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    gannett 3Qtranscript03final gannett 3Qtranscript03final Document Transcript

    • GANNETT CO., INC. THIRD QUARTER CONFERENCE CALL AND WEB CAST OCTOBER 14, 2003 PRESENTATION Operator Good morning and welcome, ladies and gentlemen, to the Gannett third-quarter earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the Company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Gracia Martore. Please go ahead, ma'am. Gracia Martore – Senior Vice President and Chief Financial Officer Thanks very much and good morning. Welcome to our conference call and web cast to review Gannett's third-quarter 2003 results. Hopefully, you've had a chance by now to review our press releases from this morning, which also can be found at www.gannett.com. With me today is Doug McCorkindale, Chairman, President and CEO of Gannett. We will keep our prepared remarks relatively brief, since we know you're on a tight schedule of calls today. As you saw, Gannett earned $1.03 per diluted share this quarter, or a 4 percent increase over the 99 cents we earned last year in the same quarter, a new record for us. For the year-to-date, we earned $3.15 per diluted share, compared with $3.02 last year, a little over a 4 percent increase and also a new record. We've achieved this strong year-to-date growth despite the absence of over $50 million of Olympic and political ad spending so far this year and an uncertain advertising environment with softer local advertising and still lagging employment classified revenue. I'd like to detail a couple of other areas before I turn it over to Doug. On the newsprint front, reported newsprint expense rose almost 12 percent, made up of a 9 percent increase in price and a 3 percent increase in usage. However, the reported newsprint numbers include consumption for Scottish Media Group Publishing and 100 percent of the Texas- New Mexico Newspapers Partnership that we consolidate into our numbers. Therefore, on a pro forma basis, or assuming all the properties now owned were owned for all of this quarter and last year's third quarter, newsprint expense was up about 9 percent with usage slightly higher than last year and price making up the balance. The slight increase in usage primarily reflects commercial printing growth on the pro forma side. On the usage price side, the increase reflects the fact that usage prices were still falling in the third quarter of 2002; higher prices from the price increases thus far this year; and the strength of the pound. For example, in the UK, newsprint prices fell 7 percent in the quarter in pounds, but when translated into dollars, they were actually down only a little over 3 percent. Despite the August 1st price increase announcement, Gannett was not impacted by this increase throughout the third quarter and into the fourth quarter thus far. Against a backdrop of capacity 1
    • management and weak paper demand, suppliers have struggled this year to raise prices on the dates and in the amounts they have sought. Last week, a major producer revised its August increase announcement from $50 to $35 per ton, but still effective for August. As it has all year, inventory management allowed Gannett to avoid paying any increase thus far. While it appears this increase may settle in much the same way as the spring announcement, already there are inconsistencies about the amount and start dates with some publicly announcing $25 per ton effective October. Publisher resistance to rising price pressures surprised producers. The last four quarters of industry-wide consumption have included at least one month in each quarter where newsprint usage was below the prior year. You can still count on supply and demand to be the prime determinant of pricing. Turning to the balance sheet, total debt at quarter end stood at $4.15 billion, and cash and marketable securities were $162 million. Our all-in cost of debt was a little over 3 percent with commercial paper at about 1.05 percent. With respect to shares outstanding, basic shares at the end of the quarter were 270.1 million, averaged 269.8 million for the quarter and 268.9 million year-to-date. Capital expenditures for the quarter were a little over $70 million and were $171 million year-to- date. We continue to expect that Capex for the year will be in the $270million to $280 million range we talked about previously. Finally, before I turn the call over to Doug, our conference call and Web cast 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've 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. With that behind us, Doug, I’ll turn it over to you. Douglas McCorkindale, Chairman, President and CEO of Gannett Good morning all. As most of you will recall from our conference call in July, we told you that we expected advertising and the economy to continue to grow this year, barring external factors, but the growth would be uneven and the economy remains tentative. We certainly saw signs of that unevenness in the third quarter. Our July and August results, as you know were -- industry-wide -- quite mixed; they basically took a step backwards, particularly in local and in help wanted. The good news is, September came in stronger across our newspapers, both here and in the UK, and that's despite the tougher comparisons. In September, we posted some of the best numbers in help wanted since the first quarter of this year, and USA TODAY's year-over-year revenue growth in the month was the strongest since January. As you saw from the press release, net income rose 5 percent, and operating revenues rose 4 percent. Reported newspaper advertising revenues advanced 6 percent, and that's including the results from the SMG properties in the UK and 100 percent of the Texas-New Mexico partnership, which Gracia mentioned earlier. 2
    • Focusing on our Newspaper segment and assuming we owned the same properties both this year and last year, total advertising revenues rose 3 percent, which again will probably be one of the strongest revenue performances in our industry. Pro forma local advertising in our newspapers rose 1 percent in the quarter, helped by a solid performance from our Newsquest properties. Also, strong preprint growth and continued growth in revenues from our non-daily publications helped that mix. In the U.S., including preprints, the financial, health and telecommunications categories gained, which both helped offsetting the lagging results from department stores, particularly Dillards and Federated and May Co., and some softness in consumer electronics and in furniture. Classified revenues in our newspaper segment were up 4 percent in the quarter. In employment, revenues were down 5 percent, but it's an interesting trend -- July, it was down 8 percent, August was down 6 percent, and September was down just 1 percent. Our Newsquest results are stronger than our U.S. results, but the U.S. results, as I mentioned earlier, are the best since the first quarter. The regions with the most significant reliance on manufacturing -- as we've mentioned in the past -- have been softer than those with the greater reliance on construction and the service industries. Interestingly and positively, a few of our largest sites -- Phoenix, Des Moines, Nashville, Tucson -- had positive year-over-year employment results in September. At the moment, the leading indicators of employment in the U.S. -- temporary workers and the work week -- appear to be showing improvement. Temporary help has grown strongly for four months in a row. As most of you know, traditionally, businesses will take on temporary help, and only when they feel growth is sustainable will they take on full-time, permanent positions. It's still a little too early to say whether the improvements we've seen in some of the leading indicators mark a turning point – since other measures of the labor market depict a rather anemic employment scene. We've been heartened by some of these signs but are mindful of the lack of follow-through that occurred a few times in the last several months. In other categories of classified, real estate keeps rolling right long, up 10 percent in the quarter, and automotive was up 2 percent. Both of these categories recorded strong gains in the last year's third quarter as well. National was up 7 percent for the quarter. USA TODAY's revenues were up 5 percent on an almost 1 percent increase in ad pages. Strong gains in auto, travel, telecommunications, retail, and pharmaceutical-related advertising more than offset the weakness in technology and the financial categories. Travel advertising was up 7 percent for the quarter and interestingly, up 39 percent in September. Our focus on non-daily and online products as a key component of our revenue growth has continued to produce strong gains in these categories. Revenues from our non daily publications, which are almost 500 weeklies and shoppers and magazines and specialty publications in the U.S. -- those revenues were up 17 percent in the quarter. The vast majority of that comes from organic growth. We continue to roll out products to more and more markets as we capitalize and expand on proven successes. Taking a look at our UK properties, Newsquest again delivered strong results. The economy in the UK is challenging, but they too saw September ad results pick up from earlier summer levels. Pro forma revenues for Newsquest for the quarter, in pounds, were up 3 percent. Costs, as usual, were well-managed. Newsquest’s operating profits -- again in pounds -- were up 11 percent. Looking at broadcasting, our Television results in the third quarter were substantially impacted by the diminished political advertising spending, which had totaled about $21 million in the same quarter last year. From a national category perspective, automotive and movies and home 3
    • video advertising trailed last year's results, while financial advertising was positive in the quarter. Looking ahead for broadcasting, our pacings for the fourth quarter are below last year in the very low teens. As we have told you, we're going up against about $50 million of political advertising in the fourth quarter of last year, and most of that came in the month of October. This will obviously impact pacings over the next several weeks. November and the first look at December also show pacings down in the low single digits for both of those months. That's where we stand today, and we will obviously update you on the broadcasting picture in our monthly revenue reports. On the Internet side of the business, our revenues are up 38 percent year-to-date. Our CareerBuilder investment is performing a little bit better than expected. They had another solid quarter, showing gains in traffic, increased sales and increased ad usage each month. Of course, the quarter was topped with the announcement of the deal with AOL and MSN to become exclusive employment channels on these and affiliated sites starting next year. We think these deals will mean even more significant traffic growth than the current levels, and we're already seeing some increased sales and revenue. At Gannett, our Newspaper Division's online employment revenues were up even more. The growth in a down employment ad climate is partly attributable to products and services our CareerBuilder partnership can make available. While we will cycle joining Career Builder in the fourth quarter, we believe continued product improvement; continued learning on the sales side and traffic growth of the network and the AOL/Microsoft deals will allow us to continue to show a very significant growth into next year. In this uneven and sluggish economic environment, we continue to focus on prudent cost controls, as you might expect. Television cash costs were down a little over 3 percent, while corporate costs were up about 2 percent. In newspapers, on a pro forma basis, excluding newsprint, cash cost were up a little less than 1 percent, reflecting higher expenses for lower margin commercial printing and the non-daily products and the strong currency in the UK. Our expense numbers again in the quarter include substantially higher insurance, pension and benefit costs, which were mitigated a bit by a benefit from announced changes in certain retiree benefits at many of our U.S. locations. Medical plans have also been revamped, and employee cost-sharing has moved up, as we continue to address the double-digit increases in medical costs again expected for next year. As we look into the fourth quarter and as I've mentioned before, over $50 million in political advertising from 2002 is the target we have to go up against. We saw some pickup in September and we hope that momentum improves and is sustained through the quarter. But as usual, we will continue to manage prudently and keep all things under control until we get a better handle on the economy. Now, we will take your questions. QUESTIONS AND ANSWERS Operator Thank you. The question-and-answer session will begin at this time. 4
    • Peter Appert - Goldman Sachs. Good morning. Just a couple of follow-up questions on the revenue environment. Number one, any flavor for how October is starting in the newspaper business? Number two, can you quantify for us the currency impacts? I'm not sure that was in the release. Finally, number three -- ex- Newsquest, would the U.S. local advertising have been down in the third quarter? Douglas McCorkindale Peter, let me get Gracia here to do a little homework on the second parts of those while I respond to October. It's just simply too early to tell, but the good news is, we're not getting any negative vibes, so if those September trends continue -- and as you know, the fourth quarter is everything – we are a little bit more optimistic than we were on the July call. Gracia? Gracia Martore Yes. Peter, on the currency impact for the quarter, it was a little less than a penny. On the local advertising side, excluding Newsquest, if you add in preprints to the local side, it would have been pretty close to flat. Peter Appert Okay, great. How about the currency revenue impact? Gracia Martore I think I showed in the September Rev & Stat report where it had an impact. In the quarter, it wasn't that significant. I think, in September, it had a 1 percent increase on the total revenue numbers. Douglas McCorkindale Yes, in that report, Gracia said, on a constant currency basis, classified, for example, would've been up 5 percent. Peter Appert That was for the month? Gracia Martore Right. Peter Appert 5
    • For the quarter? Gracia Martore Yes, it did not have as significant an impact this quarter as it did the prior year quarter because the pound in the third quarter of last year was about 1.55 and it averaged about 1.61 this quarter, whereas the disparity between the two was more significant last quarter. Fred Searby - J.P. Morgan. A couple of quick questions: You had a nice up tick in USA TODAY -- if you can just talk about the sustainability there. It sounds like travel picked up a lot and there's been some lumpiness -- whether you see that going forward? A second question -- if you -- the major acquisitions that are much discussed in the press, if you were to actually win Freedom, do you think a share buyback is of a higher priority? Douglas McCorkindale Fred, so far, the signs for USA TODAY, going into the fourth quarter, are positive. I don't know whether they will be as positive, travel up 39 percent, but they are certainly positive. If you see the paper, you can see we've got some extra sections in it because of the advertising demand, so we are optimistic that this trend is going to continue at the national level, and USA TODAY should get the benefit of that. On the acquisition front, the bottom line is: I do not think that we will be the buyer of all of the assets of the Freedom company, but we may get some of the pieces, depending on how it comes out. We don't know what's happening in that process, and we will probably read about it at the same time you will. Going to the stock purchase buyback possibility, we have authority. What do we have, Gracia? A couple hundred million? Gracia Martore About $300 million. Douglas McCorkindale We have $300 million of authority and we look at that all the time. There are some other acquisitions we are pursuing right now; nothing of the Freedom magnitude, but we will balance both of those and take a look at buyback if that makes sense in light of acquisition activity. But I must say that right now, there are some other acquisition possibilities that we are pursuing. Lauren Fine – Merrill Lynch I'm wondering, on the non-daily, if you could give us a sense of what the annualized revenues are from that group. Then, any quantification you can give us on CareerBuilder in terms of the revenue that you enjoyed or what type of losses it's still incurring? Then, just looking into the fourth quarter, do you have any reason to think, at this point, that the retailers that you cited -- 6
    • specifically Dillards, Federated, May, might increase, in the fourth quarter any of their spending with newspapers? Do you expect any benefit from the cellular portability change? Douglas McCorkindale That's a lot of things. Lauren, let me try to pick up a few of them. On the retail question: I was with executives from some of those companies, and I got some positive signs from them that their picture was looking good and they were hoping to increase their advertising activities. So I hope what they were predicting does come through and we do see it in the fourth quarter. It's just a little too early to see that. Gracia, do you? Gracia Martore On the non-daily side, Lauren, where we are at right now would put us on pace to do $250 million to $275 million annualized Douglas McCorkindale In the U.S. Gracia Martore Right, in the U.S., annualized on non-dailies. Obviously, as we've told you in the past, Newsquest has a number of those non-daily publications. On the CareerBuilder side, I can't give you any specific numbers. Obviously, we expect that it would have been cash flow positive for the third quarter, but as you know their results flow through our net non-operating line. Douglas McCorkindale You had one other question, Lauren? Lauren Fine Yes, I did. There's an expectation that cellular advertising will increase with number portability. Would you expect that to benefit at both USA TODAY and at your newspapers? Douglas McCorkindale We did see some pickup from those categories in the daily newspapers and in USA TODAY, as I mentioned earlier. I hope we see some more of it, so yes, so far the answer is positive. William Drewry – Credit Suisse First Boston Two questions -- one, with the push-up in the calendar on the primaries on the political side, would you expect to see any political spending starting in the fourth quarter of this year, or will that be a January type of event? Then, on the cost side, over the next one to two quarters, what 7
    • will the sequential growth rate look like in terms of compensation. In other words, the run-rate numbers, ex-newsprint that you're showing right now -- should we dial those in for the next couple of forward quarters? Douglas McCorkindale Bill, let me comment on the political. The answer is we hope what you're suggesting takes place, but we haven't yet seen it. We're getting a number of inquiries from the political parties and the candidates that sound like they might increase their activity a little bit earlier than normal, but we haven't seen it booked yet, or at least not to any order of magnitude. We've picked up a few dollars in Sacramento, obviously from the California activity, but it was too short a time and it wasn't that much money, so I think your analysis is correct but they haven't written the orders yet. Gracia, do you have an answer? Gracia Martore Yes. With regard to the expense side, Bill, obviously, on the newspaper side, we will have higher newsprint expense in the fourth quarter -- we will still be affected, as we have been, by health- care costs, insurance costs and those sorts of things. But I would say that we will keep everything else tight as a drum and I don't think you should expect to see any significant increases in expenses over the next couple of quarters from where you've seen us over the last couple. Steven Barlow – Prudential Thank you. I wonder if you could talk a little bit about the pricing in the Television business. There's been a lot of discussion over network versus locals, especially in radio. Seeing some of that in the television side -- just with the feel of the marketplace on price increases on the local TV side. Then Gracia, if you can give us the total amount of UK revenues -- I don't know whether that's possible. Then lastly, could you break out help wanted for the U.S. for the quarter, or maybe even just September, versus the total number for September of minus 1 percent? Thanks. Douglas McCorkindale Steve, on the UK, you tell us what the exchange rate is on any one day and we can convert it into numbers. But the basic operation in the UK has something between $750 million and $800 million in revenue to as much as a billion, depending on the exchange rate, so it's in that range, which is pretty nice. We are very, very satisfied with the UK results and obviously, the exchange rate has been helping us recently and it can go the other way next year. Your question on the Television ad picture and the rates -- I don't think I can answer that very precisely without getting little bit more help from our broadcasting folks. I can tell you that a number of our markets have moved up in size, our ratings are continuing to be very strong in local news where we make most of the money. We are doing fine on the pricing side. The issue is going up against the political numbers we had last year, and just a generally positive result on the non-political side, but not the momentum that would get us carried away in predicting really good numbers for the rest of this year. Hopefully, we will do better next year, but I don't have a precise answer unless Gracia has it. No, we could do a little homework on that if you're interested. It hasn't been a question that we've looked at. You had a third question? 8
    • Gracia Martore On the employment side, you're right, Steve. As we mentioned in our releases, employment was down 1. In the U.S., that number was probably down in the 5 percent range, and Newsquest would have had a positive month in employment. Currency impacted that negative 1 number a little bit, so it would have been less than negative 2, somewhere between 1 and 2 down on a constant currency basis on total employment. Douglas Arthur – Morgan Stanley I guess most of my questions have been covered. Doug, do you have any thoughts on potential Olympic advertising in 2004 for NBC versus I guess it was 25-plus in 2000 from the last summer Olympics? Do you think you'll be significantly above that, in line? Any thoughts would be helpful, thanks. Douglas McCorkindale We haven't seen the budgets yet, but I think it was -- what -- about $22 million or something like that we had last year. Gracia Martore Yes, $20 million to $25 million. Douglas McCorkindale I think they are looking at about the same order of magnitude, aren't they? Gracia Martore As you know, Doug, Summer Olympics is typically better than a Winter Olympics. We did about $20 million to $25 million in '02 on the Winter Olympics. In 2000, in the Australian Olympics, I think we did about $30 million to $35 million. I would guess – although, frankly, we haven't seen any budgets so it's too early to say –it would be more like a 2000 than a 2002 year just because it will be a Summer Olympics, but we will have to see. Douglas McCorkindale I will go with Gracia's number, Doug. That sounds better than what I gave you. Douglas Arthur 9
    • Yes, sounds good. Just a follow-up on Bill Drewry's question on expenses, FTE's -- I know it's always a moving target, but pro forma, are you fairly flat in the Newspaper group, or are you actually down a little bit year-over-year? Gracia Martore Company-wide, we are down a little bit. Douglas McCorkindale We've been adding people on the sales side and holding back everywhere else because most of the sales costs is commission oriented -- obviously, adding bodies with all the new products, the non-dailies that we mentioned before. William Bird – Smith Barney I was just wondering if you could talk a little bit about the “Do Not Call” list and implications on your circulation growth and strategy? Specifically, what percentage of your circulation orders are generated by telephone solicitation? Thanks. Douglas McCorkindale I wish I had those numbers. I think it was 25-to-35 percent, depending on the newspaper. It might be a little higher in some places, Bill. It's definitely going to have an impact. We've been working on plans to change how we solicit to subscribers. We will probably have to go back to doing it the old-fashioned way. You know, I don't know what the impact is going to be. The Newspaper Division is working on it; we're coming up with various promotions, but I can't really give you an answer. It's not good news. As you may have read, we closed down our telemarketing business because it really doesn't make a lot of sense to continue it if these are what the rules are going to be. Now, that business didn't do any work for Gannett. Gracia Martore We will also look at encouraging more of the use of direct debit and credit cards for subscriptions to help in the retention area and with churn. So, there's a variety of things that we've already been taking steps to try to help with. William Bird I was also wondering if you could talk a little bit about just general thoughts on margin potential and recovery. Douglas McCorkindale 10
    • Expenses are under control. If the revenue comes in, you're going to see a lot of cash come to the bottom-line. There will be some margin improvement there, but as you know, we've managed pretty tightly in the tough times that started in our world in the late summer of 2000, so if that revenue comes in, the margin will reflect it, especially, obviously in the broadcasting side. It's bounced around more maybe than it has on the print side, but you'll see some money come to the bottom-line if this revenue picture picks up, Bill. Kevin Gruneich – Bear Stearns Gracia, you indicated that a change in retirement benefits helped your cost line. I was wondering if you could provide the magnitude? Is that a quarterly run-rate? Secondly, in your other line, did you have a loss from the shutdown of the telemarketing business that was just mentioned? Then finally, could you tell us what's up with the Independent Media acquisition? What's the status of that, and what's your anticipated timing now? Douglas McCorkindale I will take the latter one, Kevin, and Gracia can deal with the first few, which were really kind of diminimus. In any event, we are waiting to hear from the Competition Commission. We have been waiting to hear from the Competition Commission for quite some time. So, I don't know; your guess is as good as ours. Maybe this week, maybe next week. We keep being told we will have an answer and whatever it is, it's not going to be a major transaction to us one way or another. It would help around the London area, at least to have some answers, but we can't be of any more help than that because we can't get some answers. Gracia Martore Kevin, on the shutdown of Gannett Telemarketing. That was in the other non-op line and it was less than a couple of million dollars. With regard to the retiree medical, we did have a one-time benefit, as we said, but even with that benefit in the quarter, our employee benefit costs were still up double digits. So, that will have an impact down the road. The benefit of revamping our employee health care plan will kick in beginning the first quarter of next year. That will be ongoing. We're just going to have to see, as we go through our budgeting process, where those numbers take us. In December, when we give you all of our budget assumptions, we will include an outlook on health care costs at that point. Douglas McCorkindale As I mentioned earlier, Kevin, we're looking at everything when it comes to benefit costs, and we are reducing some benefits that retirees have had in the past to save us some money. We're asking our employees to pay a little bit more, but we have to be careful there. You can't ask folks to pay more than you give them in salary increases, so the overall picture is still not very positive until this healthcare issue gets somehow solved. That's probably going to take action from our government. As you know, I've expressed in the past, they tend to act only in a crisis basis and they study forever, and it's getting to be a serious issue, not just for Gannett but for all of industrial America. 11
    • Kevin Gruneich Thank you. Just a follow-up on the Independent Media question -- has it been all quiet from the Competition Commission, or have they provided you with adjustments that you need to make to complete this transaction? Douglas McCorkindale No. We don't have any answers. We don't have any adjustments; we don't have any answers. We are waiting. James Marsh - SG Cowen I was wondering if you could help me reconcile the weakness in local relative to national. It seems like it's a phenomenon that's not just in the newspaper area but also in the radio side. I'm just trying to get a sense for why the growth rates seem to be so different and what you're seeing in your markets. Douglas McCorkindale Well, we're bouncing all around, Jim, on the local side. As I said, some of the major department stores were weak. The consumer electronics picture was weak. On the other hand, for the month, grocery was doing a little bit better, and entertainment was doing better and financial was doing better, but it's a very mixed picture and it depends upon the market. For example, in September, on the local side, our papers in what we call the Atlantic region and in Detroit, which has not been a positive story recently -- they had a pretty good September. On the other hand, we were a little weak in the South, so it's a market-by-market analysis, but no specific answers that I can pass along do you. Then the national side is more positive than otherwise, but that too is mixed. Where the Atlantic side was strong locally, it was weak on the national side, and Detroit was local. USA WEEKEND is part of those numbers too, which moves a lot of ground for us on the national side. But I don't know; if we could get some consistent answers out of some of the large department stores, that would help that question. At least we would know where it's coming from. But as I said earlier, we had a little weakness from Dillard's and Federated in the third quarter, but they were telling us that they were thinking of picking up in the fourth quarter, so I don't know. Gracia, do you have anything you want to add? Gracia Martore No, I think you're right on, Doug. Looking at the big department stores that we've talked about previously, the Dillards, the Federated, the May Company, Boscov’s in some of our markets, we've seen a pullback since the beginning of the summer out of those majors. At the same time, on the consumer electronics side, we've also continued to see softer numbers there. Interestingly, we've had Best Buy go into USA TODAY and do some advertising there which wasn't there last year, which would obviously be in the national category. I imagine they are trying to figure out what their advertising strategy should be, going forward. So there's been some back and forth which is not atypical of the larger advertisers; we've seen it in the past. 12
    • Douglas McCorkindale Just no specific pattern, Jim, that you can respond to right now. Hopefully, it will settle down in the coming months and we will be able to be more precise with you. Christa Sober - Thomas Weisel Partners Most of my questions have been answered, but I just had a couple follow-ups. Could you guys give a sense or give us the number on what your national advertising was up at your local papers minus USA TODAY for the quarter? Then could you give us your outlook for other income for the fourth quarter and, as much as you can, some color for what caused its decline here in the third quarter? Gracia Martore At our local newspapers, national in the quarter was up 9 percent. But you've got to be careful there, because that also includes USA WEEKEND, which we mentioned before. USA WEEKEND, on the basis of a couple of pages, can have dramatically different results on a month-to-month basis. Some months they are very strong; some months, they are a little bit softer, so about 9 percent for the quarter. On other income, in the non-operating area, the negative $4.6 million? As we've indicated in the past, that includes the results of our investment in CareerBuilder, also our minority interest expense related to the Texas-New Mexico Newspapers Partnership that we consolidate, and then have a minority interest expense in that line. It also includes mark-to- market gains or losses from some investments that we have on the corporate balance sheet. Then, as I mentioned earlier in response to Kevin's question, we also shut down Gannett Telemarketing and there was a small loss in that line. I'd say, we've typically said in the past that that line -- plus or minus $5 million to $10 million is probably where it will travel, depending on the quarter and what the stock market is doing, what other things are doing. Christa Sober But no extra color on sort of where -- like, you know, with Texas-New Mexico or CareerBuilder, you can provide? Douglas McCorkindale No, they'd be about where they've been -- obviously, picking up and hoping everything is picking up, but they're not going to have that much. It's all the other little stuff that hits that line. If we knew what was going to be the answer to that at this time of the year, we would be in much better shape. Jim Goss - Barrington Research First, with the employment classifieds, on an earlier call, I think, Doug, you noted that there was some weakness at the smaller market papers versus larger market papers. I'm wondering if you've seen any trends one way or another, especially as things have started to improve, at least in terms of the rate of decline? Also, you've been pretty good at sensing the shape of the overall economic turn with your large number of smaller-market papers. I'm wondering if you're getting 13
    • more optimistic in terms of the curve of the economic recovery and how ad spending might join that, given that September was noted to be stronger. Finally, I think as James Marsh mentioned earlier, some of the radio companies always target newspapers as where they're going to pick up in the local share. At the NAB radio show recently, they also talked about Internet advertising as possibly being an area they could siphon off some of the local advertising. I'm wondering how you respond to those sort of things. Douglas McCorkindale As we've said in the past, Jim, we wish the radio folks well and we would probably still be the radio business of if our friends in the regulatory environment had gotten their act together in 1996. But bottom line is we're not seeing any significant loss to radio in any of the markets where we get reports on that. There was a good deal of comment about Cincinnati, whatever it was -- 18 months ago or two years ago, and I think Gracia has some of those statistics that she can drag out again if you're interested. They were basically saying, quot;We're not seeing it.quot; I don't have those numbers handy but she can get them for you later. Going back to your earlier question about the employment picture, as I mentioned in the first part of this conference call, we are seeing and did see very positive results in employment in Phoenix, Des Moines, Nashville and Tucson. That's a good sign. Overall, as I also mentioned, the employment numbers were negative, but they were a heck of a lot less negative in September then they had been. Of course, we're going up against year-over-year numbers that are not very exciting to begin with, but the pieces are beginning to pick up. But again, if it's manufacturing-based, we're not seeing the same positive results that we are in the service sectors and in the construction, the real estate booming markets like Phoenix. So, to step back to look at the whole thing as you’re asking there in the second part of your question, we are slightly more positive than we were last month or the month before, because July and August were not as positive as everybody had been hoping, but the results are still mixed. As we responded to Jim's question, on the local side, we're getting different answers in different markets in different parts of the country. The overall trend is more positive than it was, but we're going to manage this company on a conservative, cost-controlled basis, as you've come to expect, until we get a little better sign. Then that net revenue, if it comes in, will go right to the bottom line. So, I'd say slightly more positive than we've been in the past but not overly optimistic. Tom Thompson – Thompson, Siegal Could you clear up my confusion about Olympics and political comparisons? I think, at the beginning of the call, Gracia, you said you are missing $50 million of related spending in the third quarter. Then later on you used a $21 million number -- I think Doug did. Douglas McCorkindale That's apples and oranges. Gracia Martore Yes. Tom, what I was saying was that year-to-date, through the first nine between Olympics and elections, we have been up against over $50 million. But specifically in the third quarter of last year, they had a little over $20 million of political revenues. To put it in perspective for the full year, between Olympics and elections last year, they had over $100 million of net revenues that we now have to compare against this year, a fair chunk of it in the fourth quarter. About $50 14
    • million of political was registered in the fourth quarter of last year that we will be up against in primarily October. Douglas McCorkindale So $50 million, Tom, from January through September last year. A combination of about $20 million to $25 million was Olympic and $20 million to $25 million was political, then another $50 million from October 1 to year-end of 2002. Laura Starr – Equinox Capital Management I just want to go back to the employee health care changes for the active people. Are you going to be asking them to pay a weekly supplement, or is there an actual paycheck, or are you going to ask them to pay higher money when they visit to the doctor and higher co-pays on prescription drugs? Douglas McCorkindale A combination – we're going to ask them to pay a little bit more of the premium and we are changing the deductible in certain categories, so it's a combination. We're trying to make it have the least negative impact on our employees and have the company absorb most of it, but it's a challenging combination of all of those. If you've got any answers, please call because we've been working on it and as have all the other companies. But it's everything; it's a little piece of everything. Laura Starr Can I just ask a follow-up? Since you're in Washington and you rub shoulders with more politicians than a lot of the other people I know, do you think we're going down the road to a national health system? Douglas McCorkindale I can't give you any idea. As I said earlier a little bit facetiously, I guess, in my view, Congress does nothing until it gets to be a crisis. Our health care system, not just the insurance piece but the whole thing, in my mind, is broken. I don't know when they will get around to it. Many of these folks are my neighbors and they seem to think they will worry about it sometime in the future. John Kornreich – Sandler Capital Doug, what is going on behind the trends in circulation? I see the month of September alone was down 3 percent Sunday and daily; year-to-date is down one daily and I think two on Sunday. Is there anything unusual happening here? 15
    • Gracia Martore In September of last year, a number of our papers had special sections and other things relating to the one-year anniversary of 9/11. We saw the fall off that we had from the actual 9/11 not as significant as it would otherwise have been because there were increased sales related to that. Also, in our Phoenix newspaper, the Diamondbacks were in the playoffs last year, and I think that caused some additional sales of newspapers there. So, we would expect the trends to go back to where they were prior to September and October and the rest of the year. John Kornreich Which means a kind of a minus one trend? Douglas McCorkindale Hopefully, a little bit better than that, John, but that's the way it's been going. The readership numbers have been getting better, but the paid circulation number is about the trend you indicated. John Kornreich How do you view, in general, your home delivered pricing levels? Could '04 or '05 be a year of some meaningful adjustments upward in home-delivered pricing? Douglas McCorkindale That's not part of our plan. No, we haven't done the budgeting next year for 2004 yet, but that's certainly not part of the plan. Mark Hughes – SunTrust You talked about down 5 percent for U.S. employment in the month of September. Do you have the comp for July and August on that? Douglas McCorkindale I did. Let me see, I said that. What was it? July was down. Was it 9, Gracia? Gracia Martore No, that was the total. I don't have the August and July numbers in front of me. I will call you with them. Douglas McCorkindale 16
    • Employment revenues were down 5 percent for the quarter; they were down 8 percent in July, 6 percent in August and 1 percent in September. Gracia Martore That's including Newsquest and the U.S. newspapers. Mark Hughes So, is it fair to say that the U.S. newspapers got better as well through the quarter? Gracia Martore Definitely. September was our best month since January. Douglas McCorkindale As I indicated, Mark, a couple of those big markets were positive for the first time in a long time. Mark Hughes In terms of categories in those markets where you saw growth, anything -- (technical difficulty) -- jobs? I mean, a lot of talk about technology and national. Douglas McCorkindale Those are surface and construction-oriented, housing markets for the most part, but no, we don't get a detailed breakdown on that from our properties. Douglas Arthur – Morgan Stanley Just a quick follow-up -- Doug, this supermarket strike in Southern California, which has hit about 1000 stores apparently, and now I guess there's word that it's spreading to Krogers in Ohio -- when this kind of thing happens, which I guess is fairly rare, do you typically see advertising go up in the early stage of a food-related strike, or not? Douglas McCorkindale I don't know what the answer is. This is not a typical food-related strike. It's more likely to affect some of our competitors who do a bagging operation than it is us early on because they have a lot of those supplements that they deliver and throw at the doorsteps. But I don't know. We don't have any trend data on strikes that affect the food world. 17
    • Gracia Martore We will take one more question and then I know you folks have another call to jump on. Brian Whorhy (ph) – Equity Growth Management Can you give us some ball-park sense of how much employment is as a percent of total advertising? Does all of the employment revenue show in the classified line? Douglas McCorkindale The answer to the second one is yes. The answer to the first one is --. Gracia Martore Year-to-date, help wanted is about 34-35 percent of classified advertising. Operator If there are to further questions, I will turn the conference back to Gracia Martore to conclude. Gracia Martore Thanks very much for being with us today. If you have any further questions, we will be around all afternoon at 703-854-6918. Thanks a lot. Operator Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1- 800-428-6051 or 973-709-2089 with and ID number 306019. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect. ### 18