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Transcript

First Quarter 2002 Earnings
Conference Call
April 19, 2002

Ruthellyn Musil, VP/Corporate Relations
Good morning, and welcome to our conference call to discuss 2002's first quarter results. We are also pleased to discuss our acquisition of the Indianapolis station from Sinclair. We'll start with some brief remarks from Dennis FitzSimons, president and COO and Don Grenesko, our chief financial officer and then take your questions.

As you saw in our press release, Tribune reported diluted earnings-per-share of $.32, before restructuring charges and non-operating items. This is three cents ahead of First Call's consensus estimate.

The $.32 is even with last year's first quarter on a pro forma basis, which has been adjusted to reflect the new accounting rules for goodwill. In today's release, you'll see an additional column with pro forma results for 2001.

First quarter 2001 pro forma diluted EPS is $.13 higher than the previously reported actual results due to the impact of applying these new rules. A copy of the full year schedules is available on our website at tribune.com.

Before turning the call over to Don, I want to remind you that our discussion may include forward-looking statements which are subject to risks and uncertainties that we discuss in greater detail in our SEC filings. Future results could vary materially.

Now, here's Don.

Don Grenesko, VP/Finance & Administration
2002 is off to a good start. Our first quarter EPS of $.32 was equal to 2001 pro forma earnings. These solid results reflect the cost control initiatives that we put in place last year, mostly offsetting a 5 percent decline in consolidated revenues. Consolidated cash expenses were down 5 percent and our operating cash flow margin improved over last year.

We continue to generate strong cash flow: $307 million in EBITDA in the first quarter. And for the full year it will be over $1.3 billion, with Free Cash in the range of nearly $600 million.

In publishing, we saw margin improvement despite a 6% decline in revenue. Cash expenses were down 7%, driven by a 26% decline in newsprint. Compensation and other cash costs were both down about 3%.

Television revenues declined due to the absence of copyright royalties and lower cable ad revenues. At the Fox and WB stations, Television revenues were down just 1 percent.

Excluding acquisitions, Television cash expenses increased 4 percent.

• Programming costs were up 10 percent due to increased amortization related to the Fall 2001 launch of "Everybody Loves Raymond."
  
• Other cash expenses were down 2 percent from last year, including a 5 percent reduction in compensation.

Tribune Interactive cash flow losses were less than $1 million, down from about $7 million last year, due to higher revenues and lower expenses.

Corporate expenses were down 34% due to salary cuts, staff reductions and lower bonus accruals.

Because of the strong cost controls, consolidated operating profit decreased just 3% on a proforma basis before restructuring charges. Restructuring charges amounted to about $27 million, or $.05/share.

• The majority of this charge was recorded in Publishing and relates primarily to FTE reductions completed in the first quarter.
  
• Full year savings are projected at about $20 million and should be fully reflected in our financials by the third quarter.
  
• As we noted in the press release, no further restructuring charges are anticipated in 2002.

Moving to other key line items:

• Equity losses in the first quarter were slightly higher than planned as we booked our share of one-time restructuring charges related to CareerBuilder staff reductions and asset write downs. The rest of the losses are for normal operating results at CareerBuilder, The WB Network, BrassRing and Classified Ventures.
  
• Net interest expense decreased by $9.5 million as we benefited from lower commercial paper rates-we are paying about 1.8% on $700 M of CP. In addition, our first quarter debt level has come down to $3.2 billion, and we expect to reduce that further to the $3 billion level by the end of the year.
  

In terms of earnings guidance for the rest of the year, we are comfortable at the higher end of the range of analyst estimates for both the second quarter and the full year.

Before turning things over to Dennis, I want to comment briefly on our tax issue that has been covered in the press the last few days.

• I know most of you are aware that we inherited a tax issue from Times Mirror, involving the disposition of its Matthew Bender and Mosby subsidiaries in separate tax-free reorganizations in 1998.
  
• Information regarding this issue was contained in our 10Ks for each of the last two years. And prior to that, Times-Mirror included information on the issue in its 10Ks for 1998 and 1999.
  
• We believe the transactions qualify as tax-free reorganizations and Times Mirror received an outside legal opinion supporting this conclusion. We are discussing this issue with the IRS and intend to vigorously defend our position.

Now, here's Dennis.

Dennis FitzSimons, President and Chief Operating Officer
Good morning everyone.

I hope you saw our other release this morning, announcing that we've agreed to acquire the assets of WTTV-TV (WB4), Indianapolis from Sinclair Broadcasting for $125 million in cash. It's in line with our goal of being a consolidator in television.

The transaction is structured as an asset exchange, and will be funded by a portion of the proceeds from the sale of our three Tribune Denver radio stations to Entercom. As you know, Entercom is already managing those stations.

• We are exiting Denver radio at a premium cash flow multiple about 17X and are acquiring an strong VHF station the excellent Midwest market of Indianapolis.
  
• By creating a duopoly in Indianapolis we have immediate opportunities to reduce costs and improve revenue, which makes the purchase price, with synergies of about 11X cash flow, which is very attractive in today's environment.

We feel there are some great opportunities for us in Indianapolis.

• First, by creating this duopoly, Tribune will generate the largest share of broadcasting revenue in the market - the combination with our Fox affiliate creates upside for both our stations.
• We will co-locate the stations in one facility;
• We will generate programming expense savings through Tribune's group buying power because Fox and WB stations have compatible demos for cross promotion.
  
• There is also a benefit in licensing programming through market licenses because we can air programming on both stations.
  
• We expect $5M in additional cash flow benefit from the duopoly with the first twelve months.
  
• Finally, we expect the deal to close late in the third quarter or early in the fourth quarter.

Now, let's get back to first quarter results - where the real story is cost control:

• The effects of our cost reductions are now evident in margin improvement.
  
• Operating cash flow margins in the first quarter were up just over 1 percentage point in the publishing group.
  
• The best results came from the LA Times, which saw first quarter margins improve 3 percentage points over last year's the first quarter.
  
• Four other newspapers registered margins gains.
  
• This margin improvement is significant because we continue to devote more resources to serving our readers. This commitment to journalistic excellence is evidenced by the 83 Pulitzer Prizes our newspapers have won over the years - and earlier this month, the number climbed to 86 as the LA Times and Newsday won a total of 3 Pulitzers.

Now for an update on some other important areas:

• First, we continue to make great strides on our recruitment strategy because of our ability to offer advertisers an integrated print and online solution.
• The new management team at CareerBuilder led by Bob Montgomery, the former CEO of HeadHunter, is off to a fast start. They quickly reduced the staff and now have a leaner, more efficient, more sales oriented operation.
• In addition, CareerBuilder Network revenues-the combined results of CareerBuilder's, Tribune's and Knight Ridder's online recruitment business-- were up 10 percent over last year's fourth quarter.
  

Moving to Tribune Media Net, that sales group continues to make great progress. So far this year, TMN has generated $19 million in incremental revenue for the year 2002, compared to $9 million in the same period last year.

• We had many deals that TMN closed in the first quarter but there were two significant deals in the first quarter - first our cross media share deal with General Motors that is benefiting both our TV stations and our newspapers.
  
• Building on our GM momentum, we created a top three newspaper program for Target-- one of the nation's top retailers-that rewards their growth in spending and is generating growth for us.
  
• The agreement increases Target's presence in each of those markets through innovative advertising and marketing programs at Newsday, the LA Times and the Chicago Tribune.

Finally, let's talk briefly about second quarter trends. April is off to a strong start in our newspapers, driven in part by the timing of the Easter holiday. We expect to see continued sequential improvement in the second quarter, as business gets better and comparisons ease.

In television we are also seeing better trends due to tightening inventory and easier comps. Second quarter pacing are up in the low single digits and would be even better were it not for the absence of LA Dodgers baseball on KTLA. There we are loosing both the revenue and the rights fees.

We are encouraged by results so far, and are hopeful that business will continue to get stronger as the year progresses.

On that note, let's go to questions...

James Riepe - Credit Suisse First Boston
Q-If you were to have to pay the back taxes - what would the payment schedule be and how it would work out?
A-Could be an upfront payment or spread out over the years - would have to be negotiated.

Q-Comment on the margin improvements at the LA Times - what are the forward trends and what is the upside going into an ad recovery?
A-LA has seen improvement in all areas, particularly in compensation. In 2001, they took out 500 employees, the VRP had another few hundred employees, they outsourced 1000 employees. In addition, there were employees terminated. We are seeing improvement in all areas and we expect that margin improvement to continue. As revenues improve it will drop right to the bottom line.

Peter Appert - Deutsche Banc Alex. Brown
Q-The range of est. you are comfortable with - please confirm range for Q2 and the full year.
A-Upper end of range is at $.44 for Q2 and for the full y ear is $1.53 and $1.58.

Q-Revenue trends in newspapers.
A-Retail is flat, as furniture, hardware and home improvement are on the up side. National is up in the high single digits helped by entertainment and hi-tech. Classified overall is up in the high single digit area as auto and real estate continue to perform well for us. Help wanted continues to be down but not at the levels we saw in the prior months. We are still trying to sort out the Easter situation to see how it impacts all of these numbers.

Lauren Fine - Merrill Lynch
Q-Are you comfortable with the upper end of the range.
A-Yes, our guidance was the 'upper end of the range of estimates for the second quarter and the full year.

Q-Are the April trends up from year-over-year comparisons?
A-Yes.

Q-Has the newspaper/TV cross ownership delay poised any issues for you. Are you still focused on TV acquisitions over newspapers? What are the cost opportunities from cross-ownership?
A-We expect the rule to be addressed by the end of the year, as Chairman Powell said at NAB it will after the elections - may leak into 2003. The delay does not affect any our opportunities. We don't have any issues with our TV licenses in markets where we have new newspapers, as the licenses are not up until 2006. Our primarily focus is expanding our TV footprint in the top 30 to 40 markets and to double up where we can - Indianapolis is a great example of that. As far as the cost savings opportunities from cross-ownership, they relate mostly to cross-promotion as opposed to newsgathering. Newsgathering is adding depth to our TV stations through the large journalism base we have at our newspapers.

Lee Westerfield - UBS Warburg
Q-Please comment on the economics of the duopoly position in Indianapolis -- you paid an 11X multiple. How much comes from cost savings vs. the young demo lock-up you will have in that market.
A-The most significant savings come on the cost side. Co-location and programming expenses are the majority. When you take the fact that both of these stations have gone after the same programs as both go after young skewing sitcoms - that is the biggest source of savings. We have more strength in the major markets, whereas Sinclair has strength in the smaller and mid-sized markets. So we will be able to negotiate market licenses so we can use programming on both stations. There are some marketing benefits due to our strong position with young demos.

Q-Why such a long time for approval?
A-Not sure what is causing the backlog at the FCC; may be in late 3rd or 4th quarter.

Steven Barlow - Prudential Securities
Q-Pension comparisons on '01 to '02.
A-Pension credit will decline from $80 to $50 this year reflecting the investment performance of the portfolio over the last two years and we have reduced the investment assumptions going forward as we are taking a more conservative outlook. We have not had to make any cash contributions to our non-union employee pension plans.

Q-Other costs in broadcasting were down 2 percent - please clarify - what else is going up if compensation is going down 5 percent?
A-Music license fees, digital upgrades, contractual increases with Nielsen, rent and a non-recurring gain for the disposition of an asset. The reason why the total broadcasting numbers don't look great is because we use accelerated amortization for shows like "Everybody Loves Raymond" that premiered in the Fall of '01. The good news is they are doing very well in terms of ratings. The bad news is the factor is heavier early on. We will cycle through it in September '02.. The ratings for "Raymond" are excellent.

Q-What is the share of ad dollars you will have in Indy now with the two stations?
A-Slightly under 30% market share.

Douglas Arthur - Morgan Stanley
Q-Newspaper ad trends in April? Will classified be up in April?
A-It is up through the first two weeks but we are cautious because of the Easter affect. The best way is to combine March and April for year-over-year comparisons.

Q-Could you differentiate the momentum you are seeing at each of your papers?
A-New York is looking the best - CHI and LA are looking good but not as good.

Q-Could you update equity guidance for the full year?
A-With the inclusion of the equity losses of CB, which are $7.5M will be in the mid 40s for the year.

Kevin Gruneich - Bear Stearns
Q-Specify the revenue change at LA Times in Q1?
A-In Q1 total ad revenue was down 7 percent-total revenue was down 4% as they some gains from home delivery and single copy increases in circulation revenue.

Q-Guidance before you said that corporate expense would be down 12% for the year? Any guidance changes for Tribune Interactive?
A-Corporate expenses were down significantly in Q1 but that will not be sustainable for the whole year because we had some accrued bonuses in Q1. Should be down in the low double digits. We have not changed our guidance, we still expect Ttribune Interactive to be cash flow positive by the end of the year.

Mandana Hormozi - Lazard Fréres
Q-Will you see any benefit from political advertising in the fall?
A-We benefit indirectly because political advertising tightens the market. We will see some benefit in our larger markets, like NY, CHI and LA where we have news.

Barton Crockett - J.P. Morgan Chase
Q-Focused on the help wanted trends - for the balance of the year - could help wanted be up in the 2nd half of the year.
A-The correlation is really between job creation and the help wanted linage on a market by market basis. We are seeing positive trends in that we are seeing lesser year-over-year declines and that should continue. It is a familiar pattern and that should continue as comparisons get easier.

Q-Based on the linage you have now, if you just maintained that for the rest of the year, would your revenues be up in the second half?
A-Haven't analyzed that.

Q-Debt ratings -could you give us your sense of one notch decline in your ratings what would be the impact?
A-If we were to be downgraded it would increase our commercial paper cost by 25 to 50 basis points and our long term rates would go up somewhat -not terribly dramatic but some increase in interest rates?

Q-Preprint update?
A-The LA facility is functional and the CHI daily facility has been functional for sometime. There are 2 projects in LA: the daily and the Sunday insertion. The daily started up in Jan '02 and the Sunday will be up in the 3rd quarter. CHI's new Sunday insertion won't go online until the 4th quarter. LA has been able to pull away $4M of revenue from Advo - will appear throughout the year. It is a great success.

William Bird - Salomon Smith Barney
Q-How is CareerBuilder traction?
A-Traction is very good. Revenue is up 10% from 4th quarter. This compares favorably with both HotJobs and Monster.

Q-How does Tribune Media Net measure incremental revenue?
A-We put a filter on what is actually incremental we are not looking to dilute ourselves. Deals that would not have happened except for the expanded sales force of TMN - cross media sales and newspaper package deals.

Michael Kupinski - A.G. Edwards
Q-When will you cycle through the headcount reduction in newspapers?
A-Most in the 4th quarter but some in next year.

Q-Are the improvements coming from the larger markets and is it national or local?
A-National is somewhat better than local. We see an opportunity in cable marketplace - we see better improvement there in the 2nd and 3rd quarter because of the network tightening market. Yes, there is better growth from the large markets.

Lee Westerfield - UBS Warburg
Q-Could you clarify where the revenue increases in circulation at the LA Times are coming from?
A-Revenue gains in circulation are due to both home delivery and single copy increases.

Jim Goss - Barrington Research
Q-On the newspaper side, what might the other expenses look like for the rest of the quarters if newsprint stays flat?
A-We started to see newsprint reduction in the 3rd quarter of last year - so the comparisons begin to decline as we make the comparisons with the 3rd and 4th quarter of last year.

Q-How quickly does amortization carry out?
A-"Everybody Loves Raymond" takes a year to cycle through - we use a 160% declining balance method and we are double running the show so it is two runs per day on the accelerated table. The other thing that is bringing it down is the Dodger's rights which we will not have in the 2nd and 3rd quarters.

Kelly Mulvey - Lehman Brothers
Q-What are you expectations for the WB Upfront?
A-Hard to answer, there is a limited amount of inventory in the attractive demo of the younger demographics that the WB is in which has enabled the WB to push pricing. The WB was the only network that was up last year. But I can't quantify the amount.

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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.