Shareholders’ equity

Capital stock and earnings per share

The company’s earnings per share (basic and diluted) for 2013, 2012 and 2011 are presented below:



In thousands, except per share amounts
	2013		2012		2011
Net income attributable to Gannett Co., Inc.	$	388,680	$	424,280	$	458,748
Weighted average number of common shares outstanding (basic)	228,541		232,327		239,228
Effect of dilutive securities
Stock options	1,160		867		1,189
Restricted stock	2,839		2,552		2,147
Performance shares	1,649		944		—
401(k) employer match	—		—		204
Weighted average number of common shares outstanding (diluted)	234,189		236,690		242,768
Earnings per share (basic)	$	1.70	$	1.83	$	1.92
Earnings per share (diluted)	$	1.66	$	1.79	$	1.89

The diluted earnings per share amounts exclude the effects of approximately 2.4 million stock options outstanding for 2013, 6.5 million for 2012 and 18.3 million for 2011, as their inclusion would be antidilutive.

Share repurchase program

In June 2013, the company announced that its Board of Directors approved a new program to repurchase up to $300 million in Gannett common stock (replacing the former $300 million program). During 2013, 4.9 million shares were purchased under the programs for $116.6 million. In 2012, 10.3 million shares were purchased under the former program for $153.9 million and in 2011 4.9 million shares were purchased for $53.0 million. As of Dec. 29, 2013, the value of shares that may be repurchased under the existing program is $224.7 million.

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 and other corporate developments. Purchases may occur from time to time and no maximum purchase price has been set. There is no expiration date for the $300 million stock repurchase program. However, it is targeted to be completed over the two years following the announcement. 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. Generally, if an executive remains in continuous employment with the company during the full three-year incentive period, the number of performance share units (PSU) 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 three-year period. The PSU agreement provides for pro rata vesting if an executive’s employment terminates prior to the end of the performance period due to death, disability, retirement, as defined in the award agreement. Non-vested units are forfeited upon termination for any other reason. Long-term equity awards – consisting of performance shares and restricted stock units – are generally made with a grant date of January 1.

The fair value and compensation expense of each PSU grant is determined by a Monte Carlo valuation model. Though the value of the PSU grant may change for each participant, the compensation expense recorded by the company is determined on the date of grant.

Each PSU is equal to and paid in one share of the company’s common stock, but carries no voting or dividend rights. The number of shares ultimately issued for each PSU award may range from 0% to 200% of the award’s target.

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. RSUs generally vest on a pro rata basis if an executive’s employment terminates due to death, disability or retirement. 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 2013, 2012 and 2011, members of the Board of Directors were awarded 22,558 shares, 74,611 shares and 61,897 shares, respectively, of stock options as part of their compensation plan. The company ceased issuing stock options to members of the Board of Directors in May 2013.

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 1 year. Long-term awards vest in equal monthly installments over 3 years. Expense is recognized on a straight-line basis over the vesting period based on the grant date fair value. During 2013, 2012 and 2011, members of the Board of Directors were awarded 57,531 shares, 31,929 shares and 27,523 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 million.

In the event of a change in control as defined in the Plan, unless otherwise specified in the award agreement, (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 determined the fair value of stock options using the Black-Scholes option-pricing formula and the fair value of Performance Shares using the Monte Carlo valuation model. This model considers the likelihood of Gannett and the peer group companies’ share prices ending at various levels subject to certain price caps at the conclusion of the three-year incentive period. Key inputs into the Black-Scholes option-pricing formula and the Monte Carlo valuation model include expected term, expected volatility, expected dividend yield and the risk-free rate. Each assumption is discussed below.

Expected term – The expected term represents the period that the company’s stock-based awards are expected to be outstanding. The expected term for Performance Share awards is based on the incentive period. For stock options, it 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 volatility factors calculated using historical market data for the company’s common stock and also the company’s peer group when the Monte Carlo method is used. 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 award grant on zero-coupon U.S. government bonds having a remaining life equal to the award’s expected life.

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

The following assumptions were used to estimate the fair value of stock option and performance share awards:



Stock Options Granted During	2013	2012	2011
Average expected term	4.5 yrs.	4.5 yrs.	4.5 yrs.
Expected volatility	61.94%	65.74 - 66.95%	62.46 - 64.39%
Weighted average volatility	61.94%	66.56%	62.54%
Risk-free interest rates	0.75%	0.84%	0.87 - 2.21%
Expected dividend yield	3.00%	5.00%	1.00 - 2.00%
Weighted average expected dividend	3.00%	5.00%	1.06%



Performance Shares Granted During	2013	2012	2011
Expected term	3 yrs.	3 yrs.	—
Expected volatility	40.80%	69.47%	—
Risk-free interest rate	0.36%	0.41%	—
Expected dividend yield	4.44%	2.39%	—

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



In thousands, except per share amounts
	2013		2012		2011
Restricted stock and RSUs	$	18,105	$	14,362	$	12,868
Performance shares	12,331		7,991		—
Stock options and other	3,001		4,255		15,135
Total stock-based compensation	33,437		26,608		28,003
Income tax benefit	12,706		10,111		10,641
Stock-based compensation, net of tax	$	20,731	$	16,497	$	17,362
Per diluted share impact	$	0.09	$	0.07	$	0.07

Stock Options: As of Dec. 29, 2013, there was $1.5 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 1.1 years.

During 2013, options were exercised from which the company received $21.7 million of cash. The intrinsic value of the options exercised was approximately $25.2 million. The actual tax benefit realized from the option exercises was $9.8 million.

During 2012, options exercised from which the company received $24.5 million of cash. The intrinsic value of the options exercised was approximately $22.4 million. The actual tax benefit realized from the option exercises was $9.2 million.

During 2011, options 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.

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

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



2013 Stock Option Activity	Shares			Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value
Outstanding at beginning of year	11,344,018			$	43.50	3.2	$	16,902,892
Granted	22,558			$	20.48
Exercised	(1,598,902		)	$	13.44
Canceled/expired	(4,192,273		)	$	73.11
Outstanding at end of year	5,575,401			$	29.76	3.2	$	46,988,804
Options exercisable at year end	4,574,619			$	32.85	2.8	$	33,348,296
Weighted average grant date fair value of options granted during the year	$	8.20



2012 Stock Option Activity	Shares			Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value
Outstanding at beginning of year	20,340,291			$	47.66	3.5	$	17,184,761
Granted	109,699			$	14.33
Exercised	(2,716,637		)	$	9.38
Canceled/expired	(6,389,335		)	$	70.76
Outstanding at end of year	11,344,018			$	43.50	3.2	$	16,902,892
Options exercisable at year end	8,942,897			$	51.35	2.6	$	8,845,944
Weighted average grant date fair value of options granted during the year	$	5.43



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

Restricted Stock and RSUs: As of Dec. 29, 2013, there was $28.7 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 2.3 years.

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



2013 Restricted Stock and RSU Activity	Shares		Weighted average fair value
Outstanding and unvested at beginning of year	4,069,509		$	12.98
Granted	1,588,628		$	15.80
Settled	(1,035,256	)	$	13.95
Canceled	(428,896	)	$	13.40
Outstanding and unvested at end of year	4,193,985		$	13.92



2012 Restricted Stock and RSU Activity	Shares		Weighted average fair value
Outstanding and unvested at beginning of year	3,731,033		$	10.73
Granted	1,937,512		$	12.33
Settled	(997,584	)	$	3.29
Canceled	(601,452	)	$	11.95
Outstanding and unvested at end of year	4,069,509		$	12.98



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

Performance Shares: As of Dec. 29, 2013, there was $8.5 million of unrecognized compensation cost related to non-vested performance shares. This amount will be adjusted for future changes in estimated forfeitures and recognized over a weighted average period of 1.7 years.

The following tables summarize the activity for non-vested performance share units during the years ended Dec. 29, 2013 and Dec. 30, 2012:



2013 Performance Shares Activity	Target number of shares		Weighted average fair value
Outstanding and unvested at beginning of year	982,452		$	14.23
Granted	813,783		$	20.12
Canceled	(35,747	)	$	15.86
Outstanding and unvested at end of year	1,760,488		$	16.92



2012 Performance Shares Activity	Target number of shares		Weighted average fair value
Outstanding and unvested at beginning of year	—		$	—
Granted	1,109,873		$	14.21
Canceled	(127,421	)	$	14.12
Outstanding and unvested at end of year	982,452		$	14.23

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) Plan. Employees can elect to save up to 50% of compensation on a pre-tax basis subject to certain limits.

For most participants, the 401(k) Plan matching formula is 100% of the first 5% of employee contributions. The company also makes additional 401(k) employer contributions on behalf of certain long-term employees. Compensation expense related to 401(k) contributions was $47.5 million in 2013, $51.3 million in 2012, and $49.6 million in 2011. In 2011, the company’s 401(k) match was settled with a combination of cash and treasury shares. In 2013 and 2012, such settlements were all in cash.

Accumulated other comprehensive income (loss)

The elements of the company’s Accumulated Other Comprehensive Loss consisted of pension, retiree medical and life insurance liabilities and foreign currency translation gains. The following tables summarize the components of, and changes in, Accumulated Other Comprehensive Loss (net of tax and noncontrolling interests):



In thousands of dollars
2013	Retirement Plans			Foreign Currency Translation		Total
Balance at beginning of year	$	(1,119,263	)	$	418,122	$	(701,141	)
Other comprehensive income before reclassifications	156,974			9,055		166,029
Amounts reclassified from accumulated other comprehensive income	41,057			—		41,057
Balance at end of year	$	(921,232	)	$	427,177	$	(494,055	)



In thousands of dollars
2012	Retirement Plans			Foreign Currency Translation		Total
Balance at beginning of year	$	(995,854	)	$	400,015	$	(595,839	)
Other comprehensive income (loss)	(123,409		)	18,107		(105,302		)
Balance at end of year	$	(1,119,263	)	$	418,122	$	(701,141	)



In thousands of dollars
2011	Retirement Plans			Foreign Currency Translation		All Other			Total
Balance at beginning of year	$	(762,380	)	$	394,673	$	2,373		$	(365,334	)
Other comprehensive income (loss)	(233,474		)	5,342		(2,373		)	(230,505		)
Balance at end of year	$	(995,854	)	$	400,015	$	—		$	(595,839	)

Accumulated Other Comprehensive Loss components are included in the computation of net periodic postretirement costs (see Notes 8 and 9 for more detail). Reclassifications out of Accumulated Other Comprehensive Loss related to these postretirement plans include the following:



In thousands of dollars
	2013
Amortization of prior service credit	$	(1,599	)
Amortization of actuarial loss	64,381
Settlement charge	3,077
Total reclassifications, before tax	65,859
Income tax effect	(24,802		)
Total reclassifications, net of tax	$	41,057