AND FULL YEAR 2003

this past couple of weeks. At Gannett, we have secured commitments from suppliers so that we will not
pay any increa...

was up 1 percent for the quarter but lagged the prior year's December number, which as some of you
may recall, was a...

good as we're reporting in our headlines. It’s going to be month-to-month as we progress through the
first quarter a...

Douglas McCorkindale

We had a lot of options that came due, Peter, and the stock got to $90, and there were a lot o...

Gracia Martore

 Pro forma constant currency, gain for the fourth quarter was 5 percent on advertising. For the year...

Douglas McCorkindale

 Bill, I didn't mean to say, if I said it, that the second quarter would be less robust than t...

Douglas McCorkindale

 We have auto, as usual, up there in good numbers. I think it was about 12 percent-14 percent ...

not spending all of their budgets on day one. So if they make the commitments, you'll see the numbers. If
they sprea...

Steven Barlow – Prudential

Lastly, is there any more detail you can give me about SG&A as a percent of cost? It wa...

Doug alluded to earlier. With regard to the corporate expense side, yes, you probably saw a little bit of
the insur...

Olympics, there may be some additional spending there. And then finally, related to the Olympics, I
remember last t...

Douglas McCorkindale


Ed Atorino – Blaylock

So you have one more acquisition added to revenues?

Douglas Mc...

 Doug, you mentioned that preprint was strong in the quarter. How strong was it and what percent of
retail does pre...

money is spent, I would hope we would do better than the 80-plus million that we had in 2002. Our
television guys a...

James March – SG Cowen Securities

 Maybe I missed it, but could you guys give help wanted numbers for the fourth q...

Tobey Sommer – Sun Trust Robinson Humphrey

Is it your sense that that trend is likely to continue or do you have a...

way, they have been up to expectations or beyond. So we're very pleased with all of the acquisitions for
the last f...
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  1. 1. GANNETT CO., INC. FOURTH QUARTER AND FULL YEAR 2003 CONFERENCE CALL AND WEB CAST FEBRUARY 2, 2004 PRESENTATION Operator Good morning and welcome ladies and gentlemen to the Gannett fourth quarter and full-year 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. Gracia Martore – Senior Vice President and Chief Financial Officer Thanks very much and good morning. Welcome to our conference call and Webcast today to review Gannett's fourth quarter and full-year 2003 results. We especially appreciate you joining us early this morning after that great Super Bowl game last evening. Hopefully, you have had a chance to review our press releases from this morning, which also can be found at With me today is Doug McCorkindale, Chairman, President and CEO and Jeff Heinz, Director of Investor Relations. As you saw, Gannett earned $1.31 per diluted share for the quarter, a new record and at the higher end of the range we provided you in early December. In 2002, we earned $1.29 on a comparable basis. For the year, we earned $4.46, also a new record. We achieved these record results in the quarter despite significantly diminished political spending and against a challenging retail landscape. As you may recall, we generated about $50 million of net political advertising in the fourth quarter of 2002. I would also like to detail a few other numbers that may be of interest to you. Reported newsprint expense increased 17.8 percent in the quarter, comprised of about 12 percent in prices and 5.2 percent in usage. However, the reported newsprint numbers include consumption for acquisitions; for instance, the Scottish Media Group Publishing transaction that we did in the UK, as well as 100 percent of The Texas/New Mexico Newspapers Partnership that we consolidate in our numbers. As well, it includes the impact of currency; specifically, the strength of the pound in the fourth quarter. For example in the UK, prices, including for commercial printing, fell about 4 percent in pounds in the quarter but when you translate that into dollars, they actually rose 4 percent. On a pro forma basis, or assuming all of the properties now owned were owned for all of this quarter and last year's fourth quarter and on a constant currency basis, newsprint expense was up about 13.9 percent with usage up a little over 3 percent and prices up about 10 percent. The increase in usage primarily reflects strong commercial printing growth, both here and in the UK. Recently, as you know, newsprint producers announced a $50 per ton February 1st price increase. The paper industry is once again trying to rely on supply-side maneuvers to raise prices rather than real demand. Daily publisher consumption registered negative numbers throughout the fourth quarter, and for full-year 2003 was essentially flat against the previous year. Newsprint consumer inventories are rising because our industry has entered a seasonally slow usage period. As well, domestic and foreign paper is readily available to build inventory. With this unrealistic ill-timed approach from producers, this price increase will meet with significant resistance as you have heard from other companies on their calls
  2. 2. 2 this past couple of weeks. At Gannett, we have secured commitments from suppliers so that we will not pay any increase in the first quarter. And obviously, there is no commitment at this point to pay an increase during the second quarter. We will have those conversations in the second quarter and see where market conditions are at that point. Turning to the balance sheet, total debt at year end stood at $3.83 billion, and cash and marketable securities were $67 million. Our total cost of debt is just under 3.3 percent and our commercial paper outstandings are at about 1.03 percent. With respect to shares outstanding, basic shares at the end of the quarter were 272.4 million. They averaged 271 million for the quarter and 270 million for the year. Capital expenditures for the fourth quarter were a little over $110 million and were $281 million for the year. We continue to expect capex to be approximately $280 million for all of 2004. Finally, before I turn the call over to Doug, our conference call and Webcast today may include forward- looking statements and our actual results may differ. Factors that may 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 as well as on the investor relations portion of our website. Now I will turn it over to Doug. Douglas McCorkindale, Chairman, President and CEO of Gannett Thank you, Gracia. Good morning, all. In December as most of you will remember, we told you that it appeared that 2003 would be a record year in terms of revenues, earnings and operating cash flow. I am pleased to report that the results we released today confirmed all of those records. Of even greater significance, we achieved those strong results despite the absence of over $100 million of Olympic and political ad spending that benefited our television stations in 2002 – against a challenging advertising backdrop and in face of an uneven economic recovery. As you saw from the press release, operating revenues rose 6 percent to $1.8 billion in the quarter and increased 4 percent to $6.7 billion for the year. Reported newspaper advertising revenues advanced 10 percent, but they include the results of the Scottish Media Properties in the UK, 100 percent of the Texas and New Mexico Newspaper Partnership and the recent acquisition of Clipper, as Gracia has mentioned. Looking at our newspaper segment and assuming we owned the same newspapers in both years, total advertising revenues rose 6 percent for the quarter and 5 percent for the year. Our results in the fourth quarter were our best all year, both domestically and in the UK. Pro forma local advertising in our newspapers rose 4 percent in the quarter, helped by strong preprint and non-daily growth. In the U.S., including preprints, the financial and telecommunications categories gained and they helped offset the lagging results from department stores and consumer electronics. Classified revenues in our newspaper segment were up 8 percent in the quarter and up 9 percent in the month of December. That is the best month of the quarter. December's success was also achieved against tougher year-over-year comparisons when you look at December of 2002. Our UK results, Newsquest, were stronger than our U.S. results, but the numbers we posted in the U.S. were also the best since our first quarter of 2003. Our print employment numbers in the U.S. turned positive in December. In fact, in December, 54 of our domestic newspapers had employment revenues above 2003 and 37 papers, such as Wilmington, Honolulu, Reno, Tucson, Nashville, had double-digit gains. While the trend is positive, we anticipate unevenness over the coming months. It is still not clear if we have entered the jobs creation part of the recovery cycle, but we are encouraged by the continued improvement in the temporary help numbers. Turning to national, national advertising was up 11 percent for the quarter. USA Today's ad revenues increased 10 percent after a strong finish in December. As we have noted all year, we achieved strong gains in auto, telecommunications, retail and pharmaceutical-related advertising. These gains more than offset the softness in technology and travel. The travel category has been volatile, with a very robust December following muted results earlier in the quarter. Real estate strengthened further throughout the quarter and was up 14 percent in December on top of a 12 percent gain in December of 2002. Automotive
  3. 3. 3 was up 1 percent for the quarter but lagged the prior year's December number, which as some of you may recall, was a double-digit increase. We described for you at the conferences in December that our focus has sharpened on our non-daily and online products, and that focus continues to pay off. Revenues from our non-daily products – which do not include publications such as the Army Times and Nursing Spectrum or the new Clipper Magazine group – increased 23 percent in the fourth quarter. This category will continue to grow as we roll out proven products to additional markets. One of the key components of our non-daily strategy is the launch of younger reader publications. These products are packed with in-depth local news and things-to-do content for the young adults. Their companion Web sites offer deep entertainment and lifestyle content. We have had a strong response from readers and advertisers for these publications and have seen tremendous synergy between the print publication and our newspaper websites. Our fourth quarter launches in Cincinnati, Louisville and Indianapolis generated above-budget revenues with 280 new advertisers. The online traffic to entertainment listings, photo galleries, Web polls and searchable calendars are high. Cincinnati, for example, reported a 40 percent increase in 2003 entertainment page views alone. You have heard mentioned Clipper Magazine, which we acquired at the end of October. It is one of the leading direct-mail advertising magazine companies with over 325 local market editions in 24 states. Clipper has a good management team, is growing and represents another nontraditional business that we're using to expand our reach to additional advertisers. On the Internet side, our total company revenues were up 44 percent for the year. Most of you have heard from Knight-Ridder and Tribune regarding CareerBuilder. Gannett has been a partner in Career Builder for just over a year and we're very pleased with its growth in both market share and revenue. We are seeing a significant increase in traffic from the AOL and MSN deals, which is in line with the projections CareerBuilder made to many of you in December. Turning to the UK, Newsquest again delivered excellent results as the economy in the UK appears to be growing. Pro forma revenues for Newsquest, in pounds, were up 7 percent in the quarter and 3 percent for the year. Costs, as you might expect, were tightly managed resulting in Newsquest's operating profits, again in pounds, jumping 26 percent for the quarter and 13 percent for the year. In television, our results lagged last year due to the substantially diminished political advertising, which totaled $50 million in the fourth quarter of 2002. From a category perspective, strong results were posted in auto, retail and telecom. Looking ahead in television, our latest pacings for the first quarter overall are up in the low- to mid-single digits, with January up in the mid-single digits and February in the low- single digits. Local is stronger than national at this point. Again though, I want to caution you that pacings are very volatile and reflect where we are at this moment. We will keep you up-to-date in our monthly reports as the quarter progresses. In this subdued and uneven economic environment, we again demonstrated our focus on prudent cost control as most of you have come to expect. Television costs were down over 7 percent in the quarter and down almost 3 percent for the year. In newspapers on a pro forma basis excluding newsprint, which Gracia has mentioned, and in constant dollars, costs were up just over 2 percent for the quarter. This in part reflects higher expenses for lower margined commercial printing and our non-daily products. Our numbers in the quarter were achieved even with higher insurance and net benefit costs. Looking ahead, overall, we're optimistic that 2004 will be better than 2003. We're looking forward to a solid year in 2004 with the addition of the Olympics and the political advertising and continued growth in the economy. We continue to be comfortable with the assumptions we provided you in mid-December, but we must remind you that all of the improvement will not happen in the first quarter or the first half. Revenue growth will be gradual over many months. We are seeing improvement, but maybe not quite as
  4. 4. 4 good as we're reporting in our headlines. It’s going to be month-to-month as we progress through the first quarter and the first part of the year. But as usual, we will continue to deliver industry-leading top line results coupled with prudent cost control. Now let's stop and take your questions. QUESTION AND ANSWER Peter Appert, Goldman Sachs Good morning. Doug, your tone sounded somewhat cautious in terms of the start of the year for the newspaper business. Do you have any flavor for what January looked like in terms of newspaper ad revenues? Douglas McCorkindale, Chairman, President and CEO of Gannett Too early to tell, Peter. I can tell you I just came back from the UK and they're having a very good January. But for the rest of the properties in the US, it is simply too early to tell. And as you know, January is sort of a non-month. I'm not hearing anything negative, but as I said just a moment or two ago, I think we're going to see an improvement, but not quite as robust as we're seeing in our headlines in our newspapers. Peter Appert Does help wanted stay in positive territory in the first quarter? Douglas McCorkindale, Chairman, President and CEO of Gannett Well, again, we haven't seen the numbers yet in the UK. From what I am hearing, it may not be as quite as robust in January as it was in December. But again, we just don't have any numbers. Peter Appert Gracia, can you give us an estimate of what the currency impact was from an EPS standpoint in the fourth quarter and the year? Gracia Martore It was probably about a penny and a half to 2 cents in the quarter. For the full year – the impact every quarter – probably a penny to a penny and a half for most of the other quarters. Peter Appert Last thing -- the share count looked like it was up a little bit more than usual in the fourth quarter. Was there anything unusual in that?
  5. 5. 5 Douglas McCorkindale We had a lot of options that came due, Peter, and the stock got to $90, and there were a lot of stock option exercises. Peter Appert And you're still not doing any share repurchases, correct? Douglas McCorkindale No, but we have authority. We have $290 million of authority and, of course, I think our Board would agree to increase that if we decided to look at buyback. We will have to look at that versus the acquisition opportunities, but we certainly have the money and can do that if appropriate. Fred Searby - J.P. Morgan. It sounds like with NBC pushing forward its schedule and the Olympics, that that should be positive. Do you have any sense of that and can you touch upon that? Douglas McCorkindale Fred, that will be positive. I think the Olympics, although they're being held in Greece and it's not the same as Atlanta, I think the projected revenue that we're hoping to get out of the summer Olympics will be more than we got in February of 2002. So we are looking at a pretty good number there. Fred Searby - J.P. Morgan. Just quickly, your guidance for the UK and Newsquest was mid-single digits, and it sounds like you're getting an acceleration. That, if you look now, is probably fairly conservative. Just briefly, on the acquisition front, is there any interest in Hollinger? I'm sure you've been asked that a million times, but with your success in the UK, any thought on some of the assets there? Douglas McCorkindale On the UK, I said they're off to a good start in January, but you have to look at it on a twelve-month basis. And they had some pretty good numbers in 2003. So we're not going to change that projection at this point. They will be going up against some better comparisons than we had in the states as the year goes on. We have not seen the package on Hollinger, so I don't know whether we would be interested in that. There seems to be a lot of activity and we know some of the properties. But as you know, we tend to buy things that we can make money with, not things that just add an extra page to the annual report. Lauren Fine – Merrill Lynch Could you give us, in the Newspaper Division, the pro forma constant currency ad revenue gain. I think you gave it for December, but if we could have it for the quarter and the year.
  6. 6. 6 Gracia Martore Pro forma constant currency, gain for the fourth quarter was 5 percent on advertising. For the year, pro forma constant currency, was 3 percent. Lauren Fine – Merrill Lynch Great. I am wondering if you could tell us what the contribution in cash flow was from acquisitions in the Newspaper Division, and if you also could give us a sense of the UK margins, all of the properties in the UK, -- how close are the margins there are getting to your overall segment average? Douglas McCorkindale We won't break out the numbers in cash flow for you, Lauren, but we will tell you that all of the acquisitions have done better than we've projected when we announced them. Obviously, we've had some help from the interest rates, but also the expense control activities have been more rewarding than we had anticipated. Looking at the UK profit margins, most of the activities in the UK are close to our U.S. standards or expectations. The one exception would be the new acquisition up in Glasgow. And I think when we announced that acquisition, we indicated there was some work to be done there. That work is being done. There are revenue potential possibilities there as well as expense potentials. So that is going to be fine, but it is not up to expectations yet. Lauren Fine – Merrill Lynch One last question. Telecom was a strong category for you pretty much across your properties. Do you have a good sense if you're looking at the wireless category, specifically, whether you expect to see an increase in spending, maintenance spending or, guess you could say a decline in spending is another choice. But what do you expect for that category? Gracia Martore Our sense is that the telecom category at least for the next few months should continue to be a pretty good category for us. Douglas McCorkindale Maybe it’s depending on what the acquisition activity is in the sector and the potential impact on advertising. Bill Drewry – Credit Suisse First Boston On the revenue side. Just kind of connect the dots here. You sort of gained momentum in the fourth quarter, had your numbers up nicely, high single digits in December. But as I recall, in December you guided to mid-single digit ad revenue growth for the full year, and then you just said the first half would be weaker than the second half. So does that mean the December number was a little bit of a mirage, or are you feeling conservative? Second, on the cost side, if you could give us any guidance on the first quarter, where you see the same kind of non-newsprint pro forma constant currency kind of cost trend that you just quoted for Q4 I think up slightly over 2 percent?
  7. 7. 7 Douglas McCorkindale Bill, I didn't mean to say, if I said it, that the second quarter would be less robust than the first or the fourth quarter. What I was trying to say is I don't think we ought to get carried away with some of the headlines about the economic news. We are still seeing a spotty retail environment across the whole United States. And although the employment numbers were okay and quite positive in a number of our markets in December, in manufacturing America, we are not seeing a lot of new jobs being added. We're seeing the positive numbers in the temporary help category, but all of those pieces are not yet coming together. So what I'm just saying is you're going to see good numbers from us in 2004, but don't expect everything to just start jumping at the end of January and then greater in February, etc. But I certainly did not mean to imply that the second quarter would be in any way weaker than what you all might be projecting. Gracia, do you have any comments on the expense side? Gracia Martore Just one more on the revenue side, Bill. As you know, we won't cycle the department store cutbacks until the middle of the year, so obviously that is going to even at the level they're at, have an impact on the first half of the year. And then, also, some of our comparisons in January and February of last year were some of the stronger ones on the employment side, and then with the war employment fell down some. So you have some dynamics going on in the first few months of the year that perhaps would not have otherwise been there. On the cost side, I'm sure we will see the kind of expense controls that we have had for an extended period of time. The only thing obviously is on the newsprint side as well as the employee health care side. Those are two factors that will impact numbers. As well, we said at the conferences in December that from a corporate expense line issue, we had some multi-year insurance contracts that were up for renewal in late 2003, so that will have an impact on the corporate expense line as well. But obviously, we will be controlling everything that we can possibly control. Bill Drewry – Credit Suisse First Boston Finally, did you have any benefit from the Super Bowl with the CBS stations? It sounds like this February pacing is sort of weak, considering that? Douglas McCorkindale I'm sure we had some benefit from it, but the pacings are what we just indicated they are. They have been bouncing around from week to week. As we indicated earlier, they have been quite volatile. They're coming together very nicely. The political piece is beginning to pick up, but they are bouncing around. We're being told by a number of advertisers that they have the money budgeted to spend, but they are making the commitments a little bit slower than we had expected. Kevin Gruneich – Bear Stearns I was wondering if you could review with us the five major – or largest ad contributors – for USA TODAY?
  8. 8. 8 Douglas McCorkindale We have auto, as usual, up there in good numbers. I think it was about 12 percent-14 percent of the picture for the whole year. Travel, which as you know has been the major category, I think is now in the number two position in the 16 percent-18 percent range, and then you have technology and entertainment and telecom. May be a little bit of retail mixed in there. But those are the top five and auto has done very well. Travel began to come back a little bit in December and hopefully will continue to improve, and you heard earlier the comment on technology and telecom. Kevin Gruneich – Bear Stearns Could you give a breakdown for Newsquest, including the classified subset, and then just follow with what’s behind the Q4 strength there? Gracia Martore On the various pieces for the quarter for Newsquest, this is all in pounds. Local was flattish, national was up in the low teens, classified was up in the mid- to high- single digits including a very strong real estate number. So their total advertising, as Doug said, on a pro forma basis was up about 7 percent or so. Kevin Gruneich – Bear Stearns Gracia, could you give a breakdown for '03 or Q4, in terms of contribution? Total ad revenues for local, national and the classified subset at Newsquest? Percentage of the total? Gracia Martore Local is about 20-22 percent or so, classified is about 60 percent. Douglas McCorkindale National would be the rest. There are some other categories in there. Kevin Gruneich – Bear Stearns Doug, one last question. I just want to follow up on your comments toward the end of the call. Are you saying that your growth, in terms of bottom line to the back half as opposed to the first half, don't expect much in the first half? Douglas McCorkindale Well I'm saying we just don't know. The messages are little mixed and I think the back half, if the economy continues to grow, certainly will be strong but the first half is a little bit up and down. As I mentioned to Bill's question about the revenue commitments is on the television side, we're seeing a little bit of that from the national advertisers at USA TODAY too. They're beginning to come in, but they are
  9. 9. 9 not spending all of their budgets on day one. So if they make the commitments, you'll see the numbers. If they spread it out over the year, that is what our results will show. Gracia Martore Also, Kevin, as you know, the Olympics and the elections are all back-half loaded. So from the broadcast TV perspective, their earnings will certainly enjoy those benefits in the second half of the year, and as well we talked in the first quarter obviously we're going to have more difficult comparisons in the first couple of months. The second quarter last year was impacted by the war so there should be an easier go of it in the second quarter. But I think the point is that there is not going to be an even trajectory here because we had some different events that came in and out of last year, the Olympics and elections this year in the back half, so there will be an unevenness to the improvements. Steven Barlow – Prudential On Clipper, how do you classify that? Is that local or classified or is there a mix? Gracia Martore It's primarily local. There is a little bit of the national in it as well, but primarily local. Steven Barlow – Prudential No classified? Gracia Martore It’s all local, with some national. Douglas McCorkindale You will see it -- it's delivered to a number of households around -- especially on the East Coast and we'll be expanding it across the country. It's a wonderful publication. Steven Barlow – Prudential Okay. UK on help wanted. Just trying figure this out a little bit. Would they have had double-digit increases in help wanted in the UK on a Sterling basis? Gracia Martore No.
  10. 10. 10 Steven Barlow – Prudential Lastly, is there any more detail you can give me about SG&A as a percent of cost? It was up to 50 percent versus 49 percent in the fourth quarter of '02. Gracia Martore I can't give you anything more specific there, other than what we've talked about. I think Doug alluded to the fact that you've got some impact of currency in there, the stronger currency this year versus last year. And then you have some acquisitions that would have impacted it. We look at expenses in totality rather then broken down between SG&A and cost of goods. Douglas McCorkindale I think we mentioned, Steve, from time to time, and this will also be the case in 2004, we don't have any problem increasing the selling cost if it's bringing in revenue. So if that is going up a little bit, that is fine as long as the numbers are coming in. Paul Ginocchio, Deutsche Bank Hearing that AT&T is pulling some of their ads on TV, are you seeing that in your newspapers as well? Secondly, could you give us the revenues from the non-dailies in Q4? And third, what is the current view on political? I'm hearing that has been pretty slow coming in -- could you expand on that? Finally, corporate expenses in Q4 are up pretty high, is that because of the insurance you talked about earlier? Douglas McCorkindale I will hit two of those, Paul. I know nothing about AT&T pulling any ads in print or in broadcasting. I have not heard that from anyone. What was your third question? Gracia Martore Political. Douglas McCorkindale We're beginning to see it coming in. It has been slow, but we keep hearing there is a ton of money out there to be spent and we're beginning to see the signs in a number of markets. So it is fine. It's coming in on track. And as Gracia said, we expect to see a lot more of it as the year goes on and we get into the second half, although there may be some spending in the second quarter too, depending on who ends up being the candidate for the Democratic Party and whether they start posturing before the conventions which took place a couple of years ago. Gracia Martore With regard to the non-daily revenues, Paul, I would say based on Q4, they have a run rate in the $280- $300 million range – that’s on the U.S. side only and they were up about 23 percent or so in the quarter as
  11. 11. 11 Doug alluded to earlier. With regard to the corporate expense side, yes, you probably saw a little bit of the insurance impact in the fourth quarter as well as you're going to have higher benefit costs as well in the corporate line. Brian Shipman, UBS Warburg Good morning. I was wondering if you could add some color on what you are seeing in auto, especially on the classified side and what was the number in December for auto classified? And when you are discussing it, if you could take into account what your experience has been on TV with auto advertising here in the last couple of months? Thank you. Gracia Martore I will answer on auto. As we said in our revenue and stat report, auto fell 2 percent in December. And I think that, in part, reflects the incentives that were being ratcheted down towards the end of the year -- I think that had an impact across the board on auto at least on the community newspapers side, although at USA TODAY, they continued to see good numbers on the auto side in the quarter. Douglas McCorkindale In television, it's coming in okay. It has been a little different from week to week, but it is beginning to pick up on the TV side. And of course, that is a big category. In fact, it's the largest category in television. So the results are generally positive but a little bit mixed in some of the markets, depending on the incentive programs. Brian Shipman, UBS Warburg What is your feeling on auto classified for 2004? Gracia Martore I think as Doug was saying, to the extent that the incentives are being ramped up again here in the first quarter, hopefully that will help on the auto classified side in 2004. But as you know, we have tougher comps on the auto side in the first several months of the year. Auto was up 5 percent in the first quarter and also in the second quarter of last year. So we will have some tougher comps to go against. Douglas McCorkindale We've been pleasantly surprised by the strength of the automobile category across the board. As you may remember, Brian, a number of years ago we thought it was going to slow down and each year it continues to have the momentum. So it has been a very good strong category in all divisions. By the way, it is doing well in the UK too. Christa Sober - Thomas Weisel Partners First, can you give us what political contributions are if any in this fourth quarter of '03? Second, could you outline the expectations for broadcasting cash expenses in 2004? Obviously, with political and
  12. 12. 12 Olympics, there may be some additional spending there. And then finally, related to the Olympics, I remember last time for the winter Olympics, USA Today had a benefit and I was just wondering if that was just because they were in Utah and if you would expect a similar sort of benefit given they are in Greece? Douglas McCorkindale USA TODAY may get a little help from the Olympics this August, but not a big number and we are not adding any significant revenue to the picture as a result. They may have some special sections and there will be some positives, but again, not a big number. And the political in the fourth quarter of 2003 is a de minimus number. Pick a number -- $4 million, $5 million -- compared to the $50 million from 2002, it's sort of a non number. Gracia Martore On the cost side, as we said in our assumptions from December, we expect cost there to be up modestly. Obviously, we see additional sales costs and some costs related to covering the elections as well as the Olympics in Greece. But this should be reasonably well controlled. Douglas McCorkindale Television did a good job controlling costs in 2003, and I think they will continue that -- I know they will continue that pattern into 2004. Ed Atorino – Blaylock Looking at Q1 '04, what would be sort of a carryover impact of acquisitions currency and all of that stuff? Douglas McCorkindale Ed, all of the acquisitions are doing well. I don't know what the carryover is. Newsquest is now a 1999 acquisition and…. Ed Atorino – Blaylock I meant last year's -- Scottish Media Group and Clipper. Douglas McCorkindale Clipper was just acquired in October, so that is just beginning really. The Scottish acquisition will be positive in the first quarter and will be positive throughout 2004. It's a wonderful acquisition and it is on track and will be adding for many months if not years to come. Ed Atorino – Blaylock That was what Q1 last year?
  13. 13. 13 Douglas McCorkindale Yes. Ed Atorino – Blaylock So you have one more acquisition added to revenues? Douglas McCorkindale Yes, but it's going to improve, because as I said earlier, it has growth on the revenue side and significant improvement on the expense side and we have a wonderful, big new printing facility up there that we're moving some pieces around in the UK and that will add some good numbers to the bottom line also. Ed Atorino – Blaylock The Arizona papers were, remind me, were what Q2? Gracia Martore The Texas-New Mexico Newspaper Partnership. That was towards the end of the first quarter. But as you know, what we did there in terms of putting them together, we donated our El Paso paper, they put in their papers. So from a net net standpoint, it is not really going to be additive, but we do show 100 percent of the revenues in all of those papers in our consolidated numbers. On the currency side, your guess is as good as mine. We will see how that shakes out. Currency has been strong coming into the year, although it has bounced around pretty considerably here. Ed Atorino – Blaylock You should get help on interest again, assuming you don’t buy anything, right? Gracia Martore Yes. Douglas McCorkindale But we like to buy things that we can make money with, Ed. Ed Atorino – Blaylock Of course, thanks a lot. Douglas Arthur – Morgan Stanley
  14. 14. 14 Doug, you mentioned that preprint was strong in the quarter. How strong was it and what percent of retail does preprint now represent on sort of an annualized basis? Second question on option expensing -- any guesstimate on if you did expense options, what that would impact earnings in '04 and what it might have been in '03? Thanks. Douglas McCorkindale On the option expensing, we will have that number in the annual report. It is in the 10Q for 2002 and the year to date. We will run the number. And whatever the rules are, we will be happy to comply with them. I just want it to be consistent so we are comparing apples and apples. Gracia Martore On the preprint side, preprint revenues were up about 8 percent in the fourth quarter, and they represent about 15 percent-17 percent of ad revenues in the quarter. Douglas Arthur – Morgan Stanley That's total ad revenues? Gracia Martore U.S. pro forma. Douglas Arthur – Morgan Stanley U.S. total? Okay, thank you. Jim Goss – Barrington Research Just to clarify, Gracia, at the outset of the call, you talked about some newsprint issues and indicated you were not likely to go along with a $50 price increase in the quarter. Yet I think on a comp basis, you will have higher newsprint costs. I was wondering if you can quantify that for that quarter and possibly the second quarter if you know that off the top of your head. Secondly, since we're getting closer to this Philadelphia court date hearing, I wonder if you feel you weren't getting any closer to a resolution on the cross ownership rules and do you feel that will help deal flow, at least on the TV side? Then employment classifieds big versus small markets -- any thought there? Finally, I noticed political in 2002 was exceptionally strong as I recall for an off-year election. I'm just wondering if you think the impact can be even greater, given that it's a quarter ending the year or that that is going to be sort of outlining the character that you might expect for this year? Douglas McCorkindale Jim, I hope the political will be greater than it was in 2002. It is obviously a presidential election year. And with the numbers that we're hearing that both parties have raised, although in lots of different entities because of the new rules, but if they spend what we hear they are raising, have raised, and considering that Gannett's television stations are number one or two in their markets and that's where the
  15. 15. 15 money is spent, I would hope we would do better than the 80-plus million that we had in 2002. Our television guys are not here to defend themselves, but we are expecting them to do better than 2002. On the cross ownership case, your guess is as good as ours. I thought it should have been approved as the FCC announced last June. And to be open with you, the deal flow has slowed down. Because if you are a seller and you have a lawyer who is trying to be conservative, he is going to tell you to wait until you find out what comes out of the Philadelphia court. And although the hearing is coming up, I have no idea what the timing is on the actual decision. There are still some conversations going on, but they are not as robust as they were before. Gracia Martore On the employment side, Jim, small versus large. As Gary Watson mentioned in December, while we had seen disparity between small versus large for a number of months during 2003, towards the end of the year, that disparity pretty much went away and what we saw was that both small and large are improving. Douglas McCorkindale Although as I mentioned earlier, the double-digit numbers we had were in the larger markets and obviously they had also declined more significantly. I assume that is true for most in the newspaper business that the larger markets got hit the worst and they should come back proportionately in a more robust fashion. Gracia Martore With regard to newsprint prices, you're right. I did indicate that there will be no price increase for Gannett in the first quarter. But on a rollover of the reduced price increases that were put through last year, we'll probably see U.S. prices up around 10 percent in the first quarter and in the low teens, very low teens in the second quarter as well. Now remember on the Newsquest side, we have completed our negotiations there. And newsprint prices will be flat in the UK for the year. But understand that obviously currency will have some impact on that as we translate those into dollars. And as well, the mix to the extent there is more commercial printing that will impact the pricing as well. Jim Goss – Barrington Research With regard to that translation, I know it's totally unpredictable, but given that the euro/dollar relationship has started to reverse a little bit, do you think there is significant risk that you're going to have a negative impact rather than a positive impact from currencies this year in the UK? Gracia Martore As far as I can see, it seems unlikely that there will be a negative impact. But then again, we will just have to watch. Last year, currency averaged about $1.63 for the year and we started this year in the $1.80 to $1.85 range on the currency. So it would have to retrace a good amount for the numbers to turn negative, certainly in the first couple quarters.
  16. 16. 16 James March – SG Cowen Securities Maybe I missed it, but could you guys give help wanted numbers for the fourth quarter ad revenue growth? And secondly, just a breakout between UK and U.S. on the help wanted side for the fourth quarter. And then the second question, I'm just wondering, as the largest CBS affiliate group out there, what was your opinion of the -- call it the revealing performance of Janet Jackson last night? I just wanted to get a sense -- do you typically provide feedback to the network on controversial content, or is this something you would do just really in response to your reactions? Douglas McCorkindale While Gracia is looking up the number on help wanted, I'll try to answer your television question, James. If we get a lot of comments from viewers, we would pass that along to CBS. Obviously, CBS knows they had an issue or knew they had an issue. I think they've handled as well as they could have. Some folks think it was planned, some folks don’t. It adds a little something to the halftime, I guess. Meanwhile, the game was better in the second half. So most people forgot it by the time the final kick was made. Gracia Martore For the quarter, James, pro forma in dollars and everything in dollars, not constant currency, employment would have been up about 4 percent. And for just the domestic newspapers for the quarter, employment would've been down a percent to a percent and a half, and I think we talked about the numbers for News Quest for the quarter in pounds earlier. Tobey Sommer – Sun Trust Robinson Humphrey Could you describe the percentage that the different categories of classified now account for ad revenue? Gracia Martore For the full year of 2003, help wanted was somewhere around 30 percent-32 percent of ROP classified. Auto would've been about 26 percent-28 percent. Real estate, that broad category would be about 20 percent-23 percent. Legal is a couple of percent and all others, the remainder. That is just in ROP. Tobey Sommer – Sun Trust Robinson Humphrey In your small markets, how are the local retailers doing? And can you give a little bit more color on how your smaller markets local ad revenues are going? Douglas McCorkindale We don't have it broken down by each market, but as a general statement, the weakness in retail is mostly located in the top 15 advertisers. So in the smaller communities where the smaller and mid-sized retail advertisers are located, the numbers are more positive.
  17. 17. 17 Tobey Sommer – Sun Trust Robinson Humphrey Is it your sense that that trend is likely to continue or do you have an outlook over the next couple of quarters? Douglas McCorkindale That trend has continued for a number of years. Our smaller and mid-sized advertisers have been doing proportionately better for -- pick a number -- three, five years -- I don't remember how long that has been. Even in spite of the recession that, as you know, we suggested started in August of 2000 and I see some economic geniuses are now suggesting maybe November. So our signal from the 100 papers we have and the 22 television stations in the state gives us a pretty good sense. And that sense is that the smaller and medium-sized advertisers will continue to be more positive than the larger ones. There are still some very mixed messages out there in connection with some of the larger retailers. Some of them are very good advertisers in the newspaper business and we are hoping that will settle down, but it is unclear at this point. Kevin Gruneich – Bear Stearns Gracia, I think you mentioned that non-newsprint constant currency pro forma costs were plus 2 percent. I was just wondering -- it may be the same answer -- is that the same for cash cost? Because I was interested in the reasoning behind depreciation and amortization being off sequentially from Q3 a few million dollars. Gracia Martore It is probably going to be pretty close -- we said a little over 2 percent for the quarter, and it is probably going to be pretty close even on the cash cost side. Kevin Gruneich – Bear Stearns And D&A being off sequentially from Q3 a few million -- do you know what is behind that? Douglas McCorkindale We'll have to look it up, Kevin, and we will give you a buzz. Kevin Gruneich – Bear Stearns Finally, could you just give an acquisition accretion number for Q4 and the full year? Douglas McCorkindale Yes. It is very positive. We're not going to give you the exact number. They did very well, Kevin. All of those deals have turned out, as I said earlier, better than we had anticipated. Obviously we've had some help from the interest rates. But we project all acquisitions on the long-term cost of money. And either
  18. 18. 18 way, they have been up to expectations or beyond. So we're very pleased with all of the acquisitions for the last four or five years. The numbers have been very fine. Operator Thank you. If there are no further questions, I will turn the conference back over to Gracia Martore to conclude. Gracia Martore Thanks very much for joining us, and if you have any further questions, you can reach Jeff and me after the call at 703-854-6918 or 17. Have a great day. Operator Thank you. Ladies and gentlemen, if you wish to access replay for this call, you may do so by dialing 1- 800-428-6051 or 973-709-2089 with a passcode ID number of 325400. This concludes our conference for today. Thank you for all participating. 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. ###