2009            2008
Impact of noted items:
Debt exchange gain                                                $ (0.11 )      $      -
Workforce restructuring/facility consolidations                      0.04            0.12
Asset impairment charges                                             0.13           11.08
Other asset write downs                                              0.10               -
Pension curtailment gain                                                -           (0.13 )

Unfavorable impact on reported diluted earnings (loss) per
share                                                             $  0.16        $  11.07


Diluted earnings (loss) per share as reported (and inclusive
of the unfavorable impact noted above)                            $  0.30        $ (10.03 )

Excluding the special items noted above, diluted earnings per share declined 56% reflecting the adverse economic conditions in the U.S. and UK. However, each of the Company's three business segments reported significant levels of operating income for the quarter as the economy-driven revenue declines were offset to a significant degree by cost savings initiatives.
For the year-to-date periods, the 2009 net income attributable to Gannett Co., Inc. was $147.9 million or $0.64 per diluted share compared to a loss in 2008 of $2.1 billion or $9.17 per diluted share. The special charges and credits referred to above are more fully discussed in the following sections of this report including Notes 3, 5 and 6 to the Condensed Consolidated Financial Statements.
Liquidity Matters
In March 2009, the Company borrowed under its revolving credit agreements funds sufficient to pay down the then outstanding $563 million of floating rate notes that were due in May 2009. The floating rate notes were repaid as scheduled.
On May 5, 2009, the Company completed a private exchange offer relating to its 5.75% fixed rate notes due June 2011 and its 6.375% fixed rate notes due April 2012. The Company exchanged approximately $67 million in principal amount of new 10% senior notes due 2015 for approximately $67 million principal amount of the 2011 notes, and approximately $193 million in principal amount of new 10% senior notes due 2016 for approximately $193 million principal amount of the 2012 notes. The Company reported a non-cash gain of $42.7 million on this exchange, which is reflected as a non-operating item in the Consolidated Statements of Income.

For the first six months of 2009, the Company's long-term debt was reduced by $308 million reflecting repayments of $265 million from operating cash flow and the gain from the private exchange offer of $43 million. At the end of the second quarter, the Company's debt was $3.5 billion, and the Company has no further debt repayment requirements until June of 2011. The Company's senior leverage ratio was 3.04x as of June 28, 2009.
Further information regarding this exchange offer and other liquidity matters can be found in "Liquidity, Capital Resources, Financial Position, and Statements of Cash Flows" beginning on page 8. Operating Revenue and Expense Discussion The narrative which follows provides background on key revenue and expense areas and principal factors affecting comparisons and amounts. Comparisons are to the second quarter of 2008 unless otherwise noted. The narrative below is focused mainly on changes in historical financial results. However, certain operating information that includes results for CareerBuilder and ShopLocal, which the Company began consolidating in the third quarter of 2008, is also presented on a pro forma basis, which assumes that these entities were consolidated throughout all periods covered by the narrative. The Company consistently uses, for individual businesses and for aggregated business data, pro forma reporting of operating results in its internal financial reports because it enhances measurement of performance by permitting comparisons with prior period historical data. Likewise, the Company uses this same pro forma data in its external reporting of key financial results and benchmarks. Operating Revenues
Operating revenues declined 18% to $1.4 billion for the second quarter of 2009 and 18% to $2.8 billion for the first six months of the year. The revenue decline reflects primarily the impact on advertising demand of the ongoing recessions in the U.S. and UK economies. Digital segment revenues increased significantly due to the consolidation of CareerBuilder and ShopLocal since the third quarter of 2008. On a pro forma basis, operating revenues decreased 24% for the quarter and year-to-date periods (22% and 21% on a constant currency basis, respectively). A more detailed discussion of revenues by business segment is included in following sections of this report. Operating Expenses
Operating expenses declined 67% to $1.3 billion for the second quarter of 2009 and 52% to $2.5 billion for the first six months, as a result of the significant non-cash impairment charges in 2008, continuing cost containment efforts including workforce restructuring, facility consolidations, furloughs and salary adjustments and lower newsprint expense. The consolidation of CareerBuilder and ShopLocal since the third quarter of 2008 had the effect of increasing reported expenses. Excluding the pension gains, workforce restructuring expenses and asset impairment charges in both years, pro forma operating expenses were 20% lower for the quarter and 19% lower year-to-date.
Excluding severance costs, payroll expenses were down 18% for the quarter and 17% for the first six months, reflecting headcount reductions across the Company as well as the impact of furloughs and salary adjustments, offset partially by the consolidation of CareerBuilder and ShopLocal. On a pro forma basis, payroll expense, excluding severance, was down 25% for the quarter and 24% year-to-date.
Newsprint expenses were down 27% for the second quarter and 21% for the first six months. Newsprint usage prices for the second quarter rose 7% above last year, but the price impact was more than offset by a 32% decline in consumption. For the six month period, prices were 14% higher than last year and consumption was 31% lower. Newsprint prices have been declining since the end of 2008 and significantly favorable price comparisons to 2008 are expected for the second half of 2009.
Publishing Results
Publishing revenues declined 26% to $1.1 billion from $1.5 billion in the second quarter and decreased 26% to $2.2 billion from $3.0 billion year-to-date. On a constant currency basis, publishing revenues declined 23% for the second quarter and year-to-date period. The average exchange rate used to translate UK publishing results from the British pound to U.S. dollars decreased 22% to 1.54 for the second quarter of 2009 from 1.97 last year and for the year-to-date period decreased 25% to 1.49 from 1.98.
Publishing operating revenues are derived principally from advertising and circulation sales, which accounted for 67% and 26%, respectively, of total publishing revenues for the second quarter, and 67% and 27%, respectively, for the year-to-date period. Advertising revenues include amounts derived from advertising placed with print products as well as

publishing internet Web sites. "All other" publishing revenues are mainly from commercial printing operations. The table below presents the components of publishing revenues.
Publishing revenues, in thousands of dollars

                Second Quarter      2009            2008         % Change
                Advertising      $   753,079     $ 1,108,189           (32 )
                Circulation          292,757         305,994            (4 )
                All other             71,437          91,230           (22 )

                Total            $ 1,117,273     $ 1,505,413           (26 )




                 Year-to-date      2009            2008         % Change
                 Advertising    $ 1,475,834     $ 2,205,083           (33 )
                 Circulation        592,440         615,172            (4 )
                 All other          140,827         177,954           (21 )

                 Total          $ 2,209,101     $ 2,998,209           (26 )

The table below presents the principal categories of advertising revenues for the publishing segment.
Advertising revenues, in thousands of dollars

      Second Quarter                           2009           2008         % Change
      Retail                                 $ 386,852     $   507,287           (24 )
      National                                 131,203         169,086           (22 )
      Classified                               235,024         431,816           (46 )

      Total publishing advertising revenue   $ 753,079     $ 1,108,189           (32 )

     Year-to-date                              2009            2008         % Change
     Retail                                 $   754,759     $   988,076           (24 )
     National                                   252,668         344,200           (27 )
     Classified                                 468,407         872,807           (46 )

     Total publishing advertising revenue   $ 1,475,834     $ 2,205,083           (33 )

Publishing advertising revenues decreased 32% in the quarter to $753 million from $1.1 billion in the second quarter of 2008 and decreased 33% to $1.5 billion from $2.2 billion on a year-to-date basis. On a constant currency basis, total publishing advertising revenue would have been 29% lower for the second quarter and 30% lower for the year-to-date period. For U.S. publishing, advertising decreased 28% for the second quarter and year-to-date period, while in the UK, advertising revenues fell 51% for the second quarter and 53% for the year-to-date period. On a constant currency basis, advertising revenues in the UK declined 37% for the second quarter and 38% for the year-to-date period.
In all advertising categories in the U.S. and UK, revenues were adversely affected by continuing recessionary economic conditions. However, trends for some revenue categories improved over the course of the second quarter. Overall, advertising revenue declines for the second quarter of 2009 as compared to the second quarter of 2008 were less than the comparable first quarter declines in both the U.S. and the UK, and June was the Company's best comparison month so far this year.

For the second quarter and year-to-date periods, retail advertising revenues in total declined 24%. In the U.S. retail was down 22% for the quarter and 21% for the year-to-date period while in the UK retail revenues fell 38% (20% in pounds) for the quarter, and 41% (22% in pounds) for the year-to-date period. In the U.S., revenues were lower in all principal retail categories, with the most significant declines in the furniture and department store categories.
National advertising revenues declined 22% and 27% for the quarter and year-to-date periods, respectively. National ad revenue at USA TODAY was down 26% for the quarter and 30% year-to-date as paid ad pages were 602 compared to 831 for the same period last year and 1,128 year-to-date compared to 1,657 last year. Revenue growth in the quarter in the telecommunications and pharmaceutical categories was more than offset by declines in the entertainment, travel, auto, and financial categories. National revenues were also lower for USA Weekend, Newsquest and the U.S. Community Publishing Group in the quarter and year-to-date periods. While national revenues comparisons to prior year continue to be down across the Company as a whole, June revenues were down 12% which was an improvement over the April and May comparisons.
Classified advertising revenues declined 46% for the second quarter and year-to-date period. Real estate revenues were down 48% for the quarter and 50% for the year-to-date period. Employment revenues were down 64% for the quarter and year-to-date period, and auto revenues decreased 40% for the quarter and year-to-date period. In the U.S. classified advertising revenues declined 40% for the second quarter and year-to-date period. Real estate revenues were down 39% for the quarter and 38% for the year-to-date period. Employment revenues were down 63% for the quarter and the year-to-date period and U.S. auto revenues decreased 36% for the quarter and 34% for the year-to-date period.
UK classified revenues were 57% lower for the quarter and 59% lower for the year-to-date period. On a constant currency basis, UK classified revenues were down 45% for the quarter and year-to-date period. On a constant currency basis, real estate revenues were 53% lower for the quarter and 57% lower year-to-date, employment revenue declined 56% for the quarter and 53% year-to-date and automotive decreased 43% for the quarter and the year-to-date period.
The Company's publishing operations, including its U.S. Community Publishing Group, the USA TODAY Group and the Newsquest Group, generate advertising revenues from the operation of Web sites that are associated with their traditional print businesses. These revenues are reflected within the retail, national and classified categories presented and discussed above, and they are separate and distinct from revenue generated by businesses included in the Company's new digital segment. These online/digital advertising revenues declined 24% for the quarter and 23% for the year-to-date period, due principally to reduced employment advertising. Absent the impact of lower employment advertising, online advertising for U.S. community publishing declined 2% for the quarter and remained flat for the year-to-date period.
Circulation revenues declined 4% for the second quarter and first six months of 2009. Domestic circulation revenue declined 1% for the quarter and was flat for the year, reflecting recent single copy and home delivery price increases in several markets and at USA TODAY. In the March Publishers Statement submitted to ABC, circulation for USA TODAY for the previous six months decreased 7% from 2,284,219 in 2008 to 2,113,725 in 2009 reflecting lower business and consumer travel.
Net paid daily circulation for publishing operations, excluding USA TODAY, declined 13% for the quarter and 11% year-to-date, while Sunday net paid circulation was down 8% for the quarter and 7% year-to-date. Volumes were affected, in part, by single copy and home delivery price increases initiated at most U.S. newspapers and by selective culling of distribution in certain areas.
The decrease in "All other" revenues for the second quarter and year-to-date period is primarily due to lower commercial printing activity and a decline in the British pound to U.S. dollar exchange rate.
Publishing operating expenses were down 72% in the quarter to $1.0 billion from $3.7 billion in the second quarter of 2008, mainly due to the non-cash impairment charges taken in the second quarter last year. Excluding non-cash impairment charges and workforce restructuring costs taken in both years as well as the pension curtailment gain in 2008, second quarter operating expenses declined 20%. This decline was driven by cost containment efforts including the impact of headcount reductions in previous periods, furloughs in the current quarter, lower newsprint expense and generally lower spending in nearly all other key cost categories. Year-to-date publishing operating expenses declined 60% to $2.0 billion compared to $4.9 billion a year ago. Excluding non-cash impairment charges and workforce restructuring costs taken in both years as well as the pension gains in 2008 and 2009, year-to-date operating expenses declined 19%.
Newsprint expense was 27% lower for the second quarter of 2009 reflecting a 32% decline in usage, including savings from web width reductions and greater use of light weight newsprint, partially offset by a 7% increase in prices. Year-to-date newsprint expense declined 21% on a 31% decline in usage, partially offset by a 14% increase in price. For the remainder of 2009, newsprint prices are expected to be below prior year levels and consumption will continue to be significantly below last year. The Company expects newsprint expense comparisons to prior year therefore will be significantly better in the second half of the year than in the first half.

The Company expects that publishing segment expenses for the second half of 2009 will continue to be significantly lower than prior year levels, reflecting continued payroll savings and even greater newsprint savings.
Publishing segment operating income was $88 million in the quarter, compared to a loss of $2.2 billion last year. Excluding non-cash impairment charges and workforce restructuring costs taken in both years as well as the pension gain in 2008, second quarter operating income declined 49%. The decline reflects the challenging advertising environment, partially mitigated by cost savings throughout the group. The weakening of the British pound also contributed to the decline in operating income. Year-to-date publishing operating income was $226 million, compared to a loss of $1.9 billion last year. Excluding impairment and workforce restructuring charges and the pension gains, operating income declined 56%.
Digital Results
Beginning with the third quarter of 2008, a new "Digital" business segment has been reported, which includes results for CareerBuilder, PointRoll, ShopLocal, Planet Discover, Schedule Star and Ripple6. Results for CareerBuilder and ShopLocal were initially consolidated in the third quarter of 2008 when the Company acquired a controlling interest in CareerBuilder and increased its ownership in ShopLocal to 100% from 42.5%. Ripple6 was acquired in November 2008. Results for PointRoll, Planet Discover and Schedule Star, which had been previously included in the publishing segment, have been reclassified to the digital segment for prior periods. Operating results from Web sites that are associated with publishing businesses and broadcast stations continue to be reported in the publishing and broadcast segments.
Digital segment operating revenues were $142 million in the second quarter compared to $20 million in 2008, an increase of $122 million. Year-to-date operating revenues were $286 million compared to $34 million in 2008, an increase of $252 million. Digital operating expenses were $124 million in the second quarter compared to $15 million in 2008, an increase of $109 million. Year-to-date operating expenses were $268 million compared to $30 million in 2008, an increase of $238 million. Digital operating revenue and expense increases reflect primarily the consolidation of CareerBuilder and ShopLocal in the 2009 periods. On a pro forma basis, assuming CareerBuilder and ShopLocal had been fully consolidated for 2008, operating revenues were down 18% for the second quarter and 16% for year-to-date period. These declines reflect the impact of the weak U.S. employment conditions on CareerBuilder. Pro forma expenses were down 25% for the second quarter and 23% for the year-to-date period, reflecting significant cost savings at CareerBuilder.
Digital segment operating income of $18 million in the second quarter and $17 million in the year-to-date period reflects positive results for CareerBuilder, PointRoll and ShopLocal, which were offset by continued investment in other digital properties. Pro forma operating results improved by over $8 million, or 84% in the second quarter and over $26 million in the year-to-date period, reflecting significantly better results for CareerBuilder and ShopLocal.
Broadcasting Results
Broadcasting includes results from the Company's 23 television stations and Captivate. Reported broadcasting revenues were $153 million in the second quarter, a 21% decrease compared to $193 million in 2008. Year-to-date revenues were $296 million, an 18% decrease compared to $363 million in 2008. Retransmission revenues totaled $14 million in the quarter, a three-fold increase from the prior year. However, weakness in the automotive and retail categories and a $3 million decline in politically related advertising more than offset the increases.
Broadcasting operating expenses for the second quarter totaled $103 million, down 9% from $113 million a year ago, reflecting cost containment efforts including furloughs in the current quarter. Operating expenses excluding workforce restructuring and related expenses, the pension curtailment gain, asset impairments and other charges, declined 13%. Year-to-date operating expenses were $202 million, down 10% from $226 million a year ago. Year-to-date operating expenses excluding workforce restructuring and related expenses, pension gains, asset impairment and other charges decreased 12%.
Reported operating income for the second quarter totaled $50 million, down 37% from $79 million last year. Year-to-date operating income was $94 million, down 31% from $137 million last year.
Television revenues were 20% lower in the second quarter and 17% lower year-to-date. Based on current trends, the Company expects the percentage decline in television revenues to be in the mid-twenties for the third quarter of 2009 compared to the third quarter of 2008. This is due primarily to the absence of approximately $50 million of political and Olympic ad revenue in the third quarter of 2008.
Corporate Expense
Corporate expenses in the second quarter were $14 million as compared to $10 million a year ago. Year-to-date corporate expenses were $28 million compared to $26 million a year ago. Corporate expenses were higher in 2009 due

principally to the allocation of a portion of the pension curtailment gain in 2008. Absent the pension gain and several other items, corporate expenses in the second quarter were down 11%.
Consolidated Operating Expenses
For the second quarter, operating expenses declined by $2.6 billion or 67% primarily due to the significant non-cash impairment changes in 2008. Year-to-date operating expenses declined by $2.7 billion or 52%.
On a pro forma basis and excluding workforce restructuring costs, facility consolidation expenses, impairment charges and pension gains, consolidated operating expenses for the quarter and year-to-date period declined 20% and 19%, respectively.
Non-Operating Income and Expense
Equity Earnings
The equity income in unconsolidated investees for the second quarter of 2009 was $3 million. The equity loss of $253 million for the second quarter of 2008 reflects non-cash impairment charges totaling $261 million related principally to the carrying value of newspaper partnership investments. Excluding the 2008 impairment charges, equity income for the second quarter of 2009 was down $5 million reflecting lower newspaper partnership results and the absence of equity earnings from CareerBuilder, which has been consolidated since the third quarter of 2008. Excluding the 2008 impairment charges, equity income increased $4 million on a year-to-date basis reflecting the absence of equity losses related to CareerBuilder and ShopLocal, partially offset by lower newspaper partnership results.
Interest Expense
The Company's interest expense for the second quarter was $44 million and $93 million year-to-date, unchanged from the comparable prior year periods.
Total average outstanding debt for the second quarter was $3.97 billion in 2009 and $3.96 billion in 2008. For the year-to-date periods of 2009 and 2008, total average outstanding debt was $3.93 billion and $3.97 billion, respectively. Average debt amounts include amounts borrowed in March 2009 under the revolving credit agreements sufficient to pay down the then outstanding $563 million of floating rate notes that were due in May 2009. The weighted average interest rate for total outstanding debt was 4.13% for the second quarter of 2009 compared to 4.23% last year and 4.41% year-to-date compared to 4.43% last year.
At the end of the second quarter of 2009, the Company had approximately $2.6 billion in long-term floating rate obligations outstanding. A 1/2% increase or decrease in the average interest rate for these obligations would result in an increase or decrease in annualized interest expense of $12.8 million.
Other Non-Operating Items
The $11 million improvement in other non-operating items was due primarily to the $43 million non-cash gain resulting from the Company's debt exchange during the quarter as discussed more fully in the "Liquidity, Capital Resources, Financial Position, and Statements of Cash Flows" section below, offset partially by a non-cash charge of $28 million for the write-down of certain publishing business assets held for sale. Excluding these non-cash items, other non-operating income declined $3 million.
On a year-to-date basis, other non-operating items declined $10 million to a net total of $19 million. The amount reported for 2009 includes the $43 million non-cash debt exchange gain partially offset by the $28 million non-cash asset write down charge. In 2008, reported amounts include a $26 million gain on the sale of land. Excluding these items, non-operating income was even with last year.
Provision for Income Taxes
The Company's effective income tax rate for continuing operations was 33.8% for the second quarter and 33.7% for the first six months of 2009. The tax rate for the second quarter and first six months of 2009 includes benefits from the release of tax reserves from prior years upon the favorable settlement of issues under examination, partially offset by the non-tax deductibility of certain impairment and other charges. In addition, the tax rate reflects a benefit from a lower statutory rate on UK earnings.
Net Income (Loss) Attributable to Gannett Co., Inc. The net income attributable to Gannett Co., Inc. was $70 million or $0.30 per diluted share for the second quarter of 2009 compared to a loss of $2.3 billion or $10.03 per diluted share for the second quarter of 2008. For the year-to-date

period of 2009 the net income attributable to Gannett Co., Inc. was $148 million or $0.64 per diluted share compared to a loss of $2.1 billion or $9.17 per . . .