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For 2002, the company’s pension expense will increase by more than $50 million, which reflects the impact of unfavorable investment return in 2001 and the lower discount rate at the end of 2001, partially offset by the favorable impact of the 2001 contri- bution to the plan. For further information regarding the compa- ny’s retirement plan, see Note 5 to the Financial Statements, beginning on page 39 of this report. 

As further discussed on page 29 of this report, amortization of goodwill will cease upon the company’s adoption of the Statement of Financial Accounting Standards No. 142 (SFAS No. 142) “Goodwill and Other Intangible Assets” in the first quarter of 2002. At that time, amortization expense will decline to approxi- mately $7.3 million annually, covering certain identified newspaper intangible assets. 

Cost of sales for 2000 was up $598 million or 24%, reflecting the full-year effect of the 1999 Newsquest acquisition, increased costs from the Newscom, Thomson and Central acquisitions and the impact of an extra week in 2000 over 1999. Newsprint expense increased 20% due primarily to a 17% increase in con- sumption, principally from acquisitions. Average newsprint prices increased 3% compared to 1999. 

SG&A was up 23% for the year also due primarily to the new businesses acquired in 1999 and 2000 and the extra week in 2000. 

Depreciation expense increased 15% during 2000 as a result of the Newsquest, Newscom, Thomson and Central acquisitions. Likewise, amortization of intangibles rose $70 million or 63% due to the 1999 and 2000 acquisitions. 

Cost of sales for 1999 was up $95 million or 4%, reflecting increased costs from businesses acquired in 1998 and 1999, particularly Newsquest. Newsprint expense decreased 6% despite a 7% increase in consumption (including acquisitions). Average newsprint prices dropped 12% as compared to 1998. 

SG&A was up 12% for 1999 due primarily to the Newsquest acquisition and generally higher newspaper advertising expenses. 

Depreciation expense for 1999 increased 3% as a result of the Newsquest acquisition. Amortization of intangibles rose $21 million or 23% due to 1998 and 1999 acquisitions, principally Newsquest. 

Payroll and newsprint costs (along with certain other produc- tion material costs), the largest elements of the company’s operat- ing expenses, are presented below, expressed as a percentage of total pre-tax operating expenses. 

<img src='content_image/133631.jpg'>

## Non-operating income and expense 

For the full year, interest expense rose $3 million to approximately $222 million. Most of the company’s debt is in commercial paper for which the daily average outstanding balance was $5.2 billion during 2001 and $3.1 billion during 2000. The weighted average interest rate was 4.1% for 2001 and 6.5% for 2000. The decrease in the average interest rates almost entirely offset the increase in interest expense as a result of the full-year impact of increased 

commercial paper borrowings to fund the Newscom acquisition in June 2000, the Thomson and Central acquisitions in the third quarter of 2000 and share repurchases made in 2000. 

The company reduced its commercial paper balance by $528 million during 2001. Because of that and lower interest rates, interest expense comparisons turned positive in the third quarter of 2001. In the fourth quarter, interest expense was below that of 2000 by $69 million or 69%, in part due to the additional week in 2000. If the current interest rate environment prevails, and in the absence of major acquisitions or stock repurchases, interest expense will decline significantly in 2002. 

Interest income declined to approximately $4.7 million, a more normal level for the company, compared to 2000 when substantial- ly greater interest was earned on the proceeds of the sale of the cable business in the first half of the year. 

Interest expense in 2000 increased $125 million due to signifi- cant commercial paper borrowings to fund the 1999 Newsquest acquisition, the Newscom acquisition in June 2000, the Thomson and Central acquisitions in the third quarter of 2000, and share repurchases. Higher interest rates in 2000, particularly in the sec- ond half of the year, also contributed to the increase. The increase, however, was tempered by the pay down of commercial paper bor- rowings from the net proceeds on the sale of the cable business in the first quarter of 2000 and from operating cash flows. Interest income in 2000 increased $21 million over 1999 due primarily to interest earned on marketable securities from cable sale proceeds in the first half of the year. Non-operating expense in 2000 includes costs associated with minority investments in Internet businesses. 

Interest expense for 1999 increased $15 million or 19%, reflecting significantly increased commercial paper borrowings in the second half of 1999 to finance the Newsquest acquisition. 

The company’s financing activities are discussed further in the financial position section of this report. 

In all years shown, non-operating income and expense includes charges for the write-down of certain minority interest investments in online/new technology businesses as well as gains from the sale of certain properties. 

Other non-operating income for 1999 includes the second quarter net non-operating gain of $55 million principally from the exchange of television stations discussed on page 20 of this report. 

## Provision for income taxes 

The company’s effective income tax rate for continuing operations was 39.4% in 2001, 39.6% in 2000, and 39.8% in 1999. The decrease in the effective tax rate each year reflects lower state taxes and lower taxes on foreign operations. Due to the adoption of SFAS No. 142 (see discussion on page 29), the company expects its effective rate to be slightly below 35% in 2002. 

## Income from continuing operations 

In 2001, the company reported income from continuing opera- tions of $831 million or $3.12 per diluted share. Operating income from both business segments was lower in 2001 and net non-operating costs were higher, principally because of greater interest expense. 

