Tegna Inc (TGNA) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Gannett fourth-quarter and full-year earnings conference call. At this time, I'd like to inform you that this conference is being recorded and all participants are in a listen-only mode. We will open up the conference for questions and answers after the presentation. I will now turn the conference over to Gracia Martore..

Thanks. Thanks for joining us today for the conference call and Webcast to review Gannett's fourth-quarter and full-year 2002 results. We hope you have had a chance to review the press releases this morning, which can be found at www.Gannett.com. With me today are Doug McCorkindale,, Chairman, President and CEO, and Larry Miller, Executive Vice President of Operations. Very briefly, as you saw, Gannett earned $1.29 per diluted share, a penny above the range we provided you in early December and above consensus. In 2001, on a comparable basis, we earned $1.14 per share so we had a 13% increase year-over-year. For the full year, we earned $4.31 versus the $3.92 from last year on a comparable basis. With the adoption of SFAS 142, which changed the rules for goodwill accounting, the fourth quarter of 2001's previously reported earnings were adjusted upward by 21 cents to reflect the impact of those rules. For the full year, the adjustment was 80 cents.

I'd also like to briefly detail a few other numbers that are of interest, hopefully, to you. Newsprint expense declined 13% in the quarter, comprised of a 16% decline in prices, and a 3% increase in usage. In the first quarter, we expect Gannett's usage price will decline in the mid single digits. For the full year of 2002, Gannett's newsprint expense declined 19%, based on a 20% decline in prices and less than a 1% increase in usage.

This year, we expect paper prices for our Newsquest folks to decline by about 7% compared to 2002 - primarily due to reduced demand for paper throughout Europe. Here in North America, domestic suppliers recently announced plans to raise prices on March 1st - this despite a downward adjustment in price that some publishers garnered in January. Domestic consumption remains weakened. While December usage showed modest improvement over the same period in 2001, when compared to the same period of 2000, newsprint consumption is still down by nearly 15%. The current environment is not conducive to the timing of this announced increase. Newsprint demand must exhibit some sustained improvement before market conditions suggest further price recovery.

Turning to the balance sheet for a moment, total debt at year-end stood at $4.5 billion and cash and marketable securities were about $90 million. At this point, our all-in cost of debt remains at about 3%. With respect to shares outstanding, basic shares at the end of the year were 267.9 million, and averaged 267.5 million for the quarter and 266.9 million for the year. Capital expenditures for the full year ended up being approximately $275 million, which is a little lower than what we forecast at the December conference. And finally, before I turn the call over to Doug, I once again need to caution you that both our conference call and Webcast will and may include forward-looking statements that are outlined in enormous detail in our SEC filings. Doug.

Thanks, Gracia. Good morning, all. As most of you know, or may remember, in December we told you we were cautiously optimistic about the remainder of the year and the trends that we were seeing at that time. I'm pleased to report that our fourth quarter and full year numbers released today were a little stronger than even we anticipated in December. And December capped off a very successful year. We are very proud of the achievements of our managers and employees during these uncertain times. I think we delivered some of the best numbers on the top line as well as the bottom line in our industry.

As you saw from the press release, net income rose 14% and operating revenues increased 7% for the quarter. Looking at the newspaper segment, and assuming we owned the same newspapers in both years, total ad revenues rose 4% for the quarter. Our best results all year. Revenue growth was sequentially better each quarter. Classified revenues in our newspaper segment were up 6% in the quarter, and up 8% in December, after gains of 4% in October and 6% in November. In employment, of course a very important category, the numbers turned positive in the quarter and we reported gains in both November and December. Those are the first such gains since December of 2000. The trend is positive but we anticipate some unevenness over the next several months. Automobile and real estate remained strong throughout the quarter. On the national advertising front, both our local newspapers and USA TODAY finished stronger, with a gain of 5% for the quarter. USA TODAY achieved its first year-over-year gain in advertising revenues in the fourth quarter, the first time since the end of 2000, and they are having a very good January this year. But national still remains volatile and remember that USA TODAY had a burst of advertising from the Olympics and the HP/Compaq merger in February and March of last year, which of course won't be repeated this year.

Taking a look at our U.K. properties, Newsquest saw improved results in the fourth quarter, despite a softer ad environment that prevailed throughout the U.K. all year. Total revenues for Newsquest were up 3% for the quarter and basically flat on the year-to-year basis. Costs as always were well controlled. And as a result, Newsquest's operating profits were up in the mid single digits for the whole year. As we've told you many times before, we are very pleased with the Newsquest acquisition and would be happy to add to their portfolio at the right price.

In that connection, in late December we had the opportunity to add the publishing arm of the Scottish Media Group. We entered into an agreement with SMG to acquire the publishing businesses for 216 million pounds. That group includes three Scottish regional newspapers, The Herald, the Sunday Herald and the Evening Times. It also includes 11 specialty consumer and business-to-business magazine titles and an online advertising and content business. In addition, last year SMG completed a totally new production facility. New presses, computer-to-plate technology and a highly automated mailroom. The new facility has the capacity to handle significant additional contract printing. As well, we anticipate achieving some significant synergies which will enable us to move the margins more into the Newsquest range over the next couple of years. Basically, there's a lot of opportunity there. At this point, we hope that closing on SMG will take place in the early part of the second quarter.

Turning to television, we had a great year. In the fourth quarter we enjoyed record political ad spending because of our strong positions in each of our markets, which enabled us to maximize our share of those political ad dollars. Looking ahead, our latest pacings for the first quarter overall are up in the low single digits. January is up in the high single digits, February is down in the mid teens against the Winter Olympic comparisons from last year, and March is up in the high teens at this point. Again, though, I want to caution you that the pacings are very volatile and I'm telling you what we have right at this moment. We'll keep you updated on our monthly reports as the quarter progresses.

A word about the television costs in the fourth quarter. Those of you who look at the segments, you'll see that in the fourth quarter of 2001, broadcast expenses were down 10%, a level which of course reflected the post September 11th economic and advertising environment. Promotion and selling expenses were reduced substantially at that time and all other costs were reined in. With a very, very different advertising environment that we faced in the fourth quarter of this year, there were higher variable costs associated with the increased business trends. Going forward, we won't have expense increases of the magnitude you saw and we reflected in the budget assumptions of 2003 which you've all received. However, we will continue to spend on sales and product development, which have a direct relationship to revenue generation. Notwithstanding all that cost moving around in the fourth quarter, we did achieve a 56% plus broadcast cash flow margin for the quarter.

On the Internet side, we've generated about $91 million of revenue, which is an increase of 27% over last year. As most of you know, during the fourth quarter we acquired a one-third interest in CareerBuilder from Knight Ridder and Tribune for 98 million dollars. All of Gannett's newspapers and television sites were converted to CareerBuilder during November and early December as we launched over 100 sites in about five weeks. This process included sales training in every newspaper market, and the initial results are strong. We are achieving sales growth and revenue leverage in almost every market with the new products. The addition of the Gannett sites along with the more aggressive marketing campaigns, are helping propel traffic at CareerBuilder. Based upon the internal traffic data that we have seen, CareerBuilder is up over 50% for the first few weeks of January.

Looking ahead, overall we are somewhat optimistic about our business fundamentals - although there are some difficult comparisons in the first quarter because of the absence of the Olympic ad spending which did help us significantly last year. We expect the economy to continue to grow this year, barring external factors. But there is, of course, uncertainty surrounding the geopolitical events, and that uncertainty is not good for the markets, as most of you know, nor is it good for our advertising customers. We continue to be comfortable with the overall assumptions we provided you in mid-December. Only six of you have been brave enough to post first-quarter estimates. At this point, we are certainly comfortable with the 94- to 96-cent range of those estimates. If conditions change, we'll keep you posted in our monthly report.

Now we'll stop and take your questions.

Thank you. The question and answer session will begin at this time. If you're using a speaker phone, please pick up the hand set before pressing any numbers. Should you have a question, please press star one on your push button telephone at this time. If you'd like to withdraw your question, please press star two. Your questions will be taken in the order they are received. Please stand by for your first question. Our first question comes from Lauren Fine with Merrill Lynch.

Thank you. A couple of quick questions. Beginning on the TV side, can you speak to the contributions from political and maybe remind us what Olympics contributed from the year ago first quarter? Then I guess bigger picture. You know, most companies that have reported have indicated some improvement in help wanted and have also indicated it could be uneven. I'm curious what you're seeing that causes it to be even, and what the Conference Board attempts to indicate, that help wanted is getting worse not better?

Lauren, let me try some of those. If my memory is correct, the political advertising for the fourth quarter was around $50 million. We had over $80 million for the whole year. And we had $22 - $25 million of Olympics advertising in the first part of 2002. So we have some pretty good numbers to go up against. But the trending - the pacing - for first quarter is okay. You know, we'll be down in February, up in January, and March is looking okay right now. As to your classified and employment advertising numbers, I don't know. I think the Conference Board tends to get most of its numbers from big cities. And as you know, the big cities were first to show the decline. We saw it in the summer of 2000 in the Cincinnaties and the Louisvilles of this world and Detroit. And our smaller markets didn't go down as much, if they went down at all. Our numbers have a lot of small markets and a lot of big markets in it. And we also have our U.K. numbers in there. We did start seeing positive numbers in November. They continued through December. We don't have January in yet. We're just a couple of days ahead of when Gracia will get out the monthly report for January. But we're seeing a slight positive increase in employment in most of the Gannett markets. Those that are very heavily a manufacturing environment, where manufacturing is the main business in town, are struggling the most. But generally, we're seeing a slight pickup in all categories. I'd hit the plus sign on your calculator, I wouldn't hit the multiply sign.

Okay. Tax rate was a little bit lower in the fourth quarter. I didn't know if something unusual affected that or if you have any change?

Lauren, that reflects the mix of earnings between the U.S. and at Newsquest which, of course, has a lower rate in the U.K. And some other tax initiatives that we have taken in the past. And going forward, as we look at the mix of earnings, we think that the rate will be somewhere in that 34.2% - 34.3% range for next year, for the year we're in now.

Okay, then, on the non-operating expense of $7 million in the quarter. Can you give us any clarification as to whether that was anything related to CareerBuilder or mark to market or anything of that nature?

Certainly that includes our share of CareerBuilder as well as some other Internet investments in the U.K. There's a little bit of mark to market, but not much. And that's an amalgamation of a whole bunch of little ins and outs that get it there.

Thank you.

Thanks, Lauren.

Thank you. Our next question comes from Peter Appert with Goldman Sachs.

Hi, good morning. On USA TODAY, number one, I was hoping you could give us some flavor in terms of performance you're seeing in different ad categories? And then, number two, I was hoping you might share with us some thoughts on the current profitability of USA TODAY and the prospects for incremental margin contribution from this property?

Peter this is Doug. Let me try some of what I think you're getting at. As you know, travel is about 20% of USA TODAY's revenue. And it got better as the year went on. In fact, they had a rather strong fourth quarter and a good December. It's a little early in this year to figure out what the travel trends are, but they did well towards the end of the year. The tech world is another big piece there. That bounced around stronger in the third quarter than it was in the fourth quarter, but it was significantly better than it was, say, in the second quarter. Entertainment began to pick up as the year went on. Automobile was down early on and was a little bit stronger in the fourth quarter. Telecom bounced around, but was positive as we ended up the year. Of course, the financial category was weak through most of the year, although it did come back in the fourth quarter. So that's generally the trends that we're seeing at USA TODAY. Their January, as I said earlier, was certainly positive and they seem to be moving in the right direction, although they will have those tough comparisons to February. You want to know the profit margin. I don't think we give you their profit margin. They make a good deal of money and we're hoping they'll make more.

You know, it seems that the revenue performance of USA TODAY may be is lagging some of the other big national publications out there and the national ad market broadly. Can you speak to that issue?

Well, I think travel is the main category there. I don't know whether any of the other national publications have 20% of their revenue coming from the travel picture. And that clearly hurt us. I mean travel is down just about everywhere. That's true of our metro newspapers, too, but they don't have 20% of their revenue in the travel category. So that is probably why USA TODAY may have suffered a little bit compared to some of the others.

Peter, I think one of the other newspapers that you're thinking about has a lot of financial and technology and I think we're doing a bit better than them. The other has a good slug of entertainment advertising, which might be more New York-based than national-based in terms of why it's there.

Right. Last thing, did the USA TODAY margins...you know, are they approaching 20% at this point?

No.

Not quite.

No. We'd like to get them back up there, and if Tom Curley is listening to this conference call, Peter, send him a message.

Okay. Thanks.

Thanks, Peter.

Thank you. Our next question comes from Stephen Barlow with Prudential Securities. Please state your question.

Good morning. I was wondering if you could talk about circulation. The revenue was down again in the fourth quarter. As I recall, your assumptions for '03 are for revenue to increase. What are the plans for it? Are you planning on raising home delivery, newsstand prices? Any reason for the weakness? Of course the 9-11 effects, in the October month, but I want to know your thoughts on it.

Yes, I think newspaper circulation revenue was flat in the fourth quarter. And as you mentioned, of course, we had a nice pickup after the events of September 11th and into the war in the fourth quarter of last year. That hasn't been totally sustained. With respect to circulation revenue increases, I think we mentioned in December that indeed we were putting in some selected pricing increases in circulation. And those will factor in as the year progresses. Probably, you'll see it more in the second quarter on out, rather than in the first quarter. Of course, not at this point at USA TODAY, but in some of our local newspapers.

Is that more home delivery or newsstand?

Primarily home delivery Steve.

Thanks.

Thank you.

Thank you. Our next question comes from William Drewry with Credit Suisse First Boston. Please state your question.

Hi. Two questions. Could you give us a general sense, if you can, of the discount that political advertising usually carries versus, you know, selling that same advertising to -- you know, a car dealer or just a more regular type account? That's number one. Then the second question, any comments on the potential EPS impact from the SMG acquisition for full year 2003 based on your current projections? Thank you.

Bill, on political -- you really have to break it down. If it's issue advertising, then it does not qualify for the lowest rate. If it's absolutely campaign advertising, then it qualifies for the lowest rate, but I can't give you a number because it's all over the lot. The larger automobile dealers would of course be paying a lower rate than someone who comes on one time or twice during the month. So I don't know what that is. It's a significant discount, and we would prefer that it be at the full rate but we have to deal with the law. I would say, you know, maybe 50% of the advertising was at the lowest rate. The other piece was issue advertising and they would come in on the rate card, or whatever, for the time of the day they were looking for.

On SMG, as you know, our deals in the U.K. have been very positive and we're anticipating that SMG also will be positive. That depends a little bit on the time of the closing. Gracia told you the newsprint costs would be down in the U.K. this year. That should help. Of course, there's the cost of money. We're looking at it to be a positive acquisition. It has a good deal of upside on the profit margin. And with that huge printing facility there, we can put that to good use and save some printing costs throughout the U.K. operations. I think there's a good upside, but we haven't indicated publicly and we're not going to do it at this time, exactly how many pennies it might add to the equation.

Okay. But definitely accretive?

Yes. Cash accretive. But I forgot I'm dealing with the old rules. It better be accretive, let's put it that way, Bill.

Great. Thank you very much.

Although I think everybody has it in the estimates already, Bill.

Are you sure? You better look at First Call.

Oh, I do every day, Bill.

I don't think it's in the first quarter 94 to 96 cents. Thanks a lot.

Thank you. Our next question comes from Kevin Gruneich with Bear Stearns.

Thanks. A couple of questions and if I could have a follow-up? Could you give us the contribution from Detroit and the others on that line for the quarter, year-over-year for the quarter, and then for the full year? And also the impact of CareerBuilder below the operating line in Q4 and expectations for Q3? I'm sorry, for '03.

First off, on the contribution of Detroit and Tucson, which would both appear in that line, they added a few million dollars of the incremental dollars that you saw in that line. With regard to CareerBuilder, neither we nor our partners break out specifically what the contribution or non-contribution of CareerBuilder is.

Was $3 million - was it a quarterly number? So, on a yearly basis, what was the incremental positive?

Well, Kevin, the fourth quarter was better than it was as the year went on. Detroit has been one of our most difficult markets. So they have been struggling through the year and began to pick up in the fourth quarter. I don't think you back that through and I don't -- I don't have that number here. But it clearly grew as the year went on from quarter to quarter.

So what was the other -- what were the other items driving that other line? It is up 20 million dollars, actually, I would have thought Detroit would have helped it more.

The other items are these: We did a small acquisition of something called Action Advertising around midyear and they have a good slug of commercial printing so their commercial printing revenues would be in that line. And our overall Gannett commercial offset business was stronger than it was in prior quarters.

One last question on the expense side for the newspaper group: Could you give us the quarter's increase in non-newspaper cash expense?

Yes.. They were up about 6% for the quarter.

Thank you.

You're welcome.

Thank you. Our next question comes from Barton Crockett with J.P. Morgan. Please state your question.

Hi. I wanted to go down a little bit more on the ad trends we're seeing in the early part of this year. I know we don't have January in yet, but some of the categories - in particular real estate and auto - were quite strong exiting the year. And I was just wondering if you would expect, you know, at least in the classified part of that for real estate and auto, and then also auto on television, you know, if you would expect some deceleration, substantial deceleration, in the rate of growth there? I know you said you were saying it was looking healthy, but if you can put some parameters on the rate of growth there.

Barton, I thought it would start slowing down at the end of 2001. And it continued strong throughout 2002, and it seems to be continuing strong through - these are very, very preliminary looks that we have had - through the first part of this year. On the television side, some of the pacing numbers, which are a little better than we had projected, are reflecting automobile advertising. We don't have the number for print yet, but the automobile dealers and the manufacturers seem to be continuing to advertise and you can see them in all the papers and on TV. Right now, it's continuing the positive trends. Real estate is still positive, although depending upon the market you look at, the very high-end properties are staying on the market longer. And to some degree that's a positive because they have to continue to advertise them. We're not seeing any significant drop-offs there, although that market too has been unbelievably strong for a long, long time.

And also doing well in the U.K. It's getting a little softer over there, but there are combined numbers that we report to you. Right now, we're optimistic about both and, as we mentioned earlier, the employment numbers are finally beginning to move in the right direction and I think, combined with our CareerBuilder activities, we're optimistic about that trend too. But as I said to Lauren, use your plus button and not your multiply.

Okay. Great. And then if I could ask another question here. I was wondering if you could -- you know, look ahead to the possibility of the military actions? Based on what we saw back in the early '90s, could you give us a sense of what kind of ad results we saw in the previous action and what would be the parameters that you would use to decide whether or not to go ad-free on television at this time.? Also, whether there might be some incremental expense in terms of covering that situation?

Well, that covers a lot of things that you've just mentioned. Yes, there will be incremental expense. Clearly, especially for USA TODAY, which has a number of folks over there right now and you probably are reading their stories in the paper. If it's a short war, as everybody has been saying, and a success? A short war shouldn't impact us much at all. If it drags on and there's a lot of bad news? We are getting national advertisers in particular being very cautious about ads out into the end of February and through March. They don't want to be on the wrong side of news like that. So they are holding back some placement, we think. At least that's what they're telling us and it is logical. But other than that, in getting into free coverage and all of that, we haven't made any of those decisions yet. We're -- we're hoping it will not be a war, but if there is, we're also hoping it will be very short and very successful.

Okay. Great. Then just one final question here. Can you give us the impact of changes in the currency, the dollar valuation, in terms of the contribution from your U.K. unit?

Right now, we're happy with it. It's about as high as it was what, 18 months ago or more?

Every time we buy something in the U.K., yes.

Yes. Every time we buy, the exchange rate is high. You know, it was $1.57 or something in the fourth quarter, about $1.50 all year for 2002 and in 2001, it was about five cents less. In 2000, it was up about the same numbers. So it's moved around and it does give us a little help.

When the exchange rate was at its lows in 2001, I think we talked about it detracting by a penny or so in the quarters. And we're probably getting a similar pickup now that the exchange rate has come back. It averaged I think about $1.57 in the fourth quarter of this year.

Okay. Great. Thank you.

Thank you. Our next question comes from Brian Shipman with UBS Warburg. Please state your question.

Thanks. Good morning. In December, you had alluded to the possibility for head count reduction. Just a follow-up, I guess, on what you reported in 4Q for cash, ex-newsprint. What are your thoughts going into 2003 with the head count reduction theme in mind for ex-newsprint for the year? And then secondly, can you give us an update or at least your latest update on what you're hearing out of Washington? Thanks.

Relative to anything in particular, Brian, I assume you mean the FCC.

Yes, the FCC.

I'm just kidding you. As you probably may have seen on the wires in the very last couple of days, one of the FCC commissioners has requested additional hearings. I think the chairman of the FCC is not agreeable to that and may not even attend. We filed comments and all of these things are public so you can look it up. I know the chairman did say he would make a decision in the spring of 2003. Spring ends on June 20th. I don't know how long these hearings are going to drag on. I mean, from our point of view they add absolutely nothing to the equation. The facts are that they ought to do away with the cross ownership rule. We keep on top of it, and we keep hearing delays. But we're still optimistic that the chairman will live up to his predictions and come out this Spring with a decision. Going back to your head count question, it's a carry over from what we were doing last year, and we are not changing any of our expense control postures. The hatches are buttoned down. As we said the economy is picking up a little bit, but it's certainly not picking up in any order of magnitude that suggests that Gannett should change its head count posture and start hiring people. I mean, we are hiring people on the ad side. And most of them are on a commission basis, and that's positive. If they bring in the business that's even better. The rest of the expense posture is as tight as it was last year. Actually, we started to see this economy slowing down a long time ago, and we started making the moves at that time.

Would run rating your 6% growth in non-newsprint cash expenses into the early part of '03 or even for the full year, just be too aggressive?

Yes, I think we gave you assumptions in December that we are still overall very comfortable with, Brian. The only thing I'd point out, as we mentioned in December, we have been ramping up new products and revenue initiatives. In fact, our folks are meeting today on those very subjects. So you may see some of the upfront costs of some of those initiatives in the early quarters, particularly the first quarter, and then you'll see hopefully the impact of that revenue ramp-up in later quarters as well. You won't see an evenness to the expense line, but overall we're still comfortable with what we've provided for the assumptions in December.

Yes. Of course in the non-newsprint number, Brian, you see medical, you see pension. You see all the other things that corporate America is facing and we're doing our best to control them. But they are growing numbers. Our newspaper folks, as you well know, know how to run a business and control expenses. So they won't be spending any money on something that doesn't have revenue potential.

Wonderful. Thank you.

Thanks, Brian.

Thank you. Our next question comes from Douglas Arthur with Morgan Stanley. Please state your question.

Yes. Quick question on TV. I think you said back in December, all in all you expected TV to be down modestly. On the top line, it sounds to me like you're off to a better start there. Then perhaps that was built into the assumptions. So now -- the update on what you see TV revenues for the year? And then the Thompson acquisition, any comments on how that's working out two years after the fact, 2 1/2 years after the fact? Thanks.

Sure. We are a little bit more positive on broadcasting than we were in December, but it's very, very minor. Right now, January's pacings are a little bit ahead but we're not going to change any of those assumptions. It's still a very, very difficult comparison. He came up with $100-plus million of political and Olympic revenue that won't repeat. That's a big hurdle. So we're still conservative on the broadcasting side. To the acquisitions, Thompson did a little better than we predicted and that prediction was positive. So we're very happy with that acquisition. As a matter of fact, Central has done very well, Newsquest, Newscom, all of the deals have done better than we anticipated. Some of it was because interest rates were better than anticipated. But each one presented a little better opportunity than we originally saw and some of them significantly better opportunities than we saw. For example, in Indianapolis, we've done very, very well. A lot of work. A lot more than we had anticipated. But they have done very well and the publisher in Indianapolis, was just named the Gannett manager of the year. So you can tell that we think she's done very well with a great opportunity and I think she's going to do even better this year.

And on the interest rate, of course you're pretty happy with the commercial paper play here. Any nervousness about maybe fixing more of that debt in the first half of '03?

I think Gracia fixed it much too early. No, we look at that all the time, but Gracia, you think you want to get it at lower rates?

It all depends on what Doug wants to buy.

All right. Great, thanks.

Thanks, Doug.

Thank you. Our next question comes from Kevin Sullivan with Lehman brothers. Please state your question.

Great. Just a follow-up on Doug's question there. Can you just give us a little color around categories of strength in terms of pacings and whether you've seen any change there since December, in terms of what's strong, what's weak. Secondly on Newsquest: You talk about whether or not there's anything unique or interesting in terms of the dynamics of the recovery here, vis-a-vis what we're seeing in the United States?

Let me go to Newsquest first and then Gracia will give you color on TV. No, nothing really unique. We have a wonderful management team in the U.K. and we have been comfortable with the additions that they have been making to the group. As you may have seen in one or two of the reports that I had read recently, our Newsquest operation now is the equivalent to about the seventh largest newspaper group in the United States. It is bigger than Lee, bigger than Media General. They're doing very, very well. There isn't anything very unique about it, except a very good management team that takes advantage of every opportunity in the market. They have many, many niche products and, as Gracia mentioned earlier, we are doing a lot of that now in the states. And they try to saturate the market over there, and cover everything including the little old lady who likes to grow yellow roses, which is one of the analogies I use from time to time. They do a very good job at it, and that's why we're comfortable with supporting them for acquisitions like in Glasgow and the Newscom one they did before that. They know how to analyze an acquisition the exact same way we have been doing for 30 years. It's just a good group and we'd be happy to continue to support them.

Kevin, on the TV category side: In the fourth quarter - other than obviously political which was the monster - retail and movies, DVD, aftermarket and financial categories stood out as being strong at a time when political was taking a lot of the action. It's really too early, we haven't seen any numbers yet for even January to articulate where we think there may be positives or negatives on the TV side. But we'll give you a little color on that when we put out the January numbers.

But automobile, Kevin, is continuing strong. Of course, that's the biggest category in local television. So that's a positive there.

Great. Thank you.

Thank you. Our next question comes from Jim Goss with Barrington Research. Please state your question.

Okay. First, Doug, last summer you were projecting a fairly slow rebound in newspaper advertising based on what you were hearing from all of the papers around the country. And it turned out to be very accurate, and I was wondering if you could provide any update in terms of whether there might be some acceleration or any hints of acceleration this year baring the political events that could help leverage the good cost control efforts. Then I have a couple of others unrelated to newspapers.

Jim, as I mentioned a couple of times here, we are seeing a positive trend, but a very low, sloped positive trend. This is not a "V" recovery it's sort of that sloped "L" that I have mentioned before, and the fact that employment has turned positive -- for two months now, including the U.K., it is positive. It's such a big piece. As you know, employment revenue has been down significantly for the last couple of years. So if it picks up, it will certainly add to our bottom line. Everything else is just positive, but I don't want to get too excited about it. It's January and we don't know very much from January. The first quarter doesn't tell us much at all until we get into March. So we'll just be reasonably optimistic but not aggressive. If folks are getting carried away with predictions for 2003, we're going to be on the conservative end of that prediction rather than on the top end of it.

And classifieds, are you seeing a difference between your larger and smaller markets? Like the employment classified?

The smaller markets really did not decline as much and many of them are in the positive column right now. The larger the market, the more difficult the comparisons and the pickup. Detroit is probably one of our most challenging markets, although Honolulu is up there but for different reasons. But the bigger the market, the more of a challenge.

And they're not positive yet?

I don't know whether Detroit was positive. We can look that up. But a number of the larger markets have begun to turn. Again, the larger the market, the slower the turn. I have Gracia looking up to see if we can tell you what the numbers are in Detroit.

Total classified in Detroit for the quarter was up 1%, but on the employment side they were still lagging last year for the year.

Okay. Then separately, do you have any sense that the Olympics in Athens might make that a more interesting summer Olympics, which are in a slower TV season, than some of the other summer Olympics might be? What's the impact of the 24-hour coverage as you can see it? Then, on the acquisition front, TV versus newspapers, is there any difference you're seeing right now in terms of your interests?

I don't know the answer to your Olympic question, Jim. We have a very close relationship with NBC and are working with them on a number of things that relate to the Olympics. They are going all out, and that should be positive to Gannett. But I really don't know the answer to the big picture question that you've asked. On the acquisition front, you probably know there are a number of television stations for sale. There are a number of newspapers for sale. There are some small groups maybe for sale. We're talking to everyone. We'll pursue all of it at the same time. We have the economic wherewithal to do deals if they make economic sense. We are not inclined to chase television properties in particular. Very, very high multiples. We have seen some of that floating around, and if it doesn't make economic sense to us, we will pass. The arithmetic to analyze cross ownership when it comes is a little more challenging, but it will still be positive. But the marketplace in acquisitions right now is moderately active. Maybe a little bit on the quiet side. I know a number of folks who have investment bankers, advisers think that when cross ownership disappears the marketplace will change dramatically. They may be right. There may be more opportunities for larger transactions. But we have to wait and see.

Thank you.

Thank you. Our next question comes from Christa Sober of Thomas Weisel partners. Please state your question.

Thanks. First on the broadcasting side, Doug, I think you mentioned that the cash expense growth that we saw in the third and fourth quarter is not indicative of what we'll see next year. In a scenario of flat revenues - and certainly next year it really depends on where the revenues end up coming in - but in a flat revenue scenario, where do you see cash flow margins coming in on the broadcasting side? And then the second question is on the preprint side. It looks like it's been strong everywhere, certainly you guys are benefiting, looking at the number of pieces. Can you indicate where preprint revenue, where that grew in the fourth quarter? And do you know if you think that can continue into next year?

Christa, on the broadcast side as I said - a little bit in jest but it's a real number - we did have a 56% margin in our television stations even with the expense growth that we had in the fourth quarter. If the revenue picture is flat, it's going to be hard to maintain a 56% margin because we had a lot of good business in December, of course. But we have a couple of stations that are improving. And as they improve, their margins go up. We're making good progress in Sacramento and in Buffalo and a few other markets. And our lead stations, like Denver and St. Louis and Phoenix and Washington here, really generate a good deal of money and they know how to manage their costs. They are putting some money into some new programming ideas and some new business development. And it's been paying off. I don't see our margins declining much if they decline at all. I would hope they could stay flat or may actually improve if a couple of these stations that are not number one in their market gain some rating improvements. When you do move from number three to number two to number one, you know, that profit margin, that cash flow margin really improves nicely.

Yes, on the preprint side, this morning we released our Revenue and Statistical Summary for December as well as for the quarter, and, in the quarter, preprint distribution was up about 9%. I think Gary Watson in December indicated, on the preprint distribution side, that in part it's a function of where newsprint prices are. When newsprint prices are low, folks tend to go more into the preprint side. When they increase, they tend to then come back more to the ROP side. Also, you know some of our preprint growth has been because preprints are another way to meet the advertising needs of our customers.

So I can assume then that the revenue growth was on a similar scale to the pieces?

In that general ballpark.

And then just with the free cash flow that you guys continue to generate, you have been repaying debt certainly, shoring up the sheet, given all the acquisition opportunities that are out there. Any sense or outlook on share repurchases in the coming year?

Not at this time. We have authority from the board and, as you may recall, in the spring of 2000 we brought back a billion dollars of stock, and then did $4 billion of acquisitions. We'll move in whichever direction makes sense. But right now we're just sitting on that authority because, as I mentioned in my comments to Jim, the acquisition market is a little bit slower than usual. There are some interesting opportunities out there both in the States and in the U.K. We want to make sure we can write the check because a good deal of your success in the acquisition marketplace is being able to write a check and have the seller know that you can close.

All right. Thanks.

Thanks, Christa.

Thank you. Our next question comes from Barton Crockett with J.P. Morgan.

Hi. A quick follow-up. In terms of pension assumptions, you said in December that you were reviewing those and can you update where they came out for '02 and what you're looking for '03?

Yes. In '02 we had lowered our return on asset assumption from 10 to 9.5. And our discount rate was, I believe, around 7.25. For 2003, our discount rate will decline, as we said in December, to 6.75%. And we haven't yet finalized our return on asset assumption for 2003, but it will probably be in the 8.75 range. It could be a little bit lower. We'll be finalizing that in the upcoming weeks.

Great. Thank you.

Thanks.

Our next question comes from Douglas Arthur with Morgan Stanley. Please state your question.

Hi. Actually it's Craig Huber. Gracia, can you please quantify what you think the impact of pension and healthcare costs will be in the New Year? And then also, your comment back in December about non-newsprint up very modestly in '03, I assume you mean in the 1% or 2% range. Tell me if you think you can hold that if newspaper ad revenues were up in the single digits for the New Year. Thanks.

We said in December that the expenses will be up in the low single digits, and on the pension side, we would expect that our expense in 2003 would be up a similar amount to what we saw in 2002. On the healthcare side, as we said then, healthcare increases are up in the mid teens. We have done some things to try to mitigate that, but there's only so much you can do there. It will still be up in the low or mid teens on the healthcare side. That's all taken into account when you look at our overall expense assumptions. And obviously, insurance costs are up and the like, but we hold everything else that is discretionary very, very tight.

Okay. Then in a separate question, network compensation for '03, for your TV stations: What kind of negative impact will that be?

None. We have contractual relationships with all of the networks and I don't think there's any change. Or if there is a change, it's beneath our screen.

Thank you.

Thanks, Craig.

Thank you. Our next question comes from Michael Kupinski with A.G. Edwards. Please state your question.

Thanks. Congratulations on your quarter. I was wondering if you can segment out your direct labor costs, what they were in the fourth quarter and for the year. And what is the percentage of labor costs that represent employee benefits? And if there were any pension contributions in the fourth quarter?

Go ahead, Gracia.

I hope I can remember them all. Why don't we start with the pension contribution issue. We made a similar-sized pension contribution in the fourth quarter as we did in the prior year. And so our pension fund is fully funded on an ABO - accumulated benefit obligation - basis. Our pension plan is fully funded. As with every company in the United States, we'll see where the market takes us this year to determine what, if anything, we need to do there. With regard to our labor costs, our healthcare costs are somewhere in the couple of hundred million dollar range. Our labor costs, our payroll costs for the full year last year, were up a couple of percent.

Okay. I can follow up later with a couple additional questions on that. So that's fine. Thank you.

Okay.

As a reminder, ladies and gentlemen if you do have a question, please press star one on your push button telephone at this time. If there are no further questions, I will turn the conference back to Ms. Martore to conclude.

Thank you very much for joining us. I'll be available to answer any follow-up questions you might have. Have a great day.

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