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gannett 2Q08transcript

  1. 1. GANNETT CO., INC. SECOND QUARTER CONFERENCE CALL AND WEBCAST July 16, 2008 (Edited for clarity) PRESENTATION Operator Good day, every one, and welcome to Gannett's second-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 Mr. 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. Gracia Martore - Gannett – Executive Vice President & Chief Financial Officer Thanks and good morning. Welcome to our conference call and Web cast to review Gannett’s second quarter 2008 results. We hope that you have had the opportunity to review our press releases this morning. They can also be found at With me today are Craig Dubow, Chairman, President and CEO and Jeff Heinz, Director of Investor Relations. We’ve been busy since we last talked at the Deutsche Bank Media and Telecom Conference in early June. Our announcements earlier this month about our ad serving network and ShopLocal are two additional parts of the puzzle we have been assembling for you over the past couple of years as we transform Gannett. Our plan today is for Craig to put the pieces together, give clarity to the overall picture, and update you on our progress despite the very challenging economy. He also will discuss the results we announced this morning and touch on some of the items that affected them.
  2. 2. Then I will get into more detail about the results, our segments and how we are reshaping our operations as part of our transformation. We hope, in the end, to have given you a clearer view of where Gannett is heading in this unsettled media landscape and what these various strategic efforts will do for our businesses. Craig? Craig Dubow – Gannett – Chairman, President and CEO Thanks Gracia and good morning. Our results for the quarter reflect, frankly, all the different forces weighing on the media sector at this time - not the least of which is the softening economy both here and in the UK. Unfortunately, the economy is tough at the moment and could be for the foreseeable future. But we have been in down cycles before and know how to manage through them. So we are concentrating on the initiatives that will change the game for all of us. These initiatives, I believe, ultimately will bolster our top line while at the same time recast our cost structure to position Gannett for a future we believe is filled with huge opportunity. Two years ago, when we began this strategic transformation, we told you our plan was to grow a world-class digital business while enhancing our profitable core operations, newspapers and television. That remains our plan today, adjusted for the unexpected – the economy’s softening and the credit crunch – and the ever-evolving consumer and advertiser landscape. Our core operations this year will see the results of the Olympics in August as well as political revenues until Election Day. But we also are expecting much more of them. Our newspapers and television stations are dramatically evolving the way they operate – through the Information Center initiative for content, development of significant Web presences in our communities, finding new sources of revenue and through centralizing and, in some cases, outsourcing routine functions to significantly reduce redundancies and manage costs. 2
  3. 3. To live up to the pledge in our strategic plan to enhance our core, we must change the way we have operated for the past 100 years. We are doing that and expect to have made strong progress by the end of 2008 and into 2009. Content, of course, is at the center of all our efforts – both in the core and in digital. Our content efforts are poised to move the company to new ways of thinking about audience, advertiser desires and delivering on those needs. Creating and delivering content that consumers want is our mission. At the heart of our transformation is the realization that we are a content company. It’s our product, and our future. As you know, our strategic plan also calls for growing our digital business. It has been a keen focus of our company for the past two years. We have talked about building out our digital infrastructure. We have talked about becoming customer centric both for consumers and advertisers. And we have talked about making smart alliances and partnerships to accomplish these goals. We have done, and are doing, all of that. This is a 180-degree turn from a collection of autonomous parts to a unified company. This enables us to harness the vast power of Gannett’s local content, local knowledge and local operations for the benefit of advertisers. National advertisers as well as local advertisers. We can target, then grow, audiences. And we can make it easy and cost effective for advertisers to reach the people they want, when and how they want. Gannett can serve the digital world in ways no one else can. Today, an advertiser can come to Gannett and say: “I want to get my product in front of women ages 20 to 35 in small towns and large cities across the country. I want to create a national buzz, but have a local connection that makes it easy for these customers to find me. And I don’t want to have to make hundreds of calls to get there.” We can do that. We have the content; lots of content. We have 60 local Moms sites and a national version on the way. We have 104 local news Web sites. We have entertainment lovers through Metromix; and families who are organizing their kids’ sports through We know who is going to these sites and we’re getting better at these kinds of metrics everyday. 3
  4. 4. We have our mobile network that can deliver local news and advertising to cell phones and last, but definitely not least, we have our newspapers, niche publications and TV stations. We can deliver for advertisers because we have the content, and a range and depth of advertising options. We have classifieds with CareerBuilder and Classified Ventures. We have rich media through Point Roll and retail options through ShopLocal. And just a word about this acquisition. Combining ShopLocal with PointRoll will give us a broad depth of knowledge about advertiser needs and a complete tool kit for retail advertisers. Because of PointRoll, we have a unique opportunity to grow ShopLocal in ways no one else can. We are investing in it as we change their business model and expect to see the benefits of that next year. We also have our new ad serving network, which we announced on Monday. The Gannett Digital Media Network has been rolled out across the company. Through this network, powered by AOL’s ADTECH, advertisers can – with one call - place ads on hundreds of Gannett’s digital products, with more than 25 million monthly uniques, according to Nielsen Net//Ratings. And finally, there is QuadrantOne – our national digital network in connection with our partners The New York Times, Hearst and Tribune. Through this company, with its dedicated digital inventory, advertisers can reach a possible 70 million unique users covering 29 of the top 30 DMAs. So, yes we can reach the women our advertiser wants. And we are finding ways to reach their mothers, fathers, husbands and children too. Millions of them, with a wide variety of interests, from the military, to nurses, entertainment, sports and beyond. These are the investments we have been making over the last few years. And we will continue these types of investments going forward. We are growing these capabilities everyday, while at the same time enhancing our profit-making traditional businesses. We believe a number of these investments will begin to pay off and contribute to the bottom line in 2009. But first, we need to get through these tough economic times. As I mentioned, our results this quarter reflect the economy more than they demonstrate our dramatic changes. Now, turning to these results, preliminary earnings per share from continuing operations were $1.02. These preliminary results do not include non-cash impairment 4
  5. 5. charges we will take for the quarter as previously reported. We also had a couple of other items that impacted these results, including a curtailment gain and offsetting severance expense. Gracia will give you more detail on these pieces in a few moments. But I want to emphasize that the impairment charges are non-cash and do not impact our operating cash flow or hinder our ability to manage our businesses, make acquisitions or investments or pay down debt. They reflect the tough business conditions in our space as well as the decline in our stock price since our last impairment test. So, on our results – Our total operating revenues were $1.72 billion for the second quarter, down approximately 10 percent. Total reported expenses declined about $91 million or 6.3 percent. Operating cash flow totaled about $430 million for the quarter. As I am sure all of you are aware, the U.S. economy softened in the second quarter and continued the severe pressure on advertising demand. In the UK, unfortunately, the consumer driven downturn that started in the first quarter accelerated in the second quarter as well. Again, Gracia will dive deeper on these results. But I want to highlight a couple of items of interest to you. First, Olympics pacing continues to increase each week, though behind our record levels in 2004. Less brand sponsorships have been laid in ahead of time, due to the softer ad market. Also, political advertising is on track with our third quarter projections so far. It’s accelerating each week, with presidential spending now active on 13 of our stations. The expansion of the electoral map has only strengthened our uniquely strong footprint. So based on where we stand today, we would expect Broadcast revenues to be up in the mid to high single digits in the third quarter– including our current projection for political revenues. As you can appreciate the timing of political spending is difficult to predict but we will keep you updated in our monthly reports. 5
  6. 6. Finally, results for our digital operations were positive for the quarter – up almost 6 percent although digital is not immune to the economic environment. Domestic publishing online revenues increased about 3 percent as double digit growth in the auto and retail categories was offset by softness in the real estate and employment categories. Broadcasting was up over 17 percent and Newsquest’s growth rate exceeded 25 percent. In June, our domestic Web sites had 23.1 million unique users and reached 14.1 percent of the Internet audience. In the UK, Newsquest’s monthly online audience totaled 7.5 million unique visitors with over 95 million page impressions. To sum up, the economy has severely dampened the demand for advertising and that could continue for some time. But that should not hold us back as we make significant progress in transforming Gannett. We are putting the pieces together and moving toward our goal of building a strong, profitable digital business and enhancing our core operations. We are laser focused on working to grow the top line in the changing media landscape. At the same time, we are dynamically managing our cost structure to be more aligned with those opportunities. With that, let me turn the call over to Gracia. Gracia Martore - Gannett - EVP & CFO Thanks Craig. First, 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 Web site. I will cover the following items this morning: • Some additional detail on the impairment charges. • I’ll follow that up with a brief summary of our segment results for the quarter including some detail on the curtailment gain and severance expenses. • Finally, I’ll cover some balance sheet items before we open the call for questions. As Craig noted, and we have previously discussed with you, we will incur non-cash impairment charges in the quarter that will range from $2.6 billion to $2.9 billion pre-tax 6
  7. 7. and $2.4 billion to $2.7 billion after tax. We have fine tuned these numbers since we first reported them. Business conditions softened considerably after the end of 2007 and the resulting pressure that put on our stock price required us to update our impairment testing. The impairment charges will impact three components of the financial statements. One, they will reduce the book value of newspaper publishing goodwill and other intangible assets, including goodwill. Two, they will include accelerated depreciation for the write down of the carrying value of certain newspaper property, plant and equipment. This is as a result of some of our cost restructuring efforts. And three, they will impact the carrying value of certain of the company’s investments in newspaper partnerships and other businesses. Much of the impairment is related to our operations in the UK. To a lesser degree, it includes our newspaper partnerships, particularly in the West, and some other smaller domestic pieces. Again, it’s important to underscore that these non-cash charges do not impact the way we manage our businesses, nor will they hamper our transformation. We will finalize the numbers and include them when we file our 10-Q in early August. Moving quickly to results for our segments – Overall, our operating revenues reflect the realities of the economic situation. For the second quarter our total operating revenues declined around 10 percent. Advertising revenues for publishing were about 13.5 percent lower for the quarter reflecting declines of about 13.6 percent in the U.S. and about 12.5 percent in the UK, in pounds. Retail was over 8 percent lower, national declined in the mid teens and classified was down in the high teens. Softness in retail advertising continued in the second quarter. Weakness in the department store, furniture and telecommunications categories led the decline. Macy’s lower spending drove the decrease in department stores, which offset positive growth for a number of other retail advertisers. Classified advertising has been impacted most directly from the economic slowdown. For U.S. Community publishing classified advertising was down 21.0 percent, reflecting declines of 30.4 percent in real estate and 28.9 percent decline in employment. Auto was more than 11 percent lower. We are still experiencing much softer classified ad demand in our real estate-centric markets – Arizona, California, Florida and Nevada as Craig mentioned. Once again this 7
  8. 8. quarter, 38 percent of the ad revenue decline for U.S. Community Publishing came from properties in these states while they generated 25 percent of revenue. In the UK, Newsquest’s results declined as the weak real estate market began to more directly affect consumers and the overall economy. Classified categories turned down sharply over the course of the quarter, particularly the real estate and employment categories. While retail lagged for the quarter, other revenue, although not a big component of advertising revenue at just over 10 percent, showed steady positive growth over the quarter. Overall, national advertising revenues were challenged in the quarter primarily due to softer ad demand at USA TODAY. USA TODAY’s advertising revenues were down in the mid teens in the quarter. Travel was nicely positive as was the financial category but the rest of the top five, entertainment, auto and technology lagged last year. Broadcasting segment revenues declined about 6 percent in the quarter. Politically related advertising was higher but that was not enough to offset the impact the soft economy had on other categories, primarily auto. Now let me discuss for a moment the two items in the quarter that impacted results – the curtailment gain and severance expenses. The curtailment gain we recognized was $46.5 million pretax. That is about 13 cents per share or $28.9 million after tax. The gain stems from our review of our benefit plans. We enhanced our 401(k) and at the same time froze some of our domestic pension plans. Severance expenses were $26.4 million after tax for the quarter, or 12 cents per share. The severance expenses reflect both reductions in force and continued cost control efforts both here and in the UK. Overall, our efforts to contain costs and create efficiencies company-wide are reflected in our operating expenses in the quarter. Operating expenses were 6.3 percent lower. Breaking this down, in Broadcast, expenses declined about 4.8 percent. Corporate expenses were almost 53 percent lower in the quarter, with cost controls having a major impact. The curtailment gain also contributed to the decline. In the publishing segment, operating expenses declined 5.7 percent due to our strong cost control efforts and lower newsprint expense. Newsprint expense was almost 12 8
  9. 9. percent lower as a 16.0 percent decline in volume more than offset a usage price increase of almost 5 percent. One quick comment on newsprint -- As you are aware, publishers have grappled with an unprecedented hike in newsprint prices since December of last year To that end, we are moving expeditiously to further reduce press web-widths and convert to lower basis weights given current market conditions. General market pricing through June has resulted in a sizeable majority of North American newsprint machines making a financial contribution for their owners. Given that improvement, Gannett is meeting with good progress as we work with producers willing to take a more reasoned approach to the announced third quarter price increase. Now, let me step back for a moment to discuss our costs and cost structure overall. A closer look at the way we manage our businesses is critical as we transform the company to address the changing habits of the consumer and the advertiser, as well as the current economic environment. It is essential in this environment that we change our cost structure to one that is more variable and customer focused from one that is heavily weighted toward fixed costs and local autonomy. We are focusing on a number of efforts in the company at the moment to gain these efficiencies. Those initiatives involve everything from centralizing and streamlining operations to taking advantage of new and evolving technology, to working with outside partners. An important component of our successful transformation will be this changing of our expense structure to enable us to operate the company in the most efficient way, given the changing revenue opportunities and the economic challenges. As Craig noted, the progress we are making will be more evident later this year and into 2009. One final expense note before we move to the balance sheet – interest expense was also lower in the quarter. It totaled almost $44 million compared $66.4 million in 2007’s second quarter reflecting lower interest rates and debt balances. And, finally, moving to the balance sheet. We finished the quarter with cash and marketable securities totaling a little over $575 million and total debt of $4.3 billion. Those balances at quarter end included prefunding about half of the $1 billion 9
  10. 10. convertible bond that, as we anticipated, was put back to us yesterday and was paid off this morning. We also closed on a three-year, $280 million term credit facility that has been used to help refinance the convertible as well. At this point, our all-in cost of debt is approximately 4.3 percent with commercial paper at about 3.2 percent. Two last quick numbers for you -- for the quarter, capital expenditures totaled approximately $30 million. And with respect to shares outstanding, shares at the end of the quarter were 227.9 million and the basic quarterly average was 228.3 million. We repurchased a little over 550,000 shares in the quarter. Now we’ll stop and Craig and I will take your questions. QUESTION AND ANSWER Peter Salkowski - Goldman Sachs - Analyst Good morning, everybody. Gracia, a quick question on expenses, if you could kind of dive a little deeper into the newsprint expense. I know there have been several price increases that have occurred in the first half of the year and others announced here for the second half. You mentioned something about negotiating with producers. What are your expectations going into the second half of the year on newsprint prices and newsprint expenses? Gracia Martore - Gannett - EVP & CFO Clearly our newsprint prices will be higher than they were last year. Our folks in Gannett Supply are working diligently with and are having conversations with a number of producers who are thinking more logically about the current dynamics and the impact, and what is in our collective best interests, both from a producer and a consumer standpoint. But given the price increases to dates, we will have higher newsprint expense based on newsprint prices in the last six months. But those will continue to be offset by the web width reductions and conservation efforts. Peter Salkowski - Goldman Sachs - Analyst 10
  11. 11. You think on a year-over-year basis you may still be able to keep expenses down even, if obviously with LIFO accounting starting to come into that in the second half of the year? Gracia Martore - Gannett - EVP & CFO We are on FIFO accounting for our inventory. So into the third quarter we will do our very best to keep those expenses in line and do a good job on that front. John Janedis - Wachovia Capital Markets - Analyst Gracia, looking back to 3Q '04 in TV, I think you posted somewhere around $25 million to $30 million in political, and maybe $20 million or so in Olympics revenue. Could you just size your expectations in terms of what you are looking for on the budget this year? How do you characterize your core TV categories outside of the political and Olympics? Gracia Martore - Gannett - EVP & CFO Let me just clarify the numbers and then I know Craig will want to comment. In the third quarter of '04, we had a little less than $29 million of Olympic revenue and about $22 million of political. Craig Dubow - Gannett - Chairman, President & CEO Yes, as we suggested, the overall Olympics spending by primary sponsors is a little slower than we had anticipated. However, we are seeing the pickup at this point from political, across the board. We would anticipate that we are going to see that have some positive impact as we move into the Olympics and from that into the bigger spending from September on to the election time. So as I suggested in the prepared comments, the result should be a nice positive in the third quarter overall with political, assuming that all the political comes in the way that we are currently anticipating. Gracia Martore - Gannett - EVP & CFO I think the good news, as Craig said earlier, is that we already have presidential in 13 of our stations. In fact, we are seeing a bit of an expansion to the footprint that we originally anticipated with potentially Georgia and Virginia significantly in play this go-round. So we are feeling very good. I know the president of our broadcast division, 11
  12. 12. Dave Lougee, has done a fair amount of work on this and he is feeling very good about the political outlook. Craig Dubow - Gannett - Chairman, President & CEO Yes, we are seeing week-by-week accelerations at this point. John Janedis - Wachovia Capital Markets - Analyst Okay, just on the core categories, when you think about TV and the other large categories, should we be thinking those seem to be down in the double digits then, or -- Craig Dubow - Gannett - Chairman, President & CEO You know, it's going to vary. As we have suggested, auto has been the most difficult category on the broadcast side. But it's going to vary month-to-month and we will keep you updated as we move forward. But it's a very, very difficult environment right now as far as the core categories are concerned. Edward Atorino - The Benchmark Company - Analyst To the extent you have any visibility on some of the core retail categories for the summer, do you think there is sort of a holdback for the summer months with maybe some more spending being pushed back toward the fourth quarter in the retail area? Craig Dubow - Gannett - Chairman, President & CEO Ed, I think the best way to put it is the visibility is extremely limited if you look at the economy and other factors right now. And I don't see that changing anytime soon. You know, we do have, when you take a look on the community publishing side, from the Wal-Marts, the Targets, and the Kmarts, there has been positive growth. But at this point not enough to offset what we have seen from the full retail side. Michael Kupinski - Noble International Investments - Analyst In the past, USA TODAY seemed to benefit from special sections and advertising related to the Olympics. Can you talk a little bit about USA TODAY benefiting from the Olympics? Has the Company decreased any of its products, particularly some of the launches that you have had over the last several years that may have accounted for maybe a portion of some of the weakness in the revenues on the publishing side? 12
  13. 13. Craig Dubow - Gannett - Chairman, President & CEO On USA TODAY and the Olympics, that has not always been the largest piece. But USA TODAY is continuing with the special Olympics coverage and the enhanced reporting. I think between the work that Ken Paulson and Craig Moon are doing on that side, we are pleased where those accounts are right now and what has come in. As I said, the visibility on all of this has been much less than we have seen in some previous Olympics, obviously, just due to the economic conditions. Gracia? Gracia Martore - Gannett - EVP & CFO With regard to your question about products, in difficult economic times, we look at each product and revisit them. To the extent that you had, for instance, a real estate product out there that was a terrifically profitable product, particularly in those four states that we have talked about. When you look at where real estate is in those markets, you might want to take a breather from that product at the moment because it's not contributing as it has before. So there is a rationalization in looking at those products that is going to impact the top line at the moment. Michael Kupinski - Noble International Investments - Analyst If I may ask a follow up. You have, obviously, a lot of free cash flow and financial capacity. I was wondering, what are your uses of cash in your balance sheet at this point? You could be a little more aggressive buyer of your stock. There appears to be some newspapers on the marketplace and traditional media on the marketplace, not that the market is going to give you credit for that, but what are your thoughts about your uses of cash at this point? Gracia Martore - Gannett - EVP & CFO I think at this point, Mike, we are focused on two things. Number one, as we demonstrated with ShopLocal and with a number of other pieces that we are looking at, we are very interested in doing good, strong, strategic acquisitions. ShopLocal is a great case in point where we had the opportunity to buy all of the pieces of ShopLocal, and combine it with our PointRoll operations and really come up with one plus one equaling four. We will continue to make those kinds of good strategic acquisitions. But I think when you look at the current environment, particularly with the credit markets, which have again become very difficult, in the short to intermediate term we will be focused on those kinds of acquisitions as well as paying down debt. 13
  14. 14. Jim Goss - Barrington Research - Analyst National content appears to be increasingly commoditized. It winds up being either through a wire service, AP, or whatever, or on Yahoo and other portals. I am wondering what the role of the newspapers will be as you see it. Is it all local? I know you talked about local-local being very important. To the extent your national content does wind up on these other sites, is that a good thing or a bad thing for you? Do you have any control over it or an interest in trying to make sure that doesn't happen, so you can take advantage of your own proprietary content? Craig Dubow - Gannett - Chairman, President & CEO First of all of let me start toward the end. Yes, we certainly do control that content and certainly plan to in the future. But, as I have said on a number of occasions, this company has been extremely focused on local news and information. It has been our success and we have a track record with it. We have really further enhanced that into a local content environment. Frankly, an example of how our local content can play out on a national scale is our moms sites. There is going to be local content as well as content that will then scale for us nationally across all of our sites either our owned-operated sites or those that we will affiliate with or even those in other markets. Our overall use of that will apply, I think in some very positive ways. But we will not turn away at all from what is absolutely critical to this company and what we really understand and that is the local-local content that we do very successfully. We fully understand it and we will continue to exploit that as we move forward on both the local and national environments. Jim Goss - Barrington Research - Analyst Okay, but to the extent that the content does wind up on portals, do you view that as favorable thing or an unfavorable thing? Craig Dubow - Gannett - Chairman, President & CEO We like to protect the content in every way we can. Obviously, there is content that we do share through other services that are out there. But in general, we want to protect it 14
  15. 15. the very best way we can so that we can serve that consumer through our content and then supplement that as appropriate. So the answer is we want to protect in every way we can as we go forward with our own content. David Clark - Deutsche Bank North America - Analyst Good morning. So we have read in the trade press recently that NBC had told its affiliates in May that they are going to start to seek reverse network compensation when they renew affiliate contracts going forward. Obviously, you guys have strong ratings at your stations and you will do better than weaker NBC stations, but what sort of impact do you foresee on revenue as those contracts get renewed? I guess also what percentage of TV revenue currently comes from network compensation? Craig Dubow - Gannett - Chairman, President & CEO Our NBC contracts are through 2015, so we are in a very solid position. We have heard all this. There are ongoing discussions with the network and, certainly, we will be participating in all of that. Gracia Martore - Gannett - EVP & CFO With respect to network compensation, that is a very minor, minor number right now. What we have talked in the past about is our cash retransmission. We expect that will go up and more than compensate for the loss of network compensation over the last few years. Craig Dubow - Gannett - Chairman, President & CEO That is correct, yes. David Clark - Deutsche Bank North America - Analyst Okay, great. That is very helpful. Just a quick newspaper question. We saw Tribune recently declare they have targeted a 50/50 news to advertising ratio. I was just wondering what approximately average across all your newspapers your ratio was and what that trend has been over the last few years and will it trend down from here? Craig Dubow - Gannett - Chairman, President & CEO 15
  16. 16. I can't say I have the exact number at my fingertip, but it has probably been in that same range for quite some period of time. That is not something that is particularly new for us in the way we have been operating. Gracia Martore - Gannett - EVP & CFO As well, I think what you have to look at is the content reach we have across the community. Some of that content reach is going to be in the daily newspaper. In addition to that, there is going to be content reach through our various niche publications as well as our Web sites. To simply focus in on news hole in the single daily newspaper product is missing the content penetration we have in those communities we serve. Craig Dubow - Gannett - Chairman, President & CEO You know, that is where in a number of conferences, David, we have been talking quite specifically about the audience aggregation and how we are working that through the individual markets. Frankly, when you take a look at some of the results a Phoenix, a Rochester, and really the high 70%s, low 80% that we are penetrating in those markets, we really look at all of this across multiple mediums and how, ultimately, we can best serve the local constituencies. That’s what we’re working to secure further. Those are very, very big and solid numbers. Alexia Quadrani - JPMorgan - Analyst On the publishing side, could you just comment how July is looking? And specifically on how July is trending at USA TODAY? Secondly, if you can give us some sense of how much you think online classified declined in the quarter? Craig Dubow - Gannett - Chairman, President & CEO First, just on the publishing side. As we are experiencing for June, or had experienced for June, the visibility is very, very limited. We are seeing probably more of the same. Go back to June 9 when we were at the conference in New York. We have seen, not unlike the April and May, the further deceleration in June. It's around the same at this point. Then with USA TODAY, it has been very interesting. As Gracia has also talked about, from a travel and financial standpoint we have seen some positives. But, on a national platform, that visibility is extremely limited as well. 16
  17. 17. Gracia Martore - Gannett - EVP & CFO With regard to the online revenue, clearly domestically we are seeing the impact of the declines in our classified print side impacting the online side of the equation. But we have strong retail and some auto growth as well, so that has helped to offset it. When you look at Newsquest, where they have really ramped up their online efforts, even though a great deal of their online revenue is generated from classified upsells, they are still seeing strong growth as we mentioned earlier in that category. Alexia Quadrani - JPMorgan - Analyst Would it be fair to assume, though, that the real estate and help wanted online classified declines are a bit more modest in the print or are they about the same level? Gracia Martore - Gannett - EVP & CFO They are more modest than the print declines. Alexia Quadrani - JPMorgan - Analyst Any comments on CareerBuilder in the quarter? Gracia Martore - Gannett - EVP & CFO You know, I don't have those numbers in front of me. I understand that they had good traffic growth over the year ago period. If you can give Jeff a call he will certainly get that information for you. Craig Huber - Lehman Brothers - Analyst Just a three-part question, Gracia. This new credit facility of $280 million, how did you refinance the rest of that $1 billion convert that was put to you yesterday? Gracia Martore - Gannett - EVP & CFO In commercial paper. Craig Huber - Lehman Brothers - Analyst Okay, so where is your commercial paper at right now in total for your company? 17
  18. 18. Gracia Martore - Gannett - EVP & CFO It's about a $2 billion. I can get you a more refined number, but it is right around there. Craig Huber - Lehman Brothers - Analyst Do you think you have more room that you could tap into that if you needed to, wanted to? Gracia Martore - Gannett - EVP & CFO We have $3.9 billion of revolving credit facilities that backstop that, so we do have some room for strategic acquisitions. But let's all remember that we have extraordinarily strong free cash flow. So that certainly provides us with capacity and capability going forward for those kinds of strategic acquisitions we have talked about. Craig Huber - Lehman Brothers - Analyst Then my other two questions, Gracia, one, what was your non-newsprint cash costs percent change in the quarter adjusting for these two one-time items? Gracia Martore - Gannett - EVP & CFO Our non-newsprint cash costs in the publishing segment were down almost 5.5%. Craig Huber - Lehman Brothers - Analyst That is adjusted for these two one-time items? Gracia Martore - Gannett - EVP & CFO Adjusted for constant currency, which really currency was a little bit against us this quarter, but adjusted for those two items. Craig Huber - Lehman Brothers - Analyst Also if I could ask those two one-time items you mentioned in the second paragraph, the pension curtailment and the restructuring charge, how do those numbers break out between your three segments for modeling purposes? Gracia Martore - Gannett - EVP & CFO 18
  19. 19. I don't have that detail right in front of me, but I know that if you give Jeff a call, he will dig out the schedule and give you the information. The lion's share of that, both the restructuring and the curtailment gain, would be in the publishing segment. Craig Huber - Lehman Brothers - Analyst Okay, great, thank you. Operator This will conclude today's question-and-answer session. I will now turn the call back over to Ms. Martore for closing comments. Gracia Martore - Gannett - EVP & CFO Thanks very much for joining us today. If you have any follow-up questions, please feel free to call Jeff Heinz at 703-854-6917 or me at 6918. Have a terrific day. Operator Ladies and gentlemen, this will conclude the Gannett second-quarter 2008 earnings conference call. We do thank you for your participation and you may disconnect at this time. Certain statements in this transcript may be forward looking in nature or “forward looking statements” as defined in the Private Securities Litigation Reform Act of 1995. The forward looking statements contained in this transcript are subject to a number of risks, trends and uncertainties that could cause actual performance to differ materially from these forward looking statements. A number of those risks, trends and uncertainties are discussed in the company’s SEC reports, including the company’s annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward looking statements in this transcript should be evaluated in light of these important risk factors. Gannett Co., Inc. is not responsible for updating the information contained in this transcript beyond the published date, or for changes made to this document by wire services or Internet service providers. 19
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