Shareholders’ equity

Capital stock and earnings per share

Our earnings per share (basic and diluted) for 2014, 2013, and 2012 are presented below:



In thousands, except per share amounts
	2014		2013		2012
Net income attributable to Gannett Co., Inc.	$	1,062,171	$	388,680	$	424,280
Weighted average number of common shares outstanding (basic)	226,292		228,541		232,327
Effect of dilutive securities
Restricted stock	2,624		2,839		2,552
Performance shares	1,999		1,649		944
Stock options	992		1,160		867
Weighted average number of common shares outstanding (diluted)	231,907		234,189		236,690
Earnings per share (basic)	$	4.69	$	1.70	$	1.83
Earnings per share (diluted)	$	4.58	$	1.66	$	1.79

The diluted earnings per share amounts exclude the effects of approximately 0.8 million stock options outstanding for 2014, 2.4 million for 2013 and 6.5 million for 2012, as their inclusion would be antidilutive.

Share repurchase program

In June 2013, we announced that our Board of Directors approved a new program to repurchase up to $300 million in our common stock. During 2014, 2.7 million shares were purchased under the current program for $75.8 million. In 2013, 4.9 million shares were purchased under the current and former programs for $116.6 million and in 2012, 10.3 million shares were purchased for $153.9 million. Repurchased shares are included in the Consolidated Balance Sheets as Treasury Stock. As of Dec. 28, 2014, the value of shares that may be repurchased under the existing program is $148.9 million. This share repurchase program was temporarily suspended upon the announcement of the Cars.com acquisition in 2014, but was re-initiated in February of 2015, well ahead of the timeline we had previously anticipated, as a result of our strong operating performance and the strength of our balance sheet.

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. Certain of the shares we previously acquired have been reissued in settlement of employee stock awards.

Equity-based awards

In May 2001, our 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 our 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 our employees 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, we established a performance share award plan for senior executives pursuant to which awards were first made with a grant date of Jan. 1, 2012. Pursuant to the terms of this award, we may issue shares of our 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 us 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 our 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 before 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 is determined on date of grant by using a Monte Carlo valuation model. Each PSU is equal to and paid in one share of our 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.

We issue 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. For RSU grants after 2014, the grants generally vest 25% per year. Under the plan, no more than 500,000 RSUs may be granted to any participant in any fiscal year.

The Plan also permits us 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 us to issue stock options. Stock options may be granted as either non-qualified stock options or incentive stock options. Options may be granted to purchase our common stock at not less than 100% of the fair market value on the day of grant. Options may be 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. We discontinued annual stock option grants to senior executives when we began issuing Performance Shares.

We issued stock options to certain members of our 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. Members of the Board of Directors were awarded no stock options as part of their compensation in 2014, 22,558 shares in 2013 and 74,611 shares in 2012. We ceased issuing stock options to members of the Board of Directors in May 2013.

We issued restricted stock to certain members of our Board of Directors as compensation for meeting fees and retainer fees, as well as annual long-term awards. Meeting fees paid as restricted stock fully vest upon grant. Retainers paid in the form of restricted shares vest in equal quarterly installments over one year. Long-term awards vest in equal monthly installments over three years. Expense is recognized on a straight-line basis over the vesting period based on the grant date fair value. Members of the Board of Directors were awarded 40,530 shares of restricted stock in 2014, 57,531 shares in 2013 and 31,929 shares in 2012, as part of their compensation plan. All vested shares will be issued to directors when they retire 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 our 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 – We determined the fair value of Performance Shares using the Monte Carlo valuation model. This model considers our likelihood, and the likelihood of our peer group companies’, share prices ending at various levels subject to certain price caps at the conclusion of the three-year incentive period. We determined the fair value of stock options using the Black-Scholes option-pricing formula. Key inputs into the Monte Carlo valuation model and the Black-Scholes option-pricing formula include expected term, expected volatility, risk-free interest rate and expected dividend yield. Each assumption is discussed below.

Expected term – The expected term represents the period that our 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, considering 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 our common stock and also our peer group when the Monte Carlo method is used. The time frame used is equal to the expected term.

Risk-free interest rate – We base 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.

Expected dividend – The dividend assumption is based on our expectations about our dividend policy on the date of grant.

Estimated forfeitures – When estimating forfeitures, we consider voluntary termination behavior as well as analysis of actual forfeitures.

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



Performance Shares Granted During	2014	2013	2012
Expected term	3 yrs.	3 yrs.	3 yrs.
Expected volatility	39.32%	40.80%	69.47%
Risk-free interest rate	0.78%	0.36%	0.41%
Expected dividend yield	2.70%	4.44%	2.39%



Stock Options Granted During^(a)	2013	2012
Average expected term	4.5 yrs.	4.5 yrs.
Expected volatility	61.94%	65.74 - 66.95%
Weighted average volatility	61.94%	66.56%
Risk-free interest rates	0.75%	0.84%
Expected dividend yield	3.00%	5.00%
Weighted average expected dividend	3.00%	5.00%
(a) No stock options were granted after 2013

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
	2014		2013		2012
Restricted stock and RSUs	$	17,754	$	18,105	$	14,362
Performance shares	14,850		12,331		7,991
Stock options and other	1,278		3,001		4,255
Total stock-based compensation	33,882		33,437		26,608
Income tax benefit	12,875		12,706		10,111
Stock-based compensation, net of tax	$	21,007	$	20,731	$	16,497
Per diluted share impact	$	0.09	$	0.09	$	0.07

Restricted Stock and RSUs: As of Dec. 28, 2014, there was $30.2 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 2.4 years. The tax benefit realized from the settlement of RSUs was $9.5 million in 2014. The tax benefit realized in 2013 was $7.0 million and $5.4 million in 2012.

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



2014 Restricted Stock and RSU Activity	Shares		Weighted average fair value
Outstanding and unvested at beginning of year	4,193,985		$	13.92
Granted	1,048,516		$	27.26
Settled	(1,263,702	)	$	15.92
Canceled	(401,201	)	$	16.13
Outstanding and unvested at end of year	3,577,598		$	16.97



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

Performance Shares: As of Dec. 28, 2014, there was $8.1 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.

A summary of our performance shares awards is presented below:



2014 Performance Shares Activity	Target number of shares		Weighted average fair value
Outstanding and unvested at beginning of year	1,760,488		$	16.92
Granted	436,340		$	37.31
Canceled	(96,713	)	$	21.41
Outstanding and unvested at end of year	2,100,115		$	20.95



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

Stock Options: During 2014, options were exercised from which we received $14.2 million of cash. The intrinsic value of the options exercised was approximately $15.0 million. The actual tax benefit realized from the option exercises was $3.0 million.

During 2013, options were exercised from which we received $21.7 million of cash. The intrinsic value of the options exercised was approximately $16.7 million. The actual tax benefit realized from the option exercises was $2.8 million.

During 2012, options exercised from which we received $24.5 million of cash. The intrinsic value of the options exercised was approximately $21.3 million. The actual tax benefit realized from the option exercises was $3.9 million.

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

The total grant date fair value for options vested during 2014 was $6.0 million, $8.6 million for options vested during 2013 and $11.6 million for options vested during 2012.

A summary of our stock option awards is presented below:



2014 Stock Option Activity	Shares		Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value
Outstanding at beginning of year	5,575,401		$	29.76	3.2	$	46,988,804
Exercised	(968,891	)	$	14.47
Canceled/expired	(1,599,852	)	$	53.89
Outstanding at end of year	3,006,658		$	21.84	2.8	$	37,497,113
Options exercisable at year end	2,818,658		$	22.23	2.7	$	34,543,513



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

Accumulated other comprehensive income (loss)

The elements of our 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
2014	Retirement Plans			Foreign Currency Translation			Total
Balance at beginning of year	$	(921,232	)	$	427,177		$	(494,055	)
Other comprehensive income before reclassifications	(276,219		)	(36,064		)	(312,283		)
Amounts reclassified from accumulated other comprehensive income	27,569			—			27,569
Balance at end of year	$	(1,169,882	)	$	391,113		$	(778,769	)



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 (loss)	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	)

Accumulated Other Comprehensive Loss components are included in the computation of net periodic postretirement costs (see Notes 7 and 8 for more detail). Reclassifications out of Accumulated Other Comprehensive Loss related to these postretirement plans include the following:



In thousands of dollars
	2014			2013
Amortization of prior service credit	$	(4,082	)	$	(1,599	)
Amortization of actuarial loss	46,489			64,381
Settlement charge	—			3,077
Total reclassifications, before tax	42,407			65,859
Income tax effect	(14,838		)	(24,802		)
Total reclassifications, net of tax	$	27,569		$	41,057