SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberMarch 28, 20032004

OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-6961

GANNETT CO., INC.

PART I. FINANCIAL INFORMATION

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

Operating Summary

     Earnings per diluted share, on a generally accepted accounting principles (“GAAP”) basis, were $1.03$1.00 for the thirdfirst quarter of 20032004 versus $0.99 per share93 cents for the same period last year. For the first ninethree months of 2003, earnings per diluted share were $3.15 versus $3.02 for the same interval in 2002.

     Net2004, net income rose 5%10% to $279.0$274.4 million for the quarter and 5% to $853.2 million for the year-to-date. Operatingoperating income increased 3%8% to $462.5 million for the quarter and 3% to $1.4$445.8 million. Operating revenues were $1.73 billion for the year-to-date.

     Operating revenues were $1.6 billion for the thirdfirst quarter, a 4%an 11% increase over the same period last year. For the first nine months, operating revenue increased by $192.8 million or 4% to $4.9 billion.

Newspaper Results

     Reported newspaper publishing revenues increased $73.3advanced $166.2 million or 5%12% for the third quarterfirst three months of 2003 as compared to the third quarter of 2002 and rose $212.1 million or 5% for the year-to-date. Newspaper operating revenues are derived principally from2004 reflecting higher advertising, and circulation sales, which accounted for 73% and 21%, respectively, of total newspaper revenues for the third quarter of 2003 and for the year-to-date period. Ad revenues also include those derived from advertising placed with newspaper Internet sites. Other newspaper publishing revenues are mainly from commercial printing and other revenues. The increases reflect the impact of recently acquired businesses, and also include earnings fromrevenue improvement at most of the company’s 50% owned joint operating agenciesnewspaper properties and a higher foreign exchange rate for UK operations.

     Recent acquisitions affecting comparisons include NurseWeek, acquired in Detroit and Tucson. The tables below present these components of reported revenues for the third quarter and first nine months ofFebruary 2004, Clipper Magazine (“Clipper”), acquired on October 31, 2003, and 2002.

Newspaper operating revenues, in thousands of dollars

     The table below presents the components of reported newspaper advertising revenues for the third quarter and the first nine months of 2003 and 2002.

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Advertising revenues, in thousands of dollars

     Newspaper advertising revenues improved by $60.1 million or 6% for the quarter and $165.8 million or 5% for the year-to-date, reflecting gains in all categories of advertising, the acquisition of the publishing businesses of Scottish Media Group plc (“Newsquest Scotland”SMG”), purchased in April 2003, and the establishment of the Texas-New Mexico Newspapers Partnership (“Texas-New Mexico”) in March 2003. Circulation

     Newspaper operating revenues rose $7.6 million or 3%are derived principally from advertising and circulation sales, which accounted for 74% and 20%, respectively, of total newspaper revenues for the first quarter 2004. Ad revenues also include amounts derived from advertising placed with online operations associated with the company’s newspapers. Other publishing revenues are mainly from commercial printing businesses, earnings from the company’s 50% owned joint operating agencies in Detroit and $20.0 million or 2%Tucson and earnings from its 19.49% equity interest in the California Newspapers Partnership. The table below presents these components of reported revenues for the year-to-date. Otherfirst quarter of 2004 and 2003.

Newspaper operating revenues, in thousands of dollars

     The table below presents the components of reported newspaper advertising revenues increased $5.6 million or 7% and $26.3 million or 11% for the year-to-date, primarily becausefirst quarter of higher commercial printing volume. A higher foreign exchange rate for British Sterling2004 and 2003. Certain online advertising revenues in 2003 have been reclassified to conform with the 2004 presentation. The reclassification had no effect on total advertising revenues.

Advertising revenues, in thousands of dollars

     The company’s growth over the years has been partly through the acquisition of new businesses. 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 first quarter of 2004 were owned throughout the periods covered by the discussion. The company consistently uses, for Newsquest operations also favorably impacted revenueindividual businesses and for aggregated business data, pro forma reporting of operating results in its internal financial reports, because it enhances measurement of

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performance by permitting comparisons forwith prior period historical data. Likewise, the quartercompany uses this same pro forma data in its external reporting of key financial results and year-to-date.benchmarks.

     In the tables that follow, newspaper advertising linage and related revenues are presented on a pro forma basis. Pro forma basis means that these resultsAdvertising revenues for Newsquest, NurseWeek and Clipper are presented as if all properties owned at the end of the third quarter of 2003 were owned throughout the periods presented. For Newsquest, advertising revenue is reflected in the amounts below, however, advertising linage and preprint distribution statistics for these businesses are not included.

Advertising revenues, in thousands of dollars (pro forma)

Advertising linage, in thousands of inches, and preprint distribution, in millions (pro forma)

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Advertising revenues, in thousands of dollars (pro forma)

Advertising linage, in thousands of inches, and preprint distribution, in millions (pro forma)

     The table below reconciles advertising revenues on a pro forma basis to advertising revenues on a GAAP basis.

Advertising revenues, in thousands of dollars

     For the third quarterfirst three months of 2003,2004, reported and pro forma local advertising revenues rose 3%14% and 1%6%, respectively, with pro forma linage down 2%. Foreven with last year. In the year-to-date, reportedU.S., local ad revenue increased in all principal newspaper products including the daily and pro forma local advertising revenues increased 4%non-daily newspapers, preprints, and 3%, respectively, with pro forma linage 2% below last year.online operations. Local ad revenues benefitedincreased in the furniture, entertainment, financial and telecommunications categories however, ad revenues in the department stores and consumer electronics categories declined from continued growthlast year. The performance of the company’s small and medium-sized advertisers in preprint ad demand and revenues from non-daily publications.its domestic newspapers outpaced the revenue performance of its largest advertisers.

     Reported and pro forma national advertising revenues roseadvanced 13% and 10% and 7%, respectively for the thirdfirst quarter on a 7%13% pro forma volume increase. Year-to-date, reported and pro forma national advertising revenues gained 6% and 4%, respectively, with pro forma linage up 8%, reflecting improvement at certain of the company’s domestic local newspapers and USA TODAY. At USA TODAY, advertising revenues increased 5%10% for the quarter and March was particularly strong with ad revenue growth of 25%. Solid increases in the third quarter reflecting strong gains from automotive, travel, telecommunications, retail, entertainment and pharmaceutical related advertising, whichtelecom segments more than offset weaknessdeclines in the automotive and technology and financial advertising categories. For the year-to-date, USA TODAY advertising revenues increased 2% primarily due to strong gains in automotive, entertainment and pharmaceutical related advertising.

     Reported and pro forma classified ad revenues increased 8%gained 17% and 4%13%, respectively with pro forma linage up 3%, for the third quarter. For the year-to-date, reported and pro forma4% with improvement in all classified ad revenues were up 7% and 4%,

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respectively on a 3% gain in pro forma linage. Pro forma classified adcategories. Classified revenue gainsimprovements were driven by strength in the employment, automotive, and real estate categories, which rose 2% and 10%, respectively, in the third quarter and 4% and 11%, respectively, for the year-to-date.categories. Employment ad revenues continued to be adversely impacted by the weak U.S. labor market and, on a pro forma basis, declined 5% for the quarter and 4% for the year-to-date. In September, employment ad revenues decreased 1% as compared to September of 2002. The 1% decline in employment ad revenues in September reflects the best result in employment ad revenues, as compared to the prior year, sinceadvanced 17% over the first quarter of 2003. Overall, on a reportedReal estate ad revenues and pro forma basis, the company’s classified results from Newsquest were stronger than its domestic results.automotive ad revenues increased 11% and 6%, respectively. Online revenue growth was very strong.

     Circulation revenues, as reported, rose 3% for the thirdfirst quarter, and 2% for the year-to-date, primarily as a result of the Newsquest Scotland and Texas-New Mexico transactions. Circulation revenues on awhile pro forma basis were flat for the quarter and for the year-to-date.circulation revenues increased almost 1%. Pro forma net paid daily circulation for the company’s newspapers, excluding USA TODAY, declined 3% for the third quarter and

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2% for the year-to-date. The 3% decline in net paid circulation for the third quarter reflects, in part, the absence of special sections and editions run in 2002 relating to the first anniversary of September 11, 2001.quarter. Sunday net paid circulation declined 1%was also down 2% from the comparable quarter ofsame period last year and for the year-to-date.year. USA TODAY reported an average daily paid circulation of 2,243,1442,277,785 in the ABC Publisher’s Statement for the 26 weeks ended SeptemberMarch 28, 2003,2004, a 1% increase over the comparable period a year ago.earlier.

     The table below reconciles circulation revenues on a pro forma basis to circulation revenues on a GAAP basis.

Circulation revenues, in thousandsFor the first three months of dollars

     Reported2004, reported newspaper operating expenses rose $52.3$136.4 million or 5%13% reflecting the impact of recent acquisitions, increased newsprint expenses, higher insurance and medical costs, and a higher foreign exchange rate for Newsquest operations. Expenses associated with non-daily products increased as a result of the quarter and $150.0 million or 5% for the first nine months,overall growth in these products. Depreciation expense also increased primarily as a result of the Newsquest Scotlandrecent acquisitions and Texas-New Mexico transactions, increased commercial printing volume, higher newsprint expense and substantially higher insurance, pension and other employee benefit costs. Benefit cost increases for the third quarter and year-to-date periods were tempered by modifications to certain retiree and employee benefit programs. Thea higher foreign exchange rate in 2003 for Newsquest operations also adversely impacts expense comparisons.UK operations. Newsprint expense for the third quarter and first nine months increased 12% and 7%, respectively,rose 13% reflecting higher year-over-yearan 11% increase in prices and increaseda 2% increase in consumption. The increase in newsprint consumption due primarily towas driven by the aforementioned transactionsSMG and increased commercial printing activity. On a pro forma basis, newsprint expense for the quarter increased 9% reflecting higher prices year-over-year. Consumption on a pro forma basis was flat for the quarter.Texas-New Mexico transactions.

     Newspaper operatingOperating income for the quarter rose $21.0$29.8 million or 5% and $62.1 million or 5% year-to-date. The year-over-year gains in advertising revenues, the positive impact of earnings from the Newsquest Scotland and Texas-New Mexico transactions and favorable foreign exchange rates were tempered by increased employee benefit costs and newsprint expense.

Television Results

     Television revenues decreased $11.7 million or 6% for the quarter, and were down $19.3 million or 4% for the year-to-date,8% reflecting significantly diminished political advertising spending. The decrease in revenues for the first nine months of 2003 also reflects softness in advertising demand due to the war in Iraq and the absence of Olympics related advertising, which benefited 2002. National revenues declined 19% and 10% for the quarter and year-to-date, respectively. Local revenues rose 3% and 1% compared to the third quarter and year-to-date of 2002,

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respectively. Operating expenses declined 3% and 1% for the third quarter and year-to-date, respectively as lower programming and sales costs werestrong revenue growth partially offset by increased news,newsprint, insurance and employee benefitmedical costs. Most of the company’s newspaper properties reported higher operating income for the quarter.

Broadcasting Results

     In the first quarter, broadcasting revenues advanced $11.3 million or 7% benefiting from the Super Bowl carried by the company’s six CBS stations, political spending and strength in the national advertising automotive, telecommunications and financial categories. For the first quarter of 2004, national revenues gained 6% and local revenues rose 9%. Broadcasting operating expenses increased 5% due to higher advertising sales costs and higher insurance and medical costs. Operating income decreased $8.9was up $6.2 million or 11% for10% in the quarterfirst quarter. For the remainder of 2004, broadcasting revenues and $16.6 million or 7% forearnings are expected to continue to improve over 2003 results primarily because of higher ad spending from political campaigns, the year-to-date.“Friends” finale in May on the company’s thirteen NBC stations and the Summer Olympics also on NBC.

Operating Cash Flow

     The company’s consolidated operating cash flow, defined as operating income plus depreciation and amortization of intangible assets, increased $16.0$40.2 million or 3%9% to $523.0$507.2 million for the thirdfirst quarter of 2004, reflecting improved newspaper and increased $51.3 million or 3% to $1.58 billion for the year-to-date.broadcasting segment results. All references to “operating cash flow” are to a non-GAAP financial measure. Management believes that use of this measure allows investors and management to measure, analyze and compare the cash resources generated from its business segmentssegment operations in a meaningful and consistent manner. The focus on operating cash flow is appropriate given the consistent and generally predictable strength of cash flow generation by newspaper and televisionbroadcasting operations, and the short period of time it takes to convert new orders to cash. A reconciliation of these non-GAAP amounts to the company’s operating income, which the company believes is the most directly comparable financial measure calculated and presented in accordance with GAAP inon the company’s consolidated statements of income, is presented in Note 810 “Business Segment Information” of the Notes to Condensed Consolidated Financial Statements.

Non-Operating Income and Expense / Provision for Income Taxes

     The company’s interest expense declined $5.9$4.3 million or 15% for the quarter, primarily due to12%, reflecting lower average commercial paper balances outstandingdebt levels and lower short-term interest rates on commercial paper debt. For the year-to-date, interest expense was down $3.3 million or 3%, as lower interest expense from commercial paper debt was partially offset by added interest expense from the fixed rate notes issued in March 2002. In March 2002, the company refinanced $1.8 billion in commercial paper obligations with the issuance of fixed rate unsecured notes. The daily average commercial paper balance outstanding was $2.4 billion and $2.5 billion during the third quarters of 2003 and 2002, respectively.rates. The daily average outstanding balance of commercial paper was $2.5$1.87 billion during the first nine monthsquarter of 20032004 and $3.3$2.54 billion forduring the comparable periodfirst quarter of 2002.2003. The weighted average interest rate on commercial paper was 1.06%1.04% and 1.79%1.29% for the third quartersfirst quarter of 20032004 and 2002, respectively. For the first nine months of 2003, and 2002, the weighted average interest rate was 1.21% and 1.81%, respectively.

     Because the company has $2.3$1.82 billion in commercial paper obligations at SeptemberMarch 28, 20032004 that have relatively short-term maturity dates, the company is subject to significant changes in the amount of interest expense it might incur. Assuming the current level of commercial paper borrowings, a 1/2% increase or decrease in the average interest rate for commercial paper would result in an increase or decrease in annual interest expense of $11.5 million.$9.1 million, respectively.

     OtherIn both periods presented, non-operating income and expense for the quarter reflects minority interest expense, primarily from the Texas-New Mexico partnership and losses frominclude charges associated with certain minority interest investments in Internet businesses partially offset by investment income and currency gains. For the year-to-date, other non-operating income primarily consists of the non-monetary gain from the Texas-New Mexico partnership transaction discussed below, investment income and currency gains. This was partially offset by other non-operating charges, including losses from minority interest investments in Internetonline/new technology businesses and minority interest expense fromrelated to the Texas-New Mexico partnership.

     DuringNewspapers Partnership. Non-operating income in the first quarter of 2003, the company completed2004 also includes a non-monetary transaction under which it contributed itsgain from the exchange of the company’s daily newspaper in El Paso toGainesville, Ga. In 2003, non-operating income also includes a newly formed partnership, Texas-New Mexico Newspapers Partnership. The partnership includesnon-monetary gain on the El Paso newspaper and five other daily newspapers in nearby New Mexico that were contributed by Media News Group. In exchange for its contribution, the company received a 66% interest in the partnership.

     In accordance with generally accepted accounting principles, the company recorded this non-monetary transaction as two simultaneous but separate events in the first quarter; that is, acompany’s sale of 34%33.8% of its interest in the El Paso newspaper for which a non-operating gain was recognized, and the acquisition of a 66% interest in the New Mexico newspapers through its investment in the partnership. The non-monetary gain from the partnership transaction is reflected in non-operating income.Times.

     The company’s effective income tax rate was 34.2% for the third quarterfirst quarters of 2004 and first nine months of 2003, compared to 34.4% for the same periods last year.respectively.

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Net Income

     Net income for the thirdfirst quarter rose $13.4advanced $24.6 million or 5%10% and earnings per diluted share increased to $1.03$1.00 from $0.99,93 cents, a 4% increase. For the first nine months, net income was up $40.1 million or 5% and earnings per diluted share increased to $3.15 from $3.02, a 4%7.5% increase. The weighted average number of diluted shares outstanding for the thirdfirst quarter of 20032004 totaled 272,174,000275,507,000, compared to 269,306,000270,059,000 for the thirdfirst quarter of 2002. For the first nine months of 2003 and 2002, the weighted average number of2003. The increase in diluted shares outstanding totaled 271,114,000is due in part to the overall increase in the market price of the company’s stock and 269,105,000, respectively.stock options exercised. Exhibit 11 of this Form 10-Q presents the weighted average number of basic and diluted shares outstanding and the earnings per share for each quarterperiod.

Liquidity, Capital Resources, and year-to-date.

Liquidity and Capital ResourcesStatements of Cash Flows

     The company’s cash flow from operating activities was $1.09 billion$392.1 million for the first ninethree months of 2003,2004, reflecting solid newspaper and television results.broadcasting results partially offset by a $50 million contribution to the Gannett Retirement Plan. Cash flow from operating activities was $985.4$402.1 million for the first nine monthsquarter of 2002.2003.

     Cash used by the company for investing activities totaled $539.5$164.2 million for the ninethree months ended SeptemberMarch 28, 2003. Capital expenditures totaled $171.22004 primarily reflecting capital spending of $58.7 million, in the first nine months of 2003, compared to $175.7 million in the first nine months of last year. In the first nine months of 2003, the company paid $364.3and $109.4 million for the acquisitionacquisitions of Newsquest Scotland and several smaller businesses.

     Cash used by the company for financing activities totaled $481.8$220.1 million, forreflecting the first nine monthspay down of 2003. Payments to reducelong term debt of $115.5 million, the payment of the fourth quarter 2003 dividend of $68.0 million, the repurchase of 1.0 million shares of the company’s debt totaled $395.2stock for $86.5 million (see further discussion below) partially offset by proceeds from the exercise of stock options totaling $49.9 million. The company’s regular quarterly dividend of $0.25 per share, which was declared in the thirdfirst quarter of 2003,2004, totaled $67.5$68.4 million and was paid on OctoberApril 1, 2003. Dividends paid for2004.

     In February 2004, the company announced the reactivation of its existing share repurchase program that was last utilized in February 2000. Under the program, the company has authority to repurchase up to $291 million of the company’s common stock. The shares will be repurchased at management’s discretion, either in the open market or in privately negotiated block transactions. The decision to buy back will depend on price, availability and other corporate developments. Purchases will occur from time to time and no maximum purchase price has been set. During the first nine monthsquarter of 2004, the company purchased approximately 1 million shares of its common stock for $86.5 million. For more information on the share repurchase program, refer to Item 2 of Part II of this Form 10-Q.

     Working capital declined $89.6 million from the end of 2003 reflecting lower receivables due to seasonal trends in revenues and 2002 totaled $193.3 millionhigher taxes payable primarily due to the timing of estimated U.S. Federal and $183.6 million,State tax payments.

     The company’s operations have historically generated strong positive cash flow, which, along with the company’s program of issuing commercial paper and maintaining bank revolving credit agreements, has provided adequate liquidity to meet the company’s requirements, including those for acquisitions.

     The company regularly issues commercial paper for cash requirements and maintains revolving credit agreements equal to or in excess of any commercial paper outstanding. The company’s commercial paper has been rated A-1 and P-1 by Standard & Poor’s and Moody’s Investors Service, respectively. Proceeds received fromThe company’s senior unsecured long-term debt is rated A by Standard & Poor’s and A2 by Moody’s Investors Service. The company has a shelf registration statement with the exerciseSecurities and Exchange Commission under which up to $2.5 billion of stock options totaled $106.6 million and $61.7 million duringadditional debt securities may be issued. The company’s Board of Directors has established a maximum aggregate level of $7 billion for amounts that may be raised through borrowings or the first nine monthsissuance of 2003 and 2002, respectively.equity securities.

     The company’s foreign currency translation adjustment, included in accumulated other comprehensive income and reported as part of shareholders’ equity, totaled $151.5$424.9 million at the end of the thirdfirst quarter versus $56.0$352.3 million at the end of 2002, reflecting2003. The increase reflects a strengthening of British Sterling against the U.S. dollar. Newsquest’s assets and liabilities at SeptemberMarch 28, 20032004 were translated from Sterling to U.S. dollars at an exchange rate of $1.66$1.82 versus $1.60$1.78 at the end of 2002.2003. Newsquest’s financial results were translated at an average rate of $1.61 for the third quarter of 2003 versus $1.55 for the third quarter of 2002, and at an average rate of $1.61$1.84 for the first nine monthsquarter of 2003 compared to $1.482004 versus $1.60 for the first nine monthsquarter of 2002.2003.

     The company is exposed to foreign exchange rate risk primarily due to its operations in the United Kingdom, for which Sterling is the functional currency, which is then translated into U.S. dollars. Translation gains or losses affecting the Condensed Consolidated Statements of Income have not been significant in the past. If the price of Sterling against the U.S. dollar had been 10% more or less than the actual price, reported net income for the first three months of 2004 would have increased or decreased less than 1% for the third quarter and for the year-to-date.approximately 2%, respectively.

     The company has a 13.5% general partnership interest in Ponderay Newsprint Company. The company, on a several basis, is a guarantor of 13.5% of the principal and interest on a term loan held by Ponderay that totals $106$93 million at SeptemberMarch 28, 2003.2004.

Recently Issued Accounting Pronouncements5

     Refer to Note 9 of the Condensed Consolidated Financial Statements for further discussion of new accounting standards and their impact on earnings beginning in 2003.

Other Matters

     In early April 2003, the company completed its acquisition of the publishing business of SMG plc (“Newsquest Scotland”) for approximately £216 million (U.S. $340 million). Newsquest Scotland consists of three Scottish newspapers, eleven specialty consumer and business-to-business magazine titles, and an online advertising and content business.

     In late March 2003, the company entered into an agreement with Independent News and Media Limited for the acquisition of its Greater London regional publishing business for £60 million (approximately U.S. $97 million). This regional publishing business consists of 45 Greater London regional newspapers, including the Post Newspaper Series and the Kentish Times Newspaper Series. On October 21, 2003, the Secretary of State for Trade and Industry in the UK approved the purchase by the company of the bulk of the titles owned by Independent News and Media Limited but did not approve the purchase of certain other titles. The company will review the

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details of the Competition Commission’s report and will discuss the report with the Department of Trade and Industry and Independent News and Media Limited.Other Matters

     On October 31, 2003,April 2, 2004, the company acquired Clipper Magazine,the assets of Captivate Network, Inc., onea national news and entertainment network that delivers quality programming and full motion video advertising to more than 1.4 million consumers and business professionals each day. Captivate is seen in a distraction-free viewing environment, on wireless digital video screens in the elevators of the nation's largest direct-mail advertising magazine companies. The acquisition also includes several affiliated operations including a full service advertising agency, an e-mail customer retention service, a direct mail service to new movers and MyClipper.com, a companion web site for the core direct mail advertising offerings. The company does not expect this acquisition to materially affect the company's financial position or results of operations.premier office towers across North America.

     On October 21, 2003, the company’s board of directors declared a regular quarterly dividend of $0.25 per share. The quarterly dividend is payable on January 2, 2004 to shareholders of record on December 13, 2003.

Certain Factors Affecting Forward-Looking Statements

     Certain statements in this Quarterly Report on Form 10-Q contain forward-looking information. The words “expect”, “intend”, “believe”, “anticipate”, “likely”, “will” and similar expressions generally identify forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated in the forward-looking statements.

     Potential risks and uncertainties which could adversely affect the company’s ability to obtain these results include, without limitation, the following factors: (a) increased consolidation among major retailers or other events which may adversely affect business operations of major customers and depress the level of local and national advertising; (b) a continuedan economic downturn in some or all of the company’s principal newspaper or televisionbroadcasting markets leading to decreased circulation or local, national or classified advertising; (c) a decline in general newspaper readership patterns as a result of competitive alternative media or other factors; (d) an increase in newsprint or syndication programming costs over the levels anticipated; (e) labor disputes which may cause revenue declines or increased labor costs; (f) acquisitions of new businesses or dispositions of existing businesses; (g) a decline in viewership of major networks and local news programming; (h) rapid technological changes and frequent new product introductions prevalent in electronic publishing; (i) an increase in interest rates; (j) a weakening in the British Sterling to U.S. dollar exchange rate; and (k) general economic, political and business conditions.

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CONDENSED CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars

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

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CONDENSED CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars

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

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)

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

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CONDENSED CONSOLIDATED BALANCE SHEETS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars

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

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)

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

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars (except per share amounts)

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

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Gannett Co., Inc. and Subsidiaries
Unaudited, in thousands of dollars

Certain amounts have been reclassified to conform with the current year presentation.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SeptemberMarch 28, 20032004

1. Basis of presentation

2. Stock-based compensation

     Stock-based compensation is accounted for by using the intrinsic value basedvalue-based method in accordance with Accounting Principles Board Opinion APB No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). Under APB No. 25, because the exercise price of the company’s employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. As permitted, the company has elected to adopt the disclosure only provisions of SFAS No. 123,148, “Accounting for Stock-Based Compensation”Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123” (“SFAS No. 123”148”).

     SFAS No. 123 establishes a fair value basedvalue-based method of accounting for employee stock-based compensation plans. The company has chosen to continue to report stock-based compensation in accordance with APB No. 25, and provides the following pro forma disclosure of the effects of applying the fair value method to all applicable awards granted. Had compensation cost for the company’s stock options been determined based on the fair value at the grant date for those awards as permitted (but not required) under the alternative method of SFAS No. 123, the company’s results of operations and related per share amounts would have been reduced to the pro forma amounts indicated below:

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