Tegna Inc (TGNA) 2004 Q4 法說會逐字稿

Welcome to Gannett's fourth quarter earnings conference call. This call is being recorded. Our speakers today will be Douglas McCorkindale, Chairman and Chief Executive Officer and Gracia Martore, Senior Vice President and Chief Financial Officer. At this time I'd like to turn the call over to Gracia Martore. Please go ahead, ma'am.

--at www.Gannett.com. With me today are Doug McCorkindale, Chairman, President, and CEO; and Jeff Heinz, Director of Investor Relations. Since many of you heard our presentations at the year end conferences and, frankly, not that much has changed since then; we'll keep our comments brief to allow time for your questions and what's on your mind.

As you saw, Gannett earned $1.47 per diluted share, within the range we provided you in early December. In 2003, we earned $1.31 for the comparable quarter. For the full year EPS was $4.92, a new record, versus $4.46 in 2003. We achieved these record results for the year due to strong performances in the broadcasting segment that benefited from record political and Olympic-related advertising, coupled with solid results across our advertising categories in our newspaper segment. In the fourth quarter, our TV stations particularly benefited from political spending. The newspapers results were driven by local and classified categories, particularly real estate and employment.

Now I'd like to focus on a few other numbers for you. Reported newsprint expense increased 7.5 percent in the quarter, comprised of about a 10 percent increase in prices, and a 2.5 percent decline in usage. On a pro forma, constant currency basis, newsprint expense was up a little over 6 percent with, again, usage down 2.5 percent and prices up a little less than 9. We ended the year with no impact on unit newsprint costs associated with the announced September price increase, an increase that was ultimately delayed by producers and reduced in value. As you know, newsprint suppliers are now seeking a March 1st $35 per metric ton increase.

In the last two years, no newsprint price increase has taken affect on the announced date of implementation or in the amount initially sought by producers. It's probably safe to assume that achieving yet another hike so soon after having finally settled, the fall 2004 increase will be no less challenging for newsprint suppliers. Demand remains, at best, modest and inventories are elevated. But no matter the outcome of the spring announcement, Gannett has secured fixed priced deals with several of its suppliers that will carry us through the first half of 2005.

In other expense areas, we continue to focus on prudent cost control. During the quarter, our reported expenses from the newspaper segment increased 8.4 percent. Acquisitions, currency, and newsprint have a significant impact on that number. Adjusting for currency and acquisitions, and then also excluding newsprint, newspaper segment expenses rose less than 5 percent. In addition to certain higher benefit and sales costs in the quarter, we continued to have promotional expenses related to the single copy price increase at USA TODAY. As well, we continue to invest in products that have key strategic significance for us. You should also note that expenses in the fourth quarter of 2003 were mitigated by a benefit stemming from changes in certain retiree benefits at some U.S. locations.

Now let's turn to the balance sheet for a moment, where total debt at year end stood at $4.6 billion and cash and marketable securities were about 98 million. Our own cost to debt is just under 3.6 percent with commercial paper at 2.25. Interest expense in the quarter was $41 million compared to 33 million in the same quarter last year, attributable to both higher short-term interest rates and debt outstanding related to share repurchase activity. This year, based on where we stand today, we face our toughest interest expense comparisons in the first quarter, when interest expense will be higher due to the same factors I just mentioned. With respect to shares outstanding, basic shares at the end of the quarter were 254 million and averaged 255.2 million for the quarter and 264.7 million for the year. Capital expenditures came in at almost 85 million for the quarter and were $280 million, as we had indicated in December, for the full year.

During 2004, as you may recall, we benefited significantly from the strength of the pound relative to the U.S. dollar, ranging anywhere from adding $0.015 to $0.025 to quarterly EPS. For all of 2004, the exchange rate averaged 1.82 compared to 1.63 for 2003. Honing in further, for the first quarter of 2004, the pound averaged 1.84; not too far off from where the pound is today. Therefore, we do not expect currency to contribute to our earnings to the same extent it did in the first quarter of '04 and potentially for all of 2005. We continue to work through the expected impact of the expensing of options and what it will have on our earnings per share in the second half of the year, and we'll give you more specific guidance once we have completed that review.

Finally, before I turn the call over to Doug, I would be remiss if I didn't tell you that our conference call and Webcast today may include forward-looking statements and our actual results may differ. Factors that might cause them to differ are outlined in our SEC filings. This presentation also includes certain non-GAAP financial measures and we have provided a reconciliation of those measures to the most directly comparable GAAP measures in the press release and on the Investor Relations portion of our website. Now that I've gotten that out, I feel much more comfortable turning the call over to Doug McCorkindale.

I hope you all understand what Gracia just said. Good morning, all. In December, as many of you will recall, we told you that it appeared that 2004 would be a record year in terms of revenues, earnings, and operating cash flow.

I'm pleased to report that the results we released today confirm all of these records. As Gracia mentioned, our results in 2004 were driven by solid growth in all of our advertising categories in the newspaper segment. 2004 also saw domestic newspaper-based operations continue to enhance our overall revenue results through the leveraging of our various distribution channels, including our non-daily products and, obviously, our websites. Our broadcasting segment benefited from a record level of political and Olympic ad revenues that totaled over $120 million, on a net basis, for the year. We are pleased that we were able to report these results and lead the industry again in advertising revenue growth in what has been a fairly challenging economic and advertising environment.

As you saw from the press release, our operating revenues advanced almost 8 percent to approximately $2 billion in the quarter; and increased 10 percent for the year. Reported newspaper advertising revenues advanced almost 12 percent for the year, including the results of the Scottish media properties in the U.K., Clipper, and NurseWeek.

Looking at our newspaper segment, and assuming we owned the same newspapers in both years, total advertising revenues rose about 5.5 percent for the quarter and over 8 percent for the year. Pro forma local advertising in our newspapers rose over 5 percent in the quarter. In the U.S., furniture, health, financial, and telecommunications categories continued to gain; and they helped offset the lagging results we've seen from consumer electronics, entertainment, grocery, restaurant, and home improvement. Classified revenues in our newspaper segment were up almost 9 percent in the quarter and 7.6 percent in December. December's increase was achieved against the toughest year-over-year comparison from 2003.

Our employment numbers in the U.S. were up over 22 percent for the quarter. In fact, in the quarter, about 80 percent of our domestic newspapers had employment revenues over 2003. And 57 percent of our papers, the big ones like Cincinnati and Des Moines, Honolulu, Phoenix, Ft. Myers; had double digit gains. For the Company overall, employment advertising increased over 18 percent for the quarter on top of a 4 percent increase in the fourth quarter of 2003, which some of you will remember is the quarter that employment turned positive for us. Real estate was also fairly strong throughout the quarter, and was up 8.6 percent in December compared to a 14 percent increase in 2003.

The automobile category, however, continues to be soft in the quarter, decreasing over 5 percent. The automobile category in our U.S. community newspapers was down almost 7 percent in the quarter, reflecting declines in all regions; but particularly in the east. The far west and the south declined the least. National ad revenue was unchanged for the quarter as increases from our community newspapers was offset by declines at USA TODAY. At USA TODAY, revenues were down 5 percent for the quarter. The technology segment has been challenging for USA TODAY this year. In the first three-quarters, the new marketing campaigns made up the deficit. In the final quarter, however, marketers became wary of introducing new campaigns. This, coupled with telecommunication consolidations and harder comps pushed the fourth quarter advertising performance below last year.

During the quarter, auto, in addition to technology and telecom categories lagged last year and offset gains that USA TODAY saw in entertainment, retail, and financial. USA TODAY will face equally tough comparisons in the first quarter of 2005. As we described for you at the conferences in December, our focus on non-daily and online products continues to pay off. Revenues from our non-daily products, which does not include things like the Army Times and Nursing Spectrum and Clipper, but excluding them, those non-daily revenues increased 21 percent in the fourth quarter. The internet side was also very positive. Our online revenues for total company for the year reached over $200 million, which is a 53 percent increase for the year, and that was up 48 percent for the quarter. The growth in online revenues reflects the value of our local brands and reach, plus our ability to offer both print and online products separately or bundled.

In December, our domestic websites had over 18 million unique users reaching over 12 percent of the total internet audience. In the U.K., Newsquest online audience totaled 3.1 million unique visitors with almost 30 million page impressions. CareerBuilder also continues to perform well. Overall in 2004, compared to 2003, its average year-over-year increase in unique visitors was up about 117 percent. We're a couple of days away from receiving their fourth quarter revenues, although we expect that quarter number to show significant revenue growth.

Taking a little bit of a look at the U.K., which I just returned from, Newsquest again delivered strong results and continued to lead their peer group in revenue growth. Some parts of the U.K. economy are showing some signs of slowing, although reading the trend is difficult at this particular moment. Also they face tougher comparisons with last year, where the last quarter of 2003, they had ad results that were up 6.5 percent; which was the best quarter of the year for Newsquest. Pro forma revenues for Newsquest, in pounds, were up almost 3 percent in the quarter and up about 5 percent for the year. Costs were tightly managed and as a result Newsquest operating profit, again in pounds, increased 7 percent for the quarter and was up almost 11 percent for the year.

Newsquest revenues in the first quarter of this year will be impacted in part by a shift in the calendar of the week after Christmas. The last week in December will fall in period one this year, rather than in period 12 as it did last year. That week as most of you know, is extremely slow in the U.K., as it is here in the U.S. So January will get off to a slow start. As many of you know, in the event of any economic slowdown, Newsquest has a very good history of controlling the cost and doing it swiftly.

Moving to broadcasting, total revenues for the broadcasting division, which include Captivate, increased almost 19 percent for the quarter. If you take Captivate out, the revenues were approximately 16 percent higher compared to the fourth quarter of 2003. Local revenues increased over 6 percent while national increased over 32 percent. The increase reflected strong demand in advertising related to the elections, as you all know, and the value of us also having top rated local news in our stations. But as we've told you, absent political, core ad revenues were not as strong as we had anticipated. And, as I mentioned earlier in 2004, the Olympic and election results exceeded $120 million.

Looking ahead, our latest pacings for the first quarter, overall, are down compared to last year's first quarter to down in the low to middle single-digits; with January down in the low single-digits and February down in the mid single-digit range. Local is slightly stronger than national at this point. The pacings reflect the challenges we face in the first quarter, which include replacing advertising related to the Super Bowl last year, which was on six of our CBS affiliates, and approximately 8 to $9 million of political advertising that we had in 2004. Again, though, I want to caution you that pacings are very volatile and what I'm telling you is where we are right at this moment. We'll keep you updated in our monthly report as progress continues.

Before we go to the questions, let me have a few more words about 2005. We are looking to a forward-- looking forward to a solid year in 2005, and we continue to be comfortable with the assumptions we provided you in mid-December. However, as we look at it now, we're facing the same challenges that we mentioned in December. We do not expect the economic environment to change dramatically in 2005, in terms of strength or volatility. We expect positive revenue growth relative to 2004 although, again, it looks like it will be somewhat uneven month-to-month, reflecting the month-to-month business conditions that we, again, saw last year.

In addition to the muted benefit from the currency that Gracia mentioned and in the absence of the Super Bowl and the political advertising, we face challenges of overcoming our own good successes because of the tough comparisons that we'll see across the board. However, as most of you know, we've been here before; and we believe barring any unforeseen circumstances that we will continue to deliver industry competitive, top line growth and maintain our financial discipline whichever direction the economy or the ad environment takes us in 2005. Let me stop now and Gracia and I can take your questions.

[Operator Instructions] Paul Ginocchio, Deutsche Bank.

Just three questions. First, could you explain which revenues by day part for the TV station? So how much of the revenue is coming from prime time and late news? Second, with the pending acquisition of Hometown, you may get -- you'll pick up some directories. Is that a business that interests you, particularly now-- I think Hearst believes that both newspapers and directors are very complimentary. Also maybe just some comments, if you can, on the Justice Department. And finally, the accelerating of options expensing of 3.9 million options early, how much does it save you in potential EPS cost in '05 through '07?

Paul, let me hit a few of those and Gracia will jump in on a few of them. I don't really know the answer to your daytime question. We make most of our money revolving around our local news programming, whether that's at 5:00 or 6:00 or 10:00 or 11:00 or in the mornings, more often than not these days, too. So that's where we get the revenue from and that's where we get the most profit from. I don't know the breakdown on daytime. I don't know whether you know the day part.

No. Paul, we can get back to you with some more specifics on that.

On Hometown, to get to the justice department part of it first. We thought this was going to be a routine filing. So we're as surprised as some of the others are in reading all the interest it's getting. We're complying with everything the Justice requests. We don't know why it's generating as much attention as it did. And as to the yellow book parts of it, we've been in the yellow book business before. It's a good business if you run it right and you have the right combination in the local markets. It's fine. We have a fellow within the Company that's run it for us in New York and New Jersey and he will be involved in running these properties, as is necessary. But it's a fine business. It's not something we seek on a master -- on a major scale, rather. But, you know, it's been okay. On options, Gracia why don't you cover that a little bit.

Paul, similar to what some others in our industry have done, we did accelerate some underwater options--unvested options. And the EPS impact in the second half of 2005 will be a couple of cents. In 2006 and 2007, it will probably be several cents in each year.

Craig Huber, Lehman Brothers.

A couple questions. Can you just break down this non-newsprint growth in the quarter up, sounds like nearly 5 percent, just give us in the big pieces to get you up. That's a pretty large number. And also for this new year '05, do you think--do you think you'll be able to hold that number up 2 to 3 percent, assuming you hit your ad revenue growth assumption for newspapers? Last question is, on the TV stations for NBC prime time, ratings look like they're down close to about 4, 5 percent season-to-date. Are you seeing any impact at your TV stations or is it just too early for that?

Craig, let me jump at TV first, then Gracia will get into some of the expenses. Yes, we're seeing a little negative impact from NBC's network results. As I mentioned earlier, when I was answering Paul's question, we bring most of it to the bottom line through our own local television. But yes, they are affecting us adversely now. Not a big deal, and they're still doing well in many, many categories. But it is affecting us.

Yeah, Craig, with regard to the non-newsprint expense side, you know, there's obviously a couple of factors. As we've mentioned, some higher benefit costs. We also didn't have the curtailment benefit that we did last year in the fourth quarter, and that was worth, as our 10-Qs and 10-K will show, about $9 million in the quarter. Also USA TODAY continues to have some promotion expenses-- additional promotion expenses related to their price increase. And on the community newspaper side there's, as we've talked about before in this sort of transition time on the circulation procurement side, we obviously have some increased expenses as we transition out of heavy reliance on telemarketing to other methods of distribution.

So those are probably the several factors. Plus obviously, as we've mentioned before, a good amount of growth is being seen at Clipper; which, as we've said, is a business that has, you know, 15 percent-ish margins. But we'll take that, because they have tremendous top line growth and tremendous bottom line growth for us, but it's just a lower margin business. As well, as I mentioned, we continue the investment in non-daily products, which is a key growth area for us. And we will continue, as we've said, to invest in those products, because they're important to future growth.

And then your '05 outlook for non-newsprint?

I think it's contained in the assumptions we gave out in December, and we are still comfortable with those assumptions.

Lauren Fine, Merrill Lynch,

Could you give us a sense on how the newspapers are entering the year in terms of trends? We've heard from some of your peers that it seems to be a slow start. And then, also, you did give us some color on the U.K. in the first quarter, but I'm wondering if you could give us a sense of growth expectations there for the quarter and the year. And then, share repurchase activity was a bit less than we would have expected in the quarter and relative to the third quarter. Is this just an attempt at, I guess, leaving yourself some financial flexibility, giving some properties for sale or is there something else at work there?

Lauren, yes, we were sitting on a little bit of money trying to see where some of the pieces are that are available out there. And if we're not successful in finding good ways to spend it for acquisitions, you may see us use it to buy back stock because that's obviously a very, very good return. As to the newspaper results, as I mentioned in my prepared comments, we're seeing mixed results. January is simply too early. I just came back from the U.K., and they are seeing a slow January. As I mentioned, they had a little one-week swing there. But even with that, which was a reason for some of the slowness, the last days of January do not look as positive in the U.K. as they had expected. Having said that, you know, January is almost a non-month, so we'll have to wait and see.

We're not seeing anything particularly negative but, on the other hand, we're not seeing anything that says, wow, we're off to a wonderful start in 2005. We've picked up a little retail here and there that we didn't expect, not a lot of money. Employment numbers look okay, real estate's okay. But as we mentioned earlier, automobile is not. In just about every category, that's true in the U.K., by the way, as well as it's true in the U.S. It's adversely affecting the television business, in particular, because, as you know, it's a big piece of the television revenue picture. So, the soft automobile market is the one that's most noticeable.

Frederick Searby, J.P. Morgan.

Couple questions, Doug. First, just on the pacings and the broadcast. To what degree do you -- it sounds like--but if you could decompose that, to what degree is that weakness expected in core; such as auto, versus stripping out political, the Super Bowl, and, of course, the ratings issues at NBC? And just a second thing, if you could comment on -- this question was sort of asked, but you didn't really -- the regulatory environment and acquisition environment and the chatter about the anti-trust issue, whether it would -- whether it's really material or not and what you see on the forefront there.

Well, I thought I tried to answer the Justice Department. Hometown for us was a routine acquisition, and we thought it was a routine filing. And, as we indicated in the press release, it would be subject to routine review. I don't know why it's gotten as much attention as it has. We're not getting any indication that there's any change in normal anti-trust interpretation coming out of the Justice Department. Maybe somebody is asking some questions that weren't asked before, but I don't know. There's no hint of any change in the regulatory environment that in any way would change our normal acquisition activity. So we'll just have to wait and see.

Turning to television, yes, core is soft. It was soft in the fourth quarter, as I indicated, and going into the first quarter it's soft. So if you take out all those extraordinary items, with Olympics and-- last year and Super Bowl and politics and look at 2005 versus 2004; the automobile side, which is 30 plus percent of the broadcasting business has been running soft. It did not come back after the political activity as it has in the past, and it's continuing to be soft in January. So we have to focus on that. Our new business in television, interestingly, which is a category we have where we go after advertisers who have not been on the air before, that's doing okay. But the normal longtime advertisers, especially in the automobile category are holding back on their expenditures.

Just finally, is there any, in terms of all the consolidation activity we've seen, which typically is not beneficial and there's some impact. Is there any concern about Federated and May and stores and some of the acquisition activity that's already been consummated that's going to have a really material drag this year?

Well, I think we'll have to wait and see how some of those pieces come together. Some of the traditional department stores, after telling us they weren't going to advertise too much, actually picked up their advertising; and that was positive. Obviously, Wal-Mart started to advertise, and it was interesting that they chose newspapers as a way to get their message out. And we did pick up some revenue there. Not a lot, but it was an interesting positive.

But if there's some consolidation among some of the major retailers, we'll have to see how those pieces fall out. In particular, what department store names they retain and which ones they consolidate, because that's a market-by-market analysis for us. But it could be no impact or it could be a negative impact, if they do away with some names that they have traditionally advertised on a separate category. We just don't know yet, but we're obviously paying very close attention to it.

Steven Barlow, Prudential.

Gracia, you talked about newsprint prices in the beginning. It did appear that you were paying some of the September 1st increase starting on January 1st. Then you have in your assumptions, which you said you're not changing, that you're going to be up in prices in the low teens for newsprint. I guess at first glance it seems that number may be a little high in those assumptions, based on you're trying to lock in some of the prices for the first six months.

Well, as we say when we do our assumptions in December, we always budget conservatively, particularly when it comes to newsprint. So we'll just have to see how it all plays out, but we're comfortable that we will do a good job vis-a-vis that newsprint assumption.

Okay. Then on the non-daily side, could you just give an indication of your run rate at the end of the year and any plans for '05, whether it's the year to harvest the cash flow, as those continue to be out in the marketplace; or is it a year to continue to invest by adding a whole bunch of new products?

Yes, we're going to do both. What's the run rate?

Yes, I think we've talked about, on an annualized basis, a run rate of about $375 million. And when we look at the fourth quarter, obviously, there's the seasonal differences; but we're very comfortable with that 375 million annualized run rate. As Doug said, we'll--we'll--we can do both investment because we think it's key to the future, but we're also expecting that some of the products that we have started over the last year to two years will certainly move up the margin side of the equation. So we have high expectations on the non-daily side for 2005.

Thanks. And you calculated the options expense if you had to do it in 2004 yet-- for the whole year.

For our -- if we had to expense options in 2004-- what I was saying earlier is we have not calculated-- You can obviously use the numbers we've been putting in our 10-Qs, and what we will put in our 10-K footnote disclosures, as a ballpark; but we are still working on, you know, various assumptions related to Black-Scholes versus by binomial lattice methods and the like. And so we don't--we haven't finalized those calculations yet. But as soon as we do--and I would expect that probably by the end of the first quarter, and when we're on our first quarter earnings call, we'll have more visibility that we can share on those numbers.

William Drewry, CSFB.

Two questions. One, on the acquisition front, Doug. In 2004 you made some -- did a few deals like Captivate, which was a little non-traditional; and you've been moving more and more in that--in that direction. I'm just wondering if that or internet-type acquisitions are of increased interest going forward? And if so, especially on the internet side, just wondering if you would continue to do that with your two partners, Knight-Ridder and Tribune, or if you might be more interested in doing it on a stand alone Gannett basis? That's question number one. And then number two, I think Craig had said at the conference, year end, that TV revenue you were looking for the full year '05 to be down in--I thought he said in the low single-digits or down slightly. And I'm just wondering if these Q1 trends make that a little bit tougher as far as the outlook and if you might have to work a little harder on the cost side to make that up.

Bill, on the acquisition front, I think we'll do everything that you suggested plus traditional. As you know, we've been opportunistic and we'll take a look at internet activities, media related activities like the Captivate and the Clipper piece. They're all going fine. And at the same time we are talking to our friends at Knight-Ridder and Tribune about doing some things together with them. So we've got the cash flow and economic might to do them all, and we're constantly looking at them. There's no particular focus in one versus the other, because we can do everything at the same time. So you'll see us to continue to do that.

On the broadcasting front, I think January's a little early to tell. But Craig will obviously manage the numbers as well as he normally does. We would like to see a little better picture on the core side and we're just going to have to work at that. But, I think it's just really too early to tell, to make any comment about our assumptions.

Douglas Arthur, Morgan Stanley.

Yeah, Doug, I'm wondering if you can just lay out the outlook for USA TODAY a little bit for '05.? There are a lot of moving parts here, with the price increase, circulation changes, travel is-- I understand off to sort of a slow start. You've got some tough comps. So I'm wondering if you can just give us some sense of how you see the year unfolding.

Well, you focused on all the right things, Doug. So far, obviously, December and the last part of the year was a little bit softer on the ad side than we had anticipated. So far in January, it's okay, but January hasn't told us anything positive yet, nor has it told us anything negative. It's just sort of moving along and we're hoping it'll get better. But I think it's just a little bit early to say. So we're not going to change any of the assumptions for USA TODAY. We will obviously get a real positive from the circulation price increase, that went better than our plan. The reduction in single copy sales were less than we had planned.

So all of those pieces have come together very, very nicely and we'll expect to get some pretty good revenue gains to USA TODAY's side of the equation in the early part of this year and throughout the year. So that's going to be a positive, but as you are correctly focusing, we've got to see where the national ad picture is going at this point. What we're being told by the advertisers is that the money is there and it's in their budgets and they're inclined to spend it with us. And we've had a couple of indications early on that they're making commitments. But, I think like us, they're taking a look at the economy and just trying to figure out where it's going and where they should be putting their dollars. And they haven't made as many commitments as they traditionally do at this time in the year. So it's a little bit of a wait and see game.

Brian Shipman, UBS.

I don't think I saw in any of the press releases, and I don't think you touched on this. If you could just detail what the pro forma constant currency growth rates were for the newspaper division overall and also for each of the major ad categories. And then a second question for you, Gracia, with the yield curve flattening out now, do you have any further thoughts on fixing additional debt?

With regard to fixing additional debt, we look at that daily. Obviously, some of that will be-- decisions on that area that will be in part dependent on what we use the cash flow for and what acquisition opportunities versus share repurchases versus other things are out there. But, right at the moment, we're fairly content, given the gap between short-term rates and long-term rates to continue to keep a good portion of that debt on the short side. Vis-a-vis the ad categories, for a quarter, Brian, we've got a revenue and stat report out there, but let me just briefly run through them. For the fourth quarter, this is pro forma obviously, local was up -- well, these are not -- let me give you the constant currency.

I saw the December numbers. I don't think I saw full quarter numbers anywhere.

Yes, it's on the second page of the release, Brian.

You'll see that--

Okay. Sorry about that. I won't waste your time, then.

No problem.

Take a look, and if you have any questions, give us a buzz.

--give a holler.

John Janedis, Bank of America.

Just a couple of brief questions. First, on the TV side for the expense equation. Back in '03, you actually saw a decline there, is that something you can repeat in '05? Then, on USA TODAY, the spread between page ad pages and revenues is pretty wide at around 12 percent. Can you talk about the, I guess, change in mix there or pricing or, really, what's driving that and if that's sustainable?

John, I'll mention broadcasting. I don't see any significant expense reductions in 2005. As you know, we run a pretty tight ship. We didn't let anything get out of control in 2004. The great revenue gains that came from political and Olympics had, obviously, some sales costs related to them and when they go away, the sales costs will come down. But there's nothing magic in the broadcasting world right now that could help us on the expense side. It's a revenue picture we'll have to focus on. Do you have some comment?

I was just going to say on the TV side, as you may recall, in 2003, early in the year, we had unexpectedly, obviously, the Iraq war, I think; and that caused revenues to not be where we expected. And so expenses were pulled in tightly reflecting that. We'll do a good -- they'll do a good job on controlling costs and we'll just have to see how it plays out. On the USA TODAY side, obviously, as you said it's a combination of mix and pricing. They've had a good go of it this year in terms of the yield on the price increase that they put through at the beginning of '04-- When I say this year, '04 the price increase that they put through at the beginning of the year, plus there's been more demand for color, which obviously carries a premium. So there's a combination of the two, John.

Yes, John, the advertisers are very happy with the audience that USA TODAY is delivering. So we're not getting any questions on the pricing. I mean, it's -- they've been trying to catch up a little on the pricing and doing well. So that's why you see that mix. But it's the overall advertising environment that we have to focus on and not the ad rate card at all. And once that environment picks up, I think USA TODAY is going to get way more than its fair share because the advertisers are very satisfied with the product and what it's delivering.

William Bird, Salomon Smith Barney.

I was wondering if you could talk about your current thoughts on share buybacks, there's a 1 percent off sale this morning. Also, just thoughts on the regulatory environment given the changes at the FCC.

The changes at the FCC, Bill, we've only been talking about this for 28 years. We're still waiting to see which way the wind will blow there and with the chairman announcing that he's stepping down, we'll have to see who the new chairman, or chairperson, is and what their environment is. Also we're all waiting to see whether the FCC will step in and ask for an appeal from the Third Circuit decision. I think they only have a few days left to make that decision. And that decision is made in conjunction with the Solicitor General's office. So we don't have any inside knowledge as to what is going to happen there, but we certainly hope that some action has taken place. Or maybe the newspaper/television cross ownership area is broken out for separate analysis because it's quite different than some of the other bits and pieces.

On share buyback, Gracia had tried to fudge before and I think she'll fudge again. If the numbers look right and there are no other uses for our cash, at least in a major way in acquisitions, we've announced the buyback program. Our board is very supportive of it, and it's been a very positive investment for us. So we would continue to be active in that area.

Alexia Quadrani, Bear Stearns.

Just a quick question on Captivate. I understand that you might be extending the commercial time so Captivate can better assume commercials already made for TV. Do you expect -- first of all, I guess is that true? And secondly, do you expect any significant change in demand because of that change?

Yes, you're absolutely right, we do intend to do that and, obviously, that will benefit us when it happens. The more important thing, clearly, is for Captivate to continue to build out its platform of elevators and get the density in those important markets. And they are doing a good job of doing that and we expect to end next year at about 8,000 or so elevators in place. So that combination of what you mentioned plus the higher density will really help Captivate's numbers in 2005.

Yes, it's going great. It's a very interesting small investment, but we're getting lots of positive comments from folks, especially in the New York City area where they get into the elevators and they immediately look up to the corner and watch it as they go up the floors. So it's an interesting medium.

Jim Goss, Barrington Research.

You were just discussing pricing power at USA TODAY. I was wondering if you might do the same with some of your other papers. There were a number of cases in your statistical report where you talked about pro forma ad revenues rising and declining ROP ad volume. I'm wondering what went into that process, what sort of sensitivity analysis and whether it's U.S. versus U.K. considerations that lead to that? Then separately, and maybe more theoretically, as younger demographics favor internet as a primary news source, do you envision the potential for internet distribution of your newspapers, either USA TODAY, or the locals, arriving at some positive economic model that would be anything close to the traditional print product?

Good question, the last one, Jim. And I know everybody in the industry is looking at that question. The bottom line is, I don't think we know the answer. As you know, every Gannett newspaper has a website in one form or another. Some of them as robust USATODAY.com, but also pretty good in Detroit and Phoenix and Cincinnati, et cetera. We're seeing a cross pollinization of viewers, though, that read the websites and look at the newspapers. So, although the young folks are going there, we are seeing, in the last couple of years, people going from the website and subscribing to the newspaper and going back and forth.

Internet is obviously the growth engine. And as I mentioned earlier, being up over 50 percent, it's a pretty good number. It's still a very small piece of the whole Gannett pie but whether the economic model will get close to the newspaper model, I don't know. Right now the internet is more profitable on a return on sales, by a big margin, than the traditional print product. And we do allocate all of our costs correctly to the internet activities. So if I could extend that model into the ultimate future it would be a very, very positive story for Gannett. Obviously, the subscription revenue piece is missing at this point. And I know folks keep asking that question, and we don't have an answer for it yet either.

But I guess I think we'll just keep doing what we're doing and doing it as successful as we've been doing it. We'll just have to react to the marketplace. It's a wonderful growth engine, and-- but it is moving folks back and forth to the print side; and that is a little positive surprise. And it's happening in 2003 and '4, much more than it did in 1999 and the year 2000. So we have to keep analyzing those results. Gracia, do you have an answer for Jim on the --

Jim, on the local newspapers side, vis-a-vis, pricing power, as we've talked about previously, one of the things that we've been investing in on the capital side is more color capacity in our local newspapers. Some of the recent significant press projects have been, in part, driven by added color capacity as well as adding some color towers at places like Ft. Myers and a few other places. So obviously with more demand for color at our local community newspapers, you know, that does carry a premium for us. So that's a similarity to what we've been seeing, obviously, at the USA TODAY side of the equation. Then on advertising rates as we've indicated, we will raise advertising rates again as we have every other year, and so that will give us some yield play as well.

Peter Appert, Goldman Sachs.

I was hoping you might give us some added color on the auto weakness. In particular I'm seeing that the auto spending in the magazine sector was up pretty substantially in '04. So, perhaps the weakness that newspapers and TV are seeing are a function of share shift. I'm just wondering what your thoughts are on that.

Peter, we didn't see it in all of '04. Automobile was pretty good, in fact, it's been stronger coming out of-- whatever it is, 2001. We keep being assumed or being told that it's going to go down and it keeps going up. So it was okay for an early part of the year on both the broadcasting front, at USA TODAY and in the newspapers. But what we were commenting upon was the softness that particularly was evident after the election. It did not come back on the broadcasting side after the election. And it became softer on the newspaper side, maybe a little bit earlier than that. And going into January, we simply haven't seen a pick up. So for the year, it might have been -- I don't have those numbers in front of me, Gracia may have them; but it was probably okay. But it's in the last couple of months that we're seeing the cutbacks.

Yeah, Peter, for the full year, for instance, at USA TODAY, their auto advertising was up, you know, in the single-digits; but up overall at USA TODAY. At our local newspapers, we saw the beginning of the year had fairly strong auto numbers and then trailed off towards the end of the year. But you know, about a wash on the auto side for the full year. But USA TODAY clearly did a good job on the auto side in '04.

So the weakness you're seeing, then, presumably is on the dealer side as opposed to the OEM side.

Yes, although USA TODAY had a lot of advertising for introductions and they got a very good schedule on that. But, obviously, there weren't too many in the last couple of months. It's mostly on the local dealer side. That's what's affecting the community newspapers and the broadcasting front.

Okay. Another question, Doug, historically Gannett's, at least in recent years, focus on acquisitions is to do cash deals as opposed to stock deals. Is that still the preference?

Yes, although, you know, with the tax law changes and some of the other pieces coming around, I don't know whether anybody is even focusing on stock deals these days, you know, the rates are so low. We've had, and are having, some discussions with people who would be interested in taking Gannett's stock as a way to diversify their footprint; and that's fine. We can look at that, because if we use the stock, we can go back into the marketplace and buy it, and it effectively becomes a cash deal for us.

Michael Kupinski, A.G. Edwards.

Doug, we've had a pretty good economy with GDP growth a little better than average but, yet, newspaper advertising has been relatively uneven, as you say. What do you think will get advertisers to make commitments to get this newspaper recovery under way to more normalized levels. Do you think it might be consumer confidence, broadening of the recovery to larger markets or any particular metric that you or your advertisers, you think, might be looking at?

Mike, I wish I had an easy answer for you. The consumer confidence numbers that I just saw yesterday, or the day before, were pretty good. So they're behind us. I think what we're seeing is a lot of experimenting by some of the traditional advertisers trying to reach their audience. And they move from print to broadcasting to a little bit of internet, although not too much, direct mail and some of the categories. And they're just trying to reach people in a more precise manner. And unfortunately they're not coming up with any answers. We are seeing them come back to print because, as traditional as it is, it's a very big footprint. Even like the networks, although their viewing has gone down, they still get an awful lot of--lot of eyeballs.

But the small to medium-sized advertisers in our markets are quite satisfied and are getting good results through the newspapers. But it's the larger ones that keep bouncing around. And they're cutting back their own ad budgets across the board, too, because their economic results aren't there. So I don't have an answer as to what would generate them -- generate more activity among the large advertisers and bring them back to newspapers. I mean, our employment advertising is doing fine, combined with online or even without online, it's doing fine. Real estate advertising is still doing fine.

As we mentioned earlier, though, automotive is soft. I don't think that's directly related to newspapers, per se, or in actually broadcasting, per se. It's the category, the dealers are not selling the cars. I mean, I don't know at what point they start paying you to take cars. The discounts are huge these days. I've been reading the ads, such as they are. But I don't know what'll generate a traditional pickup in advertising except a more comfortable feeling about the economy. And our customers are telling us they're still not comfortable as to what the direction is, as positive as some of those gross numbers are that you've been mentioning. And we see them, too, but we're just not seeing them reflected in a robust advertising marketplace.

I would have expected that to be the case in 2004, and it was up and down. I would have thought 2004 would have been a much stronger year based upon the softness that we saw for three years. It was good, it was fine; there's nothing wrong with the numbers, but it wasn't as robust as I would have expected. And that's why we said earlier that that's the way we see 2005 starting out also.

I think that you mentioned the margins for your non-daily papers was in the range of 25 percent. Do you have any update on the level of margins for those in the fourth quarter and do you expect to have similar margins in 2005? And if I can add just one quick question, can you talk about your exposure to Federated and May, what is the percent of their contribution to total retail advertising? I think it seems like your biggest store might be in your Phoenix market. I know that's a good growth market there, but I was just wondering if you were concerned about any -- how big is your exposure, I suppose, to those Federated and May in Phoenix?

You know those numbers Gracia?

I don't have them off the top of my head. We can get back to you, Mike, and give you a sense of it overall.

Okay.

But certainly not market by market. With regard to the margins on the non-daily, I don't think I mentioned a particular margin. I think we've said in the past that, depending on where we are in the ramp up process, those margins can be in the high teens or they can be in the mid-20s. Just depends on where we are in the cycle and we'll just continue to, you know, ramp up that part of the business accordingly.

Any thoughts on where they were in the fourth quarter?

I think they were in the 20s, low 20s.

For those that are up and running and full speed ahead, but we keep having a series of new ones started. We're doing very well with the startups for younger readers in Cincinnati and Nashville and Boise and places like that. And then we're moving on to some hispanic latino publications out west. But some of them are just getting started. So I think Gracia is referring to the ones that have been up and running and doing what we expect them to do. The positive news is they are coming up quicker than planned and when they hit the marketplace they're being very well accepted. They're not out of a cookie cutter, they're market-by-market products and they're doing fine.

Christa Quarles, Thomas Weisel.

Just a couple quick ones. First, can you give us just some magnitude declines at USA TODAY in terms of travel, telecom, auto in terms of what it was declining-- or declined in the fourth quarter? And then could you just highlight why your tax rate was a little bit lower in the fourth quarter? And then finally I know you said political was about 120 million, could you give the specific figure for what it was in Q4?

Sure.

Christa, that was political and Olympics for 120 million.

Right. And in the fourth quarter Olympics -- excuse me political was between 45 and $50 million, net. With regard to the tax rate that, generally speaking, will vary quarter-to-quarter depending on the contribution of earnings from the U.S. versus the U.K. So it will vary a tenth or so quarter-to-quarter. Now, obviously in 2005, we've got the Americans for Jobs Creation Act, which will have an impact on our tax rate and we'll share that with you all now that we've gotten some feedback with regard to some IRS additional guidance.

Vis-a-vis USA TODAY categories, we can tell you that travel was down in the mid-single-digits in the fourth quarter. Auto was down in the very low teens, tech was down in the mid-teens, telecom was down more dramatically; but it's about 5 percent of our revenue whereas travel is about 14 percent of USA TODAY's revenue. Entertainment was up in the low single-digits and retail was up in the mid-teens. And financial was also a strong category, about 5 or 6 percent of revenues in the quarter, but up about 40 percent. So a real mix of things.

Are you getting any specific indications, like we had heard from some of your peers that, for example, they expected the tech segment to improve coming into the fourth quarter-- or in the first quarter and the year too--just based on the conversations they've had. Are you hearing anything specific on the category side that would lend any positive outlook there?

No. I think we're not, Chris. As I mentioned earlier, the word we're getting from the advertisers is they have the budgets and if they decide to spend them, they'll be coming at USA TODAY and all of those categories you're mentioning are good categories for us. Actually we did pretty well last year, early on in the year, and some of the softness that Gracia just listed for you was mostly in the fourth quarter. So if the others are correct and those categories pick up, USA TODAY will get them.

We have time for one more question.

Corin Reike (ph), Sandler.

Doug, why is Sunday circulation down 2.5 percent, which is a big number? That's the first question. Secondly, what did you do with ad rates in some key categories and your local papers for '05?

John, on Sunday, as you know, it grew and it grew and it grew for many years. And what we're experiencing is simply lifestyle changes. Folks are not staying home and reading the Sunday paper as much as they did just a couple of years ago. Other than that, there's no particular explanation that we are aware of. And after all those years of growth, it's just cut back a little bit. And if you can come up with some better answers, we'll be happy to listen. But that's what we're hearing from our markets. What about on rates?

Yeah, on the rate side I think by categories we're probably talking, depending on the category, in the low- to mid-single-digit kind of increases; and that will vary market-to-market, depending on, you know, what they are seeing in their respective market.

How do you raise ad rates 4 to 5 percent on Sunday when your circulation is down 2.5 percent, that's an effective 7 percent increase?

Well, we're not getting much pushback on rates, John. The numbers are down a little bit. It's down in some markets more than the other, but we're delivering the coverage. And you're right, the circulation numbers are down there, but the advertisers, again, like I mentioned earlier, they're looking for the overall coverage and they are getting good response. So the 4 to 5 percent increase is not something that's giving them great concern.

And it's not 4 to 5, as I said, across every category, across every market. I said some categories low single, some categories mid, some markets different than other markets.

Also, Gracia, what's the circulation at USA TODAY for the fourth quarter versus the fourth quarter a year ago?

Circulation was a little over 2.3 million, and it's up-- I want to say about a percent or so. We don't have those numbers in front of us, John. But the losses that we got from the price increase, as I mentioned earlier, were not as high as we had anticipated. So the price increase has gone very well. And it's been offset by gains in some of the other categories. So it's done very well.

Okay. I'll let you go to buy in the stock this afternoon.

As soon as the blackout is over.

Right.

That will conclude the question-and-answer session. Thanks very much for your participation. I'll turn things back over to you, Ms. Martore.

Thanks very much. Thanks for joining us this morning. If you have any additional questions, feel free to call Jeff at 703-854-6917, or me at 6918. Have a great day.

That concludes today's conference call. Again, thank you all for joining us. Have a good day.