Tegna Inc (TGNA) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the Gannett fourth-quarter 2008 earnings conference call. This 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 CEO, and Gracia Martore, Executive Vice President and CFO. At this time I would like to turn the call over to Gracia Martore. Please go ahead.

Thanks, Paul, and good morning. Welcome to our conference call and webcast today to review our fourth-quarter results. We hope you've had the opportunity to review our press release this morning. It also can be found at www.Gannett.com.

With me today, as Paul said, are Craig Dubow, Chairman, President and CEO, and Jeff Heinz, Director of Investor Relations. Today, Craig will provide an update on our efforts to manage Gannett in this extremely tough economic environment and position the Company for the future. He also will provide a brief overview of our results for the quarter.

I will go into a little more detail on our results, particularly our business segments. I will also discuss our anticipated impairment charge as well as the restructuring expenses for the fourth quarter. We supplied you with a detailed look at our expectations for the quarter in mid-December, so we will keep our comments brief this morning. Craig?

Thanks, Gracia, and good morning, all. Like virtually every other business, Gannett's results for the fourth quarter reflect the unprecedented turmoil in our economy and financial markets. The ongoing softness in our real estate markets, slowing auto sales, job losses, and weak holiday sales took their toll.

Even so, Gannett continued to innovate and transform our core businesses while at the same time managing through the cyclical downturn. This twin focus is a key to our strategy and will, I believe, serve us well over the next several months as we face the global economic downturn and position ourselves for any recovery.

Today, I want to talk to you about our efforts on both of these fronts, while highlighting our ongoing innovation, an important acquisition, and our overall progress. First, let me tell you about our industry-leading innovation changes in Detroit.

As we have noted on a number of occasions, we truly understand the changing media landscape and the consumers' desire to access content across multiple platforms. This is at the heart of our Detroit transformation.

For those of you who don't know, we operate under a Joint Operating Agreement in Detroit. We own the Detroit Free Press, and Media News Group owns the Detroit News. Due to a combination of factors, namely a two-newspaper market and a very trying regional economy, we had to fundamentally change the way we deliver our content.

Using a very research-based, customer centered approach, the managements of the newspapers evaluated the market, talked to our readers and advertisers, and tailored a series of significant changes to meet these needs. The goal is to deliver what our customers want and what advertisers need while significantly reducing production and distribution costs.

Beginning in this quarter, we will be offering a wider variety of digital information channels in Detroit, while continuing to provide home delivery of the newspaper on Thursdays, Fridays, and Sundays. Subscribers will have access seven days a week to improved daily electronic editions that are the exact copies of each day's printed newspapers and can be easily printed and navigated. Printed copies of the newspaper will be available at newsstands seven days a week.

Many Detroit advertisers have indicated their support of these efforts. I encourage you to access at www.freep.com -- that is f-r-e-e-p-dot-com -- to track the progress of these changes. This is a bold step and I applaud the Gannett leaders that are making this happen.

Transformation is taking place on many other fronts as well, including the cornerstone of the Gannett Company, our content. Gathering and distributing reliable and relevant content is what it is all about for Gannett and will be a key to our success in this transformation.

Our ContentOne initiative announced in December will fundamentally change the way we gather, manage, and use that content. Improving the efficiency of content development and our ability to more effectively share our content across properties and platforms are our initial goals.

We will do that by working to eliminate duplication, which will give our journalists the ability to focus on quality and deep local coverage. One aspect of that will be managing major event coverage, both to be more efficient but also to be more attractive to national and local advertisers.

We used the inauguration as a very early test and found both strengths and challenges. Our next test most likely will involve sports as we ramp up the project.

ContentOne's major innovation ultimately will be the decoupling of the content solely for use in our news and information platforms and valuing that content for sale outside of Gannett. Viewing and managing our content as a product is a key goal of this transformation.

On the digital front, we announced the purchase of Ripple6 in the middle of the fourth quarter. Ripple6 provides publishers and marketers with a proprietary social media platform with which they can build online communities.

The platform has many unique aspects which make it easier for members of those communities to more simply communicate and share information. It also provides deep and rich analytics to publishers and advertisers seeking to understand the value of that interaction. Finally, it allows brand managers to recruit people in their communities for research and focus groups online, creating new revenue streams for online publishers.

The consumer's interaction with content is changing continually, and social networking is just one example how that interaction is evolving. These online communities are becoming more prevalent and entrenched; and we want to be in a position to benefit from them. Ripple6 will help Gannett achieve that goal, just as it will help marketers and other publishers as well.

We also experienced some firsts in our content distribution in the quarter. Our folks in the digital and at USA TODAY developed a USA TODAY news application for the iPhone that went live in late December. The app features the latest from USA TODAY based on the standard sections of news, money, sports, and life as well as tech and travel. A weather section based on GPS is featured, along with updated sports scores and schedules, photo galleries, and user polls.

It also is a new and innovative way for marketers and advertisers to reach a very desirable audience. The USA TODAY app is getting great user reviews and has become one of the most popular for the iPhone, according to the Apple folks. It became the number one free news application soon after it was released. Last week, it ranked 58th among all free apps, and it has climbed steadily since to as high as sixth, a significant accomplishment considering there are over 15,000 individual apps available for the iPhone.

Also in December, USA TODAY became available on the Amazon Kindle. We have seen solid response from a strong brand on yet another platform.

One other note regarding USA TODAY. They are in the process of changing the business model for the international edition. USA TODAY will publish the final international edition next week. However, they are in discussions with our partners to move to a licensing model in which USA TODAY editorial staff will produce the content, while regional partners would pay a per-copy fee to print the newspaper and sell their own advertising.

While we are transforming Gannett through innovation, we are at the same time using the same methods to manage our costs during this recession. We are assessing our costs from top to bottom, working to save money while delivering value to our customers.

Unfortunately, that required some very tough decisions during the quarter regarding the size of our work force and operations. This restructuring resulted in a severance charge of roughly $56 million.

We continue to centralize and streamline our operations. We announced furloughs for the first quarter of 2009 as a preemptive effort to limit expenses while working through the economic slowdown and assessing the coming year. Furloughs were the least invasive to our operations and the fairest to our employees, while addressing the financial challenges that we and most companies in the US and abroad are facing.

One final item to discuss is our annual goodwill impairment testing. We are nearing the end of that process and expect to take a non-cash impairment charge in the range of $5.1 billion to $5.9 billion pretax, or $4.5 billion to $5.2 billion after tax, reflecting the writedown of goodwill primarily. The impairment reflects the decline in ad demand and business conditions stemming from recessions both here and in the UK, as well as the decline in equity valuations generally and our stock price specifically.

These are non-cash charges and do not, however, impact our ability to manage our business, pay down debt, or affect our ability to borrow in any way.

As a reminder, in the fourth quarter last year we recognized a non-cash impairment charge of roughly $51 million after-tax. We also had an after-tax severance and facility consolidation cost of approximately $24 million.

Before we turn to our results for the quarter, it's important for you to focus on the fact that Gannett is in a solid financial condition. We are profitable and generate substantial free cash flow. At the same time, we are pressing forward to transform Gannett and position it for the future.

Now, turning to the results for the quarter. Preliminary earnings per share were $0.69. Excluding the restructuring expense, they would have been $0.85 per share. Our operating revenues totaled $1.7 billion.

Total expenses including severance expenses were $1.5 billion, slightly lower than last year's fourth quarter. However, pro forma expenses, excluding severance expense in both years and the impairment charge in the fourth quarter of 2007, declined over 6%.

Operating cash flow was about $328 million for the quarter.

Our results reflect the stalled economy both here and in the UK primarily and its impact on advertising demand. We did, however, benefit from the politically-related spending and solid results in the digital segment.

In our publishing segment the advertising revenue trends through November we noted recently were slightly better in December. There was improvement in some categories; but overall, we finished the quarter in line with our results through November.

Circulation revenue was down in the low single digits. However, circulation revenue domestically was relatively flat for the quarter but up in November and December.

We benefited from the price increases as well as demand for election day coverage, particularly at USA TODAY. An additional 400,000 copies of that edition sold, bringing total circulation to roughly 2.8 million.

Political revenue helped to boost results in our broadcasting segment. We exceeded our projections for the fourth quarter of 2008, with political spending totaling about $58 million. As anticipated, our stations in Denver, Minneapolis, Cleveland, St. Louis, Washington, DC, Atlanta, and Phoenix saw significant political advertising.

Broadcasting revenue was up slightly for the quarter. Television revenue, which excludes Captivate, was up almost 2% for the quarter. Online revenue and broadcasting was up about 7% in the quarter.

However, several ad categories in broadcasting were under significant pressure, and we expect to continue into the first quarter. Based on our current outlook and results to date, we expect television revenue to be down in the mid teens in the first quarter of 2009.

Moving to the digital segment, this is the first quarter in which CareerBuilder has been consolidated for the entire quarter. As I noted, we acquired Ripple6 in November, so their results are included in the digital segment in addition to CareerBuilder, PointRoll, ShopLocal, Planet Discover, and Schedule Star.

Reported digital segment revenues totaled $170 million, while operating expenses were $146 million. Operating cash flow for the segment was just over $34 million due to solid results for CareerBuilder, ShopLocal, and PointRoll.

We continue to carefully invest in our digital businesses. On a pro forma basis, assuming CareerBuilder and ShopLocal had been fully consolidated for all of 2008 and 2007 fourth quarters, operating revenues in the digital segment would have been 1.4% higher; operating expenses 5% lower; and operating cash flow would have increased almost 64%.

In order to help you better understand CareerBuilder results, we will start with what has typically been shared with you in the past, CareerBuilder's network North American revenue. This is comprised of total revenue from CareerBuilder's own sales efforts in addition to the revenue from the network of owner affiliated newspapers. CareerBuilder network North American revenue for the fourth quarter totaled $163 million, an 11% decline from the same quarter in 2007.

Over 80% of the total came from CareerBuilder directly, while the balance was derived from the owner affiliated newspapers, ours as well as Tribune and McClatchy. The decline was due primarily to fewer upsell opportunities as print employment advertising continued to fall.

CareerBuilder's own directly sourced or generated revenue was up about 2% compared to the fourth quarter of 2007. Average network traffic visitors in December -- CareerBuilder network traffic jumped 24% and it increased 6% for all of 2008 compared to 2007.

For consolidation purposes, we included CareerBuilder network revenues, less those revenues for CareerBuilder already accounted for in our and other companies' publishing segments.

On a pro forma basis, assuming CareerBuilder had been consolidated for 2007 and 2008, revenues rose 3% for the quarter and 14% year to date.

Aggregating online revenue company-wide, including online revenue generated in our publishing and broadcasting segments, total online revenue in the fourth quarter was over $260 million. On a reported basis, online revenue company-wide was $684 million.

If we had consolidated CareerBuilder for the entire year, online revenue would have been about $1.1 billion.

With that, let me turn the call over to Gracia.

Thanks, Craig. Before we go into detail on our quarterly results, 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.

This morning, I will provide some additional detail on our publishing segment, our expenses company-wide, and give you some detail on the severance expense and its impact. Finally, I will cover some of our non-operating and balance sheet items.

Let's first go to publishing, where the global economic, recession as we have noted, continued to pressure advertising demand throughout the quarter. Advertising revenues declined 22.7% as ad revenue was 17.7% lower in the US and 29.3% lower in the UK on a constant currency basis.

Overall, retail was about 14% lower; national down about 18%; and classified down about 37%. As Craig noted, December's results overall were better in comparison to November's results both in the US and the UK.

Retail advertising continued to be soft in December, although it improved relative to November. In the US across all of our products in retail, the majority of the decline -- similar to the third quarter -- was due to continued weakness in the department store, furniture, and telecom categories. However, financial performed well in the quarter, as it did in the third quarter.

Lower advertising demand at USA TODAY drove the decline in national advertising in the quarter. The telecom, financial, and advocacy categories all grew; but the gains were more than offset by softer results in the entertainment, automotive, retail, and travel categories.

Moving to classified, the trends in U.S. Community Publishing classified advertising we noted for the first two months of the quarter continued in December. Classified advertising was down roughly 31%, consisting of declines in auto, about 26%; employment, about 47%; and real estate, about 33%. Again, we continue to see more softness in our classified categories in Arizona, California, Florida, and Nevada, relative to our other markets.

In the UK, the current economic picture is similar to ours here in the US, although the downturn occurred later but much more quickly. In fact it was announced last week that the UK is officially in recession, with the economy contracting by 1.5% in the last quarter of 2008, the worst performance in more than 28 years.

Results for Newsquest -- and for that matter, the rest of the regional press in the UK -- pointed in that direction for most of the year. However, Newsquest advertising revenue during December was consistent with November's trend. The management team at Newsquest is continually assessing their expense structure and working to align it more closely with business conditions.

Craig covered the broadcasting and digital segment detail. So let me move to the impact of severance expenses on each of our segments in the fourth quarter.

We continue to be very disciplined and focused on transforming our expense structure in every way possible. As a result of those efforts to restructure, we had severance expenses of roughly $56 million in the quarter, with all of our segments experiencing some level of expense.

The majority of it, about three-quarters, was in the publishing division; roughly 10% was in broadcasting and corporate; with the balance in the digital segment.

We expect the impact of these efforts to be about $190 million in annualized compensation expense savings.

As you also saw, we announced one-week furloughs for the first quarter. Although we expect significant savings from them, it is a bit early to quantify it for you. We will provide an update when we report our first-quarter earnings.

Now moving to expenses company-wide, total reported operating expenses were down slightly in the quarter. We had severance expenses in both quarters of 2008 and 2007, and we also had a small impairment charge in last year's fourth quarter. So if you exclude the severance expenses in both years and the impairment charges, our pro forma expenses were 6.3% lower.

Operating expenses in the publishing segment fell almost 11%. Excluding severance expense and impairment charges, operating expenses were actually 6.8% lower. Our efficiency and cost control efforts, although offset partially by higher newsprint costs, drove the decline.

For the fourth quarter, newsprint expense was up 2%. A 19% decline in consumption was more than offset by an increase in usage prices of over 26%.

Focusing for a moment on newsprint and where we stand currently, newsprint prices turned lower in the fourth quarter of 2008 and continued to fall as suppliers experienced a global decline in demand. Suppliers are also facing orders at anemic levels as a result of lower consumption and higher publisher inventories.

More specifically, a substantial regional price variance continues to grow between East and West in excess of $50 per metric ton. It is unlikely this price variance can be sustained.

Gannett has taken steps to effectively manage our newsprint pricing in recognition of these market realities. We continue to encourage suppliers to work with us and other publishers to establish less pricing volatility, as we all face the weakest economic conditions in memory.

Drilling down a bit more on the expenses for our other segments, broadcasting expenses as reported were relatively unchanged in the quarter and totaled about $121 million. Excluding severance, operating expenses there were actually 4% lower.

Reported digital expenses were about $146 million for the quarter and increased significantly, primarily due to the consolidation of CareerBuilder and ShopLocal for the full quarter. On a pro forma basis, operating expenses there were actually down about 5%.

There were some severance expenses in digital, primarily at CareerBuilder, as well in the quarter. Excluding those severance expenses, the decline was over 6%.

One final note on expenses, corporate expenses were about 19% higher in the quarter due primarily to severance, but were actually down almost 8% excluding severance.

We also had some significant swings in our nonoperating items, so let me provide a little more detail there. The equity income line was about $5.8 million lower year-over-year, driven primarily by the absence of CareerBuilder earnings this quarter, which are now fully consolidated in our numbers. As well, lower results from our newspaper partnerships and additional investment in new businesses like Metromix, Mogulus, and Cozi also had an impact.

Other nonoperating items moved to a loss of $7.7 million this quarter, primarily the result of our minority interest charges for CareerBuilder and lower investment income. That was, however, partially offset by a gain on the partial redemption of our May 2009 public debt and other small asset sales.

Turning to our tax rate, our rate on earnings before severance costs and impairment was lower in the quarter at 25.1%, compared to a tax rate on similar earnings in the fourth quarter of last year of 32.8%. Several favorable state tax settlements; the release of some tax reserves as the statute of limitations expired; and a lower statutory tax rate in the UK all contributed to the lower rate. We expect a more normalized text rate in the first quarter.

Interest expense totaled $51.5 million in the quarter, about 10% lower than the fourth quarter last year, reflecting both lower interest rates and debt balances.

Looking at our debt structure, we finished the year with long-term debt totaling $3.8 billion. As you know, we drew down on our revolving credit facilities amounts sufficient to repay all of our commercial paper. The total amount outstanding under the revolving credit facilities at year-end was approximately $1.9 billion.

We also completed, as I said, the partial tender of our bonds maturing in May of 2009. After the tender, approximately $632 million of these bonds remain outstanding, which will be refinanced through borrowing in the capital markets or under our revolving credit agreements and through free cash flow.

We also have public debt maturing in June of 2011 totaling $500 million; another $500 million maturing in April of '12. Finally, we have a $280 million bank facility that matures in July of '11.

Our all-in cost of debt is about 4.4% at the moment. We expect we will have about $3.7 billion in debt outstanding at the end of the first quarter.

A couple of reminders regarding amendments to our credit facilities. We amended all of them and our term loan during the quarter. We replaced the minimum net worth covenant with a debt-to-EBITDA covenant of 3.5 times. We also reduced the size of the revolving credit facilities to $3.1 billion until the end of this year, at which point they go to $2.75 billion.

At this point, we have about $1.2 billion of capacity under those facilities. That gives us, together with our strong free cash flow, ample capacity to fund our 2009 maturities. And as I mentioned, we have no other debt due until 2011.

The amendments to the credit agreements are included in our third-quarter 10-Q which we filed in November.

Given the economic turmoil and current situation in the capital markets, we will continue to be focused on paying down our debt with that substantial free cash flow we generate.

Updating you quickly on CapEx, they were about $62 million for the quarter, including about $5 million for CareerBuilder, and ended the year at $165 million.

Before we turn the call over for questions, a couple of reminders as we look to the first quarter of 2009 in comparison to the first quarter of 2008. First off, we will go against the toughest revenue comparisons, particularly for the UK. At the same time, the exchange rate for the British pound will be a headwind. It averaged 1.98 in the first quarter of 2008 and is roughly 1.42 currently.

In addition, the first quarter is seasonally the weakest quarter for our digital investments, as some, such as CareerBuilder, will incur significant promotional costs in the quarter.

Newsprint costs are moving down; but we will be up against the lowest prices we had in 2008 in the quarter. As well, we are on primarily a FIFO inventory method.

Results for the first quarter of 2008 also included gains on the sale of land which totaled $25.5 million pretax and $15.8 million after-tax, and some other operating asset sales that we will not have in this quarter.

Finally, we expect to have, as I said, a more normalized text rate in the quarter, in the 36% range. So you will need to factor in all of these first-quarter items as you do your models.

Now we will stop, and Craig and I will be pleased to take your questions.

(Operator Instructions) John Janedis, Wachovia.

Good morning. Thank you. Gracia, on the digital front, I think you said last month that October-November combined was up in the 5% range. With the quarter coming in at that [one four] I'm wondering what you saw in December and whether or not that is carried into the new year. Thanks.

Thanks, John. What we saw coming into the end of the quarter I think was a little bit of a mixed bag. Obviously, at Newsquest and in our US properties, where employment upsells are still an important part of the mix, we continue to see pressure on online revenues as a result of fewer ads to upsell.

Conversely, on the auto side and in the banner advertising, particularly in the U.S. Community Publishing side as well as in Newsquest, we actually saw very, very nice gains. And as well in our U.S. Community side, on automotive we saw a very nice year-over-year gain in automotive online advertising.

Again, CareerBuilder had just a terrific quarter, given the economic backdrop that they had to contend with. As we said, on the CareerBuilder-driven side, their revenues were up very nicely. Obviously, held back by the newspaper upsells or the diminished newspaper upsells there. And then they saw very nice increase, albeit off a small base, on the international side.

So overall, I think we are pleased with where we ended up the year the year on the digital front.

Okay. Just one related question; I'm sorry for the number two. But how much seasonality is there in the cash flow for 4Q for the digital segment?

As I said, John, particularly CareerBuilder, which is obviously the lion's share of our digital segment, they have significant -- as they do every year -- significant promotional spending and advertising investment that they do in the first quarter, which is moderated as the quarters progress during the year. Then in the fourth quarter, that is their most significant quarter.

So in the first quarter, we would expect that on the CareerBuilder side we would be in more of an investment mode; and then as the year progresses we will see that nice uptick in the bottom line and in EBITDA.

Thank you.

Alexia Quadrani, JPMorgan.

Thank you. On the Newsquest business, you have always been very diligent on the cost side in a week ad market. I was just wondering if you can give us some general color on how the profitability of the Newsquest properties compared to your domestic community papers.

And just a quick one on the broadcast business. We are hearing much worse pacings from others, in the mid-teens, the down mid-teens that you suggested. How much of a benefit do you get from the Super Bowl maybe in the outlook?

Alexia, this is Craig. We will see some nice improvement with the Super Bowl. But in general, as I commented, we will be down in the mid-teens for the quarter.

There are some hard-hit categories, particularly that in the auto, in retail categories that have been hit fairly hard.

But we will -- in general, I would say that the Super Bowl will be of help to Dave and the Group as we move forward.

Alexia, on the profit margin question, [viz] Newsquest and our Community Publishing segment, actually Newsquest, through the very strong efforts that the management team there has taken on restructuring and really refocusing and recasting their cost structure, their margins continue to be quite strong and more than comparable with our U.S. Community Publishing margins.

Thanks again.

Despite the fact that they have much more of a focus on the classified side as a part of their advertising total.

Thank you.

Craig Huber, Barclays Capital.

Yes, good morning. My first question, Gracia, about your pension. A year ago, I think it was underfunded by almost $150 million. It looked like a year ago you had about $3.4 billion of assets in the pension portfolio. I have got to assume the pension, like everybody else, probably dropped a good 20% this year in 2008.

Does that mean you guys are roughly underfunded on the pension by roughly $750 million, $850 million? And if that is the case, do you have roughly seven years to get that back to breakeven?

Yes, thanks for the question, Craig. Actually, what you are looking at also includes our SERP, which is unfunded. So if you look at our domestic qualified plan here in the States, obviously it reflects the significant declines that we've seen in the markets last year. And our plan, like everybody else's plan, has been impacted by that.

Our unfunded obligation, though, on that plan at the end of 2008 is going to be somewhere in the $575 million to $590 million range. Obviously, there are a lot of factors at play. There's discount rates; how the market continues to fair; if there is the possibility for governmental relief.

But as things stand today, that number would be funded over the next seven years. And we don't have any cash contributions required in 2009.

So we will just continue to look at it as we always do. We will continue to monitor it and monitor the various factors and see if there may be some thought to doing some discretionary contributions. But we have no required contributions for '09.

Then also, about the dividend, Gracia. I know you have thought about this a lot, you and your Board and your senior management. Is there plans during the first quarter, just given what is going on with the economy, cyclic pressures, etc., to cut the dividend significantly here, to conserve cash to focus on paying down debt?

Craig, I think every company globally is very focused on conserving debt -- conserving cash. I think that you will find -- we had to look at the dividend back in October and I think the Board wisely wanted to see what the impact of a burgeoning credit crisis and more difficult economic conditions would bring.

We will -- the next time the Board has to act on the dividend is in February. And I know that there will be significant conversation around that in the context of where credit markets are, where the economies are, and where cash conservation comes into play across the country.

So we will take that up with the Board again in February and we will act appropriately.

If I could just slip one more in, Craig, if I could just ask you, what percent would you say of your newspapers in the US did you maintain the ad rates on average flat for the year or even perhaps down? Do you have a ballpark number?

Gee, you know, that would be a very difficult one to answer only because the individual ad rates, as you know, Craig, are set by the local markets as we go forward. But on a percent? I couldn't do it right off hand, actually.

Maintain rates?

Yes, maintain or maybe --?

I think considerable.

On a maintenance, yes. On a maintenance basis, yes.

And out of USA TODAY, we would have actually increased rates.

That is correct.

Would you have a sense maybe -- I am asking perhaps how many did you -- percent roughly -- did you actually lower ad rates? Or perhaps maybe none. I just want to hear your answer.

It is almost impossible to answer that question because there may be some newspaper in a couple of different categories that did some things that were specific to a market. I would say overall that we have, as we said previously, maintained rates, or in some cases judiciously increased them.

But this is not a year of looking at dramatic ad rate increases. It is really a year focusing in on gaining market share and doing the right job for the advertiser.

That's correct, yes.

Great. Thanks, Craig. Thanks, Gracia.

Catriona Fallon, Citi.

Yes, hi. It's Catriona Fallon from Citi. Just wanted to build a little bit on Craig's first question about the dividend and cash flow; and maybe jump into some of the other drivers for cash flow.

So, on CapEx, how much of the CapEx is growth versus maintenance? So, what could CapEx become if you decided to cut the growth CapEx?

And then, are you planning to conserve cash on acquisitions and also on common stock this year? Buybacks.

Catriona, I think that we indicated at the end of the year, that with regard to uses of free cash flow, that we would be very focused on paying down debt and that it was unlikely in the short to intermediate term we would be buying back stock.

On the CapEx front, as I said, we spent about $165 million on CapEx in 2008, including a small piece for CareerBuilder since its consolidation.

We have given guidance in December that our CapEx plan including CareerBuilder would be in about the $148 million range. However, that is a plan that we will continue to review as we proceed through the year. I would expect that we would come in perhaps lower, clearly lower than that number.

But it's a little early in the year to forecast where we will end up. But clearly we are taking a look at every expenditure and making sure that the return is there before we spend the dollars, and deferring anything that there are any question marks around.

Okay, great. Just one other that is really quick. On the digital business, definitely margins there were significantly higher than I think what we had expected and what you had guided to. How much of that was possibly due to Ripple6?

And can you give a little bit more detail on the margin for CareerBuilder? Because it looks like the margin there is still lower than monster.com. Where do you think those margins can go longer-term? Thank you.

First of all, we are delighted to have Ripple6 as part of the Gannett family. We think it is a terrific investment and a great management team there that will do very strong things for us.

But quite frankly, it is an extraordinarily small piece of the digital business segment, although we are looking forward to its becoming a much bigger piece of it.

As we said before, CareerBuilder is really -- CareerBuilder, PointRoll, and ShopLocal are really the key drivers in the digital segment. I won't comment on what CareerBuilder's margins are or monster's margins are. I will only tell you that we are very pleased with where CareerBuilder and PointRoll are today.

We acquired as you recall the pieces of ShopLocal that we did not own, because we knew that there was an opportunity there to combine them with some things we did at PointRoll. And we are achieving better results as a result of that.

So right now, we are extremely pleased at where those margins are on all of those businesses. Margins that allow us to continue to grow those businesses as well.

Great, thank you.

Edward Atorino, Benchmark.

Hi. How does your first-quarter guidance compare with January? Is there any sign out there that the checkbooks are beginning to loosen up a little bit after the disastrous start to the year?

You know, Ed, overall, things -- visibility right now, I think, as I commented already, it is just very, very limited. We are not seeing checkbooks just coming open. But we do understand that there is opportunity in the pipeline.

But I want to caution that by saying the visibility is extremely limited at this point; and, frankly, it has been slower to actually come to fruition than we have anticipated thus far. But we do realize and understand there is some business out there.

Any auto business of any significance in there?

Well, auto business as you know has had a very significant decline this past year. It is still down significantly. Right now, Edward, I am not seeing anything that is suggesting there is going to be any near-term ups in that.

Thanks.

Jim Goss, Barrington Research.

Thank you. Gracia, you mentioned that newsprint prices had turned lower in the fourth quarter. I am wondering what sort of trend you are looking at in terms of both prices and the consumption side, because you were doing well there last year. Overall in terms of the costs, between the newsprint issue and the impact of furloughs, are you looking at like a 10% or more decline in overall costs in the first quarter as you look into the period?

Jim, on the newsprint consumption front, we would anticipate that consumption based on a number of the initiatives that we have in place on web-width reductions and consolidations and a variety of other initiatives that I know Bob Dickey and the USCP has and Newsquest and others have -- we would anticipate that consumption would be down more than what you have seen in the fourth quarter.

Looking at all of these initiatives together, both on the newsprint side as well as on the furloughs side, it is just a little early in the quarter to really frame the exact reduction in expenses. A lot is going to depend on where volumes are, where business trends go for the remainder of the quarter.

But you can be sure that we will continue to be as focused and disciplined on the cost side as we have demonstrated over the last several years. We will do all of the right things to make sure that our expenses are in line with the revenue opportunities we see out there.

The other question for you, either Gracia or Craig. In your digital area, how does your revenue mix breakdown between advertising versus service enhancements and widgets and all the other things you've done? Because it seems like you are having better experience than a lot of others are having in the area, and I suspect it is because you are not just ad focused.

Yes, I think that is a fair approach to look at it from, Jim. We in general predominantly I would say have been ad driven. But there are other pieces to this that I think you are very aware, that have come into it really over the last three quarters, that have helped us in some of the other arenas.

I think you are going to see that continue as we move forward. Obviously, right now, CPMs are pressured. I don't think there is any surprise in that on the digital side as we have gone into Q1 here.

Hopefully that will show some improvement; but we are not seeing that at this point. But that is in general where we are at this time.

All right, thank you.

Michael Kupinski, Noble Financial.

Thanks for taking the question. Media General reported yesterday that they are seeing some silver linings in its newspapers, particularly from retail in the first quarter. I was just wondering in terms of what you might be seeing in any signs of stabilization in that category particularly.

And are you seeing similar trends in December continuing into the first quarter? And I have just one more question after that.

You know, Mike, on retail I think it is going to vary market to market. Each company has different markets, different geographic concentrations. So I think it is very early in the quarter to really try to predict any trends or any real strong idea of where things are going, given the limited visibility we have.

I think that we are continuing to do a good job on realizing all of the advertising dollars that are available in the retail space in the markets we serve. But it is just a little too early to be perhaps as optimistic as others. But it again depends on what markets you are in and focused on.

Michael, just to add there, with what our USCP group has done under Bob's leadership, really they are working hard in driving from the national perspective that one-call opportunity. So that we are consolidating and trying to listen to the advertisers as clearly as we can, so that we can minimize the amount of time and effort to purchase across all markets.

So there are lots of efforts from the listening standpoint that we are trying to convert. Frankly, I think as the year goes along we will see some good results from that.

In terms of the first quarter, how is it shaping up in terms of as we relate to the fourth quarter of '09 -- or '08, I'm sorry.

As it relates? I think you are seeing a continuation of really where we have been. Some areas are a little bit better than others, but I would say in general it is not terrific; but as I said a little bit earlier, there is business out there.

I think with the efforts from each of the divisions there's good prospects. But it is not very robust at this point and visibility is just very, very limited.

In terms of the pacing information in the guidance that you have given for your broadcast division, I believe you didn't really have any political advertising in the first quarter of '08, if I recall. I was just wondering if you can break down what you are seeing in terms of local versus national in the quarter.

You know, at this point, let's just say -- first of all, there was I would say in the $5 million range or so in Q1 of political from '08, Michael. I think as you take a look at the way this is breaking down, it is fairly consistent at this point on a percentage basis in the way it is coming in.

But traditionally, national is not going to be quite as strong in this market; obvious from the local efforts that are out there. But that -- and that is fairly consistent as we go forward right now.

Okay. Thank you very much.

I think we only have time for one more question.

Matthew Miller, Invesco.

Hi. If I could just focus on two issues, the headcount reduction and a follow-on to Craig's question about pension. What was the total headcount impacted by the $56 million -- or covered by the $56 million severance charge?

That was about 4,000 FTEs. But I need -- let me double-check that.

Okay, and if I could clarify your response to the pension question. If you have got an unfunded obligation of $575 million at the low end, that is a greater than 10% deficit to your PBO.

The Pension Protection Act of 2006 requires a linear or quasi-linear funding over a seven-year period. How is it that you avoid cash funding in 2009 regarding that issue?

If you have -- we also have some pension credits, so that would help with that contribution issue.

And in fact I have confirmed that indeed it was about 4,000 FTEs across all of our segments.

Is it fair to assume that you would start to linearly fund that deficit in 2010?

Not necessarily. I think it is much, much too early to determine where we are all going to be. A lot has to evolve. But -- and it's a very complicated calculation that you have to do to determine how that funding goes if you have to do it.

So I think it would be difficult for us at this moment to give you really a finite answer as to how you would fund it over those several years.

Okay. Thank you very much.

You're welcome. Thank you.

That does conclude our Q&A session for today. I would like to turn the call back to Gracia Martore for any closing comments.

Thanks very much for joining us this morning. If you have any additional questions I know that Jeff Heinz, who you can reach at 703-854-6917, would be happy to answer them. Or conversely you can reach me at 6918. Thanks and have a terrific day.

Once again, that does conclude our conference call for today. We thank you for your participation. Have a great day.