- 1. GANNETT CO., INC. FOURTH QUARTERAND FULL YEARCONFERENCE CALL
AND WEBCAST January 30, 2009(Edited for clarity)PRESENTATION
Operator Good day, everyone, and welcome to the Gannett
fourth-quarter 2008 earnings conference call. This call is being
recorded. Due to the large number of callers, we will limit you to
one question or comment. We greatly appreciate your cooperation and
courtesy.Our speakers today will be Craig Dubow, Chairman,
President and CEO, and Gracia Martore, Executive Vice President and
CFO. At this time I would like to turn the call over to Gracia
Martore. Please go ahead.Gracia Martore - Gannett Co., Inc. - EVP,
CFO Thanks and good morning. Welcome to our conference call and Web
cast today to review our fourth-quarter results. We hope you've had
the opportunity to review our press release this morning. It also
can be found at www.gannett.com.With me today are Craig Dubow,
Chairman, President and CEO, and Jeff Heinz, Director of Investor
Relations. Today, Craig will provide an update on our efforts to
manage Gannett in this extremely tough economic environment and
position the company for the future. He also will provide a brief
overview of our results for the quarter.I will go into a little
more detail on our results, particularly our business segments. I
will also discuss our anticipated impairment charge as well as the
restructuring expenses for the fourth quarter. We supplied you with
a detailed look at our
2. expectations for the quarter in mid-December, so we will keep
our comments brief this morning. Craig?Craig Dubow - Gannett Co.,
Inc. - Chairman, President, CEO Thanks, Gracia, and good morning,
all. Like virtually every other business, Gannett's results for the
fourth quarter reflect the unprecedented turmoil in our economy and
financial markets. The ongoing softness in our real estate markets,
slowing auto sales, job losses and weak holiday sales took their
toll.Even so, Gannett continued to innovate and transform our core
businesses while at the same time managing through the cyclical
downturn. This twin focus is a key to our strategy and will, I
believe, serve us well over the next several months as we face the
global economic downturn and position ourselves for any
recovery.Today, I want to talk to you about our efforts on both of
these fronts, while highlighting our ongoing innovation, an
important acquisition, and our overall progress. First, let me tell
you about our industry-leading innovation changes in Detroit.As we
have noted on a number of occasions, we truly understand the
changing media landscape and the consumers' desire to access
content across multiple platforms. This is at the heart of our
Detroit transformation.For those of you who don't know, we operate
under a Joint Operating Agreement in Detroit. We own the Detroit
Free Press, and Media News Group owns the Detroit News. Due to a
combination of factors, namely a two-newspaper market and a very
trying regional economy, we had to fundamentally change the way we
deliver our content.Using a very research-based, customer-centered
approach, the managements of the newspapers evaluated the market,
talked to our readers and advertisers, and tailored a series of
significant changes to meet these needs. The goal is to deliver
what our customers want and what advertisers need while
significantly reducing production and distribution costs.Beginning
in this quarter, we will be offering a wider variety of digital
information channels in Detroit, while continuing to provide home
delivery of the newspaper on Thursdays, Fridays, and Sundays.
Subscribers will have access seven days a week to improved daily
electronic editions that are the exact copies of each day's printed
newspapers and can be easily printed and navigated. Printed copies
of the newspaper will be available at newsstands seven days a week.
3. Many Detroit advertisers have indicated their support of these
efforts. I encourage you to access at www.freep.com to track the
progress of these changes. This is a bold step and I applaud the
Gannett leaders that are making this happen.Transformation is
taking place on many other fronts as well, including the
cornerstone of the Gannett Company, our content. Gathering and
distributing reliable and relevant content is what it is all about
for Gannett and will be a key to our success in this
transformation.Our ContentOne initiative announced in December will
fundamentally change the way we gather, manage, and use that
content. Improving the efficiency of content development and our
ability to more effectively share our content across properties and
platforms are our initial goals.We will do that by working to
eliminate duplication, which will give our journalists the ability
to focus on quality and deep local coverage. One aspect of that
will be managing major event coverage, both to be more efficient
but also to be more attractive to national and local advertisers.We
used the inauguration as a very early test and found both strengths
and challenges. Our next test most likely will involve sports as we
ramp up the project.ContentOne's major innovation ultimately will
be the decoupling of the content solely for use in our news and
information platforms and valuing that content for sale outside of
Gannett. Viewing and managing our content as a product is a key
goal of this transformation.On the digital front, we announced the
purchase of Ripple6 in the middle of the fourth quarter. Ripple6
provides publishers and marketers with a proprietary social media
platform with which they can build online communities.The platform
has many unique aspects which make it easier for members of those
communities to more simply communicate and share information. It
also provides deep and rich analytics to publishers and advertisers
seeking to understand the value of that interaction. Finally, it
allows brand managers to recruit people in their communities for
research and focus groups online, creating new revenue streams for
online publishers.The consumer's interaction with content is
changing continually, and social networking is just one example how
that interaction is evolving. These online communities are becoming
more prevalent and entrenched; and we want to be in a position to
benefit 4. from them. Ripple6 will help Gannett achieve that goal,
just as it will help marketers and other publishers as well.We also
experienced some firsts in our content distribution in the quarter.
Our folks in Digital and at USA TODAY developed a USA TODAY news
application for the iPhone that went live in late December. The app
features the latest from USA TODAY based on the standard sections
of news, money, sports, and life as well as tech and travel. A
weather section based on GPS is featured, along with updated sports
scores and schedules, photo galleries, and user polls.It also is a
new and innovative way for marketers and advertisers to reach a
very desirable audience. The USA TODAY app is getting great user
reviews and has become one of the most popular for the iPhone,
according to the Apple folks. It became the number one free news
application soon after it was released. Last week, it ranked 58th
among all free apps, and it has climbed steadily since to as high
as sixth, a significant accomplishment considering there are over
15,000 individual apps available for the iPhone.Also in December,
USA TODAY became available on the Amazon Kindle. We have seen solid
response from a strong brand on yet another platform.One other note
regarding USA TODAY. They are in the process of changing the
business model for the international edition. USA TODAY will
publish the final international edition next week. However, they
are in discussions with our partners to move to a licensing model
in which USA TODAY editorial staff will produce the content, while
regional partners would pay a per-copy fee to print the newspaper
and sell their own advertising.While we are transforming Gannett
through innovation, we are at the same time using the same methods
to manage our costs during this recession. We are assessing our
costs from top to bottom, working to save money while delivering
value to our customers.Unfortunately, that required some very tough
decisions during the quarter regarding the size of our work force
and operations. This restructuring resulted in a severance charge
of roughly $56 million.We continue to centralize and streamline our
operations. We announced furloughs for the first quarter of 2009 as
a preemptive effort to limit expenses while working through the
economic slowdown and assessing the coming year. Furloughs were the
least invasive to our operations and the fairest to our employees,
while addressing the financial challenges that we and most
companies in the US and abroad are facing. 5. One final item to
discuss is our annual goodwill impairment testing. We are nearing
the end of that process and expect to take a non-cash impairment
charge in the range of $5.1 billion to $5.9 billion pretax, or $4.5
billion to $5.2 billion after tax, reflecting the writedown of
goodwill primarily. The impairment reflects the decline in ad
demand and business conditions stemming from recessions both here
and in the UK, as well as the decline in equity valuations
generally and our stock price specifically.These are non-cash
charges and do not, however, impact our ability to manage our
business, pay down debt, or affect our ability to borrow in any
way.As a reminder, in the fourth quarter last year we recognized a
non-cash impairment charge of roughly $51 million after-tax. We
also had an after-tax severance and facility consolidation cost of
approximately $24 million.Before we turn to our results for the
quarter, it's important for you to focus on the fact that Gannett
is in a solid financial condition. We are profitable and generate
substantial free cash flow. At the same time, we are pressing
forward to transform Gannett and position it for the future.Now,
turning to the results for the quarter. Preliminary earnings per
share were $0.69. Excluding the restructuring expense, they would
have been $0.85 per share. Our operating revenues totaled $1.7
billion.Total expenses including severance expenses were $1.5
billion, slightly lower than last year's fourth quarter. However,
pro forma expenses, excluding severance expense in both years and
the impairment charge in the fourth quarter of 2007, declined over
6%.Operating cash flow was about $328 million for the quarter.Our
results reflect the stalled economy both here and in the UK
primarily and its impact on advertising demand. We did, however,
benefit from politically-related spending in television and solid
results in the digital segment.In our publishing segment the
advertising revenue trends through November we noted recently were
slightly better in December. There was improvement in some
categories; but overall, we finished the quarter in line with our
results through November.Circulation revenue was down in the low
single digits. However, circulation revenue domestically was
relatively flat for the quarter but up in November and December. 6.
We benefited from the price increases as well as demand for
election day coverage, particularly at USA TODAY. An additional
400,000 copies of that edition sold, bringing total circulation to
roughly 2.8 million.Political revenue helped to boost results in
our broadcasting segment. We exceeded our projections for the
fourth quarter of 2008, with political spending totaling about $58
million. As anticipated, our stations in Denver, Minneapolis,
Cleveland, St. Louis, Washington, DC, Atlanta, and Phoenix saw
significant political advertising.Broadcasting revenue was up
slightly for the quarter. Television revenue, which excludes
Captivate, was up almost 2% for the quarter. Online revenue and
broadcasting was up about 7% in the quarter.However, several ad
categories in broadcasting were under significant pressure, and we
expect that to continue into the first quarter. Based on our
current outlook and results to date, we expect television revenue
to be down in the mid teens in the first quarter of 2009.Moving to
the digital segment, this is the first quarter in which
CareerBuilder has been consolidated for the entire quarter. As I
noted, we acquired Ripple6 in November, so their results are
included in the digital segment in addition to CareerBuilder,
PointRoll, ShopLocal, Planet Discover, and Schedule Star.Reported
digital segment revenues totaled $170 million, while operating
expenses were $146 million. Operating cash flow for the segment was
just over $34 million due to solid results for CareerBuilder,
ShopLocal, and PointRoll.We continue to carefully invest in our
digital businesses. On a pro forma basis, assuming CareerBuilder
and ShopLocal had been fully consolidated for all of 2008 and 2007
fourth quarters, operating revenues in the digital segment would
have been 1.4% higher; operating expenses 5% lower; and operating
cash flow would have increased almost 64%.In order to help you
better understand CareerBuilder results, we will start with what
has typically been shared with you in the past, CareerBuilder's
network North American revenue. This is comprised of total revenue
from CareerBuilder's own sales efforts in addition to the revenue
from the network of owner-affiliated newspapers. CareerBuilder
network North American revenue for the fourth quarter totaled $163
million, an 11% decline from the same quarter in 2007. 7. Over 80%
of the total came from CareerBuilder directly, while the balance
was derived from the owner-affiliated newspapers, ours as well as
Tribunes and McClatchys. The decline was due primarily to fewer
upsell opportunities as print employment advertising continued to
fall.CareerBuilder's own directly sourced or generated revenue was
up about 2% compared to the fourth quarter of 2007. Average network
traffic for the quarter was up about 8% from a year ago to 20.1
million visitors. In December, CareerBuilder network traffic jumped
24% and it increased 6% for all of 2008 compared to 2007.For
consolidation purposes, we included CareerBuilder network revenues,
less those revenues for CareerBuilder already accounted for in our
and other companies' publishing segments.On a pro forma basis,
assuming CareerBuilder had been consolidated for 2007 and 2008,
revenues rose 3% for the quarter and 14% year to date.Aggregating
online revenue company-wide, including online revenue generated in
our publishing and broadcasting segments, total online revenue in
the fourth quarter was over $260 million. On a reported basis,
online revenue company-wide was $684 million.If we had consolidated
CareerBuilder and ShopLocal for the entire year, pro forma online
revenue would have been about $1.1 billion.With that, let me turn
the call over to Gracia.Gracia Martore - Gannett Co., Inc. - EVP,
CFO Thanks, Craig. Before we go into detail on our quarterly
results, I need to remind you that our conference call and Webcast
today may include forward-looking statements and our actual results
may differ. Factors that might cause them to differ are outlined in
our SEC filings.This presentation also includes certain non-GAAP
financial measures, and we have provided a reconciliation of those
measures to the most directly comparable GAAP measures in the press
release and on the investor relations portion of our Website.This
morning, I will provide some additional detail on our publishing
segment, our expenses company-wide, and give you some detail on the
severance expense and its impact. Finally, I will cover some of our
non-operating and balance sheet items. 8. Let's first go to
publishing, where the global economic recession, as we have noted,
continued to pressure advertising demand throughout the quarter.
Advertising revenues declined 22.7% as ad revenue was 17.7% lower
in the US and 29.3% lower in the UK on a constant currency
basis.Overall, retail was about 14% lower; national down about 18%;
and classified down about 37%. As Craig noted, December's results
overall were better in comparison to November's results both in the
U.S. and the UK.Retail advertising continued to be soft in
December, although it improved relative to November. In the US,
across all of our products in retail, the majority of the decline
-- similar to the third quarter -- was due to continued weakness in
the department store, furniture, and telecom categories. However,
financial performed well in the quarter, as it did in the third
quarter.Lower advertising demand at USA TODAY drove the decline in
national advertising in the quarter. The telecom, financial, and
advocacy categories all grew; but the gains were more than offset
by softer results in the entertainment, automotive, retail, and
travel categories.Moving to classified, the trends in U.S.
Community Publishing classified advertising we noted for the first
two months of the quarter continued in December. Classified
advertising was down roughly 31%, consisting of declines in auto,
about 26%; employment, about 47%; and real estate, about 33%.
Again, we continue to see more softness in our classified
categories in Arizona, California, Florida, and Nevada, relative to
our other markets.In the UK, the current economic picture is
similar to ours here in the US, although the downturn occurred
later but much more quickly. In fact it was announced last week
that the UK is officially in recession, with the economy
contracting by 1.5% in the last quarter of 2008, the worst
performance in more than 28 years.Results for Newsquest -- and for
that matter, the rest of the regional press in the UK -- pointed in
that direction for most of the year. However, Newsquest advertising
revenue during December was consistent with November's trend. The
management team at Newsquest is continually assessing their expense
structure and working to align it more closely with business
conditions.Craig covered the broadcasting and digital segment
detail. So let me move to the impact of severance expenses on each
of our segments in the fourth quarter. 9. We continue to be very
disciplined and focused on transforming our expense structure in
every way possible. As a result of those efforts to restructure, we
had severance expenses of roughly $56 million in the quarter, with
all of our segments experiencing some level of expense.The majority
of it, about three-quarters, was in the publishing division;
roughly 10% each was in broadcasting and corporate; with the
balance in the digital segment.We expect the impact of these
efforts to be about $190 million in annualized compensation expense
savings.As you also saw, we announced one-week furloughs for the
first quarter. Although we expect significant savings from them, it
is a bit early to quantify it for you. We will provide an update
when we report our first-quarter earnings.Now moving to expenses
company-wide, total reported operating expenses were down slightly
in the quarter. We had severance expenses in both quarters of 2008
and 2007, and we also had a small impairment charge in last year's
fourth quarter. So if you exclude the severance expenses in both
years and the impairment charges, our pro forma expenses were 6.3%
lower.Operating expenses in the publishing segment fell almost 11%.
Excluding severance expense and impairment charges, operating
expenses were actually 6.8% lower. Our efficiency and cost control
efforts, although offset partially by higher newsprint costs, drove
the decline.For the fourth quarter, newsprint expense was up 2%. A
19% decline in consumption was more than offset by an increase in
usage prices of over 26%.Focusing for a moment on newsprint and
where we stand currently, newsprint prices turned lower in the
fourth quarter of 2008 and continued to fall as suppliers
experienced a global decline in demand. Suppliers are also facing
orders at anemic levels as a result of lower consumption and higher
publisher inventories.More specifically, a substantial regional
price variance continues to grow between East and West in excess of
$50 per metric ton. It is unlikely this price variance can be
sustained.Gannett has taken steps to effectively manage our
newsprint pricing in recognition of these market realities. We
continue to encourage suppliers to work with us and other 10.
publishers to establish less pricing volatility, as we all face the
weakest economic conditions in memory.Drilling down a bit more on
the expenses for our other segments, broadcasting expenses as
reported were relatively unchanged in the quarter and totaled about
$121 million. Excluding severance, operating expenses there were
actually 4% lower.Reported digital expenses were about $146 million
for the quarter and increased significantly, primarily due to the
consolidation of CareerBuilder and ShopLocal for the full quarter.
On a pro forma basis, operating expenses there were actually down
about 5%.There were some severance expenses in digital, primarily
at CareerBuilder, as well in the quarter. Excluding those severance
expenses, the decline was over 6%.One final note on expenses,
corporate expenses were about 19% higher in the quarter due
primarily to severance, but were actually down almost 8% excluding
severance.We also had some significant swings in our nonoperating
items, so let me provide a little more detail there. The equity
income line was about $5.8 million lower year-over- year, driven
primarily by the absence of CareerBuilder earnings this quarter,
which are now fully consolidated in our numbers. As well, lower
results from our newspaper partnerships and additional investment
in new businesses like Metromix, Mogulus, and Cozi also had an
impact.Other non-operating items moved to a loss of $7.7 million
this quarter, primarily the result of our minority interest charges
for CareerBuilder and lower investment income. That was, however,
partially offset by a gain on the partial redemption of our May
2009 public debt and other small asset sales.Turning to our tax
rate, our rate on earnings before severance costs and impairment
was lower in the quarter at 25.1%, compared to a tax rate on
similar earnings in the fourth quarter of last year of 32.8%.
Several favorable state tax settlements; the release of some tax
reserves as the statute of limitations expired; and a lower
statutory tax rate in the UK all contributed to the lower rate. We
expect a more normalized tax rate in the first quarter.Interest
expense totaled $51.5 million in the quarter, about 10% lower than
the fourth quarter last year, reflecting both lower interest rates
and debt balances. 11. Looking at our debt structure, we finished
the year with long-term debt totaling $3.8 billion. As you know, we
drew down on our revolving credit facilities amounts sufficient to
repay all of our commercial paper. The total amount outstanding
under the revolving credit facilities at year-end was approximately
$1.9 billion.We also completed, as I said, the partial tender of
our bonds maturing in May of 2009. After the tender, approximately
$632 million of these bonds remain outstanding, which will be
refinanced through borrowing in the capital markets or under our
revolving credit agreements and through free cash flow.We also have
public debt maturing in June of 2011 totaling $500 million; another
$500 million maturing in April of '12. Finally, we have a $280
million bank facility that matures in July of '11.Our all-in cost
of debt is about 4.4% at the moment. We expect we will have about
$3.7 billion in debt outstanding at the end of the first quarter.A
couple of reminders regarding amendments to our credit facilities.
We amended all of them and our term loan during the quarter. We
replaced the minimum net worth covenant with a debt-to-EBITDA
covenant of 3.5 times. We also reduced the size of the revolving
credit facilities to $3.1 billion until the end of this year, at
which point they go to $2.75 billion.At this point, we have about
$1.2 billion of capacity under those facilities. That gives us,
together with our strong free cash flow, ample capacity to fund our
2009 maturities. And as I mentioned, we have no other debt due
until 2011.The amendments to the credit agreements are included in
our third-quarter 10-Q which we filed in November.Given the
economic turmoil and current situation in the capital markets, we
will continue to be focused on paying down our debt with that
substantial free cash flow we generate.Updating you quickly on
CapEx, they were about $62 million for the quarter, including about
$5 million for CareerBuilder, and ended the year at $165
million.Before we turn the call over for questions, a couple of
reminders as we look to the first quarter of 2009 in comparison to
the first quarter of 2008. First off, we will go against the
toughest revenue comparisons, particularly for the UK. At the same
time, the 12. exchange rate for the British pound will be a
headwind. It averaged 1.98 in the first quarter of 2008 and is
roughly 1.42 currently.In addition, the first quarter is seasonally
the weakest quarter for our digital investments, as some, such as
CareerBuilder, will incur significant promotional costs in the
quarter.Newsprint costs are moving down; but we will be up against
the lowest prices we had in 2008 in the quarter. As well, we are on
primarily a FIFO inventory method.Results for the first quarter of
2008 also included gains on the sale of land which totaled $25.5
million pretax and $15.8 million after-tax, and some other
operating asset sales that we will not have in this
quarter.Finally, we expect to have, as I said, a more normalized
tax rate in the quarter, in the 36% range. So you will need to
factor in all of these first-quarter items as you do your
models.Now we will stop, and Craig and I will be pleased to take
your questions.QUESTION AND ANSWER John Janedis - Wachovia Capital
Markets - Analyst Good morning. Thank you. Gracia, on the digital
front, I think you said last month that October-November combined
was up in the 5% range. With the quarter coming in at at 1.4%, I'm
wondering what you saw in December and whether or not that is
carried into the new year. Thanks.Gracia Martore - Gannett Co.,
Inc. - EVP, CFO Thanks, John. What we saw coming into the end of
the quarter I think was a little bit of a mixed bag. At Newsquest
and in our US properties, where employment upsells are still an
important part of the mix, we continue to see pressure on online
revenues as a result of fewer ads to upsell.Conversely, in banner
advertising, particularly in the U.S. Community Publishing side as
well as in Newsquest, we actually saw very, very nice gains. And as
well in our U.S. 13. Community Publishing side, we saw a very nice
year-over-year gain in automotive online advertising.Again,
CareerBuilder had just a terrific quarter, given the economic
backdrop they had to contend with and they were held back by the
newspaper upsells or the diminished newspaper upsells there. They
saw very nice increase, albeit off a small base, on the
international side.So overall, I think we are pleased with where we
ended up the year on the digital front.John Janedis - Wachovia
Capital Markets - Analyst Okay. Just one related question. How much
seasonality is there in the cash flow for 4Q for the digital
segment?Gracia Martore - Gannett Co., Inc. - EVP, CFO As I said,
John, particularly CareerBuilder, which is the lion's share of our
digital segment, they have significant -- as they do every year --
promotional spending and advertising investment in the first
quarter, which is moderated as the quarters progress during the
year. Then the fourth quarter is their most significant quarter.In
the first quarter, we would expect with CareerBuilder we would be
in more of an investment mode; and then as the year progresses we
will see that nice uptick in the bottom line and in EBITDA.Alexia
Quadrani - JPMorgan - Analyst Thank you. On the Newsquest business,
you have always been very diligent on the cost side in a weak ad
market. I was just wondering if you can give us some general color
on how the profitability of the Newsquest properties compared to
your domestic community papers.And just a quick one on the
broadcast business. We are hearing much worse pacings from others -
in the mid-teens, the down mid-teens - that you suggested. How much
of a benefit do you get from the Super Bowl maybe in the
outlook?Craig Dubow - Gannett Co., Inc. - Chairman, President, CEO
We will see some nice improvement with the Super Bowl. But in
general, as I commented, we will be down in the mid-teens for the
quarter. 14. There are some hard-hit categories, particularly the
auto and retail categories that have been hit fairly hard. But in
general, I would say that the Super Bowl will be of help to Dave
and the group as we move forward.Gracia Martore - Gannett Co., Inc.
- EVP, CFO Alexia, on the profit margin question, viz-a-viz
Newsquest and our Community Publishing segment: actually Newsquest,
through the very strong efforts that the management team there has
taken on restructuring and really refocusing and recasting their
cost structure, their margins continue to be quite strong and
comparable with our U.S. Community Publishing margins -- despite
the fact that they have much more of a focus on the classified side
as a part of their advertising total.Craig Huber - Barclays Capital
- Analyst Yes, good morning. My first question, Gracia, about your
pension. A year ago, I think it was underfunded by almost $150
million. It looked like a year ago you had about $3.4 billion of
assets in the pension portfolio. I have got to assume the pension,
like everybody else, probably dropped a good 20% this year in
2008.Does that mean you guys are roughly underfunded on the pension
by roughly $750 million, $850 million? And if that is the case, do
you have roughly seven years to get that back to breakeven?Gracia
Martore - Gannett Co., Inc. - EVP, CFO Actually, what you are
looking at also includes our SERP, which is unfunded. If you look
at our domestic qualified plan here in the States, it reflects the
significant declines that we've seen in the markets last year. And
our plan, like everybody else's plan, has been impacted by that.Our
unfunded obligation, though, on that plan domestic qualified at the
end of 2008 is going to be somewhere in the $575 million to $590
million range. There are a lot of factors at play. There are
discount rates; how the market continues to fare; and there is a
possibility for some governmental relief.But as things stand today,
that number would be funded over the next seven years. And we don't
have any cash contributions required in 2009. 15. We will just
continue to look at it as we always do. We will continue to monitor
it and monitor the various factors and see if there may be some
thought to doing some discretionary contributions. But we have no
required contributions for '09.Craig Huber - Barclays Capital -
Analyst Then also, about the dividend, Gracia. I know you have
thought about this a lot, you and your Board and your senior
management. Are there plans during the first quarter, just given
what is going on with the economy, cyclic pressures, etc., to cut
the dividend significantly here, to conserve cash to focus on
paying down debt?Gracia Martore - Gannett Co., Inc. - EVP, CFO
Craig, I think every company globally is very focused on conserving
cash. I think that you will find -- we had to look at the dividend
back in October and I think the Board wisely wanted to see what the
impact of a burgeoning credit crisis and more difficult economic
conditions would bring.The next time the Board has to act on the
dividend is in February. And I know that there will be significant
conversation around that in the context of where credit markets
are, where the economies are, and where cash conservation comes
into play across the country. We will take that up with the Board
again in February and we will act appropriately.Craig Huber -
Barclays Capital - Analyst If I could just slip one more in, Craig?
What percent would you say of your newspapers in the U.S. did you
maintain the ad rates on average/flat for the year or even perhaps
down? Do you have a ballpark number?Gracia Martore - Gannett Co.,
Inc. - EVP, CFOMaintain rates?Craig Huber - Barclays Capital -
AnalystYes, maintain or maybe --?Craig Dubow - Gannett Co., Inc. -
Chairman, President, CEO 16. On a maintenance basis, considerable.
Yes. And out of USA TODAY, we would have actually increased
rates.Craig Huber - Barclays Capital - Analyst Would you have a
sense maybe -- I am asking perhaps how many did you -- percent
roughly -- did you actually lower ad rates? Or perhaps maybe none.
I just want to hear your answer.Gracia Martore - Gannett Co., Inc.
- EVP, CFO It is almost impossible to answer that question because
there may be some newspaper in a couple of different categories
that did some things that were specific to a market. I would say
overall that we have, as we said previously, maintained rates, or
in some cases judiciously increased them.But this is not a year of
looking at dramatic ad rate increases. It is really a year focusing
in on gaining market share and doing the right job for the
advertiser.Craig Dubow - Gannett Co., Inc. - Chairman, President,
CEOThat's correct, yes. Catriona Fallon - Citigroup - Analyst Just
wanted to build a little bit on Craig's first question about the
dividend and cash flow; and maybe jump into some of the other
drivers for cash flow.On CapEx, how much of the CapEx is growth
versus maintenance? What could CapEx become if you decided to cut
the growth CapEx?And then, are you planning to conserve cash on
acquisitions and also on common stock this year? Buybacks.Gracia
Martore - Gannett Co., Inc. - EVP, CFO Catriona, I think that we
indicated at the end of the year, that with regard to uses of free
cash flow, that we would be very focused on paying down debt and
that it was unlikely in the short to intermediate term we would be
buying back stock. 17. On the CapEx front, as I said, we spent
about $165 million on CapEx in 2008, including a small piece for
CareerBuilder since its consolidation.We gave guidance in December
that our CapEx plan including CareerBuilder would be in about the
$148 million range. However, that is a plan that we will continue
to review as we proceed through the year. I would expect that we
would come in lower, clearly lower, than that number.It's a little
early in the year to forecast where we will end up. But we are
taking a look at every expenditure and making sure that the return
is there before we spend the dollars, and deferring anything that
there are any question marks around.Catriona Fallon - Citigroup -
AnalystOkay, great. Just one other that is really quick. On the
digital business, definitely margins there were significantly
higher than I think what we had expected and what you had guided
to. How much of that was possibly due to Ripple6?And can you give a
little bit more detail on the margin for CareerBuilder? Because it
looks like the margin there is still lower than monster.com. Where
do you think those margins can go longer-term? Thank you.Gracia
Martore - Gannett Co., Inc. - EVP, CFO First of all, we are
delighted to have Ripple6 as part of the Gannett family. We think
it is a terrific investment and a great management team there that
will do very strong things for us.But quite frankly, it is an
extraordinarily small piece of the digital business segment,
although we are looking forward to its becoming a much bigger piece
of it.As we said before, CareerBuilder, PointRoll, and ShopLocal
are really the key drivers in the digital segment. I won't comment
on what CareerBuilder's margins are or Monster's margins are. I
will only tell you that we are very pleased with where
CareerBuilder and PointRoll are today.We acquired the pieces of
ShopLocal that we did not own because we knew there was an
opportunity there to combine them with some things we did at
PointRoll. And we are achieving better results as a result of that.
18. Right now, we are extremely pleased at where those margins are
on all of those businesses -- margins that allow us to continue to
grow those businesses as well.Edward Atorino - The Benchmark
Company - Analyst Hi. How does your first-quarter guidance compare
with January? Is there any sign out there that the checkbooks are
beginning to loosen up a little bit after the disastrous start to
the year?Craig Dubow - Gannett Co., Inc. - Chairman, President, CEO
You know, Ed, overall, visibility right now, as I commented
already, it is just very, very limited. We are not seeing
checkbooks just coming open. But we do understand there is
opportunity in the pipeline.Again, visibility is extremely limited
and, frankly, it has been slower to come to fruition than we
anticipated thus far. But we do realize and understand there is
some business out there.Edward Atorino - The Benchmark Company -
AnalystAny auto business of any significance in there?Craig Dubow -
Gannett Co., Inc. - Chairman, President, CEO Well, the auto
business had a very significant decline this past year. It is still
down significantly. Right now, I am not seeing anything to suggest
there is going to be any near-term ups in that.Jim Goss -
Barrington Research - Analyst Thank you. Gracia, you mentioned that
newsprint prices had turned lower in the fourth quarter. I am
wondering what sort of trend you are looking at in terms of both
prices and the consumption side, because you were doing well there
last year. Overall in terms of the costs, between the newsprint
issue and the impact of furloughs, are you looking at like a 10% or
more decline in overall costs in the first quarter as you look into
the period?Gracia Martore - Gannett Co., Inc. - EVP, CFO 19. Jim,
based on a number of the initiatives we have in place on web-width
reductions, consolidations and a variety of other initiatives I
know Bob Dickey and the USCP has -- and Newsquest and others have
-- we would anticipate that consumption would be down more than
what you have seen in the fourth quarter.Looking at all of these
initiatives together, both on the newsprint side as well as on the
furloughs side, it is just a little early in the quarter to really
frame the exact reduction in expenses. A lot is going to depend on
where volumes are, where business trends go for the remainder of
the quarter.You can be sure that we will continue to be as focused
and disciplined on the cost side as we have demonstrated over the
last several years. We will do all of the right things to make sure
that our expenses are in line with the revenue opportunities we see
out there.Jim Goss - Barrington Research - Analyst In your digital
area, how does your revenue mix breakdown between advertising
versus service enhancements and widgets and all the other things
you've done? Because it seems like you are having better experience
than a lot of others are having in the area, and I suspect it is
because you are not just ad focused.Craig Dubow - Gannett Co., Inc.
- Chairman, President, CEOYes, I think that is a fair approach to
look at it from, Jim. In general, I would say we have been
predominantly ad driven. But there are other pieces to this that I
think you are very aware of, that have come into it really over the
last three quarters, that have helped us in some of the other
arenas.You are going to see that continue as we move forward. Right
now, CPMs are pressured. I don't think there is any surprise in
that on the digital side as we have gone into Q1 here.Hopefully
that will show some improvement but we are not seeing that at this
point. That is in general where we are at this time.Michael
Kupinski - Noble Financial Group - Analyst Thanks for taking the
question. Media General reported yesterday that they are seeing
some silver linings in its newspapers, particularly from retail in
the first quarter. I was just wondering if you might be seeing any
signs of stabilization in that category particularly. 20. And are
you seeing similar trends in December continuing into the first
quarter? And I have just one more question after that.Gracia
Martore - Gannett Co., Inc. - EVP, CFO You know, Mike, on retail it
is going to vary market to market. Each company has different
markets, different geographic concentrations. It is very early in
the quarter to really try to predict any trends or any real strong
idea of where things are going, given the limited visibility we
have.We are continuing to do a good job on realizing all of the
advertising dollars that are available in the retail space in the
markets we serve. But it is just a little too early to be perhaps
as optimistic as others. Again, it depends on what markets you are
in and focused on.Craig Dubow - Gannett Co., Inc. - Chairman,
President, CEO Michael, just to add to that, with what our USCP
group has done under Bob's leadership, they are really working hard
in driving that one-call opportunity from the national perspective.
We are consolidating and trying to listen to the advertisers as
clearly as we can, so we can minimize the amount of time and effort
to purchase across all markets.There are lots of efforts from the
listening standpoint that we are trying to convert. Frankly, as the
year goes along, I believe we will see some good results from
that.Michael Kupinski - Noble Financial Group - Analyst In terms of
the first quarter, how is it shaping up as we relate to the fourth
quarter of 08?Craig Dubow - Gannett Co., Inc. - Chairman,
President, CEO As it relates? You are seeing a continuation of
where we have been. Some areas are a little bit better than others,
but I would say in general it is not terrific. But, as I said a
little bit earlier, there is business out there.With the efforts
from each of the divisions, there are good prospects. It is not
very robust at this point and visibility is just very, very
limited. 21. Michael Kupinski - Noble Financial Group - Analyst In
terms of the pacing information in the guidance that you have given
for your broadcast division, I believe you didn't really have any
political advertising in the first quarter of '08, if I recall. I
was just wondering if you can break down what you are seeing in
terms of local versus national in the quarter.Craig Dubow - Gannett
Co., Inc. - Chairman, President, CEO There was, I would say, in the
$5 million range or so in Q1 of political from '08, Michael. I
think as you take a look at the way this is breaking down, it is
fairly consistent at this point on a percentage basis in the way it
is coming in.Traditionally, national is not going to be quite as
strong in this market; obvious from the local efforts that are out
there. But that -- and that is fairly consistent as we go forward
right now.Matthew Miller - Invesco - AnalystHi. If I could just
focus on two issues: the headcount reduction and a follow-on to
Craig's question about pension. What was the total headcount
impacted by the $56 million -- or covered by the $56 million
severance charge?Gracia Martore - Gannett Co., Inc. - EVP, CFOThat
was about 4,000 FTEs across all of our segments. Matthew Miller -
Invesco - AnalystOkay, and if I could clarify your response to the
pension question. If you have got an unfunded obligation of $575
million at the low end, that is a greater than 10% deficit to your
PBO.The Pension Protection Act of 2006 requires a linear or
quasi-linear funding over a seven-year period. How is it that you
avoid cash funding in 2009 regarding that issue?Gracia Martore -
Gannett Co., Inc. - EVP, CFOWe also have some pension credits, so
that would help with that contribution issue. 22. Matthew Miller -
Invesco - AnalystIs it fair to assume that you would start to
linearly fund that deficit in 2010?Gracia Martore - Gannett Co.,
Inc. - EVP, CFO Not necessarily. I think it is much, much too early
to determine where we are all going to be. A lot has to evolve.
And, it's a very complicated calculation that you have to do to
determine how that funding goes if you have to do it.It would be
difficult for us at this moment to give you really a finite answer
as to how you would fund it over those several years.OperatorThat
does conclude our Q&A session for today. I would like to turn
the call back to Gracia Martore for any closing comments.Gracia
Martore - Gannett Co., Inc. - EVP, CFO Thanks very much for joining
us this morning. If you have any additional questions I know that
Jeff Heinz, who you can reach at 703-854-6917, would be happy to
answer them. Or you can reach me at 6918. Thanks and have a
terrific day.Certain statements in this transcript may be forward
looking in nature or forward lookingstatements as defined in the
Private Securities Litigation Reform Act of 1995. The
forwardlooking statements contained in this transcript are subject
to a number of risks, trends anduncertainties that could cause
actual performance to differ materially from these forward
lookingstatements. A number of those risks, trends and
uncertainties are discussed in the companysSEC reports, including
the companys annual report on Form 10-K and quarterly reports on
Form10-Q. Any forward looking statements in this transcript should
be evaluated in light of theseimportant risk factors. Gannett Co.,
Inc. is not responsible for updating the information contained in
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