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Transcript

UBS and Credit Suisse First Boston
Media Week Presentations
December 7, 2005

Dennis FitzSimons, President, Chairman and CEO

Good morning. It’s good to be here. With me today are Scott Smith, head of our publishing division, John Reardon, who was recently appointed president of Tribune Broadcasting, and Don Grenesko, our chief financial officer.

Before we give you our update, let me mention a few points that are sometimes overlooked in difficult revenue environments like we’re in right now, and those are the fundamental strengths of traditional media like newspapers and broadcasting.

Tribune’s local businesses continue to be leaders in their communities, and they are valued by consumers and advertisers alike. We are local media, and provide crucial news and information for the markets that we serve. This is especially true in times of crisis, like the hurricanes that hit New Orleans and South Florida this fall.

Our television stations in New Orleans did an outstanding job keeping area viewers informed when Katrina hit. The South Florida Sun-Sentinel never missed an issue, despite severe facility damage from Hurricane Wilma.

We’re proud of the people in those markets and the job they did, both the management and the folks that made sure that things kept running and served their communities.

Clearly, the year hasn’t been what we’d hoped it would be. Publishing revenues are flat year-to-date and broadcasting revenues are down five and-a-half percent. But our television and newspaper divisions continue to generate significant cash flow, and that enables both our important journalistic mission and our ability to create value for shareholders.

Our publishing and interactive businesses will generate about $1 billion of operating cash flow in 2005, and due to strong cost-containment, publishing’s EBITDA margin will be nearly 25 percent, despite higher newsprint prices and benefit costs. On the broadcasting side, operating cash flow will be $475 million.

Still, there’s no doubt that the industry and Tribune are going through an important transition. This is reflected in our strategy, as well as our 2006 operating plans.

From a strategic standpoint, we continue to focus on improving our audience reach and revenue trends in what is a fragmenting media environment.

We’ve taken important steps to improve circulation trends at our newspapers, and Scott will detail those in a moment.

We’ve built important new products, like RedEye, AMNewYork and Hoy. We’ve continued putting more resources into our websites, resulting in increased traffic and strong revenue growth in Interactive. We’ve also made important investments in ShopLocal.com and Topix.net. And on the broadcast side, we’re realizing efficiencies and cost savings at our regional operating centers, which John will talk more about in a minute.

In short, we’re doing things differently wherever and whenever it makes sense for customers and shareholders. We’re also redeploying resources and re-engineering processes, especially in publishing.

For example, this week, the Los Angeles Times announced the consolidation of its printing operations. The Times is closing its San Fernando Valley plant, and will handle all production at its most efficient plants. As you know, over the past five years we’ve made significant investments to modernize production capabilities at The Times -- those investments are really paying off, with increased revenue from additional color capacity and an increased share of the L.A. preprint market.

On another front, next week we will open our combined Washington, D.C., news bureau, where all Tribune newspaper and television personnel will be housed. Coverage out of Washington will be better than ever through greater collaboration, and expenses are down, too.

In broadcasting, our stations in Philadelphia and San Diego have moved to the news outsourcing model we’ve used successfully in Miami. Their prime time newscasts are now produced by the local NBC stations in those markets. That reduces our expenses and staff in situations where we were only doing half-hour primetime news broadcasts. And we’ll still provide a quality news show for viewers.

Scott and John will have other, specific examples of things we’re doing differently in a few minutes. But our focus on cost reduction, given our current revenue environment, has been intense. By year end, we will have reduced our workforce by more than 900 positions -- or more than 4 percent of the total, with most of that coming in publishing.

The workforce reduction and other major cost-saving initiatives will keep 2006 cash expenses in publishing flat on a 52 week basis, despite higher medical and retirement costs, plus newsprint price increases, and higher costs for fuel. Broadcasting cash expenses will be flat, too, excluding programming costs which are committed to years in advance.

Our focus on cost management will enable us to redeploy resources and invest in areas that will contribute to Tribune’s future growth, like beefing up the revenue generating areas of our publishing business, conducting more reader research and expanding further on the Internet.

We’ll continue making disciplined investments to grow our print businesses. For example, we have 40 targeted publications that generate more than $300 million in revenue, and that number is growing. RedEye and AMNewYork reach more than one million readers each week and we expect both papers to be profitable next year.

On the advertising front, RedEye and AMNewYork have brought in more than 1500 new accounts -- advertisers who were not already in the pages of the Chicago Tribune or Newsday.

And, speaking of ad sales, while we’re cutting back in most areas, we’re making significant additions to the classified sales forces at our largest newspapers and at CareerBuilder.

We’re getting more aggressive on how we sell recruitment advertising, shifting from traditional in-bound call centers to more specialized out-bound sales efforts at both our newspapers and at CareerBuilder. This will help us grow our share of recruitment revenue in both print and online.

We’re also redirecting capital expenditures to projects which will give us industry-leading capabilities, like a new, common editorial system that will facilitate more group content sharing. We’re also investing in a new advertising system that will have stronger e-commerce capability for both print and online classified sales.

And we’ll continue looking to serve our customers in ways that deliver the most value to them, so we’ll be investing more in research to determine what’s important to our readers. Our goal is to have an outside-in mentality and be responsive to what readers feel makes us most relevant and them most engaged.

For example, online reader feedback mechanisms that started at RedEye are now being used at Chicago Tribune, and giving us valuable input on layout and story selection.

Our tradition of journalistic excellence isn’t going to change, but we need to become even more reader-focused. And we will.

Finally, we’ll improve our growth picture by aggressively expanding our interactive businesses, both on our own and in partnership with others. Interactive revenue will top $175 million in 2005, an increase of 42 percent over last year. This is the fastest growing segment of our company and we’ll continue to invest so it becomes a an even more significant portion of our business in future years.

The biggest portion of that business today is in the recruitment category. CareerBuilder, our partnership with Gannett and Knight Ridder, is now the market leader in both traffic and job-postings, and it’s on track to become the leader in revenue, perhaps as soon as next year.

Classified Ventures, where we have a 28 percent ownership stake, expanded its product line, complementing its existing listings business with new on-line lead generation models for the auto and real estate categories. All are expected to show significant growth.

We’re also expanding outside the classified categories. As we look to grow, we’ll remain focused on building out more national vertical channels that complement our local businesses.

ShopLocal.com gives us a foothold in the retail category. With a new infrastructure now in place, we will be bundling ShopLocal with local newspaper ads, a similar strategy utilized in the early stages of selling our online classified products.

And Topix.net gives us an important entrée into the news aggregation category. Since we purchased Topix, unique visitors to the site have grown from 1.4 million to more than 3.5 million monthly. We’re also working closely with our partners to extend Topix.net’s role as both a local and national news aggregator to generate a lot more reach and revenue.

In addition, we’re working across our own network to expand the reach and revenue of our newspaper.com sites and to create entertainment sites using the Metromix brand that has been very popular in Chicago.

With partners or on our own, we believe the network/affiliate model is very effective on the Internet: Common platforms and strong local content, promotion and sales, is a formula that will fuel significant growth and success in Interactive.

Now, let’s hear from John and Scott, then I’ll be back to wrap up. As I turn the podium over to John, let me mention a couple of things about his history with Tribune Broadcasting. John started with us at WGN. Local sales, national sales, he ran the whole sales operation including the Superstation. He then moved out to KTLA to be general manager of our Los Angeles station. He later ran our entire west coast division. John has a track record of success.

John Reardon, President/Tribune Broadcasting

Thank you Dennis, and good morning everyone. It’s good to be here today, as I settle into my new role at Tribune Broadcasting.

Let me begin with a brief discussion of our 2005 results. It’s been a challenging year for spot television in general and for our station group. Group operating revenues will be down around 8 percent driven by a variety of factors. First, the advertising marketplace has been soft; TVB’s latest projection has total spot TV revenues declining 7 percent this year. Next, our top categories of automotive, retail, movies and fast food were all down. Further, our top 3 markets of NY, Los Angeles, and Chicago, were affected by the introduction of Local People Meters. This new methodology has lowered broadcast rating levels across the board, and especially impacts younger skewing stations such as ours. Finally, the WB network also suffered some audience erosion, as most of you are aware.

There are, however, several bright spots. At The WB, Gilmore Girls, now in its 6th year, is enjoying its best season to date and is the network’s #1 program in adult demos. Also airing on Tuesday night, the new WB show Supernatural has found a solid male audience and is exceeding our expectations. The best news is Thursday night, where the network’s move of two established shows, Smallville and Everwood, has nearly doubled total viewers on that night. Productive talks continue with the WB about extending our affiliation agreement.

As the 2nd largest Fox affiliate group in the country, our stations are looking forward to a solid 2006, building on this year’s success with American Idol, 24, and The O.C. The 2005/2006 broadcast season for Fox has started well, with the very successful launch of Prison Break on Monday night, and a reinvigorated Sunday night comedy lineup.

In addition to the programming from our network affiliations, we look to off-network sitcoms, dramas, and 1st run syndicated product. In September, we launched Sex and the City on 22 of our 26 stations, and Superstation WGN. We’ve been pleased with its performance to date in our late fringe block. Just looking at our top three markets, the show has delivered growth in key women demographics and has increased advertising unit rates in its new time periods. For example, Sex and the City has helped our Los Angeles station, KTLA, increase rates 33 percent at 11 p.m.

Looking forward, the WB Network will move from kids animated programming to off-network dramas and sit-coms on weekday afternoons beginning in January 2006. This is really a great win for our WB stations and the network, as available revenue for children’s programming had declined. So this program change should not only improve our revenue picture for 2006, but also equally important it will improve the flow of adult audience into our early fringe programming and provide a stronger promotional platform for prime and late fringe.

Now let’s turn to news, which represents about 15 percent of our television station revenues. Morning news has experienced growth in viewership and advertiser demand, and we’ve expanded accordingly. Our New York, Los Angeles, and Chicago stations all broadcast news from 5 to 9 a.m., and are all competitive or leading in key demographics. Our strategy of counter- programming the national network morning news shows is successful: In LA we are ranked number 1, and in Chicago, number 2. In addition, our Seattle and Denver stations have moved up to #2 in their respective markets.

We offer late news in 19 of our 22 markets. This year we’ve formed local news production partnerships with NBC and Belo. Through these partnerships, we’ve reduced our cost of providing stand alone news on our WB stations in Philadelphia and San Diego, while still continuing to provide a quality 10 p.m. newscast to these markets. In Portland, we partnered with Belo to launch a new prime newscast on our WB station. In addition, we’ll be expanding our Indianapolis Fox prime time news to 1 hour in the 1st quarter. Over the past year, we have expanded our local news offerings by 30 hours and now provide a total of 240 hours of local news to the communities we serve.

First run product such as news is critical in an increasingly fragmented TV landscape. Live sports programming is also a valuable component of program schedules in many of our markets. In New York, we’ve recently reached agreement to continue as the over-the-air broadcast partner with the Mets. WPIX will telecast 25 Mets’ games in each of the next 3 years. In Los Angeles, we’re the over the air home for the Clippers, who are off to their best start in franchise history. In St. Louis, KPLR is the flagship home of the Cardinals.

And in Chicago, of course, we are the broadcast home to our very own Cubs, the Bulls, and the World Champion White Sox.

And speaking of sports, our ownership of the Cubs pays dividends beyond our local Chicago TV and radio stations. Cubs’ telecasts are an important part of Superstation WGN’s schedule. WGN is now reaching almost 70 million homes.

The Cubs also enabled us to negotiate an ownership position in Comcast SportsNet Chicago, which is now entering its second year. Tribune owns 25 percent, so we share in the channel’s profits while also receiving rights fees for the 72 Cubs games that air each season on regional cable. This partnership is profitable and ahead of plan.

In order to maximize cash flow, we’re emphasizing innovation, economies of scale and tight cost controls.

An example of these initiatives is our regional operating center in Seattle. We have already realized the backroom efficiencies of operating the Fox and WB duopoly in that market. Now, Seattle is also the hub for engineering, sales support, and accounting for our WB affiliate in Portland. Through this and other initiatives, we will have reduced full time headcount by 3 percent since 2004.

So as we begin 2006, Tribune Broadcasting is well-positioned on the cost side and we will continue to be vigilant.

On the revenue side, political spending should tighten inventory and provide some indirect benefit to our stations.

We’re also ramping-up our web sales efforts to transform our station websites into revenue generating assets. Our new agreement with streaming video provider World Now is helping in this regard and we are off to a great start.

We’re looking for a rebound in key categories. Movies, for example, are up 9 percent in 4th quarter. We expect that trend to continue after a tough year for the movie industry. Telecom activity should pick-up with SBC re-branding itself as AT&T. And, the automotive category is expected to stabilize as the Big 3 fight for market share with the imports.

Clearly, our goal is to improve our performance in 2006. With some help from our local markets, we’re optimistic we can achieve that.

With that, I’ll turn things over to Scott.

Scott Smith, President/Tribune Publishing

Good morning. Let me start with some comments on 2005 publishing group performance which I’d rate overall as very mixed.

The Chicago Tribune, our Florida papers and smaller dailies have performed well despite tough industry economics. Our interactive growth has been excellent. But rebuilding revenues at Newsday and the Los Angeles Times is taking longer than we planned, and Hurricane Wilma in South Florida has impacted November and December results.

So we now expect to finish the year with total revenue of about $4.1 billion. Ad revenue will be up slightly and circulation revenue down about 7 percent but improving. Cash operating expenses before 4th quarter charges will be flat with 2004, with cost savings fully offsetting the impact of higher newsprint prices, benefits and other inflationary increases. So in a tough year overall, operating cash flow will still be about $1 billion, down a few percent from 2004.

The ad environment has been choppy throughout 2005, but particularly so the last few months. Ad revenues through two weeks of period 12 remain soft overall with declines in the retail, automotive, and telecom categories - all undergoing structural changes of their own. Financial, real estate and recruitment continue to show healthy growth.

We also estimate that impact of Hurricane Wilma will cost us about $8 million of operating cash flow in the 4th quarter between lower revenues and one time expenses at the Sun-Sentinel.

But challenging times like these bring out the very best in our people. We are committed to leading the aggressive changes required to best serve our customers and communities, and to deliver better financial results. Let me recap our priorities and how we expect to improve.

Our first priority is to grow responsive readership. We are rejuvenating the broad, engaged reach of our newspapers and aggressively extending that reach online. After large circulation declines in the first half of the year, individually paid copies, that have the most value to readers and advertisers, were down only 2 percent in the third quarter. Fourth quarter trends are similar daily and better on Sunday.

In 2006, we expect individually paid circulation to be stable as we continue to manage down other paid copies in the hotel, third party sponsor and NIE categories that have less value to advertisers. We also expect circulation revenue in 2006 to be very close to this year’s level.

Our actions to improve subscriber retention significantly reduced churn, particularly in Los Angeles, but in other markets as well.

The Chicago Tribune’s "Subscriber Advantage" program now has over 100,000 members with greater retention and online usage.

We’ve made editorial content more accessible, engaging and distinctive. An example is the Sun-Sentinel which completely revamped its front page news and digest approach, and showed significant readership growth in the latest Scarborough results. Our papers be make more innovative, reader driven in 2006, with changes emphasizing their most differentiated and popular content, while scaling back on commodity information like stock tables and feature areas with lower readership.

As Dennis highlighted, we are also expanding key initiatives to grow ad revenue and share. Let me mention just two more examples.

Here’s an eight page American Express road block that ran last week in the business sections of the LA Times and the Tribune -- one of many recent innovative ROP ad sales, utilizing our expanded color capacity. And we’ve got much more color coming on stream in Chicago and South Florida next year to sell at premium rates.

We’re expanding preprint choices in a number of markets including creating distinct home delivery and single copy zones in Chicago and adding an improved TMC wrap branded Shop Local. We’ve also improved preprint distribution at Newsday and are committed to winning back food and drug business from a former sales agent. As reported last spring, we terminated that agent due to unethical conduct discovered in our Newsday investigation.

In total, preprints will be close to a $700 million dollar business next year, and we also have a rapidly growing solo mail business that generates more than $40 million in revenue from national customers like Walgreens.

With the plans and key sales people now in place, we are confident our ad revenue performance will improve in 2006.

We are also more focused than ever on deploying resources to create the most value. Aggressive actions taken across the group will yield over $150 million in cost savings next year, more than offsetting somewhat higher newsprint prices and other cost escalations. At the same time, we are reinvesting a portion of these savings in interactive and targeted print initiatives to fuel future growth. The net result on a 52 week basis will be no increase in cash operating expenses for the coming year.

Our full-time equivalent employees in 2006 will be down about 800 or 4 percent as a result of the recent reductions in force. And that’s on top of a 4 percent FTE reduction this year, taking customer focus and productivity across all our functional areas to all time highs.

In addition, Newsday management is engaged in early negotiations with six collective bargaining units, representing about 1,600 employees. These ten year old contracts expire between February and June. Newsday is committed to settlements that reflect today’s intensively competitive media marketplace. We intend to achieve substantial operational savings to more efficiently serve Long Island.

Moving to newsprint, we intend to offset higher paper prices with lower consumption. Each newspaper has evaluated its content offerings based on reader and advertiser demand and is scaling back on low value sections and pages. The reduction in other paid circulation with limited value will yield significant newsprint savings as well.

Other cash expense savings are also being realized through distribution efficiencies and economies of scale across the group.

Looking forward, we are pursuing a number of additional innovative approaches to better serve our customers, streamline work flow and align resources with the ways we create differentiated and lasting value.

With those highlights on our plans, let me turn it back to Dennis.

Dennis FitzSimons

Before we go to Q and A, let me cover a couple of points.

We’ll continue to be guided by what’s important -- as defined by readers and advertisers -- and we’ll re-engineer our cost structure to relentlessly weed out what is not important to readers and advertisers.

We’ll look to take acceptable risks in higher growth area -- particularly in the Internet -- related to our core franchises.

We’ll prune and re-adjust our portfolio of investments. As we said on our third-quarter earnings call, we’re always examining our portfolio of non-core assets, looking for ways to improve shareholder value and making sure we have the right mix of assets.

And we’ll return capital to shareholders via share buybacks and dividends. Earlier this year we increased our dividend by 50 percent, and year to date we’ve repurchased more than 12 million shares of our stock.

Now, before taking your questions, let anticipate some of them by turning to Don Grenesko for some financial information. Don?

Don Grenesko, Sr. Vice-President/Finance and Administration

Thanks, Dennis. Let me cover a few items related to 2005 and 2006.

First, as Dennis and Scott mentioned, we have taken a number of actions to significantly reduce our cost structure going forward which will require special charges in the fourth quarter.

We are reducing staffing by about 900 positions company-wide which will result in a severance charge of $40-$45 million.

In addition, closing the L.A. Times production facility will require a non-cash charge of $50-$60 million.

Importantly, we’ll realize annual savings of $55-$60 million beginning in 2006, which will provide a nine-month payback of the cash expenses associated with these actions.

Turning to 2006, we’ll have a 53rd week, which adds about 1.5 percent to growth rates. CapEx will be flat with 2005 at about $220 million. Our debt at the end of this year will be about $2.8 billion, excluding the PHONES. And we expect our debt at the end of next year to be about flat with that level. Interest expense will be up about $40 million next year due to both higher borrowings and higher rates. And the effective tax rate will be a little above 39 percent next year.

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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.