2001. He has served the Company in various other executive capacities since 1981.



Donna E. Shalala



Ms. Shalala, 66, has served as President of the University of Miami since 2001. She was Secretary of the United States Department of Health and Human Services from 1993 to 2001. She is a director of UnitedHealth Group and Lennar Corporation. She has been a director of Gannett since 2001.



The following directors are serving on the Board for a term that ends at the 2009 Annual Meeting:



Marjorie Magner



Ms. Magner, 57, is a co-founder of Brysam Global Partners, a private equity firm that will invest in financial services firms with a focus on consumer opportunities in emerging markets. She was Chairman and Chief Executive Officer of Citigroup’s Global Consumer Group from August 2003 until her departure in October 2005. She served in various roles at Citigroup, and a predecessor company, CitiFinancial (previously Commercial Credit), since 1987. She currently serves as a director of Accenture and Charles Schwab Corporation. She has been a director of Gannett since January 2006.



Duncan M. McFarland



Mr. McFarland, 63, was Chairman and Chief Executive Officer of Wellington Management Company, LLP from 1994 until his retirement in 2004. He served in various roles at Wellington Management Company since 1965. He is a director of The New York Stock Exchange, Inc., The Asia Pacific Fund, Inc., a closed-end registered investment company traded on the NYSE, and a trustee of the Financial Accounting Foundation. He has been a director of Gannett since 2004.



Karen Hastie Williams



Ms. Williams, 62, is a retired partner at the law firm of Crowell & Moring, Washington, DC. She is a director of The Chubb Corporation, Continental Airlines, Inc., SunTrust Banks, Inc. and WGL Holdings, Inc., the parent company of Washington Gas Light Company. She has been a director of Gannett since 1997.

COMPENSATION

The majority of the Company’s senior executives participate in an annual Executive Incentive Compensation Plan, or EICP, which offers incentive opportunity linked to the attainment of strategic financial performance and KPIs. Bonuses paid under the terms of the EICP generally are paid in cash, although executives subject to the Company’s stock ownership guidelines receive 25% of any bonus in shares of the Company’s common stock. No senior executive is guaranteed an award and, if minimum performance levels are not met, no bonus is paid under the EICP.



Each senior executive is assigned a salary grade based upon position, duties and responsibilities. Each salary grade consists of a salary range and, if the executive is eligible to participate in the EICP, a target bonus percentage and a bonus range. For the named executive officers, the bonus range extends from zero to double the target bonus percentage, and is calculated as a percentage of base salary or salary range midpoint, whichever is greater. Their target bonuses have a range of 50% to 125% of base salary or base salary range midpoint.



Prior to the start of each year, the Chairman, President and Chief Executive Officer establishes, upon discussion with each member of the Gannett Management Committee, including each named executive officer, his or her KPIs for the upcoming year. Included in these KPIs are, where appropriate, the target revenue and NIBT targets for the company and the respective divisions over which each named executive officer has operational or overall responsibility, as well as year-over-year revenue expectations, the development of initiatives in support of the strategic plan and other significant objectives sought to be obtained. In addition, the KPIs extend beyond purely financial measures to include, for example, items such as leadership, innovation, collaboration, growth initiatives and other activities. Use of these measures allows Mr. Dubow, and the Committee, to evaluate the performance of the other named executive officers in these qualitative areas that are critical to driving long-term value for shareholders. Over the course of the year, these KPIs may be revised as business conditions and the Company’s competitive environment change.



The Committee, at its October and December 2006 meetings, reviewed the Company’s preliminary financial and strategic results for the year. The Committee then preliminarily determined the amount of the 2006 EICP bonus pool, reserving the right to adjust once final results for 2006 were determined. Notwithstanding the Company’s solid financial performance, the Committee reduced the size of the bonus pool as compared to the prior year’s bonus pool to take into account the continued challenging advertising, circulation and viewership environment. From this preliminary amount, the Chairman, President and Chief Executive Officer, after consulting with the Executive Vice President and Chief Financial Officer and Senior Vice President/Human Resources, assessed the performance of each business unit and allocated a portion of the overall EICP bonus pool to each of the Company’s operating divisions based upon their respective financial and strategic results for the year.



The Committee determined 2006 bonuses for each of the named executive officers at its meeting in February 2007. It considered the Company’s final financial and strategic results for the year and management’s progress toward both quantitative and qualitative goals. Quantitative factors included the Company’s performance in the following areas: net income, relative shareholder return, earnings per share, return on assets, return on equity, return on invested capital, operating cash flow, operating income as a percent of sales, stock price and market value. The Company’s performance in those areas was compared to that of its peer group companies and other media companies. The Committee also evaluated the Company’s progress towards the goals of the Company’s strategic plan, as well as the achievement of qualitative goals including leadership in defending the First Amendment, promoting an ethical Company work environment and diverse workforce, and maintaining its reputation as a good corporate citizen of the local, national and international communities in which it does business. The Committee also considered the number of executives whose bonuses are paid from the EICP, divestitures and acquisitions, strategic events which might impact the EICP and other relevant information. No relative ranking of these various factors was applied.



In making its bonus determinations, the Committee noted that the Company had a record year in terms of revenue, continues to be the most profitable company in its peer group and again achieved the best margins in that group. With respect to Mr. Dubow, in addition to the factors described above, the Committee noted that Mr. Dubow moved quickly to develop and implement a new strategic plan to transform the Company to compete successfully in the digital age, including important acquisitions, and that he led the successful negotiations relating to the CareerBuilder restructuring. The Committee also took into consideration Mr. Dubow’s standing in the media community and his ability to foster an environment in which the Company’s senior management team was able to support and implement the new strategic plan he articulated. With respect to Mr. McCorkindale, the Committee determined it was appropriate to award a bonus in respect of his service as Chairman prior to his retirement in June 2006. With respect to the named executive officers other than Messrs. Dubow and McCorkindale, the Committee also considered the recommendations of Mr. Dubow, which were based on the Company’s overall financial and strategic results for the year as well as Mr. Dubow’s assessment of the extent to which each named executive officer achieved his or her KPIs for the year.

MANAGEMENT DISCUSSION FROM LATEST 10K

Executive Summary

Gannett Co., Inc. is a leading international news and information company operating primarily in the United States and the United Kingdom (U.K.). We generated approximately 86% of our 2006 consolidated revenues from domestic operations in 41 states, the District of Columbia, and Guam, and approximately 14% from our foreign operations primarily in the U.K. Our goal is to be customer centric by delivering quality products and results for our readers, viewers, advertisers and other customers. We believe that well-managed newspapers, television stations, Internet products, magazine/specialty publications and programming efforts will lead to higher profits for our shareholders. To that end, our strategy has three major components:


‚ÄĘ Drive innovation through the company, as demonstrated by the company‚Äôs creation of the Gannett Center for Design and Innovation.


‚ÄĘ Transform the company newsrooms into Information Centers to gather and disseminate news and information across multiple platforms 24 hours a day, seven days a week.


‚ÄĘ Strengthen the foundation of the company by finding, developing and retaining the best and brightest employees through a robust Leadership and Diversity program.

We implement our strategy and manage our operations through two business segments: newspaper publishing and broadcasting (television). The newspaper publishing segment includes the operations of 90 daily newspapers, nearly 1,000 non-daily local publications in the United States and Guam and almost 300 titles in the U.K. Our 90 U.S. daily newspapers, including USA TODAY, the nation’s largest-selling daily newspaper, with a circulation of approximately 2.3 million, have a combined daily paid circulation of 7.2 million, making us the nation’s largest newspaper group in terms of circulation. Together with the 17 daily paid-for newspapers our Newsquest division publishes in the U.K., the total average daily circulation of our 107 domestic and U.K. daily newspapers was approximately 8 million at the end of 2006. All of our daily newspapers also operate Web sites which are integrated with publishing operations. Our newspaper publishers also have strategic business relationships with online investee companies including CareerBuilder, Classified Ventures, ShopLocal.com and Topix.net.

The newspaper publishing segment also includes PointRoll, an Internet ad services business; Planet Discover, a provider of local, integrated online search and advertising technology; commercial printing; newswire; marketing and data services operations.

Through our broadcasting segment, we own and operate 23 television stations covering 18% of the U.S. in markets with more than 20.1 million households. We also include in this segment the results of Captivate Network, a national news and entertainment network that delivers programming and full-motion video advertising through video screens located in elevators of office towers and select hotels across North America.

2006 operating summary and key business transactions:

The company’s fiscal year ends on the last Sunday of the calendar year. The company’s 2006 fiscal year ended on Dec. 31, 2006, and encompassed a 53-week period. The company’s 2005 and 2004 fiscal years encompassed 52-week periods.

Unless stated otherwise, as in the section titled ‚ÄúDiscontinued Operations,‚ÄĚ all of the information contained in Management‚Äôs Discussion and Analysis of Operations relates to continuing operations. Therefore, the results of The (Boise) Idaho Statesman, and two newspapers in the state of Washington, The (Olympia) Olympian and The Bellingham Herald, which were disposed of in an asset exchange in 2005 as discussed later, are excluded for all periods covered by this report.

Net income per diluted share was $4.90 for 2006 compared to $5.05 for 2005. Earnings from continuing operations per diluted share were $4.90 for 2006 and $4.92 for 2005.

The company began reporting stock-based compensation expense in the first quarter of 2006 as required by Statement of Financial Accounting Standards No. 123(R). Results for the year include stock compensation expense of $47.0 million ($29.1 million after tax, or $0.12 per share). Refer to Note 10 ‚ÄúCapital stock, stock options, incentive plans‚ÄĚ in the Notes to Consolidated Financial Statements for further information concerning this matter.

Operating revenues rose 6% to $8.0 billion for 2006 reflecting the full year consolidation of Detroit newspaper operations beginning on Aug. 1, 2005, the June 26, 2006, acquisition of KTVD-TV in Denver, and the Aug. 7, 2006 acquisition of WATL-TV in Atlanta. Revenue growth from acquisitions was partially offset by the deconsolidation of Texas-New Mexico Newspapers Partnership operations effective Dec. 26, 2005. If Gannett had owned the same properties for all of 2006 and 2005, revenues would have increased 2%.

Internal revenue growth in 2006 came primarily from broadcast and U.S. local newspapers, which achieved solid results in the local and real estate advertising categories, and from non-daily initiatives. Broadcast revenue strengthened due to increased demand for political and issue-related advertising and the winter Olympic games on the company’s NBC affiliates.

Overall, the softness in ad revenues from newspaper operations, combined with higher newsprint prices, which were up nearly 9%, stock compensation, and staff consolidation costs, led to a 2% decline in operating income, to $2.0 billion. Interest expense was higher for the year ‚Äď up $77.4 million or 37%, reflecting higher interest rates and higher average debt levels related to acquisitions and share repurchases.

On a segment basis, total newspaper publishing revenues were $7.2 billion for 2006, an increase of 5% over 2005. These revenues are derived principally from sales of advertising (including sales of Internet advertising) and circulation, which accounted for 75% and 18%, respectively, of total newspaper publishing revenues for 2006. Our Newsquest operations generated approximately 17% and 11% of these advertising and circulation revenues, respectively. The remaining $502 million in newspaper publishing revenues were produced primarily by our commercial printing operations and earnings from our 40.6% share in the results of the Texas-New Mexico Newspapers Partnership, the 50% owned Tucson joint operating agency and our 19.49% equity interest in California Newspapers Partnership.

Newspaper publishing expenses increased 8% over 2005 to $5.5 billion, driven by higher newsprint costs, the impact of recent acquisitions, new non-daily products, stock compensation and staff consolidation costs. On a pro forma basis, newspaper publishing expenses increased 3% over 2005.

Through our broadcasting segment, we produced $855 million in revenues for 2006, an increase of 16% from 2005. Broadcasting expenses increased 12% to $475 million reflecting higher television production and advertising sales costs as well as costs from the growth of Captivate operations and the addition of the two acquired broadcast stations.

Challenges for 2007: Looking forward to 2007, the company faces several important challenges, including:


‚ÄĘ advertising revenue growth for our newspapers is expected to be modest amid weakness in certain local economies and softening real estate, along with continued competition from the Internet;


‚ÄĘ newsprint prices remain high so conservation measures must be continued;


‚ÄĘ employee medical costs are expected to increase;


‚ÄĘ absence of $98 million in incremental political and Olympic revenue;


‚ÄĘ potentially higher interest costs if rates on short-term borrowings increase; and


‚ÄĘimplementing our strategy of establishing profitable Information Center business models at our newspapers.

The company will aggressively pursue revenue growth, carefully manage costs and seek out strategic investments, partnerships and business acquisitions.

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 reevaluates 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 accounting rules regarding the repatriation of earnings from foreign sources.

Please refer to Note 1 of this Form 10-K for a more complete discussion of all of the company’s significant accounting policies.

Business acquisitions, investments, exchanges, dispositions and discontinued operations

2006 : In January 2006, the company acquired a minority equity interest in 4INFO, a company offering a comprehensive suite of mobile phone search services.

In April 2006, the company contributed the Muskogee (Okla.) Phoenix to the Gannett Foundation. In connection with the acquisition of Clipper Magazine, Inc. in 2003 and PointRoll, Inc. in 2005, the company paid additional cash consideration totaling $41.2 million in the first quarter of 2006 as a result of certain performance metrics being achieved by these businesses.

In June 2006, the company completed the acquisition of KTVD-TV in Denver and in August the acquisition of WATL-TV in Atlanta, which created the company’s second and third duopolies.

In August 2006, the company, McClatchy Co. and Tribune Company announced an agreement concerning their ownership stakes in CareerBuilder.com, ShopLocal.com and Topix.net. Under the terms of the agreement, the company and Tribune Company increased each of their equity stakes in CareerBuilder.com and ShopLocal.com to 42.5%, and in Topix.net to 31.9%. The company paid McClatchy $155 million in connection with this agreement.

In August 2006, the company invested an additional $145 million in the California Newspapers Partnership (CNP) in conjunction with the CNP’s acquisition of the Contra Costa Times and the San Jose Mercury News and related publications and Web sites. The company’s additional investment enabled it to maintain its 19.49% ownership in the CNP.

The company also purchased several small non-daily products in the U.S. as well as Planet Discover, a provider of local, integrated online search and advertising technology.

The total cash paid in 2006 for business acquisitions was approximately $402.7 million and for investments was $338.3 million. The financial statements reflect an allocation of purchase price that is preliminary for these acquisitions.

2005 : On March 31, 2005, the company completed the acquisition of the assets of Hometown Communications Network, Inc., a community publishing company with one daily, 59 weeklies, 24 community telephone directories, a shopping guide and other niche publications in Michigan, Ohio and Kentucky.

On June 10, 2005, the company acquired 92% of the stock of PointRoll, Inc., a leading rich media marketing company that provides Internet user-friendly, non-intrusive technology for advertisers.

Effective July 31, 2005, Knight Ridder, Inc. (now McClatchy Co.) sold its newspaper interests in Detroit to Gannett and MediaNews Group and the two publishers formed the Detroit Newspaper Partnership, L.P. MediaNews Group acquired The Detroit News from Gannett and Gannett acquired the Detroit Free Press. Beginning Aug. 1, 2005, Detroit’s results have been fully consolidated in the financial statements of Gannett along with a minority interest charge for MediaNews Group’s interest. Prior to that date, the results from the company’s 50% interest in Detroit had been reported in other operating revenue.

On Aug. 29, 2005, the company completed an exchange of assets in which Knight Ridder (now McClatchy Co.) received from Gannett The (Boise) Idaho Statesman, and two newspapers in the state of Washington: The (Olympia) Olympian and The Bellingham Herald. In return, Gannett received the Tallahassee (Fla.) Democrat and cash consideration. This exchange was accounted for as the simultaneous sale of discontinued operations and a purchase of the Tallahassee newspaper. The company recorded an after-tax gain on this transaction of $18.8 million. Operating results for 2005 and all prior periods presented in this report exclude the results of the former Gannett properties which have been reclassified to income from discontinued operations.

On Sept. 16, 2005, the company acquired the Exchange & Mart and Auto Exchange titles in the U.K.

On Dec. 25, 2005, the company completed an agreement with its partner in the Texas-New Mexico Newspapers Partnership, MediaNews Group, Inc., to expand the partnership. Under this agreement, the company contributed to the partnership its newspaper in Chambersburg, Pa., the Public Opinion, and MediaNews Group contributed three other newspapers in Pennsylvania. As a result of this transaction, the company‚Äôs ownership interest in the partnership was reduced from 66.2% to 40.6%, and MediaNews Group became the managing partner. At and from the effective date of the agreement, the company has accounted for its partnership interest in Texas-New Mexico Newspapers Partnership under the equity method. In connection with this transaction, the company recorded a minor non-monetary gain that is reflected in ‚ÄúOther non-operating items‚ÄĚ in the Statement of Income.

During 2005, the company also purchased several small non-daily publications in the U.S. and U.K.

The total cash paid for the 2005 business acquisitions was $619 million.

On March 23, 2005, the company, along with Knight Ridder, Inc. (now McClatchy Co.) and Tribune Company, jointly acquired a 75% equity interest in Topix.net, a news content aggregation service.

On Dec. 16, 2005, the company purchased a 23.3% interest in ShermansTravel, an online travel news, advertising and booking service.

2004 : In February 2004, the company acquired NurseWeek, a multimedia company with print publications and Web site focused on the recruitment, recognition and education of nurses.

In February 2004, the company exchanged its daily newspaper, The Times in Gainesville, Ga., and non-daily publications in the Gainesville area for two daily newspapers and non-daily publications in Tennessee, plus cash consideration. The company recorded this transaction as two simultaneous but separate events; that is, the sale of its publications in Gainesville for which a non-operating gain was recognized, and the acquisition of the publications in Tennessee accounted for under the purchase method of accounting. The non-monetary gain from the exchange is reflected in non-operating income.

In April 2004, the company acquired the assets of Captivate Network, Inc., a national news and entertainment network that delivers programming and full-motion video advertising through wireless digital video screens in the elevators of premier office and select hotel towers across North America.

In May 2004, the company acquired a one-third interest in CrossMedia Services, Inc. (now named ShopLocal.com), a leading provider of Web-based marketing solutions for national and local retailers, with Knight Ridder, Inc. (now McClatchy Co.) and Tribune Company.

The company also purchased a small daily newspaper in Wisconsin and several small non-daily publications in the U.S. and the U.K.

The 2004 business acquisitions (excluding the non-monetary exchange transaction) had an aggregate cash purchase price of approximately $169 million.

In August 2004, the company completed the sale of its NBC affiliate in Kingman, Ariz., KMOH-TV.

A discussion of operating results of the company’s newspaper and broadcasting segments, along with other factors affecting net income, follows. The company’s growth over the years has been through, in part, the acquisition of businesses. The discussion below is focused mainly on changes in historical financial results, however certain operating information is also presented on a pro forma basis, which assumes that all properties owned at the end of 2006 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.

Newspaper publishing segment

In addition to its domestic local newspapers, the company’s newspaper publishing operations include USA TODAY, USA WEEKEND, Newsquest, which publishes daily and non-daily newspapers in the U.K., Gannett Offset commercial printing and other advertising and marketing services businesses. The newspaper segment in 2006 contributed 89% of the company’s revenues and 85% of its operating income.

Impact of acquisitions: The increases reflected above for 2006 revenues and expenses are attributable in large measure to business acquisition activity. In particular, full year reporting of the Detroit transaction was a key driver. Until that transaction became effective on Aug. 1, 2005, the company‚Äôs 50% interest in the Detroit joint operating agency was accounted for under the equity method, thus the company picked up its 50% interest in Detroit‚Äôs pre-tax income as an entry to the ‚Äúall other‚ÄĚ revenue line in the Statement of Income.

Upon completing the transactions with Knight Ridder (now McClatchy Co.) and MediaNews Group, the company became the majority owner in Detroit operations and therefore, the company has fully consolidated these operations within its newspaper segment. Therefore, all newspaper-related revenue and expense line items for 2006 reflect an increase from this ownership and attendant accounting change.

Foreign currency translation: The average exchange rate used to translate U.K. newspaper results was 1.84 for 2006 and 1.82 for 2005 and 2004, so newspaper segment revenue and expense variances when comparing 2006 with 2005 and 2004 are slightly higher as a result.

Newspaper operating revenues: Newspaper operating revenues are derived principally from advertising and circulation sales, which accounted for 75% and 18%, respectively, of total newspaper revenues in 2006. Ad revenues also include those derived from advertising placed with newspaper-related Internet products. Other publishing revenues are mainly from commercial printing, earnings from the company’s 50% owned joint operating agency in Tucson (and Detroit for the first eight months of 2005), revenue from PointRoll and earnings from its 19.49% equity interest in the California Newspapers Partnership and its 40.6% equity interest in the Texas-New Mexico Newspapers Partnership for 2006.

Reported advertising revenues for 2006 increased $209 million or 4%. The increase reflects the full year impact of 2005 acquisitions, particularly Detroit and Tallahassee, as well as incremental revenues in the U.S. from purchased or internally developed non-daily publications. Approximately 75% of the growth in reported advertising revenue for 2006 was attributable to newly acquired businesses. In the U.K., ad revenues in local currency were weaker in all categories in 2006, but the weakness was moderated slightly by a higher average exchange rate.

In the tables that follow, newspaper advertising and circulation revenue results along with related advertising linage and circulation volume statistics are presented on a pro forma basis. 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. Reported and pro forma newspaper revenue comparisons are positively impacted by the additional 53rd week in 2006.

Reported local ad revenues were up $111 million or 5% in 2006 benefiting from the full-year impact of the 2005 acquisitions and the 53rd week. Local revenues rose in the U.S. and the U.K. Pro forma local ad revenues were up 2%, with pro forma linage up 1% from last year. Revenue from small and medium-sized advertisers advanced in our domestic newspapers, while the revenue performance of larger advertisers softened.

Reported national ad revenues were up $57 million or 7% in 2006, primarily due to higher sales in USA TODAY branded publications and the Detroit transaction. Pro forma national ad revenues increased 1%.

Reported classified ad revenues increased $41 million or 2%. Classified revenue gains were reported by U.S. newspapers but these were partially offset by declining classifieds in the U.K. On a pro forma basis, classified ad revenues decreased 1%, with pro forma linage even. Solid classified gains were achieved in the U.S. in the employment, real estate and legal categories. On a pro forma basis, total real estate ad revenues rose 9% for the year, while automotive and employment ad revenues declined 11% and 4%, respectively. Lower automotive was due to decreased spending by local dealers in the company’s domestic and U.K. markets.

Newspaper advertising revenues in millions, as reported.

LOGO

Looking to 2007, modest ad revenue and volume growth are anticipated in most core newspaper print categories and in most newspaper markets. Continued strong growth is expected from online ad sales and from non-daily products. Revenue results for 2007 will be affected by regional 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 2006 newspaper circulation revenues increased $43 million or 3% over 2005, primarily as a result of the Detroit transaction. Circulation revenue for local U.S. newspapers was down slightly, while revenues rose slightly at USA TODAY and in the U.K.

USA TODAY’s average daily circulation for 2006 decreased 1% to 2,259,329. USA TODAY reported an average daily paid circulation of 2,269,509 in the Audit Bureau of Circulations (ABC) Publisher’s Statement for the 26 weeks ended Sept. 24, 2006, a decrease of 1% over the comparable period in 2005.

For local newspapers, morning circulation accounts for approximately 84% of total daily volume, while evening circulation accounts for 16%.

Newspaper revenue comparisons 2005-2004: For 2005, reported advertising revenues increased $326 million or 7%. The increase in ad revenues reflects the impact of 2005 acquisitions, including Detroit, Tallahassee, and Hometown Communications, as well as incremental revenues in the U.S. from purchased or internally developed non-daily publications. Approximately 60% of the growth in reported advertising revenue for 2005 was attributed to the newly acquired businesses. In the U.K., ad revenues were weaker in all categories in 2005.

Reported local ad revenues were up $163 million or 8% in 2005. Pro forma local ad revenues were up 1%, with pro forma linage down 3% from 2004. Revenue from small and medium-sized advertisers advanced in our domestic newspapers, while the revenue performance of larger advertisers softened.

Reported national ad revenues were up $31 million or 4% in 2005. Pro forma national ad revenues increased 1% on a 5% pro forma volume decrease.

Reported classified ad revenues increased $132 million or 7% in 2005. On a pro forma basis, classified ad revenues rose 2%, with pro forma linage down 2%. Solid classified gains were achieved in the U.S. in the employment and real estate categories, including online advertising. These gains were largely offset by softness in the U.K.

Reported 2005 newspaper circulation revenues increased $46 million or 4% over 2004, primarily as a result of the Detroit transaction and improvement at USA TODAY. Circulation revenues at USA TODAY rose 9% in 2005, benefiting from a $0.25 single-copy price increase implemented on Sept. 7, 2004. The price increase affected approximately 900,000 copies sold daily at newsstands and newsracks.

USA TODAY’s average daily circulation for 2005 decreased 1% to 2,277,064. USA TODAY reported an average daily paid circulation of 2,299,905 in the ABC Publisher’s Statement for the 26 weeks ended Sept. 25, 2005, a 1% decrease over the comparable period in 2004.

Newspaper operating expense: Newspaper operating costs rose $421 million or 8%, in 2006, primarily due to the Detroit and Tallahassee acquisitions, the internal growth of non-daily publications, higher newsprint costs, stock compensation expense, staff consolidation costs, and the 53rd week.

On a pro forma basis, assuming all properties owned at the end of 2006 were owned throughout 2006 and 2005, newspaper operating expense rose 3%.

On an as reported basis, newsprint expense rose 9%, reflecting a 9% increase in average prices and flat consumption. On a pro forma basis, newsprint costs rose 6% with declines in usage helping to offset higher prices.

Newspaper payroll costs on an as reported basis were up approximately 5% reflecting additions to headcount from acquisitions and non-daily growth. On a pro forma basis, payroll costs rose 2%.

Benefit costs in the aggregate for the newspaper segment were higher in 2006, as a result of stock-based compensation expense and generally higher ongoing costs for employee medical and disability benefits.

Newspaper expense comparisons 2005-2004: Newspaper operating costs rose $374 million or 8%, in 2005, primarily due to the Detroit, Tallahassee, Hometown Communications acquisitions and the internal growth of non-daily publications.

On an as reported basis, newsprint expense rose 9%, reflecting a 9% increase in average prices and a slight decline in consumption.

Newspaper payroll costs on an as reported basis were up approximately 7% reflecting additions to headcount from acquisitions and non-daily growth. On a pro forma basis, payroll costs rose slightly.

Benefit costs in the aggregate for the newspaper segment were lower in 2005, as generally higher ongoing costs for employee medical and disability benefits were more than offset by curtailment gains of approximately $31 million from changes to retiree medical and life insurance benefits.

On a pro forma basis, assuming all properties owned at the end of 2005 were owned throughout 2005 and 2004, newspaper operating expense rose slightly.

Outlook for 2007: Newsprint prices are expected to decline in the U.S. as a result of falling industry-wide consumption and conservation measures as well as additional newsprint production capacity, particularly in Canada and China. In the U.K., we expect another price increase, which will be mitigated by a switch of a significant portion of tonnage to lighter weight newsprint. Overall, we expect the average cost per ton of newsprint to decline marginally in 2007. Payroll costs are expected to rise only marginally, reflecting the impact of staff consolidations in the U.S. and the U.K.

Newspaper operating income: Newspaper operating income decreased in 2006, to $1.70 billion from $1.81 billion in 2005. The principal factors affecting operating income changes were the following:

Favorable


‚ÄĘ full year of business acquisitions, including PointRoll, Detroit, Hometown Communications and Tallahassee;


‚ÄĘ domestic growth in classified employment and real estate categories, including significant growth in online revenues;


‚ÄĘexpansion of non-daily products and profits; and


‚ÄĘ positive impact of the 53rd week in 2006.

Unfavorable


‚ÄĘ higher newsprint prices;


‚ÄĘ lower operating results in the U.K. amid a softening advertising environment;


‚ÄĘ significantly lower automotive revenues in the U.S. and U.K.;


‚ÄĘ stock compensation costs;


‚ÄĘ employee benefit costs for pension; and


‚ÄĘ staff consolidation costs.

Newspaper operating income comparisons 2005-2004:

Newspaper operating income increased slightly in 2005, up to $1.81 billion from $1.78 billion in 2004. Domestic growth in classified and online revenues, higher circulation revenues at USA TODAY reflecting the single-copy price increase in September 2004, coupled with the acquisitions of Detroit, PointRoll, Hometown Communications and, in the U.K., Exchange & Mart and Auto Exchange, contributed to the increase. Negative factors included higher newsprint prices and softening advertising in the U.K.

Newsquest’s financial results were translated from British pounds to U.S. dollars using a weighted average rate of 1.82 for 2005 and 2004.

Reported broadcast revenues increased $119 million or 16% for 2006. For the company’s television stations, the revenue comparisons reflect 2006 Winter Olympics, robust political and election related advertising, and the acquisition of KTVD-TV in Denver and WATL-TV in Atlanta. Excluding Captivate, broadcast revenues increased 16%; local television station revenue was 12% higher and national was 22% higher. Television online revenue rose more than 50% in 2006.

Incremental television revenues from the Olympic, political and election-related advertising totaled approximately $98 million. Other ad category results for 2006 included higher revenue for telecom, services and home improvement, offset by slightly lower automotive and retail.

Reported operating expenses increased $50 million or 12% in 2006. Excluding Captivate, television operating expenses increased 12% in 2006, primarily due to sales commissions related to higher revenues, programming costs related to launching of several new local shows and acquisitions, stock compensation and the amortization of intangibles. Payroll costs were 5% higher for the year, reflecting local sales commissions on higher revenues and added costs from the acquisition of WATL-TV and KTVD-TV.

Broadcast results 2005-2004: Reported broadcast revenues declined $86 million or 10% for 2005. For the company’s television stations, the revenue comparisons reflect the net loss from 2004 of approximately $105 million of Olympic and political advertising. Excluding Captivate, broadcast revenues declined 11%; local television station revenue was 3% lower and national was 24% lower.

Major ad category results for 2005 reflect lower automotive and retail revenue; revenue from the restaurant category was flat and revenue from services and packaged goods was higher.

Reported operating expenses increased $4 million or 1% in 2005. Excluding Captivate, television operating expenses declined 1%, primarily due to lower advertising sales and production costs. Payroll costs were 2% higher for the year, reflecting added costs from Captivate.

Broadcasting revenues in millions, as reported.

LOGO

Outlook for 2007: Revenues are expected to be lower due to the absence of Winter Olympics and substantially lower political and election-related advertising. Captivate and online revenues are expected to continue their rapid growth. Expenses are expected to moderate, reflecting lower revenue levels.

Consolidated operating expenses

Cost of sales for 2006 rose $376 million or 9%, primarily reflecting incremental costs from recent acquisitions and internal growth of non-daily products, as well as higher newsprint, pension and staff consolidation costs. On a pro forma basis, cost of sales increased less than 4%.

Selling, general and administrative expenses rose $105 million or 9% primarily due to acquisitions, higher ad sales costs in broadcasting, and expensing of stock-based compensation of $47.0 million in 2006. On a pro forma basis, selling, general and administrative expenses rose 6%.

Depreciation expense was 3% lower in 2006, reflecting accelerated depreciation taken in 2005 on press equipment taken out of service. Amortization of intangible assets rose 48%, reflecting costs associated with recent acquisitions.

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.

Operating expense comparisons 2005-2004: Cost of sales for 2005 increased $286 million or 8%, reflecting incremental costs from acquisitions and internal growth of non-daily products, as well as higher newsprint costs. Benefit cost comparisons within the cost of sales category were favorable for 2005, reflecting retiree medical and life insurance curtailment credits.

Selling, general and administrative expenses (SG&A) increased by $62 million or 5% in 2005 primarily due to acquisitions.

Depreciation expense was 9% higher in 2005 reflecting incremental costs from acquisitions as well as from the installation of new printing presses for Detroit operations. Amortization of intangible assets rose 92%, reflecting costs associated with acquisitions.

In total, domestic operating expenses rose, while those in the U.K. were lower, both reflecting overall revenue level changes.

Outlook for 2007: The company anticipates only modest increases in operating costs in 2007. Lower newsprint expenses are anticipated along with lower overall employee benefit costs. Payroll expense increases are expected to be modest, impacted by lower staffing levels.

Non-operating income and expense

Interest expense in 2006 rose $77 million or 37%, reflecting higher interest rates and higher average outstanding debt related to investments and acquisitions, and share repurchases.

Interest expense in 2005 rose $70 million or 50% from 2004, reflecting higher debt levels related to share repurchase activity and acquisitions, and higher interest rates.

Outlook for 2007: Because the company has $2.2 billion in commercial paper obligations at Dec. 31, 2006, that have relatively short-term maturity dates, as well as $750 million of floating rate notes, the company is subject to significant changes in the amount of interest expense it might incur. Assuming the current level of commercial paper borrowings of $2.2 billion, and $750 million of floating rate notes, a 1/2% increase or decrease in the average interest rate would result in an increase or decrease in annual interest expense of $14.8 million.

The company expects its interest expense to decline modestly in 2007, reflecting lower outstanding borrowings partially offset by higher average rates.

A further discussion of the company’s debt and credit facilities is contained in the Liquidity and Capital Resources section of this report.

Other non-operating items: In all years shown, non-operating income and expense includes costs associated with certain minority equity interest investments in online/new technology businesses, including a 42.5% stake (one-third prior to August 2006) in CareerBuilder, an online recruitment business. Also included are minority interest charges for consolidated businesses, including the Detroit Newspaper Partnership (after Aug. 1, 2005). Non-operating items in 2005 and 2004 also included minority interest expense related to the Texas-New Mexico Newspapers Partnership, which is not present in 2006 due to the deconsolidation of this entity. Interest and investment income are also reflected in this non-operating category.

The more significant non-recurring items included in this category include: in 2006, a gain on the sale of the company’s 10.5% interest in the Cincinnati Reds baseball team; in 2005, a non-monetary gain upon the contribution of the Chambersburg, Pa., newspaper to the Texas-New Mexico Newspapers Partnership; and in 2004, a non-monetary gain on the exchange of the company’s newspaper in Gainesville, Ga., for two daily newspapers in Tennessee.

The change in the ‚ÄúOther non-operating‚ÄĚ category relates mainly to reduced charges from the CareerBuilder investment, the excess of gains on the sale of the Cincinnati Reds and several minority interest Internet investments over the 2005 Chambersburg disposition gain, and the absence in 2006 of the minority interest charge related to the Texas-New Mexico Newspapers Partnership.

Provision for income taxes on earnings from continuing operations

The company’s effective income tax rate was 32.5% in 2006, 33.4% in 2005 and 33.9% in 2004. The 2006 rate reflects the favorable settlement of tax audits during the year. The provisions of the American Jobs Creation Act, which permit a deduction for certain domestic production activities, favorably affected the company’s effective tax rate for 2005 and 2006.

Further information concerning income tax matters is contained in Note 9 of the Consolidated Financial Statements.

Income from continuing operations

For 2006, the company’s income from continuing operations declined 4% to $1.16 billion. Higher earnings from broadcasting were more than offset by lower newspaper earnings and higher interest expense. Stock compensation expense related to stock options, which was recorded for the first time in 2006, adversely impacts comparisons. A lower effective tax rate in 2006 moderated the decline in pre-tax earnings.

Income from continuing operations on a per share basis, basic and diluted, declined 0.6% and 0.4%, respectively in 2006, reflecting the impact of share repurchase activity. This is discussed further in the Liquidity and Capital Resources section of this report which follows. The share repurchases made in 2006 will have a favorable impact on earnings per share in 2007.

Income from continuing operations, in millions.

LOGO

Discontinued operations

Earnings from discontinued operations represent the combined operating results (net of income taxes) of The (Boise) Idaho Statesman and two newspapers in the state of Washington ‚Äď The (Olympia) Olympian and The Bellingham Herald ‚Äď that were part of an exchange transaction with Knight Ridder completed on Aug. 29, 2005. The revenues and expenses from each of these properties have, along with associated income taxes, been removed from continuing operations and reclassified into a single line item amount on the Statements of Income titled ‚ÄúIncome from the operation of discontinued operations, net of tax‚ÄĚ for each period presented.


MANAGEMENT DISCUSSION FOR LATEST QUARTER

Operating Summary and Key Business Transactions

In May 2007, the company completed the sale of the Norwich (CT) Bulletin; the Rockford (IL) Register Star; the Observer-Dispatch in Utica, NY; and The Herald-Dispatch in Huntington, WV to GateHouse Media, Inc. and contributed the Chronicle-Tribune in Marion, IN to the Gannett Foundation. In connection with these transactions, the company recorded a net after-tax gain of $73.8 million in discontinued operations. For all periods presented, results from these businesses have been reported as discontinued operations.

The company completed the acquisition of KTVD-TV in Denver in June 2006 and the acquisition of WATL-TV in Atlanta in August 2006. These acquisitions created the company’s second and third broadcast station duopolies.

Subsequent to quarter end, in October 2007, the company acquired a controlling interest in Schedule Star LLC, which operates the popular HighSchoolSports.net and the Schedule Star solution for local athletic directors. HighSchoolSports.net is the leader in the increasingly competitive world of online high school sports, with more unique visitors than any other site in this market, according to Nielsen//NetRatings’ NetView.

Earnings from continuing operations per diluted share for the third quarter were $1.01 as compared to $1.08 last year and year-to-date were $3.12 as compared to $3.33 last year. Operating revenues decreased 3.8% to $1.8 billion in the third quarter and 2.6% to $5.6 billion in the first nine months, reflecting softer advertising demand at domestic newspaper properties, as well as the absence of politically related advertising demand that benefited broadcast results in the third quarter 2006.

Operating income for the third quarter was $402.8 million compared to $446.4 million last year and year-to-date was $1.3 billion as compared to $1.4 billion last year. Income from continuing operations for the third quarter was $234.0 million compared to $256.2 million last year and year-to-date was $730.3 million as compared to $791.6 million last year. Results were positively impacted by our Newsquest newspaper operations in the UK, helped by a stronger UK pound, along with solid on-line revenue gains across the company. Our domestic community newspapers, however, faced softening ad demand, particularly in key classified categories and were adversely affected by approximately $14.5 million in severance and other business consolidation costs. For broadcasting, the acquisition of the additional television stations in Denver and Atlanta, strong results for Captivate Network, Inc. and online revenue gains partially offset the absence of approximately $17 million of politically related advertising in the third quarter.

Net income decreased 10.5% to $234.0 million for the third quarter reflecting softer ad revenue partially offset by tight cost controls. Net income increased 0.4% to $810.3 million for the year-to-date as compared to the same periods in 2006 as the decrease in net income from continuing operations was more than offset by the previously reported $73.8 million gain on the sale of properties to GateHouse Media, Inc.

Newspaper Results

Transactions affecting newspaper comparisons include the sale of the Norwich (CT) Bulletin; the Rockford (IL) Register Star; the Observer-Dispatch in Utica, NY; and The Herald-Dispatch in Huntington, WV to GateHouse Media, Inc. and the contribution of the Chronicle-Tribune in Marion, IN to the Gannett Foundation. For all periods presented, results from these businesses have been reported as discontinued operations and are therefore excluded from the discussion which follows.

Reported newspaper publishing revenues decreased 4% to $1.6 billion from $1.7 billion in the third quarter and decreased 3% to $5.0 billion from $5.1 billion year-to-date. Domestic advertising revenues decreased 8% for the third quarter and 7% for the first nine months as compared to the same periods in 2006. In British pounds, advertising revenues in the UK decreased slightly less than 1% for the third quarter and the first nine months. On a constant currency basis total newspaper advertising revenue would have decreased 7% for the third quarter and 6% year-to-date. The average exchange rate used to translate UK newspaper results from Sterling to U.S. dollars increased 8% to 2.02 from 1.87 for the third quarter and increased 9% to 1.99 from 1.81 for the year-to-date.

Newspaper operating revenues are derived principally from advertising and circulation sales, which accounted for 73% and 19%, respectively, of total newspaper revenues for the third quarter and 74% and 19% year-to-date 2007. Advertising revenues include amounts derived from advertising placed with newspaper internet web sites as well as print products. Other publishing revenues are mainly from commercial printing operations, PointRoll Inc., and earnings from the company’s 50% owned joint operating agency in Tucson, its 19.49% equity interest in the California Newspapers Partnership, and its 40.6% equity interest in the Texas-New Mexico Newspapers Partnership. The table below presents these components of reported revenues for the third quarter and first nine months of 2007 and 2006.

The company’s growth over the years has been partly through the acquisition of new businesses and strategic partnership investments. To facilitate an analysis of operating results, certain information discussed below is on a pro forma basis, which means that results are presented as if all properties owned at the end of the third quarter of 2007 were owned on the same basis throughout the periods discussed. 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 comparable 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.

Newspaper advertising revenues decreased 6% from $1.3 billion to $1.2 billion for the third quarter. UK newspaper advertising increased 7% reflecting a stronger currency exchange rate, while US domestic newspaper advertising decreased 8%. For the year-to-date period, newspaper advertising revenues declined 4%. On a constant currency basis newspaper ad revenues decreased 7% for the quarter and 6% year-to-date.

For the third quarter local advertising revenues were 4% lower and year-to-date declined 2%. On a constant currency basis, local advertising decreased 5% for the quarter and 3% year-to-date. Local advertising in the U.S. was down 5% for the quarter and 4% year-to-date. These results reflect lower advertising in most local categories with the sharpest decline in the department store and furniture categories. The department store category was impacted from lower store brand advertising while the cyclical slowdown in real estate and housing impacted the furniture category.

National advertising revenues for the third quarter were down 4% due primarily to softness in technology, telecommunications and automotive categories. USA TODAY advertising revenues decreased 7% for the quarter. Year-to-date national advertising revenues were down 4% including a 5% decline at USA TODAY. Paid advertising pages at USA TODAY were 803 for the third quarter compared to 929 for the same period last year and 2,741 year-to-date compared to 3,039 last year.

Classified advertising revenues decreased 8% for the quarter and 6% year-to-date due primarily to lower ad demand as a result of the softening domestic real estate market in the west and southeast, specifically Florida, Arizona, California and Nevada; Nevada, California and Florida were ranked as the three states with the highest foreclosure rates in the country in August 2007. Classified real estate revenues were down 11% for the quarter and 8% year-to-date, employment revenues were down 8% for the quarter and 6% year-to-date, and auto revenues decreased 12% for the quarter and 13% year-to-date. On a constant currency basis, classified advertising revenues were down 10% for the quarter and 9% year-to-date. Classified results in our UK newspapers, which were stronger than in the U.S., decreased 1% for the quarter and increased less than 1% year-to-date on a constant currency basis. While the real estate category was the weakest domestically, on a constant currency basis this category increased 5% for the quarter and 6% year-to-date in the UK.

Total domestic newspaper online revenues were strong during the third quarter and year-to-date 2007, increasing 11% for both periods. UK online revenues increased 46% and 50% on a constant currency basis for the quarter and year-to-date, respectively.

Circulation revenues remained unchanged for the third quarter and for the first nine months of 2007. Net paid daily circulation for the company’s newspapers, excluding USA TODAY, declined 4% in the third quarter and 3% for the first nine months of 2007. Sunday net paid circulation was down 4% from the comparable quarter and year-to-date periods of last year. In the September Publishers Statement submitted to ABC, circulation for USA TODAY for the previous six months increased 1% from 2,269,509 in 2006 to 2,293,137 in 2007.

Commercial printing and other revenue increased 5% for the third quarter, primarily due to revenues associated with PointRoll, and 7% year-to-date, primarily due to an increase in commercial printing business and revenues associated with PointRoll.

Reported newspaper operating expenses were down 2% for the third quarter and 1% year-to-date. For the quarter, newspaper segment expenses were adversely affected by the impact of the higher exchange rate on Newsquest costs and by approximately $12.5 million in severance and $2.0 million in incremental depreciation costs for facilities consolidation. However, these factors were more than offset by strong operating cost controls including a decline in newsprint expense. Newsprint expense decreased 13% for the quarter with a 10% decline in usage and a 4% decrease in price. Year-to-date, newsprint expense declined 7% on a 9% decline in usage offset by a 2% increase in price. On a pro forma constant currency basis, excluding depreciation and amortization, operating expenses decreased 4% for the quarter and 3% year-to-date 2007. For the remainder of 2007, newsprint prices are expected to be below prior year levels and consumption is also expected to be lower.

Newspaper operating income decreased $36.9 million or 10% for the quarter and $87.3 million or 7% for the year-to-date, reflecting the challenging print advertising environment discussed above.

Broadcasting Results

The company completed the acquisitions of KTVD-TV in Denver in late June 2006 and WATL-TV in Atlanta in early August 2006, which created the company’s second and third duopolies.

Broadcasting includes results from the company’s 23 television stations and Captivate Network, Inc. Reported broadcasting revenues were $189.5 million in the third quarter compared to $196.2 million in 2006. Year-to-date revenues declined 1% to $577.3 million. On a pro forma basis, broadcasting revenues would have decreased 5% from $199.6 million to $189.5 million for the third quarter. The year-to-date pro forma decline in revenues was 6% from $613.9 million to $577.3 million. The third quarter results reflect a decrease of approximately $17 million in political advertising revenue, partially offset by improvement in several other key ad categories, an increase in online revenues and strong revenue growth at Captivate.

Reported television revenues, excluding Captivate, were down 4% in the third quarter, with local revenues down 1% and national revenues down 12%. Excluding the impact of political advertising, net time sales increased over 2% in the third quarter as compared to the same period last year. On a pro forma basis, television revenues decreased 6% for the quarter with local revenues down 3% and national revenues down 13%. For the first nine months of 2007, reported television revenues decreased 2% with local revenues up 1% and national revenues down 10%. For the first nine months of 2007, on a pro forma basis, television revenues decreased 7% with local revenues down 5% and national revenues down 13%.

Reported broadcasting operating expenses increased 1% for the third quarter and 4% for the first nine months of 2007, to $118.1 million and $354.2 million, respectively, primarily due to the acquisition of the two broadcast stations. Assuming the company had owned the same properties as of September, 2007 for all periods presented, broadcasting operating expenses would have decreased 1% for both the third quarter and first nine months of 2007.

Reported operating income from broadcasting was down $8.2 million or 10% in the third quarter and $21.7 million or 9% year-to-date.

Corporate Expense

Corporate expenses in the third quarter were $17.8 million as compared to $19.4 million a year ago due to lower stock compensation expense, reflecting fewer options granted at a lower fair value. Year-to-date corporate expenses were $59.5 million as compared to $60.2 million due to the timing of certain stock based compensation awards in the first quarter. The company anticipates total stock based compensation expense for the full year will be below the annual 2006 amount.


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