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SHAREHOLDERS' EQUITY
 12 Months Ended
Dec. 25, 2011
SHAREHOLDERS' EQUITY

NOTE 11 – SHAREHOLDERS’ EQUITY

Capital stock and earnings per share

The company’s earnings per share (basic and diluted) for 2011, 2010 and 2009 are presented below:

 

September 30, September 30, September 30,

In thousands, except per share amounts

      2011        2010        2009  

Net income attributable to Gannett Co., Inc.

      $ 458,748         $ 588,201         $ 355,270   
    

 

 

       

 

 

       

 

 

  

Weighted average number of common shares outstanding (basic)

        239,228           238,230           233,683   

Effect of dilutive securities

               

Stock options

        1,189           1,354           723   

Restricted stock

        2,147           1,720           1,117   

401(k) employer match

        204           301           504   
    

 

 

       

 

 

       

 

 

  

Weighted average number of common shares outstanding (diluted)

        242,768           241,605           236,027   
    

 

 

       

 

 

       

 

 

  

Earnings per share (basic)

      $ 1.92         $ 2.47         $ 1.52   

Earnings per share (diluted)

      $ 1.89         $ 2.43         $ 1.51   
    

 

 

       

 

 

       

 

 

  

The diluted earnings per share amounts exclude the effects of approximately 18.3 million stock options outstanding for 2011, 19.6 million for 2010 and 22.3 million for 2009, as their inclusion would be antidilutive.

 

Share repurchase program

In February 2004, the company announced the reactivation of its existing share repurchase program. During 2011, 4.9 million shares were purchased under the program for $53 million. There were no shares purchased under the program in 2010 or 2009. On Feb. 21, 2012, the company’s Board of Directors approved a new program to repurchase up to $300 million in Gannett common stock (replacing the former repurchase program).

The shares may be repurchased at management’s discretion, either in the open market or in privately negotiated block transactions. Management’s decision to repurchase shares will depend on price, availability and other corporate developments. Purchases may occur from time to time and no maximum purchase price has been set. While there is no expiration date for the repurchase program, the company’s Board of Directors reviews the share authorization regularly, the last such review having occurred in February 2012. Certain of the shares previously acquired by the company have been reissued in settlement of employee stock awards.

Equity-based awards

In May 2001, the company’s shareholders approved the adoption of the Omnibus Incentive Compensation Plan (the Plan). The Plan is administered by the Executive Compensation Committee of the Board of Directors and was amended and restated as of May 4, 2010 to increase the number of shares reserved for issuance to up to 60.0 million shares of company common stock for awards granted on or after the amendment date. The Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and other equity-based and cash-based awards. Awards may be granted to employees of the company and members of the Board of Directors. The Plan provides that shares of common stock subject to awards granted become available again for issuance if such awards are canceled or forfeited.

During 2011, the company established a performance share plan for senior executives pursuant to which awards were first made with a grant date of Jan.1, 2012. Under this plan, the company may issue shares of company common stock (Performance Shares) to senior executives following the completion of a three-year period beginning on the grant date (Incentive Period). Generally, if an executive remains in continuous employment with the company during the Incentive Period, the number of Performance Shares that an executive will receive will be determined based upon how the company’s total shareholder return (TSR) compares to the TSR of a peer group of media companies during the Incentive Period. By tying the payout of the performance shares to the company’s TSR, executive compensation is aligned with shareholders’ interests. Going forward, long-term equity awards – consisting of performance shares and restricted stock units – will generally be made with a grant date of January 1.

The company issues stock-based compensation to employees in the form of restricted stock units (RSUs). These awards generally entitle employees to receive at the end of a four-year incentive period one share of common stock for each RSU granted, conditioned on continued employment for the full incentive period. Compensation expense for RSUs is recognized for the awards that are expected to vest. The expense is based on the fair value of the awards on the date of grant recognized on a straight-line basis over the requisite service period, which is generally the four-year incentive period. Under the plan, no more than 500,000 RSUs may be granted to any participant in any fiscal year.

The Plan also permits the company to issue restricted stock. Restricted Stock is an award of common stock that is subject to restrictions and such other terms and conditions as the Executive Compensation Committee determines. Under the Plan, no more than 500,000 restricted shares may be granted to any participant in any fiscal year.

The Plan also permits the company to issue stock options. Stock options may be granted as either non-qualified stock options or incentive stock options. Options are granted to purchase common stock of the company at not less than 100% of the fair market value on the day of grant. Options are exercisable at such times and subject to such terms and conditions as the Executive Compensation Committee determines. The Plan restricts the granting of options to any participant in any fiscal year to no more than 1,000,000 shares. Options issued from 1996 through November 2004 have a 10-year exercise period, and options issued in December 2004 and thereafter have an eight-year exercise period. Options generally become exercisable at 25% per year. The company discontinued annual stock option grants to senior executives in connection with the adoption of the performance share plan.

The company issued stock options to certain members of its Board of Directors as compensation for meeting fees and retainer fees, as well as long-term awards. Meeting fees paid as stock options fully vest upon grant. Retainers paid in the form of stock options vest in equal quarterly installments over one year. Long-term stock option awards vest in equal annual installments over four years. Expense is recognized on a straight-line basis over the vesting period based on the grant date fair value. During 2011, 2010 and 2009, members of the Board of Directors were awarded 61,897, 72,681 and 144,667 shares, respectively, of stock options as part of their compensation plan.

The company also issued restricted stock to certain members of its Board of Directors as compensation for meeting fees and retainer fees, as well as annual long-term awards. Meeting fees paid as restricted stock fully vest upon grant. Retainers paid in the form of restricted shares vest in equal quarterly installments over one year. Long-term awards vest in equal monthly installments over three years. Expense is recognized on a straight-line basis over the vesting period based on the grant date fair value. During 2011, 2010 and 2009, members of the Board of Directors were awarded 27,523 shares, 21,062 shares and 95,543 shares, respectively, of restricted stock as part of their compensation plan. All vested shares will be issued to directors when retiring from the Board.

 

The Executive Compensation Committee may grant other types of awards that are valued in whole or in part by reference to or that are otherwise based on fair market value of the company’s common stock or other criteria established by the Executive Compensation Committee including the achievement of performance goals. The maximum aggregate grant of performance shares that may be awarded to any participant in any fiscal year shall not exceed 500,000 shares of common stock. The maximum aggregate amount of performance units or cash-based awards that may be awarded to any participant in any fiscal year shall not exceed $10,000,000.

In the event of a change in control as defined in the Plan, (1) all outstanding options will become immediately exercisable in full; (2) all restricted periods and restrictions imposed on non-performance based restricted stock awards will lapse; (3) all non-performance based restricted stock units will fully vest; and (4) target payment opportunities attainable under all outstanding awards of performance-based restricted stock, performance units and performance shares will be paid as specified in the Plan.

Determining fair value

Valuation and amortization method – The company determines the fair value of stock options using the Black-Scholes option-pricing formula. Key inputs into this formula include expected term, expected volatility, expected dividend yield and the risk-free rate. Each assumption is discussed below. This fair value is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the four-year vesting period.

Expected term – The expected term represents the period that the company’s stock-based awards are expected to be outstanding, and is determined based on historical experience of similar awards, giving consideration to contractual terms of the awards, vesting schedules and expectations of future employee behavior.

Expected volatility – The fair value of stock-based awards reflects a volatility factor calculated using historical market data for the company’s common stock. The time frame used is equal to the expected term.

Expected dividend – The dividend assumption is based on the company’s expectations about its dividend policy on the date of grant.

Risk-free interest rate – The company bases the risk-free interest rate on the yield to maturity at the time of the stock option grant on zero-coupon U.S. government bonds having a remaining life equal to the option’s expected life.

Estimated forfeitures – When estimating forfeitures, the company considers voluntary termination behavior as well as analysis of actual option forfeitures.

The following assumptions were used to estimate the fair value of option awards:

 

September 30, September 30, September 30,
       2011   2010   2009

Average expected term

      4.5 yrs.   4.5 yrs.   4.5 yrs.

Expected volatility

      62.46 - 64.39%   59.41 - 62.24%   38.67 - 59.18%

Weighted average volatility

      62.54%   61.01%   48.73%

Risk-free interest rates

      0.87 - 2.21%   1.51 - 2.65%   1.97 - 2.63%

Expected dividend yield

      1.00 - 2.00%   1.00%   1.00 - 2.20%

Weighted average expected dividend

      1.06%   1.00%   1.20%

The following table shows the stock-based compensation related amounts recognized in the Consolidated Statements of Income for equity awards:

 

September 30, September 30, September 30,

In thousands, except per share amounts

      2011        2010        2009  

Stock options and other

      $ 15,135         $ 18,810         $ 12,578   

Restricted stock and RSUs

        12,868           13,897           12,795   
    

 

 

       

 

 

       

 

 

  

Total stock-based compensation

        28,003           32,707           25,373   

Income tax benefit

        10,641           12,429           9,641   
    

 

 

       

 

 

       

 

 

  

Stock-based compensation, net of tax

      $ 17,362         $ 20,278         $ 15,732   
    

 

 

       

 

 

       

 

 

  

Per diluted share impact

      $ .07         $ .08         $ .07   
    

 

 

       

 

 

       

 

 

  

As of Dec. 25, 2011, there was $9.8 million of unrecognized compensation cost related to non-vested share-based compensation for options. Such amount will be adjusted for future changes in estimated forfeitures. Unrecognized compensation cost for options will be recognized on a straight-line basis over a weighted average period of 2.7 years.

During 2011, options for 496,749 shares of common stock were exercised from which the company received $2.4 million of cash. The intrinsic value of the options exercised was approximately $3.9 million. The actual tax benefit realized from the option exercises was $1.3 million.

During 2010, options for 332,060 shares of common stock were exercised from which the company received $2.0 million of cash. The intrinsic value of the options exercised was approximately $3.1 million. The actual tax benefit realized from the option exercises was $1.2 million.

During 2009, options for 44,250 shares of common stock were exercised from which the company received $0.3 million of cash. The intrinsic value of the options exercised was approximately $0.4 million. The actual tax benefit realized from the option exercises was $0.1 million.

Option exercises are satisfied through the issuance of shares from treasury stock.

 

A summary of the company’s stock-option awards is presented below:

 

September 30, September 30, September 30, September 30,

2011 Stock Option Activity

      Shares      Weighted
average
exercise
price		        Weighted
average
remaining
contractual
term
(in years)		        Aggregate
intrinsic
value		  

Outstanding at beginning of year

        23,649,290       $ 52.08           3.9         $ 28,819,223   

Granted

        1,333,597       $ 15.79             

Exercised

        (496,749 )     $ 5.71             

Canceled/Expired

        (4,145,847 )     $ 67.61             

Outstanding at end of year

        20,340,291       $ 47.66           3.5         $ 17,184,761   

Options exercisable at year end

        15,857,692       $ 57.26           2.7         $ 10,644,474   
    

 

 

     

 

 

       

 

 

       

 

 

  

Weighted average grant date fair value of options granted during the year

      $ 7.63                
    

 

 

     

 

 

       

 

 

       

 

 

  

 

September 30, September 30, September 30, September 30,

2010 Stock Option Activity

      Shares      Weighted
average
exercise
price		        Weighted
average
remaining
contractual
term
(in years)		        Aggregate
intrinsic
value		  

Outstanding at beginning of year

        25,243,251       $ 58.68           4.1         $ 33,560,103   

Granted

        3,451,481       $ 15.23             

Exercised

        (332,060 )     $ 6.00             

Canceled/Expired

        (4,713,382 )     $ 63.70             

Outstanding at end of year

        23,649,290       $ 52.08           3.9         $ 28,819,223   

Options exercisable at year end

        17,075,622       $ 66.48           2.8         $ 8,698,148   
    

 

 

     

 

 

       

 

 

       

 

 

  

Weighted average grant date fair value of options granted during the year

      $ 7.22                
    

 

 

     

 

 

       

 

 

       

 

 

  

 

September 30, September 30, September 30, September 30,

2009 Stock Option Activity

      Shares      Weighted
average
exercise
price		        Weighted
average
remaining
contractual
term
(in years)		        Aggregate
intrinsic
value		  

Outstanding at beginning of year

        27,106,695       $ 66.58           4.3         $ 68,360   

Granted

        3,171,867       $ 8.00             

Exercised

        (44,250 )     $ 7.53             

Canceled/Expired

        (4,991,061 )     $ 69.83             

Outstanding at end of year

        25,243,251       $ 58.68           4.1         $ 33,560,103   

Options exercisable at year end

        19,788,317       $ 69.76           3.3         $ 3,662,795   
    

 

 

     

 

 

       

 

 

       

 

 

  

Weighted average grant date fair value of options granted during the year

      $ 3.41                
    

 

 

     

 

 

       

 

 

       

 

 

  

As of Dec. 25, 2011, there was $23.1 million of unrecognized compensation cost related to non-vested restricted stock and RSUs. This amount will be adjusted for future changes in estimated forfeitures and recognized on a straight-line basis over a weighted average period of 2.7 years.

A summary of restricted stock and RSU awards is presented below:

 

September 30, September 30,

2011 Restricted Stock and RSU Activity

      Shares      Weighted
average
fair value		  

Outstanding and unvested at beginning of year

        4,421,437       $ 12.19   

Granted

        175,023       $ 13.21   

Settled

        (469,634 )     $ 33.51   

Canceled

        (395,793 )     $ 11.94   
    

 

 

     

 

 

  

Outstanding and unvested at end of year

        3,731,033       $ 10.73   
    

 

 

     

 

 

  

2010 Restricted Stock and RSU Activity

      Shares      Weighted
average
fair value		  

Outstanding and unvested at beginning of year

        3,293,293       $ 13.62   

Granted

        1,934,351       $ 14.91   

Settled

        (490,716 )     $ 31.94   

Canceled

        (315,491 )     $ 12.97   
    

 

 

     

 

 

  

Outstanding and unvested at end of year

        4,421,437       $ 12.19   
    

 

 

     

 

 

  

2009 Restricted Stock and RSU Activity

      Shares      Weighted
average
fair value		  

Outstanding and unvested at beginning of year

        2,241,190       $ 19.47   

Granted

        1,714,633       $ 11.63   

Settled

        (445,084 )     $ 30.67   

Canceled

        (217,446 )     $ 23.35   
    

 

 

     

 

 

  

Outstanding and unvested at end of year

        3,293,293       $ 13.62   
    

 

 

     

 

 

  

401(k) savings plan

Substantially all employees of the company (other than those covered by a collective bargaining agreement) who are scheduled to work at least 1,000 hours during each year of employment are eligible to participate in the 401(k) Savings Plan (the Plan). Employees can elect to save up to 50% of compensation on a pre-tax basis subject to certain limits.

On Aug. 1, 2008, the company approved amendments to its principal domestic retirement plans and to its 401(k) plan. For most participants, the 401(k) plan matching formula was changed to 100% of the first 5% of employee contributions. Prior to this change, the company generally matched 50% of the first 6% of employee contributions. The company also now makes additional 401(k) employer contributions on behalf of certain long-term employees. Compensation expense related to 401(k) contributions was $49.6 million in 2011, $46.0 million in 2010, and $59.8 million in 2009. In 2011, 2010 and 2009, the company’s 401(k) match was settled with a combination of cash and treasury shares.

Accumulated other comprehensive income (loss)

The elements of the company’s Accumulated Other Comprehensive Loss consisted of the following items (net of tax): Pension, retiree medical and life insurance liabilities – a reduction of equity of $996 million at Dec. 25, 2011, and $762 million at Dec. 26, 2010; foreign currency translation gains – an increase of equity of $400 million at Dec. 25, 2011, and $395 million at Dec. 26, 2010; and all other – no increase at Dec. 25, 2011, and $2 million increase at Dec. 26, 2010.