Gannett Co., Inc.
Q4 2011 Earnings Call Transcript

Published: 30 Jan 2012

[Operator:]

Good day, ladies and gentlemen, and welcome to Gannett's Fourth Quarter 2011 Earnings Conference Call. One note that today's call is being recorded. [Operator Instructions] Our speakers for today will be Gracia Martore, President and CEO; and Paul Saleh, Chief Financial Officer. At this time, I'd like to turn the conference over to Jeff Heinz. Jeff, please go ahead.

[Jeffrey Heinz:]

Thanks, Sarah. Good morning, and welcome to our conference call and webcast to review Gannett's Fourth Quarter 2011 Results. Hopefully, you have had the opportunity to review this morning's press release. You can also find it at www.gannett.com. Before we get started, however, I need to remind you that this conference call and webcast include forward-looking statements. 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. We have provided reconciliations 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.

[Gracia C. Martore:]

Thanks, Jeff, and hello, everyone. Given our recent update at the UBS conference and as you may know with our Investor Day just 3 weeks away, we're going to keep our comments brief this morning as we will be providing a comprehensive look at our businesses, opportunities and related financial policies that day. This morning, I'm going to provide an update on a few of our strategic opportunities and review our results for the quarter. Our Chief Financial Officer, Paul Saleh, will then provide a more detailed discussion of our quarterly results and some balance sheet items and then, of course, we'll open it for questions. Each of our business segments, as always, was solidly profitable in the quarter and for the full year during a period in which the economy showed modest but uneven growth. Our confidence in the ability of our businesses to continue to consistently deliver substantially free cash flow, several hundred million dollars this year despite the economic and secular headwinds, enables us to continue to fund a range of projects important to our future, return capital to shareholders and pay down debt. Now that we are finished with 2011 and are looking towards 2012, we are well on our way to becoming a leading global media and marketing solutions company. Our powerful 100-plus local markets, combined with our iconic national brands, puts us in a great position to provide the most engaging and high-quality content for our audiences and impactful solutions for advertisers and marketers. Our goal at Gannett is to position our company for future growth and continue to expand our revenue opportunities in the face of modest economic growth and secular change. We also are reshaping our local news organizations by enhancing our content to meet increasing and changing media consumption habits across all platforms

[Paul N. Saleh:]

Well, thank you, Gracia. I'll cover our quarterly results in more detail, particularly each of our business segments, and then I'll comment on some balance sheet items. As Gracia noted, we generated approximately $1.4 billion in revenues in the quarter. Total expenses, excluding special items, were $1.1 billion, a decline of 2% year-over-year. Operating cash flow totaled $339 million, as shown on Table 7 of our earnings release. As importantly, we generated free cash flow of $203 million, and that's shown on Table 10. For the full year, total revenues were $5.2 billion and operating cash flow, excluding special items, totaled $1.1 billion in line with the guidance we provided to you in December. We again generated substantial free cash flow of $775 million in 2011 despite the soft economic environment in the U.S. and the U.K. and the relative absence of incremental even-year political and Olympic advertising that benefited our results in 2010. Turning back to the quarter. Earnings per diluted share on a GAAP basis were $0.49. Earnings per share -- per diluted share, excluding special items, were $0.72. In the fourth quarter, we recorded several special items that totaled about $107 million pretax or $0.23 per share, and those are detailed on Table 5 of our earnings release. Let me review these items in more detail. First, we had a pretax charge of approximately $64 million for workforce restructuring and facility consolidations. This includes a charge associated with the transfer of production activities for the Cincinnati Enquirer to a third-party printer in Columbus, Ohio, as previously disclosed. The majority of the charge from the move to Columbus relates to the recognition of withdrawal liabilities for multi-employer union pension plans and the balance relates to severance and benefit costs. Second, during the quarter, we reported special charges of $14.7 million for the disability-related retirement of our former Chairman and CEO. Third, we recognized special noncash charges affecting nonoperating income which totaled $28 million pretax or $0.07 per share related to minority investments. And finally, our results included a special tax benefit of $11 million or $0.04 per share relating to an impairment that was taken previously but not recognized until now for tax purposes. Turning to our segment results. Total Publishing segment's revenues were 5% lower in the quarter. Advertising revenue was 7% lower. However, year-over-year advertising revenue comparisons improved sequentially. Gracia has already discussed retail trends in the quarter, so I'll comment on the other advertising categories. National advertising was down approximately 9% in the quarter, but up more than 6 percentage points from third quarter comparisons. At USA TODAY, we experienced strength in several categories, particularly telecommunications, credit cards and automotive, which helped to partially offset declines in travel, entertainment and technology categories. At Newsquest, national advertising was up 7% in local currency, consistent with the trend we saw in the third quarter. Classified advertising for the Publishing segment was down 8.4% but up slightly sequentially. In the U.S., classified advertising was down, but we saw sequential improvement in all categories excluding employment which was relatively flat. But in December, employment advertising was up year-over-year. Real estate classified advertising declined in the quarter, reflecting continued weakness in the housing market. However, year-over-year comparisons improved about 5 percentage points relative to third quarter. And the trends in the real estate category improved over the course of the fourth quarter. In California, Florida, Arizona and Nevada, which were the states most impacted by the real estate crisis, real estate advertising trends were in line with other regions of the country. On the other hand, employment advertising and auto advertising trends were still better at our properties outside of these states. Classified category comparisons at Newsquest in pounds were better this quarter relative to the third quarter as all category comparison improved excluding auto. Employment advertising comparison improved 7 percentage points from third quarter comparisons. Gracia gave you the major components of digital advertising for the Publishing segment. Successful cross-platform and marketing solution efforts contributed to a 7% increase in digital publishing revenue for the quarter. The increase was due to a 6% gain in digital revenue in U.S. Community Publishing, auto, employment and local digital revenue, the largest categories, all contributed to the gain. Digital revenue was a bright spot at Newsquest as well, up about 11% in local currency. Expenses, excluding special items in the Publishing segment, were down 3% year-over-year as we continue to extract cost efficiencies. Newsprint expense was down 8% in the quarter as an increase of almost 2% in newsprint usage prices was more than offset by a consumption decline of approximately 10%. Focusing on newsprint prices for just a moment. North America newsprint prices were relatively unchanged throughout 2011. Market conditions supported a stable environment. Capacity rationalization is taking place in the market but offshore demand is softening. As a result, we anticipate that prices will remain stable and possibly decline if offshore trends continue to weaken. Operating income in the Publishing segment, excluding special items, was $176 million while operating cash flow totaled $205 million, and those figures are found in Table 7 of our earnings results. Turning to Broadcasting segment. Excluding incremental political revenues generated last year, total television revenues were up 11% in the quarter, which was at the high end of the range we provided in December. We saw 9% growth in time sales excluding political, as spending in several of the most important TV ad categories was up solidly in the quarter. The auto category was particularly strong as both foreign and domestic manufacturers increased their spending in the quarter compared with the fourth quarter of last year. Digital advertising solutions at our TV stations continue to draw customers, resulting in a 19% increase in digital revenues. Higher retransmission revenues, which grew 30% to $21 million, also contributed to the revenue results. Excluding special items, Broadcasting segment expenses were down about 6% this quarter. Operating income totaled approximately $90 million in the quarter and operating cash flow was $97 million, just $27 million lower compared with the prior year despite the net decline of $47 million in political spending. Now all these figures can be found on Table 7 of our earnings release. As detailed earlier, we had strong performance in our Digital segment revenues. Digital segment expenses were up 11%, reflecting significantly higher sales incentive and bonus costs associated with higher revenue levels at CareerBuilder and incremental investments in product development at PointRoll and ShopLocal. As Gracia noted, CareerBuilder had record level of invoicing in December and very good revenue growth. As a result, a significant number of sales representatives exceeded their sales quota very late in the quarter, and as a result, we recorded incremental commissions and bonuses in the quarter. In total, the incremental costs at CareerBuilder, PointRoll and ShopLocal were roughly $9 million in the fourth quarter. Now turning to the balance sheet and capital allocation. We generated free cash flow of $203 million this quarter and $775 million for the full year. At the end of the year, we had approximately $1.76 billion of debt outstanding, a reduction of $158 million during the quarter and $592 million for the full year. Our debt-to-EBITDA ratio, as measured for the covenant test in our credit facilities, was slightly below 1.7x at the end of the quarter. Interest expense in the quarter was 12% lower than the fourth quarter last year, reflecting lower average debt balances. And at this point, our all-in cost of debt is approximately 7.25%. During the quarter, we repurchased approximately 2.3 million shares at a cost of $25 million. And since we reactivated our share repurchase program in late July through at year end, we repurchased 4.9 million shares at a cost of $53 million. Cash at quarter end was $167 million. And lastly, capital expenditures in the fourth quarter totaled about $26 million and were $72 million for the full year. And with that, I'll open it up for questions.

[Operator:]

[Operator Instructions] And we'll go first to Alexia Quadrani from JPMorgan.

[Alexia S. Quadrani:]

Can you just give us a bit of color, if you can, on how we should be viewing newspaper publishing expenses for 2012? And then with your debt so low, your leverage ratio so low, really if you can review your priorities for cash this year.

[Gracia C. Martore:]

Thanks for the question, Alexia. As we indicated at UBS, we provided some assumptions with regard to expenses across our various segments. I'd say that starting off the year, it's very early in the year but frankly, I think we've gotten off to a very solid start across all of our business segments including Publishing. We'll provide some additional color since we'll be a little further along in the quarter at our Investor Day on February 22. I think the second part of your question related to the fact that we generate an enormous amount of free cash flow on a very consistent basis. And as we've talked about in the past, we obviously want to make sure that we have the flexibility to invest in those products and investments that make sense to the future growth of our company. As well, we have focused certainly in the past year on returning additional capital to shareholders. For those of you who don't follow us as closely as other folks, in July we doubled our dividend and we reinstituted our share buyback program and said we'd buy back about $100 million of shares over the next 12 months. When we -- however, when we announced those actions, we did remind people that, that was just merely a first step and frankly, a good first step, given the very difficult economic backdrop we saw during the course of the summer. We also reminded everyone that the board will continually reassess these actions depending on economic and market conditions. So we're going to evaluate -- we're going to continue to evaluate our capital allocation in that context of delivering increasing value to shareholders while preserving our financial flexibility, and we'll look forward to providing greater detail on our capital allocation plans on the 22nd.

[Operator:]

Next, we'll go to Craig Huber with Huber Research Partners.

[Craig A. Huber:]

Craig Huber here. Can you give us a little sense on how December went for the newspapers? If I recall correctly I think your December media conference, you said October, November were down a combined 5.5%. What was December like? And then can you also speak a little further about January, if you would, please.

[Gracia C. Martore:]

Yes, I think taking the latter part of it first while Paul is looking at the monthly numbers. As I said, we are getting off to a very solid start in the first quarter. We are anticipating some good feedback in the broadcast side of the business where we obviously have the Super Bowl on our NBC affiliates. We've also enjoyed some political spending from the primaries that have already taken place in South Carolina, and that is going to take place in Florida, I guess, tomorrow. And so we're nicely on track from that perspective. With regard to specifics on the quarter, I think as I mentioned, November was the best month of the quarter as we shared, and as we said at UBS, a month does not a trend make. We've seen some volatility in our -- as I addressed in my remarks. December, on a retail basis, was I think impacted by the fact that consumer spending around the holidays seemed to slow after the initial excitement around the Black Friday, Cyber Monday activities. We also, as I mentioned, were impacted by the fact that Christmas fell on that last Sunday, and that obviously had an impact on preprint. So I'd say that December was stronger than certainly third quarter and earlier in the fourth quarter, but not quite as strong as the November comparisons.

[Operator:]

Next we'll hear from Doug Arthur, Evercore.

[Douglas M. Arthur:]

Gracia, can you make any forward comments on retransmission revenue growth prospects in 2012? And then just as a follow-up, a small item, but it looks like Captivate had a pretty tough quarter. Can you comment?

[Gracia C. Martore:]

Sure. Let me start with retrans. We indicated at UBS that we are looking at about $90 million of retrans revenues for 2012. We didn't have any major agreements that came up this year. We are looking at a couple of large deals that will come up at the end of 2012. And so that $90 million or so is about a 13% increase over what we achieved in 2011. We expect frankly that retrans is going to continue to grow because, frankly, our percentage of subscribers' fees is still well below what we believe is our percentage of the audience on the cable and satellite systems. We think the pie is going to continue to grow, and we're going to be the beneficiary of that in a meaningful way. As to Captivate, I think you're right on track. Captivate did not have the kind of quarter in the fourth quarter that we had hoped they would. They had some personnel changes. And frankly, I think in the out-of-home space, there was a little bit of a pullback in general in that space, and Captivate obviously is part of that space. But we anticipate that for the full year of 2012 that we are going to see some good, solid improvement on the Captivate front.

[Operator:]

And next, we'll move on to John Janedis with UBS.

[John Janedis:]

Gracia, you talked about your TV outlook and, obviously, there's some benefit from the Super Bowl. Would it be possible to talk maybe about the pacings from January to February? And then separately on CareerBuilder, I know you mentioned the global growth, revenue up 15%. Can you break out the North America-only growth? And on the December global invoicing, do you have maybe a pro forma number excluding some of those non-U.S. acquisitions you made?

[Gracia C. Martore:]

Okay, that's a number of questions and I hope that, Paul, you've jotted them all down. I think we ought to start with the TV outlook pacings. I think January got off to a little bit -- is going to be a little bit less than clearly February when we have the benefit of the Super Bowl on all of our NBC affiliates. So I think pacings are up very nicely, I think, double digits in February and certainly stronger even in March. So we're very pleased at the follow-through there. Auto has been a very strong category as it was in the fourth quarter, and it continues to have good traction in the first quarter as we go into the first quarter. So we're very pleased with that. I think it'd be tough for us to kind of break out all of those components on CareerBuilder. But what we can tell you is that in North America, I think revenues were up in the again the low teens, that 12%, 13% range. Internationally, I think we said revenues were up 40%-plus. I'd say that obviously, excluding acquisitions, we had the Singapore acquisition. It still would've been a substantial double-digit increase excluding that acquisition. But I know that Jeff will calculate that number and come back to you.

[John Janedis:]

And can I squeeze in maybe one quick one also on Newsquest? I guess let's say, I was a little bit surprised to see the outperformance there versus the U.S. print business across, I guess, pretty much all the segments. Do you still view that business as core to long-term operation?

[Gracia C. Martore:]

I'd start by saying that I think that the management team, led by Paul Davidson at Newsquest, has done just a terrific job in dealing with a very difficult economy there. In the fourth quarter, the U.K. economy actually contracted slightly, which is a very difficult economic backdrop to have to be dealing with. But they came through in a very meaningful way. They had the benefit of very strong national revenues in the fourth quarter, in part as a result of some digital transition for TV. And so they were the beneficiary of that, as well as just a lot of initiatives that they have going on throughout the business there. So we were extremely pleased with their results in the quarter. And as always, they have a wonderful local franchise. We are very focused on local. They have a wonderful local footprint just as we do here in the States. So it's a terrific business. But as we've always said about all of our businesses, if someone comes along and is looking at the businesses and offer us something that is -- makes more sense from a shareholder value perspective, we will take it to the board. But the Newsquest folks have done just a terrific job in 2011 dealing with the economic environment they've had to deal with.

[Operator:]

Next, we'll hear from Jim Goss with Barrington Research.

[James C. Goss:]

A couple of questions, Gracia. One, with regard to your aspiration to be viewed as a global media and marketing solutions company, while a lot of that is U.K. right now. Is there a global opportunity you perceive for some of your digitally delivered content, for example, USA TODAY supported by global advertisers and international markets that might want a window on the U.S.? And then I have a couple of things on the broadcast side.

[Gracia C. Martore:]

Sure. Let me -- we'll start with that question. I think in a digital world, there are no boundaries or barriers to your content and your distribution. And as you say, we have some terrific content certainly at USA TODAY. We're already in some countries sharing that under a model in South America and in some other places sharing USA TODAY content in a licensing kind of model. So certainly, we think that there are opportunities along that front to do things. CareerBuilder clearly is an international company with operations in over 20 countries at this point. We see -- we continue to see opportunities for them to expand their reach internationally and continue to see great opportunities there with the exclusive that we have on the MSN traffic overseas. So we see lots of opportunities for us to, in a digital world, expand our footprint.

[James C. Goss:]

Okay. And on the broadcast area, have you noticed a trend that you tend to track in terms of the relationship of broadcast cost and expense levels vis-à-vis the swings introduced by political and Olympic revenues? Has there been some sort of ratio you have tended to notice or anything of that nature because I think they do sort of track up and down together? And also internationally with the Olympics coming up, does your U.K. presence for the London Olympics give you any added benefit that you'd like to talk about?

[Gracia C. Martore:]

With -- let me address the first part of that question first. Dave Lougee, who runs our broadcast stations, always does a terrific job, and there are just natural factors on the expense side. When you have $47 million of incremental political spending and you have a lot of coverage, you have sales commissions and other pieces associated with that. You also have additional coverage that you clearly are doing at times and additional expenses when you're covering political and you're covering Olympics, particularly when it's overseas and the like. And so in an even year, you expect to see expenses rise. I don't think we have any particular formula other than that we obviously look, as we're budgeting for the next year, at commissions and travel and those pieces that relate on a variable basis to those kinds of events. And then clearly in a year like 2011 when those events are missing and -- those special events are missing, then we would expect expenses to reflect that. I think we have a terrific opportunity vis-à-vis the Olympics. With USA TODAY, with our 13 NBC affiliates and the fact that our Newsquest properties are on the ground there in the U.K., sharing of content resources, sharing of video resources and a variety of those kinds of factors, we believe, are going to be very helpful to us as we provide some very, very strong coverage of what we think is going to be a very interesting Olympics in London.

[Operator:]

And next, we'll hear from Bill Bird with Lazard.

[William G. Bird:]

It's Bill Bird at Lazard. Two questions. One, could you talk about how you think about dividends versus buybacks? And then two, could you just talk about how Q1 publishing advertising is trending versus Q4?

[Gracia C. Martore:]

Let me start with the capital allocation question. And then Paul, why don't you jump in on the trending. Dividends versus buyback. There's all the academic work that's been done around them about the consistency of cash flow that dividends sometimes project on share repurchases. There are benefits to that. We listen to our owners and potential owners and get their feedback on it, and then we are in the process of obviously sharing all of that with our board. And we will look to providing what I think is a good balance between the 2 that makes the most sense for us again to provide flexibility for us to make investments while at the same time returning incremental cash flow to our shareholders. Paul, why don't you...

[Paul N. Saleh:]

Yes, Bill, first quarter publishing advertising, I think it would be probably too early to tell how the whole quarter will pan out. January was picking up where December was. We -- but I would say it's still too early to tell how the whole quarter will end.

[Operator:]

And from Noble Financial, Michael Kupinski has the next question.

[Michael A. Kupinski:]

Yes. I was kind of want to drill down a little bit more in the broadcasting area in terms of your thoughts about pacings. What -- can you give us an idea of what you're assuming for political in the quarter? I know that you kind of shied away from that in the past, but I'm just wondering if you're just trying to be a little conservative with the guidance in Broadcasting, particularly as it relates, you mentioned, Florida. And if I recall the last cycle, you didn't really give a lot of political in Florida because of the way that, I guess, the primaries were set up. But this time, it seems like they're spending a lot, both candidates, Romney and Gingrich, are spending a lot of money in Florida. So I was just wondering if you can give me a little thought on that. And then also, any color on the key advertising categories that -- and maybe the core advertising growth rate that you're assuming in the first quarter?

[Gracia C. Martore:]

Let me try to answer all of those, Mike, and Paul, please jump in to add anything. On the political front, as I mentioned, we will get more than our fair share of the political dollars that are spent -- that were spent in South Carolina as well as are being spent in Florida. We are right on track. But the first quarter, even in a strong political year like 2008 or even 2010, they tend to be in the single millions of dollars. And in fact, if you look at our political spending in 2008 and 2010, what you'd see is that in the second half of the year, that's primarily when we generate the vast majority of our spending, something like 80%-plus of all of the political we receive, we received in 2010 and 2008 is in the back half of the year. And September, October, November being the particularly large, large months. But during the course of the year, obviously, we'll benefit from whatever happens. We have a -- from a footprint perspective, we've got 13 U.S Senate and 3 governors races in our markets, which is about the same number as 2008, although we're going to have to see how competitive each one of those races ultimately is. In 2010, obviously not a presidential year but there were like, I think, 16 Senate and 18 governors races in our market. But overall, I'd say, Mike, we would expect that this will be a very robust presidential year with direct spending and all the pack money we've all been hearing about being deployed. So we look forward to a strong year on the political front.

[Michael A. Kupinski:]

Have core advertising kind of weakened, the rates weakened a little bit in the first quarter than from -- it seems like it's like pacing below in terms of the core advertising a little bit.

[Gracia C. Martore:]

Well, I think we had indicated in the fourth quarter we saw that, I think pure time sales, excluding political, were up about 9%. In the first quarter, I think at this point, we’ve given guidance that spending would be -- revenues would be up in the high-single digits. It's incredibly early in the quarter frankly. So I think we're right on track to achieve what we expect to achieve, but we'll continue to update everyone as the quarter unfolds. We always tend to be careful early in the quarter and then hope to come in at the high end of expectations. As you know in the fourth quarter, we had indicated 8% to 9% and then raised that up to the 11% range. We'll just have to see how the quarter unfolds. I will say that from a category standpoint, auto continues to be quite strong, particularly in February and March. And some other key categories like telcom and a few others are very strong. So we think that we’ll get -- we'll have a good year on the broadcasting side.

[Operator:]

And next, we'll hear from Leo Kulp with Citi.

[Leo Kulp:]

Two quick ones. First, can you talk about your outlook for investments in the Digital segment? And then second, can you talk about the potential impact on newsprint usage from the 3-around format that you're rolling out and what sort of impact that's having on the increase in CapEx for next year?

[Gracia C. Martore:]

Sure. Let me start with digital acquisition opportunities. We are always looking at opportunities to acquire capabilities or technologies in core and adjacent areas but nothing dramatic. We are disciplined investors as always, and we'll evaluate each opportunity in the context of our strategy and as it arises. We are very pleased with some of the small acquisitions that we've recently done. Last week, we announced the acquisition as I mentioned of Fantasy Sports, and Big Lead Sports paid a small price to provide us with a substantial increase in our footprint. So always looking at opportunities, but we'll continue to be quite financially disciplined. Paul, do you want to talk a little bit about newsprint and the 3-around?

[Paul N. Saleh:]

Yes. Actually, the capital spending is relatively minimal for that. In cases where we have actually tested the format, our customers really have liked the new format. It's very appealing. And I would say that usage obviously will be lower in a sense from a design perspective, but it also depends on some of the actions that we're going to take in the coming quarters in terms of the new introduction of digital and print subscriber packages. And so from a usage perspective, it all depends on the ultimate subscriber base that we have.

[Gracia C. Martore:]

Yes. And I'd add that capital spending, which was about I think $72 million this year, we have a budget that I think is in the $90 million to $95 million range. Most of what's driven the increase in the budget and frankly, it's a very modest increase, it relates to some of our digital activities and digital footprint. CareerBuilder, we include about 100% of their CapEx in our CapEx number. Although they fund their own CapEx, their number is up a bit. So I think it's a variety of those things. There's just a small impact from the new format.

[Operator:]

And next from Benchmark, we'll move on to Edward Atorino.

[Edward J. Atorino:]

Got sort of 3 questions. One, can you talk a little bit about circulation? Seems to be hanging in there and your pricing strategy for 2011, and maybe you could separate out the U.S., U.K. and the domestic. Second, your payroll strategy. You have launched a few I think. What the current number is and how you see the year unfolding? And lastly, have you seen any Olympic commitments yet given the fact that, that stuff usually sells out pretty fast?

[Gracia C. Martore:]

Let me start with the subscription strategy that we highlighted in our opening remarks. And then if, Paul, you could pull out some circulation numbers, that would be great. We obviously have been -- benefited from the learnings from the first 3 tests that we mentioned to all of you in Greenville and St. George and Tallahassee. And also as we've indicated, we've done a pretty significant amount of work around consumer preferences and their thoughts around paying for content, including in-depth research actually in a number of our own specific markets. We're not going to take a cookie-cutter approach to this as each one of our markets is somewhat different and the areas of content that readers and viewers and users are passionate about frankly vary by community. We have now just, literally just, rolled out 6 markets where we're going to get additional feedback. So far, and literally I'm talking about in the last few days, literally, we've had some very encouraging feedback so far. But I think that's a place where we're going to have to give you additional insights in late February and then report to you each quarter on how we are progressing as we roll the markets out. But we are in agreement with Warren Buffett's comments that our content, which is, we believe, engaging and relevant and differentiated in those local communities has value and shouldn't be given away free. And so we are going to talk a lot about that at our meeting in February. Paul, do you want to chat about...

[Edward J. Atorino:]

Are current subscribers going to pay for the payroll, or won’t you talk about that?

[Gracia C. Martore:]

It will be a different kind of subscription model. It will vary market to market, but we'll go into greater detail in February. Paul, do you want to comment on the circulation numbers and then I'll finish up with the Olympics?

[Paul N. Saleh:]

Yes. Circulation numbers in the quarter were better than they were in the third quarter; they were down in the less than 5%. And then, the Sunday circulation has been also a good story throughout the year for us, and it was 0% to 2%, down 0% to 2%.

[Edward J. Atorino:]

Pricing? The pricing strategy for 2012?

[Gracia C. Martore:]

He's giving you -- he was sort of giving you the volume.

[Paul N. Saleh:]

I was giving you the circulation.

[Gracia C. Martore:]

The one thing I would add to that is we've mentioned the importance of Sunday circulation, the fact that about 45% of our ad revenues in, for instance, U.S. Community Publishing occur on Sunday. And in the fourth quarter, I believe Bob Dickey shared with me that we had 18 of our top newspapers that had total Sunday circulation increases year-over-year. So that's been a real area of focus for us, and that continues to pay good dividends for us and is an important part obviously of our focus on the ad model and Sunday circulation. On Olympics, we are working diligently obviously on commitments. I know that Dave Lougee has some folks just very much focused on Olympics. We've gotten commitments in hand from some local sponsors, regional sponsors, but he'll be doing a lot more work in that area as the months progress. But we feel very good about our ability to generate -- have a strong Olympic showing this go around on our 13 NBC affiliates.

[Edward J. Atorino:]

Could you remind me what you did in 2008? Was it the -- it's in the -- $18 million, no?

[Gracia C. Martore:]

In 2010, it was about $18 million or $19 million. That was the winter Olympics. In 2008 which I believe was a Summer Olympics in Beijing. We think we achieved about in the low 20s on Olympic revenues. I think we have time for just one more question.

[Operator:]

That will be Avi Steiner from JPMorgan.

[Avi Steiner:]

With whatever capital allocation decisions you ultimately unveil in February, will absolute debt repayment still be front of mind? Is there a particular leverage level you want to get to? And are ratings at all a consideration in your decision?

[Gracia C. Martore:]

We are blessed with, as we said today, an enormous amount of free cash flow. Over these last 4 years despite incredible economic headwinds, we have consistently generated several hundred million dollars of free cash flow. We will be very focused on debt repayment, as well as returning capital -- increased levels of capital to our shareholders. But we can do that from free cash flow, as well as continue to have an absolute debt level that will be very, very satisfactory. We always look at our ratings. We're always mindful of that. We right now have a real fortressed balance sheet. We have our maturities well extended. So we take all of those things into consideration. But as you know, we've paid down a lot of debt over these last several years. Our balance sheet is in great shape, and we have the opportunity with the enormous amount of free cash flow that we generate to return additional capital to shareholders, at the same time focusing on investing in our businesses, at the same time continuing to manage our balance sheet in a very prudent way. So we're very fortunate on all those fronts. We appreciate all of you joining us this morning. And if you have any specific questions we didn't have a chance to answer this morning, I know that Jeff Heinz will be happy to take them. He can be reached at [phone]. Have a wonderful day.

[Operator:]

Ladies and gentlemen, that does conclude today's conference. Thank you for joining.