Tegna Inc (TGNA) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to Gannet's second quarter 2009 earnings conference call. This call is being recorded. Due to the large number of callers if you will limit your -- to one question or comment. We greatly appreciate your cooperation and courtesy.

Our speakers for today will be Gracia Martore and Jeff Heinz. At this time I would like to turn the conference over to Mr. Jeff Heinz, Director of Investor Relations. Please go ahead, sir.

Thanks, Patrick, and good morning. Welcome to our conference call and webcast to review Gannet's second quarter 2009 results. Hopefully you have had the opportunity to review our press release this morning. It also can be found at www.gannett.com.

Before we get started, however, 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 may cause them to differ are outlined in our SEC filings.

This presentation also includes certain non-GAAP financial measures. 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. With that let me turn the call over to Gracia.

Thanks, Jeff. Before I begin I want to remind you that Craig Dubow, our Chairman, President, and CEO, is recuperating from back surgery and won't be joining us today. But I am very pleased to report that Craig is doing well and his recuperation is progressing. We wish Craig a speedy recovery.

But with me today are Bob Dickey, President of US Community Publishing, and Chris Saridakis, Senior Vice President and Chief Digital Officer. They will join me in taking your questions at the end of our prepared remarks.

As you saw from our press release this morning, we had an eventful quarter. I will start by giving you an overview of our results and sort through the several special items that impacted the year-over-year comparisons. Additionally, I will review all of our businesses and some balance sheet items, and then we will open up the call for questions.

As you are all well aware, the economic landscape has not changed significantly from the first quarter, but we have seen some small encouraging signs. The weakness in the global economy has continued and once again this quarter all media companies will have endured the impact of very soft advertising demand. We at Gannett are not immune from that. However, we are seeing some spots in which ad demand seems to be firming up a bit in some categories and in some geographic locations.

As we manage through the current economic downturn, we are focused on several key priorities to position Gannett to take advantage of any economic rebound. First, we have worked to transform our cost structure to better align with revenue potential. Innovative approaches to production, distribution, printing, as well as content management are key areas of focus and are critical to our success.

In addition to strategic decisions we have made as a result of technology enhancements and consolidation of various business processes, we also made some tactical decisions such as our furlough program in the first and second quarter.

Second, we are investing in and continuing to build our digital footprint and properties to be in a better position to capture ad demand when it returns on all platforms, be it print, online, mobile, or whatever combination. Particularly important to this effort are our online verticals like CareerBuilder and our rich media company, PointRoll and as well, ShopLocal.

Finally, with the free cash flow we generate we will focus on continuing to invest in initiatives that position us strategically for the future as well as continuing to pay down our debt. We moved forward on each of these priorities and achieved some significant results in the quarter, though clearly the economy masked some of those achievements.

Now let me quickly highlight some of the results for the quarter. As you saw this morning, earnings per share were $0.30. However, as I noted, several special items in the second quarter this year and last year impacted those comparisons. If you exclude those special items, our earnings per share were $0.46 for the quarter, a good achievement against a difficult economic backdrop.

I would recommend that you review our non-GAAP financial information schedules to more fully understand the impact of the special items on the financial statements. And I think they are the last couple of pages of the press release.

Our operating revenues totaled $1.4 billion and total operating expenses were $1.3 billion. After excluding the special items, company wide operating expenses were down about 11%. But in addition 100% of CareerBuilder and ShopLocal are included in the digital segment in the quarter, so on a pro forma basis, assuming we had consolidated CareerBuilder and ShopLocal for both quarters and again excluding those special items, operating expenses were actually about 20% lower.

Operating cash flow of over $250 million reflects, in part, our ongoing efforts company wide to restructure our business model to in part create efficiencies. As I mentioned, the special items impacted the income statement so I will focus on that before I go into our businesses.

Second-quarter results this year included costs related to the further restructuring of our workforce and facility-related consolidations of $16.6 million pretax or $0.04 per share. Almost the entire workforce restructuring costs impacted the Publishing segment with a very small piece in Broadcasting. Also included were non-cash impairment charges of $47.4 million or $0.13 per share that reduce the book value of certain goodwill and property, plant, and equipment that are mostly included in our Publishing segment.

The charges also included accelerated depreciation expense associated with our initiatives to consolidate facilities.

We also had non-cash asset write-downs totaling $28 million or $0.10 per share that you can see in the other non-operating line. That is related to some small printing assets that are being held for sale. That sale is in process now and we will update you when it closes, which in all likelihood will be later this quarter.

Finally, the other non-operating line also included an almost $43 million non-cash gain or $0.11 per share relating to our debt exchange in the quarter. And I will cover that in a few moments when I update you on our capital structure.

Let me remind you that in addition to our non-cash impairment charges last year, results for last year's second quarter also included a curtailment gain for our domestic pension plans of about $46.5 million pretax, or $0.13 per share. As well, we had severance expenses related to workforce restructuring and also facility consolidations of about $40 million pretax, or $0.12 per share.

Now turning to our segment results, let's begin with Publishing. Revenues there declined 26% in the quarter as all categories were affected by deep recessions, both here and in the UK. Ad revenues in the quarter were 32% lower. However, the exchange rate for the British pound averaged only $1.54 this quarter compared to $1.97 last year, a decline of almost 22%. So if you factor that in ad revenues would actually have been about 29% lower.

We experienced ad revenue declines of roughly 27% for our domestic properties and about 37% in pounds at Newsquest.

Overall, for Publishing the major categories declines were in the mid- to low-20s for retail and national with classified about 45% lower. Advertising revenues, though lower, were somewhat stable throughout the quarter. In fact, trends for some revenue categories improved over the course of it.

Overall, ad revenue declines year-over-year for the second quarter were less than first-quarter year-over-year declines in both the US and the UK, and June was our best comparison month so far this year.

Demand for retail advertising was relatively unchanged here in the US across all products with softness in two important categories -- department stores and furniture. In the UK results in the retail category in pounds continued to decline, although the year-over-year comparison in the second quarter was better relative to the first quarter.

The trend in national advertising, on the other hand, improved significantly over the course of the quarter in the US. June again was the best month for national ads company wide, about 12% lower in the month compared to declines in the mid-20s in April and May. At USA TODAY ad revenue was down about 26%, better obviously than the first quarter's decline. There was strength in the telecom and pharmaceutical categories, but that was offset by softness in entertainment, travel, and auto.

In addition to strong growth in telecom and pharmaceutical in June, entertainment, the largest category in the month, and the restaurant category were also in positive territory. Although classified advertising was lower year-over-year, trends in the quarter showed some improvement as well. The classified real estate revenue comparison trended upward during the quarter and it appears that the other classified categories have stabilized somewhat. However, employment classified has historically been a lagging indicator so we will be keeping a close eye on that.

Company wide the declines in classified advertising were about 45%.

As I previously noted, results this quarter, much like the first quarter, were impacted negatively by the exchange rate. If you adjust for that it would pair the declines in each of the classified categories by about 4 percentage points on average. And that ranges from about 3% in automotive to about 6% in our other revenue classified.

In the UK, the economy remains weak, although the rate of decline is perhaps moderating and there is a sense that things are at least not getting any more difficult. In fact, some statistics announced yesterday reinforced that as British retail sales were higher in June and that the rate of house price declines was at its slowest rate in two years. Ad revenues there in pounds, however, were about 37% lower. Within classified the declines for auto, employment, and real estate have moderated similarly to those in the US.

On the expense side, excluding special items in both 2009 and 2008, total publishing expenses were down over 20%. As I noted earlier, one of our priorities has been to assess our operations thoroughly and drive efficiencies through the use of technology and other innovations. For example, we have consolidated, or in some cases outsourced, the printing of a number of our newspapers and the drop in operating expenses reflects the impact of those kinds of efforts. Furloughs and lower newsprint expense also contributed to the decline.

A newsprint consumption decline of about 32% partially offset an increase in usage prices and resulted in a 27% drop in newsprint expense.

Speaking of newsprint, as we have previously noted, the fundamentals of market supply and demand ultimately dictate all newsprint cycles. Producers announced, but very quickly rescinded plans to raise prices August 1. Last quarter you may recall I reported that there was an east-west regional price variance. That variance has since been replaced by an aggressive price decline initiated by producer efforts to maintain market share.

It has been widely reported that excess North American supplies range, depending on the forecast you look at, anywhere between 1.5 million and 2 million tons. This imbalance has become the leading cause for continued price erosion. Now historically offshore markets represented a release valve for that excess inventory, but that is not the case this year with the global economic downturn. Price declines accelerated recently and we expect more favorable pricing comparisons throughout the remainder of this year and into 2010.

Let me turn to the Broadcasting segment for a moment. Revenues there were 21% lower, reflecting again the impact of the weak economy as well as the relative absence of political ad spend that we had last year. But June year-over-year comparisons in broadcasting also were better than the rest of the quarter. Retransmission revenues tripled compared to the second quarter last year and totaled $14.3 million, virtually all of which flow directly to the bottom line. We are on a pace to exceed $55 million in retrans fees this year.

However, in addition to lower political spending, ad demand for auto and retail continue to be soft and results overall this quarter lagged last year's. Looking to the third quarter, we are going to be going against very heavy political spending last year as well as significant Olympic spending due to our NBC footprint. Those revenues together totaled about $50 million last year in the third quarter alone. But based on current trends, we expect the percentage decline in television revenue in the third quarter to be in the mid-20s. But, again, that is at this moment in time and we will keep you posted if there is a significant change to that.

On the expense side, smart efficiencies were achieved in Broadcasting as well. And combined with furloughs and salary adjustments resulted in a 13% decline in Broadcasting segment expenses, excluding special items.

Then, finally, in our Digital segment revenue was about $142 million, which was significantly higher than the second quarter last year, due mainly to the consolidation of ShopLocal and CareerBuilder. But on a pro forma basis, Digital segment revenues were actually about 18% lower and that reflects the impact of softer employment on CareerBuilder, which had a revenue decline of about 20%.

But expenses were down substantially, about 25%, driven primarily by cost containment efforts at CareerBuilder. As a result, operating cash flow was $27 million in the quarter. That is about a 54% increase or $10 million compared to 2008's pro forma second quarter. Operating cash flow margins in the Digital segment were about 19% this year, almost double the operating cash flow margin last year on a pro forma basis. Positive results at ShopLocal and PointRoll also contributed to the performance in the Digital segment.

Focusing quickly on CareerBuilder, the largest component of the Digital segment. North American network revenue, which reflects their own sales effort as well as the revenue from the network of owner-affiliated newspapers, was down about 31%. The decline, as I mentioned, reflects the employment picture in general and limited upsell demand at the affiliated newspapers. As has been the case in more recent quarters, CareerBuilder's direct revenue was over 80% of North American network revenue.

Finally, it's important to note that although hindered by the economy, we achieved total online revenue company wide of over $225 million in the second quarter and over $450 million year-to-date. As I mentioned, a few special items had an impact on the non-operating section of the income statement. The equity income in unconsolidated investees was $2.8 million in the quarter. If you exclude non-cash impairment charges from both quarters, equity income declined about $5 million.

As I noted earlier, the non-cash gain resulting from our debt exchange offset the non-cash write-down of assets which were included in the other non-operating line. If you exclude those special items, other non-operating income was actually $1.9 million, a $3.5 million decrease from the second quarter last year.

We continue to improve our balance sheet and capital structure during the quarter, so let me discuss that before we open the call for questions. As you may recall, last year we had $750 million in bonds that matured in May of this year. Late last year and into this year through some private transactions and a tender offer we opportunistically bought back $187 million of bonds at a discount leaving $563 million outstanding.

In the first quarter, we pre-funded through our revolving credit facilities the $563 million that matured in May and then paid them off. Additionally, we completed a successful private exchange offer for our 500 million 5.75% notes due in 2011 and our 500 million 6 3/8% notes due in 2012. Holders of approximately 67 million of the '11s and about 193 million of the '12s tendered their notes, or approximately 26% of the bonds outstanding. And as a result we issued at face value 67 million of new 10% notes due in '15 and $193 million of new 10% notes due in '16.

In terms of the gain created by the exchange, the new notes were recorded at fair value, which at the time was about 83% of face, while the old notes were removed from the books at historical values, which approximated the full face amounts. So that difference between the two of $43 million was recorded as a non-operating gain and on the balance sheet this is reflected as a discount against the new bonds. The discount, of course, will be amortized over the life of the new notes.

So at the end of the quarter we had approximately $433 million in bonds maturing in '11, $307 million of bonds maturing in '12. In fact, the bonds maturing in June of 2012 represent our next debt maturity. At the end of this quarter our reported total debt was just a shade over $3.5 billion. That is a decline in the balance of $223 million due to pay downs from our substantial cash flow and the debt exchange.

Since year-end our debt balance has declined approximately $308 million and our all-in cost of debt right now is about 3.8%. As I noted, we have no maturities for the remainder of this year, none for all of 2010, and none for the first half of 2011, almost two years from now when we have a $280 million term loan and roughly $433 million in bonds maturing. We have generated significant operating cash flow, $252 million in this quarter alone and $482 million year-to-date, despite the worst economy in 80 years. And we will meet those obligations through cash flow or other borrowings between now and when they are due.

In addition, we have ample capacity under our revolving credit agreements. But in the interim, as we always do, we are looking at ways to continue to opportunistically diversify our debt as the credit markets have begun to thaw a bit.

Finally, we continue to invest in our businesses as well, and CapEx for the second quarter was $14.3 million and $33.2 million year-to-date. With that I will stop and all of us will be happy to take your questions.

(Operator Instructions) Alexia Quadrani, JPMorgan Chase.

Thank you. Gracia, I think you gave us the number for the June ad revenue declines for national. If you could give it to us for total June advertising revenues and the other major components, and also give us some color on how July is trending.

Sure. Why don't I ask Bob to comment on US Publishing while we pull out those June numbers?

Certainly. At this point in time, through the first couple weeks of July we are encouraged that across all of our segments they are responding very similar to our June and second-quarter performance. We take that as an encouraging note since we, as reported earlier, had our strongest month of the year in June.

Alexia, on a reported basis in June total advertising I said was down about 29% and retail was down in the low 20s, national down about 12%, and classified down about 43%. And then on the domestic side, if you exclude Newsquest, total advertising was down about 24% -- about 20% in retail, 10% in national, and 37% in classified.

Okay, thank you. And just a follow-up on USA TODAY, can you give us some comment on the circulation revenues there? And then any new successes in signing a new hotel chain? I think you alluded to that in the last call.

Yes, we did sign that chain. But, obviously, circulation numbers are going to continue to be under pressure given the business and consumer travel market. I think I recently saw some hotel occupancy rates that were in the mid-20s for the US with drops in the high single digits.

You are alluding to obviously Marriott. They have been rolling out their Choice program and we continue to work with them on surveys and analytics. We are in close discussion with them as they begin to analyze their findings and we will have more concrete information on that for you.

We will see, but all indications are at this point that USA TODAY will continue to be far and away the preferred newspaper of travelers. We have got two things there -- travel being down considerably, which is important to USA TODAY, and then we will see how the results of these other factors play out.

Okay. Thank you very much.

Craig Huber, Barclays Capital.

Good morning, Gracia. Two part question; your circulation volume declines daily and Sunday in the quarter, what were those? I think they were down 10% and 5% in the first quarter and year-over-year, but what were they in the second quarter?

Then also can you just talk a little bit about your bank line? How concerned are you that you could potentially trip your 3.5 debt to EBITDA test here by the end of the year? Are you trying to redo that bank line, how many weeks and months?

Sure, I will start with your first question on circulation. Daily circulation from the quarter was down in the 13% to 14% range and Sunday in the 7% to 8% range. But, Bob, do you want to comment on the actions you have taken there?

Sure, right. Overall, the Sunday volume decline is right at our overall budgeted projections for the quarter. We have had some aggressive price increases and our daily volumes are about 3 percentage points softer than we would like to see. Positive side is our revenues year-over-year remain almost flat, so the price increases are certainly sticking.

Our projected losses include in the second quarter some impact from the closing of the Tucson Citizen. We certainly are addressing the ABC changes. We aggressively went after unprofitable routes and extended circulation routes in outer parts of some of our larger newspapers where -- were not supported by our advertisers. And as I mentioned, the price increases.

We have a very aggressive plan to work with our top 30 newspapers the second half of the year and we will be investing several million dollars to drive some volume changes. We are confident we can do that since most of these impacts have been a result of things that we had anticipated and planned for.

Craig, with regard to your question on our revolving credit agreement and our debt covenant, our revolving credit agreements don't mature until 2012. With regard to the covenant itself, it's a 3.5 times. And as we said in our 10-Q last quarter, we -- assuming no, obviously, extraordinary further event in the economy, we anticipate that we will be well within that 3.5 times covenant. I think at the end of the second quarter we will be right around 3 times.

Thank you, Gracia.

John Janedis, Wells Fargo Securities.

Good morning, thank you. Gracia, on the TV side is the $9 million or so of incremental revenue from retrans a good run rate for the third quarter? Does that imply an ad revenue decline in the low 30s? And can you give us some sense of how auto and retail look as we head toward the back end of the year? Thanks.

Okay, on retrans, as I said, our annualized run rate is about $55 million. So I think if you roughly ballpark it and divide it by four that probably gets you pretty close to what the number will be for the third quarter.

I guess there was another question vis-a-vis categories. Clearly, on a preliminary look at July -- again, on the TV side we think that is going to be a bit better than June, which in turn was a bit better than May for us. It appears to us that some of the advertisers that have been sitting on the sidelines are starting to dip their toes back into the waters and auto is showing a little bit of a sign of light. But clearly in the second quarter with the GM and Chrysler bankruptcies and the uncertainty around the dealerships that was a tough category for TV, for USA TODAY, and for virtually anybody in the media space.

And on the retail side, that continues to reflect the lack of consumer spending that we see reported in the numbers. But we feel, I think, a little bit better about what we are seeing on the TV side. When we look at that pacings or whatever of sort of revenue down mid-20s, if you extract out what we call the incremental benefit from Olympics, because not all of that Olympics money is additive, and then you strip out political, that mid-20s number probably is 9% or 10% better than that if you extract out those two big numbers.

Obviously, Dave Lougee and his folks are looking forward to February and beyond next year when they will have the benefit of those numbers and not the curse of having to compare against them as we are this year.

Thanks. Just one follow up then, Gracia. I appreciate it. On the CPM front are you seeing an improvement there year-over-year or do you think we have to get through the political comps to kind of see some of that?

On the CPM side, looking at the upfront it looks like that the pricing there, the CPMs there for the networks seem to be coming under some of the price pressure that our local stations have already experienced earlier in the cycle. So I think our feelings on CPMs is that at worst it's probably going to be neutral on the TV side. There may be an opportunity for a little bit of a positive if dollars shift back into the local stations and create more underlying core demand.

Thank you very much.

Peter Jacobs, Ragen Mackenzie Research.

Gracia, could you please go over the comments on newsprint pricing again? I am just trying to get a better sense of where newsprint is running in terms of a percentage of your operating costs and what kind of decline, if we quantify that, that we might see from now to the end of the year.

Yes, as a percentage of our operating costs traditionally newsprint -- Bob, correct me if I am wrong -- depending on where we are in the newsprint cycle it has been anywhere from 15% to 20% of our operating costs in the newspaper side. As I said newsprint prices, the declines in prices have accelerated fairly dramatically over the last couple of months.

And in fact, prices towards the end of the second quarter were lower than what we saw in the year earlier. So we anticipate we are going to see some very good follow through on the newsprint expense side as each quarter unfolds. It's hard for me to give any projections other than to say that in the third and fourth quarters newsprint prices, unlike in the first and second quarters, will be the below last year in addition to the consumption reductions that are already in place.

Thank you.

Jim Goss, Barrington Research.

Good morning. One thing I wanted to ask about was the seasonality of the Digital businesses as currently constituted in terms of both the revenue and operating earnings lines. Partly with regard to CareerBuilder, perhaps that has more of a cyclical than seasonal nature? Maybe tackle that first.

Sure, Jim. On CareerBuilder it's, I think, more focused on the expense side of it. As we have said previously, typically their heavy promotion and heavy marketing dollars are spent earlier in the year in the first quarter including the ads that they do on the Super Bowl and other things like that.

And then, obviously, there is some seasonality to when folks are looking for new jobs. I think the summer tends to be a quieter time of the year for that kind of activity. Around holidays there typically isn't a lot of folks that are looking to get new jobs. So I think it's more on the expense side that we see the more dramatic differences as the year progresses with less promotion and less marketing dollars being spent than really on the top-line side, other than the normal characteristics you would see, Bob, on the print side.

I would say the same thing, particularly going through the summer. We see that historically. The ball rolls around.

I was also wondering -- Gannett typically with its national breadth of operations has a pretty good fix on the economy from more of a grassroots level. And I am wondering what your feelings are about ad spending in a macro sense as we move into the balance of this year and into 2010. There has already been one forecaster talking about a lower number for 2010, which seems a little bit extreme. But I am wondering what your viewpoint is in that regard as it affects you.

Well, I know that there are some media folks out there who in the last few weeks have called a bottom to the recession. We will leave it to everybody else to call the bottom. I think that as a company and in talking with folks like Bob and Chris and Dave and Dave, there was a sense that in June and as the second quarter progressed that, number one, we felt a little bit more comfortable with the estimates that we were doing, which frankly hadn't been the case for a little bit of time. And, secondly, that we were seeing some brighter spots than we had been seeing.

I think when the year started out in the first few weeks of January there was a lot of gloom and doom, and advertisers had just totally pulled back. I think that we have seen incrementally, particularly here in the second quarter, that advertisers are willing to look at some things.

And Bob and Chris, you might want to comment in your own respective areas. I know, Chris, you have talked to a number of advertisers as you talk with the PointRoll folks and the rest.

We are seeing -- brand managers can't go a full year without marketing their brand. So we are seeing a lot more interest in the second half of planning and budgets, and that is encouraging for us. We see it across from the retailers, even automotive to some extent, the telecom, and the pharmaceutical companies.

So we have a positive outlook today looking at the next two quarters versus what we looked out at the beginning of the year, which as Gracia mentioned was pretty tough and unpredictable. But we are generally encouraged. We do cut across all industries and from a national footprint feel fairly positive that budgets are starting to get coalesced and put to good use.

Okay, great.

At the Community Publishing side what we have seen in the last four to six weeks at the major national retailers' level is a willingness to commit to contracts. It took us most of the year to get to that point, so we take that as very favorable that they are willing to commit to dollars. And the negotiations have been going very well.

At the local level, we are seeing a slight uptick in what we refer to as our local territory sales, working with those individual business owners at the local level. When we bring them sales promotion ideas they are starting to find dollars to support those. We had a major undertaking in June that resulted in about $3 million worth of incremental sales.

The only downside to it is that it comes at the last minute. We are still booking a lot of business in the last few days of the month or towards the end of the week for the weekend, depending on how the retailer feels at that given time.

But obviously, Jim, a lot is going to depend on where the economy takes us. Whether it's a V, a U, an L, a W, whatever letter is ends up following that is going to have an impact. I think what we have seen, both in the UK as well as in the US, is that there is no one monolithic US economy. Every state, every locality, and even within states you can have two very different economic outlooks based on what they experienced over the last couple of years.

So some encouraging signs, but we are continuing to just remain very focused and do the job we need to continue doing.

Okay. If I might, just one other unrelated thing in Broadcasting. Any thought on the impact of NBC's decision in its last hour of prime time programming with Jay Leno? Is the impact on a station group operator like yourself [and several of the] into NBC affiliates?

I was talking to Dave Lougee about that the other day. I think we have gotten even more optimistic about what that actually can deliver to the local affiliates than when it was initially announced. So I think that we are cautiously optimistic that that is actually going to be a positive for the affiliates.

All right. Well, thanks very much.

Michael Kupinski, Noble Financial.

I was just wondering if -- since you are seeing retailers willing to negotiate contracts, I was just wondering is that just for back-to-school or are you seeing longer-term negotiation contracts through the holidays for instance. And if you can just give us some thoughts about the length of the contracts that you were talking about?

It's a mix at this time. We have signed a number of annual contracts that will run through the first quarter of next year. We have signed a number that are just to get us through the rest of this year because they are more comfortable now with some idea of where they think business is headed. And then we have a number of quarterly, I guess we could call them quarterly contracts, shorter-term contracts that tie to specific programs that the retailers are putting together. You are right; some of those are tied to back-to-school.

Okay. Then you guys have had amazing ability to manage your cost down. The SG&A expenses were much lower than I expected, even down below the first quarter. Can you give us your thoughts on that line item for the second half? Was the second quarter a good run rate?

We have obviously all had to make some very difficult decisions. We have taken some actions in the last couple of months on the US Community Publishing side and Broadcast and the like, because we don't know whether the economy is going to be a W, a V, or a long extended L. I think that you will see that we will continue to do the kind of job that we have done as we have restructured our business model in that area. But, obviously, we all want to root for some additional revenue.

Gracia, just a couple of -- two quick, minor detail things. Given the newspaper facility consolidation and outsourcing that you were talking about, do you have any thoughts on the depreciation expense line item for the upcoming quarter or for the year? Then also if there are any updates on the capital expenditures for the year as well?

On the CapEx side, the budget for this year I think was in the $140 million range. That included CareerBuilder, I think, around the $11 million range.

At this point, given how the economy started out back in January, we have taken another careful look at capital spending. And so now I think we are projecting it's probably going to come in that $100 million range. That is more than sufficient to allow us to do all of the projects that will provide us with strong ROIs and to do the necessary maintenance that we need to do. But I think it's going to be in that $100 million range.

I am going to have to have Jeff get back to you on the run rate on depreciation, because there is a bunch of ins and outs that we have got to make sure that we take into account before we throw that number out.

Okay, fair enough. Thank you very much.

Barry Lucas, Gabelli & Company.

Thanks very much. Gracia, you have been very good about providing some color on categories that are showing a little bit of life. Could you extend that discussion to specific geographies and what may be happening in California and Florida and Nevada and Arizona?

I will ask Bob to. He is very close to those communities.

I will look at it from how we are structured in the division. And I would tell you that our Interstate group, which is Indianapolis, Midwest portion of the country, right now is our strongest performer. That is followed very closely by our Western region, West and the Southern region, and in the South that includes some difficult markets in Florida like Fort Myers. At this point in time I would say our Eastern group is seeing the toughest challenges on the advertising front.

Great, thank you. One more quickie, if I could squeeze it in. Gracia, when might you consider or what would cause you to reconsider releasing monthly statistics again?

I think that given the conversations we have and the conferences that we go to that the monthly data is perhaps a little bit less relevant now. The rest of the industry, obviously, has gone to just quarterly data. So I think there is -- I don't anticipate changing that for the foreseeable future.

Okay, thank you.

Scott Marchakitus, Goldman Sachs.

I just have a quick question here. I know you highlighted this in your press release and your comments with regards to the maturities in the '11 and '12 timeframe, but could you get a little bit more specific? Have you given any thoughts to raising -- taking the actions to raise capital either the equity or the convert market or are there assets, non-core assets that could be disposed to raise cash to help reduce the debt levels?

Scott, I think that we have probably demonstrated over the years and certainly within the last six months that we are always opportunistically looking at things. Certainly, we continue to focus on the debt markets and how they are performing. We are exploring a number of things, as we did with the debt extension that we did and the debt tender that we did last December.

So, absolutely, we continue to look at a variety of things. And if appropriate, we will act on those things if it's the right market and right conditions.

As to non-core assets, we are constantly looking at our portfolio, but fortunately at Gannett we are blessed with the fact that virtually all of our properties have done and continue to do a good job delivering a strong bottom line. As I mentioned, we have some small publishing assets in the non-operating line that we are going to be disposing of this quarter. But nothing specific at this moment that we would comment on.

Okay. And just one other quick follow-up. You haven't provided a balance sheet yet. I imagine that will come with the Q. Could you just give us an idea of the net debt position at the end of the second quarter?

Yes, as I mentioned, long-term debt was a little over $3.4 billion at the end of the quarter. I suspect that cash and cash equivalents are probably in the $100 million to $105 million range.

Okay, that is great. Thank you very much.

[Lee Olive], Citi.

Good morning and thanks for taking the questions. Most of my questions have been answered, but just one on the covenant and then one quickly on the bond indentures. With respect to your covenant leverage, I think you mentioned it was around three times at the end of the second quarter, how much is in the denominator with respect to add backs for severance payments?

I think we mentioned that we had, I think, $16.6 million for severance payments. And as our covenant, as I am sure you have read in our revolving credit agreement, indicates that if it's a non-cash charge we can add it back as well on charges like severance costs. We add them into the denominator as we pay them in cash. So at any given moment in time, given the actions that we have taken, that will fluctuate.

I will tell you that in the fourth quarter of last year we had about $55 million of severance expense, which we went ahead and treated as if it was all cash in that quarter. So in the fourth quarter of this year that $55 million will fall away.

All right. So if I simply just did the $3.5 billion on your balance sheet divided by three that is roughly the EBITDA you are using for your leverage [guidance]?

No, because there are other factors. And I think the best thing that you can probably do is to reacquaint yourself with our revolving credit agreement where -- it's a publicly-filed document and it very specifically itemizes those numbers.

Okay, well thank. Thank you very much. Second quick question is to the extent you do have to negotiate with the banks at some point in the future with respect to the covenant, what is the amount or how much security can you grant those banks with respect to your existing bond indentures?

We typically don't negotiate nor speculate on bank transactions on a public call. So I don't think we would chat about that at this point, but thanks for the question.

I think we have got time for one more question.

Craig Huber, Barclays Capital.

Yes, Gracia, just a follow-up here. That down 13% to 14% daily volume number for your newspapers, can you just talk if you would about what you guys are able to -- what you are doing on the ad rate side this year? I think you have talked in the past about flattish, a little bit down in some areas around the country, some categories. But how are you able to maintain, if that is still the case, flat ad rates?

And then how concerned are you, more importantly, as you go into 2010 when you do these negotiations, particularly in the fourth quarter of 2010, assuming these declines continue in the circulation volume front? Thanks.

Bob, do you want to --?

Sure. Our rate structures -- a number of issues come into that or that impact it -- the geography, the type of customer, and such -- and it's a mix across the board. We are seeing with the national retailers some erosion in our pre-print revenue per thousand that is tied to the circulation loss. But we have minimized that because most of the loss is not in the areas in which these advertisers are interested in reaching. Our actual cost per thousand that we are charging the customer is remaining flat.

On the ROP side, in the second quarter we did see some rate reductions but that was because of some of aggressive local promotions we put together. As I mentioned earlier, we generated about $3 million incremental as a result. We went back into the markets with those attractive pricing programs to help the retailers move product and they responded to it. So it was a grow on the volume side and give back slightly on the rate.

Other than that our, recruitment rates tend to hold. Where we are seeing rate reductions really ties to individual negotiations and the total spend. So in some cases we are able to hold a customer's spend, but we have had to adjust accordingly.

What about your outlook here for 2010, just assuming these declines continue on the volume front?

Craig, we haven't even begun the project budgeting process for 2010. I think when we get to that point and when we do a deep dive with each of our properties and we know what the economic conditions are and the like then I think we will be better able to comment on that.

Maybe if I could ask it a little bit different way here. In US Publishing, down 27% in the second quarter year-over-year, how much of that would you ball park was volume declines as opposed to pricing?

My guess is that the vast majority of it is volume declines.

I would say about 80% off the top, if you look at it.

You are inferring roughly 5% erosion on pricing in the quarter?

It's a mix, so it's hard.

As we have always said, Craig, unlike some companies that just have one or two newspapers in their newspaper division, large newspapers, we have 80-plus newspapers. Each one of them has a different mix of advertising in a moment in time, each one has to deal with the conditions of that local market, so we -- just as we don't like to talk about a monolithic US economy, we don't like to talk about the monolithic ad rates. But I appreciate your question and I think --

Can I ask, Gracia, maybe what the range would be then across your 80 papers of the decline in ad rate then?

You know, Craig, I am not sure that that is going to be helpful as much as the numbers that we have already provided you. Appreciate the question.

Okay. Thanks, Gracia.

Thanks a lot, Craig. I think our time has run out and appreciate all of you joining us today. If you have any additional specific questions, please call Jeff Heinz at 703-854-6917 or me at 6918. Have a great day.

That concludes today's conference. We thank everyone for their participation.