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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 29, 2003

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-6961

GANNETT CO., INC.
(Exact name of registrant as specified in charter)

Registrant’s telephone number, including area code: (703) 854-6000.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

The total number of shares of the registrant’s Common Stock, $1.00 par value, outstanding as of August 1, 2003, was 269,705,112.

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 $1.20 for the second quarter of 2003 versus $1.13 per share for the same period last year. For the year-to-date, earnings per diluted share were $2.12 versus $2.04 per share.

     Net income rose 7% to $324.3 million for the quarter and 5% to $574.1 million for the year-to-date. Operating income increased 5% to $528.1 million for the quarter and 4% to $939.1 million for the year-to-date.

     Operating revenues were $1.7 billion for the second quarter, a 6% increase over the same period last year. For the first six months, operating revenue increased by $131.2 million or 4% to $3.3 billion.

Newspaper Results

     Reported newspaper publishing revenues increased $90.7 million or 6% for the second quarter of 2003 as compared to the second quarter of 2002 and rose $138.8 million or 5% for the year-to-date. Newspaper operating revenues are derived principally from advertising and circulation sales, which accounted for 74% and 20%, respectively, of total newspaper revenues for the second quarter of 2003 and 73% and 21% 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 businesses and also include earnings from the company’s 50% owned joint operating agencies in Detroit and Tucson. The tables below present these components of reported revenues for the second quarter and first six months of 2003 and 2002.

Newspaper operating revenues, in thousands of dollars

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

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Advertising revenues, in thousands of dollars

     Newspaper advertising revenues improved by $69.4 million or 7% for the quarter and $105.7 million or 5% for the year-to-date, primarily from gains in local and classified advertising, the acquisition of the publishing businesses of Scottish Media Group (“Newsquest Scotland”) and the establishment of the Texas-New Mexico Newspapers Partnership (“Texas-New Mexico”). Circulation revenues rose $9.2 million or 3% for the quarter and $12.4 million or 2% for the year-to-date. Other newspaper revenues increased $12.0 million or 15% and $20.7 million or 13% for the year-to-date, primarily because of higher commercial printing volume. A higher foreign exchange rate for UK Sterling in 2003 for Newsquest operations favorably impacted revenue comparisons.

     In the tables that follow, newspaper advertising linage and related revenues are presented on a pro forma basis. Pro forma basis means that these results are presented as if all properties owned at the end of the second 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 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.

     For the second quarter of 2003, reported and pro forma local advertising revenues rose 6% and 5%, respectively, with pro forma linage down 1%. For the year-to-date, reported and pro forma local advertising revenues increased 5% and 4%, respectively, with pro forma linage 2% below last year. Local ad revenues benefited from strong preprint ad demand and advertising growth in non-daily publications.

     Reported and pro forma national advertising revenues rose 6% and 4%, respectively, for the second quarter on a 9% pro forma volume increase. Year-to-date, reported and pro forma national advertising revenues gained 4% and 3%, respectively, with pro forma linage up 8%, reflecting improvement at certain of the company’s domestic local newspapers. At USA TODAY, advertising revenues were flat as gains in the automotive, technology and telecom ad categories helped offset weakness in the travel and retail ad categories.

     Reported and pro forma classified ad revenues increased 7% and 4%, respectively, with pro forma linage up 3%, for the second quarter. For the year-to-date, reported and pro forma classified ad revenues were up 6% and 5% on a 3% gain in pro forma linage. Pro forma classified ad revenue gains were driven by strength in the automotive and real estate categories, which rose 5% and 12%, respectively. Employment ad revenues continued to be impacted by the jobless recovery and, on a pro forma basis, declined 6% for the quarter and 4% for the year-to-date. Overall, the company’s classified results from Newsquest were stronger than its domestic results.

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     Circulation revenues, as reported, rose 3% for the second quarter, but were flat on a pro forma basis. Year-to-date, reported circulation revenues increased 2% and pro forma revenues rose 1%. Pro forma net paid daily circulation for the company’s newspapers, excluding USA TODAY, declined 2% for the second quarter and 1% for the year-to-date. Sunday net paid circulation declined 1% from the comparable quarter of last year and for the year-to-date. USA TODAY reported an average daily paid circulation of 2,249,717 in the ABC Publisher’s Statement for the 26 weeks ended March 30, 2003, a 2% increase over the comparable period a year ago.

     Reported newspaper operating expenses rose $67.4 million or 7% for the quarter and $97.7 million or 5% for the first six months, primarily as a result of the Newsquest Scotland and Texas-New Mexico transactions, increased commercial printing volume and higher pension and other employee benefit costs. The higher foreign exchange rate in 2003 for Newsquest operations adversely impacted expense comparisons. Newsprint expense for the second quarter and first six months increased 10% and 5%, respectively. Newsprint expenses were impacted by higher year-over-year prices and increased consumption due primarily to the aforementioned transactions and increased commercial printing activity.

     Operating income for the quarter rose $23.3 million or 5% and $41.0 million or 5% year-to-date. Operating income benefited from the Newsquest Scotland and Texas-New Mexico transactions as well as favorable foreign exchange rates tempered by increased newsprint expenses and employee benefit costs.

Television Results

     Television revenues increased $1.4 million or 1% for the quarter, but were down $7.6 million or 2% for the year-to-date due to diminished political spending and decreased advertising demand resulting from the war in Iraq. In addition, the first six months of 2002 benefited from Winter Olympic-related advertising. National revenues declined 4% and 5% for the quarter and year-to-date, respectively. Local revenues rose 4% compared to the second quarter of 2002, and were even for the year-to-date. Operating expenses were flat for the second quarter and year-to-date as lower programming and sales costs were partially offset by increased news, pension and other benefit costs. Operating income increased $1.1 million or 1% for the quarter and declined $7.7 million or 5% for the year-to-date.

Operating Cash Flow

     The company’s consolidated operating cash flow, defined as operating income plus depreciation and amortization of intangible assets, increased $26.0 million or 5% to $585.4 million for the second quarter and increased $35.3 million or 3% to $1.05 billion for the year-to-date. Operating cash flow gains were driven by the newspaper segment, which benefited from improved local and classified advertising revenues, recent acquisitions and favorable foreign exchange rates. All references to “operating cash flow” are to a non-GAAP financial measure. Management believes that use of this measure allows investors and management to measure, analyze, and compare the cash resources generated from its business segments in a meaningful and consistent manner. The focus on operating cash flow is appropriate given the consistent and generally predictable strength of cash flow generation by newspaper and television operations, and the short period of time it takes to convert new orders to cash. A reconciliation of these non-GAAP amounts to the company’s operating income, which the company believes is the most directly comparable financial measure calculated and presented in accordance with GAAP in the company’s consolidated statements of income, is presented in Note 8 “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 $4.8 million or 12% for the quarter, primarily due to lower average commercial paper levels and lower interest rates on commercial paper debt. For the year-to-date, interest expense was up $2.6 million or 4% due to increased interest expense from the fixed rate notes issued in March 2002, partially offset by decreased interest expense from the commercial paper debt. 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 $2.6 billion and $2.8 billion during the second quarter of 2003 and 2002, respectively. The daily average outstanding balance of commercial paper was $2.6 billion during the first half of 2003 and $3.7 billion for the comparable period of 2002. The weighted average interest rate on commercial paper was 1.26% and 1.82% for the second quarter of 2003 and 2002, respectively. For the first six months of 2003 and 2002, the weighted average interest rate was 1.28% and 1.82%, respectively.

     Because the company has $2.5 billion in commercial paper obligations at June 29, 2003 that have relatively short-term maturity dates, the company is subject to significant changes in the amount of interest expense it might

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incur. Assuming the current level of 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 $12.5 million.

     Other non-operating income reflects investment and currency gains offset by minority interest expense from the Texas-New Mexico Newspapers Partnership and other non-operating charges including losses from minority interest investments in Internet businesses.

     During the first quarter of 2003, the company completed a non-monetary transaction under which it contributed its newspaper in El Paso to a newly formed partnership, Texas-New Mexico Newspapers Partnership. The partnership includes the El Paso newspaper and five other daily newspapers in nearby New Mexico that were contributed by 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, a sale of 34% 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 and was partially offset by other non-operating charges, including losses from minority interest investments in Internet businesses.

     The company’s effective income tax rate was 34.2% for the second quarter and first half of 2003 compared to 34.4% for the same periods last year.

Net Income

     Net income for the second quarter rose $20.4 million or 7% and earnings per diluted share increased to $1.20 from $1.13, a 6% increase. For the first six months, net income was up $26.7 million or 5% and earnings per diluted share increased to $2.12 from $2.04, a 4% increase. The weighted average number of diluted shares outstanding for the second quarter of 2003 totaled 271,281,000 compared to 269,473,000 for the second quarter of 2002. For the first six months of 2003 and 2002, the weighted average number of diluted shares outstanding totaled 270,582,000 and 269,013,000, respectively. 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 quarter and year-to-date.

Liquidity and Capital Resources

     The company’s cash flow from operating activities was $696.8 million for the first six months of 2003, reflecting solid newspaper and television results. Cash flow from operating activities was $695.3 million for the first six months of 2002.

     Cash used by the company for investing activities totaled $455.2 million for the six months ended June 29, 2003. Capital expenditures totaled $101.0 million in the first six months of 2003, compared to $124.6 million in the first six months of last year. In the first six months of 2003, the company paid $353.3 million for the acquisition of Newsquest Scotland and several smaller businesses.

     Cash used by the company for financing activities totaled $202.1 million for the first six months of 2003. Of this amount, $145.5 million was used to pay down long-term debt, $128.6 million was used to pay dividends and $72.1 million was received from the exercise of stock options. The company’s regular quarterly dividend of $0.24 per share, which was declared in the second quarter of 2003, totaled $64.6 million and was paid on July 1, 2003.

     The company’s foreign currency translation adjustment, included in accumulated other comprehensive income and reported as part of shareholders’ equity, totaled $135.0 million at the end of the second quarter versus $56.0 million at the end of 2002, reflecting a strengthening of British Sterling against the U.S. dollar at the end of the second quarter of 2003 versus the end of year 2002. Newsquest’s assets and liabilities at June 29, 2003 were translated from Sterling to U.S. dollars at an exchange rate of $1.65 versus $1.60 at the end of 2002. Newsquest’s financial results were translated at an average rate of $1.62 for the second quarter of 2003 versus $1.46 for the second quarter of 2002, and at an average rate of $1.61 for the first half of 2003 compared to $1.44 for the first six months of 2002.

     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% less than the actual price, reported net income would have decreased approximately 1% for the second quarter and for the year-to-date.

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     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 $113 million at June 29, 2003.

Recently Issued Accounting Pronouncements

     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 £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. The acquisition is subject to the approval of the Secretary of State for Trade and Industry in the United Kingdom. Closing of this transaction is expected in the second half of 2003.

     On August 5, 2003, the company’s board of directors declared a regular quarterly dividend of $0.25 per share. The quarterly dividend is payable on October 1, 2003 to shareholders of record on September 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 continued economic downturn in some or all of the company’s principal newspaper or television markets leading to decreased circulation or local, national or classified advertising; (c) a decline in general newspaper readership patterns as a result of competitive alternative media or other factors; (d) an increase in newsprint or syndication programming costs over the levels anticipated; (e) labor disputes which may cause revenue declines or increased labor costs; (f) acquisitions of new businesses or dispositions of existing businesses; (g) a decline in viewership of major networks and local news programming; (h) rapid technological changes and frequent new product introductions prevalent in electronic publishing; (i) an increase in interest rates; (j) a weakening in the 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 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

June 29, 2003

1. Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all information and footnotes which are normally included in the Form 10-K and annual report to shareholders. The financial statements covering the 13-week and 26-week periods ended June 29, 2003, and the comparative periods of 2002, reflect all adjustments which, in the opinion of the company, are necessary for a fair statement of results for the interim periods and reflect all normal and recurring adjustments which are necessary for a fair presentation of the company’s financial position, results of operations and cash flows as of the dates and for the periods presented.

2. Stock-based Compensation

     Stock-based compensation is accounted for by using the intrinsic value based method in accordance with Accounting Principles Board Opinion APB No. 25, “Accounting for Stock Issued to Employees” (“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, “Accounting for Stock-Based Compensation” (“SFAS No. 123”).

     SFAS No. 123 establishes a fair value 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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