gannett 1Q05transcript

GANNETT CO., INC.
FIRST QUARTER 2005
CONFERENCE CALL AND WEB CAST
APRIL 14, 2005

PRESENTATION

Operator
Good day, everyone and welcome to Gannett's first quarter earnings conference
call. This call is being recorded. Our speakers today will be Mr. Douglas
McCorkindale, Chairman and Chief Executive Officer; and Gracia Martore,
Senior Vice President and Chief Financial Officer. At this time I would like to
turn the call over to Ms. Gracia Martore. Please go ahead.

Gracia Martore - Gannett - CFO
Thanks very much, Shannon and good morning. Welcome to our conference call
and Webcast to review Gannett's first quarter 2005 results. We hope you've had a
chance to review our press releases this morning, which also can be found at
www.gannett.com. With me today are Doug McCorkindale, chairman, president
and CEO; and Jeff Heinz, director of Investor Relations. Very briefly, we earned
$1.05 per diluted share this quarter, a 5% increase over the first quarter of 2004's
comparable number of $1.00. This was within the range of estimates provided by
us in mid-March. I'd like to briefly detail a few other areas before I turn the call
over to Doug.

On the newsprint front, producers seeking to raise prices continued to be faced
with the realities of declining consumption and higher inventories. Consumption
levels in the U.S. have declined about 5% year-to-date and inventory levels
remain quite high. These factors moved several paper companies to postpone a
planned March 1st price hike. Gannett has not been impacted by an increase in
the first four months of this year.

Looking ahead, most folks don't expect any measurable change in the current
dynamics. Against this backdrop of reduced demand, producers remained pretty
focused on managing supply. However, similar to last year, the struggle to raise
prices in 2005 will be no less difficult. Attempts to push prices higher in this
weak environment of consumption will most likely result in substantial

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implementation delays and reduced values. As we've told you before, we've
fixed prices with a majority of our suppliers through June of this year.

For the quarter on the newsprint expense side, it was an up a little over 4%,
which consisted of a 8% increase in price mitigated by a 3% decline in usage.
Adjusting for the affects of acquisitions and currency on a pro forma constant
currency basis, newsprint expense was up a little over 3% with usage down
about 3 and prices up a little less than 7%.

In the other expense areas, we continue to focus on prudent cost control. During
the quarter, our reported expenses from the newspaper segment increased
slightly less than 4%. Acquisition, currency and newsprint obviously have a
significant impact on that number. Adjusting for currency and acquisitions and
then also excluding the newsprint component, newspaper segment expenses rose
a little more than 2.5%. This also includes certain higher benefit costs and also
costs related to the continued expansion of our very strategic and important non-
daily effort.

The broadcasting segments reported expenses increased slightly over 6.5%. The
increase reflects our continued investment in Captivate. If you excluded
Captivate from the numbers, expenses increased slightly over 1% for our
television stations.

Turning to the balance sheet for a moment, total debt at quarter-end stood at $4.7
billion and cash and marketable securities were $142 million. At this point, our
all in cost of debt is 3.5%.

With respect to shares outstanding, basic shares at the end of the quarter were
249.2 million and averaged 252.1 million for the quarter. We were very active on
the share repurchase front and bought back approximately 5.3 million shares for
approximately $420 million. In total, between 2004 and year-to-date, we have
repurchased 25.2 million shares for approximately $2.1 billion. We think Gannett
is a great investment.

Capital expenditures for the quarter totaled approximately $53 million. At this
point we're still on track to spend roughly $280 million for the year. One
additional note regarding our non-operating expense area: As we mentioned to
all of you in mid-March, we recognized a non-cash gain for the newspaper
exchange with Morris Multimedia in the first quarter of 2004. The other non-
operating line did not have that benefit this quarter. As well, CareerBuilder
accelerated some of their promotional spending for their very successful Super
Bowl chimp commercials which impacted their first quarter numbers.

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Finally, before I turn the call over to Doug, it would not be an earnings call if I
didn't tell you that the call and the 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've provided a reconciliation of those measures
to the most directly comparable GAAP measures both in the press release and as
well on the investor relations portion on our website. Now I'll turn it over to
Doug.

Douglas McCorkindale - Gannett - Chairman, President and CEO
Good morning all. As most of you will remember at the mini-meeting in mid-
March, we told you that we were comfortable with the then-consensus estimates
in the range of $1.04 to $1.06 per diluted share which, as Gracia said, we
achieved. We also noted at that time that roughly 45% of the first quarter comes
in the month of March. At that point, which was just a couple of weeks ago, our
numbers for the print side in the U.S. were coming in as expected while
broadcast was soft and the U.K. was a little softer than we had expected. In
contrast to the end of the first quarter of 2004 the last two weeks of March in
2005, at least for our community newspapers in the U.S., did not live up to
expectations. March was our toughest comparison month but when we
combined it with the early Easter, we have seen some changes that we did not
anticipate.

We saw a mixed bag of results. For example, Palm Springs had the best month
ever in its history as a Gannett newspaper, while Detroit, as most of you know,
continued to suffer. We think we're going to have to look at the numbers for the
two months of March and April together to really understand the underlying
trend and see if there have been any changes. As you know, we started off the
year reasonably well for January and February, but these last two weeks of
March clearly reflected a negative result. As you saw from the press release, our
operating revenues increased 3.6% and operating cash flow grew 2.6% for the
quarter.

Looking at our newspaper segment, and assuming we owned the same
newspapers both this year and last as we owned in the first quarter, the total
advertising revenues were up almost 5% for the quarter. And this increase is
despite the slowdown in March that I just mentioned. On a constant currency
basis, advertising revenues increased over 4%. Local advertising was particularly
strong in our newspapers increasing over 6% for the quarter. In the U.S., across
all products, the department store category, grocery, health and
telecommunications category were particularly strong while furniture,
entertainment, financial and restaurant lagged last year's results. Classified

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revenues in our newspaper segment were up over 4% for the quarter. Help
wanted increased almost 9% while auto was down almost 4% and real estate was
up over 1%. Automobile advertising, as I mentioned a few weeks ago, globally –
both here and in the U.K.– and across all of our platforms is soft.

Our employment numbers for the U.S. community newspapers increased almost
20% in the first quarter of this year. In March, about 40% of the papers, the larger
ones like Wilmington and Phoenix and Honolulu and Fort Meyers had double-
digit employment gains.

National advertising was up approximately 4% for the quarter. The bright spot
was USA TODAY. USA TODAY's ad revenues were up almost 5% and March
was particularly strong with ad revenue growth of almost 7%. As some of you
may recall in March of last year, USA TODAY's ads revenues were up almost
25%. So that 7% is a very good number going against very, very strong comps.
USA TODAY benefited from positive growth in travel, entertainment,
technology, financial, packaged goods and pharmaceutical categories, while
again automobile was down as well as telecommunications. They both lagged
last year's results.

Our strategy to diversify both our base of clients and our product lines continues
to succeed. For our domestic papers, the non-daily revenue, which doesn't
include things like Army Times and Nursing Spectrum and Clipper, were 21%
higher for the quarter on a year-over-year basis as we continue to launch and
expand new publications.

A number of you have asked about the impact of the Sears/K-Mart and the
Federated May mergers, and as we noted earlier, there is no question that most
newspapers will sustain a revenue hit from one or both of these deals. What we
really can't speculate or quantify about this until we see more of the details from
the consolidations on a market by market basis. Overall, the department store
segment is becoming less and less critical to our success with each passing year.
For example, back in 2001, department stores generated about 22% of the retail
ad revenues. The current run rate for our U.S. community newspapers across all
products is about 19%.

On the internet side of the business, total company revenues in the quarter
increased over 47% versus last year's first quarter. In the U.S. community
newspaper group alone it was up over 63%. We continue to be very pleased with
the growth in our local Web sites both in newspapers and in broadcasting. March
traffic numbers are not yet available for CareerBuilder, but, its traffic increased
43% in February and had a record of 21 million unique users both in January and
February of 2005. We believe March is expected to show similar growth. The

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traffic growth and the Super Bowl ad recognition that Gracia mentioned also
translated into strong revenues in the first quarter. CareerBuilder Networks
revenue was up 88% over the first quarter of 2004 and in March alone it was up
92%.

Turning to the U.K. for a moment, as I mentioned Newsquest results for the first
quarter were softer than we anticipated. Local and national advertising showed
solid growth in March. However, for the quarter, the gains in local and national
were offset by softness in the classified category, again partly due to the early
Easter. Pro forma revenues for Newsquest for the quarter, in pounds, were down
1%.

Looking at Broadcasting for the first quarter: Broadcasting revenues, including
Captivate, declined 2.9%. If you take out Captivate our television revenues fell
approximately 5%. Local and national revenues declined 2% and 12%
respectively. Their numbers reflect in part, obviously, the absence of advertising
related to politics and the Super Bowl, which was on six of our CBS affiliates and
helped a good deal in the first quarter of 2004. They also, though, reflect softer
than expected core business. Again, auto was down and down in the mid-single
digit range for the quarter for Broadcasting.

Similar to our Broadcasting results for the first quarter, our pacings so far for the
second quarter are down in the mid- to high-single digits. Again, this reflects a
significant lack of political advertising which we had last year and some one-
time events from last year such as the “Friends” finale on NBC. At this point, the
pacings show May to be stronger than April and local is stronger than national.
However, the pacings continue to be very volatile and are subject to weekly
change. That's where we stand at this moment. We'll keep you up to date in the
monthly reports as the quarter progresses.

Turning quickly to acquisitions: In March, we acquired a 25% equity interest in
Topix.net, a content aggregation service that continuously monitors breaking
news from over 10,000 online sources and categorizes daily news content on a
number of topics. That's another venture with our friends at Tribune and at
Knight Ridder. Subsequent to the end of the quarter, we announced that we
closed our acquisition of the assets of Hometown Communications. That's a
community publishing company with various properties including a daily
newspaper, 62 weeklies and twice weeklies, telephone directories and a lot of
other niche publications in the states of Michigan, Ohio and Kentucky.

Looking ahead, as I noted, I believe we have to compare March and April
together to get a better insight into the ad environment for the community
newspapers. We'll just have to wait for those numbers to come in and see what

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we're experiencing. As you've heard from our remarks today USA TODAY has
clearly been the bright spot in 2005. And we hope that trend will continue as they
continue to demonstrate the appeal of their brand and the national platform. As
you have come to expect, Newsquest is working to control its expenses in
response to the softer advertising environment and finally our television folks
are clearly facing tough challenges as the year progresses.

I think this quarter has presented some challenges for us but we've posted what
we think are solid results. We continue to expect that we will generate top line
growth that is more than competitive in the industry and maintain our financial
discipline. We'll just have to wait and see how the advertising environment
unfolds over the next few months. Let me stop now and Gracia and I will take
your questions.

QUESTION AND ANSWER

Michael Kupinski - A.G. Edwards - Analyst
Thank you. I was just wondering if you can talk a little bit about your
circulation? Obviously, the trends are down there and at what point do you start
getting a little pushback on ad rates? And if you can just talk about your
marketing plans on that front and if there's any increase in promotional spending
in that area? And then secondly, I was just wondering, if you can talk about auto
advertising? You mentioned it was soft and it continues to be soft. But, are you
seeing any improving trends there? We're starting to hear on the local level that
local dealerships are starting to pick up a little bit and I was just wondering if
you were starting to see that?

Mike, let me turn to the automobile picture and Gracia can comment on
circulation. I hope you're right. We are not hearing any pick-up, or any
significant pick-up, from our newspapers regarding local dealers. The dealers are
telling our newspapers that they have too much inventory of products that they
can't sell and not enough inventory of products that they would like to sell.
Therefore, they're waiting for some help from the manufacturers. So, we're not
hearing any positive news. Keep in mind, and you've followed us long enough to
remember this, a couple of years ago we said we didn't understand what the
momentum was that would keep the advertising strong in the automobile
category.

I think we said that probably at the end of 2002 and yet it continued on and on
and on. I think this softness is going to last a little while. I hope I'm wrong

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because it's a very significant piece of the broadcasting side, as you know, and
obviously important to us in the newspapers. But, as I mentioned earlier, it's also
happening in the U.K. for slightly different reasons. The general answer is there
seems to be a little bit of a saturation of automobiles – and trucks, for that matter
– and not enough buyers to justify the inventory. Gracia, did you want to
comment on the circulation?

Sure. On the circulation side, let me start with probably a real bright spot for us
which continues to be USA TODAY. As you know, they had a price increase
back in September. We anticipated that there would be some fall-off in single
copy sales but they would try to do a good job of replacing that circulation. They
have done a good job and we would hope they'll be reporting for the March ABC
books yet another uptick in quality circulation and in total circulation at USA
TODAY.

With regard to our community newspapers, as Gary Watson has indicated
previously, we're in a transition period coming out of the Do Not Call list. We, as
Gary will say, got lazy in terms of relying more and more on telemarketing.
We're now more focused on other means of selling newspapers whether it is
crewing or kiosks or online or a variety of other things. We also focused on
retention. With the telemarketing orders, we weren't seeing the level of retention
that we had all had hoped for, frankly. Now we are seeing better numbers on the
retention front and that -- that's an important consideration.

So, I think that we are clearly spending more money per order in -- in bringing
circulation. Obviously, we'll cycle that at a point. We're more focused on our
retention efforts. We're more focused on creative ways of bringing customers in
and retaining those customers. We've also focused on increasing the level of
credit cards that are used and that number's in the 17% to 20% range of our
orders. So we feel a little bit better that we're doing more on that front. We're
spending a few more dollars and hopefully we'll see the returns from that over
the next year or so.
But Mike, we still have work to do. The whole industry has work to do. We got a
little too comfortable, especially at the larger newspapers where the Do Not Call
list required efforts that they haven't put in the past. Our smaller newspapers
reacted better and we've just got to do better work in the larger papers.

Jim Goss - Barrington Research - Analyst

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Thank you. Couple of things. One on the broadcast side, you talked about the
weakness in the core product. To some extent, broadcasters will talk about a
crowding out that takes place when the political advertising is there that you
sometimes get back the next year. Obviously, you're not seeing any of that. I
wonder if you can comment on that? And the publishing side, you noted
entertainment was weak at the local papers but it was a bright spot for USA
TODAY. And it seems in general, that national is weak at the local papers but
strong at USA TODAY. Is there something going on where certain categories are
tending to shift to national products rather than local newspapers? And finally,
the thing that Mike just brought up regarding circulation, are you using credit
card charges at all to reduce circulation churn or it's sort of an automatic debit
periodically?

Jim, Let me go first on the broadcasting. Your observation is correct and we do
not have an answer for it. Traditionally, after the political advertising crowded
out advertisers – say the automobile dealers – the automobile dealers came back.
Last year in November and December, they didn't come back nearly as strong as
they traditionally have and they've continued in that weak posture through the
first part of 2005. So, all of the core categories that traditionally come back when
they're crowded out are simply not coming back as strong as they have in past
years. But the most obvious one is automobile. That's 30 plus percent of the
revenue picture and it is not there. Gracia, do you want to comment?

Yes. On the circulation side, Jim, the use of credit cards – or EZ-pay solutions is
what we call them – we're in about the high teens 17% to 20% usage of credit
cards. That number has doubled over the last couple of years. We have some
markets where that's over 50%. But that's clearly a focus that we have – a very
specific focus we have. We're looking to ramp that number up more considerably
because we think that will help with the retention efforts. And then you
mentioned entertainment advertising. I think the difference between USA
TODAY and the local newspapers is that entertainment advertising at USA
TODAY is probably a little bit different than what we see at the local newspaper
side. So I'm not sure there's really a specific apples to apples comparison there.
Yes, those aren't the same thing, Jim. What's happening is one really isn't
reflected in the other. Traditionally, USA. TODAY's ad picture is closer to
Broadcasting than it is to Community Newspapers. This year, USA TODAY is
doing very well while we have the softness in Broadcasting that I mentioned
earlier.

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Jim Goss - Barrington Research - Analyst
Are there any other categories that are causing national to be a strong category
for USA TODAY but a weak category for the local papers?

No, I think some of the weakness you see in the local category relates to USA
WEEKEND which is the primary national category in our local and it's really
apples and oranges. USA TODAY is simply getting very good results on the
national level and it's not that significant on the local level. But, it's apples and
oranges. There's nothing out there that's giving us any signals one way or
another.

Edward Atorino - Fulcrum Global Partners

I’ve got two questions. Would you hazard a guess on newsprint costs for the
second quarter, given the great job you did in the first quarter? And looking at
the TV cost trend, would you give us a look over the next couple of quarters
what the TV cost trend looks like? Was there any front loading in the first
quarter?
Ed, I'll go on broadcasting and -- and Gracia buys more newsprint than anybody
else in the world.


Yes she does.

So she's the expert on that. But no, there's nothing, no front loading. TV costs
were up 1%


Right.

If you take out Captivate.

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Okay.

That as good as they're going to get. I mean, you get an occasional event, a
shooting, or something like that, drives the news cost. But they're totally on top
of that. There's nothing happening on the side that’s out of the ordinary.


Got you.

Do you want to comment on the newsprint?

Yes, on the newsprint side, Ed, we're just going to have to see where this price
increase goes. But, we would expect that the comparison year-over-year will get
a little bit tougher in the second quarter so you could see, with regard to
purchase price, the number going up a little bit year-over-year. But on the usage
side, I think you'll still see the pull-back in consumption that you've seen in the
first quarter, or similar to it, given the conservation measures that Gary Watson
alluded to in March.


Where were you on lightweight newsprint -- lighter weight newsprint.

We have been testing it in a number of our markets. Some of them have had very
good results. Some have not had as good results. It really depends on the mill. It
depends on a variety of other issues. We'll be continuing to look at that and take
the appropriate action there.

Douglas Arthur - Morgan Stanley - Analyst

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Yes, two questions. Sort of the perennial question on the FCC, Doug. Do you
have any updated thoughts given the appointment of Kevin Martin? What does
that do for the delayed deregulation rules? And then secondly, you mentioned
that help wanted was up 20% in the U.S. community papers. What does that
imply or what was the numbers at Newsquest? Thanks.

Let me go with the FCC first. We think that Chairman Martin is an excellent
choice and we were pleased with that decision by the President. His policies, to
the extent that he has revealed them, have been consistently positive in terms of
deregulation and allowing us to participate in the marketplace on an aggressive
basis and face the reality of what happens in today's media world, which is
obviously dramatically different than when, say, cross ownership was passed 20-
plus years ago. On the timetable though, I don't know of anything that's going to
accelerate the present morass that we're in. We're waiting to hear from the
Supreme Court. Depending on whom you believe, most folks think it's 50/50,
maybe a little bit more positive than that, that they'll take the case. If they don't,
it goes back for action by the FCC. I think Chairman Martin has already
expressed positive thoughts on moving it along and -- and possibly taking some
actions that would take some of these restrictions at least off the back of
newspaper companies. But it's going to take some time.

And to go to your employment number, Newsquest was not positive, U.S. was
positive. But as I mentioned earlier, the classified categories in the U.K. were soft
while the local and the national categories were positive and employment was
one of the categories that was soft in the U.K. Interestingly, it's different results
and different parts of the U.K. which, in our experience over there in the last five
or six years is, a first time. Traditionally, the regions have differed maybe
sometimes from the national categories and in the bigger cities like London. But,
what we're seeing now is, softness in the south of England, which is the fastest
growing area, and positive results in the north of England, which is not normally
considered to be the most positive area. We did very well in Scotland on the
employment category. It's becoming a community-by-community result over
there at least for the first few months here of 2005.
The only other piece I would add on that is: Doug's absolutely right in terms of
them being negative in first quarter. We did have a couple of things – with Easter
which we had here, but also that first week of January was a negative week
across the board. So we had a few things that probably impacted it a little bit
more than we would otherwise normally have but Doug's right, it was a negative
number.

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In the U.K., their definition of holiday is -- is wonderful. They tend to have more
of them than are permitted at the Gannett company.

Paul Ginocchio - Deutsche Bank - Analyst
First, based on all the comments on the U.K.. do you think it's accelerating now
or is it still decelerating? And the cost growth number in Q1 looked pretty good
with [inaudible] newspapers, is that sustainable? Then finally, how do we think
about the other non-operating income expense going forward? Thanks.

Let me comment a little bit on the U.K.. I don't know, I think it's going to get a
little bit better. It started off slow, as Gracia mentioned, the first couple of weeks
in January, the folks were simply still on holiday. It's been getting a little better
each month, but it's clearly still a mixed message over there. It's interesting to see
the local and national categories doing as well as they're doing and have
classified – which is really just a variable on the same basic advertising trend – be
as weak as it is. The automobile picture over there is clearly as negative as it is
over here. So, I wouldn't say it's getting any worse. Our people over there know
how to react and how to manage and they will get the best results that we can.
Gracia, do you want to comment on the others?

Well, on the non-operating line, we won't have a gain as we did in the first
quarter of '04 in the second quarter of '04. We will still have our investments in
CareerBuilder, but again the promotional spending that was accelerated will not
be accelerated into the second quarter. There’s a variety of other impacts in that
line including currency and minority interests and a few other things. So, it
probably will not be at the negative level it is this quarter but it will be in
negative territory in all likelihood. Although we'll keep you updated as various
pieces move around.

Paul Ginocchio - Deutsche Bank - Analyst
And, finally, the cost growth, is that current levels particularly the newspaper
group sustainable going forward?


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We would certainly expect so.

Yes. You know how we manage.

Steven Barlow - Prudential - Analyst
Thank you. I've got two questions. What was the price increase in the U.K. for
newsprint for 2005? You said you set the price at the beginning of the year. Just
what rate of increase is there? And then USA TODAY seems to be the topic of
conversation. Can you just talk about travel and entertainment and maybe
financial in terms of the run rate of revenue now versus the peak? Where are
you, above or below the peak in 2000, is a way to put a metric on what the
potential is there to get back the previous levels if that's indeed where we are?
Thanks.

I'll first give you the newsprint in the U.K. We indicated that we had a 6% to 7%
increase in newsprint pricing there and that will be for the full year.

And would consumption be down in the U.K. as well as the U.S.?

Depending on a variety of factors including their advertising results and
circulation and the rest. We'll have to see how newsprint consumption goes.

Yes, Steve, I don't remember the numbers for 2000. I can tell you that travel is up
in the first quarter by about 15%. What was financial? Is that the other one you
were asking? That's 10%.

Entertainment, pharmaceuticals..


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Entertainment is up about 9%. Travel was actually stronger in March than that
15%. Entertainment was a little less strong, financial was softer in March. But I
don't remember the 2000 numbers. I can give you a general feeling that travel
was, probably coming back. Because 2000's obviously four or five years ago and
we've had some 8% rate increases in advertising. So in dollars, even though it is
not up to the volume level that it might have been, the dollars might be up there.
We can find that out and Jeff can give you a call.

Getting back to Newsquest, Steve, specifically for the first quarter: Yes, usage
was down there. But again, we'll have to see. If their ad results pick up, we won't
see that. We have done some Web-width reduction there which will have had an
impact on usage. We'll have to see how the ad side of it goes.

Brian Shipman - UBS - Analyst
Thanks, good morning. I noticed real estate was down 1.1% in March. How
much of that was due to the timing of Easter and what are your expectations for
real estate looking ahead to April in the second quarter? And while you're
thinking about April, if it's possible, could you please discuss what publishing is
looking like in April so far and really I guess for the quarter if you have any
expectations on the top line? Thanks.

Brian. Real estate. I think the major reason for the negative number were the new
homes being built in some of the larger markets like Phoenix and whatever.
We're seeing a slow down in the developers that have been going great guns. The
resale of existing homes has been pretty strong. But a couple of these very, very
large developer categories is the reason we saw that slowdown in March. I don't
know whether that tells us anything other than Easter again and people backing
off. It was a little bit softer than I thought. But we're going to have to see what
happens in April. Generally real estate's okay. But a couple of these big
categories were down.

Can you add any color on large markets versus small markets for real estate?

Well, again, some of the big markets like Phoenix and down south, the new
homes were slower. In the larger markets in the north, there’s really not that

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much development going on. It's more resale. There is some. So, it was mostly
the Sunbelt new home market that was the soft spot.

But in, for instance, the Palm Springs, we saw …

They went nuts.
The new home side of it actually perked up very, very well in March. So, again,
it's kind of a mixed bag and we'll just have to see. Does that mean if Palm Springs
has picked up does that leak over to Phoenix? We'll just have to see.

Palm Springs is absolutely booming, as I said earlier. It's the best numbers we've
ever seen out of Palm Springs and that's been part of the Gannett company for a
long time.

Okay. Any color commentary at all on publishing in April thus far?

I don't have any input. You know, it's only a couple of days into it and I don't
have anything. I haven't heard anything negative on the other hand, as you saw
from the reports we've already issued. Department stores and local advertising
were pretty good. I think a lot will depend on what we see on the automobile
category. But the rest of the business, except for that blip for Easter, I think was
moving along pretty good in the Community Newspapers and, as we've
discussed earlier, USA TODAY is off to a good start.
Christa Quarles - Thomas Weisel - Analyst
Hi. Couple questions. First, on the investment in Captivate, I was calculating
about 5 million additional spending there. Can you just quantify – or indicate – if
that's going to be sort of the level of investment as you go forward on Captivate?
Then on the Internet side, the 47% increase is obviously fairly attractive. Is a lot
of that stemming from price increases? Then related to that, you did another deal
with -- your competitors to some come degree – Knight-Ridder and Tribune on
Topix. Is that your preferred method of acquisition in the Internet space? Then

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finally on the non-traditional revenues of the paper, we had about a $360 million
run rate if my numbers are correct based on your commentary? Thanks.

Let me respond to some of the Internet questions and Gracia can fill in some of
the other pieces. The growth rate that we're seeing in revenues on the Internet is
not directly related to an aggressive price increase. We are simply getting a large
number of advertisers. Some of whom are already in the paper, but some of
whom are new, coming to our local Web site's. We're trying to be the local source
of news and information – and information includes advertising. So we're selling
our brands in each of our markets whether that be television or newspapers,
although it's more obvious in the newspaper category. The response has been
very, very positive. As I mentioned in earlier remarks, I think in the domestic
side in the Community Newspapers, we were up something like 60-plus percent
so when the 47 number includes television as well as what was going on in the
U.K. It's working very, very well at our local newspapers and the U.K. was
already off to a strong start. It has more difficult comps to go. But it's not from
pricing. I mean there is some pricing but most of it is not from that.

And as to our joint ventures we have a wonderful relationship with Tribune and
Knight-Ridder. We've all known each other for ever; we've done a number of
things together. We have simply found it easier when one of us or the other finds
something that is of use to all of us to do it on a tri-party basis because we can
spread the risk – one – but we can also spread the benefit of having it cover all of
the papers or, in our case and Tribune's case, television stations that we have all
across the country. We get great market coverage for all of these new technology
ideas. It simply works well. When you have folks that you can work with and
you can shake a hand with and not have to worry about dotting I's and crossing
T's it -- it makes life pretty simple. So, all of us will do things individually. But
we like to do things together when they're industry smart.

On the Captivate side, Christa, your $5 million number is a pure investment
number – is in the ballpark on that on a pure expense line basis. We would
expect that we're going to be ramping up the elevator builds this year and hope
to end the year at about 8,000 to 9,000 installed. We'll continue to have that kind
of a rate of investment this year, than we'll be looking for that investment to turn
positive hopefully in short order after that. On the non-daily side, I think you're
again in the ballpark in terms of annualized run rate. The $375 million range is
where we have been talking about and that's about where we are. Again, that
excludes things like Clipper and Army Times and Nurse Week.

17

Lauren Fine - Merrill Lynch - Analyst
Gracia, I don't know if you have commented and I just missed it, but could you
comment on the impact options will have in the second half of the year? Then on
the 21% increase in the non-daily revenue, is there a way to brake down how
much of that is from the launch of new publications versus the growth rate of
existing? Then I'm wondering if you could comment if -- on the community
paper circulation revenue, presumably a decline in the quarter, of quantifying
that for us? So stripping out USA TODAY and the U.K. operations?

Lauren, do you think that the stock option expensing is going to become
effective in the second half? We're hearing from a number of sources in
Washington, which in and of itself tells you something by saying that, that it may
not become effective. Have you heard anything to that account?

I've certainly heard that it -- it feels like it's being postponed.

Delayed.

Yes.

Yes. It may not happen until 2006. We're hearing that rumbling more and more
these days but Gracia, do you have any ideas of -- ?

Yes, right at this point we're -- we're continuing to follow. We're still looking for
additional guidance from them which is maybe one of the reasons why they're
looking at deferring it to a 2006 event. But right at the moment, what we've said
to folks is simply use the run rate that we've been including in our 10-Q's by
quarter for the last two quarters. Then as we get closer and as we work through
some of the details on it, we'll be able to give you a better sense. Hopefully that

18

number will be a smaller number than what we're seeing in the -- in the Qs and
the disclosure lines at this point.

Yes, of course we've accelerated those options that were under water so that'll
save us some money. And I don't know, Gracia, whether you -- I don't think we
have a break down, Lauren, of new versus 18 month old versus 12 month old
publications. What -- what we're basically doing them is starting them -- most of
them don't become profitable on day one but many of them have become
profitable sooner than anticipated. If they don't work we -- we terminate them.
But, I don't think we have a break down of those pieces.

No, we take a look at that at budget time. But we just don't track to that degree of
specificity.

Yes, it's about 800 of them. I mean --

Over 800 now.
I think, that it's just simply too much number crunching for not a lot of benefit, so
we rely on the Newspaper Division executives to make the right decisions. They
understand the concept of making money in Gannett and -- and I think they'll do
the necessary. What was Lauren's third question?

It was community paper circulation.

Oh, yes.

On the circulation revenue side, Lauren, it was down in the low single digits.

19

Okay. And then actually just one last one: I guess, notwithstanding your
commentary on the FCC, what's going on with them? Any activity? Are you
finding opportunities either in traditional or in some of the new areas that you've
been investing in?

I think as a general statement, I would say we're finding more opportunity in the
new areas, in the technology area where we're seeing a lot of kind of interesting
things. Nothing big. But a number of interesting possibilities like the Captivate
world and the Topix world and things like that. Not big dollars. In the traditional
businesses, those that I have been talking about forever, they are still – if they're
small and if they're advised by conservative lawyers and other advisors –in a
wait and see. One: They'd like to see what happens at the Supreme Court and if
that doesn't happen, they're going to have to see what happens at the FCC. But I
think it could be 18 months to two years before we get some resolution of this.

I hope I'm wrong. I've been doing this too long. But I was much more optimistic
of logic prevailing a few years ago and clearly that has not happened. So the
smaller operations are just sitting back. Or – I know in the case of a few of them –
they're looking to just maybe sell their properties separately and sell television
separate from newspapers if they happen to own both. We'll talk to all of them.
Some of them have a Footnote 25 exception so that we could buy them and -- and
sit on it. That would have been the case for us, for example, if we had been
successful in Pulitzer. But it's clearly had a dampening effect on traditional
discussions where there are overlaps.

Peter Appert, Goldman Sachs

Hi, two questions please. First the pace of stock buyback activity has been pretty
robust, including this quarter, so should we just assume that the roughly 5
million a quarter is the run rate for the balance of the year? Secondly, in the
context of the general malaise we're seeing in the ad market, the softness in the
second half of March? I'm wondering, Doug, if you're rethinking your
expectations for mid-single digit ad revenue growth for the year? This is on the
newspaper side, obviously.

Peter, good try on the soft buy-back. We'll see. You know we did $1 billion in
buy-back a number of years ago and then did $4 billion of acquisition. If what I

20

just said to Lauren changes and the marketplace changes, we'll go left instead of
right. But, buying back in that stock at these prices makes a lot of economic
sense. It was obvious in the first quarter. And we'll be chatting with our board
about what we intend to do there. There's no special run rate that we build in.
We just do what's logical. And Gracia, do you want to comment on the overall
picture?

I mean, basically we're not prepared to back off from the projections we made. It
started off pretty good in community newspapers. Very good in USA TODAY.
On the other hand, we've had the softness on the automobile classified side and
the unexpected softness in core business on television. Actually our latest book
on television is the best result we've seen ever for the Gannett television stations,
so the ratings are there. It's the market place that's been a little soft. I think when
you put it all together, and especially if April smoothes out this Easter result,
we're okay with what we said.


Okay. One follow up. Gracia, can you remind us what the composition of the
debt is currently so we can get a better idea of the interest rate sensitivity?

Right. We had a $1.8 billion in fixed rate debt. But as of April 1st, $600 million of
that at a 4.95% rate, matured. We've replaced that with commercial paper, so
right now we have about $1.2 billion in fixed rate and the rest in commercial
paper. We are, as you can expect, looking at that constantly and we may do
something as we've seen interest rates back up here a bit. We may do something
there to even that off a little bit more. But, we're looking at that on a daily basis.
And as Doug said, we've got a board meeting coming up and we'll be chatting
with them about that.

Okay. And this is the last thing. Can you give us an early read on what the
March ABC data might look like for the company overall excluding USA
TODAY?

No, we don't have that. Peter. We don't get that in ahead of time. We know USA
TODAY is going to be positive because, to be blunt, I specifically asked Craig
Moon that question, or maybe he volunteered before I even asked it. But we

21

don't get it for all the newspapers. I think as a general statement, we're probably
going to do better than many. At least from what we hear. There are some
numbers out there that are not as -- as strong as we might like. We'll probably be
down a little overall but I think we're going to be down less than many of our
friends in the industry.

Frederick Searby – J.P. Morgan - Analyst
Thanks, Doug and Gracia. Quick question. Are you considering format change at
all? There's been a fair amount of discussion about tabloid, modified tabloid and
some of the other format changes you're trying kind of to combat the weakness
on the circ front and attract the younger demos. I wondered what you're looking
at and what you're thoughts are at this point? Thank you.

We mentioned in New York that we're going to try the Berliner format in
LaFayette which is a college town and has some other interesting characteristics
that we can experiment. So yes, we are trying that. We obviously have a ton of
tabloids in the U.K. and we can compare notes on formatting, printing and all of
that. We'll see. We are experimenting slowly but carefully and, at the same time,
maybe more aggressively than we would have done 10 years ago. You've got to
keep in mind that folks think of their local newspaper as their paper. It may be
owned by the Gannett company, but they don't like you to change their
newspaper. So, you'll have to do it carefully and after some significant research
to make sure you're not alienating the older readers while at the same time
you're trying to attract the new, younger readers. And it's a balancing act, but --
but we will be doing some of that.

And Fred, on our 11 or so, youth oriented publications? Those are in a tabloid
format and that seems to have great appeal to them. We've done very well with
those publications. But, as Doug says, you've got to be careful. That's a market by
market decision and within the market, different products for different folks.

Frederick Searby – J.P. Morgan - Analyst
Can you also help us understand the question of pricing leverage on the help
wanted in classified side? Historically, the thought has been that there's some
pricing leverage when things heat up and the market improves. You're seeing
that clearly in your Community Newspapers. Has the Internet sort of
permanently and structurally attenuated that ability or lessened your ability to

22

raise prices? Or are you in fact seeing some nice gains there as the market
improves?

No, the Internet has probably been a positive rather than a holding back factor
because almost all of our employment advertising, if they want to go on the
Internet, is a joint sale with the print side. It's not forced in the Gannett company,
you can make your choice of going print and/or Internet. Most of the
employment advertisers except on the national scale with CareerBuilder, do not
choose the internet alone, they go with both. So, they do pay the increase that we
have traditionally employed every year on the print employment side and
actually we've been increasing the price on the internet employment side at the
same time. As long as they get results and that's the whole part of the ball game
here, they are satisfied with it. One has not been a negative to the other. We
actually asked that question and look at it in the U.K. too. And Gracia, if my
memory's right, they've actually increased the Internet side a little bit, which is
part of the upsell from the print side. They've increased the Internet side more
aggressively and it's working fine. So, so far, everything is on track.

John Janedis – Banc of American Securities
Hi, good morning. Doug. I know you touched on this briefly on the auto
category, but what do you think you need to see for the category to turn in TV
and print from the manufacturer side? And then quickly, Gracia, on the non-
dailies. How many do you think are going to launch this year? Let's just say,
maybe, the ones you've launched since the first half of '04, are the majority of
those profitable?

On the automobile side, I don't really have an answer for you. As I mentioned
earlier, based upon many, many, many years of doing this – I've been doing it
for over 30 years – we expected the softness to come, as we analyzed the
marketplace a number of years ago. It continued beyond that with, of course, a
lot of discount programs and other incentives. I don't really know what the
manufacturers are going to do. Our input from some of the larger U.S.
manufacturers is not exactly positive. I mean, you can read in the newspapers the
same as we can, what's happening in Detroit. And we're being told they're
having trouble in the truck categories also, so I don't know what they have to do
to change the format.

They are coming out with some new products and new models. And that's good
especially for USA TODAY. And hopefully that will fall over a little bit into the

23

broadcasting categories. And as I mentioned earlier, it is the new, what I would
call exciting products that the dealers want, because the customers want them.
It’s the more traditional, straightforward automobiles that are not selling right
now and I don't know enough about how to run an automobile company to
figure out what they should do. I don't have an answer for you. We're just going
to have to wait and see. But I can tell you we're not getting any vibes that there's
any quick answer around the corner.

With regard to the non-daily products, our folks are going to be launching a
number of new products. As to the exact number, I don't have it off the top of my
head. Frankly, they react to their market places, come up with ideas and we look
at them as appropriate. As to whether a majority of them are profitable after a
year or so, absolutely. We wouldn't have 20% or so margin on the totality of
them if that weren't the case.

We have time for just one more question.

William Bird – Smith Barney - Analyst
Yes, I was wondering if you could talk about any early read on USA TODAY
trends in April and updated thoughts on the tax rate for the year? Thanks.

USA TODAY is moving, Bill, along the same positive status that I mentioned for
the first quarter. Things are going well there. Their pacings, such as they are in
the print side compared to the debt term and how it's used in television, are very
good. I mean they're seeing a lot of good reaction to the brand. They're getting
good results from the hotels. Positive, positive, positive. So, I hope they continue
to do as well as they have and I have no reason to expect they won't.

On the tax rate side, Bill, all things being equal, we would expect it to stay in that
33.5% range. Obviously, the things that could impact that would be the
percentage of our earnings from the U.K. versus the U.S. as well as any deals that
could come up that could change the dynamics of that. But the 33.5% looks like a
pretty good rate, barring any of these other activities.

Operator

24

That concludes the question and answer session today. At this time, Ms. Martore,
I'd like to turn the conference back over to you for any additional or closing
remarks.

Thanks very much for joining us this morning. If you have any additional
questions, you can give a call to Jeff at (703)854-6917 or me and I -- my extension
6918. Have a great day..

Certain statements in this transcript may be forward looking in nature or “forward looking
statements” as defined in the Private Securities Litigation Reform Act of 1995. The forward
looking statements contained in this transcript are subject to a number of risks, trends and
uncertainties that could cause actual performance to differ materially from these forward looking
statements. A number of those risks, trends and uncertainties are discussed in the company’s
SEC reports, including the company’s annual report on Form 10-K and quarterly reports on Form
10-Q. Any forward looking statements in this transcript should be evaluated in light of these
important risk factors. Gannett Co., Inc. is not responsible for updating the information contained
in this transcript beyond the published date, or for changes made to this document by wire
services or Internet service providers.

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