Tegna Inc (TGNA) 2006 Q2 法說會逐字稿

Good day everyone and welcome to Gannett's second-quarter 2006 earning's conference call. Today's call is being recorded. Due to the large number of callers we will limit you to one question or comment. We greatly appreciate your cooperation and courtesy. Our speakers today will be Mr. Craig Dubow, Chairman, President and Chief Executive Officer and Gracia Martore, Executive Vice President and Chief Financial Officer. At this time I would like to turn the call over to Ms. Gracia Martore. Please go ahead, ma'am.

Thanks very much and good morning. Welcome to our conference call and webcast to review Gannett second-quarter results. Hopefully you've had an opportunity to review the press releases from this morning, which can also be found at www.Gannett.com. Since we provided a detailed update at the mid-year media review just a few weeks ago, we will keep our comments relatively brief today. With me today are Craig Dubow, President and CEO and as of July 1, Chairman. Also Jeff Heinz, Director of Investor Relations. Craig will start off with an overview of the Company's initiatives, and then I will follow up with some additional specific details on the quarter.

Thanks Gracia and good morning all. We have been hearing now for quite some time that the newspaper and broadcast industries, in fact, all of media are under tremendous competitive pressures. Along those lines today I want to reiterate some of the points that we made at the mid-year media review regarding our strategic efforts and the opportunities that we see in our markets. Gannett is about local, local content. Our strategic plan is based on our ability to gather, package, deliver local content the way customers want. To do that we are enhancing our core assets while we concentrate on continuing -- and I repeat continuing -- to quickly build a robust and profitable digital business.

The acquisitions of WATL Atlanta and KTVD in Denver are examples of that strategy. Creating duopolies is a superb way to enhance our core assets, consumers and advertisers benefit from stronger programming with a local focus. At the same time we are boosting efficiency and the bottom line. In addition, in May we acquired Planet Discover, a provider of local search technology that will leverage our community knowledge to provide a better product for our consumers. Local search is just one area in which we see tremendous opportunity.

Our work in audience aggregation highlights the impact of our reach in our local communities, a very important concept for our advertisers. Plus we are delivering our content in new ways and across a wide array of platforms to benefit both users and advertisers. And we have the ability to deliver to a mass audience as well as target specific demographics and interest groups for robust product mix. Listening to our advertisers and consumer and delivering what they want is the driving force behind creative new approaches to our advertising and online effort.

Hyper local print and website geared toward specific communities, websites that engage in citizen journalism, conduct community forums and story chat focus on youth and prep sports and covering breaking news with video developed by our own newspaper-based video journalists are just some of the products and platforms that we are developing. They are creating some very, very good opportunities for us.

Now turning to our results for the quarter, the broad trends we highlighted at the mid-year media review continued in June. As you saw in our release this morning, Gannett earned $1.31 per diluted share this quarter in line with our expectations. Overall our reported operating revenues for the quarter totaled over $2 billion and we generated over $600 million in operating cash flow. A variety of factors including the full consolidation of Detroit, our asset swap with Knight-Ridder and a stock compensation expense had impact on our revenue and expenses for the quarter. Gracia will walk you through in more detail in just a few moments.

Our domestic community newspapers generated revenue growth particularly in the local and classified categories. Real estate ad demand drove the growth in classified, while auto continued to lag. Our digital efforts in niche publications contributed strongly to that growth. As anticipated, our June results softened in comparison to May which were the best for the year.

Geographical divergence, which for us meant stronger results in the far West and South, continued among our domestic markets. After a slow start in the first quarter USA TODAY's ad revenues were up almost 1% in the second quarter. They face tougher comps, particularly in the auto in the second half and visibility at this time remains very limited.

Positive results in the U.S., however, were particularly offset by soft ad demands in the UK which persisted in June, although we are beginning to see some stabilization. Given the strong cost control in the UK we will take full advantage of their operating leverage when ad demand returns. Our broadcasting segment generated solid revenue growth for the quarter as expected benefiting primarily from strong political and issue-related advertising and online growth. Based on the strength of our local stations and their markets, we are well positioned for what we expect will be a very robust election season.

As I mentioned, we are focused on continuing to substantially expand our digital business and as a result we delivered strong online revenue growth. Online revenues for the total Company were up about 29% for the quarter. Our domestic community newspapers contributed to that growth with increased online revenue of 27%. Online growth, revenue growth in our broadcasting segment was up 63%, and USA TODAY.com grew 21%. Our latest monthly numbers for June show our domestic website had about 22 million unique users and reached over 14% of the Internet audience.

In the UK Newsquest on lines audience totaled 3.5 million unique visitors with 46.1 million page impressions. In addition, the CareerBuilder network continues to generate growth in revenues, up 42% compared to the second quarter of 2005. Traffic for the network increased 16% and averaged over $22 million for the second quarter. With our niche and non-daily publications we were able to deliver targeted audiences to our advertisers while broadening our footprint in our local market. Revenue for the local non-daily products, which do not include the Army Times, Nursing Spectrum or Clipper Magazine continued to be strong.

Finally, before I turn the call over to Gracia, many of you are aware that Doug McCorkindale retired at the end of June after a remarkable 35-year career with Gannett. I would like to take just a moment to thank him for all that he has done for this Company through his financial acumen and his leadership, and for me personally through his support and counsel. I am honored to be able to succeed him as Chairman. So with that let me turn the call over to Gracia, and we can move forward.

Thanks, Craig. Before we go into the detail on our quarterly results, of course I need to remind you that our conference call and webcast today may include forward-looking statements and our actual results may differ. Factors that might cause them to differ are outlined in our SEC filings. This presentation also includes certain non-GAAP financial measures, and we have provided a reconciliation of those measures to the most directly comparable GAAP measures in the press release and on the Investor Relations portion of our website.

Turning to the actual business at hand, several factors as Craig said impacted our reported results this quarter. The full consolidation of 100% of Detroit's results affected both revenues and expenses, and also the margin for the newspaper segment. Also on the last day of our 2005 fiscal year we completed the expansion and reorganization of the Texas New Mexico newspapers partnership. Our percentage of the net results of the partnership is now included in Other Operating Revenues rather than fully consolidated in the financial statement. Similar to what we do with the California newspaper partnership.

Also, stock-based compensation expense of a little over $10 million negatively affected our comparison to 2005. And then finally an unfavorable exchange rate tempered our results a little bit in the quarter. Let me fill in some additional details starting with our newspaper segment. Our reported newspaper ad revenues were up 6.4% for the quarter. Assuming we owned the same newspapers in both years, total advertising revenues in the segment increased 3/10 of a percent. On a constant currency basis pro forma ad revenues would have been 6/10 of a percent higher. For the quarter pro forma advertising revenue at our domestic newspapers increased over 2% while ad demand at our UK operations continued to be soft.

At the category level we experienced the same general trends we had been seeing, stronger results in the US compared to the UK, particularly for classified advertising. Domestic classified advertising increased almost 2% compared to a 1.7% decline for classified companywide. Real estate advertising for the entire company was up almost 11%. Again, real estate results at our US community newspapers were up 17%, stronger than in the UK but the UK was also positive. As we noted at the mid-year media review the South and the far West continue to be significantly stronger than other parts of the country.

Turning to employment, advertising for the company as a whole was down over 5% in the quarter. Again, it was stronger in the US stand in the UK where it was negative. In the US employment revenues were up about 1% for the quarter. Automotive at both our domestic community and UK newspapers remained soft, down over 15%. In our U.S. community newspapers auto was almost 13% lower. Again, as we noted at the mid-year media review, we have increased regional and local dealer association spending in some of our markets from Toyota, Nissan and Honda. However, that has not offset the domestic losses.

Pro forma local advertising in the newspaper segment was up almost 3% in the quarter. Across all products the health, financial, restaurant and particularly the home improvement category were quite positive, while the department store, grocery and telecom and a few other categories lagged. National advertising revenue was down almost 1% despite an increase in USA TODAY's ad revenues of almost 1%. Games in the entertainment, financial, telecom, home and building, advocacy and real estate categories at USA TODAY were partially offset by weakness in automotive, travel, technologies, and a couple of other categories.

Focusing on the UK briefly, revenues for Newsquest in pounds were down 6% in the quarter. Newsquest operating profit again in pounds and including several million pounds of expense for staff reductions, was 15% lower. Strong politically related ad demand and online revenue growth drove our broadcast division. Total revenues as you saw for broadcast, including Captivate were almost 4% higher compared to last year. Total revenues at just our TV stations alone were up over 3%. Local ad revenues increased 4% while national was flat for the quarter.

Looking ahead, the latest pacings for the third quarter overall are up in the low single digits compared to last year's third quarter. However, we anticipate political will pick up strongly in the latter part of the quarter, and those dollars are not committed to close to air time. So they are not reflected in the pacings that we shared with you today. That is how we're pacing at the moment, although pacing can be volatile as you know. We will keep you updated in our monthly report.

All of the items I mentioned at the beginning of this had a significant impact on the quarter from the expense side as well. So as we done in the past, let me try to sort it out for you. As I mentioned, stock-based compensation for the second quarter was $10.3 million. About $6 million was allocated to the newspaper segment, about $1.3 million to broadcasting and $3 million to corporate. The charge after tax was $6.4 million or $0.03 per share. In fact, excluding stock-based compensation expense our EPS would have been flat year-over-year.

Overall, our reported expenses are up 9.5%. However, again excluding stock-based compensation, and on a pro forma basis, the company's cost increased 1%. Looking at expenses for each of our businesses, in the newspaper segment our reported expenses were 9.8% higher. However, on a pro forma basis and that is assuming we owned 100% of Detroit and the same complement of properties in the second quarter of '06 as well as '05, newspaper expenses would have been up slightly over 1%. And excluding stock-based compensation would have been less than 1%. Reported newsprint expense increased slightly over 12% comprised of price increases of about 10% and about 2% higher usage. Again, Detroit and other acquisitions had a significant impact on this. On a pro forma basis newsprint expense was up about 5% with usage down 5%.

So let me give you one last cut on the expense side, which you normally are looking for. Pro forma newspaper segment expenses excluding stock-based compensation and newsprint expense, increased less than 2/10 of 1%. In our broadcasting segment operating expenses were up 4.7% on a reported base. Excluding again stock compensation, costs increased 3.4%.

Finally, reported corporate expenses were $3 million higher due entirely to stock option expense. Before I move to the balance sheet I want to provide a brief update on newsprint. Gannett had six month price arrangements covering a substantial amount of our requirements in the first half. These arrangements will continue through the second half. As you know, producers are seeking another $40 price increase effective August first. However, declining consumption and an oversupply in the western US are expected to challenge these efforts. Looking offshore, Chinese producers are adding nearly 2 million tons of newsprint capacity with 75% of that volume coming online by year end. We believe a substantial amount of that tonnage will be exported to North America.

In fact, we are trialing Chinese paper in anticipation that it will be an alternative. Given these dynamics, and as we've said before, it isn't unreasonable to suggest the marketplace is approaching the upper limit on pricing.

Turning to the balance sheet, total debt at quarter end stood at $5 billion and cash and marketables were $134 million. At this point our all-in cost of debt is 5.3% with commercial paper at 5.2%. We issued $1.25 billion of debt in May comprised of $750 million of three-year floating notes based on three-month LIBOR, and $500 million of five-year notes with a coupon of 5-3/4%. Capital expenditures for the quarter totaled approximately $50 million and $91 million year to date, which is in line with our assumption of $240 million for the year.

With respect to shares outstanding, basic shares at the end of the quarter were $236.7 million, and the quarterly average was $237.4 million. We repurchased 1.3 million shares in the second quarter. We continue to balance our share repurchase activity with acquisition activity. Todate we have announced or closed on a little over $500 million of acquisition, including Planet Discover, the California newspaper partnership, WATL in Atlanta and KTVD in Denver. And that does not include funds that will be needed for the resolution of the CareerBuilder situation. We will, however, remain active with share repurchases in the second half of the year.

With that, we will stop and Shannon will open it for questions.

(OPERATOR INSTRUCTIONS) John Janedis, Wachovia Securities.

Just a couple part question on the TV business if I could. Gracia, have your forecasts for political changed at all? And does that low single digit number on the release that you mentioned include the TV stations that recently closed on?

John, first off we have only closed on the Denver TV station, and that literally just closed, so those pacings wouldn't necessarily reflect the new station. The other station in Atlanta we are still waiting for regulatory approval to come. Again, I would say that on the TV side we remain comfortable with the assumptions that we provided at the mid-year media review for the full year of low to mid teens, and anticipate again that political revenues will be very strong this quarter. But again will come in more towards the end of the quarter rather than the beginning, which is the way our budget is constructed and you will see pacings reflect that as the quarter progresses.

Okay, thanks. And do you think from some of the other categories are you seeing any kind of firming in the ones that you mentioned were softer mid-year, meaning auto and a couple others?

You know, John, what we have seen, auto as we reported mid-year was down a bit. We are about flat at this point within the third quarter, which we look at as a very positive at this point. The services sector is up significantly. Home improvement is up significantly. Telcom is doing quite well. Medical and Dental is doing quite well. There are a number of other categories right now that we are feeling okay about, and these that I have mentioned we feel much better about. And certainly when you consider then when the political will come in, which we anticipate as Gracia mentioned predominantly in September, it should round us out to be right into the forecast range that we had. We are feeling very good about that.

Thank you very much.

Credit Suisse, Debra Schwartz.

I was wondering can you just give us an update on CareerBuilder with respect to your options of purchase of class (inaudible).

What I will say is at this time we continue our negotiations in typical Gannett fashion. That is all we will comment on until we conclude.

Also is there a general timetable we can expect?

I would expect that there would be resolution of it by the end of the quarter, certainly.

Okay, great. Thank you.

Lauren Fine, Merrill Lynch.

I'm wondering if you could comment on how sustainable the cost performance was in this quarter, and to future quarters because it was pretty remarkable.

Lauren our expense performance over the last few quarters over and above what it has always been historically, has been very strong. Our folks in the fields have done a great job of based on where their individual businesses stand, making their expense performance in line with their revenue outlook. Obviously as we get into the latter part of the year and we have affirming on the revenue side particularly with political we will see some of the costs associated with that. But we anticipate that we will continue to do the strong job -- that our folks will continue to do the strong job that they have done so far these last few quarters.

I would just add that Sue Clark-Johnson's group really has moved in the proper way from everything that we've asked Lauren, and we're very pleased and certainly expecting that will continue.

(inaudible) our folks at Newsquest.

Certainly.

Have really done a good job there.

And I guess relatedly just if you could comment on how things are going in Detroit, both top line but also specifically on the cost side, how you're doing on improving margins there, at least holding on in view of the tough revenue environment.

Yes, I think you're spot on, Lauren. The revenue environment there continues to be tough with all of the associated auto issues. But on the expense side the team there has really done a strong job, which has enabled us to keep pace with what is happening on the revenue side. As you know, earlier this year they went to a single edition on Sunday, a single masthead, and they've done some things on Saturday. The new press there has enabled them to deal with the people side from a productivity standpoint. So I think that they are doing a good job on the expense side, and you will continue to see the benefits of that new press project on the color advertising side and in other areas over the next several months.

Great. Thank you.

Alexia Quadrani, Bear Stearns.

Just following up on your comments on Newsquest, if you could talk about -- I can see signs of stabilization -- is it a bit more pronounced or encouraging than you had seen in the fourth quarter of last year when we thought we might see stabilization then? And how does the minus 6% revenue growth in the quarter compare to the -- revenue decline in the quarter compare to the decline we saw in Q1? And lastly, can you give us any more details? Is there one component of Newsquest, whether it is the help wanted or one component that might be doing a bit better versus everything else over there?

Yes, Alexia, on the 6% decline in ad revenues in the second quarter, my recollection was that in the first quarter the ad revenue decline was in about the 9% range. But again, we would point out that the comps did get a little easier in the second quarter, and they will get a little easier clearly in the second half of the year. I think while we had given some numbers out in December at mid-year media review we talked a little bit about the fact that the management team there feels that at this point that things have stabilized. That those declines are not getting worse. Now part of that is obviously helped by the comps, but there have been some small positive signs in some of our markets there that give them just a little bit more optimism that we have reached the bottom. But we will -- we are watching that very carefully. We will keep expenses in line, and if that is not the case, then our management team there will do what is necessary to respond to that.

Just to follow on for one second, the one area that we're seeing just a hint of positive in at this point, certainly is in the properties category in the Northeast. And we mentioned that at mid-year, but that as of this month has continued again. And again, it's a little bit unusual because typically we would have expected to see that certainly in the South. But it is a positive, but I don't want to go too far with that. But to answer your question, that is where it is.

Thank you.

Paul Ginocchio, Deutsche Bank.

Craig, maybe just a comment on what you thought of the NBC upfront and Gracia if you can remind us of the TV revenue exposure to PrimeTime early in late fringe, thank you.

I think NBC obviously at this point would be upfront. It has been difficult for them to say the least. Certainly the impact as it has flown down to us from the spot market has certainly had some impact. And they have got to fix the programming issues, and I know that that team is working very hard on it. But I have to say when you take a look at some of the other opportunities particularly on the ABC and CBS side for us, the pickups have been very nice and the kind of programmatic scheduling that we've had. The other to note, Paul, is that when you take a look at the overall late news and how that has been impacted, we have been very blessed in how well we have operated within a very local environment there. And our ratings have maintained or grown. We've also seen further growth to help us particularly in Tampa and in Sacramento and in Little Rock, Arkansas that have had some nice impacts for us. So despite the downside of NBC and what has occurred through the upfront, we have had a number of other offsets that have been substantial for us.

And on the PrimeTime side I think that represents about 30%.

Just over.

A little over 30% of the pie.

Great. Thanks.

Stephen Barlow, Prudential Securities.

Gracia, can you size the cost savings generated from the headcount reductions in Detroit and in the UK? And sort of what the dollar amount of those savings might be as well as the number of bodies that were taken out?

With regard to Detroit just specific to the new press project and what we did as you may recall last year in the second quarter with regard to the severance charge we took, I think they reduced headcount by about 80 folks in Detroit. Obviously we have done substantially more than that, and it is in the hundreds at this point. On the Newsquest side I think it is a similar number over the last year or so. And as to dollar savings, I don't have that right in front of me, but obviously that is reflected in the expense numbers that we shared.

Thanks.

Lisa Monaco, Morgan Stanley.

Can you just elaborate on what you're seeing in newspapers in July? And then just secondly, Gracia, if you can give us any color what we should expect for the other revenue line for the year. Thanks.

With respect to July it is still a bit early to really tell. Frankly, what we had communicated at mid-year is very much in line with what we believe will take place. Overall I think Gracia commented earlier the West in particular has had some very, very good positives for us. But overall we are right where we were with our mid-year comments.

With regard to the Other revenue line there is really three pieces that have been impacting that line. First is the Tex-Mex. We are now, as I mentioned, have those results as a one-line item there. So that will continue for the full year because we didn't do that until December. The other big pieces are Point Roll, which we acquired in June of last year. So a big increase in that line in June but now we will have cycled that. So what you will see is simply the normalized revenue increases, which are quite nice from Point Role in that line. And then what came out of that line in August of last year was Detroit, which was a one line item which as you know is now fully consolidated. So I guess all of that would add up to us probably seeing something more modest than the 8% growth or so that we've seen in the Other revenue line this quarter.

Great. Thank you.

Michael Kupinski, A. G. Edwards.

Thank you for taking the question. A few years ago Valassis and Advo discussed a merger, and a newspaper executive at that time indicated that he would pull his newspaper partnerships with Advo if it proceeded with the merger and apparently concerned about competition. And Valassis has now become a major client of Advo. And I was wondering with the recent merger announcement between the two are you concerned about potential competition, and particularly for your preprinted products for the weekend or Sunday inserts? And what gives you the comfort that Valassis would not use Advo for distribution especially in smaller markets?

Well, first of all we think that the audience has a nice matchup with certainly what we're trying to reach here. And we are as we look to the future here, we are exploring with Valassis more ways to develop additional partnerships that can make sense in some of our markets. And we are in the process of meeting with them over the next several weeks to explore this. You probably know we have some relationships already ongoing -- Detroit and certainly our California newspaper partnership as well.

So you're not concerned that Valassis would use Advo as part of their distribution or more so?

They may do that, Mike, but I think that the audiences we provide to Valassis are important ones than -- uniquely important ones to the ones that they are trying to reach. So we will have discussions with them, but we will see how that goes after those discussions.

Great. Thank you.

Frederick Searby, JPMorgan.

I wondered if you could just give us some color on when you would expect the international CareerBuilder kind of foray into the international markets to actually have an impact and how that is going. I know they just launched the UK and I think India, so it's probably not material now. And just share repurchased, you repurchased -- and I know this is opportunistic 1.3 million shares and should we assume that things will continue in that route? Thank you.

With regard to CareerBuilder overseas, as you said, they are just in the very initial forays into that market. Obviously they see some opportunities, but it is much too early for us to try to put any kind of quantification to what that opportunity might be. We are very focused on continuing to grow our share here in the United States as well, and that is probably the more important piece of the puzzle right at this moment. As to share repurchases, as I said, we continue to balance them against acquisition opportunities. Clearly we've announced or completed over $500 million of acquisitions thus far. We have CareerBuilder to pay for wherever that ends up, and obviously we are looking at a number of opportunities right now. So that will size kind of where we go on the share repurchase front. But as I said in my prepared remarks, we will continue to do share repurchases in the second half of the year.

Thank you.

Christa Sober Quarles, Thomas Weisel.

Obviously real estate costs has been a significant area of strength for you; as you think about going forward to softness in the market, I guess how are you preparing for that? And what are you doing on the online I guess besides Classified Ventures? Are you looking to be more aggressive in your online real estate classifieds?

On the real estate side clearly we are enjoying some very positive numbers on real estate, and anticipate that as Sue Clark-Johnson said at mid-year that we will continue to see good growth in real estate as houses stay on the market for longer periods of time. But obviously there comes a point, and we can't predict when that point will be, it will be a function of interest rates and other things where if houses stay on the market too long then that becomes problematical. So if it is a soft landing with regard to real estate we should be in reasonably good shape. Obviously we continue to be aggressive in ramping up our efforts both on the print sides through outbound calling and other aspects on the classified side, as well as our online efforts. Classified Ventures does a good job for its owners, and we continue to work with them to be more aggressive in finding more opportunities on the real estate vertical as well as others.

Your primary path then here is to continue to go with the Classified Ventures route as opposed to doing something perhaps more aggressive on your own?

We think that Classified Ventures will be very aggressive with these verticals, and we look at all opportunities and will continue to pursue whatever makes the most sense. But at the moment Classified Ventures has done a good job for us.

Okay. Thanks.

James Goss, Barrington Research.

Of the recent acquisitions you've made, such as Point Roll and Planet Discover, I was wondering how do you see them affecting future comparisons both internally and through applications to the various Internet ventures you have. And are you looking for acquisitions of a similar nature to supplement your growth in that space?

We are looking at it from all sides. What we can grow organically here as well as what will complement that growth. Certainly the Point Role side, certainly rich media and what that can mean certainly on the advertising side, the local search with Planet Discover was an integral part in how we can best serve those local communities. And as we evolve if there is a technology that will really enhance future opportunities on the topside is really what we're after. And I think you can begin to see the thread that we are running through each of these businesses and how that will apply across the Gannett Company and ultimately what we are after. I've said it in the prepared remarks, it is all about local. And we are being very, very specific and focused to that in how we can best serve both that ad community as well as the consuming side of the products.

Over what period of time do you expect to have an impact, not only on the rate of profitability, but on the level of dollars that you generate from those areas?

Point Role already is contributing; their growth rate year to date on the bottom line has been over 100%. Obviously that is off a few million dollar base, but still it is a very important piece of the puzzle, and they will continue, I'm sure, to have strong performance. Planet Discover is more the technology part of it, and what it will drive is our local online revenue growth that we are able to achieve and already adjusting some of the things that we're doing. Sue Clark-Johnson reported at mid-year media review I think that our local online revenues are up over 30%. So this will just be another opportunity for us to turbocharge those local revenue growth. But I think it is too early for us to try to put a box around what we think those numbers will be other than to say that over the next three years we intend to very, very meaningfully increase our revenues attributable to the digital side of the business.

I think the real key here, is when you take a look at the local relevance of what we're trying to do, when you look from a search perspective in particular instead of the multitude that you would receive off a national service, what we are able to do is best optimize this product as it would best match that local community. Therefore what we're trying to do then is differentiate within that local environment, and my view is that in the long-term that is going to really produce some wonderful results for us, because of the consumer satisfaction. And then ultimately that will (technical difficulty) the long-term here really grow the top side. That is what we're after in trying to create that better local consumer experience.

Thanks very much.

William Bird, Citigroup.

I was wondering if you could comment on just about what percent of your help wanted ad revenues is online now? And what does print versus online growth look like? And also why the Q2 drop in D&A, and what is your expectation for the year?

Bill, with regard to the drop in D&A in the second quarter, as you may recall in the second quarter of last year when we brought up the new Detroit presses we had some old equipment in Detroit that we had to take the full depreciation hit for. So our depreciation ramped up in the second quarter of last year because of this one-off charge. That is why the depreciation number is lower, although offset a little bit by the fact that we now have 100% of Detroit assets being depreciated through that number and also due to acquisitions. So the guidance that we gave on D&A at the media mid-year review I think still remains the correct range. And as to a breakdown between online and print, we gave you the online growth numbers in the domestic community newspapers and probably over 50% of our growth in -- over 50% of our online revenues in the community newspaper would be from employment upsell. So that gives you some sense of the magnitude of it.

Thank you.

Craig Huber, Lehman Brothers.

I just want to get back to the share repurchase question; you mentioned about $500 million of acquisitions so far. I am just wondering here with the stock at nine year lows, you did about $600 million of acquisitions last year, but you also bought $1.3 billion of your stock back last year. This year you've done $500 million of acquisitions; why are you only spending $60, $70 million on stock buyback with stock at nine year lows? I get that questions a lot from investors, thanks.

The $600 million number you quoted was for the full year, and the $500 million number I shared with you is what we have done to date, plus there is whatever there will be with regard to CareerBuilder. Plus there are potentially some other opportunities that we are looking at that will add to that number. So where that number end up for the year remains to be seen, but I can probably be pretty sure that it is going to be above $600 million. So again, we continue to balance acquisitions with share repurchases. If we believe that the things we are looking at on the acquisition side will ultimately give us a better return in the intermediate to the long-term, then obviously we're going to take advantage of those opportunities. To the extent that they won't we will be active in the share repurchase market. But that is a decision that is made on a daily basis and we'll continue to manage it that way.

I understand all that but the 1.9 billion or so you spent collectively last year, it's a long way from roughly the $600 you've done so far, maybe you'll do some more acquisitions later in the year. But I imagine you would end up net net spending a lot less than $1.9 billion when the whole year is fully done. Is that a fair comment?

I don't know yet. I cannot -- when we came into 2001 we did not anticipate we were going to do $4.6 billion of acquisitions. And a few months later in pretty rapid fire order we did. So I'm not going to sit here today and comment to you on how much I think we will ultimately do in acquisitions this year or share repurchases because again we will have to see what the opportunities are and what makes sense for us to do. We (indiscernible) up $1.2 billion or so in free cash flow and certainly that is a number that we are comfortable reinvesting. And if we think that there are other opportunities that will take us -- compelling opportunities that will take us above that number, then as we demonstrated in the past, we will do so.

But really Gracia the question I guess is, why is all these acquisitions maybe the exception of CareerBuilder better than buying back your stock at nine-year lows? That's the question.

Because we obviously must see in those acquisition opportunities returns that perhaps will give us better opportunities than simply buying back our stock at the moment. That is something that we run numbers on all the time; whenever we're looking at an acquisition opportunity we also look at the share repurchase model, and we model it out for a number of years and whatever makes the most sense for us to do, we will do. We're not just predisposed to doing acquisitions because we want to increase as Doug would have said, the number of pages in our annual report. We are only predisposed to do acquisitions if we think that they will create over the medium to long-term greater value for us.

Thank you.

Peter Appert, Goldman Sachs.

Gracia, two things. First, it definitely looks like the help wanted numbers are decelerating here. I'd be interested in any insights you have on that and any sense that that continues into the second half. And then secondly based on your comments, you think it is reasonable to assume that newsprint cost per ton could be flat in '07?

Well, it probably isn't fair to assume if you think about on the newsprint side whatever piece of the price increase (multiple speakers) would still be some -- we are just going to have to see as we get closer to 2007 where all of these pieces come. But obviously I am not going to rule anything out.

But so we're approaching sort of 680, I guess, 600 something like that, that maybe could be the clearing price you think?

I'm not familiar with 680.

What are you familiar with?

A number that is lower than that.

Okay, and how about your sense of what's going on in the help wanted market, maybe if we are past an inflection point where things are starting to accelerate meaningfully?

I think really when you look at some of the numbers that are coming out vis-a-vis the jobs report, it seems as though we have hit a little bit of a trough in job growth and the like over the last couple of months. And certainly help wanted would reflect some of that. But whether that is the trend going forward remains to be seen. I think we continue to see some of the geographical differences that we've been talking about where we have strong growth in some areas of the country, and obviously in those areas where the economies are more manufacturing or auto based, a tougher time with the layoffs going on in those communities. And then there are some communities where we are where the unemployment rate is so low and the demand for skilled workers so high but the supply so low that it has become difficult for folks. And we are seeing a little less advertising because they're just isn't the skilled employee base out there. But this quarter has been kind of funny because of the Easter switch, and then May was a very strong month on several fronts. And then June; so it has been hard to discern any real trends out of this quarter. We will just have to see where the next few months go.

Great. Thanks, Gracia.

I think that concludes our call for today. And if you have any further questions please give a call to either Jeff at 703-854-6917 or me at extension 6918. Have a great day, and thanks for listening in.

That does conclude today's teleconference. Thank you for your participation, and have a wonderful day.