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Transcript

Credit Suisse First Boston Media Week
December 6, 2001

John Madigan, Chairman and Chief Executive Officer
Thanks, Bill. And thanks to all of you for coming to hear our story.

Presenting with me today are Dennis FitzSimons, Tribune's president and COO, and Don Grenesko, our chief financial officer.

And Jack Fuller, of Tribune publishing, David Hiller who heads Interactive, and Pat Mullen, president of Tribune television also are here to help answer your questions.

I have been presenting at this conference for years and every time I've been here, I've discussed our operations, how we're performing, and where we're headed. But, this year that task is a little more difficult.

Now mind you, our strategy hasn't changed; we're still focused on media businesses in major markets. As I told you last year, our acquisition of Times Mirror gives us power to cross sell advertising and cross-promote our brands in a way few other media companies can. And when the economy rebounds, the major markets, especially the top three, will come back faster than the rest of the country. In fact, that's exactly what happened following the last recession in the early '90s. So, for Tribune, the future is very bright. But there is no denying the fact that business right now is difficult.

Last month, as we announced cost-cutting measures across Tribune, I guess I caused a bit of controversy by saying that the media industry was "in the middle of the worst advertising recession since the Depression."

But I doubt there's a person in this room-knowing what you know, and how you follow our industry-who wouldn't agree with that assessment. The advertising environment is weak. You know that. The economy isn't much better-you know that, too.

So, Dennis and Don will tell you about our operating divisions and how they're performing, but I want to focus my remarks on the key things we're doing at Tribune that position us for success over the long-term.

Right now, the first is cost-containment -- controlling what we can.

Second is our strategy for growing recruitment advertising -- probably the most critical issue facing every one of the newspaper publishing companies you've heard from over the last few days. I know many of you just came from a lunch and heard from the management team at Monster. I want to thank them for acknowledging our 100 years of leadership in recruitment advertising. I also want to tell you why we think our best years are to come. We don't think the year 2000 was the best newspapers will have. And as far as Monster calling us dinosaurs, we've heard that before. Ted Turner said that at a newspaper conference about 10 years ago. He said we wouldn't be around five years from then so I think we can deal with another dinosaur prediction.

And, the third thing that positions us for long-term success is the quality and talent of our people.

Let's begin with controlling costs. With the advertising environment in a downturn, and the economy unpredictable, media companies like Tribune have to control expenses-and investors should be focused on companies that have a track record of keeping costs down. And I'm very proud that we do!

Last month we implemented cost-control measures to reduce our compensation expenses. Compensation is the largest component of our operating budget-and it is something that we can control.

We implemented:

• A 5% salary cut and the elimination of almost all cash bonuses for more than 140 managers across the company, including the team here today;
  
• A salary freeze for the rest of our non-union employees; and,
  
• A freeze on hiring for all but the most critical jobs.
  

Additionally, we'll be seeking expense reductions in the unionized areas of our business. The overall goal is to reduce staff, and keep all other costs down.

Controlling costs is a measure of leadership and management. At Tribune, we have proven leaders who have produced results. As Yogi Berra might say, "You can look it up!"

Historically our newspapers have always had some of the highest profit margins in the industry. And profit margins at many of our TV stations are near 40%.

As I said before, I think we have some aggressive and creative managers that are seizing the right opportunities to grow top line revenues, as well.

And that brings me to my second point-the opportunity we have to grow revenues in the "on-line" recruitment advertising market.

As you know, CareerBuilder is the on-line recruitment firm we operate with Knight Ridder. CareerBuilder is a critical component of our strategy to "win in classifieds," and we've done two important things through the company:

1. We helped CareerBuilder acquire HeadHunter, putting the number two and number three on-line recruiting companies together;
   
2. We put the power of our newspapers behind the company, re-branding our Sunday help-wanted sections as "CareerBuilder"-a move worth about $50 million dollars in cross-promotional value. A move that didn't cost CareerBuilder one dime.
   Why did we do all that?

Because that's how we're going to increase our share of the on-line recruitment advertising market. And make no mistake, we intend to take on Monster and win.

Now, since many of you just came from a lunch with the management team at Monster, let me spend a minute telling you about the differences in our respective approaches to recruitment advertising... and why ours is better.

Newspapers have always had the recruitment advertising franchise. Monster acknowledges that and I don't believe that is going to change. We have a big competitive advantage because most people looking for a job still begin their search with the classified sections of their local Sunday newspapers. I know the folks at Monster would have you believe otherwise, but we have more local job postings and more local recruitment advertising in our markets than Monster.

When you cut through the rhetoric and the marketing, Monster is a national job board, plain and simple. Most people aren't looking to move when they change jobs... it's hard and it's expensive!

Is some recruitment advertising migrating on-line? Sure, some of it is. But the stampede forecasted by some has never materialized. If it ever does, we're there, and there with a bundled solution Monster can't match.

In the end, the thing we have that will make the difference is the people of Tribune Company. We may have the best people in the business; I mean people like journalists, editors and line managers.

Never has there been a time-that I can recall-when there was such a strong need for what they do: Deliver news and information with the highest level of journalistic integrity. Consumers won't settle for anything else-especially now. The resources Tribune brings to a story like the war on terrorism are formidable-45 foreign bureaus and hundreds of reporters and photographers. Statistics rivaled only by the Wall Street Journal and the wire services.

Consumers turn to trusted voices and trusted brands in times of crisis. That's what they get when they turn to Tribune.

And what do investors get? A proven and creative management team, solid financial results with a track record of success, and great room for growth. We manage the company for long-term success. We always have. We always will.

Now... as promised, here's Dennis with a look at our operations.

Dennis FitzSimons, President and COO
Thanks John.

There's no question that given the economy, 2001 has been a challenging year. But we've accomplished a lot to set ourselves up for the rebound that will occur in 2002.

In publishing, we're ahead of our original plan in achieving the expense goals we outlined for the Times Mirror acquisition. Our new management team at the Los Angeles Times in particular has restructured that organization, reducing headcount and aligning functions to focus on our core newspaper business. Starting back in 2000, about 500 jobs were reduced through a number of initiatives at Los Angeles Times. In the second half of 2001, about 1000 circulation jobs were outsourced and 350 positions were eliminated as a result of our Voluntary Retirement Program and other reductions in Los Angeles. An additional 300 positions were eliminated at our other newspaper operations. Savings from these recent position reductions will be achieved primarily in the last quarter of 2001 and the first three quarters of 2002.

At merger, combined corporate staff totaled 330 positions. That's been reduced to 190.

In our television group we reduced headcount by 5%, and expect cash expenses, excluding acquisitions, to finish this year down 4%, despite the full-year impact of several new news operations. One of those is here in New York, where the WB11 morning news is beating WCBS after 15 months. And we recently launched "Everybody Loves Raymond" to strong ratings.

In cable, we took control of affiliate sales for WGN Superstation, a key part of our strategy to move WGN into the "top tier" of cable channels.

In Interactive, our on-line recruitment play, CareerBuilder, made significant progress in 2001 by acquiring Headhunter, combining the #2 and #3 companies in this space. We'll generate significant cost savings by combining back office functions. More importantly, this almost doubles our revenue, creating scale to compete against Monster.com.

Following the launch of our newly branded CareerBuilder employment sections in Tribune and Knight Ridder newspapers, we have gained momentum. Unique visitors to CareerBuilder were up 32% in October. November pro forma sales increased 30% over October. In fact, CareerBuilder had $12 million in sales in November, its best month ever.

Overall this year, our interactive revenue has grown nearly 25% and operating cash flow losses will be cut in half, as promised at this conference last year. We've achieved that goal by reducing headcount from over 600 to 400, integrating local content and sales operations with newspapers and aligning the TI national sales force with Tribune Media Net.

TMN also has had a solid year--selling 60 cross-media packages in the 4 markets where we have both newspapers and TV. That compares to just 20 deals last year, which were mostly in Chicago. Our latest success was a breakthrough partnership with the NFL promoting Thanksgiving football.

A special advertising section entitled "Thanksgiving Classics" appeared on Nov. 20th in our top three newspapers: the LA Times, the Chicago Tribune and Newsday. It also ran in our Spanish language counterparts in those markets: La Opinion, Exito, and Hoy, as well as on all of those newspaper web sites.

In all, the NFL received great exposure in 2.4 million newspapers with another 400,000 daily unique visitors to the web sites. And TMN generated almost a million in incremental revenue.

But let's move on to 2002. Across the board, we'll look to further control costs, but we're also focusing on projects that will set us up to grow the top line as the advertising environment improves.

On the cost side, in addition to salary and bonus cuts that John mentioned earlier, we will reduce corporate expenses further next year. And all business units will implement additional cost-savings measures. Normally, by this time of the year, we are through our budgeting cycle. This year, because of September 11, we pushed the timing back so we could get a better view of advertiser budgets for 2002.

But while cost controls like these are important, we must grow revenue. And we are willing to make the right investments to do it.

One example is publishing's strategy for preprint inserts. Between Chicago and LA, we expect to add about $75 million to preprint revenue over the next several years.

We are building a new insertion facility in LA that will give us greater zoning capability, later deadlines and faster delivery. That's what advertisers want. This new plant on the West Coast positions us to go after ADVO and build market share. Since we only have about a third of the preprint market in LA, we have a lot of room to grow. In Chicago, where we have better than 60 percent market share in preprints, we are completing a new insertion facility that will give us further market-share upside.

Our TV stations also are well positioned for market share growth because of improved programming lineups. The just-completed November rating period confirmed that

Sixteen of our 23 TV stations are WB affiliates, including all 8 of our stations in the top ten markets. So the WB's prime time performance is critical to us. The WB was the only network to show audience growth last season and was the only network to show revenue growth in the upfront this year. We just had an excellent November sweep - continuing to be the number one network among teens - a demographic that's tough to find and one that advertisers are willing to pay big CPMs to reach.

• In its sixth season on the network, "7th Heaven" remains the WB's highest-rated program in all demographics. On Monday nights, "7th Heaven" is #1, women 12-34, across all networks.
  
• In its new Tuesday night time period, "Gilmore Girls is up almost 60% from last year on Thursday night. "Gilmore" has increased the WB's performance in this time period... and most important of all, in head-to-head competition, Gilmore Girls" beats "Buffy".
  
• And, "Smallville" delivered the highest premiere ratings of any new show in the WB's history. The bright spot of the new season. "Smallville" has done well in the usual demos that do well on the WB, but has broadened out to the 18-49 demo and also brought some men to the WB.
  

As far as syndicated programming that we depend on to program early and late evening, Tribune stations continue to have success with quality off-network programs like the sitcoms "Friends" and "Everybody Loves Raymond." "Raymond" is the #1 new syndicated program this season and the most successful off-network sitcom premiere since "Friends." Double runs of both "Friends" and "Raymond" performed very well in both early and late fringe during the November rating period, ranking #1 and #2 respectively, among ALL syndicated shows with women 18-34.

As a result of acquiring new shows like "Raymond," programming costs in 2002 will be up. They generally are whenever new shows are launched, given our accelerated amortization policy. However, this is a good place to step back and look at the bigger picture... to point out the benefits of our disciplined program buying decisions, which reduced the size of the increase in programming costs.

We ran "Seinfeld" for 6 years in New York and LA and we let it go because we didn't think it made sense to pay 3 times what our stations had been paying in the first six years of its off-network run. Now, we're achieving nearly the same rating with "Raymond" for about 25% of what a Seinfeld renewal would have cost us.

On the network side, the WB faced the same type of economics when they ultimately decided to not to renew "Buffy". And as I mentioned, "Gilmore Girls" is beating Buffy" at ½ the cost. In this type of environment, and given the ratings to date, those decisions look pretty good.

Moving to our own program production, Tribune Entertainment has become the largest supplier of syndicated weekly hours, and a significant program supplier to our station group. TEC launched "Mutant X" this fall to some excellent ratings. The show premiered as the # 1 syndicated weekly hour and season to date; it remains tied for #1 with Tribune Entertainment's other hit show, "Gene Roddenberry's Andromeda." You may recall that "Andromeda" was last year's #1 weekly hour - we've got a pretty good streak going in this category.

And probably our best-known subsidiary, the Chicago Cubs, had one of its better seasons this year. When you talk about synergy, the Cubs are one of the best examples our company has. In a good year like this, they drive the ratings for WGN Radio and TV locally in Chicago, as well as the national ratings for WGN Cable, which will also, with good performance, increase our national distribution.

Finally, there's been strong interest in our Denver radio stations since we announced our intention to divest them. Our strategy is to further expand our television base by trading radio assets for television on a tax efficient basis. We then feel we'll be able to grow the new TV cash flow at a faster rate because of group operating efficiencies, including programming buying power. As we've said many times before, television is at the top of our priority list for acquisitions.

On that note, let me turn it over to Don Grenesko to talk about the financials.

Don Grenesko, Sr. Vice President/Finance and Administration
Thank you, Dennis and good afternoon everyone.

2001 has been a challenging year for Tribune, as it has been for all of the media industry. On a diluted basis, we expect full year earnings per share to be within the current range of analysts' estimates, which is 67¢ to 72¢ per share. Fourth quarter EPS should be in the range of 16¢ to 21¢, and full-year EBITDA should be somewhat above $1.2 billion.

There are a number of positives as we end this year:

• Classified real estate advertising is up 7% year-to date;
  
• Retail advertising has returned to pre-Sept. 11 levels;
  
• Newsprint pricing is under $500/ton and trending down;
  
• TV's fourth quarter revenues are better than peers due to "Everybody Loves Raymond," "Friends" and the younger skewing WB Network;
  
• Tribune Interactive achieved its plan of reducing operating cash flow losses by 50% over last year; and
  
• We have taken advantage of the low interest rate environment by allowing one-third of our debt to float.
  

We also repurchased 6.3 million shares of stock, at a cost of approximately $250 million. There are currently 330 million diluted shares outstanding, and that's where we expect to end the year.

As you've heard from others, the current environment has made planning for 2002 difficult. In fact, we will not formalize our plan with our Board of Directors until February, when we expect our business units to have better visibility about top line growth. So we will not be giving specific guidance today about 2002 revenues or earnings.

However, we will say that because of cost control measures in place for next year, lower print prices, and reduced losses in Tribune Interactive, we think cash flow and earnings will grow modestly, even with flat revenues. If the economy recovers quickly, earnings could increase in the high single-digit to low double digit range.

In the meantime, we are focusing intensely on costs. The Voluntary Retirement Program, outsourcing plans, salary freeze and other cost reduction initiatives that we announced during the last several months will yield significant savings next year.

However, our 2002 total compensation and benefit costs will decline only slightly because of a lower pension credit, higher medical costs, full year of compensation from acquisitions and staffing at new production facilities.

Nevertheless, consolidated cash operating expenses will be down 1% next year, and corporate expenses will fall by 12%.

Now let's look at some additional information by group.

In broadcasting, as Dennis mentioned, "Everybody Loves Raymond" premiered this fall, and we will air "Will and Grace" next September. Coupled with our accelerated amortization methods, this will increase broadcast rights expense at the TV stations by 4% in 2002.

In addition, we are increasing our investment in WGN Cable's programming, which supports our strategy of making it a "top tier" cable destination for both viewers and advertisers. And new projects launched at Tribune Entertainment will increase their expense, but also their revenues.

TV's cash expenses, excluding acquisitions, will increase several percent in 2002, however that is after reducing cash expenses 4% this year.

All in all, Broadcasting and Entertainment expense will be up about 3 to 5% in 2002 due primarily to programming in both the Television and Entertainment divisions.

In publishing, we anticipate that newsprint expense will be lower next year due to a decline in consumption and a 10 - 15% decrease in the average price per ton. Our average cost per ton will continue to run about 6% below industry averages because we are the second largest buyer of newsprint in the U.S.

Compensation in publishing should be flat to down slightly. Other cash expenses will be about flat, as numerous cost reduction programs will be offset by the cost of outsourcing single copy delivery and fleet operations at the Los Angeles Times. Overall publishing cash expenses will be down in the low single digits.

At Tribune Interactive, our focus is on reducing costs and driving revenues at our newspaper web sites. The group is positioned to become operating cash flow positive by the end of 2002, despite the build-out and higher promotion of our CareerBuilder strategy.

Now, let me review some of our other assumptions.

Debt at the end of 2001 should be about $3.5 billion and we expect to bring that down to $3.2 billion by the end of 2002.

We are budgeting $275 million for capital expenditures next year compared to about $300 million this year. Our most significant project will be the Los Angeles Times' new preprint facility, an investment of about $50 million. We also are completing the expansion of the Chicago Tribune's packaging and distribution facility.

Both of these projects along with the remaining Digital TV upgrades will be finished in 2002. This will cause depreciation to increase by about $30 million next year bringing total depreciation to the $240 million range.

The change in goodwill accounting rules will reduce amortization expense by more than $225 million and increase earnings by about 60¢ per share. Because most of the amortization is not tax deductible, our tax rate will decline from 50% this year to 40% in 2002.

Next year, equity losses should be cut in half to about $30 million due to the favorable impact of the new accounting rule and the improved performance from our equity investments like CareerBuilder and Classified Ventures.

Tribune's strategic investments today add up to about $1 billion or $3 per share: public companies are valued at about $250 million, non-public companies around $50 million, and our interest in other businesses such as The WB and the TV Food Network are worth approximately $700 million, based on current analysts' estimates.

Our strong focus on cost controls positions us well for an improving economy. It will also maintain our financial strength, giving us a clear advantage in today's dynamic media industry.

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This document contains certain comments or forward-looking statements that are based largely on the company's current expectations and are subject to certain risks, trends and uncertainties. Such comments and statements should be understood in the context of Tribune's publicly available reports filed with the SEC, including the most current annual report, 10-K and 10-Q, which contain a discussion of various factors that may affect the company's business. These factors could cause actual future performance to differ materially from current expectations. Tribune Company is not responsible for updating the information contained in this press release beyond the published date, or for changes made to this document by wire services or Internet service providers.